Cost of Acquisition in Joint Development Agreements (JDA) (AY 2022-23)

1. The Core Dispute: Is the Constructed Area “Free”?

The assessee, a landowner, entered into a JDA where they gave up 45% of their land share to a developer. In exchange, the developer constructed a building and gave the assessee 55% of the constructed area. Later, the assessee sold a flat from this 55% share and claimed a “cost of acquisition” to reduce their capital gains tax.

Assessing Officer’s View: The AO disallowed the cost, claiming the builder paid for everything, so the assessee’s cost was zero. They also alleged the assessee failed to provide land purchase documents.
Assessee’s Stand: The flats weren’t a gift; they were “purchased” by trading away 45% of the land.

2. Legal Analysis: The “Exchange” Principle (Section 48 & 55)

The court applied the fundamental principle of a barter or exchange transaction.

I. Cost is the Value of the Asset Given Away

Under Section 48, to compute capital gains, you must deduct the “cost of acquisition.”

The Ruling: The constructed area received by a landowner in a JDA is not free of cost. The “price” paid for those flats is the value of the land share (45%) that the owner transferred to the developer.
Indexed Cost: The assessee is entitled to the Indexed Cost of Acquisition based on the value of the land at the time of the original purchase or as of April 1, 2001.

II. Evidentiary Burden and Departmental Knowledge

The AO’s claim that there was no evidence of land ownership was rejected.

The Findings: The fact that the assessee entered into a JDA as the “Owner” and that this was already part of the department’s records means the department cannot claim ignorance of the land’s existence.
2001 Valuation: Since the assessee provided evidence of the land’s value as of April 1, 2001, the AO must factually verify these numbers rather than summarily rejecting the claim.

3. The Ruling: Remand for Verification

The court held that while the principle of allowing the cost of acquisition is correct, the math must be verified.

Outcome: The disallowance was set aside.
Direction: The matter was remanded to the Assessing Officer for a “limited and focused verification” of the purchase documents and the 1-4-2001 valuation.

Key Takeaways for Landowners in JDA

** ফ্ল্যাট বিনামূল্যে নয় (Flats are not free):** Never accept a “Zero Cost” assessment. Your cost is the value of the land you sacrificed.
Section 45(5A) Trigger: Remember that for individuals/HUFs, the tax liability arises in the year the Completion Certificate is issued, based on the Stamp Duty Value on that date.
New Cost Base: When you eventually sell the flats, your new cost of acquisition will be the Stamp Duty Value that was used to calculate your initial JDA capital gains tax.
Preserve Records: Keep all JDA agreements, original land purchase deeds, and valuation reports from 2001 (if the land was bought before then).

IN THE ITAT MUMBAI BENCH ‘G’

Suken Suresh Mehta

Income-tax Officer^*

SAKTIJIT DEY, Vice President
and Jagadish, Accountant Member

IT Appeal No. 6771 (Mum) of 2025
[Assessment year 2022-23]

JANUARY 14, 2026

Vijay Mehta, CA and Tarang Mehta, Adv. for the Appellant. Anil Kanti Datta, CIT-DR for the Respondent.

ORDER

Saktijit Dey, Vice President.- This is an appeal by the assessee against an order dated 09.10.2025 of National Faceless Appeal Centre (NFAC), Delhi pertaining to Assessment Year 2022-23.

2. The assessee has raised four grounds in the Memorandum of Appeal. However, at the outset, learned counsel appearing for the assessee, on instructions, did not press Ground Nos. 1 and 2. Accordingly, these two grounds are dismissed as not pressed.

3. In Ground No.3, assessee has challenged the disallowance of Rs.39,80,263/-claimed towards indexed cost of acquisition of land.

4. Briefly the facts are, the assessee acquired 18,443 sq.ft. of land in Coimbatore through registered sale deed dated 28.08.1981. On 21.08.2013, the assessee entered into a Joint Development Agreement (JDA) cum Memorandum of Understanding (MOU) with Elysium Properties India Pvt. Ltd. for jointly developing a property named ‘Elysium The Address’. As per the terms of the JDA cum MOU, the assessee was required to assign rights in the undivided land proportionate to 45% of the constructed area to the developer. In exchange, the developer agreed to construct the residential premises and give 55% of such constructed area to the assessee. Additionally, assessee received interest free and interest-bearing security deposits, which later on were refunded to the developer. Subsequently, in the previous year relevant to the A.Y. 2022-23, the assessee sold its right in Flat No. B-5, admeasuring 2,400 sq. feet part of 55% of constructed area falling into the share of the assessee as per JDA cum MoU to one Mehernosh Dadi Printer for a consideration of Rs.1,57,57,000/-. To the very same buyer assessee also sold the rights in the proportionate land admeasuring 629 sq.ft. for consideration of Rs.44,03,000/-. Thus, the assessee received total consideration of Rs.2,01,60,000/-. While computing the long term capital gain, as against sales consideration of undivided share of land amounting to Rs.44,03,000/-, the assessee claimed deduction of an amount of Rs.39,80,263/-on account of cost of acquisition. Whereas, as against the consideration of Rs.1,57,57,000/- received towards the value of built-up portion, the assessee claimed cost of acquisition of Rs.1,44,55,200/-. While examining assessee’s claim of deduction on account of cost of acquisition, the Assessing Officer (AO) observed that for claiming cost of acquisition in respect of sale of land, the assessee has not furnished copy of purchase deed or copy of valuation report, duly prepared by Government approved valuer. He further observed that the cost of acquisition has been worked out adopting some unknown method by referring to a Website of Government of Tamil Nadu and readjusting 5% towards inflation. Thus, he rejected assessee’s claim of deduction towards cost of acquisition. Though, the assessee contested the disallowance before the First Appellate Authority however, it was sustained.

5. Before us, learned counsel appearing for the assessee submitted that the fact that the assessee is entitled to get the benefit of indexed cost of acquisition in terms of Section 48 of the Income Tax Act, 1961 (in short the ‘Act’) cannot be questioned. He submitted, at the time of computation of long-term capital gain, the value as on 01.04.2001 was not available. Therefore, the assessee adopted the ready reckoner value as on 01.04.2002 and thereafter reduced 5% on account of inflation. He submitted, now the assessee has obtained a report from Joint Sub Registrar, Coimbatore, stating the value of the land as on 01.04.2001. A copy of the said report in Vernacular language along with English translated copy was furnished before the Bench with a request to admit them as additional evidence. However, learned counsel fairly submitted that since these documents are fresh evidences and were not furnished before the Departmental Authorities, the AO may be directed to verify the evidence and thereafter allowed assessee’s claim.

6. The learned Departmental Representative (DR) strongly relying upon the observations of the Assessing Officer and learned First Appellate Authority submitted that since the assessee failed to furnish any evidence with regard to the purchase of land and its value as on 01.04.2001 the deduction claimed towards indexed cost of acquisition was rightly rejected.

7. We have considered rival submissions and perused the materials on record. A perusal of the impugned order of learned First Appellate Authority makes it clear that the fact that assessee had purchased the land at Race Course, Coimbatore vide agreement dated 28.08.1981 was within the knowledge of the Departmental Authorities. The Departmental Authorities were also aware of the fact that the assessee has entered into JDA cum MOU dated 21.08.2013 for developing the property in terms of which, the assessee was required to part 45% of share in the undivided land proportionate to the area to be developed and developer was to give the assessee 55% of the constructed area. It is also within the knowledge of the Department that in the year under consideration, the assessee had sold his rights to receive a constructed flat described elsewhere in the order along with its right in the proportionate undivided share of land. While the AO has disallowed assessee’s claim alleging lack of evidence and unscientific manner in which the deduction has been worked out, the First Appellate has upheld the disallowance stating that once the assessee has transferred the land to the developer he had no rights.

8. In our considered view, the aforesaid reasoning of the Departmental Authorities are fallacious. Section 48 of the Act makes it clear that for computing income under the head capital gain deduction towards expenditure incurred wholly and exclusively in connection with the transfer of the asset and the cost of acquisition of asset and cost of any improvement has to be allowed. In the facts of the present appeal, undoubtedly, the assessee has received the right in the constructed area in exchange of 45% of land given to the developer. Thus, it cannot be said that the assessee has no right in the land. Further, the fact that the assessee was owner of the land was within the knowledge of the Department. Therefore, the allegation that the assessee failed to furnish documentary evidence towards purchase of land is unacceptable.

9. As far as the adoption of the value of land as on 01.04.2002, learned counsel has explained that since at that particular point of time value as on 01.04.2001 was not available, assessee took the ready reckoner value of 01.04.2002 and worked out the value as on 01.4.2001 by deducting 5% towards inflation. However, before us, assessee has submitted some documentary evidences as additional evidence to demonstrate the value of the land as on 01.04.2001. Considering the fresh evidence submitted by the assessee, which was not before the Departmental Authorities, we are inclined to restore the issue back to the file of the AO for allowing assessee’s claim of deduction towards cost of acquisition after factual verification of the fresh evidence. Needless to mention, before deciding the issue, the AO must provide reasonable opportunity of being heard to the assessee.

10. In Ground No.4, the assessee has contested the disallowance of Rs.1,44,55,200/- claimed towards indexed cost of acquisition of the rights of constructed area.

11. Briefly the facts are, as discussed earlier after entering into JDA cum MoU with the developer in the Financial Year 2013-14, the assessee acquired the rights in 55% of the constructed area in exchange of 45% of rights given in the undivided land. Out of the 55% constructed area given to the assessee, the assessee sold Flat No.B-5 admeasuring 2,400 sq.ft. with proportionate share in land and received consideration of Rs.1,57,57,000/-. While computing the long-term capital gain, the assessee claimed deduction towards indexed cost of acquisition for an amount of Rs.1,44,55,200/-.

12. The Departmental Authorities rejected assessee’s claim on the ground that since the developer was to construct the building utilizing its own funds and the assessee was not required to invest any fund, no deduction towards cost of construction can be allowed.

13. Before us, learned counsel appearing for the assessee submitted that the reasoning of the Departmental Authorities are totally unacceptable as the assessee has not received the constructed area free but in exchange of 45% of undivided share in land.

14. Drawing our attention to Section 48 of the Act, he submitted that computation mechanism would fail in absence of cost of acquisition. In support of such contention, he relied upon the order of Hon’ble Supreme Court in the case of CIT v. B.C. Srinivasa Setty (SC). He further submitted that the reasoning of the Department that since the developer was to construct the building utilizing its own fund, there is no cost of construction to the assessee, is unacceptable as the 55% constructed area that the assessee was to receive was in exchange of 45% of the land owned by the assessee. Therefore, the value of the 45% of land has to be treated as cost of acquisition/cost of construction. In support, he relied upon a decision of the Hon’ble Delhi High Court in the case of CIT v. Vasavi Pratap Chand ITR 316 (Delhi). Further, he relied upon the following decisions to buttress his contention:

Dy. CIT v. Jai Trikanand Rao (Mumbai)/ITA No. 3873/Mum/ 2011 order dated 21.06.2013. (Mum-Trib)

Atul G. Puranik v. ITO ITD 499 (Mumbai)/ITA No. 3051/Mum/2010, dated 13.05.2011.

CIT, Central-II v. Greenfield Hotels & Estates (P.) Ltd. ITR 68 (Bombay).

15. Learned Departmental Representative (DR) relied upon the observations of AO and learned First Appellate Authority.

16. We have considered rival submissions in the light of the decisions relied upon and perused the materials on record. There is no dispute regarding the fact that in exchange of 45% of land given to the developer under the JDA cum MoU, the assessee received 55% of the constructed area. Thus, the 55% constructed area received by the assessee was not free of cost but in exchange of the value of 45% of land given to the developer as on the date of the agreement. Therefore, the reasoning of the Departmental Authorities that the assessee having not invested any amount in the construction of the building, it is not entitled to cost of acquisition/cost of improvement, in our considered opinion, is unacceptable. The value of land in exchange of which the assessee received the right to the 55% constructed area is the cost for which the constructed area was acquired by the assessee in the Financial Year 2013-14. Therefore, while computing capital gain in respect of transfer of right in the constructed area corresponding deduction towards indexed cost of acquisition and construction has to be allowed to the assessee. Therefore, in principle, we uphold assessee’s right to claim deduction on account of cost of acquisition and construction in terms of Section 48 of the Act. However, as regards, the quantum of such deduction, since the Departmental Authorities have not gone into that aspect as they rejected assessee’s claim at the threshold, we restore the issue only for the limited purpose of factual verification of assessee’s claim and allowing the same, if found correct. The judicial precedents cited by learned counsel for the assessee support this view. This ground is accordingly decided.

17. In the result, appeal is partly allowed for statistical purposes.