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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI B R BASKARAN & SHRI AMIT SHUKLA
आदेश ORDER �ी अिमत शु�ला, �या स: PER AMIT SHUKLA, JM:
The aforesaid appeal has been filed by the assessee against impugned order dated 19.01.2012, passed by Ld. CIT (Appeals)-26, Mumbai for the quantum of assessment passed under section 143(3) for the assessment year 2004-05. In the grounds of appeal, the assessee has raised following grounds:- “1 That on the facts and in the circumstances of the appellant’s case and in law learned CIT (A) has erred in holding that the capital loss on transfer of right to acquire the flat is required to be considered in the appellant’s assessment for Assessment Year 2003-04.
2 क�त�केय �कलाचंद Shri Kartikeya Kilachand ITA 1999/Mum/2012 2. That on the facts and in the circumstances of the appellant’s case and in law Learned CIT(A) has erred in confirming the disallowance of the appellant’s claim of capital loss of Rs.28,28,213/- made by the assessing officer.
That in the alternative and without prejudice, Learned CIT(A) has erred in not directing the assessing officer to allow the appellant’s claim of capital loss in the assessment of the Appellant for Assessment Year 2003-04.
4. That on the facts and in the circumstances of the appellant’s case and in law Learned CIT(A) has erred in not deciding the additional grounds of appeal
raised by the appellant vide its letter dated 14.05.2009 which was filed in the office of CIT(A) pm the same day.
5. All the above grounds of appeal are independent and without prejudice to each other.
6. The Assessing Officer’s order being contrary to law, evidence and facts of the case may kindly be set aside, amended or modified in the light of the grounds enumerated above.
7. The appellant craves leave to reserve to himself the right to add to, alter or amend any of the grounds of appeal at or before the time of hearing and to produce such further evidences, documents and papers as may be necessary”.
2. The sole dispute thus revolves around the disallowance of claim of capital loss of Rs.28,28,213/- and cost of indexation.
3, Brief facts qua the issue involved are that, assessee is an individual and had declared long-term-capital loss of Rs.28,28,213/- on sale of Gurgaon house (Flat) which was booked with a builder, M/s Malibu Estates Pvt. Ltd, New Delhi way back in the financial year 1995-96. The computation of long-term-capital loss was shown in the following manner:-
3 क�त�केय �कलाचंद Shri Kartikeya Kilachand ITA 1999/Mum/2012 Sale consideration Rs. 22,61,258 Less: Indexed cost: Financial Amt. paid Index Indexed cost Year 1995-96 1,49,600 281 2,46,494 1996-97 10,82,748 305 16,43,647 1997-98 7,87,270 331 11,01,227 1998-99 3,91,820 351 5,16,845 2003-04 15,81,258 463 15,81,258 50,89,471 Total 39,92,686 50,89,471 (-)28,28,213 The Assessing Officer noted that, the assessee had shown sale receipts of Rs.22,61,258/- whereas the payment for the acquisition of above flat was stated to be Rs.24,11,438/-. From the perusal of the records he further noted that, there was a letter dated 05.06.2003 written by the assessee to the builder stating that full amount of Rs.24,11,438/- has been received by him from the builder. In response to the show cause notice by the Assessing Officer, the assessee submitted that, he has brought one nominee for purchasing the flat and he has received only sum of Rs.6,80,000/- for surrendering his right and interest in the flat and nominee paid Rs.15,81,258/- to the builder on his behalf and thus, there was loss of Rs.17,31,438/-. The assessee had filed his sworn affidavit in support of receipt of Rs.6,80,000/-. The Assessing Officer on the basis of details furnished by the assessee as well as material placed on records observed that:- (i) Long-term-capital loss of Rs.28,28,213/- was on account of surrender of right to purchase flat No.1004, Building No.4, Malibu Towne, Gurgaon, Harayana, which was booked by the assessee in the F.Y. 1995-96; (ii) Assessee had paid sums aggregating Rs.24,11,438/- to the builder, M/s Malibu Estate 4 क�त�केय �कलाचंद Shri Kartikeya Kilachand ITA 1999/Mum/2012 Pvt Ltd between 04.08.1995 to 24.11.1997 against the cost of the above flat of Rs.39,92,696/-; (iii) The flat has been transferred to assessee’s nominee brought by him during the accounting year relevant to the assessment year 2004-05; (iv) The payment of Rs.24,11,438/- was indexed by the assessee and the loss of Rs.17,31,438/- was thereby increased to Rs.28,28,213/- and the same was set off against the capital gain earned by the assessee in this year; (v) The agreement for the purchase of the flat reveals that, there were two options for the purchaser in case if he changes his mind for not purchasing the flat after part payment or he wants to sell it on his own. The first option was to cancel the agreement on which purchaser had to forego the earnest money paid by him at the time of entering into the agreement with the builder which here in this case was Rs.1,49,600/- only; and second option was to bring nominee in his place and request the builder to substitute his ownership/rights of the assessee to the nominee. However, the acceptance of the assessee’s request for nominee was upon the sole discretion of the builder. Here in this case, the assessee has chosen for second option.
The Assessing Officer then required the assessee to justify that he has only received Rs.6,80,000/- from the nominee when there is a specific letter dated 05.06.2003 written to the builder wherein the assessee has categorically admitted that he has received sum of Rs.24,11,428/- which 5 क�त�केय �कलाचंद Shri Kartikeya Kilachand ITA 1999/Mum/2012 was exact amount paid against the flat by the assessee. In response to the said query, the assessee stated that, he has not actually received any amount over and above sum of Rs.6,80,000/-from the nominee and the letter was written to the builder as a standard format provided by them solely with a view to facilitate the transfer of his right for the purchase of the said flat to the nominee. However, the Assessing Officer rejected the assessee’s explanation on the ground that, firstly, if the assessee has received less amount then why would he admit in writing that he has received full amount of Rs.24,11,428/- for surrendering the right and thereby incurring huge loss; and secondly, in case of cancellation of the agreement, the assessee would have lost only the earnest money of Rs.1,49,600/- and not an amount of Rs.17,31,438/-.
Thereafter, the Assessing Officer further proceeded to disallow the indexation also on the ground that, neither the total cost of the flat was paid by the assessee nor the possession of the above flat was given to him by the builder and nor it was sold by him to any third party by way of any sale agreement. The Assessing Officer observed that, the cost of acquisition of the asset can be indexed and not any advance paid by a person and in assessee’s case, neither the total cost of the asset was paid by the assessee nor any ‘Conveyance Deed’ was prepared and registered for the transfer of the flat and hence it cannot be said that flat was actually acquired by him. Accordingly, he disallowed the entire claim of capital loss as claimed by the assessee.
6 क�त�केय �कलाचंद Shri Kartikeya Kilachand ITA 1999/Mum/2012 5. The Ld. CIT(A) has confirmed the action of the Assessing Officer after considering the assessee’s submission as well as material on record after observing and holding as under: “3.2 I have carefully considered the findings of the AO, the submissions of the appellant as well as perused the agreement/correspondence between the appellant, builder and the nominee of the appellant to whom the complete flat in question was transferred by the appellant. Besides the various observations of the AO for disallowing the claim of capital loss of the appellant, it is also noted that vide agreement dated 01.03.2003, the right/interest of the appellant in the said property had diminished, therefore under these circumstances, even if it is held that there was actually any genuine loss to the appellant, it had occurred and could have been claimed only in AY 2003-04 and not in the current year. Further, the observation of the AO, that as per the cancellation agreement letter dated 05.06.2003, the appellant has admitted that he has received the full amount of Rs.24,11,428/-, can also not be brushed aside, because no educated person will issue such receipts without actually receiving the amount. In this regard, the claim of the appellant that it was only a formality, which was necessary for cancellation of the contract with the builder, does not appear correct, because the flat for which the appellant has already paid Rs.24,11,428/- in various installments cannot be thrown away at such a low price of Rs.68 lakhs only unless the person to whom, he wants to gift something without proper consideration. In that case also, it becomes a dubious transaction from the point of view of claiming the capital loss on such a 7 क�त�केय �कलाचंद Shri Kartikeya Kilachand ITA 1999/Mum/2012 deal when the sole consideration is grossly reduced for the otherwise than the business reasons of commercial expediency. Considering the totality of facts and circumstances of the case and for the reasons stated above, I agree with the findings of the AO that the capital loss claimed by the appellant is not allowable. Accordingly, this ground of appeal is dismissed”.
6. Before us, the Ld. Counsel Shri S C Tiwari, first of all, submitted that, the assessee’s claim for Long-term-capital loss cannot be denied, first of all for the reason that the assessee had acquired right in the flat by virtue of an agreement with the builder and on the basis of the said agreement the assessee had also made substantial payments to the builder for the purchase/acquisition of the flat. Hence, by virtue of this agreement the assessee has also acquired the right in the immovable property and that right could not have been exercised b the assessee in any manner. In suport, he strongly relied upon the decision of Hon’ble Bombay High Court in the case of CIT v Vijay Flexible Containers, reported in [1990] 186 ITR 693 and CIT v Tata Services Ltd., reported in [1980] 122 ITR 594. On the second aspect of quantum of capital loss, he submitted that much emphasis has been laid down by the Assessing Officer and by the CIT(A) on the letter dated 05.06.2003 written by the assessee to the builder that, he has received sum of Rs.24,11,458/- on the cancellation of the Flat. He submitted that this letter was merely a formality to facilitate the passing over the right as a owner to the nominee brought by the assessee on the said flat. The assessee had only received sum of Rs.6.8 lakhs from the nominee and hence there was a actual loss incurred to the 8 क�त�केय �कलाचंद Shri Kartikeya Kilachand ITA 1999/Mum/2012 assessee. He further submitted that ld. CIT(A)’s observation that loss or gain pertains to AY 2003-04 is also not correct because the agreement to sale is dated 24.04.2003 and therefore, loss if at all has to be computed only in the assessment year 2004-05. In support, he drew our attention to the copy of agreement dated 24th April, 2003 appearing in paper book pages 23 onwards. Thus, not only it is a case of transfer of a capital asset but also on the facts of the case the loss as incurred on transfer of asset has to be allowed.
7. On the other hand, Ld. DR strongly relied upon the order of the CIT(A) and submitted that, once the assessee has himself received sum of Rs.24,11,458 from the builder plus sum of Rs.6.80 lakhs from the nominee, then the property has been actually sold for Rs.30,91,458/-. This also makes sense also because why would assessee after paying the cost of Rs.24,11,458 will transfer the flat only for Rs.6,80,000/-. Thus, the long-term-capital-gain has to be assessed after considering the amount received by the assessee including Rs.24.11 lakhs and Rs.6.80 lakhs. As regards that there is no transfer of asset at all, he relied heavily upon the order of the AO as the ld CIT(A) has not dealt upon this issue much, Alternatively, so far as claim of indexation on Rs. 30,91,458/- (i.e., Rs.24,11,458 + Rs. 6,80,000) is concerned, he submitted that the matter needs to go back to the file of the Assessing Officer for proper working of indexation.
We have heard the rival submissions and perused the relevant finding given in the impugned orders as well as material referred to before us. The Assessing Officer first of all, held that the quantum of capital loss claimed by the 9 क�त�केय �कलाचंद Shri Kartikeya Kilachand ITA 1999/Mum/2012 assessee at Rs.28,28,213/- is not genuine; and secondly, there is no transfer of any capital asset because the assessee has merely given an advance to the builder for the purchase of the flat, therefore, there may not be a case of transfer of an capital asset at all leave alone the working of cost of indexation. The Ld. CIT(A) has confirmed the action of the Assessing Officer, though he has not given any cogent finding on the issue of indexation, rather his entire finding is on the point that the assessee has received full amount of Rs.24,11,428/- from the builder which is based on the letter dated 05.06.2003.
From the perusal of the records, it is seen that, the assessee had entered into ‘buyers agreement’ with the builder M/s Malibu Estate Pvt. Ltd in the year 1995 (without there being any specific date mentioned in the said agreement), the copy of which is appearing from pages 1 to 11 of the paper book along with annexures relating to schedule of payment and various specifications. The entire consideration to be paid for the purchase of the said flat was agreed at Rs.39,72,839/- which was to be given in various installments as per the schedule. At the time of the said agreement the assessee had paid sum of Rs.1,49,600/-. As noted by the authorities below during the period 04.08.1995 to 24.11.1997. The assessee had paid sum of Rs.24,11,438/- to the builder. The assessee, later on brought one nominee, Mrs. Kaul to whom the rights in the flat were assigned. Thereafter, the assessee had written a letter dated 05.06.2003 to the builder stating that he has received full amount of Rs.24,11,428/- from the builder after nominee was been brought by the assessee. This letter is been stated to be mere formality and a piece of paper with not 10 क�त�केय �कलाचंद Shri Kartikeya Kilachand ITA 1999/Mum/2012 much significance and only for smooth transfer of the right in the flat to the nominee. We are unable to apprehend or appreciate as to why the assessee will write such a letter to the builder admitting that he has actually received sum of Rs.24,11,438/- (which is the exact amount stated to have been paid to the builder i.e., Rs.24,11,438/-) when only sum of Rs.6,80,000/- has been received by him from the nominee, towards the acquisition of the flat. We agree with the observations of the Assessing Officer and the Ld.CIT(A) that why would a person who has paid a sum of Rs.24,11,438/- will transfer his right in the asset for paltry sum of Rs.6.80 lakhs and thereby incurring an actual loss of Rs.17,31,438/-, when assessee had the option to surrender the flat back to the builder with forfeiture of earnest amount of Rs. 1,49,600/-. For proving that the said letter written by the assessee to the builder was mere formality and assessee has not received the entire amount back needs to be rebutted by way of some material or evidence, otherwise, what is apparent from the record has to be accepted, that is, assessee has received the said amount from the builder. Thus, the assessee’s plea that the amount of Rs.24,11,438/- has not been received from the builder is devoid of any merits and is completely unsubstantiated which cannot be upheld at all. Rather there appears to be some merit in the contention of the ld. DR that the assessee had received further sum of Rs.6,80,000/- from the nominee which is over and above the amount received from the builder. However, we are not entering into this aspect because it is neither the case of the AO nor that of CIT(A) that this amount of Rs.6,80,000/- is over and above Rs.24,11,438/- as this aspect has not been commented upon by either by the Assessing Officer or by