2023 (2) TMI 627 - AT - Income Tax

Appeal granted: Allotment letter determines holding period for capital gains. Section 54 deduction allowed.

The ITAT Mumbai allowed the appeal, directing the AO to treat the property as a long-term capital asset based on the allotment letter as the acquisition ... Denying deduction u/s 54 - treating the Long Term Capital Gain arising on sale of old property as Short Term Capital Gain - whether the date of acquisition of the property is to be considered from the date of allotment issued by the builder? - HELD THAT:- We find that the issue squarely covered in the favour of the assessee by the decision in case of principal Commissioner of income tax vs Vembu Vedhyanathan [2019 (1) TMI 1361 - BOMBAY HIGH COURT] wherein the honourable High Court after considering the circular issued by the central board of direct taxes has held that the allotment letter by the builder is the date of acquisition of the property as the period of holding for the purpose of determining whether the asset is a long-term capital asset or a short-term capital asset, is to be taken therefrom. Honourable Supreme Court has dismissed the special leave petition filed by the by the revenue [2019 (7) TMI 1111 - SC ORDER] Therefore, we direct the AO to consider the date of acquisition of the property sold on 4/1/2014 from the date of allotment letter i.e. 20/7/2009 and consider the asset transferred as a long-term capital asset. Accordingly, the assessee is also eligible for deduction u/s 54 of the act.- Decided in favour of assessee. Issues:1. Denial of deduction under Section 54 by treating Long Term Capital Gain as Short Term Capital Gain.2. Addition of Short Term Capital Gain by disregarding holding period of the property.3. Disallowance of deduction under Section 54 by the Assessing Officer.4. Applicability of the date of acquisition of the property for determining capital gain.Analysis:1. The appeal was filed against an appellate order dismissing the deduction under Section 54 for A.Y. 2014-15. The Assessing Officer treated the Long Term Capital Gain as Short Term Capital Gain, leading to the denial of the deduction. The appellant argued that the AO erred in not appreciating the documents and submissions provided during the assessment proceedings. The grounds of appeal highlighted discrepancies in the treatment of the capital gain.2. The Assessing Officer noted the sale and purchase transactions of the property by the assessee. The property sold was considered a short term capital gain due to the holding period not meeting the 36-month requirement. The AO emphasized that the property was not in existence at the time of the allotment letter, leading to the conclusion of a short term capital gain. The appellant's arguments regarding the computation of capital gain and applicability of Section 54 were considered during the assessment.3. The appellant's appeal before the CIT (A) was confirmed, upholding the Assessing Officer's decision. The issue revolved around whether the property's acquisition date should be based on the allotment letter or the actual commencement of construction. The appellant cited relevant case law to support their claim, while the Departmental Representative argued against the applicability of the allotment date due to the property's non-existence.4. The ITAT Mumbai analyzed the conflicting contentions and relevant legal precedents. Considering the date of allotment as the acquisition date, the ITAT directed the AO to treat the property as a long-term capital asset, allowing the deduction under Section 54. The decision was influenced by the Bombay High Court's ruling and the circular issued by the CBDT, emphasizing the significance of the allotment letter in determining the holding period for capital gains tax purposes.In conclusion, the ITAT Mumbai allowed the appeal, setting aside the computation issue and directing the AO to reconsider the date of acquisition based on the allotment letter, thereby granting the deduction under Section 54 to the assessee.