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Section2(22)(e)inTheIncomeTaxAct,1995
TheIncomeTaxAct,1995
Section2(47)inTheIncomeTaxAct,1995
TheTransferofPropertyAct,1882
Section54inTheIncomeTaxAct,1995

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Lavish2,3,4&5BedResidencesWitha7acrePrivateParkatWorli

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IncomeTaxAppellateTribunalMumbai
SkylineGreatHills,MumbaivsAssesseeon19March,2013

UserQueries
developmentagreement
jointdevelopment
jointdevelopmentagreement

''

INTHEINCOMETAXAPPELLATETRIBUNAL"E"BENCH,MUMBAI
BEFORES/SHRIB.R.MITTAL(JM)ANDRAJENDRA(AM)
.
.
,

securitydeposit
developmentrights
deemeddividend
"fsi"
section2(e)
jointventure
skyline
whatiscontiguoustotheland
nodevelopmentzone
stampduty
commencementcertificate

./I.T.A.No.6618/M/2012

khurana

(/AssessmentYear:20092010)

itatmumbai
shareholder

SkylineGreatHills,/

bhaumikcolour

ITO,Ward21(3)(2),

realestate

B204,SkylineVillaVs.Building,C11,5thfloor,

naresh

NavbharatCompound,PratyakshakarBhavan,Bandra,
NearTrintySociety,Mumbai51
Powai,Mumbai76

./
./PAN/GIRNo.:ABAFS1107R
(/Appellant)..(/Respondent)

/Appellantby:ShriVijayMehta

/Respondentby:ShriGirijaDayal

/DateofHearing:19.3.2013
/DateofPronouncement:8.5.2013

/ORDER

PerB.R.Mittal,JM:

Theasseseehasfiledthisappealforassessmentyear20092010againstorderdated21.9.2012of
ldCIT(A)32,Mumbaionfollowinggrounds:
"1.1Theld.CIT(A)erredinconfirmingtheadditionofRs.23,63,010/u/s2(22)(e)of
theI.T.Act1961,notappreciatingthattheappellantfirmwasnotaregisteredaswell
as beneficial share holder of the company, M/s. Skyline Mansions Pvt. Ltd. and
accordingly the provisions of section 2(22)(e) were not attracted to the amount of
security,depositreceivedbytheappellantfirmfromM/s.SkylineMansionsPvt.Ltd.
1.2 The ld CIT (A) erred in confirming the addition of Rs.23,63,010/ as deemed
dividend u/s 2(22)(e) of the IT. Act 1961, on account of deposit received from M/s.
Skyline Mansions Pvt. Ltd. towards joint development of land falling under C.T.S
No.38,VillageTirandaz,Powai,Mumbai,inspiteofarrivingattheconclusionthatthe
joint development agreement dt. 4th April 2008 represented a genuine business
transaction.
Assessment Year: 20092010) 1.3 The ld CIT (A) erred in arriving at the conclusion
that the security deposit received by the appellant firm from M/s. Skyline Mansions
Pvt.Ltd.inrespectoftheagreementforjointdevelopmentofpropertywaspartly for
businessconsiderationsandpartlyfornonbusinessconsiderations.
2.1 The ld CIT (A) erred in enhancing the assessed income by a sum of
Rs.28,41,34,500/inrespectofanewsourcebeing"businessincome"allegedlyarising
fromsaleofFSIunderjointdevelopmentagreementdt.4"April2008.
2.2TheldCIT(A)erredinenhancingtheincomeinrespectofanewsourcewhichwas
notconsideredbytheidAOintheassessmentnorwasanygroundinrespectthereof
raisedbeforetheidCIT(A).
3. On the merits of addition of Rs. 28,41,34,500/ (enhanced income) as business
incomearisingonsaleofFSI.
3.1 The ld. CIT (A) erred in arriving at the conclusion that the joint development
agreementdt.4thApril2008ledtobusinessincomeofRs.28,41,34,500/arisingin
thehandsoftheappellantintheyearunderappeal.
3.2 The ld. CIT (A) erred in not appreciating that under the joint development
agreement, the appellant had not sold or transferred FSI but had entered into a
businesstransactiontocommerciallyexploitthepotentialofdevelopmentrightsheld
bytheassesseefirmalongwiththeownerofadjoiningplotofland.
3.3 The ld. CIT (A) erred in not appreciating that till the time the regulatory
sanctions/permissionswerefinallyobtainedon1stFeb.2011andlicensetoenterupon
thesaidpropertywasgrantedon25.04.2011inrespectofthelandinquestion,there
was no transfer of significant risks and rewards in favour of a third party leading to
generationofrevenueinthehandsoftheappellant.
3.4 The ld. CIT (A) erred in determining the profit on sale of FSI by taking into
accountthevalueasperstampvaluationauthorityasthe"considerationforsale'not
appreciating the fact that as the development rights were held by the appellant as
"stockintrade", the value as per stamp valuation authority had no role to play in
workingofprofit/income".
2. In respect of Ground No.1 of appeal, the relevant facts giving rise to this appeal are that

assessee is a partnership firm engaged in the business of developing Real Estate. For the
assessmentyearunderconsideration,assesseefiledthereturnofincomeon26.9.2009declaring
total income at Rs.11,77,550/. During the course of Assessment Year: 20092010) assessment
proceedings, the Assessing Officer observed that assessee firm has shown deposit of
Rs.54,68,90,000/ from M/s. Skyline Mansions Pvt Ltd., (formerly known as Bahupriya
Properties Pvt Ltd.,), hereinafter to be referred in short 'SMPL'. AO asked the assessee to give
nature of deposit, purpose for deposit and to give copy of agreement executed in this regard, if
any.Inresponsethereto,assesseevideletterdated12.9.2011submittedasunder:
"TheassesseehasreceiveddepositformM/sBahupriyaPropertiesPvt.Ltd.towards
theproposedjointdevelopmentoflandbearingS.No.38atvillageTirandaz.Aportion
of the land falling under S.No. 38 is held by M/s. Bahupriya Properties Pvt. Ltd.
Similarly,theassesseealsoholdsapartofthelandfallingunderS.No.38atvillage
Tirandaz. The land held by the assessee appears as part of stock in trade under
schedule F of the Balance Sheet at 31st March_2009. Both the parties intend to
developthesaidlandjointly.Presently,thelandisundernoDevelopmentZone(NDZ)
aspertheprevalentdevelopmentregulationsofBMCC.Accordingly,nodevelopment
inforeseeablefutureisanticipatedbythepartnersoftheassesseefirm."
3.AssessingOfficerhasstatedthatassesseehasnotsubmittedanyagreementinthisregard.That
assessee was again asked vide order sheet noting dated 13.09.2011 to give copy of agreement
entered into with SMPL. That assessee finally submitted copy of the agreement alongwith its
letterdated03.11.2011.TherelevantpartofthesaidletterisreproducedbytheAssessingOfficer
inpara5.2asunder:
"The deposit received from M/s. Bahupriya Properties Pvt. Ltd. is towards the joint
development agreement dated 04.04.2008 between the said company and the
assessee firm. The joint' development agreement is executed with regards to joint
developmentofcontiguouspiecesoflandsownedbyboththepartiesindependentlyat
villageTirandaz,NearPowai,Mumbai."
4. Assessing Officer after considering the agreement and shareholding pattern of SMPL has
stated that assessee has accepted deposits from its group companies i.e. SMPL in which public
are not substantially interested. That Assessing Officer has given details of partners of the
assesseefirmandshareholdingpatternofSMPLatpage3inpara5.3oftheassessmentorderas
under:
AssessmentYear:20092010)
5. Assessing Officer has stated that in the financial year relevant to assessment year under
consideration, SMPL had reserves and surplus to the tune of Rs.23,63,010/. Assessing Officer
doubtedgenuinenessoftheagreementdated4.4.2008underwhichassesseehasstatedtohave
received deposit from SMPL towards joint development of land bearing S.No.38 at village
Tirandaz,Powai,Mumbai.Hehasstatedthattruenatureofthesaidamountisinthenatureof
loanoradvanceascontemplatedbysection2(22)(e)oftheAct.Theassessee'sstoryofformation
ofjointventure&jointventuredevelopmentagreementisanafterthoughttoavoidapplicationof
provisions of section 2(22)(e) of the Act. Assessing Officer after considering the decision of
Hon'bleDelhiHighCourtinthecaseofCITvs.NationalTravelServices,347ITR305/249CTR
540hasmadetheadditionofRs.23,63,010/u/s.2(22)(e)oftheAct,theextentofreservesand
surplus available during the accounting year relevant to assessment year under consideration.
Thus, AO completed the assessment at Rs.35,60,560/. Being aggrieved, assessee filed appeal
beforeldCIT(A).
6. On behalf of assessee, it was contended that the AO did not appreciate the import of
transactionsasperdevelopmentagreementdated4.4.2008,whichwasaAssessmentYear:2009

2010)commercialtransactionbetweentheassesseeandSMPL.Thatthepartnersoftheassessee
werealsotheshareholdersinSMPL,wasonlyincidental.BeforeldCIT(A),clause23ofthesaid
development agreement dated 4.4.2008 was referred to and stated that it is specifically
mentioned that the parties had entered into the said agreement on principal to principal basis
andnothingcontainedthereinshallbedeemedtobeapartnershiporjointventurebetweenthe
concernedparties.ItwasalsocontendedthatAOdoubtedthegenuinenessofthesaidagreement
onlyonaccountofdelayinregisteringtheagreementasregistrationwasdoneafteraperiodof43
months.Itwascontendedthattheagreementwasgotregisteredonlyafterthereceiptofrequisite
approvals and commencement certificates from Municipal Corporation of Greater Mumbai
(MCGM)on1/2/2011.Itwasalsocontendedthatthestampdutypaidincludingthepenaltyfor
registering the agreement dated 4/4/2008 on 20/10/2011 was Rs.78,89,100/, which is more
than 5 times the tax levied by AO on the assessee u/s.2(22)(e). Hence the conclusion of the
Assessing Officer that the agreement between the assessee and SMPL was only a make belief
transactiontocoverupthetransferoffundsbySMPLtoassesseefirmestablishesthefallacyof
the conclusion of the Assessing Officer. It was contended that the said agreement between the
assesseeandSMPLisagenuinetransactionofjointdevelopmentoflandownedbytheassessee
and SMPL and the belief of the AO is guided merely by suspicion. Hence, the said amount of
Rs.54,68,90,000 was received by the assessee in the course of business transaction, which is
outsidetheambitofsection2(22)(e)oftheAct.
6.1Itwascontendedthatassesseeisneitheraregisteredshareholdernorabeneficialshareholder
ofSMPLandinviewofthedecisionofITATSpecialBenchinthecaseofBhaumikColourPrivate
Ltd 118 ITD 1 (SB) and the decision of Hon'ble Bombay High Court in the case of Universal
MedicarePrivateLtd.324ITR263(Bom),theadditionofdeemeddividendcanbemadeinthe
handsofregisteredshareholderaswellasbeneficialshareholderonly.
7.LdCIT(A)didnotacceptthecontentionoftheassessee.LdCIT(A)hasstatedthatthetestfor
application of section 2(22)(e) is whether the amount received by the assessee from SMPL of
Rs.54,68,90,000/ was wholly towards a business transaction only or partly it was in nature of
businessreceiptsandpartlyfornonbusinessconsiderations.LdCIT(A)hasstatedthatthejoint
development agreement dated Assessment Year: 20092010) 4.4.2008 cannot be said to be a
makebeliefagreement.Itcannotbesaidthattherewasnoelementofbusinesstransactioninthe
agreementdated4.4.2008andtheamountreceivedhadnoelementofbusinessreceiptatall.The
relevantpartofldCIT(A)inregardtoaboveconclusionisatpages5to6oftheimpugnedorder,
whichreadasunder:
"Theappellantfirmisengagedinthebusinessofrealestatedevelopmentandduring
theyeartheincomefromconstructionandsaleofflatshasbeenshownintheP&La/c.
Itisalsonotedthatthelandforwhichthedevelopment rights have been given is at
surveyNo.38admeasuring32,262.38sqmtswhosevalueincludingdevelopmentwork
carriedoutonthesaidlandisappearinginschedule'F'ofthebalancesheetasstockin
trade at Rs. 14,00,10,000 as on 31/03/2009. On the other hand, the sum of Rs
54,68,90,000receivedfromM/s.SkylineMansionsPvt.Ltd.isappearingas'deposit'
in schedule 'D' of balance sheet under the head other advances. Regarding the
observation of AO of not transferring the assets to the joint venture and not
maintaining separate books of account etc for the joint venture, I agree with the
contentionsoftheLd.ARthattheAOhasfailedtoappreciatethatasperclause23of
theagreementdated04042008itwasajointdevelopmentagreementbetweenthe
appellant and the company on principle to principle basis and it was not a joint
ventureagreementatall.TheAOsuspectedthegenuinenessoftheagreementdated
04/04/2008ongroundsthatthesaidagreementwasnotregisteredimmediatelyafter
04/04/2008anditwasregisteredonlyafterthedatewhentheAOaskedforthecopy
of the agreement during the assessment proceedings on 13/09/2011. Whether the

agreementdated04042008isregisteredornotorthefactthatthesame has been

registered after delay of 43 months, would not make the agreement void or not
genuine. The registration of documents after delay is also lawfully admissible under
theregistrationlawsafterpaymentofrequisitepenalty.Inthiscasealsotheappellant
haspaidpenaltyofRs.36,47,650/atthetimeofregistrationofconfirmationdeedof
the agreement on 20102011. The said land is appearing as stock in trade in the
balance sheet of appellant and subsequently the plans have also been approved and
commencementcertificateshavebeenobtainedforconstructiononthesaidlandalso.
Hencethejointdevelopmentagreementdated04042008cannotsaidtobeamake
beliefagreementbecausenoonewouldpaystampdutyofRs.42,41,450/andpenalty
ofRs. 36,47,650/totaling to Rs.78,89,100/to avoidprovisions of 2(22)(e)when the
tax itself leviable on deemed dividend of Rs. 23,63,010 assessed by the AO is much
lesser.Henceitcannotbesaidthattherewasnoelementofbusinesstransactioninthe
agreement dt 04.042008 and that the amount received had no element of business
receiptatall."
8. Ld CIT(A) having held so, has further stated that the entire amount of Rs. 54,68,90,000/
received bythe assessee cannot be said to be businessreceiptsbecause the marketvalue of the
land itself has been valued by stamp valuation authorities at the AssessmentYear:20092010)
time of registration of confirmation deed on 20/10/2011 at Rs.42,41,44,500/. Ld CIT(A) has
stated that receipt can be business receipt only when it is received as per commercial business
considerations and not for any other nonbusiness considerations even if it is received from a
personwithwhomrecipientishavingbusinessdealings.Thatthequantumofreceiptsshouldalso
becommensuratewiththevalueofbusinesstransactiononprinciplesofcommercialprudence.
LdCIT(A)hasstatedthatassesseehasstatedthatthesaidamountreceivedissecuritydeposit.
However,ldCIT(A)hasstatedthatthesecuritydepositisnormallytakenatsmallpercentageof
the value of transaction or asset which is subject matter of the transaction. He has stated that
normallysecuritydepositisacceptedintransactionwhenthecontractingpartiesarenotclosely
connectedtoeachothertoensuretheperformanceandprotecttheinterestoftransferor.Hehas
stated that assessee and SMPL are closely connected as partners, were having more than 10%
shareholdings of SMPL and assessee had only granted development rights of land without
conveyingthetitle.Therewasnoneedatthefirstplacetotakeasecuritydepositatallforsuch
transaction.ItwasSMPLwhowasgoingtodevelopthelandbyincurringhugeconstructioncost
and,therefore,ifSMPLdidnotcompletethedevelopmentasperagreement,itwasSMPLwho
was to suffer the loss and not the assessee. Ld CIT(A) has stated that though in principle, the
departmentcannotstepintoshoesofthebusinessmantodecideastohowheshouldhavedone
its transaction but the same needs to be done as per commercial principles, if one has to claim
any particular benefit under the Act. Ld CIT(A) has stated that if at all some deposit was
consideredappropriateinthewisdomofcontractingparties,itcouldhavebeentakenonlyasper
commercialprinciplesinordertoclaimthattheentireamountwasinnatureofbusinessreceipt
only and nothing else. Ld CIT(A) has stated that in the agreement dated 4.4.2008, though it is
mentioned that SMPL shall give security deposit but there is no mention of the quantum or
purpose or period of the security deposit. Ld CIT(A) has stated that in absence of any
quantificationofsecuritydepositinagreementitself,itcannotbesaidthatentireamountofRs.
54,68,90,000/ received from SMPL is for business consideration only in terms of agreement
dt.4.4.2008. The entry of the sum as security deposit in books of account cannot be conclusive
unlessinsumandsubstancetheyconformtothenatureofthereceipts.LdCIT(A)hasstatedthat
as per clause 17 of the agreement, the security deposit was to be received towards the cost of
construction.Thoughcostof16500sqmtsofconstructedFSI,whichwastheconsiderationtobe
receivedasperthesaidagreement,wasfixedintheagreementinAssessmentYear:20092010)
termsofmoney'sworthbutthecostofthe16,500sqmtsofconstructedFSIwasfixedatRs16.5
Crores as the market value was at Rs.42,41,44,500/ by the stamp valuation authorities at the
timeofregistrationofagreement.LdCIT(A)hasstatedthatassesseecouldatbesttake100%of

market value of Rs.42.41 crore for ensuring the performance of contract, meaning thereby that
the maximum amount receipt on business considerations could have been Rs.42,41,44,500/
only.SincetheassesseehasreceivedthesumofRs,54,68,90,000/whichismorethan100%of
market value itself, as per stamp valuation authorities, the excess amount is received by the
assesseeonlyduetocloseconnectionbetweentheassesseeandSMPL.Hence,theexcessamount
of Rs.12,27,45,500/ (Rs.54,68,90,000 Rs.452,41,44,500) cannot be in the nature of receipt
duringthecourseofbusinesstransactioninpursuancetoagreementdated4.4.2008.LdCIT(A)
hasstatedthatthesuchexcessamountisinthenatureofgratuitousdeposit/advancewithoutany
business considerations which would be clearly hit by the provisions of section 2(22)(e) of the
Act.LdCIT(A)afterconsideringthatthepartnersoftheassesseefirmhaveoverdrawnthecapital
by Rs.19.7 crores and the net funds available after withdrawn is only Rs.38.86 crores as per
balance sheet and concluded that part of the amount given by SMPL was for personal use by
partnersandnotforbusinessconsiderations.Inviewofabove,ldCIT(A)hasheldthattheexcess
receiptofRs.12,27,45,500/isnotinthenatureofbusinessreceipts.SincethereservesofSMPL
areofRs.23,63,010/,theadditionu/s.2(22)(e)oftheActhastoberestrictedtoRs.23,63,010/.
9.Inrespectofsubmissionofassesseethatnoadditionu/s.2(22)(e)ispermissibleinthehandsof
thefirmasitisnotaregisteredshareholder,ldCIT(A)hasstatedthatthesaidcontentionofthe
assesseeisnottenableinviewofthedecisionofHon'bleDelhiHighCourtinthecaseofNational
Travel Services (supra), wherein, it has been held that for the purpose of section 2(22)(e),
partnershipfirmthoughnotaregisteredshareholder,beingabeneficialowner,istobetreatedas
shareholder and sums advanced by company to the firm has to be treated as deemed dividend
u/s.2(22)(e)oftheAct.LdCIT(A)hasstatedthatthepartnerswhoareregisteredshareholdersof
SMPLarehavingmorethan10%sharesbutwhenitisthefirmwhichhasreceivedthemoney,the
deemed dividend u/s.2(22)(e) is to be assessed in the hands of the firm. Ld CIT(A) has further
stated that decision of Hon'ble Bombay High Court in the case of Universal Medicare Pvt Ltd.,
(supra) and the decision of ITAT (SB) in the case of Bhaumik Assessment Year: 20092010)
ColourPvtLtd(supra)relieduponbytheassesseearenotapplicabletothefactsofthecase.Ld
CIT(A) has stated that the Hon'ble Apex Court has held in the case of Goodyear India Ltd, 188
ITR402(SC)thataprecedentisbindingonlyforwhatisactuallydecidedbyitandnotforwhat
mayremotelyfollowfromit.LdCIT(A)hasstatedthatthedecisionscitedonbehalfofassessee
arenotatallapplicabletothefactsoftheassessee'scaseastheyhavenotdecidedthequestionof
taxabilityofsumsreceivedbyfirmu/s.2(22)(e)oftheAct,wherethepartnersareshareholdersas
the firm has a different legal status and relationship with partners in contradistinction to the
Companiesanditsshareholders.
10.Inviewofabovereasons,ldCIT(A)hasconfirmedtheadditionofRs.23,63,010/madebythe
AOu/s.2(22)(e)oftheAct.Hence,assesseeisinfurtherappealbeforetheTribunal.
11. On behalf of assessee, it was contended that assessee entered into a joint development
agreement with SMPL dated 4.4.2008 and under the said agreement, received a sum of
Rs.54,68,90,000/ as security deposit. Assessee as well as SMPL have rights in respect of
contiguouspieceoflandsatvillageTirandaz,Powai,Mumbai.ThesaidlandformerlywasinNo
DevelopmentZoneandboththepartiesunderthejointdevelopmentagreementhavecometoan
understandingtojointlydeveloptheirlandonspecifictermsandconditions.Asperclause17of
thesaidjointdevelopmentagreement,assesseereceivedsecuritydeposits.HesubmittedthatAO
doubtedthegenuinenessofthesaidjointdevelopmentagreementonthegroundthatitwasdated
4.4.2008 but was registered on 20.10.2011. Hence, on account of delay in registering the
agreement,AOdidnotacceptthecontentionoftheassesseethatreceiptswerebusinessadvance
andnotloansordeposits.LdA.R.referredtotheorderofldCIT(A)andsubmittedthatldCIT(A)
atpage6oftheimpugnedorderhasheldthatsaidjointdevelopmentagreementdated4.4.2008
cannot be said to be a make belief agreement because no one was to pay stamp duty of
Rs.42,41,450/ and penalty of Rs.36,47,650 totaling to Rs.78,89,100/ to avoid provisions of

section 2(22)(e) of the Act, when the tax itself leviable on deemed dividend on Rs.23,63,010
assessedbytheAOismuchlesser.LdA.R.furthersubmittedthatldCIT(A)hasagreedthatunder
the said agreement, it cannotbe saidthat there was no elementof businesstransaction.Ld AR
submitted that ld CIT(A) has considered a part of the said deposit receipt in the nature
AssessmentYear:20092010)ofbusinessreceiptandapartofthesecurityasdeposit/advance
withoutanybusinessconsideration.LdA.R.submittedthatldCIT(A)hasappliedthedecisionof
Hon'bleDelhiHighCourtinthecaseofNationalTravelServices(supra)toconsiderthedeemed
dividendu/s.2(22)(e)oftheAct.HesubmittedthatdecisionofNationalTravelServices(supra)
as applied by ld CIT(A) is not applicable to the facts of the case. He submitted that the said
decision of Hon'ble Delhi High Court in the case of National Travel Services (supra) was
consideredbytheITATMumbaiinthecaseofM/s.BeekayTexvsACIT(I.T.A.No.5118/M/2010
forA.Y.200607)byitsorderdated23.12.2011.ThattheITATMumbaiBenchafterconsidering
thesaiddecisionofHon'bleDelhiHighCourtinthecaseofNationalTravelServices(supra)and
alsothedecisionofHon'bleRajasthanHighCourtinthecaseofCIT vs. Hotel Hilltop,313ITR
116(Raj)aswellasthedecisionsofHon'bleBombayHighcourtinthecaseofUniversalMedicare
Pvt. Ltd (supra) and ITAT Mumbai (SB) in the case Bhaumik Colour (P) Ltd (supra) have held
thattheamountinthehandsoftheassesseefirmcouldnotbeassessedasdeemeddividendas
the assessee firm was not registered or beneficial shareholder of shares in the lender company
namely M/s. Anish Synthetics Pvt Ltd. Ld A.R. furnished a copy of the said order (supra) and
submittedthatthefactsofthecaseoftheassesseeareidenticaltothefactsofthecasedecidedby
theTribunalbyitsorderdated23.12.2011(supra)astheshareswereheldbythepartnersintheir
individualcapacityinthelendercompanynamely,SMPLandnotonbehalfoftheassesseefirm.
HesubmittedthatthefindingsofldCIT(A)thatreasonabledepositcouldbeRs.42.41crores,the
figureasconsideredbytheStampValuationAuthorityasbusinessconsiderationisnotjustified.
OnceldCIT(A)hashimselfacceptedthatitisabusinessreceipt,hecouldnotconsiderthatthe
amount over and above Rs.42.41 corres out of total security deposit of Rs.54,68,90,000 is a
gratuitousdeposit/advancewithoutbusinessconsideration.Hesubmittedthattheconsideration
is for the parties to decide and not for the department to consider. He submitted that addition
madebyldCIT(A)u/s.2(22)(e)isnotjustified.
12.Ontheotherhand,ldD.R.supportedtheorderofldCIT(A).Hesubmittedthatafirmcannot
bearegisteredshareholderbutcouldbeabeneficialshareholderbecausethesharesareheldin
thenameofthepartners.Hesubmittedthatifthecontentionoftheassesseeisacceptedthata
personshouldnotonlybearegisteredshareholderbutalsoabeneficialshareholderinthatcase
thepartnershipfirmcannevercomewithinthemischiefofsection2(22)(e)andthiswillfrustrate
theobjectofsection2(22)(e)ofAssessmentYear:20092010)theAct.Therefore,inthecaseofa
firm,theprovisionsofsection2(22)(e)couldbeappliedandtotreatthefirmasshareholdereven
thoughitisnotaregisteredshareholderinviewofthedecisionofHon'bleDelhiHighcourtinthe
caseofNationalTravelServices(supra).
13. We have considered submissions of ld representatives of parties and orders of authorities
below.
14ThereisnodisputetothefactthatassesseehasreceivedasumofRs.54,68,90,000fromSMPL
assecuritydeposit,whichisalsoappearinginthebalancesheetoftheassesseefirm.LdCIT(A)
hasstatedinhisorderthattheAOhasfailedtoappreciatethatasperclause23oftheagreement
dated 4.4.2008, it was a joint development venture agreement between the assessee and
companyvizSMPLonprincipaltoprincipalbasisanditwasnotajointventureagreementatall.
LdCIT(A)hasstatedthatwhethertheagreementdated4.4.2008isregisteredornotorthefact
thatthesamehasbeenregisteredafteradelayof43months,wouldnotmaketheagreementvoid
ornotgenuine.LdCIT(A)hasagreedthatitcannotbesaidthattherewasnoelementofbusiness
transaction in the agreement entered into between the assessee and SMPL dated 4.4.2008.
However, ld CIT(A) has doubted the total amount of security deposit received by the assessee

fromSMPLandhasconsideredthattheamounttotheextentofRs.42.41crorescouldsaidtobe
forbusinessconsideration.WefindsubstanceinthesubmissionofldA.R.thatonceitisaccepted
that there was a business transaction between the parties and assessee has received security
depositunderthesaidagreementaspartofthebusinesstransaction,theamountofconsideration
to be received by the parties is for the for the parties to decide on the basis of commercial
prudence and the department is not justified to determine the amount on the basis of the
valuation made by the stamp valuation authority for the purpose of payment of stamp duty.
Therefore,thefindingofldCIT(A)thatonlyasumofRs.42,42,44,500isinthenatureofbusiness
receiptsandthebalanceamountofRs.12,27,45,500outofthetotalreceiptsofRs.54,68,90,000
are received for non business consideration is not based on commercial basis but merely on
presumption and assumption. Moreover, we observe that the land held by the assessee is
undisputedly shown as stock in trade in the hands of the assessee and right thereof has been
given for development to Lender Company. We also agree with ld CIT(A) that nature of a
Assessment Year: 20092010) receipt or a transaction would not be determined only by the
nomenclaturegivenbytheassesseeinitsbooksofaccountbutbysubstanceofthecovenantsand
only circumstances of the transaction. Be that as it may, there is no dispute to the fact that ld
CIT(A)himselfhasacceptedthatapartoftheamountreceivedbytheassesseefromSMPLisin
the nature of business receipts. However, he has considered that out of the total receipt of
Rs.54,68,90,000/, a sum of Rs.12,27,45,500/ is received by the assessee for nonbusiness
considerationandhasconsideredittobeinthenatureofgratuitousdeposit/advanceandthesaid
amountishitbytheprovisionsofsection2(22)(e)oftheAct.Evenforthesakeofargument,ifit
is considered that the said amount of Rs.12,27,45,500/ received by the assessee from its sister
concern viz SMPL is in the nature of gratuitous deposit/advance, can be it considered to be
deemeddividend,onthefactsandinthecircumstancesofthecase,inthehandsoftheassessee
u/s.2(22)(e)oftheAct.?
15. We are of the considered view that, on the facts and in the circumstances of the case, the
provisionsofsection2(22)(e)oftheActarenotapplicableeveniftheamountofRs.12,27,45,500
isconsideredasdepositwiththeassesseefornonbusinessconsideration.ITATSpecialBenchin
thecaseofBhaumikColoursP.Ltd(supra)hasheldthatthedeemeddividendcanbetaxedonly
inthehandsofapersonwhoisaregisteredshareholderaswellasbeneficialshareholderofthe
sharesinthelendercompany.TheSpecialBenchhasalsoheldthatthequestionofapplicability
ofloansandadvancesgiventoaconcernbyacompanywheretheconcerntowhichtheloanis
given by the company is not a shareholder but there is common person who has substantial
interestintheconcernsaswellascompany,eveninsuchcase,theloanoradvancecanbetaxed
onlyinthehandsoftheshareholder(whohassubstantialinterestintheconcernaswellasinthe
company)andnotinthehandsoftheconcernsasdeemeddividendundersection2(22)(e)ofthe
Act. There is no dispute to the fact that the partners of the assessee firm and the shareholding
patternofthelendercompanynamelySMPLisasunder:
AssessmentYear:20092010)
16.Duringthecourseofhearing,reliancewasplacedonbehalfoftheassesseeonthedecisionof
Hon'bleRajasthanHighCourtinthecaseofHotelHilltop(supra).Weconsideritusefultostate
thefactsofthesaidcasewhichareasfollows:
The Assessee was one M/s.Hotel Hilltop a partnership firm. This firm received an advance of
Rs.10 lacs from a company M/s.Hilltop palace Hotels (P) Ltd. The shareholding pattern of
M/s.HillltopPalaceHotels(P)Ltd.,wasasfollows:
1.ShriRoopKumarKhurana:23.33%
2.Smt.SarojKhurana:4.67%
3.VikasKhurana:22%

4.DeshbandhuKhurana:25%
5.Shri.RajivKhurana:25%TheconstitutionofthefirmHotelHillTopwasasfollows:
1.ShriRoopKumarKhurana:45%
2. Shri.Deshbandhu Khurana: 55% In the said case, the AO assessed the sum of Rs.10 lacs as
deemed dividend u/s.2(22)(e) of the Act in the hands of the firm because the two partners of
M/s.Hotel Assessment Year: 20092010) Hill Top were holding shares by which they had 10%
votingpowerinM/s.HillTopPalaceHotels(P)Ltd.Theywerealsoentitledto20%oftheincome
ofthefirmM/s.HotelHillTop.ThereforetheloanbyM/s.HillTopPalaceHotels(P)Ltd.,tothe
firmM/s.HotelHillTopwastreatedasdeemeddividendinthehandsofM/s.HotelHillTop,the
firmunderthesecondlimbofSec.2(22)(e)oftheAct.TheCIT(A)heldthatsincethefirmwasnot
theshareholderofthecompany,theassessmentasdeemeddividendinthehandsofthefirmwas
notcorrect.TheorderoftheCIT(A)wasconfirmedbytheTribunal.OnRevenue'sappealbefore
theHon'bleHighCourt,thefollowingquestionoflawwasframedforconsideration.
"Whether on the facts and in the circumstances of the case and in law the learned
TribunalwasjustifiedinupholdingtheorderoflearnedCIT(A)deletingtheaddition
ofRs.10lacsasdeemeddividendunderSection2(22)(e)oftheITAct?"
TheHon'bleCourtheldasfollows:
"Theimportantaspect,beingtherequirementofsection2(22)(e)is,thatthepayment
maybemadetoanyconcern,inwhichsuchshareholderisamember,orthepartner,
and in which he has substantial interest, or any payment by any such company, on
behalforfortheindividualbenefitofanysuchshareholder......."Thus,thesubstance
of the requirement is that the payment should be made on behalf of or for the
individual benefit of any such shareholder, obviously, the provision is intended to
attract the liability of tax on the person, on whose behalf, or for whose individual
benefit, the amount is pad by the company, whether to the shareholder, or to the
concernedfirm.Inwhichevent,itwouldfallwithintheexpression'deemeddividend'.
Obviously,incomefromdividend,istaxableasincomefromtheothersourcesunder
section56,andintheverynatureofthingstheincomehastobeofthepersonearning
the income. The assessee in the present case is not shown to be one of the persons,
being shareholder. Of course, the two individuals being R and D. are the common
persons,holdingmorethanrequisiteamountofshareholdingandarehavingrequisite
interest, in the firm, but then, thereby the deemed dividend would not be deemed
dividendinthehandsofthefirm,ratheritwouldobviouslybedeemeddividendinthe
handsoftheindividuals,onwhosebehalf,oronwhoseindividualbenefit,beingsuch
shareholder,theamountispaidbythecompanytotheconcern.Thus,thesignificant
requirementofsection2(22)(e) is not shown to exist. The liability of tax, as deemed
divided,couldbeattractedinthehandsoftheindividuals,beingtheshareholders,and
notinthehandsofthefirm."
AssessmentYear:20092010)
17.However,inthecaseofNationalTravelServices(supra),thefactswereasfollows:
"TheassesseewasapartnershipfirmconsistingofthreepartnersbeingNareshGoyal,
SurinderGoyalandJetEnterprisesPvt.Ltd.Theassesseewasthe"beneficialowner"
of 48.18% of the share capital of Jetair Pvt. Ltd which were held in the name of its
partners Naresh Goyal and Surinder Goyal. The assessee took a loan of Rs. 28.52
croresfromJetairPvt.Ltd.TheAOheldthatthesaidloanwasassessableas"deemed
dividend" u/s 2(22)(e) in the hands of the assessee which was reversed by the

Tribunal. Before the High Court, the assessee argued, relying on Ankitech Pvt. Ltd,
(199Taxman341),UniversalMedicare324ITR363(Bom)andBhaumikColour118
ITD1(Mum)(SB),thats.2(22)(e)couldonlyapplyinthehandsofthe"shareholder"
andastheassesseewasnota"shareholder"(itspartnerswere),s.2(22)(e)couldnot
apply.TheHon'ble Delhi High Court held rejecting the assessee's plea, that the first
limbofs.2(22)(e)isattractedifthepaymentismadebyacompanybywayofadvance
orloan"toashareholder,beingapersonwhoisthebeneficialownerofshares".While
it is correct that the person to whom the payment is made should not only be a
registeredshareholderbutabeneficialshareholder,theargumentthatafirmcannot
be treated as a "shareholder" only because the shares are held in the names of its
partnersisnotacceptable.Ifthiscontentionisaccepted,innocaseapartnershipfirm
cancomewithinthemischiefofs.2(22)(e)becausetheshareswouldalwaysbeheld
inthenamesofthepartnersandneverinthenameofthefirm.Thiswouldfrustrate
theobjectofs.2(22)(e)andleadtoabsurdresults.Accordingly,fors.2(22)(e),afirm
hastobetreatedasthe"shareholder"eventhoughitisnot"registeredshareholder"
18.Onconsiderationofabovecase,weobservethatthereisnodisputethatassessee
firmisnotaregisteredorbeneficialshareholderinSMPL.Itisalsonotthecaseofthe
department that the partners of the firm held shares in SMPL for and on behalf of
assesseefirm.Itisalsonotthecaseofthedepartmentthatthefundsforpurchaseof
sharesbythepartnerswereprovidedbytheassesseefirm.Insuchcircumstances,we
are of the view that the decision of Hon'ble DelhiHigh court inthe case of National
TravelServices(supra)wouldnotbeapplicable.ThefactsasnotedbyHon'bleDelhi
HighcourtinthecaseofNationalTravelServices(supra)wereasfollows:
"7.Therespondent/assesseeisapartnershipfirmconsistingofthreepartnersnamely
Mr.NareshGoyal,Mr.SurinderGoyalandM/sJetEnterprisesPvt.Ltd.havingprofit
sharingratioof35%,15%and50%respectively.Theassesseefirmhadtakenaloanof
Rs.28,52,41,516/fromM/sJetairPvt.Ltd.NewDelhi.Inthiscompanytheassessee
has Assessment Year: 20092010) invested by subscribing to the equity share
numbering 1,43,980 of Rs. 100 each which constitute 48.18%. However, the shares
were purchased in the name of the two partners namely Mr. Naresh Goyal and Mr.
Surinder Goyal. Thus, whereas, Mr. Naresh Goyal and Mr. Surinder Goyal are the
respectiveshareholders,theassesseeisthebeneficialshareholder.Onthesefacts,in
thisappealweareconcernedwiththefirstlimb[incontradictiontosecondlimbthat
fell for interpretation in Ankitech (supra)] and are called upon to examine as to
whether this first limb of Section 2(22)(e) of the Act has been satisfied. We should
point out at the outset that it is an admitted position that all other conditions
stipulated in Section 2(22)(e) of the Act are fulfilled. The extent of share holding is
alsosohighthattheassesseehasindubitablysubstantialinterestinJetairPvt.Ltd."
19.Wehaveseenthatthefactsoftheassesseecasearedifferentandareidenticalto
thecasedecidedbyHon'bleRajasthanHighCourtinthecaseofHotelHilltop(supra).
SimilarissuehasalsobeenconsideredbytheITATinthecaseofM/s.BeekayTex(supra)andthe
Tribunal after considering above decisions as well as decision of ITAT (SB) in the case of
Bhaumik colours Pvt Ltd (supra) held that the amount of loan taken by the assessee from a
concern namely Anish Synthetics P Ltd., in which public are not substantially interested and
three of the partners of the assessee firm were the shareholders having substantial interest i.e.
having 25% of the shareholding by each partner could not be assessed as deemed dividend
u/s.2(22)(e) of the Act in the hands of the firm as the assessee firm was not the registered or
beneficialshareholdersinthesharesofAnishSyntheticsPvtLtd.,Similarly,inthecasebeforeus,
it is an undisputed fact that assessee firm is neither shareholder nor beneficial shareholders
shares in SMPL. We hold that the amount in question could not be considered as deemed

dividend in the hands of the assessee firm as the said decision of Hon'ble Delhi High Court
namelyNationalTravelServices(supra)isnotapplicabletothefactsofthecaseoftheassessee
beforeus.Hence,thesaidadditionofRs.23,63,010/asconfirmedbyauthoritiesbelowu/s.2(22)
(e) of the Act is not justified and is deleted by allowing Ground No.1 of appeal taken by the
assessee.
20.InrespectofGroundNo.2ofappeali.e.issuanceofenhancementofassessmentnoticebyld
CIT(A)u/s.251(1)(a)oftheAct,therelevantfactsarethatldCIT(A)whileconsideringtheissueof
applicability of provisions of section2(22)(e) of the Act on the security deposit received by the
assessee from SMPL stated that assessee is in business of real estate developer and land
admeasuring32,262.68sq.mtrsatVillageTirandaz,Powai,Mumbaiwasheldasstockintrade.
The assessee entered into a development Assessment Year: 20092010) agreement with SMPL
which was also holding land contiguous to the land owned by the assessee. The assessee gave
developmentrightsofitslandtoSMPL.LdCIT(A)hasstatedthatthesaidagreementhasbeen
enteredintobetweentheassesseeandSMPLonprincipaltoprincipalbasiswithoutanyintention
ofenteringintoapartnershiporjointventureasperclause23oftheagreement.LdCIT(A)has
stated that it was agreed as per agreement that the cost of construction of 16,500 sq.mtrs of
constructedFSIbevaluedatRs.16.5croresandthemarketvaluewasvaluedatRs.42,41,44,500/
by Stamp Valuation Authority but the assessee received a sum of Rs.54,68,90,000. Hence,
assesseereceivedtheentiremarketvalueofdevelopmentrightduringthefinancialyear200809
itself.Thatthebusinesstransactionofsaleofdevelopmentrightswascompleteandassesseewas
required to recognize the revenue/profits from the said transaction in A.Y. 20092010 as per
AccountingStandard9ortransferu/s.2(47)(v)areapplied.LdCIT(A)afterconsideringclauses
1.5, 1.7,1.11,4,6,7 (k), 8(b), 8(d), 8(g), 12(i), 13(b), 14.1, 14.2,14.3,6 & 17 of the said agreement
dated4.4.2008atpages13to17oftheimpugnedorder,issuedshowcausenoticedt.26.6.2012to
explainastowhytherevenuemaynotberecognizedintheassessmentyear20092010andthe
income of the assessee should not be enhanced by an amount equivalent to the difference
betweenthemarketvalueof16,500sq.mtrsofFSIbeingreceivedasconsiderationandthecostof
landasappearinginbooksforwhichthedevelopmentrightshavebeentransferred.Assesseefiled
itsreplyvideletterdated13.9.2012,thecontentsofwhichhavebeensummarizedbyldCIT(A)in
para4.1atpages18to19oftheimpugnedorderasunder:
"(i)ThatCIT(A)u/s251(1)hasnopowerstoenhancethenewsourceofincomewhich
hasnotbeenconsideredbytheAO.HehasreliedonthedecisionsincaseofShapoorji
Pallonji Mistry 44 ITR 891(SC), Raj Bahadur Hardutroy Motilal Chamaria 66 ITR
443(SC),Sardarilal&co251ITR864(Del),UnionTyres,240ITR446(Del).
(ii) On merits it has been argued that agreement dated 04/04/2008 only laid down
theroadmapfortheproposeddevelopmentandrecordsthetermsandconditionsof
the proposed development. The agreement basically records the intention of the
parties.Thepossessionofthelandwastobegiven,aftersurrenderofleasesfrom60
lesseesandthepartiesweretowaitforchangeofzonefromNodevelopmentzoneto
Residential/commercial zone and obtain requisite permissions/approvals and it was
onreceiptofcommencementcertificate,thelicensetoenteruponthesaidpropertyfor
purpose of development was to be granted. The CC was received on 1/2/2011 and
thereafter the License to enter the premises was given to M/s skyline Mansions Pvt
Ltdon25/4/2011.
Assessment Year: 20092010) Accordingly it was argued that the transaction of
development as proposed in development agreement crystallized on 25/04/2011 on
clearingallcontingenteventsonwhichdevelopmentwasbased.
(iii)RegardingthesumofRs54.68Crithasbeenstatedthatthesamewasreceivedas
security deposit to ensure the committed performance on the part of company and

this deposit was fully refundable on receipt of constructed premises/ sale

considerationofconstructedpremise.Accordinglyithasbeencontendedthatnopart
ofsaleconsiderationhasbeenreceivedbytheappellantinAY200910.
(iv) Regarding the recognition of revenue as per AS9, it has been stated that the
significantrisksandrewardsofownershiphasnotbeentransferredtill25/04/2011i.e
the date of handing over of possession after the receipt of CC on 01.02/2011. The
possibility of development was clouded with uncertainty in AY 200910 which got
cleared only on sanction of plans on 01/02/2011 and hence there is no question of
recognitionofrevenuespriortothatdate.
(v)RelyinguponthedecisionincaseofRGopinath(HUF)133TTJ595(Chennai)it
hasbeencontendedthatwhenthelandwasheldasstockintrade,thebusinessprofits
for the land owner arose only when the constructed FSI of 16500 sq mts were
ultimatelysold."
21.LdCIT(A)didnotacceptabovecontentionsoftheassesseeandstatedthatthecompetenceof
ldCIT(A)isnotrestrictedtoexaminethoseaspectsofassessmentwhicharecomplainedbythe
assesseebuthiscompetencerangesoverthewholeassessmentanditisopentohimtocorrectthe
ITOnotonlywithregardtomatterraisedbytheassesseebutalsowithregardtoamatterwhich
hasbeenconsideredbytheAOanddeterminedintheassessment.LdCIT(A)placedrelianceon
thedecisionofHon'bleApexCourtinthecaseofRajBahadurHardutroyChamaria(supra).He
further stated that same principle has been upheld by Hon'ble Delhi High court in the case of
Union Tyres (supra), the case which is also relied upon by ld A.R., wherein, the AAC made
enhancement by probing into the source of investment. It was stated that in that context, the
Hon'bleCourtheldthatitwasanewsourceastheunexplainedinvestmenthadnobearingonthe
questionofestimationofsales&G.P.LdCIT(A)hasstatedthatldCIT(A)haspowertoexamine
any matter though not raised by the assessee but which has been considered by the AO in the
assessmentorderfromthepointoftaxability.LdCIT(A)hasstatedthatheproposedtomakethe
enhancement in respect Assessment Year: 20092010) of very same receipts of Rs.54.68 crores
whichwereappearinginthebalancesheetandreceivedbytheassesseeunderthedevelopment
agreementdated4.4.2008.ThattheAOconsideredthesaidreceiptsinthehandsoftheassessee
u/s.2(22)(e) of the Act though he restricted the addition to the extent of Rs.23,63,010/ due to
availabilityofreservestothatextentonly.ThattheAOfailedtoexaminethespecificclausesof
the agreement and failed to appreciate the nature of that receipt of Rs.54.68 crores. Ld CIT(A)
hasfurtherstatedthatthepowersoftheCIT(A)arecoterminuswiththatofAOandhecando
whatAOcandoordirecttheAOwhathefailedtodo.Inviewofabove,ldCIT(A)statedthathe
wasexercisinghispoweru/s.251(1)correctlyandnotconsideringanewsourceofincome.Hence,
assesseehasdisputedthesaidorderofldCIT(A)inappealbeforetheTribunal.
22.Duringthecourseofhearing,ldA.R.submittedthatldCIT(A)hasnojurisdictiontoconsider
the said receipts as business receipts as he was examining a new source of income for which,
thereisnoassessmentorder.LdA.R.didnotfurtherstressandmadeanyothersubmissionon
thisissue.WhereasldD.R.submittedthatthenoticeissuedbyldCIT(A)u/s.251(1)oftheActto
considerthenatureofreceiptsofRs.54.68,90,000isinaccordancewithlaw.
23.Wehaveconsideredthesubmissionsofldrepresentativesofpartiesandrelevantpartofthe
orderofldCIT(A),whichwehavesummarizedhereinabove.
24.WeagreewithldCIT(A)thatthepowersofldCIT(A)arecoterminuswiththatofAOandhe
candowhatAOcandoordirecttheAOwhathefailedtodo.Weobservethattheissuebeforethe
AOwasreceiptofRs.54,68,90,000/bytheassesseefromSMPLandtheAOconsideredthesaid
receipts as taxable in the hands of the assessee u/s.2(22)(e) of the Act, but he restricted the
additiontotheextentofRs.23,63,010/duetoavailabilityofreservestothatextentonly.Thereis

nodisputetothefactthatassesseereceivedthesaidamountunderthedevelopmentagreement
dated4.4.2008andAOstatedthatthesaidagreementisamakebelieftransactiontocoverupthe
transferoffundsbySMPLtotheassesseefirm.WeobservethatldCIT(A)hasnotagreedwithAO
thattheagreementbetweentheassesseeandSMPLwasonlyamakebelieftransaction.On the
other hand, ld CIT(A) has held that the said agreement between the assessee and SMPL is a
genuine transaction of joint development of land Assessment Year: 20092010) owned by the
assessee firm and SMPL at village Tirandaz, Powai, Mumbai. It is also held by ld CIT(A) that
assesseeandSMPLhaveenteredintosaiddevelopmentagreementonprincipaltoprincipalbasis
anditwasnotajointventureagreement.Therefore,weareoftheconsideredviewthatldCIT(A)
while examining the nature of receipt of Rs.54,68,90,000/ is not considering new source of
income.Onthefactsofthecase,weareoftheviewthatldCIT(A)haspoweru/s.251(1)(a)ofthe
Acttoexamineandconsidertheorderofassessmentbeforehimastowhetherhemayconfirm,
reduce,enhanceorannultheassessment.Hence,weholdthatthecontentionofldA.R.,thatld
CIT(A)hasnojurisdictiontoexaminethenatureoftransactionandthenatureofreceiptofthe
amount received by the assessee firm from SMPL, has no merit. Therefore, notice issued by ld
CIT(A)u/s.251(1)isvalidonthefactsofthecasediscussedhereinabove.Hence,GroundNo.2of
appealtakenbyassesseeisrejected.
25.InGroundNo.3ofappeal,assesseehasdisputedtheorderofldCIT(A)toconsiderthesumof
Rs.28,41,34,500/asbusinessincomeintheassessmentyearunderconsideration.
26.WehavealreadystatedtherelevantfactswhilediscussingGroundNo.1ofappealhereinabove
butforthesakeofclarity,weconsideritprudenttoagainstatethematerialfactsrelatingtothis
ground.ThatSMPListheowneroflargeportionoflandbearingNo.38,villageTirandaz,Powai,
Mumbaiandassesseeisalsohavingdevelopmentrightsinrespectof32,262.68sq.mtrsofland,
contiguous to the land owned by SMPL. In order to develop the respective land, SMPL and
assesseeenteredintoajointdevelopmentagreementon4.4.2008,copyplacedatpages35to75
ofPB.Itisstatedthataportionoftheentirelandwasonleasewith60differentlesseeswhoare
inpossessionofthesame.ThatsaidlandwasinNoDevelopmentZone(NDZ)andpartieswereto
waitforthezoningofthelandforresidential/commercialuseandimmediatedevelopmentwas
notfeasible.It is stated that as per the said joint development agreement, a road map was laid
downfortheproposeddevelopmentoflandheldbyboththeparties.Itisfurtherstatedthatthe
partieswouldfirstobtainthesurrenderofleasesfrom60lesseesandthepossessionoftheland
would be given for the purpose of development on receipt of commencement certificate. Under
the said agreement, assessee received a sum of Rs.54,68,90,000 as security deposit to ensure
committedperformanceonthepartofSMPL.ItisstatedthatsaiddepositwasfullyAssessment
Year: 20092010) refundable on receipt of constructed premises and the share of the assessee
arises from the said joint development was 16,500 sq.mtrs on constructed area. There is no
dispute to the fact that the commencement certificate was received on 1.2.2011. Assessee has
statedthatthelicensetoenteronthesaidpropertyforthepurposeofdevelopmentwasgranted
to SMPL on 25.4.2011. Hence, the transaction of development as proposed under the said joint
development agreement dated 4.4.2008 was crystalised on 25.4.2011 on clearing of all the
contingent events on which the said joint development was based. Ld CIT(A) after considering
abovefactsandthefactthatthecostofconstructionof16,500sq.mtrsofconstructedFSIwhich
was agreed consideration as per agreement was valued at Rs.16.5 crores only and the market
value was valued at Rs.42,41,44,500 by Stamp Valuation Authority. Since the assessee had
received a sum of Rs.54,68,90,000 as security deposit from SMPL under the agreement dated
4.4.2008 , it was nothing but a business consideration on sale of development rights in the
financial year 200809. Ld CIT(A) has stated that assessee was required to recognize the
revenue/profitsfromthesaidtransactioninA.Y.20092010asperAccountingStandard
9ortransferu/s.2(47)(v).LdCIT(A)hasstatedthatassesseehasalreadytransferredsignificant
risks and rewards of ownership by way of irrevocable covenants and also received the entire

considerationinthegarbofsecuritydepositwhichwastoberepaidonlybyadjustment@28%of
netsaleproceedsofconstructedFSIof16,5000sq.mtrswhichwastobereceivedbytheassessee.
Hence, the profit and gains from transfer of stockintrade was chargeable in assessment year
20092010 itself. It is relevant to state that assessee has shown the said land in its books of
account as stockintrade and not the fixed capital asset. Ld CIT(A) has stated that a developer
afterobtainingthedevelopmentrightsmaystartthedevelopmentimmediatelyorstartatalater
datebutthiswillnotinanywayaffecthisrightsasadevelopmentarisingoutofthedevelopment
agreement. That the development takes place in stages and conditions of obtaining requisite
permissions only are part of the development process and not in nature of precondition for
development activity. That accrual of gains cannot be postponed to the date of receipt of
approvals/permissions from MCGM, if the agreement otherwise leads to transfer of significant
risksandrewardsorifthereispartperformanceasthecasemaybe.LdCIT(A)hasstatedthat
receiptofrequisiteapprovalsmayhaveeffectondateoftaxabilityofdeveloperbutnotinhands
ofthetransferor.Thataspertheagreement,assesseeisnotrequiredtoincuranyexpenditurefor
anydevelopmentworkoftheproject.AssesseeisnoteventolookintoAssessmentYear:2009
2010) the account and expenditures incurred by the developer i.e. SMPL on the project. That
eventhesellingandmarketingexpensesforconstructedflatspertainingtoshareofassesseehas
been agreed to be done at SMPL cost as per clause 14.3 of the agreement. That the only
right/interest of the assessee after execution of the agreement is restricted to receiving
constructedFSIof16,500sqmtsintheprojecttobeconstructed.LdCIT(A)hasalsostatedthat
as per clause 16 of the said agreement, assessee shall not terminate the agreement and as per
clause4.2oftheagreement,alltheFSI/TDRandotherfuturebenefitsavailableinrespectofsaid
landafterthedateofagreementshallbelongtoowners/developersi.e.SMPL.Therefore,assessee
hasdivestedallcurrentandfuturerightsinthe*landfromthedateofagreementitself.LdCIT(A)
has also stated that as per clauses 8(b), 8(d) & 8(g) of the agreement, assessee is indemnified
againstanylosses/expensesduetoanyActordeedofSMPL.LdCIT(A)hasstatedthatnatureof
a receipt or a transaction would not be determined only by the nomenclature given but by
substance of the covenants and circumstances of the transaction and placed reliance of the
decision of Hon'ble Supreme Court in the case of National Cement Mine Industries, 42 ITR 69
(SC)andPadamjeeRaKadambande,195ITR877(SC).LdCIT(A)hasstatedthattheentryofthe
sumas'securitydeposit'inbooksofaccountscannotbeconclusiveunlessinsumandsubstanceit
confirm to such nature of receipts. He has stated that naming the consideration as security
depositisjustacolorfuldevicetocamouflagethereceiptofmoney.LdCIT(A)hasfurtherstated
that SMPL has noted the workinprogress as on 31.3.2009 as per its balance sheet at
Rs.2,06,78,741/, which includes the construction to retain wall, drain work, hutment
compensation,purchaseofmaterial,BMCscrutinyfee,etc.Therefore,SMPLhadalreadystarted
thedevelopmentworkinassessmentyear20092010byincurringaboveexpenditures.LdCIT(A)
hasstatedthattheavermentsinclause9(c)(ii)togivelicencetodeveloperi.e.SMPLtoenterthe
premisesforcarryingoutdevelopmentofpropertyonlyafterreceiptofapprovalofplansandCC,
isjustredundantclauseguidedbymotivetopostponetheyearoftaxabilityowingtoclosenexus
between the assessee firm and SMPL. Ld CIT(A), after considering the decision of Hon'ble
BombayHighCourtinthecaseofChaturbhujDwarkadasKapadiavsCIT,260ITR491(Bom),
has concluded that once the agreement is read as a whole it suggests that the assessee has
irrevocably divested of all rights in the lands from date of agreement with no power of
termination and giving the power of attorney to developer to deal with the land with limited
permissiontoenterthepremisesatthetimeofagreementitselfandtheassesseealsoAssessment
Year: 20092010) having received more than the agreed 16,500 sq.mtrs in the form of cash
money in garb of security deposit, then substantial risks and rewards are transferred with no
uncertaintyofrealizationofrevenuesasenvisagedinAS9.Hence,theyearofchargeabilityhas
to be the date of contract and not the date when final license to enter is given after receipt of
approval or commencement certificates. Thus, ld CIT(A) has stated that it cannot be said that
there is no transfer or development rights from the assessee in assessment year 20092010.

Thereafter, ld CIT(A in order to quantify the taxable profits for the assessment year under
consideration, has stated that the market value of the constructed FSI of 16,500 sq.mtrs is at
Rs.42,41,44,500/outoftotalreceiptofRs.54,68,90,000.Sincethecostofthelandisappearing
atRs.14,00,10,000inthebalancesheet,theprofitsandgainsfromgrantofdevelopmentrights
comestoRs.28,41,34,500(Rs.42,41,44,500Rs.14,00,10,000),whichisliabletobeassessedas
businessincomeforassessmentyear20092010inthehandsoftheassesseeoverandabovethe
income already assessed by the Assessing Officer at Rs.23,63,010/ u/s.2(22)(e) of the Act.
Hence,thisappealbeforetheTribunal.
27. Ld A.R. submitted that assessee is entitled for development rights in respect of 32262.68
sq.mtrsoflandcontiguoustothelandownedbySMPL.Assesseeisabuilder/developersofreal
estatepropertiesandthesaiddevelopmentrightisheldasstockintradebytheassessee.LdA.R.
submittedthatldCIT(A)hasproceededonthebasisofsection50CoftheI.T.Acttoconsiderthe
value of Rs.42,41,44,500, the value as considered by Stamp Valuation Authority but the
provisions of section 50C is not applicable to the said development rights of the assessee. He
submittedthatsection50Cisapplicableonlytocapitalassetsandnottotradingassets.Ld A.R.
furthersubmittedthatthesaiddevelopmentagreementdated4.4.2008onlylaiddowntheroad
mapfortheproposeddevelopmentoflandsheldbyboththeparties.Hesubmittedthatunderthe
said agreement, the parties would first obtain surrender of leases from 60 lesseess and, then
become entitle for clear possession of the land which is subject of agreement. Ld A.R. further
submittedthatonthedateofagreemententeredintothesaidlandwasinNoDevelopmentZone
andthepartiesweretoawaitforthezoningofthelandtobechangedfromNoDevelopmentZone
toresidential/commercialuseandonlythereafterthepartieswouldapplyforandobtainrequisite
permission/sanctionintheformofapprovalofplansforjointdevelopmentofthesaidproperty.
LdA.R.
Assessment Year: 20092010) submitted that on receipt of commencement certificate from the
Municipal Corporation and against identification of premises falling to the share of the joint
developers,thelicensetoenteruponthesaidpropertyforthepurposesofdevelopmentwastobe
granted. Ld A.R. submitted that the first commencement certificate was granted by Muncipal
Corporationon1.2.2011andreferredpages116to119ofPB.Hesubmittedthattheunitsfallingto
the share of the joint developers were identified on the approved plan and the license to enter
uponthesaidpropertywasgrantedtoSMPLbytheassesseeon25.4.2011andreferredpages120
to 121 of PB to substantiate his above submission. Ld A.R. submitted that the agreement of
contiguouslandsheldbyboththepartieswasperformedonlyaftergrantoflicenseon25.4.2011.
Hence, the transaction of development as proposed in joint development agreement was
crystalised on 25.4.2011 on clearing of all the contingent events on which the said joint
developmentwasbased.LdA.R.referredclause17oftheagreementandsubmittedthatthesaid
amountofRs.54,68,90,000wasreceivedbytheassesseefromSMPLassecuritydepositandthe
saidamountisrefundabletoSMPL.Hefurthersubmittedthatthesaidsecuritydepositistaken
as a security to ensure committed performance on the part of SMPL. He submitted that said
amount was not taken as an advance nor it was a receipt of part consideration, which is not
requiredtoberepaid.LdA.R.submittedthattheconsiderationinthepresenttransactionisthe
constructedflatsadmeasuring16500sq.mtrs,whichwastobereceivedonsuccessfulcompletion
ofjointdevelopment.Thedateofsaleofthelandleadingtorecognitionofrevenuecanneverbe
beforethecompletionofaboveacts.LdA.R.furthersubmittedthatldCIT(A)haswronglyapplied
AS9,asrecognitionofrevenuerequiresthatrevenueismeasurable.Hesubmittedthattherewas
no sale, exchange or relinquishment of asset in the assessment year 2009 2010. Ld A.R.
submitted that similar issue has been considered by ITAT Chennai Bench in the case of
R.Gopinath(HUF)vsACIT,133TTJ(Chennai)595,wherein,onsimilarfacts,ITATobservedthat
neither the date of entering the agreement nor date of handing over possession of land was
relevant in case of land held as stockintrade. It was further held that business profits for the
landowneraroseonlywhentheconstructedpropertieswereultimatelysoldbywayofexecution

ofsaledeedsinfavourofendcustomersorretainedforselfuse.LdA.R.referredpara15ofthe
saidordertosubstantiatehissubmission,whichreadsasunder:
"Inthepresentcase,thebusinessprofitarisestotheassesseeonthesaleofthestock
in trade only when the Assessment Year: 20092010) constructed apartments were
sold and not at the time when the development agreement was entered into.
Moreover,inthedevelopmentagreement,theassesseehasnotagreedforsaleofthe
entireconstructedpropertyontheland,theassesseehasagreedonlyforaportionof
the constructed property for sale for the purpose of recovery of the cost of
constructionandmarginofthedeveloper.Theassesseehasexecutedallthesaledeeds
fortransferofconstructedapartmentsinfavouroftheenduser/purchaser,therefore
the transfer of the proportionate land took place only when the assessee transferred
theconstructionpropertybywayofsaledeedsandofferedthebusinessincomewhich
was accepted by the department. In any case, when the assessee has retained the
portionofthelandbeingproportionatetotheconstructedareatoberetainedbythe
assessee,thenthereisnoquestionoftransferoftheentirelandtothedeveloper.In
viewoftheabovediscussion,weholdthattheordersofthelowerauthoritiesquathis
issuearenotsustainableonthefactsaswellasonlaw.Wesetasidetheordersofthe
lowerauthorities,quathisissueanddirecttheAOtotaxthecapitalgainarisingfrom
the conversion of the land and building into stockintrade proportionately into the
previousyearsinwhichtheconstructedpropertywassoldbytheassesseeorretained
forselfuseandcorrespondingbusinessincomewasoffered."
28.LdA.R.submittedthattheTribunalinthesaidcasealsoconsideredthedecisionofHon'ble
JurisdictionalHighCourtinthecaseofChaturbhujDwarkadasKapadavsCIT(supra)onwhich
ldCIT(A)hasplacedreliance.LdA.R.furthersubmittedthatsimilarissuewasconsideredbythe
Tribunal in the case of DDIT vs. G.Raghuram, (2010) 39 SOT 406 (Hyd). In the said case,
assessee, alandownergavehis land toM/s.SDE Engineers Ltd.,on development basis and as
per terms of the agreement, assessee was allocated a specified area in the superstructure
constructedonthesaidlandbythedeveloper.Sincethelandownerhadrelinquishedhisrights
onthelandforgone,theAOtreateditasatransferundersection2(47)oftheActandcomputed
capitalgain.Regardingapplicabilityofsection2(47), there was no dispute. Assessee contended
thatthemarketvalueofthelandasonthedateoftransferwastobeconsidered.AOdidnotagree
withthesaidpropositionandheconsideredthevalueofthesuperstructuretodeterminethesale
value and computed capital gain accordingly. On first appeal, ld CIT(A) directed the AO to
considerthesalesconsiderationaspervalueofthelandadoptedbytheRegistrarforstampduty
purposeonthedateofregistrationoftheAssessmentYear:20092010)developmentagreement.
Butinfurtherappeal,theTribunalreversedtheorderofldCIT(A)andconfirmedtheactionof
theAssessingOfficer.ldA.R.referredHeadNoteatpage410whichreadasunder:
"Theconsiderationforthetransferofthecapitalassetiswhatthetransferorreceives
inlieuoftheassetshepartswithand,therefore,theveryassettransferredorparted
withandfullvalueofconsiderationcannotbeconstruedashavingareferencetothe
marketvalueofassettransferredandthesaidexpressiononlymeansthatfullvalueof
the asset received by the transferor in exchange for the capital asset transferred by
him.Intheinstantcase,sincethedevelopmentagreementspecifiedthatcertainpart
of the constructed area would be surrendered to the owner by the builder on the
completionofthecontractandthevalueoftheconstructedareatobetransferredto
the assessee to be considered to asessee to be considered as consideration received
and,assuch,fullvalueoftheconsiderationintheinstantcasewasnotonlythecostof
constructionofproposedbuildingtotheextentofwhichitfelltotheassesseeinthe
ultimately constructed area but the market value of such share of constructed area
whichmightbeafterthecompletionoftheconstruction.Inviewofthis,therewasno

infirmityintheorderoftheAssessingOfficeronthisissue.Accordingly,thisground
takenbytherevenuewastobeallowed.
29. Ld A.R. further submitted that ITAT Mumbai also considered similar issue in
I.T.A.No.61230/M/2009 in the case of DCIT vs. Shri Vijay Kumar Jain vide order dated
27.7.2011.
30.LdA.R.submittedthatwhennosaleortransferofthebusinessassetsi.e.developmentrights
took place in the assessment year 20092010 and only the Assessment Year: 20092010)
transactionwasrecordedinthejointdevelopmentagreementdated4.4.2008,thereisnoaccrual
of income in the assessment year under consideration. He submitted that the possession was
handed over in assessment year 201213 and income on constructed cost of 16500 sq.mtrs was
offeredfortaxationinassessmentyear201213,wherein,theconsiderationofjointdevelopment
has been determined based on stamp duty ready reckoner, the value of which worked out
Rs.24,75,00,000.HesubmittedthatadditionmadebytheAOisnotjustifiedandbedeleted.
31.Ontheotherhand,ldD.R.supportedtheorderofldCIT(A).Hesubmittedthatunderthesaid
joint development agreement, assessee has transferred its rights and, therefore, he has rightly
considered it as a sale. Ld D.R. submitted that the developer SMPL has acquired irrevocable
exclusive rights in respect of said development rights and assessee also received in the garb of
security deposit much more than the market value of the said development rights. Ld D.R.
submittedthatldCIT(A)hasrightlystatedthatmerelybecauseassesseehasstatedthereceiptof
Rs.54,68,90,000/assecuritydeposit,isnotdeterminativeoftruenatureofreceipts.LdCIT(A)
hasrightlyconsideredthetruenatureandqualityofreceiptsassaleconsiderationoftheamount
receivedfromSMPL.LdD.R.submittedthattheorderofldCIT(A)beconfirmed.
32.Wehaveconsideredthesubmissionsofldrepresentativesofparties.Wehavealsoconsidered
thecasescitedbyldCIT(A)andthecasesonwhichldA.R.placedreliance(supra).Wehavealso
carefullyperusedthecopyofthejointdevelopmentagreementdated4.4.2008placedatpages35
to 75 of PB. We have also gone through the written submissions filed by the assessee before ld
CIT(A)videletterdated13.9.2012placedatpages26to34ofPB.
33.There is no dispute to the fact that assessee is a builder/developer of real estate properties
and is entitled for development rights in respect of 32262.68 sq.mts of land contiguous to the
landownedbySMPL.Assesseeisholdingthesaiddevelopmentrightasstockintrade.Wealso
observethatapartofentirelandwasonleasewithdifferentlessesseswhoareinpossessionof
thesame,referenceofwhichisstatedinthesaiddevelopmentagreementdt.4.4.2008andisalso
indicatedintheplanattachedtotheAssessmentYear:20092010)jointdevelopmentagreement,
copy placed at pages 68 of PB. There is no dispute to the fact that assessee and SMPL have
entered into the said joint development agreement to jointly develop the said properties and
assesseeunderthesaidagreementisentitledtogetconstructedFSIof16,500sq.mtsasperfinal
approvedplan,ontermsandconditionsmentionedinthesaidagreement.Thereisnodisputeto
thefactthatattherelevanttimethesaidlandwasinNoDevelopmentZone,whichwaschanged
toresidential/commercialuseandthefirstcommencementcertificatewasgrantedbyMunicipal
CorporationofGreaterMumbai(MCGM)on1.2.2011.Thedepartmenthasnotdisputedthefact
thatthereaftertheunitsfallingtotheshareofjointdeveloperswereidentifiedontheapproved
planandassesseegrantedlicencetoenteruponthesaidpropertytoSMPLon25.4.2011.LdA.R.
contendedbeforeusthattheamalgamationofthecontiguouslandsheldbybothpartieswasdone
onlyaftergrantoflicenseon25.4.2011.Wefindmeritsinthesaidcontentionoftheassesseethat
thetransactionofdevelopmentasproposedinthejointdevelopmentagreementcouldbesaidto
becrystalisedonlyon25.4.2011i.ewhenthelicensetoenteruponthesaidpropertywasgranted
toSMPLforcarryingoutthedevelopmentoftheproject.WeobservethatldCIT(A)hasreferred
the clauses of the agreement and stated that assessee has given irrevocable and conclusive
permission under the said agreement to SMPL. Therefore, ld CIT(A) has presumed that the

possession was also delivered in financial year 200809 relevant to assessment year under
consideration as SMPL has shown workinprogress as on 31.3.2009 as per balance sheet at
Rs.2,06,78,741, which includes the construction to retain wall, drain work, hutment
compensation,purchasefmaterial,BMCscrutinyfee,etc.Weareoftheconsideredviewthatto
enablethedevelopernamelySMPL,irrevocableandconclusivelicense,andpermissiontousethe
landhastobegivenbytheassesseetoSMPLotherwisetheverypurposeofdevelopmentwould
be defeated. Therefore, we are of the considered view that carrying out of the said work do not
establishthatpossession/licensetoenteruponthelandbelongingtotheassesseehadbeengiven
to SMPL on the date of development agreement entered into, particularly when it is a specific
conditioninthedevelopmentagreementthatthelicensetoenteruponthesaidpropertywouldbe
grantedbytheassesseetoSMPLonlyaftertheunitsfallingtotheshareofjointdeveloperswere
identifiedandittookplaceon25.4.2011asisevidentfrompages120to121ofPB,whichisacopy
ofletterdated25.4.2011oftheassesseetoSMPL.Weconsideritusefultostatethecontentsof
thesaidletterwhichreadsasunder:
AssessmentYear:20092010)
34. Therefore, we agree with ld A.,R. that the amalgamation of contiguous land held by both
parties had taken place on or after 25.4.2011. On perusal of the relevant clauses of the joint
developmentagreement,itisobservedthatassesseeisentitledfortheamountofsecuritydeposit
and assessee received security which according to the department, is much more than the sale
consideration but the question arises as to whether the transfer of land/right took place
immediatelyandthesaidamountcouldbeconsideredassaleproceeds.Weobservethatthesaid
agreementhasbeenregisteredasMemorandumofAgreementandthestampdutyhasalsobeen
paidaccordinglyandAssessmentYear:20092010)notstampedasdeedofconveyance.Weare
of the considered views that the said joint development agreement is entered into only for the
purposeofprotectingtherightsofthepartiesandtoensuresmoothdevelopmentoftheproject.
Further, we are of the considered view that the provisions of section 53A of the Transfer of
PropertyActcannotbemadeapplicabletothelandunderconsiderationasundisputedly,thesaid
land is stock in trade and it is not a capital asset. The provisions of section 53A of Transfer of
PropertiesActcannotbeextendedtostockintradeassection2(47)oftheI.T.Actisartificially
extended definition of capital assets only. Therefore, the said security deposit received by the
assessee and shown as liability cannot be considered as sale consideration for transfer of land.
Further, ld CIT(A) has also placed reliance on AS9 to say that revenue of above transaction is
requiredtoberecognizedinassessmentyear20092010asthereisnouncertaintyofrealization
of revenue. However, on perusal of AS9, the key criteria for determining when to recognize
revenuefromatransactioninvolvingsaleofgoodsiswhenthesellerhastransferredtheproperty
in the goods to the buyer for a consideration or significant risk andrewards of ownershiphave
beentransferredtothebuyerandsellerretainednoeffectivecontroloftheownership.Sincein
thecasebeforeus,transactionrelatestolandwhichisimmovablepropertyandtheownershipof
immovable property could be transferred only as per section 54 of Transfer of Property Act.
Section54ofthesaidActdefinessaleasunder:
"'Sale'isatransferofownershipinexchangeforapricepaidorpromisedorpartpaidandpart
promised."
Further,howsaleismade,isalsoprovidedundersection54oftransferofPropertyActasunder:
"Salehowmade:Suchtransfer,inthecaseoftangibleimmovablepropertyofthevalue
ofonehundredrupeesandupwards,orinthecaseofareversionorother intangible
thing,canbemadeonlybyaregisteredinstrument."
"Inthecaseoftangibleimmovablepropertyofavaluelessthanonehundredrupees,
such transfer may be made either by a registered instrument or by delivery of the

property."
35. Since in the case before us, the said joint development agreement dated 4.4.2008 as
mentionedhereinaboveisnotregisteredasconveyancedeedbetweenassesseeandSMPLforthe
impugned land, there is no sale under the transfer of Property Act. Hence, the said amount
receivedbytheassesseeunderthejointdevelopmentagreementcouldnotbeconsideredassale
consideration received by the assessee. Moreover, the said joint development agreement on the
date of its execution Assessment Year: 20092010) was clouded with uncertainty because the
land to be developed itself was under NDZ till the commencement certificate was issued on
1.2.2011andundertheagreementthelicensetoenteruponthepropertywasgrantedtoSMPLon
25.4.2011.Hence,itcouldbesaidthatallthecontingenteventsonwhichjointdevelopmentwas
based could be cleared and it becomes effective in the financial year 201112 relevant to
assessmentyear201213.Thus,itcannotbesaidthatassesseedidnotretaineffectivecontrolof
theownershipofthesaidlandonexecutionofthesaiddevelopmentagreementason4.4.2008.
Moreover, similar issue has also been considered by Chennai ITAT in the case of in the case of
R.Gopinath (HUF) vs ACIT (SUPRA), wherein, it was held that when the assessee has retained
theportionofthelandbeingproportionatetotheconstructedareatoberetainedbytheassessee,
then there is no question of transfer of the entire land to the developer. In the said case also,
assesseewasholdingthesaidlandwhichwastobedevelopedasstockintradeanditwasheld
that sale/transfer of stock in trade could not be equated in the transfer of capital asset. That a
regardmustbegiventothewordusedinthedocument.Thenatureofthetransactionbetween
thepartiesbywayofdevelopmentagreementcannotbesaidtobeasaleofimmovableproperty
whichisstockintradeasotherwiseasprovidedinthetransferofPropertyAct.Itwasheldthat
thebusinessprofitsarisetotheassesseeonthesaleofstockintradeonlywhentheconstructed
premisesweresoldandnotatthetimewhenthedevelopmentagreementwasenteredinto.We
are of the considered views that above case squarely applies to the case before us and the
development rights can be said to be transferred in the case before us only in F.Y. 20112012
relevanttoA.Y.201213andnotintheassessmentyearwhenjointdevelopmentagreementwas
entered into. Since assessee stated that assessee has already offered the income to tax on the
aforesaid transaction in A.Y. 201213, we allow ground No.3 of appeal taken by assessee by
deletingtheadditionmadebyldCIT(A).
36.Intheresult,theappealoftheassesseeisallowedinpart.

thOrderpronouncedintheopencourton8May,2013..

8May,2013

th

Sd/sd/
(
,/RAJENDRA)(../B.R.MITTAL)

/ACCOUNTANTMEMBER/JUDICIALMEMBER

Mumbai;
Dated08/05/2013
AssessmentYear:20092010)

.../Parida,Sr.PS

/Copy
oftheOrderforwardedto:
1./TheAppellant
2./TheRespondent.
3.
()/TheCIT(A)32
4.
/CITCity21
5.,,

/DR,ITAT,
Mumbai
6./Guardfile.

/BYORDER,
//TrueCopy//

(Dy./Asstt.Registrar)
,

/ITAT,Mumbai