DCIT, Central Circle-2(4), Hyderabad, Hyderabad V. Pagidi Janardhan Reddy, Hyderabad, Hyderabad

ITA 532/HYD/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 8438 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-07-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB-B
• Next Hearing Date: 05-03-2020
• Assessment Year: 2013-2014
• Appeal Filed On: 22-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: K A SAI PRASAD
• Keywords: Capital asset; Search and seizure; Fair market value; Capital Gains
• Section: 45(2); 143(3); 153A; 48; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO.532/HYD/2017 ASSESSMENT YEAR: 2013 - 14 DCIT, CENTRAL CIRCLE - 2(4), HYDERABAD. VS. PAGIDI JANARDHAN REDDY, HYDERABAD. PAN: AIKPP 2277 L (APPELLANT) (RESPONDENT) ITA NO.533/HYD/2017 ASSESSMENT YEAR: 2013 - 14 DCIT, CENTRAL CIRCLE - 2(4), HYDERABAD. VS. PAGIDI RAMACHANDRA REDDY, HYDERABAD. PAN: AALPP 5927 C (APPELLANT) (RESPONDENT) ASSESSEE BY: SRI K.A. SAI PRASAD REVENUE BY: SOLGY JOSE T. KOTTARA M , DR DATE OF HEARING: 05/03/2020 DATE OF PRONOUNCEMENT: 08 /06/2020 ORDER PER A. MOHAN ALANKAMONY, AM.: BOTH THESE APPEALS ARE FILED BY THE REVENUE AGAINST THE ORDERS OF THE LD. CIT (A) - 12, HYDERABAD IN APPEAL NOS.0043 & 0044/2015 - 16, DATED 22/11/2016 PASSED U/S. 143(3) R.W.S 250(6) OF THE ACT FOR THE AY: 2013 - 14. SINCE THE ISSUES INVOLVED IN BOTH THESE DEPARTMEN T APPEALS 2 ARE IDENTICAL AND RELATED TO THE SAME FACT THEY ARE TAKEN UP FOR HEARING TOGETHER AND DISPOSED OFF BY THIS COMMON ORDER. 2. THE REVENUE HAS RAISED 6 IDENTICAL GROUNDS IN BOTH THE SE APPEALS; HOWEVER, THE CRUX OF THE ISSUE IS THAT THE LD. CIT (A) H AS ERRED IN DELETING THE ADDITION MADE IN THE HANDS OF EACH THE ASSESSEES UNDER THE HEAD CAPITAL GAINS AMOUNTING TO RS. 3,94,24,000/ - . 3. BRIEF FACTS OF THE CASE ARE THAT , BOTH THE ASSESSEES SHRI P. JANARTHAN REDDY AND SHRI P. RAMA CHANDRA REDDY ARE ORDINA RY RESIDENT INDIVIDUALS . SHRI P. JANARTHAN REDDY ORIGINALLY FILED HIS RETURN OF INCOME FOR THE RELEVANT AY ON 05/08/2013 ADMITTING INCOME OF RS. 1,40,000/ - , HOWEVER SHRI P. RAMA CHANDRA REDDY HAD NOT FILED HIS RETURN OF INCOME. A SEARCH AND SEIZURE OPERA TION U/S. 132 OF THE ACT WAS CONDUCTED IN THE CASE OF M/S. RAMKY ESTATES AND FARMS PRIVATE LIMITED ON 07/02/2013 WHEREIN IT WAS REVEALED THAT BOTH THE SE ASSESSEES HAD ENTERED INTO A DEVELOPMENT AGREEMENT AND EXECUTED GENERAL POWER OF ATTORNEY ON 31/05/2012 WITH M/S. RAMKY ESTATES AND FARMS PRIVATE LIMITED. THEREFORE, THE CASE OF BOTH THE ASSESSEES WAS TAKEN UP FOR SCRUTINY AND FINALLY ASSESSMENT ORDER U/S . 143(3) OF THE ACT WAS PASSED ON 31/03/2015 WHEREIN THE LD. AO MADE ADDITION OF RS. 3,94,24,000/ - IN THE HANDS OF EACH OF THE ASSESSEE S UNDER THE HEAD LTCG . ON APPEAL, THE LD. CIT (A) DELETED THE ADDITION IN THE CASE OF BOTH THE ASSESSEES BY RELYING ON TH E DECISIONS OF VARIOUS HIGHER JUDICIARY AGGRIEVED BY WHICH THE REVENUE IS NOW IN APPEAL BEFORE US. DURING THE 3 COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS IN THE CASE OF P. JANARTHAN REDDY AND SHRI P. RAMA CHANDRA REDDY THE LD. AO OBSERVED FROM THE DEVELOPME NT AGREEMENT THAT THE ASSESSEES HAD AGREED TO GIVE 5 A CRES & 23 GUNTAS AND 1 ACRE & 19 GUNTAS OF LAND RESPECTIVELY SITUATED IN S. NO. 278 OF GAJULARAMARAM VILLAGE, QUTHBULLAPUR MANDAL, RANGA REDDY DISTRICT TO M/S. RAMKY ESTATES AND FARMS PVT LTD FOR DEVELOP MENT AND CONSTRUCTION OF RESIDENTIAL APARTMENTS. THE LD. AO FURTHER OPINED THAT BOTH THE ASSESSEE S HAD HANDED OVER THE POSSESSION OF THE ABOVE - MENTIONED SCHEDULED PROPERTY TO M/S. RAMKY ESTATES AND FARMS PVT LTD BY VIRTUE OF CLAUSES A , B AND F OF THE DEVE LOPMENT AGREEMENT DATED 31/05/2012. THE LD. AO THEREFORE WAS OF THE VIEW THAT BY VIRTUE OF THE AGREEMENT BOTH THE ASSESSEE S HAD TRANSFERRED THEIR IMMOVABLE PROPERTY AS PER THE PROVISIONS OF SECTION 2(47)(V) OF THE ACT R.W.S 53A OF TRANSFER OF PROPERTY ACT . BOTH T HE ASSESSEE S HAD EXPLAINED BEFORE THE LD. AO THAT THOUGH THEY HAD HANDED OVER POSSESSION OF THE PROPERTY THE DEVELOPER WAS NOT WILLING TO PERFORM THEIR OBLIGATION. IT WAS ALSO POINTED OUT THAT THERE WAS NO PROGRESS IN THE DEVELOPMENT WORK DURING THE RELEVANT AY. IT WAS ALSO SUBMITTED THAT THE DEVELOPER H AD ALSO NOT INVESTED IN THE DEVELOPMENT OR CONSTRUCTION ACTIVITY. IT WAS ALSO STATED THAT T HE DEVELOPER HAD ONLY PAID RS. 50 LAKHS AS INTEREST FREE REFUNDABLE SECURITY DEPOSIT TO BOTH THE ASSESSEES AND IT WAS NOT PART OF SALE CONSIDERATION. IT WAS FURTHER ARGUED THAT T HE DEVELOPMENT AGREEMENT DID NOT QUANTIFY ANY SALE CONSIDERATION. WITH THE ABOVE SUBMISSIONS THE 4 ASSESSEES HAD TOOK THE GROUND THAT THERE WAS NO TRANSFER OF PROPERTY AS PER THE PROVISIONS OF SECTION 2(47) OF THE IT ACT AND THEREFORE THE CAPIT AL GAIN TAX IS NOT LEVIABLE . HOWEVER, THE LD. AO RELYING IN THE DECISION OF THE HONBLE AP HIGH COURT IN THE CASE OF POTLA NAGESWARA RAO VS. DCIT IN ITTA NO.245 OF 2014, DATED 9/4/2014 HELD THAT BY VIRTUE OF THE DEVELOPMENT AGREEMENT AND HANDING OVER OF P OSSESSION OF THE LAND, TRANSFER OF THE IMMOVABLE PROPERTY HAS EFFECTED AS PER THE PROVISIONS OF SECTION 2(47) OF THE IT ACT READ WITH 53A OF THE TRANSFER OF PROPERTY ACT. ACCORDINGLY, THE LD. AO COMPUTED THE LTCG OF RS. 3,94,24,000/ - IN THE CASE OF EACH O F THE ASSESSEES. 4. ON APPEAL, THE LD. CIT (A) DELETED THE ADDITION BECAUSE OF THE FOLLOWING REASONS. (1) EVEN ON THE DATE OF ASSESSMENT ORDER THE DEVELOPMENT AGREEMENT WAS NOT IMPLEMENTED. (2) DUE TO DISPUTES BETWEEN THE PARTIES, MUNICIPAL SANCTION WAS ALSO NOT OBTAINED FOR THE DEVELOPMENT OF THE PROPERTY . (3) HANDING OVER POSSESSION OF THE PROPERTY IS ONLY ONE OF THE CONDITIONS U/S. 153A OF THE ACT BUT NOT THE SOLE CONDITION. IN T HE CASE OF BOTH THE ASSESSEE S THE DEVELOPER HAD NOT CO MPLIED WITH THE CONDITION TO FULFIL THE DEVELOPMENT CONTRACT. (4) THE OBSERVATION OF THE LD. AO THAT BOTH THE ASSESSEE S HAD NOT TAKEN ANY LEGAL ACTION AGAINST THE DEVELOPER TO TERMINATE THE AGREEMENT DOES NOT HAVE MERIT BECAUSE THE DEVELOPMENT 5 AGREEMENT IS V ALID FOR A PERIOD OF 42 MONTHS AND SUCH ACTION CAN BE TAKEN ONLY AFTER THE EXPIRY OF THE PERIOD MENTIONED IN THE DEVELOPMENT AGREEMENT. (5) IN THE EVENT THE DEVELOPER DOES NOT EXECUTE HIS PART OF THE OBLIGATION THEN BOTH THE ASSESSEE S ARE ONLY ENTITLED FOR DAM AGES AND NOT FOR SPECIFIC PERFORMANCE OF THE DEVELOPMENT AGREEMENT . (6) IN THE CASE OF BOTH THE ASSESSEE S ACTUAL POSSESSION OF THE LAND WAS NOT HANDED OVER TO THE DEVELOPER BUT ONLY LICENSE WAS GRANTED FOR DEVELOPING THE LAND AND CONSTRUCTION OF RESIDENTIAL HOUSES. THEREFORE, THE ESSENTIAL COMPONENT OF SECTION 53A OF THE TP ACT HAS NOT BEEN COMPLIED WITH. (7) THE ITAT BENCHES OF THE TRIBUNAL IN THE CASE OF SUDHA GIRI VS. ITO IN ITA NO. 1578/HYD/2014 VIDE ITS ORDER DATED 31/07/2015 RELYING IN THE DECISION OF THE HYDERABAD BENCHES VIZ., (I) M/S. BINJUSARIA PROPERTIES PVT LTD VS. ACIT, CENTRAL CIRCLE - 4, HYDERABAD IN ITA NO.157/HYD/2011, DATED 04/04/2014. (B) ACIT VS. SRI R. SRINIVASA RAO AND OTHERS IN ITA NO. 1 1786/HYD/2012 DATED 28/08/2014 AND (C) MS. K. RADHIKA VS. DCIT IN ITA NO. 208/HYD/2011 HAD HELD THAT NO RULE CAN BE MADE OUT IN ALL THE CASES OF DEVELOPMENT AG REEMENTS THAT THERE IS DEEMED TRANSFER UNLESS CERTAIN PARAMETERS EXISTS SUCH AS THE DEVELOPERS WILLINGNESS TO EXECUTE THE DEVELOPMENT AGREEMENT. 6 (8) IN THE CASE DECIDED BY THE TRIBUNAL ITO VS. SHAMKUMAR ITA NO. 1604/HYD/2014, DATED 20/03/2015 IT WAS HELD TAK ING INTO CONSIDERATION OF THE DECISION OF THE HONBLE AP HIGH COURT IN THE CASE OF POTLA NAGESWARARAO VS. DCIT AS FOLLOWS: - TAKING INTO THE TOTALITY OF THE FACTS INTO CONSIDERATION WE ARE OF THE OPINION THAT THE PROVISIONS OF DEEMED TRANSFER U/S. 2(47)(V ) CANNOT BE INVOKED ON THE FACTS OF THE PRESENT CASE AND FOR THE AY IN DISPUTE BEFORE US. THE ASSESSEE HAS NOT RECEIVED ANY CONSIDERATION EXCEPT FOR REFUNDABLE DEPOSIT OF RS. 3.00 CRS AND THERE IS NO EVIDENCE BROUGH T ON RECORD BY THE REVENUE TO SHOW THAT ACTUALLY SOME CONSTRUCTION HAS TAKEN PLACE AT THE IMPUGNED PROPERTY IN THE PREVIOUS YEAR RELEVANT TO THE AY UNDER CONSIDERATION AND THE RIGHT TO RECEIVE THE SALE CONSIDERATION HAS ACTUALLY ACCRUED TO THE ASSESSEE. THE ASSESSEE IS NOT EXIGIBLE TO CAPITAL G AINS ON THE ENTIRE SALE CONSIDERATION WITHOUT THE ACCRUAL OF THE CONSIDERATION TO THE ASSESSEE. WE ARE ALSO FORTIFIED BY THE DECISION OF THE COORDINATE BENCH IN THE CASE OF BHAVYA CONSTRUCTION LTD & OTHER (ITA NO.1788/HYD/2012). THE RATIO OF THE DECISIO N IS THAT UNLESS THERE IS WILLINGNESS ON THE PART OF THE DEVELOPER TO PERFORM HIS PART OF THE CONTRACT, THERE CANNOT BE A TRANSFER OF CAPITAL ASSETS AS ENVISAGED U/S. 2(47)(V) R.W.S 53A OF THE TRANSFER OF THE PROPERTY ACT. THE RATIO LAID DOWN AS ABOVE SQU ARELY APPLIES TO THE FACTS OF THE PRESENT CASE AS THE DEPARTMENT HAS FAILED TO CONTROVERT THE FINDING S OF THE LD. CIT (A) BY BRINGING MATERIAL ON RECORD TO SHOW THAT THE DEVELOPER HAS TAKEN STEPS TOWARD DEVELOPMENTAL ACTIVITIES. HENCE, THE CAPITAL GAINS CANNOT BE BROUGHT TO TAX IN THE YEAR UNDER APPEAL. (9) IN THE CASE OF BOTH THE ASSESSEE S THE DEVELOPMENT AGREEMENT HAS BECOME NON - FUNCTIONAL AND THEREFORE THERE WAS NO ELEMENT OF TRANSFER AS PER THE PROVISIONS OF SECTION 2(47) OF THE IT ACT READ WITH SECTION 53A OF THE TP ACT. 5. BEFORE US, THE LD. DR RELIED ON THE ORDERS OF THE LD. AO AND VEHEMENTLY ARGUED IN SUPPORT OF THE SAME WHILE AS THE LD. AR RELIED ON THE ORDERS OF THE LD. CIT (A) AND PRAYED FOR CONFIRMING HIS ORDERS. 7 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PER USED THE MATERIALS ON RECORD. FROM THE FACTS OF THE CASE IT IS APPARENT THAT EVEN THOUGH THERE IS A DEVELOPMENT AGREEMENT BETWEEN BOTH THE ASSESSEES AND THE DEVELOPER THE SAME HAS BECOME DEFUNCT BECAUSE THE DEVELOPER HAS FAILED TO PERFORM HIS OBLIGATION S . FURTHER, THE LD. CIT (A) HAS CATEGORICALLY G IVEN A FINDING THAT THE POSSESSION OF THE LAND WAS NOT HANDED OVER TO THE DEVELOPER AND THE SAME COULD NOT BE SUCCESSFULLY CONTROVERTED BY THE REVENUE . IT IS ALSO APPARENT THAT THE AMOUNT OF RS. 50 LAKHS GIVEN TO THE LAND OWNERS BY THE DEVELOPER IS ONLY REFUNDABLE SECURITY DEPOSIT AND DOES NOT HAVE ANY BEARING WITH THE SALE CONSIDERATION . APART FROM THE EXECUTION OF THE DEVELOPMENT AGREEMENT, IT APPEARS THAT NO OTHER ACTIVITIES WERE PURSUED BY THE DEVELOPER TILL DATE SUCH AS OBTAINING THE PLAN SANCTION, DEVELOPMENT OF THE LAND ETC. . CONSIDERING THE ABOVE FACT AND CIRCUMSTANCES OF THE CASE IT IS EXTREMELY DOUBTFUL REGARDING THE LEGAL VALIDITY OF THE DEVELOPMENT AGREEMENT BETWEEN BOTH THE ASSESSEES AND THE DEVELOPE R. IN THIS SITUATION, WE ARE OF THE CONSIDERED VIEW THAT THE DECISION OF THE LD. CIT (A) IN THE CASE OF BOTH THE ASSESSEES ARE APPROPRIATE. HENCE, WE DO NOT FIND IT NECESSARY TO INTERFERE WITH THE DECISION OF THE LD. CIT (A) IN THE CASE OF BOTH THE ASSESSE ES. THEREFORE, THE APPEALS OF THE REVENUE ARE DEVOID OF MERITS. 7. NEEDLESS TO MENTION THAT IN THE CASE OF JOINT DEVELOPMENT AGREEMENT IT SHOULD BE CONSTRUED THAT THE LAND OWNER HAD ENTERED INTO BUSINESS VENTURE BY INTRODUCING HIS LANDED PROPERTY INTO THE BUSINESS , 8 ACCORDINGLY THE PROVISIONS OF SECTION 45(2) WILL COME INTO OPERATION AND THE LTCG SHALL BE CHARGEABLE TO INCOME TAX AS HIS INCOME OF THE PREVIOUS YEAR IN WHICH THE LAND IS TRANSFERRED, AND FOR THE PURPOSE OF SECTION 48 OF THE ACT, THE FAIR MARKET VALUE OF THE LAND ON THE DATED OF INTRODUCING THE LAND IN THE JOINT VENTURE SHALL BE DEEMED TO BE THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUED AS A RESULT OF THE TRANSFER OF THE LAND. 8. BEFORE PARTING, IT IS WORTHWHI LE TO MENTION THAT THIS ORDER IS PRONOUNCED AFTER 90 DAYS OF HEARING THE APPEAL, WHICH IS THOUGH AGAINST THE USUAL NORMS, WE FIND IT APPROPRIATE, TAKING INTO CONSIDERATION OF THE EXTRA - ORDINARY SITUATION IN THE LIGHT OF THE LOCK - DOWN DUE TO COVID - 19 PANDEM IC. WHILE DOING SO, WE HAVE RELIED IN THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. JSW LTD. IN ITA NO.6264/M/2018 AND 6103/M/2018 FOR AY 2013 - 14 ORDER DATED 14TH MAY 2020. 9. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMIS SED. PRONOUNCED IN THE OPEN COURT ON 08 TH J ULY , 2020. SD/ - SD / - (P. MADHAVI DEVI) ( A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED: 08 TH J ULY , 2020. OKK 9 COPY TO: - 1) (I) PAGIDI JANARDHAN REDDY, 7 - 1 - 19/3/A, OPPOSITE COUNTRY CLUB, BEGUMPET, HYDERABAD. (II) PAGIDI RAMACHANDRA REDDY, 6 - 3 - 775/4, PANJAGUTTA COLONY, HYDERABAD. 2) DCIT, CENTRAL CIRCLE - 2(4), 6 TH FLOOR, AAYAKAR BHAVAN, BASHEERBHAG, HYDERABAD - 004. 3) THE CIT(A) - 12, HYDERABAD. 4) THE PRINCIPAL CIT (CENTRAL), HYDERABAD. 5) THE DR, ITAT, HYDERABAD 6) GUARD FILE 0