2018 (12) TMI 1506 - AT - Income Tax

Undisclosed long term capital gains - quantification of capital gains arising on transfer of immovable property being land - ascertainment of jantri value/circle rate - Whether the rights acquired under the agreement to sale is a capital asset or not? - whether such right stands transferred/extinguished within the meaning of Section 2(47) while executing the agreement to sale dated 25.03.2009 as a confirming party having regard to provisions of Section 2(14) and Section 2(47)? Held that - The consideration agreed by the ultimate purchaser over and above the consideration freezed by the assessee with Melody Complex was directly given by ultimate buyer (Gatil Properties) to the intermediary/confirming party (Melody Complex). There is no material available on record to hold that the assessee herein is the beneficiary of the excess consideration. Noticeably, the provisions of Section 50C of the Act have not been invoked at all. Therefore, where the deeming provisions of Section 50C has not been invoked and there is nothing to demonstrate that the assessee has received more than what is offered for the purposes of determination of capital gains, it is difficult to draw inference against the assessee on the basis of suspicion howsoever strong. We may however hasten to add that the CIT(A) ought to have weighed the jantri value vis- -vis the sale price agreed by the assessee with Melody Complex while granting relief to assessee. Thus, the order of the CIT(A) suffers from inadequacy or infirmity to this extent. No plausible reason to depart from the view taken by the first appeallate authority, until it is found that jantri value of parcels of land in question is higher than the sale price agreed by the assessee with Melody Complex. Thus remit the matter back to the file of AO to ascertain the jantri value/circle rate existing at the time of agreement with Melody Complex on 15.09.2008 and substitute the same with sale consideration agreed by the assessee with Melody Complex in case it is found higher than the actual sale consideration of ₹ 19.10 Lakhs. - issue is required to be restored back to the file of AO for its consideration. - Appeal of the Revenue is allowed for statistical purposes.

Summary

Issues Involved:
1. Deletion of addition on account of undisclosed long-term capital gains.
2. Validity of the unregistered Banakhat (agreement to sale) and its enforceability.
3. Determination of the year of taxability for capital gains.
4. Application of Section 50C of the Income Tax Act.

Detailed Analysis:

1. Deletion of Addition on Account of Undisclosed Long-Term Capital Gains:
The Assessing Officer (AO) challenged the deletion of ?3,18,55,034/- made on account of undisclosed long-term capital gains by the Commissioner of Income Tax (Appeals) [CIT(A)]. The AO observed that the assessee sold an immovable property for ?3,40,84,800/- but did not declare the capital gains for the year under consideration. The assessee argued that the capital gain was already offered in the preceding assessment year based on an agreement to sale (Banakhat) dated 15.09.2008 with Melody Complex Pvt. Ltd. for ?19,01,177/-. The AO rejected this claim, stating that the Banakhat was unregistered and possession was not transferred. The CIT(A) found the assessee's arguments valid, holding that the transfer was complete under Section 2(47)(v) of the Income Tax Act and the Transfer of Property Act, 1882, when the possession was handed over on 25.03.2009.

2. Validity of the Unregistered Banakhat and Its Enforceability:
The AO contended that the Banakhat dated 15.09.2008 was unregistered and thus invalid. The CIT(A) disagreed, stating that the Banakhat created enforceable rights in favor of Melody Complex, which could file a suit for specific performance under the Specific Relief Act. The CIT(A) emphasized that the right acquired by Melody Complex was a capital asset under Section 2(14) of the Act. The CIT(A) concluded that the transactions were genuine and enforceable, and the agreements were not sham or bogus.

3. Determination of the Year of Taxability for Capital Gains:
The AO assessed the capital gains for the year 2010-11 based on the registration date of the final sale deed on 21.01.2010. The CIT(A) and the Tribunal found that the transfer was complete in the preceding financial year (2008-09) when the possession and consideration were handed over as per the Banakhat dated 25.03.2009. The Tribunal noted that the AO did not invoke Section 50C of the Act, which could have replaced the sale consideration with the stamp duty valuation. The Tribunal remitted the matter back to the AO to ascertain the jantri value/circle rate as of 15.09.2008 and compare it with the sale consideration agreed with Melody Complex.

4. Application of Section 50C of the Income Tax Act:
The Tribunal highlighted that Section 50C was not invoked by the AO. This section allows the AO to replace the sale consideration with the stamp duty valuation if it is higher. The Tribunal directed the AO to determine the jantri value/circle rate as of 15.09.2008 and substitute it with the sale consideration if it is higher than ?19,10,177/-. If the jantri value is in tune with the sale consideration, no interference with the CIT(A)'s order is required.

Conclusion:
The Tribunal allowed the Revenue's appeal for statistical purposes, directing the AO to re-evaluate the jantri value and its applicability. The cross-objection filed by the assessee was dismissed, supporting the CIT(A)'s decision. The Tribunal emphasized the need for a detailed examination of the jantri value to ensure the correct tax liability.