BIREN KANTILAL VORA, MUMBAI V. ITO 20(1)(2), MUMBAI

ITA 1758/MUM/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8007 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 04-08-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 14-03-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANURAG SRIVASTAVA
• Keywords: Capital asset; Cost of acquisition

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUM BAI . . , , BEFORE SHRI I. P. BANSAL, JM AND SHRI SANJAY ARORA , AM ./ I.T.A. NO. 1758/MUM/2012 ( / ASSESSMENT YEAR: 2008-09) BIREN KANTILAL VORA 514, ANJANI COMPLEX, PAREIRA HILL ROAD, ANDHERI KURLA ROAD, ANDHERI (E), MUMBAI-400 099 / VS. I.T.O. 20(1)(2), PIRAMAL CHAMBERS, LALBAUG, PAREL, MUMBAI ./ ./PAN/GIR NO. AABPV 2715 N ( /APPELLANT ) : ( !' / RESPONDENT ) # $ / APPELLANT BY : SHRI NISHIT GANDHI !' # $ / RESPONDENT BY : SHRI ANURAG SRIVASTAVA % &'( # )* / DATE OF HEARING : 05.08.2014 +,- # )* / DATE OF PRONOUNCEMENT : 08.08.2014 . / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-31, MUMBAI (CIT(A) FOR SH ORT) DATED 16.02.2012, DISMISSING THE ASSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S .143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A. Y.) 2008-09 VIDE ORDER DATED 16.12.2010. 2 ITA NO. 1758/MUM/2012 (A.Y. 2008-09) BIREN KANTILAL VORA VS. ITO 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE RETU RNED SHORT TERM CAPITAL GAIN (STCG) ON THE SALE OF A FLAT AT 404, RUDRAKSH BUILDING, NA RIMAN ROAD, VILE PARLE (E), MUMBAI, VIDE AN AGREEMENT OF SALE DATED 28.03.2008, AT RS.5 ,46,800/-, CLAIMING FROM THE SALE CONSIDERATION (RS.77.40 LACS), APART FROM THE COST OF ACQUISITION AND COSTS INCIDENTAL TO TRANSFER (AT RS.65,16,720/-), OTHER CHARGES (RS.6,7 6,480/-), COMPRISING INTEREST ON HOUSING LOAN (RS.1,50,000/-) AND PRE-CLOSURE CHARGES (RS.5, 26,480/-) PAID TO BANK. THE ASSESSING OFFICER (A.O.) DISALLOWED BOTH; THE INTEREST ON HOU SING LOAN HAVING BEEN ALSO CLAIMED U/S.24, SO THAT THERE WAS A DOUBLE CLAIM IN ITS RES PECT, ASSESSING THE SAID CAPITAL GAIN AT RS.12,23,280/-. IN APPEAL, WHILE THE ASSESSEE ACCEP TED THE DISALLOWANCE OF RS.1,50,000/-, THE PRE-CLOSURE CHARGES WAS ARGUED AS DEDUCTIBLE U/ S.48(I), I.E., EXPENSES INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER. TH E SAME DID NOT FIND FAVOUR WITH THE LD. CIT(A). THE ASSESSEE HAD NOT BEEN ABLE TO SUBSTANTI ATE ITS CLAIM OF THE SAID CHARGE AS BEING AN ENCUMBRANCE ON THE PROPERTY. THE SAID EXPE NSE WAS INCURRED ONLY BECAUSE THE LOAN WAS PAID PRIOR TO ITS DUE DATE (OF REPAYMENT) AND, THEREFORE, ONLY IN THE NATURE OF ADDITIONAL CHARGES/INTEREST LEVIED BY THE BANK, AND HAD NOTHING TO DO WITH THE TRANSFER. AGGRIEVED, THE ASSESSEE IS IN SECOND APPEAL. 3. BEFORE US, THE ASSESSEES CASE WAS PRINCIPALLY I N TERMS OF THE PRE-CLOSURE CHARGE BEING AN EXPENDITURE NECESSARY TO EFFECT TRANSFER A ND, ACCORDINGLY, DEDUCTIBLE U/S. 48(I). A PERUSAL OF THE TRANSFER AGREEMENT, FURNISHED DURI NG THE COURSE OF THE HEARING, HOWEVER, REVEALED THAT THE ASSESSEE HAD RECEIVED ONLY A SUM OF RS.1,50,000/- DURING THE RELEVANT YEAR, I.E., UPON THE EXECUTION OF THE AGREEMENT, AN D THE BALANCE RS.75.90 LACS WAS TO BE RECEIVED ON OR BEFORE 30.04.2008, AND WHEREUPON VAC ANT AND PEACEFUL POSSESSION OF THE RELEVANT FLAT WAS TO BE HANDED OVER TO THE TRANSFER EES (CL. 4 OF THE AGREEMENT). THE LD. AUTHORIZED REPRESENTATIVE (AR), ON BEING QUESTIONED , CONFIRMED THAT THE BALANCE PAYMENT (OF RS.75.90 LACS) WAS RECEIVED IN APRIL, 2 008 AND THE AGREEMENT REGISTERED ON 04.04.2008. THOUGH HE WOULD INSIST THAT THERE WAS A TRANSFER DURING THE RELEVANT YEAR, WE ARE UNDER THE CIRCUMSTANCES UNABLE TO, AT LEAST PRIMA FACIE , AGREE THAT THE POSSESSION HAD BEEN TRANSFERRED DURING THE RELEVANT YEAR, I.E., ON THE RECEIPT OF THE SIGNING AMOUNT 3 ITA NO. 1758/MUM/2012 (A.Y. 2008-09) BIREN KANTILAL VORA VS. ITO (RS.1.50 LACS), AND IN BREACH OF THE AGREEMENT ITSE LF. EVEN OTHERWISE THE HONBLE COURTS HAVE REGULARLY EMPHASIZED ON SUBSTANTIAL COMPLIANCE OF THE AGREEMENT AS BEING DETERMINATIVE OF THE ISSUE OF POSSESSION. THE LD. A R WOULD THEN SUBMIT THAT IN THAT CASE THERE WAS NO TRANSFER DURING THE YEAR AND, CONSEQUE NTLY, NO CAPITAL GAIN WOULD ARISE FOR THE CURRENT YEAR IN THE FIRST PLACE. WE AGREE. NO D OUBT, THE SAME AMOUNTS TO THE ASSESSEE TAKING A CONTRADICTORY STAND, HAVING RETURNED THE I NCOME FOR THE CURRENT YEAR, BUT THEN IT IS THE CORRECT LEGAL POSITION THAT IS RELEVANT, AND NOT THE VIEW THAT THE PARTIES MAY TAKE OF THEIR RIGHTS IN THE MATTER (REFER: CIT V. C. PARAKH & CO. (INDIA) LTD . (1956) 29 ITR 661 (SC); KEDARNATH JUTE MFG. CO. LTD. V. CIT (1971) 82 ITR 363 (SC)). AS REGARDS THE DEDUCTION QUA PRE-CLOSURE CHARGES TO BANK, THE SAME WOULD ASSUME RELEVANCE ONLY IF THE CAPITAL GAIN BECOMES ASSESSAB LE FOR THE CURRENT YEAR. TOWARD THIS, THE ISSUE WOULD BE AS TO THE NATURE OF THE CHARGES. THE MATTER IN OUR VIEW IS PRINCIPALLY FACTUAL. THE TEST IN THIS RESPECT WOULD BE WHETHER THE SAID CHARGE WOULD STAND TO BE INCURRED, I.E., INDEPENDENT OF THE TRANSFER, AS WHE RE, SAY, THE ASSESSEE HAS FUNDS WITH HIM TO REPAY THE BANK LOAN OR, SAY, IS ABLE TO ACCESS F UNDS AT A CHEAPER RATE, SO THAT IT MAKES ECONOMIC SENSE FOR HIM TO SWITCH OR SWAP THE LOAN W ITH THE SAID LINE OF CREDIT. THAT THE ASSESSEE WAS REQUIRED TO LIQUIDATE THE LOAN PREMATU RELY IN THE PRESENT CASE ON ACCOUNT OF HIS DECISION TO TRANSFER THE FLAT, IS AN ALTOGETHER DIFFERENT MATTER, AND OF NO MOMENT IN DETERMINING THE NATURE OF THE CHARGE. THE APEX COUR T IN CIT VS. TATA IRON & STEEL [1998] 231 ITR 285 (SC) CLARIFIED THAT THE MANNER OF REPAY MENT OF A LOAN OR NON-REPAYMENT WILL NOT ALTER THE COST OF AN ASSET. THAT IS, THAT THE C OST OF AN ASSET AND ITS FINANCING ARRANGEMENT AND SEPARATE AND INDEPENDENT MATTERS, S O THAT ONE WOULD NOT HAVE ANY BEARING ON THE OTHER. THOUGH RENDERED IN THE CONTEX T OF DETERMINATION OF COST OF (ACQUISITION OF) A CAPITAL ASSET, IT WOULD HAVE APP LICATION IN PRINCIPLE WHERE COSTS IN RESPECT OF FINANCING ARRANGEMENTS ARE IMPUTED/ASCRI BED TO TRANSACTIONS RELATING TO TRANSFER OF CAPITAL ASSETS; THE ACQUISITION COST BEING ALSO INCURRED ON ITS TRANSFER ACQUISITION FOR ONE BEING DISPOSAL FOR THE OTHER. WITH REGARD TO THE ASSESSEES CLAIM U/S. 48(I), ON THE GROUND OF IT BEING AN ENCUMBRANCE, THE SAME WOULD NEED TO BE ESTABLISHED AS A FACT INASMUCH AS IT APPEARS TO 4 ITA NO. 1758/MUM/2012 (A.Y. 2008-09) BIREN KANTILAL VORA VS. ITO BE ONLY A CONTRACTUAL OBLIGATION ARISING OUT THE FI NANCING ARRANGEMENT. FURTHER, AS REGARDS THE LAW IN THE MATTER, I.E., QUA ENCUMBRANCE, THE DECISIONS IN THE CASE OF CIT VS. ROSHANBABU MOHAMMED HUSSEIN MERCHANT [2005] 275 ITR 231 (BOM) AND SONIA MARIA MISTRY VS. ITO [2013] 141 ITD 508 (MUM) WOULD BE RELEVANT. WE, HOWEVER, DO NOT CONSIDER IT NECESSARY FOR THE D ISPOSAL OF THIS APPEAL TO ISSUE ANY FINAL FINDINGS, WHICH SHALL STAND TO BE DECIDED BY THE A.O., DRAWING ON AND BEING GUIDED BY OUR FOREGOING OBSERVATIONS, WHERE DEEMED RELEVANT. THIS IS AS THE ANTECEDENT QUESTION OF TRANSFER DURING THE RELEVANT YEAR SHA LL HAVE TO BE DETERMINED FIRST. THERE HAVING BEEN NO EXAMINATION OF THIS ASPECT IN THE MA TTER; THE A.O. HAVING PROCEEDED ON THE FOOTING THAT THERE HAD INDEED BEEN A TRANSFER D URING THE RELEVANT YEAR QUA THE SAID FLAT, WE ONLY CONSIDER IT FIT AND PROPER THAT THE MATTER IS RESTORED BACK TO HIS FILE TO DETERMINE THE TRANSFER DATE, AND ADJUDICATE THE ISSUE OF CAPI TAL GAINS ON THE SAID FLAT, INCLUDING ITS COMPUTATION, WHERE REQUIRED, DETERMINING THE RELEVA NT ISSUES, AFTER ALLOWING DUE OPPORTUNITY OF HEARING TO THE ASSESSEE, PER A SPEAK ING ORDER. WE DECIDE ACCORDINGLY. 4. THE SECOND AND THE ONLY OTHER ISSUE IS WITH REGA RD TO THE DISALLOWANCE U/S. 14A(1), I.E., AT RS.2,10,915/-, FOLLOWING RULE 8D OF THE IN COME TAX RULES, 1962. THE LD. AR WOULD BRING TO OUR NOTICE CERTAIN FACTUAL ASPECTS, HAVING A BEARING IN THE MATTER, VIZ. OF JEWELLERY, A CAPITAL ASSET (IN THE FORM OF CUT AND POLISHED DIAMONDS), HAVING BEEN INCLUDED AS A PART OF THE QUALIFYING INVESTMENT AND , TWO, THE REPAYMENT OF CREDIT CARD (AT RS.4.42 LACS) AS HAVING BEEN TAKEN AS A PART OF THE SAID INVESTMENT, BOTH IMPACTING THE SUM ARRIVED AT WITH REFERENCE TO RULE 8D(2)(III). T HE A.O. SHALL, IN THE SET ASIDE PROCEEDINGS, ALSO CAUSE TO VERIFY THE SAME; THE ONU S TO ESTABLISH THE FACTS THOUGH, I.E., THE STATED OR OTHER ERRORS IN THE AOS WORKING, WOULD O NLY BE ON THE ASSESSEE, SO THAT THE MATTER IS TO THIS LIMITED EXTENT ALSO RESTORED BACK TO HIS FILE. AS REGARDS THE ASSESSEES CLAIM OF THERE BEING HARD LY ANY INVESTMENT DURING THE CURRENT YEAR, SO THAT THERE WAS NO OCCASION TO DISA LLOW INTEREST IN TERMS OF RULE 8D(2)(II), WE FIND THE ASSESSEES CLAIM AS MISCONCEIVED. THE D ISALLOWANCE U/S.14A(1) IS A STATUTORY DISALLOWANCE, SO THAT IN THE ABSENCE OF ASSESSEE SH OWING THE UTILIZATION OF ITS BORROWED 5 ITA NO. 1758/MUM/2012 (A.Y. 2008-09) BIREN KANTILAL VORA VS. ITO FUNDS TOWARD SPECIFIC ASSETS, NOT BEING ASSETS YIEL DING INCOME NOT FORMING PART OF THE TOTAL INCOME, THE AVERAGE FORMULA AS PRESCRIBED UND ER R. 8D SHALL APPLY. REFERENCE IN THIS CONTEXT MAY BE MADE TO THE DECISION IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DY. CIT [2010] 328 ITR 81 (BOM) (REFER PARAS 85, 86 AT PGS . 135-136), BESIDES SEVERAL BY THE TRIBUNAL, AS IN THE CASE OF KUNAL CORPORATION VS. ASST. CIT [2013] 28 ITR (TRIB) 277 (MUM), RENDERED FOLLOWING THE SAME. THE ASSESSEE HA VING NOT ESTABLISHED ITS FACTS IN THE MATTER, THE PROPORTIONATE METHOD OF R. 8D STOOD COR RECTLY APPLIED. WE DECIDE ACCORDINGLY. 5. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED FOR STATISTICAL PURPOSES. /-)0 &12/) # 3# 456 7 8 7. ' 9 ) # ) :; ORDER PRONOUNCED IN THE OPEN COURT ON AUGUST 08, 20 14 SD/- SD/- (I. P. BANSAL) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER % ( MUMBAI; <& DATED : 08.08.2014 '.&../ ROSHANI , SR. PS ! ' #$%& ' &$ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !' / THE RESPONDENT 3. % =) ( ) / THE CIT(A) 4. % =) / CIT - CONCERNED 5. @'AB !)&C1 , * C1- , % ( / DR, ITAT, MUMBAI 6. BD2 E( / GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , % ( / ITAT, MUMBAI