TaxTMI 
TaxTMI 
2025 (7) TMI 298
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....d followed by the notice u/s 142(1) which was duly served upon the assessee. The assessee has filed the requisite details in reply to the said notice from which it became known that assessee has purchased a flat no. C-164 alongwith 3 basement parking space in the proposed complex, Kalpataru Sparkle situated at MIG colony, Gandhi Nagar, Bandra East. The builder has issued a letter of intent dated 14th Feb 2011 alongwith schedule of payment as annexure-A. The assessee has paid an initial amount of Rs. 10 lakhs vide cheque no. 470517 dated 14.02.2011 against receipt. The said property was the part of complex being redeveloped under a redevelopment scheme arrived at with the existing cooperative housing society known as MIG Cooperative Housing Society, group 3 level, which is lessee of the land upon which the said complex was to be developed. After the redevelopment, the old society continue to hold the aforesaid title to the land upon the redeveloped complex and the existing members of the society will be rehoused in such buildings and shall continue as members and shareholders of the society. The allottees like assessee in the said complex will be admitted as new members and sharehol....
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....ain u/s 111A 3,798 2,76,33,183 3. Income from Other Sources 36,21,473 4. Gross Total Income 3,34,94,656 5. Assessed Income 3,34,94,656 6. Rounded off to 3,34,94,660 4. The assessee filed the objections before the Hon'ble DRP who declined to accept the contentions of the assessee and concluded in para no. 5.4.5 & 5.5 of its order and while dismissing the objections made the following observations and directions as extracted below:- 5.4.5 Conclusion: (i) Confusion of the Applicant between "Right to Buy" as per the Allotment letter of 2011 and the "Ownership/Title Rights of Immovable Property" as per Registered Deed of December 2017. The capital gains have arisen on account of transfer of Immovable Property and the holding period of the Immovable Property is relevant, and not the "right to buy"; (ii) What the assessee has acquired in allotment was "Right to Buy" via the "Letter of Intent". And what is claimed in respect of holding of "Title / Ownership of Immovable Property". The "Immovable Property" was not even constructed / did not exist during 2011. (iii) In thi....
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.... of these directions, the final assessment order was passed which has been challenged before us in this appeal and assessee has raised the following grounds:- 1. General Ground 1.1 That the Learned Income Tax Officer, Int. Tax Ward 3(2)(1), Mumbai ['Learned AO'] erred on facts and in law in completing assessment under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 ('the Act') by assessing the income of the Appellant at Rs. 3,34,94,660 as against returned income of Rs. 58,65,270. The Appellant prays that the Learned AO be directed to determine the correct income. 2. Computation of Long-term Capital Gains on sale of immovable property situated at Kalpataru Sparkle, Bandra East (Flat No. C-165) ('Kalpataru Property') 2.1 That on the facts and the circumstances of the case, and in law, the Learned AO has erred in disregarding the date of allotment being 14 February 2011 for the Kalpataru Property as the date of acquisition of such Kalpataru Property and considered the date of possession/ registration as the date of acquisition for the purpose of determining the long-term capital gains chargeable....
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....e, and in law, the Learned AO has erred in initiating penalty proceedings for underreporting of income under Section 270A of the Act in respect of assessing the gains arising on transfer of Kalpataru Properties as short-term capital gains as against long-term capital gains reported by the Assessee in the return of income Each of the grounds of appeal referred above is separate and may kindly be considered independent of each other. The Appellant craves leave to add, alter, vary, omit, substitute or amend any or all of the above grounds of appeal, at any time before or at, the time of the appeal, so as to enable the Hon'ble Income-tax Appellate Tribunal to decide this appeal according to law. 6. Ground no. 1 & 2 pertains to the computation of long term capital gains on sale of flat C-165 Kalpatru Property by the assessee for the F.Y. 2017-18. Ground no. 3 & 4 pertains to the amount spent by assessee for acquiring the capital asset which according to assessee has not been considered by the Ld. AO and has sought directions to the AO to consider the same. Ground no. 5 & 6 pertains to the proposed interest and penalty which are premature and does not require adj....
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....2291/Mum/2015 5. Snehal Bimal Parekh v. PCIT (ITA No. 5489/Mum/2019) (ITAT, Mumbai) 6. Fatema Jaffer Ghadiali Allias v. ITO (ITA No. 1876/Mum/2015) 9. It was further submitted by Ld. AR that the impugned order is liable to the set aside and the grounds in appeal be allowed in favour of the assessee. 10. On the other hand, Ld. DR supported the directions of Ld. DRP stating that the case relied by the assessee in his own case has been challenged before the Hon'ble High Court and for that reasons, the assessee cannot be given indexation benefit as claimed by the assessee in this case and prayed for dismissal of the appeal of the assessee. The Ld. DR has thus relied upon the order of the Ld. DRP and the AO during his arguments claiming the same to be perfectly correct and legally sound orders which need no interference and require to be upheld. 11. We have considered the rival submissions and examined the material on record. On perusal of the judgment of the Mumbai Tribunal in ITA No. 2489/Mum/2022 (supra), we have noticed that the case of assessee, stand of the revenue, directions of Ld. DRP and the observations of the AO in the present case, are totally sim....
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....by the assessee the allotment made against the earmarked flats are ongoing and valid. Further, failure to make payment as mentioned in the communication would lead to cancellation of the allotment which means that there is a pre-existing right in the earmarked impugned flats created by the Developer in the favour of the assessee, Further, the total consideration as agreed in the LOI by the Appellant with the Developer in the year 2011 remained the same as evident in the agreement registered in the year 2017 Therefore, the Developer had always intended to sell the impugned flats to the assessee and accordingly, there was no hike in the price as agreed upon in the year 2011. In essence, the assessee had entered into a contractual arrangement to acquire an earmarked Immovable property at the agreed price and terms of payment with the developer. Merely different nomenclature used in the Letter dated 14-02-2011 would not e the substance of the transaction. The essence of the LOI depends on the intention of the parties to the LOI and the substance of the LOI depends on the acts performed by the parties subsequent to the contract. 12. In the instant case, the Developer created a ....
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....tion as per the agreed milestones is merely a follow on condition which is required to comply with to continue to hold such right. Further, until 24 months prior to the date on which the assessee has transferred the earmarked impugned flats, 95% of the consideration as per the Purchase Agreement was already discharged by the assessee. The developer was entitled to terminate the LOI only on account of non-payment of dues as agreed in the in the LOI towards the property specifically earmarked. Considering that the assessee had already discharged the payments, the developer could not terminate the LOI at his discretion. 15. Clause 12 of the LOI as referred by the Learned AO discusses the rights and obligations of the Appellant qua the Kalpataru Properties and not the right to acquire such Kalpataru Properties. The 'right' in question at the time of LOI is the right to acquire the earmarked Kalpataru Properties subject to the satisfaction of prescribed conditions. 16. Thus, he submitted that right in the impugned flats was always with the assessee from the date of the letter of intent dated 14.02.2011 issued by the developer. 17. In support of various....
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....which payment is made. In the case of Anita D Kanjani v. ACIT being ITA No. 2291/Mum/2015 (page 143153 of paperbook), the Hon'ble Mumbai Tribunal held that the word used by the legislature was held and not owned. Thus, the intention of the legislature is clear that for the purpose of determining the nature of capital gain, the legislature was concerned with the न्याय apparently not concerned with absolute legal ownership of period during which the asset was held by the assessee for all practical purposes on de facto basis. The legislature was asset for determining the holding period. Thus, one needs to decide the point of time from which it can be said that assessee started holding the asset on de facto basis. In the case of Jitendra Mohan v. ITO (2017) 11 SOT 594 (page 154-463 of paperbook). the Hon'ble Delhi Tribunal held that the word 'property' used in this section is of the widest amplitude which means that any right which a person can be called to hold in a capital asset would be included in the word 'property' used and included in the definition of 'capital asset' in section 2(14) of the Act. Acc....
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.... with the payment schedule. 23 It is undisputed fact that the assessee had paid all the installments as per the schedule and according to the milestone laid down therein in pursuance of the said letter. If the said letter is not treated as allotment of flat and merely intent', ostensibly the said letter cannot be reckoned as date of acquisition of the rights of the flats. Though the letter mentions intent of both the parties, but the substance of the letter has to be examined and has to be seen in line of the various facts as brought out on the record. The said letter clearly earmarks the flats in the building and also specifies the consideration amount and also stated that the assessee has already deposited the sum of Rs. 10,00,000/-on the same date. The schedule of payment as incorporated above clearly specifies that the assessee has to make the payment on certain milestone which has been duly adhered to by the assessee. Para 4 of said letter specially identifies and earmarks the impugned flat in the name of the assessee along with the flats and total consideration along with any service tax, works. contract tax, value added tax, goods & service tax Maharashtra value....
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....ou was subsequently divided into Flat No. 162 and Flat No. 163 vide Modification Letter. We confirm that the earmarked Flat No. 162 was merely converted from 1 (one) habitable unit to 2(two) separate habitable units; with above allotment being renumbered from Flat No. 162 to Flat No. 162 and Flat No. 163. 2. We further confirm that you have made all subsequent payments as per the agreed terms in the Letter of Intent. Pursuant to the allotment of the flat, as stated above, we have entered into a registered sale agreement with you in respect of the above flat vide sale deed dated 14/12/2017. Yours Faithfully, For Kalpataru Enterprises Narendra Lodha Director" 26. The aforesaid letter read alongwith the letter of intent, it is quite evident that the developer has clearly confirmed that upon the acceptance of the offer given in the letter of intent' by payment an initial amount of Rs. 10,00,000/- for each flat, the assessee had accepted the offer and he was allotted the specific flat on 14.02.2011 itself. He has also submitted that based on this letter of intent not only the flats have allotted but also subsequent payments have been made in terms....
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....act terms and condition for acquisition and date of allotment would be relevant date for the purpose of determination of taxability of capital gain. Here in this case we have already held that the said letter read with the confirmation by the builder, it is clear that both the parties had agreed to a certain terms and condition and the flat was actually allotted and therefore the assessee got the vested right to hold the property from the date of the said letter. Thus, we hold that date of acquisition for the purpose of computation of capital gain for the impugned immovable property/ flats has to be reckoned in FY 2010-1 i.e. from the date of the letter 14.02.2011. Accordingly, ground No. 2 is decided in favour of the assessee. 12. Ld. AR further relied on the following decision of Hon'ble High Courts as well as decision of the ITAT in support of his case which are discussed in brief by us:- i) Hon'ble Punjab & Haryana High Court in case of Mrs. Madhu Kaul vs. ICT (363 ITR 54). 7. We find no distinction between the opinion recorded in the aforesaid judgment and the controversy in the present case. Admittedly, the flat was allotted to the appellant on 07.06.1986, vide....
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....at the legislature has used the expression 'held'. It is further noted by us that in various other allied or similar sections, the legislature has preferred to use the expression 'acquired' or 'purchased' e.g. in section 54 / 54F. Thus, it shows that the legislature was conscious while making use of this expression. The expressions like 'owned' has not been used for the purpose of determining the nature of asset as short term capital asset or long term capital asset. Thus, the intention of the legislature is clear that for the purpose of determining the nature of capital gain, the legislature was concerned with the period during which the asset was held by the assessee for all practical purposes on de facto basis. 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. 10. It is noted that the letter of allotment was issued to the assessee on 11-04- 2005, the letter of allotment makes a mention of the identity of the flat as office unit No.107, located at First Floor of Everest ....
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....ried constructions in big cities. The aforesaid new subclauses (v) and (vi) have been inserted in Section 2(47) to prevent avoidance of capital gains liability by recourse to transfer of rights in the manner referred to above. A person holding the Power of Attorney is authorized the powers of owner, including that of making construction though the legal ownership in such cases continues to be with the transferor. The intention of legislature is to treat even such transactions as transfers and the capital gain arising out of such transactions are brought to tax. Further, the Circular No.471 goes to the extent of clarifying that for the purpose of Income-tax Act, the allottee gets title to the property on the issuance of the allotment letter and the payment of installments is only a follow up action and taking the delivery of possession is only a formality. In case of construction agreements, the tentative cost of construction is already determined and the agreement provides for payment of cost of construction in installments subject to the condition that the allottee has to bear the increase, if any, in the cost of construction. Therefore, for the purpose of capital gains tax the co....
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....of the asset based upon a registration of conveyance conferring title on him. 11. Similarly, in the case of Madhu Kaul (supra), the Hon'ble Punjab & Haryana High Court analysed various circulars and provisions of the Act that on allotment of flat and making first installment the assessee was conferred with a right to hold a flat which was later identified and possession delivered on later date. The mere fact that possession was delivered later, would not detract from the fact that assessee (allottee) was conferred a right to hold the property on issuance of an allotment letter. The payment of balance amount and delivery of possession are consequential acts that relate back to and arise from the rights conferred by the allotment letter upon the assessee. 12. In the case of Vinod Kumar Jain vs CIT 344 ITR 501 it was held by Hon'ble Punjab & Haryana High Court that conjoined reading of section 2(14), 2(29A) and 2(42A) clarifies that holding period of the assessee starts from the date of issuance of allotment letter. Since allottee gets title of the property on the issuance of allotment letter and payment of first installment is only a consequential action upon which ....
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....od becomes more than 36 months and consequently, the property sold by the assessee would be long term capital asset in the hands of the assessee and the gain on sale of the same would be taxable in the hands of the assessee as Long Term Capital Gain. We direct accordingly. 16. As a result, grounds raised by the assessee are allowed in terms of our directions as given above. However, the alternative issue raised by the assessee is not being adjudicated at this stage. 17. In the result, the appeal of the assessee is allowed." iv) ITA No. 5489/Mum/2015 in the case of Mrs. Sneha Bimal Parekh vs. PCIT dated 30.06.2016:- 9. We have heard the rival submissions and perused the material on record including the orders of authorities below and case laws relied upon by the rival parties. We find from the page No.36 of the paper book which is a letter of allotment dated 27.11.2006 accompanying the schedule of payment as filed at page 39 of the paper book reveals that the assessee was allotted the flat on 27.11.2006 and the assessee has also made payment of Rs.3,34,919/- as booking advance. The flat was registered in the name of assessee on 31.4.2009(correct date is....
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....Right' in allotment was always a 'Right' in the property. Thus, when the assessee was given possession of the flat, the date of its holding period shall relate back to the date when the said flat was allotted to the assessee. We take support in this regard from the judgment of Hon'ble Punjab and Haryana High Court in the case of Vinod Kumar Jain v. CIT 344 ITR 501. 6.8. Thus, viewed from any angle, we find that holding period of the flat sold by the assessee is more than 36 months. Thus, keeping in view facts of the case brought before us and the aforesaid judgments, it is held that flat sold by the assessee was long term asset and accordingly capital gain arising on sale of such asset is held to be assessed as long term capital gain. Thus, ground no.4 is allowed. 13. It is thus evident from the order of Hon'ble Jurisdictional High Court of Bombay in the case of VambuVaidyanathan (2019) 413 ITR 248 (Bom) (supra) that the assessee gets title of the property on the basis of allotment letter and payment of installment was only a follow up action and taking delivery of possession is only a formality. Similarly Hon'ble Punjab & Haryana High Court in Mrs Madhu Kaul vs. CIT, C....
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....see and referred by us in preceding paras categorically states and settled the issue of calculation of long term capital gain on account of indexed cost of acquisition and assuming the conferment of legal right and holding of the asset by allotment letter or in any other manner agreed and acted upon by the parties concerned which would amount to holding of the property for the above required purpose and possession and ownership of the capital asset for the said purpose is not essential requirement because said stage comes after completion of various formality including completion of all payments /installments and other legal requirements necessary for executing a registration deed for formally transferring an immovable property by execution of registered sale deed. For these reasons, we find that the contents of letter of intent dated 14.02.2011 are such which fulfils all the requirement of an allotment letter as it even bind the assessee to make the entire payment of consideration amount irrespective of non-execution of sale agreement. 16. The Ld. Lower authorities has not followed the judgment of Hon'ble Jurisdictional Tribunal relied as covered case by the assessee as it bein....