Sruthi Riedl Vs ITO (ITAT Hyderabad)
ITAT Hyderabad held that as the parties have entered into registered Joint Development Agreement (JDA) on 04.04.2007 and the “Group of assessee” have also handed over possession to the TBPD pursuant to the agreement. Hence, transfer took place in the assessment year 2008-09.
Facts- Information was received from I&CI, Hyd that the assessee along with 46 other persons had entered into a Joint Development Agreement cum General Power of attorney with M/s Trendset Jayabheri Projects LLP, Hyd for the construction of a residential and commercial project having a total value of Rs.177,50,70,000/- for an area of Ac.12.09 Gts. The assessee transferred her share of land admeasuring 12.50 Gts valued at Rs.453,75,000/- for the said development and has not offered any capital gains on the said transaction. Since, the assessee has not offered any chargeable long term capital gains, a notice u/s. 148 was issued to the assessee and was duly served on the assessee through the mail.
Aggrieved with the draft assessment order by making additions against the long term capital gains, assessee opted for filing objections before the Dispute Resolution Panel, Bangalore requesting to consider her plea that she had retained only 43% of land and thus the value of JDA should have been only Rs.1,95,11,250/- instead of Rs.4,53,75,000/-.
DRP after hearing the objections raised by the assessee has upheld the addition of Rs.2,56,92,030/- in the hands of the assessee. AO completed the assessment accordingly. Being aggrieved, the present appeal is filed.
Conclusion- In the present case, the parties have entered into registered JDA on 04.04.2007 and the “Group of assessee” have also handed over possession to the TBPD pursuant to the agreement. Hence, for all purposes, transfer took place in the assessment year 2008-09. Hence, an addition, if any, can be made in the assessment year 2008-09 for the consideration mentioned in the JDA dt.04.04.2007. Undoubtedly, no additions were made in the hands of the “Group of assessee” on the basis of 1st JDA dt.04.04.2007 by the Revenue.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
This appeal is filed by the assessee, feeling aggrieved by the order passed by the Income Tax Officer, (International Taxation) – 2, Hyderabad dt.06.01.2023 invoking proceedings u/s 147 r.w.s. 144C(13) of the Act for the A.Y 2016-17 on the following grounds :
“1. The assessment order passed on 06.01.2023 after DRP approval u/s 147 r.w.s 144C(13) is bad in law and not based on the correct facts.
2. The A.O and DRP erred in reopening the assessment U/s 147 on wrong facts and there by the assessment order is bad in law. There was no valid reason for reopening the assessment U/s 147.
3. The Ld A.O/DRP did not appreciate that there was no escapement of income which is a prerequisite for reopening the assessment U/s 147, and capital gain of Rs. 2,56,90,030 was wrongly taxed in AN 201647.
4. The Id A.O/DRP failed to appreciate that the physical possession of land under the Joint Development Agreement (JDA) dated 04/04/2007 was given in F.Y 2007-08 to the developer and the second JDA dated 10.02.2016 is in continuation of the JDA dated 04.04.2007.
5. The A.O/DRP erred in reopening the assessment U/s 147 solely on the basis of a report from I & Cl and did not make any enquiry before reopening the assessment. Thus, on the basis of borrowed satisfaction the assessment was wrongly reopened and the A.O did not fulfil the conditions stipulated in section 147.
6. The Ld A.O/DRP failed to appreciate that after second JDA dated 10.02.2016 there is no change in the position of the land owners before and after the second JDA.
7. The Ld A.O/DRP failed to consider the order of A.O, non-corporate, circle – 3(1), Chennai passed U/s 148A in the case of Smt. Vijayalakshmi, another owner of the same JDA dropping the proposal of reopening of the assessment for AN 2016-17.
8. The Ld A.O/DRP erred is not mentioned the reasons recorded for reopening the assessment on the body of notice U/s 148, which makes the proceedings initiated as void.
9. The Ld A.O/DRP erred in reopening the assessment U/s 147 as there was no capital gains chargeable to Tax in AY 2016-17 arising from the JDA dated 04.04.2007 and the JDA dated 10.02.2016 did not alter the factum of handing over of possession to the developer.
10. The Ld A.O/DRP erred in giving a finding that possession of land was given in consequences of second JDA dated 10.02.2016 as against the fact that possession of land was given to the developer as per JDA dated 04.04.2007.
11. The Ld A.O/DRP failed to appreciate that no capital gain arose in assessment year 2016-17 on account of JDA dated 10.02.2016 as this JDA was in continuation of first JDA dated 04.04.2007.
12. The Ld A.O/DRP erred in giving a finding that the developer in terms of JDA dated 04.04.2007 did not perform any act in furtherance of the JDA, in reality the developer had spent a sum of Rs.16.02 Cr (Rs. 3.75 Cr + 12.27 Cr).
13. The Ld A.O/DRP failed to appreciate that in respect of some owners of land who are also parties namely, Harsha Keteneni, Apollo Corporate Services and Consultants (P) ltd and H.Bhaskar Reddy, to the JDA dated 04.04.2007, Ld ITO, ward 6(3), Hyderabad held that no capital gain arose in AY 2016-17 but capital gain arose in AY 2007-08. The revenue has to be consistent in its approach and Ld A.O failed it consider the principle of consistency on the same set of facts.
14. The Ld A.O/DRP erred in giving a finding that sharing ratio of built up area was determined in the JDA dated 10.02.2016 and not in JDA dated 04.04.2007.
15. The Ld A.O/DRP erred in giving a finding that no possession of land was given in JDA dated 04.04.2007 and was given in JDA dated 10.02.2016.
16. The Ld A.O/DRP erred in giving a finding that the developer after entering into JDA dated 10.02.2016 immediately prepared plans and with in a period of one week after entering into JDA got the plans approved by the competent authority.
17. The Ld A:O/DRP erred in giving a finding that there was no need to enter into a tripartite agreement during the previous year relevant to AY 2016-17 if possession of land was given in pursuance of JDA dated 04.04.2007.
18. The Ld A.O/DRP erred in bringing to tax the JDA dated 10.02.2016 by invoking the provisions of section 2(47) r.w.s 53A of the Transfer of Properties Act, 1882 when there was no transfer of land and payment of consideration during the current assessment year i.e 2016-17.
19. The Ld A.O/DRP failed to appreciate that the mere licence given to carryout the development activity does not result in ‘Transfer’ as envisaged in section 2(47) r.w.s 53A of the T.P Act and accordingly no capital gain arises in A.Y 2016-17.
20. The hon’ble DRP failed to consider the facts correctly and upheld the action of Ld A.O. There was no capital gain, of Rs. 2,56,92,030 accrued to the assessee in real sense.
21. The Ld A.O/DRP erred in adopting the cost of project of Rs.177,50,70,000 without any basis and enquiry. The cost of project is not relevant to, the assessee and there is no provision in the Act to. adopt ‘deemed sale consideration’ except as provided in sections 50C, 50CA.and 50D.”
2. The brief facts of the case are that assessee being an NRI has filed the return of income for the A.Y. 2016 – 17 declaring an income of Rs.18,26,340/- towards income from house property and towards income from short term and long term capital gains and the case was processed. Thereafter, information was received from l&CI, Hyd that the assessee along with 46 other persons had entered into Joint Development Agreement cum General Power of attorney with M/s Trendset Jayabheri Projects LLP, Hyd for construction of residential and commercial project vide registered deed bearing no. 2357/2016 on 10.02.2016 having a total value of Rs.177,50,70,000/- for an area of Ac.12.09 Gts. The assessee transferred her share of land admeasuring 12.50 Gts valued at Rs.453,75,000/- for the said development and has not offered any capital gains on the said transaction for the A.Y. 2016— 17. Since, the assessee has not offered any chargeable long term capital gains on the above referred transaction, reassessment proceedings were initiated for the A.Y. 2016 – 17 on 26.03.2021 after obtaining approval of Addl. CIT IT, Hyderabad. Accordingly, a notice u/s 148 was issued to the assessee on 26.03.2021 and was duly served on the assessee through mail.
2.1. In response, the assessee has filed return of income on 09.04.2021 declaring income of Rs.18,26,340/- towards income from house property and towards income from short term and long term capital gains, which income was reflected in the original return of income. Subsequently, the assessee filed a letter on 18.05.2021 requesting to provide the reasons for the reopening of the assessment u/s 148 and the same were duly provided to the assessee vide letter issued on 12.07.2021.
2.2. Subsequently, notices u/s 143(2) and 142(1) were issued to the assessee on 16.11.2021 to explain the transactions and also to submit the details of income etc, in the return of income filed. The assessee furnished letter on 24.11.2021 stating that she has not entered / executed any sale deed during the relevant A.Y. 2016 – 17 and has only entered into a modified development Agreement cum General Power of Attorney dated 10.02.2016 vide document no. 2357/2016, which is in continuation of Original Development of Agreement cum GPA executed on 04.04.2007.
2.3 However, it was noticed that the assessee entered into JDA for the development of her land during the relevant A.Y. 2016 – 17 and hence, the assessee was asked vide this office notice u/s 142(1) issued on 13.12.2021, as to why the long term capital gains will not arise for the A.Y. 2016-17 and the same may not be brought to tax. In response, the assessee submitted that herself along with other adjoining owners have entered into a joint development agreement with M/s Trendset Bharat Project Developers Pvt Ltd (Trendset) on 04.04.2007 and gave possession of the land. However, due to severe financial difficulties, the developer could not carry out the development works as agreed and the project was stalled. Subsequently, a tripartite development agreement was entered by all the landowners including the assessee with M/s Trendset Jayabheri Projects LLP along with the original developer M/s Trendset Bharat Project Developers Pvt Ltd on 10.02.2016.
2.4. The assessee further submitted that the possession of the land was already given to the original developer i.e., Trendset vide development agreement entered on 04.04.2007 and as could be seen from clause 1.1 of the tripartite agreement entered on 10.02.2016, possession of the land was given by the first developer i.e., Trendest to the second developer i.e., Trendset Jayabheri Projects LLP. Further, from the JDA entered on 10.02.2016, it can be understood that the same was in continuation of the JDA entered on 04.04.2007 and was specifically entered only to facilitate new developer. Thus, there was no change in the position of the land owners before and after the second JDA. Hence, the assessee submitted that the reasons recorded for re-opening of the assessment are not justified and correct and requested to drop the proceedings initiated u/s 147 of the Act.
2.5. Further, Assessing Officer observed that during the relevant year, the assessee has sold unlisted shares of M/s Sai Life Sciences Ltd for a consideration of Rs.55,45,400/- which were acquired during the year 2004 – 05 for a consideration of Rs.6,00,000/- and after indexed cost of acquisition of Rs.13,51,250/-, the assessee had shown long term capital gains of Rs.41,94,150/-. After claiming deduction u/s 54EC, the assessee had set off the balance capital gains of rs.21,94,150/-with capital loss of A.Y. 2012 – 13 & 2013- 14. Hence, opined that since the assessee sold the unlisted shares, no indexation benefit can be allowed and finally worked out of the long term capital gain at Rs.5,81,317/- as mentioned at Page 18 of the assessment order dt.06.01.2023.
3. Aggrieved with the draft assessment order dt.29.03.2022 by making additions against the long term capital gains, assessee opted for filing objections before the Dispute Resolution Panel, Bangalore requesting to consider her plea that she had retained only 43% of land and thus the value of JDA should have been only Rs.1,95,11,250/- instead of Rs.4,53,75,000/-.
4. The DRP after hearing the objections raised by the assessee has upheld the addition of Rs.2,56,92,030/- as discussed in Para 21.1 of the order of Assessing Officer in the hands of the assessee. The DRP also upheld the addition of Rs.5,81,317/- towards the difference of Long Term Capital Gains on sales of unlisted shares as per her submissions dated 12.09.2022 wherein she mentioned that she was not contesting the said addition. Thereafter, Assessing Officer completed the assessment assessing the total income of the assessee at Rs.2,80,99,687/-.
5. Aggrieved with the final assessment order dt.06.01.2023, assessee is now in appeal before us.
6. Before us, ld.AR for the assessee submitted that the lower authorities have erred in making and confirming the addition of Rs.2,56,92,030/- towards the long term capital gains as discussed by the Assessing Officer at Para 21.1. in his order which is to the following effect :
“21. Hence, in view of the above, the assessee is liable to offer the long term capital gains on entering the JDA on 10,02.2016 relevant for the A.Y. 2016 – 17. Notwit gly, the working out of the capital gains is worked out as under:
21.1 The assessee’s share of land is 12.5 Guntas out of the total land of 489 Guntas and accordingly, the assessee’s share of value on account of JDA is at Rs.4,53,75,000/- i.e., Rs. 177,50,70,000 X 12.5 / 489. The sharing ratio agreed in the JDA is at 57 :43 in the proportion of developers and land owners respectively. Hence, the value of the share of value fore gone by the assessee is at Rs. 258,63,750/- I.e., (Rs.4.53,75,000/- X 57%). Hence, the deemed sale consideration on account of JDA is at Rs.2,58,63,750/-. The assessee submitted the copy of the purchase deed of the said property where in it was mentioned that the same was purchased on 19.02.1997 for Rs.85,000/- and the proportionate cost of acquisition of the land which has foregone by way of entering JDA is at Rs.48,450/- I.e., Rs.85,000/- X 57%.
21.2 Accordingly, the working out of the capital gains is worked out as under:
