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Facts
The Assessee claimed Long Term Capital Gain (LTCG) on the sale of a property. The Assessing Officer (AO) treated it as Short Term Capital Gain (STCG) because the purchase rights were considered crystallized on the date of the agreement, not the initial booking date. The CIT(A) upheld the AO's order.
Held
The Tribunal noted that the CIT(A) did not properly appreciate the Assessee's submissions and failed to examine or adjudicate the contention that the right in the property was acquired more than 36 months before its sale. The CIT(A) also did not consider documents furnished by the Assessee and failed to provide factual findings.
Key Issues
Whether the capital gain arising from the sale of property is Long Term Capital Gain or Short Term Capital Gain, based on the date of acquisition of right in the property versus the date of the purchase agreement.
Sections Cited
Section 143(3), Section 2(14)
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Income Tax Appellate Tribunal, ‘B‘ BENCH MUMBAI
आदेश / O R D E R Per Rahul Chaudhary, Judicial Member 1. By way of the present appeal Assessee has challenged the order, dated 05/09/2023, passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘the CIT(A)’] for the Assessment Year 2015-16, whereby the Ld. CIT(A) had partly allowed the appeal of the Assessee against the Assessment Order, dated 05/12/2017, passed under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
Assessment Year: 2015-16 2. The Appellant has raised the following grounds of appeals: “.1. The learned CIT (A) NFAC (hereinafter referred to as 'the CIT (A)) has erred in law by not providing opportunity of personal hearing thereby violating the principle of Natural Justice In spite of specific requests made in Written Submission dt. 09.03.21 and also in replies filed to notices issued u/s 250 on 16.09.22 and 24.08.23. 2.1 The learned CIT (A) NFAC has erred in law and on facts in confirming Long Term Capital Gain of Rs. 40,11,769/- as Short term Capital Gain at Rs. 76,91,750/- without passing any speaking order on submissions made by the Appellant Co and without considering any authorities cited by the Appellant Co on the same issue and on the same facts and without any reasoning given by him le, on what basis submissions made by Appellant Co. and ratios of authorities cited are not acceptable to him. 2.2 Ld. CIT (A) as well as Ld. AO failed to appreciate the fact that Appellant Co. has not transferred Flat No. 3001 as the same was under construction when both agreements dt. 30.07.14 and 22.08.14 were executed but transferred interest in property in the said flat 3001 on 22.08.14 which is a Capital asset. Appellant Co. got the Interest in said property on 15.02.10 when booking amount Rs. 10,50,000 was made and thereafter progressive payments were made. '3. The Orders dt. 05/09/23 passed by Ld. CIT(A) NFAC as well as order dt. 05/12/17 u/s 143(3) passed by Ld. ACIT are bad in law as the same are not based on facts and based on assumptions or surmises or erroneous findings and has not considered submissions made by appellant.
3. The relevant facts in brief are that the Appellant is a private limited company engaged in the business of manufacturing and exporting of suiting and dress material. For the Assessment Year 2015-16, the Appellant filed return of income on 18/09/2015 declaring total income of INR 82,29,890/-. The case of the Appellant was selected for scrutiny. During the assessment proceedings, the Assessing Officer noted that the Appellant had claimed long term capital gain amounting to INR 40,11,769/- in respect of property being Flat No.3001, Wing-A, 30th Floor, Omkar Alta Monte, Malad (E), Mumbai [hereinafter 2 Assessment Year: 2015-16 referred to as ‘the Property’]. The Appellant was asked to substantiate the claim of long term capital gain and furnish the copy of purchase and sale documents alongwith complete working of long term capital gain. In response, the Appellant filed reply letters dated 12/09/2017, 29/09/2017 and 18/11/2017. On verification of the aforesaid reply letters and details of documents furnished by the appellant, the Assessing Officer was not convinced. According to the Assessing Officer (a) the Appellant has paid token money-cum-booking amount of INR.10,50,000/- as advance on 15/02/2010 and later progressive payment were made by Appellant over a period of time; (b) the total payments made by the Appellant were INR 51,25,042/-; (c) the developer/builder of the Property neither issued allotment letter nor issued any possession letter to the Appellant for the Property; (c) on 30/07/2014, the Appellant entered into a registered agreement for purchase of the Property for INR 54,34,350/-, and an amount of INR 3,69,604/- was shown as payable to the builder in future; (d) at the time of purchase of the Property the market value of the property is evaluate by the stamp valuation authority was INR.137,30,300/-; (e) during the same Financial Year 2014- 15, the Assessee vide another Agreement, dated 22/08/2014, had sold out the said property for INR 1,37,31,000/-; and on verification of the said agreement, it is noticed that, assessee company has sold the Property for INR.1,33,61,394/- out of which purchaser was asked to pay INR 3,69,606/ to the builder directly. On the occurring of the aforesaid transaction, the Appellant had claimed that the Long term capital gain income have arisen in the hands of the Appellant. However, on the basis of the aforesaid understanding, the Assessing Officer concluded that the Appellant had sold Property within the 3 Assessment Year: 2015-16 financial year in which it was purchased and therefore, notice was issued asking the Appellant to show-cause why the long term capital gain claimed by the Appellant should not be treated as short term capital gain. In response, Appellant filed reply, dated 27/11/2017, contending that right to obtain conveyance of property itself constituted property which fell within the definition of term ‘capital asset’ as defined in Section 2(14) of the Act and the transfer of the same resulted in long term capital gains in the hands of the Appellant. Since the Property was booked on 15/02/2010, the right of conveyance was vested in the Appellant on the said date. The aforesaid eight being property was transferred on 22/08/2014 after the expiry of 36 months from the date of acquisition. Therefore, the Appellant was entitled to claim the benefit of long term capital gain in respect of the same. However, the Assessing Officer was not convinced. According to the Assessing Officer, no rights were vested in the Appellant before 30/07/2014 either by way of allotment or otherwise. Merely giving advance did not create any right of the property. The amount of INR 10,50,200/- paid by the appellant to the builder on 15/02/2010 was in the nature of earnest deposit and did not create any right in the property. Since, purchase deed in respect of the Property was executed on 30/07/2014, according to the Assessing Officer the rights in the Property crystallized on the said date only. The Appellant acquired rights in the property on 30/07/2014 which was sold vide agreement dated 22/08/2014 resulting in short term capital gain in the hands of the appellant. Therefore, the Assessing Officer rejected the Appellant’s claim for long term capital gains and brought to tax short term capital gain of INR.76,91,750/- in the hands of the Appellant by computing 4 Assessment Year: 2015-16 the same as under: Particulars Amount (INR) Sale Consideration Received 1,37,31,000/- Less Cost of Acquisition to asset sold 51,25,042/- Less Connected Expenses 9,14,208/- Net Short Term Capital Gain 76,91,750/- 4. Being aggrieved, the Appellant carried the issue in appeal before the CIT(A). Detailed written submissions were filed by the Appellant before the CIT(A) on 09/03/2021 and 23/09/2022. Vide, order dated 05/09/2023, the CIT(A) agreed with the Assessing Officer and declined to interfere in the order passed by the Assessing Officer. Hence the present appeal has been preferred by the Appellant/Assessee before us on the grounds reproduced in paragraph 2 above.
The Learned Senior Counsel appearing for the Appellant, at the outset, submitted that the CIT(A) has failed to take into consideration the detailed submissions, dated 09/03/2021 and 23/09/2022, filed during the appellate proceedings. The CIT(A) had proceeded on the incorrect understanding that the case of the Appellant was that the Appellant had become absolute owner of the Property on payment of advance-cum-booking amount whereas the case set up by the Appellant was that the Appellant had acquired right/interest in the Property on securing the allotment and on payment of advance. The aforesaid right was recognized as property constituting a capital asset in terms of Section 2(14) of the Act which was transferred after expiry of 36 months and therefore, the Appellant was entitled to claim benefit of long terms capital gains. Our attention was also invited to the application for furnishing additional evidence, dated 27/02/2024, filed by the Appellant and it was submitted that the Appellant was bringing on record various demand letters issued by the builder to the 5 Assessment Year: 2015-16 showing payments as additional evidence along with letter issued by the builder/developer confirming that the Appellant has booked the Property and has secured rights therein since, February 2010.
On the other hand, the Learned Departmental Representative supported the order passed by the CIT(A) and relying upon the assessment order submitted that the Appellant had failed to establish that the Appellant had acquired any rights in the Property.
Having considered the rival submissions and on perusal of material on record including the orders passed by the authorities below, we noted that the CIT(A) has not dealt with the submissions advanced by the Appellant while disposing off this issue. The relevant findings of the ld. CIT(A) are contained in paragraph 4.2 to 4.22 of the order impugned which read as under:
“4.2 Ground of Appeal No.2: The facts of the case are that the appellant paid an amount of Rs. 10,50,000 as advance to a builder on 15.02.2010 for purchase of a property may be flat NO: 3001. The total purchase price was decided at Rs. 54,34,350/-. Whereas the property was adjusted vide purchase agreement on 30.07.2014. The Ld. AO claims that there is a short term capital gains as the property was sold on 22.08.2014. On the other hand, the appellant claimed the same as long term capital gains by claiming that the date of purchase should be on 15.02.2010. I have gone to the order of the A.O. and notice that he is primarily relying on the contention that the appellant has paid nearly a token amount on 15.02.2010. Subsequently the payments were made regularly but the claim of Assessment Year: 2015-16 ownership was only established when the agreement/registration has taken place.
4.2.1 On the other hand, the appellant has given his concluding submissions in the para 2.17 of his reply dated 09.03.2021 The Ld. A.O. has given his detailed findings in the para 6.7 to 6.11 in his assessment order. The appellant has coated certain case law to justify his contention.
4.2.2 I have gone through the assessment order as well as the submissions of the appellant and hold that the view taken by the Ld. A.O. is having merits as the advance payment for the purchase of the property is not sufficient to establish that the property was actually purchase. The Ld. AO was able to establish that the actual purchase transaction was taken place on 30.07.2014. This ground of the appellant is rejected.”
On perusal of the above, we find that the CIT(A) has failed to appreciate the submissions made by the Appellant. The contention of the Appellant, that the Appellant had acquired the right in the Property which was sold after expiry of 36 months, was neither examined nor adjudicated by the CIT(A). Further, it was also contended on behalf of the Appellant that the findings returned by the Assessing Officer were factually incorrect. However, we note that the CIT(A) has not taken into consideration any details/documents furnished by the Appellant and has failed to return any factual findings. Therefore, keeping in view of the facts and circumstances of the present case, we deem it appropriate to set aside the order passed by the CIT(A) on this issue and remand the issue raised back to the file of CIT(A) with a direction to adjudicate 7 Assessment Year: 2015-16 the same afresh taking into consideration submissions dated 09/03/2021 and 23/09/2022 filed by the Appellant and after granting the Appellant reasonable opportunity of being heard. The Appellant is directed to file all the relevant documents/details in support of its claim before the CIT(A). The CIT(A) is directed to take into consideration the additional evidences filed by the Appellant after calling for the remand report from the Assessing Officer in compliance with the provisions contained in Rule 46A of the Income Tax Rules, 1962. In terms of the aforesaid, Ground No.1, 2.1, and 2.2 raised by the Appellant are allowed for statistical purposes, while Ground No.3 is disposed of as being infructuous.
In the result, present appeal is allowed for statistical purposes.
Order pronounced on 28.03.2024.