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TMI Blog2023 (2) TMI 794X X X X Extracts X X X X X X X X Extracts X X X X ..... .ft. for a sale consideration of Rs.170 crores. We reverse the order of CIT(A) and allow this appeal of assessee. Consequently, the appeal of Revenue is dismissed. - ITA No. 222/CHNY/2022 ITA No. 310/CHNY/2022 - - - Dated:- 31-1-2023 - SHRI MAHAVIR SINGH, VICE PRESIDENTAND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER For the Assessee : Shri B. Ramakrishnan, FCA For the Revenue : ShriP. Sajit Kumar, JCIT ORDER PER MAHAVIR SINGH, VICE PRESIDENT: These cross appeal by the assessee and Revenue for the assessment year 2016-17 are arising out of order of Commissioner of Income Tax (Appeals)-18, Chennai in ITA No.316/2019- 20/CIT(A)-18, Appeal Reference No.CIT(A), Chennai-18/10416/ 2019-20, dated 28.02.2022. The assessment was framed by the ACIT, Central Circle 3(1), Chennai u/s. 143(3) r.w.s. 153C of the Income-tax Act, 1961 (hereinafter the Act ) vide order dated 31.12.2019. 2. The only common and interconnected issue in both the appeals is as regards to the order of CIT(A) upholding the action of the AO partly that the provisions of section 2(47)(v) of the Act are applicable in regard to 40 grounds and 1,896 sq.ft., out of 79 grounds and 2,222 sq.ft., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of renting out of immovable properties and in real estate business. The assessee filed its return of income u/s.139(4) of the Act, for the relevant assessment year 2016-17 on 31.03.2018. The Income Tax Department conducted search and seizure operation u/s.132 of the Act in the case of Aadhi Enterprise Pvt. Ltd., (hereinafter AEPL ) and also covered the office premises of CPIL i.e., the assessee. During the course of search operation in the case of AEPL and others on 09.11.2017 at No.1, Pandaram Street, Pursaiwalkam, Chennai-7, a registered sale agreement dated 16.03.2015 entered into between CPIL and AEPL pertaining to sale of property named Firhaven , MRC Nagar, Chennai was found and seized vide loose sheet Nos.121 to 136 vide Annexure A-1. As per this agreement of sale, CPIL agreed to sell the property i.e., Firhaven for a consideration of Rs.380 crores to AEPL and accordingly an amount of Rs.15 crore was paid to CPIL as advance on the date of agreement. As a consequence to search conducted on the office premises of the assessee i.e., CPIL, a statutory notice u/s.153C of the Act was issued to the assessee on 15.10.2019 but no return of income in response to this notice was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars earlier. Hence with regard to the year of transfer it is necessary to have some documentary proof to ascertain the true facts. In this regard the Award of the arbitration Tribunal dated 19.03.2018 becomes a crucial evidence. Subsequent to the agreement and payment of Rs 297.5 crores by AEPL to CPIL, certain differences cropped up resulting in invoking the arbitration clause in the sale agreement. Hon'ble Mr. Justice S Jagadeesan was appointed as the sole arbitrator in this regard. During the pendency of the arbitration proceedings the two parties reached a compromise and a Memorandum of Compromise was entered into by the two parties on 10.03.2018. The said memorandum was signed by Shri Srinivasan Natrajan, Director of CPIL, on its behalf and Shri Maneesh Parmar on behalf of AEPL. As per the award of the arbitration tribunal dated 19.03.2018, the said compromise memo will be part and parcel of the award. The award is scanned and reproduced below for ready reference. . . Thus it is clear that both the parties mutually agreed to the compromise and the same has been made part of the award. More importantly the above award has been accepted by both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ession during F.Y.2015-16 relevant to A.Y, 2016-17 as discussed below. (iii) The transferee must have done some act in furtherance of the contract AEPL demolished the existing building in the land by obtaining permission from corporation on 10.07.2015; it appointed a security agency to guard its premise; it entered into a FDI agreement with a Mauritius based Pacatolus Investments Ltd and it has also applied to RBI in FY 2015-16 for foreign inward remittances. (iv) Transferee must have performed or willing to perform his part of the contract: AEPL paid Rs 297.50 crores to CPIL (Rs.15 crores in F.Y. 2014- 15 and Rs.282.5 crores in FY 2015-16). This amounts to 78.3% of the total consideration of Rs 380 crores. In view of the above facts, this office is of the considered opinion that the above transaction squarely falls within the meaning of transfer as defined in section 2(47)(v) of the I.T. Act, 1961 which has taken place in the F.Y.2015-16 relevant to A.Y.2016-17. Aggrieved, assessee came in appeal before the CIT(A). 4. The CIT(A) after considering the submissions of the assessee and considered other material placed before him, noted that AEPL has performed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the AO to adopt the sale consideration at Rs.170 crores for 40 grounds and 1896 sq.ft. The AO would recomputed the capital gains by allowing the indexed cost of the land for 40 grounds and 1896 sq.ft. and determine the capital gains by taking the sale consideration of Rs.170 crores and indexed cost of 40 grounds and 1896 sq.ft. The grounds of appeal in this regard are thus partly allowed. Aggrieved, both assessee as well as Revenue came in appeal before the Tribunal. 5. We have heard rival contentions and gone through facts and circumstances of the case. The facts of the case are that during the search operation conducted by the Income-Tax Department u/s.132 of the Act in the case of AEPL, a registered sale agreement was fund. This sale agreement was entered into between CPIL and AEPL dated 18.03.2015 by which the assessee agreed to sell the property referred to as Firhaven admeasuring about 79 grounds and 2,222 sq.ft., for a total consideration of Rs.380 crores. A sum of Rs.15 crores was paid as advance on the date of agreement. In pursuance to the sale agreement, powers of attorney were also executed on 01.04.2015 and 06.04.2015. These powers of attorney were also fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rted into stock-in-trade w.e.f. 25.03.2016and for this, he produced before us copies of annual report along with final accounts as on 31.03.2015 31.03.2016. The ld.AR drew our attention to page 74, wherein the relevant note given reads as under:- Note: During this financial year, the Company obtained necessary approvals and demolished the building stood at Firhaven Estate, with an intention to develop the land in to saleable units of residential flats. Hence, the immovable property at Firhaven Estate has been converted in to stockin- trade with effect from 25th March 2016. 6.1 The ld.AR for the assessee also drew our attention to page 75, wherein advance received against the converted asset into stock-intrade for the purpose of developing the property on its own. The ld.AR drew our attention to para 2.2 2.3 of the audit report, which is enclosed at page 75 and the same reads as under:- 2.22 Advance Received against sale of property: The Company has entered into an agreement dated 16th Mar 2015 for sale of one of its property. However, due to the subsistence of Stay of sale by H ble High Court of Madras and due to non-fulfilment of Conditions to the sale by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erm of part performance u/s.53A of the Transfer of Property Act, the AO has rightly charged the capital gain on the entire transaction. The ld. Senior DR stated that all the ingredients of Section 53A r.w.s. 2(47) of the Act are complete for the reason that the assessee entered into an agreement for sale of this property, part consideration was received, possession was handed over by virtue of power of attorney to the prospective buyers and once these ingredients are complete the transfer is complete in every aspect. Hence, he urged the Bench to confirm the order of AO and allow the appeal of Revenue and dismiss the appeal of assessee. 8. We noted that neither AO nor CIT(A) at all considered the aspect of the claim made by assessee from the beginning that the assessee s property at Firhaven Estate has been converted into stock-in-trade w.e.f. 25.03.2016 and once, assessee s property is converted as stock-in-trade and accounts are accepted as it is by the Revenue and not at all rejected, the status of this asset cannot be brought for taxing purpose under the head capital gains . The reason for this is that once this asset is converted into stock-in-trade, which is undisturbed, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies below were not right in holding the assessee-appellant to be liable to capital gains tax in respect of remaining land measuring 13.5 acres for which no consideration had been received and which stood cancelled and incapable of performance at present due to various orders passed by the Supreme Court and the High Court in PILs. Therefore, the appeals are allowed. 8.1 Even this issue of execution of GPA s and on the basis of GPA s possession handed over will not conclude the transfer as complete and this has been held by Hon ble Supreme Court in the case of Suraj Lamp Industries (P.) Ltd., vs. State of Haryana, [2011] 14taxmann.com 103, wherein it is held as under:- 18. We have merely drawn attention to and reiterated the well-settled legal position that SA/GPA WILL transactions are not 'transfers' or 'sales' and that such transactions cannot be treated as completed transfers or conveyances. They can continue to be treated as existing agreement of sale. Nothing prevents affected parties from getting registered Deeds of Conveyance to complete their title. The said SA/GPA/WILL transactions' may also be used to obtain specific performance or to defend ..... X X X X Extracts X X X X X X X X Extracts X X X X
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