Capital gains in development agreements follow developer construction cost, and a final transfer-year finding bars double taxation.

In joint development arrangements, capital gains on land exchange are to be computed by reference to the developer's construction cost where the assessee receives only a proportionate share in the developed property, and a marginal valuation difference after allowance for self-supervision does not justify further adjustment. The text also notes that once the transfer year has been finally determined under section 2(47) read with section 53A of the Transfer of Property Act, the same transaction cannot be taxed again in an earlier year. On that basis, the additions were deleted and the Revenue's challenge failed.

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Issues: (i) Whether the addition to long-term capital gains based on the DVO's valuation could be sustained after allowing deduction towards self-supervision in the hands of the assessee. (ii) Whether the addition made in the earlier assessment year could survive when the very same transaction had already been held taxable only in the later assessment year and that finding had attained finality.

Issue (i): Whether the addition to long-term capital gains based on the DVO's valuation could be sustained after allowing deduction towards self-supervision in the hands of the assessee.

Analysis: The developed building was constructed by the developer, and the assessee received only a proportionate share in that building in exchange for surrender of land. The valuation for capital gains had therefore to be based on the construction cost incurred by the developer. The DVO, as a specialised authority, had already allowed a margin for self-supervision and the difference between the assessee's disclosure and the valuation was marginal and not material. No basis was shown to disturb the CIT(A)'s finding that the adjustment was unwarranted.

Conclusion: The addition was rightly deleted and the Revenue's challenge failed.

Issue (ii): Whether the addition made in the earlier assessment year could survive when the very same transaction had already been held taxable only in the later assessment year and that finding had attained finality.

Analysis: The earlier year assessment was reopened on the premise that capital gains arose in that year, but the appellate finding in the later year had already determined that the relevant transfer occurred only in the later assessment year under section 2(47) of the Income-tax Act, 1961 read with section 53A of the Transfer of Property Act. Since that finding had become final, the same transaction could not be brought to tax again in the earlier year. The CIT(A)'s deletion of the addition in the earlier year was therefore consistent with the concluded position.

Conclusion: The addition for the earlier assessment year was not tenable and was rightly deleted.

Final Conclusion: The Revenue's appeals were rejected on merits, and the assessee's cross-objections were dismissed as academic, leaving the assessee without any adverse addition for either year.

Ratio Decidendi: Where the developer bears the construction cost and the assessee receives only its share in the developed property, capital gains must be computed on the basis of the developer's construction cost as reasonably determined, and a concluded finding on the year of transfer prevents the same transaction from being assessed again in another year.

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