Rental income belongs to the partnership firm and capital gains are taxable in A.Y. 2005-06.

ORDER

1. These are the appeals filed by the assessees challenging the separate orders of the Ld.CIT(A) – 15, Bengaluru all dated 31/07/2025 in respect of the A.Ys. 2016-17, 2019-20 and 2022-23.

2. All the assessees under appeals are a group of persons and the issues are common in almost all the appeals, except in few appeals. The issues are of two types. One about the addition made under the undisclosed income from House Property and the other one relates to the addition under the head Long Term Capital Gains. In the appeals in ITA No. 2080/Bang/2025 (A.Y. 2022-23), ITA No. 2089/Bang/2025 (A.Y. 2019-20), ITA No. 2091/Bang/2025 (A.Y. 2019-20), ITA No. 2092/Bang/2025 (A.Y. 2022-23), ITA No. 2094/Bang/2025 (A.Y. 2019-20) & ITA No. 2095/Bang/2025 (A.Y. 2022-23), the respective assessees challenged the addition made under the head Income from House Property. In the appeal in ITA No. 2084/Bang/2025 (A.Y. 2016-17), the assessee had challenged the addition made under the LTCG. In the appeals in ITA No. 2088/Bang/2025 (A.Y. 2016-17), ITA No. 2090/Bang/2025 (A.Y. 2016-17) and ITA No. 2093/Bang/2025 (A.Y. 2016-17), the respective assessees had challenged both the addition made under the head Income from House Property and LTCG. In the appeal in ITA No. 2085/Bang/2025 (A.Y. 2019-20), the addition has been made on the underreported rental income. The additions were made based on the search carried on by the Department on 23/06/2022 in the premises of Divyasree Infrastructure Projects (P.) Ltd., Shyamaraju & Company India Ltd. and Rukmani Educational Charitable Trust and all the assessees are related to each other and the issues are common, therefore, we are adjudicating the appeals by issue-wise.

3. First we will take up the addition made under the head Income from House Property. For the sake of convenience, we are taking the appeal in ITA No. 2080/Bang/2025 as the lead case and discussing the facts involved in that case. The decision arrived in the appeal on the issue of rental income would apply mutatis mutandis to the rental income issue involved in the appeals in ITA Nos. 2080, 2089, 2091, 2092, 2094, 2095, 2088, 2090 & 2093/Bang/2025.

4. In this appeal, a search operation was conducted u/s. 132 of the I.T. Act on 23/06/2022 in the case of Divyasree Infrastructure Projects P. Ltd., M/s. Shyamaraju & Company (India) Ltd., M/s. Rukmini Educational Charitable Trust. Simultaneously, the related entities and the land owners who has entered into Joint Development Agreement with Divyasree Group were also searched. During the search, incriminating documents / registers / digital evidence were seized from the residence of Shri P. Shyama Raju.

5. As part of the search proceedings, warrant was also issued in the name of Late Venkatesh Reddy and search u/s. 132 was also carried out in his residence and also search was conducted in the premises of his sisters. Several documents were seized and statements u/s. 132(4) were recorded from the assessee as well as from the family members.

6. At the time of search, it was found that the JDA was entered into at Bangalore on 25/03/2005 between the owners of the land and the builder, M/s. Shyamaraju & Company (India) Ltd. The JDA was executed between owners Smt. Lakshmamma, her son Late Venkatesh Reddy and 5 daughters, V. Kothanda Reddy and his father Late Venkataswamy Reddy and the builder M/s. Shyamaraju & Company (India) Pvt. Ltd. Subsequently, the four daughters of Smt. Lakshmamma executed a release deed in favour of their mother Smt. Lakshmamma, their sister N. Vedavathi and her son Late Venkatesh Reddy. A supplementary JDA was also executed on 13/10/2018. As per the JDA, the owners are entitled for 6,40,107 sq.ft. super built up area along with 5,12,086 sq.ft. of UDI.

7. Thereafter, the land owners and developer formed a partnership firm in the name and style of M/s. Chennakeshava Techpark and agreed to construct the entire Block C1. As per the deed, the owners are entitled for 4% shares in the profit & loss of the firm whereas the builder is entitled for 96%. The Block C1 was constructed and allotted to the land owners in the A.Y. 2016-17 and the same was rented out and rental income was received into the bank account of the firm. The said income was divided equally between the families of V. Kodanda Reddy and Venkatesh Reddy instead of the profit sharing ratio of 4%. Based on the materials seized, it was concluded that Block C1 is exclusively owned by the owners. Further, the BBMP tax was also remitted by the owners in respect of Block C1. Therefore, the AO had concluded that the land owners are real owners of Block C1. Accordingly, the rental receipts are apportioned between the owners Kodanda Reddy, Mrs. Lakshmamma & Mrs. Anitha (Legal Heir of N. Venkatesh Reddy). A show cause notice was issued to add the undisclosed rental income in the hands of the assessee. Reply was filed by the assessee and submitted that capital gains were offered in the year of JDA i.e. 2006-07 and also availed the Income Declaration Scheme, 2016. The assessee also disputed the ownership of M/s. Channakeshava Techpark which is Block C1 and withdrawals are recorded as drawings in the capital account of the partners and also the rental income was included in the return of income filed by the firm and therefore, the addition of undisclosed rental income amounts to double taxation etc. The AO by relying on the clauses in the JDA, Partnership Deed etc., had concluded that the land owners are the owners of Block C1.

8. Insofar as the year of taxability, the AO had relied on the various clauses in the JDA, Supplementary Agreement to JDA and Partnership Deed and concluded that the firm has been created only for the purpose of avoiding to pay tax and it is a colourable device when actually the land owners are the owners of the Block C1. The AO also considered the year of taxability of Capital gains and concluded that the transferee had not performed its obligation under the agreement in the year of JDA. The AO had alleged that there is no transfer as per section 2(47)(v) of the Act in the year of JDA. The AO, therefore, observed that if at all any transfer took place, it is only when the built up area is given to the landlords by the developer and therefore there is no transfer in the year of JDA. The AO also observed that the share in the built up area is the consideration received by land owner. The AO had not accepted the plea of Double Taxation since the firm had claimed the status of co-developer of SEZ and therefore they need not pay tax on the rental income and only MAT was paid by the firm and therefore there is no double taxation of income. The AO further stated that only in the A.Y. 2016-17, the constructed area was handed over to the owners and let out for rent and therefore the transfer took place in the A.Y. 2016-17 and therefore, the capital gain should be computed only in that year and not in the year of JDA. Finally, the AO held that the assessee and land owners are the owners of Block C1 in the SEZ and therefore, computed the undisclosed rental income after granting the standard deduction.

9. As against the said order, the assessee filed an appeal before the Ld.CIT(A). The Ld.CIT(A) had also confirmed the assessment made by the AO.

10. The assessee is in appeal challenging the orders of the Ld.CIT(A) before this Tribunal.

11. At the time of hearing, the Ld.AR submitted that the AO had wrongly included the rental income earned by the firm as that of the assessee and others since the land owners are drawing the amounts from the firm disproportionate to their profit-sharing ratio. The Ld.AR submitted that the firm is a genuine one and a registered firm and the legal entity of the firm was accepted by all the statutory authorities and therefore, the rental income received by the firm could not be treated as income of the assessee and other owners. The Ld.AR submitted that the Department has accepted the return of income filed by the firm and assessment was also made on the rental income and therefore the same could not be made again on the assessee. The Ld.AR further submitted that the Block C1 was constructed by the firm and the said block is situated within the notified customs bonded SEZ and submitted that no independent land owner would be allowed to construct the building within the SEZ boundary. The Ld.AR further submitted that the firm, as a co-developer in SEZ, had also availed the deduction u/s. 80IA of the Act which shows that the firm is the owner of the building. The Ld.AR further submitted that the addition made on the assessee is not warranted since she is neither a partner in the firm nor withdrawn any amount from the firm. The Ld.AR further submitted that the withdrawals at the best could be a liability in the partners’ capital account and not to be treated as income in the hands of the individuals. The Ld.AR also filed a paper book enclosing the various documents relating to Sri Channakeshava Tech Park. The Ld.AR filed 5 paper book compilations common to all the appeals, enclosing several documents and relied on the said documents in support of his contention. The Ld.AR also filed an application for admission of the additional grounds. The Ld.AR also furnished the assessment order for A.Y. 2019-20 in respect of the firm in support of his contention that the rental income was declared by the firm. The Ld.AR further submitted that when the rental income has been received from SEZ unit, the same would not be taxable in the hands of the firm or as well as in the hands of the assessee. The Ld.AR therefore submitted that it does not matter whether the firm or assessee had received the rental income when the income earned from the SEZ unit is eligible for exemption. The Ld.AR further submitted that it is not an undisclosed rental income since the firm had already declared the said income in their return of income.

12. The Ld.DR submitted that the AO as well as the Ld.CIT(A) had relied on various facts and arrived a conclusion that the Block C1 is owned by the assessee and others and not by the firm, hence prayed to dismiss the appeal. The Ld.DR also filed a common written submissions and relied on the detailed findings given by the authorities.

13. We have heard the arguments of both sides and perused the materials available on record.

14. In the present appeal, the AO had added the rental income received by the firm as income from house property in the hands of the assessee. The assessee brought to our notice that the partnership firm is a registered one and after the firm was registered, the firm got various approvals from the authorities for developing / providing infrastructure within the SEZ. In page no. 859 of the paper book, the assessee had enclosed the copy of the letter issued by the Ministry of Commerce & Industry, Govt. of India in which the government has approved the firm as co-developer for providing infrastructure facilities in the IT / ITES Special Economic Zone proposed to be developed by M/s. Shyamaraju & Co. (India) Pvt. Ltd. Pursuant to the approval, the Software Technology Parks of India, an Autonomous Society under Department of Information Technology had given the list of exemptions available to the co-developer from Customs Duty, Excise Duty, Service Tax and Central Sales Tax. This is available in page 862 of the paper book. At page 863, the assessee enclosed the sanction letter for arranging the HT Power Supply by BESCOM in favour of the firm, as codeveloper. The assessee had also enclosed the Audited financial statements of the firm for the years ending 31.03.2016, 31.03.2019 & 31.03.2022. The assessment orders of the firm for the A.Ys. 2013-14, 2018-19 & 2020-21 were also furnished in the paper book page numbers 837 to 856. The assessee also enclosed the proof of the approval given by the Chief Electrical Inspector to Government of Karnataka wherein the approval to commission the electrical installation was granted to the firm, by treating the firm as codeveloper.

15. From the various documents furnished by the assessee, the following facts are emerged. The land owners had originally entered into a MoU with the Developer M/s. Shyamaraju & Co. P. Ltd. on 01/05/1999 for developing the infrastructure in the lands owned by them. Subsequently, the land owners entered into a JDA on 25/03/2005 which was a registered one. Before that another MoU was entered between the owners and builders on 02/01/2004 in which certain terms and conditions were mutually agreed. In the JDA, it was agreed that the JDA is an irrevocable one. The owners have permitted the Developer to take steps to confirm the details of the property. The Developer has to prepare plans for development at their sole discretion. The Developer had also paid a sum of Rs. 37,25,421.36 towards interest free refundable deposit to the owners. Similarly, the clause in JDA also stipulates that the owners should execute a PoA in faovur of the Developer for obtaining various licenses, approvals etc. The owners also gave permission to the Developer even for mortgaging the properties in favour of Bank etc. As agreed, the owners also executed a PoA dated 25/03/2005 to the Developer and got it registered. Thereafter the owners have entered into a partnership with the Developer on 20/10/2008 for the purpose of constructing Block C1 in the SEZ complex.

16. We have perused the audited financial statements of the firm and the assessment orders of the firm for three years. The assessment was made on the firm in which the firm had declared the rental receipts in their books of accounts as well as bank accounts.

17. From the above said details furnished, it is clear that the firm is a legal entity and the partnership deed also a registered one. After the construction of Block C1, the said building was let out to various companies and the rents were directly credited into the bank account of the firm. It is the allegation of the AO that the rents credited into the bank account of the firm was withdrawn by the owner partners and therefore they are the real owners. As already stated, the firm is a legal entity in the eye of law and the various statutory authorities also accepted the status of firm and on that basis, approvals are granted by them. Similarly, the Department also made the assessment in the name of the firm by accepting the rental income declared by the firm. Therefore, there is no undisclosed rental income.

18. The AO on the ground that the owners had withdrawn the amounts from the firm had assumed that the assessee had received the rental income. In fact, the present assessee has not received any money from the firm and she was not a party to the partnership firm. At the time of search, some members gave some answers to the effect that they received rental income from the firm but later on they have corrected the said statement by writing clarification to the authorities which was also accepted by them. The authorities had no concrete evidence to corroborate the additions except the notings which were later on get it clarified. In such circumstances, we are not able to understand on what basis, the AO had come to the conclusion that land owners are the real owners of Block C1, when there are ample evidences available to show that the firm is a real one and also approved by the various authorities including the Income Tax Department. The reliance made by the AO on the rough notings could not be a valid one since the rough notings were immediately clarified and there are no other corroborative evidences to establish that the owners of the land are the real owners of Block C1. Considering the documents relied on by the assessee including the Audited financial statements of the firm and the assessment orders made for the various assessment years, it is evident that the firm is the owner of the building Block C1 and therefore the firm had rightly received the rental income and shown it to the Department and subjected the same to tax under the Act. Alternatively, it is an admitted fact that the rental income was received from the unit in SEZ and therefore the income would be eligible for deduction u/s. 80IA of the Act whether it was received by the firm or by the assessee.

19. Insofar as the allegation that the land owners had withdrawn the rental income from the firm’s account and therefore they are the owners of the Block C1 and the rental incomes are liable to be taxed in the hands of the assessees, we are satisfied that the land owners had withdrawn the money from their capital accounts and therefore, it is a debit to the partners’ capital account in the books of the firm and it could not be treated as a receipt of income and on that basis, the title could not be transferred from the firm to the partners.

20. We therefore, inclined to accept the submission made by the assessee and set aside the orders of the AO as well as the Ld.CIT(A) and direct the AO to delete the addition made in the hands of the assessee. Since we are adjudicating the grounds raised on merits, we are not adjudicating the additional grounds and other grounds raised by the assessee.

21. In the result, the appeal filed by the assessee in ITA No. 2080/Bang/2025 is allowed. Consequently, the other appeals in ITA Nos. 2080, 2089, 2091, 2092, 2094, 2095, 2088, 2090 & 2093/Bang/2025 in which the undisclosed rental income was involved also allowed.

22. Now we are adjudicating the issue of LTCG involved in the other appeals. We will take the appeal in ITA No. 2084/Bang/2025 as a lead case and the decision arrived would apply mutatis mutandis to the other appeals in ITA Nos. 2088, 2090 & 2093/Bang/2025 in which the LTCG issue was raised.

23. The brief facts are also narrated in the appeal in ITA No. 2080/Bang/2025 and the same may be read as part and parcel of this appeal. Insofar as the LTCG is concerned, the assessee had filed their return of income u/s. 139(1) of the Act and subsequently based on the search and seizure, the AO had issued a notice u/s. 148 of the Act. The assessee filed his return of income showing the income from house property. Thereafter, the AO had issued a notice u/s. 143(2) and subsequently, issued notice u/s. 142(1). A show cause notice was issued proposing to add the undisclosed LTCG and rental income found during the course of search proceedings. The assessee also filed their reply and got the copies of the documents seized and the statements recorded. The AO had proposed to tax the undisclosed capital gains based on the seizure of JDA executed on 25/03/2005 between the land owners and Developer. The AO had also referred the supplementary JDA executed on 13/10/2008. The AO had also referred the execution of Partnership Deed between the land owners and the Developer. The said firm was approved as co-developer of SEZ and also claimed deduction u/s. 80IA of the Act and also paid the minimal taxes on AMT income. The AO based on the exemption order obtained from the Director of Industries & Commerce on 28/03/2016 for paying the stamp duty and registration charges while registering the sale deed in favour of the Developer, had alleged that the Developer handed over the constructed area during the F.Y. 2015-16 to the land owners in lieu of the land given to the Developer. The AO also based on the seized draft deed of conveyance and Deed of Reconstituted Partnership from the premises of the assessee had alleged that both the land owners and Developer had completed their obligation by transferring the land to Developer and the Developer in turn, completed the construction and handed over the super built up area to the owners. The AO had also relied on the draft partnership deed in which the share of the Developer has been reduced to 1% from 96% and their willingness to discontinue from the partnership and concluded that the entire exercise was to evade payment of tax on JDA. The AO also observed that the rental income received by the firm was not divided as per the profitsharing ratio and therefore concluded that the Block C1 is exclusively meant for the land owners and they only enjoyed the financial benefits arising out of Block C1 by relying on the seized material A/VKR/132/01 from the residential premises of V. Kodanda Reddy.

24. The AO had also relied on the same seized material to come to the conclusion that the owners had received the rent in full. The AO had also pointed out that the payment of BBMP property tax was made by the land owners. The AO had also noted that the Developer had raised a debit note for the payment of BBMP tax by it. The AO also relied on the statement given by Mr. Suraj K Reddy S/o. V. Kodanda Reddy u/s. 132(4) of the Act to strengthen the allegation that the entire rental income was shared by the family members of the land owners as per the JDA and not based on the partnership Deed. The AO also relied on the statement given by Smt. N. Vedavathi W/o. Shri V. Kodanda Reddy. The AO based on the said facts had proposed to compute the long term capital gains in the hands of the land owners since the super built up area was received by them in the F.Y. 2015-16 but not paid any capital gains during the relevant year. The AO also considered the fact that the assessee had computed capital gains and offered in IDS during the F.Y. 2016-17. The AO thereafter computed the capital gain on Shri V. Kodanda Reddy and Smt. N. Vedavathi at 50:50 since the rental income was shared between them at 50% after granting the deduction on the amount already declared in the IDS. The AO had proposed to tax the capital gain in the A.Y. during which the constructed area was handed over to the owners. The AO had relied on the judgment of the Hon’ble Supreme Court reported in Seshasayee Steels (P.) Ltd. v. Asstt. CIT  421 ITR 46 (SC) to tax the capital gains. A show cause notice was issued on the above lines on 14/02/2024. The assessee also filed his reply. The AO not accepted the reply and relied on the various clauses in the JDA, Supplementary Agreement and Partnership Deed, had concluded that there is no transfer of land during the year of JDA. The AO also observed that the obligation of the Developer as per JDA would be fulfilled only on the completion of the share of the land owners which occurred during the A.Y. 2016-17. The AO also alleged that partnership deed is an unregistered one. The AO in para 10.12 of the assessment order had observed that the land owners had granted only the license and development rights and they have not transferred the ownership rights, title and interest in their land to the firm as envisaged. The AO also alleged that the creation of the firm is a colourable device since the making of entries in the books of accounts of the firm cannot change the ownership. The AO also alleged that the assessee had not placed any record to show that the constructed area lies with the firm. No explanation was also given for not repaying the excessive drawings. No registered document was executed by the owners transferring their rights to the firm.

25. The AO further discussed about the year of taxability in respect of capital gain and concluded that the year of taxability is not the year of JDA but the year in which the constructed area was given to the assessee and other owners, therefore there is no transfer as per section 2(47)(v) of the Act during the year in which the JDA was executed. The AO had not accepted the double taxation of rental income. The AO also not accepted that the mere option to avail the IDS would not disentitle the assessee from paying the tax on the income accrued subsequently. The AO relied on the judgment of the Hon’ble Supreme Court in the case of Tanna & Modi v. CIT, Mumbai, for not accepting the IDS availed by the assessee. On these facts, the AO had upheld the levy of tax on the capital gains by taking the year of taxability as 2016-17 and not the year of executing the JDA.

26. As against the said order, the assessee filed an appeal before the Ld.CIT(A). The Ld.CIT(A) had confirmed the findings of the AO and held that the AO had correctly levied the tax on the capital gains since the land owners are the owners of the building Block C1 and the firm was established only for avoiding the payment of tax on the land owners.

27. As against the said order, the assessee is in appeal before this Tribunal.

28. At the time of hearing, the Ld.AR submitted that the year of taxability based on the JDA should be the year in which the JDA was executed and not the year in which the construction portion was handed over to the assessee. The Ld.AR also submitted that the amendment to section 45 by inserting sub-section 5A came into effect from 01/04/2018 and therefore before the insertion of sub-section (5A), the settled law was that the year of execution of the JDA is the year of taxability as held by the various judicial forums. The Ld.AR also invited our attention to the various clauses in the JDA and submitted that the Developer acquired irrevocable rights from day one such as to enter upon the property, obtain approvals, create mortgages and charges for raising finance, market the project, enter into agreements with 3^rd parties, execute conveyance, receive sale consideration directly and transfer undivided interests in land and therefore as per the registered JDA and the subsequent Power of Attorney executed in the name of the Developer, transfer took place in the A.Y. 2005-06 and therefore, the capital gain should be assessed in that year itself and not when the constructed area was transferred to the owners. The Ld.AR submitted that both the JDA and the PoA are registered documents which fact was also not considered by the Authorities and in fact, the Authorities was of the wrong view that the PoA is an unregistered document. The Ld.AR also differentiated the Hon’ble Supreme Court judgment that the facts are different from the present case, in which the Developer was only granted a permissive right whereas in the present case, possessive and effective control was given to the Developer immediately after the JDA and PoA. The Ld.AR also relied on the Hon’ble Bombay and Karnataka High Court judgments wherein it was held that the transfer took place in the year in which the JDA was executed and possession has been handed over. The Ld.AR also invited our attention to clause 6 of the JDA, wherein the Developer had paid a sum of Rs. 37,25,421 as refundable security. The Ld.AR also invited our attention to the Memorandum to the Finance Act, 2017, which introduced sub-section (5A) to section 45 and prayed to accept the year of execution of the JDA as the year of transfer for the A.Y. 2005-06. The Ld.AR also submitted the reliance of section 45(5A) to the transactions effected prior to the insertion of subsection (5A) is not correct and relied on the Hon’ble Patna High Court judgment in the case of Pankaj Kumar v. CIT (2023) 333 CTR 242 (Patna) and prayed to allow the appeal. The assessee also filed 5 volumes of paper book and one written submission and also enclosed the Coordinate Bench order and prayed to allow the appeal.

29. The Ld.DR submitted that the AO had considered the various documents seized at the time of search and on that basis, arrived the conclusion that the owners are the real owner of Block C1 and not the firm and also found that the constructed area was given in the A.Y. 2016-17 and therefore correctly computed the capital gains. The Ld.DR also submitted that the judgment of the Hon’ble Supreme Court in the case of Seshasayee Steels (P.) Ltd. would squarely apply to the facts of the present case and prayed to dismiss the appeal. The Ld.DR also filed a common written submissions and relied on the said submissions.

30. We have heard the arguments of both sides and perused the materials available on record.

31. There was a search and seizure operation and based on the several assumptions, the AO had concluded that the assessee and the other land owners are owners of the Block C1 and also the said block was constructed and handed over to the assessee and other owners during the A.Y. 2016-17 and therefore the capital gain has to be taxed in the A.Y. 2016-17. The AO relied on several documents and computed the capital gains even though the assessee had submitted that the JDA was executed on 25/03/2005 and therefore the transfer u/s. 2(47)(v) of the Act happened in the A.Y. 2005-06 and if at all any capital gain arose, it should be in the A.Y. 2005-06.

32. The AO had not accepted the said contentions which is now under dispute before us. The primary contention of the assessee is that the JDA & PoA has been executed on 25/03/2005 and the Developer took control of the entire land on that date itself and therefore the capital gain should be computed only for the A.Y. 2005-06. Before proceedings further, it would be relevant to consider the various clauses in the JDA.

33. We have perused the above said clauses in the JDA executed on 25/03/2005 and the above said clauses would exhibit that the owners had given full authority to the Developer in respect of the lands and construction on the said lands, from the date of execution of the JDA. Further, we have also perused the PoA executed by the owners to the Developer on 25/03/2005, which gave wider powers to the Developer. When we have gone through the said documents, it is clear that the Developer has all the power to deal with the property from the date of execution of the JDA and PoA. Further, both the documents are duly executed and registered ones. Therefore, it can be safely presumed that there was a transfer during the A.Y. 2005-06 and therefore the capital gain should be computed in that year only.

34. We have also considered the judgment of the Hon’ble Supreme Court in the case of Seshasayee Steels relied on by the Department and in the judgment, the facts are that the Developer has granted only a permissive right whereas in the case on hand, effective possession, dominion and complete control over the property was given to the Developer. Therefore on facts, the judgment of the Hon’ble Supreme Court would not apply to the present facts of the case.

35. We have also considered the judgment of the Hon’ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia of Bombay v. CIT  260 ITR 491 (Bombay) relied on by the assessee wherein it was held that the year of taxability of capital gains is the year in which the JDA was entered into. Similarly, the Hon’ble Jurisdictional High Court also in the case of CIT v. Dr. T.K. Dayalu (Karnataka) had held that the capital gain would be taxable in the year of the JDA.

36. In the present case, the assessee and other owners handed over the possession of the land to the builder based on the JDA & PoA and therefore, admittedly the transfer took place in the A.Y. of executing the JDA i.e. 200506.

37. We have also perused the order of the Coordinate Bench of this Tribunal in Dy. CIT v. R. Muniraju (HUF) [IT Appeal No. 54 (Bang.) of 2020 and C.O. No. 2 (Bang.) of 2022, dated 13.10.2022], wherein this Tribunal had held that the capital gain would arise in the year of executing the JDA by relying on the various clauses and negatived the contention of the assessee that the capital gain would be attracted as and when the flats were actually sold.

38. The Amendment made to section 45 by inserting sub-section (5A) came into effect from 01/04/2018 and it is not a retrospective amendment as held by the Hon’ble Patna High Court and therefore it would not apply to the transactions effected prior to 01/04/2018. The Memorandum to the Finance Act 2017, available in page 19 of the written submissions filed by the assessee reads as follows and also supports the view of the assessee.

“Special provisions for computation of capital gains in case of joint development agreement

Under the existing provisions of section 45, capital gain is chargeable to tax in the year in which transfer takes place except in certain cases. The definition of ‘transfer’, inter alia, includes any arrangement or transaction where any rights are handed over in execution of part performance of contract, even though the legal title has not been transferred. In such a scenario, execution of Joint Development Agreement between the owner of immovable property and the developer triggers the capital gains tax liability in the hands of the owner in the year in which the possession of immovable property is handed over to the developer for development of a project.

With a view to minimise the genuine hardship which the owner of land may face in paying capital gains tax in the year of transfer, it is proposed to insert a new sub-section (5A) in section 45 so as to provide that in case of an assessee being individual or Hindu undivided family, who enters into a specified agreement for development of a project, the capital gains shall be chargeable to income-tax as income of the previous year in which the certificate of completion for the whole or part of the project is issued by the competent authority.”

39. Therefore, we are convinced that the property has been transferred in the year 2005-06 since the JDA was executed on 25/03/2005 and therefore the capital gain should be computed for the A.Y. 2005-06 and not for the A.Y. 2016-17. Even though the AO had relied on several documents in respect of the transfer of constructed area, we are not agreeing with the view since the transfer took place in the year of JDA and not in the year of handing over the possession of the property. We therefore, inclined to allow the appeal filed by the assessee and set aside the orders of the lower authorities. Since we are adjudicating the grounds raised on merits, we are not adjudicating the other grounds raised by the assessee.

40. In the result, the appeal filed by the assessee in ITA No. 2084/Bang/2025 is allowed. Consequently, the other appeals in ITA Nos. 2088, 2090 & 2093/Bang/2025 in which the undisclosed long term capital gains involved are also allowed.

41. In the present appeal, based on the search and seizure operation conducted on 23/06/2022, the AO had alleged that the assessee had underreported the rental income received by her and therefore, brought the difference to tax under the head Income from House Property after granting the deduction u/s. 24(a) of the Act.

42. As against the said order, the assessee filed an appeal before the Ld.CIT(A) in which the Ld.CIT(A) had dismissed the appeal.

43. As against the said order, the assessee is in appeal before this Tribunal.

44. At the time of hearing, the Ld.AR submitted that the assessee had correctly offering to tax the income received from the PG accommodation and submitted that the income should vary from year to year and therefore, the estimation of income based on the rough notings found at the time of search is not correct. The Ld.AR further submitted that it is the loose sheet and a rough notings and therefore, without any corroborative evidence, the same could not be treated as income not reported to the Department. The Ld.AR also submitted that, the assessee herself had reported a higher income than the amount mentioned in the loose slip and therefore prayed that the appeal may be allowed.

45. The Ld.DR submitted that the seized documents would show a higher income which was not declared by the assessee and therefore, the addition made by the AO is in order.

46. We have heard the arguments of both sides and perused the materials available on record.

47. Before proceeding to decide the issue on merits, we have perused the loose sheet recovered at the time of search. As seen from the said sheet, it is only a rough notings made in the loose sheet in which no details about the person who has paid and received were mentioned. The authorities also in support of the said loose sheet, had no other corroborative evidence. In such circumstances, we are of the view that the estimation of income based on the loose sheet, which could be termed as a dumb document, could not be made and therefore, we are setting aside the addition made on that score.

48. In the result, the appeal in ITA No. 2085/Bang/2025 is allowed.

49. In the combined result, all the appeals filed by the assessees are allowed.

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