I. T. A. Nos. 615, 616, 617 and 972/Mds/2012 (assessment years 2003-04 to 2005-06).

ABRAHAM P. GEORGE (Accountant Member)
and CHALLA NAGENDRA PRASAD (Judicial Member)

S. Das Gupta, Joint Commissioner of Income-tax, for the Department.
S. Ramesh, Chartered Accountant, for the assessee.

The order of the Bench was delivered by

CHALLA NAGENDRA PRASAD (Judicial Member).-This is a bunch of four appeals. I. T. A. Nos. 615/Mds/2012 and 972/Mds/2012 are cross­appeals filed by the assessee and the Revenue respectively for the assessment year 2003-04. I. T. A. Nos. 616 and 617/Mds/2012 are filed by the assessee for the assessment years 2004-05 and 2005-06 respectively. All these appeals are directed against the different orders of the Commissioner of Income-tax (Appeals)-VI, Chennai dated January 31,2012. Since the issues involved are common they were heard together and disposed of by this consolidated order.

I. T. A. No. 615/Mds/2012
This is an appeal filed by the assessee for the assessment year 2003-04, wherein the assessee challenged the order of the Commissioner of Income-tax (Appeals) in sustaining reopening of assessment under section 147 as valid.

Apart from questioning validity of reassessment, the assessee also raised following grounds on merits :

"4. The Commissioner of Income-tax (Appeals) erred in ignoring the binding decision of the Madras High Court with regard to appli­cation of provisions of section 53A of the Transfer of Property Act read with section 2(47)(v) of the Income-tax Act, 1961.

5. The Commissioner of Income-tax (Appeals) erred in concluding that transfer of property took place in the assessment year 2003-04.

6. The Commissioner of Income-tax (Appeals) erred in confirming the stand of the Assessing Officer that section 50C is applicable and that the sale consideration for the land foregone to the developer is the guideline value of the property as on April 1, 1981 instead of taking the cost of construction of 9 flats allotted to the appellant as the sale consideration."

The brief facts are that for the assessment year 2003-04, the assessee filed return of income on April 2, 2003 admitting income of Rs. 41,012. The assessee along with the return enclosed a note in respect of her house property at 29, Cenotaph II Lane, Chennai stating that the assessee has entered into a joint venture with M/s. Golden Homes Properties P. Ltd. in December, 2002 for promoting flat construction and received Rs. 1,00,00,000 as advance out of which Rs. 70,00,000 has been invested in 7 per cent. tax­free savings bonds, 2002 on January 9, 2003. The return was processed

Eder section 143(1) on July 16,2003 accepting the income returned. Later, t Assessing Officer while completing the assessment for the assessment ar 2006-07 under section 143(3) of the Act found that the assessee entered into an agreement of sale and joint development agreement on December 30, 2002 relevant to the assessment year 2003-04 and by virtue of this agreement the assessee handed over possession of the property measuring six grounds and 91 sq.ft in survey No. 3847/20 and 3847/81. The assessee received Rs. 1,00,00,000 as advance and came into possession of six flats, i.e., two flats in the first floor, two flats in the second floor and one flat each in third and fourth floor of the block-I. Therefore, the Assessing Officer was of the view that there is a transfer within the meaning of section 2(47) of the Act by virtue of the agreement of sale and joint develop­ment entered into by the assessee in the assessment year 2003-04, issued a notice under section 148 for the assessment year 2003-04 to assess the capital gains arising out of sale of the proper. The assessee in response to the notice under section 148 filed return admitting the same income as admitted in the original return and contended that there was no transfer of any ownership rights over the said property during the year when the agreement of sale and joint development was entered into and the possession was handed over to Golden Constructions only to enable furtherance of the project and not as a transfer of any ownership rights over the property. The amount of Rs. 1,00,00,000 paid to the assessee as per the agreement was only a refundable/adjustable advance and the com­pensatory rent of Rs. 15,000 per month pe' by developer to the assessee does not partake the character of income. e Assessing Officer completed t0e assessment for ,the assessment year 20 3-04 under section 143(3) read with section 147 of the Act assessing long-term capital gains on the transfer of the said land made by virtue of agreement of sale and joint development. the Assessing Officer while computing the long-term capital gains adopted the guideline value of the registration department for the property for the undivided share of the land at Rs. 1,41,10,304 and computed the long-term capital gains accordingly invoking' the provisions of section 50C of the Act. The Assessing Officer also denied indexation on the cost of building while computing the capital gains.

The assessee filed an appeal before the Commissioner of Income-tax (Appeals) contending that the reopening under section 147 is bad in law. The assessee contended that the fact regarding entering into agreement of sale and joint development agreement with Golden Constructions in respect of the property at 29, Cenotaph II Lane, Chennai had already been furnished at the time of filing of return of income on March 28, 2003 by way of note and therefore reopening of assessment is bad since primary facts were already available in the return before the Assessing Officer when the return was processed under section 143(1) and no new facts have come on record for initiation of reassessment proceedings.

As far as merits are concerned, the assessee contended that there is no transfer under section 2(47) of the Act as the agreement of sale and the joint development was entered into only to develop the property and there was no transfer of any ownership rights for the said property. It was con­tended that the possession was handed over to the builder only to enable furtherance of the project and not as a transfer of ownership rights over the property. It was also the submission of the assessee that possession was not given before March 31, 2003, i.e., during the assessment year 2003-04 under consideration. It was also the contention of the assessee that the guideline value as notified by the registration department cannot be adopted in the assessee's case as the transaction is deemed transfer.

The Commissioner of Income-tax (Appeals) considering the submissions of the assessee sustained the action of the Assessing Officer in invoking the provisions of section 147 and holding that there is a transfer of property '"vithin the meaning of section 2(47) of the Act by virtue of the agreement of sale and joint development of the property of the assessee during the assessment year 2003-04. In respect of the contention of the assessee that section 50C cannot be applied the Commissioner of Income Tax (Appeals) rejected the contention hold at section 50C has application in the assessee's case and held that the Assessing Officer is right in invoking section 50C of the Act for the purpose of determining sale consideration for computing capital gains. In so far as the indexation of the cost of building is concerned. the Commissioner of Income-tax (Appeals) held that the assessee is entitled for indexation on building which stood on the land as on the date of entering into agreement.
"Counsel for the assessee reiterated the submissions made before the Commissioner of Income-tax (Appeals). Counsel for the assessee relying on the decision of the hon'ble Delhi High Court in the case of CIT v. Orient Craft Ltd. in IT Appeal No. 555 of 2012 dated December 12, 2012 [2013] 354 ITR 536 (Delhi) submits that even though the return was processed under section 143(1) and no assessment was made under section 143(3) of the Act, reopening of assessment under section 147 is bad in law in the absence of any tangible material before the Assessing Officer suggesting escapement of income. Counsel submits that assessee has disclosed the fact of entering into agreement of sale and development agreement by way of note along with the return filed. Counsel therefore, submits that all the information necessary are available. at the time of processing the return and therefore, the assessment made under section 147 is bad in law. Counsel submits that it is only a mere change of opinion and no new information has come on record suggesting escapement of income so as to invoke the provisions of section 147 of the Act.

The Departmental representative placing reliance on the decision of the hon'ble Supreme Court in the case of Asst. CIT v. Rajesh jhaveri Stock Brokers Pvt. Ltd. [2007] 291 ITR 500 (SC) submits that the Assessing Officer processed the return under section 143(1) without any scrutiny and therefore, the Assessing Officer is right in invoking the provisions of section 147 as he has come to the conclusion that the assessee had trans­ferred the property by entering into agreement of sale and joint develop­ment agreement during the assessment year 2003-04 while completing the scrutiny assessment of the assessee for the assessment year 2006-07 where the assessee sold certain flats acquired in the financial year 2002-03 by virtue of this agreement.

Heard both sides. Perused the orders of lower authorities and the case law relied on by both parties. As far as the reopening of assessment under section 147 is concerned, the Assessing Officer while completing the assessment for the assessment year 2006-07 and computing the long-term capital gains on the sale of flats received by the assessee as consideration in lieu of transfer of land in the assessment year 2003-04 by virtue of agree­ment of sale and joint development agreement, issued notice under section 148 so as to bring to tax the income escaped assessment in the assessment year 2003-04 as there was a transfer within the meaning of section 2(47) of the Act in the assessment year 2003-04 as the assessee has entered into agreement of sale and joint development agreement with Mr. J. Rajkumar Balsingh, sole proprietor of M/s. Gold en instructions. This agreement was entered into on December 30, 2002. As the Assessing Officer had tangible material on record. while complying the assessment for the assessment year 2006-07 issued notice under section 148 for reopening the assessment for the assessment year 2003-04. Therefore, the submission of the assessee that it is only a mere change of opinion is not correct. In the case of Asst. CIT v. Rajesh Jhaveri Stock Brokers Pvt. Ltd. [2~291 ITR 500 (SC) the hon'ble Supreme Court held that principles relating to change of opinion are not applicable in respect of the provisions under section 147(1) where the return was processed. The hon'ble Supreme Court further held that so long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate proceedings under section 147 and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings even when intima­tion under section 143(1) had been issued. Following the decision of the hon'ble Supreme Court, we uphold \!he order of the Assessing Officer in invoking the provisions of section 147 of the Act as the return was processed only under section 143(1) and no assessment was made under section 143(3) of the Act and the Assessing Officer came to possession of information of escapement of income during the course of assessment proceedings for the assessment year 2006-07. Therefore, the grounds of appeal Nos. 1 and 2 raised by the assessee ar dismissed.

The assessee raised ground No.3 stating that the Commissioner of Income-tax (Appeals) erred in not recognising the fact that the procedure laid down under the proviso to section 151(1) for issue of notice has not been complied. On going through the provisions of section 151(1), we find that the said provisions have no application to the facts and circum­stances of the e as the said provisions of section 151(1) applies only to cases where assessments were completed either under section 143(3) or 147 of the Act. Therefore, this ground of appeal No.3 of the assessee is rejected.\

In respect of the issue of whether there is a transfer within the meaning of section 2(47) or not in respect of property given for development, the Commissioner of Income-tax (Appeals) had considered the submissions of the assessee and held that there is a transfer within the meaning of section 2(47) after examining the agreement entered into by the assessee with the developer observing as under :

H 4.2 The authorised representative argued that the Assessing Officer has wrongly presumed that the possession of the property was handed over to the developer/builder during the financial year whereas clause 5 of the agreement states that the assessee shall handover the vacant possession on or before March 31, 2003 and hence the recorded facts are wrong. Further the authorised repre­sentative pointed out that the Assessing Officer has inferred that the consideration of Rs. 1 crore was not returnable consideration whereas clause 3 of the agreement clearly states that it is a refundable/adjust­ment advance, which has also been reproduced by the Assessing Officer in page 4 of the order. He also submitted that the appellant obtained possession of 6 flats much later based on planning permit issued on July 7, 2003 and hence the Assessing Officer had no evidence to state that such handing over of flats took place during the financial year relevant to the assessment year 2003-04. On careful consideration, I find that in the case of T. V. Sundaram Iyengar and Sons Ltd. v. CIT [1959] 37 ITR 26 (Mad) in similar circumstances the hon'ble High Court, Madras held that (headnote) :

'As on the facts there was nothing to show that the price was to be of any future time, the price of the assets transferred to company C became payable forthwith, viz., in the accounting year, the assessees obtained the right to receive the price in the accounting year and the capital gains in respect of the sale of those assets arose in that year ; (emphasis1 supplied) what the parties did subsequent to that year did not have any bearing on the liability of the assessees to tax in respect of that year. There was, therefore, material to support the assess­ments made on the assessees.'

4.3 On the issue of taxability in the hands of land owners in respect of development agreements the Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia v. CIT reported in [2003] 260 ITR 491 (Born) held that :

'The above observation makes it clear that the agreement, read as a whole, was taken to have passed complete control over the property in favour of the developer. In such a case, the date of the contract alone was held to be relevant to decide the year of chargeability. (emphasis! supplied).'
4.4 The authorised representative placed reliance on the jurisdic­tional High Court decision in the case of CIT v. G. Saroja T. C. A. 217 of 2004 [2008] 301 ITR 124 (Madras) to argue that no sale consider­ation was received during the year in the case of the appellant and hence provision of section 53A of the Transfer of Property Act is not attracted. The arguments of the authorised representative are reproduced hereunder :

Section 2(47)(v) of the Income-tax Act can be invoked only upon satisfaction of the ingredients of section 53A of the Transfer of Property Act.

The ingredients of section 53A of the Transfer of Property Act require that the transferor should have received consideration either in part or in full for transfer of the property. In the above case, the consideration is 65 per cent. of plinth area to be built and the receipt of Rs. 1 crore was a performance deposit and the same was settled by the developer once the amounts were received by him upon sale of earmarked flats.

The other ingredient of handing over possession to the developer has also not been done.
In the absence of the above two requirements, invoking section 2(47)(v) is not tenable in law.

But analysis of the facts of the case of the appellant reveal that a substantial sum was paid as advance and as held in the decision relied on by the authorised representative written agreement was executed in the year concerned which constitute' essential ingredient' to decide the year of charge ability of capital gain.

4.5 In view of the decisions reported in T. V. Sundaram Iyengar and Sons Ltd. v. CIT [1959] 37 ITR 26 (Mad) and Chaturbhuj Dwarkadas Kapadia v. CIT reported in [2003] 260 ITR 491 (Born) it is clear that considering the facts of the case of the appellant, the chargeability of capital gain arose on execution of the agreement of sale and joint development dated December 30, 2002 as the appellant obtained the right to receive the price on this date and hence charge­ability to tax arose as a consequence. The subsequent date of actual handling over of vacant possession or subsequent receipt of constructed flats do not change the chargeability in view of the judi­cial pronouncements on this issue and hence objections raised by the authorised representative with regard to bringing to tax capital gain on sale of the property in question do not survive. These grounds of appeal are dismissed ..

Ground Nos. 4 to 7 deals with transfer of ownership rights over the property. In ground No.4, the appellant submitted that the possession had been handed over to M/s. Golden Constructions only to enable furtherance of the project and there was no transfer of any ownership rights intended or actual over the said property. In ground No.5 it was submitted that the power of attorney issued in favour of M/s. Golden Constructions was not an irrevocable one. In ground No.6 it was submitted that the amount of Rs. 1 crore paidto the appellant was only a refundable/adjustable advance and not in the p.ature of a consideration paid by the builder and it is in the nature of performance security deposit or delivering the contract. In ground No.7, it was submitted that the planning permit itself had been issued only on May 26, 2003, construction approval on July 7, 2003, work permit issued on July 4, 2003 and hence none of the conditions laid in the Transfer of Property Act is satisfied for invoking the provisions of sec­tion 2(47)(v)/(vi) for the assessment year 2003-04. The Assessing Officer relied on the provisions of section 2(47) (v) and highlighted the clauses in agreement for sale and for joint development in paragraph 5 and furnished points in paragraph 6 of the assessment order to hold that the transaction entered into by the appellant with the promoter Mis. Golden Constructions, amounted to 'deemed transfer' and capital gain is taxable this year. On careful consideration, I find that the judgment of the Bombay High Court in Chaturbhuj Dwarkadas Kapadia reported in [2003] 260 ITR 491 (Bom) has clearly held that chargeability to tax arises on the date agreement is entered into and on execution of agreement, the appellant obtained right to receive consideration and hence respectfully following the judgment I con­firm the stand of the Assessing Officer that transfer of the property in question has taken place in the relevant financial year on execution of agreement for sale and for joint development. Hence these grounds of the appellant are dismissed."

13 On going through the order of the Commissioner of Income-tax (Appeals) and the clauses of the agreement of sale and joint development agreement dated December 30, 2002 read with supplemental agreement dated February 15, 2003 and power of attorney dated December 30, 2002 executed by the assessee in favour of the builder authorising the builder to sell and register the flats in the name of prospective buyers, we are of the view that there is a transfer within the meaning of section 2(47) by virtue of entering into an agreement of sale and joint development. As per clause 5 of the agreement of sale and joint development, the owner shall handover vacant possession of schedule "C" mentioned property along with original title deeds pertaining to the schedule mentioned property on or before March 31, 2003. Though the assessee submits that the possession was given at later point of time, Le., after March 31, 2003, there is no evidence on record to suggest that possession was given at a later point of time, even though the construction permit was given by the municipal authorities on July 11, 2003 and planning permit was given on May 26, 2003 and demolition certificate on February 19, 2003. As per clause 21 of the agreement, the promoter shall pay the owner, i.e., the assessee a sum of Rs. 15,000 per month from the date of getting vacant possession of the schedule "c" property, till the date of completion of the flat for her alternate accommodation. Supplemental agreement was entered into on February 15, 2003 by the assessee with the promoter, wherein the assessee authorises the promoter to sell the other flats allotted to her share fully described in Schedule "C' . The promoter is also authorised to receive advance, sale consideration, etc., and other amounts and to sign sale deeds and other documents in respect of the flats mentioned in schedule "C". The assessee also gave power of attorney to the promoter Mr. J. Rajkumar Balsingh on December 30, 2002 registered in the office of the Sub- Regis­trar, Anna Nagar vide document No. 1560/2002 empowering the promoter to sell the flats on behalf of the assessee. All these go to show that there is a transfer within the meaning of section 2(47) of the Act by virtue of erlter­ing into an agreement of sale and joint development by the assessee with Mr. J. Rajkumar Balsingh in the assessment year 2003-04. In the circum­stances, we uphold the order of the Commissioner of Income-tax (Appeals) in holding that there is a transfer within the meaning of section 2(47) of the Act in respect of the property. Thus, grounds of appeal Nos. 4 and 5 are decided against the assessee.

As far as ground of appeal No. 6 is concerned, Le., invoking the provisions of section 50C and considering the guideline value of registra­tion department for the purpose of computing capital gains, we are unable to endorse the view of the Commissioner of Income-tax (Appeals) in accepting the decision of the Assessing Officer in invoking the provisions of section 50C of the Act. The Jodhpur Bench of the Tribunal in the case of Navneet Kumar Thakkar v. ITO [2008] 298 ITR (AT) 42 Godhpur) held that unless the property transferred has been registered by sale deed and for that purpose value has been assessed and stamp duty has been paid by the parties section 50C inserted by the Finance Act, 2002 with effect from April 1, 2003 cannot come into operation. Similar view has been taken by the co­ordinate Bench of this Tribunal in the case of ITO V. Kumudini Venugopal [2010] 5 ITR (Trib) 145 (Chennai), wherein the Tribunal held that when the agreement is not registered, the provisions of section 50C have no application. A similar view has been expressed by the Lucknow Bench of the Tribunal in the case of Carlton Hotel P. Ltd. v. Asst. CIT [2009] 122 TTJ (Lucknow) 515 and Jaipur Bench of the Tnbunal In the case of Smt. Vijay Laxmi Dhaddha V. ITO [2009] 20 DTR (AT) 365 Gaipur). Respectfully following the above decisions, we reverse the order of the Commissioner of Income-tax (Appeals) on this issue and allow the ground of appeal No.6 raised by the assessee. '

In the result, the appeal of the assessee is partly allowed.

I. T.A. No. 972/Mds/2012
16 This appeal is filed by the Revenue against the order of the Commissioner of Income-tax (Appeals) stating that the Commissioner of Income-tax (Appeals) has erred in allowing deduction towards cost of building existing on the land with indexation benefit for the purpose of computation of long-term capital gains.

17 The Departmental representative referring to paragraphs 6 and 6.1 of the impugned order submits that the Commissioner of Income-tax (Appeals) is not justified in holding that the assessee did not index the cost of building.

18 Counsel for the assessee relied on the order of the Commissioner of Income-tax (Appeals).

19 The Commissioner of Income-tax (Appeals) taking note of the principles of the decision of the hon'ble Supreme Court in the case of Dhun Dadabhoy Kapadia v. CIT [1967] 63 ITR 651 allowed the claim of the asses­see in respect of indexation on building existed on land as on the date of entering into an agreement observing as under :

"6.1 With regard to the claim of the appellant that the indexed cost of building is requirerl to be allowed as deduction and reliance placed on the decision of Dhiln Dadabhoy Kapadia v. CIT [1967] 63 ITR 651 in support is carefully considered. The Assessing Officer rejected the claim by holding that what is transferred is only land. Careful consideration of Chapter N - E of the Act reveal that on transfer of capital asset the appellant is eligible to claim deductions specified under section 48 which include cost of acquisition of the asset and the cost of any improvement thereto. Therefore I hold that though as per the agreement of sale and joint development what is transferred is only the land, but the fact that on executing the said agreement the appellant also cedes right over the' building located on the said land and hence for the purpose of working out capital gain the cost of the building and indexation of benefit thereon should also to be deducted to arrive at the cost for the purpose of computing taxable capital gain. Capital gain tax is assessee in the hands of the transferor and the transfer' is to be seen from the point of view of transferor and statutory deductions are to be provided. This ground of appeal is allowed."

20 On going through the order of the Commissioner of Income-tax (Appeals), we do not find any good reason. to interfere with the findings of the Commissioner of Income-tax (Appeals), on this issue. We, therefore, confirm the order of the Commissioner of Income-tax (Appeals) on this issue and reject the grounds of appeal raised by the Revenue.

In the result, the appeal of the Revenue is dismissed.

1. T. A. Nos. 616 and 617/Mds/2012
These two appeals are filed by the assessee against the orders of the Commissioner of Income-tax (Appeals)- VI, Chennai dated January 31, 2012 for the assessment years 2004-05 and 2005-06 respectively. The assessee has raised several grounds including jurisdiction to reopen the assessment under section 147 and denying benefit under section 54F of the Act and other grounds.

The assessee has also raised additional grounds in both these two appeals contending that the assessment orders passed by the Assessing Officer under section 143(3) read with section 147 are beyond the due date for completion of the assessment and therefore bad-in-Iaw. The additional grounds raised by the assessee are admitted and taken on record as these grounds are purely legal grounds and going to the root of the matter and the validity of the assessment orders passed.

Counsel for the assessee submits that notice under section 148 was served on the assessee on March 18, 2009 as per the assessment' order in both these assessment years. Counsel submits that as per the provisions of section 153(2) of the Act, the assessment should have been completed within one year from the end of the financial year in which the notice under section 148 was served. As per the assessment order, notice was served on March 18, 2009, therefore, assessments should have been completed by March 31, 2010, whereas the assessments were completed for these two assessment years only on December 31, 2010, which is beyond the due date of one year from the end of the financial year in which notice under section 148 was served. Therefore, he submits that as the assessments were completed beyond the due date stipulated under section 153(2) of the Act, the assessments are bad-in-law.

The Departmental representative fairly submits that the assessments were made beyond the time limit specified under section 153(2) of the Act.

We have gone through the assessment order, the original notice served on the assessee under section 148 and the provisions of section 153(2) of the Act. It is an undisputed fact that the notices under section 148 were served on the assessee on March 18, 2009. As per the provisions of section 153(2) of the Act, no order of assessment or reassessment or recomputa­tion . shall be made under section 147, after-the expiry of one year from the end of the finandal year inwhich the notice under section 148 was served. In this case, as the notices under section 148 were served on March 18, 2009, assessments under section 143(3) read with section 147 should have been completed on or before March 31, 2010. However, the assessments were completed for both these assessment years on December 31, 2010 which is beyond the time limit specified under section 153(2) of the Act. Therefore, the assessments made for both these two assessment years under section 143(3) read with section 147 are barred by limitation and bad-in-Iaw. Therefore, the reassessments made for both these assessment years beyond the period of limitation are liable to quashed. Ordered accordingly. The additional grounds raised by the assessee are allowed.

27 In the result, both appeals of the assessee are allowed.
28 To sum up, the appeal of the assessee in I.T.A. No. 615/Mds/2012 is partly allowed and I. T. A. Nos. 616 and 617/Mds/2012 are allowed and the appeal of the Revenue in I.T.A. No. 972/Mds/2012 is dismissed.

29 The order pronounced in the open court on Thursday, the 29th day of August, 2013 at Chennai.