Unregistered Joint Development Agreement Cannot Effect Transfer Under Section 53A Making Reassessment Invalid

ORDER

Aby T. Varkey, Judicial Member. – This is an appeal preferred by the assessee against the order of the Assessing Officer (hereinafter referred to as the ‘AO’), Delhi, dated 31.01.2023 for the Assessment Year (hereinafter referred to as the ‘AY’) 2013-14 passed u/s.147 r.w.s. 144C(13) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).

2. The Assessee-assessee is an individual, who filed her original return of income admitting total income of Rs. 5,52,830/- and thereafter, she filed a revised return of income admitting total income of Rs. 7,07,744/-. The Assessee entered into an agreement [“JDA”] dated 09.04.2012 for joint development of land owned by her with one M/s. ASV Constructions Private Limited [“Developer”] which fact is evidenced from copy of agreement in page 22 to 50 of paper book dated 17.04.2022 which is found to be an unregistered JDA. As per the said unregistered-agreement/JDA, the Assessee was entitled to receive 41.22% of constructed portion as consideration in exchange for 58.78% of undivided share (UDS) of land to be foregone by her. The Developer handed over the Assessee’s share of constructed portion during the previous year relevant to AY 2018-19. Accordingly, the assessee offered the capital gains of Rs 1,31,82,659/- arising from transfer of the undivided share of land in AY 2018-19 after claiming deduction u/s 54F in respect of the one of the residential unit allotted to her, which return has been accepted by the Revenue for AY 2018-19.

3. Later, the AO noticed that JDA in question which was executed on 09.04.2012 (supra), and hence the AO sought to reopen the assessment for AY 2013-14 by recording the following reasons:-

The assessee is an individual and an NRI, filed original return of income for AY 2013-14 on 12.06.2013, by declaring gross total income of Rs.5.52.830/-and Revised return of Income on 20.12.2013, by declaring gross total income of Rs.7.07 744/-.

During the course of verification of data pertaining to sale of property, the assessee stated that she had entered into a development agreement with M/s.ASV Constructions Pvt Ltd on 09.04.2012 for development of her property at Sholinganallur Village. Kancheepuram Dist. It was further stated that the assessee had received her share of constructed property as per the development agreement from the developer during the F.Y.2017-18 and thus the capital gain would have been disclosed by her in the return to be filed by her for A.Y.2018-19. Upon the perusal of the supporting documents furnished by M/s. ASV Constructions P. Ltd it has been found that the 4 flats totally measuring 18500 sq.ft. and having a value of Rs.3,42,25,000/- has been handed over to the assessee as per confirmation certificate dated 1.3.2018. As per the return filed by the assessee for AY.2018-19, the assessee has declared income from transfer of capital asset of Rs.3,25,17,226/- out of full value consideration of Rs.3,42,25,000/-, against which deduction of Rs.1,93,34,567/- has been claimed u/s.54F of the I.T.Act. Thus a net taxable long term capital gain of Rs.1,31,82,659/- only has been offered. In this regard, it is stated that the assessee is not eligible for deduction u/s.54F during the F.Y.2017-18, as the investment in 3 properties in addition to the new asset in the same year disqualifies the claim of deduction u/s.54F. Even in the A.Y.2013-14 in which the capital gain is assessable, does not entitled for deduction u/s 54F due to the above reason.

The developer further stated that it had declared income from the sale of their share of the project in F.Y.2016-17. The assessee had executed a Power of Attorney to the Developer on 9.4.2012 itself for conveying 58.78% of undivided share of land i.e., 9513 sq.ft. out of total land 16,184 sq.ft.

As per Section 2(47) (v) read with section 45 indicates that capital gain was taxable in the year in which such transactions were entered into even if the transfer of the immovable property Is not effective or complete under the general law. Therefore, the transfer of the capital asset being land in the instant case, as contemplated under the provisions of Income Tax Act, was completed In F.Y.2012-13 and the capital gain thereon ought to have been disclosed by the assessee in the return filed for A.Y.2013-14. It is fault on part of the assessee not to disclose capital gain on transfer of 58.78% of land (i.e., 9513 sq.ft.) owned by her to the Developer, in lieu of the agreed upon consideration of 19,500 sq.ft., of constructed property, in the return filed for A.Y.2013-14. The entire capital gain of Rs.3,25,17,226/- disclosed by the assessee in A.Y.2018-19 is chargeable to tax in A.Y.2013-14, as assessee is not entitled for deduction u/s.54F.

In view of the above, I have reason to believe that the assessee has not disclosed fully and truly the income chargeable to tax for the A.Y. 2013-14 and hence is a fit case to assess u/s 147 of the Income Tax Act 1961 and charge the escaped Income.

File submitted to the Commissioner of Income Tax. International Taxation, Chennai soliciting approval for issue of notice u/s 148 of the Income Tax Act, 1961.

4. After recording the reason to believe escapement of income (supra), the AO issued notice u/s 148 of the Act on 22.03.2021. Pursuant to the notice u/s 148, the assessee filed a return on 21.04.2021 reiterating her total income of Rs 7,07,620/- for AY 2013-14. The AO issued show cause as to why the entire LTCG on account of JDA should not be taxed in AY 2013-14 instead of AY 2018-19. Pursuant to it, assessee filed copy of the unregistered JDA, and objected to the proposal to tax the LTCG on account of JDA inter-alia by asserting that possession of the property was not delivered to the Developer, instead it was permission to develop the land in terms of agreement. Hence it was contended by the assessee that there was neither transfer of property nor part-performance u/s 53A of the Transfer of Property Act. 1882 as alleged/impliedly suggested by the AO in the relevant AY 2013-14. However, the AO didn’t agree and brought to tax the LTCG on account of JDA and added Rs 3,25,17,226/- by passing the draft assessment order u/s 144C(1) by treating the year of entering into the JDA as the year of transfer. The assessee filed objections u/s 144C(2)(b) before the Dispute Resolution Panel [“DRP”] on various grounds including the ground that the reopening of assessment is bad in law, and the DRP, upheld the validity of reopening and the addition made therein. Then, the AO passed the final assessment order on 31.01.2023 against which the Assessee has filed the present appeal.

5. The Assessee has raised various grounds before this Tribunal including the legal issue wherein assessee has challenged the jurisdiction of AO to reopen the assessment without any valid reasons to believe that income chargeable to tax has escaped assessment.

6. The Ld. AR assailing the impugned action of AO reopening the assessment based on wrong assumption of facts submitted that appellant is an individual, who, filed her revised return of income for AY 2013-14 admitting total income of Rs. 7,07,744/-.The AO noticing that assessee had entered into an agreement [“JDA”] dated 09.04.2012 for joint development of land owned by her with one M/s. ASV Constructions Private Limited [“Developer”] (refer page 22 to 39 of paper-book), the assessee was entitled to receive 41.22% of constructed portion as consideration in exchange for 58.78% of undivided share of land [“UDS”] to be foregone by her. According to AO as per the JDA, the assessee has executed a Power of Attorney [“PoA”] empowering the Developer to convey 58.78% of UDS in favour of their customers. Hence according to AO, the transfer of property had taken place on account of assessee entering into JDA with the Developer in AY 2013-14 and hence, according to AO, the assessee failed to offer the long-term capital gain (LTCG) in AY the aforesaid reasons to believe escapement of income which is erroneous being based on wrong assumption of facts.

7. In this regard, the Ld. AR pointed out that assessee had offered LTCG on transfer of this property in AY 2018-19, which fact the AO acknowledges in the reasons recorded (supra). However, according to AO, assessee was not entitled to claim deduction u/s.54F since assessee has made investment in 3 properties in addition to the new asset in the previous year relevant to AY 2018-19. According to Ld AR, for argument sake, even if the Assessee is not eligible for deduction u/s 54F for AY 2018-19, according to Ld AR, the AO could not have reopened the assessment for the relevant AY 2013-14 for that reason, as the said observation pertained to AY 2018-19. Hence, according to Ld AR, the AO erred in importing the said reason for holding that Assessee is not eligible for deduction u/s 54F in relevant AY 2013-14 also. In this regard, the Ld AR submits that, section 54F(1) was amended by Finance (No. 2) Act, 2014 to substitute the words “a residential house” with the words “one residential house” w.e.f. 01.04.2015. Thus, prior to 01.04.2015, investment in multiple residential houses was permitted for the purpose of claiming deduction u/s 54F and cited the decision of the Hon’ble jurisdictional High Court in CIT v. Smt. V.R. Karpagam 413 ITR 189 (Madras) (paras 7(i) and 7(ii) in page 43 of case laws paper book dated 18.04.2023).

8. According to Ld AR the AO erred in observing that the Assessee executed a PoA in favour of the Developer on the date of entering JDA, which shows that assessee has transferred the property to Developer. In this regard, the Ld AR submits that mere execution of a PoA does not constitute a transfer, as the PoA is not an instrument of conveyance/transfer in regard to any right, title or interest in an immovable property. He stressed that transfer of an immovable property by way of sale can only be executed by a deed of conveyance (duly stamped and registered as required by law) and in its absence, no right, title or interest in an immovable property can be transferred. According to him, the PoA is only an instrument for creation of agency and even an irrevocable PoA does not have the effect of transferring the title to the PoA grantee. At the best, the PoA holder may execute a deed of conveyance in exercise of power granted under the PoA and convey title on behalf of the grantor. And for such a proposition he relies on the judgment of the Hon’ble Supreme Court in Suraj Lamp & Industries (P.) Ltd. v. State of Haryana [ [2012] 340 ITR 1 (SC) in Special Leave Petition (C) No. 13917 of 2009 (paras 11-13 and paras 15-18).

9. Moreover, according to Ld AR, the AO erred in concluding in his reasons recorded that transfer was completed in FY 2012-13 and section 2(47)(v) r.w.s. 45 indicates that capital gains was taxable in AY 2013-14. In this regard, the Ld AR submits that section 2(47)(v) defines transfer to include 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 section 53A of the Transfer of Property Act, 1882 [“TP Act”].The Assessee submits that an unregistered JDA has no effect in law for the purpose of section 53A of T.P Act. Accordingly, no transfer can be said to have taken place under an unregistered JDA and thus, there can be no transfer u/s 2(47)(v) of the Act. Reliance was placed on the judgements of the Hon’ble Supreme Court in CIT v. Balbir Singh Maini   (SC)(paras 4(2), 4(3) and 4(4) and para 5 in page 4 of case laws paper book dated 18.04.2023). Following the judgement of the Hon’ble Supreme Court in the case of Balbir Singh Maini (supra), the Jurisdictional Bench of this Tribunal in Nishank Sakariya v. ACIT [IT Appeal No. 2343 (Chny) of 2024, dated 8-1-2025] (paras 8 & 9) held the reopening of assessment to be invalid on similar facts.

10. In view of the above submissions, the Assessee submits that there is no valid reasons to believe that income chargeable to tax has escaped assessment. Accordingly, the Assessee prays that we hold that the reopening of assessment for AY 2013-14 is bad in law and quash the notice under section 148 and the consequent assessment order dated 31.01.2023 as illegal and without jurisdiction.

11. Per Contra, the Ld DR for Revenue, vehemently opposed the contentions of the assessee/appellant and submitted that the AO in his reasons recorded has recorded his reason to believe escapement of income as envisaged u/s 147 of the Act and submitted that pursuant to entering JDA on 09.04.2012, the assessee had executed POA to the Developer to convey 58.78% of UDS to customers and assessee received advance of Rs 30 Lakhs. Hence, transfer as contemplated u/s 2(47)(v) of the Act has come in to operation since part-performance has taken place under section 53A of TP Act. The Ld DR filed written submission which is reproduced as under;-

1.1 The Assessee entered into a Joint Development Agreement (JDA) dated 09.04.2012 with M/s ASV Constructions Pvt Limited for development of her property situated at Sholinganallur village, Tambaram Taluk. The JDA was admittedly not registered under the Registration Act, 1908.

1.2 Simultaneously with the execution of the JDA, the Assessee:

1.3 Under the terms of the JDA, the Assessee agreed to receive 41.22% of the total super built-up area developed on the subject land as consideration for transferring 58.78% undivided share in the land to the Developer.

1.4 The Assessing Officer (AO) brought to tax the long-term capital gain arising on transfer of the subject land in Assessment Year 2013-14, being the year in which the JDA was executed, possession was handed over, and consideration was received.

1.5 The Assessee challenged the same contending that since the JDA is unregistered, there is no ‘transfer’ within the meaning of Section 2(47)(v) of the Income Tax Act, 1961, placing reliance inter alia on the ITAT Chennai order in ITA No. 2343/Chny/2024 (Mr. Nishank Sakariya, AY 2013-14, dated 08.01.2025) and the Supreme Court decision in CIT v. Balbir Singh Maini [2017] .

1.6 The DRP upheld the AO’s order. The Assessee is now before this Hon’ble Tribunal.

2.1 The primary question before this Hon’ble Tribunal is:

“Whether, on the facts and circumstances of the present case, where the Assessee executed an unregistered JDA coupled with an irrevocable GPA, handed over full possession of the land on the date of the JDA, and received advance consideration, the transaction constitutes a ‘transfer’ within the meaning of Section 2(47)(v) of the Income Tax Act, 1961, in Assessment Year 2013-14?”

3.1 The Assessee places heavy reliance on the ITAT Chennai order in ITA No. 2343/Chny/2024 (Nishank Sakariya). It is respectfully submitted that the said order is factually distinguishable from the present case on the following material grounds:

Factual Comparison:

3.2 It is thus clear that Nishank Sakariya was decided in a factual vacuum that does not replicate the present case. The said order cannot govern a case where the JDA is accompanied by an irrevocable GPA, actual delivery of possession, and receipt of consideration.

3.3 The entire edifice of the Assessee’s argument and consequently the ITAT order in Nishank Sakariya, rests on the Supreme Court decision in CIT v. Balbir Singh Maini [2017]. It is respectfully submitted that the said judgment is distinguishable on facts:

3.4 In the present case, the conjoint reading of the JDA and the irrevocable GPA demonstrates that the Assessee no longer enjoys any right in relation to the subject property except retention of bare legal title. This is precisely what the Apex Court in Balbir Singh Maini said would suffice, as a transaction with the effect of transferring or enabling enjoyment of immovable property.

3.5 The DRP has correctly distinguished Balbir Singh Maini at paragraph 4.8 of the impugned order. The Revenue respectfully adopts and reiterates those findings.

3.6 The Hon’ble Bombay High Court in Chaturbhuj Dwarkadas Kapadia v. CIT (2003) held, which was affirmed by the Supreme Court stating that:

3.7 Critically, in the present case:

3.8 As it is a Supreme Court decision, which has binding in nature. The ITAT order in Nishank Sakariya does not discuss or distinguish Chaturbhuj Dwarkadas Kapadia at all, and therefore its ratio cannot override a binding Supreme Court precedent.

3.9 The Karnataka High Court in CIT v. Shri T.K. Dayalu held that the year of chargeability of capital gains in a JDA transaction is the year in which:

3.10 Both conditions are squarely satisfied in Assessment Year 2013-14 in the present case. The Assessee’s contention that the transfer happened only in AY 2018-19 when construction was completed is directly contrary to this settled proposition.

3.11 The Assessee’s argument proceeds on the premise that non-registration of the JDA renders the entire transaction void for the purposes of Section 2(47)(v). This argument ignores the following:

3.12 The DRP has recorded at paragraph 4.7 that the Assessee himself agrees under the terms of the JDA that full possession of land was handed over to the Developer/Builder as on the day of the agreement. This is a selfserving admission made to argue for AY 2018-19 taxation, but it simultaneously destroys the Assessee’s case that there was no transfer in AY 2013-14.

3.13 Once the Assessee admits that:

the argument that there is no transfer under Section 2(47)(v) becomes untenable, irrespective of whether the JDA is registered or not.

In view of the above submissions, the Revenue respectfully prays that this Hon’ble Tribunal may be pleased to:

12. In his rejoinder, the Ld AR for assessee countering the submission of Revenue, pointed out that in this case there was no part-performance under section 53A of TP Act because it was specifically agreed between the assessee and the Developer that permissive entry contemplated in the JDA was not intended to and shall not amount to delivery of possession in part performance of the contract u/s 53A of T.P Act or section 2(47) of the Act, and draw our attention to clause (j) found placed at page 35 of the paper-book. The relevant portion is reproduced as follows:-

“(j) It is agreed that the permissive entry contemplated in this agreement is not intended to and shall not amount to delivery of possession in part peformance of the contract under the provisions of Sec 53 of the Transfer of Property Act, 1882 or Sec 2 (47) of the Income Tax Act, 1961.”

13. The Ld. AR submitted that AO erred in observing in the reasons recorded to reopen the assessment that the assessee executed a PoA in favor of Developer for conveying 58.78% of UDS, whereas it (PoA) was only empowering the Developer to convey 58.78% of UDS and the Ld AR explained that said PoA does not, by itself, result in any conveyance of property in question, and such a delegation of power does not in any case constitute a transfer, as the PoA is not an instrument of transfer in regard to any right, title or interest in an immovable property. And it is settled law that transfer of an immovable property by way of sale can only be by a deed of conveyance (duly stamped and registered as required by law) and in its absence, no right, title or interest in an immovable property can be transferred. And that PoA is only an instrument for creation of agency and even an irrevocable PoA does not have the effect of transferring the title to the PoA grantee. At best, the PoA holder may execute a deed of conveyance in exercise of power granted under the PoA and convey title on behalf of the grantor. Reliance is placed on Suraj Lamp & Industries Pvt. Ltd. v. State of Haryana & Anr. in Special Leave Petition (C) No. 13917 of 2009 (paras 11-13 and paras 15-18). When the Bench drew the attention of counsel to Para 19 of the judgment (supra),the Ld. AR pointed out that the Hon’ble Supreme Court does not hold that conveyance takes place on execution of PoA. The said para only clarifies that a PoA only empowers the Developer to execute agreements of sale or conveyances relating to apartments in favour of prospective purchasers and it was clarified that the finding/ratio of the case are not intended to apply to bonafide/genuine transactions. Hence, the Ld AR submitted that the Ld DR erred in her written submission by distinguishing the ratio of the decision of the Hon’ble Supreme Court in Balbir Singh Maini (supra) and Nishank Sakariya (supra), only on the ground that the Appellant in this case has executed a PoA, whereas, case laws are indeed applicable.

14. Countering the submission of the Ld. DR that transfer was completed in FY 2012-13 and section 2(47)(v) r.w.s. 45 indicates that capital gains was taxable in AY 2013-14, the Ld. AR submitted that Section 2(47)(v) defines transfer to include 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 section 53A of the TP Act is not applicable in the facts of this case. An unregistered JDA has no effect in law for the purpose of section 53A of TP Act. Accordingly, no transfer can be said to have taken place under an unregistered JDA and thus, there can be no transfer u/s 2(47)(v) of the Income Tax Act. He relied on the ratio of the decision in Balbir Singh Maini (supra) (para 19 & 20 in page 14 of case laws paper-book) and Pr. CIT v. Chuni Lal Bhagat  (P&H) (paras 4(2), 4(3) and 4(4) and para 5 in page 4 of case laws paper-book) as upheld in Chuni Lal Bhagat (supra). He pointed out that following the judgment in Balbir Singh Maini (supra), the Jurisdictional Bench of the this Tribunal in Nishank Sakariya(supra) (paras 8 & 9) held the reopening of assessment to be invalid on similar facts.

15. Countering the submission of the Ld. DR that the assessee in this case had handed over full possession of the land to the Developer and has admitted to the same whereas, in the case of Balbir Singh Maini and Nishank Sakariya (supra’s), possession of property, was not discussed, hence, the DR has sought to distinguish the present case from the said judgment/order. In this regard, the Ld AR asserted that nowhere assessee has admitted to handing over the possession of the property to the Developer and moreover, the JDA specifically provides only for permissive entry to the developer and it was made clear in the JDA that permissive entry was not intended to and shall not amount to delivery of possession in part performance of the contract u/s 53A of TP Act (refer page 35 of the paper-book). The Ld AR pointed out that permissive entry does not tantamount to delivering possession and it is, at best, a license for development and he placed relianceis on the decision of Hon’ble High Court in the case of Chuni Lal Bhagat (supra) (refer paras 4(2), 4(3) and 4(4) and para 5 in page 4 of case laws paper-book) as upheld in Chuni Lal Bhagat (supra). In any case, the Ld AR pointed out that this aspect was not recorded by the AO in the reasons for reopening and thus, the Ld DR cannot support the reopening on the said basis as the reasons for reopening is required to be tested on standalone basis.

16. According to Ld. AR, the Ld. DR erred in stating that the Appellant-assessee received Rs. 30 lakhs as advance. The Ld. DR drawing our attention to page 28 of the paper-book brought to our notice that it was interest-free refundable deposit given to assessee for timely completing the project. In order to support such a contention, he drew our attention to Page No.30 of paper-book, wherein, the project timeline of 36 months is specified and in the event of any delay in handing over the super built up area earmarked for the owner, the developer had to pay a sum of Rs.5 per Sq.Ft. for the delayed period as compensation. Hence, according to the Ld. AR, Rs. 30 lakhs was nothing but interest free refundable advance given as security deposit and not as part of the consideration for transfer of property. Thus, he pointed out that there was no receipt of any consideration at the time of executing the JDA as stated by the Ld. DR. In any case, he pointed out that this aspect was not recorded by the AO in the reasons for reopening and thus, the Revenue is precluded from raising such a fact, which is not found to be recorded in the reasons recorded for reopening. The Ld AR reminded us that when the legality of the reopening is tested, the reasons recorded has to be tested on standalone basis and nothing can be added or implied in it. Hence, according to him, the Ld. DR ought not to have brought in the fact of interest free advance/deposit in her written submission and therefore, the Tribunal should ignore it while deciding the validity of the reopening.

17. The Ld. AR pointed out that the Ld. DR erred in submitting that the assessee is barred from all interference in the property and retains only bare legal title and all incidence of ownership was transferred to the Developer on the date of JDA/poA. In this regard the Appellant-assessee submits that the said observations of the Ld. DR are without any basis. None of the clauses of the JDA provides that all incidence of ownership got transferred to the Developer or that the Assessee is barred from any interference in the property. Accordingly, the observations of the DRP in para 4.8 of its directions (page 10 of DRP’s directions) and the reliance placed by the Revenue on the said para is perverse and incorrect. In any case, it was pointed out that this aspect was not recorded by the AO in the reasons for reopening and thus, the Revenue cannot support the reopening on the said basis as the reasons for reopening is required to be tested on standalone basis.

18. Further, according to the Ld. AR, the Ld. DR has incorrectly relied on Chaturbhuj Dwarkadas Kapadia of Bombay v. CIT [2003] 129   (Karnataka) to submit that transfer took place in the impugned AY 201314. It was pointed out by the Ld AR that the SLP, preferred against the decision in Chaturbhuj Dwarkadas Kapadia (supra) was dismissed by the the Hon’ble Supreme Court and that no observations have been made on the merits. Further, the said judgments referred to by the Ld DR were rendered before the Hon’ble Supreme Court rendered its judgment in Balbir Singh Maini (supra). According to Ld AR, after the Hon’ble Supreme Court has specifically held that an unregistered JDA does not result in transfer in the case of Balbir Singh Maini (supra), the said principle ought to be applied, and brought to our notice that in a recent decision Hon’ble Bombay High Court Reliance is placed on Prithvi Consultants Pvt. Ltd. v. Dy. CIT [2024] 470 ITR 37 (Bom) and Pr. CIT v. Sri Sai Lakshmi Industries (P.) Ltd.  458 ITR 373 (Karnataka).

19. The Respondent has submitted that the composite arrangement evidenced by JDA, PoA, delivery of possession and receipt of money attracts section 2(47). However, as submitted above, none of the said elements are present in the Appellant’s case.In view of the above submissions, the Appellant submits that there is no valid reasons to believe that income chargeable to tax has escaped assessment.

20. Accordingly, the Appellant prays that this Tribunal may be pleased to hold that the reopening of assessment for AY 2013-14 is bad in law and quash the notice u/s 148 and the consequent assessment order dated 31.01.2023 as illegal and without jurisdiction.

21. We have heard the rival submissions, perused the reasons recorded, the orders of the authorities below, and the case laws relied upon by both sides. Before we advert to the facts in this case, let us look into the well settled principles regarding reopening of assessments completed u/s 143 (3) of the Act. It is by now well settled that the concept of the assessment is governed by the time barring rule and the assessee acquires a right as to the finality of the proceedings. Quietus of the completed assessment can be disturbed only when there is information or evidence regarding undisclosed income or AO had information in his possession showing escapement of income. For that the Parliament in its wisdom has empowered the AO to re-open the assessment of earlier years in accordance with section 147 r.w.s 148 of the Act. The legislative history is that in respect to the reopening u/s. 147 of the Act, the Parliament by Direct Tax Laws (Amendment) Act 1987 w.e.f. 01.04.1989 had substituted ‘for reason to believe escapement of income’ to ‘for reasons to be recorded by him in writing, is of the opinion’ which gave unbridled subjective satisfaction to the AO was later substituted back to ‘reason to believe escapement of income’, by the Direct Tax Laws (Amendment) Act, 1989. The Hon’ble Apex Court as well as the Hon’ble High Courts have already held in plethora of cases to apply the test of a prudent person instructed in law for understanding jurisdictional fact & law (mixed question of fact and law) in relation to the reason to believe escapement of income (supra). The condition precedent for re-opening of assessment is that the AO should have reason to believe ‘that income has escaped assessment’. Reason to believe postulates foundation based on information and belief based on reason. Even after foundation based on information is there, still there must be reason to warrant holding a belief that income chargeable to tax has escaped assessment. The Hon’ble Supreme Court in the case of Ganga Saran & Sons (P.). Ltd. v. ITO 130 ITR 1 (SC) has held that expression ‘reason to believe’ occurring in section 147 is stronger than the expression ‘is satisfied’ and this legal requirement has to be met in the reasons recorded before re-opening. It is also well settled in law that reasons, as recorded for reopening the assessment, are to be examined on a standalone basis. Nothing can be added to the reasons recorded, nor anything can be deleted from the reasons recorded. The Hon’ble Bombay High Court, in the case of Hindustan Lever Ltd. v. R.B. Wadkar  268 ITR 332 (Bombay), has, inter alia, observed that “. ……………………. It is needless to mention that the reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn on the basis of reasons not recorded. It is for the AO to disclose and open his mind through the reasons recorded by him. He has to speak through the reasons.” Their Lordships added that “The reasons recorded should be self-explanatory and should not keep the assessee guessing for reasons. Reasons provide link between conclusion and the evidence.”……………………… Therefore, the reasons are to be examined only as they were recorded by the competent officer before the issue of the notice.

22. From the aforesaid understanding of law governing the issue at hand, we have to examine the reasons recorded by AO to reopen which has been already set out above, and test whether the condition precedent necessary to usurp the reopening jurisdiction as required u/s.147 of the Act is satisfied or not. For doing that we have to examine on a standalone basis the reasons recorded by the AO to reopen the assessment (refer Page No.2 supra). The AO in the reasons recorded, first of all notes that assessee an individual, an NRI, filed her original return of income for AY 2013-14 on 12.06.2013, by declaring gross total income of Rs.5,52,830/-and Revised return of Income on 20.12.2013, by declaring gross total income of Rs.7,07,744/-. In the second paragraph, the AO notes that during the course of verification of data pertaining to sale of immovable property, the assessee had stated that she had entered into a joint development agreement (JDA) with M/s.ASV Constructions Pvt Ltd (Developer) on 09.04.2012 for development of her property at Sholinganallur Village. Kancheepuram District. It was further stated that the assessee had received her share of constructed property as per the development agreement from the developer during the F.Y.2017-18 and she had offered capital gain in the return filed for A.Y.2018-19. According to AO, on perusal of the documents furnished by the Developer it has been found that the 4 flats totally measuring 18500 sq.ft, having a value of Rs.3,42,25,000/- has been handed over to the assessee as per confirmation certificate dated 1.3.2018. And as per the return filed by the assessee for AY.2018-19, the assessee has declared income from transfer of capital asset of Rs.3,25,17,226/- out of full value consideration of Rs.3,42,25,000/-, against which deduction of Rs.1,93,34,567/- has been claimed u/s.54F of the Act. Thus assessee has offered net taxable long term capital gain of Rs.1,31,82,659/- from transfer of the immovable property. However, according to the AO, the assessee is not eligible for deduction u/s.54F during the F.Y.2017-18/AY 2018-19, as the investment in 3 properties in addition to the new asset in the same year disqualifies the claim of deduction u/s.54F of the Act. Further according to the AO, even in the relevant A.Y.2013-14 in which the capital gain is assessable, does not entitled for deduction u/s 54F due to the aforesaid reason.

23. In third paragraph, the AO observes that the developer had declared income from the sale of their share of the project in F.Y.2016-17. The AO further observed that assessee had executed a Power of Attorney (POA) to the Developer on 9.4.2012 itself for conveying 58.78% of undivided share of land i.e., 9513 sq.ft. out of total land 16,184 sq.ft.

24. In fourth paragraph, according to the AO as per Section 2(47) (v) read with section 45 indicates that capital gain was taxable in the year in which such transactions were entered into even if the transfer of the immovable property is not effective or complete under the general law. Therefore, the transfer of the capital asset being land in the instant case, as contemplated under the provisions of Income Tax Act, was completed in F.Y.2012-13 and the capital gain thereon ought to have been disclosed by the assessee in the return filed for A.Y.2013-14, which omission on the part of the assessee is a fault on her part not to disclose capital gain on transfer of 58.78% of land (i.e., 9513 sq.ft.) owned by her to the Developer, in lieu of the agreed upon consideration of 19,500 sq.ft., of constructed property, in the return filed for A.Y.2013-14. Thus, according to the AO, the entire capital gain of Rs.3,25,17,226/- disclosed by the assessee in A.Y.2018-19 is chargeable to tax in A.Y.2013-14, as assessee is not entitled for deduction u/s.54F.

25. In view of the aforesaid reasons, AO formed his reason to believe that the assessee failed to disclose fully and truly the income chargeable to tax for the A.Y 2013-14 and hence is a fit case to assess u/s 147 of the Act and charge the escaped Income.

26. On the basis of the aforesaid facts, the AO formed his opinion that income chargeable to tax has escaped assessment. On an analysis on the reasons recorded by the AO to justify reopening of assessment, we find for various reasons stated infra the AO erred in reopening the assessment. As noted from the reasons recorded the first paragraph, it only states about the fact regarding the filing/revised return of income for relevant AY 2013-14. Second and third paragraphs state about the assessee entering upon a joint development agreement (JDA) with the Developer on 09.04.2012 for development of her property, pursuant to which assessee had executed a power of attorney (POA) to the Developer on 09.04.2012 for conveying 58.78% of undivided share of land. Such an action of the assessee, according to AO indicates that incident of transfer of property took place on 09.04.2012, and hence, assessee ought to have offered capital gain arising out of the transfer in AY 2013-14, instead of assessee offering it (LTCG of Rs.1,31,82,659/-) in AY 2018-19.

27. Thus, it is noted that the bone of contention/issue in this case is regarding LTCG in respect of sale of property at Sholinganallur Village, Tambaram Taluk, Kancheepuram District, Chennai [scheduled land], and the AO has admitted that the assessee has declared LTCG on the transfer of the very same property by declaring LTCG of Rs. 1,31,82,659/- in the later AY 2018-19; which fact the AO has accepted in the reasons recorded itself. The AO after acknowledging the fact that assessee has offered LTCG on the sale of scheduled land has still resorted to re-open the assessment only on the ground that assessee failed to disclose JDA entered into by assessee & Developer on 09.04.2012 which material fact according to him, was necessary for assessment for AY 2013-14.

28. Further, according to the AO, as per Section 2(47) (v) read with section 45 indicates that capital gain was taxable in the year in which such transactions were entered into even if the transfer of the immovable property is not effective or complete under the general law. Therefore, the transfer of the capital asset being land in the instant case, as contemplated under the provisions of Income Tax Act, was completed in F.Y.2012-13 and the capital gain thereon ought to have been disclosed by the assessee in the return filed for A.Y.2013-14, which omission on the part of the assessee is a fault on her part not to disclose capital gain on transfer of 58.78% of land (i.e., 9513 sq.ft.) owned by her to the Developer, in lieu of the agreed upon consideration of 19,500 sq.ft., of constructed property, in the return filed for A.Y.2013-14. Thus, according to the AO, the entire capital gain of Rs.3,25,17,226/- disclosed by the assessee in A.Y.2018-19 is chargeable to tax in A.Y.2013-14, as assessee is not entitled for deduction u/s.54F.

29. Thus, it is noted from the contents of the reasons recorded supra that only reason for re-opening is that since the JDA has been signed on 09.04.2012 (between the assessee and the developer) the transfer of property has taken place in AY 2013-14 and since assessee didn’t offer LTCG in AY 2013-14, therefore there is escapement of income. We don’t agree to such a view of the Assessing Officer because it is per-se on wrong assumption of law; and notes that the assessee has placed copy of JDA dated 09.04.2012 at Page Nos.22-50 of the Paper Book. On perusal of the same it is noted that it is not a registered document as per the Registration Act, 1908. Therefore, after amendment in the year 2001 in section 17(1A) and section 49 of the Registration Act, if an agreement, (like the JDA in the present case) is not registered, then it shall have no effect in law for the purposes of Section 53A of the Transfer of Property Act. In short, there is no agreement in the eyes of law which can be enforced under Section 53A of the Transfer of Property Act. This being the case, we are of the view that the Ld.AR of assessee rightly stated that in order to qualify as a “transfer” of a capital asset under Section 2(47)(v) of the Act, there must be a “contract” which can be enforced in law under Section 53A of the Transfer of Property Act. A reading of Section 17(1A) and Section 49 of the Registration Act shows that in the eyes of law, there is no contract which can be taken cognizance of for the purpose specified in Section 53A of Transfer of Property Act. For such a proposition, we rely on the decision of the Hon’ble Supreme Court in the case of Balbir Singh Maini(supra), wherein the Hon’ble Supreme Court held as under:

20. The effect of the aforesaid amendment is that, on and after the commencement of the Amendment Act of 2001, if an agreement, like the JDA in the present case, is not registered, then it shall have no effect in law for the purposes of Section 53A. In short, there is no agreement in the eyes of law which can be enforced under Section 53A of the Transfer of Property Act [This being the case, we are of the view that the High Court was right in stating that in order to qualify as a “transfer” of a capital asset under Section 2(47)(v) of the Act, there must be a “contract” which can be enforced in law under Section 53A of the Transfer of Property Act. A reading of Section 17(1A) and Section 49 of the Registration Act shows that in the eyes of law, there is no contract which can be taken cognizance of. for the purpose specified in Section 53A.

30. Therefore, when the foundation on the basis of which, the AO resorted to re-open the assessment [ie un-registered JDA dated 09.04.2012] being no agreement in the eyes of law which can be enforced u/s.53A of the Transfer of Property Act, the AO’s conclusion that transfer of property has taken place in AY 2013-14 is erroneous in law and therefore the AO erred in law to conclude on the basis of ibid JDA dated 069.04.2012 that transfer of scheduled land/property has taken place in AY 2013-14 and not in AY 2018-19. Since the ibid JDA has no efficacy in the eye of law, obviously no “transfer” can be said to have taken place under the aforesaid document. Therefore, when the reasons recorded revolves around the unregistered JDA dated 09.04.2012, which is not an agreement/contract legally enforceable, the foundation on the basis of which AO formed the belief of escapement of income itself falls, and consequently, the notice issued u/s 148 of the Act is held to be bad in law.

31. The other reason given by the AO in his reasons recorded (at para 3), in order to find the transfer took place in this relevant AY was that the assessee had executed power of attorney (POA) to the Developer on 09.04.2012. According to AO, due to execution of POA, transfer of property took place in the relevant AY 2013-14. Such a contention of the AO is also flawed on facts as well as on law because the power of attorney was given to the Developer to convey 58.78% of undivided share of land, and moreover, mere execution of POA in no way can be construed as transfer of property in the eyes of law as held by the Hon’ble Supreme Court in the case of in Suraj Lamp & Industries Pvt. Ltd. (supra). It would be gainful to reproduce the relevant conclusion as given by Hon’ble Apex Court at para 16 of this order.

16. We therefore reiterate that immovable property can be legally and lawfully transferred/conveyed only by a registered deed of conveyance. Transactions of the nature of ‘GPA sales’ or ‘SA/GPA/WILL transfers’ do not convey title and do not amount to transfer, nor can they be recognized or valid mode of transfer of immoveable property. The courts will not treat such transactions as completed or concluded transfers or as conveyances as they neither convey title nor create any interest in an immovable property. They cannot be recognized as deeds of title, except to the limited extent of section 53A of the TP Act. Such transactions cannot be relied upon or made the basis for mutations in Municipal or Revenue Records. What is stated above will apply not only to deeds of conveyance in regard to freehold property but also to transfer of leasehold property.

32. In the light of the binding decision of Hon’ble Apex court supra, we are of the considered view that the AO erred in law by wrongly assuming that due to execution of POA, transfer of property took place in the relevant AY 2013-14. Hence, the very basis for reopening the assessment is erroneous and therefore, the impugned action of the AO to reopen is vitiated and therefore quashed.

33. Before parting we note that the Ld. DR in her written submission has taken the aid of an averment in the JDA which indicates that assessee had been given an advance of Rs.30 lakhs. In this regard, it is noted that this fact is not found to be part of the reasons recorded by the AO and hence, we are precluded from looking into it while deciding the validity of the reopening of the assessment. Nevertheless, for completeness we note that the interest free refundable advance of Rs.30 lakhs was given to the assessee as a security deposit, since there was timeline specified to complete the project failing which assessee was entitled to compensation which was referred to in clause (C) of para 6 in the JDA. Hence, Rs.30 lakhs interest free refundable advance received by the assessee cannot be termed as part of the consideration for transfer of the property other than the built up area given in exchange to transfer of the property in question. Hence nothing turns on it, therefore such a contention is rejected being devoid of merits.

34. And since we are deciding this case on the legal ground, it is unnecessary for us to go into merits of the addition and therefore, reopening of assessment is held to be bad in law and hence, notice u/s 148 issued for reopening assessment for AY 2013-14 is quashed. Thus, assessee succeeds on the afore discussed legal issue; and other issues both legal as well as merits are left open.

35. In the result, appeal filed by the assessee is allowed.