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Facts
The assessee, a firm engaged in trading, distribution, and export of Cinematography Films, filed its return for AY 2013-14 declaring income of Rs. 15,09,800. The assessee sold a flat and declared Long Term Capital Gain after setting off brought forward losses. However, the AO treated the gain as Short Term Capital Gain, treating the date of registration as the date of acquisition.
Held
The Tribunal held that the date of allotment, as per the allotment letter, should be considered as the date of acquisition for capital gains purposes, relying on CBDT circulars and High Court decisions. Consequently, the gain was reclassified as Long Term Capital Gain.
Key Issues
Whether the date of allotment or the date of registration should be considered as the date of acquisition for the purpose of computing capital gains. Also, whether the AO correctly disallowed the set off of long-term losses.
Sections Cited
Sec. 143(2), Sec. 142(1), Sec. 54, Sec. 54F
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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SMT BEENA PILLAI & SMT RENU JAUHRI
Present for: Assessee by : Shri Satish R. Mody Revenue by : Ms. Sujatha Iyangar, SR. A.R. Date of Hearing : 21.11.2024 Date of Pronouncement : 20.12.2024 O R D E R Per Beena Pillai, JM: Present appeal arises out of order dated 30.04.2024 passed by NFAC for assessment year 2013-14 on following grounds of appeal: “GROUND NO.
1. The learned CIT(A) erred in upholding the contentions of the AO, considering the gains of Rs.1,28,57,674 as Long Term instead of Short Term though the same was contrary to the facts and circumstances of the case and the evidence available on record. GROUND NO. 2 Neptune Enterprises;A. Y.2013-14 The learned CIT(A) erred in upholding the gains computed by the learned AO, which are taken without considering the Cost of Acquisition of the asset and the incidental expenses claimed by the appellant. This is contrary to the facts of the case and provisions of the Act. GROUND NO. 3 The learned CIT(A) erred in upholding the contentions of the learned AO, in not allowing set off of Long-Term losses brought forwarded against the gains of the appellant. The same is contrary to the facts of the case and applicable provisions of the Act. The appellant craves leave to add, to alter or amend the aforesaid Grounds of Appeal, if called for, before the disposal of the appeal.”
Brief facts of the case are as under: 2. Assessee is a firm engaged in the business of trading, distribution, and export of Cinematography Films. Assessee filed its return of income for year under consideration declaring total income at Rs.15,09,800/-. The case of selected for scrutiny and notice u/s. 143(2) alongwith 142(1) of the act was issued. The Ld.AO on verification of the details noticed that, assessee shown Long Term Capital Gain on sale flats after setting off of brought forwards losses from A.Y. 2012-13 at Rs.14,58,747/-. 2.1. The Ld.AO noted that, the flats was sold on 30.05.2012, within period of less than 3 years. Considering the fact that, the registration for purchase of the flat by assessee was on 13.09.2011, the Ld.AO treated the sale proceeds of flat by assessee as Short Term Gain. The Ld.AO relied on the various decision tabulated in the assessment order in support of the view taken, thereby making addition in hands of assessee at Rs.1,28,57,674/-.
Neptune Enterprises;A. Y.2013-14 Aggrieved by the order of Ld.AO, assessee preferred appeal before the Ld.CIT(A) 3. Before the Ld.CIT(A), the assessee once again reiterated that, the date of acquisition of flat was on 20.10.2006, as per the letter of allotment issued by the builder M/s. Oberoi Construction Pvt. Ltd. The assessee filed details of the payment made towards the purchase of the flat that started from assessment year 2007-08 and the final payment made by the assessee during assessment year 2012-13. He submitted that, in the meantime the registration of the flat by the developer in the name of the assessee was on 13.09.2011. The assessee thus contended that, it had acquired the capital asset as on 20.10.2006 relevant to A.Y. 2007-08 and upon sale of such property on 30.05.2012, the sale proceeds would treated as Long Term Capital Gain. 3.1. The Ld.CIT(A) rejected the submissions of the assessee observed and held as under:- “It has been held above at para 4, that the capital gains arising out of the transfer of the flat are short term capital gains. The set off of losses is to be applied as per law as per provisions contained in chapter VI of the IT Act. Therefore, the action of the AO in disallowing setting off the STCG of the current year with the earlier years brought forward losses of LTCG is upheld.” Aggrieved by the order of the Ld.CIT(A), assessee preferred appeal before this Tribunal.
The Ld.AR submitted that, the assessee purchased residential flat under construction being Flat No. 1503 on the 15th Floor, A wing, in the building known as Oberoi Splendor, having built up Page | 3 Neptune Enterprises;A. Y.2013-14 area of 987sq.ft. alognwith two car park for sale consideration of Rs.90,50,225/-. He submitted that, the builder issued allotment letter on 20.10.2006 and assessee made payment of Rs.27,15,070/- upon issuance of the allotment letter. 4.1. It is submitted that, subsequently the balance payment was made by the assessee towards of purchase of said flat over the period of construction as mentioned in the allotment letter which is scanned and reproduced as under:-
4.2. The Ld.AR submitted that, these documents were available before this authorities below for consideration but was overlooked to determine the date of acquisition of said property. He submitted that, the authorities below wrongly proceeded on the basis of the date of registration of said flat in the name of assessee to be the date of acquisition, as a consequence of which, the said property is treated as a Short Term Capital Asset for the year under consideration. Page | 10 Neptune Enterprises;A. Y.2013-14 4.3. The Ld.AR placed reliance on the decision of Hon'ble High Court in case of Ld.PCIT vs. Vembu Vaidyanathan in vide order dated 22.01.2019, wherein the Hon'ble Court held that, the allotment letter issued would be in relevant date for the purpose of capital gain taxes to determine the date of acquisition. He placed reliance on the following observation of Hon'ble high court: “4. Having heard learned counsel for the parties, we notice that the CBDT in its circular No.471 dated 15th October, 1986 had clarified this position by holding that when an assessee 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.
This aspect was further clarified by the CBDT in its later circular No.672 dated 16th December, 1993. In such circular representations were made to the board that in cases of allotment of flats or houses by co-operative societies or other institutions whose schemes of allotment and consideration are similar to those of D.D.A., similar 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 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 31 December, 2004 on which the allotment letter was issued.” Page | 11 Neptune Enterprises;A. Y.2013-14 4.4. The Ld.AR placed reliance on the decision of Hon'ble Bombay high court in case of Ld.PCIT vs. Tata Services Ltd. reported in 122 ITR 594 and CBDT Circular No. 471 dated 15.10.1986 that clarified this position. Hon'ble Court in Ld.PCIT vs. Tata Services Ltd. (supra) held that when an assessee purchases flat under construction for which an allotment letter is issued the date of such allotment would be relevant date for the purposes of capital gain taxes, as date of acquisition. 4.5. On the contrary the Ld.DR placed reliance on the order passed by authorities below. We have perused the submissions advanced by both sides in light of records placed before us.
5. It is noted that, in the allotment letter dated 20.10.2006 the payment schedule to be followed towards the sale consideration is specifically mentioned, which has been adhered to by the assessee. It is noted that, assessee had paid sum of Rs.9,05,023/- as initial booking amount on 26.09.2006 and a sum of Rs.18,10,045/- was paid on 17.10.2006 though banking channels. It is noted that, subsequently payments made by the assessee to the builder has not been objected by the authorities below. 5.1. On perusal of the allotment letter, it is noted that it is only upon the termination of the allotment the assessee would not have right or interest claim of any nature whatsoever, either against the builder or against the said premises. Further, we place reliance on Neptune Enterprises;A. Y.2013-14 CBDT Circular No. 627 dated 16.12.1993 wherein it has been decided 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." 5.2. As observed by Hon'ble Bombay High Court in case of Ld.PCIT vs. Vembu Vaidyanathan (Supra), there is nothing on record brought by the revenue suggest that, allotment in the construction scheme promised by the builder to the assessee in present case is materially different from the case of the allotment as clarified by the CBDT in Circular No. 471 dated 15.10.1986 and 16.12.1993. 5.3. Respectfully following the ratio laid down by Hon'ble Bombay High Court (Supra), we hold that the assessee acquired the property as on the date of allotment from the builder dated 20.10.2006. Thus, the capital gain earned by the assessee upon sale of said flat is to be construed to be a Long Term Capital Gain. Accordingly Ground No. 1 raised by the assessee stands allowed.
Ground No. 2 is on computing the capital gains without considering the cost of acquisition of asset and other incidental expenses claimed by assessee. 6.1. It is noted that Ld.AO has not verified or called upon any details of the expenses as observed in Para 5(a) of the assessment order.
Neptune Enterprises;A. Y.2013-14 6.2. We, therefore, remand this issue back to the Ld.AO for necessary verification of the payment made by the assessee towards the acquisition by the assessee which forms part of the cost of acquisition for the purpose of computing Long Term Capital Gain in the hands of assessee. The assessee is directed to furnish all relevant details in respect of the same. Accordingly Ground No. 2 stands partly allowed for statistical purposes.
Ground no. 3 is an alternate claim raised by the assessee which becomes academic at the stage as we have considered the primary issue raised by assessee in favour hereinabove. Accordingly the grounds raised by the assessee stands allowed as indicated herein above. In the result, appeal filed by the assessee stands allowed as indicated herein above. Order pronounced in the open court on 20.12.2024.