SEETA PRABHU,MUMBAI vs. ITO 26(1)(4), MUMBAI

आयकर अपीऱीय अधिकरण, म ुंबई न्यायपीठ “एक-सदस्य मामला”, म ुंबई IN THE INCOME TAX APPELLATE TRIBUNAL BENCH “SMC” MUMBAI BEFORE SHRI A.D.JAIN, JUDICIAL MEMBER सर्वश्री ए.डी. जैन, न्याययक सदस्य आमकय अऩीर सं./I.T.A. No.1020/Mum/2015 (ननधधायण वषा / Assessment Year :2007-08) बनाम/ Mrs.Seeta Prabhu, Income Tax Officer-26(1)4, c/o Mohanlal Jain and Co., Smt.K.G.Mittal Ayurvedik Vs. Chartered Accounts Firm, Hospital Building, 10, Chartered House, Charni Road, Ground floor, Dr.C H Street, Mumbai-400002 Marine Lines, Mumbai-400002 (अऩीरधथी /Appellant) (प्रत्मथी / Respondent) ..

स्थधमी रेखध सं./जीआइआय सं./PAN/GIR No. :AAKPP8940N अऩीरधथी ओय से / Appellant by S/Shri Sanjay Kapadia and Navinkumar Mishra प्रत्मथी की ओय से/Rspondent by Shri Ajay सुनवधई की तधयीख / Date of Hearing : 07. 07.2016 घोषणध की तधयीख /Date of Pronouncement :07.07.2016 आदेश / O R D E R PER A D JAIN (JM) This is assessee‟s appeal for assessment year 2007-08 challenging the order of ld.CIT(A) dated 26.12.2014 upholding the penalty levied by the AO of Rs.9,25,650/- u/s 271(1)( c ) of the Income Tax act, 1961.

2 ITA No.1020/Mum/2015 income of Rs.29,24,240/-. During the course of assessment proceeding, it was revealed that the assessee had sold one immovable property and shown the gain from that property as Long term capital gains and claimed exemption u/s 54F. During the course of Assessment proceedings, the AO observed that the holding period of the said property had been shown as more than 36 months. The possession of the said property was taken by the assessee on 30.4.2003 and it was sold on 11.5.2006. Therefore, the assessee calculated the period of holding from 30.4.2003. The assessee, according to the date of agreement for purchase, had purchased the property on 5.6.2003. Therefore, the AO treated the holding period from 5.6.2003. Hence, according to the AO, the holding period was of less than 36 months. According to the assessee, from 30.4.2003, holding period was more than 36 months, as the assessee had made a token payment of Rs.9500/- on 30.4.2003, against the total sale price of Rs.70 lakhs. The AO treated the holding period as less than 36 months and hence, denied exemption u/s 54F. Aggrieved by the order of AO, the assessee preferred an appeal before the ld.CIT(A), who also denied the claim of the assessee on the ground that it was unbelievable that the seller had handed over the possession of the property worth Rs.70 lakhs on payment of a mere Rs.9500/-. During the course of the appellate proceedings, the assessee filed a letter handed over by the seller, showing the date of possession as 30.4.2003. This was also rejected by the ld.CIT(A) on the ground that it was a self-serving document, with no evidentiary value. In the second appeal, the Tribunal also confirmed the orders of the authorities below. Therefore, the AO initiated penalty proceeding u/s 271(1)( c ) of the Act.

3 ITA No.1020/Mum/2015 3. In the penalty proceedings, the assessee submitted that the assessee was given possession of the said flat on 30.4.2003 and in support of his contention, the assessee also filed an affidavit, stating that the AO had treated the date of registration as the actual date of possession/purchase. Therefore, long term capital gain become short term capital gain. Accordingly, the AO denied the benefit of section 54F of the Act, and treated the gain as short term capital gain and levied penalty at the rate of 100% of the tax sought to be evaded, of Rs.9,25,650/- u/s 271(1)( c ) of the Act. Aggrieved by the decision of the AO, the assessee preferred an appeal before the ld. CIT(A), confirmed the action of the AO by observing and holding as under :

“3.2. DECISION: I have considered the submission of the Authorized Representative and the order of the assessing Officer. It is seen that the flat sold by the assessee vide sale deed dated 11.5.2006 was purchased vide a purchase deed dated 5.6.2003. A token sum of Rs.9,500/- was paid on 30-04-2003 and major consideration was paid on 14-05-2003. The claim of the appellant that she received possession of the flat on 30- 04-2003 on payment of advance of Rs.9,500/- is far fetched and is not accepted by the Assessing Officer, the CIT(A) as also the ITAT. All these authorities have held that the gains arising from the sale of this flat are short term and not long term as claimed by the appellant. The action of the appellant of claiming the gains as long term on the basis of letter from the seller was found to be a self serving document with no evidentiary value, even by the ITAT. During appellate proceedings, the Authorized Representative could was actually received on 30-04- 2003 as claimed. In any case, ownership of the flat and the period of holding is determined by the date of registration of deed of conveyance, as has been held in number of court decisions which in the present case renders the capital gains as short term. The action of the assessee of stretching the period of holding to the date of possession, which in any case has not been accepted by any authority and not supported by any evidence, is an effort to reduce the tax liability by claiming the capital gain as long term and claiming

4 ITA No.1020/Mum/2015 deduction u/s.54F therefrorn. The assessee is a well educated person working with UNDP Project as Senior Advisor and ,is a professor in Tata Institute of Social Science. She is M.A., P.hd by qualification. With such high educational qualification and responsible job, such' a legally invalid claim is not acceptable. While it is true that all additions do not automatically and mandatorily lead to levy of penalty u/s.271 (J)( c), but the facts of the present case in which the assessee has made an blatantly inadmissible and wrong claim, does justify the levy of penalty. The bonafides of the assessee have to be established and cannot be presumed, as held by Hon'ble Delhi Court in the case of CIT vs. Kalindee ARSSPL in ITA No. 480/2012, and in that the assessee has failed. It has also been held by Hon'ble Delhi High Court in the case of CIT vs Zoom Communications Pvt. Ltd. 327 ITR 510 (Del) that:- “"If one takes the view that a claim which is wholly untenable in law and has absolutely no foundation on which it could be made, the assessee would not be liable to imposition of penalty, even if he was not acting bonafide while making a claim of this nature, that would give a licence to unscrupulous assessee to make wholly untenable and unsustainable claims without there being any basis for making the same." In view of all the above, the action of the AO in holding that the assessee has furnished inaccurate particulars of income rendering herself liable for penalty, and in levy of minimum penalty @ 100% of tax sought to be evaded, is correct and is hereby upheld. Grounds of appeal are dismissed.” Aggrieved by the order of the ld. CIT(A), the assessee is in second appeal before this Bench. 4. The ld.counsel of the assessee contended that the lower authorities have not taken into consideration CBDT Circular No.471, dated 15.10.1986, stating that for the purpose of calculating the date of purchase, the date of allotment of flat is to be considered as the date of purchase, and not the date of registration. In support of his contention, he relied on the following case laws :

5 ITA No.1020/Mum/2015

A) ITO V/s Smt Kashmiraben M Parekh (44 tth 68); B) Jitender Mohan V/s ITO (11 SOT 594 (Del); C) CIT V/s Abrar Alvi (247 ITR 313 (Bom) D) Neelam Suryakant Pujari V ACIT (ITA No.2947/Mum/2005) dated 28.12.2006

6 ITA No.1020/Mum/2015 C) CIT V/s SSP Ltd ((2010) 189 Taxmann 282 (P&H) D) CIT V/s Dalmia Agencies (P) Ltd (2010) 186 Taxman 155 (Del)

“9. We have heard the rival submissions and perused the material on record including the orders of authorities below and case laws relied upon by the rival parties. We find from the page No.36 of the paper book which is a letter of allotment dated 27.11.2006 accompanying the schedule of payment as filed at page 39 of the paper book reveals that the assessee was allotted the flat on 27.11.2006 and the assessee has also made payment of Rs.3,34,919/- as booking advance. The flat was registered in the name of assessee on 31.4.2009(correct date is 30.4.2009) vide register sale-deed placed at pages 43 to 56 of the paper book. A copy of the sale deed dated 28.6.2011 transferring the flat is filed at pages 8 to 18. Now, issue before us to be adjudicated is whether the gain resulted from transfer of flat which was allotted on 27.11.2006 registered in the name of assessee on 30.11.2009 and sold on 28.6.2011 is a LTCG or STCG. If assets transferred is held for more than 36 months then the resultant gain would be LTCG and the assessee would be entitled to indexation of cost for the purpose of calculation of capital gain. In this case, the assessee has claimed to have been allotted the flat on 27.11.06 when the assessee was given letter of allotment and assessee made payment of Rs.3,34,919/- out of total purchase price of Rs.66,98,375. The flat in question was purchased for Rs.76,04,418/- including the stamp duty, registration value etc and sold for Rs.1,17,17,145/-. Upon looking into the facts of the case, we find that the assessee become owner of the flat on 27.6.2006 then the allotment letter was issued and advance amount/booking amount was paid to the builder. The case of the assessee also find strong support from the decisions cited before us during the course of hearing.

7 ITA No.1020/Mum/2015 In the case of Smt.Lata G Rohra (supra), the Tribunal has held as under : “As per section 2(14), read with section 2(14)(vi), the rights in flat, acquired by the assessee on execution of purchase agreement on 7-8-1993, came within the purview of the term „capital asset‟. From the perusal of language used in Explanation (iii ) to section 48, which provides for manner of computation of indexed cost of acquisition, it is apparently clear that it refers only to date of cost of acquisition of the asset and not actual payments made by the assessee. Hence, there was no merit in the contention of the revenue that the benefit of indexation should be given on the basis of dates of actual payments made by the assessee. Thus, on merits, the issue was covered in favour of assessee. However, regarding jurisdiction for invoking the provisions of section 263, it was found that the assessee filed necessary details before the Assessing Officer and the Assessing Officer had passed assessment order after taking into consideration the same. Hence, merely for the reason that no specific findings had been given in the assessment order, the same could not be said have been passed without application of mind. In this view of the matter, the order under section 263 passed by the Commissioner was to be set aside. [Para 9] In the result, the appeal filed by the assessee stood allowed. [Para 10]” In the case of Ms.Madhu Kaul (supra) it has been held by the Hon‟ble Punjab and Hariyana High Court as under : “Admittedly the flat was allotted to the assessee on 7-6- 1986 vide letter conveyed on 30-6-1986. The assessee paid the first instalment on 4-7-1986. Thereby conferring a right upon the assessee to hold a flat, which was later identified and possession delivered on a later date. The mere fact that possession was delivered later does not detract from the fact that the allottee was conferred a right to hold property on issuance of an allotment letter. The payment of balance instalments, identification of a particular flat and delivery of possession are consequential acts and relate back to and arise from the rights conferred by the allotment letter. [Para 7] Therefore, the Tribunal had erred in holding that the transaction does not envisage a long-term capital gain. [Para 8”

8 ITA No.1020/Mum/2015 In the case of Vinod Kumar Jain (supra) it has been held by the Hon‟ble Punjab and Hariyana High Court as under : “The assessee was allotted a flat on 27-2-1982 on instalments under residential scheme of the DDA. The possession of the said flat was, however, given to the assessee on 15-5-1986 and the letter issued in that behalf indicated the flat number and called upon the assessee-allottee to deposit the balance amount. The assessee sold the said flat on 6-1-1989 and claimed that capital gain arising on sale of said flat was long-term capital gain under section 2(29A) and as he had purchased another flat on 31-1- 1989, such capital gain was to be set off under section 54. The Assessing Officer disallowed the assessee‟s claim holding that the possession of the flat was given to the assessee on 15-5- 1986 and, therefore, the capital gain on sale of the flat in question was short-term capital gain governed by section 2(42A). On appeal, the Commissioner (Appeals) upheld the view taken by the Assessing Officer. The Tribunal also dismissed the assessee‟s appeal. On appeal to the High Court :” In the case of Ved Prakash and Sons (supra) it has been held by the Hon‟ble Punjab and Haryana High Court as under : “14. We find no merit in this contention of learned counsel. As is clear from a bare reading ofSection 2(42A) of the Act, the word "owner" has designedly not been used by the Legislature. The word "hold", as per dictionary meaning, means to possess, be the owner, holder or tenant of (property, stock, land ....). Thus, a person can be said to be holding the property as an owner, as a lessee, as a mortgagee or on account of part performance of an, agreement, etc. Conversely, all such other persons who may be termed as lessees, mortgagees with possession or persons in possession as part performance of the contract would not in strict parlance come within the purview of "owner". As per the Shorter Oxford Dictionary, edition 1985, "owner" means one who owns or holds something; one who has the right to claim title to a thing. 15. The apex court in the case Jagdish Chand Radhey Shyam v. State of Punjab, AIR 1972 SC 2587 ; [1972] PLJ 566, while examining the provisions of the Capital of Punjab (Development andRegulation) Act (27 of 1952) held that the event of some

9 ITA No.1020/Mum/2015 default with regard to payment of instalments which might have been committed by an allottee does not give a right to the Government to resume the land or building and at best it is entitled to recover the amount due on account of non-payment of some of the instalments. The court held that the stipulation in the agreement that in the event of default in making the payment the Government shall have the right to resume the property was an unreasonable restriction on the enjoyment of the property and declared the same ultra vires. In the instant case, the sale though made by a private entrepreneur appears to be in identical terms as normally stipulated in various auction sale/sales by Government agencies where there is stipulation in the agreement to the effect that in the event of default in payment monies already paid shall stand forfeited. Thus, even if it be taken that some amount was yet to be paid by the assessee in terms of the agreement, all the same it cannot be construed that he had no right or interest in the property but was a licensee as sought to be projected by counsel for the applicant. The assessee in terms of the agreement having been put in possession in May, 1970, remained in occupation as of right and thus for all intents and purposes was its beneficial owner from the start. The judgment of the Income-tax Tribunal, Chandigarh Bench in the case of Surjeet Singh v. ITO [1979] Tax 53(6)-28, though not binding upon this court, has all the same a persuasive value. The point in dispute is squarely covered by this judgment. Thus, we are of the view that the Appellate Tribunal was right in law in holding that the capital gain was a long-term capital gain. Thus the question of law referred is answered in the affirmative.” In the case of Sanjay Kumath (supra)(Indore), the Tribunal has held as under : “The assessee was allotted a flat in a multi-storied building. Vide the allotment letter, the builder agreed to sell the flat to the assessee. After signing the said letter of allotment and paying the booking amount, the assessee acquired the right in the said flat. [Para 8] After the entire payment was made by the assessee, agreement was executed on 27-2-2009. Thereafter, the assessee sold the flat on 5-3-2009. Thus, all the rights in the flat were duly acquired by the assessee on 22-1-2005, when he was given

10 ITA No.1020/Mum/2015 letter of allotment which clearly described the precise number of flat so allotted to him. As per the provisions of section 2(47)(ii), "Transfer" in relation to capital assets includes the extinguishment of any right therein. This letter of allotment extinguishes the rights of builder in the said flat in favour of the assessee in respect of this flat and by signing the letter of allotment, the assessee agreed to buy the same and for which payment was also made according to the letter of allotment. [Para 9] Board vide Circular No. 672 after referring Circular No. 471 extended the facility of exemption under sections 54 & 54F in respect of allotment of flat/house. Thus, as per the CBDT Circular also, the assessee acquired the rights/title in the flat by way of allotment letter on 22.1.2005. This allotment letter was duly confirmed by the assessee by making various payments. Out of total payment of Rs. 33.15 lakhs, the assessee made payment of Rs. 6.23 lakhs in the month of allotment itself i.e. January, 2005. Subsequent payment was also made as per the terms agreed with the builder. Only after receipt of entire amount, the builder has executed agreement with the assessee on 27-2-2009. The assessee has sold the said flat on 5- 3-2009. Since the assessee has acquired all the rights in the flat on 22-1-2005, the period of holding is to be computed with respect to the date of allotment i.e. 22-1-2005. Taking the date of sale as 5-3-2009, the holding period of flat with the assessee was more than 36 months, therefore, there is no infirmity in the order of Commissioner (Appeals) for allowing assessee's claim for exemption under section 54/54F, by treating the capital assets so sold as long-term capital assets. [Para 10]” In the case of Charanbir Singh Jolly (supra) Mumbai Bench of the Tribunal has held as under : The Assessing Officer had adopted the original cost of acquisition at the first instalment value, whereas the assessee had claimed the original cost of acquisition at the total payments made by him. Therefore, the real question was what was the cost of acquisition for the purpose of section 48, whether the amount of first instalment paid by the assessee or the total amount paid by the assessee for acquiring the house. [Para 7

11 ITA No.1020/Mum/2015 A house property has got its own intrinsic/market value. The cost or the value of the property remains the same subject to minor variations of interest of discount factor, irrespective of the mode of payments. The cost or value of the property does not get diluted for the reason that the cost of acquisition was paid by instalments. The basic idea of bringing the principle of indexation is to give some sort of protection to the assessee from the onslaught of inflation. The effect of inflation could be measured only with reference to the total cost of acquisition of a property. If the effect of inflation is measured with the payment of the first instalment, the whole scheme becomes ridiculous. It is to be seen that the factor of inflation is not with reference to the payments made by the assessee but with reference to the value of the asset vis-a-vis the cost of acquisition of the sale consideration of the property. [Para 8]

Therefore, in the instant case the cost of acquisition of the house for the purpose of long-term capital gains computation was the total cost incurred by the assessee and not the first instalment value as determined by the lower authorities. Hence, the assessing authority was directed to adopt the cost of acquisition as aforesaid and recompute the long-term capital gains taxable in the hands of the assessee accordingly. [Para 9]

In the case of CIT V/s K Ramakrishnan (2014) 363 ITR 59(Del), the Hon‟ble Delhi High Court has held as under : “3. In this case, the assessee acquired possession of the plot on December 12, 2005, and sold through a registered sale deed dated January 9, 2008. This court is of the opinion that having regard to the findings recorded by the Tribunal, the assessee had acquired the beneficial interest to the property at least 96 per cent. of the amount was paid, i.e., by October 3, 1999. This court is supported in its findings by a Division Bench ruling of the Punjab and Haryana High Court in Mrs. Madhu Kaul v. CIT [2014] 363 ITR 54/43 taxmann.com 417.””

The case law relied upon by the ld.DR in this case are distinguishable on facts and are not applicable to the present case, we therefore, respectfully following the ratio laid down in the above decisions relied on by the ld.AR hold that the assessee acquired the ownership right in the flat on the date of letter of intent when the assessee booked the

12 ITA No.1020/Mum/2015 flat and paid booking amount and not on the date of registration and thus held the property for more than 36 months and is entitled for indexation while calculating the gain. In view of the above observations, we are of the considered view that revisionary powers exercised by the PCIT for setting aside the order framed by the AO u/s 143(3) that the date of ownership is the date of registration of flat of in the name of assessee and not the date of allotment is wrong and therefore, we set aside the order of PCIT. The appeals of the assessee is allowed.” 8. Thus on merits also, the grievance raised by the assessee is accepted and the orders of the authorities below are reversed and penalty levied is deleted. 9. In the result, the appeal of the assessee is allowed. Pronounced accordingly on 7th July, 2016. घोषणध खुरे न्मधमधरम भें ददनधंकः 7th July, 2016 को की गई । sd (ए.डी. जैन/ A.D. JAIN) न्याययक सदस्य / JUDICIAL MEMBER भुंफई Mumbai: 7th July, 2016. व.नन.स./ SRL , Sr. PS आदेश की प्रयिलऱपप अग्रेपिि/Copy of the Order forwarded to : अऩीरधथी / The Appellant 1. प्रत्मथी / The Respondent. 2. आमकय आमुक्त(अऩीर) / The CIT(A)- concerned 3. आमकय आमुक्त / CIT concerned 4. ववबधगीम प्रनतननधध, आमकय अऩीरीम अधधकयण, भुंफई / 5. DR, ITAT, Mumbai concerned गधर्ा पधईर / Guard file. 6. आदेशधनुसधय/ BY ORDER, True copy सहधमक ऩंजीकधय (Asstt. Registrar) आमकय अऩीरीम अधधकयण, भुंफई /ITAT, Mumbai