2025 (5) TMI 1072 - AT - Income Tax

Reopening of assessment u/s 147 - Reasons to believe - assessee has sold immovable property during the year and has not filed his return of income - submission of assessee that the property is jointly held by 5 others apart from the assessee and also in the case of the brother of the assessee no such reopening of assessment has taken place. HELD THAT - Since it is not known as to what has happened in the case of the other 5 co-owners and since it is the submission of the Ld. Counsel for the assessee that no notice u/s 148 of the Act has been issued in the name of the brother of the assessee for his share of consideration in the property in question therefore considering the totality of the facts of the case and in the interest of justice we deem to proper to restore the issue to the file of the Ld. CIT(A) / NFAC with a direction to re-adjudicate the issue as per fact and law including the issue of validity of re-assessment proceedings after giving due opportunity of being heard to the assessee. Appeal filed by the assessee is partly allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this appeal are:

(a) Whether the reopening of the assessment under section 148 of the Income Tax Act for the assessment year 2015-16 was valid and within the prescribed time limit;

(b) Whether the notice under section 148A was rightly issued by the jurisdictional Assessing Officer instead of the Faceless Assessing Officer;

(c) Whether the Development Agreement executed by the assessee, permitting the builder to construct flats, constitutes a transfer attracting capital gains tax, or merely a license not amounting to transfer as per Supreme Court precedents;

(d) Whether the Assessing Officer erred in treating both the stamp duty value and agreement value totaling Rs. 9,25,45,000/- as consideration under section 50C, thereby wrongly treating it as sale of two properties;

(e) Whether the assessee's share in the property was correctly considered as full ownership rather than the actual one-sixth share;

(f) Whether the capital gains arising from the Joint Development Agreement (JDA) should be taxed in the assessment year 2015-16 (year of agreement) or in assessment year 2019-20 (year of receipt of possession and completion certificate), particularly with regard to applicability of section 45(5A) of the Income Tax Act;

(g) Whether the Assessing Officer and the Commissioner of Income Tax (Appeals) erred in their respective findings and orders;

(h) Whether interest under sections 234A, 234B, 234C, and 234D and penalty under section 271(1)(c) were rightly imposed.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Validity of Reopening of Assessment under Section 148

Legal Framework and Precedents: Section 148 empowers the Assessing Officer to reopen an assessment if there is reason to believe that income chargeable to tax has escaped assessment. The procedure under section 148A mandates issuance of a show cause notice and opportunity to the assessee before reopening. The Supreme Court decision in Union of India & Ors. vs. Rajeev Bansal (2024) clarified that for AY 2015-16, notices issued after 1 April 2021 cannot be proceeded with due to limitation under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act (TOLA).

Court's Interpretation and Reasoning: The Assessing Officer issued notice under section 148A(b) on 22.03.2022 after obtaining prior approval under section 151. The assessee challenged the reopening on grounds of time-bar and procedural irregularity. The Tribunal noted that the issue of validity of reopening was raised for the first time before it and not before the CIT(A). The Tribunal observed that the Supreme Court ruling cited by the assessee was not accepted by the Revenue and the matter requires reconsideration.

Application of Law to Facts: Since the reopening notice was issued after 1 April 2021 for AY 2015-16, the assessee contended it was barred. However, the Tribunal, noting the procedural history and lack of prior challenge before CIT(A), directed the CIT(A) to re-adjudicate the issue afresh after giving the assessee an opportunity.

Conclusion: The validity of reopening remains an open question to be decided by the CIT(A) on remand, ensuring compliance with law and procedural fairness.

(b) Issuance of Notice under Section 148A by Jurisdictional AO Instead of Faceless AO

Legal Framework: The faceless assessment scheme mandates that notices under section 148A be issued by the Faceless Assessing Officer. The assessee challenged the jurisdiction on this ground.

Court's Reasoning: The assessee did not press this ground before the Tribunal, and it was dismissed as not pressed.

Conclusion: This ground was not pursued and dismissed accordingly.

(c) Nature of Development Agreement: Transfer or License

Legal Framework and Precedents: Section 2(47)(v) defines transfer to include the granting of rights under a Joint Development Agreement. The Supreme Court has held that a JDA can amount to transfer attracting capital gains tax. The assessee argued that the Development Agreement was a mere license, not a transfer, relying on Supreme Court judgments.

Court's Interpretation and Reasoning: The Assessing Officer and CIT(A) held that the JDA constituted a transfer as per section 2(47)(v). The Karnataka High Court decision in Dr. T. K. Dayalu was cited, which held that entering into a JDA results in transfer triggering capital gains. The Tribunal agreed with this interpretation, affirming that the Development Agreement is a transfer for tax purposes.

Application to Facts: The assessee executed the JDA on 04.03.2015, transferring rights to the builder in exchange for consideration including on-money and share in developed property.

Conclusion: The Development Agreement amounts to a transfer attracting capital gains tax in the year of execution.

(d) Treatment of Sale Consideration and Application of Section 50C

Legal Framework: Section 50C provides that if the consideration declared in the sale deed is less than the stamp duty value, the stamp duty value shall be deemed to be the full value of consideration for computing capital gains.

Court's Reasoning: The Assessing Officer initially added both the stamp duty value (Rs. 4,01,32,000) and agreement value (Rs. 5,24,13,000) totaling Rs. 9,25,45,000, treating them as two separate properties. The assessee contended these values pertain to the same property and that only one value should be considered. The CIT(A) accepted that the two values relate to the same property and accordingly considered the total consideration as Rs. 8,75,00,100 (including on-money and stamp duty value of developed property). The Tribunal noted this adjustment and directed computation accordingly.

Conclusion: The correct consideration for capital gains computation is Rs. 8,75,00,100, representing the aggregate of on-money and stamp duty value of developed property, not the sum of both values treated as separate properties.

(e) Ownership Share in Property

Legal Framework: Capital gains tax liability corresponds to the actual ownership interest in the property.

Court's Reasoning: The assessee's share was one-sixth of the property jointly held with five others. The Assessing Officer initially treated the assessee as full owner, but the CIT(A) accepted the assessee's contention and directed that only the one-sixth share be considered for tax computation.

Conclusion: The capital gains computation shall consider the assessee's one-sixth ownership share.

(f) Timing of Taxability under Section 45(5A)

Legal Framework: Section 45(5A), inserted w.e.f. 01.04.2018, provides that capital gains arising from transfer under specified agreements (such as JDAs) shall be chargeable as income of the previous year in which the certificate of completion for the project is issued by the competent authority. However, the proviso excludes transfers made before the certificate of completion, in which case capital gains are taxable in the year of transfer.

Court's Reasoning: The assessee argued that taxability should arise in AY 2019-20 when the certificate of completion was received and taxes paid. The Assessing Officer and CIT(A) held that section 45(5A) is not applicable retrospectively to AY 2015-16 as it was introduced only in 2018. Hence, capital gains must be taxed in AY 2015-16, the year of JDA execution. The Tribunal concurred, relying on the statutory language and judicial precedents, including the Karnataka High Court decision in Dr. T. K. Dayalu, holding that transfer under JDA triggers capital gains in the year of transfer.

Application to Facts: The JDA was executed on 04.03.2015, relevant to AY 2015-16. The certificate of completion was obtained in FY 2018-19. Since section 45(5A) was not in force for AY 2015-16, taxability arises in AY 2015-16.

Conclusion: Capital gains are taxable in AY 2015-16, the year of transfer under the JDA, not in AY 2019-20.

(g) Treatment of Tax Paid in AY 2019-20 and Double Taxation Concern

Assessee's Argument: The assessee submitted that tax was paid in AY 2019-20 on capital gains arising from the project completion and that taxing the same gains in AY 2015-16 would result in double taxation. Also, the brother of the assessee, a co-owner, was not subjected to reassessment.

Court's Reasoning: The CIT(A) directed the Assessing Officer to give credit for taxes paid in AY 2019-20 against the liability for AY 2015-16. The Tribunal noted the silence of the Assessing Officer and CIT(A) on the treatment of other co-owners and the brother of the assessee. In the interest of justice and fairness, the Tribunal restored the matter to the file of CIT(A) for fresh adjudication, including the validity of reassessment and equitable treatment of all co-owners.

Conclusion: The issue of tax credit and equitable treatment of co-owners is remanded for reconsideration.

(h) Interest and Penalty under Sections 234A, 234B, 234C, 234D and 271(1)(c)

Court's Reasoning: These grounds were not pressed by the assessee and dismissed accordingly.

3. SIGNIFICANT HOLDINGS

"Section 45(5A) was inserted w.e.f. 01-04-2018 and is not applicable retrospectively. Therefore, for AY 2015-16, the year in which the Joint Development Agreement was executed, the capital gains arising therefrom are taxable in that year and not in the year of receipt of certificate of completion."

"Entering into a Joint Development Agreement amounts to transfer of capital asset as per section 2(47)(v) of the Income Tax Act and consequently attracts capital gains tax."

"The correct consideration for computation of capital gains is the aggregate of on-money received and the stamp duty value of the developed property share received, not the sum of stamp duty value and agreement value treated as two separate properties."

"The capital gains tax liability must be computed considering the actual ownership share of the assessee in the property, which is one-sixth in this case."

"The reopening of assessment under section 148 must comply with procedural requirements and be within time. The validity of reopening in this case is remanded for fresh consideration by the CIT(A) after affording the assessee an opportunity of hearing."

"The Assessing Officer is directed to give due credit for taxes paid in AY 2019-20 against the liability for AY 2015-16 to avoid double taxation."

"In the interest of justice, the issue relating to equitable treatment of co-owners and validity of reassessment is remanded to the CIT(A) for fresh adjudication."