S MOHAN GURUNATH ,HYDERABAD vs. ACIT, CENTRAL CIRCLE-1(2), HYDERABAD

Assessee is an individual. He filed return of income for the assessment year 2019-20 on 20/04/1990 declaring income of Rs. 5,15,690/-. A search and seizure operation in the case of the assessee was conducted on 09/02/2021 and pursuant to the notice issued under section 153A of the Income Tax Act, 1961 (‘the Act’), assessee filed return of income declaring the same amount.

According to the assessee, he purchased a house for a consideration of Rs. 1,80,46,092/- by paying an advance of Rs. 38 lakhs under the agreement of sale dated 05/03/2007, and during the financial year 2006- 07, he paid a total amount of Rs. 1,47,92,601/- and the balance was paid subsequently. Finally, the sale deed in favour of the assessee was executed on 23/06/2016. Assessee sold the said asset in the assessment year 2019- 20 and computed the capital gains by taking the first year of holding the asset for the purpose of indexation as 2006-07 under section 48(iii) of the Act. Learned Assessing Officer, however, took the first year of acquisition as the date of registration of the sale deed.

Assessee challenged the said action of the learned Assessing Officer before the learned CIT(A) and contended that inasmuch as the substantial portion of the sale consideration was paid by the assessee in assessment year 2006-07 itself, such year must be taken as the first year of holding the asset and the subsequent execution of the sale deed will relate back to the date of agreement. Assessee, therefore, pray to compute the capital gains by taking the date of agreement as the date of acquisition of the property for the purpose of indexation of the cost of acquisition.

Learned CIT(A), however did not agree with the assessee and held that the agreement in favour of the assessee reads that the vendor would execute a regular sale deed in favour of the assessee on receipt of entire sale consideration and accordingly, the sale deed was executed on 23/06/2016, and, therefore, the date of acquisition must be taken as the date of the sale deed but not the agreement of sale. Assessee is therefore, in this appeal before us.

According to the assessee, the assessee acquired the right in the property under the agreement of sale dated 05/03/2007 and paid the substantial amounts during the assessment year 2006-07 itself and, therefore, for all practical purposes, the assessee acquired the property in the assessment year 2006-07 itself and but for the formalities, the execution of the formal sale deed was delayed. Apart from this, the assessee also challenged the reopening proceedings under section 153A of the Act stating that by the date of search on 09/02/2021 itself, the time to issue notice under section 143(2) of the Act was expired by 30/09/2020, and, therefore, in the absence of any incriminating material, the concluded assessment cannot be reopened nor any addition could be made. learned AR placed reliance on the decision reported in Vivimed Labs Limited vs. ACIT [2022] 139 taxmann.com 189 In support of his contention that proceedings initiated under section 153A of the Act are not sustainable when no incriminating material was found or seized during the course of search.

Per contra, learned DR vehemently supported the findings of the authorities below and stated that the agreement itself reads that the regular sale deed has to be executed on the assessee making the full payment and then only, the title shall pass to the assessee. He, therefore, submitted that title does not pass under the agreement of sale, but it passes only through the regular sale deed. He, therefore, submitted that it is not open for the assessee to contend that the date of agreement of sale in his favour has to be treated as the date of acquisition for the purpose of computing the indexed cost of acquisition. In respect of the payments claimed to have been made by the assessee, learned DR submits that the learned Assessing Officer needs to verify the same. In respect of the argument of the learned AR as to the maintainability of addition by reopening the proceedings under section 153A of the Act, learned DR submitted that in the case of Gopal Lal Bhadruka vs. DCIT (2012) 27 Taxmann.com 167 (Andhra Pradesh), the Hon’ble jurisdictional High Court held that for the purpose of section 153A/153C of the Act, the learned Assessing Officer need not confine himself only to the material found during the course of search operations.

We have gone through the record in the light of the submissions made on either side. Insofar as the facts pleaded by the assessee are concerned, there is no dispute by the Revenue, except the learned DR submitting that a factual verification is required on that aspect. Assessee submitted that out of the total sale consideration of Rs. 1.76 crores, payable by the assessee, assessee paid a sum of Rs. 1.48 crores during the financial year 2006-07, through various banking channels and it is a verifiable fact. If this statement is true, it amounts that the assessee paid the substantial portion of the sale consideration of about 82% within one month and also made a payment of Rs. 28 lakhs within four months from the date of agreement and thereby paid 98% of sale consideration within four months from the date of agreement of sale. Only a sum of Rs. 4 lakhs was kept pending for the purpose of regular sale deed. Hence it cannot be said that there is delay in compliance with the obligation of the assessee and this insignificant amount cannot be a cause for delay in the execution of the sale deed.

When once the assessee made 82% of the sale consideration within a month, and paid a further amount of 16% within three months thereafter, we have no hesitation to hold that the assessee complied with his part of obligation under the agreement of sale and any delay in the execution of the regular sale deed cannot be attributed to the assessee. In these circumstances, we are of the considered opinion that because of making payment of substantial amounts under the agreement of sale, the date of execution of sale deed will relate back to the date of agreement and the assessee is entitled to claim the date of agreement of sale as the date of acquisition of the property for the purpose of indexed cost of acquisition.

Since we find that the assessee is entitled to get the addition deleted on merits of the case, the technical issue pleaded by the assessee becomes academic, and does not require any adjudication.

With this view of the matter, we set aside the order of the authorities below and direct the learned Assessing Officer to verify the payments said to have been made by the assessee under the agreement of sale dated 05/03/2007 and if the payments to the tune of 82% are made during the financial year 2006-07 and 98% of the payments are made within three months of the agreement, to treat the date of agreement as the date of acquisition of the asset and accordingly allow the indexed cost of acquisition.

In the result, appeal of the assessee is allowed.