Mohd. Minhajuddin, Hyd, Hyderabad V. ITO, Ward-5(2), Hyd, Hyderabad

ITA 1201/HYD/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6252 (ITAT-HYDERABAD)
• Duration Of Justice: 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 07-06-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 12-10-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K J RAO
• Keywords: Capital receipt
• Section: 143(3); 5(2); 148

Judgement Text

ITA NO 1201 OF 2015 MOHD MINHAUDDIN HYDERABAD PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B (SMC) BENCH, HYDERABAD BEFORE SMT. P.MADHAVI DEVI, JUDICIAL M EMBER ITA NO.1201/HYD/2015 (ASSESSMENT YEAR: 2007-08) SRI MOHD. MINHAJUDDIN HYDERABAD PAN: AKUPM 8437 F VS. INCOME TAX OFFICER WARD 5(2) HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI Y. RATNAKAR FOR REVENUE : SHRI K.J. RAO, DR DATE OF HEARING : 20.07.2016 DATE OF PRONOUNCEMENT : 09.09.2016 O R D E R THIS IS ASSESSEES APPEAL FOR THE A.Y 2007-08. IN THIS APPEAL, THE ASSESSEE IS AGGRIEVED BY THE ORDER OF THE CIT (A) CONFIRMING THE ADDITION OF RS.19,70,000 MADE BY THE AS SESSING OFFICER AS INCOME FROM OTHER SOURCES. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, AN INDIVIDUAL, FILED HIS RETURN OF INCOME FOR THE A.Y 20 07-08 ON 13.08.2007 RETURNING AN INCOME OF RS.1,50,000. THE A SSESSEE HAD ENTERED INTO TWO DEVELOPMENT AGREEMENTS CUM- GEN ERAL POWERS OF ATTORNEY AND A SUPPLEMENTARY AGREEMENT WITH R EGARD TO HIS IMMOVBLE PROPERTY ON 22.01.2007 AND 24.01.200 7 RESPECTIVELY WITH M/S. ASIAN SECURITIES AND ESTATES LTD AND A ITA NO 1201 OF 2015 MOHD MINHAUDDIN HYDERABAD PAGE 2 OF 7 SUM OF RS.20.00 LAKHS AS REFUNDABLE SECURITY DEPOSI T WAS PAID TO THE ASSESSEE. SINCE THE ASSESSEE HAS NOT REFLECTED THIS TRANSACTION IN HIS RETURN OF INCOME, A NOTICE U/S 148 O F THE ACT WAS ISSUED ON 25.03.2014. IN RESPONSE TO THE SAME, TH E ASSESSEE FILED A LETTER DATED 12.05.2014 ALONG WITH COPY OF THE RETURN OF INCOME STATING THAT THE RETURN FILED MAY BE TREATED AS FI LED IN RESPONSE TO THE NOTICE U/S 148 DATED 25.03.2014. DURIN G THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, THE AO TO OK COGNIZANCE OF THE DEVELOPMENT AGREEMENT AND THE RECEIPT OF SECURITY DEPOSIT AS WELL AS THE FACT THAT THE SAME WAS CA NCELLED AND THE SECURITY DEPOSIT WAS NOT REFUNDED. THEREFORE, HE ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE REFUNDABLE SECURI TY DEPOSIT OF RS.20.00 LAKHS SHOULD NOT BE ADDED TO THE TOTAL INCOM E AS THE AGREEMENT WAS CANCELLED, THE DEPOSIT WAS NOT RETURNED BA CK. THE ASSESSEE, VIDE LETTER DATED 24.11.2014, SUBMITTED THAT THE REFUNDABLE SECURITY DEPOSIT RECEIVED FROM THE DEVELOP ERS HAS NOT BEEN RETURNED BACK AS THE DEVELOPER HAS NOT YET STARTED THE CONSTRUCTION AND HAS NOT TAKEN ANY ACTION AS PER THE DEVELOPMENT AGREEMENT. IT WAS FURTHER SUBMITTED THAT IN VI EW OF THE ABOVE FACTS, THE AMOUNT SHOULD NOT BE TREATED AS HIS INCOME BUT INSTEAD, THE SAME SHOULD BE REDUCED FROM THE COST O F THE PROPERTY. THE AO HOWEVER, OBSERVED THAT THE ASSESSEE H AD ITA NO 1201 OF 2015 MOHD MINHAUDDIN HYDERABAD PAGE 3 OF 7 PURCHASED THE PROPERTY WHICH IS GIVEN FOR DEVELOPMEN T ON 8.1.1996 FOR A SUM OF RS.30,000 AND IF THE REFUNDABL E SECURITY DEPOSIT IS REDUCED FROM THE SAID COST THE DIFFERENCE AM OUNT OF RS.19,70,000 BECOMES THE INCOME OF THE ASSESSEE. HE, THEREFORE, BROUGHT THE SAME I.E., RS.19,70,000 TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A), WHO CONFIRMED THE ORDER OF THE AO AND THE ASSESSEE IS IN 2 ND APPEAL BEFORE THE TRIBUNAL. 3. THE LEARNED COUNSEL FOR THE ASSESSEE SHRI Y. RATNAKAR, WHILE REITERATING THE SUBMISSIONS ADVANCED B Y THE ASSESSEE BEFORE THE AUTHORITIES BELOW, CONTENDED THAT TH E SAID SUM IS NOT AT ALL LIABLE TO TAX AS THE ASSUMPTION THAT TH E AOUNT OF RS.20 LAKHS IS FORFEITED IS NOT CORRECT AND IN THE AL TERNATE EVEN IF IT IS LIABLE TO TAX, IT CAN ONLY BE TAXED UNDER THE HEAD CAPITAL GAINS AND NOT AS INCOME FROM OTHER SOURCES. THE LE ARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT AFTER RECEIPT OF TH E REFUNDABLE SECURITY DEPOSIT OF RS.20 LAKHS VIDE TWO CHEQUES BEARING NO.915573 AND 915574 DATED 20.02.2008, DISP UTE HAD ARISEN BETWEEN THE ASSESSEE AND THE DEVELOPER, AS THE DEVELOPER ABANDONED THE PROJECT BY NOT FULFILLING THE OBLIGATIONS UNDER THE AGREEMENT. HE SUBMITTED THAT THE LEARNED AO ALSO VISITED THE SITE AND VERIFIED THAT THERE WAS NO CONSTRUCTION ACTIVITY UN DERTAKEN ITA NO 1201 OF 2015 MOHD MINHAUDDIN HYDERABAD PAGE 4 OF 7 THEREON. IT IS SUBMITTED THAT VIDE LEGAL NOTICE DATED 18. 11.2013, ASSESSEE HAS CALCELLED THE DEVELOPMENT AGREEMENT WHIC H WAS OBJECTED TO BY THE DEVELOPER AND THAT THE ASSESSEE ALSO FILED A CIVIL SUIT BEARING OS NO.53/2014 IN THE COURT OF HON' BLE DISTRICT V JUDGE AT LB NAGAR, RANGA REDDY DISTRICT FOR A PERMA NENT INJUNCTION AGAINST THE DEVELOPER IN VIEW OF THE CANCE LLED DEVELOPMENT AGREEMENT. IT IS SUBMITTED THAT INTERIM RELI EF WAS GRANTED TO THE ASSESSEE, AGAINST WHICH THE DEVELOPER HAS FILED AN APPEAL BEFORE THE HON'BLE HIGH COURT BEARING CMA NO.6 46 OF 2014 WHICH WAS ALLOWED BY THE HON'BLE HIGH COURT VID E ITS JUDGMENT DATED 22.08.2014. IT WAS FURTHER SUBMITTED THAT TH E HON'BLE HIGH COURT HAS DIRECTED THE PARTIES TO MAINTAIN STATUS QUO TILL THE TRIAL COURT DECIDES THE MATTER AND AGAINST THI S ORDER, ASSESSEE CARRIED THE MATTER TO THE APEX COURT WHICH UPH ELD THE REMAND TO THE TRIAL COURT AND THE MATTER IS NOW PENDING BEFORE THE TRIAL COURT. IN VIEW OF THE ABOVE FACTS, THE CASE OF THE ASSESSEE IS THAT THE ISSUE OF RE-PAYMENT OF RS.20.00 LA KHS IS STILL IN DISPUTE AND CANNOT BE TREATED AS FORFEITED ADVANC E AMOUNT. HE FURTHER SUBMITTED THAT EVEN IT IS ASSUMED THT IT IS FORF EITED, IT IS NOT LIABLE TO TAX AS IT CONSTITUTES A CAPITAL RECEIPT. FURTHER, ACCORDING TO HIM, THE ADVANCE FORFEITED CANNOT BE BR OUGHT TO TAX AS INCOME FROM OTHER SOURCES AS SUCH A PROVISION H AS BEEN ITA NO 1201 OF 2015 MOHD MINHAUDDIN HYDERABAD PAGE 5 OF 7 INTRODUCED IN THE STATUTE ONLY W.E.F. A.Y 2015-16 AND IS NOT APPLICABLE TO THE EARLIER YEARS. FURTHER ACCORDING TO HIM, EVEN IF IT IS ASSUMED THAT THE SAID ADVANCE IS LIABLE TO TAX AS I NCOME, IT CAN ONLY BE BROUGHT TO TAX IN THE A.Y 2008-09 AND NOT FO R A.Y 2007-08. THE LAST ARGUMENT OF THE ASSESSEE IS THAT EVEN IF IT IS TO BE BROUGHT TO TAX, IT CAN ONLY BE BROUGHT TO TAX UNDER TH E HEAD CAPITAL GAIN AND NOT UNDER ANY OTHER HEAD. 4. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSE SSEE DID NOT DISPUTE THAT THE ASSESSEE HAS RECEIVED THE REFUN DABLE SECURITY DEPOSIT FROM THE DEVELOPER AND HAS NOT RETU RNED THE SAME INSPITE OF CANCELLATION OF THE DEVELOPMENT AGREEME NT. THEREFORE, ACCORDING TO HIM, THE AO AND THE CIT (A) H AVE RIGHTLY BROUGHT IT TO TAX. AS REGARDS THE HEAD OF INCOME UNDER WHICH IT IS TO BE BROUGHT TO TAX, THE LEARNED DR SUBMITTED THAT SINCE THERE IS NO TRANSFER OF PROPERTY, IT CANNOT BE BROUGHT TO TAX U NDER THE HEAD CAPITAL GAIN AND THEREFORE, IT HAS BEEN RIGHTLY BROUGHT TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. 5. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, I AGREE WITH THE CONTENTION OF THE ASSESSEE THAT THE SECURITY DEPOSIT CANNOT BE TREATED AS A FORFEITE D AMOUNT ITA NO 1201 OF 2015 MOHD MINHAUDDIN HYDERABAD PAGE 6 OF 7 AS THE DISPUTE BETWEEN THE ASSESSEE AND THE DEVELOPER H AS NOT REACHED A FINALITY. UNDISPUTEDLY, THE SECURITY DEPOSI T IS REFUNDABLE SUBJECT TO FULFILMENT OF THE CONDITIONS BY THE DEVELOPER. THE ASSESSEE HAS A RIGHT TO RETAIN THE DEPO SIT TILL SUCH CONDITIONS ARE FULFILLED. THOUGH THE DEVELOPMENT AGR EEMENT HAS BEEN CANCELLED BY THE ASSESSEE, THE DEVELOPER DISPUTED THE SAME AND ISSUE OF RIGHT OF THE DEVELOPER IS PENDING ADJUDI CATION BEFORE THE TRIAL COURT. THEREFORE, IN MY OPINION, IT CANNOT B E TREATED AS FORFEITED AMOUNT AS YET. FURTHER, EVEN IF IT IS ASSUME D TO BE FORFEITED, THEN, IT CAN BE TREATED AS FORFEITED ONLY I N THE YEAR OF CANCELLATION OF THE AGREEMENT OR THE YEAR OF RECEIPT. I FIND THAT THE ASSESSEE HAS RECEIVED A SUM OF RS.20.00 LAKHS ON 20.02.2008 AND THE RELEVANT A.Y IS 2008-09. THE AGREE MENT HAS BEEN CANCELLED BY THE ASSESSEE VIDE LEGAL NOTICE DAT ED 18.11.2013 AND THE RELEVANT A.Y. IS 2013-2014. THEREF ORE, THOUGH THE DEVELOPMENT AGREEMENT WAS ENTERED ON 22.01. 2007 AND THE SUPPLLEMENTARY AGREEMENT ON 24.01.2007 AND THE ASSESSEE WAS ENTITLED TO RECEIVE THE SECURITY DEPOSIT B Y VIRTUE OF THE SUPPLEMENTARY AGREEMENT, I FIND THAT IN THE AGREEMENT ITSELF IT IS MENTIONED THAT THE ASSESSEE IS PAID BY CHEQUES DA TED 20.02.2008. THUS, IT IS CLEAR THAT THE ASSESSEE HAS REC EIVED THE SUM ONLY DURING THE PREVIOUS YEAR 2007-08 RELEVANT TO THE A.Y ITA NO 1201 OF 2015 MOHD MINHAUDDIN HYDERABAD PAGE 7 OF 7 2008-09. IN VIEW OF THE SAME, THIS AMOUNT EVEN IF IT I S TO BE TREATED AS INCOME FROM OTHER SOURCES OR INCOME UNDE R ANY OTHER HEAD, IT IS MY OPINION THAT IT CAN NOT BE BROUGHT TO TAX IN THE A.Y 2007-08. THEREFORE, WITHOUT GOING INTO THE OTHER GROUNDS OF APPEAL RAISED BY THE ASSESSEE, THE APPEAL OF THE AS SESSEE IS ALLOWED BY HOLDING THAT THE FORFEITED AMOUNT CANNOT BE B ROUGHT TO TAX IN THE RELEVANT ASSESSMENT YEAR. 6. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 09 TH SEPTEMBER, 2016. SD/- (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 09 TH SEPTEMBER, 2016. VNODAN/SPS COPY TO: 1. SRI MOHD. MINHAJUDDIN, PROP: MAHARAJA RESIDENCY, 5- 7-538 NAMPALLY, HYDERABAD 2. INCOME TAX OFFICER WARD 5(2) HYDERABAD 3. CIT(A) -4 HYDERABAD 4. CIT -4 HYDERABAD 5. THE DR, ITAT, HYDERABAD 6. GUARD FILE BY ORDER