Acquisition date for LTCG computation starts from agreement for sale, not possession date when substantial consideration paid

ITAT Mumbai held that for LTCG computation on immovable property sale, the acquisition date should be considered from the agreement for sale dated 16th November 2007 rather than possession date of 16th December 2010. The tribunal noted that 64.85% of total consideration was paid by FY 2007-08, establishing the assessee's right to hold the asset from the agreement date. Following precedent in Anand Swarup Mehta case, the tribunal directed the AO to compute capital gains using the earlier acquisition date for indexation benefits in AY 2015-16.

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Issues Presented and Considered

The core legal questions considered by the Tribunal in this appeal are:

• Whether the notice issued under section 148 of the Income-tax Act, 1961, by the Joint Assessing Officer (JAO) was valid and within jurisdiction, particularly in light of the National Faceless Assessment notification dated 19.03.2022.
• The correct date for determining the cost of acquisition and hence the period for computing long term capital gain (LTCG) on sale of immovable property: whether it should be the date of first payment/agreement to sale or the date of possession.
• Whether the directions of the Dispute Resolution Panel (DRP) and the Assessing Officer (AO) in computing LTCG by restricting indexation benefit from the date of possession were legally sustainable.
• Whether additional payments made towards amenities should be allowed as part of the cost of acquisition for LTCG computation.
• The validity of charging interest under sections 234A, 234B, 234C, and 234D of the Act.
• The correctness of the invocation of penalty under section 271(1)(c) of the Act for concealment of income.

Issue-wise Detailed Analysis

1. Validity of Notice under Section 148

The assessee challenged the jurisdictional validity of the notice issued under section 148 dated 26.04.2022, contending that the notice should have been issued by the Faceless Assessment Officer (FAO) as per the National Faceless Assessment notification dated 19.03.2022. The Tribunal did not decide this ground on merit as the appeal succeeded on other grounds; thus, this issue was kept open and undecided.

2. Date of Acquisition for Computation of Long Term Capital Gain

This was the principal issue in dispute. The AO and DRP computed indexed cost of acquisition from the year of possession (FY 2010-11), rejecting the assessee's claim to consider the date of first payment/agreement to sale (FY 2006-07 or 2007-08). The assessee contended that indexation benefit should be allowed from the date of payment/agreement, relying on Explanation (iii) to section 48 of the Income-tax Act, which defines "indexed cost of acquisition" and uses the term "held" rather than "owned."

The Tribunal examined the facts and legal precedents in detail, including:

• The agreement to sale dated 16.11.2007 clearly identified the property (Flat No. B-707) and contained a payment schedule. Substantial payments (64.85% of total cost) were made by FY 2007-08.
• The letter of intent dated 14.02.2011, which the developer later confirmed as an allotment letter, evidencing the assessee's right to hold the property from that date.
• Judicial precedents from the Supreme Court, various High Courts, and Coordinate Benches of the ITAT emphasizing that for capital gains computation, the period of holding is to be reckoned from the date of allotment or agreement to sale, not possession or registration.

Key precedents relied upon include:

• Sanjeev Lal vs. CIT: Held that execution of agreement to sell transfers rights to the vendee, extinguishing vendor's rights, and thus the capital asset is considered held from the date of agreement.
• Mrs. Madhu Kaul vs. CIT (Punjab & Haryana High Court): Payment of first installment and allotment letter confer a right to hold the flat; possession delivery later does not affect this right.
• PCIT vs. Vembu Vaidyanathan (Bombay High Court): The date of allotment is relevant for capital gains tax; allotment is final unless cancelled under exceptional circumstances.
• Anita D. Kanjani vs. ACIT (ITAT Mumbai): The legislature uses "held" not "owned" for capital gains holding period; ownership by registration is not necessary; holding starts when the assessee acquires de facto control or right.
• Various ITAT decisions reinforcing the principle that holding period starts from allotment/agreement and payments made, not possession or registration.

The Tribunal also considered the letter from the developer dated 18.01.2023 confirming that the letter of intent dated 14.02.2011 was indeed an allotment letter conferring the right to hold the flats on the assessee, and that payments were made as per the schedule.

The AO's reliance on the Supreme Court judgment in Suraj Lamps & Industries Pvt Ltd regarding transfer of ownership only upon registration was distinguished as that case dealt with absolute legal ownership under the Transfer of Property Act, which is different from the concept of "holding" for capital gains computation under the Income-tax Act.

Applying the law to facts, the Tribunal concluded that the assessee acquired the right to hold the asset from the date of agreement to sale (FY 2007-08) and not the date of possession (FY 2010-11). Accordingly, indexation benefit should be allowed from FY 2007-08, resulting in a lower capital gain.

3. Treatment of Additional Amenities Cost

The assessee claimed that an amount of Rs. 2,32,500 paid towards additional amenities cost should be allowed as part of the cost of acquisition. This ground was not adjudicated in the impugned order and was restored to the file of the AO for consideration in accordance with law.

4. Charging of Interest under Sections 234A, 234B, 234C, and 234D

These grounds were held to be premature and not decided at this stage by the Tribunal.

5. Penalty under Section 271(1)(c)

The penalty was invoked on the basis of concealment of income by furnishing inaccurate particulars. The Tribunal refrained from adjudicating this ground at this stage, considering it premature.

Significant Holdings

The Tribunal crystallized the legal position on the computation of long term capital gains in cases involving immovable property acquired by agreement and payment prior to possession or registration:

"The legislature was apparently not concerned with absolute legal ownership of the asset for determining the holding period. Thus, we have to ascertain the point of time from which it can be said that assessee started holding the asset on de facto basis."

"The payment of balance installments, identification of particular flat and delivery of possession are consequential acts that relate back to and arise from the rights conferred by the allotment letter upon the assessee."

"The date of acquisition for the purpose of computation of capital gain for the impugned immovable property /flats has to be reckoned in FY 2007-08 i.e. from the date of the agreement to sale and not from the date of possession."

The Tribunal held that the date of possession or registration is not the determinative date for capital gains computation; rather, the date when the assessee acquires the right to hold the asset, evidenced by agreement and payment, is relevant.

The Tribunal further held that the AO and DRP erred in restricting indexation benefit from the date of possession, and directed the AO to recompute LTCG considering the date of agreement to sale as the date of acquisition.

Other grounds such as the validity of notice under section 148, claim of additional amenities cost, charging of interest, and penalty proceedings were either left open or restored to the AO for fresh consideration, pending further adjudication.

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