2019 (5) TMI 1386 - AT - Income Tax

Computation of capital gain - LTCG or STCG - sale of properties - period of holding - date of holding of property reckoned from registered sale deeds OR completion/occupation certificate of the properties - HELD THAT - The assessee should be deemed to be the owner of the properties from the date of execution of the registered sale deeds. The definition of short term capital asset u/s 2(42A) means a capital asset held by the assessee for not more than 36 months immediately preceding the date of its transfer. In the facts of the present case, the assessee having held the property from 23rd December 2005 till the date of transfer on 22nd January 2010, it has to be held as a long term capital asset. Merely because the occupation certificate was issued by the competent authority at a later stage, for whatever may be the reason, it will not mean that the assessee was not held the property from the date of execution of the registered sale deeds. The Hon'ble Jurisdictional High Court in Bina Indra Kumar 2014 (12) TMI 1110 - BOMBAY HIGH COURT has held that even where the assessee has executed an agreement of sale, the date of holding of property has to be reckoned from the date of agreement of sale. While expressing such opinion, the Hon'ble Jurisdictional High Court did not accept the contention of the Department that the holding period of the property should be reckoned from the date of issuance of occupation certificate by the Municipal Corporation. Thus assessee was holding the properties from the date of execution of registered sale deeds i.e., 23rd December 2005. Hence, the assessee held the property for a period of more than 36 months prior to the date of transfer. That being the case, the gain derived from the sale of properties have to be assessed as long term capital gain. Deduction u/s 48(1) - cost of improvement and expenditure incurred in connection with the transfer of property - HELD THAT - Claim of the assessee requires verification on the basis of evidences furnished by the Assessing Officer. If the assessee can demonstrate through supporting evidences that the expenditure was incurred prior to the date of sale of property, the deduction claimed can be allowed. Accordingly, we restore this issue to the Assessing Officer for fresh verification. As regards the pre operative expenditure after verifying the details of such expenditure has submitted before us by the learned Authorised Representative, we are of the view that such expenditure is not in connection with the transfer of property but are routine expenditure related to the business of the assessee. Therefore, we agree with Commissioner (Appeals) that pre operative expenditure is not allowable. Insofar as payment of brokerage and professional fee are concerned, assessee s claim was disallowed mainly due to lack of any supporting evidence. AR has submitted that all the bills relating to such expenditure were filed before the Departmental Authorities. Without entering into the controversy whether supporting evidences relating to these expenditures were filed or not, we are inclined to restore the issue to the AO for enabling the assessee to justify its claim by furnishing supporting evidence - Appeal is partly allowed for statistical purposes.

Summary

Issues:
1. Assessment of gain derived from the sale of properties as long term capital gain.
2. Disallowance of deduction under section 48(1) of the Act for cost of improvement and expenditure related to property transfer.

Issue 1: Assessment of Gain as Long Term Capital Gain

The Revenue's appeal challenged the decision of the Commissioner (Appeals) regarding the gain derived from the sale of properties being treated as long term capital gain. The Revenue contended that the gain should be considered short term capital gain based on the issuance of the occupation certificate. The Commissioner (Appeals) relied on previous tribunal decisions and held that the holding period of the property should be calculated from the date of acquisition, not the issuance of the occupation certificate. The Departmental Representative argued that possession could only be taken after completion of the building, thus the holding period should start from the occupation certificate date. The Authorized Representative emphasized that the right, title, and interest over the properties were acquired on the date of the sale deeds, citing relevant court decisions. The Tribunal held that the properties were held for more than 36 months before the sale, qualifying them as long term capital assets. The Tribunal dismissed the Revenue's appeal, affirming the Commissioner (Appeals)' decision.

Issue 2: Disallowance of Deduction for Cost of Improvement and Expenditure

The Assessee's appeal contested the disallowance of deductions claimed for cost of improvement and various expenditures related to property transfer. The Commissioner (Appeals) disallowed a portion of the claimed cost of improvement and the entire brokerage and professional fee, citing lack of substantiating evidence. The Authorized Representative argued that despite bills being raised post-sale, the work was done prior to the sale, and supporting evidence was provided. The Departmental Representative maintained that the Assessee failed to provide sufficient evidence to support the deductions. The Tribunal found that while part of the cost of improvement was debited post-sale, further verification was required based on the evidence presented. The pre-operative expenditure was deemed routine business-related and not allowable. The Tribunal decided to restore the issue of cost of improvement to the Assessing Officer for verification and allowed the Assessee to justify the brokerage and professional fee deductions with supporting evidence. The appeal was partly allowed for statistical purposes.

In conclusion, the Tribunal dismissed the Revenue's appeal while partly allowing the Assessee's appeal for statistical purposes. The judgment provided detailed analysis and interpretation of the relevant legal provisions and precedents to determine the treatment of gain from property sale and the allowance of deductions for cost of improvement and related expenditures.