2021 (12) TMI 591 - AT - Income Tax

Addition on account of short term capital gain - Incomplete sale - flat was leased property of Mumbai Port Trust - whether there was no transfer of flat during the year? - HELD THAT - The flat was leased property of Mumbai Port Trust and approval of the Mumbai Port Trust was required to be obtained for handing over the possession .We also note that the assessee has received only ₹ 25,00,000/- and the balance consideration was still outstanding - assessee was to hand over the possession to the buyer only upon full and final payment of sales consideration and after obtaining NOC from Mumbai Port Trust. Possession has not been handed over as certain conditionalities are to be fulfilled like payment of balance consideration and obtaining of NOC - Mumbai Port Trust has been applied for issuing the NOC but still the same is awaited - sale is certainly not complete and it is absolute sale but a conditional sale which would be complete after satisfaction of the above two conditions. Neither AO nor ld CIT(A) have brought on record any substantive evidence to the contrary. So we are not in agreement with the conclusion of the ld CIT(A) that sale is complete. Sale of flat would only be completed after fulfilment of remaining conditions - we are inclined to set aside the order of ld CIT(A) on this issue and direct the AO delete the addition of short term capital gain. - Decided in favour of assessee.

Summary

Issues:
1. Addition of short term capital gain without actual transfer of flat.
2. Adoption of stamp duty value for computation of short term capital gain.
3. Consideration of WDV of flat instead of block of asset for capital gain.
4. Disallowance of depreciation on flat claimed under section 32.

Analysis:
1. The first issue pertains to the addition of short term capital gain by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) (CIT(A)) despite no actual transfer of the flat during the relevant year. The AO calculated the gain based on the sale deed and registration, disregarding the pending conditions for possession. The ITAT Mumbai noted that the sale was conditional, pending full payment and NOC from Mumbai Port Trust. As possession was not handed over, the sale was deemed incomplete. The ITAT set aside the CIT(A) order, directing deletion of the capital gain addition.

2. The second issue concerns the invocation of section 50C of the Income Tax Act for adopting stamp duty value as sale consideration. As the ITAT ruled in favor of the assessee on the first issue, the necessity to address section 50C became redundant, rendering it academic.

3. The third issue, regarding the consideration of the Written Down Value (WDV) of the flat instead of the block of asset for capital gain computation, was deemed academic by the ITAT due to the incomplete sale transaction. Hence, no adjudication was required on this issue.

4. The fourth issue involves the disallowance of depreciation on the flat claimed under section 32. Since the ITAT ruled in favor of the assessee on the first issue, establishing the incomplete transfer of the flat, the assessee was entitled to claim depreciation. Consequently, the ITAT directed the AO to allow depreciation on the flat, thereby allowing the appeal of the assessee.

In conclusion, the ITAT Mumbai allowed the appeal of the assessee, setting aside the additions made by the AO and upheld by the CIT(A). The judgment emphasized the incomplete nature of the sale transaction, leading to the deletion of the capital gain addition and allowing the depreciation claimed by the assessee.