Income Tax Appellate Tribunal dismisses appeal on long-term capital gains

Case Name:

Sudha Karbhari Nagre v. ITO, Ward 2(5), Nashik (ITA No.926/PUN/2023)

Key Takeaways:

1. The appellant’s failure to disclose long-term capital gains on the sale of a residential house led to the initiation of reassessment proceedings.
2. The appellant claimed that the property was transferred by her husband, but the registered agreement for sale showed her as the absolute owner of a 50% share.
3. The date of registration is considered the date of transfer of property, and as the agreement for sale was registered within the relevant assessment year, the taxability had to be examined in that year.
4. The appellant’s husband’s return of income, which included the entire amount, was filed after the relevant assessment year and was deemed invalid.
5. The appellant’s admission of long-term capital gain in the total income before the Assessing Officer was not challenged in the first appeal.

Case Synopsis:

This is an order from the Income Tax Appellate Tribunal, Pune Bench “SMC”, Pune. The order is in relation to ITA No.926/PUN/2023 for the assessment year 2011-12. The appellant in this case is Sudha Karbhari Nagre, residing in Mumbai, and the respondent is the Income Tax Officer (ITO), Ward 2(5), Nashik.

The order was passed by Shri R.S. Syal, Vice President, on 30th October 2023. The appeal was filed against the order dated 01.02.2023 passed by the Commissioner of Income Tax (Appeals) in the National Faceless Appeal Centre (NFAC), Delhi.

The appeal was filed 141 days beyond the prescribed time limit. However, the appellant filed an affidavit stating the reasons for the delay, which the Vice President found satisfactory. Therefore, the delay was condoned, and the appeal was admitted for disposal on merits.

The only issue raised in this appeal is against the addition of Rs.3,78,420/- made by the Assessing Officer (AO) towards Long term capital gains on the sale of a residential house. The appellant also challenged the initiation of reassessment proceedings.

The facts of the case are as follows: The appellant did not file her return of income for the assessment year under consideration. The AO received information about the appellant suppressing long-term capital gains on the sale of a property. Notice under section 148 (of Income Tax Act, 1961) was issued. The appellant did not disclose any long-term capital gain in the return filed in response to the notice. The appellant claimed that the property was transferred by her husband, and she had nothing to do with its ownership. However, the AO observed from the registered agreement for sale that the appellant was the absolute owner of a 50% share in the property. The appellant agreed to the addition towards long-term capital gains subject to the benefit of cost of indexation. The AO took one-half of the sale consideration as the appellant’s share and after reducing the indexed cost of acquisition, worked out the long-term capital gain of Rs.3,78,420/-.

The appellant remained unsuccessful before the Commissioner of Income Tax (Appeals) and has now come up in appeal before the Tribunal.

After hearing both sides and perusing the record, the Vice President found that the registered agreement for sale provided for the appellant’s 50% share in the property. The appellant did not file the original return and did not include long-term capital gains from the transfer of her share in the return of income filed in response to the notice under section 148 (of Income Tax Act, 1961). The argument put forth by the appellant’s counsel that the property was transferred in the subsequent year when the husband offered the full sale consideration in his hands was found to be incorrect. The agreement for sale was registered on 07.02.2011, and as per the amendment to the Registration Act and the corresponding amendment to the Transfer of Property Act in 2001, the date of registration is considered the date of transfer of property.

Therefore, the taxability has to be examined in the year under consideration. The appellant’s husband’s return of income, which included the entire amount, was filed on 12.12.2014, which is an invalid return. If this return is excluded, it is clear that the appellant was a 50% owner of the property transferred, and the transfer took place in the year under consideration. The appellant did not offer income from the transfer of the property in either the original return or the return filed in response to the notice under section 148 (of Income Tax Act, 1961). This falls within the ambit of section 147 (of Income Tax Act, 1961), and the appellant cannot challenge it. The additional ground raised by the appellant challenging the initiation of reassessment proceedings is of no consequence. The appellant did not challenge the initiation of reassessment proceedings before the AO, and the appellant admitted before the AO for the inclusion of long-term capital gain in the total income, which was also not challenged in the first appeal. The cases relied upon by the appellant’s counsel are distinguishable on facts. Therefore, the Vice President concluded that the addition has been rightly made and sustained.

In conclusion, the appeal filed by Sudha Karbhari Nagre against the addition of long-term capital gains on the sale of a residential house has been dismissed by the Income Tax Appellate Tribunal.

FAQ:

Q1: What was the appeal filed by Sudha Karbhari Nagre about?

A1: Sudha Karbhari Nagre filed an appeal against the addition of long-term capital gains on the sale of a residential house.

Q2: What was the basis for the addition of long-term capital gains?

A2: The appellant failed to disclose the gains in her return of income, and the registered agreement for sale showed her as the owner of a 50% share in the property.

Q3: Did the appellant challenge the initiation of reassessment proceedings?

A3: Yes, the appellant challenged the initiation of reassessment proceedings, but the Tribunal deemed it of no consequence as the appellant admitted the long-term capital gain before the Assessing Officer and did not challenge it in the first appeal.

Q4: What was the decision of the Income Tax Appellate Tribunal?

A4: The Income Tax Appellate Tribunal dismissed the appeal and upheld the addition of long-term capital gains, stating that the appellant’s ownership and the transfer of the property fell within the relevant assessment year.

This appeal by the assessee is directed against the order dated 01.02.2023 passed by the CIT(A) in National Faceless Appeal Centre (NFAC), Delhi in relation to assessment year 2011-12.

2. The appeal is time barred by 141 days. The assessee has filed an affidavit stating the reasons, which led to the late filing. I am satisfied with the reasons so stated. Therefore, the delay is condoned and the instant appeal is admitted for disposal on merits.

3. The only issue raised in this appeal is against the addition of Rs.3,78,420/- made by the Assessing Officer (AO) towards Long term capital gains on sale of residential house. The assessee has also challenged the initiation of reassessment proceedings.

4. Briefly stated, the facts of the case are that the assessee did not file her return of income in relation to the assessment year under consideration. The AO got some information about the assessee having suppressed Long term capital gains on sale of property. Notice u/s 148 (of Income Tax Act, 1961) (hereinafter also called „the Act‟) was issued. Again, the assessee did not disclose any Long term capital gain on the transfer of the property in the return filed in response to notice u/s 148 (of Income Tax Act, 1961). The assessee took a stand that the property was transferred by her husband and she had nothing to do with its ownership. During the course of assessment proceedings, the AO observed from the registered agreement for sale that the assessee was the absolute owner of 50% share. When confronted, the assessee agreed for the addition towards Long term capital gains subject to the benefit of cost of indexation.

That is how, the AO took one-half of the sale consideration treating the same as her share and after reducing the indexed cost of acquisition, worked out the Long term capital gain of Rs.3,78,420/-. The assessee remained unsuccessful before the ld. CIT(A) and has come up in appeal before the Tribunal.

5. I have heard both the sides and perused the record. It is seen as an admitted position that the registered agreement for sale provides for the assessee‟s 50% share in the property which was transferred. The assessee did not file original return. Thereafter, notice u/s 148 (of Income Tax Act, 1961) was issued. In response to the said notice, again the assessee did not include Long term capital gains from the transfer of her share in the return of income. The ld. AR contended that the property was transferred in the subsequent year when the husband offered full sale consideration in his hands. This position is not correct because the agreement for sale was registered on 07.02.2011. After the amendment to the Registration Act and the corresponding amendment to the Transfer of Property Act in 2001, the date of registration is the date of transfer of property and not when the actual possession is handed over.

Since the agreement for the sale was registered on 07.02.2011, which falls within the previous year relevant to the assessment year under consideration, taxability has to be examined in the year under consideration only. The contention of the ld. AR that the husband included the entire amount in his return of income again does not support the point of view. The return so claimed by the assessee‟s husband was actually filed on 12.12.2014, which is admittedly an invalid return. This invalid return has to be presumed as never filed. If this return is excluded, the fact remains that the assessee was one half owner of the property transferred; the transfer took place in the year under consideration; the assessee had not offered income from the transfer of such property either in the original return or in the return filed in response to notice u/s 148 (of Income Tax Act, 1961). This being a clear-cut case falling within the ambit of section 147 (of Income Tax Act, 1961), cannot be agitated by the assessee. The additional ground raised by the assessee challenging initiation of re-assessment proceedings is thus of no consequence. Further, the assessee did not challenge the initiation of re-assessment proceedings before the AO at the stage of issuance of notice. Moreover, the assessee admitted before the AO for the inclusion of Long term capital gain in the total income, which fact was also not challenged in the first appeal. The cases relied upon by the ld. AR are distinguishable on facts. In view of the foregoing discussion, I am of the considered opinion that the addition has been rightly made and sustained.

6. In the result, appeal is dismissed.

Order pronounced in the Open Court on 30th October, 2023.

Sd/-

(R.S.SYAL)

VICE PRESIDENT Pune;

Dated : 30th October, 2023