DHADDA DIAMONDS P.LTD, MUMBAI V. ITO 5(1)(3), MUMBAI

ITA 258/MUM/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0318 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 09-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Sale consideration of property below Jantri Value; Value adopted by valuation officer; Capital asset; Opportunity of being heard; Earning of tax free income; Cost of acquisition; Fair market value
• Section: 143(3); 50C; 2(14); 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI MAHAVIR SINGH , JM AND SHRI RAJESH KUMAR, AM ITA NO. 258 / MUM/ 20 1 5 ( / ASSESSMENT YEAR: 2 0 10 - 11 ) DHADDA DIAMONDS PVT LTD., 12 08, PANCHRATNA, OPERA HOUSE, MUMBAI - 400020 / VS. INCOME TAX OFFICER - 5(1)(3), 569, 5 TH FLOOR, AAYAKAR BHAVAN, M K ROAD, MUMBAI - 400020 ( / APPELLANT) : ( / RESPONDENT ) ITA NO. 782 / MUM/ 2015 ( / ASSESSMENT YEAR: 20 1 0 - 11 ) INCOME TAX OFFICER - 5(1)(3), 569, 5 TH FLOOR, AAYAKAR BHAVAN, M K ROAD, MUMBAI - 400020 / VS. DHADDA DIAMONDS PVT LTD., 1208, PANCHRATNA, OPERA HOUSE, MUMBAI - 400020 ( / APPELLANT) : ( / RESPONDENT ) ./ PAN : AA ACD0539L ( / APPELLANT) : ( / RESPONDENT ) / REVENUE BY : SHRI AARSI PRASAD / ASSESSEE BY : SHRI YOGESH THAR / DATE OF HEARING : 19 .6. .2017 / DATE OF PRONOUNCEMENT : 16. 8 . 201 7 2 ITA NO. 258 /MUM/2015 AND 782/MUM/2015 / O R D E R PER RAJESH KUMAR, A. M: THE CAPTIONED ARE CROSS - APPEAL S BY THE ASSESSEE AND REVENUE PERTAINING TO ASSESSMENT YEAR 20 10 - 11 . THE APPEALS ARE DIRECTED AGAINST THE ORDER OF THE CIT(A) - 1 2 , MUMBAI , DATED 24.11.2014 WHICH IN T URN HAS ARISE N FROM AN ORDER PASSED BY THE ASSESSING OFFICER DATED 26.3.2013 UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961(IN SHORT THE ACT). ITA NO.258/MUM/2015 2. GROUNDS OF APPEAL TAKEN BY THE ASSESSEE ARE AS UNDER : GROUND : . ALLOWANCE U / S 14A OF THE ACT AMOUNTING TO RS. 3,39,342/ - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN UPHOLDING THE ACTION OF THE A O OF DISALLOWING A SUM OF RS. 3,39,342/ - U/S. 14A OF THE ACT READ WITH RULE 8D. THE APPEL LANT PRAYS THAT THE A O BE DIRECTED TO DELETE THE AFORESAID DISALLOWANCE. GROUND 2: NON APPLICABILITY OF CAPITAL GAINS TAX 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE AO IN TREATING TRANS FER OF BENEFITS OF APPLICATION OF PROPERTY AT BHARAT DIAMOND BOURSE AS LIABLE TO CAPITAL GAIN TAX WITHOUT APPRECIATING THE FACT THAT TH E APPELLANT HAD ACTUALLY TRANSFERRED ADVANCE MADE TO BHARAT DIAMOND BOURSE WHICH IS NOT A CAPITAL ASSET AS DEFINED UNDER SECTION 2(14) OF THE ACT. 3 ITA NO. 258 /MUM/2015 AND 782/MUM/2015 2. THE APPELLANT THEREFORE PRAYS THAT THE DISALLOWANCE MADE BY THE AO BE DELETED. WITHOUT PREJUDICE TO GROUND 2 GROUND 3: YEAR OF COST OF ACQUISITION FOR DETERMINING THE CHARGEABILITY OF CAPITAL GAINS ON TRANSFER OF DEPOSIT M ONEY WITH BHARAT DIAMOND BOURSE . 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN UPHOLDING THE ACTION OF THE A O IN CHARGING THE ALLEGED SHORT TERM CAPITAL GAINS EARNED ON TRANSFER OF BENEFITS OF APPLICATION OF PROPERTY, BEARING PREMISE NO. FC - 8022 AND 2 CAR PARKING LOCATED AT BHARAT DIAMOND BOURSE WHICH WERE LONG TERM IN IS NATURE. 2. THE APPELLANT PRAYS THAT THE AO BE DIRECTED TO COMPUTE THE PERIOD OF HOLDING THE PREMISES FOR COMPUTING CAPITAL GAINS TAX ARIS ING FROM THE TRANSFER (IF ANY) FROM AY 2005 - 06 AND NOT FROM AY 2007 - 08 3. AT THE OUTSET THE LD.AR OF THE ASSESSEE SUBMITTED THAT GROUND S NO. 2 AND 3 ARE NOT PRESSED AND THEREFORE, DISMISSED AS NOT BEING PRESSED. 4. THE ISSUE RAISED IN GROUND NO.1 IS AGAINST THE CONFIRMATION OF DISALLOWANCE OF RS. 3,39,342/ - BY THE LD.CIT(A) AS MADE BY THE AO U/S. 14A OF THE ACT READ WITH RULE 8D. 5 . AT THE OUTSET , THE LD.AR SUBMITTED BEFORE US THAT THE ISSUE RAISED IN THE GROUND NO.1 IS COVERED BY THE DECISION OF THE CO - ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.5146 /MUM/2012 (AY - 2008 - 4 ITA NO. 258 /MUM/2015 AND 782/MUM/2015 09) AND ORS. VIDE ORDER DATED 30.4.2014 WHEREIN THE MATTER WAS RESTORED TO THE FILE OF THE AO TO DECIDE THE ISSUE AFRESH AFTER AFFORDING REASONABLE OPPORTUN ITY OF HEARING . THE LD AR PRAYED BEFORE THE BENCH THAT THE ISSUE BE RESTORED TO THE FILE OF THE AO WITH SIMILAR DIRECTION . THE LD. DR APPEARED TO BE FAIRLY AGREED WITH THE CONTENTIONS OF THE OF AR. 6 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL PLACED BEFORE US INCLUDING THE ORDERS OF AUTHORITIES BELOW. WE FIND FROM THE RECORD THAT THE SIMILAR ISSUE AROSE IN THE ASSESSMENT YEAR 2008 - 09 AND 2009 - 10 AND THE SAME WAS RESTORED BACK TO THE FILE OF THE AO. FOR THE SAKE OF CONVENIENCE, WE RE PRODUCE OPERATIVE PART OF THE ORDER AS UNDER : 6. FROM THE ABOVE, IT IS CLEAR THAT THE NEXUS MUST EXIST BETWEEN THE EXPENDITURE AND THE EXEMPT INCOME TO ATTRACT THE PROVISIONS OF SECTION 14A OF THE ACT. THEREFORE, THE DISALLOWANCE OF EXPENDITURE IS ALWAYS IN RELATION TO THE CLAIM O F EXPENDITURE AND IT CANNOT BE MORE THAN THE CLAIM ITSELF. AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE DELHI BENCHES OF THE TRIBUNAL IN CASE OF GILLETTE GROUP INDIA PVT. LTD. VS ACIT (SUPRA). MOREOVER, IN THE PRESENT CASE, THER E ARE CERTAIN EXPENDITURES DEBITED TO THE P&L ACCOUNT, WHICH ARE PRIMA FACIE UNCONNECTED TO THE EXEMPT INCOME. SUCH SHOULD ALSO NEED TO BE EXEMPTED. CONSIDERING THE ABOVE ORDER OF THE TRIBUNAL, WE ARE OF THE OPINION THAT THE MATTER SHOULD BE REMANDED TO T HE FILES OF THE AO TO EXAMINE THE EXPENSES DEBITED TO THE P&L ACCOUNT AND EXCLUDE THE UNCONNECTED EXPENSES FOR THE PURPOSE OF QUANTIFYING THE DISALLOWANCE U/S 14A OF THE ACT. ACCORDINGLY, WE REMIT THE MATTER TO THE FILE OF THE AO. HE SHALL EXAMINE IF THE L D AR'S CLAIM OF DISALLOWANCE OF RS. 66,404/ - (FOR THE AY 2008 - 09) AND RS.71 , 773/ - (FOR THE AY 2009 - 2010). AO SHALL ADJUDICATE THE ISSUE AFRESH IN ACCORDANCE WITH THE SET PRINCIPLE OF THE LAW AFTER AFFORDING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE AS SESSEE. ACCORDINGLY, GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 5 ITA NO. 258 /MUM/2015 AND 782/MUM/2015 IN ORDER TO MAINTAIN THE CONSISTENCY WITH THE ORDER OF THE CO - ORDINATE BENCH OF THE TRIBUNAL , WE RESTORE THE ISSUE TO THE FILE OF THE AO TO DECIDE THE ISSUE OF THE ASSESSEE ON THE SAME LINES AS HAS BEEN DONE BY THE TRIBUNAL IN THE ASSESSMENT YEAR 2008 - 09 AND 2009 - 10 AFTER AFFORDING FAIR AND REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE . 7 . THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE S . ITA NO.782/MUM/2015 8. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER : - I) 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THAT THE SALE CONSIDERATION SHOULD BE RESTRICTED TO STAMP DUTY VALUATION AS AGAINST THE FAIR MARKET VALUE DETERMINED BY THE DVO?' II) 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE PROVISION OF SECTION SOC OF I.T. ACT IS APPLICABLE TO THE TRANSACTION OF TRANSFER OF RIGHT S IN IMMOVABLE PROPERTY WITHOUT APPRECIATING THE FACT THAT THE PROVISION OF SECTION SOC IS APPLICABLE TO THE TRANSFER OF CAPITAL ASSET BEING LAND OR BUILDING OR BOTH ?' 9 . THE SOLE ISSUE RAISED BY THE REVENUE IN BOTH THE GROUNDS OF APPEAL ARE AGAINST THE DIRECTION THAT THE SALE CONSIDERATION SHOULD BE RESTRICTED TO STAMP DUTY VALUATION AS AGAINST THE FAIR MARKET VALUE DETERMINED BY T HE DVO AND HOLDING THAT THE PROVISIONS OF SECTION 50C OF THE ACT WERE APPLICABLE TO THE TRANSACTION OF TRANSFER OF RIGHT S IN THE IMMOVABLE PROPERT IES . 6 ITA NO. 258 /MUM/2015 AND 782/MUM/2015 10 . FACTS OF THE CASE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO OBSERVED THAT RS.3,03,93,383/ - WAS APPEARING UNDER THE HEAD OF LOAN AND ADVANCES AS ON 31.3.2009 AS GIVEN TO BHARAT DIAMOND BOURSE WHEREAS T HE SAID ADVANCED WAS NOT APPEARING AT ALL IN THE BALANCE SHEET AS ON 31.3.2010 . AS T HERE WAS NO CORRESPONDING ADDITION IN THE FIXED ASSETS, THE ASSESSEE WAS ASKED VIDE LETTER DATED 27.7.2012 TO FURNISH DETAILS REQUIRING STATEMENT OF ADVANCES AND CORRESPO NDENCE WITH BHARAT DIAMOND BOURSE WITH RESPECT TO THE SAID ADVANCES. THE LD. AR OF THE ASSESSEE VIDE LETTERS DATED 7.9.2012, 4.10.2012 REPLIED THE QU E RRIES RAISED BY THE AO SUBMITTING THEREIN THAT THE ADVANCES GIVEN TO THE TUNE OF RS.3,03,93,383/ - TO B HARAT DIAMOND BOURSE WERE TRANSFERRED IN FAVOUR OF THREE PERSONS NAMELY MR.JAYKUMAR DHADDA, MR.NARENDRA KUMAR DHADDA AND MR.DHANRAJ DHADDA AND SONS PRIVATE LIMITED. IT WAS ALSO SUBMITTED THAT THE SAID ADVANCES WAS PAID TO BHARAT DIAMONDS BOURSE FOR THE ALLOTMENT OF COMMERCIAL OFFICE SPACE S AND PARKINGS IN THE BANDRA KURLA COMPLEX WHICH W ERE PROVISIONALLY ALLOTTED TO THE ASSESSEE ON DIFFERENT DATES. THE ASSESSEE SUBMITTED BEFORE THE AO THAT IT HAS TRANSFERRED RIGHTS IN THE SAID PROPERT IES AT COST TO THE PERSONS STATED HEREINABOVE WITH THE CONDITIONS THAT THE REMAINING COST 7 ITA NO. 258 /MUM/2015 AND 782/MUM/2015 TO BE PAID BY THESE PERSONS . H OWEVER, THE AO CAME TO THE CONCLUSION THAT SINCE THE ASSESSEE HAS TRANSFERRED THE PROPERT IES TO TWO PERSONS WHO WERE INCIDENTALLY DIRECTORS OF THE ASSESSEE COMPANY AND 3 RD WAS THE GROUP CONCERN AT COST THEREBY SHOWING NO CAPITAL GAINS IN THE RETURN OF INCOME WHEREAS AS A MATTER OF FACT THE PROPERT IES HAVE APPRECIATED A LOT . THE AO ALSO REJECTED THE WITHOUT PREJUDICE SUBMISSION OF THE ASSESSEE THAT T HE CAPITAL GAIN ON THESE PROPERTIES SHOULD BE CALCULATED BY APPLYING THE PROVISIONS OF 50C OF THE ACT ON THE GROUND THAT THERE WAS NO TRANSFER OF LAND OR BUILDING TO WHICH THE PROVISIONS OF SECTION 50C WERE APPLICABLE. T HE AO OBSERVED THAT IN THE INSTANT CASE ONLY RIGHTS IN BDB WERE TRANSFERRED AND ACCORDINGLY CALCULATED SHORT TERM CAPITAL GAINS OF RS.35,66,355/ - OF PREMISES NO.FC - 8022 AND THREE CAR PARKING AND 49,40,821/ - ON PREMISES NO.CW - 8012 AND FIVE CAR PARKING S ON THE BASIS OF DVO REPORT TAKING THE MARKET VALUE OF THE PROPERTY INSTEAD OF STAMP VALUATION AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 11 . IN THE APPELLATE PROCEEDINGS, THE LD.CIT(A) DELETED THE ADDITION BY OBSERVING AND HOLDING AS UNDER: .AFTER CONSIDERING THE RIVAL SUBMI SSIONS, I AGREE WITH THE FINDING OF THE AO THAT CAPITAL GAINS IS CHARGEABLE IN THIS CASE, BECAUSE THE APPELLANT HAD A RIGHT IN THE IMMOVABLE PROPERTY BOOKED WITH M/S BHARAT DIAMOND BOURSE AND SUCH RIGHTS HAVE BEEN TRANSFERRED TO THE NEW OWNER OF THE PROPER TY. 8 ITA NO. 258 /MUM/2015 AND 782/MUM/2015 AS REGARDS THE ISSUE OF LONG TERM VS. SHORT TERM CAPITAL GAINS, ALSO I AGREE WITH THE FINDING OF THE AO THAT THE DATE OF ACQUISITION OF THE RIGHTS IN PROPERTY IN QUESTION SHOULD BE' THE DATE OF AGREEMENT OR APPROVAL OF THE SAID PROPERTY IN THE NAME O F THE APPELLANT. IN THIS REGARD THE CONTENTION OF THE APPELLANT THAT THE DATE OF ACQUISITION SHOULD BE THE DATE OF BOOKING OF THE PROPERTY DOES NOT APPEAR CORRECT AT ALL BECAUSE IN CASE OF IMMOVABLE PROPERTY IT IS ONLY THE DATE OF AGREEMENT OR REGISTRATION WHICH IS TAKEN AS DATE OF TRANSFER OF RIGHTS IN THE PROPERTY IT WAS NOT OWNED BY THE APPELLANT FOR THREE YEARS. AS REGARD THE ISSUE OF ALE CONSIDERATION, I PARTLY AGREE WITH THE CONTENTION OF THE APPELLANT TO THE EXTENT THAT IN CASE OF A RIGHT IN I MMOVABLE PROPERTY, UNDER THE DEEMING PROVISIONS OF SEC.50C OF IT. ACT, THE SALE CONSIDERATION CAN BE ENHANCED UPTO THE MAXIMUM LIMIT OF STAMP DUTY VALUATION. AS REGARDS THE REFERENCE OF THE CASE TO THE DVA IS CONCERNED, I DO NOT FIND ANY INFIRMITY IN IT B ECAUSE THE SAME CAN ALWAYS BE A MATTER OF DISCRETION OF AO TO GET AN EXPERTISE ASSISTANCE FROM A SPECIALIST LIKE DVO TO ASCERTAIN THE FAIR MARKET VALUE OF AN ASSET TO PROVE THAT THE SALE CONSIDERATION IS SUPPRESSED. HOWEVER, IN CASE OF IMMOVABLE PROPERTY O R A RIGHT IN IMMOVABLE PROPERTY (AS IN THE INSTANT CASE) WHERE THE PROPERTY IS UNDER CONSTRUCTION, WHILE CALCULATING THE CAPITAL GAINS IN THE CASES, WHERE THE AO IS NOT SATISFIED WITH THE SALE CONSIDERATION ACTUALLY RECEIVED, THE STAMP DUTY VALUATION CAN B E REPLACED UNDER THE PROVISIONS OF SEC.SOC OF LT. ACT. SINCE I HAVE HELD THAT IN THE INSTANT CASE THE PROVISIONS OF SEC.SOC ARE APPLICABLE BECAUSE THE RIGHT IN QUESTION ARE IN RESPECT OF AN IMMOVABLE PROPERTY, THEREFORE, THE AO IS DIRECTED TO RESTRICT THE SALE CONSIDERATION TO THE STAMP DUTY VALUATION AS PRESCRIBED U/S 50C OF IT ACT. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 12 . AFTER HEARING THE RIVAL CONTEN TI ONS AND PERUS ING THE MATERIAL PLACED BEFORE US INCLUDING T HE IMPUGNED ORDER ON THIS ISSUE. W E FIND THAT IN THIS CA S E, THE AS S ESS E E W A S MEMBER OF BDB AND WAS PROVISIONALLY ALLOTTED TWO OFFICE SPACES WITH 5 CAR PARKING S IN BANDRA KURLA COMPLEX FOR WHICH THE ASSESSEE HAS PAID ADVANCE TO THE TUNE OF RS.3,03,93,383/ - TOWARDS THE PART PAYMENT AG AINST THE SAID PROVISIONAL ALLOTMENT . DURING THE YEAR THE 9 ITA NO. 258 /MUM/2015 AND 782/MUM/2015 ASSESSEE TRANSFERRED THE RIGHTS IN THE PROPERTY TO MR.JAYKUMAR DHADDA, MR.NARENDRA KUMAR DHADDA AND MR.DHANRAJ DHADDA AND SONS PRIVATE LIMITED AT COST BY TRANSFERRING THE AMOUNT OF ADVANCE TO THE SAID PERSONS WITH THE CONDITION THAT THE BALANCE OUTSTANDING PRICE WAS TO BE MET BY THE TRANSFEREES. NO CAPITAL GAIN WAS SHOWN IN THE RETURN OF INCOME AS THE TRANSFER WAS EFFECTED AT COST. THE AO CALCULATED THE SHORT TERM CAPITAL GAIN ON THESE TRANSFER TAK ING THE MARKET PRICE OF THE SAID RIGHTS ACCORDING TO DVO REPORT BY REJECTING THE WITHOUT PREJUDICE SUBMISSION OF THE LD AR THAT THE CAPITAL GAIN BE CALCULATED ON THE BASIS OF VALUE AS PER STAMP VALUATION AUTHORITY AS PER THE PROVISIONS OF 50C OF THE ACT ON THE GROUND THAT IN THE PRESENT CASE ONLY RIGHTS WERE TRANSFERRED AND NOT THE LAND OR BUILDING. IN THE APPELLATE PROCEEDINGS, THE LD.CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE BY DIRECTION THE AO TO CALCULATE CAPITAL GAINS AS PER THE VALUE OF STAMP VALUATION AUTHORITY U/S 50C AND NOT AS PER DVO VALUATION . IN OUR OPINION, THE LD.CIT(A) HAS TAKEN A CORRECT VIEW BY DIRECTI NG THE AO TO ADOPT THE VALUE U/S 50C OF THE ACT FOR THE PURPOSE OF BRING ING THE CAPITAL GAIN TO TAX AS THE TRANSFER PRICE FOR THE PURPOSE OF CAPITAL GAIN CAN NOT BE HIGHER THAN THE FMA U/S 50C OF THE ACT . ACCORDINGLY , WE UPHOLD THE SAME BY DISMISSING THE APPEAL OF THE REVENUE . IN THE RESULT , THE APPEAL OF THE REVENUE IS DISMISSED. 10 ITA NO. 258 /MUM/2015 AND 782/MUM/2015 13 . IN THE RESULT, THE APPEAL OF THE ASSESSE E IS PARTLY ALLOWED WHEREAS THE APPEAL OF THE REVENUE IS D IS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH AUG , 2017. SD SD ( MAHAVIR SINGH ) (RAJESH KUMAR) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 16 TH AUG .2017 SRL,SR.PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI 6 . / GUARD F ILE / BY ORDER, TRUE COPY / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI