No disallowance on claim of Capital Loss computed after Transfer of Possession of Property: ITAT deletes Addition [Read Order]

The Chennai Bench of Income Tax Appellate Tribunal (ITAT) has held that no disallowance on a claim of capital loss is computed after the transfer of possession of the property.

The assessee Archean Realty P. Ltd is a company engaged in the business of real estate development and filed its return of income for Assessment Year 2015-16 admitting a total income of Rs. NIL after claiming current year loss.

Subsequently, the assessee’s case was selected for scrutiny. During the course of the assessment proceedings, the Assessing Officer (AO) noted that the assessee had claimed a long-term capital loss of Rs.19,94,46,822/- towards the sale of land.

The AO called upon the assessee to furnish the necessary details.  In response, the assessee company has submitted a copy of the agreement and documents regarding the sale.

It was submitted by the assessee that full consideration has been received in the financial year relevant to the assessment year 2014-15, but the possession of the property has been handed over in all respects to the buyer in the financial year 2014-15 relevant to the assessment year 2015-16, and thus, it has computed long term capital loss from the sale of property for the assessment year 2015-16.

However, without convincing them with the explanation of the assessee, the AO disallowed long-term capital loss claimed.

Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals)[CIT(A)], who dismissed the appeal of the assessee. Thus, the assessee filed a second appeal before the tribunal.

S.Sridhar, counsel for the assessee submitted that any transaction which involved the transfer of possession of the property shall be regarded as a transfer which allowed the possession of any immovable property in part performance of the contract of nature referred to Section 53A of the Transfer of Property Act, 1882.

Further submitted that the assessee has transferred the property by way of an unregistered agreement and also received consideration for the financial year 2013-14 relevant to the assessment year 2014-15.

M. Rajan counsel for the revenue, argued that as per the agreement dated 12.06.2013, the assessee has received the entire sale consideration of Rs.40 Crs. in the FY 2013-14 relevant to the assessment year 2014-15. Therefore, the transfer as defined under Section 2(47)(v) read with Section 53A of the Transfer of Property Act, 1882, took place for the assessment year 2014-15 only but not for the assessment year 2015-16 as claimed by the assessee.

It was observed by the tribunal that under Section 2(47)(v) of the Income Tax Act, it was clearly envisaged that the transfer takes place only when the transferee takes possession of the property or any part thereof and further, the transferee has performed or is willing to perform his part of the contract. Therefore, the transaction should be treated as transfer only when the possession has been taken or retained by the buyer.

After considering the facts, the two-member bench of Durga Rao (Judicial Member) And Manjunatha. G (Accountant Member) observed that since, the possession of the property has been handed over to the buyer in the financial year 2014-15 relevant to the assessment year 2015-16, in our considered view, the transfer has been defined under Section 2(47)(v) r.w.s.53A of Transfer of Property Act, 1882, took place in the assessment year 2015-16 only.

Therefore, the bench allowed the appeal filed by the assessee.

To Read the full text of the Order CLICK HERE

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