2018 (4) TMI 37 - AT - Income Tax

Re-assessment made u/s. 147 - Held that - Assessee filed return of income without admitting any capital gain nor there is any mention in the return about the development agreement entered by assessee. The information has come to the knowledge of the AO consequent to the survey proceedings in M/s. Diamond Infra which led to the reopening of assessment u/s. 147 not only in assessee s case but also in other cases, where all the owners have entered into development agreement with the said party. After examining the facts, it is of the opinion that the AO correctly invoked the provisions of Section 147 and therefore, the proceedings are valid in law. Addition of capital gains - as contented possession was not given and assessee retained possession of the property thereby the capital gains arises in the year in which the new flats were handed over - Held that - There are various judicial principles supporting the contentions that registration is only a conclusive evidence but ownership can be obtained much earlier also. As seen from the purchase deed also, there are recitals that Shri Bala Swamy, father of vendor has himself developed the property and then obtained permissions but later on made four gift settlements to his son and after obtaining HUDA permissions, has registered the property on that date. Even though the receipt of sale consideration date-wise has not mentioned, it is the contention that assessees have paid the amounts much earlier also. This aspect has not been examined by the AO at all. Therefore, in the interest of justice, the issue of having possession of the property at the time of purchase of property by assessee, before registration is to be examined in the light of the payments made by assessee, permissions obtained from HUDA etc., so that the issue can be finally concluded on facts whether the property has to be considered as long term capital asset or short term capital asset. Therefore, this issue is restored to the file of AO Full value of consideration for computation of capital gains - eligibility to benefit u/s. 54/54F - Held that - We direct the AO to consider the probable cost of construction as on May 2008 or the SRO Value of the land-in-question on the date of agreement should be considered as full value of consideration for the purpose of computation of capital gains on the transfer of 50% of the land holding for development. Therefore, while upholding the reopening of assessment and also bringing to tax the capital gains in the impugned year, the issue whether the land is short term capital asset or long term capital asset and the value for considering the capital gains computation is restored to the file of AO for fresh examination. Needless to say that assessee should be given due opportunity. For this purpose, the order of AO and CIT(A) on the above issues are set aside to the re-done as per the facts and law. In case the property was held to be long term capital asset, assessee may be eligible for consequent benefit u/s. 54/54F of the Act, which should be considered on the facts of the case.

Summary

Issues Involved:
1. Reopening of assessment under Section 147 of the Income Tax Act.
2. Computation of Short Term Capital Gain.
3. Validity of bringing to tax the capital gains during the year under consideration.
4. Period of holding the property - Short Term or Long Term Capital Asset.
5. Full value of consideration for the purpose of computation of capital gains.

Detailed Analysis:

1. Reopening of Assessment under Section 147:
The assessee's return was processed under Section 143(1) without admitting any capital gain. The Assessing Officer (AO) reopened the assessment based on information obtained from survey operations under Section 133A in the case of M/s. Diamond Infra, revealing a development agreement. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the reopening, citing the Supreme Court's decision in ACIT Vs. Rajesh Jhaveri Stock Brokers (P) Ltd. The Tribunal agreed with the CIT(A), stating that the AO correctly invoked Section 147 provisions and rejected the assessee's contention that the reopening was invalid.

2. Computation of Short Term Capital Gain:
The AO added ?25,41,474/- under Short Term Capital Gains for the development agreement with M/s. Diamond Infra. The CIT(A) upheld this computation, relying on the jurisdictional High Court decision in Potla Nageswara Rao Vs. DCIT. The Tribunal also upheld the CIT(A)'s decision, agreeing that the capital gains arose during the year of the agreement.

3. Validity of Bringing to Tax the Capital Gains During the Year Under Consideration:
The assessee argued that no capital gain arose since possession was not transferred, and the property was still under the assessee's possession. The Tribunal found that the development agreement permitted the developer to enter the premises for construction, constituting a transfer under Section 2(47)(v). Therefore, the Tribunal upheld the AO's decision to tax the capital gains in the year of the agreement.

4. Period of Holding the Property - Short Term or Long Term Capital Asset:
The AO considered the property as a short-term capital asset based on the date of registration. The Tribunal noted that the assessee had paid advances and possibly took possession earlier than the registration date. The Tribunal directed the AO to examine whether the property should be considered a long-term capital asset based on the payments and permissions obtained.

5. Full Value of Consideration for the Purpose of Computation of Capital Gains:
The AO used the cost of construction at the time of project completion to determine the sale consideration, which the Tribunal found incorrect. The Tribunal directed the AO to consider the probable cost of construction as of May 2008 or the SRO value of the land on the agreement date for computing the capital gains.

Conclusion:
The Tribunal partly allowed the appeals for statistical purposes, upholding the reopening of assessments and the taxation of capital gains in the year of the agreement. However, it directed the AO to re-examine the holding period and the full value of consideration for accurate computation of capital gains. The Tribunal emphasized giving the assessee due opportunity during this re-examination.