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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI DUVVURU RL REDDY, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
PER S. BALAKRISHNAN, Accountant Member :
This appeal is filed by the assessee against the order of Ld. Principal Commissioner of Income Tax-1, Visakhapatnam [Pr. CIT] passed U/s. 263 of the Act vide DIN & Order No. ITBA/REV/F/REV5/2021-22/1041948179(1), dated 29/03/2022 for the AY 2015-16.
Brief facts of the case are that the assessee is an individual, salaried employee, filed his return of income for the AY 2015-16 admitting the total income of Rs. 20,27,160/- on 24/03/2017. The Ld. AO during the course of verification noticed that the assessee claimed deduction U/s. 10 for Rs. 19,31,147/- whereas it was as per Form-16 furnished by the assessee Rs. 6,31,001/- and Rs. 53,933/-. The Ld. AO therefore concluded that the assessee has made an excess claim of Rs. 13,00,147/- U/s. 10 of the Act and reopened the case U/s. 148 of the Act with the prior approval of JCIT, Range-2, Visakhapatnam. The Ld. AO issued notice u/s. 148 of the Act on 4/9/2018 where the assessee responded by filing a revised return of income. The Ld. AO observed that there is an excess claim of Rs.6,76,342/- which the assessee has claimed as deduction U/s. 10 of the Act and added it to the total income of the assessee. The Ld. Pr. CIT in exercising his powers U/s. 263 of the Act noticed that the assessee has made a claim of deduction u/s. 54 of the Act for Rs.18,11,240/-. From the assessment record, the Ld. Pr. CIT found that the assessee has sold property for a consideration of Rs. 92,50,000/- on 26/3/2015 and computed the LTCG of Rs. 18,11,240/- and claimed it as deduction U/s. 54 of the Act by investment in a new asset. The Ld. Pr. CIT observed that the assessee has purchased the said property for a consideration of Rs. 45,34,020/- and the same was registered on 12/12/2013. The Ld. Pr. CIT observed that the assessee only entered into an agreement of sale on 10/11/2009 to purchase the property however it was registered in December, 2013 vide sale deed dated 12/12/2013. The Ld. Pr. CIT also observed that the assessee sold the property for Rs.92,50,000/-on 26/3/2015. The Ld. Pr. CIT considering the date of registration and the date of sale concluded that this cannot be treated as LTCG and has to be taxed as STCG since the assessee has not held the property for more than three years.
Consequently, the claim made by the assessee U/s. 54 of the Act was also needs to be disallowed as deduction U/s. 54 is admissible only on LTCG. The Ld. Pr. CIT directed the Ld. AO to recompute the income by disallowing assessee’s claim U/s. 54 of the Act and taxing the gain as STCG. Aggrieved by the order of the Ld. Pr. CIT, the assessee is in appeal before us.
3. Originally, the assessee has raised 06 grounds of appeal and later revised the grounds of appeal which reads as under:
“1. The order passed by the Ld. Pr. CIT, Visakhapatnam in the case of the assessee for AY 2015-16 U/s. 263 of the Act dated 29/03/2022 is without jurisdiction. 2. The Ld. Pr. CIT is not justified in directing the AO to treat the immovable property transferred during the FY relevant the AY as short term capital asset and deny the benefits of indexation of cost of acquisition, the exemption U/s. 54 and also to tax the same at a higher rate as applicable to short term capital gains as against long term capital gains returned by the assessee. 3. All the above grounds of appeal are without prejudice to one another.
4. The appellant craves leave to add to; alter; modify; delete all or any of the grounds of appeal.”
At the outset, the Ld. Authorized Representative [AR] argued that 4. the assessee has entered into an agreement for purchase of property during the year 2009 and has paid substantial amount towards purchase of property. However, the final sale deed was registered during the year 2013 only. The Ld. AR therefore submitted that the date of agreement for the purchase of the property shall be considered for the purpose of calculation of period of holding while computing the capital gains. The Ld. AR placed heavy reliance on the decision of the Hon’ble Madras High Court in the case of CIT vs. S.R. Jeyashankar [2015] 373 ITR 0120.
Per contra, the Ld. DR relied on the order of the Ld. Pr. CIT.
We have heard both the sides and perused the material available on record and the orders of the Ld. Revenue Authorities. Admittedly, the assessee has entered into an agreement for purchase of property on 10/11/2019 as submitted by the Ld. AR. We also find from the submissions made by the Ld. AR that the assessee has paid substantial amount of Rs.34,52,625/-. The only contention of the Ld. Pr. CIT is since the property was registered vide sale deed dated 12/12/2013 and sold on 26/3/2015, the net gain arising out of the sale shall be STCG. However, we find that the Ld. Pr. CIT has ignored the date of agreement of sale entered into by the assessee during the year 2009. The reliance placed by the Ld. AR in CIT vs. S.R. Jeyashankar, the Hon’ble Madras High court has held as follows:
“9. Circular No.471 dated 15.10.1986 is also on the same lines. It speaks about the right of an allottee over a property that has been allotted. The other issues like payment of balance instalments, delivery of possession, which takes place after the allotment only, relates back to the original allotment, in the present case, agreement. Therefore, the principle on which long term capital gains should be determined has been clearly indicated in the circular. For better clarity, Circular No.471 dated 15.10.1986 reads as follows: "Circular No.471 Capital gains tax - Whether investment in a flat under the Self-Financing Scheme of the Delhi Development Authority would be construction for the purpose of ss.54 and 54F of the IT Act, 1961 15/10/1986 Capital Gains Sections 54, 54F, Secs. 54 and 54F of the IT Act, 1961, provide that capital gains arising on transfer of a long-term capital asset shall not be charged to tax to the extent specified therein, where the amount of capital gain is invested in a residential house. In the case of purchase of a house, the benefit is available if the investment is made within a period of one year before or after the date on which the transfer took place and in case of construction of a house, the benefit is available if the investment is made within three years from the date of the transfer.
2. The Board had occasion to examine as to whether the acquisition of a flat by an allottee under the Self-Financing Scheme of the Delhi Development Authority amounts to purchase or its construction by the Delhi Development Authority on behalf of the allottee. Under the Self- Financing Scheme of the Delhi Development Authority the allotment letter is issued on payment of the first installment of the cost of construction. The allotment is final unless it is cancelled or the allottee withdraws from the Scheme. The allotment is cancelled only under exceptional circumstances. The allottee gets title to the property on the issuance of the allotment letter and the payment of installments is only a follow-up action and taking the delivery of possession is only a formality. If there is a failure on the part of the Delhi Development Authority to deliver the possession of the flat after completing the construction, the remedy for the allottee is to file a suit for recovery of possession.
The Board have been advised that under the above circumstances, the inference that can be drawn is that the Delhi Development Authority takes up the construction work on behalf of the allottee and that the transaction involved is not a sale. Under the Scheme, the tentative cost of construction is already determined and the Delhi Development Authority facilitates the payment of the cost of construction in installments subject to the conditions that the allottee has to bear the increase, if any, in the cost of the construction. Therefore, for the purpose of capital gains tax, the cost of the new asset is tentative cost of construction and the fact that the amount was allowed to be paid in installments does not affect the legal position stated above. In view of these facts, it has been decided that cases of allotment of flats under the Self-Financing Scheme of the Delhi Development Authority shall be treated as cases of construction for the purpose of capital gains."
In the light of the above-said decisions and the Circular, we do not find any reason why the same principle should not be applied to all transactions based on agreements in respect of capital asset. It has been correctly pointed out by the Commissioner of Income Tax (Appeals) as well as the Tribunal following the decision of the Punjab and Haryana High Court that the breach of agreement would only give right to the beneficiary for enforcing the right over the property. We find no reason to differ with the said reasoning.”
Respectfully following the ratio laid down in the above decision of the Hon’ble Madras High Court, we are of the view that the order of the Ld. Pr. CIT needs to be quashed and allow the appeal of the assessee.
In the result, appeal of the assessee is allowed.
Pronounced in the open Court on the 31st March, 2023.