2019 (1) TMI 1196 - AT - Income Tax

Reopening of assessment - long-term capital gain - possession of property - assessability of long term capital gains tax in the hands of assessee in the captioned assessment year - Held that - In the present case, on receipt of ₹ 1 lakh and postdated cheques of ₹ 37 lakhs, which were never encashed, the possession of property remained with the assessee; the buyer Joshaba clearly admits that it never received possession. In such circumstances, where the possession of property has not been handed over and even the complete consideration for the property has not been received by the assessee except for advance of ₹ 1 lakh, then the Revenue authorities have erred in holding that transfer had taken place in financial year 2007-08 on the date of signing of deed of assignment. There may be a document by which certain rights were transferred but once the possession of property has not been handed over, the assessee does not become liable to pay capital gains tax on such transaction as the conditions laid down in section 2(47)(v) have not been fulfilled. Accordingly, order of CIT(A) is reversed in this regard and hold that no income from long term capital gains is to be assessed in the hands of assessee.

Issues Involved:
1. Legality of the assessment order under section 144 r.w.s. 147 of the Income-tax Act, 1961.
2. Assessment of long-term capital gain without transfer of property.
3. Taxation of capital gain in the absence of consideration received.
4. Non-allowance of expenditures claimed towards the cost of acquisition.

Detailed Analysis:

Issue 1: Legality of the Assessment Order under Section 144 r.w.s. 147
The assessee argued that the assessment order passed by the AO under section 144 r.w.s. 147 was "bad in law." The CIT(A) upheld the initiation of proceedings under section 147 and the ex-parte assessment under section 144. The Tribunal did not find substantial merit in this ground, and the learned Authorized Representative did not raise objections to the CIT(A)'s order. Consequently, this ground of appeal was dismissed.

Issue 2: Assessment of Long-term Capital Gain without Transfer of Property
The core dispute revolved around whether there was a transfer of property in the assessment year 2008-09. The assessee contended that no transfer occurred as the sale deed was not completed, while the Revenue argued that the capital gain arose in the year under consideration.

The Tribunal examined the facts and found that the assessee executed a Deed of Assignment on 11.12.2007, with a sale consideration of ?38 lakhs. However, the buyer only paid ?1 lakh upfront and issued a post-dated cheque for ?37 lakhs, which was never encashed. The possession of the property remained with the assessee, and the transaction was allegedly canceled later due to non-payment.

Upon reviewing the documents, including the letter from Joshaba and the affidavit, the Tribunal noted that the possession was never transferred, and the sale deed was effectively canceled. The Tribunal concluded that since the possession was not handed over and the full consideration was not received, the conditions under section 2(47)(v) of the Act were not met. Thus, no capital gain should be assessed in the hands of the assessee for the assessment year 2008-09.

Issue 3: Taxation of Capital Gain in the Absence of Consideration Received
The Tribunal addressed the argument that even if the property were considered transferred, the capital gain could not be taxed in the year under consideration as the consideration was not received. Given the finding that no transfer occurred, this issue became academic. The Tribunal reversed the CIT(A)'s decision, holding that no income from long-term capital gains should be assessed for the said year.

Issue 4: Non-allowance of Expenditures Claimed Towards Cost of Acquisition
The assessee's claim for expenditures towards the cost of acquisition was also examined. The Assessing Officer had disallowed certain expenditures due to lack of supporting evidence or because they were not relevant to the sale of the plot. Given the Tribunal's decision on the non-occurrence of transfer, this issue was rendered academic and was not further deliberated.

Conclusion:
The Tribunal allowed the appeal partly, concluding that no long-term capital gains tax should be assessed for the assessment year 2008-09 due to the absence of a completed transfer of property. The other grounds of appeal became academic in light of this decision. The appeal was pronounced partly in favor of the assessee.

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