Issuance of an Allotment Letter from a Builder / Developer not sufficient to Claim Sec 50 Benefit: ITAT [Read Order]

In M/s. Magmo Textiles Equipment Pvt. Ltd. vs. Income Tax Officer, the Mumbai Bench of the Income Tax Appellate Tribunal ( ITAT ) held that issuance of allotment letter from a builder/developer is not sufficient to claim benefit under Section 50 of the Income Tax Act, 1961.

In the instant case, the Assessee had filed return of its income declaring total income as NIL. The Assessing Officer (A.O.) completed his assessment determining total income at Rs.71.52 Lacs. The A.O had found out that the assessee had sold factory building along with land for Rs.80 lacs. Rs.44.01 Lacs were used to acquire a new factory gala. Subsequently assessee offered Rs. 22.14 Lacs on sale of land and factory.  The assessee had used Rs.44.01 lacs to pay advance to the builder.

Referring to the provisions of section 50, 32, 2 (11) 2 (47) of the Income Tax Act, 1961 Act and 53A of the Transfer of Property Act, the A.O. held that the assessee had sold depreciable assets, and that it had paid Rs.44.01 lakhs for the asset which had not been acquired by it. He also pointed out that the amount paid by the assessee for booking a gala in Mumbai would not fall within the meaning of phrase ‘asset had been acquired’, as mentioned in section 50(2) for the purpose of computing capital gains. Finally, he disallowed the investment of Rs.44.0 lacs made by the assessee, in acquiring new assets, while computing the Short-Term Capital Gain. Aggrieved, assessee appealed to First Appellate Authority (FAA). The FAA confirmed the order of the A.O and dismissed the appeal. Thereafter appeal was filed before ITAT.

The Authorized Representative of the assessee argued that the assessee had acquired rights of office building by paying Rs. 44.01 lacs and that the assessee was issued an allotment letter. The Departmental Representative(DR)contended that the assessee had not acquired the asset or nor has put the asset to use, that in the balance sheet it had shown the gala as work in progress, that gala could not be treated as part of the block.

The Bench comprising of Judicial Member Amarjit Singh and Accountant Member Rajendra found that at the time of making the payment the asset in question was not existing. They opined that to claim benefit of section 50 of the Act, issuance of an allotment letter from a builder or developer was not sufficient.

Upholding the decision of the FAA, the bench observed “In our opinion, the wordings of the section do not indicate in any manner that a mere allotment letter of asset would make the allottee entitled to claim STCG. Therefore, we hold that claim made by the assessee-that an allotment letter from developer is equal to acquisition of an asset-is not tenable, especially when it had not submitted the basic documents like approval of Municipal/ Panchayat authorities approving the plan of the proposed gala or the commencement certificate.”