2023 (5) TMI 467 - AT - Income Tax

Liability under the head short term/ long term capital gain - forfeiture of advanced amount against sale of property - Transfer of capital asset u/s 2(47) - joint owned property inherited - sale bargain was not concluded - HELD THAT - Admittedly assessee jointly with her two sons inherited agricultural land from her husband after his death - also not in dispute that bargain was cancelled and cancellation of agreement to sale was specifically recorded on the back of the agreement to sale. These facts have not been controverted by the authorities below. AO made an addition being 1/10th share of advance amount in the hands of the assessee considering the same as sale consideration. The amount of advance was deposited in the joint bank account in the name of assessee, her son and widow wife of late. The amount as per submissions of the assessee and this quantum has not been disputed by the AO and the AO has also took note of said amount in first para of the assessment order. AO has grossly erred in taxing the advance amount under the head capital gain in peculiar circumstances when no transfer of any asset was made by the assessee and her co-owner - In the present case the assessee received advance amount on 06.09.2010 under agreement to sale, which was cancelled on 16.03.2011 and amount of advance was forfeited therefore, provision of section 51 of the Act are applicable and the amount proportionately forfeited by the assessee would be deducted from the cost of acquisition of the asset or fair market value as the case may be at the time of actual transfer of such asset in future. Decided in favour of assessee.

Summary

Issues involved:
The issues involved in this case are the assumption of jurisdiction under section 147 and the calculation of long-term capital gains (LTCG) on advance money received without any transfer of a capital asset.

Assumption of Jurisdiction under Section 147:
The appellant challenged the assumption of jurisdiction under section 147, contending that it was based on incorrect reasons and that the submission made by the appellant was not considered by the Ld. CIT(A). The appellant argued that no transfer of any asset took place, and therefore, the provisions of section 45 of the Income Tax Act were not applicable. The appellant also highlighted the provisions of section 51 and section 56(2)(ix) of the Act regarding advance money received and forfeited. The appellant relied on the judgments of Commissioner of Income-tax v. Reliance International Corporation (P.) Ltd. and Futura Polyster Ltd. v. Income Tax Officer to support their case.

Calculation of LTCG on Advance Money Received:
The appellant, an agriculturist, along with other landowners, agreed to sell land to a real estate company against a certain consideration. Although the agreement was cancelled later, the advance money received was forfeited. The AO attributed the forfeited amount to the appellant as LTCG, which the appellant contested. The appellant argued that no transfer of any asset occurred, and therefore, no tax liability under the head of capital gains arose. The appellant deposited the advance money in a joint bank account, and the AO's decision to tax a portion of the forfeited amount in the hands of the appellant was deemed erroneous. The Tribunal held that the advance amount forfeited should not be taxed as capital gains, citing provisions of section 51 and relying on relevant case laws.

Conclusion:
In conclusion, the Appellate Tribunal ITAT DELHI allowed the appeal of the assessee, directing the AO to delete the addition made towards LTCG on the forfeited advance money. The Tribunal emphasized that in the absence of an actual transfer of the asset, the advance money forfeited should not be taxed as capital gains. The decision was based on the facts of the case, provisions of the Income Tax Act, and relevant judicial precedents.