TaxTMI 
TaxTMI 
2022 (12) TMI 302
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.... was one of the directors. During the course of search, a Joint Development Agreement (JDA) dated 11.12.2009 which was executed between the assessee and M/s. Brundavan Constructions (Developer) for a development of properties situated in Arehalli village, Uttarahalli Hobli, Bangalore was seized. The AO of Trans Global Power Ltd. recorded satisfaction in terms of section 153C that the said seized document does not pertain to Trans Global Power Ltd. but to the assessee. The AO of the assessee after examining the JDA and satisfied that the same belongs to the assessee initiated proceedings u/s.153C. The AO on examination of the JDA was of the view capital gains arises at the time of execution of the JDA when possession of the property is handed over to the Developer due to the concept of part performance and proceeded to compute the capital gains for AY 2010-11. The AO while computing the capital gain considered the cost of construction as per the estimation of the developer as the sale consideration and arrived at an addition of Rs.24,32,88,991 towards capital gains while completing the assessment u/s. 153C r.w.s. 153A r.w.s. 144 r.w.s. 153D of the Act. Aggrieved the assessee preferr....
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....e cross objections (CO) by the assessee before the Tribunal. In this regard, the ld. AR submitted that the assessee had raised legal grounds on validity of assessment before the first appellate authority which was dismissed. The assessee was under the bona fide belief that it could raise the said legal contentions under Rule 27 of the Appellate Tribunal Rules before the Tribunal and therefore did not file the cross objections. Subsequently, the Karta of the assessee Sri R. Muniraju during the time of professional consultation of the instant departmental appeal with the Senior Counsel was advised to file a CO and the assessee filed the cross objection with a delay of 213 days (excluding the period of delay from 15.03.2020 to 28.02.2022 by relying on the order of the Hon'ble Supreme Court in Miscellaneous Application No.21 of 2022 and No.665 of 2021). The assessee was also advised to file an application for condonation of delay in filling the appeal before the Tribunal. Relying on the judgment of the Supreme Court in the case of Collector of Land Acquisition v. Mst. Katiji, (1987) 167 ITR 471 and other judgments of the Supreme Court, it was prayed that the delay in filing the CO may ....
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....dated 11.12.2009 pertains to immovable property located in Arehalli Village, Uttarahalli Hobli, Bangalore 5 the transferee should have taken possession of the property; Yes. Vide General Power of Attorney dated 11.12.2009 possession has been handed over to the Developer(M/s. Brundavan Constructions). Also as per Para 1(b) of the JDA, the land owners delivered possession and irrevocably permitted and authorized the Developer to enter and develop the property by constructing a multistory apartment building. The translated copy of Plan Sanction dated 05.06.2010 submitted By the assessee mentions that M/s. Brundavan Constructions had applied for Plan Sanction before BBMP Commissioner vide its representation dated 18.03.2010. This clearly suggests that the developer is in possession of land at Arehalli Village, Uttarahalli Hobli, Bangalore. 6 lastly, the transferee should be ready and willing to perform his part of the contract. Yes. As mentioned above, the developer Had applied for plan sanction on 18.03.2010. The pre-requisites for plan sanction viz. survey, measurement, plan preparation through architects have also been performed by the Developer. 3.3. The Joint Development A....
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....ssuing notice u/s. 153C is bad in law as the AO ought to have assumed jurisdiction u/s. 153A and therefore the order of the AO is not valid. The assessee alternatively submitted that the seized document relied upon by the AO is not incriminating in nature and therefore assumption of jurisdiction u/s. 153C of the Act is bad in law. 11. On merits, the assessee submitted before the CIT (Appeals) that the date of JDA cannot be considered as the date of transfer and that the assessee has offered the capital gains to tax as and when the flats were actually sold from AY 2013-14 to 2017-18. The assessee also submitted before the CIT(Appeals) that the plan sanction itself was received only on 15.6.2010 and therefore no gain would arise to the assessee in the year under consideration when the work itself did not commence. 12. The CIT (Appeals) on the legal issue held that the AO has followed the correct procedure for invoking provisions of section 153C of the Act. He further held that the JDA seized during the course of search is an incriminating material for AY 2010-11 and therefore held that initiation of proceedings u/s. 153C to be valid. While considering the issue on merits, the CIT (....
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.... CIT v. IBC Knowledge Park Pvt. Ltd., 385 ITR 346 (Kar). 16. The ld. DR submitted that the JDA is an incriminating material found during the course of search for the year under consideration because, but for the JDA, the impugned addition would not have been made in the year under consideration. The ld. DR further submitted that disclosing the amount of advance received as per JDA in the balance sheet is not relevant since the income is what is not disclosed and therefore the AO's action of invoking section 153C is correct. The ld. DR also submitted that without the search operation, the JDA would not have come to the notice of the revenue and the income would not have been taxed in the correct assessment year i.e., AY 2010-11. 17. We have heard the rival submissions and perused the material on record. We notice that the coordinate bench of the Tribunal in the case of DCIT vs M/s. Chaitanya Properties Pvt. Ltd (ITA Nos.617 & 618/Bang/2017) has considered a similar issue and held that "16. We have heard the rival submissions and perused the record. There was a search in the case of Srinivasa Trust on 6.8.2012. In the course of search documents belonging to the assessee were foun....
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....hing, seized or requisitioned, belongs to; or (b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to, a person other than the person referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years referred to in sub-section (1) of section 153A :" 19. The above section provides that the if the AO is satisfied that if the documents seized have a bearing on the determination of the total income of such ot....
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....re the amount received from the developer is reflected on the liabilities side to demonstrate that there is no undisclosed income with respect to the sale of flats. The ld AR further submitted that the new subsection 5A inserted in section 45 by the Finance Act 2017 nullified the decision of Hon'ble Karnataka High Court relied on by the AO and therefore the impugned addition cannot be done in the year under consideration. 22. The ld. DR, on the other hand, submitted that the AO has correctly placed reliance on the decision of Shri T.K. Dayalu (supra) and it is clearly demonstrated by the AO in his order that the various conditions to attract taxability in the year under consideration have been satisfied and therefore the AO is correct in assessing the capital gains in AY 2010-11. The ld. DR drew our attention to clause (1) of the JDA where the assessee has given irrevocable permission to the developer to enter the property and the developer has also complied with the terms of the JDA by applying for plan sanction which would substantiate that the year of taxability is the year in which the JDA is entered into. 23. Before proceeding further we will look at the relevant provisions ....
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....the contract or of the part performance thereof. (emphasis supplied) 24. The issue for our consideration is the year of assessability of capital gains arising on the property, which was the subject matter of development agreement, i.e., whether it is assessable in the year in which the development agreement entered into or in the relevant subsequent year in which the area duly developed and constructed coming to the share of the assessee-land owner has been handed over to the assessee. Though it was initially held by various Courts that the capital gains are to be assessed in the year in which the development agreement has been entered into between the land owner and the developer, considering the fact that in many cases, the development agreement was not acted upon by the developer, different views have been expressed as to be year of assessability, based on the facts and circumstance of each case. Therefore the analysis of the various terms of the JDA is critical for arriving at the decision on the year of assessability of the capital gains. In this context we will now look at certain relevant clauses of the JDA and the power attorney executed by the assessee in favour the deve....
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....EVELOPER shall be entitled to receive in their own name against agreements to sell and retain with them all amount received from the persons to whom the said premises are allotted or sold as the case may be including the amounts for the sale of undivided share in land and in the building to be constructed by the DEVELOPER on the Schedule Property and to appropriate the same to themselves, subject to a maximum of 60% of undivided share in land and building constructed on the Schedule Property. g. The DEVELOPER shall be entitled to the remaining flats and the accompanying common areas and car parking area (hereinafter referred to as the Developer's constructed area) with undivided 60% share in the land comprised in the Schedule Property. The DEVELOPER shall be entitled to hold or to sell, lease or otherwise dispose of their share of the constructed area with undivided 60% share in the land comprised in the Schedule Property in any manner they deems fit and they shall be entitled to all income, gains capital appreciation and benefits of all kinds of description accruing or arising there from. Once the sanction plan is procured from Bruhath Bangalore Mahanagara Palike/ BDA earmar....
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....orms, affidavits, applications / statements / declarations / forms / returns; o. To receive (in our Attorney's name) the consideration for sale/transfer/conveyance, as also advances, earnest money/deposits, part payments and balance payments in regard to the sale/conveyance/transfer of 60% undivided share in the Schedule Property or portions/shares therein together with built up area and issue receipts and acknowledgements therefore;" 25. The combined reading of the above clauses of the JDA and POA makes it clear that it is not the permissible possession but the absolute possession that is being given to the Developer by the assessee. Clause 8 extracted above states that the Developer is the absolute owner of the proportionate share of the undivided land and he shall be entitled to hold, sell, mortgage, gift, lease or otherwise dispose of the same. In all the cases relied on by the Ld AR, the developer was given only the license to develop the property and the legal ownership was retained with the owners. It is also noticed that the agreement in the cases relied on by the assessee contain the specific clause that the permission to enter cannot be construed as delivery of pos....
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....alue and as such the same is not applicable to the facts of the present case. Similarly, section 50D is also not applicable which has come into force with effect from 1-4-2013; thus, cost of construction would be the appropriate mode. However, we are not inclined to accept the arguments of the Revenue in entirety for the reason that the entire issue is revenue neutral. The Tribunal has categorically observed that "even otherwise, if any capital gains to be accrued in favour of assessee after receiving the possession of the property, certainly that would also be subject to capital gains." It is thus clear that in the event the assessee were to dispose of the built-up area, on any part thereof, after receipt of the same from the developer, it would have to necessarily pay tax on the capital gains in the year of such sale and the cost of such built-up area to be reckoned for the purpose of indexation which would be proportionate to the fair market value of land. At this juncture, it would be beneficial to refer to the judgment of the Hon'ble Apex Court in the case of CIT v. Excel Industries Ltd. [2013] 38 taxmann.com 100/219 Taxman 379/358 ITR 295 wherein the Hon'ble Apex Cour....
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....eration by the Assessing Officer based on the letter of the developer cannot be appropriate. No doubt at the relevant period, no provision was available in cases where the consideration received or accruing as a result of transfer of a capital asset by an assessee is not ascertainable. Section 50D inserted by Finance Act, 2012 with effect from 1-4-2013 would throw some light on the said issue. As per the memorandum to Finance Bill, 2012, the reasoning for inserting section 50D of the Act is as under: "Capital gains are calculated on transfer of a capital asset, as sale consideration minus cost of acquisition. In some recent rulings, it has been held that where the consideration in respect of transfer of an asset is not determinable under the existing provisions of the Income-tax Act, then, as the machinery provision fails, the gains arising from the transfer of such assets is not taxable. It is, therefore, proposed that where in the case of a transfer, consideration for the transfer of a capital asset(s) is not attributable or determinable then for purpose of computing income chargeable to tax as gains, the fair market value of the asset shall be taken to be the full market val....