DCIT CIR 7(1), MUMBAI V. MORARJEE REALITIES LTD ( FORMERLY M.S, MORARJEE GOCULDAS SPG. & WVG. CO. LTD), MUMBAI

ITA 2342/MUM/2009

• Counselvise Citation: 234219914 RSA 2009
• Duration Of Justice: 2 year(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-05-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 20-01-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 13-04-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A P SINGH
• Keywords: Period of limitation; Cost of acquisition; Fair market value; Valuation report; Revised return

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI. BEFORE SHRI R.V.EASWAR, PRESIDENT AND SHRI R.K.PANDA, ACCOUNTANT MEMBER I.T.A. NOS. 5525 & 2342/MUM/2009 (ASSESSMENT YEARS : 2002-03 & 2003-04 ) THE ASSISTANT / DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 7(1) 622, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400 020. VS. M/S. MORARJEE REALTIES LTD. (NOW KNOWN AS PENINSULA LAND LTD.) PENINSULA SPENTA, MATHURADAS MILL COMPOUND, SENAPATI BAPAT MARG, LOWER PAREL, MUMBAI-400 013. PAN: AAACT5173A (APPELLANT) (RESPONDENT) APPELLANT BY : MR. A.P.SINGH, CIT DR RESPONDENT BY : MR. NIRAJ SETH O R D E R PER R.V.EASWAR, PRESIDENT: THESE ARE TWO APPEALS BY THE REVENUE RELATING TO THE ASSESSMENT YEARS 2002-03 AN D 2003-04. THE ASSESSEE-RESPONDENT IS A COMPANY ENGAGED IN THE MANUFACTURE OF TEXTILES, SOFTWARE AND MACHINE TOOLS . 2. IN RESPECT OF THE ASSESSMENT YEAR 2002-03, THE F IRST GROUND TAKEN BY THE REVENUE IS THAT THE CIT(A) ERRE D IN HOLDING THAT THE PAYMENT OF THE EMPLOYEES CONTRIBUTION WIT HIN THE GRACE PERIOD ALLOWED AS PER THE PROVIDENT FUND AND EMPLOYEES STATE INSURANCE LAWS IS ALLOWABLE AS A DEDUCTION. I T IS CONTENDED THAT THE CIT(A) OVERLOOKED THE EXPLANATION BELOW CL AUSE (VA) OF SUB-SECTION (1) OF SEC.36 OF THE IT ACT. RELIANCE I S PLACED ON THE JUDGMENT OF THE CALCUTTA HIGH COURT IN THE CASE OF CIT V K.L. THIRANI & CO. LTD. (218 ITR 149). ITA NOS.5525 & 2342/MUM/09 2 3. THIS ISSUE NOW STANDS COVERED IN FAVOUR OF THE A SSESSEE BY THE JUDGMENTS OF THE MADRAS HIGH COURT IN CIT V SANKAR SPG. MILLS PVT. LTD (181 CTR 328) AND SHREE GANAPAT HY MILLS COMPANY LTD. (243 ITR 879) IN WHICH IT WAS HELD THA T PAYMENTS MADE WITHIN THE GRACE PERIOD ALLOWED BY THE RELEVAN T STATUTE SHOULD BE CONSIDERED PAID WITHIN THE DUE DATE AS DE FINED IN THE EXPLANATION BELOW SEC.36(1)(VA) OF THE ACT. THOUGH THE JUDGMENT OF THE CALCUTTA HIGH COURT (SUPRA) SUPPORT S THE DEPARTMENTS CLAIM, HAVING REGARD TO THE RULE OF IN TERPRETATION THAT IN CASE OF CONFLICTING INTERPRETATIONS OF THE STATUTORY PROVISIONS AMONG DIFFERENT HIGH COURTS, AND IN THE ABSENCE OF A DECISION OF THE JURISDICTIONAL HIGH COURT, THE VIEW TAKEN IN FAVOUR OF THE SUBJECT SHOULD BE PREFERRED THE RUL E LAID DOWN BY THE SUPREME COURT IN VEGETABLE PRODUCTS (88 ITR 192 ) WE UPHOLD THE DECISION OF THE CIT(A) AND REJECT THE GR OUND. 4. THE SECOND AND THIRD GROUNDS RELATE TO THE DETER MINATION OF THE FAIR MARKET VALUE OF THE PROPERTY AS ON 1-4- 1981 FOR THE PURPOSE OF COMPUTING THE CAPITAL GAINS. THIS ISSUE ARISES OUT OF THE ADDITIONAL GROUND TAKEN BY THE ASSESSEE BEFORE THE CIT(A) ON THE FOLLOWING FACTS: THE ASSESSEE HAD ACQUIRED 2 PL OTS OF LAND PRIOR TO THE YEAR 1981. THEY WERE HELD AS CAPITAL A SSETS TILL 1-7- 2001 ON WHICH DATE THEY WERE CONVERTED INTO STOCK-I N-TRADE AND SOLD AS SEPARATE UNITS. IN COMPUTING THE CAPITAL GA INS ON THE SALE OF THE PLOTS DURING THE RELEVANT PREVIOUS YEAR , THE ASSESSEE DECLARED THE SAME AT RS.15,60,09,330 IN THE RETURN OF INCOME. IT ALSO MADE A NOTE TO THE RETURN AS FOLLOWS: THE FAIR MARKET VALUE OF THE LAND AS ON 01-04-1981 IS BEING ASCERTAINED AND SHALL BE SUBSTITUTED FOR THE COST OF ACQUISITION. THE WORKING OF THE CAPITAL GAINS AS THE ABOVE FIGUR E WAS ON THE BASIS OF THE COST OF ACQUISITION OF THE PLOT, MEASU RING 5,51,456 S.FT. ON 26-9-1980. IT WAS SHOWN AT RS.90,00,000. ITA NOS.5525 & 2342/MUM/09 3 5. IN THE ASSESSMENT MADE U/S.143(3) THE CAPITAL GA INS AS DECLARED WERE ACCEPTED. THERE IS NO DISCUSSION IN T HE ASSESSMENT ORDER. 6. THE ASSESSEE FILED AN APPEAL AGAINST THE ASSESSM ENT ORDER TO THE CIT(A) OBJECTING TO CERTAIN ADDITIONS/DISALL OWANCES MADE THEREIN. BY WAY OF AN ADDITIONAL GROUND, IT ALSO QUESTIONED THE COMPUTATION OF THE CAPITAL GAINS, CONTENDING THAT I T HAD THE OPTION TO SUBSTITUTE THE FAIR MARKET VALUE OF THE P ROPERTY AS ON 1-4-1981 IN THE PLACE OF THE ORIGINAL COST OF THE S AME UNDER SEC.55(2)(B) AND THAT THE FAIR MARKET VALUE ON THE AFORESAID DATE, AS PER THE VALUATION REPORT OF THE APPROVED VALUER, WAS RS.4,53,47,120 AS AGAINST THE COST OF RS.90,00,000 SHOWN IN THE RETURN. THIS RESULTED IN CONSIDERABLE REDUCTION IN THE NET AMOUNT OF CAPITAL GAINS. THE VALUATION REPORT WAS A LSO ATTACHED TO THE WORKING. 7. THE CIT(A) CALLED FOR A REMAND REPORT FROM THE A SSESSING OFFICER IN RESPECT OF THE ADDITIONAL GROUND. IN THE REMAND REPORT DATED 14-8-2006 (COPY PLACED IN THE PAPER BOOK) THE ASSESSING OFFICER POINTED OUT THAT THE OPTION AVAILABLE TO TH E ASSESSEE U/S. 55(2)(B) CAN BE AVAILED OF ONLY ONCE, AND THAT THE ASSESSEE HAS EXERCISED THE OPTION ON 31-10-2002 WHEN IT FILED TH E RETURN, THAT THE OPTION WAS IN FAVOUR OF ADOPTING THE ORIGI NAL COST OF ACQUISITION AND THAT HAVING ALREADY EXERCISED THE O PTION IT IS BARRED FROM EXERCISING THE OPTION AGAIN BY CHANGING IT TO THE FAIR MARKET VALUE AS ON 1-4-1981. HE THEREFORE SUBMITTED THAT THE CAPITAL GAINS CANNOT BE SUBMITTED ON THE BASIS OF T HE VALUATION REPORT FILED BY THE ASSESSEE BEFORE THE CIT(A) ADOP TING THE FAIR MARKET VALUE AS ON 1-4-1981. 8. WITHOUT PREJUDICE TO THE ABOVE, THE ASSESSING OF FICER ALSO TOOK UP THE CONTENTION THAT THE OPTION EXERCISED BY THE ASSESSEE ITA NOS.5525 & 2342/MUM/09 4 DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS IS BEYOND THE PERIOD OF LIMITATION. HE ELABORATED IT BY SUBMITTIN G THAT THE ASSESSEE OUGHT TO HAVE FILED A REVISED RETURN U/S.1 39(5) WRONGLY MENTIONED AS S.139(4) IN HIS REPORT TO MA KE THE CLAIM AND THE REVISED RETURN OUGHT TO HAVE BEEN FILED ON OR BEFORE 31- 3-2004 AND SINCE THE ASSESSEE HAD NOT DONE SO, THE CLAIM WAS BARRED BY LIMITATION AND THE CONSEQUENCE WAS THAT T HE OPTION THAT WAS EXERCISED IN THE RETURN, NAMELY, THAT THE COST OF ACQUISITION WOULD BE DEDUCTED FROM THE SALE PROCEED S IN THE COMPUTATION OF CAPITAL GAINS, STOOD. 9. THE CIT(A) HELD THAT EVEN AT THE TIME OF FILING THE RETURN, THE ASSESSEE HAD MENTIONED IN THE COMPUTATION OF LO NG-TERM CAPITAL GAINS THAT THE FAIR MARKET VALUE AS ON 1-4- 1981 WAS BEING ASCERTAINED AND WOULD BE SUBSTITUTED FOR THE COST OF ACQUISITION AND THE FAIR MARKET VALUE WAS ASCERTAIN ED ON THE BASIS OF THE VALUERS REPORT AND IT WAS PUT ON THE RECORD OF THE ASSESSING OFFICER VIDE LETTER DATED 16-2-2005 WHICH LETTER HAD NOT BEEN CONSIDERED AT ALL BY THE LATTER. HE ACCORD INGLY HELD THAT THE ASSESSEE WAS ENTITLED TO ADOPT THE FAIR MARKET VALUE AS ON 1- 4-1981 IN TERMS OF SEC.55(2)(B) AND AS HELD BY THE DELHI HIGH COURT IN PNB FINANCE LTD. V CIT (117 TAXMAN 586). I N THIS DECISION IT HAS BEEN HELD THAT THE CHOICE GIVEN BY THE SECTION IS AVAILABLE TO BE EXERCISED TILL THE COMPUTATION OF T HE CAPITAL GAINS IS MADE BY THE ASSESSING OFFICER. IN THIS VIEW OF T HE MATTER THE CIT(A) DIRECTED THE ASSESSING OFFICER TO COMPUTE TH E CAPITAL GAINS BY ADOPTING THE F.M.V. OF THE PROPERTY AS ON 1-4-1981. 10. THE REVENUE IS IN APPEAL TO REITERATE THE VIEW PUT FORTH BY THE ASSESSING OFFICER IN THE REMAND REPORT. RELIANC E IS ALSO PLACED ON THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD. V CIT (2006) 157 TAXMAN 1 (SC). IN THIS CASE IT WAS HELD BY THE SC THAT AN ASSESSEE CANNOT AMEND A CLAIM FOR ITA NOS.5525 & 2342/MUM/09 5 DEDUCTION EXCEPT BY FILING A REVISED RETURN. THIS J UDGMENT, WITH RESPECT, DOES NOT SEEM TO US TO APPLY TO THE FACTS BEFORE US. IN THE PRESENT CASE, THE ASSESSEE HAD STATED IN THE RE TURN ITSELF THAT THOUGH THE CAPITAL GAINS HAVE BEEN COMPUTED BY ADOPTING THE COST OF ACQUISITION OF THE LAND, THAT WAS ONLY BECAUSE THE FAIR MARKET VALUE AS ON 1-4-1981 HAD NOT BEEN ASCER TAINED AT THAT TIME AND AVAILABLE WITH IT AND ONCE IT IS ASCE RTAINED IT WILL BE SUBSTITUTED IN THE PLACE OF THE COST OF ACQUISIT ION. THIS IS THE EFFECT OF THE NOTE MADE BY THE ASSESSEE. CONTRARY T O WHAT THE REVENUE CONTENDS, IT APPEARS TO US THAT THE ASSESSE E HAD EXERCISED ITS OPTION IN FAVOUR OF ADOPTING THE FAIR MARKET VALUE OF THE PROPERTY AS ON 1-4-1981 FOR THE PURPOSE OF C OMPUTING THE CAPITAL GAINS BUT IT COULD NOT COMPUTE THE CAPITAL GAINS ON THAT BASIS BECAUSE THE F.M.V. HAD NOT BEEN ASCERTAINED A T THE TIME WHEN THE RETURN WAS FILED. THE ASSESSEE HAD TO DECL ARE THE CAPITAL GAINS IN THE RETURN AND FOR PURPOSES OF SUC H DISCLOSURE IT HAD TO ADOPT THE COST OF ACQUISITION OF THE PROPERT Y. THE QUESTION OF CHOICE CAN ARISE ONLY WHEN BOTH THE COS T OF ACQUISITION AND THE FAIR MARKET VALUE AS ON 1-4-198 1 ARE AVAILABLE TO THE ASSESSEE AT THE TIME OF FILING THE RETURN. SINCE THE F.M.V. WAS NOT AVAILABLE AT THAT TIME, THE ASSE SSEE HAD PERFORCE TO ADOPT THE COST OF ACQUISITION; BUT IT W AS CAREFUL ENOUGH TO RESERVE ITS RIGHT TO EXERCISE ITS OPTION IN FAVOUR OF ADOPTING THE F.M.V. AS ON 1-4-1981 AS AND WHEN IT W AS ASCERTAINED. IT EVEN FILED A LETTER DATED 16-2-2005 TOGETHER WITH THE REVISED COMPUTATION OF THE CAPITAL GAINS, MADE BY DEDUCTING THE F.M.V. OF THE LAND AS ON 1-4-1981 FROM THE SALE CONSIDERATION. BUT SINCE THE ASSESSMENT HAD BEEN CO MPLETED ON 7-2-2005 ITSELF, THE LETTER COULD NOT BE CONSIDERED BY THE ASSESSING OFFICER. THE ASSESSEE HOWEVER FILED AN AD DITIONAL GROUND BEFORE THE CIT(A) TO THE EFFECT THAT THE F.M .V. OF THE PROPERTY AS ON 1-4-1981 SHOULD BE DEDUCTED IN THE P LACE OF COST OF ACQUISITION. THERE IS NO BAR ON THE CIT(A) ENTER TAINING SUCH A ITA NOS.5525 & 2342/MUM/09 6 GROUND; IN FACT, HE IS EMPOWERED TO DO SO BY SUB-SE CTION (5) OF SECTION 250. THE SUPREME COURT IN ITS JUDGMENT CITE D ABOVE HAS CLARIFIED THAT THE PROHIBITION ON MAKING A CLAIM OT HERWISE THAN BY WAY OF A REVISED RETURN IS LIMITED TO PROCEEDING S BEFORE THE ASSESSING OFFICER. EVEN IF IT IS ASSUMED THAT THE A SSESSEE HAD NOT EXERCISED THE OPTION BEFORE THE ASSESSING OFFIC ER BY FILING A REVISED RETURN, IT COULD HAVE RAISED A GROUND TO TH AT EFFECT BEFORE THE CIT(A). WE WOULD HOWEVER HASTEN TO ADD THAT IN THE CASE BEFORE US THE ASSESSEE, AS OBSERVED BY US EARLIER, DID EXERCISE THE OPTION AT THE TIME OF FILING THE RETURN IN FAVO UR OF ADOPTING THE FAIR MARKET VALUE OF THE LAND AS ON 1-4-1981 IN THE PLACE OF COST OF ACQUISITION BY MAKING AN APPROPRIATE NOTE. 11. WE THEREFORE HOLD THAT THE ASSESSEE CANNOT BE D ENIED THE BENEFIT OF CLAIMING THAT THE FAIR MARKET VALUE OF T HE LAND AS ON 1-4-1981 SHOULD BE SUBSTITUTED IN THE PLACE OF THE COST OF ACQUISITION. 12. HOWEVER, THE PLEA OF THE LEARNED CIT-DR TO THE EFFECT THAT THE CLAIM SHOULD BE EXAMINED ON MERITS BY THE ASSES SING OFFICER MUST BE ACCEPTED, HAVING REGARD TO THE FACT THAT HE HAD HAD NO OPPORTUNITY TO DO SO. HE HAD FOCUSSED ON THE PRELIM INARY ISSUE WHETHER THE ASSESSEE HAD AT ALL EXERCISED THE OPT ION AND IF SO, AT WHAT POINT OF TIME AND WHETHER IT SHOULD BE DONE ONLY BY FILING A REVISED RETURN AND THEREFORE HAD NOT EXA MINED THE APPROVED VALUERS REPORT ON THE FAIR MARKET VALUE A S ON 1-4- 1981. THE CIT(A) HAS ALSO NOT DONE SO. WE THEREFORE ACCEPT THE PLEA OF THE LEARNED CIT-DR AND RESTORE THE QUESTION OF THE FAIR MARKET VALUE OF THE LAND AS ON 1-4-1981 TO THE ASSE SSING OFFICER FOR BEING EXAMINED AND DECIDED ON MERITS AFTER GIVI NG DUE OPPORTUNITY TO THE ASSESSEE. THE GROUNDS ARE THUS A LLOWED IN PART. ITA NOS.5525 & 2342/MUM/09 7 13. IN THE ASSESSMENT YEAR 2003-04, ALL THE GROUNDS RELATE TO ONLY ONE ISSUE, VIZ., THE FAIR MARKET VALUE OF THE LAND AS ON 1-4- 1981. THE FACTS ARE SIMILAR TO THE ASSESSMENT YEAR 2002-03. IN LINE WITH OUR DECISION FOR THAT YEAR, WHICH WE ADOP T FOR THIS YEAR ALSO, THE ISSUE IS RESTORED TO THE ASSESSING OFFICE R WITH THE SAME DIRECTIONS. 14. THUS BOTH THE APPEALS ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 4 TH DAY OF MAY, 2011. SD/- ( R.K. PANDA ) SD/- ( R.V.EASWAR ) ACCOUNTANT MEMBER PRESIDENT MUMBAI, DATED 4 TH MAY, 2011. SOMU COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-6 & 7, MUMBAI. 4. THE CIT(A)-XXVIII & CIT(A)-VII MUMBAI 5. THE DR F BENCH /TRUE COPY/ BY ORDE R ASSTT. REGISTRAR, I.T.A.T, MUMBAI