EBRAHIM NOORMOHAMED,MUMBAI V. ADDITIONAL,JOINT,DEPUTY,ASSISTANT COMMISSIONER OF INCOME TAX,INCOME TAX OFFICER,NFAC DELHI, DELHI

ITA 5359/MUM/2024

AI Insights

The case revolves around the assessment of long-term capital gains by the Income Tax Department on the surrender of tenancy rights by Ebrahim Noormohamed, a partnership firm engaged in fabric trading. The firm was a tenant of a property for which it received a Permanent Alternate Accommodation (PAA) in a new building developed by Garnet Developers. The Assessing Officer treated the stamp duty value of the new property as long-term capital gains without allowing any cost of acquisition, leading to the dispute. The Tribunal's decision emphasized the need to consider the actual cost of acquisition and the fair market value as on 1st April 2001 for calculating capital gains, resulting in a capital loss.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 472753 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-01-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2018-2019
• Other Referred Cases: CIT Vs. Abrar Alvi (247 ITR 312)(Bombay), ITO Vs. Mrs. Hajra I. Memon (ITA No. 3848/Mum/2010), ACIT Vs. Shree Krishna Pharmacy (ITA No. 3947/Mum/2016)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HEMANSHU JOSHI; DR
• Assessee Lawyers: RAKESH JOSHI; AR; PURCHASE FROM A PREVIOUS; PURCHASE FROM A PREVIOUS; PURCHASE FROM A PREVIOUS; PURCHASE FROM; PURCHASE FROM; PURCHASE FROM
• Keywords: Capital asset; Sale consideration of property below Jantri Value; Fair market value; Cost of acquisition; Capital Gains; Valuation report; Surrender of tenancy right
• Section: 143(3); 142(1); 143(2); 48; 43; 22; 13; 73; 28

Judgement Text

" | | | | आयकरअपीलीयअिधकरण ायपीठ,मुंबई| | | | IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI BEFORE SHRI SANDEEP GOSAIN, HON’BLE JUDICIAL MEMBER & SHRI PRABHASH SHANKAR, HON’BLE ACCOUTNANT MEMBER I.T.A. No.5359/Mum/2024 Assessment Year: 2018-19 Ebrahim Noormohamed Ground Floor 27A Dr. Maheshwari Roda Near Dongri Post Office, Dongri Mumbai - 400079 [PAN: AAAFE3658A] Vs Additional/Joint/ Deputy Assistant Commissioner of Income Tax/Income Tax Officer, National e-Assessment Centre, Delhi/ITO, Ward – 17(3)(1), BKC, Mumbai अपीलाथ\u0015/ (Appellant) \u0016त् यथ\u0015/ (Respondent) Assessee by : Shri Rakesh Joshi, A/R Revenue by : Shri Hemanshu Joshi, Sr. D/R सुनवाईकीतारीख/Date of Hearing : 18/12/2024 घोषणाकीतारीख/Date of Pronouncement :01.01.2025 आदेश/O R D E R PER SANDEEP GOSAIN, JM: The present appeal by theassesseeis preferred against the orderpassed by the NFAC, Delhi, [hereinafter ‘the ld. CIT(A)’], dated 16/09/2024, pertaining to AY 2018-19. 2. The assessee has raised the following grounds of appeal:- “1. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in confirming the action of the Learned Assessing Officer making an addition of Rs. 1,48,94,138/- under the head capital gain as alleged Long Term Capital Gain earned by the appellant on surrender of tendency right, without considering the facts and circumstances of the case. 2. On the facts and circumstances of the case as well as in law, the Learned CIT(A) as well as the Learned Assessing Officer has erred in considering the amount of Rs. 1,48,94,138/- as consideration of transfer of capital asset, without appreciating the fact that there is no transfer of any such property as per sec 2(47) of the Act. 3. On the facts and circumstances of the case as well as in law, the Learned CIT(A) as well as the Learned Assessing Officer has erred in not appreciating the fact that, the appellant has received Permanent Alternative Accommodation against it's own tenanted premises which is as per the Rules of the MHADA and the Maharashtra Rent Control Act, read with Provisions of Development Control Rules and that, there is no surrender of tenancy or extinguishment of r 4. On the facts and circumstances of the case as well as in law, the Learned CIT(A) as well as the Learned Assessing Officer has erred in taking the Long Capital Gain at Rs. 1,48,94,381/ no such consideration paid by the appellant firm. 5. On the facts and circumstances of the case as well as in law, the Learned CIT(A) as well as the Learned Assessing Officer has erred in taking the cost of acquisition as 'NIL while computing the indexation of cost as per the provisions of the Income Tax Act, 1961. 3. Ground Nos. 1 to 7 raised by the assessee are interconnected and inter-related and relate to challenging the order of the ld. CI upholding the addition of Rs. 1,48,94,138/ capital gains as earned by the assessee. Therefore, we have decided to dispose off the same through the present consolidated order. The ld. A/R appearing on behalf of the assessee as were raised by him before the lower authorities and also relied upon his written submissions, which are extracted for ready reference: “1. The appellant is a partnership firm engaged in the business of importing fabrics from overseas and reselling the same in domestic markets on wholesale basis. 2. Since 1953, the appellant as a tenant was carrying on its business from the premises admeasuring 5,000 sq. feet situated at C.S. No. 2044, Mandvi Division, Municipal Ward No. 'B paying a non-refundable security deposit of * 1,080 and a monthly rent of * 360. 3. On 29 December 2007, Mrs. Najma Abdul Kadar then owner of the property, had entered into a development agreement development of these premises. The appellant had filed a suit against Mrs. Najma Abdul Kadar as well as the Garnet Developers in the Small Causes Court at Mumbai being RAD Suit No. 920 of 2010. 4. In the meantime, consent Garnet Developers had agreed to provide a basement measuring 4,000 sq. feet. along with a commercial premise admeasuring 400 sq. feet in the new building to be constructed to the appellant in lieu of the ap based on these consent terms court has granted decree in favour of the appellant to that effect. 5. However, due to certain restrictions of constructing the basement in the new building, it was mutually agreed b the appellant will be provided a Permanent Alternate Accommodation (PAA), free of cost, by way of a flat on the 20th floor being flat no. A I.T.A. No. 5359/Mum/2024 2 Control Act, read with Provisions of Development Control Rules and that, there is no surrender of tenancy or extinguishment of rights in the premises. On the facts and circumstances of the case as well as in law, the Learned CIT(A) as well as the Learned Assessing Officer has erred in taking the Long Capital Gain at Rs. 1,48,94,381/-which is the value ascertained for stamp no such consideration paid by the appellant firm. On the facts and circumstances of the case as well as in law, the Learned CIT(A) as well as the Learned Assessing Officer has erred in taking the cost of acquisition as 'NIL while computing the amount of capital gains and also not allowed the indexation of cost as per the provisions of the Income Tax Act, 1961. Ground Nos. 1 to 7 raised by the assessee are interconnected and related and relate to challenging the order of the ld. CI upholding the addition of Rs. 1,48,94,138/- made by the AO under the capital gains as earned by the assessee. Therefore, we have decided to dispose off the same through the present consolidated order. The ld. A/R appearing on behalf of the assessee reiterated the same arguments as were raised by him before the lower authorities and also relied upon his written submissions, which are extracted for ready reference: The appellant is a partnership firm engaged in the business of importing rom overseas and reselling the same in domestic markets on wholesale basis. Since 1953, the appellant as a tenant was carrying on its business from the premises admeasuring 5,000 sq. feet situated at C.S. No. 2044, Mandvi Division, Municipal Ward No. 'B', 27-A, Dr. Maheshwari Road, Dongri, Mumbai refundable security deposit of * 1,080 and a monthly rent of * 360. On 29 December 2007, Mrs. Najma Abdul Kadar then owner of the property, had entered into a development agreement with the Garnet Developers for the development of these premises. The appellant had filed a suit against Mrs. Najma Abdul Kadar as well as the Garnet Developers in the Small Causes Court at Mumbai being RAD Suit No. 920 of 2010. In the meantime, consent terms arrived at between the parties thereto and Garnet Developers had agreed to provide a basement measuring 4,000 sq. feet. along with a commercial premise admeasuring 400 sq. feet in the new building to be constructed to the appellant in lieu of the appellant's tenancy rights in the premises and based on these consent terms court has granted decree in favour of the appellant to that However, due to certain restrictions of constructing the basement in the new building, it was mutually agreed between the appellant and the Garnet Developers that the appellant will be provided a Permanent Alternate Accommodation (PAA), free of cost, by way of a flat on the 20th floor being flat no. A-2001, admeasuring 1,453.33 sq. I.T.A. No. 5359/Mum/2024 Control Act, read with Provisions of Development Control Rules and that, there is no On the facts and circumstances of the case as well as in law, the Learned CIT(A) as well as the Learned Assessing Officer has erred in taking the Long-Term which is the value ascertained for stamp duty, and On the facts and circumstances of the case as well as in law, the Learned CIT(A) as well as the Learned Assessing Officer has erred in taking the cost of the amount of capital gains and also not allowed the indexation of cost as per the provisions of the Income Tax Act, 1961.” Ground Nos. 1 to 7 raised by the assessee are interconnected and related and relate to challenging the order of the ld. CIT(A) in made by the AO under the capital gains as earned by the assessee. Therefore, we have decided to dispose off the same through the present consolidated order. The ld. reiterated the same arguments as were raised by him before the lower authorities and also relied upon his written submissions, which are extracted for ready reference:- The appellant is a partnership firm engaged in the business of importing rom overseas and reselling the same in domestic markets on wholesale basis. Since 1953, the appellant as a tenant was carrying on its business from the premises admeasuring 5,000 sq. feet situated at C.S. No. 2044, Mandvi Division, A, Dr. Maheshwari Road, Dongri, Mumbai - 400 009, by refundable security deposit of * 1,080 and a monthly rent of * 360. On 29 December 2007, Mrs. Najma Abdul Kadar then owner of the property, with the Garnet Developers for the development of these premises. The appellant had filed a suit against Mrs. Najma Abdul Kadar as well as the Garnet Developers in the Small Causes Court at Mumbai being terms arrived at between the parties thereto and Garnet Developers had agreed to provide a basement measuring 4,000 sq. feet. along with a commercial premise admeasuring 400 sq. feet in the new building to be pellant's tenancy rights in the premises and based on these consent terms court has granted decree in favour of the appellant to that However, due to certain restrictions of constructing the basement in the new etween the appellant and the Garnet Developers that the appellant will be provided a Permanent Alternate Accommodation (PAA), free of 2001, admeasuring 1,453.33 sq. feet inclusive of fungible carpet Garner Heights to be constructed. Accordingly, during the AY 2018 an agreement for PAA with the Garnet Developers and had paid a stamp duty of & 7,45,000 and a registration fee of & 30,000 on the market value of the said flat of & 1,48,94,138. 6. The return of income filed by the appellant for the AY 2018 limited scrutiny for the reason 'Investment in Immovable Property' being the PAA provided by the Garnet Developers and hence, notices under section 143(2) of the Act and section 142(1) of the Act were issued requesting the appellant to furnish information with respect to this PAA. In response to these notices, the appellant had submitted all the details that were called for from time to time. 7. On 23 February 2021, a show cause notice was issued to the appellant proposing to treat the stamp duty value of the new property at Garner Heights of 71,48,94,138 as long old premises, as per section 45 of the Act and asking the appellant to furnish its response by 2 March 2021. In response to this, the appellant had filed a letter dated 1 March 2021 requesting for an adjournment. 8. However, without acceding to the request of the appellant, the learned Assessing Officer (AO) had passed an order under section 143(3) read with section 143(3A) and section 143(3B) of the Act, assessing $ 1,48,94,138 as long gain. 9. Aggrieved by this action of the AO, the appellant filed appeal before CIT(A) however Ld CIT(A) confirmed order of the AO without considering submission of the assessee. 10. Before the Hon'ble Bench we submit that the addition is not sustainable on following reasons:- A. Ld AO has erred in not granting cost while computing capital gain by wrongly relying on the provisions of section 55(2)(a)(ii) : i. Ld AO has relied upon provisions of section 55(2)((a)(ii) of the Act and did not allow any cost against the sale cons assumption that there is no cost incurred by the assessee in acquisition of the said tenancy right. However, he ignored the fact that the appellant had paid 7 1,080 as non refundable tenancy deposit in acquisition of tenancy rights. As per documents enclosed on page 73 of the paper book clearly states that assesse has paid Rs. 1080/ in 1954 and the said depo never refunded by the land lord. Provisions of section 55(2)(a) is reproduced as under: (2) For the purposes of sections 48 and 49, \"cost of acquisition\", (a) in relation to a capital brand name associated with a business or a right to manufacture, produce or process any article or thing or right to carry on any business], tenancy rights, stage carriage permits or loom hours, (i) in the case of acquisition of such asset by the assessee by purchase from a previous owner, means the amount of the purchase price ; and (ii) in any other case [not being a case falling under sub (1) of section 49], sha I.T.A. No. 5359/Mum/2024 3 feet inclusive of fungible carpet on 'ownership basis' in the new building known as Garner Heights to be constructed. Accordingly, during the AY 2018-19, on 27 July 2017, the appellant had entered into an agreement for PAA with the Garnet Developers and had paid a stamp duty of & and a registration fee of & 30,000 on the market value of the said flat of & The return of income filed by the appellant for the AY 2018 limited scrutiny for the reason 'Investment in Immovable Property' being the rovided by the Garnet Developers and hence, notices under section 143(2) of the Act and section 142(1) of the Act were issued requesting the appellant to furnish information with respect to this PAA. In response to these notices, the appellant had d all the details that were called for from time to time. On 23 February 2021, a show cause notice was issued to the appellant proposing to treat the stamp duty value of the new property at Garner Heights of 71,48,94,138 as long-term capital gain on account surrender of tenancy rights in the old premises, as per section 45 of the Act and asking the appellant to furnish its response by 2 March 2021. In response to this, the appellant had filed a letter dated 1 March 2021 requesting for an adjournment. However, without acceding to the request of the appellant, the learned Assessing Officer (AO) had passed an order under section 143(3) read with section 143(3A) and section 143(3B) of the Act, assessing $ 1,48,94,138 as long by this action of the AO, the appellant filed appeal before CIT(A) however Ld CIT(A) confirmed order of the AO without considering submission of the 10. Before the Hon'ble Bench we submit that the addition is not sustainable on A. Ld AO has erred in not granting cost while computing capital gain by wrongly relying on the provisions of section 55(2)(a)(ii) : Ld AO has relied upon provisions of section 55(2)((a)(ii) of the Act and did not allow any cost against the sale consideration determined of Rs. 1,48,94,138/ assumption that there is no cost incurred by the assessee in acquisition of the said tenancy right. However, he ignored the fact that the appellant had paid 7 1,080 as non refundable tenancy deposit in the year 1954 which could be construed as the cost of acquisition of tenancy rights. As per documents enclosed on page 73 of the paper book clearly states that assesse has paid Rs. 1080/- a non-refundable deposit to the land lord in 1954 and the said deposit is still lying a security deposit in his books as the same was never refunded by the land lord. Provisions of section 55(2)(a) is reproduced as under: (2) For the purposes of sections 48 and 49, \"cost of acquisition\",- in relation to a capital asset, being goodwill of a business for a trade mark or brand name associated with a business or a right to manufacture, produce or process any article or thing or right to carry on any business], tenancy rights, stage carriage permits or loom hours,- ) in the case of acquisition of such asset by the assessee by purchase from a previous owner, means the amount of the purchase price ; and (ii) in any other case [not being a case falling under sub-clauses (i) to (iv) of sub (1) of section 49], shall be taken to be nil ; I.T.A. No. 5359/Mum/2024 on 'ownership basis' in the new building known as 19, on 27 July 2017, the appellant had entered into an agreement for PAA with the Garnet Developers and had paid a stamp duty of & and a registration fee of & 30,000 on the market value of the said flat of & The return of income filed by the appellant for the AY 2018-19 was selected for limited scrutiny for the reason 'Investment in Immovable Property' being the rovided by the Garnet Developers and hence, notices under section 143(2) of the Act and section 142(1) of the Act were issued requesting the appellant to furnish information with respect to this PAA. In response to these notices, the appellant had On 23 February 2021, a show cause notice was issued to the appellant proposing to treat the stamp duty value of the new property at Garner Heights of ount surrender of tenancy rights in the old premises, as per section 45 of the Act and asking the appellant to furnish its response by 2 March 2021. In response to this, the appellant had filed a letter dated 1 However, without acceding to the request of the appellant, the learned Assessing Officer (AO) had passed an order under section 143(3) read with section 143(3A) and section 143(3B) of the Act, assessing $ 1,48,94,138 as long-term capital by this action of the AO, the appellant filed appeal before CIT(A) however Ld CIT(A) confirmed order of the AO without considering submission of the 10. Before the Hon'ble Bench we submit that the addition is not sustainable on A. Ld AO has erred in not granting cost while computing capital gain by Ld AO has relied upon provisions of section 55(2)((a)(ii) of the Act and did not allow ideration determined of Rs. 1,48,94,138/- on the wrong assumption that there is no cost incurred by the assessee in acquisition of the said tenancy right. However, he ignored the fact that the appellant had paid 7 1,080 as non- the year 1954 which could be construed as the cost of acquisition of tenancy rights. As per documents enclosed on page 73 of the paper book refundable deposit to the land lord sit is still lying a security deposit in his books as the same was never refunded by the land lord. Provisions of section 55(2)(a) is reproduced as under: asset, being goodwill of a business for a trade mark or brand name associated with a business or a right to manufacture, produce or process any article or thing or right to carry on any business], tenancy rights, stage carriage ) in the case of acquisition of such asset by the assessee by purchase from a previous clauses (i) to (iv) of sub-section ii. A perusal of the provisions of sections 49 and 55 reveals that if the capital asset as mentioned under section 55(2)(a) which includes tenancy rights is acquired by purchase from previous owner, the purchase price will be the c In any other case, if it does not fall under the sub (1) of section 49, then the cost of acquisition will be treated as nil. In this case, it is an undisputed fact that the appellant has acquired tenancy security deposit of Rs. 1080/ therefore this represents cost attached to the said tenancy right. Hence provisions of section 55(2)(a)(i) is applicable and not 55(2)(a)(ii) as invoked by CIT (A). iii. Further, section 55 of the Act provides that for computation of capital gains, an assessee shall be allowed deduction for cost of acquisition of the asset and also cost of improvement, if any. However, for computing capital gains in asset acquired before 1 April, 2001, the assessee has been allowed an option of either to take the fair market value of the asset as on 1 April, 2001 or the actual cost of the asset as cost of acquisition. The benefit of indexation is also a such cases as per the provisions of section 48 of the Act. So while calculating capital gains, firstly fair market value as on 1 April 2001 needs to be considered and thereafter indexation is done and then the indexed cost is reduced from the sale consideration. The appellant has sold this flat in AY 2021 consideration of Rs. 3,10,00,000/ market value as on 1 April 2001 as cost of acquisition as per valuation report from M/s. Kishore Ka per the said valuation report the fair market value ofthe said tenancy rights was computed at 1,33,33,334 as on 1 April 2001. Theindexed cost of acquisition comes to 7 3,62,66,668 (7 1,33,33,334 the full value consideration of 7 1,48,94,318 adopted by the AO. Accordingly, this would result in a long term capital loss to the appellantand there would not be income which would be subject to tax as lon year under consideration. iv. Ld DR in the written submission reiterated the contention of the Ld CIT (A) who has rejected the plea of the appellant to allow cost on the basis that both land owner as well as tenant can regard we submit that as per prevailing practice in Mumbai ownership of the land owner is 1/3rd and of the tenant is 2/3rd. Therefore, both the party will claim their cost in the respective proportion an the cost. In fact, as per valuation report of the registered valuer, which was placed on record, it is evident that the valuer has certified cost to the appellant of 2/3rd of the total value working of which Total value of the Property as on 1.4.2001 Less: - 1/3 value share of the land owner Net value in the hands of tenant From the above working it is clear that both the party is getting their own share o cost. Hence the fear of Ld CIT(A) is without any basis. B. Without prejudice to the above, it is submitted that the AO had erred in holding that the transfer took place in the relevant AY: i. In this regard, the appellant would like to submit that it had the land lord and the Garnet Developers in the Small Causes Court at Mumbai I.T.A. No. 5359/Mum/2024 4 A perusal of the provisions of sections 49 and 55 reveals that if the capital asset as mentioned under section 55(2)(a) which includes tenancy rights is acquired by purchase from previous owner, the purchase price will be the c In any other case, if it does not fall under the sub-clauses i) to (iv) of sub (1) of section 49, then the cost of acquisition will be treated as nil. In this case, it is an undisputed fact that the appellant has acquired tenancy security deposit of Rs. 1080/- in 1954, which is still outstanding in its books, therefore this represents cost attached to the said tenancy right. Hence provisions of section 55(2)(a)(i) is applicable and not 55(2)(a)(ii) as invoked by Further, section 55 of the Act provides that for computation of capital gains, an assessee shall be allowed deduction for cost of acquisition of the asset and also cost of improvement, if any. However, for computing capital gains in asset acquired before 1 April, 2001, the assessee has been allowed an option of either to take the fair market value of the asset as on 1 April, 2001 or the actual cost of the asset as cost of acquisition. The benefit of indexation is also a such cases as per the provisions of section 48 of the Act. So while calculating capital gains, firstly fair market value as on 1 April 2001 needs to be considered and thereafter indexation is done and then the indexed cost is reduced from the le consideration. The appellant has sold this flat in AY 2021 consideration of Rs. 3,10,00,000/- and offered capital gain after claiming fair market value as on 1 April 2001 as cost of acquisition as per valuation report from M/s. Kishore Karamsey & Co., Government Registered Valuer, copy enclosed. As per the said valuation report the fair market value ofthe said tenancy rights was computed at 1,33,33,334 as on 1 April 2001. Theindexed cost of acquisition comes to 7 3,62,66,668 (7 1,33,33,334 * 272/100) and the same needs to be reduced from the full value consideration of 7 1,48,94,318 adopted by the AO. Accordingly, this would result in a long term capital loss to the appellantand there would not be income which would be subject to tax as long term capital gains for the relevant year under consideration. Ld DR in the written submission reiterated the contention of the Ld CIT (A) who has rejected the plea of the appellant to allow cost on the basis that both land owner as well as tenant can not claim cost of the property transferred. In this regard we submit that as per prevailing practice in Mumbai ownership of the land owner is 1/3rd and of the tenant is 2/3rd. Therefore, both the party will claim their cost in the respective proportion and there will not be an issue of double claim of the cost. In fact, as per valuation report of the registered valuer, which was placed on record, it is evident that the valuer has certified cost to the appellant of 2/3rd of the total value working of which is as under: Total value of the Property as on 1.4.2001 1/3 value share of the land owner Net value in the hands of tenant From the above working it is clear that both the party is getting their own share o cost. Hence the fear of Ld CIT(A) is without any basis. B. Without prejudice to the above, it is submitted that the AO had erred in holding that the transfer took place in the relevant AY: i. In this regard, the appellant would like to submit that it had the land lord and the Garnet Developers in the Small Causes Court at Mumbai I.T.A. No. 5359/Mum/2024 A perusal of the provisions of sections 49 and 55 reveals that if the capital asset as mentioned under section 55(2)(a) which includes tenancy rights is acquired by purchase from previous owner, the purchase price will be the cost of acquisition. clauses i) to (iv) of sub-caluse (1) of section 49, then the cost of acquisition will be treated as nil. In this case, it is an undisputed fact that the appellant has acquired tenancy right by paying a in 1954, which is still outstanding in its books, therefore this represents cost attached to the said tenancy right. Hence provisions of section 55(2)(a)(i) is applicable and not 55(2)(a)(ii) as invoked by AO and Ld Further, section 55 of the Act provides that for computation of capital gains, an assessee shall be allowed deduction for cost of acquisition of the asset and also cost of improvement, if any. However, for computing capital gains in respect of an asset acquired before 1 April, 2001, the assessee has been allowed an option of either to take the fair market value of the asset as on 1 April, 2001 or the actual cost of the asset as cost of acquisition. The benefit of indexation is also accorded in such cases as per the provisions of section 48 of the Act. So while calculating capital gains, firstly fair market value as on 1 April 2001 needs to be considered and thereafter indexation is done and then the indexed cost is reduced from the le consideration. The appellant has sold this flat in AY 2021-22 for a total and offered capital gain after claiming fair market value as on 1 April 2001 as cost of acquisition as per valuation report from ramsey & Co., Government Registered Valuer, copy enclosed. As per the said valuation report the fair market value ofthe said tenancy rights was computed at 1,33,33,334 as on 1 April 2001. Theindexed cost of acquisition comes * 272/100) and the same needs to be reduced from the full value consideration of 7 1,48,94,318 adopted by the AO. Accordingly, this would result in a long term capital loss to the appellantand there would not be g term capital gains for the relevant Ld DR in the written submission reiterated the contention of the Ld CIT (A) who has rejected the plea of the appellant to allow cost on the basis that both land not claim cost of the property transferred. In this regard we submit that as per prevailing practice in Mumbai ownership of the land owner is 1/3rd and of the tenant is 2/3rd. Therefore, both the party will claim their d there will not be an issue of double claim of the cost. In fact, as per valuation report of the registered valuer, which was placed on record, it is evident that the valuer has certified cost to the appellant of 2/3rd of 2,00,00,000 66,66,667 1,33,33,333 From the above working it is clear that both the party is getting their own share of B. Without prejudice to the above, it is submitted that the AO had erred in i. In this regard, the appellant would like to submit that it had filed a suit against the land lord and the Garnet Developers in the Small Causes Court at Mumbai being RAD Suit No. 920 of 2010. As per the Consent Terms arrived at, the appellant in lieu of its tenancy rights in respect of the old premises was to be provided a basement measuring 4,000 sq. ft. along with a commercial premise admeasuring 400 sq. ft. in the new building to be constructed in the same property by the Garnet Developer. If the contention of the AO is to be accepted that there has been a surrende tenancy rights by the appellant in favour of the Garnet Developer, the relevant event which led to such transfer took place in the AY 2011 which the consent terms were arrived at and agreed to between the concerned parties by the C from the alleged transfer/ surrender of tenancy rights arose in AY 2011 not in AY 2018 the appellant would like to submit of so called income from the alleged transfer/ surrender of tenancy rights in AY 2018-19 is not based on proper appreciation of the facts of the case and no addition on this account is warranted in the relevant y ii. In this regard, the appellant would like to draw your Honours attention to the decision of the Mumbai Bench of the ITAT in the case of ITO v Mrs. Hajra I. Memon (ITA No. 3848/Mum/2010), wherein it was held that the capital gain should be charged to tax in the year in which consent decree was executed and the assessee vacated the property. The relevant extract of the decision is reproduced as under: \"7. We have heard the rival submissions of the parties and perused the records. The facts pertaining to the controversy are already narrated in detail in upperpart of this order. One Mr. M.K. Mohammed was in adverse possession of the land situated at \"Gurukripa\" Dr. Annie B. Road, Worli, Mumbai. The said Shri Mohammed was running the r constructed the structureon the said property. It appears that there was a litigation between co Court has appointed one Court Receiver namely Mr. D.B. Khade. As per facts on record Shri M.K. Mohammed and other occupants / tenants were in the said property. The Court Receiver filed the Suit against Shri M.K. Mohammed in the Hon'ble High Court of Bombay seeking the relief by way of directions to get the vacant possession of the said compromise or settlement between Shri M.K. Mohammed and Court Receiver and in pursuance of the Consent Terms filed in the Hon'ble High Court in the Suit filed by the Court Receiver, the Hon'ble High Court passed Decree. Meantime, the assessee entered into an agreement with Shri M.K. Mohammed for acquiring the rights in the property which was in his possession for the consideration of Rs.9,00,000/ 06.08.1986. It ap property from Shri M.K. Mohammed and hence, the co property challenged the Consent Decree of the Court passed in 1988 and also made the assessee as a party to the Suit Proc between the co would remove her from the property which was subject matter of the Court litigation and also she would remove all the furniture, fixture and oth belongings and give the vacant possession to the co I.T.A. No. 5359/Mum/2024 5 being RAD Suit No. 920 of 2010. As per the Consent Terms arrived at, the appellant in lieu of its tenancy rights in respect of the old premises was to be ided a basement measuring 4,000 sq. ft. along with a commercial premise admeasuring 400 sq. ft. in the new building to be constructed in the same property by the Garnet Developer. If the contention of the AO is to be accepted that there has been a surrende tenancy rights by the appellant in favour of the Garnet Developer, the relevant event which led to such transfer took place in the AY 2011 which the consent terms were arrived at and agreed to between the concerned parties by the Consent Decree dated 25 October 2010. Thus, the income, if any, from the alleged transfer/ surrender of tenancy rights arose in AY 2011 not in AY 2018-19, the relevant year under consideration. In view of the same, the appellant would like to submit that the addition made by the AO on account of so called income from the alleged transfer/ surrender of tenancy rights in AY 19 is not based on proper appreciation of the facts of the case and no addition on this account is warranted in the relevant year under consideration. ii. In this regard, the appellant would like to draw your Honours attention to the decision of the Mumbai Bench of the ITAT in the case of ITO v Mrs. Hajra I. Memon (ITA No. 3848/Mum/2010), wherein it was held that the should be charged to tax in the year in which consent decree was executed and the assessee vacated the property. The relevant extract of the decision is reproduced as under: \"7. We have heard the rival submissions of the parties and perused the records. he facts pertaining to the controversy are already narrated in detail in upperpart of this order. One Mr. M.K. Mohammed was in adverse possession of the land situated at \"Gurukripa\" Dr. Annie B. Road, Worli, Mumbai. The said Shri Mohammed was running the restaurant there as he has constructed the structureon the said property. It appears that there was a litigation between co-owners in the Hon'ble High Court. The Hon'ble High Court has appointed one Court Receiver namely Mr. D.B. Khade. As per facts rd Shri M.K. Mohammed and other occupants / tenants were in the said property. The Court Receiver filed the Suit against Shri M.K. Mohammed in the Hon'ble High Court of Bombay seeking the relief by way of directions to get the vacant possession of the said property from Shri M.K. Mohammed. There was compromise or settlement between Shri M.K. Mohammed and Court Receiver and in pursuance of the Consent Terms filed in the Hon'ble High Court in the Suit filed by the Court Receiver, the Hon'ble High Court passed Decree. Meantime, the assessee entered into an agreement with Shri M.K. Mohammed for acquiring the rights in the property which was in his possession for the consideration of Rs.9,00,000/- and the said agreement was executed in 06.08.1986. It appears that the assessee took over the possession of the disputed property from Shri M.K. Mohammed and hence, the co-owners of the said property challenged the Consent Decree of the Court passed in 1988 and also made the assessee as a party to the Suit Proceedings. Again there was settlement between the co- owners and the assessee and it was agreed that the assessee would remove her from the property which was subject matter of the Court litigation and also she would remove all the furniture, fixture and oth belongings and give the vacant possession to the co-owners and the co I.T.A. No. 5359/Mum/2024 being RAD Suit No. 920 of 2010. As per the Consent Terms arrived at, the appellant in lieu of its tenancy rights in respect of the old premises was to be ided a basement measuring 4,000 sq. ft. along with a commercial premise admeasuring 400 sq. ft. in the new building to be constructed in the same If the contention of the AO is to be accepted that there has been a surrender of tenancy rights by the appellant in favour of the Garnet Developer, the relevant event which led to such transfer took place in the AY 2011-12 i.e. the year in which the consent terms were arrived at and agreed to between the concerned onsent Decree dated 25 October 2010. Thus, the income, if any, from the alleged transfer/ surrender of tenancy rights arose in AY 2011-12 and 19, the relevant year under consideration. In view of the same, that the addition made by the AO on account of so called income from the alleged transfer/ surrender of tenancy rights in AY 19 is not based on proper appreciation of the facts of the case and no ear under consideration. ii. In this regard, the appellant would like to draw your Honours attention to the decision of the Mumbai Bench of the ITAT in the case of ITO v Mrs. Hajra I. Memon (ITA No. 3848/Mum/2010), wherein it was held that the should be charged to tax in the year in which consent decree was executed and the assessee vacated the property. The relevant extract of the \"7. We have heard the rival submissions of the parties and perused the records. he facts pertaining to the controversy are already narrated in detail in upperpart of this order. One Mr. M.K. Mohammed was in adverse possession of estaurant there as he has constructed the structureon the said property. It appears that there was a owners in the Hon'ble High Court. The Hon'ble High Court has appointed one Court Receiver namely Mr. D.B. Khade. As per facts rd Shri M.K. Mohammed and other occupants / tenants were in the said property. The Court Receiver filed the Suit against Shri M.K. Mohammed in the Hon'ble High Court of Bombay seeking the relief by way of directions to get the property from Shri M.K. Mohammed. There was compromise or settlement between Shri M.K. Mohammed and Court Receiver and in pursuance of the Consent Terms filed in the Hon'ble High Court in the Suit filed by the Court Receiver, the Hon'ble High Court passed a Consent Decree. Meantime, the assessee entered into an agreement with Shri M.K. Mohammed for acquiring the rights in the property which was in his possession and the said agreement was executed in pears that the assessee took over the possession of the disputed owners of the said property challenged the Consent Decree of the Court passed in 1988 and also eedings. Again there was settlement owners and the assessee and it was agreed that the assessee would remove her from the property which was subject matter of the Court litigation and also she would remove all the furniture, fixture and other owners and the co-owners agreed to give alternate premises in the form of 14000 sq.ft. carpet area on the third and fourth floors of Shriniketan Building together with six covered car parking spaces an was also agreed that when the co would be given the full ownership rights of the said premises and till that time the assessee would be treated as the The Hon'ble High Court passed the Consent Decree as per the Consent terms filed by the coowners and the assessee 29.05.1999. In pursuance of the Consent Decree the assessee vacated the property which was subject litigation and took the possession of the alternate premises in Shriniketan building. There was an agreement on 4.11.2004 to that effect. When the assessee made the compliance of the Consent Decree and agreement was executed on 04.11.2004, in our opinion, at the most, the transfer can be treated on that day when the effective agreement was executed in pursuance of the consent decree even if said agreement was not registered but subsequently registered on 22.02.2007 by way of Confirmation Deed was no transfer at all is without any base. The assessee was accepted as a tenant by the co- owners and as per the well settled law on this issue the tenancy cannot be equated with the ownership. The ownership is of the tenants are limited. Admittedly, the assessee's tenancy was converted into ownership and that can be the subject matter of the capital gain as it is a 'transfer within the meaning of section 2(47) r.w.s. 45 of the I. 8. Core question of controversy to be decided is whether the said transfer was in the A. Y. 2007 and in our opinion this issue has to go in favour of the assessee as the transfer took place on the date i.e. 4.11.2004 when the agreement in compliance with the consent decree was executed and assessee vacated the property, which was subject matter of the litigation between her and the co iii. In this case also consent decree was gran has vacated the property pursuant to the said consent terms, however it was not possible to construct basement area in the redeveloped building hence assessee has to enter new agreement for permanent alternate accommodation (P Therefore, there is no event during the year to attract provisions of section 2(47) transfer, hence action of Ld AO devoid any merit. Hon'ble bench is requested to kindly delete the addition of long term capital gain made by the AO.” I.T.A. No. 5359/Mum/2024 6 agreed to give alternate premises in the form of 14000 sq.ft. carpet area on the third and fourth floors of Shriniketan Building together with six covered car parking spaces and one open car parking space. As per the Consent Terms, it was also agreed that when the co-operative society would be formed the assessee would be given the full ownership rights of the said premises and till that time the assessee would be treated as the tenant on the monthly rent of Rs. 10,000/ The Hon'ble High Court passed the Consent Decree as per the Consent terms filed by the coowners and the assessee 29.05.1999. In pursuance of the Consent Decree the assessee vacated the property which was subject litigation and took the possession of the alternate premises in Shriniketan building. There was an agreement on 4.11.2004 to that effect. When the assessee made the compliance of the Consent Decree and agreement was executed on n our opinion, at the most, the transfer can be treated on that day when the effective agreement was executed in pursuance of the consent decree even if said agreement was not registered but subsequently registered on 22.02.2007 by way of Confirmation Deed. So far as plea of the assessee that there was no transfer at all is without any base. The assessee was accepted as a tenant owners and as per the well settled law on this issue the tenancy cannot be equated with the ownership. The ownership is the bundle of rights but rights of the tenants are limited. Admittedly, the assessee's tenancy was converted into ownership and that can be the subject matter of the capital gain as it is a 'transfer within the meaning of section 2(47) r.w.s. 45 of the I. 8. Core question of controversy to be decided is whether the said transfer was in the A. Y. 2007-08. Admittedly, the assessee made the compliance on 4.11.2004 and in our opinion this issue has to go in favour of the assessee as the transfer ace on the date i.e. 4.11.2004 when the agreement in compliance with the consent decree was executed and assessee vacated the property, which was subject matter of the litigation between her and the co-owners. In this case also consent decree was granted in 2010 and the appellant has vacated the property pursuant to the said consent terms, however it was not possible to construct basement area in the redeveloped building hence assessee has to enter new agreement for permanent alternate accommodation (P Therefore, there is no event during the year to attract provisions of section 2(47) transfer, hence action of Ld AO devoid any merit. Hon'ble bench is requested to kindly delete the addition of long term capital gain made by the AO.” I.T.A. No. 5359/Mum/2024 agreed to give alternate premises in the form of 14000 sq.ft. carpet area on the third and fourth floors of Shriniketan Building together with six covered car d one open car parking space. As per the Consent Terms, it operative society would be formed the assessee would be given the full ownership rights of the said premises and till that time tenant on the monthly rent of Rs. 10,000/-. The Hon'ble High Court passed the Consent Decree as per the Consent terms filed by the coowners and the assessee 29.05.1999. In pursuance of the Consent Decree the assessee vacated the property which was subject matter of the litigation and took the possession of the alternate premises in Shriniketan building. There was an agreement on 4.11.2004 to that effect. When the assessee made the compliance of the Consent Decree and agreement was executed on n our opinion, at the most, the transfer can be treated on that day when the effective agreement was executed in pursuance of the consent decree even if said agreement was not registered but subsequently registered on . So far as plea of the assessee that there was no transfer at all is without any base. The assessee was accepted as a tenant owners and as per the well settled law on this issue the tenancy cannot the bundle of rights but rights of the tenants are limited. Admittedly, the assessee's tenancy was converted into ownership and that can be the subject matter of the capital gain as it is a 'transfer within the meaning of section 2(47) r.w.s. 45 of the I.T. Act. 8. Core question of controversy to be decided is whether the said transfer was in 08. Admittedly, the assessee made the compliance on 4.11.2004 and in our opinion this issue has to go in favour of the assessee as the transfer ace on the date i.e. 4.11.2004 when the agreement in compliance with the consent decree was executed and assessee vacated the property, which was owners. ted in 2010 and the appellant has vacated the property pursuant to the said consent terms, however it was not possible to construct basement area in the redeveloped building hence assessee has to enter new agreement for permanent alternate accommodation (PAAA). Therefore, there is no event during the year to attract provisions of section 2(47) transfer, hence action of Ld AO devoid any merit. Hon'ble bench is requested to kindly delete the addition of long term capital gain made by the AO.” 4. On the other hand, Ld. D/R relied upon the orders passed by the revenue authorities. 5. We have heard the Counsels for both the parties and we have also perused the materials placed on record, ju also the orders passed by the revenue a noticed that the brief facts of the case are that, the assessee partnership firm engaged in the fabric trading was a tenant of the premises admeasuring 5,000 sq. feet situated at C.S. No. 2044, Mandvi Division, Municipal Ward No. 'B', 27 Maheshwari Road, Dongri, Mumba by paying a non-refundable deposit of of Rs.3,60/-.On 29 December 2007, Mrs. Najma Abdul Kadar then owner of the property, had entered into a development agreement with the Garnet Developers for the development of these premises. the assessee had filed a suit ag the Garnet Developers in the Small Causes Court at Mumbai being RAD Suit No. 920 of 2010. 5.1. However, during the pendency of the said Suit, arrived at between the parties thereto and agreed to provide a basement measuring 4,000 sq. feet. along with a commercial premise admeasuring 400 sq. feet in the new building to be constructed to the assessee I.T.A. No. 5359/Mum/2024 7 other hand, Ld. D/R relied upon the orders passed by the We have heard the Counsels for both the parties and we have also perused the materials placed on record, judgments cited before us and also the orders passed by the revenue authorities. From the records, we rief facts of the case are that, the assessee engaged in the fabric trading Since 1953, the was a tenant of the premises admeasuring 5,000 sq. feet situated at C.S. No. 2044, Mandvi Division, Municipal Ward No. 'B', 27 Maheshwari Road, Dongri, Mumba - 400 009. The tenancy refundable deposit of Rs. 1,080/- and at a monthly rent On 29 December 2007, Mrs. Najma Abdul Kadar then owner of the property, had entered into a development agreement with the Garnet Developers for the development of these premises. had filed a suit against Mrs. Najma Abdul Kadar as well as the Garnet Developers in the Small Causes Court at Mumbai being RAD However, during the pendency of the said Suit, consent terms arrived at between the parties thereto and thus Garnet Developers had agreed to provide a basement measuring 4,000 sq. feet. along with a commercial premise admeasuring 400 sq. feet in the new building to be assessee in lieu of the assessee's tenancy rights in the I.T.A. No. 5359/Mum/2024 other hand, Ld. D/R relied upon the orders passed by the We have heard the Counsels for both the parties and we have also dgments cited before us and uthorities. From the records, we rief facts of the case are that, the assessee is a Since 1953, the assessee was a tenant of the premises admeasuring 5,000 sq. feet situated at C.S. No. 2044, Mandvi Division, Municipal Ward No. 'B', 27-A, Dr. 400 009. The tenancy was acquired at a monthly rent On 29 December 2007, Mrs. Najma Abdul Kadar then owner of the property, had entered into a development agreement with the Garnet Developers for the development of these premises. Consequently, ainst Mrs. Najma Abdul Kadar as well as the Garnet Developers in the Small Causes Court at Mumbai being RAD consent terms were Developers had agreed to provide a basement measuring 4,000 sq. feet. along with a commercial premise admeasuring 400 sq. feet in the new building to be 's tenancy rights in the premises and, therefore, decree in favour of the 5.1.1. However, due to certain restrictions of constructing the basement in the new building, itwas mutually agreed between the theassessee and the Garnet Developers that the a Permanent Alternate Accommodation (PAA), free of cost, by way of a flat on the 20th floor being flat no. A inclusive of fungible carpet on known as Garner Heights to be constructed. Accordingly, during the AY 2018-19, on 27 July 2017, the PAA with the Garnet Developers and had paid a stamp duty of Rs 7,45,000 and a registration fe said flat of Rs 1,48,94, 138. 5. Later on, the Assessing Officer (AO) passed an order under section 143(3) read with section 143(3A) and section 143(3B) of the Act, assessing Rs. 1,48,94,138 as long cost relying upon the provisions of section 55(2)(a)(ii) of the Act and CIT(A) also confirmed 5.1. Now, before us, Ld AR of the wrongly relied upon provisions of section 55(2)((a)( not allow any cost against the sale consideration determined of Rs. 1,48,94,138/- on the wrong assumption that there is no cost incurred by the assessee in acquisition of the said tenancy right. 6. In our view, the AO has already paid Rs 1,080 as which could be construed as the cost of acquisition of tenancy rights. this regard, the ld. A/R drew our I.T.A. No. 5359/Mum/2024 8 , therefore, based on these consent terms court has granted decree in favour of the assessee to that effect. However, due to certain restrictions of constructing the basement in the new building, itwas mutually agreed between the Garnet Developers that the assessee will be provided a Permanent Alternate Accommodation (PAA), free of cost, by way of a flat on the 20th floor being flat no. A-2001, admeasuring 1,453.33 sq. feet inclusive of fungible carpet on 'ownership Basis’ in the new building known as Garner Heights to be constructed. Accordingly, during the AY 19, on 27 July 2017, the assessee had entered intoan agreement for PAA with the Garnet Developers and had paid a stamp duty of Rs 7,45,000 and a registration fee of Rs 30,000 on the market value of the said flat of Rs 1,48,94, 138. ssessing Officer (AO) passed an order under section 143(3) read with section 143(3A) and section 143(3B) of the Act, assessing Rs. 1,48,94,138 as long-term capital gain without granting any benefit of cost relying upon the provisions of section 55(2)(a)(ii) of the Act and ed the same. efore us, Ld AR of the assessee submitted that AO has wrongly relied upon provisions of section 55(2)((a)(ii) of the Act and did not allow any cost against the sale consideration determined of Rs. on the wrong assumption that there is no cost incurred by the assessee in acquisition of the said tenancy right. In our view, the AO has ignored the vital fact that the paid Rs 1,080 as non-refundable tenancy deposit in the year 1954 which could be construed as the cost of acquisition of tenancy rights. this regard, the ld. A/R drew our attention to the documents enclosed on I.T.A. No. 5359/Mum/2024 sed on these consent terms court has granted However, due to certain restrictions of constructing the basement in the new building, itwas mutually agreed between the parties i.e., will be provided a Permanent Alternate Accommodation (PAA), free of cost, by way of a 2001, admeasuring 1,453.33 sq. feet in the new building known as Garner Heights to be constructed. Accordingly, during the AY had entered intoan agreement for PAA with the Garnet Developers and had paid a stamp duty of Rs e of Rs 30,000 on the market value of the ssessing Officer (AO) passed an order under section 143(3) read with section 143(3A) and section 143(3B) of the Act, assessing in without granting any benefit of cost relying upon the provisions of section 55(2)(a)(ii) of the Act and submitted that AO has ii) of the Act and did not allow any cost against the sale consideration determined of Rs. on the wrong assumption that there is no cost incurred by fact that the assessee had deposit in the year 1954 which could be construed as the cost of acquisition of tenancy rights. In attention to the documents enclosed on page 73 of the paper book which shows that the assessee has paid Rs. 1080/-as non-refundable deposit to the land lord in 1954 and the said deposit is still lying never refunded by the land lord. section 55(2)(a) and stated that in the case of assessee provisions of section 55(2)(a)(i) is applicable and not 55(2)(a)(ii) as in this case, it is an undisputed fact that the security deposit of Rs. 1080/ its books, therefore this represents cost attached to the said tenancy right. Hence provisions of section 55(2)(a)(i) is applicable and not 55(2)(a)(ii) as invoked by AO and Ld CIT(A 6.1. The ld. A/R further stated that section 55 of the Act provides that for computation of capital gains, an assessee shall be allowed deduction for cost of acquisition of the asset and also cost of improvement, if any. However, for computing capital g before 1 April, 2001, the assessee has been allowed an option of either to take the fair market value of the asset as on 1 April, 2001 or the actual cost of the asset as cost of acquisition. The benefit of indexation is accorded in such cases as per the provisions of section 48 of the Act. Therefore, while calculating capital gains, firstly fair market value as on 1 April 2001 needs to be considered and thereafter indexation is done and then the indexed cost is redu 7. In the present case, in 1 April 2001, the assessee Kishore Karamsey & Co., Government Registered Valuer, copy has been placed on record. As per the said valuation report market value of the said tenancy rights was computed at Rs. 1,33,33,334 I.T.A. No. 5359/Mum/2024 9 age 73 of the paper book which shows that the assessee has paid Rs. refundable deposit to the land lord in 1954 and the said deposit is still lying as a security deposit in his books as the same was never refunded by the land lord.The ld. A/R also referred provisions of section 55(2)(a) and stated that in the case of assessee provisions of section 55(2)(a)(i) is applicable and not 55(2)(a)(ii) as in this case, it is an undisputed fact that the assessee has acquired tenancy right by paying a urity deposit of Rs. 1080/- in 1954 itself, which is still outstanding in its books, therefore this represents cost attached to the said tenancy right. Hence provisions of section 55(2)(a)(i) is applicable and not 55(2)(a)(ii) as invoked by AO and Ld CIT(A). further stated that section 55 of the Act provides that for computation of capital gains, an assessee shall be allowed deduction for cost of acquisition of the asset and also cost of improvement, if any. However, for computing capital gains in respect of an asset acquired before 1 April, 2001, the assessee has been allowed an option of either to take the fair market value of the asset as on 1 April, 2001 or the actual cost of the asset as cost of acquisition. The benefit of indexation is accorded in such cases as per the provisions of section 48 of the Act. while calculating capital gains, firstly fair market value as on 1 April 2001 needs to be considered and thereafter indexation is done and then the indexed cost is reduced from the sale consideration. In the present case, in order to ascertain the fair market value as on assessee had obtained a valuation report from M/s. Kishore Karamsey & Co., Government Registered Valuer, copy aced on record. As per the said valuation report market value of the said tenancy rights was computed at Rs. 1,33,33,334 I.T.A. No. 5359/Mum/2024 age 73 of the paper book which shows that the assessee has paid Rs. refundable deposit to the land lord in 1954 and the said a security deposit in his books as the same was referred provisions of section 55(2)(a) and stated that in the case of assessee provisions of section 55(2)(a)(i) is applicable and not 55(2)(a)(ii) as in this case, it is an has acquired tenancy right by paying a which is still outstanding in its books, therefore this represents cost attached to the said tenancy right. Hence provisions of section 55(2)(a)(i) is applicable and not 55(2)(a)(ii) as further stated that section 55 of the Act provides that for computation of capital gains, an assessee shall be allowed deduction for cost of acquisition of the asset and also cost of improvement, if any. ains in respect of an asset acquired before 1 April, 2001, the assessee has been allowed an option of either to take the fair market value of the asset as on 1 April, 2001 or the actual cost of the asset as cost of acquisition. The benefit of indexation is also accorded in such cases as per the provisions of section 48 of the Act. while calculating capital gains, firstly fair market value as on 1 April 2001 needs to be considered and thereafter indexation is done ced from the sale consideration. order to ascertain the fair market value as on had obtained a valuation report from M/s. Kishore Karamsey & Co., Government Registered Valuer, copy of which aced on record. As per the said valuation report, the fair market value of the said tenancy rights was computed at Rs. 1,33,33,334 as on 1 April 2001. Theindexed cost of acquisition comes to Rs. 3,62,66,668 (Rs. 1.33,33,334 * 272/100) and the same needs to from the full value consideration of Rs. 1,48,94,318 adopted by the AO. Accordingly, this would result in a long term capital loss to the and there would not be income which would be subject to tax as long term capitalgains for the rel 8. The ld. A/R further AY 2021-22 for a consideration of Rs. 3,10,00,000/ gain taking cost as value as on 1.4.2001 as per above valuation. The said return has been accepted by the department following decision in support of his contention: • CIT Vs. Abrar Alvi (247 ITR 312)(Bombay) • ITO Vs. Mrs. Hajra I Memon (ITA No. 3848/Mum/2010) • ACIT Vs. Shree Krishna Pharmacy (ITA No. 9. On the other hand, Ld DR relied upon the order Revenue Authorities. It was submitted refundable or non-refundable of the Act and accordingly action of the AO is as per Act. 10. After having minutely gone through the facts of the case and legal propositions put forth before us, we are of the view that the form of tenancy right was acquired by the assessee 29/01/1954 by paying the assessee was created in the said property and, therefore, the assessee remained in possession of the said p agreement. Since the assessee continue enjoying the property, hence question of refund of security deposit does not arises. I.T.A. No. 5359/Mum/2024 10 as on 1 April 2001. Theindexed cost of acquisition comes to Rs. 3,62,66,668 (Rs. 1.33,33,334 * 272/100) and the same needs to from the full value consideration of Rs. 1,48,94,318 adopted by the AO. Accordingly, this would result in a long term capital loss to the and there would not be income which would be subject to tax as long term capitalgains for the relevant year under consideration. further submitted that the assessee has sold this flat in 22 for a consideration of Rs. 3,10,00,000/- and taking cost as value as on 1.4.2001 as per above valuation. The said accepted by the department. He also relied upon the following decision in support of his contention: • CIT Vs. Abrar Alvi (247 ITR 312)(Bombay) • ITO Vs. Mrs. Hajra I Memon (ITA No. 3848/Mum/2010) • ACIT Vs. Shree Krishna Pharmacy (ITA No. 3947/Mum/2016) On the other hand, Ld DR relied upon the order Revenue Authorities. It was submitted that security deposit whether refundable is not at par with the cost under section 48 of the Act and accordingly action of the AO is as per the After having minutely gone through the facts of the case and legal propositions put forth before us, we are of the view that the form of tenancy right was acquired by the assessee 29/01/1954 by paying non-refundable deposit and consequently, right of the assessee was created in the said property and, therefore, the assessee in possession of the said property till the date of this agreement. Since the assessee continue enjoying the question of refund of security deposit does not arises. I.T.A. No. 5359/Mum/2024 as on 1 April 2001. Theindexed cost of acquisition comes to Rs. 3,62,66,668 (Rs. 1.33,33,334 * 272/100) and the same needs to be reduced from the full value consideration of Rs. 1,48,94,318 adopted by the AO. Accordingly, this would result in a long term capital loss to the assessee and there would not be income which would be subject to tax as long evant year under consideration. that the assessee has sold this flat in and offered capital taking cost as value as on 1.4.2001 as per above valuation. The said . He also relied upon the • ITO Vs. Mrs. Hajra I Memon (ITA No. 3848/Mum/2010) 3947/Mum/2016) On the other hand, Ld DR relied upon the order passed by the that security deposit whether not at par with the cost under section 48 the provisions of After having minutely gone through the facts of the case and legal propositions put forth before us, we are of the view that the assets in the way back on and consequently, right of the assessee was created in the said property and, therefore, the assessee roperty till the date of this right over the question of refund of security deposit does not arises. Therefore, the said deposit to the assessee as the same remain unpaid. 11. To compute capital gain cost as per provisions of section 55(2)(a) the Act is to be considere 55(2) For the purposes of sections 48 and 49, \"cost of acquisition\", (a) in relation to a capital a mark or brand name associated with a business or a right to manufacture, produce or process any article or thing or right to carry on any business], tenancy rights, stage carriage permits or loom hours, (i) in the case of acquisition of such asset by the assessee by purchase from a previous owner, means the amount of the purchase price; and (ii) in any other case [not being a case falling under sub of sub- section (1) of section 49], shall 12. A perusal of the provisions of sections 49 and 55 reveals that if the capital asset as mentioned under section 55(2)(a) which includes rights’ is acquired by purchase from previous owner, eventuality, the purchase price will be the cost of acquisition.In any other case, if it does not fall under the sub section 49, then the cost of acquisition will be treated as nil. 13. In this case, it is an undisputed fact th tenancy right by paying a security deposit of Rs. 1080/ still outstanding in its books, therefore this represents cost attached to the said tenancy right. Though cost is not defined in 55 the Income Tax Act, however it is being defined in section 43 for the purpose of Section 28 to 41 of the Act, which says the expression \"actual cost\" means the actual cost of the assets to the assessee reduced by that portion of the cost thereof, if any, by Government or by any public or local authority. So, ascertaining the actual cost, what has to be considered is the actual cost I.T.A. No. 5359/Mum/2024 11 Therefore, the said deposit can very well be taken as cost ee as the same remain unpaid. To compute capital gain cost as per provisions of section 55(2)(a) is to be considered, which reads as under: 55(2) For the purposes of sections 48 and 49, \"cost of acquisition\", (a) in relation to a capital asset, being goodwill of a business [or a trade mark or brand name associated with a business or a right to manufacture, produce or process any article or thing or right to carry on any business], tenancy rights, stage carriage permits or loom hours,- n the case of acquisition of such asset by the assessee by purchase from a previous owner, means the amount of the purchase price; and ) in any other case [not being a case falling under sub-clauses (i) to (iv) section (1) of section 49], shall be taken to be nil ; 12. A perusal of the provisions of sections 49 and 55 reveals that if the capital asset as mentioned under section 55(2)(a) which includes is acquired by purchase from previous owner, the purchase price will be the cost of acquisition.In any other case, if it does not fall under the sub-clauses (i) to (iv) of sub section 49, then the cost of acquisition will be treated as nil. In this case, it is an undisputed fact that the assessee tenancy right by paying a security deposit of Rs. 1080/- in 1954, which is still outstanding in its books, therefore this represents cost attached to the said tenancy right. Though cost is not defined in Section 2 or the Income Tax Act, however it is being defined in section 43 for the ection 28 to 41 of the Act, which says the expression \"actual cost\" means the actual cost of the assets to the assessee reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by Government or by any public or local authority. So, ascertaining the actual cost, what has to be considered is the actual cost I.T.A. No. 5359/Mum/2024 cost of acquisition To compute capital gain cost as per provisions of section 55(2)(a) of 55(2) For the purposes of sections 48 and 49, \"cost of acquisition\",- sset, being goodwill of a business [or a trade mark or brand name associated with a business or a right to manufacture, produce or process any article or thing or right to carry on any business], n the case of acquisition of such asset by the assessee by purchase from a previous owner, means the amount of the purchase price; and clauses (i) to (iv) 12. A perusal of the provisions of sections 49 and 55 reveals that if the capital asset as mentioned under section 55(2)(a) which includes ‘tenancy is acquired by purchase from previous owner, then in that the purchase price will be the cost of acquisition.In any other clauses (i) to (iv) of sub-clause(1) of section 49, then the cost of acquisition will be treated as nil. assessee had acquired in 1954, which is still outstanding in its books, therefore this represents cost attached to ection 2 or Section the Income Tax Act, however it is being defined in section 43 for the ection 28 to 41 of the Act, which says the expression \"actual cost\" means the actual cost of the assets to the assessee reduced by that as has been met directly or indirectly by Government or by any public or local authority. So, therefore, in ascertaining the actual cost, what has to be considered is the actual cost of the assets of the assessee. In this case the deposit paid by the asses to acquire the tenancy right in 1954 is actual outflow from the pockets of the assessee hence Therefore, in these set of facts, the applicable and not 55(2)(a)(ii) as 14. Apart from the above appellant that since the asset the assessee has been allowed market value of the asset as on 1 April, 2001 or the actual cost of the asset as ‘cost of acquisition provisions of section 48 of the Act, to calculate capital gain. As per working submitted by the considering valuation of the tenancy right as on 1.4.2001 as certified by M/s. Kishore Karamsey & Co., Government Registered Valuer, there is net capital loss. It is important to mentioned here that t income has already been 15. Since the income the tenancy right and in this year also once valuation as on considered as cost of acquisition then loss, hence the addition made by AO deserve to be deleted. these grounds raised by the assessee are allowed. 16. In the result, appeal of the assessee is allowed. Order pronounced in the Court on Sd/- (PRABHASH SHANKAR) ACCOUNTANT MEMBER Mumbai, Dated 01/01/2025 I.T.A. No. 5359/Mum/2024 12 of the assets of the assessee. In this case the deposit paid by the asses to acquire the tenancy right in 1954 is actual outflow from the pockets of the assessee hence this can very well be taken as cost in its hand. in these set of facts, the provisions of section 55(2)(a)(i) is applicable and not 55(2)(a)(ii) as invoked by AO and Ld CIT(A). Apart from the above, there is substance in the contention of the that since the asset was acquired before 1stApril, 2001, the assessee has been allowed with an option of either to take the fair e of the asset as on 1 April, 2001 or the actual cost of the asset cost of acquisition’ and the said cost will further indexed as per the provisions of section 48 of the Act, to calculate capital gain. As per working submitted by the assessee in AY 2021-22 , wherein considering valuation of the tenancy right as on 1.4.2001 as certified by M/s. Kishore Karamsey & Co., Government Registered Valuer, there is It is important to mentioned here that the said return of y been accepted by the revenue. Since the income has already been offered in later years on sale of the tenancy right and in this year also once valuation as on of acquisition then, the transaction resulted in to net loss, hence the addition made by AO deserve to be deleted. these grounds raised by the assessee are allowed. In the result, appeal of the assessee is allowed. Order pronounced in the Court on 01st January 2025 (SANDEEP GOSAIN JUDICIA 5 I.T.A. No. 5359/Mum/2024 of the assets of the assessee. In this case the deposit paid by the assessee to acquire the tenancy right in 1954 is actual outflow from the pockets of cost in its hand. provisions of section 55(2)(a)(i) is invoked by AO and Ld CIT(A). , there is substance in the contention of the April, 2001, hence an option of either to take the fair e of the asset as on 1 April, 2001 or the actual cost of the asset aid cost will further indexed as per the provisions of section 48 of the Act, to calculate capital gain. As per , wherein after considering valuation of the tenancy right as on 1.4.2001 as certified by M/s. Kishore Karamsey & Co., Government Registered Valuer, there is he said return of offered in later years on sale of the tenancy right and in this year also once valuation as on 01/04/2001 is , the transaction resulted in to net loss, hence the addition made by AO deserve to be deleted. Therefore, at Mumbai. Sd/- SANDEEP GOSAIN) JUDICIAL MEMBER * * * *SC SrPs SC SrPs SC SrPs SC SrPs आदेशकी\u0015ितिलिपअ\u001aेिषत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. \u0015 थ / The Respondent 3. संबंिधतआयकरआयु\"/ Concerned Pr. CIT 4. आयकरआयु\" ) अपील ( / The CIT(A) 5. िवभागीय\u0015ितिनिध ,आयकरअपीलीयअिधकरण 6. गाड&फाई/Guard file. I.T.A. No. 5359/Mum/2024 13 Copy of the Order forwarded to : / The Appellant Concerned Pr. CIT / The CIT(A)- आयकरअपीलीयअिधकरण,मुंबई/DR,ITAT, Mumbai, आदेशानुसार आयकरअपीलीयअिधकरण I.T.A. No. 5359/Mum/2024 आदेशानुसार/ BY ORDER, TRUE COPY Assistant Registrar आयकरअपीलीयअिधकरण ITAT, Mumbai "