Arun Shungloo Trust, New Delhi V. ACIT, New Delhi

ITA 2268/DEL/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0314 (ITAT-DELHI)
• Duration Of Justice: 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 24-02-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 13-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B KISHORE
• Assessee Lawyers: AMITOSH MITRA
• Keywords: Capital asset; Cost of acquisition
• Section: 271(1)(c); 143(3)

Judgement Text

I.T.A. NO. 2268/DEL/2010 1/1 IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, NEW DELHI, BENCH A NEW DELHI, BENCH A NEW DELHI, BENCH A NEW DELHI, BENCH A BEFORE SHRI C. L. SETHI, JUDICIAL MEMBER AND SHRI A K GARODIA, ACCOUTANT MEMBER ITA NO. 2268 /DEL/2010 (ASSESSMENT YEAR 2001-02) ARUN SHUNGLOO TRUST, VS. ACIT, CIRCLE 23(1), M-2, SECOND FLOOR, NEW DELHI GREATER KAILASH I, NEW DELHI. (APPELLANTS) (RESPONDENTS) PAN / GIR NO. APPELLANT BY: SHRI AMITOSH MITRA, ADV. RESPONDENT BY: SHRI B. KISHORE, SR. DR ORDER ORDER ORDER ORDER PER A. K. GARODIA, AM: PER A. K. GARODIA, AM: PER A. K. GARODIA, AM: PER A. K. GARODIA, AM: 1. THIS IS ASSESSEES APPEAL DIRECTED AGAINST THE O RDER OF LD. CIT(A) XXII, NEW DELHI DATED 22.3.2010 FOR THE ASSE SSMENT YEAR 2001-02. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE AS UNDER: 1) BASED ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE LD. A.O. AS ALSO THE LD. CIT(A) XXII, NEW DELHI HAVE ERRED IN THEIR DECISION OF LEVYING PENALTY U/S 271( 1)(C) ON THE ASSESSEE AS THEY HAVE FAILED TO CORRECTLY INTERPRET AND APPLY THE SPIRIT AND INTENTION OF THE PROVISIONS OF THE SECTION 271(1)(C) AND OF THE DECI SIONS OF VARIOUS COURTS IN THE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE ASSESSEE. 2) THE LD .CIT(A)-XXII HAS ERRED IN SO FAR AS HE HA S FAILED TO GRANT RELIEF TO THE ASSESSEE FROM THE PENALTY U/S 271(1)(C) LEVIED INCORRECTLY ON AN ADDITION OF ` 4,72,928/- WHICH WAS CANCELLED AT THE FIRST APPELLA TE STAGE IN THE QUANTUM APPEAL. 3. THE FACTS TILL THE STAGE OF IMPOSITION OF THE PE NALTY BY THE A.O. ARE NOTED BY LD. CIT(A) IN PARA 4 OF HIS ORDER WHICH IS REPRODUCED BELOW: I.T.A. NO. 2268/DEL/2010 2/2 4. BRIEFLY STATED FACTS OF THE CASE AS EMERGING FROM THE PENALTY ORDER ARE THAT HE APPELLANT IS A P RIVATE DISCRETIONARY TRUST FORMED VIDE TRUST DEED DATED 05.01.1996. THE CORPUS OF THE TRUST COMPRISED OF T HE PROPERTIES OF SH. ARUN SHUNGLOO, WHICH INCLUDED 50% SHARE IN THE PROPERTY D-11, MAHRANI BAGH, NEW DELHI . THE PROPERTY WAS DEVELOPED AND THE FLATS IN THE PROPERTY WERE SOLD DURING THE YEAR UNDER CONSIDERAT ION. THE A.O. OBSERVED THAT SINCE THE TRUST DEED WAS CRE ATED W.E.F. 5.1.1996, THE PROPERTY WAS TRANSFERRED TO TH E TRUST FORM SHRI ARUN SHUNGLOO AS ON THAT DATE. THE A.O. OBSERVE THAT IN TERMS OF PROVISIONS OF SECTION 49(1 ), THE COST OF ACQUISITION OF THE PROPERTY WOULD BE THE MA RKET VALUE AS ON 1.4.1981 OR THE ACTUAL COST OF THE PROP ERTY OF THE PREVIOUS OWNER AND INDEXATION IS TO BE ALLOW ED FROM 11.1.1996. REFERRING TO SECTION 48, THE APPEL LANT HAD CONTENDED THAT SINCE THE ACQUISITION OF THE PRO PERTY BY THE APPELLANT DOES NOT CONSTRUED AS A TRANSFER A S PER PROVISIONS OF SECTION 47 AND THE PROPERTY HAS FURTH ER BEEN SOLD BY THE APPELLANT AND CAPITAL GAINS IS NOW BEING CALCULATED, FOR THIS PURPOSE, THE COST OF ACQ UISITION AND IMPROVEMENT WILL BE THE INDEXED COST OF ACQUISI TION AND IMPROVEMENT TO BE CALCULATED FROM THE DATE WHEN THE PREVIOUS OWNER BECAME OWNER OF THE PROPERTY OR 1.4.1981 WHICHEVER IS LATER. HE THEREFORE ARGUED T HAT EVEN THOUGH THE APPELLANT ACQUIRED HT PROPERTY IN 1 996, HIS COST OF ACQUISITION WOULD BE THE COST OF ACQUIS ITION AS CALCULATED FROM 1.4.1981 WHEN SHRI SHUNGLOO WAS THE OWNER OF THE PROPERTY. THE A.O. REJECTED THE CONTENTION OF THE APPELLANT AND WAS OF THE OPINION THAT THE CASE OF THE APPELLANT FALLS WITHIN THE PURVIEW OF SECTION 49(1) AND THE CAPITAL GAIN IS TO BE COMPUTE D ACCORDING TO THE PROVISION OF THIS SECTION. HE, TH EREFORE, I.T.A. NO. 2268/DEL/2010 3/3 OBSERVED THAT SHRI ARUN SHANGLOO HAD ACQUIRED THE PROPERTY BEFORE 1.4.1981, THE COST OF ACQUISITION W AS TAKEN AS ON 1.4.1981 AS DECLARED BY THE APPELLANT. THE PROVISIONS OF SECTION 49(1) SPECIFY THE COST WITH REFERENCE TO CERTAIN MODES OF ACQUISITION INCLUDING UNDER A TRANSFER TO A REVOCABLE OR IRREVOCABLE TRUS T AND THE COST OF ACQUISITION OF SUCH AN ASSET SHALL BE D EEMED TO BE THE COST FOR WHICH THE PREVIOUS OWNER OF THE PROPERTY ACQUIRED IT. THE A.O. ASSESSED THE INCOME OF THE APPELLANT U/S 143(3) OF THE ACT AT AN INCOME OF ` 1,16,83,480/- AS AGAINST HT RETURNED INCOME OF ` 82,91,350/-. THE A.O. WAS SATISFIED THAT THE APPELLANT HAD CONCEALED THE PARTICULARS OF INCOME BY CLAIMING WRO NG DEDUCTION TO THE EXTENT OF ` 32,68,333/- AND THE PE NALTY PROCEEDINGS U/S 271(1)(C) OF THE I. T. ACT WAS INIT IATED BY ISSUING A NOTICE U/S 274 READ WITH SECTION 271(1 )(C) OF THE I. T. ACT, 1961. THE APPELLANT PREFERRED AN APPEAL BEFORE CIT(A) AGAINST THE QUANTUM WHO HELD THAT APPELLANT HAD UND ER ASSESSED THE LONG TERM CAPITAL GAINS ON THE SALE OF PROPERTY AT D-11, MAHARANI BAGH, NEW DELHI, WHICH W AS FORMED A PART OF THE CORPUS OF THE APPELLANT TRUST. THE ENHANCEMENT OF LONG-TERM CAPITAL GAIN WAS MADE BY ALLOWING INDEXATION FROM 1995-96 INSTEAD OF FROM FINANCIAL YEAR 1981-82, CLAIMED BY THE APPELLANT TR UST. THE APPELLANT FILED AN APPEAL BEFORE HONBLE ITAT. THE HONBLE ITAT IN ITS ORDER CONFIRMED THE ACTION OF T HE CIT(A). DURING THE COURSE OF PENALTY PROCEEDINGS A SHOW CAUSE NOTICE DATED 02.09.2008 WAS ISSUED TO THE APPELLANT FOR 10.09.2008. ON THIS DATE APPELLANT F ILED A REPLY DEMANDING RELIEF FROM THE PENALTY STATING THA T I.T.A. NO. 2268/DEL/2010 4/4 HERE WAS ANOMALY AND INEQUITY IN THE EXPLANATION (I II) TO SECTION 48. IT MIGHT BE STATED THAT EVEN THE CITAT ION OF HONBLE ITAT, WHICH THEY HAVE SUBMITTED IN THE REPL Y, ALSO SAYS THE TRIBUNAL ALSO DOES NOT HAVE THE POWE R TO GRANT EQUITY UNDER THE LAW. THUS, THE CLAIM OF APPELLANT NOT TO LEVY PENALTY BECAUSE THE LAW PROVI DES INEQUITY WAS UNACCEPTABLE. THE A.O. MADE A FINDING THAT NO ANOMALY IS THERE I N THE EXPLANATION (III) TO SECTION 48 WHICH READ AS INDEXED COST OF ACQUISITION MEANS AN AMOUNT WHICH BEARS TO THE COST OF ACQUISITION THE SAME PROPORTIO N AS COSTS INFLATION INDEX FOR THE YEAR IN WHICH THE ASS ET IS TRANSFERRED BEARS TO THE COST INFLATION INDEX FOR T HE FIRST YEAR IN WHICH THE ASSET WAS HELD BY THE APPELLANT O R FOR THE YEAR BEGINNING ON THE 1 ST DAY OF APRIL, 1981, WHICHEVER IS LATER: IT CLEARLY MENTIONS THAT INDEXATION HAS TO BE TAKE N FORM THE POINT WHEN HT ASSET IS FIRST HELD BY THE APPELLANT. THE APPELLANT RELIED UPON THE FOLLOWING CASE LAWS: CIT VS SUSAL KALYANAMADAPAM PVT. LTD. (20040271 ITR 138 (MAD.) INDIA CINE AGENCIES VS CIT (2005) 275 ITR 430 (MAD. ) BHARAT RICE MILLS VS CIT (2005) 148 TAXMAN 145 (ALL .) CIT VS MAHADIK BROS. (2003) 84 ITD 1 (PUNE) THE EXPLANATION AND THE CASE LAWS QUOTED BY THE APPELLANT WERE NOT SATISFACTORY IN THE OPINION OF T HE A.O. THE A.O. DID NOT FOUND THE EXPLANATION OF THE APPEL LANT RELEVANT AS THE APPELLANT HAD DELIBERATELY FURNISHE D INACCURATE PARTICULARS. THE A.O. OPINED THAT THE APPELLANT HAD NOT MADE FULL DISCLOSURES OF RELEVANT FACTS. IT WAS ONLY DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT THE ISSUE OF APPELLANT BECOMING TH E I.T.A. NO. 2268/DEL/2010 5/5 OWNER OF THE ASSETS ONLY ON 01.01.1996 THROUGH THE IRREVOCABLE TRUST CAME TO THE LIGHT. AGGRIEVED WIT H THIS THE APPELLANT HAS FILED AN APPEAL BEFORE ME. 4. THE ASSESSEE DID NOT FIND FAVOUR FROM CIT(A ) AND HENCE HAS FILED THIS APPEAL BEFORE US. 5. IT IS SUBMITTED BY THE LD. A.R. THAT ALTHOUG H THE ASSESSEE HAS FILED APPEAL BEFORE HON'BLE HIGH COURT OF DELHI IN QUANTUM PROCEEDINGS BUT IRRESPECTIVE OF THE OUTCOME OF THAT APPEAL, PENALTY IN THE PRESENT CASE IS NOT JUSTIFIE D BECAUSE EVEN IF THIS ISSUE IS ULTIMATELY DECIDED AGAINST TH E ASSESSEE, IT HAS TO BE ACCEPTED THAT IT IS A DEBATABLE ISSUE AND SINCE ALL THE FACTS WERE PROPERLY DISCLOSED BY THE ASSESSEE B EFORE THE A.O., PENALTY IS NOT JUSTIFIED. IT WAS SUBMITTED B Y HIM THAT IN THE CASE OF ACIT VS KOTAK MAHINDRA BANK LTD. AS REP ORTED IN 2007 TIOL 383 ITAT MUMBAI, IT WAS HELD BY THE TRIBU NAL THAT IN THOSE CASES WHERE THE ASSESSEE IS ENTITLED TO TH E BENEFIT OF COST AND THE PERIOD OF HOLDING OF THE PREVIOUS OWNE R AS PER SECTION 2(42A) READ SECTION U/S 49, THE COST INFLAT ION INDEX OF THE YEAR IN WHICH THE PREVIOUS OWNER ACQUIRED THE A SSET SHALL BE APPLICABLE FOR THE ASSESSEE ALSO. IT IS SUBMITT ED BY HIM THAT IN VIEW OF THIS TRIBUNAL DECISION, IT HAS TO B E ACCEPTED THAT IT IS A DEBATABLE ISSUE AS TO WHETHER FOR THE PURPOSE OF WORK OUT INDEXED COST OF ACQUISITION OF AN ASSET AC QUIRED BY THE ASSESSEE BY WAY OF TRANSFER TO A REVOCABLE OR I RREVOCABLE TRUST AS PER CLAUSE (D) OF SECTION 49(1)(III) THEN WHETHER THE COST INFLATION INDEX OF THE YEAR IN WHICH THE ASSET WAS ACQUIRED BY THE ORIGINAL OWNER IS APPLICABLE OR WHE THER COST INFLATION INDEX OF THE YEAR IN WHICH THE ASSET HAS BEEN ACQUIRED BY THE ASSESSEE AS PER THE PROVISIONS OF S ECTION 49(1)(III)(D) IS APPLICABLE. IT IS SUBMITTED THAT THE ASSESSEES CLAIM IS THIS THAT COST INFLATING INDEX OF THE YEAR IN WHICH THE ASSET WAS ACQUIRED BY THE ORIGINAL OWNER IS TO BE A PPLICABLE BUT IT HAS BEEN HELD BY THE A.O. IN THE PRESENT CAS E THAT COST I.T.A. NO. 2268/DEL/2010 6/6 INFLATION INDEX OF THE YEAR IN WHICH THE ASSET WAS ACQUIRED BY THE ASSESSEE IS TO BE APPLIED AND THAT VIEW OF THE A.O. HAS BEEN UPHELD BY THE TRIBUNAL ALSO IN QUANTUM PROCEED INGS BUT STILL PENALTY IS NOT JUSTIFIED BECAUSE IT IS A DEBA TABLE ISSUE. RELIANCE WAS PLACED ON THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF CIT VS RELIANCE PETRO PRODUCTS LTD. AS REPORTED IN 322 ITR 158 (S.C.). 6. AS AGAINST THIS, LD. D.R. SUPPORTED THE ORDERS O F AUTHORITIES BELOW. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSE D THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE FIND THAT THE PENALTY IN THE PRESENT CASE HAS BEEN IMPOSED BY THE A.O. ON THE ADDITION M ADE BY HIM BY DISALLOWING THE CLAIM OF THE ASSESSEE THAT F OR THE PURPOSE OF COMPUTATION OF LONG TERM CAPITAL GAIN ON SALE OF PROPERTY HELD BY THE ASSESSEE, COST INFLATION INDEX OF THE YEAR IN WHICH THE ASSET IN QUESTION WAS ACQUIRED BY THE ASSESSEE HAS TO BE APPLIED WHEREAS THE CASE OF THE ASSESSEE WAS THAT FOR SUCH PURPOSE, COST INFLATION INDEX ON 1.4.1981 HAS TO BE APPLIED BECAUSE THE ASSET IN QUESTION WAS ACQUIRED BY THE ORIGINAL OWNER BEFORE 1.4.1981. THERE IS NO DISPUT E REGARDING THE FACTS BECAUSE THE A.O. HAS ALSO CONSIDERED THE COST OF THE PROPERTY IN QUESTION AS COST AS ON 1.4.1981 AND HEN CE, THIS IS NOT IN DISPUTE THAT ASSET IN QUESTION WAS ACQUIRED BY THE ORIGINAL OWNER PRIOR TO 1.4.1981. THERE IS NO ALLE GATION THAT ANY FACT WAS NOT PROPERTY DISCLOSED BY THE ASSESSEE . IT IS A CASE OF A LEGAL CLAIM MADE BY THE ASSESSEE WHICH DI D NOT FIND FAVOUR WITH THE REVENUE AUTHORITIES AND EVEN TRIBUN AL HAS UPHELD THE VIEW ADOPTED BY THE A.O. AND IT WAS HELD THAT FOR THE PURPOSE OF WORKING OUT LONG TERM CAPITAL GAIN I N THE PRESENT CASE, COST INFLATION INDEX OF THE YEAR IN W HICH THE PROPERTY WAS ACQUIRED BY THE ASSESSEE HAS TO BE APP LIED. BUT THERE IS FORCE IN THE ARGUMENT OF THE LD. A.R. BEFORE US I.T.A. NO. 2268/DEL/2010 7/7 THAT EVEN AFTER CONFIRMATION OF THE ACTION OF THE A .O. IN MAKING ADDITION, PENALTY IS NOT JUSTIFIED BECAUSE T HIS IS A DEBATABLE ISSUE AS TO WHETHER COST INFLATION INDEX OF THE YEAR IN WHICH THE PROPERTY WAS ACQUIRED BY THE ASSESSEE HAS TO BE APPLIED OR WHETHER COST INFLATION INDEX ON 1.4.1981 HAS TO BE APPLIED SINCE THE PROPERTY IN QUESTION HAS BEEN ACQ UIRED BY THE ORIGINAL OWNER PRIOR TO 1.4.1981. IN SUPPORT O F THIS CONTENTION THAT THIS IS A DEBATABLE ISSUE, THE ASSE SSEE HAS POINTED OUT THE TRIBUNAL DECISION RENDERED IN THE C ASE OF ACIT VS KOTAK MAHINDRA BANK LTD. (SUPRA), WHEREIN IT WAS HELD BY THE TRIBUNAL THAT WHERE THE ASSESSEE IS ENTITLED TO THE BENEFIT OF COST AND THE PERIOD OF HOLDING OF THE PREVIOUS O WNER AS PER SECTION 2(42A) READ WITH SECTION 49, THE COST INFLA TION INDEX OF THE YEAR IN WHICH THE PREVIOUS OWNER ACQUIRED TH E ASSET, SHALL BE APPLICABLE FOR THE ASSESSEE ALSO. IN FACT , SPECIAL BENCH WAS CREATED ON A SIMILAR ISSUE IN THE CASE OF DCIT VS MANJULA J. SHAH AND AS PER THE DECISION OF SPECIAL BENCH IN THAT CASE AS REPORTED IN 126 TTJ 145, IT WAS HELD B Y THE SPECIAL BENCH OF THE TRIBUNAL THAT WHEN THE COST OF ACQUISITION OF THE PREVIOUS OWNER AS ON THE DATE OF ACQUISITION OF CAPITAL ASSET BY HIM IS TO BE TAKEN TO WORK OUT INDEXED COST OF ACQUISITION, THE ONLY CONCLUSION WH ICH LOGICALLY AND REASONABLY FOLLOWED IS TO ADOPT THE C OST INFLATION INDEX CORRESPONDING ON THAT DATE FOR PROPERLY DETER MINING THE INDEXED COST OF ACQUISITION. IN VIEW OF THIS, WE ARE OF THE CONSIDERED OPINION THAT THERE IS CONSIDERABLE FORCE IN THE ARGUMENT OF THE LD. A.R. FOR THE ASSESSEE AND THIS IS A DEBATABLE ISSUE AND HENCE, PENALTY IS NOT JUSTIFIED EVEN AFTER DISALLOWING THE CLAIM OF THE ASSESSEE. THIS VIEW I S ALSO IN LINE WITH THE JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF RELIANCE PETRO PRODUCTS (SUPRA) WHEREIN, IT WAS HELD BY THE HONBLE APEX COURT THAT MERELY FOR DISALLOWING A CL AIM OF THE ASSESSEE, PENALTY IS NOT JUSTIFIED. IN THE PRESENT CASE, THIS IS I.T.A. NO. 2268/DEL/2010 8/8 NOT THE CASE OF REVENUE THAT ANY FACT WAS NOT DISCL OSED BY THE ASSESSEE OR WAS MISREPRESENTED BY THE ASSESSEE. FULL FACTS WERE AVAILABLE BEFORE THE A.O. AND IT WAS A L EGAL CLAIM OF THE ASSESSEE, WHICH DID NOT FIND FAVOUR BUT IN O UR CONSIDERED OPINION, PENALTY IS NOT JUSTIFIED IN THE FACTS OF THE PRESENT CASE. THE CLAIM OF THE ASSESSEE WAS A REAS ONABLE CLAIM AS PER REASONABLE INTERPRETATION OF LAW ALTHO UGH SUCH INTERPRETATION OF LAW DID NOT FIND FAVOUR WITH THE AUTHORITIES BELOW OR EVEN WITH THE TRIBUNAL IN QUANTUM PROCEEDI NG BUT IT IS NOT AN UNREASONABLE CLAIM. WE, THEREFORE, HOLD THAT IN THE FACTS OF THE PRESENT CASE, PENALTY IS NOT JUSTIFIED AND THE SAME IS DELETED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE STANDS ALL OWED. 9. PRONOUNCED IN THE OPEN COURT ON 4 TH MARCH 2011. SD./- SD./- (C. L. SETHI) (A K GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED:4 TH MARCH, 2011 SP. COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT TRUE COPY: BY ORDER 4. CIT(A) 5. DR DY. REGISTRAR, ITAT, NEW DELHI