SNEHA BIMAL PAREKH,MUMBAI vs. PR CIT 19, MUMBAI

आयकर अपीऱीय अधिकरण, म ुंबई न्यायपीठ “ई” म ुंबई IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI BEFORE SHRI SHAILENDRA KUMAR YADAV, JM AND SHRI RAJESH KUMAR, AM आयकर अपीऱ सं./I.T.A. No.5489/Mum/2015 (ननधधारण वषा / Assessment Year : 2012-13) Mrs.Sneha Bimal Parekh, बनधम/ Principal Commissioner of 6, Ajanta, Income Tax 19, Vs. L D Ruparel Marg, Matru Mandir, Mumbai-400006 Tardeo Road, Mumbai-400007 स्थधयी ऱेखध सं./ PAN : AHFPP6087L अपीऱार्थी ओर से / Assessee by Shri Rajiv Khandelwal प्रत्यर्थी की ओर से/Revenue by Shri Manjunatha Swamy सुनवाई की तारीख / Date of Hearing : 22.6.2016 घोषणा की तारीख /Date of Pronouncement :30.06.2016 आदेश / O R D E R PER RAJESH KUMAR, A. M: This is an appeal filed by the assessee and challenging the order dated 21.10.2015 of Commissioner of Income Tax-19, Mumbai, for assessment year 2012-13. 2. The issue raised in the various grounds of appeal taken by the assessee is against the setting aside the order of Income Tax Officer-19(3)(4) vide order dated 21.10.2015 passed under section 263 of the Income Tax Act, 1961 by the Principal Commissioner of Income Tax on the ground that the assessee has wrongly claimed the benefit of indexation on cost of 2 5489/Mum/2015 acquisition from the date on which the allotment letter was issued to the assessee. Whereas the AO ought to have treated the gain on sale of flat as Short Term Capital Gains (STCG) by treating the date of possession/registration as the date of acquisition of flat. The Principal Commissioner of Income Tax (PCIT) also noted the fact that the area of the flat was 1215 sq.ft. as per letter of allotment dated 27.11.2006 (112 Sq.M) whereas the agreement for sale dated 28.6.2011, the area of the flat sold was 847 sq.ft.(78.69 Sq.Mtr) which was not noticed by the AO in the assessment proceedings. It was also mentioned in the order of PCIT that the assessee has not filed any documentary evidence in respect of long term capital gains except the allotment letter in support of date of acquisition of the said property such as Registered Agreement of Purchase of the flat by the assessee and also the AO has not discussed the intent letter for the purpose of date of transfer of property to the assessee, The said act of the AO was wrong and caused prejudice to the interest of revenue as he did not find the date of acquisition/ownership of the flat while allowing the indexing the cost of acquisition of the said property.

3 5489/Mum/2015 i.e.112.80 sq.mt. as per letter of intent/allotment dated 27.11.2006, whereas as per agreement for sale of said flat stated the area of 847 sq.ft. (78.69 Sq.Mtr.). This was pursuant to Supreme Court Judgment that only carpet area is to be mentioned in the agreement of sale and purchase and not super built up area. The total cost of acquisition of the said flat was Rs.76,04,418/- and the date of registration of agreement in the name of assessee was 27.6.2009. The assessee calculated the LTCG on the said flat at Rs.29,938/- by indexating the cost of acquisition by taking the date of purchase/acquisition as 27.11.2006. 4. The assessment was framed by the AO u/s 143(3) of the Act on 19.2.2015 at an income of Rs.3,92,670/-. Thereafter the PCIT set aside the assessment made by the AO u/s 263 of the Act as being erroneous and prejudicial to the interest of the revenue on the ground that the gain on sale of flat No.92 in Wing “B”” of Building No.2 in the Complex known as “Kalpataru Aura” on 28.6.2011 ought to have been treated as STCG whereas the AO allowed the claim of the assessee by treating the said surplus on sale of flat as LTCG by taking the date of allotment of flat as date of acquisition and thus wrongly allowed the cost of acquisition to be indexed for the purpose of long term capital gain and consequently offered the long term capital gains at Rs.29,938/-. The PCIT while refereeing to the provisions of section 2(47) of the Act observed that for the purpose of acquisition of 4 5489/Mum/2015 property the date of letter of intent/llotment does not satisfy the condition of transfer of property. The ld. PCIT relied heavily on para 12 of the letter of intent which reads as under : “ This writing is merely a letter of intent and is not and does not purport to be an agreement for sale/purchase of the said Flat! the Premises by you, your rights and obligations shall become effective only on execution of the Agreement for Sale. All the amounts paid by you till then shall remain as deposit (interest free) with us” Finally, the PCIT set aside the assessment after considering the reply of the assessee by observing and holding that the assessment order dated 19.2.2015 was erroneous and prejudicial to the interest of the revenue with the direction to the AO to determine the income and gain of the assessee. Being aggrieved by the order of the PCIT, the assessee is in appeal before us..

5 5489/Mum/2015 which is reproduced below for the purpose of convenience and better

understanding of the fact.

Sr. No. Particulars Payment Installment Percentage Amount in Rs. 1 On Booking (Within 07 days) 27th November 2006 5% Rs. 3,34,919/- 27th December 2006 15% Rs.10,04,756/- 2 Within 30 (Thirty) Days of Booking 3 On Completion of Plinth 10% Rs. 6,69,838/- 2nd slab 4 On Completion of 5% Rs. 3,34,919 5 On Completion of 4th slab 5% Rs. 3,34,919 6 On Completion of 6th slab 5% Rs. 3,34,919 7 On Completion of 8th slab 5% Rs. 3,34,919 8 On Completion of 10th slab 5% Rs. 3,34,919 9 On Completion of 12th slab 5% Rs. 3,34,919 10 On Completion of 14th slab 5% Rs. 3,34,919 11 On Completion of 16th slab 5% Rs. 3,34,919 12 On Completion of Top slab 5% Rs. 3,34,919 14 On Completion of Brick work 5% Rs. 3,34,919 15 On Completion of Internal plaster 5% Rs. 3,34,919 16 On Completion of Tilting 5% Rs. 3,34,919 17 On Completion of Possession 10% Rs.6,69,834 100% Rs.66,98,375

payment to be made by the assessee to the builder i.e Rs.66,98,375/- during

various stages on completion/progress of the building. The ld. Counsel submitted before us that the ground on which the PCIT set aside the assessment was totally wrong as the order of AO is neither erroneous and nor prejudicial to the interest of revenue. The ld. Counsel submitted that these are twin conditions which were to be satisfied before any assessment order could be set aside by higher authorities and not otherwise. The ld.

6 5489/Mum/2015 Counsel submitted before us that the assessee acquired the interest in the property the movement the assessee was issued letter of intent by the builder on 17.11.2006 and the assessee made the payment of first installment as stated in the schedule of payment. The ld.counsel strongly submitted that the action of the PCIT is patently wrong in taking the date of registration of flat in the name of the assessee as the date of acquisition/purchase. It is the date of allotment of flat on 27.11.2006 when the assessee acquired interest/rights in the property and the balance payment of outstanding sale consideration and date of possession or registration are only consequential and not relevant for the purpose of section 2(29) read with section 2(14) of the Act. In the case of the assessee, the registration was done on 31.4.2009 and the sale of flat was made on 28.06.2011. In view of these facts the order of the AO is not erroneous as the AO allowed the benefit of indexation to the assessee by taking the date of letter of intent as the date of ownership as per the provisions of Act and in support of this the ld.AR relied on the following case laws: a) Smt.Lata G Rohra V/s DCIT – (2008) 21 SOT 541 (Mum); b) Ms.Madhu Kaul V/s CIT –(2014) 263 ITR 54 (P&H); Vinod Kumar Jain Vs. CIT -344 ITR 501 (P&H); c) d) CIT V/s Ved Parkash And Sons (Huf) (1994) 207 ITR 148 P H, ; e) ACIT V/s Sanjay Kumath (2014) 63 SOT 90 (Indore) f) Charanbir Singh Jolly V/s ITO (2006) 5 SOT 89 (MUM) g) CIT V/s K Ramakrishnan (2014) 363 ITR 59(Del)

7 5489/Mum/2015 7. The lf. AR finally prayed that since the order passed by the AO is neither erroneous nor prejudicial to the interest of the revenue in view of the facts that the AO has rightly allowed the benefit of indexation to the assessee by taking the date of letter of intent on which the token payment were made the as the date of acquisition when the assessee acquired right in the said flat and thus accepted the LTCG retuned by the assessee and as such the twin conditions as envisaged in the provisions of section 263 were not satisfied and therefore the order as passed by the PCIT is wrong and be set aside by taking into considerations the ratio laid down in the above referred decisions. 8. The ld. DR, on the other hand, objected to the arguments of the ld.AR and supported the order of the PCIT heavily. The ld. DR submitted that the date of acquisition of the property is the date of registration in the name of the assessee as provided in the Transfer of Property Act. The ld.DR submitted that as per the provisions of section 2(47) of the Act the transfer is complete when the possession of immovable property is taken under the Transfer of Property Act, 1982 and thus the ld.PCIT has rightly exercised his revisionary power under section 263 of the Act as the order passed by the AO is erroneous as well as prejudicial to the interest of the revenue in view of the fact that the STCG has been treated as LTCG by allowing indexation of cost of acquisition from the date of letter of intent instead of date of registration of property in the name of the assessee and finally the ld. DR

8 5489/Mum/2015 prayed that the order of the PCIT be upheld by dismissing the appeal of the assessee. In support of his contentions, the ld.DR relied on the following case laws: i) CIT V/s Amitabh Bachchan in Civil Appeal No.5009 of 2016 (arising out of SLP C ) No.11621 of 2009) order dated 11.5.2016 (Supreme Court) ii) Horizon Investment Co.Ltd V/s CIT in ITA No.1593/Mum/2013 (AY- 2008-09) dated 27.6.2014 Mumbai Tribunal. ii) Arvee International V/s Addl.CIT (2006) 101 ITD 495 (Mum).

10 5489/Mum/2015 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” 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 :”

11 5489/Mum/2015 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 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 12 5489/Mum/2015 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 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 13 5489/Mum/2015 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 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]

14 5489/Mum/2015

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 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.

15 5489/Mum/2015

Order pronounced in the open court on 30.6.2016. sd (SHAILENDRA KUMAR YADAV) (RAJESH KUMAR) न्यधनयक सदस्य / JUDICIAL MEMBER ऱेखध सदस्य / ACCOUNTANT MEMBER म ंबई MUMBAI; ददनधंक DATED : .6.2016 Sr.PS:SRL:

आदेश की प्रनिलऱपऩ अग्रेपषि/Copy of the Order forwarded to : अपीऱाथी / The Appellant 1. प्रत्यथी / The Respondent 2. आयकर आयुक्त(अपीऱ) / The CIT(A) 3. आयकर आयुक्त / CIT – concerned 4. ववभागीय प्रतततनधि, आयकर अपीऱीय अधिकरण, मुंबई / DR, ITAT, Mumbai 5. गार्ड फाईऱ / Guard File 6. आदेशधन सधर/ BY ORDER,उऩ/सहधयक ऩंजीकधर (Dy./Asstt.