Case Law Details
Navghanbhai Laxman Rabari Vs ITO (ITAT Ahmedabad)
The ITAT, Ahmedabad in Shri Navghanbhai Laxman Rabari v. ITO [ITA No.1864/AHD/2019 dated January 18, 2023] has held that, the transfer of property only takes place when either the possession of the property is transferred or sale deed is executed and the documents like unregistered ‘Banakhat’ or power of attorney are not the substitute of sale deed. Further, held that, the sale of land within 36 months from the date of purchase will lead to a Short Term Capital Gain (“STCG”), and therefore exemption under Section 54F of the Income Tax Act, 1961 (“the IT Act”) will not be available.
Facts:
Shri Navghanbhai Laxman Rabari (“the Appellant”) is engaged in the business of selling milk. The Appellant had sold a piece of land along with ten other co-owners on May 24, 2012 for a consideration of INR 4,80,00,000/-, making the Appellant’s share of consideration INR 43,63,636/- and the Appellant had claimed indexed cost of acquisition amounting to INR 3,39,722/- and the balance Long Term Capital Gain (“LTCG”) was claimed as deduction under Section 54F of the IT Act thereby the LTCG resulted to be NIL.
The Revenue Department, (“the Respondent”) on verification, found out that the particular piece of land was purchased on September 14, 2009 and since the Appellant had held it for less than 36 months, it would be treated as a STCG and thus, deduction under Section 54F of the IT Act cannot be claimed.
The Appellant had filed a ‘Banakhat’ to justify that the possession of land was already transferred, and hence should be treated as a long term capital gain. However, the Respondent disregarded the claim of the Appellant and observed that the ‘Banakhat’ was unregistered and there was no mention of the same even in the sale deed and thus it was not a valid document. Further, there was no mention of a ‘Banakhat’ before, and hence, was a frivolous and after thought attempt by the Appellant to misguide the authority. The Respondent disregarded the contention of the Appellant and passed an Assessment Order adding the sum of INR 41,11,645/- to the total income.
The Appellant had preferred an appeal, however, the Appellate Authority upheld the decision of the Respondent on the same grounds vide order dated September 3, 2019 (“the Impugned Order”).
Being aggrieved, this appeal has been filed.
Issue:
Whether the sale of land within 36 months is to be treated as LTCG?
Held:
The ITAT, Ahmedabad in ITA No.1864/AHD/2019 held as under:
- Opined that, the Appellate Tribunal is an appointed machinery under the IT Act responsible for deciding questions of fact and the tribunal must provide the parties with an opportunity to hearing, emphasizing the quasi-judicial function of the Tribunal, but, if a party does not avail the opportunity of hearing provided, the Appellate Tribunal will still be obliged to decide.
- Stated that, the right to be heard in a suit is one of the tenets of principles of natural justice but due to the continuous absence and negligence of the Appellant must be heard ex-parte as per the provisions of Rule 24 of the Income Tax (Appellate Tribunal) Rules, 1963, (“the ITAT Rules“)
- Observed that, the assessment order and the Impugned Order were speaking orders and had incorporated lot of evidences to substantiate the decision against the Appellant. Further, there was no mention of ‘Banakhat’ in the sale deed.
- Held that, the transfer of property only takes place when either the possession of the property is transferred or sale deed is executed and the documents like unregistered ‘Banakhat’, power of attorney are not the substitute of sale deed. Further, the sale of the land within 36 months will lead to a STCG to the Appellant, and therefore exemption under Section 54F of the IT Act will not be available.
Relevant Provisions:
Section 54A of the IT Act:
“Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house. –
(1) Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, one residential house in India (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,-
(a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45 ;
(b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45:
Provided that nothing contained in this sub-section shall apply where-
(a) the assessee,-
(i) owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or
(ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or
(iii) constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and
(b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head “Income from house property”.
Explanation.-For the purposes of this section,-
“net consideration”, in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.
(2) Where the assessee purchases, within the period of two years after the date of the transfer of the original asset, or constructs, within the period of three years after such date, any residential house, the income from which is chargeable under the head “Income from house property”, other than the new asset, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a), or, as the case may be, clause (b), of sub-section (1), shall be deemed to be income chargeable under the head “Capital gains” relating to long-term capital assets of the previous year in which such residential house is purchased or constructed.
(3) Where the new asset is transferred within a period of three years from the date of its purchase or, as the case may be, its construction, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a) or, as the case may be, clause (b), of sub-section (1) shall be deemed to be income chargeable under the head “Capital gains” relating to long-term capital assets of the previous year in which such new asset is transferred.
(4) The amount of the net consideration which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139 in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit ; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset :
Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,-
(i) the amount by which-
(a) the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of the new asset as provided in clause (a) or, as the case may be, clause (b) of sub-section (1), exceeds
(b) the amount that would not have been so charged had the amount actually utilised by the assessee for the purchase or construction of the new asset within the period specified in sub-section (1) been the cost of the new asset, shall be charged under section 45 as income of the previous year in which the period of three years from the date of the transfer of the original asset expires ; and
(ii) the assessee shall be entitled to withdraw the unutilised amount in accordance with the scheme aforesaid.”
Rule 24 of the ITAT Rules:
“Hearing of appeal ex parte for default by the appellant –
Where, on the day fixed for hearing or on any other date to which the hearing may be adjourned, the appellant does not appear in person or through an authorised representative when the appeal is called on for hearing, the Tribunal may dispose of the appeal on merits after hearing the respondent.
Provided that where an appeal has been disposed of as provided above and the appellant appears afterwards and satisfies the Tribunal that there was sufficient cause for his non-appearance, when the appeal was called on for hearing, the Tribunal shall make an order setting aside the ex parte order and restoring the appeal.”
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The captioned appeal hasbeen filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax(Appeals)-3,Vadodara dated 03/09/2019 arising in the matter of assessment order passed under s.143(3) of the Income Tax Act, 1961 (here-in-after referred to as “the Act”) relevant to the Assessment Year 2013-14.
2. The assessee has raised the following grounds of appeals:
“1. The ld. CIT(appeals) erred in law and on facts in confirming action of the AO in treating the sale of land as Short Term Capital Gain by considering purchase deed dated 14.09.2009 & not considering notarized Banakhat dated 19.12.2007 for calculating period of holding of the asset(land), though actual possessing of land was obtained by the Appellant from the date of the Banakhat i.e. 19.12.2007 and payment have been made thereafter.
2. The ld.CIT(appeals) erred in law and on facts in confirming action of AO in non granting of deduction U/s. 54F of Rs. 41,50,000/- by considering Long Term Capital Gain as Short Term Capital Gain even though the appellant has submitted possession letter towards purchase of new house.
Your Appellant most humbly reserves the right to add, amend, alter or substitute any o f the grounds in this appeal on or before the time of Hearing. ”
3. In the present case the assessee is an individual and engaged in the business of selling milk. The case was selected for scrutiny. As per the details available with the AO, it was observed that the assessee has sold a piece of land for a consideration of Rs.4,80,00,000/- with other ten persons on 24.05.2012. The land was owned by all of them equally. So the assessee’s share in the sale consideration i.e. 1/11th of 4,40,00,000 was Rs.43,63,636/- only. The assessee has claimed indexed cost of acquisition amounting to Rs.3,39,722/- and the balance long term capital gain was claimed as deduction under section 54F of the Act. So, the long term capital gain resulted to be NIL. However, on verification, the AO found that the assessee has purchased that piece of land as on 14.09.2009. Since the assessee has held that piece of land for less than 36 months, it shall be treated as short term capital Gain and deduction under section 54F cannot be claimed against short term capital Gain. Thus, the AO sought a clarification from the assessee on the facts discussed above.
4. The assessee has filed a “Banakhat” dated 19.12.2007 to justify that the possession of land was already transferred to him (the assessee) earlier as mentioned in it. So, it should be treated as long term capital Gain. However, the AO has disregarded the claim of the assessee by observing that non-registered Banakhat is not a valid document to transfer the property, secondly even in the sale deed there is no mention of any Banakhat and thirdly the assessee has not mentioned about it unless and until, the same was pointed out by the AO. As per the AO, it was a frivolous and after thought attempt by the assessee to misguide the authority. So the AO has disregarded the contention of the assessee and added the sum of 41,11,645.00to the total income of the assessee.
5. Aggrieved assessee preferred an appeal before the Ld. CIT(A).
6. The Ld. CIT(A) has confirmed the decision of the AO by observing that the assessee has held the land for less than 36 months. The period of holding has to be calculated since the time the property has been physically transferred not merely executing on paper through notarized Banakhat. The right of the property is transferred either by possession or by sale deed and not by any simply agreement.
7. Aggrieved assessee preferred an appeal before me.
8. At the outset, I may like to mention that neither the concerned Counsel nor any other person on behalf of the assessee appeared before the Tribunal to represent the case or even to seek an adjournment at the time of hearing. The case is very old pertaining to AY 2013-14 and has already been listed ten times for hearing but none of the time, anybody appeared. The Appellate Tribunal is the appointed machinery under the Act for finally deciding questions of fact in relation to assessment of income-tax. The provisions of Income Tax Act oblige it to decide an appeal, after giving an opportunity to the parties to put forward their case. The giving of the opportunity only emphasizes the character of the quasi- judicial function performed by the Appellate Tribunal. The fact that that opportunity is not availed of in a particular case, will not entitle the Tribunal not to decide the case. Although this appeal was filed by the assessee only. I was inclined to hear the contentions of the assessee. The Right to be heard in a suit is one of the tenets of principles of natural justice but the continuous absence and negligence of the assessee has left no option to me except to hear it ex-party. This liberty is in consonance with the proviso to Rule 24 of the Income-Tax (Appellate Tribunal) Rules, 1963, (hereinafter referred as “ITAT Rules”) which read as under:
” Where, on the day fixed for hearing or on any other date to which the hearing may be adjourned, the appellant does not appear in person or through an authorised representative when the appeal is called on for hearing, the Tribunal may dispose of the appeal on merits after hearing the respondent : ”
9. Therefore, in the given circumstances and considering the nature of dispute, I decided to proceed to dispose off the appeal ex–parte qua the assessee with the assistance of the learned Departmental Representative.
10. The Ld. DR before me vehemently relied upon the order of the authorities below.
10.1 I have heard the Ld. DR and perused the materials available on records. It was observed that the order of the authorities below has passed a speaking order and incorporated lots of evidences to substantiate their decision against the assessee. The transfer of property cannot take place on simple agreement. The transfer of the property only takes place when either the possession of the property is transferred or sale deed is executed. Documents like unregistered Banakhat, power of attorney are not the substitute of sale deed. So in present case the land has been sold and sale deed is executed on 14.09.2009 only. The sale of the piece of land within 36 months resulted in short term gain to the assessee. Even in the sale deed there is no mentioned of Banakhat. The issue of invoking the exemption under sec 54F was also held invalid by the lower authorities. The onus to proof the findings of the authorities below as not justified lies upon the assessee. However, the assessee has not brought anything contrary to the findings of the authorities below. As such, it seems that the assessee is not interested in pursuing his claims as he failed to appear despite giving so many opportunities by the Tribunal. Therefore, we are not inclined to interfere in the finding given by the Ld. CIT(A). Hence, the ground of appeal raised by the assessee is dismissed.
11. In the result, the appeal filed by the assessee is dismissed. Order pronounced in the Court on 18/01/2023 at Ahmedabad.
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