CRYSTAL MERCANTILES PRIVATE LIMITED,KOLKATA V. ITO, WARD 7(1), , KOLKATA

ITA 957/KOL/2025

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The case involves Crystal Mercantiles Private Limited, which entered into a joint development agreement with M/s. Vedic Reality Pvt. Ltd. for the development of land. The Income Tax Department treated this agreement as a transfer of property, leading to the assessment of long-term capital gains, which the assessee contested. The primary legal contention was whether the execution of the joint development agreement constituted a transfer of property under the Income Tax Act, 1961, and whether the capital gains were chargeable in the year of the agreement. The Tribunal found that the matter required further examination regarding the year of transfer and the applicability of indexation on the cost of land.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 779300 (ITAT-KOLKATA)
• Duration Of Justice: 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 05-05-2025
• Other Referred Cases: CIT Vs. Balbir Singh Maini, Fibars Infratech (P) Ltd.Vs. ITO, S. Rajith Reddy. Vs. DCIT, Seshasayee Steels (P) Ltd.Vs. ACIT
• Laws Referred To: Income Tax Act, 1961, Transfer of Property Act, 1882
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Set aside; Capital asset; Sale consideration of property below Jantri Value; Cost of acquisition; Capital Gains; Principle of natural justice
• Section: 147; 148; 142(1)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA ‘A’ BENCH, KOLKATA Before SHRI SONJOY SARMA, JUDICIAL MEMBER & SHRI RAKESH MISHRA, ACCOUNTANT MEMBER I.T.A. No.: 957/KOL/2025 Assessment Year: 2014-15 Crystal Mercantiles Private Limited Vs. ITO, Ward-7(1), Kolkata (Appellant) (Respondent) PAN: AABCC0421H Appearances: Assessee represented by : Rip Das, CA. Department represented by : Manas Mondal, Addl. CIT, Sr. DR. Date of concluding the hearing : 24-July-2025 Date of pronouncing the order : 16-October-2025 ORDER PER RAKESH MISHRA, ACCOUNTANT MEMBER: This appeal filed by the assessee is against the order of the Commissioner of Income Tax (Appeals)-NFAC, Delhi [hereinafter referred to as Ld. 'CIT(A)'] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for AY 2014-15 dated 04.04.2025, which has been passed against the assessment order u/s 147 r.w.s. 144B of the Act, dated 21.05.2023. 2. The assessee is in appeal before the Tribunal raising the following grounds of appeal: “1. That the Appeal Order passed u/s 250 of the Income Tax Act, 1961 by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Income Tax Department, is unlawful, unwarranted and against natural justice. Printed from counselvise.com Page | 2 I.T.A. No.: 957/KOL/2025 Assessment Year: 2014-15 Crystal Mercantiles Private Limited. 2. Your Appellant submits that the execution of Joint Development Agreement cannot be equated as a Transfer of Property according to the provisions of section 58A of the Transfer of Property Act, 1882 and so also to attract the provisions of section 2(47)(v) / (vi) of the Income Tax Act, 1961, when no control over the possession of the Land was not given to the Developer by your appellant. Hence, it is prayed to delete the arbitrary addition of Rs.4,51,15,564/- with the declared income of your appellant. [Relief claimed Rs.4,51,15,564/-]. 3. That your appellant craves leave to urge, to add, to alter, to amend, to rescind or to adduce further Grounds of Appeal on or before the date of appeal hearing.” 3. Brief facts of the case are that the assessee is a company engaged in the business of construction and the original return of income was filed showing ‘NIL’ income. Subsequently, information was received from the DDIT (Inv.) that the assessee, along with other co-owners, had entered into a joint development agreement for transfer of land on 24.05.2013 with M/s. Vedic Reality Pvt. Ltd. as per which the assessee agreed to give possession of his portion of land. Thus, there was transfer of land as per section 2(47)(v) and (vi) of the Act but the assessee did not offer the long term capital gains on the same. The assessment was reopened and notice u/s 148 of the Act was issued as per the extended date of TOLA and subsequently, the Assessing Officer (hereinafter referred to as Ld. 'AO') issued notice u/s 142(1) and 143(2) of the Act and the assessee was asked to explain the joint development agreement with M/s. Vedic Reality Pvt. Ltd. As per the joint development agreement, the assessee transferred his portion of land which comes to 107.65 Shatak, i.e. 7.95% of the total area and the stamp duty value of the property was arrived at ₹4,51,45,564/- which was treated as long term capital gains and the Ld. AO assessed the total income of the assessee u/s 147 r.w.s. 144B of the Act. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. CIT(A) who went Printed from counselvise.com Page | 3 I.T.A. No.: 957/KOL/2025 Assessment Year: 2014-15 Crystal Mercantiles Private Limited. through the statement of facts, the judicial pronouncements relied upon by the assessee and the grounds of appeal. The Ld. CIT(A) examined the facts of the case and held as under: “3(a). I have considered facts & circumstances of the case. I have also considered the assessee's submissions. From the facts of the case, it is seen that the assessee entered into a joint development agreement with M/s. Vedic Reality Pvt. Ltd on 24.05.2013 as per which the assessee along with other co-owners transferred total land admeasuring 1354.69 shatak situated at Mouza Shikharpur, PS Rajarhat, PO-Bagu, Dist - North 24 Parganas, West Bengal in which the assessee's portion was at 107.65 shatak. This development agreement was registered with Additional registrar of assurances on 24.05.2013. Since this is a registered agreement, it's a enforceable document as per law. Further, the land owners transferred their rights in the and for the purpose of construction of the project and the same was clearly specified at land owners covenents at article B of the JD agreement in which clause 9,10,11,12 & 14 clearly specifies that the possession of the land was transferred to the developer M/s. Vedic Reality Pvt. Ltd. These clauses reads as under:- “9. The land owner have respectively put and/or shall be deemed to have simultaneously herewith put the said land at the disposal of the Developer for the purposes of development and construction of the said proposed project in terms hereof. 10. The possession of the said land shall always be and/or be deemed to be jointly held by the land owners with the symbolic possession of the Developer for the purposes of the agreement recorded herein and without however disturbing or obstructing or interfering with the right of the Developer to continue with the development and construction of the said project in terms of the agreement recorded herein. 11. The land owners or either of them shall not be entitled to cancel this agreement or to withdraw the said land or any portion thereof from the said project at any time hereafter under any circumstances whatsoever. 12. The land owners or either of them shall not interfere with the day to day control, management and look after of the affairs of the said project which shall remain and be under the absolute control supervision and management of the Developer. 13. The Developer shall be entitled to receive payment of all monies payable by and from the buyer(s) directly and in its own name and it shall regularly pay, meet and discharge all third party liabilities, Printed from counselvise.com Page | 4 I.T.A. No.: 957/KOL/2025 Assessment Year: 2014-15 Crystal Mercantiles Private Limited. creditors, repayment of the financial investments, if any, made by any financial institution, labour payments and its own tax liability. 14. It is however agreed that in case the land owners or either of them intend(s) to sell or transfer the said land or any part thereof, the first right of refusal shall always be with the Developer and unless refused by the developer the land owners shall not sell or otherwise transfer in any manner the said land or any part thereof to any other person.” Thus, as per the above clauses, the possession of the land was transferred to the developers for the purpose of development and construction of project. Further, as mentioned at clause 7, land owners are not entitled to cancel the agreement or withdraw the said land or any portion at any point of time or any circumstances whatsoever. Further, as per clause 14, if the land owner wants to sell their possession to any other party, in such cases, the first right of refusal should be given to the developers. Thus, these clauses clearly indicates that the possession of the land was fully given to the developer. Moreover, the said joint development agreement was a registered document, therefore, it is fully enforceable as per law Thus, the assessee completed part performance of the agreement i.e. contract as enunciated in the section 2(47)(v) of the Act as per section 53A of the Transfer of Property Act, 1882. Thus, the transaction is completed as per section 2(47)(v) of the Act. In this regard, hon'ble Supreme Court clarified in the judgement of CIT Vs. Balbir Singh Maini (86 taxmann.com 94) that once agreement was registered then it becomes enforceable by law. Therefore, part performance was completed as per section 53A of the Transfer of Property Act, 1882. The observations of the hon'ble Supreme Court are as under:- “It is also well-settled that the protection provided under section 53A is only a shield and can only be resorted to as a right of defence. An agreement of sale which fulfilled the ingredients of section 53A was not required to be executed through a registered instrument. This position was changed by the Registration and Other Related Laws (Amendment) Act, 2001. Amendments were made simultaneously in section 53A of the Transfer of Property Act and sections 17 and 49 of the Indian Registration Act. By the aforesaid amendment, the words ‘the contract, though required to be registered, has not been registered, or’ in section 53A of the 1882 Act have been omitted. Simultaneously, sections 17 and 49 of the 1908 Act have been amended, clarifying that unless the document containing the contract to transfer for consideration any immovable property (for the purpose of section 53A of 1882 Act) is registered, it shall not have any effect in law, other than being received as evidence of a contract in a suit Printed from counselvise.com Page | 5 I.T.A. No.: 957/KOL/2025 Assessment Year: 2014-15 Crystal Mercantiles Private Limited. for specific performance or as evidence of any collateral transaction not required to be effected by a registered instrument.” Thus, as held by the hon'ble Supreme Court, in the instant case, agreement was registered and possession of the land was transferred to the developer, therefore, it clearly amounts to transfer of property in the current year, thus, capital gains charged by the AO is as per law, therefore, the assessee is clearly liable for taxation of long term capital gains in the current year, therefore, the addition made by the AO is hereby confirmed and the same is hereby upheld. Accordingly, the assessee's grounds are hereby dismissed. In the result, the assessee’s appeal is hereby dismissed.” 4. Aggrieved with the order of the Ld. CIT(A), the assessee has filed the appeal before the Tribunal. 5. Rival contentions were heard, the details and the paper book filed have been examined. It was submitted by the Ld. AR during the course of appeal before us that the assessee is in the business of trading of land and the joint development agreement was made with the developer along with six other co-owners as there were seven owners of the land. The joint development agreement was executed on 24.05.2013 with M/s. Vedic Reality Pvt. Ltd. The Ld. AO on page 7 para 2.4 considered the provision of section 2(47) of the Act and held that the case of the assessee is squarely covered by Explanation-2 as well as sub-clauses (v) and (vi) of section 2(47) of the Act. The Ld. AO allowed 10% of the land cost as purchase cost to the assessee and computed the long-term capital gains. The relevant extract from the order of the Ld. AO as per page 8 is as under: “The assessee company along with six [06] other co-owner of the plots of land which are situated within, Mouza Shikharpur, P. S. Rajarhat, P. O Bagu, District North 24 Parganas. The total/aggregate area of such plots of land owned by the land owners measuring about 1354.69 SHATAK, went into joint venture Agreement with Mis Vedik Reality Private Limited for construction, development and sale of property on the said land, vide agreement dated 24/05/2023. Printed from counselvise.com Page | 6 I.T.A. No.: 957/KOL/2025 Assessment Year: 2014-15 Crystal Mercantiles Private Limited. From the agreement, it can be concluded that each of the owners had handed over their respective possession of the said property to the developer during the F.Y. 2013-14. With the signing of the Development Agreement and handing over of possession to the developer, the owners are also liable to pay capital gains as per definition of \"Transfer\" in 2(47) of the IT Act, as transfer has taken place. From the definition of \"Transfer\", it is also evident that the case of the assessee is squarely covered by explanation 2 as well as sub-clauses (V) and (VI). The share of the assessee company in the total land, was 107.65 SHATAK or 7.957% of the total land area. The stamp value/market value of this property which is the subject matter of the deed has been assessed at Rs.63,05,45,958/- and the share of deemed sale value to the assessee comes to Rs.5,01,28,404/-, As the assessee has not furnished any detail regarding the original cost of land to assessee company, 10% of the land cost is taken as purchase cost to assessee and the LTCG on transfer of land consequent to entering the joint development comes to Rs.4,51,15,564/-. Hence, Rs. 4,51,15,564/- is added to the income of the assessee under the head long term capital gains.” 6. It was submitted that the entire property was valued at ₹63,05,45,958/- and the share of the deemed sale value to the assessee was worked out at ₹5,01,28,404/- and accordingly long-term capital gain of ₹4,51,15,564/- Crore was charged. It was submitted that the purchase deeds were filed before the Ld. AO. However, the Ld. AO has taken the original cost of the land to the assessee company as only 10% of the land cost at ₹4,51,15,564/-. Our attention was drawn to Paper Book 1 filed on 30.06.2025, specifically pages 55 to 116 thereof. It is stated that the assessee is a dealer in land and the land was shown as an inventory and when the sales take place, the inventory is reduced and the sale consideration is shown. The plot was developed into a resort and bungalows and the bungalows are sold. The assessee is entitled to 10% of the total net saleable area/sale receipts while the developer is entitled to 90% of the total saleable area thereby implying that the land owners were entitled to 10% of the total saleable area. It Printed from counselvise.com Page | 7 I.T.A. No.: 957/KOL/2025 Assessment Year: 2014-15 Crystal Mercantiles Private Limited. was stated that the benefit of the indexation was not allowed to the assessee. 7. The Ld. DR on the other hand stated that the Ld. AO had rightly treated the transfer as in the year of development agreement and the capital gains was accordingly charged, which has also been confirmed by the Ld. CIT(A) as per law. 8. We have considered the submissions made. Two issues emerge after examining the facts of the case. The land was transferred to the developer as per the joint development agreement and the capital gains was chargeable in the year of transfer as has been held by the Ld. CIT(A). The assessee contended before the Ld. CIT(A) that in the absence of any act in furtherance of contract by the developer, the transfer does not take place as specified in section 2(47)(v) of the Act and had relied upon the following judicial pronouncements: a) CIT Vs. Balbir Singh Maini [(2017) 398 ITR 531 (SC)]. b) Fibars Infratech (P) Ltd.Vs. ITO [(2014) 162 TTJ 228 Hyd ITAT]. c) S. Rajith Reddy. Vs. DCIT [(2013) 144 ITD 461 Hyd ITAT]. d) Seshasayee Steels (P) Ltd.Vs. ACIT [(2020) 421 ITR 46 (SC)]. 9. Further the developer had agreed to hand over 10% of the total saleable area to the land owners after construction thereof. The assessee sold the constructed assets which are to be treated as business profit in the year of sale and not as capital gains while the consideration for the purpose of capital gains would be the value of the constructed area to the share of the assessee for the portion of land transferred to the developer, i.e. value of 90% of the land as the assessee along with others continues to be the owner of 10% of the land till the flats or constructed assets are sold to the prospective buyers. However, the Ld. AO has not given any categorical finding regarding the date of transfer Printed from counselvise.com Page | 8 I.T.A. No.: 957/KOL/2025 Assessment Year: 2014-15 Crystal Mercantiles Private Limited. nor has allowed the benefit of indexation on the cost of land for the portion transferred to the developer as per law despite the assessee having submitted the purchase deed of the land. That being so, we deem it appropriate in the interest of justice that the order of the Ld. CIT(A) be set aside and the matter be remanded back to the Ld. AO to determine the year of transfer as per law in view of the judicial pronouncements relied upon by the assessee and the evidences to be filed by the assessee and charge capital gains accordingly and also to grant benefit of indexation after the assessee furnishes evidence for the cost of purchase of the land and as per the share of the assessee and adopt the value of the constructed property coming to the share of the assessee as the consideration for the purpose of capital gains. 10. The Ld. AO shall also examine the issue relating to sale of the constructed property, the profit of which is not to be considered as capital gains but as income from business or profession. The same shall be charged in the relevant year as per law in which the sale takes place. The Ld. AO shall recompute the capital gains as per the direction above and take necessary action and in accordance with law. 11. In the result, the appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced in the open Court on 16th October, 2025. Sd/- Sd/- [Sonjoy Sarma] [Rakesh Mishra] Judicial Member Accountant Member Dated: 16.10.2025 Bidhan (Sr. P.S.) Printed from counselvise.com Page | 9 I.T.A. No.: 957/KOL/2025 Assessment Year: 2014-15 Crystal Mercantiles Private Limited. Copy of the order forwarded to: 1. Crystal Mercantiles Private Limited, G-8, Rabindra Pally, Space Tower, Kolkata, West Bengal, 700059. 2. ITO, Ward-7(1), Kolkata. 3. CIT(A)-NFAC, Delhi. 4. CIT- 5. CIT(DR), Kolkata Benches, Kolkata. 6. Guard File. //True copy // By order Assistant Registrar ITAT, Kolkata Benches Kolkata Printed from counselvise.com "