M/s. DLF Info City Devp.(Chennai) Ltd., Gurgaon V. Addl.CIT, Gurgaon

ITA 2566/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3936 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 6 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-11-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 17-05-2017
• Assessment Year: 2004-2005
• Appeal Filed On: 28-04-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: F R MEENA
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Business expenditure; Cost of acquisition; Capital receipt; Revenue expenditure
• Section: 143(3); 50C; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: B NEW DELHI BEFORE SHRI G.D. AGRAWAL, HONBLE PRESIDEN T & SHRI K.N. CHARY, JUDICIAL MEMBER ITA NO.-2566/DEL/2014 ( ASSESSMENT YEAR: 2004-05) DLF INFO CITY DEVP. (CHENNAI) LTD. 10 TH FLOOR, GATEWAY TOWER, DLF CITY PHASE-III, GURGAON. AAACR1725J VS ADDL. CIT RANGE-1 GURGAON. ASSESSEE BY SH. R.S. SIGHVI, CA SH. SATYAJEET GOEL, CA REVENUE BY SH. F.R. MEENA, SR. DR ORDER PER SHRI K.N. CHARY, JUDICIAL MEMBER AGGRIEVED BY THE ORDER DATED 02.01.2014 IN APPEAL N O. 117/13- 14(A)-V PASSED BY THE LD. COMMISSIONER OF INCOME TA X (APPEALS)-V, CHENNAI (HEREINAFTER FOR SHORT CALLED AS THE LD. C IT (A)) ASSESSEE PREFERRED THIS APPEAL ON THE FOLLOWING GROUNDS: 1. THAT THE IMPUGNED ORDER DATED 02.01.2014 PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IS BAD IN LAW AND WRONG ON FACTS. 2. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS ), ERRED IN LAW, IN UPHOLDING THE ORDER OF THE ASSESSING OFFICER IN DIS ALLOWING THE CLAIM OF LOSS OF RS. 1,64,286 UNDER THE HEAD PROFITS AND GA INS OF BUSINESS OR PROFESSION. DATE OF HEARING 25.10.2017 DATE OF PRONOUNCEMENT 03.11.2017 2 ITA NO. 2566/DEL/2014 2.1 THAT THE COMMISSIONER OF INCOME TAX (APPEALS), ERRED IN LAW, IN UPHOLDING THE ORDER OF THE ASSESSING OFFICER, THAT THE APPELLANT HAS NOT CARRIED ON ANY BUSINESS ACTIVITY DURING THE YEAR AN D IN ASSESSING THE INTEREST INCOME OF RS. 32,710/- RECEIVED BY THE APP ELLANT COMPANY THROUGH MONEY LENDING BUSINESS UNDER THE HEAD INCO ME FROM OTHER SOURCES AND RESTRICTING THE CLAIM OF EXPENDITURE A T RS. 35,744/-. 3. THAT THE COMMISSIONER OF INCOME TAX (APPEALS), E RRED IN LAW, IN UPHOLDING THE ORDER OF THE ASSESSING OFFICER, IN AS SESSING THE LIQUIDATED DAMAGES AMOUNTING RS. 9,34,500/- UNDER THE HEAD IN COME FROM OTHER SOURCES AS AGAINST TREATED BY THE APPELLANT AS CA PITAL RECEIPT. 3.1 THAT ALTERNATIVELY, WITHOUT PREJUDICE TO THE AB OVE, THE LIQUIDATED DAMAGES COULD ONLY BE ASSESSED AS CAPITAL GAINS AND NOT A S INCOME FROM OTHER SOURCES. 4. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS ), ERRED IN LAW, IN UPHOLDING THE ORDER OF THE ASSESSING OFFICER, IN TR EATING THE RIGHTS TRANSFERRED AS A SHORT TERM CAPITAL ASSET, ADOPTING THE GUIDELINE VALUE OF RS. 53,98,763/- AND CALCULATING THE SHORT TERM CAPI TAL GAIN AT RS. 28,78,692/-. 5. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, A MEND, SUBSTITUTE, FORGO ANY OR ALL THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. 2. BRIEFLY STATED FACTS ARE THAT THE PREDECESSORS O F THE ASSESSEE INSOFAR AS THE SUBJECT MATTER OF THIS APPEAL IS CON CERNED WAS ONE ROAD TECH CONSTRUCTION PVT. LIMITED. THEY WERE ENGAGED IN THE BUSINESS OF DEVELOPMENT OF BUILDINGS AND MONEY LENDING. FOR TH E AY 2004-05 THEY HAVE FILED THEIR RETURN OF INCOME DECLARING A TOTAL INCOME AS PER INCOME TAX ACT AS NIL AND BOOK PROFIT U/S 115JB AT RS. 7,0 9,831/-. THE ASSESSEE COMPANY THROUGH ITS INCIDENTAL OBJECTS IN THE MEMOR ANDUM OF ASSOCIATION CARRIED ON THE BUSINESS OF MONEY LENDING AND RECEIV ED A SUM OF RS. 32,710/- AS INTEREST. DURING THE 143(3) PROCEEDING S AO NOTICED THAT THE ASSESSEE ACQUIRED UNDIVIDED RIGHT IN RESPECT OF 4.4 31% OF 8 GROUNDS AND 3 ITA NO. 2566/DEL/2014 843 SQ. FT OF LAND IN NEW R.S. NO. 543/14 (PART) AN D NEW R.S. NO. 543/15 (PART) ON 19.01.2001 FOR A TOTAL CONSIDERATION OF R S. 22,20,387.50/- AND BY WAY OF AN AGREEMENT WITH M/S CHAITANYA BUILDERS AND LEASING PRIVATE LIMITED, THEY AGREED TO PAY RS. 30,29,612.50 FOR CO NSTRUCTION OF THEIR OFFICE SPACE. AFTER COMPLETION OF THE BUILDING, AC CORDING TO THE ASSESSEE, THEY INCURRED AN EXTRA EXPENSE OF RS. 2,99,683/- TO WARDS COST OF GENSET AND AIR CONDITIONER, BUT SINCE THE ASSESSEE FOUND T HE SAID ACCOMMODATION AS INSUFFICIENT FOR THEIR OFFICE, THE Y SOLD THE SAME TO ONE M/S VAISHNAVI ASSOCIATES FOR A CONSIDERATION OF RS. 60,46,840/- DURING THE PREVIOUS YEAR RELEVANT TO THE AY 2004-05, I.E. HOLDING IT FOR MORE THAN 36 MONTHS AFTER THE ACQUISITION OF THE PROPERTY AND TREATED THE LOSS AS CAPITAL LOSS OF RS. 2,39,912/-. ACCORDING TO THE A SSESSEE M/S CHAITANYA BUILDERS AND LEASING PVT. LTD. COMPLETED AND HANDED OVER THE BUILDING TO THE ASSESSEE WITH A DELAY OF THREE MONTHS AND 28 DA YS AFTER THE STIPULATED TIME, AS SUCH, THEY PAID LIQUIDATED DAMA GES BY WAY OF EXTRA ALLOTMENT OF OFFICE SPACE OF 440 SP. FT VALUING IT AT 2100 SQ. FT WHICH COMES TO RS. 9,38,700/- AND COMPENSATION FOR LOSS OF RENT AT RS. 2,95,500/-. ASSESSEE ACCOUNTED THE LIQUIDATED DAMAGES AS AN EXT RA ORDINARY ITEM OF RECEIPT BELOW THE LINE IN PROFIT AND LOSS ACCOUNT A ND EXCLUDED THE SAME FROM TAXABLE INCOME HOLDING IT AS CAPITAL RECEIPT. THE ASSESSEE ALSO 4 ITA NO. 2566/DEL/2014 CLAIMED THE BUSINESS EXPENDITURE AT 1,96,996/-. HO WEVER, THE LD. AO HELD THAT SINCE THERE WAS NO BUSINESS ACTIVITY DURI NG THE YEAR, THE BUSINESS EXPENDITURE CLAIMED HAD TO BE RESTRICTED T O THE AMOUNT PERTAINING TO OTHER SOURCES I.E. RS. 35,744/- AND A LLOWED DEDUCTION TO THAT EXTENT ONLY. IN SO FAR AS THE ALLEGED LIQUIDATED D AMAGES IS CONCERNED, AO TREATED THE SAME AS REVENUE EXPENDITURE AND MADE AN ADDITION OF RS. 9,34,500/- ON THAT GROUND. WHILE CALCULATING THE R ECEIPTS ON ACCOUNT OF THE SALE OF PROPERTY TO M/S VAISHNAVI ASSOCIATES, A O HAD TAKEN THE VALUE OF THE PROPERTY SOLD BY APPLYING SECTION 50C OF THE INCOME TAX ACT, 1961 (FOR SHORT CALLED AS THE ACT) AND REACHED ITS VAL UE AT 53,98,763/-. BY ADDING VALUE OF CONSTRUCTION OF RS. 30,29,612/- TO IT, AO REACHED THE TOTAL SUM REALIZABLE BY THE ASSESSEE AT 84,28,375/- OUT O F WHICH HE DEDUCTED THE COST OF RS. 55,49,683/- AND CALCULATED THE GAIN S AT RS. 28,78,693/- AS SHORT TERM CAPITAL GAINS. ASSESSEE IS CHALLENGING THE DISALLOWANCE OF THE BUSINESS EXPENSES TO AN EXTENT OF RS. 1,64,286/- AN D ALSO THE METHOD OF CALCULATION OF GAINS AS WELL AS THE TREATMENT GIVEN TO THE GAINS AS SHORT TERM CAPITAL GAINS INSTEAD OF LONG TERM CAPITAL GAI NS, IN VIEW OF THE FACT THAT THE PROPERTY WAS ACQUIRED ON 19.01.2001 AND WA S SOLD ON 27.03.2004 I.E. AFTER HOLDING THE SAME FOR MORE THA N 36 MONTHS. LD. CIT 5 ITA NO. 2566/DEL/2014 (A) DISMISSED THE APPEAL OF THE ASSESSEE AND CONFIR MED THE ADDITIONS MADE BY THE AO. HENCE, THIS APPEAL BY THE ASSESSEE . 3. IN SO FAR AS THE DISALLOWANCE OF THE OFFICE EXPE NSES TO A TUNE OF RS. 1,64,286/- IS CONCERNED. IT IS THE ARGUMENT OF THE LD. AR THAT THE ACTION OF THE AO IS ARBITRARY AND WITHOUT POINTING OUT TO ANY DEFECT IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE OR SHOWING THE ESCALATION OF THE EXPENSES BY THE ASSESSEE, IT IS NOT OPEN FOR THE AO TO ARBITRAR ILY DISALLOW ANY PART OF EXPENSES. HE DREW OUR ATTENTION TO PAGE NOS. 13 & 14 OF THE PAPER BOOK AND TO THE DETAILS OF THE EXPENDITURE ENUMERATED TH EREIN. HE FURTHER SUBMITTED THAT THE ASSESSEE DERIVED INCOME FROM INT EREST AS WELL AS RENTALS FROM PROPERTY AND PROFIT ON SALE OF PROPERT Y RIGHTS, WHICH IS EVIDENT FROM THE BOOKS OF ACCOUNTS. THE PROFIT AND LOSS AC COUNT AT PAGE NO. 14 OF THE PAPER BOOK CLEARLY SHOWS THAT THE ASSESSEE DERI VED INCOME FROM RENTALS PROFIT ON SALE OF PROPERTY RIGHTS AND INTER EST INCOME TO A TUNE OF RS. 9,06,827/-, AS SUCH, IT IS NOT CORRECT ON THE P ART OF THE AO TO CONCLUDE WITHOUT ANY BASIS THAT THERE WAS NO BUSINESS ACTIVI TY DURING THE YEAR. ON A CAREFUL CONSIDERATION OF THIS MATTER WITH REFEREN CE TO THE DETAILS FURNISHED BY THE ASSESSEE, WE ARE OF THE CONSIDERED OPINION THAT THE AO SHOULD NOT HAVE DISALLOWED THE EXPENSES IN THE ABSE NCE OF ANY 6 ITA NO. 2566/DEL/2014 DISCREPANCY POINTED OUT WITH REFERENCE TO THE BOOKS OF ACCOUNTS OF THE ASSESSEE. WE, THEREFORE, DIRECT THE AO TO DELETE T HE SAME. 4. NOW COMING TO THE TRANSACTION OF THE PROPERTY, I T IS THE ARGUMENT OF THE LD. AR THAT THE PROPERTY WAS SOUGHT TO BE ACQUI RED FOR THE PURPOSE OF OFFICE SPACE OF THE ASSESSEE AND THIS FACT IS EVIDE NT THAT THE ASSESSEE HELD THE SAME FOR MORE THAN THREE YEARS AFTER GETTI NG THE OFFICE SPACE CONSTRUCTED BY ENTERING INTO THE AGREEMENT DATED 19 .01.2001 AND 27.01.2002, AND BY SPENDING RS. 30,29,612/- FOR CON STRUCTION. SPENDING RS. 2,99,683/- FOR GENSET AND AIR CONDITIONER ESTAB LISHES THAT THEY WANTED TO USE IT AS THEIR OFFICE, BUT BECAUSE THE SPACE WA S NOT SUFFICIENT THEY SOLD IT AWAY TO M/S VAISHNAVI ASSOCIATES FOR A TOTAL CON SIDERATION OF RS. 60,46,840/-. GRIEVANCE OF THE ASSESSEE IS THREE FO LD NOW. FIRSTLY, THE LIQUIDATED DAMAGES IN RESPECT OF THE DELAY OCCURRED IN DELIVERING A CAPITAL ASSET WHICH REDUCED THE COST OF ACQUISITION IS NOT A REVENUE RECEIPT, SECONDLY, THAT WHILE CALCULATING THE GAINS ON THE S ALE OF PROPERTY AO WHILE APPLYING SECTION 50C OF THE ACT HAS TAKEN THE GUIDE LINE VALUE I.E. 53,98,763/- TO WHICH HE ADDED THE COST OF CONSTRUCT ION. ASSESSEE SUBMITS THAT THE ASSESSEE HAD PURCHASED ONLY A RIGH T IN RESPECT OF 4.431% ON EIGHT GROUNDS AND 843 SQ.FT OF UNDIVIDED LAND AND THE SALE DEED DATED 27.03.2004 CLEARLY SHOWS THAT THE ASSESS EE HAS NOT RECEIVED 7 ITA NO. 2566/DEL/2014 THE ENTIRE SALE CONSIDERATION OF RS. 48,31,250/- BU T THEY HAVE RECEIVED ONLY A PART THEREOF AS IS MENTIONED AT PAGE NOS. 12 , 13 I.E. A SUM OF RS. 24,15,625/- WHEREAS THE BALANCE WAS PAID TO ONE G.K .S. HOLDINGS, AS SUCH, OUT OF THE GUIDELINE VALUE OF RS. 53,98,763/- THE GAINS HAVE TO BE APPORTIONED TO THE ASSESSEE IN THE SAME RATIO OF TH E SALE CONSIDERATION. HOWEVER, IN THIS MATTER WITHOUT NOTICING THE FACT T HAT THE ASSESSEE DID NOT RECEIVE THE ENTIRE SALE CONSIDERATION AO VALUED THE SALE CONSIDERATION AT RS. 84,28,375/- BY INVOKING SECTION 50C AND ATTRIBU TED IT TO THE ASSESSEE, WHICH IS AN ERROR APPARENT ON THE FACE OF RECORD. THIRDLY, ASSESSEE SUBMITS THAT HAVING REGARD TO THE PERIOD OF HOLDING OF THE ASSET, THE GAIN OR LOSS IS ONLY LONG TERM ONE, BUT NOT SHORT TERM O NE. BASING ON THIS IT IS THE SUBMISSION OF THE ASSESSEE THAT THE GAINS OF TH E ASSESSEE HAVE TO BE REWORKED OUT ON THE APPORTIONMENT OF THE GUIDELINE VALUE AND ALSO BY REDUCING THE COST OF ACQUISITION BY THE LIQUIDATED DAMAGES RECEIVED AND WHATEVER THE FIGURE THAT THE AO REACHES ON THIS EXE RCISE, HE HAS TO TREAT IT AS LONG TERM CAPITAL GAINS. 5. WE HAVE GONE THROUGH THE RECORD, AND THE DECISIO NS IN RITA SUNIL MANAKTALA VS. INCOME TAX OFFICER (MUMBAI) (IN ITA N O. 255/MUM/2013) AND DELHI DEVELOPMENT AUTHORITY VS. INCOME TAX OFFI CER (1995) 53 ITD 19 (DELHI), WHEREIN IT IS HELD THAT THE COMPOSITION PA ID ON ACCOUNT OF DELAY IN 8 ITA NO. 2566/DEL/2014 CONSTRUCTION OF A BUILDING WOULD REPRESENT A NON TA XABLE CAPITAL RECEIPT. IN THE DECISIONS CITED BY THE ASSESSEE THE COORDINA TE BENCHES OF THIS TRIBUNAL HELD THAT THE COMPENSATION PAID ON ACCOUNT OF CONSTRUCTION IS A NON TAXABLE CAPITAL RECEIPT. WE HAVE ALSO PERUSED T HE AGREEMENTS DATED 19.01.2001 AND 27.01.2002, AND SALE DEED DATED 27.0 3.2004. IT IS CLEARLY MENTIONED THEREIN THAT OUT OF 48,31,250/- THE ASSES SEE RECEIVED ONLY A SUM OF RS. 24,15,625/- AND THE BALANCE OF RS. 18 LA CS WAS RECEIVED BY ONE G.K.S. HOLDINGS AND ON THIS ASPECT IT IS THE SU BMISSION OF THE LD. AR THAT WHATEVER MAY BE THE CONSIDERATION RECEIVABLE B Y THE VENDORS UNDER THE SALE DEED HAD TO BE APPORTIONED BETWEEN THE ASS ESSEE AND GKS HOLDINGS AND THE ENTIRE RS. 53,98,763/- CANNOT BE T HROWN TO THE SHARE OF THE ASSESSEE. FURTHER THE DOCUMENTS INDICATE THA T THE ASSESSEE HELD THE PROPERTY FOR MORE THAN THREE YEARS AND THE ACQU ISITION OF THE PROPERTY WAS FOR THE PURPOSE OF THEIR OFFICE AND IT IS ONLY SINCE IT WAS INSUFFICIENT FOR THEIR OFFICE THEY SOLD IT AWAY TO ONE VAISHNAVI ASS OCIATES. PERIOD OF HOLDING OF THE PROPERTY AND THE EXPENSES FOR GENSET AND AIR CONDITIONER ALSO SUPPORT THE CONTENTION OF THE ASSESSEE THAT TH E PROPERTY WAS PURCHASED AS A CAPITAL ASSET BUT NOT STOCK IN TRADE . 6. HAVING REGARD TO ALL THIS FACTUAL SITUATION, WE ARE OF THE CONSIDERED OPINION THAT IT IS A VERIFIABLE FACT AS TO WHAT EXA CTLY THE PORTION OF THE SALE 9 ITA NO. 2566/DEL/2014 CONSIDERATION UNDER SALE DEED DATED 27.03.2004 WAS RECEIVABLE BY THE ASSESSEE SO AS TO APPORTION THE AMOUNT OF RS. 53,98 ,763/- COULD BE ATTRIBUTED TO THE ASSESSEE. WHILE WORKING OUT THE AMOUNTS RECEIVED OR RECEIVABLE BY THE ASSESSEE THE LIQUIDATED DAMAGES H AVE TO BE TAKEN INTO CONSIDERATION FOR THE PURPOSE OF REDUCING THE COST OF ACQUISITION. FOR THIS PURPOSE, WE DEEM IT JUST AND PROPER TO SET ASIDE TH E MATTER TO THE FILE OF THE AO AND AO WILL CONSIDER THE QUESTIONS OF THE SA LE CONSIDERATION ATTRIBUTABLE TO THE ASSESSEE WHILE TAKING INTO CONS IDERATION THE LIQUIDATED DAMAGES AND THE PERIOD OF HOLDING OF THE ASSET BY T HE ASSESSEE. NEEDLESS TO SAY THAT AO WILL AFFORD OPPORTUNITY TO THE ASSESSEE TO PRODUCE THE EVIDENCE, IF ANY, ON THIS ASPECT. WITH THIS VIEW OF THE MATTER, WE RESTORE THE ISSUE TO THE FILE OF THE AO FOR IMPL EMENTING THE ABOVE DIRECTION. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 03.11.2017 SD/- SD/- (G.D. AGRAWAL) (K.N. CHARY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 03.11.2017 *KAVITA ARORA 10 ITA NO. 2566/DEL/2014 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT TRUE COPY ASSISTANT REGISTRAR ITAT NEW DELHI