Alagappa Muthiah (HUF), the appellant assessee, co-owned 6 acres 23.2 guntas of land in Hebbal Village. On 10/02/2011, he entered into a Development Agreement, resulting in the development of his property into commercial and residential units, including the entire commercial unit and 6 apartments.
On 05/07/2019, the assessee acknowledged a capital gain of Rs.14,60,95,303 for assessment year (AY) 2018-19 and agreed to file for AY 2017-18 with a differential gain of Rs.27,35,99,751. However,the assessee later withdrew this acknowledgment on 04/02/2020 and 06/02/2020.
The retraction was based on mental strain, and the assessee argued that the capital gains liability should be considered for AY 2018-19 since the property was possessed on 08/05/2017. The property was valued at Rs. 89,15,48,164 by a registered valuer.
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Following a notice under Section 153C, the assessee filed a return declaring capital gains of Rs. 27,14,43,062 based on a registered valuer’s report. The Assessing Officer (AO) determined that the capital gains should be attributed to AY 2017-18, using occupancy certificates from early 2017. The AO recalculated the capital gains to Rs. 120,03,46,357 and adjusted the cost of acquisition from Rs. 750 to Rs. 140 per sq.ft.
The main issue in the appeal was whether the capital gains should be taxed in AY 2017-18 or AY 2018-19. The assessee contended that capital gains should be recognized in AY 2018-19, referring to the possession letter dated 08/05/2017, and not based on the date of the occupancy certificate. The assessee cited ITAT decisions in cases of N.A. Harris, N.G. Balu Reddy, and Dinesh Devaraj Ranka, arguing for taxation based on possession receipt.
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The Tribunal reviewed the case and noted that the capital gains were taxed in AY 2017-18 based on the occupancy certificate dated 17.03.2017. The assessee argued that Section 45(5A), introduced on 01.04.2018, should be applied, which mandates that capital gains be taxed in the year when the completion certificate is issued.
However, the bench found that Section 45(5A) could not be applied retrospectively for AY 2017-18. It accepted the possession letter dated 08.05.2017 and ruled that the capital gains should be taxed in AY 2018-19.
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The two-member bench comprising Soundararajan K(Judicial Member) and Chandra Poojari (Accountant Member) allowed the appeal of the assessee ruling that capital gains from the 10.02.2011 agreement should be taxed in AY 2018-19, reflecting the year of property development and completion.
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