Tribunal directs deletion of short-term capital gains assessment, assessee's appeal allowed.

The Tribunal set aside the CIT(A)'s order and directed the A.O. to delete the assessment of short-term capital gains. The appeal of the assessee was allowed, and the judgment was pronounced on 22nd Nov, 2021.

---

---

Issues Involved:
1. Validity of reopening of assessment.
2. Assessment of capital gain of Rs. 1,00,74,435/- upon entering a joint development agreement.

Issue-wise Detailed Analysis:

1. Validity of Reopening of Assessment:
The assessee filed a return of income for the assessment year 2006-07, declaring a loss of Rs. 83,677/-. The return was processed under section 143(1) of the Income-tax Act, 1961. The Assessing Officer (A.O.) later discovered that the assessee had entered into a joint development agreement (JDA) with M/s. Vastu Structures Pvt. Ltd. on 29.12.2005, transferring 65% of the undivided interest in a land in exchange for 35% of the built-up area and a refundable deposit of Rs. 10 lakhs. The assessee did not declare any capital gain from this transaction in the return filed. Consequently, the A.O. reopened the assessment under section 147 by issuing a notice under section 148 on 30.3.2013.

The assessee contested the reopening, arguing that the land was held as stock-in-trade and not as a capital asset. The A.O. disagreed, treating the land as a capital asset and invoking section 2(47)(v) of the Act, which pertains to the transfer of property under section 53A of the Transfer of Property Act. The A.O. relied on the Karnataka High Court's decision in CIT Vs. Dr. T.K. Dayalu and assessed a short-term capital gain of Rs. 1,00,74,435/-.

The CIT(A) upheld the validity of the reopening and the assessment of the capital gain. The Tribunal noted that the original return was processed under section 143(1), and the JDA was not furnished with the return, constituting fresh material. Thus, the A.O. had sufficient reason to believe there was escapement of income, validating the reopening of the assessment.

2. Assessment of Capital Gain:
The assessee argued that the JDA did not result in a transfer of property under section 53A of the Transfer of Property Act, as possession of the property was not given in part performance of the contract. The JDA explicitly stated that the developer was granted irrevocable permission and license to enter the property for construction, which does not equate to possession. The Tribunal examined the relevant clause of the JDA and concluded that the developer was granted a license, not possession, under section 53A.

The Tribunal referred to the Bangalore SMC bench's decision in Smt. Lakshmi Swarupa vs. ITO, which held that granting a license to enter the property does not constitute possession under section 53A. The Tribunal found that the provisions of section 2(47)(v) of the Act, which include transactions involving possession under section 53A, were not applicable as the developer did not receive legal possession.

The assessee also contended that the land was held as stock-in-trade, not a capital asset, making section 2(47)(v) inapplicable. The Tribunal noted that entries in the books of account are not decisive for income tax purposes. However, since the provisions of section 2(47)(v) were already deemed inapplicable, this contention did not require further adjudication.

Conclusion:
The Tribunal set aside the CIT(A)'s order and directed the A.O. to delete the assessment of short-term capital gains. The appeal of the assessee was allowed, and the judgment was pronounced on 22nd Nov, 2021.

---