ACIT, Central Circle-5, Hyderabad V. Sri P. Venkateswara Rao, Hyderabad

ITA 213/HYD/2014

• Counselvise Citation: 21322514 RSA 2014
• Duration Of Justice: 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 11-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Keywords: Capital asset; Search and seizure; Salary income
• Section: 153A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 213/HYD/2014 ASSESSMENT YEAR : 2008-09 ASST. COMMISSIONER OF INCOME- TAX, CENTRAL CIRCLE 5, HYDERABAD SRI P. VENKATESWARA RAO, HYDERABAD PAN AEJPP5631D (APPELLANT) (RESPONDENT) REVENUE BY SHRI P. SOMA SEKHAR REDDY ASSESSEE BY NONE DATE OF HEARING 10-09-2014 DATE OF PRONOUNCEMENT 24-09-2014 O R D E R PER SAKTIJIT DEY, J.M.: THIS APPEAL OF THE DEPARTMENT IS AGAINST THE ORDER DATED 30/12/13 OF THE CIT(A), HYDERABAD PERTAINING TO AY 2008-09. 2. AT THE TIME OF HEARING OF APPEAL NO ONE APPEARED FOR THE ASSESSEE, THOUGH IT APPEARS FROM RECORD THAT THE NO TICE INTIMATING THE DATE OF HEARING WAS SERVED ON ASSESSEE-RESPONDENT I N ADVANCE. IN VIEW OF THE AFORESAID WE PROCEED TO DISPOSE OF THE APPEAL EXPARTE- QUA-ASSESSEE-RESPONDENT ON HEARING LEARNED DR. 3. THE ONLY EFFECTIVE GROUND OF THE DEPARTMENT READ S AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE CIT(A) ERRED IN HOLDING THAT CAPITAL GAINS ON A CCOUNT OF DEVELOPMENT AGREEMENT ENTERED INTO BY THE ASSESSEE WITH M/S AMSRI DEVLEOPERS PVT. LTD. ON 04/05/07 DID NOT ARIS E IN AY 2008-09. 2 ITA NO.213/HYD/2014 SHRI P. VENKATESWARA RAO 4. BRIEFLY THE FACTS ARE, ASSESSEE IS AN INDIVIDUAL DERIVING INCOME FROM SALARY. A SEARCH AND SEIZURE OPERATION WAS CON DUCTED IN CASE OF VENIGALLA ANAND PRASAD AND OTHERS ON 07/10/09. DURI NG SEARCH AND SEIZURE OPERATION AS ALLEGED BY THE DEPARTMENT, CER TAIN DOCUMENTS, BOOKS OF ACCOUNT AND OTHER RELATED INFORMATION BELO NGING TO ASSESSEE WERE FOUND AND SEIZED. ON THE BASIS OF THESE INCRIM INATING MATERIALS NOTICE U/S 153A WAS ISSUED TO ASSESSEE. DURING ASSE SSMENT PROCEEDING, AO NOTICED THAT ASSESSEE HAD PURCHASED 4.225 ACRES OF LAND VIDE DOCUMENT NO. 3512 DATED 28/03/05 AT BOWRA MPET, RR DISTRICT FOR RS. 6,50,100. OUT OF THE AFORESAID LAN D HE HAS SOLD 1 ACRE LAND TO M/S VARUN CONSTRUCTIONS FOR A CONSIDERATION OF RS. 1 CRORE THROUGH AGREEMENT OF SALE-CUM-GPA DATED 12/03/07 AN D BALANCE 3.227 ACRES WAS GIVEN FOR DEVELOPMENT TO M/S AMSRI DEVELOPERS PVT. LTD. ALONG WITH 33 OTHERS VIDE DOCUMENT NO. 7110 DA TED 04/05/07. AO NOTICED THAT THE LAND PURCHASED AND SOLD BY ASSESSE E WAS CONTIGUOUS TO THE LAND PURCHASED AND SIMILARLY TRANSACTED BY BHAVYA CONSTRUCTIONS PVT. LTD., SHRI ANAND PRASAD AND OTHE R INDIVIDUALS, WHO ALL LIKE ASSESSEE WERE THE INVESTORS IN M/S BHAVYA CONSTRUCTIONS A COMPANY SET UP BY SHRI V. ANAND PRASAD. HE NOTICED THAT ALL THESE PERSONS HAD JOINTLY ENTERED INTO A DEVELOPMENT AGRE EMENT WITH M/S AMSRI DEVELOPERS FOR DEVELOPMENT OF THEIR LAND TOTA LING TO 123 ACRES AND 05 GUNTAS. HE NOTED THAT M/S AMSREE DEVELOPERS HAS PAID REFUNDABLE SECURITY DEPOSIT IN FURTHERANCE OF THE D EVELOPMENT AGREEMENT. AS PER THE REGISTERED DOCUMENT, THE ENTI RE VALUE OF THE PROJECT WAS RS. 720 CRORES WITH A SHARING RATIO OF 35% TO THE LAND OWNERS ON THE BUILT UP AREA AND UNDIVIDED LAND. AO ON THE BASIS OF STATEMENT RECORDED FROM V. ANAND PRASAD, M.D. OF B HAVYA CONSTRUCTIONS PVT. LD. AND REFERRING TO RATIO LAID DOWN IN JUDICIAL PRECEDENTS HELD THAT THERE IS A TRANSFER OF CAPITAL ASSET U/S 2(47)(V) OF THE ACT AND PROCEEDED TO COMPUTE SHORT TERM CAPITAL GAIN AT RS. 7,68,02,439. BEING AGGRIEVED OF THE ASSESSMENT ORD ER SO PASSED ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). 3 ITA NO.213/HYD/2014 SHRI P. VENKATESWARA RAO 5. BEFORE THE CIT(A), ASSESSEE TOOK A SPECIFIC PLEA THAT THERE CANNOT BE ANY TRANSFER U/S 2(47)(V) OF THE ACT AS T HE DEVELOPMENT OF THE PROJECT HAS NOT TAKEN PLACE DUE TO FAILURE ON T HE PART OF THE DEVELOPER TO PERFORM HIS PART OF THE CONTRACT. IT W AS SUBMITTED THAT ASSESSEE WAS PAID ONLY RS. 41,92,500 @ RS. 13 LAKH PER ACRE COMPRISING OF REFUNDABLE DEPOSIT OF RS. 15,000 AND ADVANCE OF RS. 12,85,000 PER ACRE. ASSESSEE ALSO CONTENDED THAT AS NO STEPS QWERE TAKEN BY THE DEVELOPER TO START DEVELOPMENT ACTIVIT Y THERE WAS A COMPLETE BREACH AND BREAKDOWN OF THE DEVELOPMENT AG REEMENT, WHICH LED TO ASSESSEE AND OTHERS FILING A CIVIL SUI T FOR CANCELLATION OF THE DEVELOPMENT AGREEMENT, WHICH IS PENDING BEFORE ADDITIONAL DISTRICT JUDGE, RR DISTRICT AS OS NO. 903/12. THUS, IT WAS SUBMITTED BY ASSESSEE THAT AS DEVELOPMENT AGREEMENT HAS NOT B EEN ACTED UPON, THE CONDITIONS OF SECTION 53A OF THE TP ACT, HAS NOT BEEN FULFILLED AND AS SUCH THERE CANNOT BE ANY TRANSFER AS ENVISAGED U/S 2(47)(V) OF THE ACT. IN THIS CONTEXT, ASSESSEE RELI ED UPON A NUMBER OF DECISIONS OF DIFFERENT COURTS AND TRIBUNAL. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE IN THE CONTEXT OF FACTS AND MATERIALS ON RECORD AS WELL AS THE RATIO LAID DOWN IN JUDICIAL P RECEDENTS CAME TO THE CONCLUSION THAT THERE BEING NO STEPS TAKEN BY D EVELOPER TO PERFORM HIS PART OF CONTRACT UNDER THE DEVELOPMENT AGREEMENT, IT CANNOT BE SAID THAT THE CONDITIONS OF SECTION 53A O F TP ACT READ WITH SECTION 2(47)(V) OF THE IT ACT HAS BEEN FULFILLED. THE OBSERVATIONS OF LEARNED CIT(A) IN THIS REGARD ARE EXTRACTED FOR THE SAKE OF CONVENIENCE: 15.0. IN THE INSTANT CASE, IT IS EVIDENT THAT THE DEVELOP MENT AGREEMENT CUM GPA WAS SIGNED AND THE DEVELOPER WAS ALLOWED PO SSESSION TO DO HIS PART OF THE DEAL/CONTRACT. HOWEVER, THE DEVELOPER D ID NOT TAKE ANY ACTION AND FINALLY, THE APPELLANT ALONG WITH THE OTHER LAN D OWNERS FILED A PETITION IN COURT SEEKING CANCELLATION OF THE DEVELOPMENT AG REEMENT. (O.S.NO 903 OF 2012). 16.0. THE ISSUE OR THE QUESTION NOW IS, WHETHER THE DEVEL OPMENT AGREEMENT, WHICH IS CLEARLY NOT OPERATIONAL, SHOULD BE STILL INSISTED AND CONSIDERED AS BEING VALID ENOUGH TO FASTEN THE CAPI TAL GAINS LIABILITY ON THE 4 ITA NO.213/HYD/2014 SHRI P. VENKATESWARA RAO APPELLANT? AS ON THE DATE OF ASSESSMENT ORDER, THE APPELLANT HAD DRAWN ATTENTION TO THE NON PERFORMANCE OF CONTRACT BY THE DEVELOPER AND THE CONTEMPLATION OF FILING OF SUIT. THE SUIT WAS SUBSE QUENTLY FILED IN 2012. THIS ONLY REINFORCED AND PROVIDED EVIDENCE TO THE A RGUMENT OF THE APPELLANT THAT THERE IS NO PROGRESS ON THE DEVELOPM ENT AGREEMENT AND THE AGREEMENT IS ITSELF IN LIMBO AND IS BEING REPUDIATE D. 17.0. THE BASIC WORKS IN ANY DEVELOPMENT PROJECT ARE (A) CLEARING OF LAND AND SURVEY OF LAND (B) FORMATION OF ROADS AND DRAIN AGE (C) DEMARCATION OF VILLA PLOTS (D) APPLICATION FOR LAND USAGE CONVERSI ON (E) PREPARATION OF PLANS AND DRAWINGS (F) FILING OF SUCH DRAWINGS FOR APPROVAL OF MUNICIPAL AUTHORITIES (G) FILING OF APPLICATION FOR ENVIRONME NT CLEARANCE SINCE IT IS A PROJECT OF MORE THAN 100 ACRES (H) GRANT OF SUCH AP PROVALS AND (H) CONSTRUCTION WORK. 18.0 NOT A SINGLE WORK OF THE ABOVE WAS DONE EVEN TILL 2 011 OR EVEN TO DATE ACCORDING TO THE APPELLANT. THIS LACK OF PROGR ESS AND UNWILLINGNESS OF DEVELOPER LED TO THE APPELLANTS AND OTHER LAND OWNE RS SEEKING JUDICIAL REMEDY OF CANCELLATION OF DEVELOPMENT AGREEMENT SO THAT THEY WOULD BE FREE OF THE DEVELOPER AND CAN PROCEED TO DEAL WITH SOMEONE ELSE OR TO DEAL WITH THE LAND IN WHATSOEVER MANNER THEY DEEM FIT. 19.0 THE CIVIL SUIT FILED IN THE COURT OF DISTRICT JUDGE , RANGA REDDY IN OS NO.903/2012 IS SEEN. THE RELEVANT EXTRACT FROM T HE SUIT ARE GIVEN BELOW: CLAUSE (2) THE NAMES OF PLAINTIFFS (APPELLANT AND THE OTHER 33) WERE MUTATED IN THE REVENUE RECORDS AS PER PATTADAR S AND I POSSESSORS. THE POSSESSION AND ENJOYMENT OF THE PLAINTIFF IS EVIDENT FROM THE PAHA NIS AND OTHER REVENUE RECORDS. CLAUSE (3) THE DEVELOPER MADE THE PLAINTIFFS BELIEVE THAT THE ENTIRE PROJECT WOULD BE COMPLETED WITHIN A PERIOD OF 36 MONTHS FRO M THE DATE OF OBTAINING CONSTRUCTION PERMISSION FROM CONCERNED AU THORITIES. THE DEVELOPMENT AGREEMENT CUM GPA EMPOWERS THE DEVE LOPER TO TAKE APPROPRIATE DECISION WITH REGARD TO THE DEMARCATION OF AREA AND TAKE NECESSARY ACTION FOR APPLICATION/APPROVAL OF PLAN. CLAUSE (4) THE DEVELOPER FAILED TO MAKE AN APPLICATION FOR PE RMISSION AND APPROVAL - HE THEREBY COMMITTED DEFAULT IN DISCHARG E OF HIS OBLIGATION UNDER DEVELOPMENT AGREEMENT. L CLAUSE (5) IT IS SUBMITTED THAT MORE THAN 5 YEARS HAVE ELAPS ED SINCE THE DATE OF THE DEVELOPMENT AGREEMENT, BUT ABSOLUTELY T HERE IS NO INITIATION OF ANY WORK BY THE DEFENDANT NO.1 (DEVELOPER) RELATING TO SUBMISSION OF PLANS, LEAVE ABOUT PROGRESS. I I 5 ITA NO.213/HYD/2014 SHRI P. VENKATESWARA RAO CLAUSE (5) A LEGAL NOTICE WAS SENT TO DEFENDANT ON 12.02.2012 AND THE NOTICE OR CANCELLATION OF DEVELOPMENT AGREEMENT CUM GPA WAS SENT ON 23.06.2012 CLAUSE (6) IN THE REPLY TO NOTICE DATED 12.02.2012, THE DEFEN DANT NO.1 (DEVELOPER), CAME UP WITH A LAME EXCUSE THAT SURVEY AND DEMARCATION IS TO BE DONE, TO COVER UP ITS INEXCUSABLE LAPSES. THE DEFENDANT ALSO MADE ALLEGED CLAIMS OF PROTECTED TENANT BUT FAILED TO GIVE ANY D ETAILS WITH REGARD TO ALLEGED CLAIM BY THESE PROTECTED TENANTS AND THE EXTENT OF LAND INVOLVED IN SUCH PROCEEDINGS. THE PLAINTIFFS ARE NOT AWARE OF ANY SU CH PROCEEDINGS INITIATED BY ANY SUCH TENANTS. THE DEFENDANT (DEVELOPER) IN ITS ANXIETY TO SHOW SO ME KIND OF PERFORMANCE OBTAINED LAND USE CERTIFICATE OF HUDA AND TRIED TO PROJECT THE SAME AS REQUISITE PERMISSION. THE DEFENDANT DID NOT INVEST ANY AMOUNT OVE R THE PROJECT. THE DEFENDANT OUGHT TO HAVE COMPLETED ENTIRE PROJE CT BY END OF DECEMBER, 201L. DEFENDANT MISERABLY FAILED TO COMMENCE THE PROJECT WITHIN 5 YEARS OF DATE OF DEVELOPMENT AGREEMENT. CLAUSE (7) THE DEFENDANT NO.1 (DEVELOPER) IS LIABLE TO PAY DA MAGES FOR BREACH OF CONTRACT. AN AMOUNT OF RS.13 LAKHS PER AC RE WAS FURNISHED AS I SECURITY FOR PERFORMANCE GUARANTEE OF THE DEVELOPME NT I AGREEMENT. IT IS SUBMITTED THAT AS THE DEVELOPER FAILED TO PERFORM ITS OBLIGATIONS, THE DEPOSIT IS FORFEITED. 20.0 THE WEBSITE OF M/S AMSRI DEVELOPERS WAS SEEN IN COU RSE OF APPEAL PROCEEDINGS. EVEN AS ON 28 TH DECEMBER, 2013, THE WEBSITE HAD TWO DISTINCT CLASSES OF PROJECTS (A) ONGOING-UNDER WHIC H 3 PROJECTS WERE LISTED AND (B) PROPOSED PROJECTS-UNDER WHICH 9 PROJECTS WE RE LISTED WITH THE PRESENT PROJECT UNDER DISCUSSION, BEING LISTED AT S I.NO.8 AS AMSRI GLOBAL VILLAGE. THE CLASSIFICATION BY THE DEVELOPER ITSELF AS 'PROPOSED', AS DISTINCT FROM 'ONGOING' IS SIGNIFICA NT. 21.0 ON FURTHER CLICKING THE PROJECT ON THIS WEBSITE, TH E ONLY DESCRIPTION AVAILABLE IS - 'THE PROJECT IS BEING IMPLEMENTED AT BOWRAMPET, HYDERABAD, ADJACENT TO OUTER RING ROAD AS AN INTEGR ATED TOWNSHIP SPREAD OVER AN AREA OF 260 ACRES. THIS IS PROPOSED AS A MO DERN TOWNSHIP COMPLETE WITH RESIDENTIAL, COMMERCIAL, RETAIL, ENTE RTAINMENT AND SCHOOLING FACILITIES FOR THE RESIDENTS.' THE COPIES OF WEBSIT E PAGES (2 NOS.) ARE OVERLEAF. ......................... .......................... 6 ITA NO.213/HYD/2014 SHRI P. VENKATESWARA RAO THE BUILT UP AREA DETAILS ARE MENTIONED AS : - 'TO BE ANNOUNCED' THE APPROXIMATE SFT PRICE IS ALSO GIVEN AS 'TO BE ANNOU NCED'. 22.0 THE ABOVE LENDS CREDIBILITY TO THE STAND OF APPELLA NT THAT THERE WAS NO WILLINGNESS OR PART-PERFORMANCE ON PART OF THE DEVE LOPER DURING THE RELEVANT PREVIOUS YEAR OR EVEN FOR NEXT 4 YEARS FIN ALLY LEADING TO COLLAPSE OF THE AGREEMENT WHEN A SUIT SEEKING ITS CANCELLATION IS FILED AND IS PRESENTLY IN COURT. 23.0 IT IS ALSO SEEN THAT APART FROM THE RS 13 LAKH PER ACRE THAT THE APPELLANTS AND OTHERS RECEIVED AS REFUNDABLE SECURI TY DEPOSIT, THERE WAS NO FURTHER PAYMENT. SINCE 2007 MAY, THERE WAS NO FURTH ER MOVEMENT AND NO WILLINGNESS OF THE DEVELOPER TO DO HIS PART OF THE DEAL COULD BE SEEN. I AM THEREFORE CONSTRAINED TO HOLD THAT NO CAPITAL GAINS ARISE TO THE APPELLANT IN THE YEAR 2008-09 BASED ON THIS DEVELOPMENT AGREEMEN T WHICH TURNED OUT TO BE A NON-STARTER. CONSEQUENTLY, THERE IS NO INCOME TO BE TAXED AS CAPITAL GAINS ON ACCOUNT OF THE DEVELOPMENT AGREEME NT. THIS GROUND OF APPEAL IS THUS ALLOWED. 6. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIE S AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES ON THIS ISSUE . AS CAN BE SEEN FROM THE OBSERVATIONS MADE BY CIT(A), HE HAS GIVEN SPECIFIC FINDING OF FACT THAT DEVELOPMENT AGREEMENT HAS NOT BEEN ACT ED UPON BY THE DEVELOPER TILL DATE. THEREFORE, HE HAS CONCLUDED TH AT AS THERE IS NO WILLINGNESS OR PART PERFORMANCE OF CONTRACT BY THE DEVELOPER, WHICH HAS RESULTED IN FILING OF CIVIL SUIT SEEKING CANCEL LATION OF THE DEVELOPMENT AGREEMENT, IT CANNOT BE SAID THAT THERE IS TRANSFER OF CAPITAL ASSET AS ENVISAGED U/S 2(47(V) READ WITH SE CTION 53A OF THE ACT. THIS FINDING OF FACT ARRIVED AT BY CIT(A) HA S NOT BEEN CONTROVERTED BY THE DEPARTMENT BY BRINGING ON RECOR D DOCUMENTARY EVIDENCE OR THROUGH ANY OTHER MODE TO PROVE THAT DE VELOPMENT ACTIVITY UNDER THE DEVELOPMENT AGREEMENT HAS BEEN S TARTED BY DEVELOPER. IN THE AFORESAID FACTUAL POSITION, SINCE THERE IS FAILURE ON THE PART OF THE DEVELOPER TO PERFORM HIS PART OF TH E CONTRACT, IT CANNOT BE SAID THAT THERE IS TRANSFER OF CAPITAL ASSET MER ELY BECAUSE ASSESSEE HAS ENTERED INTO DEVELOPMENT AGREEMENT WIT H THE DEVELOPER. IN THE AFORESAID VIEW OF THE MATTER, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A), WHICH IS ACCORDIN GLY UPHELD BY DISMISSING GROUND RAISED BY REVENUE. 7 ITA NO.213/HYD/2014 SHRI P. VENKATESWARA RAO 7. IN THE RESULT, APPEAL OF REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 24/09/2014. SD/- SD/- (B. RAMAKOTAIAH) (SAKTIJIT DEY) ACCOUNTANT MEMBER JU DICIAL MEMBER HYDERABAD, DATED: 24 TH SEPTEMBER, 2014 KV COPY TO:- 1) THE ACIT,CENTRAL CIRCLE -5, 8 TH FLOOR, AAYAKAR BHAVAN, LB STADIUM ROAD, BASHEERBAGH, HYDERABAD- 500 004 2) SRI P. VENKATESWARA RAO, F.NO. 402, 6-2-10, TEMPLE VIEW RESIDENCY, LAKDIKAPUL, HYDERABAD. 3) CIT(A)-VII, HYDERABAD 4) CIT(CENTRAL, HYDERABAD 5)THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDER ABAD.