2022 (6) TMI 395 - AT - Income Tax

Short term capital loss/gain - AO held that though proof of cost of acquisition was furnished by the assessee, he failed to furnish any proof regarding sale consideration - AO held that in the absence of any proof in support of assessee's claim that the property in question was sold at a price less than its cost of acquisition cannot be accepted - HELD THAT - As assessee has purchased the said property and sold - The loss is treated as short term capital loss. Once, the receipt of the amount is treated as receipt from the sale of the property, the loss or the gains have to be treated under the relevant head of the income for taxation purpose. It is not in dispute that the amount received is against the sale of property but not as any advance. We have also gone through the details of purchase of the property by the assessee and also sale of said purchased property. The facts reveal that the property in question is on account of booking made by the first party, then purchased by assessee and then sold by the assessee. Thus, there are only transfer agreements without resorting to registration of the document at different times. In crux, these transactions were sale of booking of plots . Since, the sale purchase of the property is not in dispute, the natural corollary is to treat the profits or losses alike under the relevant head which in this case is capital gains and since the period is less than three years, we hold that it would be short term capital loss . Appeal of assessee allowed.

Summary

Issues:
1. Disallowance of short term capital loss on sale of property.
2. Validity of evidence submitted by the assessee to support the claim.

Analysis:
1. The appeal was filed against the disallowance of short term capital loss on the sale of a property. The Assessing Officer (AO) disallowed the claim due to lack of proof regarding the sale consideration, despite the assessee providing evidence of the cost of acquisition. The AO held that without proof of the property being sold at a price lower than its cost of acquisition, the claim of loss remained unsubstantiated. The short term capital loss claimed was disallowed for lack of supporting evidence.

2. The assessee challenged the AO's action before the ld. CIT(A), providing a bank statement reflecting the sale consideration received for the property. The disallowance was made due to the absence of a sale deed to support the sale consideration. Additional evidence in the form of an agreement to sell was submitted during the proceedings before the ld. CIT(A) to highlight the sale consideration received.

3. The AO raised concerns regarding the additional evidence submitted by the assessee, stating that the agreement to sell was not notarized and lacked essential property details. The ld. CIT(A) referred to a Supreme Court judgment emphasizing the necessity of a deed of conveyance for property transfer. The agreement to sell without notarization was deemed insufficient evidence to support the property sale and consideration exchanged.

4. The ld. CIT(A) noted that the AO did not dispute the source of bank deposits as sale proceeds but questioned the transfer of the capital asset. As per Section 2(47) of the act, capital gain/loss arises only on the transfer of a capital asset. Since no evidence substantiated the transfer, the question of capital gain/loss did not arise. The ld. CIT(A) highlighted the provisions of Section 56(2)(ix) regarding taxable advances in property negotiations.

5. The ITAT Delhi found that the property was purchased and sold by the assessee, resulting in a short term capital loss. The transactions involved booking of plots without registration, constituting a sale and purchase of property. The profits or losses were to be treated under the relevant head for taxation purposes, leading to the allowance of the assessee's appeal for short term capital loss.

In conclusion, the ITAT Delhi allowed the appeal of the assessee regarding the disallowance of short term capital loss on the sale of the property, emphasizing the treatment of profits or losses under the relevant head for taxation purposes.