2022 (12) TMI 926 - AT - Income Tax

Long-term capital gain earned from the sale of a flat - AO has treated the assessee to be not the owner of 50% share in the Skylark flat - AR submitted that the assessee along with his wife has sold the flats to a third party, and without being the legal owner registration could not have taken place. Further, the assessee also paid part of the purchase consideration in the year 1992 and enjoyed 50% ownership of the said flat till it was sold in the year 2014 - HELD THAT - As in the records of Skylark Co-operative Housing Society Ltd, the name of the assessee and his wife is appearing as the shareholders. The assessee has also furnished a copy of the bank statement of assessee s account in Bombay Mercantile Co-operative Bank, to substantiate the payment as part of the purchase consideration of the Skylark flat. It has also not been disputed that the said flat was subsequently sold in July 2014 to third-party by the assessee and his wife and as per the registered deed of transfer the purchaser has agreed to pay the total consideration in equal proportion to the assessee and his wife Nothing has been brought on record that due to the alleged lack of ownership of the assessee, the title in the property has not been legally transferred to the purchaser. Therefore, we are of the considered opinion that the learned CIT(A) has rightly accepted the long-term capital gain in the hands of the assessee. Addition made by the AO by treating the part consideration from the sale of Skylark flat as unexplained credit - We find that the registered deed of transfer whereby the said flat was sold to the third party was already available on record before the AO and therefore in the aforesaid circumstances the amount of sale consideration received by the assessee, being the joint owner of the flat, cannot be held to be unexplained credit in the hands of the assessee. Thus, we find no infirmity in the impugned order passed by the learned CIT(A) on this issue. As a result, grounds No. 1 and 2 raised in Revenue s appeal are dismissed. Set off of long-term capital loss arising from STT paid transactions against long-term capital gain arising from the sale of the flat - HELD THAT - It has not been denied by the assessee that the long-term capital loss arose on account of the sale of units of mutual funds on which STT was paid. The said long-term capital loss has been sought to be set off against the long-term capital gain arising on the sale of Skylark flat. We find that in Appolo Tyres Ltd. 2021 (9) TMI 708 - KERALA HIGH COURT following question of law came up for consideration the claim of the assessee of set off of long-term capital loss arising from STT paid transactions against long-term capital gain arising from the sale of the flat is rejected. As a result, ground raised in Revenue s appeal is allowed.

Summary

Issues Involved:
1. Acceptance of long-term capital gain shown by the assessee.
2. Deletion of addition under section 68 of the Income Tax Act, 1961, as unexplained cash credit.
3. Set off of long-term capital loss against long-term capital gain.

Issue-wise
Detailed Analysis:

1. Acceptance of Long-term Capital Gain:
The Revenue challenged the CIT(A)'s direction to accept the long-term capital gain shown by the assessee. The AO contended that the assessee failed to furnish concrete evidence of payment towards acquiring the flat at Skylark Society in 1992. The CIT(A) observed that the assessee's name was included as a joint owner in the shares issued by the Skylark Co-operative Housing Society and that the assessee sold the flat via a registered sale deed, which would not have been possible without rightful ownership. The CIT(A) noted that the assessee paid Rs. 4.25 lakhs as part of the purchase consideration in 1992 and enjoyed ownership until the sale in 2014. Thus, the long-term capital gains shown by the assessee were accepted.

The Tribunal upheld the CIT(A)'s decision, noting that the AO did not produce any evidence to dispute the joint ownership of the flat. The assessee furnished a bank statement substantiating the payment of Rs. 4.25 lakhs in 1992. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the Revenue's grounds on this issue.

2. Deletion of Addition under Section 68:
The AO added Rs. 7,62,50,000 as unexplained credit, arguing that the assessee received this amount without ownership of any asset. The CIT(A) deleted this addition, stating that Section 68 could not be invoked as the amount was received as 50% sale consideration from a registered sale deed, which the AO did not dispute. The Tribunal agreed with the CIT(A), noting that the registered deed of transfer was available on record and the sale consideration received by the assessee could not be held as unexplained credit. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the Revenue's grounds on this issue.

3. Set off of Long-term Capital Loss:
The AO denied the set off of long-term capital loss arising from STT paid transactions against long-term capital gain from the sale of the flat. The CIT(A) allowed the set off, following the decision of the coordinate bench of the Tribunal in M/s Raptakos Breet & Co. Ltd. The Revenue appealed, citing divergent views and a decision by the Hon'ble Kerala High Court in Appolo Tyres Ltd vs DCIT, which held that long-term capital loss from STT paid transactions could not be set off against long-term capital gain from the sale of land.

The Tribunal noted that the long-term capital loss arose from the sale of units of mutual funds on which STT was paid and sought to be set off against long-term capital gain from the sale of the flat. The Tribunal referred to the Kerala High Court's decision, which stated that Section 70(3) requires both the loss and the income to be computed under Sections 48 to 55 of the Act. The Tribunal found that the set off claimed by the assessee was not permissible under Section 70(3) and allowed the Revenue's ground on this issue.

Conclusion:
The appeal by the Revenue was partly allowed. The Tribunal dismissed the Revenue's grounds regarding the acceptance of long-term capital gain and the deletion of addition under Section 68. However, it allowed the Revenue's ground regarding the set off of long-term capital loss against long-term capital gain.