Once 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 was complete as provided under section 2(47)

 

Short Overview: Where once 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 was complete as provided under section 2(47), so as to be chargeable for capital gains tax.

Assessee challenged addition made by AO towards long-term capital gains. He contended that land sold to builder was pursuant to a mere agreement to sale and could not be brought to tax.

 

It is held that  Assessee had entered into agreement to sale coupled with power of attorney for consideration. As per the recitals of the agreement, assessee had given complete possession to the builder along with original sale deed or copies thereof and other papers relating to title. Further, once 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 was complete as provided under section 2(47). Thus, the sale of property attracts capital gains tax.

Decision: Against the assessee.

Referred: Potla Nageswara Rao v. Dy. CIT [ITTA No. 245 of 2014, dated 9-4-2014] : 2014 TaxPub(DT) 2459 (AP-HC).

IN THE ITAT, VISAKHAPATNAM BENCH

V. DURGA RAO, J.M. & D.S. SUNDER SINGH, A.M.

Tirumalasetti Srinivasa Rao v. Dy. CIT

ITA No. 27/VIZ/2019

19 July, 2019

Appellant by: G.V.N. Hari, AR

Respondent by: Suman Malik, DR

D.S. Sunder Singh, A.M.

This appeal is filed by the assessee against the order of the Commissioner (Appeals)-10, Hyderabad vide I.T.A. No. 0236/CIT(Appeals)-10/2016-17/CIT(Appeals), 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 assessing officer having reason to believe that the income charged to tax has escaped assessment, issued the notice under section 148 of the Income Tax Act, 1961 (in short ‘Act’) and taken up the case for scrutiny. The assessing officer found that the assessee is a non-resident and sold the following properties during the financial year 2007-08 relevant to the assessment year 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, Proprietor Srnt. P. Sridevi, Visakhapatnam for a consideration of Rs. 57,33,000 vide Document No. 5647/2007, dt. 18-12-2007 at SRO, Gajuwaka, Visakhapatnam.

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

2.1. The assessing officer 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 under section 148 of the Act also the assessee did not file the return of income. Therefore, the assessing officer issued notice under section 142(1) calling for information on 7-7-2015, 18-8-2015, 4-9-2015, 23-10-2015 and 17-11-2015, but there was no compliance from the assessee. The assessing officer issued show cause notice on 4-3-2016 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 assessing officer brought the sale consideration of the above properties for capital gains tax purpose.

The assessing officer 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 assessing officer has completed the assessment under section 144 Act read with section 147 of the Act i.e. assessments made under ‘best judgment’.

3. Against the order of the assessing office, the assessee went on appeal before the Commissioner (Appeals) and before the Commissioner (Appeals) also the assessee did not respond to the notices issued on 4-10-2017, 17-10-2017, 30-10-2018 and 3-7-2016.

Therefore, the learned Commissioner (Appeals) decided the appeal ex-parte and dismissed the appeal in absentia.

4. Aggrieved by the order of the learned Commissioner (Appeals), 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 Commissioner (Appeals) ex-parte without giving sufficient opportunity.

6.1. We have gone through the order of the learned Commissioner (Appeals) and as discussed in earlier paragraphs, the learned Commissioner (Appeals) had posted the case for hearing by issue of notices on 4-10-2017, 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 3-7-2016. Even then, the assessee did not appear before the Commissioner (Appeals). Therefore, we find no merit in the contention of the assessee that the learned Commissioner (Appeals) has not given sufficient opportunity.

6.2. We observed from the order of the Commissioner (Appeals) that the learned Commissioner (Appeals) 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 under section 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 20-2-2008. 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 assessing officer 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 assessing officer rightly held that the income had escaped assessment, accordingly issued notice under section 148. Hence, we do not find any merit in the ground raised by the assessee regarding validity of issue of notice under section 148, hence, this ground is dismissed.

8. Ground No. 4 is related to the addition made by the assessing officer 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 assessing officer do not attract capital gains tax. During the appeal hearing, the learned 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 20-2-2008. Since the assessee failed to furnish any information before the assessing officer/Commissioner (Appeals) or before this Tribunal, we hold that the assessing officer 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 learned 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 learned 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 assessing officer or to remit the matter back to the file of the assessing officer to decide the issue on merits.

10. On the other hand, the learned DR vehemently opposed for deletion/remitting the matter back to the file of the assessing officer and argued that the assessee has not responded to the notices given by the assessing office, hence the assessing officer constrained to pass the order under section 144 of the Act. Similarly, the assessee did not respond before the Commissioner (Appeals) also. Hence, the Commissioner (Appeals) also passed the ex-parte assessment, hence no purpose would be served, even if the case is remitted back to the assessing officer Similarly, the learned 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 assessing officer rightly assessed the capital gains and no interference is called for.

11. We have heard both the parties and perused the material placed on record. 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 12-3-2007. 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 under section 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 9-4-2014 : 2014 TaxPub(DT) 2459 (AP-HC).

Therefore, we hold that the sale of property attracts capital gains tax and the assessing officer rightly brought the sale of property under the capital gains and we do not find any infirmity in the order of the Commissioner (Appeals) and the same is upheld.

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