2020 (5) TMI 653 - AT - Income Tax

Accrual of income - Addition on sale of development rights - Whether amount had accrued to the assessee on account of transfer of its rights in the property and therefore was liable to offer this amount for taxation as income from capital gains?- transfer under section 53A of the Transfer of Property Act, 1872 - HELD THAT - What was to be received by the assessee was from a joint venture, in which assessee itself was a participant, but, under the said arrangement, it was to be entirely funded by Shivalik Ventures Pvt Ltd. The essence of the arrangement was the performance of obligations by the assessee so far as the above obligations are concerned - while the assessee was to help the assessee get the development rights in favour of the joint venture, the payment was to be received by hum as original developer appointed by the said societies and this payment cannot be read in isolation with all its obligations under the joint venture arrangement. It was a composite agreement, and, irrespective of whether we look at the modifications or not, and all the terms of the agreement were to be read in conjunction of each other. When an assessee had an obligation to perform something, and the assessee had not performed those obligations nor does he even seem to be in a position to perform these obligations, it cannot be said that a partial payment for fulfilling these obligations can be treated as income in the hands of the assessee. The obligations under the agreement, as extracted above, have not been performed till date, as is the uncontroverted stand of the assessee. Clearly, therefore, the income in question never accrued to the assessee. When obligations of the assessee under the joint venture agreement are not yet performed, there cannot be any occasion to bring the consideration, for performance of such obligations, to tax. The very foundation of the impugned taxability is thus devoid of any legally sustainable basis. As regards the supplementary agreement, in our humble understanding, even if we are to disregard it, the fact remains that income could accrue only on performance of obligations under the joint venture agreement. In any case, it cannot be open to the AO to disregard the supplementary, or modification- whichever way one terms it, agreement, only because it s result is clear and unambiguous negation of tax liability in the hands of the assessee. As to whether the amount is actually refunded or not, nothing turns on that aspect either. Just because the assessee does not pay the amounts to be paid by the assessee as income of the assessee. The taxability on account of what is alleged to be, transfer of development rights is wholly devoid of merits.- Decided in favour of assessee. Pronouncement of orders within 90 days - Covid-19 epidemic - Worldwide lockdown - HELD THAT - Hearing in this case was concluded on 19th February 2020 but the order is being passed today on th day of May 2020, i.e. well after 90 days, but then given the extraordinary times that we are going through in these days of Covid 19 epidemic, the period of lockdown is required to excluded in computation of the 90 days. In support of this proposition we find support from a coordinate bench decision in the case of DCIT Vs JSW Ltd. 2020 (5) TMI 359 - ITAT MUMBAI

Issues Involved:
1. Deletion of addition on account of sale of development rights amounting to ?5,40,00,000.
2. Treatment of the amount received as advance in the nature of capital assets.
3. Verification of modified deed submitted towards the end of the assessment proceedings.
4. Allegation of the modified deed being a colorable device for tax evasion.
5. Opportunity for the Assessing Officer to verify facts as per Rule 46A of the I.T. Rules.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Sale of Development Rights:
The primary issue revolves around whether the income of ?5,40,00,000 from the sale of development rights accrued to the assessee and was liable to be taxed as income from capital gains. The CIT(A) deleted the addition made by the Assessing Officer, holding that the income had not accrued to the assessee as the conditions for the accrual were not met. The Tribunal upheld this view, stating that the income could only be considered to accrue when the assessee fulfilled the condition of evacuating 25% of the slum dwellers as per the agreement. Since this condition was not met, the income did not accrue to the assessee.

2. Treatment of the Amount Received as Advance in the Nature of Capital Assets:
The CIT(A) and the Tribunal both recognized the amount of ?86,40,000 received as an advance. It was held that the amount was to be treated as an advance until the condition of evacuating 25% of the slum dwellers was met. The Tribunal emphasized that the assessee had not received the balance amount of ?4,53,60,000, nor had it accrued to the assessee, reinforcing the treatment of the received amount as an advance rather than income.

3. Verification of Modified Deed Submitted Towards the End of the Assessment Proceedings:
The Assessing Officer argued that the modified deed submitted by the assessee towards the end of the assessment proceedings was not verified. The Tribunal, however, noted that the Assessing Officer did not provide any substantive reason to reject the modified deed. The Tribunal emphasized that documentary evidence furnished by the assessee must be rejected with proper reasoning and not on mere surmises and conjectures.

4. Allegation of the Modified Deed Being a Colorable Device for Tax Evasion:
The Assessing Officer alleged that the modified deed was a colorable device fabricated for the purpose of tax evasion. The Tribunal disagreed with this view, stating that the obligations under the joint venture agreement were not performed, and thus, the income did not accrue to the assessee. The Tribunal further noted that the supplementary agreement could not be disregarded solely because it negated the tax liability.

5. Opportunity for the Assessing Officer to Verify Facts as per Rule 46A of the I.T. Rules:
The Assessing Officer contended that the CIT(A) erred in deleting the addition without affording an opportunity to verify the facts as required by Rule 46A. The Tribunal found that the CIT(A) had duly considered the facts and legal position, and the Assessing Officer had not disputed the confirmation received from Shivalik Ventures Pvt Ltd. Therefore, the Tribunal upheld the CIT(A)'s decision, stating that the deletion of the addition was justified.

Conclusion:
The Tribunal concluded that the income of ?5,40,00,000 did not accrue to the assessee as the conditions for accrual were not met. The amount received was treated as an advance, and the modified deed was not a colorable device for tax evasion. The Tribunal upheld the CIT(A)'s decision to delete the addition made by the Assessing Officer, finding no merit in the appeal. The appeal was dismissed, and the order was pronounced in accordance with the procedural rules, considering the extraordinary circumstances due to the COVID-19 pandemic.

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