2019 (3) TMI 461 - AT - Income Tax

Reopening of assessment - capital gain - transfer of property as per section 2(47)(v) - CIT(A) allowed the appeal of the assessee by taking new amendment brought in by the Finance Bill 2017 and directed the AO to tax the capital gains in the year of completion of project - HELD THAT - CIT(A) has verified the current status of the project and finds that it is still in incomplete stage and has uncertainties prevailing on completion of the project. It clearly shows that there is no reasonable certainty in the project completion. We notice that AO by considering the first JDA intends to tax on the capital gains in the ratio of 50 50 when the same was renegotiated to 38.5 61.5 ratio. The ratio has changed and new developer has taken over the responsibility of completion of the project. The basic terms have undergone change due to revision of JDA on 06/11/2012. From the above discussion it is clear that the possession of the land was handed over to the developer with the right of ownership as de-facto and not dejure. The transfer in the ownership has not passed on to the developer until the developer undertakes to complete the project as per the terms or at least 90% of the project has to be complete or to the satisfaction of the parties involved in the agreement. In the given case there is no possibility of completing the project in certainty. Considering the uncertainties and that no real development activities were carried on by the developer in AY 2009-10 in our considered view there is no incidence of transfer of property as per section 2(47)(v) in the AY 2009-10. Therefore AO cannot tax the capital gains in AY 2009-10. Accordingly ground raised by the revenue in this regard is dismissed. Proceedings u/s 153C - AO has initiated proceedings u/s 147 after forming an independent opinion with regard to escapement of income on the basis of receipt of information from AO of the searched person communicating after the CIT(A) s order and not on the basis of receipt of seized document - HELD THAT - As far as this assessee is concerned since the incriminating material was found during the search the provisions of section 153C(2) applies. The revenue has to invoke only section 153C(2) even after receipt of information from the AO of the searched person even after direction of CIT(A) s order provided they follow the due procedure as per section 153C. Therefore resorting to initiation of proceedings u/s 147 is not proper and void ab-initio. Contention of the revenue that section 153C is not attracted because AO who was having jurisdiction over the searched person did not form satisfaction required as per the said provisions to transfer the related material as he was of the opinion that the entire capital gains had arisen in the hands of the assessee on whom he was having jurisdiction and assessed accordingly. Therefore section 153C not attracted. We are not in a position to accept this proposition as the liability arises on the assessee only because of incriminating material found during search. The procedure laid down for the purpose of search and seizure has to be followed otherwise the purpose of section 153A 153B and 153C is defeated. The provision relevant to search requires the AO of the searched person to record satisfaction and he forms the wrong satisfaction it fails there itself. Further as per section 153C not only AO of the searched person but AO of the other person to whom the incriminating material allegedly belongs also has to form satisfaction before initiating proceedings u/s 153C. It cannot be compensated by invoking section 147 as the mandate of section 147 is different. Since the liability of assessee arises only because of search proceedings proceedings u/s 153C alone can be initiated. Therefore we uphold the order of CIT(A) on this issue and dismiss the ground raised by the revenue accordingly.

Issues Involved:
1. Validity of Notice under Section 148.
2. Taxability of Capital Gains in AY 2009-10.
3. Applicability of Section 2(47)(v) and Section 53A of the Transfer of Property Act.
4. Reopening of Assessment under Section 147.
5. Deduction under Section 54F.
6. Application of Finance Bill 2017.
7. Proceedings under Section 153C.

Issue-wise Detailed Analysis:

1. Validity of Notice under Section 148:
The assessee challenged the validity of the notice under Section 148, arguing it was served on his son and not on him directly. The CIT(A) upheld the AO's action, stating that the notice issued on 30/08/2013 was within the permissible time frame since the assessment for AY 2008-09 was completed on 19/11/2010.

2. Taxability of Capital Gains in AY 2009-10:
The CIT(A) initially directed the AO to assess the capital gains in AY 2009-10. The Tribunal upheld this direction, noting that the possession of the property was handed over to the developer after obtaining municipal permission on 05/08/2008. The Tribunal found no infirmity in the CIT(A)'s order, confirming that the capital gains should be taxed in AY 2009-10, subject to Sections 149, 150, and 153 of the IT Act.

3. Applicability of Section 2(47)(v) and Section 53A of the Transfer of Property Act:
The Tribunal examined whether the development agreement constituted a "transfer" under Section 2(47)(v) of the IT Act read with Section 53A of the Transfer of Property Act. It was noted that the developer had not commenced construction despite obtaining municipal permission, indicating a lack of willingness to perform the contract. Therefore, the Tribunal concluded that there was no transfer of property in AY 2009-10, and capital gains could not be taxed in that year.

4. Reopening of Assessment under Section 147:
The assessee argued that the reassessment proceedings under Section 147 were invalid as they were based on the CIT(A)'s order for AY 2008-09 without forming an independent opinion. The Tribunal found that the AO had reopened the assessment based on the CIT(A)'s direction and upheld the reassessment proceedings.

5. Deduction under Section 54F:
The assessee claimed deduction under Section 54F for all residential flats he was entitled to. The CIT(A) did not allow this exemption, and the Tribunal did not address this issue in detail since it had already concluded that capital gains could not be taxed in AY 2009-10.

6. Application of Finance Bill 2017:
The CIT(A) directed the AO to tax the capital gains in the year of completion of the project, considering the Finance Bill 2017. The Tribunal agreed with this approach, emphasizing that the project was not completed even after ten years, and there was no certainty about its completion.

7. Proceedings under Section 153C:
For the co-owners, the Tribunal upheld the CIT(A)'s decision that proceedings under Section 153C were the correct course of action. The AO had initiated proceedings under Section 147 based on information from the AO of the searched person, but the Tribunal found that Section 153C should have been invoked since the incriminating material was found during the search.

Conclusion:
The Tribunal concluded that the capital gains could not be taxed in AY 2009-10 due to the lack of transfer of property as per Section 2(47)(v) and Section 53A. The appeals of the revenue were dismissed, and the assessee's appeal was partly allowed. The Tribunal also emphasized the importance of following the correct procedural requirements under Sections 147 and 153C.

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