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October 13, 2022

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

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 Adarsh50,00,000 
 Sale to Kacchi Developers4,30,000 
ATotal sale consideration 54,30,000
 Less : Expenses  
1Land Purchase30,00,000 
2Registration Expenses1,34,260 
3Interest     on     Loan    from     Chhatrapati Sambhaji Patsanstha3,64,767 
4Interest on Loan – Deferred2,63,656 
5Land Development Charges1,38,000 
6Loan Processing Fees75,000 
BTotal plot expenses on the date of transfer 39,75,683
CShort 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.


In the result, both the appeals of assessee are allowed for statistical purposes.


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