2019 (3) TMI 1067 - AT - Income Tax

Addition of capital gain - sale of property as taxable u/s 50C - transfer of asset u/s 2(47) - possession of property given in which year? - property purchased through agreement to sale - HELD THAT - Assessee had purchased the property through an agreement to sell in 1987 and had sold the same again through an agreement to sell in 1991.The assessee had given possession to the buyer in the year 1987. The buyer had also confirmed the same in response to the enquiry conducted by the AO. The buyer has also filed evidences to support that she was in possession all along from the year 1991. AO has not brought any material to the contrary to rebut the evidences submitted by the assessee and by the buyer Smt. Santosh Sareen. The contention of the assessee is supported by the definition of transfer in section 2(47) clause (v) of the Act whereby transfer in relation to capital assets includes any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act. As per section 53A of the Transfer of Property Act, as applicable in the year 1991, an agreement to sell need not be registered if the transferee has, in part performance of the contract, taken possession of the property and continues in possession of the same. In the present case, the transferee has taken possession in the year 1991 and has continued to be in possession of the property and hence, transfer was complete in the year 1991 in view of clause (v) of section 2(47) of the Income Tax Act. In the sale deed the total consideration has been stated at ₹ 4,50,000/- and the details of the cheque and mode of payment is stated in this sale deed at internal page 8 Paper Book page 24. This fact supports the case of the assessee that the assessee had sold this property way back in the year 1991. In view of these facts, the AO and the Ld. CIT (A), both, were not justified in drawing an adverse inference merely on the ground that the assessee had failed to produce the bank statement for the year 1991. From the assessment order, it is also evident that the assessing officer has made a direct inquiry from the buyer Smt. Santosh Sareen and she also has confirmed having bought this property from the assessee in the year 1991. The allegation of the assessing officer that the property has been sold in the year 2009, when the assessee has executed the sale deed also ignores the fact that the sale deed has been executed by the assessee in the capacity of General Power of Attorney holder and not as an owner. This fact is evident from the sale deed itself which is between Smt. Lilawati Kapur, the original owner as the seller and Smt. Santosh Sareen as the buyer. We hold that the sale of this property by the assessee has taken place in the year 1991 and the AO was not justified in taxing the capital gain arising on the sale of this property in the year under consideration. As regards invoking the provision of section 50Cof the Act, the same will come to be attracted only when sale has taken place during the year. As we have held that the sale by the assessee stood completed in the year 1991, there is no question of invoking the provision of section 50C. Accordingly, the addition made by the assessing officer as long term capital gains is directed to be deleted. - Decided in favour of assessee.

Summary

Issues Involved:

1. Addition of ?78,40,062/- as Long Term Capital Gain (LTCG) on the sale of property.
2. Validity of the sale transaction date for capital gains calculation.
3. Applicability of Section 50C of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Addition of ?78,40,062/- as Long Term Capital Gain (LTCG) on the sale of property:

The primary grievance in this appeal is the addition of ?78,40,062/- made by the Assessing Officer (AO) and confirmed by the Ld. CIT(A) on account of LTCG. The AO noted that the transaction of sale of an immovable property at A-34, Sector 30, Noida for ?83,70,000/- on 23rd June 2009 had not been reflected in the Return of Income. The AO held that this transaction attracted LTCG and was taxable under Section 50C of the Income Tax Act, 1961. The LTCG was computed at ?78,40,062/- after allowing the benefit of indexation.

2. Validity of the sale transaction date for capital gains calculation:

The assessee argued that the property was sold on 03.08.1991 to Smt. Santosh Sareen for ?4,55,000/- under a registered "Agreement to Sell" along with the possession of the property. The AO, however, did not accept this sale as valid due to lack of proof and considered the sale date as 23.06.2009. The assessee contended that the sale deed executed on 23.06.2009 was only in the capacity of a General Power of Attorney (GPA) holder and not as the owner. The ITAT noted that the possession was handed over to the buyer in 1991 and corroborated by the buyer's confirmation. The transfer was considered complete in 1991 under Section 2(47)(v) of the Income Tax Act, which includes any transaction involving the allowing of possession in part performance of a contract as per Section 53A of the Transfer of Property Act.

3. Applicability of Section 50C of the Income Tax Act, 1961:

The AO applied Section 50C, which deals with the valuation of capital assets for the purpose of calculating capital gains. The ITAT held that Section 50C, introduced by Finance Act, 2002 with effect from 01.04.2003, was not applicable since the property transfer was completed in 1991. The sale deed executed in 2009 was merely a formalization of the transaction completed in 1991. Therefore, the provisions of Section 50C could not be invoked.

Conclusion:

The ITAT concluded that the sale of the property took place in 1991 and not in 2009. Hence, the addition of ?78,40,062/- as LTCG in the assessment year under consideration was not justified. Consequently, the appeal of the assessee was allowed, and the addition made by the AO was directed to be deleted.

Final Judgment:

The appeal of the assessee is allowed, and the addition of ?78,40,062/- as LTCG is deleted. The order was pronounced in the open court on 18th March 2019.