ITAT deletes Long Term Capital Gains Addition on Forfeited Advance Amount without Transfer of Capital Asset [Read Order]

The Delhi bench (single member bench) of the Income Tax Appellate Tribunal (ITAT) recently deleted the long term capital gains addition on forfeited advance amount without transfer of capital asset.

The assessee, Smt Vidya Devi jointly with her two sons inherited agricultural land from her husband Late Shri Mohar Singh. The assessee along with her son and widow of her other son and seven other farmers having joint land all persons agreed to sell 107 Kanal 4 Marl as of land to M/s. JD Universal Realtors and Developers Pvt. Ltd against a consideration of Rs. 98 lakhs per acre and also took a sum of Rs. 1,10,00,000/- through cheque to be divided as per respective shares as mentioned in the agreement to sell. The Assessee after receiving their share in advance money as per the agreement to sell, deposited the same in a joint Account in the name of three persons, In Axis Bank.

Since the purchaser party was unable to get conveyance deed Registration both the parties mutually agreed to cancel their bargain. So, the bargain was canceled and cancellation of the agreement to sell was specifically recorded on the back of the agreement to sell.

There was no sale deed as the agreement to sell was canceled and no transfer of any asset took place. The assessing officer attributed the money deposited in the hands of assessee, assessed to tax under the head "capital gains", whereas the money deposited was to be divided between the three persons including the assessee.

The assessee challenged addition of long term capital gain arising from sale of land on ground that agreement to sale of said land was canceled and the possession of land was never handed over by assessee to third parties. It was contended that, the provisions of section 2(47) (v) read with section 53A of Transfer of Property Act, 1882, would not be applicable and, thus, addition has to be deleted.

The counsel for the assessee argued that the assessing officer has grossly erred in the taxing under the head of capital gain as there is no transfer of any asset and it cannot be taxed under the head of capital gains in absence of "transfer" which is essential for invoking the provisions of Section 45 of the Act. He also pointed that there was no transfer so no tax liability. Secondly, the entire three persons advance money attributed to the assessee.

 The counsel for the department strongly supported the order of the authorities below and submitted that even in a case when the agreement to sale was canceled subsequently, then also the amount of advance forfeited by the assessee has to be taxed in the hands of the assessee.

The single-member bench of  Shri C. M. Garg, observed that "we are unable to understand the action of the assessing officer in taxing Rs. 11 lakhs in the hands of the assessee when there being no transfer of land. Undisputedly the amount received by the assessee and her co-owners which was deposited in the joint bank account has not been returned to the 3rd party and it remained with the assessee and co-owners after being forfeited. The amount of advance received and forfeited by the assessee cannot be taxed in the hands of the assessee under the head capital gain."

The appeal of the assessee got allowed and the assessing officer was directed to delete the addition.

To Read the full text of the Order CLICK HERE

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