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TMI Blog2022 (4) TMI 902X X X X Extracts X X X X X X X X Extracts X X X X ..... advanced 100% of the cost price of the property of construction of 35,000 sq.ft. IT park project, we find that the ld. CIT(A) has correctly held that the amount of ₹.7 crores (the receipt of ₹.15 crores Less ₹.8 crores paid by the assessee to the developer) was liable to tax as Long Term Capital Gains in the hands of the assessee, subject to indexation for the relevant years and rightly directed the Assessing Officer to bring to tax the Long Term Capital Gains computed by treating ₹.15 crores as 'Sale consideration' and ₹.8 crores as 'Cost of acquisition'. Thus, the ground raised by the assessee is dismissed. Alternative plea raised before the ld. CIT(A) that if at all it were to be assessed as an income, it could be done only in the year when the Developer squares up the transaction in its books - CIT(A) has clearly mentioned in the appellate order at page 49 that the ld. CIT(A) has called for and perused the hard copies of the returns of income of the assessee for subsequent years i.e., assessment years 2012-13 to 2015-16, the ld. CIT(A) noticed that even upto assessment year 2015-16, the amount in question has not been offered t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld.CIT (A) erred in NOT accepting the Assessee's contention that the amount of ₹ 15.00, of which ₹ 7 Crore is a part, is being a refundable security deposit is only a liability and NOT an income in the hands of the Assessee. 6. The Ld.CIT (A) erred in NOT considering the judgment of Supreme Court in the case of Excel Industries, relief upon by the Assessee, for the proposition that income can be said to have accrued to an Assessee, only when the other party accepts it as such, in their books. 7. The Ld.CIT (A) has conveniently ignored the categorical assertion of the M.D. of the Developer Company in his answers to Question Nos. 5 6 of the sworn statement dated 7.01.2014, till the date of recording the sworn statement i.e 07.01.2014, that they were classifying the Assessee as a debtor and the said amount as recoverable as advance deposit. 8. The Ld.CIT (A) erred in NOT accepting the alternative contention of the Assessee that if at all it were to be assessed as an income, it could be done only in the year when the Developer squares up the transaction in its books, which MD of the Developer company has stated in his letter dated 24.01.2014, that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee filed her return of income for the assessment year 2011-12 on 16.12.2011 admitting a total income of ₹.87,57,270/- and the same was processed under section 143(1) of the Income Tax Act, 1961 [ Act in short]. Subsequently, the case was taken up for scrutiny under CASS and notice under section 143(2) of the Act was issued and after following due procedure, the Assessing Officer has completed the assessment u under section 143(3) of the Act dated 13.03.2014. In the assessment order, the Assessing Officer has noted that the assessee has paid a sum of ₹.8,00,00,000/- (Rupees Eight Crores only) during the financial year 2006-07 to M/s. Kgeyes Nelsun Projects Pvt. Ltd. (hereinafter referred to as the 'Developer'), as an advance payment for her proposed purchase of constructed property/floor area of 6th floor. The project conceived/ proposed was to build an IT Park called ANIKSHA at Kottivakkam, Chennai. The property was proposed to be built and handed over by the company on or before 31.12.2007 to the assessee as conceived/agreed of, vide agreement dated 01.07.2006. However, the same could not materialise as proposed/planned. On failure to deliver the aforementio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had not taken any further legal steps to enforce/secure her interest for the investment made in the company. In view of this assessee's contention that she was not able to contact neither her brother (being the chairman of M/s KGS Developers Ltd.) nor the company to secure her interest is devoid of merits and is apparently a false stretched co-relation of subsequent facts. iii. Further assessee's presumption to extend similar time still further is not based on any verifiable submissions. Similarly assessee's presumption of intrinsic value and consequent presumption of holding it as deposit to an uncertainable conditions/probabilities is not based on any commercial prudency. iv. When further returns are neither ascertainable nor promised by the builder in concrete terms, the assessee's contentions of probabilities do not fit into the prudent accounting principles r. w. provisions of the IT Act. 2.3. After analysing the facts and circumstances and the correspondences made by the assessee, the Assessing Officer has observed that the assessee had initially held the amount as compensation in view of forfeiture. When it was pointed out by the department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed security deposit in the nature of revenue receipt and did not come under the extinguishment or relinquishment envisaged by section 2( 47) of the Act. It was also submitted that for tax to be chargeable under section 45 of the Act on capital gains, there should have been first a capital asset under section 2(14) of the Act and there should have been transfer under section 2(47) of the Act. In the instant case, the capital asset did not come into existence at all in the first place and therefore, there can be no capital gains that have accrued. When the said income is not chargeable under capital gains, the same is to be chargeable under section 56 of the Act as 'Other Sources'. 4. On the other hand, by referring to the grounds of appeal as reproduced hereinabove, the ld. Counsel for the assessee has prayed for deleting the entire addition in the assessment year 2011-12. 5. We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. The assessee and the Developer have entered into an agreement/letter dated 01.07.2006 [purchase agreement] as per which the price of the property was mutually agreed at ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sulted in earning other income by the assessee in the form of compensation for the original investment made with the company as discussed supra, in detail. The assessee's contention to consider it as capital receipt/advance as against the forfeiture clause is not based on any provision of I. T. Act. Moreover there has been neither any capital asset nor any transfer of such asset. 17.2 The payment made by the assessee is having a mere character of a deposit / an advance (a current asset), in return of which the assessee got ₹ 7,00,00,000/- (Rupees Seven Crores only) in addition hence it cannot be considered for taxation under the head income from Capital Gains as therefore the same is held as revenue receipt and assessed under head Income from Other Sources . 5.1 Upon the assessment order passed by the Assessing Officer, the ld. CIT(A) has noted the following salient points: (i) There was an offer on 01.07.2006 for the proposed construction of IT Park called KGEYES ANIKSHA at Kottivakkam, Chennai by the company M/s. KGEYES NELSUN PROJECTS PRIVATE LIMITED, Chennai. (ii) The assessee accepted the offer and made full payment of ₹.8,00,00,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts on record, the Assessing Officer found that it was evident that the offer vide letter dated 01.04.2010 (termed by the company itself as 'our final offer for amicable and full final settlement') was made to the assessee. Only upon the acceptance of the said offer by the assessee, the payment was made. It is also evident that since neither the proposed/similar property was identified by the company nor had the assessee has identified/chosen a property of similar nature, the security deposit as on 31.03.2011, the last date mentioned therein, stands 'forfeited'(SIC) and as on 31.03.2011, since there was no further alteration/modification/communication of the terms clearly agreed upon by both parties, (vide agreement dated 01.04.2010), until the same was scrutinized by the department. Thus, the clear and unequivocal terms of the proposal was respected by accepting the offer, and the amount of ₹. 15 crores was paid to the assessee, during assessment year 2011-12. However, even thereafter, the assessee claims that she continued to classify the same as 'refundable security deposit' and the company continue to claim the same as 'recoverable advance' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls by KGS. Therefore, in view of the change in the management, as informed to me, I was more concerned to document to secure my investment and more so, to get the property for which I paid 100 per cent in advance. Further follow-up resulted in they making a settlement letter dt. 01.04.2010 offering to place ₹ 15 crores as Refundable Security Deposit and agreeing on specific performance of delivering the property booked for or similar property together with a tenant acceptable to me and fetching ₹ 12.5 lakhs per month. It was agreed to complete the above specific performance on or before 30.6.2014 and failing which the said Refundable Deposit will be forfeited by KGS in my favour. It is to be noted on the date of special offer, i.e. 01.04.2010, they have not even started the foundation in the above mentioned land and statutory permissions are awaited. It is because of this condition it was agreed that over a period of 4 years, they will complete the project and deliver me the 6th floor in IT Park ANIKSHA. Whereas in the afore-said offer letter dt. 1.4.2010 the date for specific performance has been stated as 31.2.2011, which was clarified as typographical error and wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to replacement of the appropriate portion and took the ₹. 15 crores. The revenue generated out of this ₹. 15 crores are offered in my IT return and tax paid. This action of the assessee, in actually 'receiving' the ₹ 15 crores and offering the revenue there from to tax in her IT return, has brought the whole matter to a final conclusion. 5.5 After carefully going through the appellate order, on merits, considering the entire facts and circumstances of the case, prima facie, the assessee has advanced 100% of the cost price of the property of construction of 35,000 sq.ft. IT park project, we find that the ld. CIT(A) has correctly held that the amount of ₹.7 crores (the receipt of ₹.15 crores Less ₹.8 crores paid by the assessee to the developer) was liable to tax as Long Term Capital Gains in the hands of the assessee, subject to indexation for the relevant years and rightly directed the Assessing Officer to bring to tax the Long Term Capital Gains computed by treating ₹.15 crores as 'Sale consideration' and ₹.8 crores as 'Cost of acquisition'. Thus, the ground raised by the assessee is dismissed. 5.6 So ..... 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