Capital gain is to be taxed from the year JDA entered: ITAT confirms Income Tax Addition [Read Order]

The Income Tax Appellate Tribunal (ITAT), Bangalore has confirmed the addition of CIT(A) and held that capital gain is to be taxed from the year in which the Joint development agreement (JDA) was entered.

This case which comprises an appeal of revenue and cross objection of the assessee was disposed of together by the tribunal. In this case assessee, a HUF (M/s. R. Muniraju), filed an income tax return for the AY 2010-11, AO  conducted a search in M/s. Trans Global Power P. Ltd in which Shri R. Muniraju was one of the directors., seized a Joint Development Agreement (JDA) dated 11.12.2009  which was executed between the assessee and M/s. Brundavan Constructions (Developer) for the development of properties. The AO computed capital gains on the basis of the date of entering JDA.

The assessee opposed calculating the capital gain on the basis of entering the date of JDA  and filed an appeal before CIT. The  CIT on appeal confirmed the order of AO but reduced the rate of calculating the tax per sq. feet. Aggrieved the assessee and revenue filed appeal ITAT.

The Counsel for the assessee, Shri Narendra Sharma submitted that u/s. 2(47) (v) of Income Tax Act 1961 r.w.s. 53A of the TP Act, 1961 the year of transfer of the property under JDA should be considered the year when the actual sale of flats happened and not the year in which the JDA was entered. He also contended that JDA  must not be considered an incriminating document as the seizure of JDA  lacked jurisdiction as it was seized u/s 153A of the Income Tax Act 1961.

The DR Shri Manjunath Karkihalli on the other hand contented that JDA should be incriminating material and that if JDA was not seized the capital gain would not have been taxed on the correct assessment year. DR also contended that the date of entering JDA has to be considered in calculating tax as the assessee had given irrevocable permission to the developer to enter the property in the JDA.

The Bench consisting of Shri Goerge Goerge K (judicial member) and Shrimathi Pathmathy (accountant member) arrived at findings that the developer had acted in furtherance of the contract, which fulfilled the condition for sec  2(47)(v) of the Income Tax Act 1961 r.w. u/.53A of the Transfer of Property act. The tribunal dismissed the appeal filed by the assessee upholding the order of CIT(A) that capital gain is to be taxed from the date on which the JDA was entered. The tribunal also dismissed the appeal filed by revenue to increase the tax rate to compute capital gain from JDA.

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