TaxTMI 
TaxTMI 
2025 (7) TMI 370
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....inst credit card bills and interest received from Corporation Bank of Rs. 1,444/-. It was observed from e-filing portal of the department that the assessee had not filed return of income for the year under consideration which caused escapement of income. Since there was escapement of assessment of income to the tune of Rs. 74,18,194/- during the year under consideration, the assessment was reopened within the provision of section 147 of the Act by issuing notice u/s 148 of the Act dated 26.04.2022. In response to the notice issued u/s 148 of the Act dated 26.04.2022, the assessee filed his return of income for the A.Y. 2015-16 on 28.05.2022 declaring total income at Rs. 1,54,700/-. Further, notice u/s 142(1) of the Act dated 03.10.2022 along with questionnaire was issued and served upon the assessee and asked to file the entire details of all immovable properties, copy of agreement of purchase/sale of property, details of payments for purchase of property, details of payments received on sale of immovable property, details of payment of credit card bill, etc. Since no reply was received from the assessee within stipulated time, penalty notice u/s 274 r.w.s. 271(1)(b) of the Act dat....
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.... M/s Arihant Properties entered into an agreement to sale a flat on 16.11.2007 and as per the documents, possession of Flat B-707 (identified for the first time) was handed over to the assessee vide 'Possession Letter dated 16/12/2010. The appellant sold the property in question vide Sale deed dated 25/02/2015. As per the ROI filed LTCG qua property in question has been offered at Rs. 1,66,482 (Indexation at 1024/551 x Cost of Acquisition Rs. 36,77,020 = Rs. 68,33,518), which has been recalculated to Rs. 17,04,264 (Indexation at 1024/711 x Cost of Acquisition Rs. 36,77,020 = Rs. 52,95,264). It was further observed that the core of the dispute is concerning Explanation (iii) to section 48 of the Income-tax Act i.e. 'Indexed Cost of Acquisition'. Ld. DRP finally concluded that the appellant has been given ownership/possession of the flat only in year 2010 as per the possession letter submitted and as observed from para 13 of the 'Agreement to Sale'. Hence, the objection of the assessee was not considered and accordingly rejected. 7. In pursuance of the direction of Ld. DRP, the impugned assessment order was passed by the AO, against which the assessee in appeal before us....
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.... date of possession given on 16.12.2010. Accordingly, we proceed to decide the ground no. 2 to 4 jointly on merit which are the main grounds of the appeal. 9. We have heard the Ld. AR and Ld. DR and examined the record. Ld AR brought to our notice Paper book 1 filed by the assessee on 03.04.2025 containing 140 pages, Paper Book 2 filed by the assessee on 16.06.2025 and written submissions are filed by the assessee on 11.06.2025. Firstly, the Ld. AR argued that the directions issued by the Ld. DRP on 21.11.2024 computing the LTCG at Rs. 17,04,264/- is factually and legally unsustainable because the Ld. DRP has not considered the legal position as settled by various judicial precedents to the effect that the indexation must commenced from the date of acquisition or allotment /payment and not the date of the possession. Secondly, the Ld. AR argued that the Ld. AO and Ld. DRP erred in restricting the indexation benefit for the cost of acquisition from FY 2010-11 (year of possession) instead of FY 2007-08 (year of agreement). Thirdly, Ld. AR submitted that the direction of the Ld. DRP is contrary to the provisions of Section 48 Explanation (iii) of the Act. Fourthly, Ld. AR argued that....
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.... in question had been transferred by the appellants in favour of the vendee/transferee on 27th Dec., 2002. The sale deed could not be executed for the reason that the appellants had been prevented from dealing with the residential house by an order of a competent Court, which they could not have violated. 11. Ld. AR further relied on the judgment of Hon'ble Punjab and Haryana High Court in the case of Mrs. Madhu Kaul vs. CIT, Chandigarh (ITA No. 89 of 1999) dated 17.01.2014, the judgment of Hon'ble Allahabad High Court in the case of Nirmal Kumar Seth vs. CIT (2012) 17 taxmann.com 127 (Allahabad) and the decision of Coordinate Bench of ITAT in the case of Ms. Renu Khurana vs. ACIT in ITA No. 1368/Del/2022 dated 17.02.2023. 12. Ld. AR referred page 7 of the paper book 2 which is agreement to sale and pointed out that Flat No. B-707 on 7th floor, is clearly mentioned in the agreement to sale and Ld. DRP has wrongly concluded that Flat No. B-707 was mentioned first time at the time of possession. He further referred point no. 3 of page 8 of the Paper book-2 showing schedule of payment of the amount to show that substantial payment was to be made during the FY 2007-08. Therefore, Ld.....
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....by the developer with the assessee requesting payment of money as agreed in the payment schedule on completion of the milestone as stated in the schedule of payment from the aforesaid communications, it is evident that the Developer had asked the assessee to make various payments on achieving milestones (as per the LOI). Also, such communications specifically mention the fact that these flats are earmarked. Further, the receipts along with the copies of the cheque were produced to evidence that the developer had received payment from the assessee towards the purchase of the impugned flats as mentioned in the respective receipts. In the aforesaid communication issued by the Developer there is a clause requesting the assessee to make the payments towards the amount mentioned in the said communication else the Developer has a right to cancel the earmarked flat. This means that if timely payment is made 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 ....
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....e MCGM). Further, it is also stated that the developer shall ensure that even where the number of floors in the building are increased, there is no variation in the areal position of the flat being earmarked to the assessee. 14. Reference to the clause 10 of the LOI was made wherein it was stated that upon entering into the LOI, the assessee had acquired the rights in the Kalpataru Properties to be constructed and these rights shall continue to vest so long as the assessee continues to comply with the conditions of the LOI. The said clause is in the interest of the Developer to ensure that the assessee does not claim his right in acquiring the Kalpataru Properties without payment of consideration. Reference to Clause 11 of the LOI was made wherein it was submitted that the assessee had acquired the right to purchase the specific earmarked impugned flats and payment of consideration 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....
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.... v. Vembu Vaidyanathan [2019] 108 taxmann.com 339 (SC) In the case of Praveen Gupta v. ACIT (2012) 137 TTJ 307 the Hon'ble Delhi Tribunal observed that Explanation (iii) to section 48 and section 2(42A) of the Act requires a capital asset to be 'held'. It is not necessary that to constitute a capital asset, the Appellant must be an owner of the Capital Asset through registration of the conveyance deed. By entering into an agreement to allot a flat, the Appellant has identified a particular property which he intended to buy from the builder and that right of the Appellant itself is a capital asset. The builder is also bound to provide the applicant with that property by accepting certain advance amount and upon Appellant satisfying the terms of payment. Indexation must be computed computed on the basis of the dates on which payment is made. In the case of Anita D Kanjani v. ACIT being ITA No. 2291/Mum/2015 (page 143-153 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 conce....
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....8.01.2023. Accordingly, the case was again put for clarification. 21. Both the parties were heard on this additional evidence on 03.03.2023. The reason for delay in filing of the letter is that the assessee was a non resident and was not available in India therefore, he has requested some time to file such letter which has bearing on the issues involved. 22. We have heard the rival submissions and perused the relevant findings given in the impugned order as well as evidence filed by the letter dated 18.01.2023. The core issue before us is, whether by virtue of letter dated 14.02.2011, can it be reckoned as a letter of allotment whereby the assessee had acquired the right of the flats allotted to him on the terms and conditions mentioned therein along 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, ....
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....d to the assessee which was specifically earmarked in the said LOI. One. of the letter reads as under:- "Madam/Sir, 1. Kindly refer to the Letter of Intent dated 14/02/2011 issued by us in respect of above referred Flat No. 162 at Kalpataru Sparkle. Pursuant to the above Letter of Intent, as per the terms of the letter, you have paid a sum of Rs. 10,00,000/- (Rupees Ten Lakhs only) vide cheque no. 470517 dated 14/02/2011 drawn on HSBC Bank, the receipt of which has been issued to We hereby confirm that upon acceptance of our letter of intent by paying an initial amount of Rs. 10,00,000/-, you had accepted our offer and we had allotted the above flat to you on 14/02/2011 Further the said Flat No. 162 as allotted to you 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....
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....f the contract by the developer and the assessee way back in FY 2010-11. 28. Hon'ble Punjab and Haryana High Court in case of Madhu Kaul vs. CIT 363 ITR 54 has held that on the allotment of a flat and upon payment of first installment, right to hold the flat has been conferred on impugned flat that passion of delivery letter does not detract from the fact that the allottee was conferred a right to hold the property of such issuance of allotment letter. Further, Hon'ble jurisdictional High Court in case of PCIT Vs. Vembu Vaidyanatha 412 ITR 248 had clearly held that for classifying long term and short term, what is required to be seen is the agreement spelling out the exact 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 t....
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....e of allotment letter and the payment of installments was only a follow-up action and taking the delivery of possession is only a formality. iii) ITA No. 2291/Mum/2015 in the case of Anita D. Kanjani vs. ACIT dated 13.02.2017:- 9. With a view to resolve this dispute, we have firstly analysed the provisions of section 2(42A) which defines 'short term capital asset' as under:- "Section 2(42A) in the Income- Tax Act, 1961 (42A) "short- term capital asset" means a capital asset held by an assessee for not more than thirty- six months immediately preceding the date of its transfer": Perusal of aforesaid definition shows that 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 natur....
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....ny agreement or any arrangement or in any other manner whatsoever, which has the effect of transferring, or enabling the enjoyment of any immovable property, also constitutes transfer and the assessee is said to hold the said property for the purpose of the definition of 'short-term capital gain'. In fact, the Circular No.495 makes it clear that transactions of the nature referred to above are not required to be registered under the Registration Act, 1908. Such arrangements confer the privileges of ownership without transfer of title in the building and are common mode of acquiring flats particularly in multistoried 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, ....
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.... of cost of acquisition, a title deed is to be executed in favour of the assessee. Even in the absence of a title deed, the assessee holds that property and therefore, it is the point of time at which he holds the property, which is to be taken into consideration in determining the period between the date of acquisition and date of transfer of such capital gain in order to decide whether it is a short-term capital gain or a long-term capital gain." Thus, from the aforesaid judgment, it is clear that for the purpose of holding an asset, it is not necessary that the assessee should be the owner 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....
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....in terms of section 2(42A) of the Act which has been reproduced and discussed above. The issue of transfer of ownership is not the issue to be decided here for computing the holding period. Therefore, we find that application of the ratio of aforesaid judgment would not be appropriate here. 15. Thus, respectfully following the judgements of various High Courts wherein this very issue has been analysed in detail as discussed above at length, we find that holding period should be computed from the date of issue of allotment letter. If we do so, the holding period 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.....
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....sionary powers exercised by the PCIT for setting aside the order framed by the AO u/s 143(3) that the date of ownership is the date of registration of flat of in the name of assessee and not the date of allotment is wrong and therefore, we set aside the order of PCIT. The appeals of the assessee is allowed. v) ITA No. 1876/Mum/2015 in the case of Fatema Jaffer Ghadiali vs. ITO dated 17.02.2016:- 6.7. In addition to the above, in our considered view the holding period should be computed from the date of allotment of flat, as '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 gai....
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....on" as per explanation (iii) to section 48 of the Act. 15 The Ld. DRP in its conclusion seems to be confused between a right to hold and a right to acquire the capital asset and therefore has relied upon the case of Hon'ble Supreme Court in Suraj Lamp Industries Pvt. Ltd. Vs. State of Haryana and under that impression concluded that the period of holding for indexation purposes would be FY 2017-18 when the ownership and possession was acquired. The settled legal principles and followed legal precedents relied by assessee 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 reg....
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....patru Sparkals, Bandra East and the present case pertains to Flat no. C-165 in the same property and the concerned AY is 2022-23. The Ld. Coordinate Bench had decided the ground no. 2 in favour of the assessee observing "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 2010-11 i.e. from the date of the letter 14.02.2011". Therefore, we respectfully follow the decision of Ld. Coordinate Bench and accordingly decide the ground no. 1 and 2 in favour of the assessee. We accordingly direct the AO to consider the date of acquisition for the purpose of computation of capital gain as the date of letter of intent i.e. 14.02.2022 and compute the capital gains accordingly for the concerned AY 2022-23." 15. In the case of the assessee, we have examined the documents including the agreement for sale dated 16th November 2007 and at page 4 in clause 2, the flat has been identified as Flat No. B-707, 7th floor and it is mentioned "The purchaser herby agrees to purchase and acquire Flat B-707, 7th floor, measuring 65 Sq.mtr built up area of the said unit in the said building known as Arihant Kr....