2019 (3) TMI 145 - AT - Income Tax

Exemption u/s 80IB(10) - Appellant has contributed its land to the JDA for its development and the developer has made the investment in construction of flat - Whether before entering into this JDA, the capital asset was converted into stock-in-trade and capital gain on its transfer was also offered at the time of sale of flats? - HELD THAT - Assessee shall be allowed for exemption under 80IB(10) with respect to the profit earned on sale of its flats. But during the course of hearing, a doubt was raised as to whether the assessee has converted his capital asset as a part of stock-in-trade before entering into JDA. As this aspect was never verified by the lower authorities though the assessee has placed the documentary evidence in support of his contentions, but it requires verification from the lower authorities. We are of the view that let this point be examined by the AO. If the assessee succeeds in demonstrating that land held as capital asset was converted into stock-in-trade before entering into JDA and the assessee itself has offered the capital gain accrued on conversion of capital asset into stock-in-trade while filing the return along with the claim of exemption of business profit earned on sale of flat of his share under section 80IB(10) of the Act. If the assessee succeeds in proving that capital asset was converted into stock-in-trade, before entering into JDA, claim of exemption of deduction under section 80IB(10) be allowed. - Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Entitlement to deduction under Section 80-IB(10) of the Act.
2. Interpretation of Section 80-IB(10) regarding developing and construction of housing projects.
3. Assessment of the role of the Appellant in the housing project.
4. Allocation of capital gains in the case of HUF property.
5. Consideration of construction costs and objections filed by the Appellant.
6. Levy of interest under Sections 234A, 234B, and 234C of the Act.

Analysis:

Issue 1: Entitlement to deduction under Section 80-IB(10) of the Act.
The appeal was filed by the assessee against the order of CIT(A) regarding the entitlement to deduction under Section 80-IB(10) of the Act. The AO rejected the claim of the assessee and computed capital gains in the hands of the assessee. The CIT(A) also rejected the claim of exemption under Section 80-IB(10).

Issue 2: Interpretation of Section 80-IB(10) regarding developing and construction of housing projects.
The Tribunal examined the Joint Development Agreement (JDA) between the appellant and SJR Builders to determine the nature of the transaction. The appellant contended active involvement in construction activities, while the Revenue argued that the profit earned should be treated as capital gains, not business profit. The Tribunal analyzed various clauses of the JDA to establish the nature of the agreement and the roles of the parties involved.

Issue 3: Assessment of the role of the Appellant in the housing project.
The Tribunal observed that the appellant contributed land for development under the JDA and was actively engaged in construction activities, albeit to a minimal extent. The Tribunal noted the allocation of shares in the constructed portion between the appellant and the builder, indicating the involvement of the appellant in the construction process.

Issue 4: Allocation of capital gains in the case of HUF property.
The Tribunal considered the division of HUF property between co-parceners and the assessment of capital gains. The Tribunal examined the ownership and profit-sharing structure to determine the appropriate allocation of capital gains.

Issue 5: Consideration of construction costs and objections filed by the Appellant.
The Tribunal reviewed the construction costs, objections filed by the Appellant, and the adoption of project costs by the assessing authority. The Tribunal emphasized the need for a thorough examination of the cost components and objections raised by the Appellant.

Issue 6: Levy of interest under Sections 234A, 234B, and 234C of the Act.
The Tribunal addressed the levy of interest under Sections 234A, 234B, and 234C of the Act. The Tribunal set aside the order of the CIT(A) and restored the matter to the AO for further examination.

In conclusion, the Tribunal allowed the appeal of the assessee for statistical purposes, emphasizing the need for a detailed assessment of the conversion of capital assets into stock-in-trade and the eligibility for exemption under Section 80-IB(10) based on the findings of the lower authorities.