TaxTMI 
TaxTMI 
2026 (9) TMI 698
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....ll the appeals, except in few appeals. The issues are of two types. One about the addition made under the undisclosed income from House Property and the other one relates to the addition under the head Long Term Capital Gains. In the appeals in ITA No. 2080/Bang/2025 (A.Y. 2022-23), ITA No. 2089/Bang/2025 (A.Y. 2019-20), ITA No. 2091/Bang/2025 (A.Y. 2019-20), ITA No. 2092/Bang/2025 (A.Y. 2022-23), ITA No. 2094/Bang/2025 (A.Y. 2019-20) & ITA No. 2095/Bang/2025 (A.Y. 2022-23), the respective assessee's challenged the addition made under the head Income from House Property. In the appeal in ITA No. 2084/Bang/2025 (A.Y. 2016-17), the assessee had challenged the addition made under the LTCG. In the appeals in ITA No. 2088/Bang/2025 (A.Y. 2016-17), ITA No. 2090/Bang/2025 (A.Y. 2016-17) and ITA No. 2093/Bang/2025 (A.Y. 2016-17), the respective assessee's had challenged both the addition made under the head Income from House Property and LTCG. In the appeal in ITA No. 2085/Bang/2025 (A.Y. 2019-20), the addition has been made on the underreported rental income. The additions were made based on the search carried on by the Department on 23/06/2022 in the premises of Divyasree Infrastructure ....
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.... and style of M/s. Chennakeshava Techpark and agreed to construct the entire Block C1. As per the deed, the owners are entitled for 4% shares in the profit & loss of the firm whereas the builder is entitled for 96%. The Block C1 was constructed and allotted to the land owners in the A.Y. 2016-17 and the same was rented out and rental income was received into the bank account of the firm. The said income was divided equally between the families of V. Kodanda Reddy and Venkatesh Reddy instead of the profit sharing ratio of 4%. Based on the materials seized, it was concluded that Block C1 is exclusively owned by the owners. Further, the BBMP tax was also remitted by the owners in respect of Block C1. Therefore, the AO had concluded that the land owners are real owners of Block C1. Accordingly, the rental receipts are apportioned between the owners Kodanda Reddy, Mrs. Lakshmamma & Mrs. Anitha (Legal Heir of N. Venkatesh Reddy). A show cause notice was issued to add the undisclosed rental income in the hands of the assessee. Reply was filed by the assessee and submitted that capital gains were offered in the year of JDA i.e. 2006-07 and also availed the Income Declaration Scheme, 2016. ....
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....had wrongly included the rental income earned by the firm as that of the assessee and others since the land owners are drawing the amounts from the firm disproportionate to their profit-sharing ratio. The Ld.AR submitted that the firm is a genuine one and a registered firm and the legal entity of the firm was accepted by all the statutory authorities and therefore, the rental income received by the firm could not be treated as income of the assessee and other owners. The Ld.AR submitted that the Department has accepted the return of income filed by the firm and assessment was also made on the rental income and therefore the same could not be made again on the assessee. The Ld.AR further submitted that the Block C1 was constructed by the firm and the said block is situated within the notified customs bonded SEZ and submitted that no independent land owner would be allowed to construct the building within the SEZ boundary. The Ld.AR further submitted that the firm, as a co-developer in SEZ, had also availed the deduction u/s. 80IA of the Act which shows that the firm is the owner of the building. The Ld.AR further submitted that the addition made on the assessee is not warranted sinc....
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....veloped by M/s. Shyamaraju & Co. (India) Pvt. Ltd. Pursuant to the approval, the Software Technology Parks of India, an Autonomous Society under Department of Information Technology had given the list of exemptions available to the co-developer from Customs Duty, Excise Duty, Service Tax and Central Sales Tax. This is available in page 862 of the paper book. At page 863, the assessee enclosed the sanction letter for arranging the HT Power Supply by BESCOM in favour of the firm, as codeveloper. The assessee had also enclosed the Audited financial statements of the firm for the years ending 31.03.2016, 31.03.2019 & 31.03.2022. The assessment orders of the firm for the A.Ys. 2013-14, 2018-19 & 2020-21 were also furnished in the paper book page numbers 837 to 856. The assessee also enclosed the proof of the approval given by the Chief Electrical Inspector to Government of Karnataka wherein the approval to commission the electrical installation was granted to the firm, by treating the firm as codeveloper. 15. From the various documents furnished by the assessee, the following facts are emerged. The land owners had originally entered into a MoU with the Developer M/s. Shyamaraju & Co.....
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....ome. In fact, the present assessee has not received any money from the firm and she was not a party to the partnership firm. At the time of search, some members gave some answers to the effect that they received rental income from the firm but later on they have corrected the said statement by writing clarification to the authorities which was also accepted by them. The authorities had no concrete evidence to corroborate the additions except the notings which were later on get it clarified. In such circumstances, we are not able to understand on what basis, the AO had come to the conclusion that land owners are the real owners of Block C1, when there are ample evidences available to show that the firm is a real one and also approved by the various authorities including the Income Tax Department. The reliance made by the AO on the rough notings could not be a valid one since the rough notings were immediately clarified and there are no other corroborative evidences to establish that the owners of the land are the real owners of Block C1. Considering the documents relied on by the assessee including the Audited financial statements of the firm and the assessment orders made for the v....
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....) and subsequently, issued notice u/s. 142(1). A show cause notice was issued proposing to add the undisclosed LTCG and rental income found during the course of search proceedings. The assessee also filed their reply and got the copies of the documents seized and the statements recorded. The AO had proposed to tax the undisclosed capital gains based on the seizure of JDA executed on 25/03/2005 between the land owners and Developer. The AO had also referred the supplementary JDA executed on 13/10/2008. The AO had also referred the execution of Partnership Deed between the land owners and the Developer. The said firm was approved as co-developer of SEZ and also claimed deduction u/s. 80IA of the Act and also paid the minimal taxes on AMT income. The AO based on the exemption order obtained from the Director of Industries & Commerce on 28/03/2016 for paying the stamp duty and registration charges while registering the sale deed in favour of the Developer, had alleged that the Developer handed over the constructed area during the F.Y. 2015-16 to the land owners in lieu of the land given to the Developer. The AO also based on the seized draft deed of conveyance and Deed of Reconstituted....
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.... gains. A show cause notice was issued on the above lines on 14/02/2024. The assessee also filed his reply. The AO not accepted the reply and relied on the various clauses in the JDA, Supplementary Agreement and Partnership Deed, had concluded that there is no transfer of land during the year of JDA. The AO also observed that the obligation of the Developer as per JDA would be fulfilled only on the completion of the share of the land owners which occurred during the A.Y. 2016-17. The AO also alleged that partnership deed is an unregistered one. The AO in para 10.12 of the assessment order had observed that the land owners had granted only the license and development rights and they have not transferred the ownership rights, title and interest in their land to the firm as envisaged. The AO also alleged that the creation of the firm is a colourable device since the making of entries in the books of accounts of the firm cannot change the ownership. The AO also alleged that the assessee had not placed any record to show that the constructed area lies with the firm. No explanation was also given for not repaying the excessive drawings. No registered document was executed by the owners t....
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...., transfer took place in the A.Y. 2005-06 and therefore, the capital gain should be assessed in that year itself and not when the constructed area was transferred to the owners. The Ld.AR submitted that both the JDA and the PoA are registered documents which fact was also not considered by the Authorities and in fact, the Authorities was of the wrong view that the PoA is an unregistered document. The Ld.AR also differentiated the Hon'ble Supreme Court judgment that the facts are different from the present case, in which the Developer was only granted a permissive right whereas in the present case, possessive and effective control was given to the Developer immediately after the JDA and PoA. The Ld.AR also relied on the Hon'ble Bombay and Karnataka High Court judgments wherein it was held that the transfer took place in the year in which the JDA was executed and possession has been handed over. The Ld.AR also invited our attention to clause 6 of the JDA, wherein the Developer had paid a sum of Rs. 37,25,421 as refundable security. The Ld.AR also invited our attention to the Memorandum to the Finance Act, 2017, which introduced sub-section (5A) to section 45 and prayed to accept the ....
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....use 4 also gave the developer powers to get sanctioned plans and change of land use / conversion. Clause 5 permits the Developer to develop the structure according to his design. Owners also gave powers to the Developer to acquire TDR. Clause 6 speaks about the refundable deposit given by the Developer to the owners. Clause 7 gave authority to the Developer to enter the property for construction. Clause 10 speaks about the irrevocable PoA to be granted to the Developer for getting various approvals from the Authorities. Clause 21 gave powers to the Developer to enter into agreements with prospective purchasers. Clause 22 also grant powers to the Developer to Mortgage the property in favour of any bank or financial institution to secure funds for the construction of the building. The Developer can also deliver the title deeds for the said purpose. Clause 35 speaks about the decision made by the Architect as final. 33. We have perused the above said clauses in the JDA executed on 25/03/2005 and the above said clauses would exhibit that the owners had given full authority to the Developer in respect of the lands and con....
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....it would not apply to the transactions effected prior to 01/04/2018. The Memorandum to the Finance Act 2017, available in page 19 of the written submissions filed by the assessee reads as follows and also supports the view of the assessee. "Special provisions for computation of capital gains in case of joint development agreement Under the existing provisions of section 45, capital gain is chargeable to tax in the year in which transfer takes place except in certain cases. The definition of 'transfer', inter alia, includes any arrangement or transaction where any rights are handed over in execution of part performance of contract, even though the legal title has not been transferred. In such a scenario, execution of Joint Development Agreement between the owner of immovable property and the developer triggers the capital gains tax liability in the hands of the owner in the year in which the possession of immovable property is handed over to the developer for development of a project. With a view to minimise the genuine hardship which the owner of land may face in paying capital gains tax in the year of transfer, it is proposed to insert a new sub-section (....