Stock-in-trade under a development agreement was not a deemed transfer; consultancy expense disallowance was also rejected.

Land held as stock-in-trade under a development agreement was not treated as transferred where possession and legal control remained with the assessee, so the deeming provisions for transfer of a capital asset did not apply. The revenue recognition followed the development arrangement and accounting treatment, and the addition on sale of land was deleted. Consultancy fee disallowance was also deleted because the assessee produced supporting bills, paid through banking channels, and deducted tax at source, while no adverse material showed the expenditure was not for business purposes. The appellate relief was sustained in full.

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Issues: (i) Whether the addition made on account of sale of land under a development agreement was sustainable where the land was treated as stock-in-trade and possession was not transferred to the developer. (ii) Whether the disallowance of consultancy fees was justified despite supporting bills, payment through banking channels, and deduction of tax at source.

Issue (i): Whether the addition made on account of sale of land under a development agreement was sustainable where the land was treated as stock-in-trade and possession was not transferred to the developer.

Analysis: The development agreement showed that the developer was authorised to undertake construction and facilitate bookings, but the assessee retained the legal control necessary for execution of sale deeds in favour of the ultimate purchasers. The land was held as stock-in-trade, so the deeming provisions relating to transfer of a capital asset were inapplicable. The revenue was also recognised on a proportionate basis in accordance with the development arrangement and the accounting treatment followed by the assessee.

Conclusion: The addition on account of sale of land was rightly deleted and the issue was decided in favour of the assessee.

Issue (ii): Whether the disallowance of consultancy fees was justified despite supporting bills, payment through banking channels, and deduction of tax at source.

Analysis: The assessee produced the bill for consultancy charges and the payment was made through banking channels after deduction of tax at source. No adverse material showed that the expenditure was not incurred for business purposes. The explanation for the consultancy services was accepted as bona fide.

Conclusion: The disallowance of consultancy fees was rightly deleted and the issue was decided in favour of the assessee.

Final Conclusion: The Revenue failed on both grounds and the appellate relief granted to the assessee was sustained in full.

Ratio Decidendi: Where land is held as stock-in-trade and the development agreement does not effect a transfer of possession or ownership, the provisions deeming transfer of a capital asset do not apply, and income may be recognised in accordance with the terms of the development arrangement and commercial certainty.

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