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Income Tax Appellate Tribunal, ‘’ B’ ’BENCH, AHMEDABAD
Before: SHRI MAHAVIR PRASAD & SHRI WASEEM AHMED
आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax (Appeals)-1, Ahmedabad dated 29/12/2016 (in short “Ld.CIT(A)”) arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here- in-after referred to as "the Act") dt.06/01/2016 relevant to the Assessment Year 2013-2014.
The assessee has raised the following grounds of appeal.
The Ld.CIT Appeals 1 Ahmedabad has erred in law and on facts in passing appellate order dated 29-12-2016 for A.Y.2013-14 in the case of appellant by confirming the action of the assessing officer in respect of treating the capital gain on sale of land as short term capital gains as against long term capital gain claimed by appellant in return of income.
2. The Ld. CIT (A) Appeals has erred in law and on facts in confirming short trm capital gain at Rs.28722950/- as against long term capital gain claimed at Rs.28464441/- in return of income. 3. The appellant craves to add, alter, amend or withdraw any of the grounds of appeal on or before of the final hearing of appeal.
The assessee has also raised the additional ground of appeal vide letter dated NIL which is reproduced as under:
1. The Ld.CIT(A) has erred in law and on facts in not allowing cost of stamp duty and other expenses of Rs.18,40,850/- incurred for purchasing the land as deduction from the sales consideration.
The issue raised by the assessee in ground no. 1 is that the Ld.CIT (A) erred in confirming the action of AO by treating the long term capital gain as short term capital gain.
Briefly stated facts are that the assessee is an Individual and engaged in the business of trading in grey, fabrics, and hosiery. The assessee in the year under consideration declared long term capital gain amounting to Rs. 2,86,64,441/- on sale of Land situated at Makarba vide survey no. 415/2, Ahmedabad. The property was sold vide sale deed dated 31-08-2012 at Rs. 3,11,00,000/- only.
3.1 The AO on verification of the purchase deed of Land dated 16-03-2012 found that the property was held by the assessee for a period less than 3 years. Accordingly the AO proposed to treat the capital gains arising on such property as short term capital gain.
3.2 In response to questions put forward by AO, the assessee made following representations: 1) He has entered into an agreement for purchase of impugned land situated at Makarba with Khoadaji Mansingh bhai thakor and baldeji thakor on 15-02-2006 and paid an amount of Rs. 1,00,000/- to the seller out of the total amount agreed at Rs. 5,36,200.00 only.
2) Thereafter, the land owner refused to sell the land to him (the assessee). The land owner sold such land to Rameshbhai Jivrajbhai desai, rajeshbhai Jivrajbhai desai, and Ranjibhai Jivrajbhai Desai on 28-05- 2010.
3) He preferred an appeal before the civil court where the appeal was decided in his favor. As a result of which the land was transferred to him (the assessee) as per the order of the court i.e. on 07-01-2012.
4) The balance amount of Rs. 4,36,200/- was deposited by him (the assessee) in the court in the year 2011 against the said Banakhat. 3.3 The assessee accordingly claimed that he has acquired the right in the property by virtue of the agreement dated 15-02-2006 and therefore the property should be treated as long term property. The assessee in support of his contention relied on the judgment of Bombay High Court in case CIT Vs. Tata Tele Service Ltd. reported in 122 ITR 254 and the judgment of Andhra Pradesh High Court in case of M. Syamala Rao Vs. CIT reported in 243 ITR 140.
3.4 However the AO rejected the submission put forth by the assessee by observing as under: 1) The impugned land was neither held by the assessee nor transferred to him. As such only “Banakat” was executed between the assessee and the seller which was not materialized. Moreover, the seller sold such impugned land to some other party.
2) The conditions as specified under the section 53A of the Transfer of Property Act remained un-satisfied by the assessee.
3) The assessee got the possession of the property after the order of the Court dated 07-01-2012.
4) Merely on the basis of the Banakat dated 15-02-2006 it can’t be assumed that the Land was transferred to the assessee within the meaning of the section of 53A of the transfer of property Act.
5) The case M.Syamala Rao Vs. CIT (supra) cited by the assessee is not applicable to the given fact & circumstances. In that case the assessee got the possession of land on the date of Banakat itself.
3.5 The AO based on the above findings reached to a conclusion that the assessee held the land for a period of less than 3 years and accordingly computed short term capital gain of Rs. 3,05,63,800/-(3,11,00,000-5,36,200/-) instead of long term capital gain of Rs. 2,86,64,441/- which was claimed by the assessee.
Aggrieved assessee preferred an appeal before the Ld.CIT (A). The assessee before the Ld. CIT (A), besides the submissions made before the AO, tendered that he failed to get the land registered in his name due to non- performance on account of the seller. Therefore, he should not be penalized for the default of the seller.
4.1 However, the Ld.CIT (A) rejected the contention of the assessee and confirmed the order of the AO by observing that the transfer did not take place within the meaning of section 2(47) of the Act, read with section 53A of the transfer of property Act.
Being Aggrieved by the order of the Ld.CIT (A) the assessee is in appeal before us.
The Ld. AR before us submitted that the impugned purchase of the property should relate back with the agreement to sell dated 15th February 2006. As such there was no fault of the assessee in the purchase of the property within the time specified under the agreement. Therefore, the assessee should not be penalized for the fault committed by the other party.
On the other hand, the Ld. DR submitted that the assessee never had the possession of the property in the year 2006 in pursuance to the agreement to sale as discussed above. Thus it is abundantly clear that the conditions as specified under section 53A of the transfer of property Act have not been satisfied by the assessee. Consequently, the transaction for the purchase of the property was not completed within the meaning of section 2(47) of the Act. The learned DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and considered the materials available on record. The facts of the case are not in dispute which have been elaborated in the preceding paragraphs. Therefore, we are not inclined to repeat the same for the sake of brevity and convenience.
7.1 Admittedly there was registered agreement for the purchase of the impugned property dated 15th February 2006. The assessee in pursuance to the impugned agreement has also made the payment of ₹50,000 each vide cheque No. 140414/140415 dated 14th February 2006 drawn on Kalupur Commercial Co-operative Bank Ltd. There was no possession acquired by the assessee in pursuance such agreement. Thus the conditions as specified under section 53A of the Act were not complied with by the assessee for the impugned purchase transaction of the property. These facts can be verified from the copy of the agreement/sale deed which are available on record and the same were not controverted.
7.2 Subsequently, the sale deed was registered in the name of the assessee in pursuance to the decree of Court dated 3rd January 2012 at a value as agreed in the agreement dated 15th February 2006.
7.3 There is also no dispute to the fact that the delay in the registration of the property occurred due to the fault of the seller which was resolved in the court of law. Thus, there remains no ambiguity that the assessee was not able to complete the impugned transaction for the purchase of the property due to the circumstances which were beyond his control. Accordingly a question arises, should the assessee be penalized due to the nonperformance of the contract by the other party.
7.4 It is well-settled that an obligation gets discharged due to impossibility of performance. The assessee in the instant case has fulfilled all the conditions specified in the agreement but the seller failed to do so for the reasons best known to him. Accordingly, we conclude that the delay in non-registration of the sale deed and possession of the property has occurred for the reasons beyond the control of the assessee i.e. due to default of the seller of the property. The law of impossibility of performance does not necessarily require absolute impossibility, but also encompass the concept of severe impracticability. In our humble opinion, the doctrine of impossibility of performance applies in this case. Due to uncontrollable circumstances, the performance of the obligation as specified under the agreement became impossible to perform within the time for the assessee. The impossibility of performance releases the assessee from its obligation for the delay of the registration of the property within the time. A default occurs only when an obligation is not performed. When the assessee is released from the obligation, it cannot be said that it is in default. Thus, when the assessee was prevented from getting the property registered in his name within the time, the question of its not performing the obligation under law does not arise and thus it cannot be held a defaulter. We also find support from the legal maxim “lex non cogit ad impossibilia” meaning thereby that the law does not compel a man to do what he cannot possibly perform. 7.4 In holding so we find support & guidance from the judgment of Hon’ble Supreme Court in the case of Krishna Swamy S. PD. & ANR Vs. Union of India & ors reported in 281 ITR 305 wherein it was held that : “The other relevant maxim is, lex non cogit ad impossibilia—the law does not compel a man to do what he cannot possibly perform. The law itself and its administration is understood to disclaim as it does in its general aphorisms, all intention of compelling impossibilities, and the administration of law must adopt that general exception in the consideration of particular cases. [See : U.P.S.R.T.C. vs. Imtiaz Hussain 2006 (1) SCC 380, Shaikh Salim Haji Abdul Khayumsab vs. Kumar & Ors. 2006 (1) SCC 46, Mohammod Gazi vs. State of M.P. & Ors. 2000 (4) SCC 342 and Gursharan Singh vs. New Delhi Municipal Committee 1996 (2) SCC 459].”
Thus, in view of above we hold that the assessee cannot be penalized for the delay in the registration of the property in the given facts and circumstances. Hence the assessee is entitled to reckon the period of holding from the date of the registration of the agreement i.e. 15th February 2006.
7.5 We also note that in the similar facts and circumstances the Bombay High Court in the case of Amarjeet Thapar Vs. ITO reported in 101 taxmann.com 221 has held as under:
13. Though not identical, the facts in the present case are somewhat similar. As noted, the assessee had entered into an agreement for purchase of the property in the year 1992. The sale deed could not be executed only because the appropriate authority refused to grant no objection certificate and instead, ordered compulsory acquisition thereof. This order was declared as illegal and ab initio void by the High Court. The sale deed was ordered to be executed in favour of the petitioner. There is no reason for us not to accept the petitioner's contention that the execution of the sale deed by virtue of the judgment of the High Court would relate back to the original agreement to sale. The petitioner was. thus, entitled to claim the benefit of cost indexation from the said date. The entire basis of the department in the reasons recorded in order to dispute the petitioner's computation of the capital gain, therefore, is rendered invalid. In the result, the impugned notice is set aside. In peculiar facts of this case, therefore, we have adopted the logic as was done by the Supreme Court in case of Sanjeev Lal (supra). The petition allowed and disposed of.
7.6 In view of the above we hold that the execution of the sale deed in pursuance to the order of the court would relate back to the original agreement to sale as discussed above. Hence the assessee is entitled for the claim of index cost of acquisition being the holding period more than 36 months. Therefore the ground of appeal of the assessee is allowed.
The second issue raised by the assessee in additional ground of appeal is that the Ld.CIT (A) erred in confirming the action of the AO by denying the deduction of cost of improvement of Rs. 18,40,850/-.
The assessee while computing the capital gain claimed cost of improvement of Rs. 22,77,050/-. The AO on verification of details submitted by the assessee found that a part of the expenses paid to Nandan corporation LLP in which the assessee held substantial interest. Accordingly the assessee was requested to substantiate such payment.
8.1 However, the assessee failed to furnish any evidence to prove that the cost of improvement claimed by the assessee was in connection with the impugned property. The AO accordingly disallowed the cost of improvement amounting to Rs. 18,40,850/- while computing the capital gain on such land.
Aggrieved assessee preferred an appeal before the Ld.CIT (A) where he submitted that it is clear from the ledger account of the expenses submitted by him that the amount paid to Nandan Corporation is in connection of registry of the land. These expenses include stamp duty fee and other expenses for the acquisition of land.
However the Ld.CIT (A) rejected the contention of the assessee and confirmed the disallowance made by the AO by observing that the assessee failed to furnish any evidence to substantiate a nexus between cost of improvement expenses and the impugned property.
Being aggrieved by the order of the Ld.CIT (A) the assessee is in appeal before us.
The learned AR before us submitted that the impugned expenditure was incurred in connection with the purchase of the property. Therefore the assessee is eligible for claiming the deduction of such expenses as the cost of improvement. The learned AR in support of his claim filed the statement of income which is placed on record. The learned AR further submitted that it has not filed the documentary evidence before the authorities below and therefore the addition was made to the total income of the assessee. The learned AR further undertook the responsibility to file the supporting evidences for the impugned claim and accordingly prayed to restore the matter to the file of the AO for fresh adjudication as per the provisions of law.
On the other hand, the learned DR did not raise any objection if the matter is set aside to the file of the AO for fresh adjudication as per the provisions of law.
We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, the issue raised by the assessee in the additional ground of appeal relates to the factual dispute which was discussed in the assessment order. But the impugned issue was agitated by the assessee before the authorities below. As such the authorities below did not entertain the claim of the assessee on the reasoning that the assessee failed to furnish the supporting documents. This fact can be verified from the order of the authorities below. Therefore we are of the view that the assessee being aggrieved is entitled to raise the additional ground in the instant case. Accordingly, we are inclined to admit the additional ground of appeal raised by the assessee.
13.1 However, we note that the claim of the assessee was rejected by the authorities below in view of the fact that the supporting documents were not furnished. Therefore, in the interest of justice and fair play, we are inclined to refer the matter to the file of the AO for fresh adjudication as per the provisions of law.
13.2 It is also pertinent to note that the assessee shall be at the liberty to file the supporting documents to justify his claim. Hence the additional ground of appeal of the assessee is allowed for the statistical purposes.
In the result the appeal filed by the assessee is partly allowed for statistical purposes.
Order pronounced in the Court on 03/09/2019 at Ahmedabad.