2013 (8) TMI 932 - AT - Income Tax

Capital gains from development agreement taxable in AY 2009-10. Tribunal affirms parking space rate, jurisdiction to direct correct assessment.

The Tribunal upheld the CIT(A)'s decision that capital gains arising from a development agreement were taxable in AY 2009-10. The Tribunal also confirmed ... Capital gain - assessment year - Held that:- No capital gain can be charged in the impugned assessment year and since such decision of the CIT(A) has not been challenged by the Department, the other issue with regard to adoption of rate of construction has actually become inconsequential as it is purely academic in nature. Even otherwise also, the finding of the CIT(A) with regard to cost of construction adopted at ₹ 450/- per sq.ft. for car parking is reasonable as in our view the rate adopted by the Assessing Officer is high and excessive and without any basis. The Assessing Officer without bringing on record any comparable case has simply adopted the rate, out of his own imagination. In the aforesaid circumstances, we do not find any reason to interfere with the order of the CIT(A) in this regard. Accordingly, we uphold the order of the CIT(A) and dismiss the grounds raised by the revenue Transfer within the meaning of section 53A of Transfer of Property Act read with section 2(47(v) of the IT Act - Held that:- it is a fact on record that the developer was handed over the possession of the property after obtaining permission from GHMC on 05/08/2008 and further the second development agreement executed on 11/02/2011 with RBD Legend, though, is an unregistered document, however, clearly reveals that the earlier developer i.e. Legend Estates Pt. Ltd. had not only taken possession of the property but has also started construction of the project. Furthermore, the registered development agreement with the developer M/s Legend Estates P. Ltd. has not been cancelled. Therefore, it cannot be said that the developer M/s Legend Estates P. Ltd. has backed out or expressed its unwillingness in carrying out the development activity. The development agreement executed on 11.02/2011 being an unregistered document it cannot have much relevance. In the aforesaid circumstances, therefore, the conclusion arrived at by the CIT(A) to the effect that there is a transfer within the meaning of section 53A read with section 2(47)(v) of the Act, cannot be held to be without any substance. Issues Involved:1. Taxability of capital gains arising from a development agreement.2. Determination of the assessment year for capital gains.3. Validity of the cost of construction and parking space estimation by the Assessing Officer (AO).4. Jurisdiction of the CIT(A) to direct the AO to examine taxability in a different assessment year.Detailed Analysis:1. Taxability of Capital Gains Arising from a Development AgreementThe primary issue was whether the development agreement entered into by the assessee with M/s. Legend Estates Pvt. Ltd. constituted a transfer of property under Section 2(47) of the Income-tax Act, 1961, and Section 53A of the Transfer of Property Act. The AO held that the development agreement gave rise to capital gains, as the assessee parted with the rights over the land. The CIT(A) confirmed this view, noting that the development agreement, receipt of Rs. 12 crores as earnest money, and the commencement of construction by the developer indicated a transfer of property. The CIT(A) observed that the developer had shown serious intent by obtaining municipal permissions and incurring substantial expenses.2. Determination of the Assessment Year for Capital GainsThe CIT(A) examined whether the capital gains should be assessed in AY 2007-08, AY 2008-09, or AY 2009-10. The CIT(A) concluded that the transfer of property occurred in FY 2008-09 (relevant to AY 2009-10) when the developer obtained municipal permissions and took physical possession of the land. Consequently, the CIT(A) directed the AO to assess the capital gains in AY 2009-10, not AY 2008-09.3. Validity of the Cost of Construction and Parking Space Estimation by the AOThe AO estimated the cost of construction and parking space to compute the capital gains. The CIT(A) upheld the AO's estimation of the cost of construction but found the rate for parking space at Rs. 450 per sq. ft. to be excessive. The CIT(A) moderated this rate to Rs. 150 per sq. ft. if the parking was provided in the cellar or underground areas. The Tribunal upheld the CIT(A)'s decision, noting that the AO's rate for parking space was high and excessive without any basis.4. Jurisdiction of the CIT(A) to Direct the AO to Examine Taxability in a Different Assessment YearThe assessee contended that the CIT(A) overstepped his jurisdiction by directing the AO to assess the capital gains in AY 2009-10. The Tribunal rejected this contention, stating that the CIT(A)'s powers are co-terminus with that of the AO. The CIT(A) can direct the AO to examine the taxability of income in an appropriate assessment year if it is found not taxable in the year under dispute. The Tribunal emphasized that the assessee could present his contentions regarding the taxability during the assessment proceedings for AY 2009-10.Conclusion:The Tribunal dismissed both the appeals, upholding the CIT(A)'s decision that the capital gains should be assessed in AY 2009-10 and confirming the moderated rate for parking space. The Tribunal also affirmed the CIT(A)'s jurisdiction to direct the AO to examine the taxability of capital gains in the appropriate assessment year.