Income from Joint Development Agreement Treated as Stock

Income from Joint Development Agreement Treated as Stock-In-Trade Remanded for Factual Re-Adjudication

Issue

Whether the revenue authorities were justified in taxing Rs. 14.33 crores as accrued business income based on a JDA and a Form 26AS entry, and whether capital gains provisions under Section 45(5A) apply when the underlying immovable property is admittedly held as stock-in-trade.

Facts

The assessee, an individual engaged in the construction and development business, owned a parcel of land and entered into a registered Joint Development Agreement (JDA) with a developer.
The Assessing Officer (AO) observed an entry in Form 26AS reflecting a transaction described as a sale of immovable property to the developer for Rs. 14.33 crores, and subsequently added this entire amount to the assessee’s income as accrued revenue.
The Commissioner (Appeals) [CIT(A)] upheld the addition, concluding that the execution of the JDA alienated the property rights, part consideration was received, and possession was handed over to the developer.
The assessee contested the addition, asserting that no development activities ever took place, no consideration was received other than an interest-free security deposit of Rs. 10.00 crores, and the agreement had since been terminated via legal notice and cancellation of the Power of Attorney.
It was concurrently established that the immovable property in question was held by the assessee as business stock-in-trade rather than a capital asset.

Decision

Held, that since the CIT(A) failed to properly adjudicate the factual matrix—including the actual status of the project and the taxability of the interest-free security deposit—the matter is set aside and remanded to the CIT(A) for fresh re-adjudication.
Held, that because the immovable property was admittedly held as stock-in-trade, the provisions of Section 45(5A) are completely inapplicable, as that section governs the computation of capital gains for capital assets only. [Matter remanded]

Key Takeaways

Stock-in-Trade Excludes Capital Gains: Special provisions like Section 45(5A) designed for timing capital gains under a JDA cannot be applied to business assets; business income must be governed by ordinary revenue recognition principles.
Form 26AS is Not Absolute Proof: The mere presence of an entry in Form 26AS does not automatically establish that income has legally accrued to a taxpayer if the underlying transaction fails to materialize or is rescinded.
Factual Determination of Possession and Progress: In JDA disputes, tax authorities must thoroughly examine whether actual physical control was transferred and whether the project progressed before bringing estimated transaction values to tax.

IN THE ITAT PUNE BENCH ‘B’

Rakesh Motilal Sharma

ACIT

Vinay Bhamore, Judicial Member
and Dr. Manish Borad, Accountant Member

IT Appeal No.1256 (PUN) of 2025
[Assessment year 2018-19]

JUNE 18, 2026

Prateek Jha and Prayag Jha for the Appellant. Amit Bobde, CIT-DR for the Respondent.

ORDER

Dr. Manish Borad, Accountant Member.- The captioned appeal at the instance of assessee pertaining to the Assessment Year 2018-19 is directed against the order dated 21.03.2025 of National Faceless Appeal Centre, Delhi passed u/s.250 of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) arising out of the Assessment Order dated 06.04.2021 passed u/s.143(3) r.w.s.143(3A) & 143(3B) of the Act.

2. Assessee has raised following grounds of appeal :

“1. The Ld. CIT(A) erred in confirming the decision of the Ld. AO, NFAC, that income of Rs.14,33,25,000/- had accrued to the assessee during the AY 2018-19 without appreciating the facts and circumstances of the case.

2. The Ld. CIT(A) erred in sustaining the decision of the Ld. AO, NFAC, without appreciating that the assessee had not transferred the subject property on 16.02.2018 but had only entered into a Joint Development Agreement with M/s Ajmera Percept Realty for development of land.

3. The Ld. CIT(A) erred in not appreciating that the assessee had neither handed over the possession of the property to M/s Ajmera Percept Realty nor had he received any consideration from the developer and the amount of Rs.10,00,00,000/- received was interest free refundable security deposit.

4. The Ld. CIT(A) erred in not appreciating that the amount of Rs.14,33,25,000/- was neither received nor accrued to the assessee during the AY 2018-19 and this amount was not income of the assessee liable to income tax in the AY 2018-19.

5. Without prejudice to Ground Nos. 1, 2, 3 and 4, the Ld.CIT(A) erred in not appreciating that income to the assessee was liable to tax in the year in which certificate of completion of project or part of the project was issued by the Competent Authority.

6. The above grounds of appeal are without prejudice to one another.

7. The appellant craves leave to furnish Additional Evidence which may be relevant to the above Grounds of Appeal in course of the appeal proceedings.

8. The appellant craves leave to amend or alter any of the above Grounds of Appeal or to add new Grounds of Appeal during the course of appeal proceedings.”

3. Brief facts of the case are that the assessee is an individual and income of Rs.39,01,160/- declared in the return of income for A.Y. 2018-29 e-filed on 31.10.2018. Case selected for Complete Scrutiny to examine the four issues namely (i) Income from Real Estate Business; (ii) Remuneration paid by Firm; (iii) Business Loss; and (iv) Unsecured Loans. After validly serving statutory notices u/s.143(2) and 142(1) of the Act, ld. Assessing Officer called for various details mainly regarding the Construction and Developers business carried out in the name of M/s. Star Construction. Ld. Assessing Officer observed that the assessee has sold properties valuing Rs.72,54,000/- and Rs.24,18,000/-. Based on information contained in Form No.26AS, the assessee submitted that he has 1/3^rd share in these properties and that Rs.24,18,000/- is nothing but assessee’s 1/3^rd share in the transaction of Rs.72,54,000/-. Further, assessee filed revised statement of long term loss. However, ld. Assessing Officer reworked the long term capital gain at Rs.52,40,206/- and made addition of Rs. 36,73,218/-.

4. Next issue taken up by ld. Assessing Officer was regarding the transaction of sale of immovable property valued Rs.14,33,25,000/- appearing in Form No.26AS and the assessee was asked to explain why receipts from this transaction has not been declared in the profit and loss account. It was stated that the assessee owned land at Survey No.519 and 580 situated at Bibwewadi, Pune and M/s. Star Construction entered into a Joint Development Agreement with M/s. Ajmera Percept Realty (the Developer) who agreed to develop the land owned by the assessee and consideration was decided by giving percentage of the built up area and the assessee got 42% of the covered area and 39% share of the residential area. It was further submitted that development of the said land has not started and that Revenue of the aforesaid transaction will be recognised at the time of allotment of the constructed area or amount received by prospective buyers. However, ld. Assessing Officer after thoroughly examining the transaction came to conclusion that the amount of Rs.14,33,25,000/- reported in Form No.26AS which relates to the transaction of Joint Development Agreement between the assessee and M/s. Ajmera Percept Realty needs to be recognised during the year under consideration and accordingly made the addition thereof and assessed income at Rs.15,08,99,380/-.

5. Aggrieved assessee preferred appeal before ld.CIT(A) and partly succeeded as the issue relating to addition for long term capital gain was remitted back to the file of Assessing Officer since the assessee did not submit necessary details regarding the cost of improvement. As regards the addition of Rs.14,33,25,000/- ld.CIT(A) observed that the assessee failed to rebut the finding given by the Assessing Officer in the assessment order by furnishing necessary clarification with supporting evidences. Ld. CIT(A) further held that appellant has alienated right in property in favour of the buyer by entering into Joint Development Agreement and that the appellant has also received part consideration and has also given possession of the land for development. Therefore, transfer has taken place during the current year only. Ld. CIT(A) also placed reliance on various decisions and did not accept the contentions of the assessee that neither the amount was accrued nor it had been received. However, ld. CIT(A) directed the Assessing Officer that the impugned addition has been made without considering the purchase cost of the plots and accordingly remitted this issue also to the file of Assessing Officer for limited purpose of giving the benefit of cost of the plots.

6. Aggrieved assessee is now in appeal before this Tribunal solely on the issue of addition made by Assessing Officer at Rs.14,33,25,000/-.

7. Ld. Counsel for the assessee submitted that the assessee has not transferred the subject property on 10.02.2018 but has only entered into a Joint Development Agreement with M/s. Ajmera Percept Realty for development of land. He submitted that the assessee neither handed over the possession of the property to the developer nor had received any consideration except the sum of Rs.10.00 crore received towards interest free refundable security deposit. Therefore since the alleged amount has neither received nor accrued to the assessee in the year under consideration it is not liable to tax. It is further submitted that ld. CIT(A) erred in not appreciating that the income of the assessee is liable to tax in the year in which certificate of completion of project or part of the project is issued by the Competent Authority. Further, ld. Counsel for the assessee placed the following case laws for the issue under consideration:

Dheeraj Amin v. ACIT – [2015] 172 TTJ 228 (Bangalore – Trib.)/ITA No. 1709/Bang/2013, dated 30.06.2014

CIT v. Sadia Shaikh – [Tax Appeals 11 & 12/2013, dated 02-12-2013]

Binjusaria Properties (P) Ltd. v. ACIT 149 ITD 169 (Hyderabad – Trib.)

Bharat Jayantilal Patel v. DCIT (Bombay)

Challa Ramakrishna v. ACIT – [ITA No. 955/Hyd/2018, dated 12-04-2019]

Dilip Anand Vazirani v. ITO 69 SOT 1 (Mumbai)

CIT v. Balbir Singh Maini 398 ITR 531 (SC)

8. On the other hand, Ld. DR vehemently argued supporting the order of ld. CIT(A) and submitted that the assessee has entered into Joint Development Agreement and the same is duly registered and the transaction is appearing in Form No.26AS and that on entering of such Joint Development Agreement assessee gives the right to Developer to develop the property and the same cannot be carried out without giving possession and therefore ld. CIT(A) has rightly held that the amount reported in Form No.26AS at Rs.14,33,25,000/- on account of Joint Development Agreement between assessee and M/s. Ajmera Percept Realty deserves to be taxed subject to allowing of deduction for cost of purchase of land.

9. We have heard the rival contentions and perused the record placed before us. The only grievance of the assessee is that ld. CIT(A) erred in confirming the action of Assessing Officer that income of Rs.14,33,25,000/- had accrued to the assessee on account of registration of Joint Development Agreement between assessee and M/s. Ajmera Percept Realty for development of land. We note that this issue came up before the Assessing Officer on the basis of information appearing in Form No.26AS as per which the assessee has entered into transaction of sale of immovable property to M/s. Ajmera Percept Realty for consideration of Rs.14,33,25,000/-. During the course of assessment proceedings, ld. Assessing Officer called for the information relating to this transaction and it was submitted that the assessee has entered into Joint Development Agreement with M/s. Ajmera Percept Realty to develop the land and in lieu of development of this land assessee will get 42% and 39% share for the commercial and residential property respectively developed on the land owned by the assessee. It has been claimed by the assessee that no development took place nor the assessee has received any consideration in lieu thereof. Only interest free security deposit of Rs.10.00 crore has been received. It is also submitted that subsequently disputes have taken place between the assessee and the Developer. Ld. Counsel for the assessee has also referred to section 2(14) of the Act defining capital asset and submitted that the same is not applicable as the property in question is part of stock in trade. However, in the subsequent paras in the written submission it is stated that even if the property is treated as capital asset, section 45(5A) of the Act can be invoked for charging the capital gain in the year in which certificate of Completion or the whole or part of the project is issued by the competent authority. Further, we find that ld. CIT(A) seems to have not examined the facts properly as ld. CIT(A) in para 6.5 of the impugned order has observed that the assessee has alienated the right in the property in favour of the assessee by entering into Joint Development Agreement and the assessee has also received part consideration and has given possession of the land for development of the land.

10. Now on one hand the assessee is stating that it has not received any consideration in lieu of the said transaction. However, ld. CIT(A) has stated that assessee has received part consideration. It seems that ld. CIT(A) has taken into consideration of the amount of Rs.10.00 crore received by the assessee as interest free Security Deposit as part of sale consideration. This indicates that ld. CIT(A) has not examined the facts properly. We also find that the assessee is into the construction business and as per the audited balance sheet the assessee has filed separate details of each of the sites namely Giridhar Nagar Site, Bibwewadi, Market Yard Slum at Wadgaon Construction and Giridhar Parijat. It is interesting to note that the immovable property in question is located at Survey No.519 and 580, Bibwewadi. Assessee has filed Construction Account of the property situated at Survey No.580 and that the opening work in progress of Rs.3,05,29,572/-, the assessee has further incurred expenses during the year at Rs.86,22,586/-. It is also stated in the submission before the lower authorities that in the land at S.No.519 and 580 some part of the land will be constructed by the assessee and remaining part with the Developer. However, no such details have been furnished. The immovable property in question is admittedly stock in trade therefore there remains no reason for referring to provisions of section 45(5A) which only relates to the computation of capital gain in relation to capital asset. Now the assessee has received interest free security deposit of Rs.10.00 crore in the year 2018. It is claimed that the development work has not commenced. Also in the paper book at pages 55 to 67 is the legal notice given by the assessee to the Developer M/s. Ajmera Percept Realty on 24.06.2022 running into 12 pages and in para 23 the assessee states that it is terminating the Agreement of Development dated 16.02.2018 along with the Supplementary Deed dated 22.02.2021 and all other supplementary and incidental agreements and deeds in respect of the same. Assessee has also terminated the Power of Attorney dated 16.02.2018 thereby cancelling the license which was granted to the Developer in the Joint Development Agreement dated 16.02.2018. Further assessee stated that he hereby forfeits the security deposit of Rs.10.00 crore. The outcome of the legal notice dated 24.06.2022 is not known as no further details have been filed. Status about the project as on date is also not placed on record.

11. Under these given facts and circumstances where ld. CIT(A) has not adjudicated the facts properly and further the status of the project as on date is also not stated by the assessee and in case the Agreement has been terminated subsequent to the legal notice dated 24.06.2022 then what is the fate of the interest free security deposit which is available with the assessee since 2018 and the said funds being utilised by the assessee for almost 7-8 years. We therefore deem it appropriate that matter deserves to be set aside to the file of ld. CIT(A) for re-adjudication of the issue of addition of Rs.14,33,25,000/- in light of observations made hereinabove and necessary details from the assessee for understanding the factual aspect of the transaction and taxability of the interest free security deposit in the hands of assessee and whether the Revenue is to be recognised based on the Joint Development Agreement entered in the year 2018 subject to the facts being brought on record or whether the Joint Development Agreement has again been brought into force. Needless to mention that ld. CIT(A) shall provide reasonable opportunity to the assessee. Ld. CIT(A) shall call for Remand report from ld. Jurisdictional Assessing Officer and after receiving the objections if any from the side of assessee shall dispose of the issues in accordance with law. Impugned order is set aside and all the issues raised in the instant appeal are remitted back to the file of ld. CIT(A).

12. In the result, the appeal of the assessee is allowed for statistical purposes.