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2022 (12) TMI 302 - AT - Income TaxInitiation of proceedings u/s. 153C instead of the proceedings u/s. 153A - capital gain - Joint Development Agreement (JDA) Entered - AR submitted that the AO in his order has admitted that there was a search in the residence of the assessee and that when the assessee is searched the assessment should have been done u/s.153A and not u/s.153C -HELD THAT - We notice that the CIT (Appeals) has considered this contention of the assessee and held that though the place of the assessee was also searched, the warrant is in the name of M/s.Trans Global Power Pvt Ltd., and therefore the assessee cannot be considered as the person searched. We see merit in the observations of the CIT (Appeals) and see no reason to interfere with the decision of the CIT(Appeals). Whether the JDA found during the course of search is an incriminating material? - As if the AO is satisfied that if the documents seized have a bearing on the determination of the total income of such other person for the six assessment years preceding the year of search. The section does not use the word incriminating document, it is the various judicial decisions which have brought in the expression incriminating documents based on the facts specific to the case. However while determining whether a document seized is discriminating or not, the words used in the section need to considered i.e. if the documents seized have a bearing on the determination of the total income of such other person. In our considered view, if the document has a bearing on the determination of the total income of the assessee, then the same can be considered as incriminating. In assessee s case, the JDA is a document seized and is the basis on which the taxability of capital gain in the year under consideration is decided by the assessee. The claim of the ld AR that the amount of advance is already reflected in the books of accounts and that the amount is offered to tax in the subsequent years will not have a bearing since the question is whether for particular AY 2010-11, the JDA is an incriminating material with regard to the undisclosed income i.e. the capital gain on transfer of land. We see merit in the contention of the ld DR that if the said JDA has not been seized the capital gain would not have been taxed on the correct assessment year i.e. in AY 2010-11 and to that extent it is an incriminating material. In view of the above discussion and considering the decision of the coordinate bench in the case of M/s. Chaitanya Properties 2022 (5) TMI 1487 - ITAT BANGALORE we are of the view that the JDA is an incriminating material. Year of assessability of capital gains arising on the property - whether it is assessable in the year in which the development agreement entered into or in the relevant subsequent year in which the area duly developed and constructed coming to the share of the assessee-land owner has been handed over to the assessee? - In assessee s case there is no mention in the JDA to this effect and as per Clause 1 extracted here the possession is given irrevocably by the assessee to the developer and the developer is given the irrevocable power of attorney to transfer or sell the developer s share in the undivided share of land which would mean that the developer is given the absolute possession of the land which in our considered view amounts to transfer within the meaning of section 2(47)(v) of the Act. One of the contentions of the Ld AR is that the plan approval for development of the property came only in the subsequent assessment year. According to section 53A whereby the transferee has done some act in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract. During the year under consideration the developer has made an application for plan approval which is an act in furtherance of the contract and that he is willing to perform his part of the contract. In view of the above discussion and based on the facts of the present case we are of the considered view that the CIT(Appeals) is correct in upholding the order of the AO whereby the capital gain is to be taxed in AY 2010-11 i.e. the year in which the JDA is entered into. Capital gain computation - adopting the guideline value @ Rs.520 per Sq.ft. - HELD THAT - As perused the material on record In assessee s case the amount of Rs.2505/- per Sq.ft. is an estimated cost construction given by the developer and in our view the same cannot considered for the purpose of computation of capital gains. Further there is no loss to the revenue since the assessee would be paying the capital gain at the time of sale of flats at which time the gain already taxed i.e. the guideline value would be considered as the cost of acquisition. In the light of these discussions and considering the decision in the case CPC Logistics Ltd (supra) we uphold the decision of CIT(Appeals) in directing the AO to recompute the capital gain by adopting the guideline value @ Rs.520 per Sq.ft. We also see no reason to interfere with the order of the CIT(Appeals) in directing the AO to consider the built up area for the purpose of computing capital gains and to re-compute the capital gain for AY 2013-14 to 2017-18. The revenue appeal is therefore dismissed.
Issues Involved:
1. Initiation of proceedings under Section 153C instead of Section 153A. 2. Validity of proceedings initiated under Section 153C without incriminating documents. 3. Determination of the year of transfer of property under the Joint Development Agreement (JDA). 4. Computation of capital gains and the appropriate value to be considered for the purpose (guideline value vs. estimated cost of construction). Detailed Analysis: 1. Initiation of Proceedings Under Section 153C Instead of Section 153A: The assessee contended that the Assessing Officer (AO) should have assumed jurisdiction under Section 153A since the assessee's premises were searched. The CIT (Appeals) and Tribunal upheld that the AO followed the correct procedure for invoking Section 153C, as the warrant was in the name of M/s. Trans Global Power Pvt. Ltd., not the assessee. The Tribunal found merit in the CIT (Appeals)'s observations and saw no reason to interfere with the decision. 2. Validity of Proceedings Initiated Under Section 153C Without Incriminating Documents: The assessee argued that the JDA seized during the search was not incriminating. The Tribunal noted that the JDA had a bearing on the determination of the total income for the relevant assessment year. The Tribunal referred to the decision in DCIT vs. M/s. Chaitanya Properties Pvt. Ltd., which held that Section 153C does not require the seized material to be incriminating but should have a bearing on the total income. The Tribunal concluded that the JDA was an incriminating material as it led to the correct assessment of capital gains for AY 2010-11. 3. Determination of the Year of Transfer of Property Under the JDA: The assessee claimed that the year of transfer should be when the actual sale of flats occurred, not when the JDA was executed. The AO, relying on the decision of the Karnataka High Court in Dr. T.K. Dayalu, determined that capital gains arise at the time of executing the JDA. The Tribunal upheld this view, noting that the JDA and Power of Attorney (POA) gave the developer irrevocable possession and authority over the property, satisfying the conditions under Section 2(47)(v) of the Income Tax Act and Section 53A of the Transfer of Property Act. Thus, the year of transfer was correctly determined as AY 2010-11. 4. Computation of Capital Gains and the Appropriate Value to be Considered: The AO used the estimated cost of construction (Rs. 2505 per sq.ft.) provided by the developer to compute capital gains. The CIT (Appeals) directed the AO to use the guideline value (Rs. 520 per sq.ft.) instead, and to re-compute the capital gains for AY 2013-14 to 2017-18. The Tribunal upheld this decision, referring to the Karnataka High Court's decision in PCIT v. CPC Logistics Ltd., which supported using the guideline value when the consideration is not determinable. The Tribunal noted that using the estimated cost of construction was not appropriate and that the guideline value ensured no loss to the revenue, as the assessee would pay capital gains tax upon the sale of flats. Conclusion: The Tribunal dismissed both the revenue's appeal and the assessee's cross-objections, affirming the decisions of the CIT (Appeals) regarding the initiation of proceedings under Section 153C, the determination of the year of transfer, and the computation of capital gains using the guideline value. The judgment was pronounced on October 13, 2022.
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