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2017 (5) TMI 425 - AT - Income TaxNon-chargeability of capital gains in respect of the land - Held that - The capital gain would be taxable in the year in which such transactions are entered into even if the transfer of the immovable property is not effective or complete under the general law. The assessee entered into an agreement with the builder/developer for development of the impugned land and construction of flats thereon. Further, the assessee acted on the impugned agreement by accepting from the builder/developer payments in the financial year 2006-07. In view of the facts and circumstances discussed above, all the conditions of sub-clause (v) of section 2(47) are satisfied in this case and therefore, it has to be inferred that a transfer did take place within the meaning of section 2(47)(v). The argument that the deeds in respect of the sale of flats were not registered/executed is not a relevant consideration so far as provisions of sub-clause (v) of section 2(47) are concerned. The completion of transfer of an immovable property as per the general law is not a requirement for the applicability of the provisions of sub-clause (v) of section 2(47). Thus, this ground is dismissed. CIT(Appeals) observed that the value of share of consideration of 27% of saleable or super-built area including parking places of the project allotted to the assessee on transfer of undivided share of 73% of land surrendered in favour of developer to be valued on the basis of guideline value of said undivided share of land allotted to the developer. In our considered opinion, this is also not appropriate method to determine the consideration receivable by the assessee on account of JVA dated 10.09.2006. In our considered opinion, cost of construction of built-up area of 27% of saleable or super-built area including parking places of the project allotted to the assessee to be ascertained by the Assessing Officer after examining the relevant record of cost of construction incurred or to be incurred by the developer. Accordingly, this said cost of construction would constitute as sale consideration received by the assessee in kind and that should be brought to tax in the assessment year 2007-08. If necessary, he could take assistance of DVO or any experts so as to arrive the cost of construction of 27% of constructed area, which would be transferred to the assessee. Thus, the issue is remitted to the Assessing Officer for the limited purpose of determining the sale consideration and to compute the capital gains accordingly after giving opportunity of hearing to the assessee. The issue relating to the computation of capital gains in both the appeals is remitted to the Assessing Officer for fresh consideration. Addition u/s.37(1) - TNCA sponsorship - Held that - The above expenditure incurred by the assessee cannot be considered as incurred wholly and exclusively incurred for the purpose of assessee s business. This expenditure is nothing but charity or donation, which cannot be allowed as a deduction while computing the income of the assessee. We do not find any infirmity in the order of the CIT(Appeals) and the same is confirmed. The ground raised by the assessee is dismissed.
Issues Involved:
1. Validity of Reassessment Proceedings under Section 147 of the Income Tax Act. 2. Taxation of Long Term Capital Gains (LTCG) under Section 2(47)(v) of the Income Tax Act. 3. Disallowance of Expenses under Section 14A read with Rule 8D of the Income Tax Rules. 4. Disallowance of Business Promotion/Advertisement Expenses under Section 37(1) of the Income Tax Act. Detailed Analysis: 1. Validity of Reassessment Proceedings under Section 147 of the Income Tax Act: The assessee contested the reassessment order, arguing it was passed out of time, invalid, and without jurisdiction. The primary contention was that the reassessment was based on documents already on record without any fresh material, thus constituting a mere change of opinion, which is not permissible under Section 147. The assessee relied on the Delhi High Court judgment in CIT Vs. Orient Craft Ltd. and the Supreme Court judgment in Gkn Driveshafts (India) Ltd. Vs. ITO. The Tribunal held that the reassessment was valid as there was no assessment under Section 143(3) previously, and the Assessing Officer (AO) had a cause or justification to believe that income had escaped assessment. The Tribunal emphasized that the AO’s subjective satisfaction based on objective material evidence is sufficient for reopening an assessment. The Tribunal also noted that the assessee did not request the reasons for reopening in writing after filing the return of income in response to the notice issued under Section 148, and hence, the reassessment proceedings were upheld as valid. 2. Taxation of Long Term Capital Gains (LTCG) under Section 2(47)(v) of the Income Tax Act: The AO brought to tax the LTCG arising from a joint venture agreement between the assessee and M/s. Parsvnath Developers Ltd., where the assessee received ?7,02,54,000 as a refundable security deposit. The AO considered this as a transfer under Section 2(47)(v) and computed capital gains at ?39,77,60,547. The assessee argued that the project was never developed, and hence the transaction did not result in a transfer. The Tribunal held that the transfer took place on the date of the joint venture agreement as possession was given to the developer, and the developer was allowed to mortgage the property and raise loans. The Tribunal referred to the Supreme Court judgment in ACIT Vs. Rajesh Jhaveri Stock Brokers P. Ltd., emphasizing that the transfer under Section 2(47)(v) includes any transaction allowing possession in part performance of a contract. The Tribunal also noted that the provisions of Section 53A of the Transfer of Property Act were satisfied, and hence, the transaction constituted a transfer for capital gains tax purposes. 3. Disallowance of Expenses under Section 14A read with Rule 8D of the Income Tax Rules: The assessee did not press this ground before the Tribunal. Consequently, the Tribunal dismissed this ground as not pressed. 4. Disallowance of Business Promotion/Advertisement Expenses under Section 37(1) of the Income Tax Act: The AO disallowed ?7,95,000 incurred for sponsoring a special box in the M.A. Chidambaram Stadium, arguing it was not incurred for the business purpose but for extraneous reasons, given the Managing Director’s position in the Tamil Nadu Cricket Association (TNCA). The CIT(A) upheld the disallowance, stating that the sponsorship did not serve the business interests of the assessee, which had a limited client base and did not require mass advertising. The Tribunal agreed with the CIT(A), concluding that the expenditure was not incurred wholly and exclusively for the purpose of the assessee’s business and was more in the nature of charity or donation, which is not allowable as a deduction under Section 37(1). Conclusion: The Tribunal upheld the validity of the reassessment proceedings and the taxation of LTCG under Section 2(47)(v). The disallowance of expenses under Section 14A was dismissed as not pressed, and the disallowance of business promotion/advertisement expenses was confirmed. The issue of quantification of capital gains was remitted to the AO for fresh consideration. Both appeals by the assessee and the Revenue were partly allowed for statistical purposes.
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