Tribunal rules capital gains not assessable in AY 2008-09. Possession earlier, events pre-financial year.

The Tribunal ruled in favor of the appellant, holding that the capital gains arising from the development agreement were not assessable in AY 2008-09. The possession of the property was handed over earlier, and all relevant events occurred before the financial year in question. The AO's reliance on the allotment letter was deemed unjustified, leading to the Tribunal directing the AO to delete the capital gains for AY 2008-09, thereby allowing the appeal of the assessee.

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Issues:
Assessment of long term capital gain for AY 2008-09 based on the transaction date of allotment of flats.

Analysis:
The appellant challenged the assessment order on various grounds before the Ld CIT(A). Firstly, it was argued that the liability to capital gains did not arise in AY 2008-09 as the development agreement was entered in 2002, citing the decision in Chaturbhuj Dwarakadas vs. CIT. Secondly, it was contended that the right to additional FSI obtained due to amended D.C regulations did not have an attributable "cost," making the transfer of FSI rights not assessable to capital gains. Thirdly, the appellant claimed eligibility for deduction under sections 54/54F of the Act for acquiring new flats against the development rights granted. Lastly, the argument was made that if the developer acted as a contractor only, there was no transfer at all.

The Ld CIT(A) upheld the AO's order, stating that development rights are capital assets and the transfer of development rights falls within the scope of the Income Tax Act. It was noted that under the development/supplementary agreement, there was only a "promise of allotment" of the flats, which were actually allotted on 15-04-2007, leading to the correct assessment of capital gains in AY 2008-09.

During the appeal, the Ld AR argued that as per the development agreement, the possession of the property was handed over in 2002, and capital gains liability, if any, should arise in AY 2003-04, relying on legal precedents. The AR emphasized that the occupation certificate was received in 2006, and possession of the flats was taken even earlier. Therefore, the capital gains should not be assessed in AY 2008-09, regardless of the allotment letter issued by the developer.

After considering the arguments and evidence presented, the Tribunal found that the capital gains arising from the development agreement were not assessable in AY 2008-09. It was established that the possession was handed over earlier, and all relevant events occurred before the financial year in question. The AO's reliance on the allotment letter was deemed unjustified, and the order passed by the Ld CIT(A) was set aside. Consequently, the Tribunal directed the AO to delete the capital gains for AY 2008-09, allowing the appeal of the assessee.

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