Capital Gain payable on Transfer of Property to Builder through Sale Agreement alongwith POA

Shri Tirumalasetti Srinivasa Rao Vs. DCIT (ITAT Visakhapatnam)

The issue under consideration is whether the transaction of transferring the possession of property to the builder by entering into sale agreement coupled with power of attorney will give rise to Capital Gain?

In the present case, the assessee argued that he has not sold the property, it was only the sale agreement, hence, the case does not cover for the purpose of capital gains. Further he argued that the assessee has given the property for development to Vanadurga Constructions and the assessee has neither received consideration in cash nor in kind. Therefore, argued that there is no case for assessment of capital gains, hence, requested to delete the addition made by the AO. The Ld.DR argued that the assessee has entered into development agreement, agreement of sale coupled with power of attorney, hence, it is to be treated as complete sale, accordingly argued that the AO rightly assessed the capital gains and no interference is called for.

ITAT states that, the sale agreement placed before us by the assessee in page No.10-21 of the paper book. The assessee had entered into agreement to sale coupled with power of attorney for a sum of Rs.57,33,000/- on 12.03.2007. As per the recitals of the agreement, the assessee has given complete possession to the builder along with original sale deed or copies thereof and other papers relating to title. Further, once the assessee had entered into agreement of sale coupled with power of attorney and handed over the possession of the property to the vendee, the transfer is complete as provided u/s 47 of the Act. This view is supported by the decision of Hon’ble Jurisdictional High Court decision in the case of Potla Nageswara Rao. Therefore, ITAT hold that the sale of property attracts capital gains tax and the AO rightly brought the sale of property under the capital gains and ITAT do not find any infirmity in the order of the CIT(A) and the same is upheld. In the result, appeal of the assessee is dismissed.

FULL TEXT OF THE ITAT JUDGEMENT

Per Shri D.S.Sunder Singh, Accountant Member :

This appeal is filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-10, Hyderabad vide I.T.A.No.0236/CIT(A)-10/2016-17/CIT(A),Hyd-10/10074/2016-17 dated 20.11.2018 for the Assessment Year (A.Y.) 2008-09.

2. All the grounds of appeal are related to the issue of reopening of assessment and the addition made by the Assessing Officer (AO) under the head ‘capital gains’. In this case, the assessee has not filed the return of income. Hence, the AO having reason to believe that the income charged to tax has escaped assessment, issued the notice u/s 148 of the Income Tax Act, 1961 (in short ‘Act’) and taken up the case for scrutiny. The AO found that the assessee is a non-resident and sold the following properties during the financial year 2007-08 relevant to the A.Y. 2008-09.

1. Area admeasuring of 495 Sq. Yards out of the site of 826 Sq.Yards situated at Kurmannapalem, Visakhapatnam sold to M/s, Vanadurga Constructions, Propritorex Srnt. P. Sridevi, Visakhapatnam for a consideration of Rs. 57,33,000 vide document no. 5647/2007, dtd. 18-12-2007 at SRO, Gajuwaka, Visakhapatnam.

2. Residential unit No. FF-3, Sai Madhava Enclave, Madhavadhara, Visakhapatnam sold to Sri. Satti Venkata Reddy, Visakhapatnam for a consideration of Rs. 10,00,000 vide document no. 318, dtd. 20-02-2008 at SRO, Dwarakanaqar, Visakhapatnam.

2.1. The AO found that though the assessee has sold the properties and the sale of property attracts capital gains tax and the assessee did not file the return of income. In response to the notice issued u/s 148 of the Act also the assessee did not file the return of income. Therefore, the AO issued notice u/s 142(1) calling for information on 07.07.2015, 18.08.2015, 04.09.2015, 23.10.2015 and 17.11.2015, but there was no compliance from the assessee. The AO issued show cause notice on 04.03.2016 intimating the assessee that the property sold for a consideration of Rs.67,33,000/-located at Kurmannapalem and Madhavadhara were not disclosed to capital gains hence, proposed for taxation. But there was no response from the assessee for the show cause notice also. Therefore, the AO brought the sale consideration of the above properties for capital gains tax purpose. The AO assessed the property situated at Kurmannapalem under the head ‘long term capital gains’ and property situated at Madhavadhara under the head ‘short term capital gains. Thus the AO has completed the assessment u/s 144 Act r.w.s. 147 of the Act i.e. assessments made under ‘best judgement’.

3. Against the order of the AO, the assessee went on appeal before the CIT(A) and before the CIT(A) also the assessee did not respond to the notices issued on 04.10.2017, 17.10.2017, 30.10.2018 and 03.07.2016. Therefore, the Ld.CIT(A) decided the appeal ex-parte and dismissed the appeal in absentia.

4. Aggrieved by the order of the Ld.CIT(A), the assessee filed appeal before this Tribunal and raising as many as five grounds.

5. Ground No.1 and 5 are general in nature which does not require specific adjudication.

6. Ground No.2 is related to deciding the appeal by the CIT(A) ex-parte without giving sufficient opportunity.

6.1. We have gone through the order of the Ld.CIT(A) and as discussed in earlier paragraphs, the Ld.CIT(A) had posted the case for hearing by issue of notices on 04.10.2017, 17.10.2017, 30.10.2018 and the request of the assessee to post the case for hearing in April / May 2016 was also considered and accordingly fixed the case for hearing on 03.07.2016. Even then, the assessee did not appear before the CIT(A). Therefore, we find no merit in the contention of the assessee that the Ld.CIT(A) has not given sufficient opportunity.

6.2. We observed from the order of the CIT(A) that the Ld.CIT (A) has given sufficient opportunity, but the assessee did not avail the same. Therefore, this ground lacks merit, hence dismissed.

7. Ground No.3 is related to the validity of issue of notice u/s 148 of the Act. The assessee has sold the property consisting of a residential house located at Madhavadhara for a consideration of Rs.10,00,000/- which was registered at SRO, Dwarakanagar, Visakhapatnam on 20.02.2008. Similarly, the assessee has also sold another property of vacant site admeasuring 495 sq.yds of site out of site of 826 sq.yds situated at Kurmannapalem, Visakhapatnam to M/s Vanadurga Constructions vide document No.5647/2007 dated 18.12.2007 at SRO, Gajuwaka, Visakhapatnam. The AO found that though the assessee has not filed the return of income and the sale of property attracts capital gains tax. Having not filed the return of income, the AO rightly held that the income had escaped assessment, accordingly issued notice u/s 148. Hence, we do not find any merit in the ground raised by the assessee regarding validity of issue of notice u/s 148, hence, this ground is dismissed.

8. Ground No.4 is related to the addition made by the AO of Rs.43,51,343/- under the head ‘short term capital gains’ and Rs.5,83,990 /­under the head ‘long term capital gains’. The assessee contended that the additions made by the AO do not attract capital gains tax. During the appeal hearing, the Ld.AR relied on the grounds of appeal with regard to sale of residential house situated at Madhavadhara. We have gone through the copy of the sale deed placed before us. The assessee also did not place any material with regard to the sale of the flat located at Madhavadhara and there is no dispute that the assessee has sold the flat situated at Madhavadhara on 20.02.2008. Since the assessee failed to furnish any information before the AO / CIT(A) or before this Tribunal, we hold that the AO has rightly brought the sale consideration received on sale of flat for taxation under the head ‘short term capital gains’. Accordingly, the appeal of the assessee is dismissed on this ground.

9. The next issue is assessment of long term capital gains on account of sale of 495 sq.yds located at Kurmannapalem vide document No.5647/2007 dated 18.12.2007 at SRO, Gajuwaka, Visakhapatnam. During the appeal hearing, the Ld.AR argued that the assessee has not sold the property, it was only the sale agreement, hence, the case does not cover for the purpose of capital gains. The Ld.AR further argued that the assessee has given the property for development to Vanadurga Constructions and the assessee has neither received consideration in cash nor in kind. Therefore, argued that there is no case for assessment of capital gains, hence, requested to delete the addition made by the AO or to remit the matter back to the file of the AO to decide the issue on merits.

10. On the other hand, the Ld.DR vehemently opposed for deletion/ remitting the matter back to the file of the AO and argued that the assessee has not responded to the notices given by the AO, hence the AO constrained to pass the order u/s 144 of the Act. Similarly, the assessee did not respond before the CIT(A) also. Hence, the CIT(A) also passed the ex-parte assessment, hence no purpose would be served, even if the case is remitted back to the AO. Similarly, the Ld.DR argued that the assessee has entered into development agreement, agreement of sale coupled with power of attorney, hence, it is to be treated as complete sale, accordingly argued that the AO rightly assessed the capital gains and no interference is called for.

11. We have heard both the parties and perused the material placed on We have gone through the sale agreement placed before us by the assessee in page No.10-21 of the paper book. The assessee had entered into agreement to sale coupled with power of attorney for a sum of Rs.57,33,000/- on 12.03.2007. As per the recitals of the agreement, the assessee has given complete possession to the builder along with original sale deed or copies thereof and other papers relating to title. Further, once the assessee had entered into agreement of sale coupled with power of attorney and handed over the possession of the property to the vendee, the transfer is complete as provided u/s 47 of the Act. This view is supported by the decision of Hon’ble Jurisdictional High Court decision in the case of Potla Nageswara Rao vide ITTA No.245 OF 2014 dated 09.04.2014. Therefore, we hold that the sale of property attracts capital gains tax and the AO rightly brought the sale of property under the capital gains and we do not find any infirmity in the order of the CIT(A) and the same is upheld.

12. In the result, appeal of the assessee is dismissed.