2021 (7) TMI 492 - AT - Income Tax

Reopening of assessment u/s 147 - capital gain on JDA transfer in the relevant assessment year - Transfer of capital asset u/s 2(47)((v) - capital gain tax in the year in which JDA is entered into - date of execution of Joint Development Agreement and G.P.A without HELD THAT - In this case, originally there was no assessment u/s. 143(3) of the Act and reopening was made within four years from the end of relevant assessment year and the AO validly recorded reasons for reopening the assessment as recorded above. At the time of reopening, there need not be conclusive evidence for reopening an assessment. U/s 147 of the Act, reason to believe that income has escaped assessment confers jurisdiction to reopen the assessment where the case is not covered by the provisions of section 143. Intimation u/s. 143(1) cannot be treated as an order of assessment and there being no assessment u/s. 143(3), there is no question of change of opinion on the issue dealt by the AO for reopening the assessment. As AO has reason to believe that income had escaped assessment. It does not mean that there should have been final ascertainment about the fact by legal evidence and conclusion. We are of the opinion that the AO had reason to believe that income has escaped assessment and he duly recorded the reasons on this count. Being so, as held in the case of Rajesh Jhaveri v. ACIT , 2005 (3) TMI 55 - GUJARAT HIGH COURT we uphold the reassessment. Capital gain on JDA - Transfer u/s 2(47) - AO sought to bring capital gain only on the reason that the assessee entered into JDA with the Developer. But there was no progress in the development in the assessment year under consideration. It was the submission of the ld. AR that there was no development activity until the end of FY 2006-07. Commencment of building construction has not been initiated a the building approval was obtained in the next financial year. Therefore, no income is said to have accrued as laid down in section 48 of the Act. Nothing is brought on record by the AO to show that there was development activity in the impugned land during the assessment year under consideration and cost of construction incurred by the developer was not known. Therefore, it is to be inferred that there was no construction activity by the developer during the assessment year in this land. The assessee only received a meagre amount of refundable deposit during the financial year as enumerated in clause 13 of the JDA. Being so, there was no transfer of property under this JDA. Also without accrual of construction to the assessee, assessee was not expected to pay capital gain on the JDA entered by the assessee with the developer. The condition laid down in section 2(47)(v) of the Act r.w.s. 53A of the Transfer of Property Act is not complied with as there was no willingness of the developer to perform his part of the duty in terms of the JDA. Accordingly it is held that there was no transfer for the assessment year under consideration as held by the Hon ble Supreme Court in the case of Seshasayee Steels P Ltd . 2019 (12) TMI 702 - SUPREME COURT . Accordingly, we hold that there was no transfer in AY 2007-08. Grant of exemption u/s. 54/54F - grievance of the assessee is that the AO has granted deduction u/s. 54/54F only on single flat and assessee claimed exemption on two flats built up on two different floors - HELD THAT - This issue is covered by the Hon ble jurisdictional High Court in the case of Arun K. Thiagarajan 2020 (6) TMI 513 - KARNATAKA HIGH COURT the assessee is entitled to deduction u/s. 54/54F on two flats in principle, though they are in different floors, provided it satisfies all the conditions laid down in section 54/54F. Accordingly, this issue is remitted back to the file of AO fresh consideration, after giving opportunity of being heard to the assessee.

Summary

Issues Involved:
1. Jurisdiction for issuance of notice under Section 148 of the Income Tax Act.
2. Validity of reassessment for the assessment year 2007-08.
3. Applicability of Section 2(47)(v) of the Income Tax Act concerning the transfer of property.
4. Determination of capital gains and computation for the assessment year 2007-08.
5. Valuation of the property transferred.
6. Eligibility for exemptions under Section 54 and Section 54F of the Income Tax Act.
7. Levy of interest under Section 234B of the Income Tax Act.

Detailed Analysis:

1. Jurisdiction for Issuance of Notice under Section 148:
The assessee contended that the CIT(A) erred in dismissing the appeal without considering the jurisdiction for issuing the notice under Section 148. The Tribunal upheld the reopening of the assessment, stating that the AO had valid reasons to believe that income had escaped assessment, and reopening within four years from the end of the relevant assessment year was justified.

2. Validity of Reassessment for Assessment Year 2007-08:
The Tribunal noted that the original assessment was completed under Section 143(1) and reopening was within four years. The AO recorded valid reasons for reopening, and there was no need for conclusive evidence at the time of reopening. The Tribunal upheld the reassessment, citing the Supreme Court's decision in Rajesh Jhaveri v. ACIT.

3. Applicability of Section 2(47)(v) Concerning Transfer of Property:
The assessee argued that there was no transfer as per Section 2(47)(v) since only a license to enter the land was given to the developer. The Tribunal examined the Joint Development Agreement (JDA) and General Power of Attorney (GPA) clauses and concluded that the mere license to enter the land did not constitute a transfer. The Tribunal held that there was no transfer in the assessment year 2007-08 as the developer did not have the legal title or possession of the property.

4. Determination of Capital Gains and Computation for Assessment Year 2007-08:
The Tribunal found that no significant development activity took place during the assessment year 2007-08. The assessee received only a refundable deposit, and no construction costs were incurred by the developer. Therefore, the Tribunal concluded that there was no accrual of income or capital gains in the assessment year 2007-08.

5. Valuation of the Property Transferred:
The Tribunal noted that the AO's valuation of the property at ?97,15,500/- was based on subsequent events and not the actual value during the assessment year 2007-08. The Tribunal held that the valuation and computation of capital gains were not justified for the assessment year 2007-08.

6. Eligibility for Exemptions under Section 54 and Section 54F:
For the assessment year 2009-10, the Tribunal addressed the issue of exemptions under Section 54 and Section 54F. The Tribunal referred to the Karnataka High Court's decision in Arun K. Thiagarajan v. CIT, which allowed exemptions for investments in multiple residential units. The Tribunal remitted the issue back to the AO for fresh consideration, ensuring that the assessee's claim for exemptions on two flats, though on different floors, was evaluated as per the conditions laid down in the relevant sections.

7. Levy of Interest under Section 234B:
The Tribunal held that the levy of interest under Section 234B is mandatory and should be computed accordingly. The Tribunal dismissed the assessee's contention that no interest was leviable due to the nature of the assessment.

Conclusion:
The Tribunal partly allowed the appeals for both assessment years 2007-08 and 2009-10. For the assessment year 2007-08, the Tribunal held that there was no transfer of property and no capital gains accrued. For the assessment year 2009-10, the Tribunal remitted the issue of exemptions under Section 54/54F back to the AO for fresh consideration and upheld the levy of interest under Section 234B.