[2021] 131 taxmann.com 295 (Bangalore - Trib.

)/[2022] 192 ITD 147 (Bangalore -

Trib.)[11-10-2021]

INCOME TAX : Where scrap sale only to extent of Rs. 31.46 lakhs out of total scrap
sale of Rs. 57.22 lakhs was credited in ledger account as scrap sale and balance was
not offered for taxation, lower authorities rightly brought to tax balance amount of
Rs. 25.76 lakhs which was based on material found during course of survey and
assessee was not able to reconcile same, even after having been provided
opportunity of hearing before lower authorities
INCOME TAX : Where assessee received certain amount for agreeing to transfer land
and building and claimed to have incurred expenditure towards cost of improvement
by way of levelling, boundary work and fencing, but failed to furnish any evidence
supporting these expenses, said expenditure had rightly been disallowed
INCOME TAX : Where assessee executed registered JDA along with registered GPA
for development of property which authorized developer a provisional permission to
enter into land, authorizing them to develop, execute sale deed or other conveyance
in respect of impugned property and authorized to sell constructed area of both
assessee as well as developer, transactions entered by way of JDA would
undisputably constitute transfer in terms of section 45 read with section 2(47) and
assessee would be liable to pay capital gains tax on transfer of capital asset

■■■

[2021] 131 taxmann.com 295 (Bangalore - Trib.)

IN THE ITAT BANGALORE BENCH 'B'
Jaico Automobile Engineering Company (P.) Ltd.
v.
Deputy Commissioner of Income-tax, Circle 11(5), Bangalore*
CHANDRA POOJARI, ACCOUNTANT MEMBER
AND SMT. BEENA PILLAI, JUDICIAL MEMBER
IT APPEAL NO. 933 (BANG.) OF 2017
[ASSESSMENT YEAR 2007-08]
OCTOBER 11, 2021

I. Section 145 of the Income-tax Act, 1961 - Method of accounting - Estimation of profit
(Scrap sales) - Assessment year 2007-08 - During course of survey, it was found that out of
total scrap sales of Rs. 57.22 lakhs only an amount of Rs. 31.46 lakhs was credited in ledger
account as scrap sale and balance amount of Rs. 25.76 lakhs was not recorded and reasons
for not offering same to tax was not explained by assessee - Accordingly Assessing Officer
made addition of Rs. 25.76 lakhs and same was upheld by Commissioner (Appeals) -
Whether lower authorities rightly brought to tax balance amount of Rs. 25.76 lakhs as same
was based on material found during course of survey and assessee was not able to
reconcile same, even after having been provided an opportunity of hearing before lower
authorities - Held, yes [Para 15] [In favour of revenue]
II. Section 48, read with section 45, of the Income-tax Act, 1961 - Capital gains - Computaion
of (Cost of improvement) - Assessment year 2007-08 - Assessee received Rs.14 crores for
agreeing to transfer land and building and sale agreement was for transfer of land for Rs. 9
crores and Rs. 5 crores was towards improvement - As against consideration of Rs. 5 crores
for improvement, assessee claimed to have incurred expenditure toward levelling, boundary
work and fencing - Assessing Officer while concluding assessment, considered entire sale
consideration of Rs. 14 crores under held 'capital gains', but did not allow cost of
improvement by way of fencing to tune of Rs. 1.64 crores, alleging that assessee had not
proved expenditure towards improvement by way of fencing made - On appeal,
Commissioner (Appeals) upheld order of Assessing Officer - Whether since assessee failed
to furnish any evidence supporting expenditure incurred on cost of improvement, said
expenditure had rightly been disallowed - Held, yes [Para 28][In favour of revenue]
III. Section 2(47), read with section 45, of the Income-tax Act, 1961 - Capital gains - Transfer
(Others) - Assessment year 2007-08 - Whether once profits had arisen in accounting year out
of transfer of capital asset, it would be sufficient to attract liability under section 45 - Held,
yes - Assessee executed registered JDA with developer along with registered GPA for
development of property which authorized developer a provisional permission to enter into
land, authorizing them to develop, execute sale deed or other conveyance in respect of
impugned property and authorized to sell constructed area of both assessee as well as
developer - Thus, assessee had provided unhindered access to purchaser which was very
much in nature of possession - Whether therefore, agreement between assessee and
developer remaining effective, transactions entered by way of JDA would undisputably
constitute transfer in terms of section 45 read with section 2(47) - Held, yes - Whether
further, since assessee had a right to receive profit in assessment year under consideration,
it would be liable to pay capital gains tax on transfer of capital asset and actual receipt of
profit would not be a relevant consideration - Held, yes [Paras 69, 72, 76 and 77] [In favour of
revenue]
FACTS-II

■ The assessee had received Rs. 14 crores from GE for agreeing to transfer the land and building vide
agreement dated 29-11-2006. The sale agreement was for transfer of land for Rs. 9 crores and Rs. 5 crores
was towards improvement. As against the consideration of Rs. 9 crores, the assessee claimed deduction
towards cost of land and cost of building, brokerage and legal charges, thus, capital gain of Rs. 5.55 crores
was offered for taxation. In respect of Rs. 5 crores for improvement, the assessee claimed expenses of Rs.
1.64 crores towards cost of fencing of the property and thereafter, income of Rs. 3.30 crores arising
therefrom was offered as income from other sources under the head Miscellaneous Receipts.
■ The Assessing Officer while concluding the assessment considered the entire sale consideration of Rs. 14
crores under the head 'capital gains' and after giving deduction for the expenditure claimed towards cost of
purchase of land and building as inflated by Cost Inflation Index, determined the capital gains at Rs. 10.55
crores after further allowing the expenditure towards brokerage and legal charges. While doing so, the
Assessing Officer did not allow the cost of improvement by way of fencing to the tune of Rs. 1.64 crores,
alleging that the assessee had not proved the expenditure towards improvement by way of fencing made.
■ On appeal, the Commissioner (Appeals) upheld the order of the Assessing Officer.
■ On further appeal, the Tribunal restored the matter back to the file of the Assessing Officer for fresh
adjudication.
■ In the remand proceedings, the Assessing Officer virtually repeated the finding made in the original
assessment with regard to allowance ofRs.1.64 crores.
■ On appeal to the Tribunal:
HELD - II

■ The Commissioner (Appeals) had actually decided the issue in favour of assessee and observed that the
assessee claimed the incurring expenditure of Rs. 1.64 crores as expenses towards levelling, boundary
work and fencing, but failed to furnish any evidence supporting these expenses and hence upheld the
disallowance. Even before instant court, there is no iota of evidence in support of the claim of the
assessee. Hence, on this count, there is no error in the order of Commissioner (Appeals). [Para 28]
■ The other contention of the assessee is that the sum of Rs. 3.30 crores should have been excluded from the
computation of long-term capital gain as it was offered as income from other sources. Admittedly, the
Commissioner (Appeals) has given relief on this count by observing that the said amount cannot be taxed
twice; once as capital gain and another as income from other sources and prima facie accepted the
argument of the assessee. However, he directed the Assessing Officer to take appropriate rectification
action after due verification of the facts and after affording necessary opportunity to the assessee in this
regard. Being so, the assessee cannot have any grievance on this count. However, it is made clear that the
Assessing Officer has to carry out the directions of the Commissioner (Appeals) in his order. With these
observations, this ground of the assessee is dismissed. [Para 29]
CASE REVIEW

CIT v. Dr. T. K. Dayalu [2011] 14 taxmann.com 120/202 Taxman 531 (Kar.) (para 70) and CIT v. Balbir Singh
Maini [2017] 86 taxmann.com 94/251 Taxman 202/398 ITR 531 (SC) (para 72) followed.
CASES REFERRED TO

CIT v. Reliance Industries Ltd. [2019] 102 taxmann.com 52/261 Taxman 165/410 ITR 466 (SC) (para 4), CIT
v. Sridev Enterprises [1991] 59 Taxman 439/192 ITR 165 (Kar.) (para 4), CIT v. Dr. T.K. Dayalu [2011] 14
taxmann.com 120/202 Taxman 531 (Kar.) (para 32), Chaturbhuj Dwarkadas Kapadia of Bombay v. CIT
[2003] 129 Taxman 497/260 ITR 491 (Kar.) (para 32), Vemanna Reddy (Huf.) v. ITO [2009] 30 SOT 11
(Bang.) (URO) (para 32), CIT, ITO v. N. Vemanna Reddy [IT Appeal No. 591 of 2008, dated 18-8-2014]
(Kar.) (para 33), Ravinder Singh Arora v. Asstt. CIT [2012] 24 taxmann.com 346/53 SOT 124 (Hyd.) (para
34), C.S. Atwal v. CIT [2015] 59 taxmann.com 359/234 Taxman 69/378 ITR 244 (Punj. & Har.) (para 34), CIT
v. Balbir Singh Maini [2017] 86 taxmann.com 94/251 Taxman 202/398 ITR 531 (SC) (para 35), Shrimant
Shamrao Suryavanshi v. Pralhad Bhairoba Suryavanshi [2002] 3 SCC 676 (para 35), Seshasayee Steels (P.)
Ltd. v. Asstt. CIT [2020] 115 taxmann.com 5/275 Taxman 187/421 ITR 46 (SC) (para 36), CIT v. K. Jeelani
Basha [2002] 122 Taxman 509/256 ITR 282 (Mad.) (para 43), R. Vijayalakshmi v. Appu Hotels Ltd. [2003]
131 Taxman 592/[2002] 257 ITR 4 (Mad.) (para 43), Jasbir Singh Sarkaria, In re [2007] 164 Taxman 108/294
ITR 196 (AAR - New Delhi) (para 58) and Alapati Venkataramiah v. CIT [1965] 57 ITR 185 (SC) (para 77).
Smt. Sheetal Borkar, Adv. for the Appellant. Muzaffar Hussain, CIT (DR) for the Respondent.
ORDER

Chandra Poojari, Accountant Member. - This appeal by the assessee is directed against the order of the
CIT(Appeals) dated 17-12-2014 on the following grounds:—

"1. The learned Commissioner of Income-tax (Appeals) erred in upholding the disallowance of travel
expenditure to the extent confirmed by him. (Rs.1,68,371).
2. The learned Commissioner (A) erred in upholding the interest expenditure to the extent of Rs.
17,26,100/-.
3. The learned Commissioner (A) ought to have appreciated that the assessment stood set aside even
though there is no specific finding in the Income-tax Appellate Tribunal's order and thus the
appellant had a right to challenge the disallowance and he ought to have given a finding in this
regard.
4. The learned Commissioner (A) ought to have appreciated that in the light of the judgment of the
Hon'ble Supreme Court in the case of S.A. Builders Ltd., v. CIT (288 ITR 1), the advances were in
the course of business and in the interest of business and consequently the deduction as claimed
was liable to be allowed in full especially when the appellant had sufficient non-interest bearing
funds.
5. The learned Commissioner (A) erred in upholding the impugned addition of Rs. 25,76,253/-
towards alleged undisclosed scrap sale.
6. The learned Commissioner (A)ought to have refrained from upholding the computation of capital
gains on the transfer of property to M/s. Gopalan Enterprises.
 7. On the facts the learned Commissioner (A) ought to have allowed the cost of purchase of steel
claimed by the appellant while computing the capital gains.
8. The learned Commissioner (Al ought to have appreciated that the amount of Rs. 3,36,29,479/-
being the surplus on account of sale of improvements having offered under the head "Income from
other sources" and the same was not liable to be added while computing the capital gains.
9. The learned Commissioner (A) ought to have refrained from upholding the computation of capital
gains in respect of alleged transfer of property to IDEB-Rs.43,61,72,341/-.
10. The learned Commissioner (A) ought to have appreciated that the provisions of Sec.2(47)(v) rws
sec.53A of the Transfer of Property Act has no application to the agreement of sale executed
between the appellant and IDEB and consequently there was no transfer in the relevant assessment
year to subject the capital gains if any for taxation in the relevant year.
11. The learned Commissioner (A) ought to have appreciated that the agreement to sell executed
between the appellant and IDEB was not acted upon ultimately and there was no transfer of
immovable asset to attract the provisions of sec.45 of the Act.
12. The learned Commissioner (A)erred in not considering the submissions of the appellant and the
case law cited to support its case while upholding the addition and accordingly the order of the
Commissioner (A)was opposed to law and liable to be set aside with regard to this issue.
13. The learned Commissioner (A) ought to have appreciated that the judgment of the Karnataka High
Court in the case of CIT v. Dr. T.K. Dayalu reported in 60 DTR (Kar) 403 was distinguishable and
the learned Commissioner (A) ought to have refrained from following the judgment to justify the
computation of capital gains.
14. The learned Commissioner (A) failed to appreciate that the property in question was subsequently
sold to another party and the capital gains therefrom had been offered by the appellant and there
was no omission and accordingly the capital gains as assessed in the relevant year is opposed to law
and accordingly liable to be deleted.
15. The learned Commissioner (A) erred in surmising the possession being handed over to IDEB when
the parties to the transaction denied for having provided possession to the alleged transferee and
consequently the application of provisions of sec. 2(47)(v) r.w.s. 53A of the Transfer of Property
Act is opposed to law and accordingly the impugned the capital gains as computed and upheld is
liable to be deleted.
16. On the facts the learned Commissioner (A)ought to have accepted the explanation and submissions
made by the appellant and refrained from upholding the impugned additions.
17. Without prejudice, the learned Commissioner (A)erred in not giving any finding with regard to levy
of interest u/s.234A, 234B and 234C of the Act.
18. The learned Commissioner (A)ought to have appreciated that interest under sections 234A, 234B
and 234C of the Act are not leviable in the case of the appellant.
19. Without prejudice, the interests levied are excessive and liable to be deleted in toto.
20. Without prejudice, the additions are excessive , arbitrary and unreasonable and liable to be deleted
in toto.
21. For these and other grounds that may be urged at the time of hearing of the appeal the appellant
prays that the appeal may be allowed."
2. Originally the assessee's appeal in ITA No. 1057/Bang/2010 was disposed of by this Tribunal vide order
dated 30-4-2012 wherein certain issues were remanded back to the AO for fresh decision. The AO while
giving effect to the order of the Tribunal in his order u/s. 143(3) r.w.s. 254 of the Act, confirmed the additions.
Against this, the assessee went in appeal before the CIT(A) who confirmed the additions. Now again the
assessee is in appeal before the Tribunal in the second round.
3. Ground Nos.2 to 4 are with regard to sustaining the addition of interest expenditure at Rs. 17,26,100. The
AO has added back a sum of Rs. 17,26,100 being 11% (SBI lending rate) on a sum of Rs. 1,56,91,814/-
holding it to be the interest attributable to the advance made by the assessee company to its director Sri B.S.
Chadha. The interest of Rs.17,26,100 was disallowed out of the interest claimed alleging that the interest was
not attributable to the business requirement and the borrowed funds had been diverted for non-business
purposes.
4. It is submitted that the amount advanced to Sri B.S. Chadha stood at Rs. 1,56,91,814 on the last date of the
accounting year. At the time the assessee company had also owed Sri Chadha. The assessee for the sake of
convenience has made separate account for the amount owed to Sri Chadha and also the amount receivable
from him. Both the accounts should be combined and considered since it is a running account between the
assessee company and Sri Chadha. Such a combined reading of both the accounts would clearly show that at
the end of the accounting year, the balance outstanding from Sri Chadha would be only a small amount and
the assessee had adequate non-interest bearing funds for such advance made to Sri Chadha. Thus, the
assumption that the interest bearing funds had been directed to Sri Chadha was incorrect and consequently the
disallowance of interest on the loan borrowed to the extent of Rs. 17,26,100 was totally uncalled for. The
assessee relies on the judgment of the Hon'ble Supreme Court in the case of CIT v. Reliance Industries Ltd.
[2019] 102 taxmann.com 52/261 Taxman 165. In fact, most disallowances had been in the past as it was fully
satisfied that the borrowed funds were utilized exclusively for business and thus the interest claimed was
liable to be allowed in toto u/s.36(1)(iii) or u/s.37 of the Act. Without prejudice, even if such disallowance is
called for, it can only be on the net of the balance and to the extent the net of the balance included net of
opening balance. Interest in relation to such opening balance cannot be disallowed as there was no
disallowance in the past as held by the Hon'ble High Court in the case of CIT v. Sridev Enterprises [1991] 59
Taxman 439/192 ITR 165 (Kar.).
Accordingly, it is submitted that the disallowance of interest may kindly be deleted.
5. The ld. DR submitted that it is apparent that the amount of Rs. 17,26,100 has been added back to the final
computation of income although there is no specific discussion by the AO on this issue. It is clear from the
assessment order u/s 143(3) r.w.s. 254 r.w.s 144 of the Act (which is presently under adjudication) that the
impugned assessment has been passed in pursuance to the directions of the ITAT vide its order dated
30/04/2012. A perusal of the ITAT's order reveals that no specific discussion on this issue or directions on this
regard have been given in this regard. It is apparent therefore that, the said issue has attained finality at the
level of AO's original assessment order and the CIT(A)'s order. In these facts and circumstances, it was
incumbent upon the AO to sustain the existing position in his impugned order. In this background the issue
raised, therefore, does not remain a subject matter of adjudication. In these facts & circumstances no
interference is called for. The assessee's grounds of appeal on this front does not emanate from the order of the
ITAT, which forms the basis of the impugned order u/s. 143(3) r.w.s. 254.
6. We have heard both the parties and perused the material on record. As rightly pointed out by the ld. DR, the
interest expenditure to the tune of Rs. 17,26,100 is not subject matter for consideration before the AO through
the directions of the Tribunal. The assessee has not agitated this ground before the Tribunal in the earlier
occasion. As such, there was no direction on this issue by the Tribunal so as to be taken up by the AO in the
second round in the proceedings u/s. 143(3) r.w.s. 254 of the Act. Hence there is no merit in the argument of
the ld. AR for the assessee that there was disallowance of the said amount by the AO in his second round of
order. Accordingly, this ground of the assessee is disallowed.
7. Ground No. 5 is regarding addition sustained by the CIT(Appeals) of Rs. 25,76,253 towards undisclosed
scrap sale.
8. With regard to the impugned addition on account of the alleged scrap sale, in the course of survey, it was
found that details towards scrap sales amounting to Rs. 25,76,253 was not accounted for in the regular books
of account. The AO also had observed that the scrap sales to the tune of Rs. 31,45,974 had been recorded in
the books of accounts. It was also observed that Sri S.C. Ajmeera, on enquiry, has submitted that out of Rs.
25,76,253, the assessee company had declared Rs. 10 lakhs which included the scrap sales shown in the books
of accounts. However, according to the AO, there was no proof provided by the assessee company to accept
the statement of Sri Ajmeera and therefore he made the addition of Rs. 25,76,253/-.
9. In this regard, it is submitted that undisputedly the assessee company had declared scrap sales to the tune of
Rs. 31,45,974 in the books of accounts and offered for taxation. The alleged unaccounted scrap sales found in
the course of survey was nothing but the various dates of sale recorded from April to December, 2006 and
January, 2007. The party to whom such sales were made had also been noted. The sales recorded in the books
of account were also with the same party. In other words, all these sales have been recorded in the books of
account which form part of the total sales of Rs. 31,45,984 as declared. The variations in dates were only on
account of the dates of dispatch or delivery and the dates on which the amounts were received. In the
circumstances, the impugned addition is totally uncalled for and the same requires to be deleted. In the
alternative, the statement of Sri Ajmeera should have been given credence to and at least Rs. 10 lakhs should
have been allowed out of Rs. 25,76,253 and if at all any addition was required, it could only be in respect of
the balance.
10. The ld. DR submitted that the assessee's submissions on the issue are not only vague but also unsupported
by clear documentary evidence or justifiable explanations inspite of the opportunities and clear directions of
the Tribunal while setting aside the issue for fresh examination before the AO. In such circumstances, it was
incumbent upon the assessee to produce the relevant party particulars, confirmations of account and bank
details with regard to the scrap-sales. It is evident from the AO's order that, in spite of adequate opportunities,
the assessee failed to establish the veracity of scrap sales to the extent of Rs. 25,76,253.
11. Further, the AO has clearly brought on record the questions posed to Shri. S. K. Ajmera during the survey
operation (vide question No. 5 of the statement recorded) regarding the impugned sales, in respect to which it
was only stated by him that, an amount of Rs. 10 lakhs was included in the undisclosed sales, declared/offered
for tax. The AO, however, has recorded a clear finding that no such income to the extent of Rs. 10 lakhs was
found to have been offered for tax. The Assessee has failed to counter this stand of the AO so as to establish
that such undisclosed sales were offered/subjected to tax by the assessee post-survey disclosure.
12. The AO has placed on record that during the survey, out of the total scrap sales of Rs. 57,22,227, an
amount of only Rs. 31,45,974 was found to be recorded, which figure matched with the ledger account, as per
annexure-1 of the said order. It was therefore abundantly clear that no part of the amount of Rs. 25,76,253 was
either offered for taxation or clearly evidenced/explained, during the original or subsequent assessment
proceedings.
13. It is observed from paras 14-19 of the Tribunal's order (cited supra) that after certain observations against
the relief of Rs. 10 lakhs given by the CIT(A), thereby the issue was remanded back to the AO for fresh
examination. It was therefore imperative for the assessee to produce specific and valid details/evidences in
support of its claim and justifying even the partial relief allowed by the CIT(A). It is clear that the assessee
has failed to do so. In these circumstances, there is no reason to interfere in the AO's order on this issue.
14. In the course of the proceedings before the CIT(Appeals), the assessee has not placed any fresh or reliable
evidentiary document or confirmatory details from respective parties. The extract of scrap-sales annexed with
the written submission is not supported by either proof of payment by cheque or party confirmations. Even if
these were to be presumed as cash sales, there is no corresponding or adequate proof to accept the same. In
this background, the addition to the extent of Rs. 25,76,253/- was upheld by the CIT(Appeals).
15. We have heard the rival submissions. In the assessment year under consideration, it was placed on record
by the AO that during the course of survey out of total scrap sales of Rs. 57,22,227 only an amount of Rs.
31,45,974 was recorded and the balance amount of Rs. 25,76,253 was not recorded and the reasons for not
offering the same to tax was not explained by the assessee. The Tribunal remanded this issue to the AO on the
reason that the assessee did not furnish any evidence to substantiate its claim that income had already been
offered to tax in earlier years and it was not clear as to whether earlier record available with the AO had been
considered while arriving at the conclusion that no evidence was produced by the assessee. However, in the
remand proceedings also, the assessee failed to produce relevant evidence in respect of its claim. Even after
going through the documents available with the AO in the form of part ledger account and Profit & Loss
account submitted by the assessee during the assessment proceedings, it was found by the AO that only scrap
sale to the extent of Rs. 31,45,974 out of total scrap sale of Rs. 57,22,227 was credited in the ledger account
as scrap sale and the balance was not offered for taxation. Hence the lower authorities rightly brought to tax
the balance amount of Rs. 25,76,253 which is based on material found during the course of survey and the
assessee was not able to reconcile the same, even after providing opportunity of hearing before the lower
authorities. Therefore, the addition is justified and this ground is dismissed.
16. Ground Nos. 6 to 8 are regarding sustaining addition of capital gain on transfer of property to M/s.
Gopalan Enterprises at Rs. 3,36,24,479.
17. The assessee has received Rs. 14 crores from M/s.Gopalan Enterprises for agreeing to transfer the land
and building vide agreement dated 29-11-2006. The sale agreement was for transfer of land for Rs. 9 crores
and Rs. 5 crores was towards improvement. Further, the consideration for sale of land was split into
consideration for land of Rs. 7,20,00,000 and consideration for building of Rs. 1,80,00,000. As against the
consideration of Rs. 9 crores, the assessee claimed deduction towards cost of land and cost of building,
brokerage and legal charges in the following manner:
(a) Value of Land Rs.1,39,78,550
(b) Value of Building as per Bldg Block (reduced from block of asset) Rs.1,80,00,000
(c) Indexed cost of land Rs.1,42,47,093
(d) Brokerage and legal charges Rs. 22,21,360

18. Thus, capital gain of Rs. 5,55,31,547 was offered for taxation. In respect of Rs. 5 crores for improvement,
the assessee claimed an amount of Rs. 1,63,70,521 as expenses towards cost of fencing of the property. The
income arising therefrom to the tune of Rs. 3,30,29,479 was offered as income from other sources under the
head Miscellaneous Receipts. The AO has however while concluding the assessment considered the entire
sale consideration of Rs. 14 crores under the head "capital gains" and after giving deduction for the
expenditure claimed towards cost of purchase of land and building as inflated by Cost Inflation Index,
determined the capital gains at Rs. 10,55,31,547 after further allowing the expenditure towards brokerage and
legal charges. While doing so, the AO did not allow the cost of improvement by way of fencing to the tune of
Rs. 1,63,70,521/- alleging the assessee had not proved the expenditure towards improvement by way of
fencing made. When the matter was taken up to the CIT (Appeals), the same was upheld. On further appeal to
the Tribunal, the Tribunal restored the matter back to the file of the AO for fresh adjudication.
19. In the remand proceedings, the AO virtually repeated the finding made in the original assessment with
regard to allowance of Rs. 1,63,70,521. It was reiterated that the assessee had not proved details for cost of
improvement by way of fencing by providing the details of vendors who had supplied steel and details with
regard to names and addresses of parties who had sold steel and also the details with regard to the expenses
incurred for construction of the compound by way of fencing. The alternate plea that the assessee having
offered Rs. 3,30,29,479 as income on account of improvement as aforesaid was not given a set-off in
determination of capital gains. In other words, having taken the full consideration of Rs. 14 crores for the
purpose of computation of capital gains, it is submitted that the AO should have excluded the income derived
by way of Rs. 3,30,29,479 which has been offered and requires to be deleted from the total income.
20. Further, it is submitted that the AO should have allowed the claim for fencing. It was an undisputed fact
that the premises had a solid fencing with steel barbed wire all over the area covering the area sold of
1,19,049 sq.ft. This has also been taken notice of by the CIT(Appeals) in his order dated 30-6-2010. Though
the CIT(Appeals) has concurred with the AO that the assessee did not give any details with regard to the
expenses incurred, there was no denial of existence of the boundary fencing with barbed wire which could not
have come on its own without any expenditure. It was also a fact that the cost of building estimated did not
include cost of fencing. Thus, even if evidence was not let in, the existence of fence cannot be denied, which
cost and as inflated by Cost Inflation Index is required to be estimated to allow the expenditure under section
48(2) of the Act, according to the assessee. Accordingly, the capital gains for transfer of property to M/s.
Gopalan Enterprises is required to be computed by giving a reasonable expenditure towards fencing and also
by reducing Rs. 3,30,29,479 from capital gains as computed by the AO.
21. The ld. DR submitted that the original agreement dated 11/08/2006 between the assessee and M/s.
Gopalan Enterprises, with regard to the of land and building, was for a consideration of Rs. 19,44,38,720. The
same is stated to have been subsequently revised vide agreement executed on 29/11/2006 for an amount of Rs.
14 crores. It is further seen that the said revised agreement was again split in two parts i.e., Rs. 9 crores for the
land and Rs. 5 crores for the improvements. The revised agreement in itself provides that the latter amount of
Rs. 5 crores was stated to be the consideration for compound wall; building, sheds and that the purchaser had
agreed to purchase such items on 'as is where is' basis.
22. He submitted that a perusal of the contents and conditions of the revised agreement clearly indicates that
the consideration is for building/sheds and compound walls which are admittedly appurtenant to the land in
question. It is abundantly clear that these receipts are intrinsically towards the items which form essential part
of fixed immovable property, and therefore, necessary constituents of the sale consideration for the land. The
land and building along with the compound wall could not be artificially segregated merely for the purpose of
breaking up the total sale consideration. It is not the case of the assessee that if land portion was to be sold to
M/s. Gopalan Enterprises, the other fixed items of building/shed or compound wall could have been sold to
some other entity. It is therefore absolutely clear that the total consideration of Rs. 14 crores pertained to the
single unit of property inclusive of the land and building appurtenant along with the boundary wall/fencing.
23. The Assessee, apart from certain general statements on the issues at hand, has not made a strong case for
splitting and segregating the consideration of Rs. 14 crores. The AO, on the other hand has not disputed the
genuineness of the revised agreement vis-a-vis the original agreement, but has raised plausible issues in
respect of the artificial split of the consideration which essentially relates to one single unit of property.
24. It is therefore to be held that the improvements in the form of compound wall, building sheds, etc., are
intrinsically a part and parcel of the land property as a whole which was sold by the assessee. Accordingly the
provisions of LTCG are attracted to the entire receipt of Rs. 14 crores. The AO's action on this account is
therefore to be upheld.
25. Regarding the assessee's claim of Rs. 1,63,70,521 as expenses purportedly towards leveling, boundary
work and fencing, disallowance was made in the absence of valid evidence to justify the said expenditure. The
CIT(A) upheld the AO's order. The Assessee had clearly failed to establish its claim during the assessment or
appellate stage or even during the survey operation, wherein Shri Ajmera (whose statement was recorded)
failed to furnish requisite proof or explanation in this respect. The ITAT in its order has remanded the issue to
the AO, primarily directing necessary verifications ought to be conducted in respect of parties to whom the
Assessee had statedly made the payments towards purchase of steel etc. for construction of the fencing wall.
26. In the background of the ITAT directions, the AO has stated that during the hearing on 26/02/2014, the
assessee was specifically required to produce "invoices and other supporting evidences for purchase of steel
alongwith details of parties including names, address, PAN and Ledger extents". The Assessee failed to
furnish the requisite evidentiary documents before the AO nor before the CIT(Appeals). Thus, the CIT(A)
upheld the action of the AO.
27. Regarding the alternate plea of the assessee that AO having taken full consideration of Rs. 14 crores for
computing LTCG, he should have excluded the income offered to the extent of Rs. 3,30,29,479 which was
purportedly declared as income on account of sale of improvement. The CIT(A) found it prima facie
acceptable that if it emanates from the AO's order that the same amount was subjected to tax under both the
heads i.e., capital gains by the AO as well as sale of improvements offered by the assessee and directed the
AO for appropriate rectification after due verification of facts.
28. We have heard both the parties and perused the material on record on this issue. In this case, the
CIT(Appeals) has given a finding as argued by the ld. DR in paras 21 to 27 hereinabove. Thus, it means that
actually the CIT(Appeals) decided the issue in favour of assessee and observed that the assessee claimed the
incurring expenditure of Rs. 1,63,70,571 as expenses towards levelling, boundary work and fencing, but failed
to furnish any evidence supporting these expenses and hence upheld the disallowance. Even before us, there is
no iota of evidence in support of the claim of the assessee. Hence, on this count, there is no error in the order
of CIT(Appeals).
29. The other contention of the ld. AR is that the sum of Rs. 3,30,29,479 should have been excluded from the
computation of long term capital gain as it was offered as income from other sources. Admittedly, the
CIT(Appeals) has given relief on this count by observing that the said amount cannot be taxed twice; once as
capital gain and another as income from other sources and prima facie accepted the argument of the assessee.
However, he directed the AO to take appropriate rectification action after due verification of the facts and
after affording necessary opportunity to the assessee in this regard. Being so, the assessee cannot have any
grievance on this count. However, we make it clear that the AO has to carry out the directions of the
CIT(Appeals) in para 9.4 of his order. With these observations, this ground of the assessee is dismissed.
30. Ground Nos. 9 to 16 are with regard to sustaining the capital gain in respect of transfer of property to
IDEB of Rs. 43,6172,341.
31. The assessee had executed a JDA with IDEB on 30-3-2007 for developing 1,93,879 sq.ft. of land. On the
very same day, there was a General Power of Attorney [GPA] to the said company in connection with
development of the property. Also, a sale agreement was executed on the same day with IDEB for transfer of
land and building to be built which would fall into the owner's share in the JDA to the developer. All the
agreements are placed in the Paper Book. The ld. AR submitted that from the JDA, it could be noticed that it
was agreed to between the parties that possession would be given to the developer in pursuance of the
agreement on or before 30-11-2007. The reason for fixing the date was on the basis of payment of refundable
security deposit of Rs. 35 crores. In clause 8 the scheme of payment of refundable security deposit has been
provided which is at Page Nos.133 and 134 of the Paper Book. The developer had paid Rs. 15 crores while the
agreement was executed. With regard to balance Rs. 20 crores he was to pay Rs. 10 crores before 5-5-2007
and balance Rs. 10 crores on or before 30-11-2007. Thus, it was specifically agreed to between the parties that
possession would be given to the developer only after receipt of full consideration by way of refundable
security deposit which was on 30-11-2007. The relevant clause (f) (page 124 of PB) is extracted herein below:
"f. That the OWNER shall deliver the possession of the Schedule Property on or before 30-11-2007."
32. According to ld. AR, u/s. 2(47)(v) of the Act, any transaction involving the allowing possession of any
immovable property to be taken or retained in part performance of a contract of the nature referred to in
section 53A of the Transfer of Property Act, 1882 (4 of 1882). In Para 8 in the judgment of the Hon'ble High
Court of Karnataka in the case of CIT v. Dr. T.K. Dayalu [2011] 14 taxmann.com 120/202 Taxman 531, the
Hon'ble High Court of Karnataka referred to the Bombay High Court judgment in the case of Chaturbhuj
Dwarkadas Kapadia of Bombay v. CIT [2003] 129 Taxman 497/260 ITR 491 wherein taking possession was
also a condition precedent to consider the definition of transfer under section 2(47)(v) of the I.T. Act. In Dr.
T.K. Dayalu's case (supra), possession of the property was also given within the same financial year i.e., on
30-5-1996 and consequently the Hon'ble High Court has held that transfer was complete for the purpose of
income-tax and the capital gain was assessable to tax for the assessment year 1997-98. Further, the ITAT,
Bengaluru Bench, Bengaluru in the case of Vemanna Reddy (HUF) v. ITO [2009] 30 SOT 11 (Bang.) (URO)
has observed that giving possession to the transferee was a condition precedent to apply section 2(47)(v) of
the I.T. Act and the Hon'ble High Court of Karnataka in its judgment in the case of Vemanna Reddy confirmed
the same. Thus, it was clearly contemplated that possession was to be handed over only on 30-11-2007 or
earlier if the balance Rs. 10 crores was to be paid earlier. Thus, there was no possession contemplated on or
before 31-3-2007.
33. The ld. AR submitted that in this case, the last payment of refundable deposit was made only on 19-9-
2007 as per the Ledger extract in the books of the assessee. Accordingly, even by applying the provisions of
section 2(47)(v) of the Act, there was no "transfer" to justify the computation of capital gains in the relevant
year. The judgment of the Hon'ble High Court of Karnataka in the case of Dr. T.K. Dayalu's (supra) will have
no application. On the other hand, the decision of the ITAT, Bengaluru Bench, Bengaluru in the case of CIT,
ITO v. N. Vemanna Reddy [IT Appeal No. 591 of 2008, dated 18-8-2014] would apply reported in 1 DTR 321,
which was confirmed by the High Court of Karnataka. Even assuming that possession has been given on 30-
11-2007, capital gain would arise for the assessment year 2008-09 and not for the relevant assessment year.
Thus, the ld. AR submitted that on this ground alone the impugned computation of capital gains as made is
required to be deleted. In fact, possession of the entire property continued in the hands of the assessee and the
factory was continued to be run by the assessee, and the profit/loss therefrom has been declared by the
assessee in the IT returns in later years which is verifiable in the IT records. In fact, IDEB did not carry out
any developmental activities which is a condition precedent to decide the transfer. In other words, there was
no performance of the contract by way of development of the property by IDEB during the relevant year or
even subsequent years also and consequently they have agreed for cancellation of the agreement.
34. The ld. AR submitted that even by taking into account all the agreements in totality, there was no
"transfer" in the relevant year. It is submitted that the development agreement could not be construed as
agreement for transfer of property as contemplated under section 53A of the Transfer of Property Act as per
clause 9 (at Page 129 of the PB). Further, the GPA was referred to in clause 11 at Page 138 wherein it was
categorically mentioned that the GPA was given for construction of the property and for enabling
development of land in the schedule property and to obtain necessary clearance, permission, sanction from IT
Department whenever necessary. This is further strengthened by recording at Page 103 that the GPA executed
would not be revoked until the schedule property is completed and until the JDA and the agreement to sell
stood terminated. In other words, it is clear by the parties that the GPA was operative only during the tenure of
the development of the property. The sale agreement is again in respect of shares of the superstructure fallen
into the assessee which was yet to be decided and thus the sale agreement has no relevance for determination
of transfer of alleged undivided share which was to be transferred to IDEB. Moreover, in the JDA the
consideration for transfer is indeterminable. In such circumstances, by no stretch of imagination section 53A
of the Transfer of Property Act could be applied and consequently the provisions of section 2(47)(v) of the
Act cannot be applied to justify determination of capital gains in the relevant assessment year. Reliance was
placed on the judgment referred to supra and also in the following cases:
Ravinder Singh Arora v. Asstt. CIT [2012] 24 taxmann.com 346/53 SOT 124 (Hyd.).
C.S. Atwal v. CIT [2015] 59 taxmann.com 359/234 Taxman 69/378 ITR 244 (Punj. & Har.).
35. He drew our attention to the judgment of CIT v. Balbir Singh Maini [2017] 86 taxmann.com 94/251
Taxman 202, the Hon'ble Apex Court in Para 18 of the judgment considered the conditions to be satisfied
under section 53A of the Transfer of Property Act. The Hon'ble Apex Court considered the judgment in the
case of Shrimant Shamrao Suryavanshi v. Pralhad Bhairoba Suryavanshi [2002] 3 SCC 676 wherein the
condition of taking possession has been made as a condition precedent. Also, the Hon'ble Apex Court
observed that the transferee must have done some act in furtherance of the contract and the transferee must
perform or be willing to perform his part of the contract. Essentially, in the case of IDEB, it had not performed
the contract or was willing to perform the contract. Mere making payment of part of security deposit cannot
be said to be performance of the contract. Essentially the contract was to develop the property. On this count,
there was no performance which has been carried out by IDEB especially before the end of the financial year
related to the relevant assessment year.
36. Similarly, it is further reiterated by the Hon'ble Supreme Court in the case of Seshasayee Steels (P.) Ltd. v.
Asstt. CIT [2020] 115 taxmann.com 5/275 Taxman 187/421 ITR 46 that taking possession has been made a
condition precedent to apply section 53A of the Transfer of Property Act. In the said judgment, it is also
observed as follows:—
"Clause 16 is crucial, and the expression used in clause 16 is that the party of the first part hereby gives
'permission' to the party of the second part to start construction on the land. Clause 16 would, therefore,
lead to the position that a license was given to another upon the land for the purpose of developing the
land into flats and selling the same. Such license cannot be said to be 'possession' within the meaning of
section 53A, which is a legal concept, and which denotes control over the land and not actual physical
occupation of the land. This being the case, section 53A of the T.P. Act cannot possibly be attracted to the
facts of this case for this reason alone."
37. She drew our attention to clause 6.1 of the Joint Development Agreement and according to her, it makes
clear that mere allowing entrance of the developer into the premises of the assessee was not to be construed as
transfer as contemplated under section 53A of the Transfer of Property Act. The relevant clause 6.1 reads as
under:—
"6.1. In pursuance to the Agreement reached and the consideration reserved hereof and the obligations
undertaken herein by each party hereto the OWNER shall irrevocably permit the DEVELOPER or their
agents or contractors or architects or surveyors or workers or persons claiming under them to enter the
Schedule Property for undertaking the development of the same and the OWNER covenants to the
DEVELOPER that such permission shall not be revoked until all the objects of this Agreement are
fulfilled as the DEVELOPER shall be incurring expenditure for construction provided however that,
nothing herein contained shall be construed as delivery of possession in part performance of any
Agreement for Sale under Sec 53A of the Transfer of Property Act and under section 2(47)(v) of the
Income-tax Act. It is clarified that the right of entry into the Schedule Property is for permissive
possession and for undertaking development and carrying out construction works thereof."
38. The ld. AR submitted that in the judgment of the Supreme Court referred to supra, the Hon'ble Court also
observes that to contemplate transfer, the rights of the owner stood extinguished on account of the agreement.
In the case of the Appellant, it did not happen. The property continued to be in the control of the assessee
especially during the financial year related to the assessment year 2007-08. Accordingly, in light judgment of
the Supreme Court in the case of Seshasayee Steels (P.) Ltd. (supra), no transfer can be contemplated to apply
Section 45 of the Act to bring to tax the capital gains so computed by the Revenue.
39. Consequently, it was submitted by the ld. AR that the capital gain of Rs. 43,61,72,341 brought to tax in
this relevant year is without jurisdiction. The AO's view that handing over possession to the developer was not
really required when the assessee ceased to have control over the property by virtue of the agreement, it is
submitted that in order to apply the provisions of section 2(47)(v) of the Act, to determine "transfer", having
over possession was a condition precedent as held by the jurisdictional High Court in the case of Vemanna
Reddy referred to supra. Accordingly, the observation of the AO in this regard is opposed to law and the
capital gain as determined was without jurisdiction and liable to be deleted.
40. On the other hand, the ld. DR submitted that during the course of survey, it was noticed that the assessee
had received an amount of Rs. 30 crores form M/s. IDEB Investments Pvt. Ltd. (IDEB) in pursuance to a joint
development agreement with IDEB on 30-3-2007. The AO observed that during the course of survey,
following three registered agreements I documents were found:—

(i) Joint Development Agreement between assessee-company and IDEB, dated 30-3-2007.
(ii) Agreement for sale between the assessee-company and M/s IDEB dated 30-3-2007.
(iii) General Power of Attorney executed by the assessee company in favour of M/s IDEB dated 30-3-
2007.
41. The AO, after a detailed analysis of the aforesaid agreements came to the conclusion that the transfer was
effective in the current Assessment year in terms of section 2(47) of the Act and therefore the impugned
transaction was exigible to LTCG. The AO accordingly proceeded to assess capital gains at the figure of Rs.
43,61,72,341.
42. The Assessee's core contentions are summarised as under: —

- The amount had been received as advance and once the sale deeds get executed, it will be taken as
capital gains.
- The monies so received by the Assessee are in the nature of advances only. The capital gain on this
transaction shall rise only after the constructed area is physically handed over to the assessee.
Further, till date the entire land and building is in the possession of the assessee and has not handed
over the physical possession to the developer. The developer has not taken any plan
sanction/approval for any construction in the land so given. However, to secure the advances given,
the developer has entered into an agreement of sale with the assessee and this does not constitute a
sale.
- The point where the capital gains are deemed to accrue will purely depend on the terms of the Joint
Development Agreement. Where the agreement is of such nature that possession is given in part
performance of a contract, the liability of capital gains tax will arise on the handing over of such
possession to the builder.
- In the present case, possession is therefore not handed over. where the possession is not transferred
but deferred until the construction is complete, the liability to capital gains tax will arise in the year
in which the developer completes the construction.
- Where the landowner and builder execute joint development agreement, if the consideration is
receivable in built-up area to be constructed and handed over by the builder to the landowner, it is
advisable to avoid the applicability of section 53A of the Transfer of Property Act. This can be
achieved by mentioning in the agreements that license is granted to the builder to enter the premises
and construct the building. The possession is retained by the landowner, which will be handed over
as and when the built-up area is constructed and delivered. By this stipulation, the transfer will take
place only in the year in which the built up area is received and not before.
43. Therefore in the assessee's case, the Tax incidence on capital gains will arise only when the possession of
the built up area is handed over together with occupancy certificate by the developer. Reliance was placed on
the following judgments of the Hon'ble Madras High Court:

- CIT v. K. Jeelani Basha [2002] 122 Taxman 509/256 ITR 282

- R. Vijayalakshmi v. Appu Hotels Ltd. [2003] 131 Taxman 592/[2002] 257 ITR 4
44. The ld. DR submitted that the crucial findings of fact recorded by the AO with regard to the contents of
the JDA; agreement to sale, execution of General Power of Attorney (all dated on 30/03/2007) clearly indicate
that the assessee had for all practical purposes divested its core rights in the impugned property in favour of
IDEB against specifically determined consideration in cash and kind, (super built area) as per the terms
specified, in the respective instruments, duly signed by both the purchaser and the seller.
45. By virtue of the JDA dated 30103/2007, (clause I-C) the Assessee permitted IDEB the rights of
development of the site and that such right was irrevocable. The consideration was fully determinable in terms
of sub-clause (d) of clause 1, by virtue of which 1,48,333 sq. ft of the super built-up area in the proposed
complex, was to be developed and delivered to the assessee. A clause providing for compensation @ 3000 per
sq. ft. was also provided therein. The sub-clause (e) of clause I of the JDA provided for the payment of
interest-free refundable deposit of Rs. 35,00,000 to the Assessee. Out of this an amount of Rs. 15,00,000 was
actually paid on the date of the agreement itself. The JDA at sub-clause (f) of clause - I specifically provided
for execution of an irrevocable General Power of Attorney to "develop; alienate; sale, convey and lease the
constructed area. The contents of the agreements to sale and the GPA executed on the same dated i.e.
30/03/2007 also clearly indicate similar conditions, which crystallize into a valid transfer of property, during
the year under consideration.
46. It is obvious from the above agreements/instruments that all the basic ingredients of a valid transfer as
envisaged under section 2(47) of the I.T. Act r.w.s. 53A of the Transfer of Property Act, are duly satisfied in
the present case. The AO therefore rightfully invoked the provisions of section 45 of the I.T. Act, charging
capital gains tax on the impugned transaction between the appellant and IDEB.
47. Section 45 of the I.T. act provides as under:-
'(1) Any profits and gains arising from the transfer of a capital asset effected in the previous year shall
………. be chargeable to income tax under the head "capital gains ",and shall be deemed to be the
income of the previous year in which the transfer took place.'
48. The section 2(47) of the I.T. Act clearly express that, "Transfer" in relation to a capital asset includes:—
"(v) any transaction involving the allowing of the possession of any immoveable property to be taken or
retained in part performance of a contract of the nature referred to in section 53A of the Transfer of
Property Act, 1882 (4 o(1882),' or ……."
49. Section 53A of the T.P. Act, 1882, stipulates as under:-
"53A. Part performance -Where any person constructs to transfer for consideration any immoveable
property by writing signed by him or on his behalf from which the terms necessary to constitute the
transfer can be ascertained with reasonable certainty, and the transferee has, in part performance of the
contract taken possession of the property or any part thereof,' or the transferee, being already in
possession, continues in possession in part performance of the contract and has done some act in
furtherance of the contract, and the transferee has performed or is willing to perform his part of the
contract, then, notwithstanding that the contract, though required to be registered, has not been registered,
or, where there is an instrument of transfer, that the transfer has not been completed in the manner
prescribed therefore by the law for the time being in force, the transferor or any person claiming under
him shall be debarred from enforcing against the transferee and persons claiming under him any right in
respect of the property of which the transferee has taken or continued in possession, other than a right
expressly provided by the terms of the contract."
50. In view of the express agreements entered in writing and in background of the relevant provisions of the
I.T. Act and the T.P. Act, the impugned transaction constitute valid transfer and the AO's action of charging
capital gains in terms of section 45 of the I.T. Act is to be upheld.
51. Regarding the possession, the ld. DR submitted that the assessee's primary contention is that in spite of the
impugned agreements and other facts brought above, the assessee has not passed on the final possession and
therefore the transaction in question is not exigible to capital gains under the provisions of I.T. Act. He
submitted that it is evidently clear from the contents of the JDA and POA dated 30/03/2007 that the Assessee
has provided to the purchaser, IDEB, all facilities of entry, development and even sale of the constructed built-
up area. Such unhindered access provided to the purchaser is very much in the nature of possession, even if
the word as such has not been mentioned in the JDA. In this context sub- clause-c of clause-I of the JDA,
gives irrevocable right of development to the purchaser, which is as under:-
"Development
In pursuance to the agreement reached and the consideration reserved hereof and the obligations
undertaken herein by each party hereto, the OWNER shall irrevocably permit the DEVELOPER or their
agents or constructors or architects or surveyors or workers or persons claiming under them to enter the
 Schedule property [or undertaking the development of the same and the OWNER covenants to the
DEVELOPER that such permission shall not be revoked until all the objects o[this Agreement are
fulfilled as the DEVELOPER shall be incurring expenditure [or construction …………"
52. The General Power of Attorney executed with the purchasers also gives irrevocable powers of not only
possession but, even alienate & sale of the constructed area. The relevant portion of this Power Of Attorney is
extracted as under:-
"General Power of Attorney
Simultaneously on the execution of this Agreement, the OWNER shall execute a registered irrevocable
Power of Attorney inter alia empowering the DEVELOPER to alienate, sell, convey and lease the
"DEVELOPERS CONSTRUCTED AREA" and OWNERS CONSTRUCTED AREA jar enabling the
development of the land in the Schedule property and to obtain clearance, permissions, sanctions from
the Income-tax Department whenever necessary .…….. "
53. The ld. DR submitted that it is abundantly clear therefore that the rights of possession have been alienated
to IDEB in letter and spirit. The contentions of the assessee in this regard are therefore not tenable with regard
to transfer of possession.
54. He further submitted that apart from disputing the year of taxability in respect of the impugned
transaction, it is not the assessee's case that the agreements dated 30/03/2007 with IDEB were not enforced or
continued in the subsequent years. It is also not the assessee's contention that the aforecited agreements were
either cancelled or that the deposits received from IDEB were refunded at a later date. Therefore the
transaction of sale/JDA with IDEB remained intact, without the assessee having duly declared the transactions
as liable to capital gains. The AO in this regard has recorded IDEB in its letter dated 11/03/2014 had expressly
admitted that the JDA dated 30/03/2007 remained in force and was not cancelled.
55. In these facts & circumstances the agreement between the assessee and IDEB remaining effective, the
transactions entered by way of the JDA dated 30/03/2007 would undisputably constitute a "transfer" in terms
of the section 2(47) of the I.T. Act r.w.s. 53A of the T.P. Act, 1982. The AO's action on this account is
therefore to be upheld. He submitted that in the peculiar facts and circumstances, the present case is squarely
covered by the ratio of the jurisdictional Hon'ble Karnataka High Court's order in the case of Dr. T.K. Dayalu
(supra). It was unequivocally held in the said judgment that the year of signing of the JDA should be the
primary consideration for determining the year of charge of capital gains. While the present case satisfies the
legal requirements laid down by the aforesaid the legal requirements, there is also no doubt that a significant
consideration (in form of cash and proposed built-up area) has also exchanged hands between the purchasers
and seller, accompanied with corresponding transfer of rights of access/development/construction and sale of
the impugned property. Therefore, the AO's action in respect of charging of capital gains on the basis of JDA
dated 30-3-2007 with IDEB is to be upheld.
56. We have heard both the parties and also perused the case-records in the light of the compilation filed and
precedents cited by both the parties. We deal with the contentions of the assessee with regard non-
chargeability of capital gains in respect of the land, which was not 'transferred' but only given for
development. We may refer to the provisions of S. 2(47)(v) which reads as follows:-
"2............
(47) ............
(v) any transaction involving the allowing of the possession of any immovable property to be taken or
retained in part performance of a contract of the nature referred to in s. 53A of the Transfer of Property
Act, 1882 (4 of 1982)"
57. The importance of the word "transfer" is due to the reason that under the charging section, viz. section 45,
the capital gain is taxable on "transfer of a capital asset". Precisely, this section prescribes that "any profits or
gains arising from the transfer of a capital asset effected in the previous year shall be chargeable to income-tax
under the head capital gains and shall be deemed to be the income of the previous year in which the transfer
took place.
58. Thus the fundamental features which determine the taxability of capital gain are that the gain ought to be
from the transfer of a capital asset. This section has a large scope of its operation due to the presence of
deeming provision which says that the gain shall be the deemed income of that previous year in which the
transfer took place. This phrase can be interpreted in the manner that the total profits may actually be received
in any other year, but for the purposes of S. 45, the gain shall be the deemed income of the year of transfer of
the capital asset. It shall not be out of context, at this juncture, to mention an observation of the Hon'ble
Authority of Advance Rulings in the case of Jasbir Singh Sarkaria, In re [2007] 164 Taxman 108/294 ITR
196 (AAR - New Delhi), that the expression used in sec. 45 is "arising", which cannot be equated with the
expression "received" or even with the expression "accrued" as being used in the statute. The point which
deserves notice is that the amount or the consideration settled may not be fully received or may not
technically accrue but if it arises from the agreement in question, then the deeming provisions shall come into
operation. Another point is also equally noticeable that by the presence of the deeming provision, the income
on account of arisal of the capital gain should be charged to tax in the same previous year in which the
transfer was effected or deemed to have taken place. Due to the presence of this statutory fiction, the actual
year in which the entire sale consideration is received, is beside the point but what needs to be judged is the
point of time at which the transfer took place either by handing over of the possession or by allowing the entry
into the premises or by making the constructive presence of the vendee nevertheless duly supported by a legal
document.
59. But the issue do not get settled only by the interpretation of s. 45 and s. 2(47)(v) because the definition of
"transfer" not merely prescribes allowing of possession but to be retained in part performance of a contract of
the nature referred in s. 53A of the Transfer of Property Act. Therefore, it is further requisite to deal with the
relevant section contained in Transfer of Property Act.
60. The Transfer of Property Act contains s.53A under the heading "Part performance" and, for deciding the
case in hand, it is necessary to quote the impugned section verbatim as follows:-
"Where any person contracts to transfer for consideration any immovable property by writing signed by
him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with
reasonable certainty,
And the transferee has, in part performance of the contract, taken possession of the property or any part
thereof, or the transferee, being already in possession, continues in possession in part performance of the
contract and has done some act in furtherance of the contract,
And the transferee has performed or is willing to perform his part of the contract.
Then, notwithstanding that the contract, though required to be registered, has not been registered, or,
where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed
therefor by the law for the time being in force, the transfer or any person claiming under him shall be
debarred from enforcing against the transferee and persons claiming under him any right in respect of the
property of which the transferee has taken or continued in possession, other than a right expressly
provided by the terms of the contract:
Provided that nothing in this section shall effect the rights of a transferee for consideration who has no
notice of the contract or of the part performance thereof."
61. The doctrine of "part performance" is undoubtedly based upon the doctrine of equity. If one party has
performed his part of duty then equity demands that the other party shall also perform his part of the
obligation. If one party stood by his words then it is expected from the other party to also stand by his
promise. Naturally an inequitable conduct of any person has no sanction in the eyes of law.
62. In the light of the above, now we proceed to examine the factual matrix of the present case in hand.
63. The starting words of section 53A are "where a person contracts", which means just the existence of the
contract. The assessee is a "person" who has entered into a contract with the developer viz., IDEB Investments
(P) Ltd. on 30-3-2007. This section says "to transfer" means the said contract is in respect of a transfer and not
for any other purpose. The term "transfer" is to be read along with the s. 45 and s. 2(47)(v) of IT Act. It is
pertinent to clarify that one must not mistake to identify the issue of capital gain with the term "transfer" as
defined in s. 54 of Transfer of Property act. At the cost of elaboration, we may like to add that in the past there
was a long line of pronouncements; while deciding income tax cases, that unless and until a sale deed is
executed and that too it is registered, transfer cannot be said to have been effected. The consequence of said
catena of decisions was that no capital gain tax was directed to be levied so long as "transfer" took place as
per the generally accepted connotation of the term under Transfer of Property Act. The resultant position was
that the levy of capital gain tax thus resulted in major amendments in the income-tax statute. The main
objective of those amendments was to enact that for the purposes of capital gains, the transaction involving
transfer of the nature referred are not required to be registered under Registration Act. Such arrangement does
not include transfer of certain rights vesting to a purchaser; however such "transfer" does confer certain
privileges of constructive ownership with connected bundle of rights. Indeed it is a departure from the
commonly understood meaning of the definition "transfer" while interpreting this term for tax purpose. On the
facts of this case, the developer has got bundle of rights and thereupon entered into the property. Thereafter,
we have to see what has happened and what steps the transferee has taken to discharge the obligation on his
part. If transferee has taken any steps to construct the flats, undisputedly then, under the provision of Income-
tax Act a "transfer" has definitely taken place.
64. The argument of the ld. AR on this issue before us is that possession was not given on or before 31-3-
2007. The developer had paid only Rs. 15 crores as refundable security deposit on execution of JDA. The
balance of Rs. 20 crores was payable on or before 30-11-2007 in two instalments as discussed above. It was
specifically agreed between the parties that possession would be given to the developer only after receipt of
full consideration by way of refundable security deposit which was on 30-11-2007 or earlier. The contention
of the ld. AR section 2(47)(v) of the Act cannot be applied to the facts of the present case. The judgment of
the Hon'ble High Court of Karnataka in the case of Dr. T.K. Dayalu (supra) will have no application and
capital gain arises only in AY 2008-09 and not in AY 2007-08. This proposition of the ld. AR is totally
misconceived.
65. The existence of a consideration is essence of the contract. In the present case, the land owner i.e. the
assessee will get 1,48,333 sq.ft. area in the said complex to be constructed on the schedule property which
includes proportionate common areas and amenities along with 1 covered car parking slot for every 1000
sq.ft. of super built up area in the said complex along with the right to retain the ownership of the
proportionate share/undivided share, right, title, interest in the land in the schedule property. In addition to
this, the assessee has to receive as per clause 8 of the JDA a sum of Rs. 35 crores as a refundable security
deposit. Out of this, the assessee received Rs. 15 crores before 30-3-2007. As per clause 8(2) of the JDA, the
balance Rs. 20 crores to be received is, Rs. 10 crores on or before 15-5-2007 and Rs. 10 crores on or before
30-11-2007.
66. The next important phase i.e., "terms necessary to constitute the transfer" can be ascertained with
reasonable certainty. In this case, the terms and conditions of the contract were unambiguous thus clearly
spoken about the rights and duties with certainty of both the signing parties. We are concerned mainly with
two certainties; (i) passing of consideration; & (ii) passing over of possession. In the present case, out of
refundable security deposit, the assessee has received Rs. 15 crores by 30-3-2007 and the balance Rs. 20
crores was to be received by on or before 30-11-2007.
67. The last noticeable ingredient is, "the transferee has performed or is willing to perform his part of the
contract". To ascertain the existence of willingness on the part of the transferee one must not put stop at one
event but willingness is to be judged by the series of action of the transferee/transferee. It is evidently clear
from the contents of the JDA and POA dated 30/03/2007 that the Assessee has provided to the purchaser M/s
IDEB all facilities of entry, development and even sale of the constructed built-up area. Such unhindered
access provided to the purchaser is very much in the nature of possession, even if the word as such has not
been mentioned in the JDA. It would be appropriate in this context to extract the sub-clause-c of clause-I of
the JDA, which gives irrevocable right of development to the purchaser.
Development
"In pursuance to the agreement reached and the consideration reserved hereof and the obligations
undertaken herein by each party hereto, the OWNER shall irrevocably permit the DEVELOPER or their
agents or constructors or architects or surveyors or workers or persons claiming under them to enter the
Schedule property [or undertaking the development of the same and the OWNER covenants to the
DEVELOPER that such permission shall not be revoked until all the objects of this Agreement are
fulfilled as the DEVELOPER shall be incurring expenditure for construction ……….."
68. The General Power of Attorney executed with the purchasers also gives irrevocable powers of not only
possession but, even alienate & sale of the constructed area. The relevant portion of this Power Of Attorney is
extracted as under:-
General Power of Attorney
 "Simultaneously on the execution of this Agreement, the OWNER shall execute a registered irrevocable
Power of Attorney inter alia empowering the DEVELOPER to alienate, sell, convey and lease the
"DEVELOPERS CONSTRUCTED AREA" and OWNERS CONSTRUCTED AREA jar enabling the
development of the land in the Schedule property and to obtain clearance, permissions, sanctions from
the Income-tax Department whenever necessary ".
69. It is abundantly clear therefore that, the rights of possession have been alienated to IDEB in letter and
spirit. The contentions of the assessee in this regard are therefore not tenable with regard to transfer of
possession. Apart from disputing the year of taxability in respect of the impugned transaction, it is not the
assessee's case that the agreements dated 30/03/2007 with IDEB were not enforced or continued in the
subsequent years. It is also not the assessee's contention that the aforecited agreements were either cancelled
or that the deposits received from IDEB were refunded at a later date. Therefore the transaction of sale/JDA
with IDEB remained intact, without the assessee having duly declared the transactions as liable to capital
gains. The AO in this regard has recorded in para 8.5.5 of his order that IDEB in its letter dated 11/03/2014
had expressly admitted that the JDA dated 30/03/2007 remained in force and was not cancelled. In these facts
& circumstances the agreement between the assessee and IDEB remaining effective, the transactions entered
by way of the JDA dated 30/03/2007 would undisputably constitute a "transfer" in terms of the section 2(47)
of the I.T. Act r.w.s. 53A of the T.P. Act, 1982. The orders of the lower authorities on this account is therefore
to be upheld.
70. In the present case, we are of the considered opinion that it is squarely covered by the ratio of the
jurisdictional Hon'ble Karnataka High Court's judgment in the case of Dr. T.K. Dayalu's (supra) wherein it
was unequivocally held that the year of signing of the JDA should the primary consideration for determining
the year of charge of capital gains While the present case satisfies the legal requirements laid down by the
aforesaid judgment, there is also no doubt that a significant consideration in the form of cash and proposed
built-up area has also exchanged hands between the purchasers and seller, accompanied with corresponding
transfer of rights of access/development/construction and sale of the impugned property.
71. By virtue of the JDA dated 30103/2007, (clause I-C) the Assessee permitted IDEB the rights of
development of the site and such right was irrevocable. The consideration was fully determinable in terms of
sub-clause (d) of clause 1, by virtue of which 1,48,333 sq. ft of the super built-up area in the proposed
complex, was to be developed and delivered to the Assessee. A clause providing for compensation @ 3000
per sq. ft. was also provided therein. The sub-clause e of clause I of the JDA provided for the payment of
interest-free refundable deposit of Rs. 35,00,000 to the Assessee. Out of this an amount of Rs. 15,00,000 was
actually paid on the date of the agreement itself. The JDA (at sub-clause f) of clause - I specifically provided
for execution of an irrevocable General Power of Attorney to "develop; alienate; sale, convey and lease" the
constructed area. The contents of the agreements to sale and the General Power of Attorney executed on the
same dated i.e. 30/03/2007 also clearly indicate similar conditionalities, which crystallize into a valid transfer
of property, during the year under consideration.
72. In this case, JDA has been registered and assessee has given Power of Attorney on 30-3-2007. As per
Power of Attorney also, the assessee has given the right to the developer to execute agreement or sale deeds or
other conveyance in respect of schedule property and to do all acts, deeds and things with the said developer
as considered necessary or any other manner as deemed fit so as to fully and effectually convey the same. This
issue is also covered against the assessee by the judgment of the Hon'ble Supreme Court in the case of Balbir
Singh Maini case (supra) as JDA & POA has been registered and reading of these registered documents show
that the present assessee being owner of the land has parted with ownership of land to the developer and
developer has the right to develop, alienate, sale, convey and transfer the constructed area and there is valid
transfer of rights by the landlord to the developer. By the same GPA, the assessee has also given right to the
developer to sell upto 115000 sq.ft. built up area of the assessee's share of constructed area also. Thus, he has
given the bundle of rights through GPA in favour of the developer including right to sell the property.
73. The point pertains to the fixation of "material date" for the purpose of assessing the capital gain. There is
no dispute with regard to the fact that the assessee has entered the agreement on 30-3-2007. As per clause 5.3
of the said agreement, the builder would commence the development of property on the delivery of the
possession of the land. However, in the clause 6.1, it is also mentioned "however that nothing herein
contained shall be construed as delivery of possession in part performance of any agreement for sale under s.
53A of the T.P. Act and u/s. 2(47)(v) of the I.T. Act". Further as per clause 5.2 of the agreement, the
possession of vacant land was handed over to the developer only on 30-11-2007. Accordingly, it is contended
by the assessee that it has not given possession of the land as contemplated in sec. 53A of the Transfer of
Property Act. It is the contention of the assessee that the possession was handed over only on 30-11-2007.
74. In this regard, we may extract below the relevant portion of the JDA:-
"The OWNER shall deliver the vacant possession of the Schedule Property to the DEVELOPER before
30/11/2007. Prior to delivery of vacant possession, the OWNER shall remove all structures on the
Schedule Property."
75. Thus, it is seen that the above clauses show that the handing over of the possession of the constructed area
to the assessee. There may not be any dispute that the income tax department is concerned with the handing
over the possession of the vacant land to the builder under the development agreement. As per the assessee,
the possession of vacant land was handed over the developer only on 30-11-2007, i.e., upon receiving the
entire security deposit.
76. It is a well settled proposition of law that the substance shall prevail over the form. Though it is mentioned
in the agreement that the possession of land shall be handed over only after receipt of security deposit, yet the
builder, under practical circumstances, cannot start construction unless the physical possession of land is
handed over to him. Hence, for all practical purposes, we are of the view that the physical possession was
handed over to the builder after entering into the agreement dated 30-3-2007 and right to entry into the
property cannot be construed as permissive possession when the developer has a right to alienate the same to
others by way of sale, mortgage, gift, loan or otherwise dispose of the same.
77. In our opinion, as held by the Supreme Court in the case of Alapati Venkataramiah v. CIT [1965] 57 ITR
185, to attract liability to tax u/s. 45, it is sufficient if in the accounting year profits have arisen out of transfer
of capital asset. In other words, if the assessee had a right to receive the profit in the assessment year under
consideration, the assessee is liable to pay capital gains tax on transfer of capital asset. Actual receipt of profit
is not a relevant consideration. Once the profits have arisen in the accounting year out of the transfer of capital
asset, it would be sufficient to attract liability u/s. 45 of the Act. The contention of the assessee is that there
was no transfer in the assessment year under consideration as the possession of the property has not been
given to the developer. In the present case, the assessee executed registered JDA along with registered GPA
which authorizes the developer a provisional permission to enter into the land and authorizing them to
develop, execute sale deed or other conveyance in respect of the impugned property and authorize to sell the
constructed area of both the assessee as well as the developer. As such, there is a transfer in terms of section
45 r.w.s. 2(47) of the Act. Accordingly, we decide this ground against the assessee in favour of the
department.
78. Ground Nos. 17 to 20 are with regard to interest u/s. 234A, 234B & 234C of the Act which are mandatory
and consequential in nature. As such, no adjudication of these grounds is warranted.
79. In the result, the appeal by the assessee is dismissed.
JYOTI

*In favour of revenue.