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Income Tax Appellate Tribunal, HYDERABAD BENCHES “A” : HYDERABAD
Before: SHRI A.MOHAN ALANKAMONY & SHRI S.S.GODARA
O R D E R PER A.MOHAN ALANKAMONY, A.M. : This appeal is filed by the assessee for the AY.2016-17, aggrieved by the order of the Ld.CIT(Appeals)–4, Hyderabad, in appeal No.10236/18-19/DCIT, Cir.5(1)/CIT(A)-4/Hyd/19-20, dated 09-10-2019.
Brief facts of the case are that assessee is an individual, filed his return of income for the AY.2016-17 on 18-03-2017 admitting total income of Rs.29,66,200/-. The return was selected for scrutiny and the assessment was completed u/s.144 of the Income Tax Act [Act] vide order dt.17-12-2018, wherein the Ld.AO made addition of Rs.1,45,00,000/- under the head Short Term Capital Gain towards sale of assessee’s property by passing an ex-parte order.
On appeal, Ld.CIT(A) obtained a remand report dated 02- 08-2019 from the Ld.AO as the assessee had filed additional evidence. The remand report of the Ld.AO is extracted herein below for reference:
4.1 CIT(A) page3. “It is submitted that the assessee was given ample opportunity during the assessment proceedings to furnish the documentary evidences in support of his claim of cost of acquisition. Initial notice u/ s 143(2) of the Act in this case was issued on 18.09.2017. Thus, the assessee had more than 14 months of time to respond to the simple query regarding computation of capital gains. Since this was a limited scrutiny case, no other information was asked except the evidence in support of the cost of acquisition. However, the assessee had not made any effort to furnish the simple information. In view of the above facts of the case, it is requested that fresh evidence before the CIT(A) may not be admitted. Without prejudice to the objection against admission of fresh evidence, it is submitted that the claim of the assessee made before the CIT(A) lacks merit. The assessee claims to have purchased the property during the FY 2008-09 for a consideration of Rs.1,24,00,000/- and incurred Rs.3,03,207/- towards registration charges. The assessee filed only a copy of unregistered agreement of sale dated 26.09.2008 in support of this. However, the sale consideration as per the registered sale deed dated 07.11.2008 is seen to be Rs.31,68,000/- only. Stamp duty was also paid only on this value. The property was subsequently sold or a total consideration of Rs.1,45,00,000/- during the FY 2015·16 as per the registered sale deed dated 10.11.2015. Strangely, this time the property was sold or market value as per the stamp duty valuation and not for a higher amount, While purchasing the property, the assessee claims to have paid a total consideration of Rs.1,24,00,000/- as against the sale deed value of Rs.31,68,000/- during the FY 2008-09 i.e. about four times the SRO value. However, after seven years, the property was claimed to have been sold for Rs.1,45,00,000/- which is also the SRO value. If the actual value of the property at the time of purchase was four times the SRO value, how can it be same as the SRO value after seven years? Obviously, the assessee want to have the best of both worlds! The evidence filed in support of the cost of acquisition in not acceptable, Only a photo copy of an unregistered sale agreement was filed in proof of the alleged purchase consideration of Rs.1,24,00,000/-. It is submitted that this document has no evidentiary value. If what is claimed by the assessee is, true, he has evade huge stamp duty on actual purchase consideration and also helped the seller to evade capital gains taxes. Regarding the loan of Rs. I crore from IDBI, there is no evidence regarding the purpose for which it was utilized. Disbursement details of the loan were not given. There is no mention about this payment in the registered sale deed which is only the authentic document. In view of the above facts of the case, it is submitted that the additional evidence filed by the assessee deserved to be rejected, However, in the interest of justice, the registered sale consideration and connected registration charges amounting to Rs,34,71,207 – (Rs31,68,000 +Rs.3,03,207) may be allowed as cost of acquisition after suitable indexation."
Thereafter the assessee filed rejoinder and the same is extracted herein below for reference:
4.2 CIT(A) page5. “The ld. AO has stated that the appellant has informed him that he has purchased the property for Rs.1,27,03,207/- in financial year 2008-09 by borrowing a loan of Rs.1,00,00,000/- from IDBI Bank Ltd., but has not furnished any documents. As stated by appellant he could not submit the same due to non-availability of the same to him at that time. This is a fact, however, the appellant has not. furnished any new information before the CIT(A)-4. But, the ld.AO says that this is new evidence. I submit that this is not new evidence. As he could not submit the documents at the time of assessment, he has submitted now. No fresh claim is made by the appellant during the appeal proceedings, About the loan taken from IDBI Bank Ltd., the AO says that there is no evidence regarding purpose for which it is taken, I have already submitted the correspondence with IDBI Bank Ltd .,in which it is clearly mentioned in the loan agreement copy and in the Power of Attorney issued by the appellant to the IDBI Bank Ltd., that the loan was for purchase of Plot No.11, admeasuring 368.75 sq.yds. of land with 2406.3 sft, of built up area in S.No.208 part and S.No.209 Part in Sylvan Green Layout at Yapral Village, Malkajgiri Mandal, RR District. The said bank has sanctioned Housing loan against the said property, it has taken promissory note and irrevocable power of attorney from the appellant in its usual course of documents for housing loan disbursements. Thus is evident that the appellant has purchased the said property by availing a housing loan of Rs. 1,00,00,000/- from IDB1 Bank Ltd. I again submit the same copies for your records and request you to consider the same. As the consideration shown in the sale deed is less than the loan availed by the appellant it is not mentioned in the sale deed about the same. The loan amount of Rs.1,00,00,000/- was given directly disbursed to the vendor. It is also mentioned in the sale deed that the appellant has availed housing loan from IDBI Bank Ltd., through which the Vendor received the payment. About the value in the sale deed executed by the vendor which is Rs. 31,68,000/- against the actual sale consideration of Rs.1,24,00,000/- 1 submit that the amount incurred by the appellant for purchase of property is Rs.1,24,00,000/ plus registration charges of Rs.3,03,207/- aggregating-to Rs.1,27,03,207/- which he has claimed the same as cost of acquisition. Simply the sale deed is showing some other figure does not deprive him of the actual cost incurred by him. Stamp duty is the subject matter of the state government and has nothing to do with the appellant or Income tax. If he has purchased the property below the market rate he is taxable u/s.56(2)(x)(b). As per section 48 of the IT Act, “capital gains shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts namely: i. Expenditure incurred Wholly and exclusively in connection with such transfer it The cost of acquisition of the asset and the cost of any improvement thereto. But, nowhere the act mentioned that the cost of acquisition should be taken as per sale deed only. Sale deed is a legal document by which the title of the property is transferred to the buyer which is registered by the Sub-Registrar. In real estate it is usual that without sale deed, sale and purchase transaction happens and capital gams arise on such occasions also. Hence, I pray to accept the cost of acquisition incurred and claimed by the appeal/am shall be considered. The appellant has sold the property at the market rate as on date of sale. Increase in value of market rate is the subject of the state government and nobody has any say on this rates. Real estate growth is not consistent and we cannot estimate the market rates. Assumptions do not work in estimating the values and the argument of the AO is baseless and unacceptable on this issue, In view of the above, 1 submit that the evidences submitted by the appellant be taken on record and pray to consider the same. As the appellant has incurred Rs.1,27,03,207/- towards cost of acquisition which is evident from the documents submitted before your Honor, the same shalt be allowed as cost of acquisition to compute capital gains. As the indexed cost of acquisition is more than the sale consideration there is negative gain. Since the appellant has filed, his return of income with delay he is also not entitled to carry forward the loss”.
Ld.AR also made the following submissions before the Ld.CIT(A): 4.3 CIT(A) page6. “The appellant has purchased the house for a consideration of Rs.1,24,00,000/- and incurred registration charges of Rs.3,03,207/- and claimed the same in his return of income and during the course of assessment proceedings. This is not new evidence and there is no fresh or new claim. The sale agreement is un-registered. And the original was given to the IDBI Home Finance Limited at the time of sanction of loan. The assessee possesses only copy of the same. As the said property was sold by the appellant all the original documents were handed over to the buyer. The appellant has shifted from Hyderabad to Kakinada, hence, has misplaced the documents and could not produce them before the AO during the course of assessment. This fact was submitted to you in my previous submission. The appellant has paid Rs.24,00,000/- by borrowing from NCS Industries Pvt. Limited the ledger extract of the same was submitted in my previous submissions. The appellant has borrowed Rs.1,00,00,000/- from IDBI Home Finance Ltd., and the said Finance company has paid directly to the vendor of the house, which is usual as per business practices of the Housing finance companies. I have furnished the loan agreement and other documents of the housing loan in which it is clearly mentioned that the loan was sanctioned against the property which is sold by the appellant and the subject matter of this appeal. He got it registered for less than the consideration paid by him only to save stamp duty. But he has paid the stamp duty as per the then market value as per Government. It is human tendency of the person to save any kind of amount whenever it is possible. With this intention only he has accepted the sale deed value of Rs.31,68,000/- even though he paid Rs.1,24,00,000/- the vendor. The housing loan statement shows that he availed Rs.1,00,00,000/- for purchase of this property. I further submit that in some cases even though the sale deeds are not executed based on the contractual agreements such as sale agreements it is usual to charge the profit to long term capital gains. It is accepted practice to declare the sale agreement as document for investment u/s 54 or 54F or purchase consideration u/ s 50C. There are plethora of judgments given by several courts supporting sale agreement consideration to be considered-for the purpose of capital gains whether sale deed is executed or not. I submit very few of the same. (a) (2014) 46 taxmann.com 300 Supreme Court of India in the case of Sanjeev Lal Vs. CIT, Chandigarh Anil R Dave and Shiva Kirti Sing, JJ. Civil Appeal Nos.5899-5900 of 2014; 1st July, 2014 where it was held that: Where assessee having executed an agreement to sell in respect of a house property, purchased a new residential property within one year from date of agreement to sell are subsequently sale deed could not be executed within prescribed time due to an order passed by competent court, a valid transfer did take place within meaning of section 2(47) by even executing agreement to sell was to be granted to assessee. A riqht in person had been created in favour of the vendee, in whose favour the agreement to sell had been executed and who had also paid Rs.15 lakhs by way of earnest money. No doubt, such contractual right can be surrendered or neutralized by the parties through subsequent contract or conduct leading to no transfer of the property to the proposed vendee but that is not the case at hand (para 21). (b) [2016] 65 taxmann.com 142 (Allahabad) High Court of Allahabad CIT-II, Agra Vs. Shimbhu Mehra, Tarun Agarwala and Vinod Kumar Misra, JJ, IT Appeal Nos. 373, 365, 376, 377, 439 & 442 of 2010 October 12, 2015.
Explanation 2 to Section 2(47) of the Act was added by Finance Act, 2012 With retrospective effect on 1.4.1962 and, consequently, the said provision would be applicable. The said explanation clearly provides that transfer of an asset includes disposing of or parting with an asset by way of an agreement. The appellant has purchased the house in 2008 year and the Vendor is not traceable now. As more than a decade is passed in between the time, it is very difficult to obtain haw much he has declared in his return of income. Moreover, the IDBI Home Finance Limited Which has sanctioned housing loan to the appellant has been merged with IDBI Bank Limited in the year 2010. Hence the appellant is unable to get any information from them inspite of his approach to them to get information. I submit herewith a screen Shot drown from MCA site Showing that the company has been amalgamated. In this connection I submit that it is difficult to produce the confirmation from IDBI Home Finance Limited that the Rs.1,00,00,000/- has been directly paid to the vendor. As the said documents is impossible to trace from IDBI Home Finance Limited as the said company is not in existence. In this connection, I submit, that law cannot compel or force anybody to produce or do which is impossible to perform”.
Ld.CIT(A) after obtaining the remand report and submissions of the Ld.AR as well as the Ld.DR, concluded that the cost of acquisition of the property is Rs.1,24,00,000/-, out of which Rs.68,32,000/- pertains to interiors, furniture and fittings by observing as under:
4.4 CIT(A) page 8. “I have carefully considered the assessment order, grounds of appeal, AR's rejoinder and, case laws relied upon in this regard. As could be seen from the entire gamut of affairs, it is noticed that the appellant has entered into agreement of sale dated 26.09.2008 with Sri Vijayaraghavan to purchase the property bearing H.No. 5-8-31/11 in Plot No.11, Survey Nos.208 part and 209 part admeasuring 368.75 sq.yds. With built up area of 2406.3 sft. on ground and first floor situated at Sylvan Greens, Yapral Village, Alwal Circle, Malkajgiri Mandal, Ranga Reddy District for an amount of Rs.1,24,00,000/-. The break-up of this amount as evidenced in page-2 of the agreement of sale is as under: (a) Land and building Rs.70,00,000 (b) Interiors Rs.30,00,000 (c) Furniture & Fixtures Rs.24,00,000 -------------------- TOTAL Rs.1,24,00,000/- This amount of Rs.1,24,00,000/- also includes the value towards interiors and furniture and fixtures. Based on this agreement of sale, the appellant approached the IDBI Bank and the bank has sanctioned a loan of Rs.1,00,00,000/- vide its sanction letter dated 23.10.2008 to the appellant. 4.5 Accordingly, by virtue of Registered Sale Deed vide documents No. 4948/2008 of Book-I, dated 07.11.2008 the property was registered at SRO, Vallabhnagar, Ranga Reddy District for a consideration of Rs.31,68,000/- on 07.11.2008. That means the lender bank had determined the cost of the house, as under: (a) Loan towards Land & Building Rs.31,68,000/- (b) Loan towards interiors & furniture & Fittings Rs.68.32,000/- ---------------------- TOTAL ... Rs.1,00,00,000/- Accordingly, the value of the house was registered at Rs.31,68,000/- in the Registered Sale deed, dated 07.11.2008. It is a common practice that order to avail housing loan proposals would be made in two parts - one as semi finished and the other towards interiors /furniture and fittings. In the instant case also, the IDBI Bank, based on' a separate Work Order executed towards interiors/furniture and fittings might have disbursed the balance part of Rs.68,32,000/- [Rs.l,00,00,000 - Rs.31,68,000 (registered value)] directly to Sri Vijayaraghavan towards interior/furniture and fitting works. Otherwise, it would have registered the full value of its sanction of loan as against Rs.31,68,000/-, done in this case. It is also a common practice that the bank pays directly to the builder/seller and in the instant case also the bank has remitted the loan of Rs.l,00,00,000/- directly to the seller, splitting into cost of the house including plot on one part at Rs.31,68,000/- and on another part cost of the interiors/furniture and fittings or Rs.68,32,000/~. It is also a fact that IDBI Bank has sanctioned an amount of Rs.1 crore to the appellant towards purchase of this property as could be seen from the sanctioned letter and also by way of issue of Principal-cum- Interest paid Certificates, wherein, details of loan sanctioned of Rs.1 crore, break-up of Principal, interest and outstanding loan standing at the credit of the appellant could be seen, Which are available in the records. 4.6 Thus, there is no doubt that the cost to the appellant for purchasing the property was Rs.l,00,00,000/- by way of bank loan and the balance amount of Rs.24,00,000/- were borrowings from NCS Industries Ltd., thus totaling to Rs.1,24,00,000/-, 4.7 Now, the moot Question is Whether the balance amount of Rs.68,32,000/-, which the appellant has incurred towards interiors/furniture and fittings could be considered as cost to the appellant When the registered value of the property was Shown at Rs.31,68,000/- in the registered sale deed, which is the only authenticated document”.
7. However, in para 4.8 of the order of the Ld.CIT(A), he held that the cost of acquisition of the property of assessee is to be adopted as Rs.34,71,207/- and further directed the AO to verify whether the assessee has declared amount of Rs.1.24 Crores in his individual return of income and take appropriate action as per the provisions of the Act.
8. At the outset, we do not find the order of the Ld.CIT(A) of any merit. From the facts of the case, it is apparent that the assessee has purchased the property by obtaining loan of Rs.1 Crore from IDBI bank and borrowings from NCS Industries Pvt. Ltd. for Rs.24 Lakhs. The Ld.CIT(A) has also has no serious reasons to doubted the transaction. The assessee has also placed reasonable evidence to establish that he had obtained the aforesaid loan of Rs.1.24 Crores for the purchase of residential property. This amount was also paid to the sellers of the property through banking channel. The sale agreement of the property dt.26-09-2008 also stipulates that the sale consideration is Rs.1.24 Crores. Thus, the source to purchase the property and the genuineness of the payment made is established. In this situation, to treat the purchase consideration as Rs.34,74,207/- based on the registered sale document will not be appropriate when there is sufficient evidence to prove that the actual consideration paid is Rs. 1.24 Crores. Further, in a residential house, there are various additional features which can be imbedded into the building such as interior decorations and fittings etc., which will also form part of the cost of the residential premises. Therefore, it cannot be stated that the expenditure incurred towards interior decoration and fittings are not part of the building cost. For the above stated reasons, we hereby hold that the cost of acquisition of the property of the assessee purchased on 26-09-2008 is to be adapted as Rs.1.24 Crores. Accordingly, we hereby direct the Ld.AO to compute the capital gain of the assessee by adopting the cost of acquisition at Rs.1.24 Crores and by adhering to all other provisions of the Act.
In the result, the appeal of assessee is allowed.
Order pronounced in the open court on the 22nd December, 2021