Capital Gain Tax & Relinquishment of right by assessee in favour of family members in bungalow jointly held by assessee

Short Overview : Assessee relinquished his right in joint family property for nil consideration but AO concluded it was against certain consideration and treated that amount as income of assessee, however, assesee had purchased another bunglow before date of relinquishment and was, therefore, entitled to deduction under section 54.

Assessee was joint-owner in 2 bungalows along with his family members. He relinquished his right in one of the bunglows without any consideration in favour of his relatives. However, AO was of view that assessee received consideration which was not disclosed in return and accordingly treated such sum as income of assessee under capital gain. Assessee had invested in another property, on 29-9-2009 and claimed benefit of exemption under section 54 if sale of bunglow was to be treated as his income, which was rejected by CIT(A).

it is held that Relinquishment deed was made in financial year 2008-09. Thus, if any tax was required to be levied, then the same was to be levied in assessment year 2009-10, i.e., next year. Hence, assessee was entitled to benefit under section 54.

Decision: In assessee’s favour.

IN THE ITAT, AHMEDABAD BENCH

RAJPAL YADAV, J.M. & WASEEM AHMED, A.M.

Bhavin Piyushbhai Palkhiwala v. ITO

ITA No. 2646/Ahd/2017

27 May, 2019

Appellant by: Dipak R. Thakkar, Authorised Representative

Respondent by: O.P. Pathak, Sr. Departmental Representative

Waseem Ahmed, A.M.

The captioned appeal has been filed at the instance of the Assessee against the order of the Commissioner (Appeals)-2, Ahmedabad (Commissioner (Appeals) in short) vide Appeal No. Commissioner (Appeals)-2/181/ITO, Wd.2(1)(4)/2015-16, dated 6-10-2017 arising in the assessment order passed under s.143(3) read with section 263 of the Income Tax Act, 1961(hereinafter referred to as “the Act”), dated 29-7-2015 relevant to assessment year (AY) 2010-11.

2. The assessee has raised the following grounds of appeal :–

1.1. That learned Commissioner (Appeals)-2, Ahmedabad has erred in confirming addition of Long Term Capital Gain of Rs. 27,00,000.

1.2. That various reasons advanced by learned Commissioner (Appeals)-2, are contrary to the facts and circumstances of my case.

1.3. Therefore addition of Rs. 27,00,000 confirmed by learned Commissioner (Appeals)-2, Ahmedabad should be deleted.

3. The interconnected issue raised by the assessee is that the learned Commissioner (Appeals) erred in confirming the addition made by the assessing officer for a sum of Rs. 27,00,000 as income under the head capital gain.

4. The facts of the case are that the assessee is an Individual and deriving his income from salary, house property, and interest. The assessee during the year under consideration received has deposited a sum of Rs. 31,00,000 in his bank account which was received from the sale of property (Bungalow No. 16, Ashwamegh, Ahmedabad) and his father for Rs. 27,00,000 and Rs. 4,00,000 respectively.

5. The assessee further submitted that he relinquished his right in the Bungalow No. 15, Ashwamegh, Ahmedabad which was jointly held by him in favor of family members in the financial year 2008-09 through registered document, dated 28-5-2008 without any consideration.

5.1. However, the assessing officer did not make any inquiry regarding the above facts in his assessment proceedings under section 143(3) of the Act. Later on the learned Principal Commissioner was of the view that order framed by the assessing officer under section 143(3) of the Act was erroneous and prejudicial to the interest of Revenue. Thus the learned Principal Commissioner passed his order under section 263 of the Act after observing as under;

1. That the sum was credited in the assessee’s bank account in the year under consideration was received from Piyush Palkhiwala (Assessee’s Father) and Manoj Kumar Vasudeo Sompura against the sale of the property.

2. That the assessee received the said sum for the relinquishment of his right in the immovable property detailed as Bungalow No. 15 Ashwamegh, Satellite, Ahmedabad. It is because the assessee relinquished his right of the ownership before the date of the conveyance deed, dated 18-8-2009.

3. The assessee relinquished his right in favor of the family members by registering the document, dated 28-5-2008 (i.e., financial year 2008-09).

4. The assessee’s claim that he did not receive any consideration against his relinquishment of right was not acceptable.

5. The assessee was the signatory of the conveyance deed of the bungalow no-16, ashwamegh, Ahmedabad which was sold to Shree Manojkumar Yadav Sompura.

6. The assessee did not submit any evidence or related document whether he offered to tax on the capital gain arose upon relinquishment of his right.

7. The claim of receipt for Rs. 4,00,000 from the father as a gift was supported with the confirmation, bank statement and return of income.

However, the assessing officer neither called any information regarding this, nor the assessee submitted any documents during the assessment proceedings under section 143(3) and proceedings under section 263 of the Act.

Accordingly, the learned Principal Commissioner directed the assessing officer to make an addition of Rs. 27,00,000 to the total income of the assessee as long term capital gain.

Accordingly, the assessing officer in pursuance to the direction of the learned Principal Commissioner made an addition of Rs. 27 Lacs under the head capital gain on account of relinquishment of the right to the total income of the assessee.

6. The aggrieved assessee preferred an appeal before the learned Commissioner (Appeals).

The assessee before the learned Commissioner (Appeals) submits that if he is liable to tax under the head capital gain on the income considered by assessing officer, then he is also eligible for deduction under section 54 of the Act. But the fact of purchase of another property jointly with the family member was ignored by the assessing officer during the assessment proceedings. As such the investment was made to purchase another property within the time limit specified under the provision of section 54 of the Act.

However, the learned Commissioner (Appeals) observed that the assessee was the owner of Bungalow No. 15 and 16 Ashwamegh, A’bad along with his family members. As such the assessee relinquished his share in the ownership in ownership in Bungalow No. 15 without any consideration through the registered document in favor of his family members, dated 27-5-2008.

The learned Commissioner (Appeals) also observed that the assessee sold Bungalow No 16, Ashwamegh A’bad as per the conveyance deed executed on 18-8-2009 and received consideration of Rs. 27,00,000 against his share in the said Bungalow. After that assessee invested the sale proceeds Rs. 27,00,000 and Rs. 4,00,000 received from his father to purchase Bungalow No 16, Neelkanth Green Bungalow on 29-9-2000. Therefore the assessee did not offer the tax on capital gain income as per the provision of section 54F.

However, the learned Commissioner (Appeals) was of the view that assessee did not declare any capital gain on relinquishment of his share in Bungalow No. 15, Ashwamegh, Ahmedabad though it is considered a transfer under the Income Tax Act. As such on perusal of the sale and purchase deed the learned Commissioner (Appeals) observed that the assessee sold Bungalow No. 16, Ashwamegh, Ahmedabad to Manoj V. Sompura, dated 18-8-2009, and after 41 days the same Bungalow was purchased by him.

In view of the above, the learned Commissioner (Appeals) was of the opinion that the assessee’s contention was contradictory and therefore addition made by the assessing officer was upheld.

Being aggrieved by the order of the learned Commissioner (Appeals), the assessee is in appeal before us.

7. The learned Authorised Representative before us filed a paper book running from pages 1 to 123 and submitted that the assessee is entitled to the benefit under section 54 of the Act. The learned Authorised Representative before us reiterated the submission as made before the authorities below.

8. On the other hand, the learned Departmental Representative vehemently supported the order of the authorities below.

9. We have heard the rival contention of both the parties and perused the materials available on record. The issue in the instant case relates to the fact that the assessee has not offered income under the head capital gain on the relinquishment of his right in the property against which it received consideration of Rs. 27,00,000.00.

The assessee was the joint-owner in 2 bungalows bearing No. 15 and 16 located at Ashwamegh Ahmedabad along with his family members. The assessee claimed to have relinquished his right in bungalow No. 15 without any consideration in favor of his relatives. However, the assessing officer was of the view that the assessee received consideration of Rs. 27 Lacs on account of relinquishment of his right in the property which was not disclosed in the income tax return. Accordingly, the assessing officer treated such sum of Rs. 27 Lacs as income of the assessee under the head capital gain. The learned Commissioner (Appeals) subsequently confirmed the order of the assessing officer.

From the preceding discussion, we inter alia also note that the assessee has invested in another property, dated 29-9-2009 bearing address Bungalow No. 16, Neelkanth Green Bungalow for rupees 93,00,000.00 in the year under consideration along other two co-owners being family members. Accordingly, the assessee claimed to have invested in his share the property for Rs. 31 lakhs only. The copy of the sale deed is available on pages 106 to 123 of the paper book.

As such the assessee before the learned Commissioner (Appeals) claimed to allow the benefit of exemption under section 54 of the Act if the sum of Rs. 27 Lacs is treated as his income on account of relinquishment of his right the property. But the learned Commissioner (Appeals) rejected the contention of the assessee by observing that the assessee has made a contradictory statement. As such the assessee before the learned Commissioner (Appeals) claimed to have received consideration of Rs. 27 Lacs against the sale of bungalow No. 16 and which was invested in 16, Neelkanth Green Bungalow on 29-9-2009.

However, the learned Commissioner (Appeals) misunderstood the claim of the assessee and observed in his order that the assessee after selling bungalow No. 16 Ashwamegh Ahmedabad to Manoj Kumar Vasudeo Sompura had purchased again after a gap of 41 days. Indeed the assessee has invested after 41 days of bungalow No. 16 Ashwamegh Ahmedabad sale, but the same was not repurchased by him as alleged by the learned Commissioner-A. In fact, the assessee has invested in the bearing number 16, Neelkanth Green

Bungalow on 29-9-2009. This fact for the purchase of bungalow No. 16, located at Neelkanth Green Bungalow on 29-9-2009 was not doubted by the authorities below.

We are also conscious to the fact the relinquishment deed was made on 27-5-2008 financial year 2008-09 corresponding to assessment year 2009-10 as evident from the relinquishment deed placed on pages 63 to 76 of the PB. Thus if any tax is required to be levied, then it has to be levied in the assessment year 2009-10.

In view of the above, we conclude that the assessee was entitled to the benefit under section 54 of the Act in the given facts and circumstances.

Accordingly, we are not inclined to adjudicate other contentions raised by the assessee before the authorities below. Thus we reverse the order of the learned Commissioner (Appeals) and direct the assessing officer delete the addition made by him.

Hence, the ground of appeal of the assessee is allowed.

10. In the result, appeal of the assessee is allowed.