2024 (7) TMI 1282 - AT - Income Tax

Surrender of flat allotment letters qualifies as capital asset transfer enabling long-term capital loss claim under Section 50C

Dinesh Sunderji Shah Versus Assessing Officer, Ward 15 (1) (1), Mumbai

Dinesh Sunderji Shah Versus Assessing Officer, Ward 15 (1) (1), Mumbai - TMI Issues Involved:1. Determination and carry forward of Long Term Capital Loss.2. Confirmation of penalty under Section 271(1)(c) of the Income-tax Act.Issue-wise Detailed Analysis:1. Determination and Carry Forward of Long Term Capital Loss:The assessee filed an appeal against the appellate order which partly allowed the assessment order denying the carry forward of Long Term Capital Loss (LTCL) of Rs. 3,39,66,946/-. The facts outlined that the assessee sold immovable property and claimed a LTCL due to the indexed cost of acquisition exceeding the sale consideration. The Assessing Officer (AO) rejected this claim, stating that no transfer of capital asset occurred, as the transaction was merely a cancellation of allotment of flats without sufficient evidence of sale or transfer.Upon appeal, the Commissioner of Income-tax (Appeals) [CIT(A)] upheld the AO's decision, reasoning that the assessee failed to justify the cancellation despite substantial payments made. The CIT(A) also held that provisions of Section 50C and 56(2)(x)(b) of the Act applied, and since the market value was not considered, the LTCL could not be allowed.The assessee argued that the surrender of the right to acquire a flat constitutes a transfer of a capital asset, and thus, the LTCL should be allowed. The Tribunal found that the right to acquire a flat is indeed a capital asset and its surrender constitutes a transfer. The consideration received and the cost of acquisition were adequately documented, proving a transfer of capital asset resulting in LTCL. The Tribunal concluded that Section 50C does not apply to the transfer of rights to acquire property, and hence, directed the AO to allow the carry forward of the LTCL of Rs. 3,39,66,946/-.2. Confirmation of Penalty under Section 271(1)(c) of the Income-tax Act:The second appeal concerned the confirmation of a penalty under Section 271(1)(c) for alleged concealment of income. The assessee initially filed a return declaring Rs. 2,10,075/- but revised it to Rs. 23,30,520/- in response to a notice under Section 148, prompted by discrepancies in income and insurance premiums paid.The AO imposed a penalty, arguing that the assessee increased the income only after detection by the Department, indicating concealment. The CIT(A) upheld this penalty, stating that the assessee's voluntary revision did not exempt it from penalty as the original return concealed income.The Tribunal noted that the higher income was offered before any conclusive detection by the authorities. It referenced the Kerala High Court's decision in Principal Commissioner of Income-tax vs. Ambady Krishna Menon, which held that voluntary disclosure before detection does not attract penalties under Section 271(1)(c). Following this precedent, the Tribunal found that the assessee's voluntary disclosure precluded the imposition of penalties and directed the AO to delete the penalty of Rs. 4,25,262/-.Conclusion:The Tribunal allowed both appeals, directing the AO to permit the carry forward of LTCL and to delete the penalty imposed under Section 271(1)(c). The judgment underscores the importance of the nature of asset transfer and voluntary disclosure in tax assessments and penalties.