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Income Tax Appellate Tribunal, DELHI
Before: SH. G.S.PANNU, HON’BLE & SH. ANUBHAV SHARMA
The assessee has filed the present appeal against the appellate order dated 23.11.2017 in appeal no. 209/2016-17 for the assessment year 2014-15 passed by the Commissioner of Income Tax (Appeal)-43, New Delhi in appeal against order dated 25.11.2016 passed by the Assessing officer ITO, Ward-3(1)(2) (International Taxation), New Delhi u/s 143(3) of the Income Tax Act, 1961.
The facts in brief are that the appellant/assessee is a non-resident and filed a return of income for relevant assessment year declaring a total income of Rs. 37,50,280/-. She had sold residential house situated Gurgaon, Haryana for lump sum sale consideration of Rs. 1,32,30,000/- and computed a long term capital gain of Rs. 34,79,913/-. The case of assessee was selected for scrutiny and the assessment was completed u/s 143(3) of the Act. While completing the assessment the Ld. AO has disputed the calculation of the cost of acquisition claimed by the assessee and recomputed the cost of acquisition at Rs. 69,15,540/- as against Rs. 96,25,087/- and Ld. AO disallowed a deduction of Rs. 1,25,000/- on account of expenses incurred on transfer of property and accordingly with the long term capital gain was calculated at Rs. 63,14,460/- resulting in an addition of Rs. 28,34,547/-. The Ld. AO was of the view that though the agreement for booking the flat was acquisition on 17.01.1996 the indexation of acquisition was done on the basis of sale deed executed on 10.11.2000 instead of the date of agreement. The ld. CIT(A) has upheld the order holding that; “Therefore it is clear that even the property in question on which capital gain has been declared was not identifiable clearly till March 2000. Any amounts paid before such date were therefore only in the nature of advance. The cost of acquisition of the property can only be determined with reference to the property which is allotted. The holding period also commences with reference to the property being sold, that is C12942 from the date of allotment of such property. Therefore the entire cost of acquisition of an amount Rs.2525632 should be indexed from the FY 1999-00. Onwards any payments before this date were in the nature of an advance for the acquisition of such property. As mentioned in the assessment order, no evidence was furnished in respect of legal charges, brokerage management, cost and additional work done. Therefore any attribution towards cost of acquisition of such payments is unwarranted. The capital gain therefore needs, to be re-computed with the entire cost indexed with reference to AY 1999-00. Even the amount Rs. 164004 also has to be indexed with effect from the FY 1999-2000. The appeal is therefore dismissed.”
The asessee has come in appeal raising following grounds :- “
1. That on the facts and circumstances of the case, the order under section 250 of the Act dated 23rd November, 2017 passed by the Commissioner of Income Tax (Appeals) (“Ld. CIT(A)”) (“Impugned Order”) confirming the order u/s 143(2) of the Act by the Learned Assessing Officer (“Ld. AO”) dated 25th November, 2016 (“Assessment Order”) is erroneous and bad in law.
2. That the Ld. CIT (A) grossly erred in law and on the facts and circumstances of the case in confirming an addition of Rs. 28,34,547/- made by the Ld. AO to the income of the Appellant.
3. That the Ld. AO/Ld. CIT (A) grossly erred in law and on the facts and circumstances of the case in not providing an opportunity of being heard in disallowing the benefit of indexation on Rs. 1,64,004/- from Financial Year 1995-96.
4. That the Ld. AO/Ld. CIT (A) grossly erred in law and on the facts and circumstances of the case while considering the dates of allotment in Financial Year 1999-00 instead of Financial Year 1995-96.
5. That the Ld.AO/CIT(A) grossly erred in law and on the facts and circumstances of the case in not appreciating that for the purpose of computing capital gain only ‘cost of acquisition’ needed to be determined and despite not disputing the cost, the Ld. AO/CIT(A) rejected the claim of the Appellant.
6. That the Ld. AO/Ld. CIT (A) grossly erred in law and on the facts and circumstances of the case in not appreciating that the period of holding and the indexation are to be given from the date of allotment, irrespective of the date of payment of instalments.
7. That the Ld. AO/Ld. CIT (A) grossly erred in law and on the facts and circumstances of the case in not appreciating the fact that the assessee is non-resident individual and is not required to maintain books of accounts.
8. That on facts and in law, the Ld. AO erred in initiating penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961. 9. The Ld. AO has erred in levying interest under section 234B and 234C of the Act. 10. The appellant craves leave to add, to amend, to modify, rescind, supplement or alter any of the grounds stated here-in- above either before or at the time of hearing of the appeal. 11. That all the grounds are without prejudice to each other.”
Heard and perused the record. On behalf of the assessee it was submitted that the Ld. Tax Authorities below have fallen in error in giving correct import to the provisions of Section 54 r.w.s. 2(47) of the Act and the date of allotment or entry into agreement should be considered to be the date when a purchaser of residential unit can be stated to have acquired the property and accordingly benefit of indexation should be given. In this regard reliance was placed on the judgment of Hon’ble Bombay High Court in PCIT vs. Vembu Vaidyanathan, 2019 SCC Online Bom 2290 : (2019) 413 ITR 248 : (2019) 308 CTR 302 and on the judgment of Supreme Court of India and Sanjeev Lal vs. CIT, Chandigarh, [2014] 46 taxmann.com 300 (SC). It was submitted that ITAT Bombay Bench has taken into account relevant provisions of law in Smt. Lata G. Rohra vs. DCIT [2008] 21 SOT 541 (Mumbai) to hold that benefit u/s 48 of indexation should be given on the basis of date of cost of acquisition of asset and not on basis of dates when actual payments have been made. The Bombay ITAT judgment in Charanbir Singh Jolly vs. 8th Income-tax Officer [2006] 5 SOT 89 (MUM.) was also relied.
4.1 It was submitted on behalf of the assessee on the basis of copy of agreement dated 17.01.2096, placed on page no. 23 to 38 of the paper book, that as per agreement to purchase the schedule of payment was fixed and assessee was expected to make the payment of whole consideration as per payment plan which was to culminate on 30.07.1998. It was submitted that vide final statement of account dated 27.03.2000, assessee was directed to pay balance amount Rs. 8,93,282/- and other expenses which were cleared and on 10.11.2000 vide sale deed, which is on page no. 43 of the paper book, assessee acquired title in the property. It was submitted that Ld. Tax Authorities have fallen error in observing that on acquisition of sale deed in March, 2000 property became identifiable and eligible to be indexed from FY 1999-2000. 4.2 On the other hand, Ld. DR defended the orders of Ld. Tax Authorities below that the orders have been passed in accordance with the intention of the Act as the property came into existence on completion of the project and the possession was received on payment of the complete consideration and on this Ld. DR tried to differentiate the judgments cited on behalf of the assessee.
The Bench has given thoughtful consideration to the matter on record and can observe that the judgment of Hon’ble Supreme Court of India in Sanjeev Lal vs. Commissioner of Income-tax, (Supra) was in regard to the property which was residential house complete in all respects. Therefore, that the judgment is of little help to the assessee. However, the judgment cited on behalf of the assessee in Smt. Lata G. Rohra and PCIT vs. Vembu Vaidyanathan (Supra) is relevant on facts and law. In Lata G Rohra case, assessee vide unregistered agreement with the developer purchased a flat in 1993 which was constructed in the year 1997 and registered in the year 1998. The Assessing Officer worked out index cost of acquisition on the basis of purchase price from 1993 and completed the assessment. However, the Commissioner was of the view that the indexed cost of acquisition worked out on the basis of FY 1993 was incorrect, and it ought to be on the basis of year of payment, and therefore, by virtue of section 263 of the Act held assessment order to be erroneous and prejudical to the interest of revenue. However, the Mumbai Bench relying the judgment of co-ordinate Bench in Charanbir Singh Jolly case (Supra) held that cost acquisition of house for the purpose of indexation and computation of long term capital gain was total cost incurred by assessee and it observed that “From the perusal of language used in Explanation (iii) to section 48 of the Act, which provides for manner of computation of indexed cost of acquisition, it is apparently clear that it refers only to cost of acquisition and not actual payments made by the assessee, hence, there is no merit in the alternate contention of the revenue that the benefit of indexation should be given on the basis of dates of actual payments made by the assessee”. Thus, the order u/s 263 of the Act was set aside.
The basic idea of bringing the principle of indexation is to give some sort of protection to the assessee from the on slot of inflation. The effect of inflation could be measured only with reference to the total cost of acquisition of a property. The schedule of payment of the cost of property is for the convenience of the party and certainly the vendor keeps in mind the cost of inflation while distributing the consideration over a period of time and fixing the schedule of payment.
In the case in hand the agreement dated 17.01.1996 contains the payment plan of total sale consideration of Rs. 26,50,000/-. It can be observed from the recitals of this agreement that recital 8 provided as follows and meets the observation of Ld. CIT(A), that property was not identifiable till March, 2000. “ The Promoter has the option to have the Plot underneath the Built House, after the Plot has been finally demarcated, transferred to the Buyer if the letter has paid a sum equal to first five installments. However, the said registration will not absolve the Buyer from making the full payment as stated above. The possession of the Plot will remain with the Promoter to carry out the terms of this Agreement.” 7.1. It can be further observed from this agreement that Clause 9 provided as follows :
“The Buyer is not entitled to transfer/encumber his rights under this Agreement till the sale of the Built House in his favour is completed except with prior written consent of the promoter and on payment of such transfer/ administrative charges as may be specified by the Promoter in this behalf. The transferee shall be bound by the terms of this Agreement in all respects.” This clause also shows right had vested in the prospective purchaser to alienate or create encumbrance on the property. Thus, findings of Ld. Tax Authorities below without taking into consideration the overall impact of the agreement dated 17.01.1996 are not sustainable. These clauses to quite reasonable extent established that the assessee may not have acquired a perfect title in the said property, but there was sufficient certainty with regard to identity of property and also possibility of an alienable interest created in the assessee. Therefore, in present case, for the purpose of Section 54 read with section 48 of the Act, the indexation of property has to be from date of agreement itself.
Even otherwise Hon’ble Bombay High Court in PCIT vs. Vembu Vaidyanathan ( Supra) has taken into consideration two circulars of CBDT and observed in para no. 6 that; “It can thus be seen that the entire issue was clarified by the CBDT in its above mentioned two circulars dated 15th October, 1986 and 16th December, 1993. In terms of such clarifications, the date of allotment would be the date on which the purchaser of a residential unit can be stated to have acquired the property. There is nothing on record to suggest that the allotment in construction scheme promised by the builder in the present case was materially different from the terms of allotment and construction by D.D.A. In that view of the matter, CIT appeals of the Tribunal correctly held that the assessee had acquired the property in question on 31st December, 2004 on which the allotment letter was issued.”
This makes it crystal clear that the date of agreement of an identifiable unit or property is the date of its acquisition for present purpose. Which in present case is 17.01.1996.
In the light of aforesaid, the Bench is of the considered opinion that Ld. Tax Authorities below had fallen in error in giving benefit of indexation of the property with effect from FY 1999-2000 instead of FY 1995-96. Accordingly the appeal is allowed .
Order pronounced in the open court on 31st May, 2022.