TaxTMI 
TaxTMI 
TaxTMI 
2018 (5) TMI 1641
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..... It was noticed from the office records that assessee has purchased a land of Ac. 0.28.25 Guntas, (along with Sri G. Rama Rao in the land of Ac. 1.165) at Survey Nos. 192 to 196 of Nizampet Village, Qutbullapur Municipality, Ranga Reddy Dist., for a consideration of Rs. 2,47,250/- on 15-02-2001. Assessee has given it for development to M/s. Siri Balaji Constructions and M/s. Siri Lakshmi Balaji Constructions vide development agreements dt. 14-08-2006. AO noted that the said transaction/capital gains has not been disclosed in the return of income already filed, hence proceedings u/s. 147 of the Income Tax Act [Act] were initiated by the AO and a notice u/s. 148 was issued on 29-03-2014. 4. During the scrutiny proceedings, it was noted that assessee along with seven others, who are co-owners have entered into development agreement cum GPA with a firm, M/s. Siri Balaji Constructions for construction of residential flats in the sharing ratio of 50% upto 5th floor and 45% of constructed area in 6th and 7th floors, thus totaling to 4,70,007 Sq. Ft., comprising 28 flats as share. In the development agreement, it has been agreed that the residential flats to be constructed shall be compl....
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....roved on 29-03-2008 by the HUDA for the construction of multi-storied building and developer has not done construction of flats to discharge the obligations cast on it under the development agreement. Consequently, assessee along with co-owners has approached the court of law and a Memorandum of Compromise before the Lok Adalat at Ranga Reddy District had been entered on 29-05-2012, wherein it has been clearly outlined the failure of the developer to perform the obligations of the development agreement. It was further submitted that the land owners along with the flat owners [who paid advances or who has purchased the flats from the developer out of its share] formed as an association and completed the construction of flats and common amenities. 7. While acknowledging the submissions made by assessee in the order, Ld.CIT(A), however, went on to discuss the legal provisions and relying on the terms of agreements, confirmed the action of AO in bringing to tax the capital gains in the impugned year. However, he directed the AO to exclude the amount of security deposit of Rs. 55 Lakhs brought to tax by the AO, in addition to the so called sale consideration in the form of built up are....
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....d on the same. Therefore, assessee along with other co-owners filed the case before the Lok Adalat against the developer and finally a Compromise Agreement was entered in E.P. No. 42/2012 in O.S. No. 872/2011, dt. 25-09-12. Accordingly, since the developer expressed his inability to undertake any further construction, the onus fell upon the assessee and other co- owners and also M/s. Siri Balaji Constructions Flat Owners Association comprising of the flat owners to complete the same and the refundable deposit was adjusted towards completion of the same. Referring to the documents placed in the Paper Book, it was the submission of the Ld. Counsel that the development agreement did not go through and ultimately assessee and other co-owners have completed the project and sold to third parties, therefore, taxing the capital gain on so called development agreement does not arise. 9.1. With reference to second agreement with M/s. Siri Lakshmi Balaji Constructions, wherein 14 duplex apartments were to be handed over, there was no approval either from the Panchayat or from the HUDA and ultimately the development agreement itself was cancelled by way of cancellation of 'supplementary agree....
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.... accordingly determined that the same will be undertaken by the appellant and other co-owners themselves along with the 3rd party being the Siri Balaji Flat Owner's Association. In these circumstances it can hardly be said that the transferee was willing to perform his part of the contract. Therefore Sec 2(47) r.w 53A is not applicable to the facts of the case and hence there is no taxability to capital gains. 10. Coming to legal propositions relied on by the CIT(A), it was submitted that in all the cases, where CIT(A) has relied on, there was handing over of the possession on which there was no dispute, whereas in this case there was no handing over of the possession. Relying upon the decision of Hon'ble Bombay High Court in the case of M/s. Chaturbhuj Dwaraakdas Kapadia Vs. CIT [260 ITR 491] (Bom) it was submitted that Ld.CIT(A) wrongly applied to the facts of the case. Explaining further, it was submitted that the Hon'ble Bombay High Court gave the judgment in a case related to a sale of property in the guise of development agreement, whereas in this case, the agreements were genuine development agreements and there is no passing of control over the property to the ....
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....thetical income which cannot be brought to tax. He also relied on the following judgments: i. Amiantit International Holding Ltd., AAR [322 ITR 678]; ii. State Bank of Travancore Vs. CIT [158 ITR 102]; iii. CIT Vs. Ashokbhai Chimanbhai [56 ITR 42]; iv. Assam Roller Flour Mills Vs. CIT [227 ITR 43]; for various concepts. Lastly, Ld. Counsel relied on the recent amendment to the Finance Act, 2017 by which new provision of Sub-Section 5A u/s. 45 has been introduced to support the concept of real income. 11. Ld.DR, however, while accepting that the facts as stated by the Ld. Counsel were placed before the AO and CIT(A) that one agreement has been cancelled and other agreement has been subjected to litigation, however, relied on the orders of the AO and CIT(A) that development agreements have indeed given rise to taxability of capital gains as possession was handed over and the principles laid down by the jurisdictional High Court in the case of Potla Nageswara Rao Vs. DCIT (supra) will indeed apply. He relied on the detailed orders of AO and CIT(A). 12. We have considered the rival contentions and perused the Paper Book placed on record along with relevant case law. The case....
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....872/2011, dt. 27- 08-2011 and another order in E.P. No. 42/2012 in O.S. No. 872/2011, dt. 25-09-2012. By the last order dt. 25-09-2012, the dispute has been compromised/settled and the award was passed whereby the land owners and flat owners and some third parties were formed into a committee for construction of the building, identifying the powers of the committee and also how the advance amounts to be adjusted against various payments or moneys to be paid and how the builder's portion can be sold and apportioned for completion of the project. This indicates that the agreement originally entered into by the developers/builders have not been fulfilled and therefore, the said agreement cannot be taken as a basis for bringing to tax the capital gains, as if there was a transfer with in the meaning of Sec 2(45). The Hon'ble Bombay High Court in the case of M/s. Chaturbhuj Dwaraakdas Kapadia Vs. CIT (supra) has held that 'if the contract, read as a whole, indicates passing of or transferring of complete control over the property in favour of the developer, then the date of the contract would be relevant to decide the year of chargeability'. This decision was relied upon by the Reve....
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....d as under: "Held, dismissing the appeals, (i) that the joint development agreement was essentially an agreement to facilitate development of 21.2 acres so that the developers built at their own cost, after obtaining necessary approvals, flats of a given size, some of which were then to be handed over to the members of the society. Payments were also to be made by the developer to each member ill addition to giving each member a certain number of flats depending upon the size of the member's plot that was handed over. Payments under the third instalment 'were only to be made after the grant of approvals and not otherwise, and this was never done because no approvals could be obtained as the High Court ultimately interdicted the project. The joint development agreement never having been registered and having no efficacy in the eye of law, 110 "transfer" could be said to have taken place under the document. Subclause (v) of section 2(47) of the Act was not attracted on the facts of this case. [The court did not go into the other questions whether under the joint development agreement possession was or was not taken, whether only a licence was granted to develop the property....
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....the developer failed to proceed with the development activity and no plans were approved by any authority. With reference to agreement with M/s. Siri Balaji Constructions, even though the said concern partly fulfilled the agreement, it could not complete the construction and ultimately land owners and flat owners completed the project and properties were sold by the 'committee' as per the orders of the Lok Adalat. 12.7. The contention that no gains can said to have really accrued to the assessee during the year is also supported by the following decisions: (a) In the case of Amiantit International Holding Ltd- AAR 322 ITR 678, it was held that "capital gain" cannot arise on the basis of uncertain or indefinite future contingencies or hypothetical and imaginary estimations" (b) In the case of State Bank of Travancore Vs CIT (158 ITR 102), the Hon'ble Supreme Court - also held that "it is the income which has really accrued or arisen to the assessee that is taxable". It held that "in examining any transaction or situation the court would have more regard to the reality of the situation than a purely theoretical or doctrinaire aspect. ----If the actuality of the situation or ....
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....vents, legal or factual, which may have an effect on the decision on the issue." Accordingly, taking into account the subsequent events which mainly consisted of a fire breaking out in the assessee's business premises in June 1982, closure of the assessee's business and later on a company taking over the remains of the assessee's business, and the order of the Government of India knocking off the penalty in question in 1982, the court on the basis of the doctrine of "relating back" held that the liability in question stood wiped out in the assessment year 1979-80 itself. The honorable High Court justified its decision on the ground that "that the aim of the law is to do substantial justice between the parties and to impart them not merely legal or technical justice, but as far as possible real and substantial justice". This doctrine of 'Relating Back' advocated by the Hon'ble Rajasthan High Court above when applied mutatis mutandis to the facts of the assessee's case clearly support the fact that the subsequent events of cancellation of agreements, unwillingness of the developer to complete the construction and the consequent obligation imposed on the as....
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....an individual. Like in the case of Mr. Kondal Rao discussed above, assessee had entered into two separate development agreements, one with M/s. Siri Balaji Constructions and another with M/s. Siri Lakshmi Balaji Constructions, on 14- 08-2006 through Development Agreement cum GPA. In both the development agreements, at Clause No.9, it is clearly mentioned that the possession of the schedule property would be physically delivered to the developers after the plans were sanctioned by the Gram Panchayat/MunicipalitY/HUDA. In the case of M/s. Siri Balaji Constructions, the plan of approval from Gram Panchayat, Nizampet and HUDA for the construction of a multi-storied building was issued on 29-03- 2008. However, since the developer failed to construct the flats in full and defaulted on the same, assessee and other co- owners filed a case before the Lok Adalat Court against the developer and finally a compromise agreement before the court was reached in EP No.42/2012 in OS.No.872/2011 (pages 9 to 17 of second paper book). As stated the agreement with Siri Lakshmi Balaji was cancelled and with Siri Balji was not fulfilled. 15.1. Despite the foregoing facts in support of which complete evid....
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....estment by the assesse on the premise that there were inconsistencies in the statement of the assessee. The appellant craves leave to add to and/or alter any of the grounds either before or at the time of hearing". 16. Facts are similar to the case of Sri Kondal Rao being co-owner. The orders of authorities are also similar. Since the grounds 1 to 6 in this appeal are also similar to the grounds raised in the earlier order herein above, as per the discussion in the above appeal and for the reasons stated above the grounds in this appeal are also allowed. Ground No. 7 i.e., addition of Rs. 6,50,000/- is discussed hereunder. 17. Ground No. 7: This ground pertains to addition of Rs. 6,50,000/- as unexplained credit in the hands of assessee. In the Cash Flow Statement, assessee has explained investments in the year with fund flow from his wife to the extent of Rs. 2.5 Lakhs, father to an extent of Rs. 2 Lakhs and two friends at Rs. 1 Lakh each. 17.1. AO disbelieved the same and added the same to assessee's income which was upheld by the CIT(A). It was the contention that Ld.CIT(A) failed to appreciate that assessee's wife comes from a well to do family and should not have disbelie....