Anand Swarup Mehta Vs ITO (ITAT Mumbai)
Indexation to be allowed from date of allotment letter – Letter of Intent qualifies as acquisition for capital gains-Letter of Intent equals Allotment – Ownership not essential – Right to hold property sufficient for indexation, rules Tribunal- “AO bound by ITAT precedent – Revenue can’t deny relief pending High Court appeal
Assessee, a Non-Resident Indian, filed appeal against the order dated 18.12.2024 passed pursuant to DRP’s directions u/s 144C(5), wherein AO computed total income at ₹3.34 crore as against returned income of ₹58.65 lakh. The dispute related to indexation of cost in computing long-term capital gains on sale of Flat at Mumbai.
Assessee had booked the flat vide Letter of Intent (LOI) dated 14.02.2011, paying an initial sum of ₹10 lakh & subsequent installments as per construction milestones. The flat was registered only on 20.12.2017, & possession obtained on 26.02.2018. AO held that indexation should begin from the year of registration (FY 2017-18) rather than FY 2010-11 (LOI date), treating the LOI as conferring merely a “right to buy” rather than ownership.
DRP upheld AO’s view, observing that the LOI did not confer ownership or title, & distinguished between “right to purchase” & “ownership right,” relying on Suraj Lamp & Industries Pvt. Ltd. v. State of Haryana & other Supreme Court precedents. It held that capital gains had to be computed with indexation from FY 2017-18, when the property was registered & possession received.
Before ITAT, the Assessee contended that the issue was covered by the Tribunal’s own decision in his earlier case ITA No. 2489/Mum/2022 (A.Y. 2019-20, order dt 26.05.2023) concerning adjoining flats (C-161 to C-164) in the same project, where indexation was allowed from FY 2010-11 (date of LOI). Assessee relied upon judicial precedents including PCIT v. Vembu Vaidyanathan (413 ITR 248 Bom), Mrs. Madhu Kaul v. CIT (363 ITR 54 P&H), & Anita D. Kanjani v. ACIT (ITA 2291/Mum/2015), arguing that the word “held” in s.2(42A) refers to de facto holding of asset, not legal ownership. Once the flat was earmarked & payments commenced, a right to hold the property was acquired, constituting “holding” for capital-gain computation.
Tribunal noted that the issue was identical to Assessee’s earlier case, where the Bench had held that the Letter of Intent dated 14.02.2011 effectively operated as an allotment letter, conferring vested rights upon the purchaser. The builder’s confirmation established that the flats were allotted pursuant to the LOI & all payments made under it. The contractual terms clearly created binding rights & obligations between the parties. Relying on Madhu Kaul (P&H HC), Vembu Vaidyanathan (Bom HC), Anita Kanjani (ITAT Mum), & Snehal Bimal Parekh (ITAT Mum), the Bench reiterated that the date of allotment or similar contractual right marks the beginning of the holding period for capital-gain purposes. Possession & registration are consequential acts following acquisition of rights. The Bench criticised the DRP for confusing the concept of “right to hold” with “ownership/title” & for ignoring binding precedent from Assessee’s own case merely because Revenue had appealed it. Citing K.N. Agarwal v. CIT (189 ITR 769, All HC), the Tribunal reminded that orders of higher authorities must be followed unless stayed or set aside; pendency of appeal does not permit AO to disregard them.
