2016 (7) TMI 641 - AT - Income Tax

Assessee wins case: Flat sale gain as LTCG with indexation. Tax appeal allowed.

The Tribunal ruled in favor of the assessee, determining that the gain on the sale of the flat should be treated as Long Term Capital Gains (LTCG) with ... Revision u/s 263 - as per CIT(A) assessee has wrongly claimed the benefit of indexation on cost of acquisition from the date on which the allotment letter was issued to the assessee - 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 - Held 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. - Decided in favour of assessee. Issues Involved:1. Whether the gain on the sale of the flat should be treated as Short Term Capital Gains (STCG) or Long Term Capital Gains (LTCG).2. Whether the date of allotment or the date of registration should be considered for calculating the holding period of the flat.3. Whether the order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interest of the revenue.Detailed Analysis:1. Treatment of Gain on Sale of Flat as STCG or LTCG:The Principal Commissioner of Income Tax (PCIT) contended that the gain on the sale of the flat should be treated as STCG by considering the date of possession/registration as the date of acquisition. The PCIT argued that the AO erroneously allowed the benefit of indexation on the cost of acquisition from the date of the allotment letter, which led to the treatment of the gain as LTCG. The assessee, however, claimed the benefit of indexation from the date of the allotment letter and calculated LTCG accordingly.2. Date of Allotment vs. Date of Registration for Holding Period:The PCIT's position was that the date of registration should be considered as the date of acquisition, citing that the letter of intent/allotment did not satisfy the condition of transfer of property under section 2(47) of the Income Tax Act, 1961. The PCIT relied on the letter of intent, which stated that rights and obligations would become effective only upon the execution of the Agreement for Sale. Conversely, the assessee argued that the date of allotment should be considered the date of acquisition, as the allotment letter conferred a right to hold the property, and subsequent payments and registration were merely consequential.3. Erroneous and Prejudicial Order by AO:The PCIT set aside the assessment order passed by the AO under section 263, arguing that the AO's decision was erroneous and prejudicial to the interest of the revenue. The AO had allowed the benefit of indexation from the date of the allotment letter, which the PCIT claimed was incorrect. The assessee challenged this, asserting that the AO's order was neither erroneous nor prejudicial to the revenue, as the AO had correctly allowed the benefit of indexation based on the date of the allotment letter.Tribunal's Findings:1. Ownership and Rights from Date of Allotment:The Tribunal found that the assessee acquired ownership rights in the flat on the date of the allotment letter (27.11.2006), when the initial payment was made. The Tribunal referred to various case laws, including Smt. Lata G Rohra v. DCIT, Ms. Madhu Kaul v. CIT, and Vinod Kumar Jain v. CIT, which supported the view that the date of allotment confers ownership rights and should be considered for calculating the holding period.2. Indexation and Holding Period:The Tribunal held that the assessee was entitled to indexation from the date of the allotment letter, as the assessee had acquired a right to hold the property from that date. The Tribunal emphasized that the date of registration and possession were consequential and not relevant for determining the holding period under sections 2(29) and 2(14) of the Act.3. Erroneous and Prejudicial Order by PCIT:The Tribunal concluded that the AO's order was not erroneous or prejudicial to the interest of the revenue. The AO had correctly allowed the benefit of indexation from the date of the allotment letter, and the PCIT's revisionary powers under section 263 were not justified. The Tribunal set aside the PCIT's order and allowed the assessee's appeal.Conclusion:The Tribunal ruled in favor of the assessee, determining that the gain on the sale of the flat should be treated as LTCG with the benefit of indexation from the date of the allotment letter. The Tribunal set aside the PCIT's order, concluding that the AO's original assessment was neither erroneous nor prejudicial to the interest of the revenue. The appeal of the assessee was allowed.