2015 (4) TMI 295 - AT - Income Tax

Transfer within the meaning of section 2(47)(i) or section 2(47)(v) r.w.s. 53A of Transfer of Property Act - AO noticed that in terms with the development agreement, the developer has given an advance to each land owner at the rate of 13 lakhs per acre and the total amount received by all land owners put together is ₹ 21,26,15,000. On the basis of the aforesaid facts, the AO was prima-facie of the view that there being a transfer of capital asset under the development agreement, assessee is subject to capital gain - value of consideration received or accruing cannot be determined and thereby the computation of capital gains fails as held by CIT(A) - Held that - Unless there is willingness on the part of the developer to perform his part of the contract, there cannot be a transfer of capital asset as envisaged u/s 2(47)(v) read with section 53A of the TP Act. The ratio laid down in Binjusaria Properties case 2014 (4) TMI 351 - ITAT HYDERABAD squarely applies to the facts of the present case as the department has failed to controvert the finding of the learned CIT(A) by bringing material on record to show that the developer has taken any steps towards development activity. Further, we may observe, though the AO referring to the development agreement has inferred that possession of the property was handed over to the developer, however, on going through the pleadings and prayer of the plaintiffs in the plaint filed in Civil Court, it appears assessee along with others are still having physical possession over the property. Be that as it may, after careful consideration of facts and materials on record, we are of the view, CIT(A) s order being well founded and well reasoned needs to be upheld. Another crucial aspect which needs to be commented upon is the CIT(A) has also held that the transaction will not attract capital gain as the asset transferred being an agricultural land is not a capital asset as defined u/s 2(14) of the Act. This finding of the learned CIT(A) remains unchallenged and uncontroverted by the Department. For this reason also, short term capital gain computed by the AO cannot be sustained. In view of the aforesaid, we do not find any reason to interfere with the order of the CIT(A). - Decided in favour of assessee. Unexplained cash credit - Held that - the assessee in fact has not only established the identity of the creditor, but, has also submitted confirmation letters in support of the loan received. Further, the AO has also observed that funds were transferred from the accounts of the creditor to the assessee. If that is the case, then the AO cannot disbelieve the loan unless there is strong evidence before him to suggest that it is only the assessee s money, which was routed through the bank account of the creditor. Further, on a perusal of the order passed by the CIT(A) for the assessment years 2006-07 and 2007-08 it appears similar loan received from the same creditor was accepted by the CIT(A) after examining the bank statements and other evidences produced by the assessee. Therefore, if the assessee is able to prove the credit by producing similar evidence as is the case in AY 2006-07 and 2007- 08, then, there will be no reason to treat the loan as unexplained cash credit at the hands of the assessee. In the aforesaid view of the matter, we are inclined to remit this issue to the file of the AO for deciding afresh after examining all facts and materials brought on record and only after affording a reasonable opportunity of being heard to the assessee. - Decided in favour of assessee for statistical purposes.

Issues Involved:
1. Transfer of Property under Section 2(47) read with Section 53A of the Transfer of Property Act.
2. Determination of Value of Consideration for Capital Gains.
3. Nature of Land as Agricultural or Capital Asset.
4. Unexplained Cash Credit.

Issue-wise Detailed Analysis:

1. Transfer of Property under Section 2(47) read with Section 53A of the Transfer of Property Act:
The primary issue was whether there was a "transfer" of property within the meaning of Section 2(47)(v) of the Income Tax Act read with Section 53A of the Transfer of Property Act. The AO argued that there was a transfer as the assessee handed over possession of the property to the developer under a development agreement. The assessee contended that the transfer should be considered only when the developer hands over the built-up area, and since the developer had not performed any development activities or converted the land from agricultural to non-agricultural, the agreement failed. The CIT(A) held that for a valid transfer under Section 53A, the transferee must show willingness to perform their part of the contract, which was not demonstrated by the developer. The ITAT upheld the CIT(A)'s view, emphasizing that mere possession transfer is not sufficient; the developer must also perform or show readiness to perform their contractual obligations.

2. Determination of Value of Consideration for Capital Gains:
The AO computed capital gains based on the market value of the property, which the assessee contested. The CIT(A) noted that the full value of consideration could not be determined as the developer had not performed their part of the agreement, and the computation of capital gains failed. The ITAT agreed, stating that the fair market value cannot be equated with the full value of consideration, and without a determinable value, the computation provisions under Section 48 fail, thus no capital gains tax could be levied.

3. Nature of Land as Agricultural or Capital Asset:
The CIT(A) also examined whether the land was a capital asset under Section 2(14) of the Income Tax Act. It was found that the land was agricultural at the time of the agreement and had not been converted to non-agricultural use. As such, it could not be considered a capital asset, and thus, no capital gains tax could be applied. The ITAT upheld this finding, noting that the department did not challenge this aspect.

4. Unexplained Cash Credit:
In a separate appeal by the assessee, the issue of an addition of Rs. 19,86,664 as unexplained cash credit was raised. The AO treated the unsecured loan received from the assessee's NRI sister-in-law as unexplained due to lack of supporting evidence. The CIT(A) confirmed the addition. However, the ITAT noted that the assessee had provided confirmation letters and bank statements, and similar loans in previous years had been accepted. The ITAT remitted the issue back to the AO for fresh examination, directing that if the assessee provides similar evidence as in previous years, the loan should not be treated as unexplained.

Conclusion:
The ITAT dismissed the revenue's appeals, upholding the CIT(A)'s findings that there was no transfer of property under Section 2(47)(v), the value of consideration could not be determined, and the land was agricultural. The assessee's appeal on unexplained cash credit was allowed for statistical purposes, with directions for fresh examination by the AO.

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