2024 (11) TMI 383 - AT - Income Tax

Capital gains from joint development agreement taxable in year of actual transfer, not when installments received

ITAT Kolkata held that capital gains from joint development agreement should be computed in the year of actual transfer, not when installments are ... Revision u/s 263 - deduction allowed u/s 54EC & 54F by the AO was erroneous in so far as it was prejudicial to the interest of revenue - HELD THAT:- The assessee had entered into joint development agreement with M/s R.K. Construction on 10.02.2012 for a total consideration of Rs. 1,95,00,000/- along with 8 flats and 8 car parks upon construction. The total consideration therefore, was not only Rs. 1,95,00,000/- but the fair market value of the 8 flats and car park which the assessee was to receive from the developer. Instead of showing capital gain in the year of transfer i.e. AY 2012-13, the assessee showed capital gains of Rs. 38,00,000/- in AY 2013-14 and Rs. 24,00,000/- in AY 2014-15 which is not in accordance with the provisions of the Act relating to computation of capital gains. The capital gains is to be computed in the year of transfer, which was AY 2012-13 and after reducing the cost of acquisition. The cost of acquisition in the case of gifted property is governed by section 49(1) of the Act. Since, the agreement dated 03.11.2011 and the subsequent unregistered agreement dated 10.02.2012 with M/s R.K. Construction, a proprietary concern of Dr. Malaya Mukherjee, could not materialise, therefore, subsequently the assessee entered into another joint development agreement with M/s Tanvee Green City (P) Ltd. on 26.09.2014 which was a registered development agreement. The powers of attorney were also issued in the name of the directors of the company for getting all the formalities completed. The developer adjusted the amount of Rs. 62,00,000/- received by the assessee earlier and accordingly, the assessee was to receive only the balance of Rs. 1,00,00,000/- along with one flat and one car par. The total consideration was therefore, Rs. 1,62,00,000/- plus market value of one flat and one car park from which the cost of land owned by the assessee, which was gifted to him by his mother was to be deducted to arrive at the capital gains, which was assessable in AY 2015-16. The assessee contends that if the transfer is considered in AY 2013-14 then there is no discussion regarding the taxation of Rs. 90,00,000/- received in AY 2015-16 by the Ld. PCIT. Since the second registered agreement and the balance payment was received from M/s Tanvee Green City (P) Ltd., therefore, the Ld. PCIT was not correct in holding that claiming and allowing the date of transfer as the date of registration was not in order for availing exemption u/s 54EC and 54F in FY 2014-15. AO allowed the claim of deduction u/s 54EC but disallowed the claim of deduction u/s 54F of Rs. 43,00,000/- since as per the Inspector’s report, the residential house was not completed till date and he had also added the sum of Rs. 10,00,00,000/- on account of difference in market value for development agreement and computation of income. The assessee had shown capital gains being the instalment of sale proceeds received in AY 2013-14 and 2014-15 at Rs. 38,00,000/- and Rs. 24,00,000/- respectively, which was not correct. It has been judicially held that income is to be assessed in the correct AY and since the unregistered joint development agreement with M/s R.K. Construction could not materialise and another JDA with M/s Tanvee Green City (P) Ltd. was executed, the capital gains was chargeable only in AY 2015-16 and not in the earlier assessment year(s). Accordingly, the order of the Ld. PCIT is modified and the appeal of the assessee is partly allowed. Issues Involved:1. Condonation of delay in filing the appeal.2. Legality of the revision order under Section 263 of the Income Tax Act.3. Correct assessment year for capital gains taxation.4. Eligibility for deductions under Sections 54EC and 54F.5. Determination of the date of transfer for capital gains purposes.Detailed Analysis:1. Condonation of Delay:The appeal was filed with a delay of 645 days, attributed to the COVID-19 pandemic. The appellant argued that the delay was beyond control due to pandemic-related disruptions and relied on the Supreme Court's decision in Suo Moto Writ Petition (C) No. 3 of 2020, which excluded the period from 15.03.2020 to 28.02.2022 from the limitation period. The Tribunal accepted this reasoning and admitted the appeal, noting that there was no delay in filing due to the Supreme Court's order.2. Legality of the Revision Order under Section 263:The Principal Commissioner of Income Tax (PCIT) invoked Section 263, stating the assessment order was erroneous and prejudicial to the interest of revenue. The PCIT argued that the capital gains should have been assessed in AY 2013-14, not AY 2015-16, and that deductions under Sections 54EC and 54F were incorrectly claimed. The Tribunal examined whether the Assessing Officer (AO) had conducted a proper inquiry and whether the PCIT's order was justified. The Tribunal found that the AO had duly considered the facts and supporting documents, and thus, the order was not erroneous due to a lack of inquiry.3. Correct Assessment Year for Capital Gains Taxation:The PCIT contended that the transfer of property occurred in AY 2013-14, while the assessee argued that a new Joint Development Agreement (JDA) in AY 2015-16 constituted a fresh transfer. The Tribunal noted that the earlier agreement with M/s R.K. Construction did not materialize, and a new registered JDA with M/s Tanvee Green City (P) Ltd. was executed on 26.09.2014. The Tribunal held that the date of transfer should be considered as 26.09.2014, making AY 2015-16 the correct year for assessing capital gains.4. Eligibility for Deductions under Sections 54EC and 54F:The PCIT disallowed deductions under Sections 54EC and 54F, arguing that the transfer occurred in AY 2013-14. The Tribunal found that since the registered JDA was executed in AY 2015-16, the deductions were correctly claimed in that year. The Tribunal directed that deductions under Section 54EC should be allowed as the assessee had invested in NHAI bonds, and Section 54F deductions should be considered based on the year of completion of the residential property.5. Determination of the Date of Transfer for Capital Gains Purposes:The Tribunal clarified that the date of transfer was the date of the registered JDA with M/s Tanvee Green City (P) Ltd., as the earlier agreement was rescinded. The Tribunal modified the PCIT's order to reflect this understanding, emphasizing that the capital gains should be assessed in AY 2015-16 based on the new agreement.Conclusion:The Tribunal partly allowed the appeal, modifying the PCIT's order to recognize the date of transfer as the date of the registered JDA in AY 2015-16, allowing deductions under Sections 54EC and 54F, and confirming that the capital gains should be assessed in the correct assessment year. The decision underscores the importance of correctly determining the date of transfer and the assessment year for capital gains, as well as the proper application of deductions under the Income Tax Act.