Date of Rights Accrual in Allotted Flat Is Earnest Money Payment Date, Not Possession Date Under Income Tax Law

ITAT Mumbai held that the date of accrual of rights in the allotted flat was the date of payment of the earnest money installment, not the date of possession. Following the Bombay HC precedent, the tribunal set aside the STCG determined by the AO and directed the AO to treat the gains as LTCL as claimed by the assessee. The appeal was allowed and tax liability was to be determined accordingly.

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ISSUES:

Whether the date of acquisition of a residential flat allotted under a housing scheme is the date of allotment/payment of earnest money or the date of execution of the sale deed.Whether long term capital loss (LTCL) or short term capital gain (STCG) arises on the sale of such property based on the date of acquisition.Whether exemption under Section 54 of the Income Tax Act, 1961 is allowable in the context of the property sale.Whether non-compliance or non-response to notices by the assessee justifies dismissal of the appeal without deciding on merits.

RULINGS / HOLDINGS:

The Court held that the date of allotment or payment of earnest money (24.09.1998) is the date on which the purchaser acquires the property rights, not the date of the sale deed execution (21.09.2011); thus, the acquisition date is earlier.Accordingly, the Court set aside the Assessing Officer's determination of short term capital gain and directed consideration of long term capital loss as claimed by the assessee.The Court found that the exemption claim under Section 54 is to be considered based on the correct date of acquisition and remanded the matter for fresh determination.The Court observed that dismissal of the appeal for non-prosecution without addressing the remand report or the merits was improper and set aside the impugned order.

RATIONALE:

The Court applied the legal framework established by the CBDT Circulars No. 471 dated 15th October 1986 and No. 672 dated 16th December 1993, which clarify that for properties allotted under construction schemes by development authorities or cooperative societies, the date of allotment is the date of acquisition for capital gains purposes.The Court relied on precedent from the Hon'ble Bombay High Court affirming that the allotment letter date is the relevant date of acquisition, noting that the allotment is final unless cancelled under exceptional circumstances.The Court emphasized that payment of installments and possession delivery are subsequent formalities and do not affect the date of acquisition.The Court noted that the Assessing Officer's reliance on the sale deed date was contrary to established CBDT clarifications and judicial precedent, rendering the STCG determination unsustainable.The Court also highlighted procedural impropriety in the appellate authority's failure to consider the remand report and decide on the merits before dismissing the appeal for non-compliance.

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