PRATAP HIRJI VED, Mumbai V. DCIT-13(3)(1), Mumbai

ITA 1102/MUM/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 0103 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: C
• Assessment Year: 2015-2016
• Appeal Filed On: 26-02-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Share purchase agreement; Revised return; Capital Gains
• Section: 54; 139; 139(5); 139(1); 54EC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “C” MUMBAI BEFORE SHRI G.S. PANNU (PRESIDENT) AND SHRI SAKTIJIT DEY (JUDICIAL MEMBER) ITA No. 1102/MUM/2019 Assessment Year: 2015-16 Pratap Hirji Ved, Shop No. 1, Alka Building, JamnadasAdukia Rd., Kandivali (W), Mumbai-400 067. Vs. DCIT-13(3)(1), AayakarBhavan, New Marine Lines, Mumbai-400020. PAN No.AACPV 1849 C AppellantRespondent Assessee by:Mr. Rajesh Shah, AR Revenue by:Mr. R.A. Dhyani, DR D a t e o f H e a r i n g:15/11/2021 D a t e o fo r d e r:17/01/2022 ORDER PER BENCH The captioned appeal by the assessee arises out of order dated 10.12.2018 of learned Commissioner of Income Tax (Appeals)-21, Mumbai [in short ‘CIT(A)] for the assessment year 2015-16. 2.The grounds raised by the assessee are as under: Ground No. 1 & 2 1.On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition on account of sales consideration of property by ₹41,70,066/- though the said consideration do not belonged to the appellant but belonged to the Krishna and Krupa Ved. 2.On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition on account of sales consideration of property by Pratap H.Ved ITA No. 1102/M/2019 2 ₹41,70,066/- though the said consideration do not belonged to the appellant but belonged to the Krishna and Krupa Ved and same has been declared as a consideration in their hands in return of income filed with the Department. 3.The common issue raised in ground no. 1 and 2 relates to addition of an amount of ₹41,70,066/- as long term capital gain. Briefly the facts are, the assessee is a resident individual. For the assessment year under dispute, the assessee filed his original return of income on 30.09.2015 declaring total income of ₹10,50,17,500/-. Subsequently, the assessee filed a revised return of income on 30.03.2017 declaring total income of ₹8,59,81,920/-. In course of assessment proceedings, on verifying the details relating to transfer of capital asset and computation of long term capital gain thereon, the assessing officer (AO) noticed that though, as per the purchase agreement the flat sold was in the name of the assessee, Shri Pratap H. Ved and his son Shri Rajesh Ved, however, the sale consideration received on transfer of the very same flat has been distributed amongst four persons, namely, Shri Pratap H. Ved, Shri Rajesh Ved, Krishna and Krupa. Being of the view that sale consideration was distributed amongst four persons instead of original owners, the Assessing Officer called upon the assessee to explain as to why the sale consideration received on sale of the flat should not be apportioned between him and Shri Rajesh PratapVed. Though, the assessee furnished various other documentary evidences to demonstrate that the property actually belonged to four individuals, however, the Assessing Officer was not convinced. Ultimately, the Assessing Officer apportioned the entire sale consideration received from sale of the flat between the assessee and his son Shri Rajesh Pratap Ved which resulted in addition of ₹41,70,066/- at the hands of the assessee. Though, the assessee contested the aforesaid addition before the learned CIT(A), however he was unsuccessful. Pratap H.Ved ITA No. 1102/M/2019 3 4.At the outset, learned counsel for the assessee submitted, now the issue stands squarely covered in favour of the assessee by virtue of the decision of the Co-ordinate Bench in case of the other co-owner Shri Rajesh PratapVed. In this context, he drew our attention to the relevant observations of the Tribunal in ITA No. 1103/M/2019 dated 27.04.2021. 5.The learned Departmental Representative, though, agreed that the issue has been favorably decided in case of the other co-owner, however, he dutifully relied upon the observations of the Departmental Authorities. 6.We have considered rival submissions and perused the material on record. The dispute between the parties is with regard to apportionment of long term capital gain arising on sale of residential property. While, as per the assessee, sale consideration has to be apportioned amongst four persons, the case of the Revenue is, it should be apportioned between the assessee and his son, who happened to be the original owners of the property transferred. Having considered rival submissions, we find that the Tribunal while deciding identical issue in case of assessee’s son Shri Rajesh PratapVed, in the order referred to above, has held as under : “3.Wehaveheardrivalsubmissionsandperusedthematerials available on record. We find that assessee is an individual and had filed his return of income for the A.Y.2015-16 on 30/09/2015 declaring total income of Rs.12,84,79,720/-. The assessee is also a Director of Regal Hotel Pvt. Ltd., Further the assessee filed its revised return of income on 30/03/2017 declaring revised total income of Rs.11,67,24,470/-. During the year under consideration, the assessee has shown income from salary, loss of house property, income from business and professions, income from long term capital gain and income from other sources. 4. During the year under consideration, the assessee Mr. Rajesh Pratap Ved along with Shri Pratap H Ved, Smt. Krishna P. Ved and Smt. Krupa R. Pratap H.Ved ITA No. 1102/M/2019 4 Ved sold the following premises as well as rights in the society as per agreementdated21/01/2015tooneMr.RohitMadanShetty: a) Flat No.701 of Krishna Krupa belonged to Mr. Pratap H Ved. b) Flat No. 801 of Krishna Krupa along with Terrace belonged to Mr. Rajesh P Ved- the assessee and c)The rightsinthesocietyTheNutanLaxmiCo-operaive Housing Society along with share certificate, membership of the society and allotherbenefitavailabletothememberofthesocietyand belongedtoMr.RajeshPratapVed,ShriPratapHVed,Smt. Krishna P. Ved and Smt. Krupa R. Ved jointly. 5. We find that the narration of the following undisputed facts would berelevant forunderstanding the issue in dispute before us:- a) The plot of land and structure at Juhu Vile Parle Scheme Mumbaiwas originally purchased on 18th June, 2004 in the names of ShriPratapHirjiVed, Mrs. Krishna PratapVed, Shri Rajesh PratapVed(the assessee) and Mrs. Krupa R Ved from Mrs. Rupa PrakashPandya and others. Along with plot and structure, all the rights in5 shares of The NutanLaxmi Co-operative Housing Society Ltd andall lease hold rights along with tenants were part of the purchasecost. On purchase of the plot, one becomes a member of the Nutan Laxmi Co-operative Housing Society Ltd and a member has number of rights attached to the plot such as being part of association, rightsingettingpriorityinmembershipofvariousassociations includingrightofmembershipofJuhuGymkhana,concessional rightsinhiringofplotsforvariousoccasionsetc. b) All the parties viz., Shri PratapHirjiVed, Mrs. Krishna PratapVed, Shri Rajesh PratapVed (the assessee) and Mrs. Krupa R. Ved had enteredintopartnershiptocarryonbusinessofdevelopmentin nameofM/s.RadhaEnterpriseasperpartnershipdeeddated 3.12.2002.Videagreementdated18.9.2004,thesaidPlotwas assignedalongwithcertainrightstoM/s.RadhaEnterprise (partnershipfirm).Asperthesaidagreement,partnersnamely PratapVedwhohadcontributedRs.96,23,010andRajeshVed,the assesseewhohadcontributedRs.1,03,00,000forthepurchaseof plot,werecompensatedfullcostbycreditingtheequivalent amounttotheircapitalaccount.Thereforethetotalamount contributed by them were paid in the form of crediting the capital account and were entitled to the interest. c) However as per clause 12 of the said agreement, the rights tobecome member, and other rights of free membership ofgymkhana etc., remained with the four persons who had originallypurchased the plot. Therefore these rights remained with fourpersons though there is no cost to it. d) On getting the plot by way of capital contribution, M/s. Radha Enterprise developed the plot and sold flats to outsiders Flat No.1to 6 and as Pratap H.Ved ITA No. 1102/M/2019 5 per the agreement 18.9.2004, Flat No.7 was allotted toPratapVed and Flat No.8 was allotted to Rajesh Ved. e) However rights to Juhu Club and other rights of the societyremained with all the parties in their individual capacity as perclause no.12 and certain other rights with the partners includingmembership rights in the society as per agreement dated18.9.2004. f) In lieu of the rights in individual capacity, the valuable rights werealso with Mrs. Krishna PratapVed and Mrs. Krupa Rajesh Ved. Itwas imperative to get the requisite and approval includingsignatures on the all documents for transfer of premises, leasedeed, transfer of shares and papers for transfer of membershiprights in Juhu gymkhana, which are valuable rights, a portion ofamount was required to be paid to both the lady members since itis jointly held g) The purchaser of the flats also insisting that since both the parties are party to agreement, due consideration is required to be paid to enter a legal and enforceable document. h) The membershiprights of the NutanLaxmi Co-operative Society are a valuable right and it enjoys all the facilities like membershipof Juhu Vile Parle Gymkhana Cub etc and leasehold rights in plot.As per the bye laws of the society, only members of one familycanbecome member of the society and all the rights in the societyincluding leasehold plot remain in the hands of the said family. Theother occupants of the flats viz. flat no.1 to 6 are not entitled tobecome a member of the society. These rights belonged to all thefour members of Ved family. The facts have been clearly stated inRecital (j) on Page No. 8 of the agreement for sale and assignmentdated 20.1.2015. Accordingly, Mrs. Krupa P. Ved and Mrs. KrishnaP. Ved were paid 1.45% of total consideration i.e. Rs.43,16,750each as stated in clause 5 page No.11 of the agreement. i) Accordingly total consideration has been divided among the sellersas per the understanding among the sellers and also thepurchasers of the above rights along with flats as per agreementdated 20.1.2015. j) Therefore, Mrs. Krishna P. Ved and Mrs. Krupa R Ved have beenentitled and hence accordingly were paid Rs.43,16,750/- andRs.43,16,750/- respectively. k) The amount has been paid on account of those rights in the property as per agreement dated 18.9.2004. It also may be notedthat the share certificate no.30 of NutanLaxmi Co-operativeHousing Society Limited was also in the name of all the fourpersons. Accordingly, the amounts were distributed between thepartners for their respective flats and equal interest in theremainder rights in the property, and all other rights on being a member of the NutanLaxmi Co-operative Housing Society Limited.Considering the above facts the consideration received by KrishnaP. Ved and Krupa R Ved are correctly apportioned and paid. l) The ld AR before us stated that the said income is declared by Smt Krishna Ved and Smt Krupa Ved in their respective returns ofincome for the A.Y.2015-16 which were accepted by thedepartment as such. Pratap H.Ved ITA No. 1102/M/2019 6 6. We find that the ld AO observed that the sale consideration wasdistributed among 4 persons, whereas the cost of purchase was borneby two persons only i.ePratapVed and Rajesh Ved and that no paymentswere made by Smt Krishna Ved and Smt Krupa Ved. Accordingly, the ldAO held that the sale consideration is to be divided only between twopersons as under:- DetailsPratapRajeshTotal Sale consideration as per ITR131,129,020/-157,837,480/-288,966,500/- Sales Consideration shown in Krishna & Krupa 4,170,066/-4,463,434/-8,633,500/- Revised Sales Consideration135,299,86/-162,300,914/-297,600,000/- 6.1. The ld AO observed that since sale consideration is divided betweentwo persons, the expenses incurred towards cost, brokerage, professionalfees, etc also is to be distributed only between two persons andaccordingly , reworked the capital gains chargeable thereon as under:- DetailsPratapRajeshTotal Sales Consideration as per ITR 131,129,020/-157,837,480/-288,966,500/- Sales Consideration shownin Krishan& Krupa 4,170,066/-4,463,434/-8,633,500/- RevisedSales Consideration 135,299,86/-162,300,914/-297,600,000/- Cost of purchase9,623,010/-10,300,000/-19,923,010/- Ratio48.3051.70100 Indexed cost of purchase 20,529,088/-21,973,333/-42,502,421/- Balance amount114,769,998/-140,327,581/-255,097,579/- Less : Expenses incurred Brokerage& Prof fees as per COI 3,631,899/-4,570,221/-8,202,120/- Kirshna& Krupa Share 99,568/-16,572/-206,140/- 6.2. From the aforesaid table, it could be seen that a sale consideration pertaining to Smt Krishna Ved and Smt Krupa Ved has been included in the hands of the assessee herein Shri Rajesh PratapVed to the extent of Rs 44,63,434/- which is the subject matter of dispute before us. 7. We find that the ld CIT(A) has confirmed the addition on a different ground by stating that the addition should have been made under Section64(1) of the Act by applying clubbing provisions. 8. We find that Shri Pratap H Ved, Shri Rajesh Ved (assessee hereinbefore us), Smt Krishna Ved and Smt Krupa Ved, had joined thepartnership firm M/s Radhe Enterprise. We find from the facts narratedhereinabove that assessee and Shri Pratap H Ved had paid for the cost ofacquisition of the plot originally Pratap H.Ved ITA No. 1102/M/2019 7 and hence when plot was brought in ascapital contribution to the partnership firm, their respective capitalaccounts were duly credited for such amount. We find that the rightsover the leasehold property belonged toall the four members of Vedfamily which is evident from Share Certificate No. 30 of Nutan Co-operative Housing Society Limited. We find that when originally theproperty was assigned from four individuals to partnership firm, thepartnersaccountwerecreditedwithfullamountofcost incurredindividually and therefore, the full cost was given to them. Therefore therights which have remained with four individuals were without cost andbelonged to all the four persons. There is no dispute that all the fourpersons had come forward to sign the agreement of sale dated 20.1.2015pursuant to which , capital gains became assessable. There is no disputethat the flats were ultimately sold together with the rights in leaseholdproperty , rights in membership etc which were owned by all the fourpersons and which remained with the individuals and were never transferred to the firm. Hence we hold that logically the saleconsideration is to be distributed between four persons. In view of that,a portion of sale consideration is required to be assigned to the rights ofmembership etc which were not given to the firm. Therefore, there is notransfer from husband to wife of any right or any value. In view of thatno value can be assigned under Section 64(1) of the Act by applyingclubbing provisions thereon. Moreover, we find that the ld CITA grosslyerred in applying the clubbing provisions u/s 64(1) of the Act even formother. Admittedly, as per law, the same could be applied only forspouse and for son’s wife. Hence the addition sustained by the ldCIT(A) deserves to be deleted on this count itself. 9. In any case, we find from the income tax returns of Smt. Krishna Vedand Smt Krupa Ved for the Asst Year 2015-16, which are forming part ofthe paper books filed before us, they had duly disclosed the capital gainsattributable to their share without claiming any deduction towards cost ofacquisition. We find from the computation of income for the Asst Year2015-16 of both the ladies, that they were conscious of their income taxobligations and had duly disclosed the share of their sale consideration aslong term capital gains (without any cost) and had duly claimed deductionu/s 54EC of the Act by making reinvestment in eligible bonds. We findthat the ld AR submitted that the returns filed by two ladies have beenaccepted by the department. Hence there is no need to bring to tax thevery same sale consideration in the hands of assessee herein, inclusion ofwhich , would only result in double taxation. Hence we hold that theentire addition made in the sum of Rs 44,63,434/- in the hands of theassessee is hereby directed to be deleted and grounds 1& 2 raised by theassessee are allowed.” 7.Since, the present assessee’s case stands on identical footing, respectfully following the aforesaid observations of the Co-ordinate Bench, we Pratap H.Ved ITA No. 1102/M/2019 8 delete the addition made by the Assessing Officer and sustained by learned CIT(A). Ground nos. 1 and 2 are allowed. 8.Ground No. 3 & 4 3.On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the disallowance of claim u/s 54 of the Act of ₹1,90,35,580/- though on the facts the said deduction was correctly claimed. 4.On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the disallowance of claim u/s 54 of the Act of ₹1,90,35,580/- though the amounts were paid for the construction of new premises subsequent to the date of filing of return but within three years from the date of sale of premises. 9.The common issue raised in ground nos. 3 and 4 relates to disallowance of deduction claimed under section 54 of the Act. Briefly the facts are, while verifying assessee’s of computation of the long term capital gain, the Assessing Officer noticed that against the long term capital gain arising from sale of the residential property, the assessee has claimed deduction under section 54 of the Act of an amount of ₹1,90,35,580/-. From the details furnished, the Assessing Officer found that the assessee had invested the consideration received from transfer of the capital asset in purchase of a new residential property on 18.01.2017. He, therefore, called upon the assessee to explain whether the sale consideration received was kept in capital gain accounts scheme in terms of section 54(2) of the Act and, in case, the assessee has not done so, why the deduction claimed under section 54 should not be disallowed. Though, the assessee objected to the proposed disallowance, however, the Assessing Officer rejecting the submissions of the assessee held that since before the date of filing of return of income on 30.09.2015 assessee had failed to invest the capital gain in purchasing a new residential house and has further failed to deposit such un-utilized capital gain in capital gain account scheme, the deduction claimed under section 54 of the Act cannot be Pratap H.Ved ITA No. 1102/M/2019 9 granted. While deciding the issue in appeal, learned CIT(A) endorsed the view of the Assessing Officer. 10.Drawing our attention to section 54(2) of the Act, learned counsel for the assessee submitted, the assessee had time to invest the capital gain in purchase of new residential property till the date of furnishing of return of income under section 139 of the Act. He submitted, since by the date of filing of revised return of income the assessee had invested an amount of ₹1,09,35,580/-, to that extent, the assessee would be eligible to claim deduction under section 54 of the Act. Thus, he submitted, since till the date of filing of revised return of income, the assessee had invested an amount of 1,09,35,580/- it has to be allowed as deduction under section 54 of the Act. In support of such contention, learned counsel relied upon the following decisions : Rajendra Pal Verma v. ACIT, 35(2) (ITA No. 6814/Mum/2016 ITO v. Shri Druv Bishwa Tiwari, (ITA No. 4233/M/2017) ITO v. Mrs. Pamela Pritam Ghosh (ITA No. 5644/M/2016) 11.Strongly relying upon the observations of the departmental authorities, learned Departmental Representative submitted, as per the mandate of section 54(2) of the Act, the un-utilized capital gain has to be deposited in a capital gain account scheme for claiming deduction under section 54 of the Act. He submitted, since the assessee has failed to comply with the aforesaid statutory requirement, deduction claimed under section 54 of the Act could not have been allowed. In support of, he relied upon the decision of the Hon’ble Jurisdictional High Court in case of Humayun Suleman Merchant v. CIT, [2016] 387 ITR 421 (Bom). Pratap H.Ved ITA No. 1102/M/2019 10 12.We have considered rival submissions and perused the materials on record. As far as the factual aspect of the issue is concerned, there is no dispute that the assessee had filed his original return of income on 30.09.2015 and thereafter filed the revised return of income on 30.03.2017. This factual position has been accepted by the Assessing Officer in the opening paragraph of the assessment order. It would be relevant to observe, as per section 139(5) applicable to the relevant assessment year, the assessee had time to file the revised return of income at any time before the expiry of one year from the end of relevant assessment year or the date completion of assessment, whichever is earlier. Thus, as per the extant provision, the revised return of income filed by the assessee on 30.03.2017 was within the permissible time limit. 13.Having taken note of the relevant facts, let us now deal with allowability or otherwise of assessee’s claim of deduction under section 54 of the Act. Undisputedly, the departmental authorities have rejected assessee’s claim on the reasoning that prior to filing the original return of income on 30.09.2015 or even till the due date of return of income under section 139(1) of the Act on 31.10.2015, the assessee had neither invested the capital gain in purchasing new asset nor has deposited the un-utilized capital gain in capital gain account scheme. Before we proceed to examine the validity of aforesaid reasoning of the departmental authorities, it is necessary to look into some of the provisions contained under section 54 of the Act. As per sub-section (1) of section 54, in case of an individual or HUF assessee, if, capital gain arising from the transfer of long term capital asset, being a residential house, is invested in purchase of new house within two years from the date of transfer or construction of a new house within a period of three years from the date of Pratap H.Ved ITA No. 1102/M/2019 11 transfer, capital gain would not be chargeable to tax, subject to the conditions mentioned in sub-section (2) of section 54 of the Act. Section 54 (2) can be divided in two parts. The first part permits the assessee to appropriate the capital gain within one year before the date of transfer of original asset or to utilize it for purchase or construction of new asset before the date of furnishing of return of income under section 139 of the Act. The second part of section 54(2) mandates that if the capital gain is not appropriated/utilized in purchase of new asset within the due date of furnishing of return under section 139, then the unutilized capital gain has to be deposited in capital gain account scheme before the due date of furnishing of return of income as provided under section 139(1) of the Act. 14.In other words, section 54(2) of the Act puts two conditions for availing deduction under section 54(1) of the Act. Firstly, the assessee has to utilized the capital gain in purchase of new property before the date of furnishing return of income under section 139 of the Act, which encompasses sub- section (1), (4) and (5). Secondly, if it is not so utilized, it has to be deposited in the capital gain account scheme before the due date of furnishing of return of income as provided under section 139(1) of the Act. Thus, there is a marked difference between the first part and second part of section 54(2) of the Act in so far as utilization of the capital gain is concerned. While, in the first part, the phraseology used is‘before the date of furnishing of return under section 139’, the second part restricts the time limit to‘due date applicable in the case of the assessee for furnishing the return of income under sub- section (1) of section 139’. Thus, a reading of section 54(2) of the Act as a whole would make it clear that if the assessee utilizes the capital gain in purchase of new residential house before the date filing of return as Pratap H.Ved ITA No. 1102/M/2019 12 prescribed under section 139 (sub sections 1, 4 and 5 included), he will be eligible to claim deduction under section 54(1) of the Act. This view has been accepted by the Hon’ble Jurisdictional High Court in case of Humayun Suleman Merchant vs CIT (supra), wherein, the Hon’ble High Court, in no uncertain terms, has held that the amount invested towards purchase of new asset till the actual date of filing of return of income would be eligible for deduction. 15.In the facts of the present case, undisputedly, the assessee had filed the revised return of income on 30.03.2017. Till the date of filing of revised return of income, the assessee had invested an amount of ₹1,09,35,580/- towards purchases of new property. Before us, learned counsel appearing for the assessee has restricted the claim of deduction under section 54 of the Act to the aforesaid amount. Keeping in view, the provision contained under section 54(2) and the ratio laid down in the various judicial precedents cited before us, including the decision of the Hon’ble Jurisdictional High Court in case of Humayun Suleman Merchant vs CIT (supra), assessee’s claim is acceptable. In our view, the Departmental Authorities have made a fundamental error in rejecting assessee’s claim of deduction under section 54 of the Act by completely ignoring the date of filing of revised return of income. When the revised return of income filed under section 139(5) of the Act is a valid return, it substitutes the original return of income filed under section 139(1) of the Act and has to be treated as the only return filed. Therefore, the time limit prescribed in the first part of section 54(2) of the Act has to be reckoned up to the date of filing of revised return of income. In view of the aforesaid, we allow assessee’s claim of deduction to the extent of ₹1,09,35,580/-, being the Pratap H.Ved ITA No. 1102/M/2019 13 amount invested in purchase of new property till the date of filing of the revised return of income. Grounds are partly allowed. 16.Ground no. 5 being a general ground does not require specific adjudication. In the result, the appeal is partly allowed as indicated above. Sd/-Sd/- (G.S. PANNU)(SAKTIJIT DEY) PRESIDENTJUDICIAL MEMBER Mumbai; Dated: 17/01/2022 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to : 1.The Appellant 2.The Respondent. 3.The CIT(A)- 4.CIT 5.DR, ITAT, Mumbai 6.Guard file. BY ORDER, //True Copy// (Dy./Assistant Registrar) ITAT, Mumbai