JDA Consideration Cannot Be Developer's Construction Cost: ITAT Bangalore Deletes Addition in L.K. Trust Case

Case Overview

Case Name: L.K. Trust Vs DCIT (ITAT Bangalore)
Appeal Number: ITA No. 1147/Bang/2025
Date of Order: 09/06/2026
Assessment Year: 2018-19
Forum: Income Tax Appellate Tribunal, Bangalore

Background and Factual Matrix

L.K. Trust, a private family trust engaged in real estate, renting, healthcare, trading and allied services, found itself at the centre of a significant dispute concerning the computation of consideration arising out of a Joint Development Agreement (JDA) with Prestige Estate Projects Ltd. The matter originated from search proceedings conducted on 9th February 2021 in the group case of M/s Khoday India Limited and others, during which documents pertaining to the relevant assessment year were found and seized. Consequent to the search, assessment proceedings under Section 153A of the Income Tax Act, 1961 were initiated against the assessee.

The core facts are as follows: the assessee had originally acquired a piece of land admeasuring 1,07,511 sq. ft. at Palace Road, Sampangiramanagar, Bangalore in the year 1989 for a sum of Rs. 1.5 crore. This land, held as a capital asset since acquisition, was converted into stock-in-trade on 2nd April 2009 at a value of Rs. 75,25,76,000/- based on a valuation report furnished by a professional valuer, Shri S. Raja Rao.

Thereafter, the assessee entered into a registered JDA dated 21st July 2010 with Prestige Estate Projects Ltd. for development of the said land into a multi-storeyed commercial complex known as Prestige Trade Tower. This agreement was subsequently amended through a supplementary agreement dated 10-04-2012, a revised supplementary agreement dated 05-06-2017, and an addendum to the revised supplementary agreement executed on 27-04-2018. Under the revised supplementary agreement, out of the total built-up area of 4,97,902 sq. ft. comprising the project, the assessee's entitlement stood at 2,74,332 sq. ft., equivalent to 55% of the total built-up area, with the remaining 45% allocated to the developer. The project attained completion and the occupancy certificate was received in April 2017. The assessee received its share of 2,74,332 sq. ft. of built-up area during FY 2017-18, relevant to AY 2018-19.

In respect of this transaction, the assessee credited its profit and loss account with Rs. 48,43,00,000/- as the value of consideration for transfer of 45% of the land to the developer. Additionally, the assessee offered long-term capital gain of Rs. 32,02,99,200/- on the land transferred under Section 45(2) of the Income Tax Act, 1961, computed on the basis of the fair market value (FMV) of 45% of the land.

The Assessing Officer's Approach

The Assessing Officer (AO) rejected the assessee's methodology and instead held that the appropriate measure of consideration under the JDA should be the developer's cost of construction attributable to the built-up area received by the assessee.

The AO proceeded on the basis that a JDA represents a transaction where land is transferred to the developer in exchange for constructed area, and therefore the "gross value of consideration" must encompass the value of the constructed space received — quantified through the developer's construction cost per sq. ft.

To arrive at the cost of construction, the AO relied on:

  • Materials seized and examined during survey proceedings conducted at the premises of Prestige Group
  • A statement recorded under Section 131 from the CFO of Prestige Estate Projects Ltd., one Shri Balasubrahmanya Sarma V.V., who had served the group for over 25 years
  • Further corroboration by the DGM (Accounts) and Associate Director of the developer
  • Detailed cost statements and supporting sample invoices submitted by the developer in response to a notice issued under Section 133(6)

Based on this exercise, the AO computed the total cost of construction for the entire project at Rs. 3,83,69,47,000/- for 4,97,902 sq. ft., yielding an average construction cost of Rs. 7,706 per sq. ft. When applied to the assessee's share of 2,74,332 sq. ft., the AO ultimately adopted a figure of Rs. 7,853 per sq. ft., aggregating to a total consideration of Rs. 2,15,43,29,196/-. After giving credit for the Rs. 48,43,00,000/- already credited by the assessee, the AO brought to tax an additional business income of Rs. 1,67,00,29,196/- as undisclosed business income from the JDA.

Proceedings Before CIT(A)

CIT(A)'s Ruling on Construction Cost as Consideration

The assessee challenged the AO's addition before the Commissioner of Income Tax (Appeals)-11, Bengaluru. The CIT(A), vide order dated 21/03/2024, held that the developer's cost of construction could indeed constitute the full value of consideration for the purpose of Section 48 of the Income Tax Act, 1961, since what the assessee had received in exchange for the land was the constructed area. The CIT(A) accordingly rejected the assessee's primary argument that the value of land transferred should form the basis of consideration.