The Pune Bench of the Income Tax Appellate Tribunal ( ITAT ) remanded the matter concerning the addition of Long-Term Capital Gains ( LTCG ) concerning a property transfer under Section 2(47) of the Income Tax Act, 1961 citing the need for verification of possession transfer and receipt of consideration by the Assessing Officer ( AO ).
Sachin Ramesh Pawar, the assessee, runs a computer center. On March 2, 2013, the assessee and seven co-owners entered a Development Agreement with Shri Nath Builders Promoters P. Ltd. Under this agreement, the co-owners were to receive a built-up area of 1189.59 square meters valued at Rs. 2,31,95,500 as consideration.
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Based on Clause 13 of the agreement, the Assessing Officer (AO) observed that the property rights and possession were transferred to the developer. So, the AO made LTCG an addition of Rs. 25,53,628 to the assessee’s income. The CIT(A) upheld the AO’s decision.
On appeal before the ITAT, the assessee’s counsel argued that disputes over the Development Agreement led to its cancellation via a public notice issued on April 7, 2014. An amendment to the agreement on September 24, 2014, revised the terms of consideration.
The assessee’s counsel argued that possession of the property was never transferred as evidenced by ownership documents like the 7/12 extract and electricity bills.
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The single-member bench comprising Dr. Manish Borad (Accountant Member) observed that under Section 2(47) of the Income Tax Act, a property transfer requires: Possession to be handed over to the buyer and Consideration to be received by the seller.
The tribunal observed that the assessee’s claims regarding possession and consideration were supported by documents that were not presented before the AO or CIT(A). The tribunal directed the AO to verify the facts by deputing an inspector or obtaining a remand report from the ITO, Satara. If it is confirmed that possession remains with the assessee and no consideration was received, the LTCG addition would be invalid.
The tribunal remanded the matter to the AO for proper verification and adjudication. The tribunal directed the AO to provide the assessee with an opportunity to present evidence and decide the matter on merits. The appeal was allowed for statistical purposes.
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