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Facts
The assessee sold an immovable property, and the Assessing Officer (AO) initiated reassessment proceedings under Section 147 of the Income Tax Act. The AO treated the entire sale value as short-term capital gain, deeming the cost of acquisition as Nil. The CIT(A) upheld the AO's order.
Held
The Tribunal held that the reassessment proceedings were validly initiated based on tangible material. Regarding the taxability of capital gains, the Tribunal found that the sale transaction was effectively completed when the lien was released by the bank and the sale deed was executed in the year under consideration. The Tribunal also directed the AO to compute the tax liability on capital gains considering the property as a long-term capital asset taxed at 20%, as per a Special Bench decision.
Key Issues
Whether reassessment proceedings under Section 147 were validly initiated, and the year of taxability of capital gains arising from the sale of an immovable property, including the appropriate tax rate.
Sections Cited
147, 143(3), 148, 50C, 50, 112
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Income Tax Appellate Tribunal, “J (SMC
Before: SHRI OM PRAKASH KANTSHRI SANDEEP SINGH KARHAIL
Date of Hearing – 29/07/2025 Date of Order - 08/08/2025 O R D E R PER SANDEEP SINGH KARHAIL, J.M. The assessee has filed the present appeal against the impugned order dated 27/03/2024, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”], which in turn arose from the assessment order passed under section 143(3) r.w.s. 147 of the Act, for the assessment year 2011-12.
2. In this appeal, the assessee has raised the following grounds:
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1. Learned Commissioner of Income Tax (Appeals) erred in confirming the order of Learned Assessing officer passed under section 143(3) r.w.s. 147 of the Income-tax Act, 1961. Appellant submits that in view of the facts and circumstances of the case as well as in law, action of reopening of assessment u/s 148 of the Act together with consequential order under section 143(3) r.w.s. 147 of the Act are bad in law and deserves to be quashed.
2. Learned Commissioner of Income Tax (Appeals) erred in confirming the order of Assessing officer making an addition of Rs. 20,57,000/- as deemed Short Term Capital Gain for AY 2011-12 on the plea that the said Capital Gain had accrued in AY 2011-12. Appellant submits that in view of the facts and circumstances of the case as well as in law, order of the Learned Assessing officer making addition of Rs. 20,57,000/- as Short Term Capital gain in AY 2011-12 is bad in law and deserves to be deleted as deemed Short Term Capital gain had accrued in AY 2004-05 and not in AY 2011-12.
3. Learned Commissioner of Income Tax (Appeals) erred in confirming the order of Assessing officer levying tax @ 30% instead of @ 20% applicable to Long term Capital gain on sale of immovable property. Appellant submits that in view of the facts and circumstances of the case as well as in law, the tax rate applicable on Long Term Capital Gain ought to be 20% instead of 30% charged by the Learned Assessing officer. Appellant submits that in view of the facts and circumstances of the case as well as in law, the tax rate charged by the Learned Assessing officer @ 30% deserves to be substituted for tax rate @ 20% being tax rate applicable on long term capital gain.
4. Learned Commissioner of Income Tax (Appeals) erred in confirming the order of Learned Assessing officer treating the cost of acquisition is NIL while computing long term capital gain on sale of property. Appellant submits that in view of the facts and circumstances of the case as well as in law. the written down value (WDV) on date of sale ought to be allowed as cost of Acquisition to for the purpose of computing Income from Capital Gain. Appellant submits that in view of the facts and circumstances of the case as well as in law, order of the Learned Assessing officer treating the cost of acquisition is NIL which is confirmed by Learned Commissioner of Income Tax (Appeals) is bad in law and correct cost of acquisition as per law ought to be allowed while computing Income from Capital.”
3. The brief facts of the case are that on the basis of the information received from the Income Tax Officer, Ward-24(3)(3), Mumbai that the assessee has sold an immovable property during the year under consideration below the market price and did not file the original return of income, notice under section 148 of the Act was issued on 08.03.2016 and proceedings under section 147 of the Act were initiated. In response to the notice, the assessee filed its return of income on 17.06.2016. Subsequently, statutory notices under section 143(2) and section 142(1), along with a questionnaire, were issued and served on the assessee. During the reassessment proceedings, the assessee was asked to show cause as to why the difference between the agreement value and stamp duty value should not be added to its total income under section 50C of the Act. In response, the assessee submitted that it is a partnership firm and its business has closed down. The assessee submitted that it had purchased Gala No.4, Ground Floor, Satyam Industrial Estate, Subhash Road, Jogeshwari (East), Mumbai – 400060, on 09.08.1995, and the gala was sold to Mr. Prakash Bhagwan Canser for a total consideration of ₹ 12,51,000/- vide Memorandum Of Understanding (“MOU”) dated 05.02.2004. The assessee submitted that it had received ₹ 3 lakh from the purchaser on 03.01.2004, and the vacant position of the gala was handed over to Mr. Parkash Bhagwan Canser on 31.03.2004. It was further submitted that Mr. Prakash Bhagwan Canser has been paying all the taxes and outgoings of the gala w.e.f. 01.04.2004. The assessee, without prejudice, also submitted that if the transfer is considered to have taken place in the financial year 2010-11, then the value for the purpose of payment of stamp duty under section 50C of the Act should be assessed as on 31.03.2004 since the sale consideration got fixed on 05.02.2004, i.e. the date of execution of MOU. As the assessee has raised objections regarding the stamp value, the matter was referred to the DVO for the valuation of the property. The DVO vide its report dated 19.12.2016 valued the property as on 05.2.2.2004 for ₹ 20,57,000/-. As the assessee did not produce any document regarding the purchase of the property and only a sale agreement was furnished, and the assessee also did not declare any capital gains during the year under consideration, the Assessing Officer (“AO”) vide order dated 24.12.2016 passed under section 143(3) r.w.s. 147 of the Act treated the entire value adopted by the DVO of ₹ 20,57,000/- as short-term capital gain and added the same to the total income of the assessee during the assessment proceedings.
4. The learned CIT(A), vide impugned order, upheld the initiation of the reassessment proceedings under section 147 of the Act. On merits, the learned CIT(A) held that the assessee has not clarified whether the capital gain on the sale of the property claimed to have been made vide MOU dated 05.02.2004 was offered for taxation in the assessment year 2004-05. The learned CIT(A) further held that even though the assessee submitted that the M0U was executed on 05.02.2004 and hence the sale took place in the financial year 2003-04, however, only a minor amount of ₹ 3 lakh was received by the assessee from the purchaser against the sale value of ₹ 12,51,000/- in the financial year 2003-04. The learned CIT(A) also noted that the assessee had mortgaged the said property to the bank, which was released only in the financial year 2010-11. Subsequently, the sale agreement was executed on 09.12.2010. Since the immovable property was used for business purposes and the depreciation was claimed on it, the immovable property was treated as a short-term capital asset under section 50 of the Act. Further, the learned CIT(A) also upheld the findings of the AO in treating the cost of acquisition of the immovable property as Nil. Being aggrieved, the assessee is in appeal before us.
During the hearing, the learned Authorised Representative (“learned AR”) reiterating the submissions made before the lower authority submitted that the gala which was purchased by the assessee in the year 1995 was sold to Mr. Bhagwan Canser in the financial year 2003-04 vide MOU dated 05.02.2004 for a total consideration of ₹ 12,51,000/-, out of which ₹ 3 lakh was paid to the assessee on 03.01.2004 and ₹ 2 lakh was paid on 14.07.2004. The learned AR further submitted that once the lien on the property was cancelled by the bank on 26.10.2010, the sale agreement for the immovable property was executed between the parties on 09.12.2010. Accordingly, the learned AR submitted that since the MOU was executed on 05.12.2004, therefore, the capital gains, if any, arising from the sale transaction can only be taxed in the financial year 2003- 04.
6. On the other hand, the learned Departmental Representative (“learned DR”), vehemently relying upon the order passed by the lower authorities, submitted that the property was kept as a security by the assessee with a bank and the said lien was released only in the financial year 2010-11, and therefore, no question arises of sale of the property to Mr. Prakash Bhagwan Canser prior to 26.10.2010. The learned DR submitted that only after the aforesaid cancellation, the assessee became an absolute owner of the property and transferred all the rights of the property to the purchaser through the sale deed, which was executed on 09.12.2010. The learned DR also emphasised on the aspect that in the financial year 2003-04, the assessee received only ₹ 3 lakh from the purchaser, and more than half of the consideration was received in the financial year 2010-11. Therefore, the learned DR submitted that the capital gains arising from the sale transaction of the immovable property can only be taxed in the financial year 2010-11, i.e., the year under consideration in the present appeal.
We have considered the submissions of both sides and perused the material available on record. In the present case, there is no dispute regarding the fact that in the year under consideration, the assessee did not file its return of income. Further, on the basis of the information received by the AO that the assessee has sold an immovable property below the market rate, notice under section 148 of the Act was issued and proceedings under section 147 of the Act were initiated. It is the plea of the learned AR that the reassessment proceedings were initiated based on the borrowed satisfaction and no independent enquiry was conducted by the AO to come to the aforesaid conclusion. In the present case, it is pertinent to note that the assessee did not file his original return of income, and thus, no scrutiny assessment was conducted in the present case. Thus, the information received by the AO from ITO-24(3)(3) was the only data available to the AO for initiating the reassessment proceedings. It is pertinent to note that in DCIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., reported in (2007) 291 ITR 500 (SC), the Hon’ble Supreme Court held that if there is relevant material on the basis of which a reasonable person can form a requisite belief that income chargeable to tax has escaped assessment, then proceedings under section 147 of the Act can be validly initiated. Further, it is also well settled that the sufficiency or correctness of the material is not an aspect to be considered at the stage of recording the reasons. Therefore, in the present case, we are of the considered view that the information received by the AO constitutes new and tangible material for initiating the reassessment proceedings. As a result, we find no infirmity in the reassessment proceeding initiated by the AO under section 147 of the Act. As a result, Ground no.1 raised in assessee’s appeal was dismissed.
In the present case, the impugned addition arises from the sale transaction of immovable property by the assessee to Mr. Prakash Bhagwan Canser. As per the Revenue, since the property was sold for a price lower than the stamp value, therefore, the provisions of section 50C of the Act are applicable. As per the assessee, in the financial year 2003-04, the assessee entered into an MOU with Mr. Prakash Bhagwan Canser in respect of immovable property being address at Gala No.4, Ground Floor, Satyam Industrial Estate, Subhash Road, Jogeshwari (East), Mumbai – 400060, whereby Mr Prakash Bhagwan Canser agreed to purchase and acquire the said property for a total consideration of ₹ 12,51,000/-. As per the assessee, since in the financial year 2003-04, not only was the aforesaid MOU executed but the vacant and peaceful possession of the said immovable property was also handed over to Mr. Prakash Bhagwan Canser, therefore, any gains arising from the transaction are only taxable in the assessment year 2004-05. At this stage, it is pertinent to note that neither before AO nor before the learned CIT(A), the assessee could bring on record any document to establish that the gains arising from the aforesaid transaction were declared by it in the assessment year 2004-05. Even in the proceedings before us, no such document was furnished on behalf of the assessee. Be that as it may, on the basis of the fact that the said immovable property was kept as collateral security by the assessee with the Bank of Maharashtra for credit facility to Dhote Offset Techno Craft Pvt. Ltd. and the said lien was cancelled on 26.10.2010 and only thereafter the sale deed was executed on 09.12.2010, the Revenue treated the transaction as taxable in the year under consideration. It is evident from the record that during the reassessment proceedings, the AO accepted the plea of the assessee and called for a report from the DVO regarding the valuation as on 31.03.2004 on the basis that even though the transaction had taken place in the financial year 2010-11, however the consideration was decided in the financial year 2003- 04. As per the DVO, the value of the property on 05.02.2004 was ₹ 20,57,000. Since the assessee could not submit any document to prove the purchase cost of the property, the AO treated the entire value of ₹ 20,57,000/- as short-term capital gain taxable in the hands of the assessee in the year under consideration.
Therefore, the first issue which arises for consideration pertains to the year of taxability of gains arising from the sale of the aforementioned immovable property. As noted above, as per the assessee, since the MOU between the parties was executed on 05.02.2004, therefore, the transaction is taxable only in the financial year 2003-04. On the other hand, as per the Revenue, since the lien on the property was cancelled by the bank only in the financial year 2010-11, and only thereafter the sale deed was executed and registered, therefore the transaction is taxable only in the year under consideration. From the perusal of the MOU dated 05.02.2004 entered into between the assessee and Mr Prakash Bhagwan Canser, forming part of the paper book from pages 16-20, we find that the fact regarding the property being kept as collateral security with the Bank of Maharashtra for the purpose of availing credit facility was disclosed. We further find that the assessee also declared that the original title documents of the said gala are lying in the custody of the Bank. The assessee further undertook that there are no other encumbrances or liabilities on the said gala, and it undertook to clear the charges on or before 31.03.2006. From the perusal of the terms of the MOU dated 05.02.2004, we find that both parties agreed that after realising the said gala from the charge of the bank, the parties will enter into a sale agreement and will execute all papers, applications, deeds and documents as may be necessary for the transfer of the said gala. We further find that the fact regarding the payment of ₹ 3 lakh as part consideration out of the total consideration of ₹ 12,51,000/- has also been mentioned in the MOU. The parties also agreed that the assessee shall hand over vacant and peaceful possession of the said gala to the purchaser w.e.f. 31.03.2004, and the purchaser agreed to discharge all outgoings such as society maintenance charges, license fees, etc., after receiving possession. The relevant clauses of the MOU, in this regard, are reproduced as follows: - “ NOW THEREFORE THIS AGREEMENT WITNESSETH AS UNDER 1. The party of the first part does hereby declare that the said gala along with the said shares have been pledged as collateral security to the Bank of Maharashtra, Gokhale Road Branch, Mumbai 400 028 for certain finance facilities enjoyed by M/s Dhote Offset Technokrafts Pvt. Ltd, a company registered under the Companies Act, 1956 in which the partners of the first part are the directors.
The party of the first part further declares that the original title documents of the said gala are lying in the custody of the aforesaid bankers.
The party of the first part also declares that, except the above mentioned charge, there are no other encumbrances and/or liabilities on the said gala and the said shares and it undertakes to clear the said charge on or before 31st March, 2006 and obtain "No charge certificate' from the bankers.
After releasing the said gala from the charge mentioned above, both the parties to this memorandum agree to enter into a sale agreement for the said gala. For this, the party of the first part agrees to sign and execute all such papers, applications, deeds and documents as may be necessary for transfer of the said gala and the said shares in favour of the party of the second part in the records of the said society and/or any other Government or Semi Government Bodies.
The party of the second part has already paid a sum of Rs.3,00,000/- (Rupees three lacs only) towards part consideration and it agrees to pay the balance consideration of Rs.9,51,000/- (Rupees nine lacs fifty one thousand only) in instalments before entering into the sale agreement. It is also agreed by and between both the parties that the said instalments will not carry any interest.
5. It is specifically agreed and confirmed that the party of the first part shall not be entitled to rescind this memorandum.
Parties of both parts to this memorandum agree as follows :- a. The party of the first part agrees to handover vacant and peaceful possession of the said gala to the party of the second part w.e.f. 31st March, 2004. b. After receiving the possession of the said gala as aforesaid, the party of the second part agrees to discharge all outgoings in relation to the said gala, like, Electricity bills (BSES), Society Maintenance Charges, Licence Fees etc.”
From the perusal of the documents placed on record, we further find that on 26.10.2010 the Bank of Maharashtra cancelled the lien over the aforementioned immovable property. On 09.12.2010, a sale agreement was entered into between the assessee and Mr Prakash Bhagwan Canser for the sale of the aforementioned immovable property for a total consideration of ₹ 12,51,000/-. From the perusal of the copy of the sale agreement, forming part of the paper book from pages 22-33, we find that the parties have duly taken note of the MOU entered into 05.02.2004 and partial consideration of ₹ 3 lakh paid by the purchaser via cheque on 03.01.2004 to the assessee. The assessee also acknowledged the payment of balance consideration in two tranches of ₹ 2 lakh via cheque and the balance amount of ₹ 7,51,000/- through cash. From the perusal of the copy of the sale agreement, we further find that the assessee acknowledged the handing over of peaceful and vacant possession, and the purchaser acknowledged the receipt of peaceful and vacant possession of the immovable property as per the sale agreement on receipt/payment of the agreed consideration.
Therefore, from the combined reading of the MOU dated 05.02.2004 and the sale agreement dated 09.12.2010, we find that it has not been mentioned anywhere that the peaceful and vacant possession of the immovable property was handed over to the purchaser in the financial year 2003-04. Further, as noted above, vide MOU, both parties agreed that only after realising of the immovable property from the charge of the bank, both parties agreed to enter into a sale agreement and execute all such papers, deeds and documents as may be necessary for the transfer of the said immovable property. During the hearing, the learned AR referred to the letter dated 28.06.2016 issued by Mr. Prakash Bhagwan Canser stating that the vacant and peaceful possession of the immovable property was taken by him on 31.03.2004, and since then, all the outgoings have been discharged by him. However, in light of the terms of the MOU and the possession certificate signed during the execution of the sale agreement, the aforesaid letter dated 26.08.2016 appears to be merely an afterthought. This fact is substantiated by the terms of the possession certificate annexed with the sale agreement, which provides explicitly that only on receipt of the agreed consideration, which is ₹ 12,51,000/- in the present case, the vacant and peaceful possession of the immovable property was handed over to the purchaser. There is no dispute regarding the fact that in the financial year 2003-04, only an amount of ₹ 3 lakh was paid to the assessee, and the final payment, which was more than 50% of the agreed consideration, was paid in the year under consideration.
Further, during the hearing, the learned AR also placed reliance upon the copy of the license issued by the Municipal Corporation of Greater Mumbai, and the NOC issued by the Mumbai Fire Brigade Department in order to support the contention that after 01.04.2004, the premise was in the possession of the purchaser. It is pertinent to note that the possession of the premises by any party cannot only be by way of purchase of the premises, but the same can also be pursuant to any other understanding between the two parties. Therefore, the mere fact that the licenses/NOC of the premises have been shown to be in the name of the purchaser cannot give rise to the conclusion that such possession was pursuant to the MOU executed between the parties. Due to the lack of conclusive evidence, we do not find any substance in the aforesaid reliance placed by the learned AR.
During the hearing, the learned AR also placed reliance upon various decisions. From the perusal of the decision, we find that the facts involved therein are not similar to the facts of the present case. Further, the learned AR also placed reliance upon the decision of the Coordinate Bench of the Tribunal in Gripwell Industries Ltd. Vs. ITO, and 5527/Mum/2002, order dated 20.11.2005. From the perusal of the aforesaid decision of the Coordinate Bench of the Tribunal, we find that in the facts under consideration before the Tribunal, the entire sale consideration was paid in the year of execution of the agreement to sale, which is not so in the present case. As noted above, only ₹ 3 lakh out of the total consideration of ₹ 12,51,000/- was paid to the assessee in the financial year in which the MOU was executed. More than 50% of the sale consideration was paid to the assessee in the year under consideration. Therefore, we are of the considered view that the aforesaid decision of the Coordinate Bench of the Tribunal does not support the case of the assessee, as the same is factually distinguishable. Accordingly, we are of the considered view that since the assessee received the original title document of the property only upon cancellation of lien by the Bank in the financial year 2010-11 and thereafter the sale agreement was executed on 09.12.2010, therefore the capital gain arising to the assessee from the said transaction is only taxable in the year under consideration. As a result, Ground no.2 raised in assessee’s appeal is dismissed.
In the paper book filed by the assessee, the assessee has placed on record an agreement to sale dated 19.08.1995 entered into between Mr. Valchand Rajmal Bhandari and the assessee, whereby the assessee has purchased the aforesaid property for a consideration of ₹ 12 lakh. Accordingly, we do not find any merits in the findings of the lower authorities and treating the cost of consideration at ₹ Nil. However, it is the claim of the assessee that since the depreciation has been claimed on the property, therefore, as per the provisions of section 50 of the Act, the capital gains arising thereon can only be taxed @ 20% as the property was held for more than three years. We find that the Special Bench of the Tribunal, vide majority view, in SKF India vs. DCIT, reported in (2025) 121 ITR (T) 307 (Mumbai – Trib.), observed as follows: - "44. Accordingly, we hold that capital gains arising out of the depreciable asset u/s 50 even though deem to be capital gain arising from transfer of a short term capital asset, that fiction has to be confined only to section 50 and it cannot convert 'short term capital asset' into a 'long term capital asset' and vice versa for the other purpose of the Act, either for set off against a long term capital loss or exemption provision were benefits is given from a long term capital gain on transfer of a long term capital asset or the rate of tax provided u/s 112 of the Act which clearly provides that income arising from transfer of a long term capital asset chargeable under the head capital gains, the amount of income tax calculated on such a long term capital gain shall be the rate of 20%. Thus, even section 50 treats that excess is to be taxed as capital gain arising from transfer of a short term capital asset but the rate of tax has to be applicable in terms of section 112 of the Act, because the treatment of a short term capital asset is only a purpose of section 50 and not otherwise can convert a 'long term capital asset' into a 'short term capital asset' for the purpose of rate of tax or any other provision of the Act. Accordingly, this question is answered in favour of the assessee holding that rate of tax applicable would be in terms of section112 of the rate of 20% and applicable surcharge.”
Accordingly, we direct the AO to compute the tax liability in the hands of the assessee on the capital gains arising on the aforesaid transaction in the year under consideration in the light of the decision of the Special Bench of the Tribunal in SKF India Ltd. (cited supra). Accordingly, Grounds no.3 and 4 raised in assessee’s appeal are allowed.
In the result, the appeal by the assessee is partly allowed. Order pronounced in the open Court on 08/08/2025