The Delhi bench of the Income Tax Appellate Tribunal (ITAT) he that AO cannot treat surplus as capital gain without giving benefit of indexation.
The assessee is a non-resident Indian filed his original return of income on 26.07.2018 declaring gross total income of INR 5,37,371/-. The case was selected for scrutiny and notice Under section 143(2) of the Act, was issued and duly served upon the assessee. In response thereto, the assessee company filed the requisite details to the Assessing Officer.
Thereafter, the Assessing Officer after considering the submission of the assessee passed a draft Assessment Order Under section 144C of the Act on 28.09.2021 thereby, he proposed to make an addition of INR 3,37,202/- in respect of the Short Term Capital Gain and a sum of INR 24,86,030/- treating the compensation received as income from the other sources. The assessee filed his objection before the DRP who vide order dated 11.05.2022, disposed off the objection and directed the Assessing Officer to verify regarding transfer of the property.
In pursuance of directions of DRP, the Assessing Officer proceeded to frame the final assessment order. During the course of Assessment proceeding, the Assessing Officer noticed that the assessee had disclosed in his return of income a sum of INR 4,56,070/-under head income from House Property and INR 81,317/- under head income from other sources. In his computation of income, the assessee had declared long term capital loss of INR 81,42,760/-. Therefore, the AO show caused the assessee to explain and furnish the requisite details to substantiate the basis of sale consideration of INR 1,09,00,000/- how it was arrived at
The explanation as offered by the assessee was not found acceptable by the Assessing Authority, on the basis that the assessee in its computation of income declared total sale consideration of his unit No. 03-012A in Digital Greens at Gurgaon as on 19.02.2018 at INR 1,33,86,030/-. The said property was booked in year 2007 and its payment was made on various dates starting from 2007-08 to the Assessment Year. Its final payment of INR 3,88,746/- was made on 23.02.2018 thus, the effective date of purchase of the property was taken as on 23.02.2018. Thus, the Assessing Officer made addition of INR 3,37,202/- on account of Short Term Capital Gain.
Further, the Assessing Officer show caused the assessee as to why the compensation of INR 24,86,030/- received from M/s MGF Limited, shou not be treated as interest / income from other source. In response thereto, the assessee filed its reply. However, that reply was not found acceptable by the AO. He made addition of INR 24,86,030/-. He thus, assessee the income of the assessee at INR 33,60,600/- against the returned income at INR 5,37,371/-.
Aggrieved against the order, the assessee appealed before the tribunal.
After hearing both the parties, the tribunal noted that the DRP had directed to AO for deciding the issue afresh after ascertaining as to when the title unto the property was transferred in favour of the assessee. But the AO without adverting to objection of the assessee, treated the date of last payment of installment as the date of transfer of title. Admittedly, in this case, no Sale Deed was executed, the assessee so his rights unto the capital asset in question vide agreement to sell dated 05.12.2017. The vendee took possession of the unit from the buier on 17.10.2018. Hence, as per the assessee himself possession of property in question was taken in the year 2018.
The two bench member consisting of M. Balaganesh (Accountant member) and Kul Bharat (Judicial member) he that the AO erred in treating the surplus to be short term capital gain without giving benefit of indexation, therefore the bench directed the AO to re-compute gain, if any after giving benefit of indexation as provided under law and decide the issue in the light of judgement of Bombay High Court in the case of PCIT vs Vembhu Vidyanathan. Thus the appeal was allowed.
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