PRAGATI KAWALI,MUMBAI vs. ITO 25(1)(2), MUMBAI

The assessee has taken the following grounds of appeal: “Being aggrieved by the order of the learned commissioner of Income Tax (Appeals) 29, Mumbai [hereinafter referred to as Ld. CIT (A)], the Appellants submit the following grounds for your sympathetic consideration; which it is prayed may be considered without prejudice

The brief facts of the case are that the assessee had entered into an agreement for sale of the immovable property on 21.01.09 worth Rs.85,45,298/-, the proceeds of which were not found reflected in the return of income. On being asked to explain, the assessee replied that the sale transaction was not completed during the year under consideration i.e. Financial Year 2008-09 relevant to A.Y. 2009-10. It was submitted that the actual possession of the property was given on receipt of full consideration from the purchaser during the subsequent financial year. The Assessing Officer (hereinafter referred to as the AO), however, did not accept the contention of the assessee and held that the part performance of the contract had happened on the registration of the sale agreement on 21.02.09 and therefore the capital gains had accrued to the assessee during the year under consideration. He accordingly brought the long term capital gains to tax during year under consideration. Being aggrieved, the assessee preferred appeal before the Ld. CIT(A).

The Ld. CIT(A) also held that since the agreement to sale was registered on 21.02.09, hence the capital gains had accrued to the assessee on the said date. Being aggrieved, the assessee has come in appeal before us.

The Ld. A.R. of the assessee has brought our attention to the relevant observations of the Ld. CIT(A) made in the impugned order to the effect that though the agreement for sale of the property was registered on 21.01.09, however, the possession of the property remained with the assessee only. Even, during the year, the said property had been rented out to another party M/s. Future Metals Pvt. Ltd. The assessee received rent amounting to Rs.95,000/- per month totaling Rs.10,45,000/- during the year under consideration. The said rent had also been offered to tax in the return of income for the year under consideration. The said income has also been accepted by the AO in the assessment order. He has contended that since the property was on rent till March 2009 and the assessee had not only received the rent but had offered the same in the return of income, that fact itself proves that the possession of the property was not delivered to the purchasers namely Mr. Suresh Pannalal Kanojia and Mrs. Meenalal Suresh Kanojia. The The Ld. A.R. has further invited our attention to the copy of the sale agreement wherein as per clause 4 of the agreement it has been provided that the transferees have approached and applied to Saraswat Bank for availing a housing loan to purchase and acquire the promises in question and that the said bank has agreed to consider their request for issuance of the said loan and the bank has agreed to release the amount of Rs.59,50,000/- within 30 working days time on presenting the registered sale agreement of the property in question and that the amount would be directly released in the account of the transferors and the transferors will not have any liability to pay any interest on the said amount. Further, the Ld. A.R. has invited our attention to clause 2 of the agreement wherein the total consideration of the property has been settled at Rs.70 lakhs payable to the three co owners of the property including assessee. As per clause 3, a sum of Rs.10,50,000/- has been paid before the execution of the agreement and the remaining amount of Rs.59,50,000/- has to be paid by the transferees by raising loan from the bank as narrated above. The Ld. A.R. has further invited our attention to the relevant part of the clause 4 wherein it has 4 Mrs. Pragati Dilip Kawali been specifically mentioned that the transferors will put the transferees in vacant possession of the house in question on the transferees discharging the balance consideration amount of Rs.59,50,000/- only. The Ld. A.R. has further invited our attention to clause 9 of the agreement, wherein it has been again specifically mentioned that the transferors shall deliver vacant possession of the said flat in question to the transferees on the transferees discharging the total consideration amount of Rs.70 lakhs in the manner as mentioned in the clauses of the agreement. The Ld. A.R. has further invited our attention to pages 33 to 39 of the paper book to show that a some of Rs.43,71,782/- was paid by the buyer directly to the HSBC Bank towards the housing loan account of the seller/assessee on 05.05. 09. Further, an amount of Rs.3,61,371/- was paid in the Bank of Baroda account of the assessee on the same date vide cheque No.37203. The assessee has proved beyond doubt that the remaining amount of the sale consideration as agreed by the sale agreement was received by the assessee during the subsequent year and not during the year under consideration. The possession of the property was not handed over by the assessee to the purchaser during the year under consideration. Even the assessee has offered the rental income for the year under consideration which has been accepted by the AO. The terms and conditions of the agreement also reveals that the said agreement was registered so that the purchaser may be able to obtain the housing loan from the bank and that it was agreed that the transfer of the house in question will take place only after the transferee would pay the balance amount of consideration, which actually was received by the assessee on 05.05. 09. Under such circumstances, the transfer of the property, in our view, was not completed in the year under consideration. It is an admitted fact on the file that the assessee has offered the capital gains during the subsequent year which have been accepted by the AO. In view of this, we hold that no capital gains should have been taxed in the year under consideration.

Before parting with the order, we may clarify that though both the Ld. Representatives of the parties have relied upon certain case laws but without going to the legal aspect, we find on the factual aspect that the transfer was not completed during the year under consideration.

The appeal of the assessee is therefore allowed and the addition of capital gains by the AO relating to the sale consideration received on account of transfer of property in question is hereby ordered to be deleted.