2018 (10) TMI 738 - AT - Income Tax

Tribunal revises assessment year for capital gains, rules in favor of assessee.

The Tribunal set aside the CIT(A)'s order and allowed the assessee's appeals, determining that capital gains should be assessed in AY 2003-04 when ... Reassessment u/s 147 - Capital Gains - Year in which amount is taxable - transfer of property - Joint development agreement - assessee offer his share to the builder against settlement of an amount - the developer completed the construction and was ready to handover the completed 45% share of the landlord in the financial 2009-10 which was seen from the developer's letter dated 22/12/2009 addressed to the land lords (assessee) that mentioned settlement amounts to be paid and stated that the construction of the portion allotted to landlords was complete and requested the landlords to take possession of the completed share (i.e.45%) of the built-up area. Held that:- the actual vacant possession was handed over to the developer only in 2003. Therefore, the actual transfer took place in the year 2003. The provisions of capital gains are attracted in the year 2003. Hence, the stand of the AO to charge the capital gains in the year 2010-11 is not proper. Secondly, the reason for bringing to tax in the year 2010-11 was the letter of the developer to announce that the building is ready for occupation without complying to the ‘JDA’ and approval norms. Even though the same was brought to the notice of the AO, according to us, the reason for reopening the assessment is on faulty ground. - Reassessment quashed - Decided in favor of assessee. Issues Involved:1. Validity of reopening of assessment under Section 147 of the Income Tax Act, 1961.2. Determination of the year in which capital gains arise from the Joint Development Agreement (JDA).3. Computation of long-term capital gains.4. Opportunity for the assessee to present their case.Issue-wise Detailed Analysis:1. Validity of Reopening of Assessment under Section 147 of the Income Tax Act, 1961:The Assessing Officer (AO) issued a notice under Section 148 to the assessee, based on the developer's letter dated 22/12/2009, indicating that the construction was completed and ready for possession in the financial year 2009-10. The AO reasoned that the capital gains should be assessed in the assessment year (AY) 2010-11. The CIT(A) upheld the validity of the reopening of the assessment.2. Determination of the Year in which Capital Gains Arise from the Joint Development Agreement (JDA):The primary issue was to determine when the capital gains should be taxed. The AO contended that the capital gains should be assessed in AY 2010-11, as the construction was completed in the financial year 2009-10. However, the assessee argued that the transfer occurred in the year 2000, when the JDA was executed, and possession was handed over for development. The Tribunal referred to the case of Potla Nageswara Rao, where it was held that capital gains arise in the year when possession is handed over. In this case, the Tribunal noted that the actual vacant possession was handed over to the developer in 2003, making the AY 2003-04 the relevant year for capital gains.3. Computation of Long-Term Capital Gains:The AO computed the long-term capital gains based on the SRO rates, taking the cost per square foot at Rs. 2,100 and the consideration value of the land foregone. The AO calculated the long-term capital gains for the assessee's share at Rs. 1,08,29,187. However, the Tribunal, following its decision in similar cases of other family members, concluded that the capital gains should be assessed in AY 2003-04, not AY 2010-11.4. Opportunity for the Assessee to Present Their Case:The assessee contended that the CIT(A) erred in deciding the appeal without providing a proper opportunity, especially when the appeals of other co-owners were also pending. The Tribunal found that the issue in dispute was identical to that of other family members' cases and followed the decision drawn therein, allowing the grounds raised by the assessee.Conclusion:The Tribunal set aside the order of the CIT(A) and allowed the appeals of the assessee. It held that the capital gains should be assessed in AY 2003-04 when the actual vacant possession was handed over to the developer, not in AY 2010-11. The assessment completed under Section 144 read with Section 147 was quashed, and the grounds raised by the assessee were allowed.