2016 (12) TMI 1911 - AT - Income Tax

Revision u/s 263 - Computation of capital gain - LTCG or STCG - transfer in relation to a capital asset - whether agreement/deed of allotment granting of possession after completing all the payment formalities should be taken as date of transfer for the purpose of computation of capital gains or the date of registration of sale deed? - HELD THAT - Revenue has initiated proceedings u/s 154 and thereafter dropped the same after receiving the assessee s reply. Thereafter on the same issue, show cause notice for reopening u/s 148 was issued. Upon assessee s explanation the AO was satisfied and so far no reopening u/s 148 has been done. The above facts make it clear that the explanation by the assessee is plausible. AO had applied his mind in the assessment order also. It is settled law that the issue on which two views are possible and the AO has adopted one of the views, assumption of jurisdiction u/s 263 by the CIT is invalid. In this regard we find support from Max India Ltd. 2007 (11) TMI 12 - SUPREME COURT - In this case it was held that where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the Revenue, unless the view taken by the ITO is unsustainable in law. LTCG or STCG - whether agreement/deed of allotment granting of possession after completing all the payment formalities should be taken as date of transfer for the purpose of computation of capital gains or the date of registration of sale dee d? - We find that this issue is no more res-integra. Hon ble Apex Court in the case of Shri Sanjeev Lal Etc. 2014 (7) TMI 99 - SUPREME COURT wherein held once an agreement to sell is executed in favour of one person, the said person gets a right to get the property transferred in his favour by filing a suit for specific performance and therefore, without hesitation we can say that some right, in respect of the said property, belonging to the appellants had been extinguished and some right had been created in favour of the vendee/transferee, when the agreement to sell had been executed. Thus we find that in this case the assessee has obtained the possession of the land vide deed of allotment on 16-12-2005. Upon this date all the payments had been done. No case has been made by the Revenue that any of the payment was due after this date. In such circumstances on the anvil of aforesaid case law of the above said Apex Court decision the date of transfer qua the purchase for computation of capital gains is 16-12-2005 and not the date on which the sale deed was registered i.e. on 01-09-2009. Thus, AO having been conscious of the facts of the case has applied a view which has the mandate of Hon ble Apex Court. In such view of the matter, treatment of the assessment order as prejudicial and erroneous to Revenue by the learned CIT is not at all sustainable. Here again the above decision of Hon ble Apex Court in Max India Ltd. support this view. Hence we have no hesitation in quashing the 263 order passed by the learned CIT. Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of notice and order passed under Section 263.
2. Validity of proceedings considering the original assessment order under Section 143(3).
3. Determination of whether the transaction is a Long Term Capital Gain (LTCG) or Short Term Capital Gain (STCG).
4. Correctness of the Commissioner’s decision regarding the nature of the capital gain.

Detailed Analysis:

1. Legality of Notice and Order Passed Under Section 263:
The appellant argued that the notice issued and the order passed under Section 263 were illegal as they did not conform to the basic requirements of the section. The Tribunal noted that the Commissioner of Income Tax (CIT) had issued a show cause notice under Section 263, stating that the assessment framed by the Assessing Officer (AO) was erroneous and prejudicial to the interest of revenue.

2. Validity of Proceedings Considering the Original Assessment Order Under Section 143(3):
The appellant contended that the notice and proceedings were invalid because the original assessment order under Section 143(3) was neither erroneous nor prejudicial to the interest of revenue. The Tribunal observed that the AO had examined the details of capital gains during the original assessment proceedings and accepted the same after detailed discussion. The Tribunal emphasized that the AO had applied his mind in the assessment order, and thus, the assumption of jurisdiction under Section 263 by the CIT was invalid.

3. Determination of Whether the Transaction is LTCG or STCG:
The main issue was whether the transaction should be considered as Long Term Capital Gain or Short Term Capital Gain. The CIT held that the gain on the sale of property was Short Term Capital Gain, as the property was in the possession of the assessee from 01/09/2009 to 22/04/2010, which is less than 36 months. The appellant argued that the property was allotted on 16/12/2005, making it a Long Term Capital Asset. The Tribunal referred to the Hon'ble Apex Court decision in the case of Shri Sanjeev Lal Etc. vs. CIT, which held that the date of transfer for computation of capital gains should be the date of the agreement/deed of allotment granting possession, not the date of registration of the sale deed.

4. Correctness of the Commissioner’s Decision Regarding the Nature of the Capital Gain:
The CIT's decision was based on the observation that the Deed of Allotment dated 16/12/2005 was not a registered document, and the property was transferred to the assessee by a registered sale deed on 01/09/2009. The Tribunal found that the AO had already considered the facts and had taken a plausible view supported by the Hon'ble Apex Court decision. The Tribunal concluded that the AO's view was sustainable in law, and the CIT's treatment of the assessment order as erroneous and prejudicial to the revenue was not justified.

Conclusion:
The Tribunal quashed the order passed by the CIT under Section 263, holding that the AO had applied a view supported by the Hon'ble Apex Court, and thus, the assessment order was neither erroneous nor prejudicial to the interest of revenue. The appeal by the assessee was allowed.