Sale taxability consideration accruing over a number of years on the sale of a plot in accordance with the development agreement

Facts and issues of the case

Both the appeals by the different assessees against the common order dated 31-01-2019 passed by the Commissioner of Income Tax (Appeals)-13, Pune [‘CIT(A)’] for assessment year 2011-12.Since, the issues raised in both the appeals are similar basing on the same identical facts. Therefore, with the consent of both the parties, we proceed to hear both the appeals together and to pass a consolidated order for the sake of convenience.

Court find this appeal was filed with a delay of 703 days. To condone the said delay, the assessee filed notarized affidavit dated 21-04-2021 explaining the reasons for delay. On perusal of the same and upon hearing both the parties, we find that the reasons explained by the assessee are bonafide which really prevented the assessee to file the appeal in time. Therefore, the delay of 703 days are condoned. The ld. AR submits that the assessee is not interested to prosecute ground No. 1. Hence, the same is dismissed as not pressed. Ground No. 2 raised by the assessee challenging the action of CIT(A) in confirming the addition of Rs.14,54,317/- on account of short term capital gain. Brief facts relating to the issue on hand are that the assessee is an individual and derives income from account writing and agriculture.

The assessee filed return of income declaring a total income of Rs.4,05,810/- and agricultural income of Rs.2,62,510/-. The said return of income was processed u/s. 143(1) of the Act. Thereafter, the AO reopened the assessment u/s. 147 of the Act and determined the total income of the assessee at Rs.18,60,130/- inter alia making addition of Rs.14,54,317/- on account of undisclosed short term capital gain vide its order dated 27- 12-2016 passed u/s. 143(3) r.w.s. 147 of the Act. The CIT(A) confirmed the view of AO in making addition on account of undisclosed short term capital gain. Aggrieved by the same, the assessee is before me. Heard both the parties and perused the material available on record.

I note that the assessee along with nine other persons jointly purchased an immovable property situated in Saidapur from Shri Natha Hanumant Jadhav and others on 03-05-2010 for a consideration of Rs.3,00,00,000/- and borrowed fund of Rs.3,75,00,000/- from the Chhatrapati Sambhaji Co. Op. Credit Society. Subsequently vide registered mortgaged deed dated 18- 10-2010 the said property was mortgaged with Karad Janata Sahakri Bank Ltd. for a loan of Rs.5,00,00,000/-. It is noted that the assessee along with others, each, has to pay an EMI of Rs.1,17,500/- till the repayment of the entire loan along with interest.

Thereafter, the assessee along with others entered into development agreement with Adarsh Vastu Nirmiti Pvt. Ltd. on 09-12-2010 with terms and conditions that the said developer was to pay EMI on behalf of the assessee and others to Karad Janata Sahakari Bank Ltd. According to the AO the said loan of repayment arising out of mortgaged loan taken from Karad Janata Sahakari Bank Ltd. was shifted to Adarsh Vastu Nirmiti Pvt. Ltd. and none of the said joint owners including the assessee required to repay their respective loan amount to the said bank. In accordance with the same, the AO computed their short term capital gain in the hands of the assessee vide para No. 9.2 of the assessment order which is reproduced as under :

		Amount Rs.	Amount Rs.
	Sale of Plot as per Development Agreement with Adarsh	50,00,000
	Sale to Kacchi Developers	4,30,000
A	Total sale consideration		54,30,000
	Less : Expenses
1	Land Purchase	30,00,000
2	Registration Expenses	1,34,260
3	Interest on Loan from Chhatrapati Sambhaji Patsanstha	3,64,767
4	Interest on Loan – Deferred	2,63,656
5	Land Development Charges	1,38,000
6	Loan Processing Fees	75,000
B	Total plot expenses on the date of transfer		39,75,683
C	Short Term Capital Gain		14,54,317

Observation by the court

On perusal of the above, court note that the AO considered sale of plot as per development agreement of Rs.50,00,000/- as the share of assessee but, I find no reference whatsoever regarding the exact share of assessee pointing out in the said development agreement. The contention of ld. AR is that the AO considered the said amount on notional basis without pointing any terms and conditions of the said development agreement. It is also true to the effect that the ld. AR reported his inability to furnish the said development agreement before this Tribunal due to various reasons but however pleaded that the assessee is ready to produce all the details rebutting the computation made by the AO vide para No. 9.2 of the assessment order.

Assesse find that the view of AO in para No. 9.1 of the assessment order that the buyer i.e. Adarsh Vastu Nirmiti Pvt. Ltd. has absolute right over the subjected property and the assessee and other owners transferred their ownership in favour of the developer Adarsh Vastu Nirmiti Pvt. Ltd. to discharge liability in terms of the loan availed vide mortgaged deed. Therefore, it is clear that the developer Adarsh Vastu Nirmiti Pvt. Ltd. is entitled to receive entire amount of purchase money from the prospective purchasers to the exclusion of assessee and others, undoubtedly, not in one year but extending to many years depending on the sale of plots/flats to the prospective purchasers.

Therefore, it is clear the sale consideration which is said to have been taxed in the hands of the assessee not been accrued to the assessee in the year under consideration, but is extending to many years, if that is the case the order of AO in computing the short term capital gains vide para No. 9.2 is not justified, but taking into consideration the repayment by way of EMI’s by the developer to Karad Janata Sahakari Bank Ltd. on behalf of the assessee is to be considered for taxation as actual receipt towards sale consideration in the respective assessment years. Admittedly, the consideration or sale of plot as per development agreement as considered by the AO at Rs.50,00,000/- has not been accrued to the assessee, therefore, the AO is directed to compute the short term capital gains depending on the repayment by way of EMI on behalf of the assessee towards mortgaged loan by the developer to the share of assessee.

The assessee shall provide all the details in that regard. Therefore, I hold the property belonging to the assessee and others was transferred to developer Adarsh Vastu Nirmiti Pvt. Ltd. u/s. 2(47) of the Act and the assessee is liable to be taxed for short term capital gains as indicated above. The AO shall complete the assessment by giving reasonable opportunity of hearing to the assessee and the assessee is liberty to file all the evidences, in support of her claim. Thus, ground No. 2 raised by the assessee is allowed for statistical purpose.

In view of my decision in ground No. 2, the issue raised in ground No. 3 becomes academic, requiring no adjudication. In the result, the appeal of assessee is allowed for statistical purpose. I find that the issues raised in the appeal and the facts in ITA No. 149/PUN/2021 are identical to ITA No. 148/PUN/2021 except the variance in amount. Since, the facts in ITA No. 149/PUN/2021 are similar to ITA No. 148/PUN/2021, the findings given by us while deciding the appeal of assessee in ITA No. 148/PUN/2021 would mutatis mutandis apply to ITA No. 149/PUN/2021, as well. Accordingly, the appeal of assessee is allowed for statistical purpose.