Nitin Parkash Vs DCIT (ITAT Mumbai)
Conclusion: Assessee was entitled to the benefit of indexation on the total cost of acquisition from the year of allotment of flat dehors the fact that assessee had paid installments over a period of time subsequent to the date of allotment.
Held: The issue before consideration was whether the benefit of indexation on the installments paid for the flat should be allowed from the date of allotment of flat i.e. the F.Y. 2004-05 or assessee was eligible for the benefit of indexation on payment of installments in the year of actual payment. Assessee had computed indexation on cost of acquisition, on entire cost including installments paid in subsequent assessment years from the year of allotment i.e. F.Y.2004-05 at Rs.3,01,22,700/-, whereas AO had given the benefit of indexation from the year of actual payment of installment. As per AO, indexed cost of acquisition was Rs.2,55,28,616/-. Thus, AO made addition of Rs.45,94,084/- [ Rs.3,01,22,700 – Rs.2,55,28,616] on account of long term capital gains. It was held that following the decision in the case of Divine Holdings Pvt. Ltd., ITA No.6423/Mum/2008, assessee was entitled to the benefit of indexation on the total cost of acquisition from the year of allotment of flat dehors the fact that assessee had paid installments over a period of time subsequent to the date of allotment.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The appeal of the assessee in ITA No.817/mum/2015 is directed against the order of Commissioner of Income Tax (Appeals)-2, Thane [in short ‘the CIT(A)] dated 01/01/2015 for the Assessment Year 2011-12. This appeal is in the second round before the Tribunal. Earlier this appeal of the assessee was decided by the Tribunal vide order dated 19/03/2018. Thereafter, the assessee filed Miscellaneous Application, vide MA No.271/Mum/2018 seeking rectification in the order of Tribunal, stating that ground No.2 of the appeal was decided without considering the decisions cited by the assessee and placed on record in the paper book. The Tribunal vide order dated 03/10/2018 partially recalled the order dated 19/03/2018 in ITA No.817/Mum/2015 by observing as under:
“9. Therefore, while keeping in view the principles laid down by the Hon’ble Supreme Court in the aforementioned two judgements, we are of the view that there is „mistake apparent from record’, therefore, we recall our decision on ground no. 2 of the appeal in order dated 19.03.18 and direct the Registry to fix the matter for re-hearing on ground no. 2 and as such this ground of appeal will be heard afresh on merits.
10. Before parting we make it clear that we have not expressed any opinion in one way or the other and not stated anything on merits of the matter. Therefore the regular Bench of the Tribunal will hear ground no. 2 and will decide on its own merits without being influenced by any observation made in the above order. Order accordingly.”
Hence, the appeal is before us to decide ground No.2 of the appeal only.
2. The ground No.2 of appeal reads as under:
“2. The CIT(A) erred in upholding the action of the Assessing Officer in allowing indexation on basis of the year of payments of installments which ought to have been on the basis of the letter of allotment dated 23.12.2004 given by the builder which also specifies the “cost of acquisition”.
The appellant contends that on the facts and in the circumstances of the case and in law, the C1T(A) ought not to have upheld, the action of the Assessing Officer in allowing indexation on the basis of the year of payments of installments made of the cost of acquisition inasmuch as the indexation has to be allowed on the “cost of acquisition” per the letter of allotment given by the builder.”
3. Shri Rajiv Khandelwal appearing on behalf of the assessee narrating the facts submitted, that the assessee had purchased four residential flats in a building i.e. Ashok Towers, Tower-B, Parel ,Mumbai in September, 2004. The assessee paid Rs.9,58,000/- at the time of booking of the flats in June, 2004 and 10% of the total consideration i.e. Rs.19,17,700/- in October, 2004. The balance amount was paid as per the schedule provided by the builder. The registered agreement for sale of flats was executed on 31/12/2008. During the period relevant to the assessment year under appeal, the assessee vide registered agreement dated 13/08/2010 sold the flats. For the purpose of computation of ‘long term capital gain’ the assessee claimed indexation on purchase price of Rs.2,03,36,000/- from the F.Y.2004-05 i.e. the year in which the assessee had booked the flat. The assessee computed indexed cost of acquisition at Rs.3,01,22,700/-. The Assessing Officer rejected assessee’s computation of indexed cost and applied indexation as and when the installments were paid by the assessee i.e. on the basis of year of payment of installments. The ld. Authorized Representative for the assessee submitted that the flat was under construction at the time of allotment and even at the time of sale, the flat was still under construction. As per Explanation to section 2(14) of the Income Tax Act, 1961 [in short ‘the Act’] ‘property’ includes any rights in management or control or any other rights whatsoever. The ld. Authorized Representative for the assessee further referred to Explanation to section 48 of the Act, wherein ‘indexed cost of acquisition’ is defined. The ld. Authorized Representative for the assessee asserted that the expression used is ‘ the first year in which the asset was held by the assessee ‘ or ‘for the year beginning on the first day of April, 1981’, whichever is later. The definition of ‘indexed cost of acquisition’ does not refer to payment made or the date of payment. Therefore, what is relevant is when was the asset first held. The ld. Authorized Representative for the assessee argued that the conjoint reading of the above definitions would make it clear that the assessee had acquired the rights in the flat which was under construction on the date of issuance of allotment letter. Thus, the assessee held the asset when the assessee paid initial amount and booked the flat and got letter of allotment. Therefore, the assessee is entitled to claim the benefit of indexation from the date the assessee held the property i.e. rights in the flat upon receipt of allotment letter. To support his contentions the ld. Authorized Representative for the assessee placed reliance on various decisions including the following decisions:
(i) Lata G. Rohra vs. DCIT, 21 SOT 541(Mum)
(ii) Divine Holdings Pvt. Ltd., ITA No.6423/Mum/2008
(iii) M/s. Pooja Exports , ITA No.2222/Mum/2010
(iv) Mr. Ramprakash Bubna, ITA No. 6578/Mum/2010
4. On the other hand, Shri Tharian Oommen representing the Department vehemently defended the impugned order. The ld. Departmental Representative submitted that the letter of allotment cannot be considered as title of ownership of flat. No legal right of ownership vest in the assessee /allottee till registered agreement is executed. In the present case, the registered agreement was executed on 31/12/2008, therefore, that is the date of actual transfer of flat. The Assessing Officer has rightly granted the benefit of indexation on installments in the year of payments. The ld. Departmental Representative prayed for dismissing this ground of appeal of assessee.
5. We have heard the submissions made by rival sides on the limited issue of indexation on the cost of acquisition raised in ground NO.2 of the appeal. The short issue before us is, whether the benefit of indexation on the installments paid for the flat should be allowed from the date of allotment of flat i.e. the F.Y. 2004-05 or the assessee is eligible for the benefit of indexation on payment of installments in the year of actual payment. The assessee has paid total cost of Rs.1,93,77,150/-. The schedule of payment of the initial cost and the installment is as under:-
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