2017 (8) TMI 366 - AT - Income Tax

Capital gain on the total sale consideration received - re-computation - sale of land - taxabiltiy of amount shown in the unregistered MOU - share of other party - STCG - Held that - The assessee has entered into an unregistered MOU with Shri. Praveen H. Thakkar, and sold the impugned land for a consideration of ₹ 1 crore. As per Clause no. 12 of the said MOU, the parties agreed that any sale consideration received on subsequent sale of the said property over and above ₹ 1 crore could be retained by Shri. Praveen H. Thakkar. Accordingly, the assessee has computed short term capital gain by taking into account sale consideration of ₹ 1 crore, and after reducing the cost of acquisition and expense of transfer, computed short term capital gain of ₹ 31,16,070/-, and disclosed 50% in his return of income. We further observed that the assessee has filed necessary details and also an affidavit from Shri. Praveen H. Thakkar, which indicates that Shri. Praveen H. Thakkar has considered remaining consideration and offered resultant profit for taxation in his return of income. As per the details available on record, we find that the entire sale consideration of ₹ 3,42,78,125/- is suffered to tax in the hands of the assessee and Shri. Praveen H. Thakkar. We further noticed that from the impugned transactions there is no loss of revenue due to the Govt. exchequer. The A.O ignored intermediary MOU between the assessee and Shri. Praveen H. Thakkar, merely on the ground that the said MOU is unregistered. We do not agree with the findings of the A.O, for the reason that merely because the MOU is unregistered, no adverse inference can be drawn in view of other documentary evidences supplied by the assessee which are capable of verification. The assessee has filed all evidences to prove the transaction in his hands as well as in the hands Shri. Praveen H. Thakkar. Assessee s version is also strengthened from the fact that at the time initial purchase of land by the assessee and his brother Shri. Pravin H. Thakkar had advanced loan to the assessee s brother Shri. Nitin M. Faria. A.O was completely erred in ignoring the evidences filed by the assessee to recompute the short term capital gain by taking into account total sale consideration received from M/s. Iswar Land Pvt. Ltd. The CIT(A) after considering relevant details, has rightly deleted additions made by the A.O towards recomputation of short term capital gain. - Decided against revenue

Summary

Issues Involved:
1. Validity of the intermediary transaction through an unregistered Memorandum of Understanding (MOU).
2. Computation of short-term capital gains.
3. Applicability of capital gains tax on agricultural land.

Detailed Analysis:

1. Validity of the Intermediary Transaction through an Unregistered MOU:
The case revolves around the sale of immovable property by the assessee and his brother. The assessee claimed that the property was sold to Shri Praveen H. Thakkar through an MOU for ?1 crore before being sold to M/s. Ishwar Land Pvt. Ltd. for ?3,42,78,125/-. The Assessing Officer (A.O) rejected the intermediary transaction, deeming the unregistered MOU unenforceable. The A.O considered the entire sale consideration of ?3,42,78,125/- directly in the hands of the assessee, ignoring the MOU. However, the CIT(A) accepted the MOU as valid, noting that the source of finance for the property purchase was arranged by Shri Praveen H. Thakkar, and the remaining sale consideration was duly reflected in his balance sheet. The CIT(A) observed that the unregistered status of the MOU did not invalidate the transaction, supported by other verifiable documents.

2. Computation of Short-Term Capital Gains:
The A.O recomputed the short-term capital gains by considering the total sale consideration of ?3,42,78,125/- received from M/s. Ishwar Land Pvt. Ltd., dismissing the intermediary transaction. The assessee argued that only ?1 crore should be considered for computing the capital gains, as the remaining amount was accounted for by Shri Praveen H. Thakkar. The CIT(A) agreed with the assessee, noting that the entire sale consideration, including the amount over ?1 crore, was taxed either in the hands of the assessee or Shri Praveen H. Thakkar. The Tribunal upheld the CIT(A)’s decision, emphasizing that there was no revenue loss to the government and the intermediary transaction was supported by sufficient evidence.

3. Applicability of Capital Gains Tax on Agricultural Land:
The assessee alternatively claimed that the land in question was agricultural and thus outside the ambit of capital asset as defined under Section 2(14) of the Income Tax Act, 1961. This argument was not considered further as the primary issue was resolved in favor of the assessee.

Conclusion:
The Tribunal dismissed the appeal filed by the revenue, upholding the CIT(A)’s order. It was concluded that the intermediary transaction through the MOU was valid despite being unregistered, and the short-term capital gains were correctly computed by the assessee. The Tribunal emphasized that the entire sale consideration had been duly taxed, and there was no loss of revenue to the government. The appeal by the revenue was thus dismissed.