In the recent case, the Delhi bench of Income Tax Appellate Tribunal(ITAT) overturned the Commissioner Of Income Tax (Appeals)[CIT(A)]’s ruling, classifying the sale of the Faridabad flat as a long-term capital gain. The tribunal made this decision by using the previous owner’s holding period and cost, in line with established rules for gifted assets.
Ashish, appellant assessee, resident of USA, filed a return of income of Rs.52,45,610 and claimed a refund of Rs.58,57,820. The return included rental income, interest income, and capital gains/losses from the sale of property in India.
The assessee sold two properties: Flat No. 301, Jasmine, Faridabad(referred to as the ‘Faridabad Flat’) for Rs. 1,95,00,000 and Apartment No. T-10/412, Park Square, New Delhi (referred to as the ‘Delhi Flat’) for Rs. 72,36,552.
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The assessee’s case was scrutinized under Computer Assisted Scrutiny Selection (CASS), and the e-assessment reclassified the Long-Term Capital Loss (LTCL) of Rs. 70,19,601 as a Short-Term Capital Gain of Rs. 1,22,72,900, resulting in an assessed income of Rs. 1,75,18,505. The Assessing Officer (AO) used the Fair Market Value (FMV) determined by the District Valuation Officer (DVO) instead of the actual sale consideration and did not allow certain acquisition cost credits.
The CIT(A) partially relieved the assessee by accepting acquisition cost payments and using the actual sale value rather than FMV. However, the CIT(A) upheld the AO’s decision to classify the Long-Term Capital Loss (LTCL) as Short-Term Capital Gain (STCG).
The assessee being aggrieved, appealed before the tribunal arguing that the Ld. CIT(A) wrongly classified the Capital Gain as short term.
The submissions made by the assessee counsel regarding the Faridabad Flat were, the flat was booked in 2010 by the assessee and his mother. In 2011, Sushma Gupta assigned her rights to the assessee and Shakuntala Gupta (grandmother). The allotment was updated to include both, and possession was granted in 2017. Shakuntala Gupta gifted her share to the assessee in 2018, making him the sole owner. He sold the flat for Rs. 1.95 crore in 2019.
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The assessee claimed a long-term capital loss on the Faridabad Flat, arguing that the holding period and cost of acquisition should include the time the property was held by his mother and grandmother. The counsel cited Explanation 1(b) to section 2(42A) and section 49(1) of the Act, which state that in cases of gifts, the holding period and cost of acquisition from the previous owner are considered. Judicial precedents such as DCIT vs. Manjula J. Shah and ADIT vs. Charanjit Kaur Bawa was placed to support the view.
The AO found that since possession of the property was acknowledged on September 25, 2017, and the assessee acquired the property only after this date, the gain from its sale was treated as short-term capital gains. The CIT(A) agreed, noting that the property was considered short-term since possession was obtained in 2018 and it was sold in 2019.
The Tribunal contended that a gift is not a transfer for tax purposes under section 45. Instead, capital gains are taxed when the asset is later transferred by the recipient, using the previous owner’s acquisition date and cost. The tribunal cited a Special Bench ruling in Manjula J. Shah (supra) which states that indexed cost should be based on the previous owner’s acquisition.
The two member bench comprising Anubhav Sharma (Judicial Member) and G.S Pannu (Vice President) allowed the assessee’s appeal .
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