2022 (12) TMI 166 - AT - Income Tax

Revision u/s 263 - Reopening of assessment u/s 147- capital gain - transaction under JDA - execution of joint development agreement amounts to transfer of the capital asset and therefore, the assessee was liable to pay capital gains tax which is escaped assessment - HELD THAT - Each and every document which has been produced before the Registration Authority and which is subject to stamp duty cannot be regarded as a transfer deed or conveyance deed. In this case, the stamp duty has been levied in respect of Joint Development Agreement at a fixed rate and the same has not been treated by Registration Authority/Stamp Duty Authority as conveyance deed or to say transfer deed of the property. Merely, because the JDA has been registered with the registering authority and stamp duty has been paid at applicable rates for JDA, that does not ipso facto attract the provisions of section 43CA of the Income Tax Act especially when neither as per the terms of the JDA the same can be treated as transfer of an asset, nor the registering authority/stamp duty authority has treated the JDA as transfer/conveyance. No profits have been earned by the assessee either actual or hypothetical in this case. AO after examination of the facts and circumstances of the case and considering the reply of the assessee has rightly passed the assessment order, and the same in our view, is neither erroneous nor prejudicial to the interest of revenue. The impugned revision order, being bad in law, is hereby quashed. The appeal of the assessee stands allowed.

Summary

Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act.
2. Validity of reassessment under Sections 143(3)/147 of the Income Tax Act.
3. Applicability of Section 43CA of the Income Tax Act.
4. Nature of the property as stock-in-trade or capital asset.
5. Treatment of Joint Development Agreement (JDA) and its implications on tax liability.

Issue-wise Detailed Analysis:

1. Jurisdiction under Section 263 of the Income Tax Act:
The assessee contested the invocation of jurisdiction by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act. The PCIT assumed jurisdiction to revise the reassessment order passed by the Assessing Officer (AO) under Sections 143(3)/147 of the Act, claiming it was erroneous and prejudicial to the interest of the revenue. The Tribunal found that the AO had conducted a thorough examination of the relevant documents and had taken a judicious view, which did not suffer from a lack of independent and adequate inquiry. Therefore, the exercise of revision jurisdiction by the PCIT was deemed unjustified.

2. Validity of Reassessment under Sections 143(3)/147 of the Income Tax Act:
The reassessment was initiated on the grounds that the assessee, being the owner of the land, had entered into a Joint Development Agreement (JDA) with a developer, which the AO initially viewed as a transfer of capital asset liable for capital gains tax. However, the assessee argued that the land was held as stock-in-trade and not a capital asset, and thus no transfer occurred under the JDA that would attract capital gains tax. The Tribunal noted that the AO, after considering the submissions and documents provided by the assessee, accepted the returned income as nil, indicating a detailed examination was conducted during the reassessment.

3. Applicability of Section 43CA of the Income Tax Act:
The PCIT observed that the AO failed to apply Section 43CA, which deals with the full value of consideration for transfer of assets other than capital assets. However, the Tribunal found that the JDA did not constitute a transfer of stock-in-trade as per the terms of the agreement. The possession given to the developer was for development purposes only, and no sale or transfer of stock-in-trade occurred at the time of executing the JDA. Therefore, the provisions of Section 43CA were not applicable in this case.

4. Nature of the Property as Stock-in-Trade or Capital Asset:
The assessee maintained that the land in question was stock-in-trade and not a capital asset, supported by their financial statements. The Tribunal agreed with this classification, noting that the land was held as stock-in-trade and any profit from it would arise in the future upon actual sale to prospective buyers. The Tribunal emphasized that stock-in-trade is not treated as a capital asset under Section 2(14) of the Income Tax Act.

5. Treatment of Joint Development Agreement (JDA) and Its Implications on Tax Liability:
The JDA between the assessee and the developer stipulated that the land would remain the property of the owner, and the developer was granted possession solely for development purposes. The Tribunal highlighted that the JDA did not result in a transfer of ownership rights akin to a sale or transfer of the asset. The refundable security deposit paid by the developer further supported the non-transfer nature of the agreement. The Tribunal referenced the Supreme Court's decision in "Commissioner of Income-tax vs. Balbir Singh Maini," which clarified that such agreements do not constitute a transfer under Section 2(47) of the Act. Consequently, no income or capital gains arose from the JDA, and the AO's assessment order was neither erroneous nor prejudicial to the interest of the revenue.

Conclusion:
The Tribunal concluded that the reassessment order passed by the AO was justified and did not warrant revision under Section 263. The appeal of the assessee was allowed, and the revision order by the PCIT was quashed. The JDA did not result in a transfer of the property, and the provisions of Section 43CA were not applicable. The nature of the property as stock-in-trade was upheld, and no taxable income arose from the JDA.