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TMI Blog2025 (5) TMI 1542X X X X Extracts X X X X X X X X Extracts X X X X ..... cing reliance upon the decision of the Hon'ble ITAT in assessee own case for A.Y. 2015-16 passed in ITA No.1645/Mum/2021 wherein the order passed by PCIT u/s. 263 of the Act was quashed ignoring the fact that the assessee has entered into a joint development agreement by opting to revenue sharing formula to gain commercial advantage of trade & Profession in place of capital gain? 2. Whether on the facts and circumstances of the case and in Law, the Ld. CIT(A) has erred in placing reliance upon the decision of the Hon'ble ITAT in assessee own case for A.Y.2015-16 passed in ITA No.1645/Mum/2021, wherein the order passed by PCIT u/s. 263 of the Act was quashed ignoring the fact that the decision of ITAT is not accepted by Revenue and further appeal is filed before Hon'ble High Court Bombay which is pending? 3. The penalty proceedings initiated u/s. 270A of the Act deleted by CIT(A) may please be restored if ground (i) is upheld in favour of revenue. 4. The Appellant prays that the order of the CIT(A) on above grounds be set aside and that of the Assessing Officer be restored." 3. We have heard both the sides and perused the material on record. 4. The facts as emerging from rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PCIT) in exercise of powers vested under Section 263 of the Act. The Assessee challenged the aforesaid revision order in appeal before the Tribunal [ITA No.1645/Mum/2021]. In the aforesaid appellate proceedings before the Tribunal the issue of characterization of payments received by the Assessee in terms of the Development Agreement from the Developer first came up for consideration before the Tribunal. After examining the terms of the Development Agreement, the Tribunal, vide order dated 15/05/2023, concluded that the relationship between the Assessee and the Developer was strictly on principled to principle basis. The Development Agreement did not constitute a joint Development Agreement. While the Assessee was being compensated by way of share of the Gross Revenue received from sell of constructed area, the cost of development of the housing project and the associated risks was born by the Developer. 8. The appeal before us pertains to Assessment Year 2017-18. In the return of income for the aforesaid assessment year, the Assessee had offered to tax payments received from the Developer in terms of Development Agreement as Long Term Capital Gains Income taxable at the beneficia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opment charges representing cost of construction of superstructure and the charges for transfer of land. Thus, the consideration received by the Assessee from the Developer, also included consideration for the land which was transferred on execution of the aforesaid conveyance deed. It was further submitted by the Learned Departmental Representative that the activities carried on by the Assessee would qualify as adventure in the nature of trade since the Assessee was carrying out a systematic activity of earning income by way of sale of constructed area. The transactions taken by the Assessee were not simple transactions of transfer of a capital asset but a complex commercial business arrangement entered into by the Assessee with the intention of earning business income. 10. Per contra, Learned Authorised Representative for the Assessee submitted that the Assessee had already offered to tax income of INR. 16,76,92,000/- in relation to the transfer of development rights as capital gains income in the return of income for the Assessment Year 2013-14 on account of execution of General Power of Attorney in favour of the Developer. Once the Revenue has accepted the aforesaid income off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tual finding that the Assessee did not enter into a joint venture with the Developer for construction and sale of the constructed area and that the relationship between the Assessee and the Developer was on principal to principal basis. The relevant extract of the aforesaid decision of the Tribunal reads as under: "5. Per contra, Dr. Mahesh Akhade representing the Department strongly supported the impugned order. The Id. Departmental Representative (DR) submitted that a perusal of the assessment order dated 27.12.2017 would show that it is a cryptic order and the AO has not applied his mind on an issue for which the case was selected under limited scrutiny. In respect of assessment order for AY 2013-14 and 2014-15, the ld. DR submitted that the assessment orders for preceding assessment years are also wrong as the AO in the preceding assessment years has not decided the issue in right perspective. He submitted that in any case each assessment year is independent assessment year and assessment for each assessment year has to be examined independently. The principle of res judicata does not apply in income tax proceedings. The AO has to investigate each assessment year and has to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the assessee has never converted the land held as capital asset into stock in trade. Insofar as mode of consideration is concerned, It has been mutually agreed between assessee and Godrej Properties Limited to share revenue generated from sale of flats. Hence, the assessee received its share of consideration as and when flats are sold. Insofar as the relation between the assessee and the developer, the ld. Counsel referred to Clause 28 of the agreement and submitted that the relation between the parties is strictly on principal to principal basis and it has been specifically mentioned that nothing contained in the agreement shall be construed as constituting a partnership between the parties or a joint venture between the parties. The owner of the land will not be liable for the tax, deals, matters and things entered into, executed or agreed to be done by the developer with third party. The ld. Counsel further placed reliance on the following decisions to support her submissions: 1. Malabar Industries Co. Ltd. vs. CIT, 243 ITR 83; 2. JRD Tata Trust vs. DCIT, 112 taxmann.com 275 (Mumbai Trib.) 7. We have heard the submissions made by rival sides and have examined the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loper shall upon execution hereof, initiate the process of applying for and obtaining all necessary permissions/approvals from the concerned authorities for commencing the construction of the proposed buildings on the said property; (ii) The Developer shall during the subsistence of this Agreement be entitled to enter into separate contracts in its own name with suppliers of materials, building contractors, architects, engineers and other for carrying out the development of the said property, at its own risk and cost. xxxxxxxxx xxxxxxxxx 14. DEVELOPMENT AND SALE 14.1 The Developer shall carry out in its sole and unfettered discretion, and at its own costs, charges and expenses in all respects, all or any items of works for development of the said property, which includes construction of internal roads, laying out of compulsory open spaces or recreation grounds, laying of drainage, sewage and water pipes, and electricity and telephone cables, electric sub- station, common walls, gas pipelines, and other service and utility connections and other items, in conformity with terms and conditions as may be imposed by the MCGM and other statutory authorities while sanctioning th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oper with any other parties and authorities." From perusal of above covenants of the Development Agreement, it is unambiguously clear that the risk and the cost of development of the housing project is that of the developer and of not the assessee. Although, the assessee is compensated by way of profit sharing model but the financial interest of the assessee is fairly secured by way of advance deposit of Rs. 10 crores, which of course would be adjusted gradually on the sale of complete residential units (Re. Clause 16 Distribution Mechanism). The assessee is not liable for any damages on account of delay or losses in the project. The entire risk and liability to bear the damages is that of the developer. Possession and the ownership of the land shall continue to be with the assessee/owner till the time possession of the completed residential units is handed over to the respective buyers of the flats. The relationship between the developer and the assessee is strictly on principal to principal basis. Thus, from the above covenants in the development agreement it can be safely deduced that it is not a case of joint development agreement as argued by ld. DR. 11. The contention of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since the payments under consideration have been received by the Assessee in terms of the same Development Agreement. On perusal of the Development Agreement as a whole, we concur with the factual findings returned by the Tribunal in the aforesaid decision. We find that entire cost and risk for development of the housing project was born by the Developer. The Developer also undertook the obligation to take necessary approvals and comply with the requirements of the Maharashtra Ownership Flats [Regulation of the Promotion of the Construction, Sale, Management and Transfer] Act, 1963, and rule made thereunder. Clause 28 of the Development Agreement specifically provided that the relationship between the Assessee and the Developer was on principal to principal basis. The Developer had sole and unfettered discretion to develop the housing project and had to bear the responsibility to incur financial obligation for the same. While Developer was required to sell the constructed area in a prudent manner at the maximum available sale price to be mutually decided by the Assessee and the Developer, the Developer had the right to exclusively finalize the sales made to be third parties. We ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in incumbency to this office, fresh notice u/s 142(1) was issued & duly served on the assessee for necessary compliance. 2. In response to the said notices, Shri ......, authorised representative of the assessee company, attended from time to time and filed details which are placed on record after verification and the case was discussed & heard. 3. The assessee company was in the business of manufacturing of footwear. However, during the F.Y. 2012- 13 relevant to the A.Y. 2013-14 there was no business of manufacturing carried out by the assessee. The company had entered into a Joint Development Agreement dated 21.09.2010 with Godrej Properties Ltd., to jointly develop the property owned by the company. In accordance with the terms of the agreement the company executed the General Power of Attorney in favour of the developer on 21.06.2012. 4. In accordance with the terms of the agreement, the company is entitled to receive 50% of the Gross Sales Revenue generated from the sale of the total constructed area in the entire development from the Developer as consideration for the transfer. 5. As such, the amount of consideration to be received by the company is not ascertainable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the aforesaid conclusion the Tribunal made following observation: ".11. The contention .......................................................We are live to the fact that the principle of res judicata do not apply in income tax proceedings, nevertheless, where there is no change in the facts and circumstances from the preceding assessment year, the Rule of Consistency cannot be ignored" 15. We find no reason to depart from the above said view taken by the Tribunal in the case of the Assessee for the Assessment Year 2015-16. Consistent with the view taken by the Tribunal for the Assessment Year 2015-16, we hold that payments received by the Assessee from the Developer during the Assessment Year 2017-18 were in the nature of Capital Gains Income. Since, the CIT(A) has allowed the appeal preferred by the Assessee following the aforesaid decision of the Tribunal, we do not find any infirmity in the order passed by the CIT(A). Accordingly, all the Grounds raised by the Revenue are dismissed. Cross Objection No.139/Mum/2024 16. Since, we have sustained the order passed by the CIT(A), the Cross Objection raised by the Assessee are dismissed as having been rendered infructuous. 17 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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