JDA Capital Gains Remanded to CIT(A) for Re-Adjudication to Evaluate Uncommunicated Property Valuation Reports

ORDER

Rakesh Mishra, Accountant Member.- This appeal filed by the assessee is against the order of the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC) [hereinafter referred to as Ld. ‘CIT(A)’] passed u/s 250 of the Act for AY 2015-16 dated 16.02.2026.

2. The assessee is in appeal before the Tribunal raising the following grounds of appeal:

“1. For that in fact and under the circumstances of the case the Ld. CIT (Appeals) dismissed the appeal on the ground that the judgement in case of UOI v. Rajeev Bansal the Hon’ble Apex court has extended the date of issuing of notice and as the notice was issued prior to 01.04.2022 the judgement of Ashish Agarwal was not valid, which is bad in law and against the cause of natural justice as the Hon’ble Apex Court had extended the date till 30th June 2021 and the notice to the petitioner was issued on 31.03.2021 and hence barred by limitation of time.

2. For that in fact and under the circumstances of the case the Ld. Assessing Officer calculated a capital gains of RS.48,68,542/- on arbitrary basis which is bad in law and against the cause of natural justice.

3. For that in fact and under the circumstances of the case the Revenue conceded that for the assessment year 2015-16, all notices issued on or after 1 April 2021 will have to be dropped as they will not fall for completion during the period prescribed under TOLA.

4. That in fact and under the circumstances of the case the Ld. Assessing Officer did not take into consideration the cost of acquisition of the property while calculating the Capital Gains on Joint Development of Property despite the documents having been produced before him, which is bad in law and against the cause of natural justice.

5. For that in fact and under the circumstances of the case your petitioner has no source of income except rental income from the property developed and handed over to her, for her sustenance.

For that your petitioner craves leave to add, alter, amend, modify and/or delete any or all the grounds mentioned above and to produce such documents in favour of the petitioners claim for relief, for which act of kindness your petitioner shall be ever grateful.”

3. Brief facts of the case are that the assessee had neither filed the return of income for AY 2015-16 originally, nor did she file the return of income in response to the notice issued u/s 148 of the Act on 31.03.2022. The case was reopened on the basis that the assessee along with a co-owner had entered into a Joint Development Agreement on 22.01.2015, which the Assessing Officer (hereinafter referred to as Ld. ‘AO’) treated as transfer of property u/s 2(47) of the Act. The Ld. AO determined the total sale consideration at Rs. 48,68,542/- based on the fair market value and cash consideration, treated the cost of acquisition as Rs.NIL and completed the assessment u/s 147 r.w.s. 144 r.w.s. 144B of the Act on 19.03.2023 at the total income of Rs. 48,68,542/- after adding a sum of Rs.48,68,542/- on account of long-term capital gains. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. CIT(A), who upheld the validity of the reassessment proceedings and observed that the notice u/s 148 of the Act was issued prior to 01.04.2022 and was covered by the directions of the Hon’ble Supreme Court in Ashish Agarwal. Further, the Ld. CIT(A) held that the execution of the Joint Development Agreement resulted in the extinguishment of the rights of the assessee in the capital asset and constituted a transfer, and that the assessee had failed to furnish cogent documentary evidence regarding the cost of acquisition. Accordingly, the Ld. CIT(A) confirmed the action of the Ld. AO and dismissed the appeal of the assessee vide his findings as under:

“6.1 I have carefully perused the facts of the case, the assessment order passed by the AO, the remand report, the submissions and rejoinder filed by the appellant, and the material available on record. The grounds of appeal primarily relate to the validity of the reassessment proceedings and the addition of Rs.48,68,542/- made on account of Long-Term Capital Gains.

6.2 The appellant has challenged the assessment mainly on two counts, namely, (i) the validity of initiation of reassessment proceedings and (ii) the addition made on account of Long-Term Capital Gains.

6.2.1 Issue No. 1: Validity of reassessment proceedings

The appellant has contended that the reassessment proceedings initiated by issuance of notice u/s 148 of the Act on 31.03.2022 are invalid and barred by limitation, placing reliance on various judicial pronouncements and the amended provisions of sections 148 and 149 of the Act. In the remand report, the AO has relied upon the judgment of the Hon’ble Supreme Court in the case of Union of India v. Ashish Agarwal and has stated that the directions issued therein extend to notices issued during the transition period, thereby setting aside the judgments of various Hon’ble High Courts which had quashed notices issued u/s 148 of the Act.

On careful consideration, it is observed that while the AO, in the remand report, has placed reliance on the judgment in Ashish Agarwal, he has failed to take cognizance of the factual distinction arising from subsequent judicial developments. In the case of Rajeev Bansal, the Department has acceded to the position that reassessment notices issued on or after 01.04.2022 are barred by limitation. However, this concession is clearly confined to cases where notice u/s 148 was issued on or after 01.04.2022.

In the present case, it is an undisputed fact that the notice u/s 148 of the Act was issued on 31.03.2022, i.e. prior to 01.04.2022. Accordingly, the present case does not fall within the category of cases which have been accepted by the Department as time-barred. The directions of the Hon’ble Supreme Court in Ashish Agarwal, which were intended to govern notices issued during the transition period, are squarely applicable to the facts of the present case.

In view of the above, the contention of the appellant that the reassessment proceedings are invalid on the ground of limitation is not acceptable. Accordingly, the ground raised by the appellant challenging the validity of initiation of reassessment proceedings is rejected.

6.2.2 Issue No. 2: Addition on account of Long-Term Capital Gains of Rs.48,68,542/-

The appellant has contended that no transfer of the capital asset took place during the year under consideration and that the AO erred in treating the execution of the Joint Development Agreement as a transfer for the purposes of capital gains. It has further been argued that the AO wrongly adopted the fair market value of the property for computing capital gains without properly appreciating the terms and conditions of the development agreement.

In the remand report, the AO has reiterated the findings recorded in the assessment order and has correctly relied upon the provisions of section 2(47) of the Act, holding that the execution of the Joint Development Agreement resulted in extinguishment of the appellant’s rights in the capital asset, thereby constituting a transfer during the relevant previous year. The AO has further observed that the provisions of section 45(5A) of the Act are not applicable to the year under consideration and that, in the absence of any documentary evidence to establish the cost of acquisition, the same was rightly taken as Nil.

In the rejoinder, the appellant has reiterated that possession of the property was to be handed over only upon receipt of sanctioned plans and that no effective transfer took place during the year. The appellant has also disputed the valuation adopted by the AO. However, these submissions remain unsubstantiated, as no cogent documentary evidence has been brought on record to rebut the findings of the AO or to demonstrate that the execution of the Joint Development Agreement did not result in transfer within the meaning of section 2(47) of the Act.

On a holistic consideration of the rival submissions, the remand report and the material available on record, it is observed that the AO has passed the assessment order after duly examining the Joint Development Agreement and applying the relevant statutory provisions. The appellant failed to file the return of income in response to notice u/s 148 of the Act and also failed to furnish complete details during the assessment proceedings despite adequate opportunities being provided. The findings of the AO regarding the occurrence of transfer and the consequent computation of Long Term Capital Gains are supported by the facts on record and are in accordance with law.

Accordingly, the addition of Rs.48,68,542/- made on account of Long Term Capital Gains is hereby confirmed, and the ground raised by the appellant on this issue is dismissed.

6.3 In the result, the appeal filed by the appellant stands dismissed. “

4. Aggrieved with the order of the Ld. CIT(A), the assessee has filed the appeal before the Tribunal.

5. Rival contentions were heard and the submissions made have been examined. The Ld. AR submitted that the issue relates to capital gains for the AY 2015-16 and requested for remanding the matter before the Ld. CIT(A) for providing the valuation report of the two properties, which were never communicated and the assessee could not file proper reply to the show cause notice issued by the Ld. AO. The concerned immovable property had been inherited by the assessee in the year 1994 from father along with her mother, late Sarju Dasi and, therefore, longterm capital gain was liable to be charged after reducing the cost of acquisition and the Ld. AO has assessed long-term capital gain on the same being the share of the total sale consideration received by the assessee. Before the Ld. CIT(A), it was submitted that the assessment order was made u/s 147 r.w.s. 144 r.w.s. 144B of the Act and the assessee could not file proper response. The assessee filed a reply before the Ld. CIT(A) and he called for a remand report from the Ld. AO which has been extracted in para 5.2 of the appellate order. The assessee had filed a rejoinder to the remand report. The assessee had attached the copy of the purchase deed of late Dhirendra Lal Nath, though the same was not asked for by the Ld. AO, yet the basis and the evidence on which the Ld. AO arrived at the figure of sale price was not conveyed to the assessee. The copy of the rejoinder filed before the Ld. CIT(A) is as under:

“Your petitioner is a self-employed person whose income is below taxable limit which is subject to income tax. Your petitioner had inherited a property in the year 1994 along with her mother Late Saraju Dasi from her father who died intestate on 13th May 1994 a plot of land measuring 1 cottah and 8 chittak situated and comprised in Touzi no.145, Revenue Survey No. 233, J.L.No. 13, Mouza Kasba, Khatian No.402, Dag no. 2738, 2739 and 2742, District South 24 Parganas being premises no. 130, Rajdanga Main Road, Kolkata 700 078. Late Saraju Das died intestate on 21st May 2009, leaving your petitioner as the sole legal heir to the property mentioned above. Your petitioner entered into Joint Development Agreement on 22nd day of January, 2015 with one Mr. Joydeb Dutta, who along with the portion of land belonging to your petitioner combined the land belonging to another owner Smt. Roma Das who was in possession of a land measuring more or less 1 cottah 2 Chittaks and 39 Sq. ft., who became the owner of her portion on 14.12.2020. The two properties were then amalgamated vide a Deed of Amalgamation dated 27.01.2014. As per the said agreement your petitioner was to receive the entire first floor of the proposed building to be sanctioned by The Kolkata Municipal Corporation along with one car parking space on the ground floor. Your petitioner was also to receive a sum of Rs.3,00,000.00 (Rupees Three lakhs) only at the time of signing of the Development Agreement and Rs.4,00,000.00 (Rupees Four lakhs) only on the completion of the building. As per the terms of the Development Agreement your petitioner along with the other owner had to handover peaceful and vacant possession of the property to the Developer on obtaining the sanctioned plan from The Kolkata Municipal Corporation. Hence there was no question of transfer of property in the Financial Year 2014-15 relevant to the Assessment Year 2015-16. Further the market value of the whole property was Rs.94,37,084.00 The Ld. Officer has taken 50 percent of the same i.e., Rs.47,68,542.00 and cash amount of Rs.1,50,000.00 (50 percent of Rs.3,00,000.00 given by the Developer). The Ld. Assessing Officer did not consider the cost of acquisition of the property and neither considered the fact that the developer had agreed to hand over one flat on the on the First Floor together with on car parking fee. The total number of flats constructed was 3 (Three) nos., out of which I was given one flat on the 1st floor measuring 1050 sq. ft. super built along with one car parking space on the ground floor. The other owner, Ms. Roma Das received one flat on the third floor measuring 1050sq. ft. super built along with one car parking space on the ground floor. One flat on the 2nd floor was sold by the developer. The Ld. Assessing Officer erred in concluding that your petitioner has sold a property for a consideration of Rs.3,76,28,000.00. The Ld. Assessing Officer was provided with the Development Agreement wherein all the details have been clearly mentioned. The Assessing officer never asked for the copy of purchase deed of Late Dhirendra Lal Nath, father of the assessee who inherited the property after the demise of her parents. The copy of purchase deed of Late Dhirendra Lal Nath is attached herewith. I am not aware of the basis and the evidence on which the Ld. Assessing Officer has arrived at the figure of sale price. No proper explanation has been given by the Assessing Officer In light of the above the demand may be kindly dropped under intimation to the undersigned.”

6. The Ld. CIT(A) considered the submission but stated that as the assessee had failed to furnish complete details during the assessment proceedings despite adequate opportunity being provided, therefore, he dismissed the appeal. The assessee submits that the issue relating to the valuation and the cost of acquisition were not adequately addressed as two properties were amalgamated and the Ld. AR requested for remanding the matter before the Ld. CIT(A) so that the assessee can explain the same as the same could not be explained before the Ld. AO but were attempted to be explained in the rejoinder. The Ld. DR relied upon the order of the Ld. CIT(A) and requested that the same may be upheld.

7. We have considered the submissions made, gone through the facts of the case and perused the record and the order of the Ld. CIT(A). After examining the facts of the case and the law, we deem it appropriate to set aside the order of the Ld. CIT(A) and restore the appeal before him for disposal of the grounds of appeal taken by the assessee on merits by passing a speaking order. Needless to say, the assessee shall be given a reasonable opportunity of being heard to make any further submission she wants to make in support of her grounds of appeal and shall not seek unnecessary adjournments and rule 46A of the I.T. Rules, 1962 shall also be followed and an opportunity of being heard may be provided to the Ld. AO, if required. Accordingly, the grounds taken by the assessee in the appeal are partly allowed for statistical purposes.

8. In the result, the appeal filed by the assessee is partly allowed for statistical purposes.