Capital gains on flat sale computed from agreement date, with reinvestment relief allowed and other additions remanded.

Unreconciled contract receipts reflected in Form 26AS were held to require fresh verification where the assessee claimed earlier accounting and receivables treatment, and the addition could be deleted if supported by evidence. For capital gains, the holding period of a flat was computed from the date of the registered agreement to sell, not possession, so the gain was treated as long-term and exemption for reinvestment in a residential house was allowed under a liberal reading of the provision. The unsecured loan and interest addition was also sent back for enquiry into the lender's identity, genuineness and creditworthiness.

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Issues: (i) Whether the addition towards unreconciled contract receipts based on Form 26AS required fresh examination in the light of the assessee's reconciliation and claim that the receipts were already accounted for in an earlier year; (ii) whether capital gains arising from sale of the properties were long-term capital gains and whether exemption under section 54 was allowable; (iii) whether the addition relating to unsecured loan and interest required fresh verification of the lender's identity, genuineness and creditworthiness.

Issue (i): Whether the addition towards unreconciled contract receipts based on Form 26AS required fresh examination in the light of the assessee's reconciliation and claim that the receipts were already accounted for in an earlier year.

Analysis: The difference between book turnover and Form 26AS receipts arose in the context of civil contract billing, where receipts and TDS may fall in different years. The reconciliation filed by the assessee, including the claim that the receipts had been accounted for earlier and reflected as receivables, was not properly verified from the record. The factual basis required re-examination by the Assessing Officer.

Conclusion: The issue was restored to the Assessing Officer for fresh verification, with deletion of the addition only if the assessee substantiated the reconciliation with evidence.

Issue (ii): Whether capital gains arising from sale of the properties were long-term capital gains and whether exemption under section 54 was allowable.

Analysis: The date of acquisition of the first flat had to be taken from the registered agreement to sell and not from the later date of possession, because the right in the property crystallised on execution of the agreement. On that basis, the holding period exceeded 36 months. As regards the second property, the record supported investment in another residential house within the prescribed period. Section 54 being a beneficial provision had to be construed liberally.

Conclusion: The capital gains were held to be long-term capital gains and exemption under section 54 was allowed in favour of the assessee.

Issue (iii): Whether the addition relating to unsecured loan and interest required fresh verification of the lender's identity, genuineness and creditworthiness.

Analysis: The lower authorities recorded divergent facts on whether adequate evidence had been filed to establish the loan transaction. Mere deduction of tax at source on interest payment was not conclusive. The correctness of the assessee's claim had to be examined by proper enquiry into the lender's identity, genuineness of the transaction and creditworthiness.

Conclusion: The issue was set aside to the Assessing Officer for fresh enquiry.

Final Conclusion: The Revenue's appeal did not succeed on the capital gains issue, while the other disputed additions were sent back for verification, resulting in a partial allowance of the appeal for statistical purposes.

Ratio Decidendi: For capital gains under section 54, the holding period of a flat acquired under a registered agreement to sell is to be computed from the date of the agreement, and the exemption provision must be applied liberally where the investment in a new residential house is substantiated.

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