ITO (INTERNATIONAL TAXATION)-1, HYDERABAD V. .MIKKILINENI NARENDRA KUMAR, SERILINGAMPALLY

ITA 882/HYD/2024

AI Insights

The case involves the Income Tax Officer, International Taxation \\u2013 1 Hyderabad as the appellant and Mikkilineni Narendra Kumar as the respondent. The dispute centered on whether the development agreement dated 10.02.2016 resulted in a 'transfer' of land as defined under Section 2(47)(v) of the Income Tax Act, which would trigger capital gains tax for the assessment year 2016-17. The Assessing Officer had initially taxed the assessee based on the capital gains from the development agreement, but the CIT(A) reversed this decision, leading to the Revenue's appeal to the Tribunal. The Tribunal's decision relied heavily on the findings from a similar case, Sruthi Riedl, where it was established that no transfer occurred in the relevant assessment year.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 29144 (ITAT-HYDERABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2024
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB-B
• Assessment Year: 2016-2017
• Other Referred Cases: Sruthi Reddy (ITA No. 126/Hyd/2023, dated 08.11.2023)
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M. NARMADA
• Assessee Lawyers: H. SRINIVASULU
• Keywords: Capital asset; Transfer pricing; Reassessment proceedings; Capital Gains; Competent authority
• Section: 147; 144; 20

Judgement Text

" आयकर अपीलीय अधिकरण, हैदराबाद पीठ में IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “B”, HYDERABAD BEFORE SHRI LALIET KUMAR, JUDICIAL MEMBER AND SHRI MADHUSUDAN SAWDIA, ACCOUNTANT MEMBER ITA No.882/Hyd/2024 Assessment Year: 2016-17 The Income Tax Officer, International Taxation – 1 Hyderabad. Vs. Mikkilineni Narendra Kumar, Serilingampally, Hyderabad. PAN : NENPK4757J. (Appellant) (Respondent) Assessee by: Shri H. Srinivasulu, Advocate Revenue by: Ms. M. Narmada, CIT-DR Date of hearing: 12.12.2024 Date of pronouncement: 19.12.2024 O R D E R PER LALIET KUMAR, J.M: This appeal is filed by the Revenue feeling aggrieved by the order passed by the Commissioner of Income Tax (Appeals) 10, Hyderabad dated 18.06.2024 for the AY 2016-17. 2 ITA 882/Hyd/2024 2. The grounds raised by the Revenue read as under : “1. The Ld. CIT(Appeals) erred both in law and on facts of the case in granting relief to the assessee. 2. On the facts and in the circumstances of the case, and in law, whether the LD.CIT(A) is justified in holding that the development agreement dt. 10.02.2016 did not result in \"transfer\" of land on 10-02-2016, as defined in Section 2(47)(v) of the I.T. Act? 3. On the facts and in the circumstances of the case, and in law, whether the Td. CITAppeals) is justified in holding that the assessee was not liable to be taxed on the capital gains arising from the development agreement dated 10.02.2016? 4. On the facts and in the circumstances of the case and in law, the Id. CIT(A) failed to appreciate that there was a breach and break down of the earlier development agreement dt.04-04-2007 due to the failure of the transferee/ developer thereof, in obtaining the sanction of the building plan from the competent authority and also failing to perform its part of contract, thereby rendering the agreement as null and void in the eyes of law. 5 On the facts and in the circumstances of the case and in law, the Ld.CIT(Appeals) erred in holding that there was no transfer of land / capital asset during the year under consideration i.e A.Y.2016-17 without appreciating the fact that the original developer M/s.Trendset Bharat Project Developers Pvt Ltd., has not even prepared any plan for construction of multi-storied residential apartment complex, which shows the original developer has not carried out any activity in part performance of the contract / original development agreement dated 04.04.2007 and thus no transfer' took place in F.Y.2007-08. 6. On the facts and in the circumstances of the case and in law, the Ld.CIT(Appeals) erred in holding that there was no transfer of land / capital asset during the year under consideration i.e A.Y. 20 16-17 without appreciating the fact that the transfer of possession has been effected by the outgoing developer to the new developer on behalf, and with the consent, of the land owners on 10.02.2016 and thus the relevant milestone for the purposes of Sec.53A of the Transfer of Property Act and Sec.2(47) of the Income Tax Act would only be 10.02.2016. 7. On the facts and in the circumstances of the case, and in law, the Id. CIT(A) failed to appreciate that as per clause 20 of the second development agreement dt. 10-02-2016, the parties agreed and confirmed that the said agreement was made and executed in supersession of the first development agreement dt.04.04.2007 implying thereby that there was a transfer of land Act. by the assessee on 10-02- 2016 under the provisions of Section 2(47)(v) of the Act. 3 ITA 882/Hyd/2024 8. On the facts and in the circumstances of the case, and in law, the Id. CITA) failed to appreciate that the development agreement dated 10.02.2016 cannot be considered as the one entered into, in continuation of the earlier agreement dated 04.04.2007 when the sharing ratio of the constructed/ developed area between the land owners and the developer in the latest agreement is different from that of the earlier agreement and also changes in the terms and conditions as well. 9. On the facts and in the circumstances of the case, and in law, the Id. CIT(A) erred in holding that the second development agreement dt.10-02 2016 is a case of assignment of rights in favor of another developer by the transferee/developer of the development agreement dt.04-04-2007 and that there was no transfer of land as defined in Section 2(47)(v) of the Act. 10) On the facts and in the circumstances of the case and in law, the Ld.CIT(Appeals) erred in holding that there was no transfer of land / capital asset during the year under consideration i.e A.Y.2016-17 without appreciating the fact that the new developer M/s.Trendset Jayabheri Projects LLP., has got plans prepared and submitted after entering with the development agreement dated 10.02.20 16 which also shows that the new developer had done acts in furtherance of the agreement dated 10.02.2016 and thus transfer took place in A.Y.2016- 17 only u/s.2(47)(v) of the Act. 11) On the facts and in the circumstances of the case and in law, the Ld.CIT(Appeals) erred in holding that there was no transfer of land / capital asset during the year under consideration i.e A.Y.20 16-17 without appreciating the fact that it is only the agreement dated 10.02.2016 which remains in operation and any rights to the developer would only accrue there under and thus the transfer as contemplated u/s.2(47) of the Act would arise out of the agreement dated 10.02.2016.” 3. The brief facts of the case are that the assessee is a Non- resident individual and had not filed the return of income for the A.Y. 2016-17. Since, the Assessing Officer was in possession of information that the assessee along with 46 other persons had entered into Joint Development Agreement cum General Power of Attorney with M/s Trendset Jayabheri Projects LLP, Hyd for construction of residential and commercial project vide deed 4 ITA 882/Hyd/2024 bearing no. 2357/2016 on 10.02.2016 having a total value of Rs. 1,77,50,70,000/- for an area of Ac. 12.09 Gts, wherein the assessee transferred his land admeasuring 14.50 Gts valued at Rs. 5,26,35,000/-for the said development. However, assessee has not offered any capital gains on the above transactions, therefore, reassessment proceedings u/s 147 were initiated for the A.Y. 2016-17 and a notice was issued on 30.03.2021. In response to this notice, assessee has not filed any return but submitted the information stating that he has not entered/executed any sale deed during the relevant A.Y. 2016-17 has only entered into a modified development Agreement cum general power of Attorney dated 10.02.2016 vide document no.2357/2016, which is continuation of Original Development of Agreement cum GPA executed on 04.04.2007. However, the contention of the assessee was not accepted by the Assessing Officer and accordingly, Assessing Officer calculated the capital gains in the hands of the assessee on account of JDA is at Rs. 3,00, 01,950/-in lieu of his share in the land transferred, thereby raised a demand of Rs. 2,14,83,076/-. Accordingly, Assessing Officer completed the assessment u/s 147 r.w.s 144 of the Act and passed assessment order on 26.05.2023. 4. Aggrieved with such assessment order, assessee filed an appeal before the LD.CIT(A), who granted relief to the assessee. 5 ITA 882/Hyd/2024 5. Aggrieved with the order of LD.CIT(A), the Revenue is now in appeal before us. 6. Before us, the Ld.DR submitted that the Tribunal's order in the case of Sruthi Reddy (ITA No. 126/Hyd/2023, dated 08.11.2023), relied upon by the learned CIT(A) to grant relief to the assessee, has been challenged by the Revenue before the Hon'ble High Court. It was contended that, given the pending appeal, the decision of the LD.CIT(A) in the present case warrants reconsideration. 7. On the other hand, ld.AR submitted that the facts of the present case are identical to those in the case of Sruthi Riedl (ITA No.126/Hyd/2023 dt.08.11.2023) where the Tribunal had already adjudicated the issue in favor of the assessee. The ld.AR also pointed out that the LD.CIT(A)appropriately followed the Tribunal's decision in the case of Sruthi Riedl (supra) and granted relief to the assessee in accordance with the law by observing as under : “6-3.2 I would also like to mention the decision of Hon'ble ITAT, Hyderabad in the case of Smt. Sruthi Reidl, who is also among the co- owners. In this case, she has filed any appeal before the Hon'ble ITAT, Hyderabad against the order by t}le DRP and the Hon'ble’ ITAT vide its order 126 /Hyd/2O23 dated 08.11.2023 overruling the decision of relevant part of the decision is as under for reference. “23. From the reading of the above, it is abundantly clear that the SMC Bench had merely followed the decision of Potla Nageswara Rao wherein the jurisdictional High Court has held that the year of entering into JDA would be the year of taxability. Since in the case in hand, the JDA was entered into on 6 ITA 882/Hyd/2024 04.04.2007, therefore, the amount, if any, was required to be taxed in the assessment year 2008-09 only and not in the subsequent year. Further, the Tribunal after relying upon the newly inserted provision of section 45(5A) has held that the transaction which has happened prior to the insertion of new section would not be covered by Section 45(5A) of the Act and the capital gains would not be leviable on completion of development agreement. 24. Further, we noted that neither the consideration was received by the assessee pursuant to the Joint Development Agreement dt.10.02.2016 nor the possession was handed over to it by her, therefore, it cannot be said that any transfer took place within the meaning of Section 2(47) of the Income Tax Act, 1961. In the present case, neither the sale has taken place nor the exchange nor the relinquishment by any of them including the assessee in favour of TJP. As mentioned hereinabove, the possession of the property was handed over by TBPD to TJP pursuant to new Joint Development Agreement dt.10.02.2016 and the assessee has not received any consideration. Furthermore, once the Joint Development Agreement dt.04.04.2007 was existing and pursuant thereof, transfer has taken place in favour of TBPD, therefore, the assessee was left with no other right in the property except the rights provided under JDA dt.04.04.2007. Reliance upon the subsequent agreement dt.10.02.2016 by the Revenue to tax the income in the hands of the assessee based on new JDA is without any basis, as the assessee cannot transfer any land to TJP which it does not possess. The transfer, if any, had been done by TBPD to TJP. As per Section 45 of the Income Tax Act, the capital gain arising from transfer of a capital asset is chargeable to the head ‘Income from Capital Gains’ in the year in which the transfer took place. As we have held the transfer took place in the assessment year 2008-09, therefore, the capital gains on account of transfer of land is taxable in the assessment year 2008-09 only. 25. In our view, the second JDA had merely transferred the obligation of TBPD to TJP and corresponding entitlement of assessee in built-up area. There is another reason for requirement of allowing the appeal of the assessee as in the present case, the permission from the municipal authorities pursuant to the Joint Development Agreement dt.10.02.2016 was obtained by TJP on 17.10.2016 and the plans of the TJP was approved on 09.05.2017. Therefore, transfer of the capital asset as per newly inserted Section 45(5A), which was inserted on 01.04.2018, also happened in the subsequent assessment year i.e., A.Y. 2017-18 as the plans were approved on 09.05.2017 and certificate of completion would have been issued thereafter. 7 ITA 882/Hyd/2024 Further, in our opinion, section 45(5A) is not applicable to the assessment year under consideration as it was inserted w.e.f. 01.04.2018 and was prospective in nature. In our considered opinion, no addition can be made even in the year 2016-17 on the basis of Section 45(5A) of the Act. 26. The above view of ours is also supported by the view taken by the Assessing Officer of other similarly situated assessees / persons mentioned by the assessee / revenue in the written submissions mentioned hereinabove. For the above said purposes, it will be apt to refer the name of the assessees i.e., Apollo Corporate Services and Consultants Private Limited, A. Bhaskar Reddy, HUF, and Sri Harsha Ketineni, wherein the assessee have not been taxed in the year 2016-17 and the Assessing Officer concluded that the taxable event happened in the year 2007-08 and not in A.Y. 2016-17. The Revenue has not given any cogent reasons for taking the contrary view and applying different yardsticks in the case of the assessee. In the result, the grounds nos. 10 to 21 raised by the assessee on merit are required to be allowed.” 6.3.3 Considering that the facts in this case are identical to the above mentioned cases where. Hon'ble’ ITAT, Hyderabad and Ld. CIT(A)-2, Hyd, have decided in favor of the assessee, and hence is squarely applicable in the present appeal. It is, therefore, held that since there was no transfer of land / capital asset during the year, there is no case for taxing the same under long Term capital Gains. Therefore, the Ao is directed to delete the addition of Rs. 3,00,01,95O/- made on account of Long-Term Capital Gain on transfer of land. Accordingly, the appeal of the appellant raised in ground no. 9 to 11 is hereby allowed. 6.3.4 As the appellant have been granted the relief on merits, therefore, the legal grounds nos. 2 to 8 raised by the appellant have become academic and therefore, dismissed as infructuous. 9. We have heard the rival submissions and perused the material on record. On perusal of the record, it is evident that the issues involved in the present appeal are covered in favour of the assessee by the decision of co-ordinate Bench of the Tribunal in the case of 8 ITA 882/Hyd/2024 Sruthi Riedl (ITA No.126/Hyd/2023 dt.08.11.2023) wherein, the Tribunal under identical facts granted relief to the assessee. Before us, ld. AR also submitted that LD.CIT(A) has appropriately allowed the appeal in favour of the assessee by following the decision of the Tribunal in the case of Sruthi Riedl (supra) and also drawn our attention to the relevant paragraphs of the order of LD.CIT(A), reproduced hereinabove. In view of the above circumstances, we respectfully, following the decision of co- ordinate Bench of the Tribunal in the case of Sruthi Riedl (supra), dismiss the appeal of Revenue. 10. In the result, the appeal of the Revenue is dismissed. Order pronounced in the Open Court on 19th December, 2024. Sd/- Sd/- Sd S d/-Sd/- Sd/- Sd/- Sd/- (MADHUSUDAN SAWDIA) ACCOUNTANT MEMBER (LALIET KUMAR) JUDICIAL MEMBER Hyderabad, dated 19.12.2024. TYNM/sps 9 ITA 882/Hyd/2024 Copy to: S.No Addresses 1 Mikkilineni Narendra Kumar, Serilingampally, Villa No.78, Boulder Hills, Serilingampally, Gachibowli, S.O. Pin – 500032, Telangana. 2 The Income Tax Officer, (International Taxation) -1, Hyderabad. 3 Dispute Resolution Panel (DRP), Bangaluru 4 Director of Income Tax (IT & TP), Hyderabad. 5 The Addl.Commissioner of Income Tax (Transfer Pricing), Hyderabad. 6 DR, ITAT Hyderabad Benches 7 Guard File By Order "