TDR sale proceeds from municipal land acquisition: s.96 exemption and cost basis disputed; issue remanded for fresh fact-checking

The dominant issue was whether consideration received on sale of Transferable Development Rights (TDRs) arising from municipal acquisition of land was exempt under s.96 of the RFCTLARR Act, 2013, including whether the underlying land was compulsorily acquired under the statute and statutory conditions were satisfied; the Tribunal found the exemption plea had not been properly examined by the AO and required factual verification, so it remitted the issue for fresh adjudication. A connected issue was whether any cost of the acquired land/TDR was recorded in the books and allowable against TDR sale proceeds; as this depended on verification of accounting records and the nature of acquisition, it was also remanded. The Revenue appeal and the assessee's cross-objection were allowed for statistical purposes by restoration to the AO.

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1. ISSUES PRESENTED AND CONSIDERED

Whether the deletion of the addition relating to proceeds from sale of Transferable Development Rights (TDR) could be sustained when the claim of exemption under section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act (RFCTLARR) was not examined at assessment stage and was not properly verified at appellate stage.

Whether the cost of land stated to have been surrendered/acquired for issuance of TDR was duly recorded in the audited books (including whether it appeared in fixed assets or current assets), and how such cost should be considered while determining taxability of sale of TDR.

Whether, in the facts on record, the matter required restoration to the Assessing Officer for fresh adjudication on exemption, booking of cost, and computation relating to transfer/sale of TDR, including consideration of documents produced at the Tribunal stage.

2. ISSUE-WISE DETAILED ANALYSIS

A. Sustainability of appellate relief on TDR addition without examination/verification of section 96 RFCTLARR exemption claim

Legal framework (as discussed by the Tribunal): The Tribunal addressed the assessee's contention that receipt of TDR on acquisition of land is exempt under section 96 of RFCTLARR, and noted the Revenue's objection that the exemption claim was not part of the return and was not examined by the Assessing Officer.

Interpretation and reasoning: The Court found as a fact that the return of income did not claim any exempt income under section 96 RFCTLARR and that the Assessing Officer had not examined any such exemption claim. The Assessing Officer only examined the credit of TDR sale proceeds to capital account and taxed the amount as business income primarily due to lack of verifiable cost details in the fixed asset schedule. The Tribunal also noted that at the first appellate stage, after an initial communication, no effective subsequent submission was made by the assessee and the relief was granted on limited examination (including an observation that certain land cost appeared under current assets). The Tribunal held that the "moot question" of exemption on issuance of TDR against acquisition of land remained unexamined on facts and could not be concluded without proper verification.

Conclusion: The Tribunal set aside the appellate order and restored the exemption issue to the Assessing Officer for fresh adjudication, specifically directing examination of whether income arising from acquisition of land with issuance of TDR (valued by the municipal authority) is eligible for exemption under section 96 RFCTLARR.

B. Verification of booking of land cost in books and its impact on taxability/computation on sale of TDR

Legal framework (as discussed by the Tribunal): The Tribunal proceeded on the basis that determination of taxable income from sale/transfer of TDR necessarily required examination of the underlying cost booked in regularly audited books and the allowability of such cost against sale proceeds.

Interpretation and reasoning: The Assessing Officer accepted only part of the land cost because only that portion was traceable in the fixed assets, and treated the balance as unsupported. The Tribunal noted that the first appellate authority granted relief by observing that the land cost not found in fixed assets was reflected under current assets; however, the Tribunal held that the overall computation could not be finalized without verifying (i) whether the land cost relating to the acquired/surrendered land was actually booked in the regular audited accounts, and (ii) how the cost of acquiring/receiving TDR should be considered when the assessee claimed that TDR were first received (allegedly as exempt) and later sold (allegedly at a loss).

Conclusion: The Tribunal restored to the Assessing Officer the question whether the cost of land said to be acquired/surrendered for issuance of TDR was booked in the regular books of account, and directed fresh examination of the sale of TDR and allowance of cost of acquiring such TDR in accordance with law.

C. Necessity of remand for de novo adjudication and consideration of documents produced at the Tribunal stage

Legal framework (as discussed by the Tribunal): The Tribunal exercised its appellate powers to set aside the impugned order and remand where foundational factual verification and examination of primary claims had not been carried out by the lower authority/authorities, and where documents were stated to have been filed for the first time before the Tribunal.

Interpretation and reasoning: The Tribunal recorded that significant aspects (exemption claim, factual verification of acquisition/issuance of TDR, and proper accounting treatment/cost substantiation) had not been examined by the Assessing Officer; further, it noted the position that documents were stated to have been filed for the first time before the Tribunal. Considering these deficiencies, the Tribunal found it appropriate to restore the matter to the Assessing Officer for afresh adjudication on identified points, with a direction to provide reasonable opportunity of hearing and to consider the additional documents and written submissions of both sides.

Conclusion: The Tribunal set aside the impugned appellate order and remanded the matter to the Assessing Officer to decide afresh: (i) eligibility of exemption under section 96 RFCTLARR on issuance of TDR against acquisition of land, (ii) whether the cost of land was booked in regular books, and (iii) the tax treatment of sale/transfer of TDR including cost of acquiring the TDR. Both the Revenue's appeal and the cross-objection were allowed for statistical purposes.

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