Capital gains on registered development agreements may arise on transfer where development rights and effective possession are conveyed.

Interest disallowance on funds advanced to a director was treated as outside the scope of the remand and remained upheld. Unrecorded scrap sales were sustained as taxable because the books reflected only part of the receipts and the assessee failed to produce reliable reconciliation or evidence. In the property transfer to M/s. Gopalan Enterprises, the Tribunal held that the composite transaction covered land and improvements, while unproved improvement expenses were not allowed; it also directed verification to avoid double taxation of an amount already offered under another head. A registered joint development arrangement with IDEB was held to constitute a transfer in the relevant year because development rights, alienation powers, part payment, and effective possession satisfied part performance principles.

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Issues: (i) Whether the disallowance of interest expenditure on funds allegedly advanced to the director was sustainable. (ii) Whether the addition on account of undisclosed scrap sales was justified. (iii) Whether capital gains arose on the transfer of property to M/s. Gopalan Enterprises and whether the claimed cost of improvement and the amount offered under another head required exclusion. (iv) Whether capital gains arose in the year of the joint development arrangement with IDEB under section 2(47)(v) read with section 53A of the Transfer of Property Act, 1882.

Issue (i): Whether the disallowance of interest expenditure on funds allegedly advanced to the director was sustainable.

Analysis: The interest disallowance was not part of the subject matter carried into the second round before the Tribunal and no specific direction had been issued earlier on that item. The Tribunal treated the addition as outside the scope of the remand proceedings and held that the assessee could not reopen that item in this appeal.

Conclusion: The disallowance was upheld and the issue was decided against the assessee.

Issue (ii): Whether the addition on account of undisclosed scrap sales was justified.

Analysis: The record showed that only part of the scrap sales was reflected in the books, while the balance was found during survey. The assessee did not produce reliable evidence, confirmations, or reconciliation even in the remand proceedings. The Tribunal accepted the lower authorities' finding that the unrecorded amount remained unexplained and taxable.

Conclusion: The addition was sustained and the issue was decided against the assessee.

Issue (iii): Whether capital gains arose on the transfer of property to M/s. Gopalan Enterprises and whether the claimed cost of improvement and the amount offered under another head required exclusion.

Analysis: The Tribunal held that the composite transaction covered the land and the appurtenant improvements, so the entire consideration formed part of the capital gains computation. The claim for fencing and related improvement expenditure failed for want of proof. As to the amount already offered under another head, the Tribunal accepted that it should not suffer double taxation and noted that the assessing authority had to give effect to the appellate directions after verification, but this did not disturb the ultimate taxability of the capital gains computation as upheld by the Tribunal.

Conclusion: The capital gains addition was sustained, with only the direction to verify and give effect to the exclusion of the amount already taxed under another head; the issue was substantially decided against the assessee.

Issue (iv): Whether capital gains arose in the year of the joint development arrangement with IDEB under section 2(47)(v) read with section 53A of the Transfer of Property Act, 1882.

Analysis: The registered joint development agreement, agreement for sale, and irrevocable power of attorney conferred development rights, entry rights, and power to alienate the constructed area, together with determinable consideration and part payment. The Tribunal applied the doctrine of part performance and substance over form to hold that possession and effective control had been sufficiently parted with for the purposes of section 2(47)(v), so the transfer was complete in the relevant year. The objection that possession was deferred was rejected on the facts and the statutory scheme.

Conclusion: Capital gains were rightly brought to tax in the relevant year and the issue was decided against the assessee.

Final Conclusion: The assessee's appeal was unsuccessful in substance, and the additions and taxability determined by the lower authorities were left undisturbed, apart from the limited verification direction on the double-taxation aspect in the Gopalan transaction.

Ratio Decidendi: For capital gains purposes, a registered development arrangement can amount to a transfer when it confers irrevocable development and alienation rights together with part performance and effective possession or control within the meaning of section 2(47)(v) read with section 53A of the Transfer of Property Act, 1882.

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