STAR METAL REFINERY P. LTD, MUMBAI V. ASST CIT (OSD) 2(3), MUMBAI

ITA 1708/MUM/2011

• Counselvise Citation: 170819914 RSA 2011
• Duration Of Justice: 9 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 07-12-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 01-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAY KUMAR
• Assessee Lawyers: DR SHIVRAM
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Cost of acquisition; Set aside
• Section: 50C; 147; 54

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E, MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI R.K.PANDA (A .M) ITA NO.1708/MUM/2011(A.Y. 2005-06) ITA NO.1709/MUM/2011(A.Y.2006-07) STAR METAL REFINERY PVT. LTD. VOLTAS INTERNATIONAL HOUSE, 3 RD FLOOR, BANK STREET, FORT, MUMBAI 400 023. PAN:AADCS0759A (APPELLANT) VS. THE ACIT (OSD) 2(3), MUMBAI. (RESPONDENT) APPELLANT BY : DR.SHIVRAM RESPONDENT BY : SHRI JAYKUMAR CIT (DR) DATE OF HEARING : 07/12/2011 DATE OF PRONOUNCEMENT : 21/12/2011 ORDER PER N.V.VASUDEVAN, J.M, THESE ARE APPEALS BY THE ASSESSEE AGAINST A COMMON ORDER DATED 14/1/2011 OF CIT(A)-6 , MUMBAI RELATING TO ASSESSM ENT YEAR 2005-06 AND 2006-07. THE FIRST COMMON ISSUE THAT ARISES FOR CO NSIDERATION IN THESE APPEALS BY THE ASSESSEE IS AS TO THE ASSESSMENT YEA R IN WHICH THE CAPITAL GAIN ON SALE OF PROPERTY NAMELY A PIECE / PARCEL OF LAND ADMEASURING 1168.30 SQ. MTRS. TOGETHER WITH BUNGALOW STANDING T HEREON SITUATED AT VILLAGE HARIALI, VIKHROLI, BEARING CTS NO.229(THE F IRST PROPERTY) AND ANOTHER LAND HEREDITAMENTS AND PREMISES ADMEASURING 12705. 31 SQ. MTRS. TOGETHER WITH THE BUILDING AND FACTORIES STANDING THEREON AL SO SITUATED AT VILLAGE HARIALI, VIKHROLI, BEARING CTS NO.92,92/1 TO 95 (TH E SECOND PROPERTY). THE SAID FIRST PROPERTY AND SECOND PROPERTY ADMEASURE I N AGGREGATE TO 13873.69 ITA NO. 1708/MUM/2011(A.Y. 2005-06) ITA NO.1709/MUM/2011(A.Y.2006-07) 2 SQ. MTRS. AND COLLECTIVELY HEREINAFTER REFERRED TO AS THE PROPERTY HAS TO BE ASSESSED TO TAX. 2. THE FACTS AND CIRCUMSTANCES GIVING RISE TO THE F IRST COMMON ISSUE REFERRED TO ABOVE ARE AS FOLLOWS: THE ASSESSEE WAS THE OWNER OF THE PROPERTY REFERRE D TO ABOVE. BY AN AGREEMENT FOR SALE DATED 1/4/2004 THE ASSESSEE AGRE ED TO SELL THE PROPERTY TO ONE M/S. RAJESH CONSTRUCTION COMPANY A PARTNERSH IP FIRM CARRYING ON BUSINESS AT SEKSARIA CHAMBERS, NAGINDAS MASTER ROAD , MUMBAI -1. BY A REGISTERED CONVEYANCE DATED 11/11/2005 THE ASSESSEE CONVEYED THE PROPERTY IN FAVOUR OF ONE M/S. RAJESH ESTATE & NIRMAN, WHO H APPENS TO BE THE NOMINEE OF M/S. RAJESH CONSTRUCTION COMPANY. THE A SSESSEE FILED RETURN OF INCOME FOR A.Y 2006-07 ON 21/11/2006. THE ASSESSEE DECLARED THE LONG TERM CAPITAL GAIN ON SALE OF THE PROPERTY. IN THE COURSE OF ASSESSMENT PROCEEDINGS THE AO ON SCRUTINY OF THE AGREEMENT DAT ED 1/4/2004 WAS OF THE VIEW THAT THE PROPERTY HAD BEEN TRANSFERRED BY THE ASSESSEE DURING THE PREVIOUS YEAR RELEVANT TO A.Y 2005-06. IN THIS REG ARD THE AO WAS OF THE VIEW THAT THERE WAS A TRANSFER EFFECTED BY THE ASSESSEE WITHIN THE MEANING OF SECTION 2(47)(V) OF THE ACT WHICH PROVIDES THAT TRA NSFER IN RELATION TO A CAPITAL ASSET INCLUDES ANY TRANSACTION INVOLVING TH E ALLOWING OF THE POSSESSION OF ANY IMMOVABLE PROPERTY TO BE TAKEN OR RETAINED IN PART PERFORMANCE OF A CONTRACT OF THE NATURE REFERRED TO IN SECTION 53A OF THE TRANSFER OF PROPERTY ACT 1882(4 OF 1882). THE REAS ONS FOR COMING TO THE ABOVE CONCLUSION BY THE AO ARE AS FOLLOWS: (I) AS PER THE AGREEMENT FOR SALE THE PROPERTY WAS AGREED TO BE SOLD FOR CONSIDERATION OF RS.5.00 CRORES. ON THE DATE OF SI GNING OF THE AGREEMENT THE PURCHASER HAD PAID THE ASSESSEE A SUM OF RS. 4,75,00,000/- BY TWO CHEQUES BOTH DATED 1/4/2004 DR AWN ON ICICI ITA NO. 1708/MUM/2011(A.Y. 2005-06) ITA NO.1709/MUM/2011(A.Y.2006-07) 3 BANK LTD., BORIVILI BRANCH MUMBAI FOR RS. 1.75 CROR ES AND RS.3.00 CRORES RESPECTIVELY. (II) ACCORDING TO THE AO THE AGREEMENT MENTIONED T HAT THE SALE WAS TO BE FREE FROM ALL INCUMBENCIES AND CLAIM SUBJECT TO THE EXISTING TENANCY/OCCUPANCY OF TENANTS/OCCUPANTS AND ON AS IS WHERE IS BASIS. ACCORDING TO THE AO, THE POSSESSION OF THE PROPERTY HAD BEEN DELIVERED TO THE PURCHASER AND, THEREFORE, PROVISIONS OF SECT ION 2(47)(V) OF THE ACT WERE APPLICABLE. (III) THE AO ALSO REFERRED TO A BOARD RESOLUTION P ASSED ON 23/2/2004 BY THE ASSESSEE WHICH IS AS FOLLOWS: SALE OF VIKHROLI PROPERTY RESOLVED THAT THE PROPER TY SITUATED AT VILALGE HARIYALI, VIKHROLI (W), BEARING CTS NOS.92, 92/1TO 15 BE SOLD TO M/S. RAJESH CONSTRUCTION COMPA NY, MUMBA4 ON AS IS WHERE IS BASIS INCLUDING ALL THE EXISTING STRUCTURES/TENANTS FOR A LUMP SUM CONSIDERATION OF RS. 5.00 CRORES, ON SUCH TERMS AND CONDITIONS AS MAY BE DEEM ED FIT AND IN THE INTEREST OF THE COMPANY. RESOLVED FURTHER THAT MR. SANJEEV KHANDELWAL, DIREC TOR AND/OR MR. C. T. SHEREGAR, CHIEF EXECUTIVE OFFICER BE AND ARE HEREBY SEVERALLY AUTHORIZED TO EXECUTE ALL SUCH AGR EEMENTS, DEEDS, CONVEYANCE AND ALL OTHER DOCUMENTS ON BEHALF OF THE COMPANY FOR COMPLETION OF THE SAID TRANSACTION. FROM THE ABOVE (VIZ., TRANSFER BEING ON AS IS WHER E IS BASIS) THE AO INFERRED THAT THERE WAS DELIVERY OF POSSESSION PURS UANT TO AN AGREEMENT ATTRACTING THE PROVISIONS OF SECTION 2(47 )(V) OF THE ACT. 3. IN THE ORDER OF ASSESSMENT THE AO HAS DISCUSSED SEVERAL ASPECTS WITH REGARD TO THE PROVISIONS OF SECTION 2(47)(V) OF THE ACT. WE ARE NOT NARRATING ALL THOSE DISCUSSIONS BY THE AO IN THE ORDER OF ASS ESSMENT. IT IS HOWEVER, WORTHWHILE TO MENTION THAT THE ASSESSEE HAS BEFORE THE AO SUBMITTED THAT POSSESSION OF THE PROPERTY WAS NEVER GIVEN BY THE A SSESSEE TO M/S. RAJESH CONSTRUCTION COMPANY AT THE TIME OF SIGNING OF THE AGREEMENT DATED ITA NO. 1708/MUM/2011(A.Y. 2005-06) ITA NO.1709/MUM/2011(A.Y.2006-07) 4 1/4/2004. IN FACT THE BY A LETTER DATED 11/11/2008 M/S. RAJESH ESTATE NIRMAN, WHO ULTIMATELY PURCHASED THE PROPERTY AS NO MINEE OF M/S. RAJESH CONSTRUCTION COMPANY HAS ACKNOWLEDGED THE FACT THAT POSSESSION OF THE PROPERTY WAS GIVEN TO THEM BY THE ASSESSEE ONLY ON 11/11/2005. THIS LETTER WAS ALSO FILED BEFORE THE AO. THE AO HOWEVER PROCE EDED TO HOLD THAT THE AGREEMENT FOR SALE DATED 1/4/2004 CLEARLY ACKNOWLED GED THE FACT THAT THE ASSESSEE HAD PUT THE PURCHASER IN POSSESSION OF THE PROPERTY. 4. THE CIT(A) CONFIRMED THE ORDER OF THE AO ON THIS ASPECT OF THE POSSESSION OF THE PROPERTY HAVING BEEN DELIVERED BY THE ASSESSEE TO THE PURCHASER OF THE PROPERTY ON THE DATE OF SIGNING OF THE AGREEMENT ON 1/4/2004. 5. AS A CONSEQUENCE TO THE FINDING BY THE AO IN THE COURSE OF ASSESSMENT FOR A.Y 2006-07 THAT THE TRANSFER OF THE PROPERTY H AD TAKEN PLACE ON 1/4/2004 FALLING WITHIN THE ASSESSMENT YEAR 2005-06 . PROCEEDINGS UNDER SECTION 147 WERE INITIATED IN A.Y 2005-06. THE CAP ITAL GAIN WAS ASSESSED IN THAT YEAR AS SHORT TERM CAPITAL GAIN. THE PROPERTY IN QUESTION HAD BEEN ACQUIRED BY THE ASSESSEE BY A REGISTERED CONVEYANCE DATED 10/6/1980. BY A DEED OF CONFIRMATION OF CONVEYANCE DATED 2/9/2002, THE VENDOR OF THE PROPERTY UNDER CONVEYANCE DEED DATED 10/6/1980 CONF IRMED THE DEED OF CONVEYANCE DATED 10/6/1980. THIS REGISTERED DEED D ATED 2/9/2002 DID NOT CONVEY THE TITLE IN RESPECT OF THE PROPERTY TO THE ASSESSEE BUT ONLY CONFIRMED THE FACT THAT THE TITLE TO THE ASSESSEE HAD ALREADY BEEN CONVEYED BY DEED OF CONVEYANCE DATED 10/6/1980. THE AO HELD THAT THE D ATE OF ACQUISITION OF THE PROPERTY BY THE ASSESSEE WAS ONLY 2/9/2002. TH E AO ALREADY TOOK THE VIEW THAT UNDER AGREEMENT DATED 1/4/2004 THE PROPER TY HAD ALREADY BEEN CONVEYED BY THE ASSESSEE UNDER AN AGREEMENT FOR SAL E WITHIN THE MEANING OF SECTION 2(47)(V) OF THE ACT. ACCORDING TO THE AO T HE PROPERTY WAS HELD BY THE ASSESSEE FOR A PERIOD OF LESS THAN 36 MONTHS PRIOR TO ITS TRANSFER (DATE OF ACQUISITION OF THE PROPERTY BY THE ASSESSEE ACCORDI NG TO AO BEING 2/9/2002 ITA NO. 1708/MUM/2011(A.Y. 2005-06) ITA NO.1709/MUM/2011(A.Y.2006-07) 5 AND DATE OF TRANSFER BY THE ASSESSEE BEING 1/4/2004 ) AND, THEREFORE, CAPITAL GAIN ON SALE OF THE PROPERTY HAS TO BE ASSESSED AS SHORT TERM CAPITAL GAIN. THE AO ACCORDINGLY ASSESSED A SUM OF RS. 4,94,65,00 0/- AS SHORT TERM CAPITAL GAIN AS FOLLOWS: THE SUBMISSION OF THE ASSESSEE STATING THAT THE PE RIOD OF HOLDING THE PROPERTY BY THE ASSESSEE SHOULD BE RECKONED FROM 10 TH JUNE 1980 WHEN THE PROPERTY WAS PURCHASED VIDE AGREEMENT DAT ED 10/6/1980 AND NOT FROM 02/09/2002 WHEN THE DEED OF CONFIRMATI ON OF CONVEYANCE WAS EXECUTED, ALSO DOES NOT HAVE ANY FO RCE BECAUSE EVEN IF IT IS ACCEPTED FOR A MOMENT THAT THE PROPERTY WA S PURCHASED BY THE ASSESSEE IN 1980 BY WAY OF PART PERFORMANCE OF A CO NTRACT OF THE NATURE REFERRED TO IN SECTION 53A OF TRANSFER OF PR OPERTY ACT, 1882. THE SAME CANNOT BE HELD TO BE TRANSFER IN TERMS OF THE PROVISIONS OF INCOME TAX ACT, 1961, SINCE, THE SAID DEEMING PROVI SION OF SECTION 2(47)(V) WAS INTRODUCED IN THE ACT ONLY W.E.F 01-04 -1989. IN VIEW OF THE ABOVE, IT CANNOT BE HELD THAT THE ASSESSEE PURCHASE D THE PROPERTY VIDE AGREEMENT DATED 10-06-1980 AND THE DATE OF ACQUISIT ION OF THE PROPERTY BY THE ASSESSEE HAS TO BE TREATED TO BE FR OM 02-09-2002 WHEN THE SAID PROPERTY WAS CONVEYED TO THE ASSESSEE BY A DEED OF CONFIRMATION. HENCE, THE ASSESSEES CONTENTION THAT THE CAPITAL GAIN FROM THE TRANSACTION SHOULD BE TREATED AS LONG TERM CAPITAL GAIN CANNOT BE ACCEPTED. III) THE ASSESSEES CONTENTION THAT BOTH THE SELLER AND THE BUYER TREATED THE TRANSACTION IN THEIR BOOKS ONLY AS AN ADVANCE A LSO DOES NOT HAVE ANY MERIT BECAUSE U/S.2(47)(V) OF THE IT ACT, A TRA NSACTION IS TREATED AS CONSTITUTING A TRANSFER IN THE CASE OF RECEIPT OF A DVANCE AND POSSESSION BEING GIVEN AND BOTH THE CONDITIONS HAVE BEEN SATIS FIED IN THE ASSESSEES CASE. 5.4 FOR THE ABOVE REASONS, THE EXPLANATION FURNISH ED BY THE ASSESSEE CANNOT BE ACCEPTED AND THE INCOME FROM THE AGREEMEN T OF SALE DATED 01-04-2004 IS TREATED AS SHORT TERM CAPITAL GAIN I NCOME IN THE HANDS OF THE ASSESSEE FOR THE AY 2005-06. THE SAME IS CO MPUTED AS UNDER: SALE CONSIDERATION RS.5,00,00,000 LESS : COST OF ACQUISITION (AS PER DEED OF CONFIRMATION OF CONVEYANCE DATED 02.09.2002) RS. 5,35,000 SHORT TERM CAPITAL GAINS RS.4,94,65,000 THE ASSESSMENT AS ABOVE WAS MADE ON SUBSTANTIVE BAS IS IN A.Y 2006-07. ITA NO. 1708/MUM/2011(A.Y. 2005-06) ITA NO.1709/MUM/2011(A.Y.2006-07) 6 6. IN A.Y 2006-07 THE AO FOUND THAT THE PROPERTY IN QUESTION HAS BEEN ASSESSED AT MARKET VALUE OF RS. 7.85 CRORES BY THE REGISTRATION AUTHORITIES FOR THE PURPOSE OF STAMP DUTY. THE AO PROPOSED TO SUBSTITUTE THE FULL VALUE OF CONSIDERATION RECEIVED ON TRANSFER OF CAPITAL AS SET BY RS. 7.85 CRORES INSTEAD OF RS.5.00 CRORES ACTUALLY RECEIVED BY THE ASSESSE, IN VIEW OF THE PROVISIONS OF SECTION 50C OF THE ACT. THE ASSESSEE MADE A REQUEST FOR REFERENCE TO VALUATION BY THE DVO. THE DVO ON A RE FERENCE BY THE AO REPORTED THE VALUE OF THE PROPERTY AT A SUM OF RS. 6,49,91,000/-. THE AO HOWEVER MADE A PROTECTIVE ASSESSMENT OF CAPITAL GAI N AT RS. 7.85 CRORES IN THE YEAR 2006-07. IN ASSESSMENT YEAR 2006-07 EXEMP TION UNDER SECTION 54EC OF THE ACT WAS CLAIMED BY THE ASSESSEE BY MAKI NG ELIGIBLE INVESTMENT TO THE EXTENT OF FULL VALUE OF SALE CONSIDERATION R ECEIVED ON TRANSFER. THIS WAS REJECTED BY THE AO BECAUSE THE EXEMPTION U/S.54 EC OF THE ACT WAS AVAILABLE ONLY ON SALE OF LONG TERM CAPITAL ASSET. AS ALREADY SEEN THE CIT(A) CONFIRMED THE ORDER OF THE AO IN PRINCIPLE. 7. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE PRIMA RILY SUBMITTED THAT THERE WAS NO DELIVERY OF POSSESSION OF THE PROPERTY AND, THEREFORE, PROVISIONS OF SECTION 2(47)(V) OF THE ACT WERE NOT ATTRACTED. IN THIS REGARD OUR ATTENTION WAS DRAWN TO THE AGREEMENT FOR SALE DATED 1/4/2004 AND OTHER RELEVANT DOCUMENTS. THE LD. D.R RELIED ON THE ORDER OF THE REVENUE AUTHORITIES. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. SECTI ON 2(47) OF THE ACT ORIGINALLY DID NOT CONTAIN CLAUSE (V). CLAUSE (V) WAS INTRODUCED BY THE FINANCE ACT 1987 W.E.F. 1/4/1988. AS FAR AS THE DE FINITION OF TRANSFER IS CONCERNED ONLY SALE, EXCHANGE OR RELINQUISHMENT OF CAPITAL ASSET OR EXTINGUISHMENT OF ANY RIGHTS IN A CAPITAL ASSET WAS CONSIDERED AS TRANSFER UNDER SECTION 2(47) OF THE ACT. CLAUSE (V) WAS INT RODUCED BY THE FINANCE ACT 1987 W.E.F. 1/4/1988 TO INCLUDE ANY TRANSACTION INV OLVING THE ALLOWING OF THE POSSESSION OF ANY IMMOVABLE PROPERTY TO BE TAKEN OR RETAINED IN PART ITA NO. 1708/MUM/2011(A.Y. 2005-06) ITA NO.1709/MUM/2011(A.Y.2006-07) 7 PERFORMANCE OF A CONTRACT OF THE NATURE REFERRED IN SECTION 53A OF THE TRANSFER OF PROPERTY ACT 1882 ( 4-1882). THE REASO NS FOR INTRODUCTION OF SUCH CLAUSE EXPLAINED IN CIRCULAR NO.495 DATED 22/9 /1987 AS FOLLOWS: DEFINITION OF TRANSFER WIDENED TO INCLUDE CERTAI N TRANSACTIONS.11.1 THE EXISTING DEFINITION OF THE WORD TRANSFER IN S ECTION 2(47) DOES NOT INCLUDE TRANSFER OF CERTAIN RIGHTS ACCRUING TO A PU RCHASE, BY WAY OF BECOMING A MEMBER OF OR ACQUIRING SHARES IN A CO-OP ERATIVE SOCIETY, COMPANY, OR ASSOCIATION OF PERSONS OR BY WAY OF ANY AGREEMENT OR ANY ARRANGEMENT WHEREBY SUCH PERSON ACQUIRES ANY RIGHT IN ANY BUILDING WHICH IS EITHER BEING CONSTRUCTED OR WHICH IS TO BE CONSTRUCTED. TRANSACTIONS, OF THE NATURE REFERRED TO ABOVE ARE N OT REQUIRED TO BE REGISTERED UNDER THE REGISTRATION ACT, 1908. SUCH A RRANGEMENTS CONFER THE PRIVILEGES OF OWNERSHIP WITHOUT TRANSFER OF TIT LE IN THE BUILDING AND ARE A COMMON MODE OF ACQUIRING FLATS PARTICULARLY I N MULTI-STOREYED CONSTRUCTIONS IN BIG CITIES. THE DEFINITION ALSO DO ES NOT COVER CASES WHERE POSSESSION IS ALLOWED TO BE TAKEN OR RETAINED IN PART PERFORMANCE OF A CONTRACT, OF THE NATURE REFERRED T O IN SECTION 53A OF THE TRANSFER OF PROPERTY ACT, 1882. NOW SUB-CLAUSES (V) AND (VI) HAVE BEEN INSERTED IN SECTION 2(47) TO PREVENT AVOIDANCE OF CAPITAL GAINS LIABILITY BY RECOURSE TO TRANSFER OF RIGHTS IN THE MANNER REFERRED TO ABOVE. 9. IN THE PRESENT CASE THE ASSESSEE AGREED TO SELL THE PROPERTY TO M/S. RAJESH CONSTRUCTION COMPANY BY AN AGREEMENT DATED 1 /4/2004. THE ASSESSEE HAS BEEN TAKING A STAND BEFORE THE AO THAT POSSESSION OF THE PROPERTY WAS NOT DELIVERED TO THE PURCHASER AT THE TIME OF AGREEMENT FOR SALE. WE HAVE PERUSED THE AGREEMENT AND WE FIND THAT CLAU SE 3 OF THE AGREEMENT PROVIDES AS FOLLOWS: 3.THE SALE AND TRANSFER SHALL BE COMPLETED ON OR A FTER 31.03.2005 AND IN ANY EVENT NOT LATER THAN 30TH APRIL, 2005, HEREI NAFTER CALLED THE DUE DATE AS FOLLOWS: (A) THE PURCHASERS SHALL MAKE THE BALANCE PAYMENT A S MENTIONED IN CLAUSE 2 (B) ABOVE TO THE VENDOR; (B) ON COMPLETION OF SALE, THE VENDOR SHALL EXECUTE THE CONVEYANCE OF THE SAID PROPERTY IN FAVOUR OF THE PU RCHASERS OR THEIR NOMINEES AS ALSO AN IRREVOCABLE POWER OF ATTO RNEY (TILL THE ITA NO. 1708/MUM/2011(A.Y. 2005-06) ITA NO.1709/MUM/2011(A.Y.2006-07) 8 TRANSFER OF THE SAID PROPERTY IN THE RECORDS OF CIT Y SURVEY IN THE NAMES OF THE PURCHASERS) AND OTHER DOCUMENTS TO EFF ECTIVELY TRANSFER THE SAID PROPERTY IN FAVOUR OF THE PURCHAS ERS; (C) THE VENDOR SHALL PLACE THE PURCHASERS INTO QUIE T VACANT AND PEACEFUL POSSESSION OF THE SAID PROPERTY, SAVE AND EXCEPT THE PORTIONS OF THE SAID SECOND PROPERTY IN OCCUPATION OF THE TENANTS (D) THE VENDOR SHALL SIGN ALL OTHER PAPERS AND DOCU MENTS INCLUDING THE INTIMATION TO BMC ETC., AND ALL OTHER DEPARTMENTS AND AUTHORITIES; (E) THE VENDOR SHALL ATTEND THE OFFICE OF THE SUB-R EGISTRAR OF ASSURANCES TO ADMIT EXECUTION OF THE AFORESAID DOCU MENTS AND ALSO COMPLY WITH ALL REQUIREMENTS IN THIS REGARD. FURTHER IT IS ALSO SEEN THAT THERE WERE TWO TENANTS IN THE PROPERTY AND THE ASSESSEE HAD DECLARED IN THE AGREEMENT IN CLAUSE 4 AS FOLLOWS: 4. THE VENDOR DECLARES THAT TENANTS OCCUPYING THE SAID PROPERTY ARE TENANTS OF THE VENDOR OF THE STRUCTURE ONLY AS MENT IONED IN THE ANNEXURE A HERETO. TWO OF THE TENANTS VIZ. PHARMA LAB ENGINEERING INDIA PRIVATE LIMITED AND KNK ENGINEERING WORKS HAV E CLAIMED TENANCY IN RESPECT OF THE LAND ADJACENT TO STRUCT URE. THE VENDOR DECLARES THAT THE SAID CLAIM IS FALSE AND THE TENA NCY OF THE SAID TWO TENANTS ARE ONLY IN RESPECT OF STRUCTURES AND NOT P ERTAINING TO ADJACENT LAND. IT IS FURTHER SEEN THAT CLAUSE 7 & 8 OF THE AGREEME NT PROVIDES AS FOLLOWS: 7. IT IS HOWEVER AGREED AS UNDER: (A) IN CITY SURVEY RECORDS AND BMC RECORDS PERTAIN ING TO THE SAID SECOND PROPERTY THE SAID PROPERTY IS SHOWN STA NDING IN THE NAME OF THE SAID BOLE BROTHERS. THE PURCHASERS SHA LL GET THE SAME RECTIFIED AT THEIR COST AND SHALL NOT INSIST T O GET THE SAME RECTIFIED. (B)THE PURCHASERS SHALL MAKE ALL REQUISITE ENQUIRIE S PERTAINING TO APPLICABILITY OF URBAN LAND (CEILING AND REGULAT ION) ACT, 1976 ITA NO. 1708/MUM/2011(A.Y. 2005-06) ITA NO.1709/MUM/2011(A.Y.2006-07) 9 AND OBTAIN ALL NECESSARY PERMISSIONS INCLUDING PER MISSION FOR SALE OF THE SAID PROPERTY TO THE PURCHASERS AT THE IR COSTS; (C) THERE IS NO ACCESS TO THE SAID FIRST PROPERTY. (D) THE PURCHASERS AGREE THAT THE CONSIDERATION AS AFORESAID IS LUMP SUM CONSIDERATION AND NOT PROPORTIONATE TO THE AREA OF THE SAID PROPERTY OR THE DEVELOPMENT POTENTIAL THEREOF . (E) THE PURCHASERS THEMSELVES SHALL DEAL WITH THE C LAIM OF THE SAID TWO TENANTS PERTAINING TO ADJACENT LAND. THE V ENDOR SHALL, HOWEVER, FURNISH ALL PARTICULARS IN PROOF OF THE TE NANCY BEING ONLY OF THE STRUCTURES. IT WILL BE THE SOLE RESPONS IBILITY AND OBLIGATION OF THE PURCHASERS TO DEAL AND NEGOTIATE WITH THE TENANTS/OCCUPANTS ON THE SAID PROPERTY AT THE COSTS AND EXPENSES OF THE PURCHASERS AND THE VENDOR SHALL NOT BE LIABLE OR RESPONSIBLE FOR THE SAME. 8. THE PURCHASERS SHALL PURCHASE THE SAID PROPERTY SUBJECT TO WHAT IS STATED IN CLAUSE 7 ABOVE AND ALSO SUBJECT TO OCCUPA TION OF PORTIONS OF THE SAID SECOND PROPERTY BY THE TENANTS. CLAUSE-10 OF THE AGREEMENT ALSO PROVIDES AS FOLLOWS : 10. THE VENDOR SHALL BEAR AND PAY ALL THE OUTGOIN GS INCLUDING MUNICIPAL TAXES ETC. IN RESPECT OF THE SAID PROPERT Y UPTO THE DATE OF COMPLETION OF SALE HEREIN AND THEREAFTER THE PURCHA SERS SHALL BEAR AND PAY THE SAME AND THE SAME SHALL BE APPORTIONED, IF NECESSARY. 10. PURSUANT TO CLAUSE 7 OF THE AGREEMENT, AN APPLI CATION WAS MADE TO THE ADDITIONAL COLLECTOR AND CA, ULC, BRIHAN MUMBAI FOR NO OBJECTION FROM URBAN CEILING OF LAND FOR TRANSFER OF PROPERTY. BY A LETTER DATED 20/5/2005 THE CONCERNED AUTHORITIES HAS EXPRESSED NO OBJECTIO N FOR THE PURPOSE OF TRANSFER OF THE PROPERTY FROM THE ULC POINT OF VIEW . ULTIMATELY A DEED OF CONVEYANCE WAS EXECUTED IN FAVOUR OF THE NOMINEE OF M/S. RAJESH CONSTRUCTION COMPANY ON 11/11/2005, WHICH WAS DULY REGISTERED. IT WAS AT THIS POINT OF TIME THAT POSSESSION OF THE PROPER TY WAS GIVEN TO THE PURCHASER. AS FAR AS CLAUSE 3 OF THE AGREEMENT F OR SALE DATED 1/4/2004 IS ITA NO. 1708/MUM/2011(A.Y. 2005-06) ITA NO.1709/MUM/2011(A.Y.2006-07) 10 CONCERNED IT CLEARLY CONTEMPLATES DELIVERY OF POSSE SSION BY THE ASSESSEE TO THE PURCHASER ONLY AT THE TIME OF CONVEYANCE I.E. O N OR AFTER 31/3/2005. THE AO IN OUR VIEW HAS PROCEEDED ON A TOTAL MISCONCEPTI ON OF FACTS. THERE IS NO EVIDENCE BEFORE THE AO TO COME TO THE CONCLUSION TH AT POSSESSION OF THE PROPERTY WAS DELIVERED BY THE ASSESSEE TO M/S. RAJE SH CONSTRUCTION COMPANY UNDER THE AGREEMENT DATED 1/4/2004 OR PRIOR TO THE DEED OF CONVEYANCE DATED 11/11/2005. IN THESE CIRCUMSTANCE WE ARE OF THE VIEW THAT THERE WAS NO OCCASION TO INVOKE THE PROVISIONS OF SECTION 2(47)(V) OF THE ACT. THE BOARD RESOLUTION REFERRED TO BY THE AO IN OUR VIEW CANNOT SUPPORT THE PLEA OF THE REVENUE. THE BOARD RESOLUTION DATE D 23/3/2004 DOES NOT IN ANY WAY SHOW THAT THERE WAS DELIVERY OF POSSESSION BY THE ASSESSEE AT THE TIME OF AGREEMENT FOR SALE DATED 1/4/2004. WE ARE, THEREFORE, OF THE VIEW THAT THE TRANSFER OF THE CAPITAL ASSET WAS MADE ONL Y ON 11/11/2005 FALLING WITHIN THE PREVIOUS YEAR RELEVANT TO A.Y 2006-07. CONSEQUENTLY THE FINDING THAT TRANSFER OF THE PROPERTY TOOK PLACE DURING PRE VIOUS YEAR RELEVANT TO AY 05-06 AND CONSEQUENT DETERMINATION OF CAPITAL GAIN IN A.Y 2005-06 IS HELD TO BE NOT PROPER AND THE SAME IS DELETED. 11. AS FAR AS A.Y 2006-07 IS CONCERNED THIS IS THE YEAR IN WHICH THE CAPITAL ASSET WAS TRANSFERRED AND CAPITAL GAIN ON SALE OF T HE PROPERTY HAS TO BE ASSESSED. ADMITTEDLY THE PROPERTY IN QUESTION IS A LONG TERM CAPITAL ASSET BECAUSE IT WAS HELD BY THE ASSESSEE FOR A PERIOD OF MORE THAN 36 MONTHS (EVEN ASSUMING THAT THE ASSESSEE ACQUIRED THE PROPE RTY ON 2/9/2002) SINCE THE SALE OF THE PROPERTY HAD TAKEN PLACE ON 11/11/0 5 THE SALE HAS TO BE CONSIDERED AS SALE OF A LONG TERM CAPITAL ASSET GIV ING RISE TO LONG TERM CAPITAL ASSET. WE HOWEVER MAKE IT CLEAR THAT WE ARE NOT GO ING INTO THE QUESTION WHETHER THE ASSESSEE HELD THE PROPERTY FROM 2/9/200 2 OR 10/6/11980 BECAUSE THE ASSESSEE IN ITS COMPUTATION HAS NOT CLA IMED BENEFIT OF INDEXATION. THIS QUESTION IS LEFT OPEN TO BE DECID ED BY THE AO AND FOR THIS PURPOSE THE ORDER OF CIT(A) IS SET ASIDE AND ISSUE REMITTED TO THE AO. SINCE ARE AENTITLED TO THE BENEFIT OF SECTION 54EC OF THE ACT AND OTHER RELATED ITA NO. 1708/MUM/2011(A.Y. 2005-06) ITA NO.1709/MUM/2011(A.Y.2006-07) 11 BENEFIT LIKE INDEXATION ETC. THESE ASPECTS HAVE NO T BEEN CONSIDERED BY THE AO OR CIT(A). THE APPLICABILITY OF PROVISIONS OF S ECTION 50C OF THE ACT AND WHAT IS THE SALE CONSIDERATION RECEIVED ON TRANSFER OF THE CAPITAL ASSET HAVE NOT BEEN CONSIDERED IN PROPER PERSPECTIVE. WE, THE REFORE, SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND REMAND THE ISSUE WI TH REGARD TO DETERMINATION OF THE QUANTUM OF CAPITAL GAIN TO THE AO FOR FRESH CONSIDERATION. THE AO WILL ALLOW THE BENEFIT OF EX EMPTION UNDER SECTION 54 EC AS WELL AS INDEXATION BENEFIT AND DECIDE THE QUA NTUM OF CAPITAL GAIN TO BE BROUGHT TO TAX IN ACCORDANCE WITH LAW. CONSEQUE NTLY THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO.1,2 & 4 IN A.Y 2005-05 A RE ALLOWED AND GROUND NO.1,2 RAISED IN A.Y 2006-07 ARE ALLOWED WHILE GR.N O.3 IS ALLOWED FOR STATISTICAL PURPOSES. IN OTHER WORDS, THE CAPITAL GAIN IS DIRECTED TO BE ASSESSED ON A SUBSTANTIVE BASIS IN A.Y 2006-07 ON T HE LINES INDICATED ABOVE. 12. THE NEXT COMMON ISSUE THAT ARISES FOR CONSIDERA TION IN THESE APPEALS, WHICH IS AGITATED IN GROUND NO.3 IN A.Y 2005-06 AND GROUND NO.4 IN A.Y 2006-07 IS THE DISALLOWANCE OF EXPENSES DEBITED IN THE P&L ACCOUNT CLAIMED BY THE ASSESSEE. ACCORDING TO THE AO THE ASSESSEE WAS IN THE BUSINESS OF TRADING IN NON-FERROUS METALS AND DURING THE PREVIO US YEAR RELEVANT TO A.Y 2005-06 AND 2006-07 THERE WAS NO TRADING. NEVERTHE LESS SEVERAL EXPENSES WERE DEBITED TO THE P&L ACCOUNT, WHICH WERE DISALLO WED BY THE AO AS THE ASSESSE WAS NOT CARRYING ON ANY BUSINESS AND THOSE EXPENSES CAN BE ALLOWED WHEN BUSINESS OF THE ASSESSEE IS CARRIED ON DURING THE PREVIOUS YEAR. ON APPEAL BY THE SSESSEE THE CIT(A) DIRECTED SOME OF THE ADDITIONS MADE BY THE AO BE DELETED AS ACCORDING TO CIT(A), S OME OF THE EXPENSES ARE REQUIRED TO BE INCURRED STATUTORILY TO MAINTAIN COR PORATE EXISTENCE. ACCORDING TO THE ASSESSEE ALL EXPENSES OUGHT TO BE ALLOWED AS DEDUCTION BECAUSE THE ASSESSEE HAD NOT COMPLETELY CLOSED DOWN ITS BUSINESS AND THE ABSENCE OF TRADING ACTIVITY WAS ONLY DUE TO UNFAVOU RABLE MARKET CONDITIONS. THE CIT(A) HOWEVER DID NOT ACCEPT THIS CONTENTION. THE CIT(A) WAS OF THE VIEW THAT SOME OF THE EXPENSES DISALLOWED BY THE AO WERE STATUTORY ITA NO. 1708/MUM/2011(A.Y. 2005-06) ITA NO.1709/MUM/2011(A.Y.2006-07) 12 EXPENSES WHICH WERE MANDATORY FOR EXISTENCE OF A CO MPANY. HE THEREFORE, DIRECTED THAT THE SAME SHOULD BE ALLOWED AS DEDUCTI ON. THE EXPENSES DISALLOWED BY THE AO AND ALLOWED BY THE CIT(A) AND THE EXPENSES WHICH WERE DISALLOWED, FOR WHICH THE ASSESSEE IS IN APPEAL BE FORE THE TRIBUNAL IN AY 05- 06 AND 06-07 ARE GIVEN AS ANNEXURE 1 & 2 RESPECTIV ELY OF THIS ORDER. 13. WE HAVE HEARD SUBMISSIONS OF THE LD. COUNSEL FO R THE ASSESSE, WHO REITERATED THE PLEA OF THE ASSESSEE AS WAS PUT FORT H BEFORE THE CIT(A). WE HAVE CONSIDERED HIS SUBMISSIONS AND FIND THAT THE M AJOR ITEM OF EXPENSES DISALLOWED IS ADMINISTRATIVE EXPENSES AND TRAVELLIN G EXPENSES. THE ASSESSEE HAS NOT FILED ANY EVIDENCE TO SHOW AS TO HOW THE TR ADING ACTIVITIES HAD ONLY BEEN TEMPORARILY SUSPENDED AND IT WAS NOT A CASE OF COMPLETE CLOSURE OF THE BUSINESS. ADMITTEDLY THERE WAS NO TRADING ACTIVITY DURING BOTH THE PREVIOUS YEARS IN QUESTION. THERE IS NO EVIDENCE ON RECORD TO SHOW AS TO HOW THE ASSESSEE WAS MAKING ATTEMPT TO CONTINUE ITS BUSINES S OF TRADING IN NONFERROUS METALS. IN THE GIVEN CIRCUMSTANCES IT W AS ONLY THE EXPENSES WHICH WERE NECESSARY TO MAINTAIN CORPORATE EXISTENC E OF THE ASSESSEE THAT COULD BE ALLOWED AS DEDUCTION. CONSIDERING THE QUA NTUM OF EXPENSES ULTIMATELY DISALLOWED BY THE REVENUE AUTHORITIES AN D THE HEADS OF THOSE EXPENSES AND THE QUANTUM OF EXPENSES CLAIMED BY THE ASSESSEE AS DEDUCTION, WE ARE OF THE VIEW THAT DISALLOWANCE SUS TAINED BY THE CIT(A) IS JUST AND PROPER AND CALLS FOR NO INTERFERENCE. CO NSEQUENTLY, THESE GROUNDS RAISED BY THE ASSESSEE ARE DISMISSED. 14. IN THE RESULT, BOTH THE APPEALS BY THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON TH E 21 ST DAY OF DEC. 2011. SD/- SD/- ( R.K.PANDA ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED. 21 ST DEC.2011 ITA NO. 1708/MUM/2011(A.Y. 2005-06) ITA NO.1709/MUM/2011(A.Y.2006-07) 13 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RE BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO. 1708/MUM/2011(A.Y. 2005-06) ITA NO.1709/MUM/2011(A.Y.2006-07) 14 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 8/12/11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 9/12/11 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER