Delhi tribunal finds no stock-in-trade conversion or actual sale of flats transferred to wife.
The Income Tax Appellate Tribunal (ITAT), Delhi Bench, has deleted tax additions totalling ₹4.14 crore against a taxpayer involved in a joint development agreement (JDA) with a builder. The tribunal found that the taxpayer had not converted his land into stock-in-trade and that the subsequent transfer of five flats to his wife did not amount to a genuine sale generating business income.
The case relates to assessment year 2021-22. The taxpayer had entered into a JDA in 2016 under which he contributed his land while the developer agreed to construct a multi-storeyed building at its own cost. In return, the taxpayer received six flats.
The assessing officer treated the arrangement as a conversion of a capital asset into stock-in-trade and made an addition of ₹1.94 crore as long-term capital gains. Another ₹2.21 crore was added as business income after the taxpayer transferred five of the six flats to his wife through sale deeds in 2020.
The taxpayer argued that he was not engaged in the real-estate business and had only contributed his land to the JDA. He also pointed out that there was no stock register, project account, trading account or other business records showing that the land had been converted into inventory.
The ITAT agreed with this position, holding that entering into a JDA does not automatically change the character of a capital asset into stock-in-trade. The tribunal noted that there was insufficient evidence to establish such a conversion and therefore deleted the ₹1.94 crore capital-gains addition.
The tribunal separately examined the transfer of five flats to the taxpayer’s wife. The taxpayer maintained that no consideration had actually been received. He submitted an affidavit from his wife and her bank statement in support of the claim. The tribunal found that the execution of sale deeds alone did not establish that consideration had been received.
The remaining ₹2.21 crore business-income addition was consequently deleted. The ruling underlines that the tax treatment of property arrangements depends on the actual nature of the transaction, supporting records and evidence of consideration, rather than solely on the wording of a property document.
