2014 (2) TMI 1064 - AT - Income Tax

Computation of LTCG - Addition made on Interest free deposits given to the owners - assignment of development agreement to the firm Whether the consideration of Rs.18 lacs specified in the agreement is inclusive of the refundable deposit of Rs.15 lacs or not Held that - The assessee was entitled to a consideration of Rs. 3 lacs only on assignment has rightly returned his net income is subject to the adjustment of incidental expenses - The interest-free deposit as paid up to the date of the assignment was paid for or financed only by the assignee - The CIT(A), while accepting that the assessee did not make any investment in the project, which had not even commenced as on the date of the assignment, and was only a middle man, yet continues to be guided by the lack of credibility of the rectification deed despite clear findings corroborating the assessee s stand - the agreed consideration in its books, being admissible as expenditure toward work-in-progress (WIP). This would at once satisfy or quell its doubts with reference to an external evidence - The inference of an after-thought is inconsistent with and not borne out of the material on record, as well as the conduct of the parties even prior to the execution of the rectification deed, including the returning of the income itself on the transaction by the assessee - The same would matches with the net of the other sums received up to the last rupee, and at variance with the rectification deed itself - the assessee s claim of the stated consideration of Rs.18 lacs under the assignment deed is inclusive of Rs.15 lacs to be paid to the owners by way of a refundable deposit is correct thus, it is rightly deducted in computing the capital gain arising Decided in favour of Assessee.

Issues:
1. Assessment u/s.143(3) of the Income Tax Act, 1961 for the assessment year 2007-08.
2. Validity of consideration specified in the agreement dated 08.08.2006.
3. Rectification deed and its legal implications.
4. Treatment of refundable deposit in computing capital gain.

Analysis:

Issue 1: Assessment u/s.143(3) of the Income Tax Act, 1961 for the assessment year 2007-08:
The appeal was against the order by the Commissioner of Income Tax (Appeals) dismissing the assessee's appeal contesting its assessment. The case involved a developer entering into a development agreement and subsequent assignment of development rights. The main contention was the computation of capital gain arising from the assignment.

Issue 2: Validity of consideration specified in the agreement dated 08.08.2006:
The primary dispute revolved around the consideration amount specified in the agreement dated 08.08.2006. The assessee claimed that the consideration of Rs.18 lacs included a refundable deposit of Rs.15 lacs, while the revenue authorities contested this interpretation. The Tribunal analyzed the agreements and circumstances to determine the correct consideration amount.

Issue 3: Rectification deed and its legal implications:
The rectification deed dated 03.11.2009 was a crucial aspect of the case. The assessee argued that the rectification was valid and should be considered along with the original agreement. However, the revenue authorities highlighted the timing of the rectification and questioned its authenticity, leading to a detailed examination by the Tribunal.

Issue 4: Treatment of refundable deposit in computing capital gain:
The Tribunal carefully reviewed the financial transactions, including the refundable deposit and subsequent payments made by the assignee. It analyzed the nature of the deposit, financing arrangements, and the relationship between the parties to determine the correct computation of capital gain. The Tribunal ultimately allowed the assessee's appeal, concluding that the consideration of Rs.18 lacs under the assignment deed included the refundable deposit of Rs.15 lacs.

In conclusion, the Tribunal's decision addressed the complex issues surrounding the assessment, consideration amount, rectification deed, and treatment of the refundable deposit. The detailed analysis of the agreements, financial transactions, and parties' conduct led to the allowance of the assessee's appeal.

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