2024 (7) TMI 1282 - AT - Income Tax

Long Term Capital Loss - assessee approached builder that assessee is desirous to cancel the allotment of the above flats and builder refunded assessee - assessee offered long term capital loss on the surrender of allotment letters - as argued consideration received by the assessee, cost of acquisition and fact of surrender of capital asset squarely prove that there is a transfer of a capital asset for consideration which has cost of acquisition and therefore, there has to be a computation of capital gain on such transfer. HELD THAT - In the cancellation letter sale consideration is mentioned. Thus, the assessee has acquired by way of allotment, right to acquire two flats in his name. This 'right to acquire' these two flats is naturally a capital asset. On surrender or extinguishment by cancellation letters of such capital asset, it has been surrendered and assessee loose right to acquire these two flats. Therefore, there is a transfer of capital asset. On the transfer of capital asset, assessee has also received consideration. The capital asset was also acquired at a total cost of ₹ 3,36,60,000/- for each flat. The right to acquire was acquired on 20th September, 2010, on transfer of such right naturally the capital gain arises in the hands of the assessee. The consideration received by the assessee, cost of acquisition and fact of surrender of capital asset squarely prove that there is a transfer of a capital asset for consideration which has cost of acquisition and therefore, there has to be a computation of capital gain on such transfer. AO was submitted both the cancellation letter where the amount of consideration received by the assessee is duly mentioned. Therefore according to us, on transfer of right to acquire these flats, has resulted in to a long term capital loss in the hands of the assessee and same dserves to be allowed. CIT (A) agreed that there is a transfer and capital gain is chargeable, however, he held that provisions of Section 50C of the Act and Section 56(2)(X) of the Act applies. This observation of the CIT (A) clearly shows that computation of capital gain is required to be made on these transactions. Whether on this transaction, provision of Section 50C of the Act applies or not ? - The Provisions of Section 50C of the Act applies only when capital assets transferred is ' land or building or both. In this case assessee has transferred 'right to acquire' the flats. Thus, Provision of Section 50C of the Act does not apply. Further, as Provisions of Section 50C of the Act does not apply, naturally, the provisions of Section 56(2)(X)(b) of the Act also do not apply. Accordingly, solitary ground raised in this appeal is allowed and AO is directed to allow carry forward of capital loss. Penalty u/s 271(1)(c) - difference in Income in return u/s 148 and original return as concealed income when no additional income was offered but just claim of an expense was withdrawn voluntarily before any confrontation by AO - HELD THAT - To invoke the penal provisions of the Act against an assessee in such a situation would throw to the winds the elements of fairness in tax administration and discourage assessees from disclosing defects in their tax returns before their Assessing Authorities. This is more so when, as in the present case, the assessee had also paid the interest on the differential tax to cover the period of delay in payment thereof. The payment of statutory interest having compensated the exchequer adequately, to further penalise the assessee would tantamount to an act of overkill and would be antithetical to the rule of law. We are of the firm view that the honesty of an assessee cannot attract the penal provisions under the I.T. Act and that, in the instant case, the essential pre-conditions for the invocation of the provisions of Section 271(1) (c) of the I.T. Act against the assessee were not established. Assessee appeal of allowed.

Summary

Issues Involved:
1. Determination and carry forward of Long Term Capital Loss.
2. Confirmation of penalty under Section 271(1)(c) of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Determination and Carry Forward of Long Term Capital Loss:

The assessee filed an appeal against the appellate order which partly allowed the assessment order denying the carry forward of Long Term Capital Loss (LTCL) of Rs. 3,39,66,946/-. The facts outlined that the assessee sold immovable property and claimed a LTCL due to the indexed cost of acquisition exceeding the sale consideration. The Assessing Officer (AO) rejected this claim, stating that no transfer of capital asset occurred, as the transaction was merely a cancellation of allotment of flats without sufficient evidence of sale or transfer.

Upon appeal, the Commissioner of Income-tax (Appeals) [CIT(A)] upheld the AO's decision, reasoning that the assessee failed to justify the cancellation despite substantial payments made. The CIT(A) also held that provisions of Section 50C and 56(2)(x)(b) of the Act applied, and since the market value was not considered, the LTCL could not be allowed.

The assessee argued that the surrender of the right to acquire a flat constitutes a transfer of a capital asset, and thus, the LTCL should be allowed. The Tribunal found that the right to acquire a flat is indeed a capital asset and its surrender constitutes a transfer. The consideration received and the cost of acquisition were adequately documented, proving a transfer of capital asset resulting in LTCL. The Tribunal concluded that Section 50C does not apply to the transfer of rights to acquire property, and hence, directed the AO to allow the carry forward of the LTCL of Rs. 3,39,66,946/-.

2. Confirmation of Penalty under Section 271(1)(c) of the Income-tax Act:

The second appeal concerned the confirmation of a penalty under Section 271(1)(c) for alleged concealment of income. The assessee initially filed a return declaring Rs. 2,10,075/- but revised it to Rs. 23,30,520/- in response to a notice under Section 148, prompted by discrepancies in income and insurance premiums paid.

The AO imposed a penalty, arguing that the assessee increased the income only after detection by the Department, indicating concealment. The CIT(A) upheld this penalty, stating that the assessee's voluntary revision did not exempt it from penalty as the original return concealed income.

The Tribunal noted that the higher income was offered before any conclusive detection by the authorities. It referenced the Kerala High Court's decision in Principal Commissioner of Income-tax vs. Ambady Krishna Menon, which held that voluntary disclosure before detection does not attract penalties under Section 271(1)(c). Following this precedent, the Tribunal found that the assessee's voluntary disclosure precluded the imposition of penalties and directed the AO to delete the penalty of Rs. 4,25,262/-.

Conclusion:

The Tribunal allowed both appeals, directing the AO to permit the carry forward of LTCL and to delete the penalty imposed under Section 271(1)(c). The judgment underscores the importance of the nature of asset transfer and voluntary disclosure in tax assessments and penalties.