2025 (8) TMI 1668 - AT - Income Tax

Appeal allows computation of capital gains based on one-third share; ancestral ownership unsupported; matter remanded for fresh adjudication.

Balaram Janu Bhoir Bhoir Chawl., Thane Versus ITO, Ward, 3 (1), Kalyan

ITAT MUMBAI - AT held that the assessee's claim of ancestral ownership and one-third share was not adequately supported before the AO; capital gains must ... Capital gain - JDA - transfer of capital asset - definition of transfer u/s 2(47) - as submitted in the grounds of appeal that during the year under consideration, only a development agreement had been entered into and capital gain would be paid at the time of allotment of built-up area to the assessee HELD THAT:- It is clear that the assessee did not make proper compliance before Ld. AO with regard to his claim that the subject matter of land was an ancestral property and that the assessee was one of the three co-owners of the said land. Accordingly, the capital, if any, had to be calculated after considering only 1/3rd share in the hands of the appellant and after reducing the indexed cost of acquisition from the amount received as consideration. Since no verification of assessee’s claim has been made before the lower authorities, we deem it appropriate to restore the matter back to the file of AO for a fresh adjudication after considering submissions of the assessee. Appeal of the assessee is allowed for statistical purposes. ISSUES PRESENTED AND CONSIDERED 1. Whether the assessment framed ex parte u/s 144 r.w.s. 147 of the Income-tax Act, 1961 is vitiated for lack of jurisdiction under section 144B(1) on account of being passed prior to issuance of notification under section 151A. 2. Whether execution of a Joint Development Agreement (JDA) during the year constituted a 'transfer' within the meaning of section 2(47) of the Act thereby giving rise to capital gains in that year. 3. If transfer is held to have occurred, whether the gain should be treated as short-term or long-term capital gain (with particular reference to ancestral status of the land). 4. Whether the assessee was entitled to deduction of indexed cost of acquisition and to be assessed only for his 1/3 share in the capital gain when co-ownership is claimed. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of assessment under sections 147 and 144 vis-à-vis section 144B(1) and timing of notification under section 151A Legal framework: Section 147 permits reopening of assessment where income has escaped assessment; section 144 authorises ex parte assessment where the taxpayer fails to comply with notices; section 144B deals with faceless assessment scheme and jurisdictional aspects; section 151A relates to notification for activation of faceless assessment workflow. Precedent treatment: No specific precedent was invoked or applied by the Tribunal in the judgment; the issue was raised as a ground of appeal before the Tribunal. Interpretation and reasoning: The Tribunal recorded that the assessee challenged the jurisdictional competence of the faceless assessing officer under section 144B(1) because the assessment was passed prior to a notification under section 151A. However, the Tribunal's operative reasoning focused on procedural non-compliance by the assessee before the AO and the absence of verification of substantive claims; it did not determine the jurisdictional question on the merits. The Tribunal therefore did not adjudicate on whether the timing of the notification rendered the assessment void for lack of jurisdiction. Ratio vs. Obiter: The Tribunal's remarks concerning jurisdiction are obiter in the sense that the jurisdictional objection was noted but left undecided; no ratio was laid down resolving the legal contention on section 144B(1) or section 151A. Conclusions: The jurisdictional ground was raised but not decided; the matter was remitted to the Assessing Officer for fresh adjudication, leaving open any determination on validity of the earlier faceless ex parte assessment under the contested provisions. Issue 2 - Whether execution of Joint Development Agreement constituted a 'transfer' under section 2(47) Legal framework: Section 2(47) defines 'transfer' for capital gains purposes; transactions where rights in immovable property are transferred or extinguished may amount to transfer; timing of transfer determines year of taxation. Precedent treatment: The Tribunal noted the CIT(A) held the transaction fell within section 2(47); no binding precedent was cited or applied by the Tribunal to accept or reject that view conclusively. Interpretation and reasoning: The assessee asserted that only a development agreement was executed in the year and consideration would be paid in future by allotment of constructed area; a copy of the JDA was placed on record. The CIT(A) had held that the transfer took place in the year and that the transaction fell within section 2(47), observing that the assessee did not explain the link between the JDA and the sale transaction. The Tribunal found that the assessee had not made sufficient factual compliance before the AO to substantiate its contention. Given the lack of verification and the need to examine documentary and factual aspects (nature of the JDA, terms of consideration, mode and timing of allotment), the Tribunal deemed it appropriate to remit the matter to the AO for fresh adjudication rather than finally deciding whether the JDA constituted a transfer under section 2(47). Ratio vs. Obiter: The Tribunal did not lay down a binding rule on whether a JDA per se constitutes a transfer under section 2(47); the decision to remit is ratio for the procedure to be followed where factual material is incomplete. Any comment on applicability of section 2(47) is obiter relative to a final substantive ruling. Conclusions: Issue left open for fresh adjudication by the AO with directions to permit the assessee to make requisite compliance and furnish evidence concerning the JDA and linkage to the alleged sale. Issue 3 - Classification of capital gain as short-term or long-term where land is claimed to be ancestral Legal framework: Long-term/short-term classification depends on period of holding of capital asset as defined by the Act; ancestral property prima facie enjoys continuity of acquisition date and may impact period of holding computation for capital gains. Precedent treatment: No precedent was applied by the Tribunal; the CIT(A) treated the gain as short-term. Interpretation and reasoning: The assessee claimed the land was ancestral and therefore, if a transfer occurred, the gain should be long-term. The Tribunal observed that the assessee failed to substantiate this claim before the AO and that no verification had been made by the authorities. Because the factual matrix (ancestral nature, date of acquisition, documentary proof) was not examined at assessment stage, the Tribunal did not adjudicate the classification issue on merits but remitted it for the AO to verify and decide in accordance with law, including computation of holding period and applicable tax treatment. Ratio vs. Obiter: The Tribunal's direction to adjudicate the holding period afresh is ratio on the appropriate remedial step when factual assertions are untested; there is no substantive ratio on whether the asset is long-term or short-term. Conclusions: Classification as long-term or short-term is deferred to the AO on remand after proper verification of ancestral status and determination of date of acquisition. Issue 4 - Entitlement to indexed cost deduction and assessment of only 1/3 share where co-ownership is claimed Legal framework: Computation of capital gains requires deduction of cost of acquisition (and indexation where applicable) and, where asset is co-owned, taxability in the hands of the transferor is restricted to his share. Precedent treatment: No precedent was cited; CIT(A) confirmed the addition treating full sale consideration as short-term capital gain without making the claimed adjustments. Interpretation and reasoning: The assessee asserted entitlement to deduct indexed cost of acquisition and to be assessed only for his 1/3 share. The Tribunal noted that the assessee failed to provide adequate compliance and documentary proof before the AO and that the AO had not verified these claims. Given the absence of verification and the risk of prejudicial ex parte determination, the Tribunal directed remand to enable the AO to consider submissions, verify co-ownership particulars, compute indexed cost (if applicable), and assess only the appellant's rightful share. Ratio vs. Obiter: The direction to compute gain after considering indexed cost and the co-owner's pro rata share is ratio for the procedure and correct application of charging provisions where factual entitlement is established; the Tribunal did not itself compute or decide these matters. Conclusions: The matter is remitted to the AO to determine and allow deduction of indexed cost of acquisition (if claim substantiated) and to assess only the appellant's 1/3 share, after affording opportunity and requisite verification. Disposition and Procedural Outcome The Tribunal, noting material non-compliance by the assessee before the AO and absence of verification by assessing authorities on factual claims (ancestral status, co-ownership, cost details, and linkage of JDA to sale), remitted the matter to the file of the Assessing Officer for fresh adjudication. The assessee was directed to make requisite compliance. The jurisdictional objection under section 144B(1)/section 151A was noted but not decided; all substantive issues (existence of transfer under section 2(47), classification of gain, indexed cost deduction, and proportionate share) were left for fresh determination by the AO.