2024 (12) TMI 22 - AT - Income Tax

Possession rights qualify as capital assets but assessee failed to prove valid acquisition under Section 2(14)

ITAT Ahmedabad held that while possession rights over property constitute a capital asset, the assessee failed to establish valid acquisition of such ... Capital gains computation - “possession rights” over the said property - assessee submitted that “possession rights” in the said piece of land were clearly with the assessee which constituted a “capital asset” and transfer of such “right of possession” constituted transfer of capital asset and such gain was liable to be taxed as “capital gains” tax - as alleged right was acquired purely by way of a family arrangement without incurring any cost HELD THAT:- We observe that the Counsel for the assessee submitted before us during the course of hearing that the assessee had entered into a family settlement agreement in the year 2004 on a Rs.100/- stamp paper by way of which the assessee and four other family members had been granted the “right of possession/right of tilling” over such property. However, we observe that this fact was submitted before us for the first time and during the course of assessment proceedings/appellate proceedings such family agreement/arrangements by which the possession of such property was given to the assessee, was never brought to the notice of the assessing officer/Ld. CIT(A) for their consideration. Assessee, in our view has not given this important document which establishes that he was in possession of such “possession rights” in respect of the above property since 2004. Though assessee has made reference to extracts of the assessment/appellate orders of the co-owners of such property to establish that he was having “right to possession” over such property, but that in our view, would not qualify as substantive evidence to prove that the assessee was having “possession rights” over such property. This is especially in the light of the fact that the possession agreement dated 2004 was not brought to the notice of the assessing officer/Ld. CIT(A) for their consideration. Computing the “cost of acquisition” of such “possession rights” in the return of income filed by the assessee in response to notice issued by AO u/s.148 of the Act, the assessee has taken cost of acquisition of such “right of possession” by taking the value of land as per value computed by registered Valuer Report as on 01.04.1981. It is not clear that why the assessee has taken the cost of acquisition of “right of possession” on the basis of registered value of such land/property as per report of registered valuer as on 01.04.1981 and thereafter indexing the same to compute the cost of acquisition as on the date of transfer of such capital asset, when as per the assessee’s own submission, the assessee was not having ownership rights in the said property. Therefore, it is not clear as to why the assessee has computed the cost of acquisition with reference to the “ownership rights” in the said piece of land and that too by taking reference of the value of land as per registered Valuer Report as on 01.04.1981, when in fact, the assessee was not the owner of the said property and further the assessee, as per the ld. Counsel’s submission before us, got “possession right” over such property by way of a family arrangement entered in the year 2004. Therefore, it is not clear as to on what basis against the transfer consideration of Rs. 53 lakhs, the assessee has computed cost of acquisition of such property at Rs. 43,73,026/-. Therefore, while in our view, the “right of possession” in respect of such property would qualify as a capital asset, however, the assessee has failed to furnish certain important documents with respect to the date of acquisition of such capital asset (family arrangement in the year 2004) and further, it is also not clear as to how the assessee has taken the cost of acquisition of such “right to possession” at Rs. 43,73,026/- when admittedly the said right was acquired purely by way of a family arrangement without incurring any cost and such cost of acquisition has been computed by the assessee with reference to the registered value of such property as on 01.04.1981 and thereafter indexing the cost of value of such property when the assessee was admitted to having no ownership right in the property. Appeal of the assessee is allowed for statistical purposes. Issues Involved:1. Addition under Section 69A for unexplained money.2. Non-recognition of possession rights as a capital asset.3. Denial of capital gains tax treatment and deductions under Section 54F.4. Failure to disclose income from the possession agreement.Detailed Analysis:1. Addition under Section 69A for Unexplained Money:The primary issue revolves around the addition of Rs. 53,00,000 as unexplained money under Section 69A of the Income Tax Act. The assessee had received this amount as part of a possession agreement, but the assessing officer deemed it unexplained income from undisclosed sources. The assessee failed to prove ownership of the land at the time of the possession agreement, leading to the conclusion that the money was unexplained. The CIT(A) upheld this addition, emphasizing that the assessee did not satisfactorily explain the source of the Rs. 53,00,000, thus justifying its treatment as unexplained income under Section 69A.2. Non-recognition of Possession Rights as a Capital Asset:The assessee argued that possession rights over the property constituted a capital asset under Section 2(14) of the Income Tax Act. However, the CIT(A) and the assessing officer did not recognize these rights as a capital asset due to the lack of evidence proving ownership or legal possession at the time of the agreement. The tribunal noted that the definition of a capital asset is broad, including tangible and intangible assets like possession rights. Nonetheless, the assessee failed to provide substantive evidence, such as a family arrangement document, to establish possession rights, which weakened the claim.3. Denial of Capital Gains Tax Treatment and Deductions under Section 54F:The assessee claimed that the transfer of possession rights should be taxed as capital gains, allowing for deductions under Section 54F. The assessing officer denied this claim, citing the lack of ownership and failure to declare the transaction in the income return. The tribunal observed inconsistencies in the assessee's computation of the cost of acquisition, questioning the basis for using the 1981 registered value of the land. The tribunal acknowledged the potential for possession rights to qualify as a capital asset but highlighted the need for further examination of the facts, particularly regarding the cost of acquisition and the date of acquiring these rights.4. Failure to Disclose Income from the Possession Agreement:The assessee did not disclose the income from the possession agreement in the tax return, leading to the reopening of the case under Section 148. The tribunal noted that while the assessee admitted receiving Rs. 53,00,000, there was no evidence of this being declared as income or capital gains. The tribunal emphasized the importance of disclosing such transactions to determine the correct tax treatment. The lack of disclosure and supporting documentation contributed to the decision to treat the amount as unexplained income.Conclusion:The tribunal decided to remand the case to the assessing officer for further examination of the facts, particularly the evidence supporting the claim of possession rights as a capital asset and the computation of capital gains. The appeal was allowed for statistical purposes, indicating the need for a detailed review and possible reassessment based on the additional evidence and clarification provided by the assessee.