2021 (5) TMI 336 - AT - Income Tax

Sort term capital gains - transfer of property through Sale cum development agreement-cum-GPA - addition invoking the provisions of deemed transfer u/s 2(47)(v) of the IT Act - CIT(A) dismissed the appeal of the assessee observing that there was exchange of property, which amounted to transfer within the meaning of section 2(47(v) and the gain resulting from such transfer required to be taxed in the year in which the agreement was entered into coupled with by giving possession of the property to the developer - HELD THAT - Assessee has entered into development agreement for construction of duplex houses and assessee was to receive the constructed area of 5000 sq.ft by virtue of development agreement. After entering into agreement, the developer has vanished and no real development took place till date as verified and confirmed by the AO through the Departmental Inspector. It appears that neither development has taken place nor developed area was received by the assessee. This fact was confirmed by the AO himself. There was no real income except notional income as per the development agreement, which has never been received by the assessee. In the light of the above facts, the question whether the possession is lying with the developer or taken over by the assessee is the issue, which decides the taxability of capital gains. It appears that till date development agreement was not cancelled and no public notice was issued by the assessee for cancellation of development agreement as stated by the Ld. AR during the course of appeal proceedings. Therefore, we are of the considered opinion that the issue is required to be remitted back to the file of the AO with a direction to decide the capital gains after verifying whether the possession is taken back by the assessee or not and the assessee cancelled the development agreement or not - Appeal of the assessee is allowed for statistical purposes.

Summary

Issues:
Taxing short term capital gains under deemed transfer u/s 2(47)(v) of the IT Act for AY 2007-08.

Analysis:
1. The appeal involved the assessment of short term capital gains of ?4,38,029/- under the provisions of deemed transfer u/s 2(47)(v) of the IT Act for the AY 2007-08.
2. The case revolved around the assessee's failure to file the income tax return for the relevant assessment year, leading to the Assessing Officer (AO) issuing a notice u/s 148 based on information regarding a property transfer through a development agreement.
3. The AO assessed short term capital gains by considering the transfer of land under the development agreement as a deemed transfer u/s 2(47)(v) of the IT Act, despite no actual development taking place on the land as per Inspector's report.
4. The CIT(A) upheld the AO's decision, stating that the exchange of property constituted a transfer under section 2(47)(v) of the Act, leading to the taxation of gains in the year of agreement coupled with possession transfer.
5. During the Tribunal proceedings, the assessee argued that no actual income accrued or received due to the developer's non-performance, challenging the treatment of the agreement as a transfer for capital gains taxation.
6. The Tribunal noted that no real development occurred, and the possession status with the developer or assessee was crucial in determining taxability, directing the AO to verify possession status and agreement cancellation before deciding on capital gains taxability.
7. Consequently, the Tribunal remitted the matter to the AO for fresh assessment based on possession status, emphasizing the need for a fair opportunity for the assessee, and allowed the appeal for statistical purposes.

This detailed analysis covers the issues, arguments presented, judicial findings, and the final decision, providing a comprehensive overview of the judgment.