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Facts
The assessee filed an appeal against an order dated 19.11.2024 for AY 2016-17. The appeal was delayed by 205 days due to the order coming to the assessee's attention only upon receipt of a penalty order. The core issue concerns the year of taxability for capital gains arising from the sale of a plot of land, with the assessee claiming the transfer occurred in AY 2010-11 and the Revenue asserting it was in AY 2016-17.
Held
The Tribunal held that the transfer of the plot of land was effectively completed in the financial year 2009-10, which is relevant to AY 2010-11. This was based on the oral agreement, full payment of sale consideration, and transfer of possession in that financial year, as supported by evidence and legal definitions of 'transfer' under Section 2(47) of the Act.
Key Issues
The primary issue was to determine the correct assessment year for taxing capital gains on the sale of a plot of land, specifically whether the transfer occurred in AY 2010-11 or AY 2016-17, based on the date of the oral agreement, payment, possession, and formal registration.
Sections Cited
250, 271(1)(c), 143(2), 142(1), 45, 2(47), 50C, 133(6), 54, 234B
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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI NARENDRA KUMAR BILLAIYASHRI SANDEEP SINGH KARHAIL
Date of Hearing – 24/09/2025 Date of Order - 26/09/2025
O R D E R PER SANDEEP SINGH KARHAIL, J.M. The assessee has filed the present appeal against the impugned order dated 19.11.2024, passed under section 250 of the Income-tax Act, 1961 (“the Act”) by the learned Additional/Joint Commissioner of Income Tax (Appeals)-4, Chennai, [“learned Additional/Joint CIT(A)”], for the assessment year 2016-17.
The present appeal is delayed by 205 days. Along with the appeal, the assessee has filed an application seeking condonation of the delay, which is duly supported by an affidavit sworn by the Director of the assessee company.
It is the plea of the assessee that though the order was passed by the learned Additional/Joint CIT(A) on 19.11.2024, the same came to the attention of the assessee only when the penalty order under section 271(1)(c) of the Act was passed on 23.06.2025. It is further submitted that prior to the above, no notification in respect of the order passed by the learned Additional/Joint CIT(A) was received by the assessee, and the assessee also did not receive the impugned order at its registered e-mail address. Thus, it is submitted that the impugned order was served only on 23.06.2025, and thereafter, the necessary steps were taken to file the present appeal. Accordingly, the assessee prays for condonation of delay on the basis that the same was neither deliberate nor due to negligence on the part of the assessee.
Having considered the submissions of the assessee and perusal of the record, we are of the considered view that there was sufficient cause which prevented the assessee from filing the present appeal within the prescribed limitation period. Accordingly, we condone the delay and proceed to decide the appeal on the merits.
In this appeal, the Assessee has raised the following grounds: – “Ground No.1 Incorrect year of assessment 1.On the facts and in the circumstances of the case and in law, the Honourable Commissioner of Income-tax (Appeals) ['Hon'ble CIT(A)] has erred in upholding the addition of INR 41,79.538 made by the Learned Assessing Officer ('Ld. AO') on account of capital gains arising on sale of plot land in AY 2016-17, merely on the basis of execution of a registered sale deed, without appreciating that the transfer of the plot of land was effected in AY 2010-11, when the Appellant had received full sale consideration and handed over possession to Smt. Joheratussharaf Saifuddin (the Purchaser') pursuant to an oral agreement. The transfer, therefore, stood completed in AY 2010-11 under section 2(47) of the Act, and no tax liability would arise in any other year in connection with the transfer that took place in AY 2010-11. Further, the Ld. AO and Hon'ble CIT(A) failed to appreciate that the Appellant had recorded the sale of plot of land in its books of account of FY 2009-10 and reported the said sale in its return of income for AY 2010-11. Furthermore, the Ld. AO and Hon'ble CIT(A) failed to appreciate that under section 45 of the Act, capital gains are taxable in the year in which the transfer is effected, which, in this case, was AY 2010-11. Accordingly, AY 2016-17 is the incorrect year to assess the transaction of transfer of plot of land.
2. Considering the above facts of the case, the Appellant prays that the order of Hon'ble CIT(A) upholding the addition of long-term capital gains on sale of plot of land be quashed. Ground 2: Substance over form 1. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) and Ld. AO failed to appreciate that the transaction constituted a "transfer" as per section 2(47)(ii), 2(47)(v) and 2(47)(vi) of the Act in AY 2010-11, since all material rights including possession were transferred to the Purchaser in that year, consideration was discharged in that year and the Purchaser commenced enjoyment and use of the land, even though formal registration occurred later. The Ld. AO erred in disregarding the documentary and circumstantial evidence demonstrating that the buyer had taken possession of the land in November 2009 and had paid the full sale consideration by that date.
2. Considering the above facts of the case, the Appellant prays that the order of Hon'ble CIT(A) upholding the addition of long-term capital gains on sale of plot of land be quashed. WITHOUT PREJUDICE TO GROUND 1 AND 2 Ground 3: Incorrect computation of long-term capital gains on sale of plot of land 1. On the facts and in the circumstances of the case and in law, the Ld. AO erred in computing the indexed cost of acquisition by applying Cost Inflation Index for the base year 2001 instead of 1981, which was applicable to AY 2016-17. Thus, this leads to incorrect computation of long-term capital gains.
2. Considering the above, the long-term capital gains computation is erroneous, excessive, and contrary to facts and law, the Appellant prays that the Ld. AO be directed to recompute the long-term capital gains on sale of plot of land. Ground 4 Set-off of losses of current year of INR 16,61,909 1. This ground is consequential in nature and will not survive if the addition on account of capital gains is deleted. Ground 5: Levy of interest under sections 234B 1. This ground is consequential in nature and will not survive if the addition on account of capital gains is deleted.”
The solitary issue that arises for our consideration, in the present appeal, pertains to the year of taxability of the sale transaction of land in the hands of the assessee.
The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is a private limited company engaged in the business of manufacturing of embroidery materials, sequins and fashion accessories. For the year under consideration, the assessee filed its return of income on 15.10.2016, declaring a total loss of Rs.16,61,909/-. The return filed by the assessee was selected for limited scrutiny for examination of the issue whether capital gain/loss on the sale of property has been correctly shown in the return of income. Accordingly, statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. During the relevant financial year 2015-16, the assessee entered into a sale agreement for the sale of a plot at Village - Kune, Dist - Pune, for a consideration of Rs.31 lakh. The ready reckoner price for stamp duty valuation of the said immovable property was Rs.64,77,000/-. Accordingly, during the assessment proceedings, the assessee was asked to provide the details of the capital gain on the sale of the plot and why the capital gain should not be computed on the transaction. In response, the assessee submitted that the flat of land was transferred to the purchaser, Smt. Joheratussharaf Saifuddin, on 19.11.2009, for a sale consideration of Rs.31 lakh pursuant to an oral agreement. The assessee further submitted that the consideration was received on 19.11.2009, and the possession of the plot was also handed over to the purchaser. It was further submitted that during the relevant financial year, on 11.03.2016, only registration was done, and there was no monetary transaction during the assessment year under consideration. Therefore, the assessee submitted that the gain, if any, from the aforesaid sale transaction is not taxable in the year under consideration.
The Assessing Officer (“AO”), vide order dated 20.12.2018 passed under section 143(3) of the Act, disagreed with the submission of the assessee and held that ownership of the property was transferred to the buyer when the agreement was executed and made legally enforceable after his registration and payment of stamp duty, i.e. on 11.03.2016. Thus, the AO held that the ownership of the plot of land was transferred from the assessee to the purchaser only on 11.03.2016 through a sale deed executed of the same date. It was further held that prior to 11.03.2016, there was no sale agreement/agreement to sale/contract and therefore, the claim of the assessee that pursuant to an oral agreement, the transfer was completed in the financial year 2009-10 and the property was sold to the purchaser has no value in the eyes of law as the ownership remains with the assessee. Therefore, the AO held that the transfer was completed only in the financial year 2015-16, which is relevant to the year under consideration. Accordingly, by applying the provisions of section 50C of the Act, as the stamp duty value on the date of exclusion of the agreement was higher than the sale consideration, the AO computed the long-term capital gains on the sale of plot of land at Rs.41,79,538/-, and added the same to the total income of the assessee.
The learned CIT(A), vide impugned order, dismissed the appeal by the assessee on this issue and held that the contention of the assessee that property was transferred in the financial year 2009-10 only on account of receipt of consideration and transfer of possession of property cannot be accepted in the absence of registration of property. Accordingly, the learned CIT(A) upheld the findings of the AO in making the addition on account of long-term capital gain in the year under consideration. Being aggrieved, the assessee is in appeal before us.
We have considered the submissions of both sides and perused the material on record. The only issue that arises for our consideration is determining the year of transfer of the immovable property in the present case. As per the assessee, it purchased a plot of land in Village – Kune, District Pune on 24.03.2005. Further, on 24.10.2009, it agreed to sale the plot of land to the purchaser for a consideration of Rs.31 lakh pursuant to an oral agreement. Accordingly, vide cheque dated 24.10.2009 the purchaser paid the total consideration of Rs.31 lakh to the assessee, which was credited in his bank account on 20.09.2009. In this regard, during the hearing, the learned Authorised Representative (“learned AR”) referred to the statement of bank account of the assessee maintained with Kotak Mahindra Bank, Andheri (East), Mumbai, at page 22 of the paper book. In order to support the contention that the transfer of the property took place in the financial year 2009-10, the learned AR also referred to the ledger of land and building account and the ledger of the purchaser in the books of the assessee for the financial year 2009-10, which forms part of the paper book at pages 23-24.
During the hearing, the learned AR by referring to the return of income filed by the assessee for the assessment year 2010-11, forming part of the paper book from pages 25-46, submitted that the assessee had already declared the capital gains of Rs.11,04,636/- from this sale transaction. The learned AR further submitted that since the purchaser and her husband had some religious commitments, the deed of conveyance could not be executed in time. We find that in the Deed of Conveyance dated 11.03.2016, both parties duly recorded the relevant facts regarding the sale of the plot of land in the financial year 2009-10, as follows: - “D. On or about 24th October 2009, the Vendor agreed to sell to the Purchaser and the Purchaser agreed to purchase from the Vendor, the said Land for a price and consideration of Rs. 31,00.000/- (Rupees Thirty One Lacs only). E. Pursuant to the oral agreement the Purchaser arranged for the payment of the said sum of Rs. 31,00,000/- (Rupees Thirty One Lacs only) to the Vendor vide Cheque No. 086101 dated 24.10.2009 drawn on Bank of India, Dr. D.N. Road Branch, Mumbai. The said payment was accepted by the Vendor. F. Pursuant to the said oral agreement for sale and purchase and on the full payment of the consideration amount of Rs. 31,00,000/- (Rupees Thirty One Lacs only) as aforesaid and pending the execution of the Sale Deed by the Vendor in favour of the Purchaser, the Vendor put the Purchaser into peaceful vacant possession of the said Land and the Purchaser continues to be in full, complete and peaceful possession of the said Land.”
The learned AR also submitted that the purchaser, in response to the notice issued by the AO under section 133(6) of the Act, vide its reply dated 26.11.2018, also confirmed the fact that physical possession of the plot was taken on 21.11.2009 upon payment of Rs.31 lakh. Accordingly, it is the plea of the assessee that since the entire transaction took place in the financial year 2009-10 and payment of sale consideration as well as possession was also handed over to the respective parties in the financial year 2009-10, therefore, the capital gains, if any, arisen from the transaction is only taxable in the assessment year relevant to the financial year 2009-10. On the contrary, as per the Revenue, since the Deed of Conveyance was entered between the parties on 11.03.2016, the capital gain is taxable in the year under consideration.
Before proceeding further, it is relevant to note the meaning of the term “transfer”, which is defined under section 2(47) of the Act, in relation to the capital asset. Section 2(47) of the Act reads as follows: - “"transfer", in relation to a capital asset, includes,— (i) the sale, exchange or relinquishment of the asset ; or (ii) the extinguishment of any rights therein ; or (iii) the compulsory acquisition thereof under any law ; or (iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment ; or (iva) the maturity or redemption of a zero coupon bond; or (v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882) ; or (vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property. Explanation 1.—For the purposes of sub-clauses (v) and (vi), "immovable property" shall have the same meaning as in clause (d) of section 269UA. Explanation 2.—For the removal of doubts, it is hereby clarified that "transfer" includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India;”
We find that section 2(47) of the Act uses the word “or” instead of “and”. Therefore, all the conditions as laid down in the provisions of section 2(47) of the Act are not required to be cumulatively satisfied, and even if any condition is satisfied, the capital asset can be considered to be transferred within the meaning of section 2(47) of the Act. We find that, as per the provisions of clause (ii) to section 2(47) of the Act, the extinguishment of any right in the capital asset results in a transfer in relation to the capital asset. We are of the considered view that the term “any right” used in the aforesaid clause is of wide amplitude and includes within its meaning the possession rights handed over by the assessee to the purchaser in the impugned plot of land. In the present case, from the perusal of the record, it is evident that the assessee had transferred the possession rights over the plot of land to the purchaser in the financial year 2009-10, which fact is duly apparent from the reply of the purchaser in response to the notice issued under section 133(6) of the Act, as noted in the foregoing paragraph. Therefore, even though the Deed of Conveyance was executed on 11.03.2016, the plot of land was already transferred to the purchaser in the financial year 2009-10 and thus, for all intents and purposes, the land was transferred in the assessment year 2010- 11.
We find that in Sanjeev Lal vs CIT, in [2014] 365 ITR 389 (SC), the Hon’ble Supreme Court, while dealing with the facts, wherein the assessee claimed the benefit under section 54 of the Act in respect of the capital gains arising from transfer of property vide sale deed registered on 24.09.2004, while the agreement to sell was executed on 27.09.2002, considered the question as to whether the date on which agreement to sell was executed could be considered the date on which the property was transferred. The relevant observations of the Hon’ble Supreme Court, in the aforesaid decision, are as under: - “20. The question to be considered by this Court is whether the agreement to sell which had been executed on 27th December, 2002 can be considered as a date on which the property i.e. the residential house had been transferred. In normal circumstances by executing an agreement to sell in respect of an immovable property, a right in personam is created in favour of the transferee/vendee. When such a right is created in favour of the vendee, the vendor is restrained from selling the said property to someone else because the vendee, in whose favour the right in personam is created, has a legitimate right to enforce specific performance of the agreement, if the vendor, for some reason is not executing the sale deed. Thus, by virtue of the agreement to sell some right is given by the vendor to the vendee. The question is whether the entire property can be said to have been sold at the time when an agreement to sell is entered into. In normal circumstances, the aforestated question has to be answered in the negative. However, looking at the provisions of Section 2(47) of the Act, which defines the word "transfer" in relation to a capital asset, one can say that if a right in the property is extinguished by execution of an agreement to sell, the capital asset can be deemed to have been transferred. Relevant portion of Section 2(47), defining the word "transfer" is as under: '2(47) "transfer", in relation to a capital asset, includes,- (i)** ** ** (ii) the extinguishment of any rights therein; or. . . . . . . . . . . . .' 21. Now in the light of definition of "transfer" as defined under Section 2(47) of the Act, it is clear that when any right in respect of any capital asset is extinguished and that right is transferred to someone, it would amount to transfer of a capital asset. In the light of the aforestated definition, let us look at the facts of the present case where an agreement to sell in respect of a capital asset had been executed on 27th December, 2002 for transferring the residential house/original asset in question and a sum of Rs. 15 lakhs had been received by way of earnest money. It is also not in dispute that the sale deed could not be executed because of pendency of the litigation between Shri Ranjeet Lal on one hand and the appellants on the other as Shri Ranjeet Lal had challenged the validity of the Will under which the property had devolved upon the appellants. By virtue of an order passed in the suit filed by Shri Ranjeet Lal, the appellants were restrained from dealing with the said residential house and a law-abiding citizen cannot be expected to violate the direction of a court by executing a sale deed in favour of a third party while being restrained from doing so. In the circumstances, for a justifiable reason, which was not within the control of the appellants, they could not execute the sale deed and the sale deed had been registered only on 24th September, 2004, after the suit filed by Shri Ranjeet Lal, challenging the validity of the Will, had been dismissed. In the light of the aforestated facts and in view of the definition of the term "transfer", one can come to a conclusion that some right in respect of the capital asset in question had been transferred in favour of the vendee and therefore, some right which the appellants had, in respect of the capital asset in question, had been extinguished because after execution of the agreement to sell it was not open to the appellants to sell the property to someone else in accordance with law. A right in personam 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. 22. …….
Consequences of execution of the agreement to sell are also very clear and they are to the effect that the appellants could not have sold the property to someone else. In practical life, there are events when a person, even after executing an agreement to sell an immovable property in favour of one person, tries to sell the property to another. In our opinion, such an act would not be in accordance with law because once an agreement to sell is executed in favour of one person, the said person gets a right to get the property transferred in his favour by filing a suit for specific performance and therefore, without hesitation we can say that some right, in respect of the said property, belonging to the appellants had been extinguished and some right had been created in favour of the vendee/transferee, when the agreement to sell had been executed.
Thus, a right in respect of the capital asset, viz. the property in question had been transferred by the appellants in favour of the vendee/transferee on 27th December, 2002. The sale deed could not be executed for the reason that the appellants had been prevented from dealing with the residential house by an order of a competent court, which they could not have violated.
In view of the aforestated peculiar facts of the case and looking at the definition of the term 'transfer" as defined under Section 2(47) of the Act, we are of the view that the appellants were entitled to relief under Section 54 of the Act in respect of the long term capital gain which they had earned in pursuance of transfer of their residential property being House No. 267, Sector 9-C, situated in Chandigarh and used for purchase of a new asset/residential house.”
In the present case, it is evident from the record that both parties, i.e., the assessee and the purchaser, agreed to the terms of the oral agreement, and the purchaser also made the payment of the sale consideration in the financial year 2009-10 itself. Furthermore, the purchaser took possession of the plot of land in the financial year 2009-10 upon payment of the sale consideration. Thus, in the present case, all the essentials of a contract, i.e., offer, acceptance and consideration, were fulfilled in the financial year 2009- 10. In the present case, there is no allegation of non-fulfilment of any condition of mutual agreement between the parties. Further, the genuineness of the transaction is evident from the fact that the understanding between the parties has been duly recorded in the Deed of Conveyance dated 11.03.2016, as noted in the foregoing paragraphs. At this stage, it is pertinent to reiterate that the assesse had already declared the capital gains arising from this sale transaction in the assessment year 2010-11.
Therefore, in view of the facts and circumstances as noted above, we are of the considered view that the aforesaid plot of land was transferred by the assessee to the purchaser in the previous year relevant to the assessment year 2010-11, and therefore, capital gains, if any, thereon cannot be taxed in the year under consideration. As a result, Grounds No.1 and 2 raised by the assessee are allowed.
In view of our aforesaid findings, Ground no.3 is rendered academic and is left open.
Grounds No.4 and 5 raised in assessee’s appeal pertaining to set off of loss of current year and levy of interest under section 234B of the Act are consequential in nature and therefore, do not need any separate adjudication.
In the result, the appeal by the assessee is allowed. Order pronounced in the open Court on 26/09/2025