MILDRED PONNOTH, MUMBAI V. INCOME TAX OFFICER (INTERNATIONAL TAX)-3(3)(1), MUMBAI

ITA 1802/MUM/2024

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 0635 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 03-07-2024
• Assessment Year: 2016-2017
• Appeal Filed On: 09-04-2024
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MEHUL CHOKSI
• Keywords: Tax effect; Capital receipt; Reassessment proceedings
• Section: 147; 148; 56; 271(1)(c); 144; 2; 142(1); 234B; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, ‘I‘ BENCH MUMBAI BEFORE: MS.KAVITHA RAJAGOPAL, JUDICIAL MEMBER & SMT RENU JAUHRI, ACCOUNTANT MEMBER ITA No.1802/Mum/2024 (Assessment Year :2016-17) Mrs. Mildred Ponnoth C/o. V J Choksi & Co. LLP, 301, Jolly Bhavan No.2 New Marine Lines, Mumbai – 400 020 Vs. Income Tax Officer (International Tax)- 3(3)(1), Mumbai 16 th Floor, Air India Building, Nariman Point, Mumbai PAN/GIR No.AHNPP6598A (Appellant) .. (Respondent) Assessee by Shri Mehul Choksi Revenue by Shri Anil Sant Date of Hearing 04/07/2024 Date of Pronouncement 30/07/2024 आदेश / O R D E R PER RENU JAUHRI (AM): The aforesaid appeal has been filed by the assessee against final assessment order passed by the Income Tax Officer, INT Tax Ward 3(3)(1), Mumbai (‘Ld. AO’) u/s. 144 r.w.s. 144C(13) of the Income Tax Act, 1961 (‘the Act’) for Assessment Years 2016-17; pursuant to the directions issued by Dispute Resolution Panel, Mumbai (‘DRP’). 2. The grounds of appeal raised by the assessee read as under:- ITA No.1802/Mum/2024 Mrs. Mildred Ponnoth 2 Ground No.1 Section 147/148A/148 Issue. Validity and legality of reassessment u/s 148A of the 147/148A/ Act and subsequent notice u/s 148 of the Act [Tax effect: Rs 1,58,420/-] 1.1 On the facts and in the circumstances of the case and in law, the proceedings u/s 148A of the Act followed by notice u/s 148 of the Act and the re-assessment proceedings under section 147 of the Act are wholly misconceived without jurisdiction, Invalid, illegal and bad in law. 1.2 The Appellant submits that the notices u/s 148A/148 of the Act and proceedings based thereon are bad in law and the reopening is baseless and devoid of merits. 1.3. On the facts and in the circumstances of the case and in law, the learned AO/Dispute Resolution Panel has grossly erred in not considering submissions/objections of the Appellant and completing the reassessment in an arbitrary and unreasonable manner 1.4 The reassessment order is without lawful jurisdiction and hence unsustainable in eyes of law and is liable to be annulled and quashed. Ground No. 2 Section: 56 Issue: Addition of hardship allowance Rs 10,36,000/- [Tax effect: Rs 1,58,420/-] 2.1 On the facts and in the circumstances of the case and in law, the learned AO has grossly erred in adding Rs 10,36,000/- as income and raising tax/interest demand of Rs 4,00,502/- 2.2 The learned AO and Dispute Resolution Panel grossly erred in not considering hardship allowance as capital receipt as held in judicial authorities of Hon'ble Income Tax Appellate Tribunal, Mumbai ITA No.1802/Mum/2024 Mrs. Mildred Ponnoth 3 2.3 The Appellant prays that the addition of Rs 10,36,000/- may be rendered may be deleted and justice. Ground No.3 Section: 234A/234B/ 234D Issue: Interest u/s 234A/2348/234D of the Act erroneously charged [Tax effect. Interest Rs 2,41,985/-] The Appellant prays that the interest of Rs 2,41,985/- charged u/s 234A, 234B and 234D, as the case may be, of the Act may be deleted/modified as consequential relief in accordance with law Ground No.4 Section: Misc The Appellant prays that the learned AO may be directed to grant all such reliefs arising from the preceding grounds as also any or all reliefs consequential thereto. Ground No.5 Section: Misc Each of the grounds of appeal is mutually exclusive and without prejudice to one another. Ground No.6 Section: Misc The Appellant craves leave to add, alter, amend, modify, omit or substitute any or all grounds at any time before or at the time of hearing of the appeal. Any consequential relief, to which the Appellant may be entitled under the law in pursuance of the aforesaid grounds of appeal, or otherwise, may be thus granted. 2. Brief facts of the case are that the assessee is a Non- resident Indian who filed original return for A.Y.2016-17 on 28/11/2016 declaring total income of Rs.2,39,760/- which ITA No.1802/Mum/2024 Mrs. Mildred Ponnoth 4 was processed u/s.143(1) of the IT Act. Subsequently, notice u/s.148 was issued on receipt of information that assessee has been paid an amount of Rs.10,36,000/- during the year as ‘hardship allowance’ by the builder under re-development agreement with the society in which assessee owned a flat. Draft assessment order adding Rs.10,36,000/- as ‘income from other sources’ was prepared. After considering the assessee’s objections, the Hon’ble DRP issued directions u/s.144C(5) of the Act to treat sum of Rs.10,36,000/- as ‘income from other sources’. Final assessment order u/s.144 r.w.s. 147 r.w.s. 144C(13) of the Act was accordingly passed on 24/02/2024. 3. Before us ld. AR filed written submissions as well as copy of the re-development agreement under which hardship allowance has been paid to the assessee. Several decisions of the co-ordinate Benches have been cited in support of his contention that the same is capital receipt and is not allowable to tax. On perusal of these orders we find that this issue is covered in favour of the assessee. Relevant portion of the latest order of the Co-ordinate Bench in ITA No.3670/Mum/2023 in the case of Upinder Kaur Khalsa Rao is reproduced hereunder:- “6. We heard the parties and perused the material on record. The assessee had inherited a house property which is part of MIG Co-operative Housing Society Upinder Kaur Khalsa Rao Group-IV limited (Society) in Bandra along with her two sisters. The assessee is one of the beneficiaries of the society consisting of 96 members, which went under the Re- ITA No.1802/Mum/2024 Mrs. Mildred Ponnoth 5 development vide agreement dated 26th April 2010 entered into by the Society with Kalpataru properties Private Limited (the developer). As per annexure-C of the said Re-development Agreement (page 1 to 60of paper book), in which the assessee's name along with her sisters appears at serial no.79 having old flat 29/255 in the said society. The assessee's case was reopened under section for the reason that the assessee being a member of the society has received a sum of Rs.53,50,500 pursuant to the terms of the agreement. Accordingly, notice under section 148 of the Act was issued and served on the assessee on 28.03.2018. In response to the said notice, the assessee filed his return of income on 14.11.2018 declaring a total income of Rs.39,085. Subsequently, notices under section 143(2) as well as section 142(1) of the Act along with a questionnaire were issued and served on the assessee. The assessee in response submitted that the amount was received as hardship allowance from the builder and the same is a capital receipt not taxable. The assessee further submitted that out of the said sum she has received only Rs.10,00,000 from the builder and the balance amount was never received due to some family dispute. The assessee also submitted that the Mumbai Bench of the Tribunal has been consistently holding the issue in favour of the assessee that the amount received towards hardship allowance is a capital receipt not subject to tax. The AO treated the said receipt as income from other sources by holding that - "7. From the above, it is clear, that the receipt by assessee of Rs 53,50,000/- (or right to receive) by whatever name is nothing but monetary compensation by the builder which is given to the assessee to alleviate her difficulties or hard ship in giving up the possession of her flat for the purpose of redevelopment. This is simply an assistance given by the builder to the assessee to get over her temporary Upinder Kaur Khalsa Rao difficulties in vacating her residence for redevelopment purpose. For the assessee, such a receipt is in the nature of income from other sources, as it has got nothing to do with capital value enhancement of the redeveloped property. In view of the above, it appears that such receipts by the assessee are taxable as income from other sources. The assessee has not furnished the dates on which she has received such payments from the builder She has just stated that there was dispute. The agreement between the society and the builder M/s Knlpataru Properties Pvt. Ltd. was signed on 26.4.10. The onus is on the assessee to furnish complete details of receipts with documentary evidences, which the assessee ITA No.1802/Mum/2024 Mrs. Mildred Ponnoth 6 has not discharged Merely making a claim without documentary evidences cannot be accepted Her address as per return filed in response to notice u/s 148 also mentions as 8-83. Kalpataru Sparkle, MIG colony, Bandra(East) Mumbai. In view of these, and also to protect the interest of revenue, the entire sum of Rs 53,50,000/- therefore is brought to tax as income from other sources. Penalty proceedings u/s 271(1)(c) are separately initiated for concealment of income" 7. From above observations of the AO, it is clear that the AO is not disputing the fact the amount is received by the assessee as a compensation for the difficulties and hardships in giving up the possession of the property i.e. the amount is a hardship allowance. However the AO has not accepted that it is a capital receipt not subject to tax. On perusal of the agreement entered into between the Society and the Builder we notice that Clause 5(B)(II) (page 13 of paper book) clearly states that the amount paid is compensatory for the hardship faced by the member in vacating the flat and hardship / nuisance suffered during the construction. 8. We notice that the coordinate bench while considering the issue of whether the amount received as hardship allowance by a member of the Society from the builder as part of the re- development agreement has been consistently holding that the such a receipt is capital in nature and does not fall within the ambit of Upinder Kaur Khalsa Rao income under section 2(24) of the Act. In this regard the relevant observations of the coordinate bench in the case of Lawrence Rebello vs ITO (ITA No.132/Ind./2020, dated 29/09/2021) is extracted below – "11. On careful consideration of above rival submissions, we are of the considered view that in the reasons recorded the AO himself noted that the benefits received by the assessee from a bigger size of flat and impugned amount has been given in pursuance to agreement between the society and the developer and it was hardship compensation, ITA No.132/Ind/2020 rehabilitation compensation kind of benefit. The orders passed by the ITAT Mumbai Bench in case of Smt. Delilah Raj Mansukhani (supra), Jitendra Kumar Soneja (supra) and Kushal K Bangia(supra) including the order passed by the Mumbai Bench in the case of Shri Devshi Lakhamshi Dedhia ITA No.1802/Mum/2024 Mrs. Mildred Ponnoth 7 (supra), it is amply clear that where the assessee being a flat owner in a housing society receives certain sum from developer as corpus fund towards hardship caused to flat owners on redevelopment, impugned amount has to be treated as capital receipt simplicitor which as per Section 2(24)(vi) of the Act is not taxable as income of the assessee. In this regard, we find it profitable to reproduce para 3.2 of the order of ITAT Mumbai Bench in the case of Jitendra Kumar Soneja (supra), which reads as under:- "3.2 Nothing contrary was brought to my knowledge on behalf of Revenue. Facts being similar, so following same reasoning, I find that consideration for which the amount has been paid by the developer are, therefore, not relevant in determining the nature of receipt in the hands of the assessee. In view of these discussion, in my considered view, assessee could not be said to be of revenue nature, and, accordingly, the same is outside the ambit of income under section 2(24) of the Act. The impugned receipt ends up reducing the cost of acquisition of the asset, i.e. flat, and, therefore, the same will be taken into account as such, as and when occasion arises for computing capital gains in respect of the said asset. Subject to these observations, the appeal of assessee is allowed." Respectfully following the above observations of the ITAT Mumbai Bench as well as the orders cited supra, we are compelled to hold that the benefit received by the assessee in the form of bigger size of flat and amount received as hardship allowance from the developer is a capital receipt, which cannot be treated as revenue receipt for taxing as income." 9. The facts of the assessee's case as elaborated above being identical i.e. the issue of taxability of hardship allowance, we respectful follow the above decision to hold that the addition of Rs.17,83,500 be deleted. 4. As the facts of this case are similar, respectfully following the decision of the co-ordinate Benches, we hold that the amount of hardship allowance of Rs.10,36,000/- being capital receipt is not taxable. Accordingly, addition made by the AO on this account is deleted. 5. In view of the fact that the issue on merits is covered in favour of the assessee, ld. AR vide his written submission has ITA No.1802/Mum/2024 Mrs. Mildred Ponnoth 8 stated that the ground regarding validity and legality of reassessment proceedings is not being pressed. 6. In the result, appeal of the assessee is allowed. Order pronounced on 30 th July, 2024. Sd/- (KAVITHA RAJAGOPAL) Sd/- (RENU JAUHRI) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 30/07/2024 KARUNA, sr.ps Copy of the Order forwarded to : BY ORDER, (Asstt. Registrar) ITAT, Mumbai 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy//