2020 (3) TMI 216 - AT - Income Tax

Computation of long term capital gain - Claim of exemption u/s 54F - agreements relied upon by the assessee to say that he is only a 50% shareholder of 2.20 acres of land are both unregistered documents - HELD THAT - Since the stamp papers used for recording the registered as well as unregistered documents are in seriatim, we are of the opinion that the said documents cannot be brushed aside. Since all the documents are not filed before the Tribunal, we are also not able to appreciate the contentions of the assessee. One of the contentions of the assessee is that he retained ₹ 82,50,000/- and returned the balance to one Mr. Suresh Reddy is also not brought to record. All these facts are to be verified by the authorities. We deem it fit and proper to remand the issue to the file of AO to consider all the documents filed by assessee and even if the agreements are not registered but since the stamp papers are found to be genuine, the transactions have to be accepted as correct. AO is accordingly directed to verify the same and re-adjudicate the issue in accordance with law. Exemption u/s 54F - assessee has been offering rental income from three residential properties due to which the AO and the CIT(A) have denied exemption u/s 54F - assessee s contention that the said properties belong to the company which has constructed the houses but since they remained unsold and were let out and income was offered to tax in the hands of the assessee also needs verification by the AO. The AO has to examine as to when the flats were constructed and by whom, and if sold when the flats have been sold by the assessee or BNR Developers Pvt.Ltd. If it is found that assessee s contention is correct that these flats were stock-in-trade of the company, and income has been offered to tax in the assessee s hands and do not belong to assessee, then only assessee will be eligible to claim exemption u/s 54F of the Act. The AO is accordingly directed to verify assessee s claim afresh in accordance with our directions as above.

Summary

Issues Involved:
1. Ownership of the property and computation of long-term capital gains.
2. Eligibility for exemption under Section 54F of the Income Tax Act, 1961.

Detailed Analysis:

1. Ownership of the Property and Computation of Long-Term Capital Gains:

The assessee filed a return of income for AY 2009-10, admitting taxable income of ?8,14,680/- and agricultural income of ?1,80,000/-. The assessee claimed exemption under Section 54F of the Act for ?71,76,700/- on a long-term capital gain of ?73,01,087/-. The AO observed that the assessee, as a GPA holder, sold a plot for ?1,65,00,000/- but only declared ?82.50 lakhs as his share of the capital receipt. The AO issued a show cause notice questioning why the full value of ?1.65 crores should not be considered.

The AO rejected the assessee’s claim of being only a 50% owner, stating that the unregistered agreements and MOUs provided were self-serving and not acted upon. The AO concluded that the entire sale consideration of ?1.65 crores was received by the assessee and recomputed the long-term capital gains accordingly. The AO's computation included the sale consideration of ?1,65,00,000/- less indexed costs, resulting in a long-term capital gain of ?1,64,00,436/-.

The CIT(A) upheld the AO's decision, leading to the assessee's appeal before the Tribunal. The Tribunal noted that the unregistered agreements were on stamp papers purchased on the same dates as the registered documents, suggesting they could not be dismissed outright. The Tribunal remanded the issue back to the AO for verification of all documents and re-adjudication in accordance with the law.

2. Eligibility for Exemption Under Section 54F of the Income Tax Act, 1961:

The AO denied the exemption under Section 54F, citing that the assessee owned three residential properties as of the date of transfer. The assessee contended that these properties belonged to BNR Developers (P) Ltd and were unsold stock-in-trade, with rental income offered in his hands. The AO and CIT(A) rejected this contention, stating that the assessee admitted rental incomes as the owner under Section 22 of the Act.

The Tribunal directed the AO to verify the assessee’s claim that the properties were stock-in-trade of the company and not owned by the assessee. If the claim was found correct, the assessee would be eligible for the exemption under Section 54F.

Conclusion:

The Tribunal remanded both issues to the AO for fresh verification and adjudication. The appeal was treated as allowed for statistical purposes, with directions for the AO to consider all documents and verify the claims in accordance with the law.