In the recent case, the Delhi bench of Income Tax Appellate Tribunal (ITAT) granted relief, stating that the original allotment date of 1989 should be considered for property acquisition, not the later dates of restatement or swap.
Ashish, appellant assessee, resident of USA, filed a return of income of Rs.52,45,610 and claimed a refund of Rs.58,57,820. The return included rental income, interest income, and capital gains/losses from the sale of property in India.
The assessee sold two properties: Flat No. 301, Jasmine, Faridabad (referred to as the ‘Faridabad Flat’) for Rs. 1,95,00,000 and Apartment No. T-10/412, Park Square, New Delhi (referred to as the ‘Delhi Flat’) for Rs. 72,36,552.
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During a Computer Assisted Scrutiny Selection (CASS), a Long-Term Capital Loss (LTCL) of Rs. 70,19,601 was reclassified as a Short-Term Capital Gain of Rs. 1,22,72,900, leading to an assessed income of Rs. 1,75,18,505. The Assessing Officer (AO) based the valuation on the Fair Market Value (FMV) from the District Valuation Officer (DVO) instead of the actual sale price and did not allow certain acquisition cost deductions.
The Commissioner of Income Tax (Appeals) [CIT(A)] provided partial relief by accepting the acquisition cost deductions and using the actual sale value rather than FMV. However, the CIT(A) upheld the AO’s decision to reclassify the Long-Term Capital Loss (LTCL) as Short-Term Capital Gain (STCG).
The assessee being aggrieved, appealed before the tribunal arguing that the Ld. CIT(A) wrongly classified the Capital Gain as short term.
The submissions made by the counsel of the assessee in the Delhi Flat were,in 1989, the assessee booked a flat with Ansal DCM Properties, but the project was halted and later resumed by Purearth Infrastructure in 2005. In 2014, the assessee acquired the booking from his sister for Rs. 8,25,000. The booking was updated to two small units, which the assessee swapped for one larger unit in 2018. The cost of the two small units (Rs. 40 lakhs) was adjusted against the Rs. 58 lakhs for the new unit, with the remaining balance due.
The counsel had submitted that swapping the booking amounts for two smaller units with a bigger unit did not transfer capital assets, as the assessee did not hold rights to the flats until the allotment letter on 15.09.2018 vested rights in the new flat (T10-412).
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The tribunal stated that the letter dated September 15, 2018,from Pureearth Infrastructure Ltd. confirms the allotment of unit T10-412 for Rs. 47,63,378, with extra costs for parking and club membership. Rs. 40,36,702 paid for smaller units was adjusted against this new unit. The October 29, 2018, agreement shows Pureearth acquired development rights from DCM and partnered with Basant Projects Ltd., including adjustments for previous payments.
The tribunal contended that Pureearth took over from Ansal-DCM Properties. The October 29, 2018, agreement was not a new allotment but a restatement of the original 1989 rights and obligations, clarifying the roles of the assessee, Pureearth, and Basant.
The tribunal observed that the CIT(A) mistakenly classified the acquisition of flat T10-412 as an exchange. For an exchange, existing properties should be involved, which was not true in this case. The agreement shows the price increased due to changes and adjustments for previous payments, so it does not qualify as an exchange.
The tribunal stated that the date of acquisition for the property should be considered from the original allotment by Ansal-DCM Properties in 1989. Therefore, the tax authorities erred in treating the income as short-term capital gain.
The two member bench comprising Anubhav Sharma (Judicial Member) and G.S Pannu (Vice President) allowed the assessee’s appeal .
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