Suresh Kumar D. Shah, Hyd, Hyderabad V. DCIT, Central Circle-2, Hyderabad, Hyderabad

ITA 81/HYD/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6335 (ITAT-HYDERABAD)
• Duration Of Justice: 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 01-08-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 21-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B V GOPINATH
• Assessee Lawyers: K A SAI PRASAD
• Keywords: Capital asset; Search and seizure
• Section: 153A; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA.NO.81/HYD/2016 ASSESSMENT YEAR 2007-2008 MR. SURESH KUMAR D. SHAH, HYDERABAD 500 020 PAN CDPPS4830N VS. THE DCIT, CENTRAL CIRCLE-2, HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. K.A. SAIPRASAD FOR REVENUE : MR. B.V. GOPINATH DATE OF HEARING : 01.08.2016 DATE OF PRONOUNCEMENT : 10.08.2016 ORDER PER D. MANMOHAN, V.P. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A)-IV, HYDERABAD AND IT PERTA INS TO THE A.Y. 2007-2008. THOUGH THE ASSESSEE HAS RAISED AS M ANY AS EIGHT GROUNDS OF APPEAL, THE LIMITED ISSUE THAT ARISE FO R CONSIDERATION IS WHETHER THERE IS TRANSFER OF LAND UNDE R SECTION 2(47) OF THE ACT IN THE FACTS AND CIRCUMSTANCES OF THE CA SE ? 2. FACTS NECESSARY FOR DISPOSAL OF THE APPEAL ARE STA TED IN BRIEF. FOR THE YEAR UNDER CONSIDERATION, THE ASSESS EE DECLARED TOTAL INCOME OF RS.1,51,250 APART FROM AGRICULTURAL IN COME OF RS.3500. CONSEQUENT TO THE SEARCH AND SEIZURE OPERATION S UNDER SECTION 132 OF THE ACT IN THE CASE OF SHRI SURESH KUMAR SHAH (HUF), A NOTICE UNDER SECTION 153A WAS ISSUED IN THE CASE OF THE ASSESSEE (INDIVIDUAL) FOR THE A.YS. 2002-2003 TO 2007 -2008. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NO TICED THAT THE ASSESSEE ALONG WITH HIS FAMILY MEMBERS SOLD ONE A CRE OF LAND 2 ITA.NO.81/HYD/2016 MR. SURESH KUMAR D. SHAH, HYDERABAD. FOR A CONSIDERATION OF RS.1,21,00,000 ON 12.04.2006 WHICH FALLS WITHIN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. ASSESSEE CLAIMED EXEMPTION ON THE TRANS ACTION ON THE GROUND THAT IT WAS AGRICULTURAL LAND. THE ASSESSIN G OFFICER NOTICED THAT THE ENTIRE LAND WAS BARREN LAND SURROUNDED BY ROCKY MOUNTAINS AND IT IS NOT AMENABLE FOR ANY AGRICULTURAL OPERATIONS. THEREFORE, THE CLAIM OF THE ASSESSEE THAT IT WAS AGRICUL TURAL LAND WAS NOT ACCEPTED AND CAPITAL GAINS ON THE SALE OF THE S AID LAND WAS BROUGHT TO TAX. 2.1. APART FROM SALE OF LANDED PROPERTIES, THE ASSESS EE, HIS WIFE AND SON JOINTLY HANDEDOVER AC.14.00 OF LAND FO R DEVELOPMENT INTO COLONY/HUGE SETTLEMENT AND ENTERED INTO AN IRREVOC ABLE POWER OF ATTORNEY WITH THE DEVELOPER. ACCORDING TO THE A.O. THE OWNERS HAVE HANDEDOVER THE ENTIRE POSSESSION OF THE SA ID PROPERTY IN PART PERFORMANCE OF THE DEVELOPMENT AGREEM ENT CUM- GPA. THE A.O. WAS OF THE VIEW THAT THIS AMOUNTS TO TRANSFER OF PROPERTY AND ATTRACTS CAPITAL GAINS TAX. ACCORDINGLY, AN AMOUNT OF RS.16,93,17,260 WAS COMPUTED AS LONG TERM CA PITAL GAINS ARISING OUT OF THE ALLEGED TRANSFER OF LAND TO THE DEVELOPER. 3. THE CASE HAS A CHEQUERED HISTORY OF BEING DECID ED BY THE APPELLATE FORUMS (CIT(A) AND APPELLATE TRIBUNAL) IN TWO ROUNDS OF LITIGATIONS; IN THE SECOND ROUND, THE LEAR NED CIT(A) OBSERVED THAT THE APPELLATE TRIBUNAL SET ASIDE THE ISSUE, RELATING TO THE TRANSFER OF PROPERTY UNDER SECTION 2(47)(V) OF T HE ACT, TO DECIDE THE SAME AFRESH WHILE COMMENTING THAT CERTAIN RIG HTS WERE ASSIGNED TO THE DEVELOPER WHO, INTURN, MADE SUBSTANTIAL PAYMENT IN WHICH EVENT IT HAS TO BE CONSIDERED AS TRANSFER. T HE TRIBUNAL ALSO OBSERVED THAT THE POSSESSION AND CONTROL OF THE PR OPERTY IS 3 ITA.NO.81/HYD/2016 MR. SURESH KUMAR D. SHAH, HYDERABAD. ALREADY VESTED WITH THE TRANSFEREE AND THE IMPUGNED DE VELOPMENT AGREEMENT HAS NOT BEEN CANCELLED AND IT IS STILL IN OPE RATION. 4. HAVING REGARD TO THE SPECIFIC OBSERVATION OF THE TRIBUNAL, THE LEARNED CIT(A) CONCLUDED THAT THE CASE WA S SET ASIDE FOR THE LIMITED PURPOSE AND EVEN IF THE DEVELOP ER WAS UNABLE TO PERFORM HIS CONTRACT IT CANNOT BE SAID THAT THE PROVISIONS OF SECTION 2(47) ARE NOT ATTRACTED. AS PER THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CHATURBHUJ DWARKADAS KAPADIA THE ISSUE TO BE DECIDED IS WHETHER THE LIABILIT Y OF THE ASSESSEE FOR CAPITAL GAINS ACCRUED TO AN ASSESSEE DU RING THE ASSESSMENT YEAR WHEN IT WAS LIABLE TO PAY CAPITAL GAINS TAX AND THE TRANSFER CAN BE SAID TO HAVE TAKEN PLACE WHEN THE AS SESSEE EXECUTED AN IRREVOCABLE LICENSE. IN THE PRESENT CASE ALSO, DEVELOPMENT AGREEMENT WAS ENTERED BY THE ASSESSEE WITH M/S. DAKSHIN SHELTERS P. LTD., ON 12.04.2006. THE A.O. CH ARGED THE CAPITAL GAINS BASED ON THE YEAR OF AGREEMENT ONLY AND HENCE, CANCELLATION OF SUCH AGREEMENT IN A LATER YEAR DO NOT ALTER THE SITUATION. THE LEARNED CIT(A) THUS, UPHELD THE ACTION O F THE A.O. REJECTING THE CLAIM OF THE ASSESSEE THAT THE DEVELOPMENT AGREEMENT WAS CANCELLED ON 21.02.2014. 5. AGGRIEVED BY THE ORDER OF THE LEARNED CIT(A), A SSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. LEARNED COUNSEL FO R THE ASSESSEE, PLACED BEFORE US A COPY OF THE ORDER OF THE ARBITRAL TRIBUNAL, HYDERABAD WHEREBY THE DEVELOPMENT AGREEMENT CUM- GPA DATED 12.04.2006 WAS CANCELLED BY MUTUAL AGREEMEN T WHEREIN THE PARTIES TO THE AGREEMENT ADMITTED THAT PHYSICA L POSSESSION OF THE SCHEDULE PROPERTY WAS NOT PARTED/DEL IVERED BY THE CLAIMANTS IN FAVOUR OF THE RESPONDENTS, AS MENTIONE D IN PARA- 10 OR ELSEWHERE OF THE DEVELOPMENT AGREEMENT, AND FUR THER 4 ITA.NO.81/HYD/2016 MR. SURESH KUMAR D. SHAH, HYDERABAD. ADMITTED THAT THE CLAIMANTS HAVE BEEN IN ACTUAL PHYSICAL, CONTINUOUS AND UNINTERRUPTED POSSESSION AND ENJOYMENT O VER THE ENTIRE SCHEDULE PROPERTY SINCE BEGINNING TO TILL D ATE AND THUS, HAVE EVERY RIGHT TO CONTINUE THEIR PHYSICAL POSSESSIO N AND ENJOYMENT OVER THE SCHEDULE PROPERTY. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT BY VIRTUE OF THIS ARBITRAL TRIBUNA LS ORDER THE FACTUAL MATRIX OF THE CASE HAS BEEN MADE CLEAR THAT TH E RESPONDENT HAVE NEVER ENJOYED ANY PHYSICAL POSSESSIO N OF THE PROPERTY RIGHT FROM THE BEGINNING OF THE DEVELOPMENT AG REEMENT AND BY VIRTUE OF CANCELLATION/ANNULMENT OF THE DEVELOP MENT AGREEMENT THERE CANNOT BE SAID TO BE ANY TRANSFER OF THE LAND WITHIN THE MEANING OF SECTION 2(47) OF THE I.T. ACT. IT WAS FURTHER SUBMITTED THAT THE ARBITRAL TRIBUNAL HAS PASSED ITS CONSE NT AWARD ON 12.03.2014 WHICH WAS NOT AVAILABLE BEFORE TH E TRIBUNAL IN THE FIRST ROUND OF LITIGATION AND THOUGH THE SAME WA S PRODUCED BEFORE THE LD. CIT(A) IN THE SET ASIDE PROCEEDINGS, H E HAS ERRED IN INTERPRETING THAT THE CONSENT AWARD CANNOT ALTER THE FACTUAL MATRIX OF THE CASE. IT DESERVES TO BE NOTICED THAT THE ITA T, IN ITS ORDER DATED 16.12.2011, OBSERVED THAT THERE IS TRANSFER OF LAND UNDER THE DEVELOPMENT AGREEMENT SINCE IT WAS NOT CANCEL LED LATER ON AND STILL IN OPERATION. UPON CANCELLATION OF THE AG REEMENT THE CONDITIONAL FINDING OF THE ITAT NEEDS TO BE RECONSID ERED ACCORDINGLY. HE ALSO RELIED UPON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. LOK HOUSING & CONSTRUCTIONS LTD., (2015) 58 TAXMANN.COM 179 (BOM.) WH EREIN, BASED ON THE CANCELLATION OF THE RELEVANT AGREEMENTS, THE COURT OBSERVED THAT INCOME CANNOT BE SAID TO BE ACCRUED TO THE ASSESSEE IN THE REAL SENSE IN WHICH EVENT NO HYPOTHETI CAL INCOME COULD HAVE BEEN BROUGHT TO TAX. 5 ITA.NO.81/HYD/2016 MR. SURESH KUMAR D. SHAH, HYDERABAD. 6. LEARNED D.R. ADMITTED THAT THE ARBITRAL TRIBUNAL HAD PASSED A CONSENT DECREE WHEREIN IT WAS ADMITTED THAT THE PHYSICAL POSSESSION OF THE SCHEDULE PROPERTY WAS NOT PARTED/ DELIVERED BY THE PARTY OF THE FIRST PART IN FAVOUR OF THE PARTY OF SECOND PART AND IN FACT, THE RESPONDENT THEREIN ADMITTED THAT THE ASSESSEE WAS IN ACTUAL, PHYSICAL, CONTINUOUS AND UNIN TERRUPTED POSSESSION AND ENJOYMENT OVER THE ENTIRE SCHEDULE PROP ERTY SINCE THE BEGINNING TO TILL DATE; LD. D.R. ALSO ADMITTED THAT THI S MATERIAL WAS AVAILABLE FOR THE FIRST TIME BEFORE THE CI T(A). LEARNED D.R. HOWEVER SUBMITTED THAT BASED ON THE TERMS OF THE DEVELOPMENT AGREEMENT THERE IS DEEMED TO BE A TRANSFER O N THE DATE OF AGREEMENT IN WHICH EVENT THE PROVISIONS OF SECTI ON 2(47) COMES INTO PLAY. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE RECORD. AS COULD BE NOTICED FROM THE C ONSENT DECREE OF THE ARBITRAL TRIBUNAL, BOTH THE PARTIES ADMITT ED THAT THE PROPERTY WAS NEVER IN THE PHYSICAL POSSESSION OF TH E DAKSHIN SHELTERS P. LTD., AND DEVELOPMENT AGREEMENT WAS CANCEL LED WHEREIN IT WAS ADMITTED THAT THE PARTY OF THE FIRST PART WAS ALWAYS IN ACTUAL PHYSICAL POSSESSION AND ENJOYMENT O F THE ENTIRE SCHEDULED PROPERTY. SINCE THE PARTIES TO THE AGREEMENT H AVING APPROACHED THE ARBITRAL TRIBUNAL, WHICH HAS PASSED A CONSENT DECREE IN FAVOUR OF THE ASSESSEE, THE FINDINGS THEREIN HAVE TO BE TAKEN INTO CONSIDERATION. NO DOUBT, THE APPELLATE AUTHORI TIES IN THE EARLIER ROUNDS OF LITIGATION HAVE INTERPRETED THE TERMS OF THE DEVELOPMENT AGREEMENT BUT THE FACT REMAINS THAT THE DEVELOPMENT AGREEMENT HAS NOT BEEN ACTED UPON, AS ADMITTE D BEFORE THE ARBITRAL TRIBUNAL, AND THE PHYSICAL POSSES SION WAS NEVER HANDEDOVER TO THE DEVELOPER IN WHICH EVENT IT CAN NOT BE SAID THAT THERE IS A TRANSFER OF PROPERTY WITHIN THE MEAN ING OF 6 ITA.NO.81/HYD/2016 MR. SURESH KUMAR D. SHAH, HYDERABAD. SECTION 2(47) OF THE I.T. ACT. ITAT, IN THE FIRST ROUND OF LITIGATION, RECORDED A FINDING BASED ON THE TERMS OF DEVELOPMENT AGREEMENT BUT PROCEEDED, ON A CAUTIOUS ASSUMPTION, THAT THE FINDIN G IS ON ACCOUNT OF THE FACT THAT THE SAID DEVELOPMENT AGREEMENT WA S NOT CANCELLED. THE BASIS FOR ASSUMPTION IS DISTURBED BY VIRTUE OF A DECREE OF ARBITRAL TRIBUNAL WHEREBY THE DEVELOPMENT AG REEMENT WAS CANCELLED. EVEN GOING BY THE ORDER OF THE ITAT DA TED 16.12.2011 HAD THE DEVELOPMENT AGREEMENT BEEN CANCELLE D AT A LATER DATE THE TRIBUNAL WAS WILLING TO ACCEPT THE PROPO SITION THAT THERE IS NO TRANSFER. CONSENT DECREE PASSED IN 2014 THUS SUPPORTS THE ULTIMATE REASONING OF THE ITAT WHILE SETTIN G THE MATTER FOR CONSIDERATION AFRESH. 8. UNDER THE INCOME TAX ACT WHAT IS TAXABLE IS THE RE AL INCOME AND MERE HYPOTHETICAL INCOME SHOULD NOT BE TAXED . IN THE WAKE OF THE FINDINGS AND CONCLUSIONS OF THE ARBITRAL T RIBUNAL, WE ARE OF THE FIRM VIEW THAT NO TRANSFER TOOK PLACE WITH REG ARD TO THE LAND WHICH WAS HITHERTO GIVEN FOR DEVELOPMENT SINCE PH YSICAL POSSESSION WAS CONTINUOUSLY ENJOYED BY THE ASSESSEE AND HIS FAMILY MEMBERS AND THUS EVEN UNDER THE INCOME TAX ACT THE TRANSFER CANNOT BE SAID TO HAVE TAKEN PLACE IN THE YEAR UNDER CONSIDERATION. WE HOLD ACCORDINGLY. 9. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10.0 8.2016. SD/- SD/- (B. RAMAKOTAIAH) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT HYDERABAD DATED 10 TH AUGUST, 2016 VBP/- 7 ITA.NO.81/HYD/2016 MR. SURESH KUMAR D. SHAH, HYDERABAD. COPY TO 1. SRI SURESH KUMAR D.SHAH, HYDERABAD. C/O. CH. PARTHASARATHY & CO., 1-1-298/2/B/3, 1 ST FLOOR, SOWBHAGYA AVENUE, STREET NO.1, ASHOKNAGAR, HYDERABAD 500 020. 2. THE INCOME TAX OFFICER, WARD-5(3), ROOM NO.348, D BLOCK, 3 RD FLOOR, I.T. TOWERS, A.C. GUARDS, HYDERABAD. 3. CIT(A)-IV, 2 ND FLOOR ANNEXE, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD 500 004. 4. PR. CIT-4, HYDERABAD. 5. D.R. ITAT B BENCH, HYDERABAD. 6. GUARD FILE