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Facts
The Revenue appealed against the CIT(A)'s order deleting additions made on account of LTCG. The assessee sold an immovable property, but the cheques received as consideration were dishonored. The AO considered the sale complete, while the assessee contended it was not due to dishonored cheques and lack of full stamp duty payment.
Held
The Tribunal held that the sale deed was not a valid document due to non-payment of correct stamp duty and non-receipt of consideration, rendering the sale null and void. The possession of the property also continued with the assessee, and the purchaser ceased to exist.
Key Issues
Whether the sale of property is complete for the purpose of capital gains when cheques received as consideration are dishonored and stamp duty is not fully paid.
Sections Cited
148, 143(2), 2(47)
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Income Tax Appellate Tribunal, DELHI BENCHES ‘C’: NEW DELHI.
(Assessment Year: 2012-13) Income Tax Officer, vs. Sanjay Kumar Nagalia, Ward 29(1), New Delhi. C – 6/61, Safdarjung Development Area, New Delhi – 110 016. (PAN :AFWPN8178F) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Ashish Jain, CA REVENUE BY : Shri Om Prakash, Sr. DR Date of Hearing : 23.09.2025 Date of Order : 23.09.2025 ORDER PER S. RIFAUR RAHMAN, ACCOUNTANT MEMBER :
The Revenue has filed appeal against the order of the Learned Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [“Ld. CIT(A)”, for short] dated 01.03.2025for the Assessment Year 2012-13.
Brief facts of the case are, proceedings under section 148 of the Income- tax Act, 1961 (for short ‘the Act’) were initiated on the basis of information available on record that the assessee had sold immovable property at Rs.6,30,00,000/- and not filed return of income for the relevant AY i.e. 2012-13. The AO observed that long term capital gains remained out of the tax net. After obtaining relevant approvals from the competent authorities, notice was issued on 30.03.2019. Several notices were issued to the assessee. Subsequently, another notice was issued to the assessee and in response, assessee filed his return of income declaring income of Rs.78,930/- under the head income from house property and other sources. Notices under section 143(2) were issued and served on the assessee. Subsequently, the case was transferred to the present ITO from ITO, Ward 29(4), New Delhi.
During assessment proceedings, assessee filed the registered sale deed of the property and the AO noticed that as per clause 2 of the sale deed, the possession of the property was handed over to the buyer of the property. He reproduced the relevant clause at page 3 of the assessment order and observed that the assessee has given possession of the property. AO observed that in the above said sale deed, consideration is also mentioned and sale deed is also registered, meaning thereby that property was transferred by the assessee to the buyer, therefore, capital gain on the above said property become due as per the Act as the transfer of the property is complete as per provisions of section 2(47) of the Act.
During assessment proceedings, the assessee had repeatedly submitted that the cheques issued by the buyer in consideration for sale of the property was dishonored afterwards and hence, the sale of the property is not complete. In this regard, AO observed that the buyer of the property has become the debtor of the assessee due to dishonor of the cheques received by the assessee as part of the sale consideration. The debtor is liable to honor the cheques issued by it through court of law for which separate procedure there in the relevant provisions of law. Therefore, the transaction of sale of the property cannot be held as not complete. With the above observation, AO rejected the submissions of the assessee and proceeded to compute the long-term capital gain by allowing Rs.1 crore towards cost of acquisition and improvement after indexation as proposed by the assessee based on the letter dated 27.11.2019. He proceeded to make the addition as per the above determination of LTCG.
Aggrieved with the above order, assessee preferred an appeal before the NFAC, Delhi and filed detailed submissions. Further, during appellate proceedings, assessee also filed additional grounds of appeal which were admitted by the ld. CIT (A). Ld. CIT (A) discussed the detailed facts available on record and allowed the appeal of the assessee by appreciating the facts on record vide paras 6.2 to 6.6 of the impugned order.
Aggrieved with the above order, Revenue is in appeal before us raising following grounds of appeal :-
1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in allowing the appeal of the assessee by deleting the addition of 5,30,00000/- on account of LTCG when it is evident from the Sale Deed that the transaction of property took place and dishonour of cheques received by the assessee is a separate issue which must be dealt through Court of Law?
2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in allowing the appeal of the assessee by ignoring the fact that the purchaser has made stamp duty payment of Rs.89.17 lacs in furtherance of the Contract which clearly show that the purchaser has performed or is willing to perform his part of the Contract?
3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in allowing the appeal of the assessee by ignoring the fact that as per the Sale Deed, the assessee has handed over the peaceful possession of the immovable property to the purchaser?
4. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in allowing the appeal of the assessee by ignoring the fact that assessee has deliberately created alibi to cover the transaction's real structure?
7. At the time of hearing, ld. DR of the Revenue brought to our notice relevant facts on record and objected to the relief granted by the ld. CIT(A).On the other hand, ld. AR of the assessee relied on the findings of the ld. CIT(A).
8. Considered the rival submissions and material placed on record. We observed that the AO based on the information available with him that assessee has transferred the property, also handed over the property to the buyer on receipt of payment through cheques based on the various clauses of the sale deed. However, as per the facts on record, we observed that the property in question was earlier the property of the HUF comprising of assessee’s father, assessee and his brother, based on the overall partition of the HUF and after judgment dated 25.11.2011 was passed settling the dispute between the brothers, the assessee entered into a sale deed dated 07.12.2011 with ZX Sources Pvt. Ltd. for the sale consideration payable by the purchaser by issue of three cheques for the value of Rs.4.20 crores, Rs.2 crores and Rs.10 lakhs. In appeal, Ld. CIT (A) observed from the sale deed that against the stamp duty of Rs.26,28,050/- payable by the purchaser, stamp duty of Rs.50,000/- only was paid. He also observed that subsequently, assessee deposited all the three cheques in his bank account on 08.12.2011 for clearance but only one cheque of Rs.10 lakhs was cleared and other two cheques were dishonored. In support of the same, assessee also filed a bank report wherein it was clearly mentioned that the payment was stopped by the borrower. The ld. CIT (A) observed that the assessee is still in possession of the property based on the information available on record that a suit no.45 of 2013 was filed by the assessee in the Court of Civil Judge, Sr. Division, Dehradun and a Writ Petition No.2367 of 2014 was filed by the assessee before the Hon’ble High Court of Uttarakhand, a letter dated 04.08.2016 issued by the Municipal Corporation, Dehradun whereby it was stated that the property in question is still being entered in the name of the assessee in the municipal records. Ld. CIT (A) has reproduced the same in his order at page 21. Further ld. CIT (A) observed that AO has merely relied on clause 2 of the sale deed dated 07.11.2011 which states that in pursuance of the deed of sale, a purchaser has been put into quiet undisputed actual possession of the said property by seller, with effect from today. He further observed that above clause of the same sale deed, it is noted that as in case of dishonor of any of the aforesaid cheques the deal would be rendered without consideration null and void. Ld. CIT (A) observed that in the instant case, two of the three cheques have not been honored and he has reproduced the relevant clause of the agreement at page 22 of the appellate order. After considering the above facts on record, he observed that the transfer has not been completed because the sale deed is not a valid document as the correct amount of stamp duty was not paid and because non-receipt of consideration renders the sale null and void as per the conditions of the sale deed itself. Further he observed that the possession of the property continues to be with the assessee and further observed that purchaser has since ceased to exist as its name has been struck off as per the MCA Website and relevant screen shot was reproduced by the ld. CIT (A) at page 23 of the appellate order. Based on the above, ld. CIT (A) has allowed the appeal of the assessee by deleting the additions made by the AO. After considering the above facts on record, we are inclined to dismiss the appeal preferred by the Revenue.
In the result, the appeal of the Revenue is dismissed. Order pronounced in the open court on this23rd day of September, 2025 after the conclusion of the hearing.