2016 (5) TMI 1602 - AT - Income Tax

Addition of capital gains against the security deposit received by one member of AOP - amount received by the assessee pursuant to the said Joint Venture agreement - HELD THAT - The share of the assessee in the said gross sale proceeds was to the extent of 3.5%. Under clause 16 of the Joint Venture agreement, it was agreed between the parties hereto that the capital required for the construction of the project other than that of land should be brought in by the party of Third Part. As per clause 17, the party of the Third Part had agreed to give interest free advance of Rs.1 crore to the parties of the First and Second Part each and the said amount had to be adjusted against final payment of revenue share. Besides the other terms agreed upon between the parties, as per clause 33, it was reiterated that the agreement of Joint Venture related to efficient pooling of the resources and neither parties was transferring to other any kind of right, interest in the said properties and as such the document was exempted from registration under the provisions of Indian Registration Act. The issue arising before us is with regard to the amount received by the assessee pursuant to the said Joint Venture agreement. The claim of the assessee was that it had received the said security deposit from the developer of the plot in order to safeguard themselves against any charges levied for violation of any provisions. The case of the Department on the other hand, is that as per the AO, the amount has been received on account of transfer of property and as per the CIT(A), the said amount is assessable in the hands of assessee u/s 45(3) of the Act by way of transfer of the said asset to the AOP. The perusal of Joint Venture Agreement entered into between the assessee and others reflected that the First Part had contributed certain lands and also TDR rights and the assessee had contributed the land to the AOP for development only. It was not the case of transfer of land to the AOP, but was the case of joint pooling of resources by three different parties, wherein the party of the First Part was to contribute TDR rights, the party of Second Part i.e. assessee was to make available the land, on which the development had to be undertaken and the party of Third Part had to overseas the construction and also contribute funds for the construction of the said project. In such scenario, where the asset held by the assessee has not been transferred to the AOP, there is no question of charging any income from capital gains in the hands of assessee in this regard under section 45(3) of the Act. The security deposit received by the assessee is not chargeable to tax. The said security deposit has been refunded by the assessee by cheque to M/s. Shriram Constructions i.e. party of the Third Part in financial year 2014-15. The assessee has also placed the copy of bank account on record, wherein there is debit of Rs.8,50,000/- and Rs.16,50,000/- totaling Rs.25 lakhs. While completing the assessment in the hands of Parmanand A. Kriplani, who had received 16.67% as against 8.33% received by the assessee, was completed by the AO vide order passed u/s 143(3) - As where the transaction as such has been accepted in the hands of one of co-owners, no adverse view could be taken in the hands of other persons. While registering Joint Venture Agreement, the market price of the property was fixed and was taken at Rs.2 crores - We find no merit in the said claim of Revenue. The assessee along with others had pooled in their resources i.e. by way of availability of land and TDR rights and finance, respectively and where the property as such has not been transferred to the AOP, there is no question of assessing the value of security deposit as gain arising on the transfer of land in the hands of assessee. Accordingly, we delete the addition made by the AO on account of income from capital gains. The ground of appeal No.1 raised by the assessee is thus, allowed. Disallowance of transport charges paid by the assessee - The said disallowance was made since the expenses were claimed on self made vouchers and was also paid in cash. AO also noted certain discrepancies in the bills produced by the assessee. In the totality of the above said facts and circumstances, we restrict the disallowance to Rs.25,000/-. The ground of appeal raised by the assessee is thus, partly allowed.

Summary

Issues Involved:
1. Addition on account of capital gains related to security deposit received by a member of AOP.
2. Disallowance of transport charges paid by the assessee.

Issue-Wise Detailed Analysis:

1. Addition on Account of Capital Gains Related to Security Deposit:

The primary issue is whether the sum of Rs. 25 lakhs received by the assessee as a security deposit in a joint venture agreement is chargeable to tax as capital gains. The assessee contended that the amount was a refundable security deposit and not part of the sale consideration. The Assessing Officer (AO) argued that the amount represented the assignment of development rights and should be taxed as capital gains, while the CIT(A) upheld this view, invoking Section 45(3) of the Income Tax Act.

The assessee, along with others, entered into a Development Agreement and formed an AOP named M/s. Gajanan Associates. The joint venture agreement detailed the pooling of resources, with the assessee contributing land, another party contributing TDR rights, and a third party providing funds for development. The CIT(A) held that the amount received was taxable under Section 45(3) as the value of the capital asset was recorded in the books.

However, the ITAT found that the asset (land) had not been transferred to the AOP but was a pooling of resources for development. Therefore, Section 45(3) did not apply, and the security deposit was not taxable. The ITAT noted that the security deposit was refunded by the assessee and that similar transactions were accepted in the hands of other co-owners without additions. Consequently, the addition of Rs. 6,66,334/- on account of capital gains was deleted.

2. Disallowance of Transport Charges:

The second issue involves the disallowance of Rs. 50,000/- out of transport charges claimed by the assessee. The AO disallowed this amount due to discrepancies in the bills and vouchers, some of which were self-made and paid in cash. The CIT(A) upheld this disallowance.

The ITAT, considering the facts and circumstances, found merit in the AO's observations but decided to restrict the disallowance to Rs. 25,000/-. Thus, the disallowance was partly reduced.

Conclusion:

The appeals were partly allowed. The addition of Rs. 6,66,334/- on account of capital gains was deleted, and the disallowance of transport charges was reduced to Rs. 25,000/-. The decision in ITA No. 1646/PN/2014 applied mutatis mutandis to the other related appeals (ITA Nos. 1647 to 1649/PN/2014).