2016 (4) TMI 631 - AT - Income Tax

Deemed Transfer u/s 2(47)(v) - LTCG - transfer of property through Joint Development Agreement (JDA) - Held that - It is clear that willingness to perform for the purposes of Section 53A is something more than a statement of intent; it is the unqualified and unconditional willingness on the part of the vendee to perform its obligations. Unless the party has performed or is willing to perform its obligations under the contract, and in the same sequence in which these are to be performed, it cannot be said that the provisions of Section 53A of the Transfer of Property Act will come into play on the facts of that case. It is only elementary that, unless provisions of Section 53A of the Transfer of Property Act are satisfied on the facts of a case, the transaction in question cannot fall within the scope of deemed transfer under Section 2(47)(v) of the IT Act. The developer had failed to get the approval of the plan or perform its obligations under the JDA. Even otherwise, the assessing authorities has not brought on record the actual position of the project even as on the date of assessment and he has not recorded the findings whether the developer started the construction work at any time during the assessment year 2006-07. The condition laid down under Section 53A of the Transfer of Property Act was not satisfied in the assessment year 2006-07. - . When time is essence of the contract, and the time schedule is not adhered to, it cannot be said that such a contract confers any rights on the vendor/landlord to seek redressal under Section 53A of the Transfer of Property Act. This agreement of JDA cannot, therefore, be said to be in the nature of a contract referred to in Section 53A of the Transfer of Property Act. It cannot, therefore, be said that the provisions of Section 2(47)(v) will apply in the situation before us. - no capital gain arises in the hands of the assessee for the asst. year 2006-07 and the appeal of the assessee for the asst. year is to be allowed. - Decided in favor of assessee. Denial of cost of improvement the assessee has not produced anything to prove the cost of construction. It is the duty of the assessee to produce necessary evidence to show that the assessee actually incurred towards improvement of capital asset. However, the assessee asked one more opportunity to see the document collected by the A.O., which was relied upon by him, at the back of the assessee. In view of this, we remit this issue to the file of the AO for fresh consideration and the assessee is directed to produce necessary evidence in support of the claim of the assessee, as the AO used the report collected from the Commercial Department, Maharashtra viz. MahaVat without providing the same to the assessee. Accordingly, in the asst. Year 2009-10, long term capital gains on the sale of that portion of the land corresponding to the flats allotted to the assessee s share and sale of flats constructed thereon to be assessed as long term capital gains in sale of land and short term capital gains in sale of flats. Decided partly in favor of assessee.

Issues Involved:
1. Reopening of assessment under Section 147.
2. Invoking provisions of Section 2(47)(v) based on the Joint Development Agreement (JDA).
3. Validity and tax implications of the Joint Development Agreement (JDA) and the Agreement of Sale.
4. Treatment of capital gains and cost of improvement.
5. Levy of penalty under Section 271(1)(c).

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 147:
The first issue pertains to the reopening of assessment for the assessment years 2006-07 to 2009-10. The Tribunal upheld the reopening of assessment, stating that Section 147 authorizes the Assessing Officer (AO) to reassess income if there is "reason to believe" that income has escaped assessment. The Tribunal emphasized that the formation of belief by the AO is within the realm of subjective satisfaction and does not require the final outcome of the proceeding to be relevant at the initiation stage.

2. Invoking Provisions of Section 2(47)(v) Based on the JDA:
The second issue involves the applicability of Section 2(47)(v) based on the JDA dated 23.11.2005. The Tribunal concluded that the conditions under Section 53A of the Transfer of Property Act were not satisfied in the assessment year 2006-07. The Tribunal noted that the developer had not shown readiness to perform its obligations under the JDA, as there was no evidence of building plan approval or construction activity during the assessment year 2006-07. Consequently, the provisions of Section 2(47)(v) could not be invoked for the assessment year 2006-07.

3. Validity and Tax Implications of the JDA and Agreement of Sale:
The Tribunal examined both the JDA and the Agreement of Sale, noting inconsistencies between the two. The JDA did not mention the handing over of possession, and the Agreement of Sale indicated that absolute possession was not handed over. The Tribunal also considered the retraction of statements made by the Managing Director during the survey, concluding that the statements lacked evidentiary value. The Tribunal determined that there was no transfer of property in the assessment year 2006-07, and the capital gains could not be taxed in that year.

4. Treatment of Capital Gains and Cost of Improvement:
For the assessment years 2007-08 to 2011-12, the Tribunal directed the AO to compute the capital gains afresh, considering the cost of improvement if the assessee provided necessary evidence. The Tribunal remitted the issue of cost of improvement to the AO for fresh consideration, emphasizing the need for the assessee to produce supporting documents.

5. Levy of Penalty under Section 271(1)(c):
The Tribunal addressed the penalty appeals for the assessment years 2006-07, 2009-10, 2010-11, and 2011-12. For the assessment year 2006-07, the Tribunal deleted the penalty, as the quantum addition was vacated. For the other years, the Tribunal vacated the penalty orders, as the quantum additions were remitted to the AO for fresh consideration. The Tribunal also dismissed the Revenue's appeals regarding the reduction of penalty from 300% to 100%, as the quantum additions were under reconsideration.

Conclusion:
The Tribunal's judgment comprehensively addressed the issues related to the reopening of assessment, applicability of Section 2(47)(v), validity of the JDA and Agreement of Sale, treatment of capital gains and cost of improvement, and the levy of penalty under Section 271(1)(c). The Tribunal provided detailed reasoning for its decisions, emphasizing the need for proper evidence and adherence to legal provisions.

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