LTCG on Flats Received Under JVA Taxable in Year of Sale: ITAT Pune

ITAT Pune: Long-term capital gains on flats received under the JVA are chargeable to tax in the year of their sale

The Income Tax Appellate Tribunal, Pune in Popatrao Dashrathrao Suryawanshi Vs ITO dealt with a dispute concerning denial of deduction under section 54B arising from a joint development arrangement. The Tribunal held that execution of a registered Joint Venture Agreement in January 2011, coupled with delivery of possession, constituted transfer of the land and conversion into stock-in-trade in FY 2010–11. Since the assessee purchased agricultural land only in March 2017, well beyond the two-year limit from the date of transfer, deduction under section 54B was rightly disallowed. The Tribunal further held that neither section 54B nor section 54F relief was available. However, it accepted that capital gains were taxable in AY 2017–18 on sale of flats received as consideration, with the market value of such flats (on receipt) treated as cost of acquisition. Relying on settled law, the Tribunal held that appellate authorities can entertain revised or alternate claims to determine correct tax liability and restored the matter to the AO for recomputation. The appeal was allowed for statistical purposes.

Facts:

• The appeal arises out of the order dated 08.12.2023 passed by the Ld. CIT(A) / NFAC, Delhi, pertaining to the Assessment Year 2017–18. The assessee, Popatrao Dashrathrao Suryawanshi, filed his return of income on 31.10.2017 declaring a total income of Rs.3,86,340/-. The case was selected for scrutiny under CASS and statutory notices u/ss 143(2) and 142(1) of the Income Tax Act, 1961 were duly issued and served.
• The AO noted that the assessee had entered into a registered Joint Venture Agreement dated 20.01.2011 with M/s Nandan Buildcon Pvt. Ltd., under which the developer was to construct residential houses on the assessee’s land, and the assessee was entitled to receive 34% of the constructed area. The agreement indicated that the land was transferred for development purposes. The assessee had treated the land as having been converted into stock-in-trade and had offered income in accordance with section 45(2) of the Act, indicating capital asset stood transferred and converted into stock-in-trade in the financial year 2010–11 itself.
• The assessee claimed deduction of Rs.2,89,64,823/- u/s 54B of the Act by treating the date of transfer of the original asset as 01.04.2016. The assessee, however, did not furnish any explanation or documentary evidence justifying the adoption of 01.04.2016 as the date of transfer when, as per the registered Joint Venture Agreement dated 20.01.2011, the land had already been transferred and converted into stock-in-trade. It was further noticed that in the Assessment Year 2014–15, the assessee had already claimed deduction u/s 54B amounting to Rs.1,05,92,146/- on capital gains arising from the transfer of the same land.
• The assessee claimed exemption u/s 54B on account of purchase of agricultural land and on verification, the sale deed revealed that the agricultural land was purchased on 23.03.2017, which was beyond the prescribed period of two years from the date of transfer of the original asset, as mandated u/s 54B of the Act. A show cause notice was issued proposing rejection of the deduction claimed u/s 54B.
• The AO, after considering the explanations furnished, held that the registered Joint Venture Agreement dated 20.01.2011 constituted transfer of the land, that the conversion into stock-in-trade had taken place in the financial year 2010–11, and that the purchase of agricultural land on 23.03.2017 was beyond the statutory time limit of two years from the date of transfer. On these findings, the claim of deduction u/s 54B amounting to Rs.2,89,64,823/- was disallowed.
• In appeal before the Ld. CIT(A) / NFAC, the assessee challenged the denial of deduction u/s 54B and, in the alternative, sought permission to file a revised computation withdrawing the capital gains income and claiming deduction u/s 54F of the Act, relying inter alia on the decision of the Hon’ble Bombay High Court in CIT v. Pruthvi Brokers & Shareholders, (349 ITR 336 (Bom)).
• The Ld. CIT(A) / NFAC upheld the action of the AO, holding that the transfer of the capital asset had taken place in the financial year 2010–11, that the assessee had failed to purchase agricultural land within two years from the date of transfer as required u/s 54B, and that the attempt to revise the computation and shift the claim to section 54F was an afterthought to avoid capital gains tax. The CIT (A) also noted that the assessee had not offered capital gains in the year of transfer, i.e., Assessment Year 2011–12, and therefore, withdrawal of capital gains and fresh claims at the appellate stage were not permissible.
• Aggrieved thereby, the assessee carried the matter in appeal before the Income Tax Appellate Tribunal. The assessee made reference to the registered Joint Venture Agreement dated 20.01.2011 and the delivery of possession, contending that transfer had taken place within the meaning of section 2(47)(iv) and (v) of the Act, relying upon Chaturbhuj Dwarkadas Kapadia v. (CIT, 260 ITR 491 (Bom)) and CIT v. Balbir Singh Maini, (398 ITR 531 (SC)). Reliance was also placed on prior assessment orders wherein the AO had consistently treated 20.01.2011 as the date of transfer.
• Further submissions were advanced on the permissibility of raising new or alternate claims at the appellate stage, with reliance placed on Goetze (India) Ltd. v. CIT (284 ITR 323 (SC)), Balmukund Acharya v. (CIT, 310 ITR 310 (Bom)), Shri Devendra Pai v. ACIT, (439 ITR 532 (Kar)), National Thermal Power Co. Ltd. v. CIT, (229 ITR 383 (SC)), Jute Corporation of India Ltd. v. (CIT, 187 ITR 688 (SC)).
• The assessee also placed on record the occupancy certificate dated 23.12.2014 and a computation chart of capital gains arising from the sale of flats. The Revenue supported the orders of the lower authorities but expressed no objection to the matter being restored to the file of the AO for recomputation of correct tax liability on sale of flats in the impugned assessment year.

Issue:

1. Whether the assessee was entitled to deduction u/s 54B of the Act in respect of Rs.2,89,64,823/- in view of the date of transfer (20.01.2011) and purchase of agricultural land on 23.03.2017 beyond the statutory period.

2. Whether capital gains were liable to be taxed in Assessment Year 2017–18, considering that the transfer of land and conversion into stock-in-trade had occurred in FY 2010-11 under the Joint Venture Agreement.

3. Whether the assessee could withdraw the section 54B claim and raise a revised computation / alternate claim at the appellate stage.

Observations:

• The Hon’ble Tribunal observed that the assessee was admittedly not entitled to deduction either u/s 54B or u/s 54F of the Income Tax Act, 1961, and that the assessee was liable to capital gains tax on the income arising from the sale of flats during the impugned Assessment Year 2017–18. It accepted the position that once the registered Joint Venture Agreement dated 20.01.2011 had been executed, the transfer of the asset had taken place, and the assessee’s share of 34% of the constructed area constituted the capital asset in his hands.
• It was further observed that although no capital gains arose in AY 2011–12 on account of the land being agricultural land, when the flats were sold in the impugned year, the capital gains had to be computed by deducting the cost of acquisition from the sale price and only the resultant gain, if any, was liable to tax. The Hon’ble Tribunal relied upon CIT v. Pruthvi Brokers & Shareholders (Supra), to hold that an assessee is entitled to raise additional claims before the appellate authorities and that such authorities have the jurisdiction to entertain such claims.
• The Hon’ble Tribunal further relied on Goetze (India) Ltd. v. CIT (Supra), to clarify that the restriction on entertaining fresh claims applies to the AO and does not limit the powers of the appellate authorities u/s 254 of the Act. The Hon’ble Tribunal also placed reliance on Balmukund Acharya v. CIT (Supra), and Shri Devendra Pai v. ACIT (Supra), to observe that the tax authorities must not take advantage of the ignorance of the assessee and are duty-bound to ensure that only legitimate taxes due are collected. Further reliance was placed on CIT v. Bharat General Reinsurance Co. Ltd. (81 ITR 303 (Del)) to reiterate that the object of assessment proceedings is to assess the correct tax liability in accordance with law.
• The Hon’ble Tribunal recorded that the transfer of land had taken place on 20.01.2011 and that the flats were handed over to the assessee on 23.12.2014 as per the occupancy certificate. It observed that the market value of the assessee’s share in the flats constituted the cost of acquisition, and upon sale of the flats in Assessment Year 2017–18, the capital gains chargeable to tax would be the difference between the sale price and such cost of acquisition.
• Since the assessee had filed a revised computation for determination of the correct tax liability, the Hon’ble Tribunal, considering the totality of the facts and circumstances and the judicial precedents referred to, restored the matter to the file of the AO with a direction to verify the computation of long-term capital gains and determine the correct tax liability in accordance with law. The appeal was accordingly allowed for statistical purposes.