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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI G.S. PANNU
The captioned appeal by the assessee is directed against the order of the CIT(A)-28, Mumbai dated 28.02.2013, pertaining to the Assessment Year 2009-10, which in turn has arisen from the order passed by the Assessing Officer dated 26.12.2011 under section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’).
In its appeal, the assessee has raised the following Grounds of appeal :-
“1. The learned CIT (Appeal) has erred in law and on the facts of the case in sustaining the order of the assessing officer computing long term capital gain at Rs. 33,63,333/- and allowing deduction of cost of acquisition Rs. 2,59,330/-.
2. The learned CIT (Appeal) has erred in law and on the facts of the case in not appreciating the fact that the assessee received Rs. 10 lakhs against the sale of capital asset.
3. The learned CIT (Appeal) has erred in law and on the facts of the case in not appreciating the fact that there has been no transfer of capital asset as per section 2(47)(v) of the Income Tax Act.
The learned CIT (Appeal) has erred in law and on the facts of the case in not appreciating the fact that once the capital asset is converted into stock- in-trade, provisions of section 2(47)(iv) r.w.s. 45(2) of the Income Tax Act were applicable and the capital gain is taxable in the year such stock is sold or transferred.”
At the outset, it was noted that the captioned appeal has been filed belatedly after a delay of 1406 days. The assessee has sought condonation of delay, and in support, a duly sworn Affidavit dated 22.3.2017 has been placed before the Bench. Further, the learned representative for the assessee has also supported the application by making varied submissions, which I will deal with a little later. Before proceeding to evaluate the reasons for the delay, I find it expedient to briefly touch upon the dispute between the assessee and the Revenue which has resulted in the captioned proceedings before the Tribunal.
4. The appellant is an individual who filed her return of income for the Assessment Year 2009-10 on 23.07.2010 declaring total income of Rs.2,49,310/-. The return of income was picked-up for scrutiny assessment, and in the course of such proceedings, the Assessing Officer noted that the assessee alongwith five other co-owners sold a property located at Deonar for a total consideration of Rs.60,00,000/-. The Assessing Officer also noted that the assessee had not offered any income by way of Capital Gains on such transaction, and that the same was noticed by virtue of the AIR information. The Assessing Officer noted that the stamp duty valuation authorities valued the property at Rs.2,01,80,000/-, and assessee being 1/6th owner, her share came to Rs.33,63,333/-. On account of the provisions of Sec. 50C of the Act the Assessing Officer show-caused the assessee as to why the value determined by the Stamp Valuation authorities be not taken as the full value of consideration for the purposes of computing the Capital Gains as against the stated consideration. For the said reason, the Assessing Officer disregarded the contention of the assessee that her 1/6th share in the consideration be taken at Rs.10,00,000/-, and instead the Assessing Officer adopted the 1/6th share of the valuation determined by the Stamp Valuation authority as assessee’s share of consideration for the determination of Capital Gains, thus he adopted the full value of consideration of Rs.33,63,333/-. In the assessment proceedings, assessee also made a claim that she had purchased a new residential property for a consideration of Rs.15,27,120/- and, therefore, sought exemption u/s 54 of the Act in relation to the Capital Gains earned. The Assessing Officer has accepted the said claim of the assessee and accordingly, determined the Long Term Capital Gain at Rs.18,36,213/- after reducing the exemption claimed u/s 54 of the Act of Rs.15,27,120/- from the full value of consideration adopted of Rs.33,63,333/-. This determination of Long Term Capital Gain of Rs.18,36,213/- was challenged by the assessee in appeal before the CIT(A).
Before the CIT(A), assessee, inter-alia, contended that the determination of Long Term Capital Gain of Rs.18,36,213/- was wrong inasmuch as the Assessing Officer did not consider the cost of acquisition of the property while determining the Capital Gains and the fact that the entire consideration has been invested in the purchase of a new residential property. Before the CIT(A), assessee also brought out on the basis of a letter and an Affidavit from her father that the only consideration received is Rs.60,00,000/-, which has been received Rs.10,00,000/- each by each of the six co-owners and so far as the allotment of three flats by the builder contained in the Conveyance Deed dated 10.08.2008 was concerned, the same were to go to the assessee’s father and his two sons and no flat was to accrue to the assessee. Notwithstanding the aforesaid, the assessee also brought out before the CIT(A) that the only sum she has received is Rs.10,00,000/-, and that the builder had so far not handed over any flat either to her or to any of her family members, and that there was no likelihood of her receiving any flat inasmuch as even the construction has not been started by the builder. None of the aforesaid assertions have been controverted by the CIT(A). In fact, the CIT(A) allowed the benefit of cost of acquisition for working out the Capital Gains, but upheld the application of Sec. 50C of the Act by the Assessing Officer for the purposes of determining the full value of consideration while computing the Capital Gains. The CIT(A) noted that in order to tax the Capital Gains it was not necessary that the entire amount should have been actually received by the assessee, and that since the builder has contracted with the assessee and the other co-owners and has undertaken the liability to pay the consideration which, inter-alia, included the three flats, the decision of the Assessing Officer in adopting the Stamp Duty valuation of the property as the full value of the consideration in terms of Sec. 50C of the Act was quite justified. Against such a decision of the CIT(A), assessee is in further appeal before the Tribunal.
In the above background, at the outset, the learned representative for the assessee pointed out that the assessee was a salaried employee working with Bhabha Atomic Research Centre as a Scientific Officer and her salary earnings were quite meagre and for that reason an experienced tax consultant could not be afforded by the assessee before the lower authorities. The learned representative has referred to the following averments contained in the Affidavit of the assessee and explained that due to financial constraints proper professional advice was not available with the assessee and thus, there was a delay in filing of the appeal :-
“(2) That my main income is income from salary and I had filed my return of income for assessment year 2009-10 declaring total income of Rs.2,49,310/-.
(3) That my income tax return was selected for scrutiny due to sale of joint property as I was 1/6 owner of the said property and to verify the capital gain in respect of my 1/6 share in the property. That during the assessment proceedings I had engaged a Chartered Accountant, Mr. Deepak Dharak, to represent me before the assessing officer since I had no knowledge of the provisions of Income
Tax Act. Mr. Dharak did not represent my case properly as he was not fully conversant with the provisions of the Act thereby which my assessment was completed on a total income of Rs. 20,85,520/- including long term capital gain of Rs.18,36,213/- and the assessing officer raised a demand of Rs.7,82,048/-.
(4) That subsequently, I filed an appeal before the CIT (Appeals) and also made an application for rectification u/s. 154 vide my letter dated 24-01-2012. During the course of the hearing before CIT (Appeals) I did not have a consultant and I personally along with my husband, Jagdish Keny, appeared before the CIT (Appeals). I contented before the CIT (Appeals) that my consideration was Rs. 10 lakhs and that the capital gain should be computed accordingly. Further, the CIT (Appeals) did not agree with my contention that there has been no transfer of capital asset as per section 2(47)(v) of the Income Tax Act since the builder had not yet commenced construction of the building due to non availability of access to the property .
(5) That after the receipt of the CIT (Appeals) order dated 28-02- 2013 I consulted the assessing officer as well as some professionals who advised me that my case was weak and I would not get any relief from the Tribunal. As such I did not file the appeal in time.
(6) That out of income tax demand of Rs. 7,82,048/- , I have already paid Rs. 4 lakhs approximately due to pressure from the Income Tax department and I do not have resources to make any further payment. My family is a lower middle class family, my father has retired and my brother is a bus driver with BEST.
(7) That the income tax assessment of my other family members were completed in March, 2015 by reopening the cases and similar additions were made. That I came to know from my brother, Mr. Sanjay Vaity, that they have filed appeals through a Chartered Accountant, Mr. Shekhar Gupta who is representing them. They have filed the appeals in time before the CIT (Appeals) and the same are pending.
(8) That I also requested Mr. Shekhar Gupta, Chartered Accountant to represent me in the matter. That after meeting with Mr. Shekhar Gupta sometimes in 2016, there has been some delay thereafter since I could not get leave from my job, had a daughter to look after and due to death of my father in August, 2016.
(9) That I am now filing the appeal before the Hon'ble Tribunal and considering the above facts of the case I request the Hon'ble Tribunal to condone the delay and admit the appeal since I believes my case is legally strong.”
The learned representative fairly conceded that the delay was enormous, so however, it was strongly urged that it is not the period of delay, but the reasons for the delay which is paramount while considering an application seeking condonation of delay. Before me, the learned representative for the assessee has heavily relied on the judgment of the Hon'ble Madras High Court in the case of United Christmas Celebration Committee Charitable Trust vs. ITO, [2017] 83 taxmann.com 293 (Madras) wherein a delay of 1631 days in filing of appeal before the Tribunal was condoned on the ground that the assessee did not have the best legal assistance available to it on account of paucity of funds. Apart therefrom, the learned representative has relied on the following judgments in support of appellant’s prayer for condonation of delay in filing of the appeal :- i) Collector, Land Acquisition vs. Mst. Katiji and Others, 167 ITR 471 (SC); and, ii) Subhash Malik vs. CIT, 325 ITR 243 (All)
On this aspect, the ld. DR has opposed the plea for condonation of delay by referring to the period of delay and the fact that assessee was negligent in not engaging a proper professional person.
I have carefully considered the reasons advanced by the assessee for seeking condonation of delay in moving the appeal before the Tribunal. As fairly pointed out by the learned representative, the delay in filing the appeal before the Tribunal in the instant case is quite enormous. The ld. DR has also emphasised this factor in opposing assessee’s plea seeking condonation of delay. In my considered view, the judgment of the Hon'ble Madras High Court in the case of United Christmas Celebration Committee Charitable Trust (supra) directly addresses such a controversy. The Hon'ble High Court was considering a delay of 1631 days and observed that apart from the period of delay, the quality of explanation and the legal assistance, if any, sought and rendered to the litigant are also important aspects to be looked at to come to a conclusion as to whether the delay was intentional and/or deliberate. On the basis of the material on record before it, the Hon'ble High Court inferred that it appeared that the assessee therein had not received the best legal assistance in the matter and, therefore, deemed it fit to condone even the undue delay of 1631 days. I am only trying to emphasise that in order to condone the delay, what is determinative is the quality of explanation and not merely the length of the delay. The Hon'ble Supreme Court in the case of Collector, Land Acquisition vs. Mst. Katiji & Ors., 167 ITR 471 (SC) opined that when technical consideration and substantial justice are pitted against each other, the courts are expected to further the cause of substantial justice. For the said reason, the Hon'ble Supreme Court has opined that while considering matters relating to condonation of delay, a judicious and liberal approach ought to be persued. In fact, the Hon'ble Supreme Court in the case of N. Balakrishnan vs. M. Krishnamurthy, (1998) 7 SCC 123 observed that in every case of delay there can be some lapse on the part of the litigant concerned, but that alone is “not enough to turn down his plea and to shut the door against him”. What has been emphasised is that if the explanation furnished by the assessee does not “smack of mala fides or it is not put forth as part of a dilatory strategy”, the delay would deserve to be condoned.
9.In the present case, the absence of appropriate legal assistance to the assessee is starkly evident from the record. Ostensibly, at the level of the CIT(A), assessee was not represented by any professional, but chose to present her case by herself alongwith her husband. The background of the assessee, which has been brought out before me and also narrated in the Affidavit, clearly brings out that the assessee cannot be expected to be well aware of the legal aspects of the tax- related disputes. No doubt, there is some inertia on the part of the assessee, which is quite evident, inasmuch as after the receipt of the order of the CIT(A), the assessee ought to have been more conscientious but the bona fides appear to be without blemish as the assessee has averred in the Affidavit that she did seek advice from some professional who advised her not to file any further appeal. It transpires from the averments, that assessee came to know from the other co-owners, who were being represented by a Chartered Accountant, that the assessee has an arguable matter and that she can hope to succeed provided the appeal is preferred before the Tribunal. Overall, the facts and circumstances of the case clearly bring out that the assessee could not get the best possible professional advice due to financial constraints is quite plausible. Considering the above, and in the light of parity of reasoning explained by the Hon'ble Madras High Court in the case of United Christmas Celebration Committee Charitable Trust (supra), the delay in the instant appeal deserves to be condoned. I hold so.
At the time of hearing, both the parties had addressed the dispute on merits also. The substantive grievance of the assessee is against the decision of the CIT(A) sustaining the action of the Assessing Officer adopting the full value of consideration at Rs.33,63,333/- by applying Section 50C of the Act. The learned representative for the assessee vehemently pointed out that the CIT(A) failed to take into account the fact that the taxability of Capital Gains is governed by the event of transfer of a Capital asset taking place in the relevant assessment year, and that in the instant year, there is no effective ‘transfer’ in the real terms so as to justify any addition on account of capital gains. The learned representative pointed out that before the CIT(A), assessee has uncontrovertibly pointed out that the Conveyance Deed dated 10.08.2008 between the assessee and her family members and M/s. Saroj Associate, the builder, on the other hand provided for receipt of three flats upto 500 sq. ft. built-up area each over and above the amount of Rs.60,00,000/-, which was already paid. It was pointed out that there was no likelihood of getting the three flats inasmuch as the construction of the property had not even started. The learned representative pointed out that even the possession has not been taken over by the builder and, therefore, it is a case where the Transferee has not performed his part of the contract and, therefore, the amount of Rs.60,00,000/- received in terms of the said arrangement is merely an advance and cannot be considered as an amount exigible to Capital Gains. Reliance was placed on the judgment of the Hon’ble High Court of Bombay in the case of Zauri Estate Development and Investment Co. Pvt.Ltd.,vs.DCIT (Assessment) and another, 271 ITR 269 (Bom.)
On this aspect, the ld. DR has relied upon the stand of the lower authorities in support of the case of the Revenue.
I have carefully considered the rival aspects and find that the assessee has a prima facie case based on the reasoning upheld by the Hon'ble Bombay High Court in the case of Zuari Estate Development and Investment Co. Pvt. Ltd. (supra). In the instant case, it appears that the assessee alongwith her other family members, being the co-owners of the property at Deonar, entered into Development Agreement with a builder, M/s. Saroj Associate vide Conveyance Deed dated 10.08.2008. The discussion in the order of the authorities below reveal that in terms of the said agreement, assessee and her family was to get three flats upto 500 sq. ft. built-up area each over and above the amount of Rs.60,00,000/-. It appears that the consideration of Rs.60,00,000/- has already been paid by the builder. Assessee brought out before the CIT(A) that the three flats stated in the agreement have yet not been given by the builder and the likelihood of getting it is also doubtful inasmuch as it is canvassed before him that the builder has not taken physical possession of the property and thus no construction has been started. The learned representative made a statement at Bar that the possession of the property was also not handed over to the builder inasmuch as the family continues to remain in the same property. On the basis of the aforesaid fact-situation, the learned representative has pointed out that there does not appear to be a ‘transfer’ within the meaning of Sec. 247(5) of the Act inasmuch as the absence of taking possession by the Transferee is quite significant, and shows that the transferee is not performing his part of the contract, and thus there is no transfer to workout capital gains; and the amount received is merely in the nature of advance. For this proposition, he has relied upon the judgment of the Hon'ble Bombay High Court in the case of Zuari Estate Development and Investment Co. Pvt. Ltd. (supra).
I find that the aforesaid plea being set-up by the assessee requires a factual appreciation of the affairs, which could appropriately be undertaken at the level of the Assessing Officer. Notably, in the orders of the authorities below, there are significant gaps in culling out the proper fact-situation. For instance, the entire terms and conditions of the Conveyance Deed dated 10.08.2008 between the assessee and her family members and M/s. Saroj Associate, the builder on the other hand have also not been culled out and to compound the matters further, even before the Tribunal the copy of the agreement has not being filed. Therefore, in my view, it would be appropriate if the matter is revisited by the Assessing Officer who shall consider all the facts which have a bearing on the tax liability of the assessee vis-a-vis the transaction with the builder with respect to the Deonar property, and decide afresh.
There is another fallacy which is quite apparent and needs to be examined. Pertinently, assessee had pointed out that the three flats have not been received and, therefore, the stated value of consideration was not crystallized. At this stage, the stated consideration was required to be crystallized, and only then it could be compared with the value adopted by the Stamp Duty Valuation authority for the purposes of section 50C of the Act. However, the Assessing Officer adopted the Stamp Duty valuation of the entire property; and, the same ought to have been appropriately dealt with by the lower authorities. However, I find that it has also been given a go- by and the CIT(A)who has upheld the action of the Assessing Officer in adopting the Stamp Duty valuation as the full value of the consideration for the purposes of computing Capital Gains. For all the above reasons, I deem it fit and proper to set-aside the order of the CIT(A) and direct the Assessing Officer to consider the issue relating to taxability of the transaction with the builder in accordance with law and on the basis of the material and evidence that the assessee may put forth before him. Needless to mention, the Assessing Officer shall allow the assessee a reasonable opportunity of being heard before passing an order afresh on this aspect as per law.
In the result, appeal of the assessee is allowed, as above.
Order pronounced in the open court on 30th October, 2017.