NEERU MOHAN NAGPAL,JAIPUR vs. INCOME TAX OFFICER, ITO WARD 2(3)

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”B” JAIPUR MkWa- ,l-lhrky{eh] U;kf;d lnL; ,oa Jh jkBksM deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA. No. 151/JPR/2022 fu/kZkj.k o"kZ@Assessment Years : 2016-17 cuke Neeru Mohan Nagpal Income Tax Officer, Plot No. 5, Kirti Nagar, New Vs. Ward-2(3), Jaipur. Sanganer Road, Sodala, Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AACPN 8190 N vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by :MS. Pallavi Khuntenta, (C.A.) jktLo dh vksj ls@ Revenue by : Shri Anoop Singh (Addl. CIT) lquokbZ dh rkjh[k@ Date of Hearing 06/02/2024 mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 03/05/2024 vkns'k@ ORDER

PER: DR. S. SEETHALAKSHMI, J.M.

This is an appeal filed by the assessee against the order of the ld. CIT(A), National Faceless Appeal Centre, Delhi [hereinafter referred to as “NFAC/CIT(A)”], dated 17.03.2022 for the assessment year 2016-17, which in turn arise from the order dated 12.12.2018 passed under section 143(3) of the Income Tax Act (hereinafter “Act”) by the ITO, Ward-2(3), Jaipur.

2 ITA No. 151/JPR/2022 Neeru Mohan Nagpal vs. ITO

“1. The learned Assessing Officer has mentioned that the reason for not allowing the claim was that there was no formal transfer of property by way of execution of sale deed between the vendor and vendee and no physical possession was taken by the vendee. The learned CIT (Appeals), National Faceless Appeal Centre has rightly considered and allowed that the transaction is in the nature of capital assets and vendee has got the right in the above property through "Unit buyers agreement ". The learned CIT (Appeals) has not granted relief of set off of capital loss from capital gain to the assessee, by saying that the capital loss did not arise to the assessee by relinquishment of its right in property but occurred on account of the failure by the assessee to perform its contractual obligation, as a result of which the vendor obtained the right to forfeit the amount paid for booking and installments on various dates.

22.08.2016 declaring total income of Rs. 19,69,643/-. The case was

selected for limited scrutiny under CASS. The statutory notice under

section 143(2) of the Income Tax Act, 1961 mentioning reasons for

selection in scrutiny was issued on 04.08.2017 by the ITO ward 2(4),

Jaipur. Thereafter the notice u/s 142(1) of the Act was issued on

3 ITA No. 151/JPR/2022 Neeru Mohan Nagpal vs. ITO 10.11.2018 along with query letter. In response to this notice the assessee

submitted his reply online and by post and in person also. All the replies

are placed with record. The ld. AO noted that assessee has filed her return

of income originally on 26.07.2016 declaring the total income at Rs.

58,27,740/- and further revised her return of income on 22.08.2016

declaring the total income of Rs. 30,37,190/- on which after claiming

current year losses of Rs. 10,67,547/- the total income declared was of Rs.

19,69,643/-. It is further seen that the long-term capital gain was of Rs.

27,90,552/- in the original return of income but the same was reduced to

NIL in the revised return of income. Current year losses of Rs. 10,

67,547/- were claimed in the revised return of income whereas same was

at Rs. NIL in the Original return of income. Accordingly, the assessee was

asked to explain the reason for the same along with all the evidence in

support of her revised claims as claimed in the revised ITR filed on

22.08.2016.

3.1 The submissions have been considered carefully. It is seen from the

replies filed by the assessee that the assessee has claimed LTCG of Rs.

27,90,552/- in the original ITR filed for the A.Y. 2016-17 but the same

was reduced to NIL in her revised ITR filed for the A.Y. 2016-17. The

4 ITA No. 151/JPR/2022 Neeru Mohan Nagpal vs. ITO assessee has submitted that she has sold two properties, out of which one

property she has shown capital gain of Rs. 27,90,552/- in the original ITR

but has not considered the Capital Loss for the unit no 756, JMD

Magapolis Suhana Road Gurgoan which was of Rs. 38,58,099/-, For this

reason she revised her ITR and the total income of Original ITR of Rs.

59,67,738/- was revised to Rs. 31,77,186/-. The difference of Rs. 27,

90,552/- was due to set off of Capital gain. The total Capital Loss of Rs.

38,58,099/- which was set of to the extent of Rs. 27,90,552/- and balance

amount of Rs. 10,67,547/- was carried forward to next year as Capital

Loss. It is seen from the details filed that the assessee made an agreement

on 13.04.2007 for purchase of unit no 756 in the IT Park JMD Magapolis

Gurgoan. As per the agreement of the sale of this property the basic sale

consideration was of Rs. 70,73,500/- on which assessee has to further pay

parking amount of Rs. 4,00,000/- external development charges of Rs.

3,53,675/-, infrastructure development charges of Rs. 44,462/-, interest

free maintenance security of Rs. 2,52,625/-, electricity connection

charges of Rs. 1,11,155/-, contingency deposit of Rs. 1,41,470/- and

service tax etc. further interest on delayed payment of installment is also

paid by the assessee. Thus the assessee submission that she has allotted

the above property for a consideration of Rs. 70, 73,500/- was not totally

5 ITA No. 151/JPR/2022 Neeru Mohan Nagpal vs. ITO correct. This property was purchased by the assessee for an actual

consideration of Rs: 84,50,587/- (excluding the amount of interest from

the value shown in statement of account dated 08.07.2014 submitted as

Annexure "K"). From the perusal of unit buyers' agreement (Annexure

"J") it appears that no formal transfer of this property was ever made to

the assessee from the builder and the property in question was never in

possession of the assessee. The property was once booked by the assessee

on 13.04.2007 with certain conditions as mentioned in the agreement by

paying booking amount. The rest of the amount was paid in certain

installments and after completion of the entire payment schedule the

rights of ownership would be transferred to the assessee. The said

agreement is only a mutual acceptance between builder and the buyer

stating the description of the property on the estimate basis as it is clearly

mentioned in the agreement the area and percentage are tentative and are

subject to change at the time of final approval of building plan and also

on completion of the project. Hence the submission of the assessee that

she was enjoying ownership of the property is not correct and her also her

claim that she was having rights in this property was also not correct. No

formal allotment letter in respect of this property was issued by the

builder which shows any kind of ownership of the assessee in the said

6 ITA No. 151/JPR/2022 Neeru Mohan Nagpal vs. ITO property. Further, the assessee has not paid due installments and was

defaulter in payment and accordingly the builder forfeited the certain

amount and paid the rest of the amount to the assessee.

3.2 It is clear from the above discussion that there was no transfer of

the Capital Asset in the name of the assessee by the builder for which

Capital Loss claimed by the assessee in her ITR. Further the cost of this

capital asset was never paid by the assessee and in fact the assessee was

defaulter for the nonpayment of the installments and due to large dues,

she approached to the builder for the final settlement and for this breach

of the contract, the builder forfeited the certain amount and re-paid the

rest of the amount which cannot be claimed as Capital Loss. Thus,

assessee claim that she was any rights in the above property is not

acceptable. Hence assessee claim of short-term capital loss of Rs. 38,

58,099/- in the revised ITR is here by disallowed.

preferred an appeal before the ld. CIT(A). Apropos to the grounds of the

appeal so raised by the assessee, the relevant finding of the ld. CIT(A) is

reiterated here in below:-

7 ITA No. 151/JPR/2022 Neeru Mohan Nagpal vs. ITO

“Justification & Decision for grounds of appeal No.6- The next issue that has to be decided is whether the right to acquire the property has been "transferred" in accordance with section 2 (14) of the I. T. Act so as to result in the incurring of capital loss by the appellant. As per Section 2(14) of the I. T. Act, the word transfer in relation to capital asset has been defined to include 'sale, exchange or relinquishment of the asset or the extinguishment of any right therein". The appellant has argued that it had a right that instead of assigning the right to third party/parties, the assessee can relinquish those rights by terminating the earlier agreement with the vendor and by allowing the vender to sell the said property to any person at any price. Thus, the appellant has argued that by at by the ter termination of earlier agreement and by allowing the vender to sell the said property to any person at any price, the appellant had given up or relinquished her right of specific performance and that tantamount to "transfer" of her right to the property. The appellant during the course of the appeal proceedings stated as under- (E) That due to heavy Capital cost demanded by the developer by way of interest for not making timely payment, and asking for extreme price for external development charges, parking cost, maintenance security deposit and electricity charges etc. the cost of the said unit has gone to Rs. 125,17,8241-. The basic price of the unit was the same as determined in the allotment letter. The demand note of dt. 8th July, 2014 has been filed to the assessing officer vide letter dt. 18th August, 2017 demanding of Rs.125,17,824/- (Annexure-K). Due to increasing in the cost value of the property, it has created an unviable situation because the purpose of buying the unit was to give on rent which seems to be unattainable as rental value has decreased significantly; therefore it was decided to extinguish her right in this specified property. There was no buyer in the market for this incomplete unit and the assesse was forced to surrender her right in the property in favour of the developer for a consideration of Rs. 11 Lacs. Ultimately, the assesse has incurred a capital loss of Rs.(-) 38,58,099/- (sale consideration 11,00,000/- minus indexing cost of Rs. 49,58,099/- on the investment of Rs. 24,75,725/- paid to developer by the assesse on various dates). The cancellation agreement executed on dt.15th June, 2015 between the assesse and the developer is being enclosed herewith for your kind perusal (Schedule-2) That in the case of K.R.Shrinath v. Asstt, CIT11, and the High Court of Madras held that the right, title and Interest acquired under the agreement of sale clearly fall within the definition of capital asset. That the word "transfer", in relation to a capital asset is defined under section

8 ITA No. 151/JPR/2022 Neeru Mohan Nagpal vs. ITO

2(47) is wide enough to includes the sale exchange or relinquishment of the asset or the astonishment of any right therein or the compulsory acquisition thereof under any law. Thus, the assessee had a right that instead of assigning the right to third party/parties, the assessee can relinquished those rights by terminating of the earlier agreement and by allowing the vendor to sell the said property to any person at any price. K.R. Sri Nath (Mndras) 268 ITR 336: was held that the assessee had a right to insist on specific performance, gave up the right readily and received a sum. There can be no doubt that by termination of the earlier agreement and by allowing the vendor to sell the said property to any person at any price, the assessee had given up or relinquished his right of specific performance and as consideration for relinquishing that right, the assessee was paid a sum of Rs. 6, 00,000/- The right, title and interest acquired under the agreement of sale clearly fall within the definition of capital asset (s.2 (14)]. Instead of assigning the right to third party/parties, the assessee relinquished those rights. We have already seen that the definition of transfer in s. 2(47) is wide enough to include relinquishment of an asset. 6. Other cases laws are enclosed hereby for your kind perusal. A. Girish C. Bathijavs Income Tax Officer on 23 July, 2007 B. J.K. Kashyapvs A.C.I.t on 11th March, 2008. C. Commissioner of Income Tax vs Jindas Panchand Ghandi on 14th September 2005 7. It has been held by supreme Court in:- A. CIT v Poddar Cement (p) Ltd. [1997] 226 ITR 625 (SC) B. INGO CIT v. Vegetable Products Ltd [1973] 88 ITR 192 In view of above facts, the assesse has rightly claimed and correctly set off the capital loss from capital gain earned on sale of another property during the year under reference and unabsorbed portion of capital loss has been rightly carried forward for the set off in the subsequent year. C. The assessee invites your kind attention on Board Circular NO. 471 DT. 15/10/1986 and circular number 672 dt. 16/12/1993 permits that the allottee gets title to the property on issuance of an allotment letter and that the payment of installment is only consequential action upon which the delivery of possession flows. Keeping in view of above circular the High Court concluded in many cases that the right in the property vested on the day on which specific number of flat/unit was allotted to the assessee and accordingly the period of holding shall be reckoned from the date of issuance of allotment letter.

9 ITA No. 151/JPR/2022 Neeru Mohan Nagpal vs. ITO

In view of above facts and case laws, your kind honour is requested to allow to set off the loss under capital gain head on the property at SF 756, JMD mega polis I.T park, Sohna Road, Gurgaon in the year under reference to the extent of capital gain available and the rest capital loss be allowed for set off in the subsequent years. In view of above facts and circumstances, the view taken by the learned assessing officer seems to be wrong and unjustified as allotment letter is sufficient proof of investment in the property. The asseessee possesses the right in the property to acquire it and such right in the property is also transferable, physical possession of the property and execution of legal document is not necessary for proving right in the property. Your kind honour is requested to allow to set off the loss under capital gain head on the sale of property at SF 756, JMD mega polis IT park, Sohna Road, Gurgaon in the year under reference to the extent of capital gain available and the rest capital loss be allowed for set toff in if in the subsequent years. The assessment order, the grounds of appeal, the submission of the appellant and the documents submitted by the appellant have been carefully perused. The appellant had relied upon the case of Sri KR Srinath Vs. Asstt. Commissioner of Income Tax, (T.C.A No. 59 of 2002 dt. 20.04.2004 of High Court of Madras). In this case, the assessee had entered into an agreement for the purchase of a property and had paid a certain sum of money to the seller. After four years, another agreement dt. 21.03.1990 was entered into the nature of deed of cancellation and the assessee was paid a certain sum of money by the seller of the land. The Hon'ble High Court held that it was a transfer of property as the assessee had extinguished his right in an immovable property as per Section 2(47) of the Act. But in this case, in paragraph four and clause No.2 of the agreement, as stated in the order of the Honourable Court, the vender had sought for the cancellation of the said agreement and in consideration thereafter had agreed to refund the advance and the purchaser had agreed for the same. Thus, it is seen that the cancellation of the agreement was at the request of the vender and not of the purchaser. Hence, the facts of this case are not similar to the present case in hand. Similarly, in the case of CIT Vs. Tata Tele Services Ltd. (122 ITR 594) relied upon by the appellant, the assessee had entered into an agreement to purchase a residential plot and had paid Rs.90,000/- as earnest money. The vender was under the obligation to obtain necessary permission from the Municipal Authorities for the sub-division of the plot. Due to certain disputes, the vender wished to cancel the agreement and the assesseee received a certain sum of money. However, in this case also the vender insisted on the termination of the contract of the agreement and the court held that the amount received on the relinquishment of the right to have the property conveyanced was a valid transfer u/s 2(47) of the Act. However, in this case also, the facts are different from the case in hand as the contract was terminated at the request of the

10 ITA No. 151/JPR/2022 Neeru Mohan Nagpal vs. ITO

vender and not of the purchaser. Similarly in all the cases cited by the appellant, the agreement to sell have been cancelled at the behest of the vender and thus the facts of these cases are not applicable to the present case. In the case of CIT Vs. Sterling Investment Corporation (123 ITR 441), the assessee company entered into an agreement with the vender to purchase certain properties for a total price of Rs. 11,50,000/-. An initial payment of Rs.3,00,00/- was paid by the purchaser. The assessee company ie the purchaser, subsequently wanted to terminate the agreement and as a result of agreement between the parties, only a sum of Rs. 10,000/- out of the original amount of Rs.3,00,000/- was returned to the assessee company. ************ Thus, the court has clearly stated that whether the forfeiture of any money advanced arises by reasons of default or fault of the purchaser, the cancellation of the agreement would not be held as relinquishment of a capital asset by the purchaser. The purchaser was under the legal obligation under the agreement to abide by the terms of the agreement. On the failure on the part of the purchaser to abide by the terms of the agreement and to pay the installments as required, there was a breach of contract and the contract was cancelled. Due to this, a certain part of the money advanced by the purchaser to the vender was forfeited and the balance was paid back by the vender to the purchaser, which led to incurring of loss by the purchaser. Such an cancellation of agreement will not be held to be a relinquishment of right in the property and will not fall within the ambit of the definition of transfer as stated in Section 2(47) of the Act. In the present case, the appellant had entered into an agreement with M/s J M D Megapolis to purchase certain property. Initial payments on various dates amounting to Rs.24,75,725/- were paid by the appellant. The appellant before the Assessing Officer and also during the course of the appeal proceedings in her submissions stated that due to heavy capital cost demanded by the developer by way of interest for not making timely payment, and asking for extreme price for external development charges, parking cost, maintenance security deposit and electricity charges etc., the cost of the said unit has gone to Rs. 125,17,824/. This had led to financial distress for the assessee. Due to the increase in the value of the property, the purpose of giving the property on rent seemed to be unattainable as rental value has decreased significantly. There was no buyer in the market for this incomplete unit and the assessee was forced to surrender her right in the property in favour of the developer for a consideration of Rs. 11 Lacs. Hence, the appellant approached the vender and desired to cancel the agreement as investing in the property seemed to be a financially unviable proposition. So the appellant wanted to rescind the agreement and was willing to forgo a portion of the payment made by her to the vendor and a cancellation agreement dt. 15.06.2015 was entered into between the two parties. Hence, the contract was cancelled at the behest of the

11 ITA No. 151/JPR/2022 Neeru Mohan Nagpal vs. ITO

appellant and not by the Vendor. Thus, the resultant part forfeiture of the advance given by the appellant to the vender cannot be deemed to be arising out of the relinquishment of any right in the property as defined in Section in 2(47) of the Act. Hence, there was no transfer of capital asset by the appellant and consequently, there was no capital loss incurred by the appellant. Hence, the appeal is not allowed.”

before ld. NFAC/ CIT(A). The present appeal filed against the said order

of the ld. NFAC before this tribunal on the grounds as reiterated in para 2

above. To support the grounds so raised the ld. AR appearing on behalf of

the assessee has placed reliance on the written submission which is

extracted herein below:-

“With due respect, we beg to submit as under:- (i) The assessee has got the right in the property through unit buyer agreement dt. 13th April, 2007 executed between them and allotment of office space bearing No. 756, JMD Megapolis, Sohna Road, Gurgan, has been allotted. (ii) The cost of office space was Rs. 70, 73,500/- against this a sum of Rs. 24, 75,725/- has been paid on various dates as booking amount and installments. (iii) The assessee failed to make payment of installments payable from time to time. In case of default in payment, interest was to be payable by the assessee for the unpaid period. (iv) Due to heavy burden of Capital cost and interest for unpaid amount, the cost has gone to Rs. 125, 17,824/(which involved Rs.40,67,237 for interest on delayed payments). The assessee agreed though the cost of unit has increased to high, but on the date of relinquishment of right, the assessee has otherwise, right to acquire the said property by making the full payment to the vendor. Hence the relinquishment of right was on account of bilateral arrangement which cannot be equated with forfeiture which is normally a unilateral action.

12 ITA No. 151/JPR/2022 Neeru Mohan Nagpal vs. ITO

(v) Keeping in view of commercial prudency, there was no sense to put her into deep losses, by way of entering into this transaction. As the real estate market went into deep recession there was heavy decline in the rental charges, which had created unviable situation before the assesee to proceed further because the intention to buy the property was to let out with reasonable return. (vi) That unit buyer agreement does not contain any type of forfeiture clause. Even there was never any conversation or correspondence between them both the parties regarding the forfeiture of deposits or payments made by the assessee till the cease of right in the property by way of relinquishment. (vii) Keeping in view of the above facts, the assessee decided to relinquish her right in the property. For this relinquishment, the cancellation agreement was executed between the buyer and the seller. (viii) With this background, the assessee has rightly claimed the capital loss of Rs. 38, 58,099 which has been disallowed by the learned assessing officer. The learned CIT (Appeals) has correctly held that the assessee has right in the property but disallowed the claim saying that it is a forfeiture of amount by the seller on account of non compliance of agreement, resulting thereby the assessee is not entitled for set off the capital loss of Rs. 38, 58,099/- which seems to be wrong, because of following reasons:- (A)It is a sale / purchase transaction by way of relinquishment of right in the property as defined u/s 2(47) of I T Act, 1961. (B)In ease of forfeiture, usually complete money is detained and no consideration is given by the seller to the buyer. (C)Forfeiture of right in the property is an unilateral action, which is exercised by the seller of property without getting the consent of other party i.e. buyer, whereas it is a case of bilateral action, in which both the party have agreed by their mutual consent to execute the cancellation agreement. (D)In case of forfeiture, the seller does not under obligation to get consent of buyer whereas in this transaction the buyer has given her consent to relinquish her right in the property with. sale proceeds of Rs. 11 Lacs. (E)In case of default in making the payment of installments, the seller has right to get interest for delayed payments which may be confirmed and may be verified by the letters dt. 8th July, 2014, 11th September 2014, and 24th November, 2014.

13 ITA No. 151/JPR/2022 Neeru Mohan Nagpal vs. ITO

(F)Cancellation agreement of dt. 15th June, 2015 was the remedy for both the party i.e. seller and the buyer in the legally manner. (G) Consideration was decided on basis of prevailing market condition of realty sector, availability of rental premises in correspondence with demand and other offer received by the assessee from the open market in respect of surrender of rights in the said property. (H) The learned CIT (Appeals) correctly quoted that the facts of case K.R.Shri Nath(Madras) 268 ITR 336 are not totally similar to the facts of our case. But the basic structure of taxability of gain /loss under Capital Gain does not change whether it may arise in the hands of Vendor or Vendee. Hence assessee is eligible to get the benefit of set off under Capital gain. (1) The learned CIT (Appeals) has applied the finding of the case law CIT vs. Sterling Investment Corporation to our case which seems to be incorrect. In this stated case the assessee-company had accepted that this amount was forfeited by the vendor, and this position would be clear from the correspondence previous to the bargain entered by the parties. This is precisely the bargain which has taken place between the parties in which assessee company i.e the purchaser concedes to the said forfeiture claim, agreeing further that, the parties would not have any further claims against one another save the except under the agreement to return the balance of the earnest money which is not to be retained by the vendor. •(Annex A) Hence the facts of this case do not apply to our case, as there was no consent regarding forfeiture and no correspondence took place between the parties as to forfeiture. Keeping in view of above facts, It is kindly requested to make an order for set of the capital loss to the extent of available Capital Gain in the year under reference and the rest may be allowed for set off in the subsequent years as It was not the case of forfeiture whereas in this case, right in the Property was relinquished/ extinguished with the consideration and with mutual consent by both the part. Hence, it is a perfect case of transfer as defined in section 2(47) of it Act, 1961. You are kindly requested to grant the relief for set off the capital loss and oblige.”

06.02.2024 which is reproduced is as under:-

“With due respect, we beg to submit as under. -

14 ITA No. 151/JPR/2022 Neeru Mohan Nagpal vs. ITO

(1) That your good self has asked to submit the complete set of unit buyer's agreement dated 13/04/2007 for which the assessee has requested to the developer viz. JMD Limited to provide a duplicate copy of this agreement but they have shown their inability to provide the duplicate copy of this agreement because of it was an old record and kept away from the existing office but assured to the assessee, if the Income tax Dept. will call us to provide the same, they will do their best to provide it, in this contest, we humbly request your good office to write them in order to give justice to the assessee.

(2) That on the contrary, if it is presumed that there was forfeiture clause in the said Unit Buyer's Agreement of Dt.13/04/2007, then developer/vendor has open right to forfeit that amount on failure of assessee to make the payment towards instalment amount, without getting consent of the assessee. But the developer did nottakeanysuch steps to forfeit the money paid by the assessee even after continuous failure on part of the assessee. On the contrary, the developer made request to the assessee to make the payment along with interest by way of many reminders and telephonic conversation. Hence, we can say with affirmation that there was no forfeiture clause in the unit buyer's agreement except the condition of interest liability. (3) Further, we would like to have your kind attention on the cancellation agreement of Dt. 15/06/2015 executed between the developer and the assessee. Sir It's equally important to carefully review the terms of the cancellation agreement. The cancellation agreement serves as a legal record of the transaction and helps to clarify the rights and responsibilities of both the parties moving forward. Thus, if there is forfeiture on part of Vendor the cancellation agreement should clearly mention this fact along with any further terms and conditions related to the cancellation. But in our cancellation agreement there is no such wording of any forfeiture of any amount by the vendor/developer on account of default in making the payment of instalments by the assessee. Further, if the cancellation agreement does not explicitly mention forfeiture of the payments made, and instead, it involves surrendering of rights in the property, it might not be considered forfeiture in the strict sense of the term. Instead, it could be viewed as surrendering of your rights or relinquishing of your claim to the property in exchange for the agreed-upon sum. In such cases, if the cancellation results in a loss for the buyer that loss must be eligible for consideration as a capital loss for tax purposes. This cancellation agreement simply speaks that the right of the assessee/vendee has been purchased by the vendor/developer for a consideration of Rs. 11 lakhs. Hence, It is simply a buyer and seller agreement executed between them. If there would be any gain on ceasing of this right in this property, it would have attract the capital gain tax

15 ITA No. 151/JPR/2022 Neeru Mohan Nagpal vs. ITO

llability, in the present case, the assessee made the loss on this property, the assess is also entitled for set off in the interest of justice. In view of the above facts and going through the wording of cancellation agreement dated 15/06/2015, the assessee should be allowed to set off the capita loss against the capital gain earned on another property during the year under reference to the extent available in this year and remaining loss to be carry forward for set off in the subsequent years.”

AR of the assessee also relied upon the following evidences in support of

the contentions so raised:-

S. No. Particulars Page No. Annex. Unit buyers agreement dt. 13th April, 2007 1. 1-3 A Cancellation agreement dt. 15th June, 2015 2. 4-6 B Letter dt. 8th July, 2014 from the vendor. 3. 7 C Letter dt. 11th September, 2014 from the 4. 8 D vendor Letter dt. 24th Nov, 2014 from the vendor 5. 9 E

CIT(A). The ld. DR also submitted that the assessee is claiming the loss

on account of the forfeiture of the money that has been done by the

builder. The ld. DR also relied on the decision of sterling investment

corporation judgement as cited in the order of the ld. CIT(A).

16 ITA No. 151/JPR/2022 Neeru Mohan Nagpal vs. ITO 9. We have heard both the parties, perused materials available on

record. The brief facts as emerges from the order of the lower authority

is that the assessee has claimed LTCG of Rs. 27,90,552/- in the original

ITR filed for the year under consideration. In the revised return filed the

same was reduced to Rs. NIL. As the assessee sold two properties, out of

which one property she has shown capital gain of Rs. 27,90,552/- in the

original ITR but while in the revised return she contended that she has

not considered the Capital Loss for the unit no 756, JMD Magapolis

Suhana Road Gurgoan which was for an amount of Rs. 38,58,099/- and

to claim that loss she has revised her ITR and the total income of

Original ITR of Rs. 59,67,738/- was revised to Rs. 31,77,186/-. The total

Capital Loss of Rs. 38,58,099/- which was set of to the extent of Rs.

27,90,552/- and balance amount of Rs. 10,67,547/- was carried forward

to next year as Capital Loss. The assessee in the two grounds of appeal

challenged the action of the lower authority in not granting the loss of

Rs. 38,58,099/-.

agreement on 13.04.2007 for purchase of unit no 756 in the IT Park JMD

Magapolis Gurgoan. As per the agreement of the sale of this property the

basic sale consideration was of Rs. 70,73,500/- on which assessee has to

17 ITA No. 151/JPR/2022 Neeru Mohan Nagpal vs. ITO further pay parking amount of Rs. 4,00,000/- external development

charges of Rs. 3,53,675/-, infrastructure development charges of Rs.

44,462/-, interest free maintenance security of Rs. 2,52,625/-, electricity

connection charges of Rs. 1,11,155/-, contingency deposit of Rs.

1,41,470/- and service tax etc. further interest on delayed payment of

installment is also paid by the assessee. Thus the assessee submission that

she has allotted the above property for a consideration of Rs. 70,73,500/-

was not totally correct. This property was purchased by the assessee for

an actual consideration of Rs: 84,50,587/- (excluding the amount of

interest from the value shown in statement of account dated 08.07.2014

submitted as Annexure "K"). From the perusal of unit buyers' agreement

(Annexure"J"). The ld. AO and the ld. CIT(A) taken a view that no

formal transfer of this property was ever made to the assessee from the

builder and the property in question was never in possession of the

assessee. The property was once booked by the assessee on 13.04.2007

with certain conditions as mentioned in the agreement by paying booking

amount. The rest of the amount was paid in certain installments and after

completion of the entire payment schedule the rights of ownership would

be transferred to the assessee. The said agreement is only a mutual

acceptance between builder and the buyer stating the description of the

18 ITA No. 151/JPR/2022 Neeru Mohan Nagpal vs. ITO property on the estimate basis as it is clearly mentioned in the agreement

the area and percentage are tentative and are subject to change at the time

of final approval of building plan and also on completion of the project.

Based on these contentions the right on the property of the assessee was

not considered. The lower authority also noted that no formal allotment

letter in respect of this property was issued by the builder which shows

any kind of ownership of the assessee in the said property. Not only that

the assessee defaulted in the payment of installment and accordingly the

builder forfeited the certain amount and paid the rest of the amount to the

assessee. Thus, it was contended by the lower authority that there was no

transfer of the Capital Asset in the name of the assessee for which Capital

Loss claimed by the assessee in her ITR. Further the cost of this capital

asset was never paid by the assessee and in fact the assessee was defaulter

for the nonpayment of the installments and due to large dues, she

approached to the builder for the final settlement and for this breach of

the contract, the builder forfeited the certain amount and re-paid the rest

of the amount which cannot be claimed as Capital Loss by the assessee

and therefore, the claim of the assessee was not considered by the ld. AO

and the same view of accorded even by the ld. CIT(A) and accordingly

claim of short-term capital loss of Rs. 38, 58,099/- was added in the

19 ITA No. 151/JPR/2022 Neeru Mohan Nagpal vs. ITO hands of the assessee. Apropos to these two ground raised by the assessee

the bench noted that the facts of the case of the assessee is not under

disputed that she has booked the flat on 13.04.2007. Against the total

agree price for an amount of Rs. 70,73,500/- the assessee has paid a sum

of Rs. 24,75,725/- on various dates. As the builder has levied the interest

on the delayed payment the cost went to Rs. 1,25,17,824/-. It was because

of the bilateral agreement the assessee choose to enter into cancellation

agreement and the same was in accordance with the agreement of both

the parties involved. Thus, when it is not under dispute that the assessee

has already based on the agreement, acquired right on the property paid

the installments for an amount of Rs. 24,75,725/- and the indexed cost of

the said payment was worked out at Rs. 49,58,099/-. Against this

payment the assessee as per the cancellation agreement agreed to

surrender the right on the property for an amount of Rs. 11,00,000/- and

thereby claimed a sum of Rs. 38,58,099/-. The assessee in the revised

computation of income claimed that consideration of Rs. 11,00,000/- be

considered a sale consideration on the capital assets right cancelled and

the cost on the said property claimed from that consideration though the

figure is in negative. The bench noted that in the first appeal filed before

the ld. CIT(A) the assessee has challenged the finding of the ld. AO that

20 ITA No. 151/JPR/2022 Neeru Mohan Nagpal vs. ITO

the assets which the assessee entered into cancellation of agreement was a

capital assets or not?, that ground of the assessee has been considered and

the ld. CIT(A) has considered the assets for which the assessee entered

into a cancellation agreement as capital assets. The relevant finding as

recorded in the order of the ld. CIT(A) is reproduced herein below :

“The court in the case of CIT vs. Vijay Flexible Containers (186 ITR 693) also affirmed the above held views that under the agreement to purchase of a property, the assessee had acquired the right to have the immovable property conveyed to her and under the law she was entitled to exercise that right not only against the vender but also against a transferee with notice or a gratuitous transferee. Hence, what the assessee had acquired under the said agreement for sale was property within the meaning of the Income Tax Act, 1961. Thus, it can be concluded that when the appellant, in the present case, had entered into an Unit Buyer Agreement with JMD Ltd. for the purchase of space at 756, JMD, Megapolis and had paid a sum of Rs. 24,75,725/= on various dates, the appellant had acquired the right to have the immovable property conveyed to her and it will be held to be a capital asset under the IT Act, 1961. Hence, appeal is allowed.”

The revenue is not in appeal against the finding of the ld. CIT(A) and thus

it is very much clear that the consideration that the assessee for an amount

of Rs. 11,00,000/- received is on account of capital assets. Thus, when the

ld. CIT(A) has already held the right of the assessee on the impugned

property as capital right the consequential amount whether the same is

gain or loss and that on the reasons that the forfeiture being unilateral

right cannot be considered as cost of acquisition is not the correct view.

When the asset is held as capital asset then there is no reasons to

21 ITA No. 151/JPR/2022 Neeru Mohan Nagpal vs. ITO disbelieve the consequential claim being the indexed cost of acquisition

paid by the assessee. When the cost is disputed the claim of cost cannot

be denied merely the assessee has cancelled the booking of the

immovable property for which the it is already not under dispute that the

right of the assessee was capital in nature and therefore, we direct the ld.

AO to allow to claim the cost of acquisition paid to the builder by the

assessee and the indexed cost be calculated accordingly. Based on this

observation the claim of capital loss is directed to be considered in the

hands of the assessee.

In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 03/05/2024. Sd/- Sd/- ¼ jkBksM deys'k t;UrHkkbZ ½ ¼ Mk0 ,l- lhrky{eh ½ (Rathod Kamlesh Jayantbhai) (Dr. S. Seethalakshmi) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 03/05/2024. *Santosh/ Ganesh आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant- Neeru Mohan Nagpal, Jaipur. 1. 2. izR;FkhZ@ The Respondent- ITO, Ward-2(3), Jaipur. 3. vk;dj vk;qDr@ CIT 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 5. xkMZ QkbZy@ Guard File { ITA No. 151/JPR/2022} vkns'kkuqlkj@ By order, सहायक पंजीकार@Aेेज. त्महपेजतंत