2015 (5) TMI 536 - AT - Income Tax

Revision u/s 263 - levy of tax on capital gains pursuant to the development agreement - Held that - In the present case, AO has not at all examined the issue, though, materials relating to entering into the development agreement are available on record. Therefore, there being failure on the part of AO to conduct enquiry and examine the issue or otherwise apply his mind to facts and materials on record, assessment order is erroneous and prejudicial to the interests of the revenue, thereby amenable to the jurisdiction u/s 263 of the Act. However CIT was not justified in straightaway directing AO to compute capital gain on transfer of land to the developer as per the development agreement. As before coming to conclusion that there is a transfer in terms of section 2(47)(v) various factors as indicated hereinbefore, need to be examined. Assessee s claim that there was dispute between the parties and developer was not willing to carry out development work requires examination on the basis of evidence produced by assessee. Further, AO is required to examine assessee s claim that he is no more owner of the property as it was sold to his wife by registered agreement of sale on 04/04/06. AO also is required to determine the year of taxability considering the claim of assessee that capital gain on transfer of land to the builder was offered by the land owners in A.Y. 2011-12 upon cancellation of development agreement and execution of sale deed. Thus we uphold the exercise of jurisdiction u/s 263 by ld. CIT, but, we modify his order by directing AO to examine the issue of accrual of capital gain in the impugned AY, independently, without being influenced by any of the observations of ld. CIT. AO must decide the issue considering all facts and materials on record as well as the submissions of assessee - Decided partly in favour of assessee for statistical purposes

Issues Involved:
1. Jurisdiction of CIT under Section 263 of the Income Tax Act.
2. Determination of capital gains arising from a development agreement.
3. Examination of ownership and transfer of the property.
4. Validity of additional grounds and evidence raised by the assessee.

Issue-wise Detailed Analysis:

1. Jurisdiction of CIT under Section 263 of the Income Tax Act:
The primary issue was whether the CIT could exercise revisionary jurisdiction under Section 263. The CIT believed the assessment order was erroneous and prejudicial to the interests of revenue because the AO failed to tax the capital gain from the transfer of land under a development agreement. The Tribunal upheld the CIT's jurisdiction, noting that the AO had not conducted any enquiry or applied his mind to the development agreement and its implications for capital gains.

2. Determination of Capital Gains Arising from a Development Agreement:
The CIT observed that the development agreement constituted a transfer under Section 2(47)(v) of the Income Tax Act, as possession was handed over to the developer, triggering capital gains tax. The assessee argued that the transfer would only occur when the constructed area was handed over to him. The Tribunal noted that the AO did not examine whether the development agreement resulted in a transfer of capital assets and upheld the CIT's direction for re-examination. However, the Tribunal modified the CIT's order, directing the AO to independently assess the issue of capital gains without being influenced by the CIT's observations.

3. Examination of Ownership and Transfer of the Property:
The assessee claimed he was not the owner of the property at the time of the development agreement, having transferred it to his wife via a registered agreement of sale-cum-GPA. The Tribunal found inconsistencies in the documentation and noted that the AO had not examined the issue of ownership or the implications of the development agreement. The Tribunal directed the AO to investigate the ownership claim and the timing of the transfer to determine the correct assessment year for capital gains.

4. Validity of Additional Grounds and Evidence Raised by the Assessee:
The assessee raised additional grounds, arguing that the issue of capital gains from the development agreement was debatable and that the CIT should not have exercised jurisdiction under Section 263. The Tribunal acknowledged the divergent judicial opinions on whether development agreements constituted transfers but emphasized that the AO must examine the facts and materials to form an opinion. The Tribunal allowed the additional grounds for consideration, directing the AO to re-assess the issue with due regard to all relevant facts and judicial precedents.

Conclusion:
The Tribunal partly allowed the appeals for statistical purposes, upholding the CIT's exercise of jurisdiction under Section 263 but modifying the order to direct the AO to independently examine the issue of capital gains. The AO was instructed to consider all facts, materials, and judicial precedents, ensuring a fair reassessment with reasonable opportunity for the assessee to be heard.

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