Rama Rao Gottumukkala, Hyd, Hyderabad V. ITO, Ward-11(3), Hyd, Hyderabad

ITA 1233/HYD/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 2996 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 8 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-05-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 21-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D PRASAD RAO
• Assessee Lawyers: J SURESH
• Keywords: Unexplained cash credit; Capital asset; Competent authority
• Section: 234B; 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. ASST. YEAR APPELLANT RESPONDENT 1232/HYD/16 2007-08 MR. KONDAL RAO KURMYAGARI, HYDERABAD [PAN: AGWPK0763E] INCOME TAX OFFICER, WARD-11(5), HYDERABAD 1233/HYD/16 2007-08 MR. RAMA RAO GOTTUMUKKALA, HYDERABAD [PAN: AEHPG8391P] INCOME TAX OFFICER, WARD-11(3), HYDERABAD FOR ASSESSEE : SHRI J. SURESH, AR FOR REVENUE : SHRI D. PRASAD RAO, DR DATE OF HEARING : 27-03-2018 DATE OF PRONOUNCEMENT : 23-05-2018 O R D E R PER B. RAMAKOTAIAH, A.M. : THESE ARE ASSESSEES APPEALS AGAINST SEPARATE BUT SIM ILAR ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS)-5 , HYDERABAD, DATED 29-07-2016 ON THE ISSUE OF BRINGING TO TAX THE CAPITAL GAINS IN THE IMPUGNED YEAR. 2. ASSESSEES HEREIN ARE INDIVIDUALS CARRYING ON TH E BUSINESS OF CONSTRUCTION ACTIVITIES AND REAL ESTATE AG ENCY. THEY HAVE ENTERED INTO DEVELOPMENT AGREEMENTS WITH M/S. SI RI ITA NOS. 1232 & 1233/HYD/2016 :- 2 -: BALAJI CONSTRUCTIONS AND M/S. SIRI LAKSHMI BALAJI CONSTRUCTIONS FOR DEVELOPMENT OF PROPERTY WHICH ARE SUBJECT MATTER OF PRESENT APPEALS. FOR THE SAKE OF CLARITY, TH E FACTS IN THE CASE OF SHRI K. KONDAL RAO IN ITA NO. 1232/HYD/2016 ARE DISCUSSED HEREIN IN DETAIL. ITA NO. 1232/HYD/2016: 3. ASSESSEE HEREIN FILED RETURN OF INCOME FOR THE AY . 2007-08 ON 20-04-2009 ADMITTING TOTAL INCOME OF RS. 2,00,040/-. IT WAS NOTICED FROM THE OFFICE RECORDS THA T ASSESSEE HAS PURCHASED A LAND OF AC. 0.28.25 GUNTAS, (ALONG W ITH SRI G. RAMA RAO IN THE LAND OF AC. 1.165) AT SURVEY NOS. 19 2 TO 196 OF NIZAMPET VILLAGE, QUTBULLAPUR MUNICIPALITY, RANGA REDDY DIST., FOR A CONSIDERATION OF RS. 2,47,250/- ON 15-02 -2001. ASSESSEE HAS GIVEN IT FOR DEVELOPMENT TO M/S. SIRI BAL AJI CONSTRUCTIONS AND M/S. SIRI LAKSHMI BALAJI CONSTRUCTIO NS VIDE DEVELOPMENT AGREEMENTS DT. 14-08-2006. AO NOTED THAT THE SAID TRANSACTION/CAPITAL GAINS HAS NOT BEEN DISCLOSED IN THE RETURN OF INCOME ALREADY FILED, HENCE PROCEEDINGS U/ S. 147 OF THE INCOME TAX ACT [ACT] WERE INITIATED BY THE AO AND A NOTICE U/S. 148 WAS ISSUED ON 29-03-2014. 4. DURING THE SCRUTINY PROCEEDINGS, IT WAS NOTED THAT ASSESSEE ALONG WITH SEVEN OTHERS, WHO ARE CO-OWNERS HAVE ENTERED INTO DEVELOPMENT AGREEMENT CUM GPA WITH A FIR M, M/S. SIRI BALAJI CONSTRUCTIONS FOR CONSTRUCTION OF RESI DENTIAL FLATS IN THE SHARING RATIO OF 50% UPTO 5 TH FLOOR AND 45% OF ITA NOS. 1232 & 1233/HYD/2016 :- 3 -: CONSTRUCTED AREA IN 6 TH AND 7 TH FLOORS, THUS TOTALING TO 4,70,007 SQ. FT., COMPRISING 28 FLATS AS SHARE. IN THE DEVELO PMENT AGREEMENT, IT HAS BEEN AGREED THAT THE RESIDENTIAL FLATS TO BE CONSTRUCTED SHALL BE COMPLETED WITHIN 27 MONTHS FROM T HE DATE OF DEVELOPMENT AGREEMENT AND BUILT UP AREA HAS TO BE HA NDED OVER TO ASSESSEE AND TO SEVEN CO-OWNERS. THE LAND OW NERS HAVE TAKEN AN AMOUNT OF RS. 2,11,00,000/- AS REFUNDABLE D EPOSIT TO BE REPAID TO THE DEVELOPER AT THE TIME OF HANDING OVER OF POSSESSION OF THEIR SHARE OF BUILT UP AREAS. 5. THE SECOND AGREEMENT WITH M/S. SIRI BALAJI CONSTRUCTIONS WAS FOR CONSTRUCTION OF VILLAS. SINCE THE DEVELOPMENT AGREEMENTS HAVE BEEN ENTERED IN THE IMPUG NED FINANCIAL YEAR RELEVANT FOR THE AY. 2007-08, AO AFTER ELABORATE DISCUSSION, CAME TO THE CONCLUSION THAT ALL THE CONDITIO NS OF SECTION 53A OF TRANSFER OF PROPERTY ACT WERE FULFILLE D AS PER THE DEVELOPMENT AGREEMENTS DT. 14-08-2006 AND THUS, THE TRANSACTION OF TRANSFER IS COVERED U/S. 2(47)(V) AND 2 (47)(VI) AS EVIDENCED BY THE AGREEMENT AND SURROUNDING FACTS. THE REAFTER, BASED ON THE COST OF CONSTRUCTION OF MARKET VALUE AS PE R SRO, VALUES AT RS. 550/- PER SQ. FT., OF BUILT UP AREA FOR SEMI- FINISHED FLATS WAS DETERMINED. HE ARRIVED AT THE TOTAL VALUE OF SALE CONSIDERATION AT RS. 2,58, 53,850/- IN THE CASE OF M/S. SIRI BALAJI CONSTRUCTIONS AND RS. 34,99,824/- IN THE CASE OF M/S. SIRI LAKSHMI BALAJI CONSTRUCTIONS AS ASSESSEE SHARE. ACCORDINGLY, AO BROUGHT THE ABOVE AMOUNTS TO TAX. IN AD DITION, SINCE THE ASSESSEE HAS RECEIVED REFUNDABLE DEPOSIT A N AMOUNT OF RS. 55 LAKHS WAS ALSO CONSIDERED AS SALE CONSIDE RATION AND ITA NOS. 1232 & 1233/HYD/2016 :- 4 -: THAT WAS ALSO BROUGHT TO TAX. THUS, THE TOTAL INCOME WAS ASSESSED AT RS. 3,48,92,654/-. 6. ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE LD.CIT(A) CONTESTING THAT REFUNDABLE DEPOSIT IS NOT PART OF SALE CONSIDERATION AND WHEN SALE CONSIDERATION HAS TAKEN UP FOR COMPUTATION OF CAPITAL GAINS, DEPOSIT DOES NOT GET TAXED SEPARATELY. APART FROM THE ABOVE TAXATION OF THE AMOU NTS, ASSESSEE MAINLY QUESTIONED THAT THERE IS NO TRANSFER OF PROPERTY AS PER SECTION 2(47) OF THE ACT, AS THOSE DE VELOPERS HAVE NOT FULFILLED THE CONDITIONS AND IN THE CASE OF M/ S. SIRI LAKSHMI BALAJI CONSTRUCTIONS, THE AGREEMENT ITSELF WAS CANCELLED WITHOUT REACHING THE STAGE OF HANDING OVER POSSESSION OF THE PROPERTY AND IN THE CASE OF M/S. SI RI BALAJI CONSTRUCTIONS, THE APPROVALS WERE SUBSEQUENTLY OBTAINED IN MARCH, 2008 BUT NO CONSTRUCTION ACTIVITY WAS TAKEN UP AND THIS AGREEMENT ALSO WAS SUBJECT MATTER OF LITIGATION. ASSESSEE SUBMITTED [AS RECORDED BY THE CIT(A) IN PARA 4 OF THE O RDER] THAT THE PLANS WERE APPROVED ON 29-03-2008 BY THE HUDA FOR THE CONSTRUCTION OF MULTI-STORIED BUILDING AND DEVELOP ER HAS NOT DONE CONSTRUCTION OF FLATS TO DISCHARGE THE OBLIGATI ONS CAST ON IT UNDER THE DEVELOPMENT AGREEMENT. CONSEQUENTLY, ASSESSEE ALONG WITH CO-OWNERS HAS APPROACHED THE COU RT OF LAW AND A MEMORANDUM OF COMPROMISE BEFORE THE LOK ADALAT AT RANGA REDDY DISTRICT HAD BEEN ENTERED ON 29-05-2012, WHEREIN IT HAS BEEN CLEARLY OUTLINED THE FAILURE OF THE DEVELOPER TO PERFORM THE OBLIGATIONS OF THE DEVELOPMENT AGREEMENT. IT WAS FURTHER SUBMITTED THAT THE LAND OWNERS ALONG WITH THE FLA T ITA NOS. 1232 & 1233/HYD/2016 :- 5 -: OWNERS [WHO PAID ADVANCES OR WHO HAS PURCHASED THE F LATS FROM THE DEVELOPER OUT OF ITS SHARE] FORMED AS AN ASS OCIATION AND COMPLETED THE CONSTRUCTION OF FLATS AND COMMON AMENITIES. 7. WHILE ACKNOWLEDGING THE SUBMISSIONS MADE BY ASSESSEE IN THE ORDER, LD.CIT(A), HOWEVER, WENT ON TO DISCUSS THE LEGAL PROVISIONS AND RELYING ON THE TERMS OF AGR EEMENTS, CONFIRMED THE ACTION OF AO IN BRINGING TO TAX THE CAPI TAL GAINS IN THE IMPUGNED YEAR. HOWEVER, HE DIRECTED THE AO TO E XCLUDE THE AMOUNT OF SECURITY DEPOSIT OF RS. 55 LAKHS BROUG HT TO TAX BY THE AO, IN ADDITION TO THE SO CALLED SALE CONSIDER ATION IN THE FORM OF BUILT UP AREA. THUS, THE APPEAL WAS PARTLY AL LOWED BY THE LD.CIT(A). 8. AGGRIEVED ON THE ACTION OF AO AND CIT(A) IN CONFIRMING THE CAPITAL GAINS DURING THE YEAR, ASSESSEE HAS RAISED THE FOLLOWING GROUNDS, CONTESTING THE ORDER OF L D.CIT(A): 2. THE LEARNED CIT(A) ERRED IN UPHOLDING THE ADDIT ION OF RS.2,91,90,964/- AS LONG TERM CAPITAL GAINS DESPITE A SPECIFIC CLAUSE IN THE DEVELOPMENT AGREEMENTS PROVIDING FOR HANDING OVER OF POSSESSION OF LAND TO THE DEVELOPER SUBJECT TO RECE IPT OF APPROVALS FROM THE CONCERNED AUTHORITIES FOR DEVELOPMENT WHIC H WERE NOT RECEIVED DURING THE YEAR UNDER CONSIDERATION. 3. THE LEARNED CIT(A) ERRED IN HOLDING THAT THERE W AS A TRANSFER WITHIN THE MEANING OF SECTION 2(47)(V) IN RESPECT O F THE DEVELOPMENT AGREEMENTS WITH M/S. SRI LAKSHMI BALAJI CONSTRUCTIO NS DESPITE THE FACT THAT THE POSSESSION OF THE LAND WAS NOT HANDED OVER TO THE DEVELOPER SINCE THE PANCHAYAT DENIED APPROVAL OF TH E CONSTRUCTION PLAN AND THE AGREEMENT ITSELF WAS CANCELLED ON 24-0 9-2012 BEFORE THE LOK ADALAT. ITA NOS. 1232 & 1233/HYD/2016 :- 6 -: 4. THE LEARNED CIT(A) ERRED IN UPHOLDING TAXATION O F CAPITAL GAIN BY EXTENDING THE AMPLITUDE OF SECTION 2(47)(V) OVER LOOKING THE FACT THAT SECTION 2(47)(V) BEING A DEEMING PROVISION HAS TO B E CONSTRUED STRICTLY. 5. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE LEAR NED CIT(A) ERRED IN UPHOLDING THE DECISION OF THE AO IN REGARD TO THE TAXATION OF CAPITAL GAINS DISREGARDING THE SETTLED LAW THAT UND ER THE I.T. ACT REAL INCOME AND NOT MERELY HYPOTHETICAL INCOME IS TAXABL E. 6. THE LEARNED CIT(A) ERRED IN DISMISSING THE GROUN D OF APPEAL RELATING TO CHARGING OF INTEREST U/S 234B OVERLOOKI NG THE FACT THAT THE AO CHARGED INTEREST U/S 234B WITHOUT APPLYING THE P ROVISIONS OF SECTION 234B(3) OF THE I.T.ACT. GROUND NOS. 1 & 7 ARE GENERAL IN NATURE. 9. LD. COUNSEL SUBMITTED THAT THE ORDER OF CIT(A) IS NOT CORRECT AS PER LAW AND FACTS. REFERRING TO THE FACTS, IT WAS SUBMITTED THAT EVEN THOUGH ASSESSEE HAS ENTERED INTO AN AGREEMENT WITH M/S. SIRI BALAJI CONSTRUCTIONS FOR CON STRUCTION OF MULTI-STORIED BUILDINGS, THE PERMISSION WERE OBTAI NED FROM PANCHAYAT/HUDA ONLY ON 29-03-2008, THE LAND WOULD BE PHYSICALLY DELIVERED TO THE DEVELOPER ONLY AFTER THE SA NCTION OF PLANS BY THE CONCERNED AUTHORITIES. THEREFORE, THE CO NTENTION OF REVENUE THAT POSSESSION WAS HANDED OVER WAS NOT COR RECT. FURTHER, IT WAS SUBMITTED THAT THE SAID DEVELOPER FAILED TO CONSTRUCT THE FLATS IN FULL AND DEFAULTED ON THE SAME. THEREFORE, ASSESSEE ALONG WITH OTHER CO-OWNERS FILED THE CASE BEFORE THE LOK ADALAT AGAINST THE DEVELOPER AND FINALLY A COMPROMISE AGREEMENT WAS ENTERED IN E.P. NO. 42/2012 IN O.S. NO. 872/2011, DT. 25-09-12. ACCORDINGLY, SINCE THE DEVELOPER EXPRESSED HIS INABILITY TO UNDERTAKE ANY F URTHER CONSTRUCTION, THE ONUS FELL UPON THE ASSESSEE AND OTHER CO- OWNERS AND ALSO M/S. SIRI BALAJI CONSTRUCTIONS FLAT OW NERS ITA NOS. 1232 & 1233/HYD/2016 :- 7 -: ASSOCIATION COMPRISING OF THE FLAT OWNERS TO COMPLETE THE SAME AND THE REFUNDABLE DEPOSIT WAS ADJUSTED TOWARDS COMPL ETION OF THE SAME. REFERRING TO THE DOCUMENTS PLACED IN THE PAP ER BOOK, IT WAS THE SUBMISSION OF THE LD. COUNSEL THAT THE DEVELOPMENT AGREEMENT DID NOT GO THROUGH AND ULTIMATELY ASSESSEE AND OTHER CO-OWNERS HAVE COMPLETED THE PROJE CT AND SOLD TO THIRD PARTIES, THEREFORE, TAXING THE CAPITAL GAIN ON SO CALLED DEVELOPMENT AGREEMENT DOES NOT ARISE. 9.1. WITH REFERENCE TO SECOND AGREEMENT WITH M/S. SIR I LAKSHMI BALAJI CONSTRUCTIONS, WHEREIN 14 DUPLEX APARTM ENTS WERE TO BE HANDED OVER, THERE WAS NO APPROVAL EITHER F ROM THE PANCHAYAT OR FROM THE HUDA AND ULTIMATELY THE DEVELOPMEN T AGREEMENT ITSELF WAS CANCELLED BY WAY OF CANCELLATION OF SUPPLEMENTARY AGREEMENT TO DEVELOPMENT AGREEMENT CUM GPA ON 24-09-2012. DESPITE PLACING THE ABOVE FACTS WITH COMPLETE EVIDENCES, BOTH LD.AO AND CIT(A) ERRED IN C ONSIDERING THAT THERE WAS TRANSFER OF PROPERTY WITHIN THE MEANING OF SECTION 2(47) ONLY BECAUSE THE AGREEMENTS WERE ENTERED ON 14-08-2006. IT WAS THE SUBMISSION THAT LD.CIT(A) ERRED IN CONFIRMING THE ASSESSMENT OF CAPITAL GAIN IN SPITE OF THE FACT THAT POSSESSION OF LAND-IN-QUESTION WAS NOT HANDED OVER TO THE DEVELOPER WHICH IS SINE QUA NON FOR ROPING A TRANSACTION WITHIN THE PURVIEW OF SECTION 2(47)(V). IN ADDITION TO THAT, IT WAS ALSO CONTENDED THAT LD.CIT(A) ERRED IN NOT APPRECIATING THAT WH EN THE DEVELOPMENT AGREEMENT ITSELF WAS CANCELLED OR RESCI NDED THERE CANNOT BE ANY CAPITAL GAIN INVOLVED IN THE TRANSAC TION AND THAT NO REAL INCOME HAD ACCRUED TO ASSESSEE. FURTH ER ITA NOS. 1232 & 1233/HYD/2016 :- 8 -: CLARIFYING IT WAS SUBMITTED THAT IN THIS CASE, THERE WAS N O ATTEMPT TO DEVELOP THE PROPERTY FOR CONSTRUCTION OF DUPLE IX APARTMENTS BY THE DEVELOPER M/S SIRI LAKSHMI BALAJI CONSTRUCTION COMPANY AND THE AGREEMENT WAS FINALLY CANCELLED. IN THE SECOND CASE, THE PROPERTY WAS UNDER A DEVELOPEMENT AGREEMENT WITH M/S SIRI BALAJI CONSTUCTION S AS PER WHICH, THE DEVELOPER WAS TO CONSTRUCT AND HAND OVER 187863 SQ FEET OF CONSTRUCTED SPACE TO THE ASSESSEE AND OTHERS IN LIEU OF THEIR PARTING WITHIN 5358 SQ YARDS OF LAND IN AN AREA OF ACRES 2.06 GUNTAS TO THE DEVELOPER. IT IS CLEAR FRO M THE TOTALITY OF FACTS THAT THERE WAS AN UNWILLINGNESS TO ABIDE BY THE TERMS OF THE CONTRACT, ESPECIALLY WHEN THE TIME OF 30 M ONTHS TO HAND OVER THE CONSTRUCTED PORTION TO THE ASSESSEE AND OTH ERS WAS THE ESSENCE OF THE CONTRACT. AS PER THE ABOVE TIME FR AME, THE DEVELOPER WAS TO HAND OVER THE CONSTRUCTED PORTION BY FEBRUARY 2009. YET, EVEN AS LATE AS 2012, THE SAME DI D NOT TAKE PLACE. THE ASSESSEE EVEN SUBMITTED PHOTOGRAPHIC E VIDENCE TO THE LOK ADALAT, CITY CIVIL COURT WHICH FINALLY GAVE ITS CONSENT TO A COMPROMISE SETTLEMENT VIDE ITS ORDER AS NO. 872/2011. EVEN THIS COURT ORDER WAS NOT ACTED UPON TILL A FINAL COMPROMISE AGREEMENT WAS REACHED AGAIN UNDER TH E AUSPICES OF THE COURT IN AN EXECUTION PETITION (EP) MOVE D BY THE ASSESSEE AND OTHERS IN EP NO 42/2012 IN AS. NO. 8 72/2011 (SUPRA). IN THE FINAL COMPROMISE AGREEMENT ENTERED IN TO, THE DEVELOPER CLEARLY EXPRESSED HIS INABILITY TO TAKE UP ANY FURTHER CONSTRUCTION IN THE ENTIRE PROJECT INCLUDING THE ASSESSE E'S SHARE AND IT WAS THEN ACCORDINGLY DETERMINED THAT THE SA ME WILL BE UNDERTAKEN BY THE APPELLANT AND OTHER CO-OWNER S ITA NOS. 1232 & 1233/HYD/2016 :- 9 -: THEMSELVES ALONG WITH THE 3RD PARTY BEING THE SIRI BAL AJI FLAT OWNER'S ASSOCIATION. IN THESE CIRCUMSTANCES IT CAN HARD LY BE SAID THAT THE TRANSFEREE WAS WILLING TO PERFORM HIS PA RT OF THE CONTRACT. THEREFORE SEC 2(47) R.W 53A IS NOT APPLICABL E TO THE FACTS OF THE CASE AND HENCE THERE IS NO TAXABILITY TO CAPITAL GAINS. 10. COMING TO LEGAL PROPOSITIONS RELIED ON BY THE CIT(A), IT WAS SUBMITTED THAT IN ALL THE CASES, WHERE CIT (A) HAS RELIED ON, THERE WAS HANDING OVER OF THE POSSESSION O N WHICH THERE WAS NO DISPUTE, WHEREAS IN THIS CASE THERE WAS NO HANDING OVER OF THE POSSESSION. RELYING UPON THE DECI SION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF M/S. CHATURB HUJ DWARAAKDAS KAPADIA VS. CIT [260 ITR 491] (BOM) IT WAS SUBMITTED THAT LD.CIT(A) WRONGLY APPLIED TO THE FACTS OF TH E CASE. EXPLAINING FURTHER, IT WAS SUBMITTED THAT THE HON'B LE BOMBAY HIGH COURT GAVE THE JUDGMENT IN A CASE RELATED TO A SALE OF PROPERTY IN THE GUISE OF DEVELOPMENT AGREEME NT, WHEREAS IN THIS CASE, THE AGREEMENTS WERE GENUINE DEVELOPMENT AGREEMENTS AND THERE IS NO PASSING OF CONT ROL OVER THE PROPERTY TO THE DEVELOPER SO AS TO INVOKE THE TRANSF ER OF PROPERTY ACT. LD. COUNSEL DISTINGUISHED THE CASES OF JASBIR SINGH SARKARIA [294 ITR 196] (AAR) WHERE IT WAS ALSO TRANSFER OF PROPERTY BY WAY OF SUPPLEMENTAL AGREEMENT, OF DR. MAYA SHENOY VS. ACIT [124 TTJ 692], WHERE THERE IS A POSS ESSION WHICH WAS HANDED OVER IN FAVOUR OF THE DEVELOPER. RE FERRING TO THE JURISDICTIONAL HIGH COURT IN THE CASE OF POTLA NAGES WARA RAO VS. DCIT [365 ITR 249] (AP), IT WAS SUBMITTED THAT THE ITA NOS. 1232 & 1233/HYD/2016 :- 10 -: TERMS OF AGREEMENT HAVE BEEN FULFILLED BY THE SAID D EVELOPER AND THE CONSIDERATION HAD BEEN QUANTIFIED IN THAT CASE, THE ISSUE THERE IN WAS THAT CONSIDERATION WAS NOT RECEIVED B UT NOT ON THE INCIDENCE OF CAPITAL GAINS. IN THIS CASE, NEITH ER CONSIDERATION WAS QUANTIFIED NOR POSSESSION WAS HAND ED OVER AND SUBSEQUENT EVENTS DO INDICATE THAT THE DEVELOPMENT AGREEMENTS HAVE NOT BEEN FULFILLED. ON THESE FACTS, IT W AS SUBMITTED THAT THE LD.CIT(A) EVEN THOUGH NOTED THE FACTS THEREIN, HAS WRONGLY CONFIRMED THE ORDER AND HAS NOT LOOKED AT THE REQUIREMENTS OF SECTION 2(47)(V) IN ORDER TO ROPE IN THE TRANSACTIONS WITHIN ITS PURVIEW. LD. COUNSEL RELIED ON THE PRINCIPLES LAID DOWN BY THE CO-ORDINATE BENCH IN THE CASE OF M/S. BINJUSARIA PVT. LTD., IN ITA NO. 157/HYD/2011, DT. 04-04- 2014 TO SUBMIT THAT WILLINGNESS TO PERFORM FOR THE PURPOSES OF SEC. 53A IS SOMETHING MORE THAN A STATEMENT OF INTE NT; IT IS THE UN-QUALIFIED AND UN-CONDITIONAL WILLINGNESS ON THE PART OF THE VENDEE TO PERFORM ITS OBLIGATIONS UNDER THE CONTRAC T. UNLESS THE PARTY HAS PERFORMED OR IS WILLING TO PERFORM ITS OB LIGATIONS UNDER THE CONTRACT, AND IN THE SAME SEQUENCE IN WHICH THE SE ARE TO BE PERFORMED, IT CANNOT BE SAID THAT THE PROVISIONS OF SECTION 53A OF TRANSFER OF PROPERTY ACT WILL COME INTO PLAY . SINCE IN BOTH THE CASES, THERE IS NO WILLINGNESS TO PERFORM AS ONE AGRE EMENT WAS CANCELLED OUTRIGHT AND OTHER AGREEMENT WAS SUBJECTED TO LOK ADALAT PROCEEDINGS AND ONUS OF COMPLETION FELL ON THE ASSESSEES AND CO-OWNERS AND THE FLAT OWNERS ASSOCIATIO N, IT CANNOT BE STATED THAT DEVELOPER HAS FULFILLED THE CONDI TIONS OF AGREEMENT AND THEREFORE ON THE FACTS OF THE CASE, NO CAP ITAL GAINS CAN BE LEVIED ON ASSESSEE. ITA NOS. 1232 & 1233/HYD/2016 :- 11 -: 10.1. LD. COUNSEL PLACED RELIANCE ON THE DECISION O F THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. BALBIR S INGH MAINI [338 ITR 531(SC)] TO SUBMIT THAT INCOME FROM CAPITAL GAIN ON A TRANSACTION WHICH NEVER CAPITALISED IS AT BE ST A HYPOTHETICAL INCOME WHICH CANNOT BE BROUGHT TO TAX. HE ALSO RELIED ON THE FOLLOWING JUDGMENTS: I. AMIANTIT INTERNATIONAL HOLDING LTD., AAR [322 ITR 678]; II. STATE BANK OF TRAVANCORE VS. CIT [158 ITR 102]; III. CIT VS. ASHOKBHAI CHIMANBHAI [56 ITR 42]; IV. ASSAM ROLLER FLOUR MILLS VS. CIT [227 ITR 43]; FOR VARIOUS CONCEPTS. LASTLY, LD. COUNSEL RELIED ON THE RECENT AMENDMENT TO THE FINANCE ACT, 2017 BY WHICH NEW PROVISI ON OF SUB-SECTION 5A U/S. 45 HAS BEEN INTRODUCED TO SUPPO RT THE CONCEPT OF REAL INCOME. 11. LD.DR, HOWEVER, WHILE ACCEPTING THAT THE FACTS AS STATED BY THE LD. COUNSEL WERE PLACED BEFORE THE AO AND CIT(A) THAT ONE AGREEMENT HAS BEEN CANCELLED AND OTHER AGREEME NT HAS BEEN SUBJECTED TO LITIGATION, HOWEVER, RELIED ON THE ORDERS OF THE AO AND CIT(A) THAT DEVELOPMENT AGREEMENTS HAVE INDEED GIVEN RISE TO TAXABILITY OF CAPITAL GAINS AS POSSESSIO N WAS HANDED OVER AND THE PRINCIPLES LAID DOWN BY THE JURIS DICTIONAL HIGH COURT IN THE CASE OF POTLA NAGESWARA RAO VS. DCI T (SUPRA) WILL INDEED APPLY. HE RELIED ON THE DETAILED ORDERS OF AO AND CIT(A). ITA NOS. 1232 & 1233/HYD/2016 :- 12 -: 12. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE PAPER BOOK PLACED ON RECORD ALONG WITH R ELEVANT CASE LAW. THE CASE OF REVENUE IS THAT THE PROVISIONS OF SECTION 2(47) ARE ATTRACTED ON THE TRANSACTIONS OF DEVELOPMENT AGREEMENTS IN THE YEAR. THE AO RELIED ON THE PROVIS IONS OF SECTION 53A OF THE TRANSFER OF PROPERTY ACT AND PERUS ED THE CASE LAW INCLUDING THAT OF JURISDICTIONAL HIGH COURT IN THE CASE OF POTLA NAGESWARA RAO VS. DCIT (SUPRA) TO SUPPORT THE CONTENTIONS THAT THE DEVELOPMENT AGREEMENTS ENTERED INTO B Y ASSESSEE HAS LED TO TRANSFER OF PROPERTY. IT IS THE CO NTENTION OF ASSESSEE THAT THE PROVISIONS OF SECTION 2(47) ARE NOT ATTR ACTED AS ONE AGREEMENT HAS BEEN CANCELLED SUBSEQUENTLY AND ANOTHER AGREEMENT HAS NOT BEEN FULFILLED- SO THAT THE C APITAL GAINS IS NOT ATTRACTED IN THE YEAR UNDER CONSIDERATION. BOTH THE PARTIES RELIED ON VARIOUS CASE LAW, BUT IT IS TO B E NOTED THAT CASE LAW WILL APPLY ONLY WHEN THE FACTS ARE SIMILAR. 12.1. THERE IS NO DISPUTE THAT THE AGREEMENT WITH M/S. SIRI LAKSHMI BALAJI CONSTRUCTIONS FOR BUILDING 14 DUP LEX APARTMENTS FOR THE ASSESSEE AND OTHER CO-OWNERS HAVE BE EN CANCELLED SUBSEQUENTLY AND THERE WAS NO DEVELOPMENT AT ALL UNDER THAT AGREEMENT. EVEN THOUGH AN AGREEMENT WAS ENTE RED IF IT IS NOT FULFILLED AND ASSESSEE HAS NOT DERIVED AN Y BENEFIT, IT IS NOT UNDERSTANDABLE HOW THE CAPITAL GAINS CAN BE LEVI ED WHEN THERE IS NO TRANSFER OF PROPERTY AT ALL. AS STATED EARLI ER, THERE WAS NO APPROVAL EVEN FOR THE PLANS WITH REFERENCE TO THE DEVELOPMENT AGREEMENT WITH M/S. SIRI LAKSHMI BALAJI CONSTRUCTIONS. HENCE, THE ACTION OF AO IN BRINING TO TAX THE SO ITA NOS. 1232 & 1233/HYD/2016 :- 13 -: CALLED CAPITAL GAINS OF RS. 34,99,824/- ON AN AGREEM ENT WHICH STANDS CANCELLED DOES NOT ARISE. 12.2. COMING TO THE DEVELOPMENT AGREEMENT WITH M/S. SIRI BALAJI CONSTRUCTIONS, EVEN THOUGH ASSESSEE HAS E NTERED INTO DEVELOPMENT AGREEMENT WITH THE SAID CONCERN FOR CONSTRUCTION OF MULTI-STORIED BUILDINGS AND ASSESSEES SHARE OF CONSTRUCTED AREA IS DEFINED AND SOME REFUNDABLE DEPOS IT WAS TAKEN, THE FACT WAS THAT PERMISSIONS CAME ONLY ON 29-03- 2008 FOR EFFECTIVE POSSESSION AS PER TERMS OF AGREEMENT I. E, IN THE NEXT ASSESSMENT YEAR AND LATER, THE BUILDER FAILED TO CO NSTRUCT THE FLATS AND DEFAULTED ON THE SAME. ASSESSEE AND OTHER CO- OWNERS HAD TO PROCEED LEGALLY AGAINST THE SAID BUILDER AND LOK ADALAT COURT HAS FINALLY SETTLED THE ISSUE BY WAY OF COMPROMISE AGREEMENT. THERE WERE INTERIM INJUNCTION ORDERS GIVEN IN ORDER IN I.A. NO. 738/2011 IN O.S. NO. 872 /2011, DT. 14-06-2011 FOLLOWED BY THE ORDER IN O.S. NO. 872/201 1, DT. 27- 08-2011 AND ANOTHER ORDER IN E.P. NO. 42/2012 IN O. S. NO. 872/2011, DT. 25-09-2012. BY THE LAST ORDER DT. 25-09 -2012, THE DISPUTE HAS BEEN COMPROMISED/SETTLED AND THE AWARD W AS PASSED WHEREBY THE LAND OWNERS AND FLAT OWNERS AND S OME THIRD PARTIES WERE FORMED INTO A COMMITTEE FOR CONSTRUCTI ON OF THE BUILDING, IDENTIFYING THE POWERS OF THE COMMITTEE AN D ALSO HOW THE ADVANCE AMOUNTS TO BE ADJUSTED AGAINST VARIOUS PAYMENTS OR MONEYS TO BE PAID AND HOW THE BUILDERS PO RTION CAN BE SOLD AND APPORTIONED FOR COMPLETION OF THE PROJ ECT. THIS INDICATES THAT THE AGREEMENT ORIGINALLY ENTERED INTO BY THE DEVELOPERS/BUILDERS HAVE NOT BEEN FULFILLED AND THERE FORE, THE ITA NOS. 1232 & 1233/HYD/2016 :- 14 -: SAID AGREEMENT CANNOT BE TAKEN AS A BASIS FOR BRINGING TO TAX THE CAPITAL GAINS, AS IF THERE WAS A TRANSFER WITH IN T HE MEANING OF SEC 2(45). THE HON'BLE BOMBAY HIGH COURT IN THE C ASE OF M/S. CHATURBHUJ DWARAAKDAS KAPADIA VS. CIT (SUPRA) HAS HELD THAT IF THE CONTRACT, READ AS A WHOLE, INDICATES PASSIN G OF OR TRANSFERRING OF COMPLETE CONTROL OVER THE PROPER TY IN FAVOUR OF THE DEVELOPER, THEN THE DATE OF THE CONTRACT WOULD BE RELEVANT TO DECIDE THE YEAR OF CHARGEABILITY. THIS DECISION WAS RELIED UPON BY THE REVENUE SO AS TO BRING THE CAPITAL GAINS TO TAX I N THE YEAR OF ENTERING INTO TAX. BUT AS ALREADY STATED, THERE IS NO PASSING/TRANSFERRING OF COMPLETE CONTROL OVER THE PROP ERTY IN FAVOUR OF THE DEVELOPER AND IN FACT THE DEVELOPMENT ITS ELF WAS TAKEN OVER BY A SEPARATE COMMITTEE AS THERE WAS FAILURE ON THE PART OF DEVELOPER TO COMPLETE THE PROJECT AS AGREED UPO N. IN THESE CIRCUMSTANCES, WE ARE OF THE OPINION THAT THERE I S NO TRANSFER OF PROPERTY EVEN ON THE SO CALLED DEVELOPMEN T AGREEMENT WITH M/S. SIRI BALAJI CONSTRUCTIONS AND CONSEQUENTLY LEVY OF CAPITAL GAINS TAX ON THAT IS BAD IN LAW. 12.3. ITAT IN THE CASE OF M/S BINJUSARIA PRIVATE LTD (SUPRA) REFERRED TO THE DECISION OF THE CO-ORDINATE BE NCH IN THE CASE OF SMT K. RADHIKA WHEREIN IT WAS HELD THAT 'WILLI NGNESS TO PERFORM FOR THE PURPOSES OF SEC 53A IS SOMETHING MORE THAN A STATEMENT OF INTENT; IT IS THE UNQUALIFIED AND UNCONDITIO NAL WILLINGNESS ON THE PART OF THE VENDEE TO PERFORM ITS OB LIGATIONS UNDER THE CONTRACT. UNLESS THE PARTY HAS PERFORMED OR I S WILLING TO PERFORM ITS OBLIGATIONS UNDER THE CONTRACT, AND IN THE SAME SEQUENCE IN WHICH THESE ARE TO BE PERFORMED, IT C ANNOT ITA NOS. 1232 & 1233/HYD/2016 :- 15 -: BE SAID THAT THE PROVISIONS OF SEC 53A OF TRANSFER OF PROPERTY ACT WILL COME INTO PLAY.' THE ITAT FURTHER HELD 'IN MY OPINION THE HANDING OVER OF THE POSSESSION OF THE PROPERTY IS ONLY ONE OF THE CONDITIONS.. WHEN THE TRANSFEREE BY ITS CONDUCT A ND BY ITS DEEDS DEMONSTRATES THAT IT IS UNWILLING TO PERFORM ITS OBLIGATIONS UNDER THE AGREEMENT, THE DATE OF AGREEMENT, CEASES TO BE RELEVANT. IN SUCH A CASE IT IS THE ACTUAL PERFORM ANCE OF THE TRANSFEREE'S OBLIGATIONS WHICH CAN GIVE RISE TO THE SITUATIONS ENVISAGED UNDER SEC 53A OF THE TP ACT.'. FROM THE ABOV E, IT IS CLEAR THAT WILLINGNESS TO PERFORM' HAS TO BE ADJUDGED O N THE BASIS OF THE REALITY OF FACTS IN EACH CASE. 12.4. THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. BALBIR SINGH MAINI (SUPRA) IN THE JUDGMENT DT. 04-10- 2007 HAS CLEARLY HELD THAT FOR THE PURPOSE OF SECTION 45 AND 48 OF THE ACT, SOME REAL INCOME MUST ARISE ON THE ASSUMPTION THAT THERE IS TRANSFER OF A CAPITAL ASSET. THIS INCOME MUST HAVE RECEIVED OR HAVE ACCRUED U/S. 48 AS A RESULT OF THE TRANSFER O F CAPITAL ASSET. THE INCOME FROM CAPITAL GAINS ON A TRANSACTION WHICH NEVER MATERIALISED WAS AT BEST A HYPOTHETICAL INCOME. THE SAME CANNOT BE BROUGHT TO TAX. IN THE ABOVE SAID CASE, THE HON'BLE SUPREME COURT HAS HELD AS UNDER: HELD, DISMISSING THE APPEALS, (I) THAT THE JOINT DEVELOPMENT AGREEMENT WAS ESSENTIALLY AN AGREEMENT TO FACILITAT E DEVELOPMENT OF 21.2 ACRES SO THAT THE DEVELOPERS BUILT AT THEIR OW N COST, AFTER OBTAINING NECESSARY APPROVALS, FLATS OF A GIVEN SIZ E, SOME OF WHICH WERE THEN TO BE HANDED OVER TO THE MEMBERS OF THE S OCIETY. PAYMENTS WERE ALSO TO BE MADE BY THE DEVELOPER TO EACH MEMBE R ILL ADDITION TO GIVING EACH MEMBER A CERTAIN NUMBER OF FLATS DEPEND ING UPON THE SIZE OF THE MEMBER'S PLOT THAT WAS HANDED OVER. PAYMENTS UNDER THE THIRD INSTALMENT 'WERE ONLY TO BE MADE AFTER THE GRANT OF APPROVALS AND NOT ITA NOS. 1232 & 1233/HYD/2016 :- 16 -: OTHERWISE, AND THIS WAS NEVER DONE BECAUSE NO APPRO VALS COULD BE OBTAINED AS THE HIGH COURT ULTIMATELY INTERDICTED T HE PROJECT. THE JOINT DEVELOPMENT AGREEMENT NEVER HAVING BEEN REGISTERED AND HAVING NO EFFICACY IN THE EYE OF LAW, 110 'TRANSFER' COULD BE SAID TO HAVE TAKEN PLACE UNDER THE DOCUMENT. SUBCLAUSE (V) OF SECTION 2(47) OF THE ACT WAS NOT ATTRACTED ON THE FACTS OF THIS CASE. [THE C OURT DID NOT GO INTO THE OTHER QUESTIONS WHETHER UNDER THE JOINT DEVELOP MENT AGREEMENT POSSESSION WAS OR WAS NOT TAKEN, WHETHER ONLY A LIC ENCE WAS GRANTED TO DEVELOP THE PROPERTY, AND WHETHER THE DEVELOPERS WERE OR 'WERE NOT READY AND WILLING TO CARRY OUT THEIR PART OF THE BA RGAIN.] (II) THAT UNDER THE JOINT DEVELOPMENT AGREEMENT THE OWNER CONTINUED TO BE THE OWNER THROUGHOUT THE AGREEMENT, AND HAD A T NO STAGE PURPORTED TO TRANSFER RIGHTS AKIN TO OWNERSHIP TO T HE DEVELOPER. AT THE HIGHEST, POSSESSION ALONE WAS GIVEN UNDER THE AGREE MENT, AND THAT TOO FOR A SPECIFIC PURPOSE-THE PURPOSE BEING TO DEV ELOP THE PROPERTY, AS ENVISAGED BY ALL THE PARTIES. THEREFORE, SECTION 2(47)(VI) WOULD ALSO NOT ROPE IN THE PRESENT TRANSACTION. (III) THAT ADMITTEDLY, FOR WANT OF PERMISSIONS, THE ENTIRE TRANSACTION OF DEVELOPMENT ENVISAGED IN THE JOINT DEVELOPMENT AGRE EMENT FELL THROUGH. IN POINT OF FACT, INCOME DID NOT RESULT AT ALL FOR THIS REASON. THIS BEING THE CASE, THERE WAS NO PROFIT OR GAIN AR ISING FROM THE TRANSFER OF A CAPITAL ASSET, WHICH COULD BE BROUGHT TO TAX UNDER SECTION 45 READ WITH SECTION 48 OF THE ACT. THE ASS ESSEE DID NOT ACQUIRE ANY RIGHT TO RECEIVE INCOME, INASMUCH AS SU CH ALLEGED RIGHT WAS DEPENDENT UPON THE NECESSARY PERMISSIONS BEING OBTAINED. THIS BEING THE CASE, THERE 'WAS NO DEBT OWED TO THE ASSE SSEES BY THE DEVELOPERS AND THEREFORE, THE ASSESSEES HAD NOT ACQ UIRED ANY RIGHT TO RECEIVE INCOME UNDER THE JOINT DEVELOPMENT AGREEMEN T. THIS BEING SO, NO PROFITS OR GAINS 'AROSE' FROM THE TRANSFER OF A CAPITAL ASSET SO AS TO ATTRACT SECTIONS 45 AND 48 OF THE ACT. IN VIEW OF THE ABOVE JUDGMENT, WE ARE OF THE OPINION T HAT NO CAPITAL GAINS ARISES IN THE CASE OF DEVELOPMENT AGREEM ENT WHICH HAS NOT FULFILLED. 12.5. THE PRINCIPLES LAID DOWN BY THE JURISDICTIONA L HIGH COURT IN THE CASE OF POTLA NAGESWARA RAO VS. DCIT (SU PRA) DOES NOT APPLY AS THERE WAS PHYSICAL POSSESSION OF THE LA ND WHICH WAS HANDED OVER TO THE DEVELOPER AND THE AGREEMENT HAS BEEN ITA NOS. 1232 & 1233/HYD/2016 :- 17 -: FULFILLED. MOREOVER, THE ISSUE WAS ONLY WITH REFERENC E TO NON- RECEIPT OF SALE CONSIDERATION WHICH THE HON'BLE HIGH COURT HAS HELD THAT RECEIPT OF CONSIDERATION IS NOT MATERIAL FOR BR INGING TO TAX THE CAPITAL GAINS AS PER THE DEFINITION OF TRANSFER U/S. 2(47)(V) OF THE ACT. 12.6. HOWEVER, IN THIS CASE, BOTH THE DEVELOPMENT AGREEMENTS ENTERED INTO BY ASSESSEE AND OTHER CO-OWN ERS DID NOT ENVISAGE HANDING OVER OF THE PHYSICAL POSSESSION OF THE LAND UNTIL THE APPROVALS OF THE BUILDING PLANS AND ONE AGREEMENT M/S. SIRI LAKSHMI BALAJI CONSTRUCTIONS WAS EVEN CANCELLED ON 24-09-2012 AS THE DEVELOPER FAILED TO PR OCEED WITH THE DEVELOPMENT ACTIVITY AND NO PLANS WERE APPROV ED BY ANY AUTHORITY. WITH REFERENCE TO AGREEMENT WITH M/S. SI RI BALAJI CONSTRUCTIONS, EVEN THOUGH THE SAID CONCERN PAR TLY FULFILLED THE AGREEMENT, IT COULD NOT COMPLETE THE CONS TRUCTION AND ULTIMATELY LAND OWNERS AND FLAT OWNERS COMPLETED TH E PROJECT AND PROPERTIES WERE SOLD BY THE COMMITTEE AS PER THE ORDERS OF THE LOK ADALAT. 12.7. THE CONTENTION THAT NO GAINS CAN SAID TO HAVE RE ALLY ACCRUED TO THE ASSESSEE DURING THE YEAR IS ALSO SUPPOR TED BY THE FOLLOWING DECISIONS: (A) IN THE CASE OF AMIANTIT INTERNATIONAL HOLDING LTD- AAR 322 ITR 678, IT WAS HELD THAT 'CAPITAL GAIN' CANNOT ARI SE ON THE BASIS OF UNCERTAIN OR INDEFINITE FUTURE CONTINGENCIES OR HYPOTHETICAL AND IMAGINARY ESTIMATIONS' ITA NOS. 1232 & 1233/HYD/2016 :- 18 -: (B) IN THE CASE OF STATE BANK OF TRAVANCORE VS CIT (158 I TR 102), THE HON'BLE SUPREME COURT - ALSO HELD THAT 'IT IS THE INCOME WHICH HAS REALLY ACCRUED OR ARISEN TO THE ASSE SSEE THAT IS TAXABLE'. IT HELD THAT 'IN EXAMINING ANY TRANSACTION OR SITUATION THE COURT WOULD HAVE MORE REGARD TO THE REALITY OF THE SITUATION THAN A PURELY THEORETICAL OR DOCTRINAIRE ASPECT. ----IF THE ACTUALITY O F THE SITUATION OR THE REALITY OF A PARTICULAR SITUATION MAK ES AN INCOME NOT TO ACCRUE, THEN VERY DIFFERENT CONSIDERATIONS WOULD APPLY'. IN HIS DISSENTING JUDGMENT JUSTICE TULZAPURKAR ALSO HELD 'THAT IN ORDER THAT INCOME SHOULD ACCRUE, IT SHOULD NOT MERELY FALL DUE OR BECOME LEGAL LY RECOVERABLE, BUT SHOULD ALSO BE FACTUALLY AND PRACTIC ALLY REALIZABLE DURING THE ACCOUNTING YEAR OR YEARS. --F ACTUAL OR PRACTICAL UNREALISABILITY THEREOF MAY PREVENT ITS ACCRUAL DEPENDING UPON THE FACTS AND CIRCUMSTANCES ATTENDING UPON THE TRANSACTION.' THE SUPREME COURT ACCORDINGLY CONCLUDED THAT 'WHETHER THE INCOME HAS REALLY ACCRUED OR ARISEN TO THE ASSESSEE MUST BE JUDGE D IN THE LIGHT OF REALITY OF THE SITUATION'. (C) HON'BLE SUPREME COURT IN THE CASE OF CIT VS. ASHOKBHA I CHIMANBHAI (56 ITR 42) INTER-ALIA HELD THAT II NORMALL Y FOR PROFIT TO ACCRUE OR ARISE THERE SHOULD BE A RIGHT UNDER THE STATUTE OR UNDER CONTRACT BETWEEN THE TAX PAYER AND OTHERS WHICH ENTITLES THE FORMER TO MAKE A DEMAND FOR THOSE PROFITS...... INCOME BECOMES TAXABLE IN THE FOOTIN G OF ACCRUAL ONLY AFTER THE RIGHT OF THE TAX PAYER TO THE INCO ME ITA NOS. 1232 & 1233/HYD/2016 :- 19 -: ACCRUES OR ARISES, AND IN THE CASE OF AN AGREEMENT WHICH MAKES PROFITS RECEIVABLE AT OR IN THE HAPPENING OF A CONTINGENCY, THE FACT THAT PROFITS ARE THE RESULTS OF TRANSACTIONS SPREAD OVER A PERIOD WHICH COVERS A PERI OD PRECEDING THE HAPPENING OF THAT CONTINGENCY, WOULD NOT MAKE THE RECEIPT LIABLE TO BE PAID TO THOSE WHO ARE ENTITLED TO RECEIVE IT . ' (D) THIS VIEW IS FURTHER SUPPORTED BY THE DECISION OF THE HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF ASSAM ROLL ER FLOUR MILLS VS. CIT (227 ITR 43) WHICH ADVOCATED THE DOCTRINE OF 'RELATING BACK'. IT HELD THAT SUBSEQUENT EVENTS WHICH HAVE A BEARING ON THE ISSUE SHOULD BE CONSIDERED BEFORE COMING TO A CONCLUSION ON THE SAME . THE ISSUE IN THIS CASE WAS THE MAINTAINABILITY OF THE CLAIM OF LIABILITY REGARDING A PENALTY OF RS. 4 LAK HS IMPOSED BY THE COLLECTOR OF CUSTOMS ON APRIL 16. 1978 ON THE ASSESSEE RELEVANT FOR THE ASSESSMENT YEAR 1979-80. THIS PENALTY WAS SUBSEQUENTLY CANCELLED BY THE SECRETA RY TO THE GOVERNMENT OF INDIA ON FEBRUARY 20 TH ,1982. IN THIS REGARD HONBLE HIGH COURT HELD THAT 'THE GENERAL RULE IS THAT DEDUCTION CAN BE PERMITTED IN RESPECT OF ONLY THOSE EXPENSES OR LOSSES WHICH WERE ACCRUED IN THE RELEVAN T ASSESSMENT YEAR. THIS GENERAL RULE, HOWEVER IS REQUI RED TO BE APPLIED AFTER TAKING INTO ACCOUNT SUCH SUBSEQUEN T EVENTS, LEGAL OR FACTUAL, WHICH MAY HAVE AN EFFECT ON THE DECISION ON THE ISSUE.' ACCORDINGLY, TAKING INTO ACCO UNT THE SUBSEQUENT EVENTS WHICH MAINLY CONSISTED OF A FIRE ITA NOS. 1232 & 1233/HYD/2016 :- 20 -: BREAKING OUT IN THE ASSESSEE'S BUSINESS PREMISES IN J UNE 1982, CLOSURE OF THE ASSESSEE'S BUSINESS AND LATER O N A COMPANY TAKING OVER THE REMAINS OF THE ASSESSEE'S BUSINESS, AND THE ORDER OF THE GOVERNMENT OF INDIA KNOCKING OFF THE PENALTY IN QUESTION IN 1982, THE COUR T ON THE BASIS OF THE DOCTRINE OF 'RELATING BACK' HELD THAT THE LIABILITY IN QUESTION STOOD WIPED OUT IN THE ASSESSMENT YEAR 1979-80 ITSELF. THE HONORABLE HIGH COURT JUSTIFIE D ITS DECISION ON THE GROUND THAT 'THAT THE AIM OF THE LAW IS TO DO SUBSTANTIAL JUSTICE BETWEEN THE PARTIES AND TO IMPART THEM NOT MERELY LEGAL OR TECHNICAL JUSTICE, BUT AS FAR AS POSSIBLE REAL AND SUBSTANTIAL JUSTICE'. THIS DOCTRINE OF 'RELATING BACK' ADVOCATED BY THE HON'BLE RAJASTHAN HIG H COURT ABOVE WHEN APPLIED MUTATIS MUTANDIS TO THE FACTS OF THE ASSESSEE'S CASE CLEARLY SUPPORT THE FACT THAT THE SUBSEQUENT EVENTS OF CANCELLATION OF AGREEMENTS, UNWILLINGNESS OF THE DEVELOPER TO COMPLETE THE CONSTRUCTION AND THE CONSEQUENT OBLIGATION IMPOSED ON THE ASSESSEE AND THE FLAT OWNERS ASSOCIATION TO COMPLETE THE SAME BASED ON THE COMPROMISE AGREEMENT ENTERED INTO IN THE CIVIL COURT, HAS NULLIFIED ANY INCOME THA T COULD HAVE BEEN SAID TO ACCRUE OR ARISE TO THE APPELLA NT ON SIGNING OF THE DEVELOPMENT AGREEMENTS. THE RECENT AMENDMENT TO THE FINANCE ACT 2017 BY WHICH A NEW PROVISION OF SUB SECTION SA UNDER SECTION 45 HAS BEEN INTRODUCED ACCORDS WITH THE ABOVE CONCEPT OF REAL INCOME. IN THE MEMORANDUM EXPLAINING THE ABOVE PROVISIONS, THE HON'BLE FINANCE MINISTER CLEARLY ITA NOS. 1232 & 1233/HYD/2016 :- 21 -: ACKNOWLEDGED THE FACT THAT THE EXISTING PROVISIONS HAVE CAUSED A GENUINE HARDSHIP TO THE OWNER OF LANDS WHIC H HAVE ENTERED INTO A DEVELOPMENT AGREEMENT REGARDING TH E TAXABILITY OF CAPITAL GAINS IN THE YEAR OF TRANSFER A ND SOUGHT TO ALLEVIATE IT. THIS IS A RECOGNITION OF EXAC TLY THE PROBLEMS RELATING TO ACCRUAL, THE LACK OF TRANSPARENCY IN TAXING THE GAINS WHEN AGREEMENTS ARE CANCELLED GENUINELY ETC. BY DEEMING THE CAPITAL GAINS TO BE ACCRUING IN THE YEAR OF COMPLETION OF PROJECT RATHER TH AN IN THE YEAR OF TRANSFER OF THE ASSET UNDER SECTION 45 (1 ), THIS CHANGE IN STATUTE STRENGTHENS THE ARGUMENT THAT WHAT IS RELEVANT IS THE 'REAL INCOME' THAT HAS ACCRUED TO THE ASSESSEE WHICH CAN ONLY BE ASCERTAINED WHEN THE CERTIFICATE OF CONSTRUCTION IS OBTAINED BY THE DEVELOPER FROM THE COMPETENT AUTHORITY AFTER THE COMPLETION OF THE PROJECT AND NOT SOME HYPOTHETICAL INCOME. WE WERE INFORMED THAT ASSESSEES HAVE FILED CAPITAL GAINS RETUR NS IN THE RESPECTIVE YEARS WHEN THE PROPERTIES WERE SOLD. 12.8. KEEPING IN MIND THE LEGAL PROPOSITIONS AND T HE FACTS IN THIS CASE AS DISCUSSED ABOVE, WE ARE OF THE CONSID ERED OPINION THAT THE INCIDENCE OF CAPITAL GAINS DOES NOT ACC RUE OR ARISE IN THE YEAR UNDER CONSIDERATION AND SO THE ORDE RS OF AO AND LD. CIT(A) ARE LIABLE TO BE SET ASIDE. WE ORDER A CCORDINGLY. THE GROUNDS RAISED BY ASSESSEE ON THIS ARE ALLOWED. 13. THE SIXTH GROUND OF APPEAL IS THAT INTEREST U/S 234B HAS BEEN CHARGED INCORRECTLY. IT WAS SUBMITTED THAT THERE ITA NOS. 1232 & 1233/HYD/2016 :- 22 -: IS AN ERROR IN COMPUTING THE PERIOD FOR WHICH INTEREST U/S 234B IS LIABLE TO BE CHARGED. THE ONLY QUESTION WAS RELATIN G TO THE METHOD OF COMPUTATION OF THE INTEREST. THIS GROUND BECOM ES ACADEMIC SINCE THE ADDITION ITSELF WAS NOT APPROVED. 14. IN THE RESULT, APPEAL OF ASSESSEE IN ITA NO. 1232/HYD/2016 IS CONSIDERED ALLOWED. ITA NO. 1233/HYD/2016: 15. BRIEF FACTS OF THE CASE ARE THAT, ASSESSEE IS AN INDIVIDUAL. LIKE IN THE CASE OF MR. KONDAL RAO DISCU SSED ABOVE, ASSESSEE HAD ENTERED INTO TWO SEPARATE DEVELOPMENT AGREEMENTS, ONE WITH M/S. SIRI BALAJI CONSTRUCTIONS AN D ANOTHER WITH M/S. SIRI LAKSHMI BALAJI CONSTRUCTIONS, O N 14- 08-2006 THROUGH DEVELOPMENT AGREEMENT CUM GPA. IN BOTH THE DEVELOPMENT AGREEMENTS, AT CLAUSE NO.9, IT IS CLEARL Y MENTIONED THAT THE POSSESSION OF THE SCHEDULE PROPERTY W OULD BE PHYSICALLY DELIVERED TO THE DEVELOPERS AFTER THE PL ANS WERE SANCTIONED BY THE GRAM PANCHAYAT/MUNICIPALITY/HUDA. IN THE CASE OF M/S. SIRI BALAJI CONSTRUCTIONS, THE PLAN O F APPROVAL FROM GRAM PANCHAYAT, NIZAMPET AND HUDA FOR THE CONSTRUCTION OF A MULTI-STORIED BUILDING WAS ISSUED O N 29-03- 2008. HOWEVER, SINCE THE DEVELOPER FAILED TO CONSTRUCT THE FLATS IN FULL AND DEFAULTED ON THE SAME, ASSESSEE AND OTHE R CO- OWNERS FILED A CASE BEFORE THE LOK ADALAT COURT AGAINS T THE DEVELOPER AND FINALLY A COMPROMISE AGREEMENT BEFORE THE COURT WAS REACHED IN EP NO.42/2012 IN OS.NO.872/2011 (PAG ES 9 TO ITA NOS. 1232 & 1233/HYD/2016 :- 23 -: 17 OF SECOND PAPER BOOK). AS STATED THE AGREEMENT WITH S IRI LAKSHMI BALAJI WAS CANCELLED AND WITH SIRI BALJI WAS NOT FULFILLED. 15.1. DESPITE THE FOREGOING FACTS IN SUPPORT OF WHICH COMPLETE EVIDENCE WAS ADDUCED AND DETAILED SUBMISSIO NS MADE, AO ASSESSED CAPITAL GAINS TO THE EXTENT OF RS. 3,46,32,114/- IN THE HANDS OF ASSESSEE FOR THE AY. 2 007-08 ON BOTH THE COUNTS ON THE GROUND THAT THERE WAS A TRANSFER OF PROPERTY WITHIN THE MEANING OF SECTION 2(47) SINCE THE AGREEMENTS WERE ENTERED INTO ON 14-08-2006. IN ADDITION AO ALSO BROUGHT TO TAX AM AMOUNT OF RS.6,50,000/- WAS BRO UGHT TO TAX AS UNEXPLAINED CASH CREDIT. 15.2. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEA L TO THE CIT(A). THE LD.CIT(A) HAS CONFIRMED THE ADDITION P ARTIALLY EXCLUDING AN ADDITION OF RS.55,00,000/- WHICH WAS THE REFUNDABLE SECURITY DEPOSIT AMOUNT. AGGRIEVED WITH THE ORDER OF LD.CIT(A), ASSESSEE FILED THIS APPEAL BEFORE US W ITH THE FOLLOWING GROUNDS: 1. THE ORDER OF THE LEARNED CIT (A) IS ERRONEOUS B OTH ON FACTS AND IN LAW. 2. THE LEARNED CIT(A) ERRED IN UPHOLDING THE ADDITI ON OF RS.3,46,32,114/- AS LONG TERM CAPITAL GAINS DESPITE A SPECIFIC CLAUSE IN THE DEVELOPMENT AGREEMENTS PROVIDING FOR HANDING OVER OF POSSESSION OF LAND TO THE DEVELOPER SUBJECT TO RECE IPT OF APPROVALS FROM THE CONCERNED AUTHORITIES' FOR DEVELOPMENT WHI CH WERE NOT RECEIVED DURING THE YEAR UNDER CONSIDERATION. 3. THE LEARNED CIT(A) ERRED IN HOLDING THAT THERE W AS A TRANSFER WITHIN THE MEANING OF SECTION 2(47)(V) IN RESPECT OF THE D EVELOPMENT ITA NOS. 1232 & 1233/HYD/2016 :- 24 -: AGREEMENTS WITH M/S.SRI LAKSHMI BALAJI CONSTRUCTION S DESPITE THE FACT THAT THE POSSESSION OF THE LAND WAS NOT HANDED OVER TO THE DEVELOPER SINCE THE PANCHAYAT DENIED APPROVAL OF TH E CONSTRUCTION PLAN AND THE AGREEMENT ITSELF WAS CANCELLED ON 24-0 9-2012 BEFORE THE LOK ADALAT. 4. THE LEARNED CIT(A) ERRED IN UPHOLDING TAXATION O F CAPITAL GAIN BY EXTENDING THE AMPLITUDE OF SECTION 2(47)(V) OVERLOO KING THE FACT THAT SECTION 2(47)(V) BEING A DEEMING PROVISION HAS TO B E CONSTRUED STRICTLY. 5. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE LEAR NED' CIT(A) ERRED IN UPHOLDING THE DECISION OF THE AO IN REGARD TO THE T AXATION OF CAPITAL GAINS DISREGARDING THE SETTLED LAW THAT UNDER THE L T. ACT REAL INCOME AND NOT MERELY HYPOTHETICAL INCOME IS TAXABLE. 6. THE LEARNED CIT(A) ERRED IN DISMISSING THE GROUN D OF APPEAL RELATING TO CHARGING OF INTEREST U/S. 234B OVERLOOKING THE F ACT THAT THE AO CHARGED INTEREST U/S 234B WITHOUT APPLYING THE PROV ISIONS OF SECTION 234B(3) OF THE I.T.ACT. 7. THE LEARNED CIT(A) ERRED IN SUSTAINING THE ADDIT ION OF RS.6,50,000/- BEING THE INVESTMENT BY THE ASSESSE O N THE PREMISE THAT THERE WERE INCONSISTENCIES IN THE STATEMENT OF THE ASSESSEE. THE APPELLANT CRAVES LEAVE TO ADD TO AND/OR ALTER A NY OF THE GROUNDS EITHER BEFORE OR AT THE TIME OF HEARING. 16. FACTS ARE SIMILAR TO THE CASE OF SRI KONDAL RAO B EING CO-OWNER. THE ORDERS OF AUTHORITIES ARE ALSO SIMILAR. SINCE THE GROUNDS 1 TO 6 IN THIS APPEAL ARE ALSO SIMILAR TO THE GROUNDS RAISED IN THE EARLIER ORDER HEREIN ABOVE, AS PER THE DISCUSSION IN THE ABOVE APPEAL AND FOR THE REASONS STATED ABOVE TH E GROUNDS IN THIS APPEAL ARE ALSO ALLOWED. GROUND NO . 7 I.E., ADDITION OF RS. 6,50,000/- IS DISCUSSED HEREUNDER. 17. GROUND NO. 7: THIS GROUND PERTAINS TO ADDITION OF RS. 6,50,000/- AS UNEXPLAINED CREDIT IN THE HANDS OF ASSESSEE. ITA NOS. 1232 & 1233/HYD/2016 :- 25 -: IN THE CASH FLOW STATEMENT, ASSESSEE HAS EXPLAINED INVESTMENTS IN THE YEAR WITH FUND FLOW FROM HIS WIFE TO THE EXTENT OF RS. 2.5 LAKHS, FATHER TO AN EXTENT OF RS. 2 L AKHS AND TWO FRIENDS AT RS. 1 LAKH EACH. 17.1. AO DISBELIEVED THE SAME AND ADDED THE SAME TO ASSESSEES INCOME WHICH WAS UPHELD BY THE CIT(A). I T WAS THE CONTENTION THAT LD.CIT(A) FAILED TO APPRECIATE THAT ASSES SEES WIFE COMES FROM A WELL TO DO FAMILY AND SHOULD NOT H AVE DISBELIEVED THE AMOUNT OF RS. 2.5 LAKHS AS PART OF HER STRIDHAN. SIMILARLY, AN AMOUNT OF RS. 2 LAKHS FROM H IS FATHER, WHO IS BASICALLY AN AGRICULTURIST OWNING 12 ACRES OF LAND AND HAD CAPACITY TO LEND THE AMOUNT TO THE ASSESSEE. SIMIL AR EXPLANATION WAS ALSO GIVEN FOR THE FRIENDS. 17.2. AFTER CONSIDERING THE RIVAL CONTENTIONS, WE ARE OF THE OPINION THAT THIS ISSUE REQUIRES RE-EXAMINATION BY TH E AO AS IT SEEMS ASSESSEE HAS NOT GIVEN PROPER OPPORTUNITY TO SUBSTANTIATE THE CLAIMS. ASSESSEE IN THE CASH FLOW STATE MENT ACCEPTED ONLY RS. 25 LAKHS AS RECEIVED FROM THE FIRM M/S SIRI BALAJI, WHEREAS AO BROUGHT TO TAX AN AMOUNT OF RS. 55 LAKHS. IF THE SAID AMOUNT WAS ACCEPTED THEN THE INVESTMENT MADE BY ASSESSEE STANDS EXPLAINED. IN VIEW OF THAT AO IS DIREC TED TO EXAMINE THE CONTENTIONS AFRESH AND MAKE ENQUIRIES WHETH ER THOSE PEOPLE HAVE CAPACITY TO ADVANCE THE AMOUNTS AS S TATED BY ASSESSEE. ASSESSEE SHOULD BE GIVEN DUE OPPORTUNI TY TO FURNISH NECESSARY EVIDENCES BEFORE THE AO TO SUBSTAN TIATE THE ITA NOS. 1232 & 1233/HYD/2016 :- 26 -: RECEIPT OF MONEY. WITH THESE DIRECTIONS, THIS GROUND IS CONSIDERED ALLOWED FOR STATISTICAL PURPOSES. 18. IN THE RESULT, THE APPEAL IN ITA NO. 1233/HYD/2016 IS ALLOWED FOR STATISTICAL PURPOSES. 19. TO SUM-UP, APPEAL IN ITA NO. 1232/HYD/2016 IN THE CASE OF SHRI KONDAL RAO K. IS ALLOWED AND THE APP EAL IN ITA NO. 1233/HYD/2016 IN THE CASE OF SHRI RAMA RAO G. I S ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD MAY, 2018 SD/- SD/- (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 23 RD MAY, 2018 TNMM ITA NOS. 1232 & 1233/HYD/2016 :- 27 -: COPY TO : 1. K. KONDAL RAO, H. NO. 5-3-92, KUKATPALLY, HYDERA BAD. 2. RAMA RAO GOTTUMUKKALA, PLOT NO. 817, VIVEKANANDA NAGAR COLONY, KUKATPALLY, HYDERABAD. 3. INCOME TAX OFFICER, WARD-11(5), HYDERABAD. 4. INCOME TAX OFFICER, WARD-11(3), HYDERABAD. 5. CIT(APPEALS)-5, HYDERABAD. 6. PR.CIT-5, HYDERABAD. 7. D.R. ITAT, HYDERABAD. 8. GUARD FILE.