BIPIN M. THAKKAR, MUMBAI V. ITO 19(1)(3), MUMBAI

ITA 2141/MUM/2010

• Counselvise Citation: 214119914 RSA 2010
• Duration Of Justice: 1 year(s) 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 24-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 18-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SANJAY R PARIKH
• Keywords: Capital asset; Gift; Opportunity of being heard; Cost of acquisition; Fair market value
• Section: 143(3); 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, G, MUMBAI BEFORE S/SHRI D.K.AGARWAL (JM) AND R.K.PANDA (A.M ) ITA NO.2140/MUM/2010 (ASSESSMENT YEAR: 2006-07) SHRI BHARAT M THAKKAR PROP.M/S GANESH ELECTRONICS, 4, SATKAR CO-OP. HSG. SOCIETY, STATION ROAD, KHAR (W), MUMBAI-400052. PAN:AAAPT4806D THE INCOME TAX OFFICER 19(1)(3), AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 APPELLANT V/S RESPONDENT ITA NO.2141/MUM/2010 (ASSESSMENT YEAR: 2006-07) SHRI BIPIN M THAKKAR SARLA SADAN CO-OP. HSG. SOCIETY, SHOP NO.3, 5 TH ROAD, KHAR (W), MUMBAI-400052. PAN:AAAPT5416B THE INCOME TAX OFFICER 19(1)(3), AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 APPELLANT V/S RESPONDENT ASSESSEES BY : SHRI SANJAY R.PARIK H REVENUE BY : SHRI R.K.GUPTA. O R D E R PER D.K.AGARWAL (JM) THESE TWO APPEALS BY TWO RESPECTIVE ASSESSEES ARE DIRECTED AGAINST THE SEPARATE BOTH ORDERS DATED 4. 12.2009 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX(A) FOR THE ASSESSMENT YEAR 2006-07. SINCE FACTS ARE IDENTI CAL AND ISSUE INVOLVED IS COMMON BOTH THESE APPEALS WERE HE ARD ITA NO.2140 AND 2141/MUM/2010 (ASSESSMENT YEAR: 2006-07) 2 TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVEYANCE. ITA NO.2140/MUM/2010 (BY SHRI BHARAT M THAKKAR) 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE A SSESSEE AN INDIVIDUAL DERIVES INCOME FROM BUSINESS AS WH OLESALE DISTRIBUTOR IN MOBILE PRE-PAID CARD, CAPITAL GAINS AND INCOME FROM OTHER SOURCES. THE RETURN WAS FILED DECLARIN G TOTAL INCOME AT RS.44,350/-. DURING THE COURSE OF ASSESS MENT, THE AO OBSERVED THAT THE ASSESSEE HAS SOLD PROPERTY AS PER AGREEMENT DATED 23.12.2005 FOR RS.35,00,000/- IN WHICH THE ASSESSEE WAS HAVING SHARE OF RS.17,50,000/-. THE PROPERTY WAS RECEIVED THROUGH FAMILY SETTLEMENT DAT ED 6.3.2007. THE AO FURTHER NOTED THAT THE ASSESSEE HAS NOT SHOWN CAPITAL GAIN IN THE COMPUTATION AS SUCH A SH OW CAUSE LETTER WAS ISSUED TO THE ASSESSEE AS TO WHY CAPITAL GAIN SHOULD NOT BE TAXED. IN RESPONSE, THE ASSESSEES REPRESENTATIVE FILED REPLY DATED 24.12.2008 INTER ALIA STATING THAT THE CLIENT HAS CLAIMED LONG TERM CAPITAL LOS S ON THE BASIS OF VALUATION AS SHOWN IN THE COMPUTATION OF T OTAL INCOME. THE ASSESSEE AFTER GIVING FULL FACTS OF THE CASE, HOWEVER, REQUESTED THE AO TO CONSIDER THE COST OF C APITAL ASSET FOR FY 1996-97 AND TO WORK OUT THE LONG TERM CAPITAL GAIN LIABILITY ACCORDING TO LAW. THE AO AFTER CO NSIDERING THE ASSESSEES SUBMISSIONS WHILE DISTINGUISHING THE DE CISION ITA NO.2140 AND 2141/MUM/2010 (ASSESSMENT YEAR: 2006-07) 3 RELIED ON BY THE ASSESSEE HELD THAT IN THE ASSESSE ES CASE THERE WAS A FAMILY SETTLEMENT HENCE THERE WAS NO CO ST. HE FURTHER OBSERVED THAT THE BASIS ON WHICH VALUE FO R THE SHOP SOLD WAS TAKEN BY THE ASSESSEE AS OF 1981 OF RS.5 ,75,000/- HAS NOT BEEN FURNISHED, WHEREAS THE VALUE TAKEN AS PER SHOW CAUSE NOTICE WAS BASED ON THE BASIS OF THE READY RECKNOR FOR WHICH COST AS OF 1.4.1981 WAS RS.480 PER SQ.F T. EXPLANATION (III) TO 2 ND PROVISO OF SECTION 48(III) CLEARLY STIPULATES THAT INDEXED COST OF ACQUISITION HAS TO BE COMPUTED FROM THE FIRST YEAR IN WHICH THE ORIGINAL ASSET WAS HELD BY THE ASSESSEE. SUPPORT WAS ALSO DRAWN FROM THE DECISION OF THE ITAT MUMBAI IN THE CASE OF CIT VS. KISHORE KANUNGO 102 ITD 437 WHEREIN THE ISSUE HAS BEEN DECI DED IN FAVOUR OF THE REVENUE IN IDENTICAL MATTER. ACCORDI NGLY, THE AO ASSESSED THE LONG TERM CAPITAL GAINS OF RS.16, 32,676/- AS WORKED OUT IN THE SHOW CAUSE LETTER DATED 19.12. 2008 AND THEREBY COMPLETED THE ASSESSMENT AT AN INCOME OF RS.16,77,020/- VIDE ORDER DATED 26.12.2008 PASSED U NDER SECTION 143(3) OF THE INCOME TAX ACT, 1961(THE ACT) . ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX (A) WHILE DISTINGUISHING THE DECISION IN DCIT VS.MANJULA J.SH AH, SINCE REPORTED IN [2009] 318 ITR (AT) 417 (MUMBAI) [SB] O N THE GROUND THAT THE SAME IS NOT APPLICABLE TO THE CASE OF THE ASSESSEE UPHELD THE ACTION OF THE AO AND ACCORDING LY ITA NO.2140 AND 2141/MUM/2010 (ASSESSMENT YEAR: 2006-07) 4 SUSTAINED THE ADDITION OF LONG TERM CAPITAL GAIN OF RS.16,32,676/- AS ASSESSED BY THE AO. 3. BEING AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (A), THE ASSESSEE IS IN APPEAL BEFORE US TAKING THE FOLLOWING GROUNDS : 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-40, MUMBAI [CIT(A)] ERRED ON FACTS AND IN LAW IN UPHOLDING THE ORDER OF THE INCOME TAX OFFICER-19 (1)(3), MUMBAI (AO) IN ASSESSING THE INCOME OF THE APPELLAN T AT RS.19,82,080/- BY MAKING AN ADDITION OF RS.16,32,6 76/- TO THE LONG TERM CAPITAL GAINS DETERMINED BY THE APPELLANT. 2. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE FAI R MARKET VALUE OF THE SHOP AS ON 1/4/1981 WAS REQUIR ED TO BE ADOPTED FOR COMPUTING THE LONG TERM CAPITAL GA IN ON SALE OF THE SHOP AS AGAINST THE MARKET VALUE AS ON THE DATE OF FAMILY ARRANGEMENT. 3. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW IN HOLDING THAT TH E FAIR MARKET VALUE OF THE SHOP AS ON 1/4/1981 OF RS.1,44,000/- AS DETERMINED BY THE AO AS AGAINST T HE SUM OF RS.7,45,000/- ADOPTED BY THE APPELLANT. 4. WITHOUT PREJUDICE TO THE ABOVE, THE CIT(A) HAVING HELD THAT THE FAIR MARKET VALUE AS ON 1/4/1 981 HAD TO BE TAKEN, ERRED IN HOLDING THAT THE APPELLAN T WAS ENTITLED TO INDEXATION BENEFIT FROM FY 1996-97 AS A GAINST FROM 1981-82. 5. THE APPELLANT PRAYS THAT THE ADDITION OF RS.16,32,676/- MADE BY THE AO WHILE COMPUTING THE LONG TERM CAPITAL GAINS ON SALE OF SHOP AND AS UPH ELD BY THE CIT(A) MAY BE DELETED AND THE RETURNED INCOME OF RS.3,34,450/- MAY BE ACCEPTED. 6. THE ABOVE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO ONE ANOTHER AND THE APPELLANT CRAVES L EAVE TO ADD, ALTER, AMEND, DELETE OR MODIFY ANY OF THE A BOVE GROUNDS OF APPEAL ITA NO.2140 AND 2141/MUM/2010 (ASSESSMENT YEAR: 2006-07) 5 4. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITS THAT HE DOES NOT WANT TO DISPUTE THE FAIR MARKET VALUE ADOPTED BY THE AO AS ON 1.4.1981 AT RS.1,44,000/-. HE FURTHER SUBMITS THAT IN VIEW OF THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN MANJULA J.SHAH (SUPRA), THE INDEXATION SHOULD BE MADE WITH REFERENCE TO THE YEAR IN WHICH THE PREVIOUS OWNER ACQUIRED TH E ASSET AND NOT THE ASSESSEE. THEREFORE, THE AO MAY BE DI RECTED TO WORK OUT THE INDEXED COST OF ACQUISITION AS ON 1.4 .1981 AS HELD IN THE CASE OF MANJULA J.SHAH, (SUPRA) AND D UE RELIEF BE ALLOWED TO THE ASSESSEE.. 5. ON THE OTHER HAND, THE LEARNED D.R. SUPPORTS THE ORDER OF THE AO AND LEARNED COMMISSIONER OF INCOME TAX ( A). 6. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THERE IS NO DISPUTE THAT THE ASSESSEE HAS ACQUIRED THE SHOP BY WAY OF FAMILY SETTLEMENT DAT ED 6 TH MARCH 1997 WHICH WAS ORIGINALLY HELD BY HIS FATHER SHRI MOHANBHAI THAKKAR WHO DIED ON 11.4.1990. THIS PRO PERTY WAS SOLD BY THE ASSESSEE AS PER AGREEMENT DATED 23.12.2005 FOR RS.35,00,000/- IN WHICH THE ASSESSEE WAS HAVING SHARE OF RS.17,50,000/-. ACCORDING TO TH E AO, SINCE THE SHOP WAS HELD BY THE ASSESSEE AS PER FAMI LY SETTLEMENT DATED 6.3.1997, THEREFORE, THE ASSESSEE IS ENTITLED ITA NO.2140 AND 2141/MUM/2010 (ASSESSMENT YEAR: 2006-07) 6 FOR THE INDEXATION FROM F.Y.1996-97 AND NOT FROM 1 .4.1981. PER CONTRA, ACCORDING TO THE ASSESSEE, SINCE THE S HOP WAS HELD BY HIS FATHER PRIOR TO 1.4.1981, THEREFORE, TH E ASSESSEE IS ENTITLED TO THE BENEFIT OF INDEXATION FROM 1.4.1 981. 7. IN THE CASE OF MANJULA J.SHAH (SUPRA) ON A FOLLO WING QUESTION: WHILE COMPUTING THE CAPITAL GAINS IN THE HANDS OF AN ASSESSEE WHO HAD ACQUIRED THE ASSETS TRANSFERRED UN DER GIFT WHETHER INDEXED COST OF ACQUISITION WAS TO BE COMPUTED WITH REFERENCE TO THE YEAR IN WHICH THE PREVIOUS OWNER FIRST HELD THE ASSET OR THE YEAR IN WHICH THE ASSESSEE BECAME THE OWNER OF THE ASSET IT HAS BEEN HELD BY THE SPECIAL BENCH OF THE TRIB UNAL VIDE PLACITUM 21 APPEARING AT PAGE 431 OF THE REPORT A S UNDER: FOR THE REASONS GIVEN ABOVE, WE ARE OF THE VIEW T HAT FOR THE PURPOSE OF COMPUTING LONG-TERM CAPITAL GAIN S ARISING FROM THE TRANSFER OF A CAPITAL ASSET WHICH HAD BECOME PROPERTY OF THE ASSESSEE UNDER GIFT, THE FIR ST YEAR IN WHICH THE CAPITAL ASSET WAS HELD BY THE ASSESSEE HAS TO BE DETERMINED TO WORK OUT THE INDEX ED COST OF ACQUISITION AS ENVISAGED IN EXPLANATION (II I) TO SECTION 48 AFTER TAKING INTO ACCOUNT THE PERIOD FOR WHICH THE SAID CAPITAL ASSET WAS HELD BY THE PREVIOUS OWN ER. IN THAT VIEW OF THE MATTER, WE HOLD THAT THE INDEX ED COST OF ACQUISITION OF SUCH CAPITAL ASSET HAS TO BE COM PUTED WITH REFERENCE, TO THE YEAR IN WHICH THE PREVIOUS O WNER FIRST HELD THE ASSET. ACCORDINGLY, WE ANSWER THE QUESTION REFERRED TO US IN FAVOUR OF THE ASSESSEE A ND UPHOLD THE IMPUGNED ORDER OF THE LEARNED COMMISSION ER OF INCOME TAX(APPEALS) ON THIS ISSUE 8. RESPECTFULLY FOLLOWING THE ABOVE DECISION WE AR E OF THE VIEW THAT THE ACCORDING TO THE EXPLANATION (III) TO SECTION 48 OF THE ACT THE INDEXED COST OF ACQUISITION OF A SSETS SOLD BY ITA NO.2140 AND 2141/MUM/2010 (ASSESSMENT YEAR: 2006-07) 7 THE ASSESSEE HAS TO BE COMPUTED WITH REFERENCE TO THE YEAR IN WHICH THE PREVIOUS OWNER FIRST HELD THE ASSETS OR FOR THE YEAR BEGINNING ON THE FIRST DAY OF APRIL 1981 WHIC HEVER IS LATER. THUS, THE AO IS DIRECTED TO TAKE THE INDEX COST OF ACQUISITION AS ON 1.4.1981 AT RS.1,44,000/- AND W ORK OUT THE LONG TERM CAPITAL GAIN ACCORDINGLY AS HELD IN T HE ABOVE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL AFT ER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. THE GROUNDS TAKEN BY THE ASSESSEE ARE THEREFORE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.2141/MUM/2010(BY SHRI BIPIN M THAKKAR) 9. AT THE TIME OF HEARING BOTH THE PARTIES HAVE AGR EED THAT THE FACTS OF THIS CASE AND THE PLEA TAKEN BY THEM ARE SIMILAR TO THE CASE OF SHRI BHARAT M.THAKKAR (SUPRA), THER EFORE, THE ISSUE MAY BE DECIDED AFTER CONSIDERING THE SAME. 10. AFTER HEARING RIVAL PARTIES AND PERUSING THE MA TERIAL AVAILABLE ON RECORD AND IN ABSENCE OF ANY DISTINGUI SHING FEATURES BROUGHT ON RECORD BY THE PARTIES, WE DIREC T THE AO TO FOLLOW OUR FINDINGS RECORDED IN PARAGRAPH 8 OF T HIS ORDER IN THE CASE OF BHARAT M.THAKKAR AND WORK OUT THE LONG TERM CAPITAL GAIN ACCORDINGLY AFTER PROVIDING REASONAB LE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE GRO UNDS ITA NO.2140 AND 2141/MUM/2010 (ASSESSMENT YEAR: 2006-07) 8 TAKEN BY THE ASSESSEE ARE THEREFORE PARTLY ALLOWED FOR STATISTICAL PURPOSE. 11. IN THE RESULT, ASSESSEES APPEALS STAND PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 27TH MAY,20 11 SD SD (R.K.PANDA) (D.K.AGARWAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 27 TH MAY, 2011 SRL:24511 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH 6. GUARD FILED. BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI