SUMATICHAND TOLAMAL GOUTI, MUMBAI V. DCIT 12(3), MUMBAI

ITA 2009/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79030 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2008-2009
• Appeal Filed On: 13-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAKASH L PATHADE
• Keywords: Cost of acquisition; Commercial expediency

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI .., ! , ' , # BEFORE SHRI I.P.BANSAL, JM AND SHRI RAJENDRA, AM ITA NO.2009/MUM/2013 : ASST.YEAR 2008-09 SUMATICHAND TOLAMAL GOUTI, B-1405/06, RAJ SHREEPAL NAGAR, 12, J. MEHTA ROAD, NEPEAN SEA ROAD JUNCTION, MUMBAI. PAN: AACPG 1529L DY. COMMISSIONER OF INCOME TAX 12(3), ROOM NO.137, 1 ST FLOOR, AAYKAR BHAVAN, M.K.ROAD, MUMBAI 400 020. ( $% / // / APPELLANT) ' ' ' ' / VS. ( ()$%/ RESPONDENT) $% * + * + * + * + /APPELLANT BY :S/ SHRI. VIJAY MEHTA & ANUJ KISNADW ALA ()$% * + * + * + * + /RESPONDENT BY : SHRI PRAKASH L. PATHADE ' * ,-' / / / / DATE OF HEARING : 12.06.2014 ./0 * ,-' / DATE OF PRONOUNCEMENT : 20.06.2014 1 1 1 1 / / / / O R D E R PER I.P.BANSAL (JM) : THIS IS AN APPEAL FILED BY THE ASSESSEE. IT IS DI RECTED AGAINST ORDER PASSED BY LD. CIT(A) -23,MUMBAI DATED 1/1/2013 FOR ASSESSMENT YEAR 2008-09. GROUNDS OF APPEAL READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT (A) HAS ERRED IN FACTS AND IN LAW IN DISMISSING THE APPELLANTS GROUND OF APPEAL AGAINST ENHANCEMENT BY THE ASSESSING OFFICER OF FAIR RENTAL VALUE OF THE TWO L ET OUT PROPERTIES AT RS. 7,80,000/- U/S 23 (1) (A) OF I. T. ACT AS AGAINST ACTUAL RENT RECE IPT OF RS. 84,000/- DISCLOSED BY THE APPELLANT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT (A) HAS ERRED IN FACTS AND IN LAW IN REJECTING THE APPELLANTS GROUND OF A PPEAL AGAINST DISALLOWANCE OF INTEREST OF RS. 6,30,949/- MADE BY THE ASSESSING OF FICER. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT (A) HAS ERRED IN FACTS AND IN LAW IN REJECTING THE APPELLANTS GROUND OF A PPEAL AGAINST THE ASSESSING OFFICERS ACTION IN TREATING THE CAPITAL GAIN ON SALE OF FLAT AS SHORT TERM CAPITAL GAIN AMOUNTING TO RS. 19,45,004/- AS AGAINST APPELLANTS CLAIM OF LONG TERM CAPITAL GAIN OF RS. 12,92,149/-. ITA NO.2009/MUM/2013 : ASST.YEAR 2008-09 2 GROUND NO.1: 2. THE ASSESSEE IS OWNER OF TWO FLATS, ONE AT ANDHE RI AND ANOTHER AT MALABAR HILL. THESE FLATS ARE OCCUPIED BY ANOTHER GROUP COMPANY. FOR FLAT AT ANDHERI THE ASSESSEE IS GETTING RENT FOR RS.24,000 AND FOR FLAT AT MALABAR HILL THE ASSESSEE IS GETTING RENT OF RS.60,000/-. THE FLAT AT ANDHERI I S OF 525 SQ.FTS AREA AND FLAT AT MALABAR HILL IS 550 SQ.FTS. ACCORDING TO AO INCOME SHOWN BY THE ASSESSEE IN RESPECT OF THESE FLATS WAS ON LOWER SIDE. HE, THEREFORE, A SKED THE ASSESSEE TO EXPLAIN THE JUSTIFICATION. IN RESPONSE ASSESSEE OFFERED SOME ADDITIONAL RENTAL INCOME. HOWEVER, THE OFFER MADE BY THE ASSESSEE WAS NOT ACCEPTED BY THE AO AND HE ESTIMATED FAIR RENT OF RS.1,80,000/- AND RS.6.00 LACS IN RESPECT O F ANDHERI AND MALABAR HILL FLATS RESPECTIVELY. THE POSITION HAS BEEN SUMMARIZED IN THE SHAPE OF A CHART IN THE ORDER OF LD. CIT(A) AS PER PARA 3.2 AND THE CHART IS REPR ODUCED BELOW: S.NO. NAME OF THE PROPERTY GROSS RENTAL INCOME SHOWN AS PER RETURN FAIR RENT OFFERED IN COURSE OF ASSESSMENT FAIR RENT ESTIMATED BY THE AO. 1. FLAT AT ANDHERI 24,000 36,000 1,80,000 2. FLAT AT MALABAR HILL 60,000 90,000 6,00,00 0 TOTAL 84,000 1,26,000 7,80,000 2.1 THE ASSESSEE SUBMITTED BEFORE THE AO THAT ANDHE RI FLAT WAS USED BY THE LABOURERS FROM RAJASTHAN, WHO USED TO DO OFFICE WOR K UPTO LATE NIGHT. THOUGH THE FLAT WAS LOCATED AT LOKHANDWALA, ANDHERI, BUT IT CO ULD NOT FETCH GOOD RENT BECAUSE OF BAD SMELL OF FISH AND ANTISOCIAL ACTIVITIES IN T HAT LOCALITY. IN RESPECT OF MALABAR HILL FLAT IT WAS SUBMITTED THAT THERE WAS A DISPUTE BETWEEN THE BROTHERS OVER THE PROPERTY AND FLAT WAS NOT PROPERLY MAINTAINED. IT WAS USED BY VARIOUS PERSONS FOR BUSINESS AND THESE SUBMISSIONS OF THE ASSESSEE WERE NOT ACCEPTED BY THE A.O. ALL THESE FACTS ARE RECORDED IN PARA 3.2 OF LD. CIT(A) S ORDER. 3. BEFORE LD. CIT(A) IT WAS SUBMITTED THAT AO WHILE ESTIMATING FAIR RENTAL VALUE DID NOT REFER TO ANY COMPARABLE AND, THEREFORE, THE RENT ESTIMATED BY THE AO WAS NOT PROPER AND IT SHOULD BE TAKEN AS PER RETURN FILED BY THE ASSESSEE. ON THESE SUBMISSIONS OF THE ASSESSEE THE MATTER WAS REMANDED BACK TO THE AO BY LD. CIT(A) WITH A DIRECTION TO HAVE LOCAL ENQUIRIES TO BE CON DUCTED TO ASCERTAIN RENTAL OF THE PROPERTIES IN THE SAID LOCALITY. REMAND REPORT WAS SUBMITTED BY THE AO, WHICH HAS BEEN REPRODUCED IN PARA 3.4 OF THE ORDER OF LD. CIT (A). ON THE BASIS OF ENQUIRIES MADE BY WARD INSPECTOR, IT IS MENTIONED IN THE REMA ND REPORT THAT RENTAL CHARGES ITA NO.2009/MUM/2013 : ASST.YEAR 2008-09 3 OF FLAT ADMEASURING THE AREA 525 SQ.FTS. WERE IN TH E RANGE OF RS.15,000/- TO RS.17,000/- PER MONTHS AND FOR FLAT AT MALABAR HILL THE RENTAL WERE RANGING BETWEEN RS.55,000/- TO RS.60,000/- PER MONTH. THE REMAND R EPORT WAS FORWARDED FOR THE COMMENTS OF THE ASSESSEE. IT WAS POINTED OUT THAT THOUGH THE AO HAS STATED THAT INSPECTOR HAS MADE LOCAL ENQUIRIES BUT NO EVIDENCE OR PROOF HAS BEEN GIVEN IN THE SHAPE OF NAME OF THE TENANT RESIDING IN A PARTICULA R AREA. THEREFORE, IT WAS OBJECTED THAT EVEN ON THE BASIS OF REPORT OF THE AO AND INSP ECTOR, RENTAL VALUE OF THE FLATS COULD NOT BE DETERMINED AT RS.1,80,000 AND RS.6.00 LACS RESPECTIVELY FOR ANDHERI AND MALABAR HILL FLATS. AFTER CONSIDERING THE SUBM ISSIONS OF THE ASSESSEE LD. CIT(A) HAS UPHELD THE ACTION OF AO. THE ASSESSEE IS AGGRI EVED, HENCE, HAS RAISED GROUND NO.1. 4. IT WAS SUBMITTED BY LD. AR THAT THE RENTAL INCO ME SHOWN BY THE ASSESSEE IN RESPECT OF THESE FLATS IS SUPPORTED BY LEASE AGREEM ENTS, WHICH WERE DULY SUBMITTED TO THE AO VIDE LETTER DATED 7/2/2012, COPY OF WHICH IS PLACED AT PAGE 16 TO 36 OF THE PAPER BOOK. HE SUBMITTED THAT COPY OF LEASE DEED I N RESPECT OF MALABAR HILL FLAT IS PLACED AT PAGES 22 TO 28 OF THE PAPER BOOK AND COPY OF LEASE DEED IN RESPECT OF ANDHERI FLAT IS PLACED AT PAGES 29 TO 35 OF THE PAP ER BOOK. HE SUBMITTED THAT THE LEASE AMOUNT AS PER LEASE DEED OF MALABAR HILL FLAT IS A SUM OF RS.5,000/- PER MONTH AND FOR ANDHERI FLAT IT IS 2,000/- PER MONTH. HE S UBMITTED THAT ACCORDING TO THESE LEASE DEED RENTAL INCOME WAS SHOWN BY THE ASSESSEE. HE SUBMITTED THAT MUNICIPAL RATABLE VALUE OF THESE FLATS IS MUCH BELOW THAN THE ACTUAL RENT RECEIVED BY THE ASSESSEE. HE SUBMITTED THAT THOUGH ASSESSEE COULD NOT OBTAIN ANNUAL RATABLE VALUE IN RESPECT OF ANDHERI FLAT BUT ANNUAL RATABLE VALUE CERTIFICATE WAS OBTAINED FOR MALABAR HILL FLAT AND COPY OF THE SAME WAS ALSO FUR NISHED TO THE AO VIDE LETTER DATED 16/3/2012, COPY OF WHICH IS PLACED AT PAGES 3 7 TO 42 OF THE PAPER BOOK AND COPY OF CERTIFICATE CAN BE FOUND AT PAGE 39 OF THE PAPER BOOK AND THE ANNUAL RATABLE VALUE HAS BEEN MENTIONED AT RS.3,595.32. HE SUBMIT TED THAT ANNUAL RATABLE VALUE IN RESPECT OF ANDHERI FLAT ALSO CANNOT BE MORE THAN THE ACTUAL RENT RECEIVED BY THE ASSESSEE WHICH IS RS.2,000 PER MONTH AND RS.24,000/ - ANNUALLY. 4.1 LD. AR REFERRED TO THE DECISION OF MUMBAI ITAT IN THE CASE OF ITO VS. MAKRUPA CHEMICALS PVT. LTD., 298 ITR (AT) 189 (MUM), IN WHI CH IT HAS BEEN HELD THAT IF ACTUAL RENT RECEIVED OR RECEIVABLE WAS HIGHER THAN FAIR RE NT, THEN ACTUAL RENT WOULD BE ITA NO.2009/MUM/2013 : ASST.YEAR 2008-09 4 TREATED AS THE ANNUAL LETTING VALUE, OTHERWISE THE FAIR RENT SO DETERMINED HAD TO BE TAKEN AS THE ANNUAL LETTING VALUE. HE SUBMITTED TH AT IN THE PRESENT CASE ACTUAL RENT RECEIVED/ OR RECEIVABLE IS HIGHER THAN THE FAIR REN T AND THUS, THE ADDITION, OVER AND ABOVE ACTUAL RENT RECEIVED WILL BE CONTRARY TO LAW. 5. HOWEVER, ON THE OTHER HAND, LD. DR RELIED UPON O RDER PASSED BY A.O AND LD. CIT(A). LD. DR SUBMITTED THAT DURING THE COURSE OF REMAND PROCEEDINGS, ACCORDING TO ENQUIRIES MADE THROUGH INSPECTOR, IT WAS FOUND T HAT RENTAL VALUE OF SIMILAR FLATS IN THE VICINITY WAS AKIN TO THE RENTAL VALUE ASSESS ED BY THE AO. THEREFORE, LD. CIT(A) WAS RIGHT IN UPHOLDING THE ADDITION. 6. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY CONSIDERED. DURING THE COURSE OF ASSESSMENT PROCEE DINGS AO SIMPLY ESTIMATED THE RENT RECEIVABLE IN RESPECT OF FLATS OF THE ASSESSEE WITHOUT REFERENCE TO ANY COMPARABLE CASE. DURING THE COURSE OF REMAND PROCE EDINGS IT IS MENTIONED THAT LOCAL ENQUIRIES WERE MADE. HOWEVER, IT HAS NOT BE EN MADE CLEAR THAT WHAT WAS THE BASIS OF MENTIONING THE RENT PREVAILING IN THE LOCA LITY AND FROM WHOM SUCH INFORMATION WAS OBTAINED. THEREFORE, EVEN DURING T HE COURSE OF ENQUIRIES AND REMAND PROCEEDINGS THERE WAS NO SPECIFIC BASE TO F IND OUT WHAT WAS THE RENT PREVAILING IN THE LOCALITY. THE RENT SHOWN TO BE R ECEIVED BY THE ASSESSEE IS SUPPORTED BY THE EVIDENCE IN THE SHAPE OF LEASE DE EDS, COPY OF WHICH WAS DULY FILED BEFORE AO AND IS FORMING PART OF THE PAPER BOOK. T HE RENT SHOWN TO HAVE BEEN RECEIVED BY THE ASSESSEE IS MENTIONED IN THE LEASE DEED. THEREFORE, THE RENT RECEIVED BY THE ASSESSEE IS DULY SUPPORTED BY THE L EASE DEED WHICH WERE DULY SUBMITTED TO THE AO AND AO NOWHERE IN THE ASSESSMEN T ORDER HAS BROUGHT ANY MATERIAL ON RECORD TO SAY THAT THE LEASE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH ITS INTER GROUP COMPANIES WAS IN ANY WAY NON-GENUIN E. IF IT IS SO, THERE IS NO BASE TO MAKE ANY ADDITION TO THE RENTAL INCOME SHOWN BY THE ASSESSEE EXCEPT IN THE CASE WHERE SUCH ADDITION IS SUPPORTED BY THE FACT THAT F AIR RENTAL VALUE OF THESE FLATS WAS IN EXCESS OF ACTUAL RENT RECEIVED BY THE ASSESSEE. THIS PROPOSITION IS DULY SUPPORTED BY THE DECISION OF ITAT MUMBAI IN THE CASE OF ITO VS. MAKRUPRA CHEMICALS PVT. LTD. (SUPRA). THE CASE OF THE ASSESSEE WILL BE GOVERNED BY SECTION 23(1)(B) OF THE ACT. THE ANNUAL VALUE OF A PROPERTY IS DETERMINED AS PER SECTION 23(1). ACCORDING TO CLAUSE (B) OF SUB-SECTION (1) OF SECTION 23, IF THE PROPERTY IS LET AND ACTUAL RENT ITA NO.2009/MUM/2013 : ASST.YEAR 2008-09 5 RECEIVED OR RECEIVABLE BY THE OWNER IN RESPECT OF THAT PROPERTY IS IN EXCESS OF SUM REFERRED TO IN CLAUSE (A) THEN THE SAME WILL BE AN NUAL RATABLE VALUE OF THE PROPERTY. IN CLAUSE (A) OF SUB-SECTION (1) OF SECTION 23 THE ANNUAL RATABLE VALUE WILL BE THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPE CTED TO LET FROM YEAR TO YEAR. IT HAS BEEN INTERPRETED IN THE DECISION THAT WHERE A P ROPERTY IS LET AND ACTUAL RENT RECEIVED OR RECEIVABLE IS IN EXCESS OF THE ANNUAL RATABLE VALUE THEN ACTUAL RENT RECEIVED OR RECEIVABLE BY THE ASSESSEE WOULD BE THE ANNUAL LETTING VALUE OF THE PROPERTY. IN THE PRESENT CASE ASSESSEE HAS BEEN AB LE TO SHOW THAT THE RATABLE VALUE IN RESPECT OF MALABAR HILL FLAT WAS LESS THAN THE ACTUAL RENT RECEIVED BY THE ASSESSEE AND ACCORDING TO THE FACTS OF THE PRESENT CASE THE ANNUAL RATABLE VALUE OF MALABAR HILL FLAT IS MUCH LESS THAN THE ACTUAL RENT RECEIVED BY THE ASSESSEE. THEREFORE, ANY ADDITION TO ACTUAL RENT WILL BE CONT RARY TO THE PROVISIONS OF THE ACT. 6.1 FOR ANDHERI FLAT THERE IS NO MATERIAL ON RECORD TO SUGGEST THAT THE ACTUAL RENT SHOWN BY THE ASSESSEE IS LESS THAN THE RATABLE VALU E. SOME GUIDANCE CAN BE OBTAINED FROM THE RATABLE RENT ASSESSABLE IN RESPEC T OF MALABAR HILL FLAT AND KEEPING IN MIND THE STANDARD, IT CANNOT BE SAID OR PRESUMED THAT THE RATABLE RENTAL VALUE OF ANDHERI FLAT WILL BE MORE THAN THE ACTUAL RENT RECE IVED BY THE ASSESSEE. HOWEVER, IF AO IS ABLE TO BRING RECORD THAT ANNUAL RATABLE VAL UE OF THE ANDHERI FLAT IS MORE THAN ACTUAL RENT RECEIVED BY THE ASSESSEE THEN HE WILL B E ENTITLED TO TAKE THE SAID VALUE IN PLACE OF ACTUAL RENT SHOWN BY THE ASSESSEE. 6.2 IN VIEW OF ABOVE DISCUSSIONS, WE HOLD THAT NO ADDITION CAN BE MADE IN RESPECT OF MALABAR HILL FLAT AND IN RESPECT OF ANDHERI FLA, . HOWEVER, IF THE AO IS ABLE TO BRING ON RECORD THE EVIDENCE THAT ANNUAL RATABLE VA LUE OF THE ANDHERI FLAT IS MORE THAN THE ACTUAL RENT RECEIVED BY THE ASSESSEE, THE N HE WILL BE ENTITLED TO TAKE ANNUAL RATABLE VALUE IN PLACE OF ACTUAL RENT RECEIV ED BY THE ASSESSEE. WITH THESE DIRECTIONS GROUND NO.1 IS DISPOSED OF AND THE SAME IS CONSIDERED TO BE ALLOWED IN THE MANNER AFORESAID. 6.3 BEFORE PARTING WITH THIS GROUND IT MAY BE MENTI ONED HERE THAT WE ARE AWARE OF THE FACT THAT ASSESSEE HAD OFFERED TO BE ASSESSE D FOR RENT OF RS.36,000/- IN RESPECT OF ANDHERI FLAT AND RS.90,000/- IN RELATION TO MA LABAR HILL FLAT AS AGAINST ACTUAL RENT RECEIVED BY HIM OF RS.24,000/- AND RS.60,000/ - RESPECTIVELY. HOWEVER, THE ITA NO.2009/MUM/2013 : ASST.YEAR 2008-09 6 ASSESSEE CANNOT BE TAXED ON THE OFFER MADE BY HIM A S THERE CANNOT BE ANY ESTOPPEL AGAINST LAW. HERE THE REFERENCE CAN BE MADE TO THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF BALMUKUND ACHARYA VS. DCIT, 31 0 ITR 310(BOM), WHEREIN THEIR LORDSHIPS HAVE OBSERVED THAT THERE CANNOT BE ANY ES TOPPELS AGAINST STATUTE. ARTICLE 265 OF THE CONSTITUTION OF INDIA IS IN UNMISTAKABLE TERMS PROVIDES THAT NO TAX SHALL BE LEVIED OR COLLECTED EXCEPT BY AUTHORITY OF LAW. ACQUIESCENCE CANNOT BE TAKE AWAY FROM A PARTY THE RELIEF THAT HE IS ENTITLED TO WHE RE THE TAX IS LEVIED OR COLLECTED WITHOUT AUTHORITY OF LAW. THESE OBSERVATIONS ARE WITH REFERENCE TO EARLIER DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF NIRMAL A L. MEHTA VS. A. BALASUBRAMANIUM, 269 ITR 1(BOM). ACCORDINGLY, THE O FFER MADE BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS CANNOT BE VIEWED TO BE BINDING ON THE ASSESSEE AS THE ASSESSABILITY OF INCOME ACCORDING TO THAT OFFER WILL BE WITHOUT THE AUTHORITY OF LAW. GROUND NO.2: 7. THIS ISSUE IS DISCUSSED BY THE AO IN PARA-4 OF T HE ASSESSMENT ORDER. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS FOUND T HAT ASSESSEE HAD ADVANCED INTEREST FREE LOANS FROM INTEREST BEARING FUNDS. THE ASSESSEE W AS REQUIRED TO EXPLAIN. VIDE LETTER DATED 6/12/2010 THE DETAILS W ERE FURNISHED. THE AO OBSERVED THAT ASSESSEE DID NOT ESTABLISH NEXUS TO THE EXTENT OF RS.79,52,725/- BETWEEN LOANS ADVANCED AND INTEREST FREE FUNDS AVAILABLE. HE WOR KED OUT INTEREST DISALLOWABLE AT RS.6,30,949/-. LD. CIT(A) HAS DISCUSSED THIS ISSUE IN PARA -6 OF HIS ORDER. IT WAS SUBMITTED THAT ASSESSEE DID NOT DIVERT ANY INTEREST BEARING FUND FOR GIVING INTEREST FREE LOANS. THE ASSESSEE HAD SUBSTANTIAL CAPITAL O F RS.2,33,09,924/- IN THE BALANCE SHEET AND IS ALSO HAVING INTEREST FREE LOANS OF RS. 51,29,860/-. INTEREST FREE ADVANCES GIVEN BY THE ASSESSEE ARE COVERED BY SUFFI CIENT INTEREST FREE FUNDS AVAILABLE. THE INTEREST FREE LOANS ADVANCED BY THE ASSESSEE HAD GONE OUT OF HIS CAPITAL ACCOUNT OR OUT OF INTEREST FREE LOANS TAK EN BY HIM. LD. CIT(A) DID NOT ACCEPT SUCH SUBMISSION OF THE ASSESSEE ON THE GROUND THAT THERE IS NO DISPUTE TO THE FACT THAT ASSESSEE HAD BORROWED FUNDS ON INTEREST AND A PART OF IT WAS ADVANCED BY THE ASSESSEE TO VARIOUS CONCERNS OF WHICH NO INTEREST W AS CHARGED. LD. CIT(A) OBSERVED THAT FROM THE FACTS IT CANNOT BE SAID THAT ASSESSEE HAD TAKEN A DECISION DUE TO COMMERCIAL EXPEDIENCY FOR NOT CHARGING INTEREST. NON-CHARGING OF INTEREST FROM THE FUNDS ADVANCED BY THE ASSESSEE TO ITS TRUST WAS ADO PTED AS TAX AVOIDANCE DEVICE. ITA NO.2009/MUM/2013 : ASST.YEAR 2008-09 7 THE ASSESSEE HAS MIXED FUNDS IN BANK ACCOUNT AND N O SEPARATE ACCOUNTS WERE MAINTAINED BY THE ASSESSEE FOR CAPITAL LOANS. ALL THESE MONIES GOES TO THE COMMON HOTCH-POTCH . IN ABSENCE OF ESTABLISHMENT OF DIRECT NEXUS BET WEEN INTEREST FREE ADVANCES AND CAPITAL, THE CLAIM OF THE ASSESSEE IS NOT SUSTAINABLE. THE ASSESSEE ALSO DID NOT KEEP CAPITAL SEPARATE BUT EVERYTHING U NDER HIS USE IN BUSINESS. IF ASSESSEE DID NOT ADVANCE THIS AMOUNT AS INTEREST FR EE ADVANCE, HE COULD UTILIZE IT FOR RETURNING HIS LOANS THEREBY INCREASING PROFITABILI TY OF HIS BUSINESS. THE ASSESSEE HAS TO BE STOPPED FROM DOING SO. THEREFORE, LD. C IT(A) SUSTAINED THE DISALLOWANCE. AGGRIEVED ASSESSEE HAS FILED AFOREMENTIONED GROUND OF APPEAL: 8. AFTER NARRATING THE FACTS IT WAS SUBMITTED BY L D. AR THAT DISALLOWANCE HAS BEEN SUSTAINED BY LD. CIT(A) ON IRRELEVANT CONSIDER ATION. LD. AR PLACED RELIANCE ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE C ASE OF CIT VS. RELIANCE UTILITIES & POWER LTD., 313 ITR 340 (BOM) TO CONTEND THAT WHE RE ASSESSEE POSSESS SUFFICIENT INTEREST FREE FUNDS OF ITS OWN WHICH WERE GENERATED IN COURSE OF RELEVANT FINANCIAL YEAR APART FROM SUBSTANTIAL SHAREHOLDER FUNDS, PRE SUMPTION STAND ESTABLISHED THAT THE INVESTMENT IN SISTER CONCERNS WERE MADE BY THE ASSESSEE OUT OF INTEREST FREE FUNDS AND, THEREFORE, NO PART OF INTEREST ON BORRO WINGS CAN BE DISALLOWED ON THE BASIS THAT INVESTMENTS WERE MADE OUT OF INTEREST B EARING FUNDS. 9. HOWEVER, ON THE OTHER HAND, LD. DR RELIED UPON T HE ORDER PASSED BY AO & LD. CIT(A). 10. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTEN TIONS HAVE CAREFULLY BEEN CONSIDERED. IT IS THE CASE OF AO THAT ASSESSEE COU LD NOT ESTABLISH NEXUS BETWEEN THE INTEREST BEARING FUNDS AND INTEREST FREE ADVANCES T O THE EXTENT OF RS.79,52,725/-. AS AGAINST THIS IT IS THE CASE OF THE ASSESSEE THA T ITS OWN CAPITAL IS OF A SUM OF RS.2,33,09,924/-. EVEN THE RETURN OF INCOME FILED BY THE ASSESSEE HAD SHOWN THE RETURNED INCOME AT RS.70,97,190/- AND ASSESSEE ALSO HAS INTEREST FREE LOANS OF RS.51,21,860/-. ALL PUT TOGETHER WILL FAR EXCEED T HE SUM OF RS.79,52,725/- FOR WHICH THE ASSESEEE HAD NOT BEEN ABLE TO ESTABLISH T HE NEXUS. IF THESE FACTS ARE EXAMINED IN THE LIGHT OF AFOREMENTIONED DECISION O F HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. ,(SUPRA) WHEREIN IT HAS BEEN HELD THAT IF THERE WERE FUNDS AVAILABLE BOTH INTEREST FR EE AND OVER DRAFT AND/OR LOANS ITA NO.2009/MUM/2013 : ASST.YEAR 2008-09 8 TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTME NT WOULD BE OUT OF INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF I NTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENT. THEIR LORDSHIPS IN THE SAI D CASE HAVE ALSO TAKEN INTO CONSIDERATION THE ARGUMENTS OF THE REVENUE THAT TH E SHAREHOLDER FUNDS AVAILABLE TO THE TUNE OF OVER RS.1,72,00,000/- WAS UTILIZED FOR THE PURPOSE OF FIXED ASSETS AND, THEREFORE, SHOULD NOT BE CONSIDERED TO BE AVAI LABLE TO THE ASSESSEE AND THEIR LORDSHIPS HAVE TURNED DOWN THIS ARGUMENT OF THE REV ENUE ON THE GROUND THAT REVENUE WAS NOT ABLE TO POINT OUT THAT HOW THE SHAR EHOLDER FUNDS WAS UTILIZED FOR THE PURPOSE OF FIXED ASSETS AS PROFIT AND LOSS ACCO UNT AND BALANCE SHEET WOULD NOT SHOW WHETHER THE SHAREHOLDER FUNDS HAVE BEEN UTILI ZED FOR INVESTMENT. KEEPING IN VIEW, THE AFOREMENTIONED DECISION OF HONBLE BOMBA Y HIGH COURT AND THE FACTUAL POSITION DISCUSSED ABOVE, WE FIND NO JUSTIFICATION IN SUSTENANCE OF THE ADDITION LD. CIT(A). THE ADDITION IS ORDERED TO BE DELETED AND THIS GROUND OF THE ASSESSEE IS ALLOWED. GROUNDS NO.3: 11. THIS ISSUE HAS BEEN DISCUSSED BY AO IN PARA-6 O F THE ASSESSMENT ORDER. A SUM OF RS.19,45,004/- WAS SHOWN BY THE ASSESSEE AS LONG TERM CAPITAL GAIN. HOWEVER, AO OBSERVED THAT THE ASSESSEE WAS MAKING P AYMENTS OF THE FLAT TILL 31/3/07. HE REQUIRED THE ASSESSEE AS TO WHY THE GA IN SHOULD NOT BE TREATED AS SHORT TERM CAPITAL GAIN. IT IS MENTIONED IN THE OR DER THAT VIDE LETTER DATED 6/12/2010 ASSESSEE AGREED TO TREAT THE SAME AS SHOR T TERM CAPITAL GAIN. ACCORDINGLY, GAIN SHOWN BY THE ASSESSEE AS LONG TE RM CAPITAL GAIN WAS TREATED TO BE SHORT TERM CAPITAL GAIN. IN THE ORDER OF LD. CIT(A ) THIS ISSUE IS DISCUSSED IN PARA-7. IT WAS SUBMITTED THAT ASSESSEE IS A MEMBER OF MEERA BAI CO-OPERATIVE GROUP HOUSING SOCIETY LTD., DWARAKA, NEW DELHI AND HAD CO NTRIBUTED TOWARDS COST OF THE FLAT SINCE 1995 IN INSTALLMENTS AND THE LAST INS TALLMENT WAS PAID ON 31/3/2007. THE FLAT NO.A-501 IN THE SAID SOCIETY WAS ALLOTTED TO THE ASSESSEE ON DRAW OF LOTS HELD AT SITE ON 23/3/2003. THE SAID FLAT WAS SOLD BY TH E ASSESSEE FOR A CONSIDERATION OF RS.30.00 LACS AS AGAINST COST OF RS.10,54,996/- PAID IN INSTALLME NTS OVER A PERIOD RANGING FROM 1995 TO 31/03/2007. IN THE RETURN OF INCOME THE ASSESSEE CLAIMED DEDUCTION OF INDEXED COST OF ACQUISITION AT RS.17,0 7,851/- FROM THE SALE PRICE OF RS.30.00 LACS AND CLAIMED LONG TERM CAPITAL GAIN OF RS.12,92,148/-. WITH REGARD TO ITA NO.2009/MUM/2013 : ASST.YEAR 2008-09 9 LETTER OFFERING GAIN AS SHORT TERM CAPITAL GAIN IT WAS SUBMITTED THAT LATER ON ASSESSEE REALIZED THAT ACCORDING TO LAW CAPITAL GAIN IN THE PRESENT CASE WILL BE LONG TERM CAPITAL GAIN. ON THESE SUBMISSION LD. CIT(A) HAS O BSERVED THAT IN VIEW OF DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF RAMESH CHANDRA & COMPANY VS. CIT, 35 TAXAMAN 153(BOM), WHERE ASSESSEE HAS MADE A STA TEMENT OF FACTS, HE COULD HAVE NO GRIEVANCE IF THE TAXING AUTHORITY TAXES IN ACCORDANCE WITH THAT STATEMENT. LD. CIT(A) OBSERVED THAT IN THE PRESENT CASE THERE IS NOTHING ON RECORD TO SUGGEST THAT ASSESSEE WAS FORCED OR COERCED OR INFLUENCED IN FILING A LETTER STATING THEREIN THAT HIS INCOME OF SALE OF FLAT BE TREATED AS SHORT TERM CAPITAL GAIN. THE ASSESSEE HAD EXECUTED THE LETTER OF AUTHORITY IN FAVOUR O F THE CHARTERED ACCOUNTANT WHO REPRESENTED HIM AND WHO WAS LEGALLY AUTHORIZED TO MAKE EXPLANATION/STATEMENT/AGREEMENT WITH THE AO FOR CER TAIN ADDITIONS TO ASSESSABLE INCOME SO AS TO BIND THE ASSESSEE AND THE AUTHORIZE D REPRESENTATIVE VIDE HIS LETTER DATED 6/6/2010 HAS CATEGORICALLY AGREED FOR TREATIN G THE RECEIPT ON SALE OF FLAT UNDER THE HEAD SHORT TERM CAPITAL GAIN. THEREFORE, LD. CIT(A) DECLINED TO INTERFERE WITH THE ORDER OF AO AND UPHELD THE ACTION OF AO. ASSES SEE IS AGGRIEVED, HENCE, HAS FILED GROUND NO.2. 12. LD. AR SUBMITTED THAT VIDE LETTER DATED 25/9/20 12, COPY OF WHICH IS FILED AT PAGES 43 TO 89 OF THE PAPER BOOK, IT WAS SUBMITTED BEFORE A.O VIDE PARA 2.5 THAT THE ASSESSEE HAD ACQUIRED THE RIGHT TO OBTAIN THE F LAT IN HOUSING SOCIETY UPON BECOMING A MEMBER IN 1995. THE DRAW OF LOTS WAS HE LD AT SITE ON 23/03/2003 WHEN A PARTICULAR FLAT WAS ALLOTTED TO THE ASSESSEE . HOWEVER, ASSESSEE WAS MAKING THE PAYMENTS IN INSTALLMENTS AND FULL CONSIDERATION WAS PAID OVER A PERIOD FROM 1995 TO 31/3/2007. THE OWNERSHIP OF THE FLAT, UNDE R THE CIRCUMSTANCES WILL DATE BACK TO 1995 OR ATLEAST TO 23/03/2003. AS THE FLAT WAS SOLD ON 10/4/2007, IT WAS HELD FOR MORE THAN 36 MONTHS. THEREFORE, THE GAIN WOULD BE ASSESSABLE AS LONG TERM CAPITAL GAIN AS PER DEFINITION UNDER SECTION 2(42A) OF THE ACT. HE SUBMITTED THAT REFERENCE WAS ALSO MADE TO THE DECISION OF HONBLE GUJRAT HIGH COURT IN THE CASE OF CIT VS. JINDAS PANCHAND GANDHI, 279 ITR 552(GUJ) IN WHICH CASE THE ASSESSEE WAS ALLOTTED A FLAT IN THE BUILDING OF THE SOCIETY BY R ESOLUTION DATED 4/11/1980. ON THE DATE OF ALLOTMENT PROPERTY WAS UNDER CONSTRUCTION A ND CAME TO BE COMPLETED ON 12/9/1983, OF WHICH PHYSICAL POSSESSION WAS HANDED OVER TO THE ASSESSEE. ON 30/04/1984 THE FLAT WAS SOLD BY THE ASSESSEE FOR A CONSIDERATION OF RS.3,75,000/-. ITA NO.2009/MUM/2013 : ASST.YEAR 2008-09 10 ON THE SALE ASSESSEE WORKED OUT LONG TERM CAPITAL G AIN AT RS.1,59,395/-. THE AO DID NOT ACCEPT THE STAND OF THE ASSESSEE ON THE GR OUND THAT THE ASSESSEE BECAME OWNER ON 4/11/1980 I.E. DATE OF ALLOTMENT OF FLAT. HONBLE HIGH COURT HELD THAT ASSESSEE WAS ALLOTTED SHARE BY SOCIETY ON 4/11/1980 AND IT WAS SOLD ON 30/4/1984 I.E. AFTER A PERIOD OF 36 MONTHS AND IT W AS HELD THAT ITAT WAS RIGHT IN TREATING THE GAIN AS LONG TERM CAPITAL GAIN. TO RA ISE SIMILAR PROPOSITION RELIANCE WAS ALSO PLACED ON FOLLOWING DECISIONS: (1) CIT VS. ANILABEN UPENDRA SHAH , 262 ITR 652 (2) MR. PRAVIN GUPTA VS. ACIT, 52 DTR 334 (DEL) (3) SMT. LATA G. ROHRA VS. DCIT, 21 SOT 541. 12.1 REFERRING TO THE AFOREMENTIONED DECISIONS IT W AS PLEADED BY LD. AR AO THAT GAIN SHOULD BE ASSESSED AS LONG TERM CAPITAL GAIN. LD. AR ALSO REFERRED TO THE LETTER OF POSSESSION DATED 21/2/2005, COPY OF WHICH IS PR OVIDED AT PAGE 49 TO 51 OF THE PAPER BOOK. IN THE SAID LETTER IT HAS BEEN CLEARL Y MENTIONED THAT THE FLAT WAS ALLOTTED TO THE ASSESSEE ON DRAW OF LOTS HELD AT SI TE ON 23/03/2003. LD. AR ALSO REFERRED TO THE DETAILS OF PAYMENT MADE BY THE ASSE SSEE. THE DETAIL IS FILED AT PAGE 52 OF THE PAPER BOOK WHICH ALSO SHOWS CALCULATION OF LONG TERM CAPITAL GAIN. THE DETAILS ARE AS UNDER: SUMATICHAND GOUTI: A.Y. 2008-09 CALCULATIONS OF CAPITAL GAINS : MEERABAI CO.OPHSG. SOCIETY ACQUISITION DATE: COST TILL 31.03.1997 31.03.1997 31.03.1998 31.03.2001 31.03.2003 31.03.2004 31.03.2006 31.03.2007 31.03.2003 123000 200000 450000 73620 35000 50000 47500 75876 1054996 INDEXED COST OF ACQ. AND IMPROVEMENT 31.03.1995 31.03.1997 31.03.1998 31.03.2001 31.03.2003 31.03.2004 261671.815 361311.475 749093.656 99912.8571 43143.1767 59503.2397 ITA NO.2009/MUM/2013 : ASST.YEAR 2008-09 11 31.03.2006 31.03.2007 INDEXED COST OF ACQ. AND IMPROVEMENT SALES PRICE LESS INDEXED COST OF ACQ. CAPITAL GAINS TAXABLE 52660.9658 80554.289 1707851.47 3000000 1707851.47 1292148.53 ========== 12.2 LD. AR ALSO REFERRED TO THE SALE DEED WHICH I S DATED 10/04/2007 AND COPY OF WHICH IS FILED AT PAGE 53 TO 63 OF THE PAPER BOOK. LD. AR ALSO REFERRED TO THE LETTER DATED 6/6/2010, COPY OF WHICH IS FILED AT PAGE 11 OF THE PAPER BOOK. IT WAS SUBMITTED THAT ONLY DURING THE COURSE OF HEARING SO ME WORDS WERE ADDED BY LD. AR OF THE ASSESSEE AND IT WAS WRITTEN AS UNDER: AS PER DISCUSSION WITH YOU DURING THE ASSESSMENT PROCEEDINGS WE GIVE DETAILS OF WORKING OF SHORT TERM CAPITAL GAIN ON S ALE OF MEERABAI CO-OPERATIVE SOCIETY FLAT (NEW DELHI), WHICH WAS SHOWN EARLIER A S LONG TERM CAPITAL GAIN . SHORT TERM CAPITAL GAIN WORKS OUT TO RS.19,45,004/ - HE SUBMITTED THAT THE SAID WRITING CANNOT BE TAKEN AS OFFER BY THE ASSESSEE AND EVEN IF IT IS TREATED AS OFFER, THE GAIN CANNOT BE ASSESSED AS SHORT TERM CAPITAL GAIN AS THERE IS NO ESTOPPEL AGAINST LAW. REFERENCE WA S MADE TO THE DECISIONS WHICH HAS BEEN DISCUSSED ABOVE I.E. IN THE CASE OF BALMUKUND ACHARYA VS. DCIT(SUPRA). 13. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDER PASSED BY AO AND LD. CIT(A). HE SUBMITTED THAT VIDE LETTER DATED 6/12/2010 THE A SSESSEE HAD OFFERED THE SAID GAIN AS SHORT TERM CAPITAL GAIN AND, THEREFORE, LD. CIT(A) WAS RIGHT IN UPHOLDING THE ACTION OF A.O. 14. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTEN TIONS HAVE CAREFULLY BEEN CONSIDERED. THE CASE LAW WHICH HAVE BEEN DISCUSSED ABOVE AND HAS RELIED UPON BY THE ASSESSEE BEFORE A.O VIDE LETTER DATED 25/09/201 2 SUPPORTS THE CASE OF THE ASSESSEE. HONBLE GUJARAT HIGH COURT IN THE CASE O F CIT VS. JINDAS PANCHAND GANDHI (SUPRA), HAS HELD THAT THE ASSESSEE WILL BE CONSIDERED TO BE OWNER OF THE FLAT ON THE DATE OF ALLOTMENT. SIMILAR PROPOSITION HAS BEEN LAID DOWN BY HONBLE ITA NO.2009/MUM/2013 : ASST.YEAR 2008-09 12 GUJARAT HIGH COURT IN THE CASE OF CIT VS. ANILABEN UPENDRA SHAH (SUPRA) AND ALSO IN THE CASE OF MR. PRAVIN GUPTA VS. ACIT (SUPRA). THE FACTS IN THE PRESENT CASE ARE NOT DISPUTED AND FACTS ARE SUPPORTED BY DOCUMENTARY EVI DENCE FILED BY THE ASSESSEE WITH THE LETTER DATED 25/9/2012 I.E. IN THE SHAPE O F POSSESSION LETTER, DETAILS OF PAYMENTS MADE AND SALE DEED. KEEPING IN VIEW ALL T HESE DECISIONS AND FACTUAL ASPECT WE ARE OF THE CONSIDERED OPINION THAT THE G AIN WAS ASSESSABLE AS LONG TERM CAPITAL GAIN. IT COULD NOT BE ASSESSED AS SHORT TE RM CAPITAL GAIN SIMPLY ON THE BASIS OF SO CALLED OFFER BY THE ASSESSEE. EVEN THE WRITI NG IN THE LETTER DATED 6/12/2010 WOULD NOT SUGGEST THAT IT WAS OFFERED BY THE ASSESS EE. IT APPEARS THAT AO HAS INSISTED THE ASSESSEE TO WRITE SUCH WORDS. HOWEVER , ACCORDING TO DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF BALMUKUND ACHARYA VS. DCIT (SUPRA), THE DECISIONS RENDERED BY LD. CIT(A) IS NOT IN ACCORDAN CE WITH LAW. SO FAR AS IT RELATES TO DECISION RELIED UPON BY LD. CIT(A) WHILE UPHOLDI NG SUCH ACTION I.E. IN THE CASE OF RAMESH CHANDER & COMPANY VS. CIT (SUPRA), IN OUR OP INION THE SAME WILL NOT BE APPLICABLE TO THE FACTS OF THE CASE AS IN THE SAID CASE ASSESSEE HAD MADE A STATEMENT OF FACTS, WHEREAS IN THE PRESENT CASE IT IS A QUEST ION OF LAW AND FACTS ARE NEVER DISPUTED. 14.1 KEEPING IN VIEW THE ABOVE DISCUSSIONS THIS GRO UND OF THE ASSESSEE IS ALLOWED. 15. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED IN THE MANNER AFORESAID. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 20 TH JUNE, 2014. 1 * ./0 2'3 20/06/2014 / * 9 SD/- SD/- (RAJENDRA) (I.P.BANSAL) ' ' ' ' / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; 2' DATED : 20 TH JUNE, 2014. VM. ITA NO.2009/MUM/2013 : ASST.YEAR 2008-09 13 1 * (,: ; :0, 1 * (,: ; :0, 1 * (,: ; :0, 1 * (,: ; :0,/ COPY OF THE ORDER FORWARDED TO : 1. $% / THE APPELLANT 2. ()$% / THE RESPONDENT. 3. <() / THE CIT, MUMBAI. 4. < / CIT(A)-13, MUMBAI 5. :?9 (,' , , / DR, ITAT, MUMBAI 6. 9@ A / GUARD FILE. 1' 1' 1' 1' / BY ORDER, ):, (, //TRUE COPY// B BB B/ // /C C C C (DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI