2021 (9) TMI 128 - AT - Income Tax

Capital gain computation - JDA Entered twice - first development agreement was cancelled - HELD THAT - As earlier JDAs were not materialized, on the basis of which assessments were completed by the AO. Therefore, capital gains in AY 2013-14 in the hands of the assessee do not arise, Considering the additional evidence submitted by the assessee before us as per rule 29, it is clear that construction activity is going on, which shows that the JDA made on 29th April, 2017 is materialized - in our considered opinion, capital gains computed by the AO for the impugned AY 2013-14 is not correct and upholding the order of the CIT(A) in deleting the addition made by the AO on account of capital gains in the hands of the assessee, we dismiss the grounds raised by the revenue on this issue. JDA executed on 29th April, 2017 which was materialized and as we have decided the issue against the revenue cited supra , therefore, in the interest of justice give direction that AO is directed to take necessary action for determining the capital gains on impugned property in the respective year/years.

Summary

Issues:
Appeals against CIT(A) orders under ITA 848/Hyd/2019 and 849/Hyd/2019 for AY 2013-14 involving proceedings u/s 143(3) rws 153C of the Income-Tax Act, 1961.

Analysis:

Issue 1: Capital Gains Assessment
The AO initiated proceedings u/s 153C based on a search and seizure action in a related case, finding documents related to a joint development agreement (JDA) involving the assessee. The AO observed discrepancies in the JDA dates and shares, leading to a show cause notice for unreported capital gains. The AO assessed significant long-term capital gains, disputed by the assessee. The CIT(A) deleted the addition, emphasizing lack of development and subsequent cancellation and new JDA, holding no taxable capital gains for the year.

Issue 2: Appeal before ITAT
The Revenue appealed CIT(A)'s decision before ITAT, arguing that the JDA was registered, invoking section 2(47) for capital gains assessment. The Revenue contended that subsequent cancellation and new JDA were afterthoughts to evade tax. The AR highlighted the absence of development activities and prior non-assessment of capital gains. ITAT noted multiple JDAs, cancellations, and fresh agreements, with the latest JDA showing ongoing construction activity. Relying on Rule 29 evidence, ITAT upheld CIT(A)'s decision, dismissing Revenue's appeal and directing the AO to reassess capital gains without limitation under sec. 150.

Conclusion
ITAT dismissed Revenue's appeals, affirming CIT(A)'s deletion of capital gains addition due to lack of development and materialization of the JDA executed in 2017. The direction to reassess capital gains without limitation was issued, supported by legal precedents. Both appeals were concluded similarly, emphasizing the absence of taxable capital gains for the relevant assessment year.