2020 (11) TMI 68 - AT - Income Tax

Tribunal upholds Assessing Officer's additions on land sale for capital gains.

The Tribunal dismissed the appeal, upholding the additions made by the Assessing Officer and confirmed by the CIT (A). It held that the sale of 50 acres ... Capital gain on sale of land - year of assessment - deemed buy back by the assessee on the date of arbitration award - as per assessee all four sale deeds executed in F. Y. 2009-10 were cancelled as per the Arbitration Award dated 02.09.2015, it should be held that there was no sale of land in F. Y. 2009 -10 relevant to the present Assessment Year 2010 -11 - HELD THAT:- This cannot be said that as per the effect of Arbitration Award dated 02.09.2015 and consequent cancellation of Sale Deeds, there was no sale in A. Y. 2010 – 11 and the ends of justice will be met and full effect will also be given to Arbitration Award dated 02.09.2015 and consequent cancellation of four sale deeds executed in F. Y. 2009 – 10 and execution of three new sale deeds in F. Y. 2015 – 16. If we hold that sale of 50 Acres of land for ₹ 100 Crores was complete in F. Y. 2009 – 10 relevant to A. Y. 2010 – 11 and therefore, resultant capital gain on this entire sale is liable to tax in A. Y. 2010 – 11 and on account of cancellation of those four sale deeds as per the Arbitration Award dated 02.09.2015, it should be held that out of the said 50 Acres of Land, land equal to 26 Acres 10 Guntas is deemed to be Bought Back by the Assessee on 02.09.2015 for same consideration ₹ 2 Crores per Acre because same lands to the extent of 23 Acres 30 Guntas are sold by various sale deeds executed in F. Y. 2015 – 16 also and in fact, sale of only 26 Acres 10 Guntas of land is not ultimately made as per various sale deeds executed in F. Y. 2015 – 16 and for such deemed buy back of 26 Acres 10 Guntas of land, Cost of acquisition should be considered at ₹ 2 Crores per Acre (Total Cost ₹ 52.50 Crores) with date of acquisition as 02.09.2015 for computing capital gain, when any land out of this 26 Acres 10 Guntas Land is sold by the assessee in future. This will give full effect to cancellation of four sale deeds executed in F. Y. 2009 – 10 and execution of three new sale deeds executed in F. Y. 2015 – 16 as per which, 23 Acres 30 Guntas of the same lands were transferred by the assessee vendor to the buyer M/s Manipal University and 55 Acres 31.89 Guntas of new lands (Out of Total 79 Acres 21.89 Guntas of Contiguous land for ₹ 150 Crores as per three Sale Deeds executed in F. Y. 2015 – 16) were transferred at the balance consideration of ₹ 102.50 Crores being Total sale consideration of ₹ 150 Crores minus sale consideration of 23 Acres 30 Gunta Land @ ₹ 2 Crores per Acre ₹ 47.50 Crores because this much land is not deemed to be bought back by the assessee as these are part of sale deeds executed in F. Y. 2015 – 16 also. We have ensured that full effect is given to the arbitration award dated 02.09.2015. Effect to cancellation of Executed Sale Deed as per Arbitration award is fully given once we hold that the land which is not ultimately sold as per new sale deeds executed in F. Y. 2015 – 16 is deemed buy back by the assessee on the date of arbitration award. Regarding double taxation of capital gain in respect of 23 Acres 30 Guntas land which is common in the sale deeds executed in F. Y. 2009 – 10 & 2015 – 16, this is up to the assessee (if so advised) to make claim before the department and since, that year is not before us, we do not feel it proper to give any direction in respect of that year. - Decided against assessee. Issues Involved:1. Whether the CIT (A) erred in confirming the additions made by the Assessing Officer without considering the submissions of the Appellant.2. Consideration of the Arbitration Award dated 02.09.2015.3. Taxation of income disclosed as per the Arbitration Award in AY 2016-17.4. Double taxation of the same income in AY 2010-11 and AY 2016-17.5. Recognition of revenue as per the 'Guidance Note on Recognition of Revenue by Real Estate Developers' issued by the ICAI.6. Non-reimbursement of costs by the buyer.7. Applicability of Accounting Standard 'AS-7' regarding the outcome of a contract.8. Restriction of revenue recognition to 15% of the monies received.9. Excessive, arbitrary, and unreasonable disallowance.10. Interest levied under sections 234B and 234C of the Act.Issue-wise Detailed Analysis:1. Confirmation of Additions by CIT (A):The CIT (A) confirmed the additions made by the Assessing Officer without adequately considering the submissions of the Appellant. The Tribunal noted that the assessee entered into an agreement of sale with Manipal University on 01.06.2009, received advances, and executed sale deeds for 50 acres of land in FY 2009-10. Despite the assessee's failure to fulfill the entire agreement, the CIT (A) upheld the additions without proper consideration of the assessee's arguments.2. Consideration of Arbitration Award:The Tribunal acknowledged the Arbitration Award dated 02.09.2015, which canceled the agreement of sale dated 01.06.2009 and the registered sale deeds executed in FY 2009-10. The award required the assessee to convey 79 acres of land to Manipal University in lieu of the advance received. The Tribunal emphasized that the Arbitration Award and the subsequent cancellation of sale deeds should be given full effect.3. Taxation of Income in AY 2016-17:The assessee disclosed the income of Rs. 150 crores as per the Arbitration Award in AY 2016-17. The Tribunal noted that the assessment for this year was completed with NIL additions. The Tribunal held that the sale of 50 acres of land was complete in FY 2009-10, and the resultant capital gain was taxable in AY 2010-11. However, due to the Arbitration Award, the assessee was deemed to have bought back 26 acres 10 guntas of land on 02.09.2015, and the cost of acquisition was considered at Rs. 2 crores per acre for future capital gain computation.4. Double Taxation of Income:The Tribunal addressed the issue of double taxation, noting that the same income could not be taxed twice in AY 2010-11 and AY 2016-17. The Tribunal held that the assessee could make a claim before the department to avoid double taxation for the common land sold in both years.5. Recognition of Revenue as per ICAI Guidance Note:The Tribunal considered the 'Guidance Note on Recognition of Revenue by Real Estate Developers' issued by the ICAI, which states that no revenue shall be recognized until the seller performs the acts they are obliged to perform. The Tribunal found that the assessee had fulfilled the conditions for the sale of 50 acres of land in FY 2009-10, making the revenue recognition appropriate for that year.6. Non-reimbursement of Costs:The Tribunal did not find merit in the assessee's argument that revenue recognition was inappropriate due to non-reimbursement of costs by the buyer. The Tribunal focused on the completion of the sale transaction and the receipt of consideration by the assessee.7. Applicability of Accounting Standard 'AS-7':The Tribunal considered the applicability of Accounting Standard 'AS-7,' which deals with situations where the outcome of a contract cannot be reliably estimated. The Tribunal held that the sale of 50 acres of land was complete in FY 2009-10, and the revenue recognition was justified for that year.8. Restriction of Revenue Recognition to 15%:The assessee argued that revenue recognition should be restricted to 15% of the monies received, corresponding to the transfer of 50 acres out of the contracted 190 acres. The Tribunal did not accept this argument, as the sale of 50 acres was complete in FY 2009-10, and the entire consideration was received.9. Excessive, Arbitrary, and Unreasonable Disallowance:The Tribunal found that the disallowance made by the CIT (A) was not excessive, arbitrary, or unreasonable. The Tribunal upheld the additions made by the Assessing Officer and confirmed by the CIT (A).10. Interest Levied under Sections 234B and 234C:The Tribunal upheld the interest levied by the Assessing Officer under sections 234B and 234C of the Act. The Tribunal did not find any basis to interfere with the interest levied.Conclusion:The Tribunal dismissed the appeal of the assessee, holding that the sale of 50 acres of land was complete in FY 2009-10, and the resultant capital gain was taxable in AY 2010-11. The Tribunal gave effect to the Arbitration Award dated 02.09.2015 by deeming the buyback of 26 acres 10 guntas of land on the date of the award for future capital gain computation. The Tribunal ensured that full effect was given to the Arbitration Award and the consequent cancellation of sale deeds.