2019 (5) TMI 427 - AT - Income Tax

Capital gain computation - transfer of capital asset u/s 2(14) or not - non promulgation of development agreement as planned - whether there is a transfer of capital asset or not under section 2(14) ? - assessee entered into development agreement for development of the land wherein assessee along with others has to give vacant possession of the property starting from 8th month of the date of execution of this deed and shall accommodate the second party s plans for development but as developer was not fulfilled the contract as per the terms and conditions, the possession is not given to the developer - It is the case of the assessee is that the developer M/s. IPL Infraservices Pvt. Ltd. has not obtained necessary approvals and plans, sanctions from the competent authorities and not acted as per the development agreement and no development has taken place and submitted that there is no transfer of the capital asset. HELD THAT - We find that when the Assessing Officer has asked the assessee in respect of development agreement and possession of the property it is submitted by the assessee that there is an agreement dated 01/05/2008 and as per the agreement, the developer has to obtain necessary plans, approvals and sanction from the competent authorities due to slump in the real estate, the developer has not developed the land. Therefore the possession is with the assessee and is running poultry in the same land which he running earlier also. All the relevant details are filed, in our opinion, the assessee has discharged his burden casted upon him to show that the possession is with the assessee. Under the above facts and circumstances of the case, once the assessee has discharged his burden, it is the duty of the Assessing Officer to examine the details filed by the assessee and he has to prove that possession is still with the developer and not with the assessee. In the present case, the developer has not discharged his obligation as per the agreement, therefore taxking the capital gains is not justified. From the assessment order, it is very clear that the Assessing Officer has not pointed out anything in respect of the notice issued to the developer and not called any explanation from the assessee in respect of the same. Therefore, we find that the Assessing Officer without making any enquiry, which is necessary in passing the assessment order, he arrived to a conclusion that there is a transfer of capital asset - the possession has not been handed over to the developer and, therefore, there is no transfer of capital asset as per section 2(14) - Decided in favour of assessee.

Issues Involved:
1. Whether the impugned lands are capital assets.
2. Whether there was a transfer of asset under the development agreement.
3. Validity of reopening the assessment under section 147 of the Income Tax Act.
4. Applicability of the decision in the case of M/s. Kohinoor Hatcheries Pvt. Ltd. to the present case.

Detailed Analysis:

1. Whether the Impugned Lands are Capital Assets
The Revenue contended that the lands in question were capital assets. The CIT(A) held that the lands were agricultural and not capital assets based on the decision of the Hon'ble Jurisdictional High Court in W.P.No. 2148/2015 concerning M/s. Kohinoor Hatcheries Pvt. Ltd. The High Court had previously determined that the lands were agricultural, and this finding was upheld by the CIT(A). The Tribunal agreed with the CIT(A), noting that the lands were beyond 40 km from the Municipal Corporation and had been used for agricultural purposes, thus not qualifying as capital assets under Section 2(14) of the Act.

2. Whether There Was a Transfer of Asset Under the Development Agreement
The Assessing Officer (AO) argued that the development agreement constituted a transfer of capital asset, thereby attracting capital gains tax. The CIT(A) and the Tribunal found that the possession of the land had not been handed over to the developer, and no developmental activities had been carried out due to a slump in the real estate market. The Tribunal emphasized that merely entering into a development agreement does not constitute a transfer unless possession is handed over and developmental activities commence. The Tribunal relied on various case laws, including the decision of the Hyderabad Bench in ACIT Vs. R. Srinivasa Rao, which held that without the developer performing its part of the contract, there cannot be a transfer under Section 2(47)(v) read with Section 53A of the Transfer of Property Act.

3. Validity of Reopening the Assessment Under Section 147
The AO reopened the assessment on the grounds that income chargeable to tax had escaped assessment. The CIT(A) upheld the reopening, stating that the AO had tangible material to believe that income had escaped assessment. The Tribunal affirmed this view, noting that the reopening was valid as the AO had discovered new information during the assessment proceedings of M/s. Kohinoor Hatcheries Pvt. Ltd.

4. Applicability of the Decision in the Case of M/s. Kohinoor Hatcheries Pvt. Ltd. to the Present Case
The Revenue argued that the CIT(A) erred in applying the decision of the Hon'ble High Court in the case of M/s. Kohinoor Hatcheries Pvt. Ltd. The Tribunal found that the CIT(A) correctly applied the decision, as the facts of the present case were similar. The Tribunal noted that the High Court had already determined the nature of the land as agricultural, which was relevant to the present case.

Conclusion:
The Tribunal dismissed the appeals filed by the Revenue and upheld the CIT(A)'s order, concluding that the lands in question were not capital assets and that no transfer of asset had occurred under the development agreement. The reopening of the assessment under Section 147 was deemed valid, and the decision in the case of M/s. Kohinoor Hatcheries Pvt. Ltd. was found applicable to the present case. The cross-objection filed by the assessee was also dismissed as it was merely supportive of the CIT(A)'s order.

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