2024 (11) TMI 1297 - AT - Income Tax

Accrual of JDA revenue - Revenue from a JDA the terms of which admittedly were not fulfilled in AY 2014-15 - AO has resorted to Sections 53A read with Section 2(47) of the Act even when the piece of land was demonstrably held as stock-in-trade - As argued JDA could not be completed and hence, there was no ground for any revenue from the JD HELD THAT - The document indicating cancellation of JDA has been used to demonstrate that while the JDA was not implemented even in the AY 2014-15, it was eventually cancelled due to legal and operational difficulties. Thus, even if we are to confine ourselves to the facts available for the AY 2014-15, it is clear that in that year the JDA was not implemented at all and therefore, considering the authorities discussed (supra) and the position of law, there could not have been any revenue whatsoever merely on the basis of valuation by the Stamp Valuation Authority. So far as the contention that the CIT(A) has relied upon the registered cancellation agreement without calling for the comments of the ld. AO on this fresh evidence is concerned, it is to be noted that the powers of ld. CIT(A) are co-terminus with that of the ld. AO. The cancellation agreement in question produced by the assessee was a registered cancellation agreement and the ld. CIT(A) rightly admitted and considered the same in deciding the case before him. No useful purpose will be served in restoring the matter to the ld. AO only because of that the comments of the ld. AO were not sought on the said document whereas, the ld. CIT(A) being higher authority and being in possession of all the powers that are available to the ld. AO, has rightly considered the evidence before him which was in the shape of registered deed and there was no question of any manipulation or creation of this document afterwards. Decided against revenue.

Summary

Issues:
1. Whether the revenue sharing agreement under a Joint Development Agreement (JDA) resulted in deemed income for assessment.
2. Whether the Commissioner of Income Tax (Appeals) erred in admitting and relying on a registered cancellation agreement without following proper procedures.
3. Whether the provisions of Section 53A read with Section 2(47) of the Income Tax Act applied to the asset considered as stock-in-trade.

Issue 1:
The case involved an assessee who filed its income return showing a loss but later was found to have entered into a Joint Development Agreement (JDA) with a developer. The Assessing Officer (AO) believed that income had escaped assessment and initiated re-assessment proceedings. The assessee argued before the Commissioner of Income Tax (Appeals) that the JDA was for revenue sharing, not a sale of land, and that revenue could only accrue upon completion of the agreement. The CIT(A) agreed with the assessee, citing case laws and concluded that no deemed income arose as the JDA was not fulfilled. The Department appealed, challenging the acceptance of a cancellation agreement without the AO's comments. The Tribunal held that the CIT(A) acted within his powers and dismissed the appeal, emphasizing that no revenue could be recognized without the JDA's completion.

Issue 2:
The Department contested the CIT(A)'s reliance on a cancellation agreement without following Rule 46A procedures. The Tribunal explained that Rule 46A allows new evidence before the CIT(A) if not before the AO, with the CIT(A) required to provide reasons and allow the AO to comment. The Tribunal examined the cancellation agreement's impact on the case, noting that the CIT(A) rightfully considered it as registered evidence, concluding that no merit existed in the Department's appeal.

Issue 3:
The Tribunal analyzed whether Section 53A read with Section 2(47) applied to the asset treated as stock-in-trade. Citing precedents, the Tribunal clarified that no revenue could arise until completion of the JDA, emphasizing that the cancellation agreement's introduction did not alter the outcome. The Tribunal dismissed the revenue's appeal, affirming that no revenue was recognizable in the year under consideration due to the JDA's non-fulfillment.

In conclusion, the Tribunal upheld the CIT(A)'s decision, emphasizing that no revenue could be deemed from the JDA until its completion, and dismissed the Department's appeal challenging the admission of the cancellation agreement as evidence. The Tribunal clarified that the JDA, considered stock-in-trade, did not trigger revenue recognition under Section 53A, reinforcing that the cancellation agreement's inclusion did not change the case's outcome.