Background of the Case

The assessee, Suraj Heights B Co-op Housing Society Ltd., is a registered cooperative housing society under the Maharashtra State Cooperative Societies Act, 1960. It consists of only 35 flats occupied by 35 members. The society was formed solely for the maintenance and administration of the residential building and does not own the flats — individual members hold ownership of their respective flats and the underlying land.

For Assessment Year 2016-17, the society did not file its return of income. The case came to light when information received through the Insight portal revealed that an agreement for immovable property valued at ₹30 lakh or more had been registered before the Sub-Registrar, Borivali. This triggered reassessment proceedings.

The Redevelopment Agreement

On 8 September 2015, the society entered into a redevelopment agreement for Building No. B with:

• M/s Dattani Construction (Developer)
• M/s Concepts Infrastructure Consultants Pvt. Ltd. (Sub-Developer)

Key terms of the agreement:

• Demolition of the old structure
• Construction of a new building with enhanced/additional carpet area and modern amenities for each of the 35 members
• The developer/sub-developer entitled to construct and sell additional flats to recover their investment
• Sub-developer to provide a bank guarantee for rent payment to members during the redevelopment period

For stamp duty and registration purposes, a notional valuation of ₹11,38,67,000 (₹11.38 crore) was adopted. Stamp duty of approximately ₹57 lakh was paid on this value.

Assessing Officer’s Stand

The Assessing Officer (Ward-41(4)(4), Mumbai) reopened the assessment under Section 148 after issuing notice under Section 148A(d). In the order dated 27 March 2024 (passed u/s 147 r.w.s. 144 r.w.s. 144B), the AO made the following observations:

• The society failed to submit any confirmation from the developer or sub-developer that the agreement was cancelled or not acted upon.
• The registered agreement and stamp duty payment indicated that consideration had accrued to the society.
• The notional value of ₹11.38 crore was treated as income from other sources in the hands of the society.

No cash was received by the society, and no redevelopment actually took place.

CIT(A) Deletes the Addition

The Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, vide order dated 24 December 2025, allowed the society’s appeal and deleted the entire addition. The CIT(A) held that:

• The ₹11.38 crore figure was merely a notional valuation for stamp duty purposes.
• No real or enforceable income had accrued to the society.
• The redevelopment never materialised.

Revenue’s Appeal Before ITAT

Aggrieved, the Revenue filed ITA No. 1371/Mum/2026 before the ITAT Mumbai “E” Bench. The appeal raised six detailed grounds, including:

• The CIT(A) erred in treating the stamp duty valuation as notional and not real income.
• The society derived substantial benefits (redevelopment, additional area, modern amenities, savings in costs).
• The society, being the legal owner of the land, should be taxed on development rights.
• The society produced no evidence of cancellation of the agreement.
• Stamp duty payment by the sub-developer proved enforceability.
• Failure to examine whether income was offered in any subsequent year.

Hearing was held on 5 May 2026. The assessee was represented by CA Rajesh Gujarathi (virtually), and the Revenue by CIT-DR Shri Ritesh Misra.

ITAT’s Ruling – Appeal Dismissed

In its order dated 13 May 2026 (pronounced in open court), the Division Bench comprising Shri Vikram Singh Yadav (Accountant Member) and Shri Sandeep Singh Karhail (Judicial Member) dismissed the Revenue’s appeal in full.

Key observations and findings of the ITAT:

• The redevelopment agreement was never acted upon. The building was never handed over for demolition.
• No payment was received by the society; even the promised bank guarantee was not provided.
• The assessee produced its bank statements, repair invoices (July 2023–January 2024), and a legal notice dated 2 September 2024 terminating the agreement.
• The ₹11.38 crore was only an agreement value for stamp duty — not real income.
• A cooperative housing society is merely an administrative body; individual members are the real owners of the flats and property.
• The society does not become the beneficial owner of development rights in a way that triggers tax in its hands.

The ITAT relied heavily on its earlier coordinate bench decision in ITO vs. Lotia Court Co-op Housing Society Ltd. (2009) 27 SOT 36 (Mumbai), which held that redevelopment benefits flowing to individual members do not create taxable income in the hands of the society.

Final order: “The findings of the learned CIT(A) on this issue are upheld, and the grounds raised by the Revenue are dismissed.” The Revenue’s appeal stands dismissed.

Larger Implications for Housing Societies

This ruling is significant for thousands of cooperative housing societies in Mumbai and Maharashtra undergoing or planning redevelopment:

• Mere registration of a redevelopment agreement and adoption of stamp duty valuation does not create taxable income for the society.
• Societies are treated as pass-through entities; tax liability (if any) lies with individual flat owners.
• Even if redevelopment had actually happened, the society itself would normally escape tax on the transaction.
• Provides strong defence against similar reassessment notices based on old registered agreements.
• Reinforces the principle that housing societies are not profit-making landowners but representative bodies.

The judgment comes at a time when redevelopment of old buildings is at its peak in Mumbai, and the Income Tax Department has been scrutinising such agreements aggressively.

Note: While ITAT orders are persuasive and carry strong weight in Maharashtra, individual members may still have separate capital gains implications on additional area received (subject to exemptions under Sections 54/54F).

Also Read: Builder Raided: IT Dept Accuses Buyer of ₹22 Lakh Black Money – ITAT Throws Out Case!

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