Case Law Details
Pramod Reddy Tekula Vs DCIT (ITAT Hyderabad)
No Penalty on Capital Gains from JDA: ITAT Says Debatable Issue Cannot Trigger Concealment Penalty
The Hyderabad ITAT deleted the penalty levied under section 271(1)(c) on capital gains arising from a development agreement-cum-GPA, holding that the issue of taxability of capital gains in such transactions was highly debatable during the relevant period. The Tribunal observed that merely because the quantum addition was ultimately sustained does not automatically mean that the assessee had concealed income or furnished inaccurate particulars.
The assessee had not offered short-term capital gains arising from a development agreement, contending that transfer under section 2(47)(v) read with section 53A of the Transfer of Property Act had not taken place during the relevant year. Although the addition was eventually confirmed in quantum proceedings, the Tribunal noted that there were divergent judicial views on the year in which capital gains from development agreements become taxable.
The Tribunal referred to the decisions in Potla Nageswara Rao and Shantha Vidyasagar Annam, observing that determination of the year of taxability in development agreement cases depends upon various factors such as possession, consideration, and performance of contractual obligations. Given the prevailing legal uncertainty at the relevant time, the assessee’s stand could not be treated as a deliberate attempt to conceal income.
Accordingly, the ITAT held that the dispute was one of interpretation of law on a debatable issue, and therefore the penalty levied solely because the addition was confirmed in appeal was unsustainable. The penalty was directed to be deleted.
FULL TEXT OF THE ORDER OF ITAT HYDERBAD
This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax (Appeals), Hyderabad-11, dated 11.10.2025, and pertains to assessment year 2016-17.
2. The brief facts of the case are that the assessee is an individual has filed return of income (RoI) for AY 2016-17 on 01.10.2016 admitting total income of Rs.3,22,910/-. A search and seizure operation u/s.132 of the Income Tax Act, 1961 (in short “the Act“) was conducted in the case of M/s. Giridhari Constructions Group on 26.04.2018. During the course of search operation, certain loose-sheets were found and seized in the residential premises of Sri Allam Raja Reddy, which includes a General Power of Attorney (GPA) executed on 27.06.2015 among the assessees along with four others and developers for a total consideration of Rs.6,48,08,000/-. Consequent to search, the assessement has been completed u/s.143(3) r.w.s.153C of the Act on 30.04.2021 and made addition of Rs.32,14,976/- towards ‘Shrot Term Capital Gains’ (STCG) derived from transfer of property in pursuant to development agreement. Accordingly, a show cause notice u/s.274 r.w.s.271(1)(c) of the Act dated 30.04.2021 was issued for levy penalty for concealment of particulars of income u/s.271(1)(c) of the Act. Aggrieved by the assessement order, the assessee preferred an appeal before the Ld.CIT(A) and the additions made by the AO has been confirmed by the order of the Ld.CIT(A). The assessee preferred further appeal before the Tribunal and the ITAT, Hyderabad ‘A’ Bench in ITA No.611/Hyd/2022 order dated 22.10.2024 confirmed the additions made by the AO towards STCG derived from transfer of property in pursuant to development agreement.
3. During penalty proceedings, a show cause notice dated 15.06.2025 was issued to the assessee and called upon the assessee to explain ‘as to why’ penalty should not be levied for concealment of particulars of income. In response, the assessee has filed submissions and argued that he has not concealed particulars of income in respect of STCG computed by the AO, because, the transfer as defined u/s.2(47)(v) r.w.s.53A of the Transfer Pricing Act, 1882 was not completed during the financial year relevant to AY 2016-17. Further, because, although the assessee had entered into development agreement, but the Hyderabad Metropolitan Development Authority (HMDA) issued permission for construction of building on 05.01.2021 i.e. in the FY 2020-21 relevant to AY 2021-22 and therefore, the assessee not offered capital gains for AY 2016-17. Further, merely for the reasons of addition to capital gains, it can’t be said that the assessee concealed particulars of income. The AO after considering the relevant submissions of the assessee observed that the additions made towards capital gains of Rs.32,14,976/- has been finally confirmed by the Tribunal and from the above, it is clear that the assessee concealed particulars of income which attracts penalty u/s.271(1)(c) of the Act. Therefore, levied penalty of Rs.9,05,448/- u/s.271(1)(c) of the Act which is equivalent to 100% of tax said to be evaded.
4. Aggrieved by the penalty order, the assessee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee reiterated its submissions before the AO and argued that STCG derived from transfer of property in pursuant to development agreement is a debatable issue and there are divergent decisions on this issue and because of which, the assessee has not declared any capital gains for the year under consideration. However, the assessee has explained the reasons to the satisfaction of the AO and therefore, the question of levy of penalty u/s.271(1)(c) of the Act doesn’t arise.
5. The Ld.CIT(A) after considering the relevant submissions of the assessee and also taken note of the order passed by the ITAT in ITA No.611/Hyd/2022 observed that the ITAT after examining the facts of the case and submissions made by the assessee held that there is a transfer as defined u/s.2(47) r.w.s.53A of the Transfer of Property Act, because as per the development agreement, the assessee has handed over the possession to the developer at the time of development agreement-cum-GPA. Therefore, the transfer as defined u/s.2(47) of the Act took place and the assessee has not declared the capital gains in the RoI filed for the year under consideration including return filed in response to notice issued u/s.153C of the Act. Therefore, by taking relevant facts upheld the penalty levied u/s.271(1)(c) of the Act.
6. Aggrieved by the order of the Ld.CIT(A), the assessee is now in appeal before this Tribunal.
7. The Ld. Counsel for the assessee, Mr.Mohd Afzal, submitted that although the additions made by the AO towards capital gains forRs.32,14,976/- has been finally confirmed by the Tribunal, but fact remains that mere confirmation of addition in quantum proceedings is not sufficient to hold that the assessee has concealed income. The Ld. Counsel for the assessee further submitted that, no doubt assessee has not declared capital gains in respect of transfer of property in pursuant to development agreement-cum-GPA. However, fact remains that due to divergent views expressed by various Courts including jurisdictional High Court of Andhra Pradesh & Telangana in the case of Potla Nageswara Rao [in ITTA No.245 of 2014 dated 09.04.2014] and also the decision of the Hon’ble Telangana High Court in the case of Smt. Shantha Vidyasagar Annam reported in 2025 Latest Caselaw 868 Tel, the issue is highly debatable and due to this, the assessee has not offered any capital gains in the RoI. However, the same can’t be considered as concealment of income for levy of penalty u/s.271(1)(c) of the Act. Therefore, he submitted that penalty levied by the AO should be deleted.
8. The Ld.SR-AR for Revenue, on the other hand, supporting the order of the Ld.CIT(A) submitted that the entire transaction of transfer of property was not disclosed in the RoI filed by the assessee unless the search was taken place, the income pertains to capital gains was unnoticed. Further, the additions made by the AO has been finally upheld by the Tribunal after considering relevant explanation of the assessee including the decision of the Hon’ble Supreme Court in the case of Seshasayee Steels (P) Lted v. ACIT reported in 421 ITR 0046 (2020) and the decision of the Hon’ble Jurisdictional High Court in the case of Smt. Shantha Vidyasagar Annam (supra). Therefore, it can’t be said that it is not a case of concealment of income. The AO after considering relevant facts has rightly levied penalty and the Ld.CIT(A) after considering relevant facts and also by following the decision of the ITAT Hyderabad Benches, rightly upheld the penalty levied u/s.271(1)(c) of the Act. Therefore, she submitted that the order of the Ld.CIT(A) should be upheld.
9. We have heard both the parties, perused the materials available on record and had gone through orders of the authorities below. We have also carefully gone through the relevant orders passed by the Tribunal in quantum proceedings while upholding the addition made towards capital gains in respect of transfer of property in pursuant to development agreement. There is no dispute with regard to the fact that the ITAT Hyderabad Benches confirmed the addition made towards STCGs by following the decision of the Hon’ble Supreme Court in the case of CIT v. Balbir Singh Maini reported in [2018] 12 SCC 354 and also the decision of jurisdictional High Court in the case of Potla Nageswara Rao (supra) and held that once development agreement has been registered and possession has been handed over to the developer, the ingredients of transfer defined u/s.2(47) r.w.s.53A of the Transfer of Property Act are satisfied and the assessee is liable to compute capital gains in pursuant to development agreement. The AO on the basis of the decision of ITAT Hyderabad Bench and the jurisdictional High Court of Andhra Pradesh & Telangana in the case of Potla Nageswara Rao (supra) held that, the assessee has concealed particulars of income in respect of capital gains derived from transfer of property in pursuant to development agreement and levied penalty u/s.271(1)(c) of the Act. Therefore, it is necessary for us to examine levy of penalty in light of above facts and arguments advanced by the Counsel for the assessee and the Ld. Sr.AR for the Revenue.
10. Admittedly, the issue of computation of capital gains in pursuant to development agreement is highly debatable at relevant point of time going by divergent views expressed by various Courts including the jurisdictional High Court of Andhra Pradesh & Telangana. The Hon’ble AP High Court in the case of Potla Nageswara Rao (supra) has held that the year of computation of capital gains is year of execution of development agreement coupled with consideration received for said agreement and physical possession of the property. However, in the subsequent decisions, the Hon’ble High Court in the case of Smt. Shantha Vidyasagar Annam (supra) by taking note of the earlier decision in the case of Potla Nageswara Rao very clearly held that in order to satisfy the conditions specified u/s.2(47) r.w.s.53A of the Transfer of Property Act, there should be a real transfer of property coupled with consideration and physical possession and the same should be ascertainable from facts of each case depending upon terms and conditions and other parameters required for verifying whether transfer has been taken place or not. From the above, it is clear that at the relevant point of time, when the assessee has furnished RoI for the year under consideration there was no clarity with regard to assessement of capital gains in pursuant to development agreement i.e. whether it is on the date of development agreement or on the date when the developer has performed his part of duties or at the time of completion of construction and handed over possession of completed building to the land owner. Therefore, in our considered view going by the legal position prevailing at that point of time on the basis of various judicial precedents, in the present case, it can’t be said that the assessee has concealed particulars income in respect of development agreement for the year under consideration. Since, the issue is highly debatable at the relevant point of time, in our considered view, merely for the reason of addition confirmed by the Tribunal, penalty u/s.271(1)(c) of the Act can’t be levied. The AO without appreciating relevant facts, simply levied penalty u/s.271(1)(c) of the Act. The Ld.CIT(A) without appreciating relevant facts sustained the penalty levied by the AO. Therefore, we set aside the order of the Ld.CIT(A) and direct the AO to delete the penalty levied u/s.271(1)(c) of the Act.
11. In the result, appeal filed by the assessee is allowed.
Order pronounced on the 12th day of June, 2026, in Hyderabad.
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