The Ahemdabad Bench of Income Tax Appellate Tribunal (ITAT) held that assessee did not get the right over the income as per accrual accounting system as provided under the provisions of section 145 of the Income Tax Act, 1961. Therefore, the assessee cannot be made subject to tax on the reasoning that the income has accrued to it upon the transfer of development rights.
The assessee in the present case M/s. Pacifica Developers Pvt. Ltd is a private limited company and engaged in the business of land development. The assessee has acquired right for the development of plot from M/s Kesar Buildcon Pvt. Ltd. and other co-owners in respect of the land admeasuring 4,08,929 square meters equivalent to 4,89,038 square yards, and plot from M/s Atul N. Joshi admeasuring 19,931 square meters equivalent to 23,833 square yards.
The assessee by virtue of the MOU has transferred/assigned the development right acquired by it to the company namely Unique Mercantile India private Ltd (UMIPL) against the consideration of Rs. 1200 per square yard. The amount of consideration was to be received by the assessee from UMIPL for Rs. 61,54,99,200.00 against the transfer of the development rights.
The Assessing Officer(AO) was of the view that the assessee has traded the development rights and the income thereon has accrued to it under mercantile system of accounting but the same has not been disclosed in the income tax return. Thus imposed income tax addition for Rs. 1,81,02,740.00 on account of income accrued to the assessee in the trading of development right after admitting additional evidence in contravention to rule 46A of Income Tax Rules.
Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)],which decided the issue in favour of the assessee and deleted the addition made by the AO.
Revenue filed an appeal before the Tribunal being aggrieved of the order of CIT(A). The Departmental Representative contended that the assessee upon transfer of the development right was subject to tax as per mercantile system of accounting.
The Authorised Representative supported the order of the CIT-A.
The two member Bench comprising of Waseem Ahmed, Accountant Member and Siddhartha Nautiyal, Judicial Member observed that the purpose of the development right was to develop the plots of lands which was conferred to UMIPL. The assessee was under the obligation to ensure that the ownership of the lands is transferred to the actual buyers. The ownership of the land was never shifted by the landowners either to the assessee or the developer being UMIPL.
It was further observed that AO has not given the benefit of such amount of income shown by the assessee in the later years. Therefore there remains no ambiguity to the fact that the income of the assessee from the transaction of transfer of development right has been taxed twice which has never been the intention of the legislature.
Thus it is drawn from the facts of the case that the assessee did not get the right over the income as per accrual accounting system as provided under the provisions of section 145 of the Income Tax Act. Therefore, the assessee cannot be made subject to tax on the reasoning that the income has accrued to it upon the transfer of development rights in the given set of facts and circumstances.
Hence upheld the decision of CIT(A) and dismissed the appeal of Revenue.
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