Reassessment and capital gains in joint development agreements: transfer arose on agreement, but computation based on developer's books failed.

Reassessment under Section 148 was sustained because the Assessing Officer had tangible material from Investigation Wing information, obtained the requisite approval, and could validly form a belief that income had escaped assessment. In a joint development agreement, the assessee's parting with possession and grant of irrevocable rights over 47% of the undivided land share satisfied the transfer conditions under Section 2(47)(v), so capital gains arose in the year of the agreement rather than on the later sale deed. The computation made by the Assessing Officer was not accepted, however, because the construction cost was taken from the developer's books without proper enquiry and could include items not directly attributable to the assessee's capital gains computation.

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Issues: (i) Whether the reassessment notice and the reopening of the completed assessment were valid; (ii) whether the transfer under the joint development agreement gave rise to capital gains in the relevant assessment year and whether the addition computed on the basis adopted by the Assessing Officer was sustainable.

Issue (i): Whether the reassessment notice and the reopening of the completed assessment were valid.

Analysis: The assessment was reopened on information received from the Investigation Wing following search proceedings in the developer group. The record showed that the Assessing Officer had obtained the necessary approval of the competent authority before issuing notice under Section 148. The material before the Assessing Officer constituted tangible material to form a belief that income had escaped assessment, and the reopening could not be invalidated merely because the reasons might be contested on merits.

Conclusion: The reopening was valid and the objection to jurisdiction failed.

Issue (ii): Whether the transfer under the joint development agreement gave rise to capital gains in the relevant assessment year and whether the addition computed on the basis adopted by the Assessing Officer was sustainable.

Analysis: The joint development agreement and the power of attorney showed that the assessee had parted with possession and had granted irrevocable rights to the developer in relation to 47% of the undivided share in the land in return for constructed area. On that basis, the transaction satisfied the ingredients of transfer contemplated by Section 2(47)(v) read with the statutory scheme governing part performance, and the capital gain, if any, arose in the year of the agreement rather than only on the later sale deed. However, the Assessing Officer adopted the cost of construction from the developer's books without proper enquiry, even though the parties had fixed the value in the sale deed and the developer's books could include business expenditure not directly relatable to construction cost for the assessee's capital gains computation.

Conclusion: The transfer was taxable in the relevant year, but the addition computed by the Assessing Officer was deleted.

Final Conclusion: The appeal succeeded overall because the reopening was upheld but the capital gains addition was deleted on the ground of unsustainable computation.

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