The core legal questions considered by the Court in these appeals under Section 260A of the Income Tax Act, 1961, arising from disputes relating to Assessment Years 2006-2007 to 2011-2012, include:
(i) Whether the Income Tax Appellate Tribunal (ITAT) was correct in law in rejecting the computation of Long Term Capital Gains (LTCG) based on the sale agreement followed by execution of sale deeds and reporting of LTCG in subsequent assessment years, while implicitly approving computation based on an unregistered Joint Development Agreement (JDA).
(ii) Whether the ITAT was correct in law in rejecting alternative grounds for taxing surplus income under Section 45(2) of the Act, treating the appellant company as a joint developer based on the unregistered JDA.
(iii) Whether the ITAT was correct in not deleting the share of profit from the housing project taxed based on the unregistered JDA, despite tacit acceptance of taxation of financial results from joint development as an Association of Persons (AOP).
(iv) Whether the transaction under the JDA transferring 62.46% of land was liable to tax in AY 2006-07 under Section 2(47)(v) read with Section 53A of the Transfer of Property Act, 1882.
(v) Whether the Tribunal erred in holding that no transfer took place in AY 2006-07 despite satisfaction of conditions under Section 53A of the Transfer of Property Act.
(vi) Whether assessments for AY 2007-08 and 2008-09 were rightly held substantive when capital gains were assessed for AY 2006-07.
(vii) Whether capital gains on transfer of 62.46% land were rightly held taxable in AY 2007-08, especially when the developer sold part of undivided share using power of attorney.
(viii) Whether only sale value of land should be considered as consideration under JDA, ignoring market value of 37.54% constructed area received by the assessee.
(ix) Whether remitting the claim of Rs. 68,99,590/- as cost of improvement for AY 2007-08 to the Assessing Officer (AO) without reasons was justified.
(x) Whether the claim of cost of improvement was bogus, supported by bills from a Hawala operator, justifying disallowance.
(xi) Whether directing AO to compute short term capital gains and sale value of building for AY 2008-09 to 2011-12 was proper when receipt of building was not taxed in AY 2006-07.
(xii) Whether penalty under Section 271(1)(c) was rightly cancelled despite concealment of income and late filing of return after survey discovery of original JDA.
(xiii) Whether the assessee was entitled to benefit under Section 80IB(10) of the IT Act in absence of a claim under Section 80AC in the return filed under Section 139.
Issue-wise Detailed Analysis:
1. Taxability of Transfer under JDA and Year of Assessment:
The legal framework involves Section 2(47)(v) of the Income Tax Act defining "transfer" to include transactions under a JDA, and Section 53A of the Transfer of Property Act, 1882, which protects rights of a transferee under an agreement for sale when possession is delivered and conditions fulfilled. The ITAT held that no transfer took place in AY 2006-07 as development activity had not commenced, and the capital gains were to be computed from AY 2007-08 onwards when actual transfer of constructed area occurred.
The Court relied on precedents including CIT Vs. Dr. D.L. Racachandra Rao and Statesman Limited Vs. ACIT, which support bifurcation of capital gains into long-term capital gains on land and short-term capital gains on superstructure. The Tribunal's approach to treat assessments for AY 2007-08 and 2008-09 as substantive was upheld, rejecting the Department's contention that capital gains should be taxed in AY 2006-07.
Statements recorded during survey and evidence of possession transfer were considered, but the Court emphasized that possession alone does not trigger capital gains tax unless conditions under Section 53A are fully satisfied and development activity has commenced.
2. Computation of Capital Gains and Consideration:
The ITAT held that consideration for transfer of land under the JDA is the constructed area allotted to the assessee, and capital gains computation has to consider the undivided share of cost in land embedded with flats. The Tribunal remitted the issue of bogus cost of improvement claimed by the assessee to the AO for fresh consideration, noting that the assessee failed to produce adequate evidence to substantiate such claims.
The Income Tax Department challenged the remand, arguing that the claim was proven bogus with bills traced to a Hawala operator. However, the Tribunal's decision to remit was based on procedural fairness and the need for the AO to verify evidence, which the Court did not find perverse.
3. Penalty under Section 271(1)(c):
The Tribunal partly allowed the assessee's appeal against penalty, reducing it from 300% to 100%, and eventually dropped penalty in certain cases. The Department contended that concealment was substantiated by delayed return filing and discovery of original JDA during survey. The Court noted that penalty cancellation was within the Tribunal's discretion, especially as appeals were pending and quantum assessments were not final.
4. Benefit under Section 80IB(10) of the Income Tax Act:
This issue centered on whether the assessee was entitled to deduction under Section 80IB(10) despite not claiming it in the return filed under Section 139(1), in light of the restriction imposed by Section 80AC which mandates that no deduction under Section 80IB shall be allowed unless the return is filed on or before due date claiming such deduction.
The Court examined the legislative history, noting that Section 80IB(10) was introduced in 1999 and Section 80AC was inserted in 2006 with effect from AY 2006-07 onwards. For AY 2006-07 (previous year 2005-06), Section 80AC did not apply, and the assessee was entitled to the benefit of Section 80IB(10) even if not claimed in the return.
For AY 2007-08 onwards, the Court held that the express language of Section 80AC precludes allowance of deduction if not claimed in the return filed by due date. The Court relied on Supreme Court precedents including Goetze (India) Ltd. Vs. CIT and Shriram Investments Vs. CIT, which interpret the restriction as mandatory for the assessing authority, though the ITAT retains power to entertain such claims in appeals.
The Court recognized that the restriction is procedural but binding in tax assessments, and any challenge to Section 80AC's validity must be pursued in separate proceedings under constitutional provisions.
The Court referred to the Division Bench decision in Commissioner of Income Tax Vs. Sanghvi & Doshi Enterprise, affirmed by the Supreme Court, which held that the deduction under Section 80IB(10) relates to the project and not the assessee's ownership of land. However, that case involved claims made in the return, unlike the present case.
5. Treatment of Competing Arguments:
The assessee argued entitlement to deduction under Section 80IB(10) based on judicial precedents and the nature of the joint development project. The Department emphasized the non-claim in the return and the statutory bar under Section 80AC, as well as the suppression of income through diversion of profits to the Managing Director's son via the Developer partnership.
The Department also challenged the genuineness of cost of improvement claims and the timing of capital gains taxability based on possession transfer and satisfaction of conditions under Section 53A of the Transfer of Property Act.
The Court carefully balanced these arguments, applying the statutory provisions and relevant precedents, and limited its decision to the question framed regarding Section 80IB(10) benefit in absence of claim under Section 80AC.
6. Conclusions:
The Court held that the assessee was entitled to the benefit of Section 80IB(10) for AY 2006-07 despite no claim in the return, as Section 80AC was not applicable for that year. For AY 2007-08 onwards, the benefit was denied due to non-compliance with Section 80AC, subject to the assessee's right to challenge the constitutional validity of Section 80AC in separate proceedings.
The other issues relating to year of taxation of capital gains, computation of capital gains, disallowance of bogus costs, and penalty were left open or allowed for reconsideration by the AO or upheld as per the ITAT's findings.
Significant Holdings:
"The restriction to claim the benefit under Section 80IB(10) of the IT Act cannot be imposed on the Assessee for the period prior to 01.04.2006. In other words, the benefit of Section 80IB of the IT Act will be otherwise available to the Assessee for the Assessment Year 2006-2007 on the income earned between 01.04.2005-31.04.2006."
"Section 80AC of the IT Act as inserted by the Finance Act, 2006 with effect from 01.04.2006 makes it expressly clear that the benefit of the aforesaid provision cannot be allowed if no Return of Income was filed before the due date specified under the aforesaid provision of the IT Act."
"The benefit of Section 80IB(10) of the IT Act can be claimed by the Assessee for the Assessment Year 2007-2008 onwards subject to a valid challenge to Section 80AC of the IT Act in a separate and collateral proceeding."
"The deduction contemplated in Section 80IB is oriented towards the project and not with reference to an assessee."
"The power of the Tribunal under Section 254 of the Income Tax Act, 1961 is to entertain for the first time a point of law provided the fact on the basis of which the issue of law can be raised before the Tribunal. The decision does not in any way relate to the power of the assessing officer to entertain a claim for deduction otherwise than by filing a revised return."
The final determinations are:
- The assessee is entitled to the benefit of Section 80IB(10) for AY 2006-07 despite no claim in the return.
- For AY 2007-08 to 2011-12, the benefit is denied due to non-compliance with Section 80AC, subject to constitutional challenge.
- The ITAT's findings on capital gains taxability years, computation, and penalty are upheld or remitted as appropriate.
- Appeals of the assessee and the Income Tax Department are allowed or dismissed accordingly for statistical purposes with liberty to revive subject to legal remedies.
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