KARNA SINGH MEHTA,NEW DELHI vs. ACIT CIRCLE-61(1), NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES “C” : DELHI [THROUGH VIDEO CONFERENCING] BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA.No.9729/Del./2019 Assessment Year 2016-2017 Shri Karna Singh The ACIT, Circle61(1), Mehta, S-68, Panchsheel Park, Civic Centre, Minto Malviya Nagar, South vs., Road, New Delhi. Delhi, Delhi PIN 1210 017 PIN – 110 002 PAN AAYPM5611P (Appellant) (Respondent) Shri H.P. Agarwal, C.A. For Assessee : Shri Rajat Jain, C.A. & Shri Ashish Mendiratta, C.A. For Revenue : Ms. Anima, Sr. D.R. Date of Hearing : 14.06.2021 Date of Pronouncement : 30.06.2021 ORDER PER R.K. PANDA, A.M.

This appeal filed by the Assessee is directed against the Order dated 31.10.2019 of the Ld. CIT(A), Delhi- 20, relevant to the A.Y. 2016-2017.

2 ITA.No.9729/Del./2019 Shri Karna Singh Mehta, New Delhi.

2.1. The assessee submitted that the property was allotted to the assessee vide Builder Buyer Agreement Dated 11.04.2011 and allotment letter Dated 08.07.2011. According to the assessee, the allotment letter means that the buyer has the right to hold property and that period of holding should be considered from date of allotment. Relying on various decisions, it was argued that the period of holding is to be taken from the date of allotment letter and indexation is to be done on the basis of payments made. Relying on various decisions and CBDT Circular No.471 Dated 15.10.1986, it was argued that the computation done by the assessee is correct.

2.2. However, the A.O. was not satisfied with the arguments advanced by the assessee. According to him, the holding period in respect of capital asset sold on 25.01.2016 needs to be considered from the date of Conveyance/ Purchase Deed i.e., from 20.10.2015 instead of from the date of allotment letter i.e., 08.07.2011. Therefore, the gain

4 ITA.No.9729/Del./2019 Shri Karna Singh Mehta, New Delhi. that has accrued to the assessee in respect of the sale of the property is a short term capital gain and, therefore, benefit of indexation cannot be allowed to the assessee. The A.O. accordingly made addition of Rs.21,30,356/- as short term capital gain in the hands of the assessee.

2.3. In appeal, the Ld. CIT(A) confirmed the disallowance made by the A.O. While doing so, he distinguished the various decisions cited before him on the ground that assessee has paid around 50% of the total purchase consideration before 03 years from the date of sale of the property, whereas, in the cases cited by the assessee either full payments or substantial payments have been made and, therefore, those decisions are not applicable to the facts of the case.

“1. The Ld. CIT(A) has erred both in Law and on facts of the case in confirming the assessment order

5 ITA.No.9729/Del./2019 Shri Karna Singh Mehta, New Delhi. passed u/s 143(3) of the Income Tax Act, 1961, in respect of addition made by the Ld. Assessing Officer to income of the assessee amounting to Rs.21,30,356/-, by treating long term capital asset as short term capital asset, without giving benefit of indexation under second proviso to section 48 of the Income Tax Act, 1961.

2. Ld. CIT(A) has erred both in Law and on facts of the case in confirming the action of the Ld. Assessing Officer regarding levy of interest under section 234B of the Income Tax Act, 1961.

3. Ld. CIT(A) has erred both in Law and on facts of the case in confirming the action of the Ld. Assessing Officer regarding levy of interest under section 234D of the Income Tax Act, 1961.

4. Ld. CIT(A) has erred both in Law and on facts of the case in confirming the action of the Ld. Assessing Officer regarding initiation of penalty

6 ITA.No.9729/Del./2019 Shri Karna Singh Mehta, New Delhi. proceedings u/s 271(l)(c) of the Income Tax Act, 1961.

5. The appellant craves leave to amend, delete or add any ground of appeal before or during the course of hearing of the appeal.”

3.1. Learned Counsel for the Assessee submitted that the A.O. in the instant case has totally ignored the fact that the Buyer’s Agreement and allotment letter in respect of property in question was entered into on 11.04.2011 and 08.07.2011 respectively. As per Clause-3 of the Conveyance Deed, it gives reference to the allotment letter Dated 08.07.2011. He submitted that the A.O. has completely ignored this fact and treated the asset to be short term capital asset which is not correct. Further the Ld. CIT(A) distinguished the various decisions cited before him on the ground that assessee has only paid 50% of the purchase consideration before 03 years of sale of the property and, therefore, such asset has to be treated as short term capital asset.

7 ITA.No.9729/Del./2019 Shri Karna Singh Mehta, New Delhi. 3.2. Learned Counsel for the Assessee submitted that an allotment letter means that the buyer has the right to hold the property. Therefore, execution of sale deed at the subsequent date is irrelevant. He submitted that it is not necessary that the buyer needs to be the owner of the asset with a Registered Deed of Conveyance to determine the holding period. Further payment of installments is only a follow-up action and taking the plea of possession is only a formality. Referring to Circular No.471 Dated 15.10.1986, copies of which are placed at Page-80 of the paper book, he submitted that it is clearly mentioned that for the purpose of calculation of capital gain, period of holding is to be calculated from the date of allotment letter. Referring to CBDT Circular No.672 Dated 16.12.1993, copy of which is placed at Page-81 of the paper book, he submitted that the CBDT has clarified that in case of allotment of flat or house by Cooperative Societies or other institutions whose schemes of allotment and consideration are similar to those of DDA, similar view should be taken as was done in the Board Circular Dated 15.10.1986. Referring to the following 8 ITA.No.9729/Del./2019 Shri Karna Singh Mehta, New Delhi. decisions, he submitted that in all these decisions it was held that period of holding is to be taken from the date of allotment letter and payment of installment is only a follow- up action and taking delivery of possession is only a formality. Judgment of Hon’ble Bombay High Court in the case of 1. Principal Commissioner of Income Tax-3, Mumbai v. Vembu Vaidyanathan [2019] 101 taxmann.com 436. Judgment of Hon’ble Punjab and Haryana High Court 2. in the case of Ms. Madhu Kaul v. Commissioner of Income-tax, Chandigarh [2014] 43 taxmann.com 417. Order of ITAT, Bangalore Bench in the case of Sri 3. Mahendrasingh Ramsingh v. ITO [ITA No. 32/Bang/2018]. Order of ITAT, Bangalore in the case of L. Vivekananda 4. v. Assistant Commissioner of Income Tax Circle-1(1), Mysuru [2021] 124 taxmann.com 67. Judgment of the Hon’ble Delhi High Court in case of 5. Commissioner of Income Tax v. Jitendra Mohan [2007] 165 Taxman 524 (Del.) Order of ITAT, Delhi ITAT in the case of Praveen Gupta 6. vs., ACIT [2012] 20 taxmann.com 308. 3.3. He submitted that the holding period needs to be considered from the date of allotment letter and the gain that has accrued to the assessee is a long term capital gain and accordingly benefit of indexation should be allowed on the basis of payments made for purchase of immovable property.

9 ITA.No.9729/Del./2019 Shri Karna Singh Mehta, New Delhi. 4. The Ld. D.R. on the other hand, heavily relied on the Order of the A.O. and Ld. CIT(A).

5. We have considered the rival arguments made by both the sides, perused the Orders of the A.O. and Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee in the instant case vide Buyers Agreement Dated 11.04.2011 agreed to purchase flat situated at F-502, “Aura”, Sector-110/A Tehsil & District Gurgaon, Haryana. The total sale consideration of this flat was Rs.76,40,625/- and the total area of Flat was 1875 sq. feet. Some additional charges on account of preferred location charges, external development charges, car parking charges etc., were also liable to be paid by the assessee for that flat. The allotmen letter in respect of the Flat was given to the assessee on 08.07.2011, copy of which is placed at pages-34 and 35 of the paper book. Later on at the request of the assessee vide Conveyance Deed Dated 20.10.2015 the area of the Flat was increased from 1875 sq. feet to 1954 sq. feet and basic agreed sale consideration was revised from 10 ITA.No.9729/Del./2019 Shri Karna Singh Mehta, New Delhi. Rs.76,40,625/- to Rs.85,40,675/-. A perusal of the copy of the Conveyance Deed Dated 20.10.2015, placed at Pages 36 to 52 of the paper book shows that the last Para at Page-3 of the Conveyance Deed mentions the allotment letter in respect of the Flat given to the assessee on 08.07.2011. We find the said Flat was sold by the assessee on 25.01.2016 and the assessee determined the long term capital loss at Rs.2,15,746/- treating the asset as long term capital asset. We find the A.O. held that holding period in respect of capital asset sold on 25.01.2016 needs to be considered from the date of Conveyance/Purchase Deed i.e., from 20.10.2015 instead of the date of allotment letter i.e., from 08.07.2011. He, therefore, held that the gain that has accrued to the assessee in respect of the sale of the property is a short term capital gain and, therefore, benefit of indexation cannot be allowed to the assessee. We find the Ld. CIT(A) while confirming the action of the A.O. also distinguished various decisions on the ground that assessee has paid around 50% of the total purchase consideration before 03 years from the date of sale of the property.

11 ITA.No.9729/Del./2019 Shri Karna Singh Mehta, New Delhi. 5.1. It is the submission of the Learned Counsel for the Assessee that the allotment letter means that the Buyer has the right to hold the property and, therefore, execution of the Sale Deed at a subsequent date is irrelevant. It is also his submission that it is not necessary that the buyer needs to be owner of the asset with a Registered Sale Deed of Conveyance to determine the holding period. Further the payment of installments is only a follow-up action and taking delivery of the possession is only a formality.

“2. This question arises in following background. The respondent-assessee is an individual. The assessee had filed the return of income for the assessment year 2009-10 and claimed long term capital gain arising out of capital

12 ITA.No.9729/Del./2019 Shri Karna Singh Mehta, New Delhi. asset in the nature of a residential unit. During the course of assessment the Assessing Officer examined this claim and came to the conclusion that the gain arising out of sale of capital asset was a short term capital gain. The controversy between the assessee and the revenue revolves around the question as to when the assessee can be stated to have acquired the capital asset. The assessee argued that the residential unit in question was acquired on the date on which the allotment letter was issued by the builder which was on 31st December, 2004. The Assessing Officer, however, contended that the transfer of the asset in favour of the assessee would be complete only on the date of agreement which was executed on 17th May, 2008.

13 ITA.No.9729/Del./2019 Shri Karna Singh Mehta, New Delhi. purchases a flat to be constructed by Delhi Development Authority ("D.D.A." for short) for which allotment letter is issued, the date of such allotment would be relevant date for the purpose of capital gain tax as a date of acquisition. It was noted that such allotment is final unless it is cancelled or the allottee withdraw from the scheme and such allotment would be cancelled only under exceptional circumstances. It was noted that the allottee gets title to the property on the issue of allotment letter and the payment of installments was only a follow-up action and taking the delivery of possession is only a formality.

14 ITA.No.9729/Del./2019 Shri Karna Singh Mehta, New Delhi. view should be taken as was done in the board circular dated 15th October, 1986. In the circular dated 16th December, 1993 the board clarified as under :

"2. The Board has considered the matter and has decided that if the terms of the schemes of allotment and construction of flats/houses by the co-operative societies or other institutions are similar to those mentioned in para-2 of Board's Circular No.471, dated 15-10-1986, such cases may also be treated as cases of construction for the purposes of sections 54 and 54F of the Income-tax Act."

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 15 ITA.No.9729/Del./2019 Shri Karna Singh Mehta, New Delhi. 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.

6.1. We find that the above decision was challenged by the Revenue before the Hon’ble Supreme Court and the SLP filed by the Revenue was dismissed.

6.2. We find the Hon’ble Punjab & Haryana High Court in the case of Ms. Madhu Kaul v. Commissioner of Income-tax, Chandigarh reported in [2014] 43 taxmann.com 417), while deciding an identical issue, has held as under :-

16 ITA.No.9729/Del./2019 Shri Karna Singh Mehta, New Delhi. “7. We find no distinction between the opinion recorded in the aforesaid judgment and the controversy in the present case. Admittedly, the flat was allotted to the appellant on 07.06.1986, vide letter conveyed to the assessee on 30.06.1986. The assessee paid the first installment on 04.07.1986, thereby conferring a right upon the appellant to hold a flat, which was later identified and possession delivered on a later date. The mere fact that possession was delivered later, does not detract from the fact that the allottee was conferred a right to hold property on issuance of an allotment letter. The payment of balance installments, identification of a particular flat and delivery of possession are consequential acts, that relate back to and arise from the rights conferred by the allotment letter.

6.3. We find the Coordinate Bench of the Tribunal in the case of Praveen Gupta vs., ACIT reported in (2012) 20 taxmann.com 308 has held as under :-

“29. According to the aforementioned definition, capital asset means property of any kind held by an assessee whether or not connected with the business or profession and it excludes certain items which while considering the facts of the present case are not relevant. Therefore, it has to be seen that whether by entering into an agreement vide which the assessee was allotted a particular flat by allotment letter whether the assessee has held any asset or not. By entering into an agreement to allot a flat, the assessee has identified a particular

18 ITA.No.9729/Del./2019 Shri Karna Singh Mehta, New Delhi. property which he intended to buy from the builder and the builder is also bound to provide the applicant with that property by accepting certain advance amount and making agreement for balance payment as scheduled in the agreement. Thus, going into the provisions, it is not necessary that to constitute a capital asset the assessee must be the owner by way of a conveyance deed in respect of that asset for the purpose of computing capital gain. The assessee had acquired a right to get a particular flat from the builder and that right of the assessee itself is a capital asset. The word 'held' used in s. 2(14) as well as Explanation to s. 48 clearly depicts that assessee must have some right in the capital asset which is subject to transfer. By making the payment to the builder and having received allotment letter in lieu thereof, the assessee will be holding capital asset and, therefore, the benefit of indexation has to be granted to the assessee on the basis of payments

19 ITA.No.9729/Del./2019 Shri Karna Singh Mehta, New Delhi. made by him for acquiring the said asset and the assessee has rightly claimed the indexation benefit from the dates when he has made the payments to the builder. Therefore, we see force in the claim of the assessee. The AO is directed to provide the benefit of indexation to the assessee in the manner in which the assessee has claimed.

6.4. Since the assessee in the instant case was allotted the property vide agreement Dated 11.04.2011 and allotment letter dated 08.07.2011, therefore, he has acquired a right in the asset and such right is a capital asset and payment of installments as per the terms is only a follow-up action and taking delivery of possession is only a formality. Therefore, the assessee in our opinion has correctly computed the long term capital loss. We, therefore, set aside the Order of the Ld. CIT(A) and direct the A.O. to allow the long term capital loss claimed by the assessee.

20 ITA.No.9729/Del./2019 Shri Karna Singh Mehta, New Delhi. Grounds of appeal No.1 of the assessee is accordingly allowed.

7. So far as Ground Nos.2 and 3 are concerned, the assessee in the said grounds has challenged the levy of interest under section 234B and 234D of the I.T. Act, 1961. Levy of interest under the above provisions, in our opinion, are mandatory and consequential in nature. Therefore, the above grounds are dismissed.

8. In Ground No.4 of the appeal, the assessee challenged the initiation of the penalty proceedings under section 271(1)(c) of the I.T. Act, 1961 which in our opinion is premature at this juncture and, therefore, Ground No.4 is dismissed.

9. Ground No.5 is general in nature and, therefore, the same is dismissed.

21 ITA.No.9729/Del./2019 Shri Karna Singh Mehta, New Delhi. Order pronounced in the open Court on .06.2021.