TMI Blog2021 (11) TMI 407X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee is disallowed. Undisclosed scrap sale - HELD THAT:- Tribunal remanded this issue to the AO on the reason that the assessee did not furnish any evidence to substantiate its claim that income had already been offered to tax in earlier years and it was not clear as to whether earlier record available with the AO had been considered while arriving at the conclusion that no evidence was produced by the assessee - in the remand proceedings also, the assessee failed to produce relevant evidence in respect of its claim. Even after going through the documents available with the AO in the form of part ledger account and Profit Loss account submitted by the assessee during the assessment proceedings, it was found by the AO that only scrap sale to the extent of ₹ 31,45,974 out of total scrap sale of ₹ 57,22,227 was credited in the ledger account as scrap sale and the balance was not offered for taxation. Hence the lower authorities rightly brought to tax the balance amount of ₹ 25,76,253 which is based on material found during the course of survey and the assessee was not able to reconcile the same, even after providing opportunity of hearing before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A which authorizes the developer a provisional permission to enter into the land and authorizing them to develop, execute sale deed or other conveyance in respect of the impugned property and authorize to sell the constructed area of both the assessee as well as the developer. As such, there is a transfer in terms of section 45 r.w.s. 2(47) of the Act. Accordingly, we decide this ground against the assessee. - ITA No. 933/Bang/2017 - - - Dated:- 11-10-2021 - Shri Chandra Poojari, Accountant Member And Smt. Beena Pillai, Judicial Member For the Appellant : Smt. Sheetal Borkar, Advocate For the Respondent : Shri Muzaffar Hussain, CIT(DR)(ITAT), Bengaluru. ORDER PER CHANDRA POOJARI, ACCOUNTANT MEMBER This appeal by the assessee is directed against the order of the CIT(Appeals) dated 17.12.2014 on the following grounds:- l. The learned Commissioner of Income-tax (Appeals) erred in upholding the disallowance of travel expenditure to the extent confirmed by him. (₹ 1,68,371). 2. The learned Commissioner (A) erred in upholding the interest expenditure to the extent of ₹ 17,26,100/-. 3. The learned Commissioner (A) ought to have appreciat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Commissioner (A)was opposed to law and liable to be set aside with regard to this issue. 13. The learned Commissioner (A) ought to have appreciated that the judgment of the Karnataka High Court in the case of CIT vs. Dr.T.K.Dayalu reported in 60 DTR (Kar) 403 was distinguishable and the learned Commissioner (A) ought to have refrained from following the judgment to justify the computation of capital gains. 14. The learned Commissioner (A)failed to appreciate that the property in question was subsequently sold to another party and the capital gains therefrom had been offered by the appellant and there was no omission and accordingly the capital gains as assessed in the relevant year is opposed to law and accordingly liable to be deleted. 15. The learned Commissioner (A) erred in surmising the possession being handed over to IDEB when the parties to the transaction denied for having provided possession to the alleged transferee and consequently the application of provisions of Sec.2(47)(v)r.w.s.53A of the Transfer of Property Act is opposed to law and accordingly the impugned the capital gains as computed and upheld is liable to be deleted. 16. On the facts the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show that at the end of the accounting year, the balance outstanding from Sri Chadha would be only a small amount and the assessee had adequate non-interest bearing funds for such advance made to Sri Chadha. Thus, the assumption that the interest bearing funds had been directed to Sri Chadha was incorrect and consequently the disallowance of interest on the loan borrowed to the extent of ₹ 17,26,100 was totally uncalled for. The assessee relies on the judgment of the Hon ble Supreme Court in the case of CIT (Large Tax Payer Unit) vs. Reliance Industries Ltd reported in (2019) 307 CTR 0121 (SC) . In fact, most disallowances had been in the past as it was fully satisfied that the borrowed funds were utilized exclusively for business and thus the interest claimed was liable to be allowed in toto u/s.36(1)(iii) or u/s.37 of the Act. Without prejudice, even if such disallowance is called for, it can only be on the net of the balance and to the extent the net of the balance included net of opening balance. Interest in relation to such opening balance cannot be disallowed as there was no disallowance in the past as held by the Hon ble High Court in the case of Sri Dev Enterprises ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed that the scrap sales to the tune of ₹ 31,45,974 had been recorded in the books of accounts. It was also observed that Sri S.C. Ajmeera, on enquiry, has submitted that out of ₹ 25,76,253, the assessee company had declared ₹ 10 lakhs which included the scrap sales shown in the books of accounts. However, according to the AO, there was no proof provided by the assessee company to accept the statement of Sri Ajmeera and therefore hemade the addition of ₹ 25,76,253/-. 9. In this regard, it is submitted that undisputedly the assessee company had declared scrap sales to the tune of ₹ 31,45,974 in the books of accounts and offered for taxation. The alleged unaccounted scrap sales found in the course of survey was nothing but the various dates of sale recorded from April to December, 2006 and January, 2007. The party to whom such sales were made had also been noted. The sales recorded in the books of accounts were also with the same party. In other words, all these sales have been recorded in the books of accounts which form part of the total sales of ₹ 31,45,984 as declared. The variations in dates were only on account of the dates of dispatc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ack to the AO for fresh examination. It was therefore imperative for the assessee to produce specific and valid details/evidences in support of its claim and justifying even the partial relief allowed by the CIT(A). It is clear that the assessee has failed to do so. In these circumstances, there is no reason to interfere in the AO's order on this issue. 14. In the course of the proceedings before the CIT(Appeals), the assessee has not placed any fresh or reliable evidentiary document or confirmatory details from respective parties. The extract of scrap-sales annexed with the written submission is not supported by either proof of payment by cheque or party confirmations. Even if these were to be presumed as cash sales, there is no corresponding or adequate proof to accept the same. In this background, the addition to the extent of ₹ 25,76,253/- was upheld by the CIT(Appeals). 15. We have heard the rival submissions. In the assessment year under consideration, it was placed on record by the AO that during the course of survey out of total scrap sales of ₹ 57,22,227 only an amount of ₹ 31,45,974 was recorded and the balance amount of ₹ 25,76,253 was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d legal charges ₹ 22,21,360 18. Thus, capital gain of ₹ 5,55,31,547 was offered for taxation. In respect of ₹ 5 crores for improvement, the assessee claimed an amount of ₹ 1,63,70,521 as expenses towards cost of fencing of the property. The income arising therefrom to the tune of ₹ 3,30,29,479 was offered as income from other sources under the head Miscellaneous Receipts. The AO has however while concluding the assessment considered the entire sale consideration of ₹ 14 crores under the head capital gains and after giving deduction for the expenditure claimed towards cost of purchase of land and building as inflated by Cost Inflation Index, determined the capital gains at ₹ 10,55,31,547 after further allowing the expenditure towards brokerage and legal charges. While doing so, the AO did not allow the cost of improvement by way of fencing to the tune of ₹ 1,63,70,521/- alleging the assessee had not proved the expenditure towards improvement by way of fencing made. When the matter was taken up to the CIT (Appeals), the same was upheld. On further appeal to the Tribunal, the Tribunal restored the matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The same is stated to have been subsequently revised vide agreement executed on 29/11/2006 for an amount of ₹ 14 crores. It is further seen that the said revised agreement was again split in two parts i.e., ₹ 9 crores for the land and ₹ 5 crores for the improvements. The revised agreement in itself provides that the latter amount of ₹ 5 crores was stated to be the consideration for compound wall; building, sheds and that the purchaser had agreed to purchase such items on 'as is where is' basis. 22. He submitted that a perusal of the contents and conditions of the revised agreement clearly indicates that the consideration is for building /sheds and compound walls which are admittedly appurtenant to the land in question. It is abundantly clear that these receipts are intrinsically towards the items which form essential part of fixed immovable property, and therefore, necessary constituents of the sale consideration for the land. The land and building along with the compound wall could not be artificially segregated merely for the purpose of breaking up the total sale consideration. It is not the case of the assessee that if land portion was to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernate plea of the assessee that AO having taken full consideration of ₹ 14 crores for computing LTCG, he should have excluded the income offered to the extent of ₹ 3,30,29,479 which was purportedly declared as income on account of sale of improvement. The CIT(A) found it prima facie acceptable that if it emanates from the AO s order that the same amount was subjected to tax under both the heads i.e., capital gains by the AO as well as sale of improvements offered by the assessee and directed the AO for appropriate rectification after due verification of facts. 28. We have heard both the parties and perused the material on record on this issue. In this case, the CIT(Appeals) has given a finding as argued by the ld. DR in para 21 to 27 hereinabove. Thus, it means that actually the CIT(Appeals) decided the issue in favour of assessee and observed that the assessee claimed the incurring expenditure of ₹ 1,63,70,571 as expenses towards levelling, boundary work and fencing, but failed to furnish any evidence supporting these expenses and hence upheld the disallowance. Even before us, there is no iota of evidence in support of the claim of the assessee. Hence, on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11.2007. The relevant clause (f) (page 124 of PB) is extracted herein below: f. That the OWNER shall deliver the possession of the Schedule Property on or before 30.11.2007. 32. According to ld. AR, u/s. 2(47)(v) of the Act, any transaction involving the allowing possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882). In Para 8 in the judgment of the Hon ble High Court of Karnataka in the case of CIT Anr. vs. Dr.T.K.Dayalu, reported in (2011) 60 DTR 0403/(2011) 202 Taxman 0531 , the Hon ble High Court of Karnataka referred to the Bombay High Court judgment in the case of Chaturbhuj Dwarkadas Kapadia vs. CIT, reported in (2003) 260 ITR 491 wherein taking possession was also a condition precedent to consider the definition of transfer under Section 2(47)(v) of the I.T. Act. In T.K. Dayalu s case supra , possession of the property was also given within the same financial year i.e., on 30.05.1996 and consequently the Hon ble High Court has held that transfer was complete for the purpose of income-tax and the capital gain was assessable to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that the development agreement could not be construed as agreement for transfer of property as contemplated under Section 53A of the Transfer of Property Act as per Clause 9 (at Page 129 of the PB). Further, the GPA was referred to in Clause 11 at Page 138 wherein it was categorically mentioned that the GPA was given for construction of the property and for enabling development of land in the schedule property and to obtain necessary clearance, permission, sanction from IT Department whenever necessary. This is further strengthened by recording at Page 103 that the GPA executed would not be revoked until the schedule property is completed and until the JDA and the agreement to sell stood terminated. In other words, it is clear by the parties that the GPA was operative only during the tenure of the development of the property. The sale agreement is again in respect of shares of the superstructure fallen into the assessee which was yet to be decided and thus the sale agreement has no relevance for determination of transfer of alleged undivided share which was to be transferred to IDEB. Moreover, in the JDA the consideration for transfer is indeterminable. In such circumstances, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver the land and not actual physical occupation of the land. This being the case, Section 53A of the T.P. Act cannot possibly be attracted to the facts of this case for this reason alone. 37. She drew our attention to clause 6.1 of the Joint Development Agreement and according to her, it makes clear that mere allowing entrance of the developer into the premises of the assessee was not to be construed as transfer as contemplated under Section 53A of the Transfer of Property Act. The relevant clause 6.1 reads as under:- 6.1. In pursuance to the Agreement reached and the consideration reserved hereof and the obligations undertaken herein by each party hereto the OWNER shall irrevocably permit the DEVELOPER or their agents or contractors or architects or surveyors or workers or persons claiming under them to enter the Schedule Property for undertaking the development of the same and the OWNER covenants to the DEVELOPER that such permission shall not be revoked until all the objects of this Agreement are fulfilled as the DEVELOPER shall be incurring expenditure for construction provided however that, nothing herein contained shall be construed as delivery of possession in part p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is of the aforesaid agreements came to the conclusion that the transfer was effective in the current Assessment year in terms of section 2(47) of the Act and therefore the impugned transaction was exigible to LTCG. The AO accordingly proceeded to assess capital gains at the figure of ₹ 43,61,72,341. 42. The Assessee's core contentions are summarised as under:- - The amount had been received as advance and once the sale deeds get executed, it will be taken as capital gains. - The monies so received by the Assessee are in the nature of advances only. The capital gain on this transaction shall rise only after the constructed area is physically handed over to the assessee. Further, till date the entire land and building is in the possession of the assessee and has not handed over the physical possession to the developer. The developer has not taken any plan sanction / approval for any construction in the land so given. However, to secure the advances given, the developer has entered into an agreement of sale with the assessee and this does not constitute a sale. - The point where the capital gains are deemed to accrue will purely depend on the terms of the Joint D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x, was to be developed and delivered to the assessee. A clause providing for compensation @ 3000 per sq. ft. was also provided therein. The sub-clause (e) of clause I of the JDA provided for the payment of interest-free refundable deposit of ₹ 35,00,000 to the Assessee. Out of this an amount of ₹ 15,00,000 was actually paid on the date of the agreement itself. The JDA at sub-clause f) of clause - I specifically provided for execution of an irrevocable General Power of Attorney to develop; alienate; sale, convey and lease the constructed area. The contents of the aqreements to sale and the GPA executed on the same dated i.e. 30/03/2007 also clearly indicate similar conditions, which crystallize into a valid transfer of property, during the year under consideration. 46. It is obvious from the above agreements / instruments that all the basic ingredients of a valid transfer as envisaged under section 2(47) of the I.T. Act r.w.s. 53A of the Transfer of Property Act, are duly satisfied in the present case. The AO therefore rightfully invoked the provisions of section 45 of the I.T. Act, charging capital gains tax on the impugned transaction between the appellant and IDEB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ught above, the assessee has not passed on the final possession and therefore the transaction in question is not exigible to capital gains under the provisions of I.T. Act. He submitted that it is evidently clear from the contents of the JDA and POA dated 30/03/2007 that the Assessee has provided to the purchaser, IDEB, all facilities of entry, development and even sale of the constructed built-up area. Such unhindered access provided to the purchaser is very much in the nature of possession, even if the word as such has not been mentioned in the JDA. In this context subclause- c of clause-I of the JDA, gives irrevocable right of development to the purchaser, which is as under:- Development In pursuance to the agreement reached and the consideration reserved hereof and the obligations undertaken herein by each party hereto, the OWNER shall irrevocably permit the DEVELOPER or their agents or constructors or architects or surveyors or workers or persons claiming under them to enter the Schedule property [or undertaking the development of the same and the OWNER covenants to the DEVELOPER that such permission shall not be revoked until all the objects o[this Agreement are fulfil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment that the year of signing of the JDA should be the primary consideration for determining the year of charge of capital gains. While the present case satisfies the legal requirements laid down by the aforesaid the legal requirements, there is also no doubt that a significant consideration (in form of cash and proposed built-up area) has also exchanged hands between the purchasers and seller, accompanied with corresponding transfer of rights of access / development / construction and sale of the impugned property. Therefore, the AO s action in respect of charging of capital gains on the basis of JDA dated 30.3.2007 with IDEB is to be upheld. 56. We have heard both the parties and also perused the case-records in the light of the compilation filed and precedents cited by both the parties. We deal with the contentions of the assessee with regard non-chargeability of capital gains in respect of the land, which was not 'transferred' but only given for development. We may refer to the provisions of S. 2(47)(v) which reads as follows:- 2. . . . . . . (47) . . . . . . (v) any transaction involving the allowing of the possession of any immovable property to be taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he vendee nevertheless duly supported by a legal document. 59. But the issue do not get settled only by the interpretation of s. 45 and s. 2(47)(v) because the definition of transfer not merely prescribes allowing of possession but to be retained in part performance of a contract of the nature referred in s. 53A of the Transfer of Property Act. Therefore, it is further requisite to deal with the relevant section contained in Transfer of Property Act. 60. The Transfer of Property Act contains S.53A under the heading Part performance and, for deciding the case in hand, it is necessary to quote the impugned section verbatim as follows:- Where any person contracts to transfer for consideration any immovable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty, And the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract, And the transferee has performed or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osition was that the levy of capital gain tax thus resulted in major amendments in the income-tax statute. The main objective of those amendments was to enact that for the purposes of capital gains, the transaction involving transfer of the nature referred are not required to be registered under Registration Act. Such arrangement does not include transfer of certain rights vesting to a purchaser; however such transfer does confer certain privileges of constructive ownership with connected bundle of rights. Indeed it is a departure from the commonly understood meaning of the definition transfer while interpreting this term for tax purpose. On the facts of this case, the developer has got bundle of rights and thereupon entered into the property. Thereafter, we have to see what has happened and what steps the transferee has taken to discharge the obligation on his part. If transferee has taken any steps to construct the flats, undisputedly then, under the provision of Income Tax Act a transfer has definitely taken place. 64. The argument of the ld. AR on this issue before us is that possession was not given on or before 31.3.2007. The developer had paid only ₹ 15 crores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of the transferee one must not put stop at one event but willingness is to be judged by the series of action of the transferee/transferee. It is evidently clear from the contents of the JDA and POA dated 30/03/2007 that the Assessee has provided to the purchaser M/s lDEB all facilities of entry, development and even sale of the constructed built-up area. Such unhindered access provided to the purchaser is very much in the nature of possession, even if the word as such has not been mentioned in the JDA. It would be appropriate in this context to extract the sub-clause-c of clause-I of the JDA, which gives irrevocable right of development to the purchaser. Development In pursuance to the agreement reached and the consideration reserved hereof and the obligations undertaken herein by each party hereto, the OWNER shall irrevocably permit the DEVELOPER or their agents or constructors or architects or surveyors or workers or persons claiming under them to enter the Schedule property [or undertaking the development of the same and the OWNER covenants to the DEVELOPER that such permission shall not be revoked until all the objects of this Agreement are fulfilled as the DEVELOP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... JDA should the primary consideration for determining the year of charge of capital gains While the present case satisfies the legal requirements laid down by the aforesaid judgment, there is also no doubt that a significant consideration in the form of cash and proposed built-up area has also exchanged hands between the purchasers and seller, accompanied with corresponding transfer of rights of access / development / construction and sale of the impugned property. 71. By virtue of the JDA dated 30103/2007, (clause I-C) the Assessee permitted IDEB the rights of development of the site and such right was irrevocable. The consideration was fully determinable in terms of subclause (d) of clause 1, by virtue of which 1,48,333 sq. ft of the super builtup area in the proposed complex, was to be developed and delivered to the Assessee. A clause providing for compensation @ 3000 per sq. ft. was also provided therein. The sub-clause e of clause I of the JDA provided for the payment of interest-free refundable deposit of ₹ 35,00,000 to the Assessee. Out of this an amount of ₹ 15,00,000 was actually paid on the date of the agreement itself. The JDA (at sub-clause f) of clause - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not given possession of the land as contemplated in sec. 53A of the Transfer of Property Act. It is the contention of the assessee that the possession was handed over only on 30.11.2007. 74. In this regard, we may extract below the relevant portion of the JDA:- The OWNER shall deliver the vacant possession of the Schedule Property to the DEVELOPER before 30/11/2007. Prior to delivery of vacant possession, the OWNER shall remove all structures on the Schedule Property. 75. Thus, it is seen that the above clauses show that the handing over of the possession of the constructed area to the assessee. There may not be any dispute that the income tax department is concerned with the handing over the possession of the vacant land to the builder under the development agreement. As per the assessee, the possession of vacant land was handed over the developer only on 30.11.2007, i.e., upon receiving the entire security deposit. 76. It is a well settled proposition of law that the substance shall prevail over the form. Though it is mentioned in the agreement that the possession of land shall be handed over only after receipt of security deposit, yet the builder, under practical c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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