TVS INFRASTRUCTURE PRIVATE LIMITED, Mumbai V. ACIT-2(3)(1), Mumbai

ITA 2614/MUM/2018

AI Insights

The case involves M/s TVS Infrastructure Pvt. Ltd, which appealed against the order of the Ld. CIT(A)-6 Mumbai, which had confirmed the AO's decision treating the profits from the sale of land and a shed in Thirssur as business income under section 50B of the Income Tax Act, rather than long/short term capital gains. The primary contention was whether the sale should be treated as a slump sale, which would affect the tax treatment of the gains from the sale. The Tribunal had previously recalled its order to specifically address the unconsidered ground regarding the treatment of the profits from the sale as business income instead of capital gains.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 125948 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 11 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 05-03-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 26-04-2018
• Other Referred Cases: Tin Box Company Vs. CIT (249 ITR 216) (SC)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Valuation report; Set aside; Capital Gains
• Section: 48

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI BEFORE SHRI ABY T. VARKEY, JM AND SHRI OM PRAKASH KANT, AM आयकरअपीलसं/ I.T.A. No.2614/Mum/2018 (निर्धारणवर्ा / Assessment Year: 2014-15) M/s TVS Infrastructure Pvt. Ltd B-106, 10 th Floor, B-Wing Mittal Tower, Nariman Point, Mumbai- 400001 बिधम/ Vs. ACIT -2(3)(1) Mumbai स्थधयी लेखध सं./जीआइआर सं./PAN/GIR No. : AACCG4215C (अपीलार्थी /Appellant) .. (प्रत्यर्थी / Respondent) सुनवाईकीतारीख/ Date of Hearing: 06/03/2023 घोषणाकीतारीख /Date of Pronouncement: 26/04/2023 आदेश / O R D E R PER ABY T. VARKEY, JM: This is an appeal preferred by the assessee against the order of the Ld. CIT(A)-6 Mumbai dated 28.02.2018 for AY 2014-15. 2. This is the second round of appeal by the assessee against the impugned order of the Ld. CIT(A) (supra). In the first round this Tribunal had passed the order in this appeal on 01.02.2022. But the assessee preferred an MA 167/Mum/2022 in ITA 2614/Mum/ 2018 (AY 2014-15) wherein the assessee raised an issue that the Tribunal while disposing of the appeal vide order dated 01.02.2022 has not considered ground no 2 and has not passed any order on this issue. Therefore, this Tribunal vide order dated 16.09.2022 was pleased to recall Assessee by: Shri Sanjay Sanghvi & Shri Ujjval Gangwal Revenue by: Shri. Sanjeev Kashyap CIT DR ITA NO. 2614/MUM/2018 AY 2014-15 M/s TVS Infrastructure P. Ltd 2 the earlier order dated 01.02.2022 for the limited purpose of adjudicating ground no. 2 which is reproduced as under :- “2. On the facts and circumstances of the case and in law, the CIT(A) erred in holding the profits from sale of land situated in Thirssur as business income and not long/short term capital gains”. 3. Therefore, only issue that need to be looked into by this Tribunal are in respect of ground no. 2. 4. Brief facts as noted by the AO regarding this ground of appeal are as under:- 6. Disallowance of Indexation on sale of land and property built: Assessee being in the business of building of superstructure has purchase land and built superstructure in Thirssur As part of retail units and reorganizing its business structure the assessee has sold this unit too This falls under the provisions of SOB as slump sale. As per the provisions of slump sale the net assets value and the sale consideration have to taken into consideration for determining capital gains. Whereas assessee has represented the sale as mere sale of land although sale deed clearly emphasis that assessee owns a building worth of Rs. 30.00 lacs. By doing so assessee wanted to claim the benefit of indexation though assessee has building on the said property. As per discussion above assessee is in the business. of developing superstructures .This transfer of business unit transfer falls under the provision of 50 B of the IT act. Hence the assessee was asked to show cause why the indexation claimed in such transaction is not an allowable expenditure same should not be disallowed amounting to Rs. 1,47,67,584/-. The assessee submitted as: "The Company had held the Land situated at Thirssur as a Capital Asset. The holding period of the same is more than 36 months. Thus the company has computed Capital gains on the basis of ITA NO. 2614/MUM/2018 AY 2014-15 M/s TVS Infrastructure P. Ltd 3 Section 48 of the Income Tax Act, 1961. The Company has not constructed any superstructure on the said land during the course of it holding. The purchaser at the time of purchase has valued the land separate from a shed on the land and accordingly the same is mentioned in the sale agreement. We had purchased land and sold land only. As the asset is a long term capital asset, indexation benefit should be allowed." However assessee submission is found untenable. As assessee has reorganized its business and sold retail business units during the year. As discussed above as part of business reorganization the sale clearly falls under u/s 50B .As per slump sale provisions assessee has to compute gains by providing valuation report. As assessee has failed to furnish the same the sale value and book value are considered to compute the resulting capital gain. As assessee has claimed indexation of business assets is not an allowable expenditure u/s 50B of the IT Act and the same amounting of Rs.1,47,67,584.8/- is disallowed and treatedas short term capital gain as per sec 50B of the IT Act. 5. Aggrieved, the assessee preferred an appeal before the Ld.CIT(A) who confirmed the action of the assessee by holding as under:- This ground relates to disallowing the indexation of Rs.1,47,65,584/- and treating sale of land being short term capital gain without indexation instead of long term capital gain. 8.2 The AO in the assessment order has mentioned that assessee being in the business of building and developing superstructures had purchased land and built superstructure in Thirssur. As part of retail units and reorganizing its business structure, the assessee had sold this unit too. According to the AO, this falls under the provisions of section ITA NO. 2614/MUM/2018 AY 2014-15 M/s TVS Infrastructure P. Ltd 4 50Bwhereby the net assets value and sale consideration have to be taken into consideration for determining capital gains. Although the sale deed clearly emphasized that assessee owned a building worth Rs.30 lacs, assessee had represented the sale as mere sale of land. This transfer of business unit transfer falls under the provision of section 50B of the Act. Hence, assessee was asked to show cause why the indexation amounting to Rs.1,47,67,584/- claimed in such transaction is not an allowable expenditure and should not be disallowed. In response, the assessee submitted that the company had held land situated at Thirssur as a Capital Asset, theholding period of which was more than 36 months. Thus, the company had computed Capital Gains on the basis of section 48 of the Income Tax Act, 1961. The company had not constructed any superstructure on the said land during the course of its holding. The purchaser at the time of purchase had valued the land separate from a shed on the land and accordingly the same was mentioned in the sale agreement. The assessee further submitted that they had only purchased and sold the land. As the asset was a long-term capital asset, indexation benefit should be allowed. However, the AO did not agree with the submission of the assessee. According to the AO, assessee had reorganized its business and sold retail business units during the year. As part of business reorganization, the sale clearly falls u/s 50B. As per slump sale provisions, assessee was required to compute gains by providing valuation report. However, the assessee failed to furnish the same. Hence, the AO considered the sale value and book value to compute the resulting capital gain amounting to Rs.1,47,67,584/- which he disallowed and added to the total income of the assessee. ITA NO. 2614/MUM/2018 AY 2014-15 M/s TVS Infrastructure P. Ltd 5 8.3 During the course of appellate proceedings, the Ld. AR has filed written submission, relevant part of which is reproduced as under:- "Disallowance of indexation of land sold The AO had erred in disallowing the indexation of Rs. 1,47,67,584/- and treated sale of land being short term capital gain without indexation instead of long term capital gain. The land was purchased as is where is basis and sold as is where is basis. At the time of purchase, a small shed was there, no separate valuation was done in purchase agreement. As the same was of no use to assessee, the agreement value had been treated as land in the books of account of the Company: no construction activity was carried on it. The company has treated the same as land all throughout the holding period. The company has not generated any rental income from either the land of the said shed. At the time of sale of the said land, the buyer as per his convenience valued the shed at Rs.30 lacs in the sale agreement, the AO treated superstructure as unit and sale as slump sale. Therefore, indexation benefit be allowed on the sale of Land." 8.3.1 In the submission filed vide their letter dated 27.10.2017, the appellant company has stated that the land was treated as such throughout the holding period and the company has not generated any rental income from either the land or the said shed and it is only as per the buyers convenience that the shed on the property has been valued at Rs. 30,00,000/- and the AO has treated the shed as unit and sale as slump sale. The appellant has enclosed copy of Purchase Agreement and Ledger as Annexure 8 of the submission. ITA NO. 2614/MUM/2018 AY 2014-15 M/s TVS Infrastructure P. Ltd 6 8.4 I have carefully considered the facts of the case, discussion of the AO in the impugned order as well as oral contentions and written submissions of the appellant The AO has treated the sale of the questioned land alongwith the shed constructed on it as slump sale, it is the contention of the assessee that throughout the holding period, the land was treated as such and the company has not generated any rental income from either the land or the said shed which was their right at the time of purchase by the company and that the entire property was sold on as is where is basis. In this regard, is seen from the Annexure 8 enclosed with the submission that the same are ledger accounts of advance for the land from 1 April 2010 to 31 March, 2014 and there is nothing mentioned to have been spent from 01.04.2013 to 31.03.2014. Further, a copy of the sale deed has been enclosed for purchase of the said land by the assesses and subsequent sale of the said land to Ms Kalyan Silks Trichur Pvt. Ltd. However, it is seen from Annexure 7 of the submission where copies of the sale agreement of various parties have been given including that of property located at Thrissur which is the questioned property sold to Ms Kalyan Silks Trichur (Private) Limited for a consideration of Rs 8 crores wherein attached to the sale deed is Form No 18. The Form No.18 is having two parts - Part No. 1 is a landed property which is shown to be on Survey No.141 with an area of 37.10 Ares valued at Rs.5.7 crores. Part 2 of Form No.18 is pertaining to Buildings wherein at point no.3, the year of construction is mentioned as 2013 The built-up area of that property has been shown as 600 sq. meters having Tinned Roof and RCC Roof and at point no.6, it is clearly mentioned that it has a Compound Wall as also the Bore Well which is reflected at point no.7. As per point no.8, electrical installations are there which have 50 number of points and which have been valued at Rs 30,00,000/- The appellant in their submission, has contended that the property was purchased with a small construction thereon in 2010 from ITA NO. 2614/MUM/2018 AY 2014-15 M/s TVS Infrastructure P. Ltd 7 Ms. Ginza Soman and Power of Attorney holder, Sri P Soman. The appellant has contended that at the time of purchase, only the shed was existing Le in 2010 and that the entire property alongwith the shed was sold as is where is basis. However, the Form No. 18 of the Sale Deed clearly indicates year of construction of the shed as 2013. This fact contradicts the assessee's submission that there was no construction done on the said piece of land. The documents as in Form No.1B has been signed by the authorized signatory and has been attached along with the Sale Deed and clearly points out to the fact that the property was constructed in 2013. As regards built-up area of 600 sq. m., it has a Cement floor, Tinned Roof and RCC Roof, has Bore Well, Compound Wall and 50 numbers of electrical points. Having these facts which are part of the sale deed of the property and has been signed by the Director of the company and authorized signatory of the company, Shri Ravi Kumar S., the facts are clear and therefore the submission of the assessee that there was no activity of construction etc. done on the property subsequent to the purchase of the land by them in 2010 is not the correct fact of the case. The construction of the shed on the property with the details as have been given hereinabove is clearly in the year 2013 and the sale thereof as taken in the year 2013-14 pertain to the assessment year under consideration. Under these facts, the contention of the assessee that the concerned sale should be treated as Long-term Capital Gain and indexation should be allowed is not found to be acceptable. While there cannot be any dispute that the land in question was purchased in 2010, it also cannot be disputed having regard to Form No. 1B of the Sale Deed that the shed with the details mentioned hereinabove was constructed in 2013. In these facts, what has to be seen and examined is that the land was not purchased by the assessee as any kind of investment. It was part of ITA NO. 2614/MUM/2018 AY 2014-15 M/s TVS Infrastructure P. Ltd 8 either the business assets or the stock-in-trade of the assessee wherein after the construction of the shed with aforesaid details was sold by the assessee immediately after the construction of the said shed. Accordingly, the difference between cost of purchases and cost of construction included therein and the sale consideration has to be treated as an adventure in the nature of trade and the consequent income has to be treated as business income of the assessee and taxed accordingly. The AO has treated the same as slump sale. Such action of the AO though not found to be in consonance with the facts of the case, however, with the finding as given hereinabove, the quantum of income computed does not change and the taxation thereof is directed to be treated as business income as assessee has undertaken an adventure in the nature of trade. Under these facts, there cannot be any case of allowing any indexation benefit to the assessee. This ground of appeal is accordingly disposed off with the directions hereinabove and for statistical purposes, is treated as partly allowed. 6. Aggrieved, by the aforesaid action of the Ld.CIT(A), the assessee is before us. The Ld. AR has submitted that the AO had erred in disallowing the indexation of Rs. 1,47,67,584/- and treated sale of land being short term capital gain without indexation ignoring the assessee’s claim of long term capital gain. According to him, the land in question was purchased as is on where is basis; and sold as is on where basis. It was pointed out by him that at the time of purchase, a small shed was there, and no separate valuation was made/shown in purchase agreement; and since the same was of no use to assessee, the agreement value had been treated as land in the books of account of the Company. According to him, the assessee company has treated the same as land all throughout the holding period; and it has not generated any rental income either from the land or the said shed. Further, the ITA NO. 2614/MUM/2018 AY 2014-15 M/s TVS Infrastructure P. Ltd 9 Ld. AR submitted that at the time of sale of the said land, the buyer as per his convenience valued the shed at Rs. 30 lakhs in the sale agreement, and the AO erred in treating the shed as unit and sale as slump sale and therefore Pleaded that indexation benefit be allowed on the sale of land. 7. And moreover the assessee had filed the certificate dated 09-02-2023 issued by the auditor B.K. khare & Co. chartered accountants which is found placed at page 3 to 6 of the Paper book wherein the independent practitioner’s report is given as under :- Independent practitioners' report The Board of Directors TVS Industrial and Logistics Parks Private Limited 1. This report is issued in accordance with the terms of our agreement dated January 12, 2023. 2. TVS Industrial and Logistics Parks Private Limited (earlier known as "TVS Infrastructure Limited" or "TVS Infrastructure Private Limited") ("the Company") has requested us to submit the report on whether any cost was incurred towards improvement or modification or construction to the property purchased and sold by the Company at Thrissur as mentioned in accompanying statement of purchase and sale of Land at Thrissur ("the property") (the "Statement") for submission during the proceedings before the Hon'ble Income Tax Appellate Tribunal, Mumbai and tax authorities and courts. We have initialed the Statement for identification purposes. Managements' Responsibility for the Statement ITA NO. 2614/MUM/2018 AY 2014-15 M/s TVS Infrastructure P. Ltd 10 3. The preparation of the accompanying Statement is the responsibility of the Management of the Company. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and presentation of the Statement, and applying an appropriate basis of preparation; and making estimates that are reasonable in the circumstances. 4. The Management is also responsible for ensuring that the Company complies with the requirements of Hon'ble Income Tax Appellate Tribunal, Mumbai and tax authorities and courts and for providing all relevant information to them. Practitioner's Responsibility 5. Our responsibility is to provide specific assurance as to whether the details mentioned in the Statement are correctly extracted from the audited financial statements for FY 2010-11 (being year of purchase of the property), FY 2011-12, FY 2012-13 and FY 2013-14 (being year of sale of the property), books of accounts for those financial years and other relevant records maintained in connection with this property by the Company. 6. The audited financial statements referred to in paragraph 5 above, have been audited by us on which we have issued an unmodified opinion vide our reports dated September 12, 2011, July 30, 2012, July 9, 2013 and August 22, 2014 respectively. Our audits of these financial statements were conducted in accordance with Standards on Auditing and other applicable authoritative pronouncements issued by the Institute of Chartered Accountants of India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 7. We conducted our examination of the Statement in accordance with the Guidance Note on Reports or Certificates for Special Purposes issued by the Institute of Chartered Accountants of India. The Guidance Note requires that we ITA NO. 2614/MUM/2018 AY 2014-15 M/s TVS Infrastructure P. Ltd 11 comply with the ethical requirements of the Code of Ethics issued by the Institute of Chartered Accountants of India. 8. We have complied with the relevant applicable requirements of the Standard on Quality Control (SQC) 1, Quality Control for Firms that Perform Audits and Reviews of Historical Financial Information, and Other Assurance and Related Services Engagements.. 9. A specific assurance engagement includes performing procedures to obtain sufficient appropriate evidence on the applicable criteria, mentioned in paragraph 5 above. Accordingly, we have performed the following procedures in respect of the accompanying Statement: a) Obtained audited financial statements for FY 2010-11, FY 2011-12, FY 2012- 13 and FY 2013-14. b) Obtained and read a copy of purchase deed and sales deed entered by the Company for the purchase and sale of the property. c) Obtained and verified the books of accounts and relevant records maintained by the Company for FY 2010-11 to FY 2013-14 in connection with the property to verify any modification done to the property. d) Obtained representation from the management that the property, referred to in the Statement, is free of any encumbrances. We have relied upon by such representation and no further procedureshave been performed in this regard. e) Performed necessary inquiries with the Management and obtained necessary representations. Conclusion 10. Based on the procedures performed by us under paragraph 9 above, and according to information and explanations received and management representations provided to us, we conclude that- a) Information furnished in the Statement, in respect of purchase and sale of the property, is in agreement with books of account and other relevant records maintained by the Company; and ITA NO. 2614/MUM/2018 AY 2014-15 M/s TVS Infrastructure P. Ltd 12 b) The Company has not incurred any cost towards improvement or modification or construction to the property during the period when the Company was holding such property. (i.e. FY 2010-11 to FY 2013-14) Restriction on use 11. This practitioners' Report is intended solely for the use of management of the Company for the purpose as specified in paragraph 2 above and is not to be used by any other person or for other purpose. Accordingly, we do not accept or assume any liability or any duty of care for any other purpose or to any other person to whom this certificate is shown or into whose hands it may come without our prior consent in writing. Statement of the purchase and sale of the property located at Thrissur Date Particulars Amount 06-09-2010 Purchase of property located at Thrissur 4,60,51,538 06-09-2010 to 28-03-2014 Additional cost incurred towards improvement or modification or construction to the property 0 Cost of the property at the time of sale as per the books of account 4,60,51,538 28-03-2014 Sale of the property located at Thrissur 6,00,00,000 8. We note that the assessee’s claim for Long Term Capital Gain (LTCG) on sale of land situated at Thirssur was disallowed by taking note of the fact that in the sale-deed, there was an averment stating that the sale consideration includes shed valued Rs.30 Lakhs, therefore, the AO disallowed the assessee’s claim of capital gain and treated it as business income u/s 50(b) of the Act, mainly due to the failure on the part of the assessee to furnish Valuation Report. According to the assessee, there was no shed as such in the land in question at Thirssur. Therefore, assessee’s claim of LTCG cannot be disallowed merely on assertion made in the ITA NO. 2614/MUM/2018 AY 2014-15 M/s TVS Infrastructure P. Ltd 13 sale-deed and pleaded that no proper opportunity assessee got before AO on this issue. Further, according to assessee, given an opportunity, assessee would be able to prove that there was no such shed worth any valuation as shown in sale-deed. Therefore, in the interest of justice and fair play and based on the Hon’ble Supreme Court decision in the case of Tin Box Company Vs. CIT (249 ITR 216) (SC) wherein the Hon’ble Supreme Court has held as under: - “ It is unnecessary to go into great detail in these matters for there is a statement in the order of the Tribunal, the fact-finding authority, that reads thus : "We will straightway agree with the assessee's submission that the ITO had not given to the assessee proper opportunity of being heard." That the assessee could have placed evidence before the first appellate authority or before the Tribunal is really of no consequence for it is the assessment order that counts. That order must be made after the assessee has been given a reasonable opportunity of setting out his case. We, therefore, do not agree with the Tribunal and the High Court that it was not necessary to set aside the order of assessment and remand the matter to the assessing authority for fresh assessment after giving to the assessee a proper opportunity of being heard. 2. Two questions were placed before the High Court, of which the second question is not pressed. The first question reads thus : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in not setting aside the assessment order in spite of a finding arrived at by it that the Income-tax Officer had not given a proper opportunity of hearing to the assessee ?" In our opinion, there can only be one answer to this question which is inherent in the question itself : in the negative and in favour of the assessee. ITA NO. 2614/MUM/2018 AY 2014-15 M/s TVS Infrastructure P. Ltd 14 3. The appeals are allowed. The order under challenge is set aside. The assessment orders, that of the Commissioner (Appeals) and of the Tribunal are also set aside. The matter shall now be remanded to the assessing authority for fresh consideration, as aforestated. No order as to costs.” 9. Since we have found in the present case that on this issue, no proper opportunity the assessee got before the AO, we relying on the aforesaid decision of the Hon’ble Supreme Court in the case of Tin Box Company (supra) set aside partly [ on this limited issue] the impugned order of the Ld. CIT(A) and remand the same back to the file of the AO and direct the AO to frame on this issue the assessment de-novo after hearing the assessee in accordance to law. The assessee is at liberty to file documents/material/written submission before the AO to substantiate its claim. And we direct the assessee to be diligent before the AO during the assessment proceedings as undertaken before us. 10. In the result, appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on this 26/04/2023. Sd/- Sd/- (OM PRAKASH KANT) (ABY T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER मुंबई Mumbai; दिनांक Dated : 26/04/2023. Shubham Lohar, (Stenographer) ITA NO. 2614/MUM/2018 AY 2014-15 M/s TVS Infrastructure P. Ltd 15 आदेशकीप्रनिनलनिअग्रेनर्ि/Copy of the Order forwarded to : आदेशधिुसधर/ BY ORDER, सत्यादपतप्रदत //True Copy// उि/सहधयकिंजीकधर /(Dy./Asstt.Registrar) आयकरअिीलीयअनर्करण,मुंबई / ITAT, Mumbai 1. अपीलार्थी/ The Appellant 2. प्रत्यर्थी/ The Respondent. 4. आयकरआयुक्त/ CIT 5. दवभागीयप्रदतदनदि,आयकरअपीलीयअदिकरण,मुंबई/ DR, ITAT, Mumbai 6. गार्डफाईल / Guard file.