2022 (7) TMI 390 - AT - Income Tax

Transfer of Development Rights Taxable in AY 2012-13, Long-term Capital Gain Consideration Upheld

The Tribunal upheld the decision that the transfer of development rights was taxable in the assessment year (AY) 2012-13, not AY 2009-10, as per Section ... LTCG - year of taxability on transfer of development rights in a plot of land - Year of Chargeability - AO rejected the computation of LTCG i.e. the sale consideration and cost of acquisition and computed the quantum of LTCG based on stamp duty value and assessed the same on protective basis - CIT(A) held that capital gain is taxable in AY 2012-13 rather than in AY 2009-10 - whether possession of plot of land was handed over to the developer within the meaning of section 53A of the Transfer of Property Act, at the time of entering the DA or possession was handed over at the time of completion of construction of the property? - HELD THAT:- Hon’ble Supreme Court in the case of Seshasayee Steel (P) Ltd. [2019 (12) TMI 702 - SUPREME COURT] considered a development agreement granting permission to start advertising, selling and construction and permitted to execute sale agreements to developer. The Hon’ble court held that such permission is not possession under section 53A of the transfer of property Act - held that “possession within meaning of section 53A, which is a legal concept and which denotes control over the land and not actual physical occupation of the land. This being the case, the section 53 of the Transfer of Property Act cannot possibly be attracted. Respectfully following the finding of the Hon’ble Supreme Court and other High Court, we hold that the capital asset of the assessee cannot be treated as transferred u/s 2(47)(4) of the Act read with section 53A of the Transfer of Property Act in assessment year 2009-10. We do not find any error in the finding of the Ld. CIT(A) on the issue in dispute and accordingly, we uphold the same as far as the year of taxability of capital gain is concerned. The ground no. 1 of the appeal of the Revenue is accordingly dismissed. Non-applicability of section 50C on the development right - We do not find any infirmity in the finding of the Ld. CIT(A) in holding that consideration received in the form of constructed area to the extent relatable to loading of the TDR is not taxable. As far as value of the 42% of constructed area is considered, the Ld. DVO has determined the cost of construction at ₹8,81,46,948/-. The said report of the DVO has been reproduced by the Assessing Officer in assessment order for AY 2009-10 on page 8. In clause 13 of said report, cost of construction has been reported. We direct the Ld. Assessing Officer to restrict the full value of consideration received by the assessee at 42% of the cost of construction, which works out to ₹3,70,21,718/-. The ground No. one of the appeal of the assessee is accordingly allowed. As far as the argument of Ld. DR that property was converted into stock in trade in the financial year 2007-08 and therefore should be taxed accordingly, the assessee has already withdrawn its cross objection and the lower authorities has decided the issue of transfer considering the property as capital asset and now the Ld. DR cannot raise new issue, without any ground of appeal. The arguments of the Ld. DR accordingly not relevant for adjudication of the issue-indispute. The ground No. 2 &3 of the appeal of Revenue are accordingly dismissed. Disallowance of interest related to ECL Finance Ltd. - AO disallowed the interest holding the same as not incurred for the purpose of the business, wherein the Ld. CIT(A) looking to the past history has treated part of the interest as allowable under the head income from house property, whereas disallowed the amount which was used for improvement of the house property to make it fit for earning rent in future - HELD THAT:- Before us, the assessee is not able to substantiate as how the interest paid to ECL finance Ltd is deductible under the income from house property. The assessee has failed to establish that said borrowing from ECL finance Ltd is incurred for acquisition or construction of house property, income from which was offered under the head ‘income from house property’. In absence of any such evidence, we do not find any error in the order of Ld. CIT(A) on the issue in dispute and accordingly uphold the same. Addition on the basis of loose papers impounded during the course of survey action under section 133A - HELD THAT:- The assessee has clearly admitted that the expenditure of ₹ 1.3 lakh was incurred, therefore, the assessee was required to explain source of the said expenditure. CIT(A) has noted that assessee failed to substantiate the actual expenditure incurred out of the explained sources. Before us, the assessee has not filed any capital account or withdrawal by the assessee and his family members to substantiate the source of expenditure. In the circumstances, we do not find any error in the order of the Ld. CIT(A) on the issue in dispute and accordingly we uphold the same. Issues Involved:1. Year of taxability on the transfer of development rights.2. Quantum of long-term capital gain.3. Disallowance of interest paid.4. Addition under Section 69C for unexplained expenditure.Detailed Analysis:1. Year of Taxability on the Transfer of Development Rights:The primary issue was whether the transfer of development rights should be taxed in the assessment year (AY) 2009-10 or AY 2012-13. The Revenue contended that the transfer took place in AY 2009-10 when the development agreement was registered and possession was given to the developer. The assessee argued that the transfer occurred in AY 2012-13 when the constructed property was received.The Tribunal upheld the CIT(A)'s decision that the capital gain is taxable in AY 2012-13. It was determined that only permissive possession was given to the developer for construction purposes, not ownership rights. Therefore, the transfer within the meaning of Section 2(47) of the Income-Tax Act did not occur in AY 2009-10.2. Quantum of Long-Term Capital Gain:The assessee computed the long-term capital gain based on the cost of constructed area and excluded consideration related to loading of TDR. The Assessing Officer (AO) included the TDR value and used the stamp duty value as the full value of consideration.The CIT(A) held that the provisions of Section 50C are not applicable to the transfer of development rights and excluded the consideration related to TDR loading. The Tribunal upheld this decision, following precedents that deeming provisions like Section 50C should be construed strictly. The full value of consideration was determined as 42% of the cost of construction, which was Rs. 3,70,21,718/-.3. Disallowance of Interest Paid:The AO disallowed Rs. 15,06,920/- of interest, claiming it was not incurred for business purposes. The CIT(A) allowed part of the interest as deductible under 'income from house property' but disallowed Rs. 3,11,920/- related to ECL Finance Ltd., used for property improvement.The Tribunal upheld the CIT(A)'s decision, noting the assessee failed to substantiate that the interest was incurred for acquiring or constructing the house property.4. Addition under Section 69C for Unexplained Expenditure:The AO added Rs. 1,30,000/- as unexplained expenditure based on loose papers found during a survey. The assessee claimed these were personal expenses of a partner, not business expenses.The CIT(A) rejected this claim due to a lack of evidence. The Tribunal upheld this decision, noting the assessee failed to prove the source of the expenditure.Conclusion:- The appeal of the Revenue for AY 2012-13 was dismissed.- The appeal of the assessee for AY 2012-13 was partly allowed.- The cross-objection of the assessee was dismissed as withdrawn.- The appeal of the Revenue for AY 2009-10 was dismissed.- The cross-objection of the assessee for AY 2009-10 was dismissed as withdrawn.