Smt Sudha Giri, Hyderabad v. ITO., Ward-6(3), Hyderabad, Hyderabad

ITA 1578/HYD/2014 | 2005-2006
Pronouncement Date: 31-07-2015

Appeal Details

RSA Number 157822514 RSA 2014
Assessee PAN ACAPG3066E
Bench Hyderabad
Appeal Number ITA 1578/HYD/2014
Duration Of Justice 9 month(s) 15 day(s)
Appellant Smt Sudha Giri, Hyderabad
Respondent ITO., Ward-6(3), Hyderabad, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 31-07-2015
Appeal Filed By Assessee
Bench Allotted A
Tribunal Order Date 31-07-2015
Date Of Final Hearing 15-06-2015
Next Hearing Date 15-06-2015
Assessment Year 2005-2006
Appeal Filed On 15-10-2014
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A HYDERABAD BEFORE SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY JUDICIAL MEMBER I.T.A. NO. 1578/HYD/2014 ASSESSMENT YEAR: 2005-06 SMT. SUDHA GIRI HYDERABAD [PAN: ACAPG3066E] VS INCOME TAX OFFICER WARD-6(3) HYDERABAD (ASSESSEE) (RESPONDENT) FOR ASSESSEE : SHRI P. MURALI MOHAN RAO A R FOR REVENUE : S HRI M. RAVINDRA SAI DR DATE OF HEARING : 15 - 0 6 - 201 5 DATE OF PRONOUNCEMENT : 31 - 0 7 - 2015 O R D E R PER B. RAMAKOTAIAH A.M. : THIS IS AN ASSESSEE'S APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-IV HYDERABAD DATED 22-08-2 014. ASSESSEE HAS RAISED AS MANY AS 8 GROUNDS ON THE ISSUE OF REOPENI NG U/S. 148 OF THE INCOME TAX ACT [ACT] AND ALSO BRINGING TO TAX THE C APITAL GAINS ON THE REASON THAT TRANSFER HAS OCCURRED DURING THE YEAR. 2. BRIEFLY STATED ASSESSEE WAS OWNER OF 4 986 SQ. YDS. OF LAND AT ROAD NO. 14 BANJARA HILLS HYDERABAD. ASSESSEE EN TERED INTO A DEVELOPMENT AGREEMENT DT. 11-02-2004 WITH M/S. KAVU RI HILLS DEVELOPERS PVT. LTD FOR CONSTRUCTION OF A RESIDENTI AL COMPLEX ON THIS LAND UNDER WHICH ASSESSEE WAS ENTITLED TO 50% OF THE CON STRUCTED AREA. I.T.A. NO. 1578/HYD/2014 SMT. SUDHA GIRI :- 2 -: ASSESSEE FILED RETURN OF INCOME FOR THE IMPUGNED AS SESSMENT YEAR. ASSESSING OFFICER (AO) NOTICING THAT THE AGREEMENT WAS ENTERED INTO ON 11-02-2014 BUT PHYSICAL POSSESSION OF THE PROPERTY WAS HANDED OVER ON 07-12-2004 INVOKING THE PROVISIONS U/S. 147 ISSUE D A NOTICE U/S. 148. ASSESSEE CONTENDED THAT NO CAPITAL GAIN ACCRUED DUR ING THE YEAR AS ASSESSEE WAS NOT HAVING COMPLETE POSSESSION OF THE PROPERTY. IT WAS SUBMITTED THAT THE ASSESSEE WAS NOT LIABLE TO PAY C APITAL GAINS ON THE TRANSACTION ARISING OUT OF THE DEVELOPMENT AGREEMEN T SINCE THE TRANSACTION DID NOT FALL WITHIN THE SCOPE OF TRANSF ER U/S 2(47) THAT NO RIGHTS WERE GIVEN TO THE DEVELOPER' UNDER THE DEVEL OPMENT AGREEMENT DATED 11-02-2004 TILL THE MUNICIPAL PERMISSION WAS GRANTED THAT IN ANY EVENT THE DEVELOPER DID NOT ADHERE TO THE TERMS OF THE AGREEMENT THAT NEITHER THE DETAILS OF THE BUILT UP AREA FALLING TO THE SHARE OF THE ASSESSEE WAS IDENTIFIED AND DETERMINED UNDER THE DEVELOPMENT AGREEMENT DATED 11-02-2004 NOR WAS ANY CONSIDERATION RECEIVED BY TH E ASSESSEE THAT DELIVERY OF THE EXISTING STRUCTURES TO THE DEVELOPE R WAS TO BE MADE AFTER MUNICIPAL SANCTION WHICH WAS OBTAINED ON 30-06-2006 AND THAT THE DEVELOPER HAD NOT BEEN GIVEN ANY EXCLUSIVE RIGHTS O F EXECUTION OF AGREEMENTS OF SALE WHICH HAD BEEN RETAINED BY THE ASSESSEE. MUNICIPAL APPROVALS FOR THE BUILDING PLANS WERE GRANTED ON 03 -06-2006 AND A REGISTERED DEVELOPMENT AGREEMENT WAS ENTERED ON 03- 11-2007. IT WAS CONTENDED IF AT ALL CAPITAL GAIN ARISES THAT SHOUL D BE IN AY. 2008-09 NOT IN AY. 2005-06. IT WAS CONTENDED THAT ASSESSEE ADM ITTED CAPITAL GAINS IN AYS. 2010-11 TO 2012-13. THE ASSESSING OFFICER RELIED ON THE TERMS AND CONDITIONS OF THE DEVELOPMENT AGREEMENT DATED 0 3-11-2007 AND CONCLUDED THAT THE DEVELOPER HAD BEEN GIVEN EXCLUSI VE RIGHT TO DEVELOP THE PROPERTY THAT THE ASSESSEE HAD HANDED OVER POS SESSION OF THE PROPERTY TO COMMENCE CARRY ON AND COMPLETE DEVELOP MENT WORK THAT THE PROVISIONS OF SEC.2(47)(V) OF THE INCOME TAX AC T R.W.S. 53A OF THE TRANSFER OF PROPERTY ACT WERE APPLICABLE TO THE TRA NSACTION IN QUESTION I.T.A. NO. 1578/HYD/2014 SMT. SUDHA GIRI :- 3 -: AND THAT THE CAPITAL GAINS ARISING ON TRANSFER OF T HE ASSESSEE'S SHARE OF LAND TO THE DEVELOPER WAS LIABLE TO TAX IN THE AY 2 005-06. THE ASSESSING OFFICER HELD THAT THE ASSESSEE HAD VACATED AND DELI VERED THE PROPERTY TO THE DEVELOPER ON 07-12-2004 AS PER PARA 4 (PAGE 6) OF THE DEVELOPMENT AGREEMENT DATED 03-11-2007. THE ASSESSING OFFICER A LSO HELD THAT THE POWER OF ATTORNEY GRANTED TO THE DEVELOPER CONVEYED A BUNDLE OF POSSESSOR RIGHTS TO THE DEVELOPER SIMULTANEOUSLY AN D ON THE OTHER HAND THE DEVELOPER'S GESTURE OF DEVELOPMENT WORK WAS EVI DENCE OF ITS WILLINGNESS TO PERFORM HIS PART OF THE CONTRACT. TH E ASSESSING OFFICER CONCLUDED THAT TRANSFER IN TERMS OF SECTION 2(47)(V ) HAD TAKEN PLACE DURING THE AY 2005-06 AND BROUGHT THE CAPITAL GAINS TO TAX. AO THUS HOLDING THAT ASSESSEE HAS HANDED OVER POSSESSION OF THE PROPERTY ON 07- 12-2004 BROUGHT THE CAPITAL GAINS ON THE BASIS OF T HE DEEMED SALE CONSIDERATION CALCULATED ON CONSTRUCTION COST OF RS . 3 070/- ARRIVED AT THE SALE CONSIDERATION AT RS. 9 33 09 580/- DEDUCTI NG THE COST OF LAND FOREGONE AND THE OLD BUILDING. THE ACQUISITION COS T WAS ARRIVED AT RS. 7 79 160/- AND COST OF BUILDING AT ONE LAKH. THE N ET CAPITAL GAINS WERE DETERMINED AT RS. 9 25 30 420/-. 3. BEFORE THE LD.CIT(A) IT WAS CONTENDED THAT THERE WAS NO TRANSFER OF PROPERTY AS PER SECTION 2(47) UNDER CLAUSE-5 AND CL AUSE-3(B) OF THE DEVELOPMENT AGREEMENT DT. 11-02-2004. IT WAS FURTH ER SUBMITTED THAT THE PROPERTY WAS SUBJECT TO URBAN LAND CEILING AND THERE IS NO PROPER DEMARCATION / IDENTIFICATION OF ASSESSEE'S SHARE OF THE CONSTRUCTED AREA. IT WAS FURTHER SUBMITTED THAT THE MUNICIPAL APPROVA L WAS OBTAINED ON 30-06-2006. HENCE POSSESSION OF THE PROPERTY WOUL D BE DEEMED TO HAVE BEEN HANDED OVER TO THE DEVELOPER ONLY AFTER O BTAINING THE PERMISSION FROM GHMC I.E. AFTER 30-06-2006 (AY. 20 07-08). IT WAS ALSO SUBMITTED THAT THE DEVELOPER HAD NOT UNDERTAKEN ANY CONSTRUCTION ACTIVITY DURING THE AY. 2005-06 IN PART-PERFORMANCE OF THE DEVELOPMENT I.T.A. NO. 1578/HYD/2014 SMT. SUDHA GIRI :- 4 -: AGREEMENT NOR HAD ANY CONSIDERATION BEING PAID. IT WAS CONTENDED THAT ONLY ACTUAL PERFORMANCE OF THE TRANSFER IS OBLIGATI ON WHICH WOULD GIVE RISE TO A SITUATION ENVISAGED IN SECTION 53A OF THE TP ACT. ASSESSEE RELIED ON THE FOLLOWING DECISIONS: I. SRI K. GOPAL RAJ VS. DCIT (ITA NO. 140/HYD/2012); AND II. BINJUSARIA PROPERTIES P. LTD. VS. ACIT (ITA NO.157 /HYD/2011) IT WAS FURTHER SUBMITTED BEFORE THE CIT(A) THAT IN DEVELOPMENT AGREEMENT DT. 11-02-2004 (REFERRED AS FIRST AGREEME NT) THERE WAS NO HANDING OVER OF POSSESSION TO THE DEVELOPER BUT ONL Y PERMISSION TO DEMOLISH THE EXISTING BUILDING THEREON. REFERRING TO THE DEVELOPMENT AGREEMENT DT. 03-11-2007 (SECOND AGREEMENT) IT WAS SUBMITTED THAT POSSESSION IF ANY CAN ONLY BE CONSIDERED AFTER THE SECOND AGREEMENT BUT NOT BEFORE. IT WAS CONTENDED THAT AS PER CLAUSE-5 OF THE FIRST AGREEMENT ASSESSEE AGREED TO DELIVER THE PROPERTY TO THE DEVE LOPER AFTER THE MCH APPROVALS. 4. LD.CIT(A) HOWEVER DID NOT AGREE WITH ASSESSEE'S CONTENTIONS. EVEN THOUGH THE FIRST AGREEMENT REFERS TO DELIVERY AFTER MCH APPROVALS THE SECOND AGREEMENT PARTICULARLY CLAUSE-6 SPECIFIC ALLY STATES THAT THE PAYMENT OF TAX RELATED TO THE PROPERTY WITH HANDING OVER OF PROPERTY AND CLAUSE-5 RECORDS THAT ALL OUTSTANDING DUES UPTO 07- 12-2004 HAS BEEN PAID BY ASSESSEE AND POSSESSION WAS HANDED OVER ON 07-12-2004. THEREFORE IT WAS HELD THAT POSSESSION WAS HANDED O VER ON 07-12-2004 I.E. IN AY. 2005-06. WITH REFERENCE TO THE ARGUMEN T THAT NO CONSIDERATION HAS BEEN PAID LD.CIT(A) RELIED ON TH E JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF POTLA NAGESWARA RAO V S. DCIT IN ITTA NO. 245/14 DT. 09-04-2014 [365 ITR 249 (AP)]. WITH REFERENCE TO THE CONTENTION THAT DEVELOPER HAD NOT UNDERTAKEN ANY CO NSTRUCTION ACTIVITY I.T.A. NO. 1578/HYD/2014 SMT. SUDHA GIRI :- 5 -: IN PART PERFORMANCE OF THE AGREEMENT LD.CIT(A) REL IED ON THE DECISION OF THE ITAT IN THE CASE OF CHEEDI SRINIVAS IN ITA NO. 1651 & 1652/2012 DT. 31-07-2014 HELD THAT THOUGH THE MUNICIPAL APPROVAL HAD BEEN GRANTED IN THE SUBSEQUENT YEAR THE DEVELOPER HAD APPLIED F OR GHMC APPROVAL AND OTHER ANCILLARY ACTIVITIES IN THE ASSESSMENT YE AR. BECAUSE THERE IS NO CONSTRUCTION WORK DURING THE YEAR IT COULD NOT BE SAID THAT THERE WAS ABSENCE OF WILLINGNESS ON THE PART OF THE DEVELOPER IN COMMENCING DEVELOPMENT ACTIVITIES. RELYING ON PAGE 4 OF THE S ECOND AGREEMENT IT WAS CONSIDERED AS UNDER: '6.6 PAGE 4 OF THE SECOND AGREEMENT STATES AS FOLLOWS: 'WHEREAS BOTH THE PARTIES AFTER NEGOTIATIONS ARRIVE D AT CERTAIN TERMS AND CONDITIONS IN PURSUANCE OF WHICH THE DEVELOPER HAS EXTENDED FULL CO- OPERATION TO GET THE SURPLUS LAND OF 1041.63 SQ. ME TERS OUT OF THE LAND MENTIONED IN SCHEDULE-J EXEMPTED UNDER URBAN LAND C EILING ACT BY THE GOVERNMENT VIDE G.O.MS. NO. 103 DTD.17.01.2005 AND TO GET 'NOC' FROM THE GOVERNMENT VIDE PROC. NO. 11/1276/2004 DTD.14.07.2 005 THE COST & EXPENSES OF WHICH SHALL BE BORNE BY THE 'THE OWNER' IN PREPARATION OF BUILDING PLANS IN CONSULTATION WITH 'THE OWNER' FR OM REPUTED ARCHITECTS AND IN GETTING BUILDING PERMISSION FROM THE COMPETENT A UTHORITY ALL PART OF DEVELOPMENTAL COST OF THE PROJECT AND SHALL BE BORN E BY THE 'DEVELOPER'. ' 6.7 THE AVERMENT IN THE SECOND AGREEMENT SHOWS THAT CONTRARY TO THE ASSESSEE'S CLAIM THE DEVELOPER DID UNDERTAKE A CTIVITIES FOR THE DEVELOPMENT OF THE PROPERTY AND SPECIFICALLY FOR TH E EXCLUSION OF PART OF THE LAND FROM THE PURVIEW OF THE UCLA DURING THE FY 2004-05 WHICH CULMINATED IN THE ISSUE OF GO MS NO. 103 DATE D 17.1.2005. INDEED THE CLAUSE AS QUOTED ABOVE ACKNOWLEDGES TH E 'FULL COOPERATION' OF THE DEVELOPER CONTRARY TO THE CLAI M MADE DURING THE APPELLATE PROCEEDINGS OF THE UNWILLINGNESS OF THE DEVELOPER TO PERFORM HIS PART OF THE CONTRACT'. 5. ULTIMATELY LD.CIT(A) CONCLUDED AGAINST ASSESSE E BY HOLDING AS UNDER IN PARA 6.9 6.10 AND 6.11: '6.9 IT IS POSSIBLE THAT THERE WERE TIME-OVERRUNS DURING THE CONSTRUCTION OF THE PROJECT. THIS CAN HARDLY BE CON STRUED AS EVIDENCE OF THE UNWILLINGNESS OF THE DEVELOPER TO PERFORM AS PE R THE AGREEMENT. CLAUSE 8 OF THE FIRST AGREEMENT AND CLAUSE 7 OF THE SECOND AGREEMENT I.T.A. NO. 1578/HYD/2014 SMT. SUDHA GIRI :- 6 -: PROVIDE THAT IN CASE OF DELAY ON THE PART OF THE DE VELOPER TO COMPLETE THE PROJECT WITHIN THE SPECIFIED PERIOD THE ASSESS EE HAD THE RIGHT TO ENTRUST THE COMPLETION OF THE PROJECT TO ANY OTHER BUILDER. THUS THE AGREEMENTS THEMSELVES ENVISAGED TIME-DELAYS SINCE I T IS NOT AN UNUSUAL PROBLEM IN THIS LINE OF BUSINESS AND CANNOT BE INTERPRETED AS AN UNWILLINGNESS ON THE PART OF THE DEVELOPER TO PE RFORM AS PER THE CONTRACT. INDEED THE FACT THAT THE ASSESSEE CHOSE NOT TO EXERCISE HER RIGHT UNDER THE AGREEMENTS TO ENTRUST THE WORK TO A NOTHER BUILDER IS SIGNIFICANT AND INDICATIVE OF HER CONFIDENCE IN THE DEVELOPER TO COMPLETE THE PROJECT. 6.10 THE AR HAS ALSO SUBMITTED THAT THE ASSESSEE H AD OFFERED THE CAPITAL GAINS TO TAX IN THE AYS 2010-11 2011-12 AN D 2012-13. THESE ARE APPARENTLY THE YEARS WHEN THE ASSESSEE SOLD THE CONSTRUCTED AREA RECEIVED BY HER FROM THE DEVELOPER. IN CASE OF A DE VELOPMENT AGREEMENT AS UNDERTAKEN BY THE ASSESSEE THE CAPIT AL GAINS TYPICALLY ARISES FROM TWO TRANSACTIONS: FIRSTLY ON TRANSFER OF LAND TO THE DEVELOPER IN LIEU OF THE CONSTRUCTED AREA AND SECON DLY ON SALE OF THE CONSTRUCTED AREA (ALONG WITH UNDIVIDED SHARE IN THE LAND). THE CAPITAL GAINS DISCLOSED BY THE ASSESSEE IN THE AYS 2010-11 2011-12 AND 2012-13 PERTAIN TO THE SECOND TRANSACTION I.E SALE OF THE CONSTRUCTED AREA (ALONG WITH UNDIVIDED SHARE IN THE LAND). THE ASSESSEE HAS FAILED TO ADMIT THE CAPITAL GAINS FROM THE FIRST TR ANSACTION OF TRANSFER OF LAND TO THE DEVELOPER. THIS HAS RIGHTLY BEEN BROUGH T TO TAX BY THE ASSESSING OFFICER IN THE ORDER APPEALED AGAINST. 6.11 THE ASSESSMENT OF CAPITAL GAINS ON TRANSFER O F LAND TO THE DEVELOPER IN ACCORDANCE WITH SEC.2(47) IS THEREFOR E UPHELD'. 6. CONTESTING THE ABOVE ASSESSEE IS AGGRIEVED AND RAISED THE FOLLOWING GROUNDS: '1. THE ORDER OF THE LD. CIT(A)-IV HYDERABAD IS ER RONEOUS BOTH ON FACTS AND IN LAW IN DISMISSING THE APPEAL FILED BY THE ASSESSEE. 2. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THE FA CT THAT THE AO ERRED IN REOPENING THE ASSESSMENT BY ISSUE OF NOTI CE US 148 WITHOUT THERE BEING ANY NEW MATERIAL ON RECORD. 3. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THE FA CT THAT THE A.O ERRED IN NOT PASSING THE SPEAKING ORDER FOR THE AS SESSMENT YEAR 2005-06 U/S. 147 OF THE ACT. I.T.A. NO. 1578/HYD/2014 SMT. SUDHA GIRI :- 7 -: 4. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THE FA CT THAT THE AO ERRED IN REOPENING THE ASSESSMENT BEYOND 4 YEARS W HICH IS VOID AB INITIO. 5. THE LD. CIT(A) ERRED IN UPHOLDING THE VIEW OF T HE AO REGARDING THE YEAR OF TRANSFER OF PROPERTY. 6. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THE FA CT THAT THE CASE OF THE ASSESSEE DOES NOT FALL UNDER THE DEFINITION OF 'TRANSFER' AS DEFINED IN SECTION 2(47) OF THE ACT. 7. WITHOUT PREJUDICE TO THE ABOVE WE WOULD LIKE T O SUBMIT THAT THE AO ERRED IN TAKING THE VALUATION OF THE SUPER STRU CTURE AS GIVEN BY THE BUILDER WITHOUT CONSIDERING THE INFORMATION SU BMITTED BY THE ASSESSEE. 8. THE LD. CIT(A) OUGHT TO HAVE ALLOWED CLAIM OF A SSESSEE MADE U/S. 54 OF THE ACT. 9. THE ASSESSEE MAY ADD ALTER OR MODIFY OR SUBSTI TUTE ANY OTHER POINT TO THE GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL'. 7. BEFORE US LD. COUNSEL DID NOT PRESS THE GROUNDS FROM 2 TO 4 AS THE SAME DID NOT ARISE OUT OF THE ORDER OF THE CIT( A) IN FACT ASSESSEE DID NOT CHALLENGE THE REOPENING OF ASSESSMENT BEFORE TH E LD.CIT(A). NO ARGUMENTS WERE PLACED BEFORE US WITH REFERENCE TO A BOVE ADDITIONAL GROUNDS. THEREFORE WE DEEM THEM AS NOT PRESSED AN D ARE TREATED AS 'WITHDRAWN'. 8. GROUND NOS. 5 & 6 ARE WITH REFERENCE TO YEAR OF TAXABILITY OF CAPITAL GAINS BASED ON THE DEFINITION OF TRANSFER AS DEFINE D IN SECTION 2(47) AND GROUND NO. 7 IS WITHOUT PREJUDICE TO THE ABOVE GROU NDS IT WAS THE CONTENTION THAT AO ERRED IN TAKING THE VALUATION OF THE SUPER STRUCTURE AT MARKET VALUE AS AGAINST THE INFORMATION GIVEN B Y THE BUILDER. FURTHER GROUND NO.8 PERTAINS TO DEDUCTION U/S. 54 OF THE ACT IN CASE THE CAPITAL GAINS ARE LEVIABLE IN THE YEAR UNDER CO NSIDERATION. . I.T.A. NO. 1578/HYD/2014 SMT. SUDHA GIRI :- 8 -: 9. LD. COUNSEL REITERATED THE SAME SUBMISSIONS MADE BEFORE THE CIT(A) THAT CAPITAL GAINS CANNOT BE TAXED IN THE IM PUGNED YEAR. HE REFERRED TO THE FIRST AGREEMENT THE SECOND AGREEME NT AND THE SUBMISSIONS MADE BEFORE THE CIT(A) AND DREW OUR ATT ENTION TO SPECIFIC CLAUSES OF THE AGREEMENTS TO SUBMIT THAT THE POSSES SION WAS HANDED OVER TO THE DEVELOPER ONLY AFTER URBAN LAND CEILING CLEARANCE CERTIFICATE AND FURTHER SANCTION OF MUNICIPAL PERMISSIONS WHICH CAME IN LATER ASSESSMENT YEAR. HE ALSO POINTED OUT THAT AO RELIE D ON FIRST AGREEMENT WHICH DOES NOT PERTAIN TO THE IMPUGNED ASSESSMENT Y EAR BUT AY. 2004- 05. THEREFORE LOOKING AT EITHER WAY CAPITAL GAIN S CANNOT BE TAXED IN THE IMPUGNED ASSESSMENT YEAR. 10. LD. DR HOWEVER DEFENDED THE ACTION OF AO AND C IT(A) TO SUBMIT THAT ASSESSEE HAVING GIVEN POSSESSION IN THE YEAR U NDER CONSIDERATION CAPITAL GAINS IS CORRECTLY LEVIED IN THE IMPUGNED A SSESSMENT YEAR. 11. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PE RUSED THE PAPER BOOK PLACED ON RECORD AND THE ORDERS. THERE IS NO DISPUTE WITH REFERENCE TO THE FACT THAT THE FIRST AGREEMENT WAS DT. 11-02-2014 IN WHICH ASSESSEE WAS ENTITLED TO 50% OF THE CONSTRUCT ED AREA. IN CASE THE POSSESSION WAS GIVEN AS PER THE CONTENTION OF REVEN UE CONSEQUENT TO THIS AGREEMENT CERTAINLY THE CAPITAL GAINS WAS LEV IABLE IN AY. 2004-05 ITSELF AS THE AGREEMENT ENTERED HAS BEEN FULFILLED BY GIVING POSSESSION IF NOT IMMEDIATELY BUT AFTER SOME TIME. THEREFORE FO LLOWING THE PRINCIPLES OF JURISDICTIONAL HIGH COURT IN THE CASE OF POTLA N AGESWARA RAO VS. DCIT [365 ITR 249 (AP)] WHICH LD.CIT(A) RELIED UPON THE CAPITAL GAINS IS CERTAINLY ATTRACTED ON ENTERING INTO DEVELOPMENT AG REEMENT EVEN IF CONSIDERATION WAS NOT RECEIVED. IN THAT WAY ASSES SEE'S CONTENTION THAT CAPITAL GAINS CANNOT BE BROUGHT TO TAX IN THIS ASSE SSMENT YEAR( AY 2005- 06) IS VALID. I.T.A. NO. 1578/HYD/2014 SMT. SUDHA GIRI :- 9 -: 12. HOWEVER THE MATTER DOES NOT END THERE. THE ON LY REASON FOR THE REVENUE TO BRING THE CAPITAL GAINS TO TAX IN THE IM PUGNED YEAR IS ON THE DECISION/OBSERVATION THAT PHYSICAL POSSESSION OF PR OPERTY WAS HANDED OVER BY ASSESSEE TO THE DEVELOPER ON 07-12-2004 FO R WHICH THE DEVELOPMENT AGREEMENT DT. 03-11-07 WAS RELIED UPON BY THE AO AND CIT(A). AS EXTRACTED BY THE LD.CIT(A) IN PARA 6.1 THE CLAUSES OF THE DEVELOPMENT AGREEMENT ARE VERY CLEAR. WHAT THE ASS ESSEE HAS HANDED OVER IS NOT THE SCHEDULED PROPERTY AS THE PROPERTY IS SUBJECT TO URBAN LAND CEILING CLEARANCE WHICH ADMITTEDLY CAME IN A L ATER YEAR. ASSESSEE ALSO STATED IN CLAUSE 3B THAT AFTER THE MUNICIPAL C ORPORATION OF HYDERABAD SANCTIONS THE PLANS AND BEFORE THE DEVELO PER START CONSTRUCTION THE DETAILS OF THE BUILT UP AREA FALL ING TO THE SHARE OF THE OWNER AND THE DEVELOPER SHALL BE IDENTIFIED AND RED UCED INTO WRITING AND MARKED IN A WORKING PLAN DULY SINGED BY THEM WHICH SHALL BE DEEMED AS PART OF THIS INSTRUMENT. THUS TERMS ARE VERY C LEAR THAT ASSESSEE'S SHARE IS TO BE IDENTIFIED ONLY AFTER MUNICIPAL COR PORATION OF HYDERABAD SANCTIONS THE PLANS. NOT ONLY THAT CLAUSE-5 WHICH MAINLY WAS RELIED UPON BY THE REVENUE IS AS UNDER: '05. THE OWNER SHALL DELIVER THE EXISTING STRUCTURE S ON THE SCHEDULE-I PROPERTY TO THE DEVELOPER FOR DEMOLITIO N AFTER THE REMOVAL OF ALL IDENTIFIED RE-USABLE MATERIALS BY THE OWNER AT THE DEVELOPER'S COST AND AFTER THE SANCTION OF PLANS BY THE MUNICI PAL CORPORATION OF HYDERABAD'. 13. THIS ABOVE CLAUSE INDICATE THAT THE OWNER SHALL DELIVER THE EXISTING STRUCTURE ON THE SCHEDULE-I PROPERTY TO THE DEVELOP ER FOR DEMOLITION AFTER THE REMOVAL OF ALL IDENTIFIED REASONABLE MATE RIALS BY THE OWNER AND AFTER THE SANCTION OF PLANS BY THE MUNICIPAL CORPOR ATION OF HYDERABAD. THIS CLAUSE ALSO VERY CLEAR THAT TILL MUNICIPAL SAN CTIONS WERE RECEIVED DEVELOPER CANNOT DO ANYTHING EVEN THE DEMOLITION OF BUILDING I.E. EXISTING BUILDING ON THE DE-MARKED AREA CAN BE DONE ONLY AFTER THE PLANS I.T.A. NO. 1578/HYD/2014 SMT. SUDHA GIRI :- 10 -: WERE APPROVED BY THE MUNICIPAL CORPORATION HYDERAB AD. THUS THE OWNER PROTECTED ITS INTEREST AND DID NOT HANDOVER T HE PROPERTY TO THE DEVELOPER AS CONTENDED BY REVENUE. THE OWNER IS NOT HAVING COMPLETE OWNERSHIP ON THE ENTIRE LAND AS EXEMPTION FROM ULC IS YET TO BE RECEIVED AND HOW MUCH OF THE LAND WILL BE PARTED WI TH FOR ULC WAS NOT KNOWN. IN VIEW OF THIS THE CONTENTION OF THE REVE NUE THAT POSSESSION WAS HANDED OVER ON 07-12-2004 DOES NOT STAND THE TE ST OF ACTUAL POSSESSION REQUIRED UNDER THE PROVISIONS OF TRANSFE R OF PROPERTY ACT. THEREFORE ON THE BASIS OF THE FIRST AGREEMENT IT CANNOT BE DEDUCED THAT OWNER HAS HANDED OVER THE PROPERTY TO THE DEVELOPER . EVEN THOUGH THE OWNER ADMITTED TO GRANT SPECIFIC GPA TO THE DEVELOP ER TO ENABLE IT TO SECURE SANCTIONS FROM OTHER AUTHORITIES THEY ARE A LL PART OF THE DEVELOPMENT AGREEMENT BUT THERE IS NO SPECIFIC UND ERTAKING THAT THE PROPERTY WAS HANDED OVER TO THE DEVELOPER AS PART P ERFORMANCE UNDER THE TRANSFER OF PROPERTY ACT. THEREFORE RELIANCE ON THESE CLAUSES OF FIRST AGREEMENT BY THE REVENUE DOES NOT HELP ITS CASE. T HEREFORE THE REVENUE ALSO RELIED ON THE SECOND DEVELOPMENT AGREE MENT DT. 03-11- 2007 WHEREIN IT WAS NOTED IN CLAUSE-4 THAT AS OF 07-12-2004 THE OWNER VACATED AND DELIVERED THE EXISTING STRUCTURES ON TH E SCHEDULE-I PROPERTY TO THE DEVELOPER FOR DEMOLITION. THE DEVELOPER AFT ER WHICH APPLIED TO MUNICIPAL CORPORATION HYDERABAD FOR BUILDING PREMI SES AND IS IN RECEIPT OF CONDITIONAL SANCTION FROM MUNICIPAL CORP ORATION HYDERABAD DT. 30-06-2006. DEVELOPER HAS COMMENCED THE CONSTR UCTION WORK ON 02-10-2006 IN PURSUANCE OF THE MEETING OF THE CRITE RIA MENTIONED THEREIN FOR ISSUANCE OF FINAL SANCTION. THUS EVE N IF ONE WOULD TO TAKE THE SECOND AGREEMENT INTO CONSIDERATION THIS DOES NOT EMPOWER REVENUE TO BRING TO TAX THE CAPITAL GAINS BASED ON THE DATE I.E. 07-12- 2004. LOOKING AT EITHER WAY THE CAPITAL GAINS CAN NOT BE BROUGHT TO TAX IN THE IMPUGNED ASSESSMENT YEAR. IF ONE GOES BY TH E TERMS OF FIRST AGREEMENT THE CAPITAL GAINS SHOULD HAVE BEEN IN TH E AY. 2004-05 AS THE I.T.A. NO. 1578/HYD/2014 SMT. SUDHA GIRI :- 11 -: DEVELOPMENT AGREEMENT WAS ENTERED ON THAT DATE WHI CH WAS PARTLY COMPLIED WITH IMMEDIATELY (TO A LIMITED EXTENT OF H ANDING OVER THE EXISTING BUILDING BUT NOT THE LAND IN POSSESSION). IF ONE WERE TO GO BY THE SECOND AGREEMENT THE SECOND AGREEMENT COMES IN TO EFFECT IN AY. 2008-09 AND NOT IN AY. 2005-06. IN EITHER WAY JUS T BECAUSE SOME OF THE TERMS INDICATE THAT BUILDING FOR DEMOLITION WAS HANDED OVER ON 07- 12-2004 THE CAPITAL GAINS CANNOT BE BROUGHT INTO T AX IN THE YEAR UNDER CONSIDERATION. THEREFORE BOTH AO AND CIT(A) ARE N OT CORRECT IN CONTENDING THAT YEAR OF POSSESSION OR THE DEEMED PO SSESSION IS THE YEAR OF CAPITAL GAINS IGNORING THE YEAR OF AGREEMENTS E NTERED BY ASSESSEE AND THE TERMS OF AGREEMENT. IF THIS LOGIC OF REVENUE IS ACCEPTED THEN A SITUATION MAY ARISE THAT PARTIES TRY TO INCORPORATE A CLAUSE THAT POSSESSION WAS HANDED OVER MUCH EARLIER TO DEFEAT T HE LEVY OF CAPITAL GAINS. IT ALSO DOES NOT ANSWER SALE TO EXISTING TEN ANT WHO IS IN POSSESSION OF PROPERTY FROM A LONGER PERIOD. THEREF ORE TAKING POSSESSION ALONE IN TO CONSIDERATION FOR LEVY OF CAPITAL GAINS IGNORING THE DATE OF AGREEMENT AND TERMS OF AGREEMENT IS NOT ACCORDING T O LAW. 14. AS CAN BE SEEN FROM PARA 6.10 OF THE CIT(A)'S O RDER ASSESSEE SEEMS TO HAVE OFFERED CAPITAL GAINS IN AYS. 2010-11 TO 2012-13 WHEN THE CONSTRUCTED AREA WAS HANDED OVER TO HER. THESE REQ UIRE EXAMINATION BY THE AO IN THE RESPECTIVE YEARS AND COMPUTATION OF C APITAL GAINS IN THOSE YEARS BUT CAPITAL GAINS CANNOT BE BROUGHT INTO TAX IN THE IMPUGNED ASSESSMENT YEAR AS NEITHER AGREEMENT FALL IN THE Y EAR NOR THE TERMS OF FIRST AGREEMENT ENDORSES THAT ASSESSEE HAS HANDED O VER POSSESSION AS CONTENDED ON 07-12-2004. IN VIEW OF THIS WE HAVE NO HESITATION IN SETTING ASIDE THE ORDER OF THE AO AND CIT(A) IN ALL OWING ASSESSEE'S GROUNDS. I.T.A. NO. 1578/HYD/2014 SMT. SUDHA GIRI :- 12 -: 15. ASSESSEE RELIED ON THE CO-ORDINATE BENCH DECISI ON OF ITAT HYDERABAD 'B' BENCH IN THE CASE OF M/S. FIBARS INFR ATECH PVT. LTD. VS. ITO IN ITA NO. 477/HYD/2013 DATED 03-01-2014 IN THAT THE CO-ORDIANTE BENCH HAS ANALYSED THE WILLINGNESS TO PERFORM AND W HETHER DEEMED TRANSFER U/S. 2(47)(V) CAN BE INVOKED. VIDE PARA 51 THE ITAT CONSIDERED AS UNDER: '51. IT IS IMPORTANT TO BEAR IN MIND THAT SECTION 2 (47)(V) REFERS TO POSSESSION TO BE TAKEN OR RETAINED IN PART PERF ORMANCE OF THE CONTRACT OF THE NATURE REFERRED TO IN SECTION 53A OF THE TRANSFER OF PROPERTY ACT AND IN THE CASE BEFORE HON'BLE BOMBAY HIGH COURT THERE WAS NO DISPUTE THAT THE CONDITIONS OF SECTIO N 53A WERE SATISFIED. IN OTHER WORDS THE PROPOSITION LAID D OWN OF SECTION 53A WERE SATISFIED. IN OTHER WORDS THE PROPOSITION L AID DOWN BY THEIR LORDSHIPS CAN AT BEST BE INFERRED AS THAT WHEN CON DITIONS UNDER SECTION 53A ARE SATISFIED AND WHEN THE ASSESSEE E NTERS INTO A CONTRACT WHICH IS A DEVELOPMENT AGREEMENT IN THE GARB OF AGREEMENT OF SALE IT IS THE DATE OF THIS DEVELOPM ENT AGREEMENT WHICH IS MATERIAL DATE TO DECIDE THE DATE OF TRANS FER. HOWEVER BY NO STRETCH OF LOGIC THIS LEGAL PRECEDENT CAN SUPP ORT THE PROPOSITION THAT ALL DEVELOPMENT AGREEMENTS IN ALL SITUATIONS SATISFY THE CONDITIONS OF SECTION 53A WHICH IS A SINE QUA NON FOR INVOKING SECTION 2(47)(V)'. 16. AFTER ANALYZING THE FACTS OF THE CASE AND ALSO THE LEGAL POSITION THE BENCH HAS COME TO CONCLUSION THAT THERE IS NO TRANS FER WITHIN THE PROVISIONS OF SECTION 2(47)(V) IN THAT CASE. 17. IN THE CASE OF M/S. BINJUSARIA PROPERTIES PVT. LTD. VS. ACIT CENTRAL CIRCLE-4 HYDERABAD IN ITA NO. 157/HYD/201 1 FOR AY. 2006-07 DT. 04-04-2014 CO-ORDINATE BENCH HAS ANALYSED A SIMILAR SITUATION OF BRINGING TO TAX ON THE BASIS OF DEVELOPMENT AGREEME NT AND FOUND THAT THE PARTY HAS NOT FULFILLED THE CONDITIONS OF THE D EVELOPMENT AGREEMENT AND NO DEVELOPMENT HAS TAKEN PLACE EVEN AFTER SO MA NY YEARS. THEREFORE ON THE FACTS OF THE CASE IT WAS HELD THA T THERE IS NO DEEMED TRANSFER SO AS TO LEVY CAPITAL GAINS TAX. I.T.A. NO. 1578/HYD/2014 SMT. SUDHA GIRI :- 13 -: 18. SIMILARLY IN THE CASE OF ACIT VS. SRI R. SRINI VASA RAO AND OTHERS IN ITA NO. 1786/HYD/2012 DT. 28-08-2014 HELD AS UND ER: '13. ON GOING THROUGH THE AFORESAID DECISIONS OF TH E COORDINATE BENCH THE RATIO WHICH EMERGES IS UNLES S THERE IS WILLINGNESS ON THE PART OF THE DEVELOPER TO PERFOR M HIS PART OF THE CONTRACT THERE CANNOT BE A TRANSFER OF CAPITAL ASSET AS ENVISAGED U/S 2(47)(V) READ WITH SECTION 53A OF THE TP ACT. THE RATIO LAID DOWN AS ABOVE SQUARELY APPLIES TO THE FACTS OF THE PRES ENT CASE AS THE DEPARTMENT HAS FAILED TO CONTROVERT THE FINDING OF THE LEARNED CIT(A) BY BRINGING MATERIAL ON RECORD TO SHOW THAT THE DE VELOPER HAS TAKEN ANY STEPS TOWARDS DEVELOPMENT ACTIVITY. FURTHER W E MAY OBSERVE THOUGH THE AO REFERRING TO THE DEVELOPMENT AGREEME NT HAS INFERRED THAT POSSESSION OF THE PROPERTY WAS HANDED OVER TO THE DEVELOPER HOWEVER ON GOING THROUGH THE PLEADINGS AND PRAYER OF THE PLAINTIFFS IN THE PLAINT FILED IN CIVIL COURT A COPY OF WHIC H IS AT PAGE 51 OF ASSESSEES PAPER BOOK IT APPEARS ASSESSEE ALONG W ITH OTHERS ARE STILL HAVING PHYSICAL POSSESSION OVER THE PROPERTY . BE THAT AS IT MAY AFTER CAREFUL CONSIDERATION OF FACTS AND MATERIALS ON RECORD WE ARE OF THE VIEW CIT(A)S ORDER BEING WELL FOUNDED AN D WELL REASONED NEEDS TO BE UPHELD. ANOTHER CRUCIAL ASPECT WHICH NEEDS TO BE COMMENTED UPON IS THE CIT(A) HAS ALSO HELD THAT TH E TRANSACTION WILL NOT ATTRACT CAPITAL GAIN AS THE ASSET TRANSFERRED BEING AN AGRICULTURAL LAND IS NOT A CAPITAL ASSET AS DEFINE D U/S 2(14) OF THE ACT. THIS FINDING OF THE LEARNED CIT(A) REMAINS UN CHALLENGED AND UNCONTROVERTED BY THE DEPARTMENT. FOR THIS REASON ALSO SHORT TERM CAPITAL GAIN COMPUTED BY THE AO CANNOT BE SUSTAINE D. IN VIEW OF THE AFORESAID WE DO NOT FIND ANY REASON TO INTERF ERE WITH THE ORDER OF THE CIT(A)'. 19. IN THE CASE OF MS. K. RADHIKA VS. DCIT IN ITA N O. 208/HYD/2011 THE CO-ORDINATE BENCH HAS HELD AS UNDER: ' 48. WE ARE IN CONSIDERED AGREEMENT WITH THE VIEW SO EXPRESSED IN THIS COMMENTARY ON THE PROVISIONS OF THE TRANSFER OF PROPERTY ACT. IT IS THUS CLEAR THAT 'WILLINGNESS TO PERFORM' FOR THE PURPOSES OF SECTION 53A IS SOMETHING MORE THAN A S TATEMENT OF INTENT; IT IS THE UNQUALIFIED AND UNCONDITIONAL WI LLINGNESS ON THE PART OF THE VENDEE TO PERFORM ITS OBLIGATIONS. UNLESS THE PARTY HAS PERFORMED OR IS WILLING TO PERFORM ITS OBLIGATIONS UNDER THE CONTRACT AND IN THE SAME SEQUENCE IN WHICH THESE ARE TO BE PERFORMED IT CANNOT BE SAID THAT THE PROVISIONS OF SECTION 53A OF THE TRANSFER OF I.T.A. NO. 1578/HYD/2014 SMT. SUDHA GIRI :- 14 -: PROPERTY ACT WILL COME INTO PLAY ON THE FACTS OF T HAT CASE. IT IS ONLY ELEMENTARY THAT UNLESS PROVISIONS OF SECTION 53A OF THE TRANSFER OF PROPERTY ACT ARE SATISFIED ON THE FACTS OF A CASE THE TRANSACTION IN QUESTION CANNOT FALL WITHIN THE SCOPE OF DEEMED TR ANSFER UNDER SECTION 2(47)(V) OF THE IT ACT. LET US THEREFORE CONSIDER WHETHER THE TRANSFEREE ON THE FACTS OF THE PRESENT CASE CAN BE SAID TO HAVE 'PERFORMED OR IS WILLING TO PERFORM' ITS OBLIGATIO NS UNDER THE AGREEMENT'. 20. AS CAN BE SEEN FROM THE ABOVE DECISIONS NO RUL E CAN BE MADE OUT THAT IN ALL CASES OF DEVELOPMENT AGREEMENTS THERE IS A DEEMED TRANSFER UNLESS CERTAIN PARAMETERS LIKE DEVELOPERS WILLINGN ESS TO PERFORM THE INTENTION OF THE PARTIES TERMS OF THE CONDITIONS W HICH ARE REQUIRED TO BE EXAMINED CASE BY CASE. IN THIS PRESENT CASE AS ST ATED EARLIER THERE ARE TWO AGREEMENTS AND IN THE FIRST AGREEMENT THERE IS NO SPECIFICATION THAT PROPERTY WOULD BE HANDED OVER TO THE DEVELOPER EXC EPT FOR DEMOLITION OF THE EXISTING BUILDING THAT TOO AFTER GETTING MUNICI PAL PERMISSIONS. IF IT IS TO BE CONSTRUED THAT DEVELOPMENT AGREEMENT HAS BEEN FULFILLED THEN THE CAPITAL GAINS WOULD ARISE IN AY. 2004-05 AND NOT IN AY 2005-06. IF ONE GOES BY THE SECOND AGREEMENT WHERE ASSESSEE'S SHAR E HAS BEEN CRYSTALISED AND FURTHER ASSESSEE WAS IN A POSITION TO HANDOVER THE LAND SUBSEQUENT TO CLEARANCE FROM ULC AUTHORITIES AND AL SO PERMISSION FROM MUNICIPAL CORPORATION THE CAPITAL GAINS CAN BE CON SIDERED IN THE YEAR RELEVANT FOR AY. 2008-09. LOOKING AT EITHER WAY T HE CAPITAL GAINS CANNOT BE BROUGHT TO TAX IN AY. 2005-06. FOR THESE REASONS WE ARE NOT IN A POSITION TO UPHOLD THE ORDERS OF THE AUTHORITIES IN BRINGING TO TAX IN AY. 2005-06. 21. AO IS FREE TO CONSIDER THE CAPITAL GAINS IN THE RELEVANT ASSESSMENT YEAR OR TO EXAMINE THE YEAR(S) IN WHICH ASSESSEE OF FERED THE CAPITAL GAINS. AS FAR AS THIS ASSESSMENT YEAR IS CONCERNED ASSESSEE'S CONTENTIONS ARE ACCEPTED AND ACCORDINGLY GROUNDS A RE CONSIDERED ALLOWED TO THAT EXTENT. I.T.A. NO. 1578/HYD/2014 SMT. SUDHA GIRI :- 15 -: 22. SINCE WE HAVE HELD THAT NO CAPITAL GAINS CAN BE BROUGHT TO TAX IN THIS YEAR THE ALTERNATE CONTENTIONS RAISED ON DEDU CTION U/S. 54/54F BY ASSESSEE DOES NOT REQUIRE ANY ADJUDICATION AND THO SE GROUNDS ARE TREATED AS ACADEMIC IN NATURE. 23. IN THE RESULT APPEAL IS CONSIDERED ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST JULY 2015 SD/- SD/- (SAKTIJIT DEY) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUN TANT MEMBER HYDERABAD DATED 31 ST JULY 2015 TNMM COPY TO : 1. SMT. SUDHA GIRI C/O. P. MURALI & CO. CHARTERED ACCOUNTANTS 6-3-655/2/3 1 ST FLOOR SOMAJIGUDA HYDERABAD. 2. INCOME TAX OFFICER WARD-6(3) HYDERABAD. 3. CIT(APPEALS)-IV HYDERABAD. 4. CIT-III HYDERABAD. 5. D.R. ITAT HYDERABAD. 6. GUARD FILE.