2023 (8) TMI 815 - AT - Income Tax

Flat allotment date affects capital gain classification. Loan interest not part of acquisition cost. Tribunal decision on unexplained investment.

The Dy. CIT, Central Circle-6 (4), Mumbai Versus Shri Narendra Gehlaut

The Tribunal determined that Flat No. C-3501 was allotted on 31.10.2015, classifying the capital gain as Short Term Capital Gain (STCG) due to a holding ... Capital gain on sale of flat - LTCG or STCG - period of holding - asset/flat holded for a period of more than 36 months or not? - AO rejected the contention of the assessee of the LTCG and held the gain on transfer of the rights of the flat as STCG and also rejected the claim of interest as part of cost of acquisition - CIT(A) deleted addition made by assessee - HELD THAT:- The rights of the assessee arise in the said flat only on the allotment and not by way of filing application. The confirmation letter filed from the developer as well as from the bank also shows that the flat was not allotted initially to the assessee through the developer has submitted a letter that assessee has not held two units in the said building at any point of time. On appreciation of the factual evidences produced before us, we are of the view that the flat has been allotted to the assessee on 31.10.2015 as mentioned in the MOU dated 14.12.2016, which is a document signed by the buyer as well as seller of the rights, therefore, the holding period of the rights is less than 36 months and thus gain arising from transfer of said rights is short term capital gain (STCG) only. Claim of the interest paid on loan for purchase of the property as part of cost of acquisition - Assessee submitted that since right in flat were acquired by way of funds borrowed from the Bank/financial institution, therefore, the interest paid towards such loan should be included in the total cost of acquisition of right - HELD THAT:- We find that the issue of interest paid on housing loan whether eligible for deduction as cost of acquisition while computing long-term capital gain hasn’t decided in the case of ACIT Vs Sunil Batra [2015 (11) TMI 1274 - ITAT DELHI] as relied on the decision of Tata Iron and steel Co Ltd. [1997 (12) TMI 5 - SUPREME COURT] as held that cost of the asset and cost of raising money for purchase of the asset, are two different transactions. Though in above case, the issue was impact of fluctuation of foreign currency loan borrowed for purchase of the asset, but the same analogy apply for interest for money borrowed purposes of capital asset , which in the case of the assessee is right in the flat. Thus following the decision of the Hon’ble Supreme Court (supra), the interest claimed as cost of acquisition is not allowable. Also we note that the loan sanction letter filed by the assessee is in respect of another flat and not in respect of the flat in relation to which capital gain has been declared by the assessee. The clarification letter issued subsequently by the banker or financial institution does not seem to be part of a regular practice of the bank or financial institution. In the case of the assessee the developer and the financial institution both being part of the same group, of which the assessee is part, otherwise in normal course no bank can give loan against the property which was not owned by the assessee and also will not transfer loan against one property to another property without making changes in the loan sanction letter or issuing revised sanction letter. In the case, the documents produced do not give confidence of authenticity. Unexplained investment u/s 69B - HELD THAT:- As taking all the amount we find that figure are not reconciling with claims made before the lower authorities for claim of payments towards property. Thus left with no alternative except to restore this issue back to the file of the AO with a direction to the assessee to produce all the documentary evidence in support of that payment which was made by the assessee to Indiabulls Infra Estate Ltd., alongwith ledger account of the assessee appearing in the books of account of developer and banker/financial institution. AO is at liberty to make any inquiry required in the matter but shall provide opportunity of being heard to the assessee. The ground of appeal of Revenue is accordingly allowed for statistical purposes. Addition u/s 56(2)(vii) - immovable property has been received by the assessee for amount less than the market value of the property - According to AO against consideration of the flat i.e. agreement value which was to be paid by the assessee to the developer a part amount has only been paid and the balance amount has been neither shown to have paid nor shown as liability in its books of accounts - HELD THAT:- Deemed income u/s 56(2)(vii) of the Act can be considered at the time of the receipt of the property in the hand of the assessee since in the year under consideration the property has not been received and therefore, provisions of section 56(2)(vii) are not applicable in the case of the assessee in the instant assessment year. The ground of the Revenue is accordingly dismissed. Addition in respect of cash as found from the residence of the assessee - AO made the addition for the reason that no explanation regarding source of cash was made - HELD THAT:- DR could not controvert availability of cash in hand on more than Rs. 53,00,000/- in the hands of the assessee which was supported by way of income-tax return for assessment year 2016-17. Therefore, we do not find any error in the order of the Ld. CIT(A) in deleting addition. Appeal filed by the Revenue is partly allowed for statistical purposes. Issues Involved:1. Determination of the date of allotment for Flat No. C-3501.2. Classification of capital gain as Long Term Capital Gain (LTCG) or Short Term Capital Gain (STCG).3. Inclusion of interest paid on a loan as part of the cost of acquisition.4. Addition of unexplained investment under Section 69B.5. Addition under Section 56(2)(vii) for receiving property at less than market value.6. Addition of unexplained cash under Section 69A.Summary of Judgment:1. Determination of the Date of Allotment for Flat No. C-3501:The primary dispute was whether Flat No. C-3501 was allotted to the assessee on 23.04.2013 or 31.10.2015. The assessee claimed the allotment date was 23.04.2013, supported by an allotment letter and payment receipt. However, the Assessing Officer (AO) and the Tribunal found the allotment date to be 31.10.2015, based on the Memorandum of Understanding (MOU) dated 14.12.2016 and the loan sanction letter which mentioned Flat No. C-2901, not C-3501. The Tribunal concluded that the flat was allotted on 31.10.2015, making the holding period less than 36 months.2. Classification of Capital Gain:Given the allotment date of 31.10.2015, the Tribunal upheld the AO's classification of the capital gain as Short Term Capital Gain (STCG) since the holding period was less than 36 months. The Tribunal set aside the CIT(A)'s finding that treated the gain as Long Term Capital Gain (LTCG).3. Inclusion of Interest Paid on Loan as Part of Cost of Acquisition:The Tribunal rejected the inclusion of interest paid on the loan as part of the cost of acquisition. It relied on the Supreme Court's decision in CIT Vs Tata Iron and Steel Co Ltd, which held that the cost of raising money for the purchase of an asset is separate from the cost of the asset itself. Additionally, the loan sanction letter was for Flat No. C-2901, not C-3501, making the interest claim invalid.4. Addition of Unexplained Investment under Section 69B:The AO added Rs. 11,53,38,145/- as unexplained investment under Section 69B, based on discrepancies in the amounts paid and recorded. The CIT(A) deleted this addition, but the Tribunal found inconsistencies in the evidence provided by the assessee. The Tribunal restored the issue to the AO for further verification of payments made to Indiabulls Infra Estate Ltd.5. Addition under Section 56(2)(vii):The AO added Rs. 13,88,737/- under Section 56(2)(vii) for the difference between the agreement value and the amount paid. The Tribunal found that the provisions of Section 56(2)(vii) were not applicable as the property was not received in the year under consideration. The Tribunal upheld the CIT(A)'s deletion of this addition.6. Addition of Unexplained Cash under Section 69A:The AO added Rs. 2,78,000/- as unexplained cash found during a search. The CIT(A) deleted this addition, citing the assessee's explanation of an opening cash balance of Rs. 53,73,750/-. The Tribunal upheld the CIT(A)'s decision, finding no error in the explanation provided by the assessee.Conclusion:The Tribunal partly allowed the Revenue's appeal for statistical purposes, restoring the issue of unexplained investment to the AO for further verification while upholding the other findings of the CIT(A).