2025 (2) TMI 1038 - AT - Income Tax

Reopening of assessment u/s 147 - addition of long-term capital gain by AO based on a joint development agreement - contention of the assessee that the joint development agreement was not executed and the vendor did not receive the consideration and therefore the capital gain u/s 50C did not arise - HELD THAT - We find that though the joint development agreement was entered into by the assessee with M/s Monark Dealcom Pvt. Ltd. in respect of landed property located at premises no.125A Motilal Nehru Road Kolkata of which he was 50% owner and remaining 50% belonged to Guramrit Singh Gill. We note that no money was ever received under this agreement and this was never performed or executed. We also note that the said land was sold by both the co-owners. i.e assessee as well as his brother Shri Guramrit Singh Gill on 28.08.2017 for the agreed consideration and the capital gain arose in the assessment year 2018-19 and would be paid accordingly. We observed that in the case of another co-owners Shi Guramrit Singh Gill the same plea has been accepted by the ld. AO in the reassessment proceedings for the same assessment year 2013-14 and no addition was made. Accordingly we set aside the order of ld. CIT (A) and direct the AO to delete the addition. Decided in favour of assessee.

Summary

The case involves an appeal by the assessee against the order of the National Faceless Appeal Centre, Delhi for the assessment year 2013-14. The core issue revolves around the addition of long-term capital gain amounting to 1,46,41,326 by the assessing officer (AO) based on a joint development agreement between the assessee and M/s Monark Dealcom Pvt. Ltd. The assessee contended that the original development agreement had become infructuous, and a fresh agreement was entered into on 29.08.2017.The assessee's return of income was processed initially under section 143(1) of the Income Tax Act, and later, the case was reopened under section 147 by the AO. The AO computed the long-term capital gain based on the joint development agreement and issued a show cause notice to the assessee. The assessee argued that no money was received under the initial agreement, which was never executed, and a fresh agreement was made in 2017, resulting in the payment of tax on capital gains in the subsequent assessment year.In the appellate proceedings, the Commissioner of Income-tax (Appeals) dismissed the appeal as the assessee failed to provide submissions. The assessee relied on a similar case where the AO accepted that no capital gain arose due to the non-execution of the joint development agreement. The Departmental Representative argued that the fact of non-execution was not verified by the AO and requested the appeal to be restored to the AO for further examination.Upon considering the contentions and evidence, the Appellate Tribunal found that no money was received under the initial agreement, and the land was eventually sold by both co-owners in 2017, resulting in capital gains in the subsequent assessment year. The Tribunal noted that a similar plea was accepted in another case for the same assessment year, where no addition was made. Therefore, the Tribunal concluded that no capital gain arose in the current assessment year and directed the AO to delete the addition.The significant holding of the Tribunal was that no capital gain arose in the relevant assessment year, contrary to the decision of the Commissioner of Income-tax (Appeals). The Tribunal's decision was based on the fact that the initial joint development agreement was not executed, no money was received, and the subsequent sale of the land resulted in capital gains in a later assessment year. As a result, the Tribunal allowed the appeal of the assessee and directed the deletion of the addition of long-term capital gain.In conclusion, the Tribunal's decision centered on the non-execution of the initial development agreement, the subsequent sale of the land, and the absence of capital gains in the relevant assessment year. The Tribunal's ruling highlights the importance of verifying the facts and circumstances surrounding agreements and transactions to determine the tax implications accurately.