Tax not leviable on income that will accrue post transfer of development rights

ITO Vs Pacifica Developers Pvt Ltd (ITAT Ahemdabad)

ITAT Ahmedabad held that as the ownership of the land on which development rights were conferred remain vested with the landowners hence the assessee did not get the right over the income as per accrual accounting system as provided under the provisions of section 145 of the Act. Therefore, the assessee cannot be made subject to tax on the reasoning that the income has accrued to it upon the transfer of development rights.

Facts- The only issue raised by the Revenue is that the learned CIT-A erred in deleting the addition made by the AO for Rs. 1,81,02,740.00 on account of income accrued to the assessee in the trading of development right after admitting additional evidence in contravention to rule 46A of Income Tax Rules.

Conclusion- Held that the purpose of the development right was to develop the plots of lands which was conferred to UMIPL. In fact, the ownership of land on which development rights were conferred remain vested with the landowners and likewise, the assessee was also under the obligation to ensure that the ownership of the lands is transferred to the actual buyers. It is because the ownership of the land was never shifted by the landowners either to the assessee or the developer being UMIPL. Thus, in such a situation, until the project is developed and transferred to the actual owners, it cannot be said that the landowners and the assessee upon transferring of the development right have no role to play in the execution of the development process of the plots. As such they were accountable. Therefore, in our considered view the assessee did not get the right over the income as per accrual accounting system as provided under the provisions of section 145 of the Act. Therefore, the assessee cannot be made subject to tax on the reasoning that the income has accrued to it upon the transfer of development rights in the given set of facts and circumstances.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

The captioned two appeals have been filed at the instance of the Revenue against the separate orders of Learned Commissioner of Income Tax (Appeals)-4, Ahmedabad, arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as “the Act”) relevant to the Assessment Years 2013-2014 & 2014-15.

First, we take up ITA No. 60/AHD/2019, an appeal by the assessee for the AY 2013-14.

2. The Revenue has raised the following grounds of appeal:

(a) The Ld.CIT(A), has erred in law and on facts in accepting the additional evidence when conditions of rule 46A were not found satisfied.

(b)The Ld.CIT(A), has erred in law and on facts in accepting the contents of revised Joint Development agreements (JDs) which has been entered after the passing o f assessment order of 2012-14 & which only notarized as opposed to original JDAs which were notarized as well as registered with sub-registrar & which were not even put up before Assessing Officer during proceedings of AY 2014-15 which got time barred after the date of such revised JDAs.

(c) The Ld.CIT(A) has erred in law and on facts in accepting the rates to be taken as per sq. yard as per revised un-registered Joint Development agreement (JDAs) even though entire submissions during assessment showed the rated were sq. meter.

(d) The Ld.CIT(A), has erred in law and on facts in holding that income should be recognized on execution of final sale deeds to final customers by Unique Mercantile India Pvt. Ltd (UMIPL) to whom assessee had transferred development rights by JDAs dated 30/07/2012 & from whom more than 38.4% (Rs.24,36,73,162/-) out of total receivable amount of Rs.63,37,09,200/-had been received in AY 2013 itself.

(e) The Ld.CIT(A), has erred in law and on facts in holding that income should not be computed phase-wise (i.e phase-I & II) as assessee had received about 66.7% (Rs.24,36,73,162/-) out of total receipts of Rs.36,34,00,800/- of phase-I had been received by assessee from UMIPL in AY 2013-14 itself.

(f) On the facts and circumstances of the case, Ld.CIT(A) ought to have upheld the order of the Assessing Officer.

(g) It is, therefore, prayed that the order of Ld.CIT(A) may be set aside and that of the Assessing Officer be restored.

2.1. The only issue raised by the Revenue is that the learned CIT-A erred in deleting the addition made by the AO for Rs. 1,81,02,740.00 on account of income accrued to the assessee in the trading of development right after admitting additional evidence in contravention to rule 46A of Income Tax Rules.

3. The necessary facts arising from the order of the authorities below are that the assessee in the present case is a private limited company and engaged in the business of land development. The assessee, amongst other transactions of land development, in the year under consideration vide MOU dated 4^th of June 2012 has acquired right for the development of plot as detailed below:

i. Right for the development of plot from M/s Kesar Buildcon Pvt. Ltd. and other co-owners in respect of the land admeasuring 4,08,929 square meters equivalent to 4,89,038 square yards. The development right was purchased by the assessee at ₹800 per square meters/668.95 per square yard aggregating to ₹ 32,71,43,200.00 only. The assessee against such development right has made the payment of ₹ 31,30,28,000.00 to the landowners which was shown in the balance sheet. The assessee also incurred cost on the stamp duty of Rs. 32,71,600.00 which was claimed in the profit and loss account in the year under consideration. The assessee over and above the cost of Rs. 800 per square meters of land was also required to share the profit to be generated by it from the development of the land to the tune of 50% with the landowner.

ii. Right for the development of plot from M/s Shri Atul N. Joshi admeasuring 19,931 square meters equivalent to 23,833 square yards. The development right was purchased by the assessee at ₹1060 per square meters/886.45 per square yard aggregating to ₹ 2,11,26,860.00 only. The assessee against such development right has made the payment of ₹ 29,72,000.00 to the landowners which was claimed in the profit and loss account in the year under consideration. The assessee over and above the cost of Rs. 1060 per square meters of land was also required to share the profit to be generated by it from the development of the land to the tune of 50% with the landowner.

3.1. However, the assessee by virtue of the MOU dated 26-07-2012 has transferred/assigned the development right acquired by it as discussed above to the company namely Unique Mercantile India private Ltd (UMIPL for short) against the consideration of Rs. 1200 per square yard. This MOU was made between the assessee, UMIPL and original landowners. As per the MOU, the development rights were to be transferred by the assessee in 2 phases i.e. first phase for 302834 square yards and second phase for 210082 square yards aggregating to 512916 square yards. As such, the amount of consideration was to be received by the assessee from UMIPL for Rs. 61,54,99,200.00 against the transfer of the development rights.

3.2. Based on the above details, the AO was of the view that the assessee has traded the development rights and the income thereon has accrued to it under mercantile system of accounting but the same has not been disclosed in the income tax return. Thus, the AO sought an explanation from the assessee by issuing notice under section 142(1) of the Act dated 24 February 2016.

3.3. The assessee in response to such notice vide letter dated 8^th of March 2016 submitted as under:

i. That the profit on the transfer of the development right has not been crystallized in the year under consideration. As per the assessee, the cost including marketing expenses was to be incurred on the development projects as evident from clause 27 of the MOU.

ii. The last payment to be received by the assessee from the development of the project of the 1^st phase was 1^st of August 2013 which is a date falling after the year under consideration. As such, the amount of Rs. 11,97,27,638 relating to the 1^st phase of the project was to be received in the subsequent financial year.

iii. That there were certain obligations as evident from page 6 of para 3.3 of the MOU which were to be fulfilled by the assessee with respect to the development project. Likewise, there was termination clause 7 of the MOU which was forcible on the occurrence of certain events. Thus, the income does not accrue or arise to the assessee merely on entering in the MOU with the party i.e. UMIPL.

iv. Likewise, the payment for the 2^nd phase of the project was documented only after 1 September 2013 i.e. in the next financial year.

v. As per clause 4 of the agreement, the income was to be distributed on the sale of the land. The amount received by UMIPL was first to allocate towards the cost of land and the remaining amount was to be utilized for the development of the project.

vi. There was a clear understanding in the MOU that the assessee, besides the agreed land cost, has to share the profit to the extent of 50% which shall be worked out after the related expenses of the project. Accordingly, there was no certainty of profit from the project which is to be shared between the assessee and the landowners.

vii. As such, UMIPL after the development of the plot makes sale to the ultimate buyer wherein the assessee will be a confirming party in the sale transaction. Therefore, it is not possible to reach the conclusion that the income of the assessee has accrued to it until and unless the plots are developed and sold by UMIPL.

3.4. In view of the above the assessee contended that income has not accrued to it and therefore, no addition to the total income of the assessee is called for.

3.5. However, the AO was not satisfied with the contention of the assessee based on the following reasons:

i. The assessee by virtue of the MOU dated 26^th of July 2012 has transferred the development right to the company namely UMIPL at a consideration of ₹1200 per square yard. As there was no mention of profit sharing between the assessee and UMIPL as submitted by the assessee, the assessee was to receive a fixed amount of consideration being Rs. 1200 per square yard from UMIPL and it was required to pay Rs. 800 per square yard and 1060 per square yard to the landowners. As such, the profit element of the assessee was almost fixed and there was no need to share the profit in the amount received by the assessee from UMIPL. The assessee also received the payment from M/s UMIPL in pursuance to the memorandum of understanding. In the year under consideration, the assessee received a sum of ₹ 24,36,73,162 which evidence that the MOU was acted between the parties. Admittedly, there was termination clause in the MOU but that was to be invoked in the event of non-payment by UMIPL but that did not happen in the year under consideration. In the event of non-payment by UMIPL, the assessee could have claimed the bad debts. Furthermore, the development work was to be carried out by UMIPL and not by the assessee. As such, the assessee was not under the obligation to incur any expense relating to the project.

ii. Likewise, the NA certificate was obtained by the landowner dated 6 June 2012 and 20 January 2013 which evidences that the MOU was made operative for the development of the plot and sale thereof.

iii. The developer, unique mercantile private Ltd has already developed 12 plots of phase 1 which were duly registered by way of conveyance deed. The assessee against the sale of plots has also received the money from UMIPL. In other words, the land was handed over by the assessee to UMIPL for the development which is evident from plot sold by the developer in the year under consideration.

iv. As per the AO, the consideration pertaining to the 1^st phase amounting to ₹36,34,00,800.00 has been received by the assessee dated 6 August 2013 which evidences that this much amount has accrued to the assessee in the year under consideration. Thus, the amount mentioned in the MOU is not a presumptive amount but the actual amount which was to be received by the assessee.

v. The amount of consideration to be received by the assessee and the amount to be paid by the assessee to the landowners was fixed. Yet the assessee has not disclosed any income in the assessment year 2014-15 and 2015-16 despite it has shown receipt of ₹ 6,25,05,600 and 6,02,79,600 respectively. Thus, the income of the assessee was determinative and certain to accrue.

vi. There was no element of cost to be incurred by the assessee in the trading of development rights. Upon transfer of development right, it was the obligation of the developer being UMIPL to develop the piece of plot and make a sale of it. Thus, once the assessee has transferred the development right there remains no ambiguity that the assessee got the right of having earned the income in dispute.

vii. Furthermore, the assessee has claimed the expenses of stamp duty on the purchase of development right for ₹32,71,600 which was claimed as revenue expenses. Likewise, the assessee has also claimed the expenses of Rs. 29,72,000.00 on ad-hoc basis which is representing the payment made by the assessee against the purchase of development rights from Shri Atul N Joshi. Thus, the assessee on one hand is claiming expenses relating to the project but on the other hand without showing corresponding income which is contrary to the provisions of prevailing business practice and accounting principles.

4. In view of the above, the AO calculated the income of the assessee from the trading of development rights for the assessment year in dispute for the 1st phase of the project and the subsequent assessment year i.e. 2013-14 and 2014­15. The income calculated by the AO for the year under consideration stands as under:

As per mercantile system of accounting the assessee has accrue income of 1 Phase of development right. In the 1st Phase the assessee has transferred development right o f 3,02,834 sq. yards of land. Hence it has accrued income of the 1 Phase only. The assessee has purchased development right of land admeasurin land of 428860 sq. mtrs at Rs. 34,82,70,060/-(2,11,26,860+ 32,71,43,200). Out the above sum the assessee has paid Rs. 29,72,000/- and has claimed the same P & L account. The income from the trading o f development right is determined under:

4.1. Likewise, the AO also calculated the income for the 2^nd phase for the assessment year 2014-15 in the manner as discussed below:

3.12 In view of the facts discussed above, the assessee’s profit from transfer o f Development Right for Phase-2, is worked out as under:

5. Aggrieved assessee preferred an appeal to the learned CIT-A.

6. The assessee before the learned CIT-A submitted that the revenue on transfer of the development rights can be recognized when the actual sale is made to the ultimate buyer and documents are executed for transfer of the plot of land i.e. risk and rewards shall be shifted to the buyer. At that point of time the assessee shall have the right to receive the income from UMIPL. As such, the income cannot be recognized based on the execution of MOU for the development of phase 1 and phase 2 of the project. Until the project is delivered to the ultimate buyer the assessee will not be entitled to have received the income from UMIPL. The assessee in support of its contention has referred to the guidance note on accounting of real estate transaction GN(A)23(Revised 2012) issued by the ICAI.

6.1 The assessee further submitted that as per the MOU with UMIPL, there were made certain understandings relating to various aspects of the transaction including consideration, Schedule of payment, termination of contract and the obligations among the interested parties. As per the MOU, in the event of any sale of plot, a tri-partite agreement shall be entered between the UMIPL, landowners and the assessee who will be acting as a confirming party. Thus, it was contended by the assessee that it shall acquire the right to receive the consideration from the UMIPL. Thus, the plots sold by UMIPL in the year in dispute can only be subject to the income in the hands of the assessee but the same was not disclosed on account of no information received from UMIPL. As such the information was received in the subsequent year and the income thereon was shown in that year only i.e. AY 2014-15 considering the sale of Rs. 86,03,000.00 only. It was also submitted that the assessee being a body corporate, there was no change in the rate of tax in the year under consideration viz a viz the subsequent assessment AR. Consequently, there was no loss of revenue.

6.2. The assessee before the ld. CIT-A has also filed the revised joint development agreement dated 28^th of March 16 by stating that in the original agreement, the payment to be made to the landowners was calculated considering the unit as square meter whereas it was to be paid in terms of square yard. It was realized by the assessee after the completion of the assessment dated 22 March 2016. Thus, the additional joint agreement was prepared which was filed 1^st time before the learned CIT-A who has admitted the same as additional evidence and called for the remand report from the AO. The assessee further submitted that the payment has already been made considering the unit square yard much before the completion of the assessment and therefore the same cannot be treated as after­thought. As such, the payment was made by the assessee to the landowners at the rate of 1000 per square yard which is inclusive of cost of ₹800 and the profit of ₹200 which was made through the banking channel.

7. The learned CIT-A after considering the submission of the assessee and remand report of the AO decided the issue in favour of the assessee in part by observing as under:

7. In view of the above facts and circumstances I am inclined to agree with the contentions of the AR that the cost of base price of the land would have to be adopted as per the amended agreement at the rate of Rs. 1000 per sq. Yard. I therefore direct that the cost of land be considered at Rs. 1000/- per sq, yard in view of the amended agreement which had been made available to the AO for his comments and on which nothing adverse commented by him.

7.1. It is a settled position of law that as per real income theory, the tax on income could be assessed only after it comes to be hands of the assessee and not otherwise. It has been pointed out from the MOU entered with UMIPL that there are various clauses which lead to the termination of the agreement. The termination may be on account of the default on the part o f the original land owners, the assessee and the purchasing party i.e. UMIPL. It is only once that all the conditions as laid down in the MOU are fulfilled and the legal title in the property passes on to the ultimate buyer of the plot of land can the income be said to have accrued to the appellant and not otherwise. The purchase cost of Rs.1000/- per sq. yards as per the amended JDA also appears to be correct in view of the real income theory. The assessee has prepared a re-casted trading account wherein the amounts received from UMIPL irrespective of the title having been passed in favour of the ultimate buyer has been treated as sale. The payments made to the original land owners are treated as the cost of development rights. The assessee has demonstrated that though these amounts have been disclosed as inventories/capital work in progress in the audited accounts, the re-casted trading account would reveal that the payments made to the original land owners for A.Y.2013-14 onwards is as under:

Similarly, the current liabilities would include consideration towards transfer of development rights to UMIPL. The year wise amounts received from UMIPL are as under:

Therefore, it would be observed that the differential amount received on sale o f development rights and the amount paid to the original land owners towards the development rights amounts to Rs. 10,21,29,320/- (63,37,09,200- 53,15,79,580). This amount would be the gross income arising to the Assessee Company, subject to the overhead costs on the transfer of development rights as and when the sale deeds are executed in favour of the ultimate buyer. The appellant company has also referred to the various decisions in support of the above proposition and which are reflected in the assessment order passed. Therefore, even as per the real Income theory the income of the appellant company cannot exceed the margin o f Rs.200/- per sq. Yard and which would be recognized on the basis of the registration of the plots in the favour of the ultimate buyers.

7.2. However, I do not agree with the argument of the AR that the profit on sale of 12 plots which had been omitted while filing the return of income for the year under appeal should not be added back only on the ground that the same had been voluntarily offered in A.Y.2014-15. The appellant himself has admitted to the fact that mercantile System of Accounting is being followed and income is recognised on the basis of the “Guidance Note on Real Estate Transaction”. If that be so the case the profit in question would accrue to the assessee company on the execution of the registered sale deed which would transfer the legal title to the property. Hon’ble Kamataka High Court in the case of Shankar Khandsari Sugar Mills Vs. CIT 193 ITR 669 (Kar.) has observed that “In the absence of any prejudice to the revenue, and the basis of the tax under Act being to levy tax, as far as possible, on the real income, the approach should be liberal in applying the procedural provisions of the Act. An appeal is but a continuation of the original proceeding and what the Income-tax Officer could have done, the appellate authority also could do,” Reliance is placed on the decision of jurisdictional high court in the case of CIT vs President Industries (258 ITR 654 (Guj) which has been accepted in the case of CIT vs. Samir Synthetics Mill [2010] 326 ITR 410 (Guj.) Under such circumstances the profit on sale all these 12 plots so disclosed in 15 will have to be adopted as income in A.Y.2013-14. The AR was directed to furnish the details of the sale deed finally executed by UMIPL for A.Y.2013-14 & 2014-15. From the details furnished it would be observed that the year wise sale deeds finally executed are as under:

The appellant claimed that UMIPL had not informed them about the final sale of 12 plots. Hence, they could not disclose the same in ROI. However, each of such sale deed is required to be signed by the appellant as per impugned transaction between the three parties concerned, hence, the contention is found illogical. It is seen that the information was gathered by the AO from Form 26AS. In view of the same it is hereby directed that income of Rs. 9,76,800/- be adopted for A.Y.2013-14. This is arrived by multiplication of Rs.200×4884 is equal to Rs.9. 76,800/-

7.3. Similarly, in case of A.Y 2014-15 the appellant company has booked income for documents executed in A.Y.2013-14 as well as A.Y.2014-15. The income has been recognized on the sales deed executed admeasuring 52088 sq. Yards. out of which 4884 sq yrds have been executed in the earlier year. However, by this logic the income for A.Y.2014-15 would be Rs. 1,04,17,600/- i.e. 52088 sq.yards already shown by the appellant while filing ROI for A.Y.2014-15. The undersigned has mandate only to direct to assess real income for A.Y.2013-14 and not allow any benefit to the appellant not arising from the grounds of appeal under adjudication.

7.4. The Assessing Officer has analyzed JDA or MOU and the details of payments made or sales accrual received in many pages. The perusal of the assessment order shows thread ware analysis of each and every contention raised by the appellant. There was some information on Form 26AS about sale of 12 plots for which profits had not been shown in A.Y.2013-14, therefore, was having impact on the assessment of A.Y.2014-15. The addition so made may or may not be upheld partly/fully at different appellate level. All this was an attempt by the AO to say that the books of account are not maintained on recognized principles of accounting. However, the whole exercise cannot be assailed per se just because the AO had not specifically the section 145(3) of I.T. Act, 1961. The substance of the matter in surrounding circumstances has to be seen to unravel the truth and as per this principle it cannot be concluded that the AO has not rejected book result as per prescribed procedure. In the circumstances, the contention raised by the appellant is untenable.

8. Being aggrieved by the order of the learned CIT-A, the revenue is in appeal before us.

9. The learned DR before us filed a paper book running from pages 1 to 196 and contended that the assessee upon transfer of the development right was subject to tax as per mercantile system of accounting. The ld. DR vehemently supported the order of the AO.

10. On the other hand, the learned AR before us reiterated the submission by referring to the findings of the ld. CIT-A. The ld. AR vehemently supported the order of the ld. CIT-A.

11. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, the controversies arising for our adjudication are as detailed below:

i. Whether the income has accrued against the transfer of development rights to the assessee and therefore same is taxable on transfer of development rights in two phases in two different assessment years?

ii. Whether the assessee is liable to make the payment to the landowners based on per square meter or per square yard?

11.1 The income of an assessee is calculated as per the provisions of the Act i.e. Section 145 of the Act which prescribes the basis of calculating the income either on cash or mercantile system of accounting. Under cash system of accounting, the income of the assessee is calculated based on the cash received and cash payment irrespective whether the assessee has acquired the right in the income or similarly the assessee has become liable for the expenses. Likewise, once the assessee has adopted mercantile system of accounting, it has to account for the income and the expenses on the principle of accrual irrespective of the fact whether the income has received by it (the assessee) or the payment has been made for the expenditure. In simple words, the assessee under the mercantile of accounting has to account for the income as and when it accrues irrespective of whether the payment is received/ made by him or not.

11.2 The word accrual refers to the right which the assessee acquires in respect of the particular transaction. Once such right is conferred upon the assessee, the assessee is liable subject to tax in respect of such income whether it is received on not.

11.3 In the light of the above stated discussion, we proceed to see whether the assessee has acquired the right over the income on the transfer of development rights to the party namely UMIPL. Admittedly, the assessee has transferred the development rights to the party, which will make sale of the plots after development, in the year under consideration. But such a right transferred by the assessee was carrying certain obligations between the assessee and the transferee which can be seen as detailed under:

8. It has been further agreed by and between the Parties hereto that

8.1. Upon execution of this MOU, the Transfer shall have the right to:

i. Conduct a through land survey of the entire Said land.

ii. prepare the lay out plans based on the survey for the proposed Development.

iii. Prepare brochures of the projected development.

iv. commence marketing of the project on the first Phase of land as per Schedule.

v. Put a hoardings for advertisement in respect of the proposed project.

vi. Put up sign boards and directions of the proposed project with the desired name of the scheme on and around the said lands.

vii. Construct and operate a site office on the said lands.

8.2 Upon successfully completion of the payment obligation for first Phase Consideration or execution of Deed of transfer for First Phase the Transferee shall have the right to commence marketing on the Second Phase of land as per Schedule III.

11.4 On perusal of the above contents of the MOU, it is observed that the role of transferor being the assessee was not limited the transfer of development rights but thereafter as well it was under the obligation to discharge the duties as discussed above.

11.5 Besides the above, we also note that there was a termination clause in the MOU dated 26^th of July 2012 which was binding to all the parties concerned. The relevant clauses of the MOU have been elaborately discussed in the order of the learned CIT-A. Thus, it is not a case that the assessee’s duty or the job has come to an end upon transferring the development rights.

11.6 Even, if the transaction is seen from a different angle, we find that the purpose of the development right was to develop the plots of lands which was conferred to UMIPL. In fact, the ownership of land on which development rights were conferred remain vested with the landowners and likewise, the assessee was also under the obligation to ensure that the ownership of the lands is transferred to the actual buyers. It is because the ownership of the land was never shifted by the landowners either to the assessee or the developer being UMIPL. Thus, in such a situation, until the project is developed and transferred to the actual owners, it cannot be said that the landowners and the assessee upon transferring of the development right have no role to play in the execution of the development process of the plots. As such they were accountable. Therefore, in our considered view the assessee did not get the right over the income as per accrual accounting system as provided under the provisions of section 145 of the Act. Therefore, the assessee cannot be made subject to tax on the reasoning that the income has accrued to it upon the transfer of development rights in the given set of facts and circumstances.

11.7 At this juncture, it is equally important to note that the assessee before the AO has contended that it has been following mercantile of accounting and it has taken certain receipts in its income in the later years upon the execution of registration deed of the plots. The contention of the assessee can be verified assessment order, the relevant extract of the same is reproduced as under:

Since all the documentation and registration related was looked after by Unique Mercantile Pvt. Ltd, the copies of the same had been made available subsequently to the assessee company. During the year under consideration only 12 documents have been executed. Though the AIR statement contains the documentary price of the plot ultimately developed and sold by Unique Mercantile PVL Ltd as explained earlier the assessee company is entitled to the gross margin of Rs.200/- only. This income has been duly reflected in the return of income filed for A.Y 2014-15. Statement indicating the revenue recognized in the previous year relevant to AY 2014-15 is enclosed which contains the transactions conducted with the parties as identified in the AIR statement. The perusal or the same would reveal that all these items have duly been reflected and therefore, only on account of this information made available subsequently the income in question has been reflected in the subsequent year.

XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

The assessee is not earning anything in excess to the amount specified in MOU. The assessee has stated that it is showing receipt of Rs.6,25,05,600/- in A.Y 2014-15 and rs. 6,02,79,600/- in AY 2015-16, the working of the same is as under:

11.8 Thus, the AO during the assessment proceedings was conscious of the fact that the assessee in respect of the same transaction i.e. transfer of development rights, has offered the income to tax in the later years. But we find from the assessment order that the AO has not given the benefit of such amount of income shown by the assessee in the later years. In such a situation, there remains no ambiguity to the fact that the income of the assessee from the transaction of transfer of development right has been taxed twice which has never been the intention of the legislature.

11.9 Moving further, we note that as per the MOU between the assessee and the landowners dated 4-06-2012, there were certain clauses as detailed below:

a. Perusal of clause 2 of the agreement reveals that all formalities of getting the the land owner.

b. Perusal of clause 4 of the agreement reveals that the distribution of income shal l be on the sale of land and from the total consideration part of the amount shall be earmarked towards the cost of land and the remaining amount shall be given to the developer for development cost incurred:

c. As per clause 1 of the agreement for the development of land the assessee has agreed to give consideration of Rs 1060- per sq. mtr and also agreed to share profa @ 50% on the net profit after meeting all the expenses to the project

d. As per clause 27 of the agreement all the scheme is not completely sold or not given effect till then the developers cost profit is not compensated till then the land and construction work done thereon will remain in the possession of the assessee company and they shall have the exclusive rights to dispose off or alienate the Property

The above conditions referred to are only on sample basis and demonstrate the fact that various conditions and stipulations are contained in the agreement and on the fulfillment o f which the contract would deemed to be completed and the profit accrue and not before. For instance the expenditure other than land cost has to be quantified and thereafter share of profit can be worked out. The distribution of profit would be only on sale of land and not before etc. Therefore, merely payment of money to the land owner irrespective of the fact that it is substantial or meager would not lead to the expenditure incurred by the assessee because the profit cannot be at this stage.

11.10 From the above, it is transpired that the distribution of income between the parties shall be upon the sale of plots of land. The amount of consideration received from the actual parties first shall be earmarked towards the cost of land and the remaining amount shall be given to the developer for the development of the project. In addition, the assessee was under the obligation to share the profit with the landowners as discussed above.

11.11 Regarding the 2^nd issue, we note that the assessee realized the mistake committed for taking the unit of payment as per square meter instead of per square yards post assessment but the same was rectified during the appellate proceedings. The learned CIT-A has called for the remand report from the AO on the documents filed before him. As such, the transaction between the parties was carried out based on the unit of per square yard which can be verified through the banking payment as well. Thus, it cannot be said that such document was fabricated by the assessee. Furthermore, all the details of the parties were available before the AO during the remand proceedings on the relevant issue. In the event of any doubt in the additional document furnished by the assessee, the contents/veracity of the same could have been verified by the AO from the concerned parties. But we find that no such exercise has been carried out by the AO during the remand proceedings. In addition to the above, the learned CIT-A has called for the remand report from the AO during the assessment proceedings and therefore it cannot be said that there is any violation of rule 46-A of Income Tax Rule. We note that the learned CIT-A after considering the detailed submission of the assessee and the remand report/ documents has decided the issue in favour of the assessee. At the time of hearing, the learned DR has not brought anything on record contrary to the finding of the learned CIT-A.

11.12 Likewise, the assessee was liable to share the profit by 50% generated by it with respect to the development right with the landowners and at the time of MOU dated 4-06-2012, the amount of profit was not certain. But the same became known to the landowners and the assessee upon the transfer of development rights. Accordingly, the assessee was entitled for the deduction of such amount of share of profit given to the landowners in the respective assessment years. Hence, we do not find any reason to interfere in the order of the learned. CIT-A. Hence the ground of appeal filed by the revenue is hereby dismissed.

11.13 In the result, the appeal filed by the revenue is hereby dismissed.

Coming to ITA 61/Ahd/2019 an appeal by the revenue for A.Y. 2013-14.

12. At the outset, we note that the issue raised by the revenue in its grounds of appeal for the AY 2014-15 is identical to the issue raised by the Revenue in ITA No. 60/AHD/2019 for the assessment year 2013-14. Therefore, the findings given in ITA No. 60/AHD/2019 shall also be applicable for the assessment year 2014-15. The appeal of the revenue for the A.Y. 2013-14 has been decided by us vide paragraph No.11 of this order in favour of the assessee and against revenue. The learned DR and the AR also agreed that whatever will be the findings for the assessment year 2013-14 shall also be applied for the assessment years 2014-15. Hence, the ground of appeal filed by the revenue is hereby dismissed.

12.13 In the result, the appeal filed by the revenue is hereby dismissed.

13. In the combined result, both the appeals filed by the revenue are hereby dismissed.

Order pronounced in the Court on 19/07/2023 at Ahmedabad.