Asstt. Comm. Of Income Tax Circle 2(1), Panaji V. M/s. Vasant Holiday homes P. Ltd., Goa

ITA 271/PAN/2013

• Counselvise Citation: 27124114 RSA 2013
• Duration Of Justice: 6 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 04-02-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 26-09-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SONAL L SONKAVDE
• Section: 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI P.K. BANSAL, HONBLE ACCOUNTANT MEMBER AND SHRI D.T. GARASIA , HONBLE JUDICIAL MEMBER ITA NO. 270 / PNJ /201 3 : (ASST. YEAR : 200 6 - 0 7 ) M/S. VASANT HOLIDAY HOMES PVT. LTD., C/O. SHRI UMESH VASANT PRABHU (DIRECTOR) H.NO. 264/61, SHIV SHAKTI NIWAS, GREEN VALLEY, PORVORIM, GOA PAN : AADCV8438P (APPELLANT) VS. ASST. COMMISSIONER OF INCOME TAX, CIRCLE 2(1), PANAJI , GOA. (RESPONDENT) ITA NO. 271 / PNJ /201 3 : (ASST. YEAR : 200 6 - 0 7 ) ASST. COMMISSIONER OF INCOME TAX, CIRCLE 2(1), PANAJI, GOA. ( APPELLANT ) M/S. VASANT HOLIDAY HOMES PVT. LTD., C/O. SHRI UMESH VASANT PRABHU (DIRECTOR) H.NO . 264/61, SHIV SHAKTI NIWAS, GREEN VALLEY, PORVORIM, GOA PAN : AADCV8438P ( RESPONDENT ) ASSESSEE BY : MUKUND BAKSHI, CA REVENUE BY : SONAL L. SONKAVDE, DR DATE OF HEARING : 04 / 02 /2014 DATE OF PRONOUNCEMENT : 28 /0 3 /2014 O R D E R PER P.K. BANSAL 1. THESE CROSS APPEALS HAVE BEEN FILED AGAINST THE ORDER OF CIT(A) DT. 19.7.2013 FOR A.Y. 2006 - 07. THE ASSESSEE HAS TAKEN THE FOLLOWING REVISED GROUNDS OF APPEAL : 1. THE LD. CIT(A), PANAJI AND THE LD. A.O. HAVE ERRED IN LAW AND IN FACTS IN HOLDING THAT THE CONSIDERATION RECEIVED ON THE SALE OF THE PROPERTY SUBJECTED TO CAPITAL GAINS IS 3,84,50,00 AS AGAINST THE FACT THAT THE CONSIDERATION 2 ITA NOS. 270 & 271/PNJ/2013 (ASST. YEAR : 2006 - 07) TOWARDS THE SALE OF THE LAND AND BUILDING IS ONLY RS . 1,85,00,000 AND FURTHER AMOUNT OF RS. 1,99,50,000 IS UNDER A SEPARATE CONTRACT FOR UNDERTAKING VARIOUS REPAIRS AND RENOVATION. 2. THE LD. CIT (A) PANAJI AND THE LD. A.O. HAVE FURTHER ERRED IN LAW AND IN FACTS IN NOT ALLOWING THE COST OF THE LAND AND BUIL DING AMOUNTING TO RS,1,87,18,730 AS CLAIMED IN THE COMPUTATION AGAINST CONSIDERATION FOR SALE OF LAND AND BUILDING AT RS. 1,85.00,000 IN COMPLETE DISREGARD OF THE FACT THAT SUCH COST IS INCURRED PRIOR TO 31 - 03 - 2005 AND SAME WAS OUGHT TO BE ALLOWED. 3. THE LD. CIT (A) PANAJI AND THE LD. A.O. HAVE FURTHER ERRED IN LAW AND IN FACTS IN NOT ALLOWING THE EXPENSE OF RENOVATION AND UPGRADATION AMOUNTING TO RS, 1,96,87,132 AS CLAIMED IN THE COMPUTATION AGAINST CONTRACT RECEIPTS OF RS . 1,99,50,000 IN COMPLETE DISR EGARD OF THE FACT THAT SUCH COST IS INCURRED PRIOR TO 31 - 03 - 2005 AND SAME WAS OUGHT TO BE ALLOWED. 4. THE LD. CIT (A) PANAJI AND LD A.O. OUGHT TO HAVE HELD THAT THE INCOME OF THE APPELLANT IS RS. NIL AS AGAINST RS.39,73,557 AS DETERMINED. THE LD. CIT(A) OU GHT TO HAVE ACCEPTED THE RETURNED INCOME AT RS. NIL AS CLAIMED. WHEREAS THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL : 1. THE LD CIT(A) ERRED IN ALLOWING EXPENDITURE CLAIMED AS COST OF RENOVATION OF PROPERTY DESPITE NO SUPPORTIVE EVIDENCES OF EXPEN DITURE PRODUCED BY ASSESSEE. 2. THE ONLY ISSUE INVOLVED IN THESE APPEAL S RELATE TO THE DETERMINATION OF CAPITAL GAINS ON THE SALE OF THE LAND AND BUILDING BY THE ASSESSEE AND ABOUT THE ASSESSMENT OF THE REIMBURSEMENT OF THE RENOVATION EXPENSES RECEIVED BY THE ASSESSEE. 2.1 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY WAS RUNNING RESORT BUSINESS AT VAGATOR ON SURVEY NO. 373/1, LAND ADMEASURING 14000 SQ. MTRS . THE ASSESSEE SOLD THE LAND VIDE SALE DEED DT. 24.5.2005 FOR A CONSIDERATION OF RS.1,85,00,000/ - . THE ASSESSEE ALSO ENTERED INTO A MEMORANDUM OF UNDERSTANDING DT. 25.1.2005 FOR CARRYING OUT REPAIR, RENOVATION AND UPGRADATION IN THE PROPERTY BEARING SURV EY NO. 373, VILLAGE ANJUNA ADMEASURING 14000 SQ. MTRS. ALONGWITH 28 COTTAGES FOR WHICH THE 3 ITA NOS. 270 & 271/PNJ/2013 (ASST. YEAR : 2006 - 07) ASSESSEE HAS TO BE REIMBURSED A SUM OF RS.1,99,50,000/ - . THE ESTIMATION OF THE RENOVATION WORK WAS WORKED OUT BETWEEN THE PARTIES. SUBSEQUENTLY, ANOTHER MEMORANDUM OF UNDERSTANDING DT. 24.5.2005 WAS ENTERED INTO BETWEEN THE ASSESSEE AND URBAN RESORTS PVT. LTD. FOR CARRYING OUT VARIOUS WORKS ON BEHALF OF THE PURCHASER BY MAKING VARIOUS PAYMENT S AS ENUMERATED IN THE AGREEMENT. THE ASSESSEE HAS SHOWN IN THE RETURN, PR OFIT ON TRANSFER OF THE ASSETS AS UNDER : ASST. YEAR : 2006 - 07 FINA YEAR : 2005 - 06 WORKING OF FIXED ASSETS SALE PROCEED PARTICULARS OPENING WDV RS. ADDITION DURING THE YEAR RS. SALE OF FIXED ASSETS RS. CLOSING WDV RS. (A) FIXED ASSETS HOTEL BUILDING 15861444.00 0.00 15861444.00 0.00 LAND INCLUDING LAND DEVELOPMENT 1354835.00 0.00 1354835.00 0.00 PLANT & MACHINERY 843454.00 0.00 843454.00 0.00 FURNITURE & FIXTURE 658997.00 0.00 658997.00 0.00 TOTAL (A) 18718730 .00 0.00 18718730 .00 0.00 (B) RENOVATION & UPGRADATION BUILDING RENOVATION EXPS 12602416.00 0.00 12602416.00 0.00 COLOUR PAINT EXPS 301500.00 0.00 301500.00 0.00 ELECTRICAL INSTALLATION 2581975.00 0.00 2581975.00 0.00 FURNITURE & FIXTURE 989500.00 0.00 989500.00 0.00 KITCHEN EQUIPMENTS 358950.00 0.00 358950.00 0.00 PLUMBING WORKS 7500.00 0.00 7500.00 0.00 R.C.C. WORKS 2257669.00 0.00 2257669.00 0.00 SWIMMING POOL WORK 587622.00 0.00 587622.00 0.00 TOTAL (B) 19687132 .00 0.00 19687132 .00 0.00 GRAND TOTAL (A + B) 38405862.00 0.00 38405862.00 0.00 PARTICULARS AMT. RS. AMT. RS. TRANSFERRED TO M/S. URBAN RESORTS PVT. LTD. AS PER SALE DEED & MEMORANDUM OF UNDERSTANDING FOR RENOVATION & UPGRADATION A) FIXED ASSETS SALE DEED 18500000.00 LESS : OPENING WDV AS ABOVE SUB TOTAL (A) 18718730.00 - 218730.00 B) MOU FOR UPGRADATION & RENOVATION 19950000.00 LESS : AS PER SUB TOTAL (B) 19687132.00 262868.00 PROFIT ON TRANSFER OF ASSETS 44138.00 4 ITA NOS. 270 & 271/PNJ/2013 (ASST. YEAR : 2006 - 07) AND CREDITED TO ITS PROFIT & LOSS ACCOUNT WHICH WAS ULTIMATELY INCLUDED IN THE LOSS FROM BUSINESS OR PROFESSION AMOUNTING TO RS. 4,49,499/ - AND CLAIMED CARRY FORWARD OF THE TOTAL BUSINESS LOSS. SUBSEQUENTLY, NOTICE U/S 148 WAS ISSUED. THE AO TOOK THE CONSIDE RATION OF THE WHOLE OF THE PROPERTY AT RS.3,84,50,000/ - AND NOTED THAT AS PER THE FIXED ASSETS SCHEDULE FOR FINANCIAL YEAR ENDING 31.3.2005, THE WRITTEN DOWN VALUE OF THE FIXED ASSETS WERE RS.3,13,47,216/ - WHICH HAS BEEN ARRIVED AT AS UNDER : S. NO. NAME OF THE ASSET BALANCE AS ON 01.04.2004 ADDITION DURING THE PERIOD 1. LAND 13,54,835 - 2. HOTEL BUILDING 59,95,328 2,74,16,791 3. PLANT & MACHINERY 10,04,876 29,40,925 4. FURNITURE & FIXTURE 7,24,525 9,89,500 TOTAL 90,79,564 3,13,47,216 THE AO AFTER GIVING SHOW CAUSE TO THE ASSESSEE TREATED THE SUM OF RS.3,13,47,216/ - TO BE THE BOGUS EXPENSES INCURRED BY THE ASSESSEE FOR THE IMPUGNED ASSESSMENT YEAR IGNORING THE FACT THAT DURING THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE HAS NOT INCURRED ANY EXPENDITU RE UNDER THE HEAD FIXED ASSETS AND TREATED IT AS SHORT TERM CAPITAL GAINS. THE ASSESSEE WENT IN APPEAL BEFORE CIT(A). CIT(A) COMPUTED THE CAPITAL GAINS IN RESPECT OF THE LAND AS UNDER : CONSIDERATION TOWARDS SALE OF LAND AND BUILDING RS . 1,85,00,000/ - LESS: INDEXED COST OF LAND (RS. 13,54,835/ - X 497/150 RS. 44,86,000/ - COST OF BUILDING INCLUDING RENOVATION (RS. 59,95,328/ - + RS. 1,79,55,000) RS. 2,39,50,328/ - RS. 2,84,36,328/ - CAPITAL LOSS RS. - 99,36,328/ - 5 ITA NOS. 270 & 271/PNJ/2013 (ASST. YEAR : 2006 - 07) AND TREATED THE SUM OF RS.1,99,50,000/ - ALSO AS SALE CONSIDERATION AND COMPUTED THE CAPITAL GAINS BY TAKING THE ESTIMATE OF THE EXPENDITURE INCURRED BY THE ASSESSEE TO BE RS.1, 79 , 55 ,000/ - BY DISALLOWING ONLY RS.19,95,000/ - TREATING IT TO BE THE BOGUS EXPEN DITURE OUT OF SUM OF RS.1,99,50,000/ - . 2. 2 BEFORE US, THE LD. AR VEHEMENTLY CONTENDED THAT THE ASSESSEE COMPANY WAS PROMOTED BY SHRI UMESH VASANT PRABHU AND MRS. PRANOTI UMESH PRABHU . BUSINESS WAS STARTED SOMETIME IN 1986 - 87. DUE TO THE LOSSES ETC. THE COMPANY DECIDED TO DISPOSE OFF THE ASSETS TO M/S. URBAN RESORTS PVT. LTD. AND ACCORDINGLY, SALE DEED WAS EXECUTED ON 24.5.2005 FOR SELLING THE PROPERTY INCLUDING THE SUPERSTRUCTURE ON AS IS WHERE IS BASIS FOR A CONSIDERATION OF RS.1,85,00,000/ - . OUR ATTENTION WAS DRAWN IN THIS REGARD TO PGS. 23 - 65 OF THE PAPER BOOK. ATTENTION WAS ALSO DRAWN TOWARDS THE SCHEDULE DESCRIBING THE PROPERTY AS APPEARING AT PG. 60. IT WAS STATED THAT PRIOR TO THE EXECUTION OF THE SALE DEED, THE COMPANY HAD ENTERED INTO A MEMORANDUM OF UNDERSTANDING ON 25.1.2005 WHEREIN IT HAS BEEN AGREED BETWEEN THE PARTIES I.E. THE ASSESSEE AND THE INTENDING PURCHASER THAT THE ASSESSEE WILL REPAIR, RENOVATE AND UPGRADE THE SAID PROPERTY AT THE COST AND RISK OF THE SECOND PARTY AS PER THE SPECIFICATION AGREED MUTUALLY. THE DETAILED ESTIMATE WAS ANALYSED AND THE PARTY OF THE SECOND PART HAS AGREED TO PAY THE TOTAL COST FOR SAID REPAIRS AND RENOVATION AND UPGRADATION TO THE E XTENT OF RS.1,99,50,000/ - TO THE SELLER. IN THIS REGARD, ATTENTION WAS DRAWN TOWARDS PGS. 68 - 70 OF THE PAPER BOOK AND IT WAS POINTED OUT THAT CHEQUE OF RS.33,50,000/ - WAS GIVEN BY M/S. URBAN RESORTS PVT. LTD. TO THE ASSESSEE FOR INCURRING THE EXPENSES FOR SAID REPAIRS, RENOVATION AND UPGRADATION . THE DESIGN AND DRAWING ARE TO BE APPROVED BY THE CONSULTANT OF M/S. URBAN RESORTS PVT. LTD. IN THIS REGARD, IT WAS STATED THAT AS PER THE TERMS AND CONDITIONS, ALL THE MATERIALS AND EQUIPMENT WHICH ARE TO BE PUR CHASED ARE TO 6 ITA NOS. 270 & 271/PNJ/2013 (ASST. YEAR : 2006 - 07) BE INSPECTED BY M/S. URBAN RESORTS PVT. LTD. IT WAS ALSO STATED THAT M/S. URBAN RESORTS PVT. LTD. HAS TO MAKE THE PAYMENT AS PER THE PERIODICAL RUNNING BILLS TO BE SUBMITTED BY THE ASSESSEE OR THROUGH ITS AGENCIES WITHIN 7 DAYS. RENOVATION HAS TO BE CARRIED OUT BEFORE SALE DEED OF THE PROPERTY IS TO BE EXECUTED. OUR ATTENTION WAS DRAWN TOWARDS THE BILLS OF M/S. FUTURE HOTELS PVT. LTD. DT. 27.3.2005 FOR A SUM OF RS.1,18,58,027/ - APPEARING AT PG. 90, BILL OF RS.75,02,000/ - DT. 31.3.2005 OF M /S. ORIENT (WORKS) CONTRACTORS PVT. LTD. AS WELL AS THE LETTER OF M/S. FUTURE HOTELS PVT. LTD. SHOWING OUTSTANDING DUES FOR INCURRING EXPENSES FOR THE REPAIRS AND RENOVATION AMOUNTING TO RS. 2,71,89,500/ - AS ON 31.3.2005. ATTENTION WAS ALSO DRAWN TOWARDS C OPY OF ACCOUNTS OF M/S. FUTURE HOTELS PVT. LTD. AND ALSO THE DETAILS OF PAYMENT MADE TO IT THROUGH SOUTH INDIAN BANK AS WELL AS THE COPY OF ACCOUNTS OF M/S. ORIENT (WORKS) CONTRACTORS PVT. LTD., A COPY OF WHICH IS AVAILABLE AT PG. 95 OF THE PAPER BOOK. AT TENTION WAS ALSO DRAWN TOWARDS THE BILL OF SUDARSHAN PRABHU AND SUBHAM SALES FOR PLUMBING WORK, COP IES OF ACCOUNT OF FURNITURES AND FIXTURES, ACCOUNT OF M/S. ORIENT ENGINEERING, V.A. KAMAT. THUS, IT WAS FURTHER SUBMITTED THAT RENOVATION AND UPGRADATION OF THE PLANT AND MACHINERY AND FURNITURE AND FIXTURES WERE COMPLETED IN THE YEAR 2004 - 05 I.E. A.Y 2005 - 06. THE ASSESSEE ALSO RECEIVED THE NECESSARY PERMISSION FOR OPERATING HOTEL BUSINESS FROM VILLAGE PANCHAYAT, ANJUNA - CAISUA, BARDEZ - GOA VIDE LETTER DT. 7.4 .2005. FOR THIS ATTENTION WAS DRAWN TOWARDS PG. 79 - 80 OF THE PAPER BOOK. VARIOUS OTHER APPROVALS WERE ALSO OBTAINED. THUS, IT WAS CONTENDED THAT THE TOTAL CONSIDERATION RECEIVED TOWARDS THE LAND AND THE EXISTING STRUCTURE WAS RS.1,85,00,000/ - , THE COST OF WHICH RECORDED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE WERE AS UNDER : LAND - RS. 13,54,835/ - HOTEL BUILDING INCLUDING PLANT & MACHINERY AND FURNITURE & FIXTURE - RS.1,73,63,895/ - TOTAL - RS.1,87,18,730/ - ============= 7 ITA NOS. 270 & 271/PNJ/2013 (ASST. YEAR : 2006 - 07) THE CONSIDERATION SO RECEIVED HAS TO BE TAXED UNDER THE HEAD CAPITAL GAINS WHICH HAS TO BE COMPUTED AS UNDER : CONSIDERATION RS. 1,85,00,000 LESS: A) LAND COST AS ON MAY 1988 RS. 10,00,000.00 X 497 161 INDEXED COST RS. 30 ,86,957.00 B) COST OF SUPERSTRUCTURE RS. 1,73,63,895.00 TOTAL (A) + (B) RS. 2,04,50,852.00 ( - )RS. 19,50,852.00 SO FAR AS REPAIRS AND RENOVATION TO BE CARRIED OUT BY THE ASSESSEE IN ACCORDANCE WITH THE PURCHASER FOR WHICH THE PURCHASER AGREED TO REIMBURSE A SUM OF RS.1,99,50,000/ - TO THE ASSESSEE, THE ASSESSEE HAS INCURRED FOLLOWING EXPENDITURE : SR. NO. NAME OF CO. AMOUNT 1. FUTURE HOTELS PVT. LTD 1,18,58,027.00 2. ORIENT (WORKS) CONTRACTORS PVT. LTD 75,02,000.00 3. SUDARSHAN PRABHU 47,000.00 4. SHUBHAM SALES 1,37,605.00 5. PLUMBING & FURNITURE & FIXTURES 12500.00 6. V.A. KAMAT 27 , 000.00 7. ORIENT ENGINEERING 1,03,000.00 TOTAL 1,96 , 87,132.00 IN THIS REGARD, ATTENTION WAS DRAWN TOWARDS THE PAPER BOOK AND VARIOUS INVOICES ENCLOSED. IT WAS CONTENDED THAT THE SUM OF RS.1,96,87,132/ - WAS INCURRED DURING THE FINANCIAL YEAR 2004 - 05 I.E. A.Y. 2005 - 06. THEY HAVE NOT BEEN INCURRED DURING THE IMPUGNED ASSESSMENT YEAR , THEREFORE, NO QUESTION OF DISALLOWING ANY EXPENDITURE DURING THE IMPUGNED ASSESSMENT YEAR ARISES. IT WAS CONTENDED THAT IF THE SAID SUM IS DEDUCTED OUT OF THE SUM OF RS.1,99,50,000/ - RECEIVED BY THE ASSESSEE, THE ASSESSEE HAS EARNED SURPLUS OF RS.2,62,86 8/ - . THE AUTHORITIES BELOW DID NOT UNDERSTAND CORRECTLY BOTH THE AGREEMENTS AND HAVE TAKEN THE AMOUNT OF RS.1,99,50,000/ - ALSO AS PART OF THE 8 ITA NOS. 270 & 271/PNJ/2013 (ASST. YEAR : 2006 - 07) TOTAL CONSIDERATION WHILE COMPUTING THE CAPITAL GAINS WHILE THE SAID SUM OF RS.1,99,50,000/ - WAS SPECIFICALLY REI MBURSED TO THE ASSESSEE FOR CARRYING OUT REPAIRS AND RENOVATION. THE AGREEMENT IS QUITE CLEAR. 2. 3 THE LD. DR, ON THE OTHER HAND, RELIED ON THE ORDER OF THE AO AND CONTENDED THAT IT IS NOT A CASE OF REIMBURSEMENT. THE ASSESSEE HAS CARRIED OUT REPAIRS AN D RENOVATION AND WHATEVER EXPENDITURE THE ASSESSEE HAS INCURRED, THE ONUS IS ON THE ASSESSEE TO PROVE THAT THE EXPENDITURE HAS GENUINELY BEEN INCURRED. THE AO WAS CORRECT IN LAW IN TREATING THE EXPENDITURE INCURRED BY THE ASSESSEE TO BE BOGUS EXPENDITURE. 2. 4 IN THE REJOINDER, THE ASSESSEE REFERRED TO ANOTHER MEMORANDUM OF UNDERSTANDING DT. 24.5.2005 ENTERED INTO BY THE ASSESSEE WITH M/S. URBAN RESORTS PVT. LTD. WHICH IS APPEARING AT PG. 73 - 76 FOR POINTING OUT THAT THE PURCHASER ALSO WANTED CERTAIN OTHER MODIFICATIONS AND RENOVATION THAN WHAT HAS BEEN EARLIER CARRIED OUT IN ACCORDANCE WITH THE AGREEMENT DT. 25.1.2005 AND FOR WHICH ALSO THE ASSESSEE WAS ISSUED SEPARATE CHEQUES. ALL THESE REPAIRS WERE ALSO TO BE CARRIED OUT BY THE ASSESSEE WITHIN 6 MONTHS. THIS ALSO PROVES THAT THE EARLIER AGREEMENT WAS ALSO GENUINE ONE. COPY OF THE AGREEMENT WAS ALSO FILED BEFORE THE AO AS WELL AS BEFORE THE CIT(A). NONE OF THEM HAVE ALLEGED THAT THE MEMORANDUM OF UNDERSTANDING IS NOT GENUINE. 2. 5 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL ON RECORD ALONGWITH THE ORDER OF THE TAX AUTHORITIES BELOW. WE NOTED THAT IN THIS CASE THE ASSESSEE HAS ENTERED INTO MEMORANDUM OF UNDERSTANDING DT. 25.1.2005 WITH M/S. URBAN RESORTS PVT. LTD. THIS MEMORANDUM OF UNDERSTANDING , IN THE PREAMBLE , STATES AS UNDER : WHEREAS THE ONE PART DECLARES AND CONFIRM THAT IT INTER ALIA OWNS , O CCUPIES AND POSSESSES A HOTEL PREMISES NAMED AS THE ROYAL RESORTS HAVING 9 ITA NOS. 270 & 271/PNJ/2013 (ASST. YEAR : 2006 - 07) LAND ADMEASURING ABOUT 14000 SQUARE MTRS OR THEREABOUTS AT VILLAGE AJUNA BEARING SURVEY NO 373/ 1 ALONG WITH THE 28 COTTAGES UP THE MARK OF ALMOST IN RUN DOWN CONDITIONS AND OTHER FACILITIES OF THE HOTEL PREMISES AS THE FURNITURE FIXTURE AND ELECTRICAL INST ALLATIONS AND OTHER INFRASTRUCTURE FACILITIES ALL ARE HAVING STATUS OF ALMOST RUN DOWN CONDITIONS AND MORE PARTICULARLY DESCRIBED IN THE SCHEDULE ATTACHED HERETO (HEREINAFTER REFERRED TO AS THE SAID PROPERTY) AND WHEREAS THE FIRST PART HAS ENTERED IN AN AGREEMENT DATED FOR THE SALE OF THE SAID PROPERTY IN FAVOUR OF THE SECOND PART. AND WHEREAS AS PER ONE OF THE CONDITION OF THE SAID AGREEMENT THE FIRST PART HAS AGREED FOR THE REPAIR AND RENOVATION AND UP GRADATION OF THE SAID PROPERTY AT THE COST AND R ISK OF THE SECOND PART AND AS PER THE SPECIFICATIONS AS AGREED MUTUALLY AND WHEREAS BOTH THE PARTIES HAVE MUTUALLY DISCUSSED THE AFORESAID DEAL IN DETAILS AND ARRIVED AT AN ESTIMATE OF THE WORK TO BE CARRIED OUT AND THE EXPECTED COST TO BE INCURRED IN THI S RESPECT. THE DETAILED ESTIMATE WAS BEING ANYLYSED BY BOTH THE PARTIES HERE TO IN TERMS OF COST AND THE WORKED TO BE CARRIED OUT. AND SAME WAS BEING APPROVED BY BOTH THE PARTIES THE DETAILS OF THE WORKED TO BE EXECUTED IS AS PER THE ANNEXURE ATTACHED HERE TO. FROM THE PREAMBLE, AS NARRATED ABOVE, IT IS APPARENT THAT THE ASSESSEE HAS AGREED TO CARRY OUT THE REPAIRS AND RENOVATION AND UPGRADATION WORK AT THE COST AND RISK OF THE INTENDING BUYER. THE RELEVANT TERMS AND CONDITIONS OF THE SAID AGREEMENT ARE STIPULATED AS UNDER : 1 . THE TOTAL COST OF THE SAID REPAIR RENOVATION AND UP GRADATION OF THE SAID PROPERTY IS WORKED OUT TO RS. 1,99,50,000/ - (RUPEES ONE CRORE NINETY NINE LACS FIFTY THOUSAND ONLY) 2. THE REPAIR AND RENOVATION WORK WILL BE CARRIED OUT BY THE FIRST PART MAX WITHIN 4 MONTHS AS PER THE DRAWING AND DESIGN DULY APPROVED BY THE CONSULTANTS OF THE SECOND PART. AND ANY CHANGE S OR MODIFICATION IN THIS WORK SCHEDULE IS TO BE SPECIFIED AND INFORM THE FIRST PART WITHIN 7 DAYS IN ADVANCE BEFORE THE EXECUTION OF THE WORK. 3. IT IS AGREED MUTUALLY THAT THE SPECIFICATION FOR THE MATERIALS AND EQUIPMENT TO BE PURCHASED ARE BEING AGREED UPON AND IT WILL BE OBLIGATORY ON THE PART OF THE SECOND PART TO INSPECT THE SAME FROM THE TIME TO TIME. 10 ITA NOS. 270 & 271/PNJ/2013 (ASST. YEAR : 2006 - 07) 4. IT IS MUT UALLY AGREED THAT THE PAYMENT IS BE MADE BY THE SECOND PART AS PER THE PERIODICAL RUNNING BILLS SUBMITTED BY THE FIRST PART OR THROUGH ITS AGENCIES WITHIN SEVEN DAYS FROM THE DATE OF THE BILLS. 5. IT IS AGREED THAT WORK UNDERTAKEN BY THE FIRST PART FOR T HE UP GRADATION AND RENOVATION IS TO BE COMPLETED IN ALL RESPECT AND WILL BE DULY CERTIFIED BY SECOND PART OR BY ITS AGENCY ON OR BEFORE THE SALE DEED OF THE ENTIRE PROPERTY IS BEING EXECUTED. IT IS AGREED THAT ALSO ENTIRE PAYMENT FOR SUCH WORK IS BE PAID OFF TO FIRST PART BEFORE THE EXECUTION OF SALE DEED. 6. IT IS MUTUALLY AGREED THAT THE ENCLOSED HEREWITH IS THE PART OF THIS MOU AND IS CONSIDERED TO BE THE BASIC DOCUMENTS FOR THE AGREEMENTS. 7. A CHEQUE FOR RS. 33,50,000/ - AS PART PAYMENT IS ISSUED B Y PART OF THE SECOND PART TO THE PARTY OF THE FIRST PART AS PER ABOVE TERMS AND CONDITIONS OF THIS MEMORANDUM OF UNDERSTANDING AD PARTY OF THE FIRST PART ACKNOWLEDGE THE SAME. THIS MOU IS BEING MADE ON 25/01/05 AT VADODRA. FROM THE TERMS AND CONDITION S IT IS APPARENT THAT THE TOTAL COST OF THE SAID REPAIRS AND RENOVATION AND UPGRADATION TO BE CARRIED OUT BY THE ASSESSEE WAS ESTIMATED AT RS.1,99,50,000/ - . THE DRAWINGS FOR THE REPAIRS AND RENOVATION WERE TO BE APPROVED BY THE CONSULTANT OF THE INTENDING BUYER. THE ASSESSEE CANNOT MAKE ANY CHANGES OR MODIFICATION IN THE DRAWING WITHOUT THE PERMISSION OF THE INTENDING BUYER. THE MATERIAL AND EQUIPMENT WHICH ARE TO BE PURCHASED WERE TO BE APPROVED BY THE INTENDING BUYER. THE INTENDING BUYER HAS TO MAKE T HE PAYMENT FOR THE PERIODICAL RUNNING BILLS TO BE SUBMITTED BY THE ASSESSEE WITHIN 7 DAYS. THE INTENDING BUYER HAS, IN THIS REGARD, PAID AT THE TIME OF EXECUTION OF THE MOU A SUM OF RS. 33,50,000/ - TO THE ASSESSEE. IT WAS ALSO AGREED THAT THE UPGRADATION AND RENOVATION HAS TO BE CARRIED OUT BEFORE THE EXECUTION OF THE SALE DEED. FROM THE SAID MOU , IT IS APPARENT THAT THE SUM OF RS. 1,99,50,000/ - WHICH WAS PAID TO THE ASSESSEE BY M/S. URBAN RESORTS PVT. LTD. RELATES TO THE REPAIR, RENOVATION AND UPGRADATI ON OF THE RESORT PROPERTY. IT HAS NOTHING TO DO WITH THE SALE CONSIDERATION AS IS AGREED BY THE PARTIES FOR THE PURCHASE OF THE 11 ITA NOS. 270 & 271/PNJ/2013 (ASST. YEAR : 2006 - 07) HOTEL PREMISES I.E. ROYAL RESORTS CONSISTING OF 28 COTTAGES AND OTHER FACILITIES INCLUDING FURNITURE AND ELECTRICAL INSTALLATIO NS. THE ASSESSEE HAS TO SUBMIT RUNNING BILLS. THESE BILLS ARE TO BE APPROVED AND PAYMENT HAS TO BE MADE BY THE INTENDING BUYER. THE WORK HAS TO BE CARRIED OUT IN ACCORDANCE WITH THE DIRECTION AND APPROVAL OF THE INTENDING BUYER. THE MOU SO ENTERED INTO HAS NOT BEEN DISPUTED BY THE REVENUE. EVEN THERE IS NO ALLEGATION THAT THE MOU WAS NOT GENUINE. IT IS ALSO A FACT THAT ALL THE REPAIRS, RENOVATION AND UPGRADATION HAS BEEN CARRIED OUT PRIOR TO 31.3.2005 I.E. IN THE PRECEDING ASSESSMENT YEAR. NO EXPENDI TURE HAS BEEN INCURRED DURING THE IMPUGNED ASSESSMENT YEAR. THE AO, AS IS APPARENT FROM THE ORDER OF CIT(A), HAS ESTIMATED THE COST TO BE RS.1,05,00,000/ - WHILE THE CIT(A) DISALLOWED ONLY A SUM OF RS.19,95,000/ - BEING 10% OF SUCH EXPENDITURE. THE EXPENDI TURE, IN OUR OPINION, IS MERELY A REIMBURSEMENT. THE ASSESSEE HAS FURNISHED ALL THE DETAILS OF THE EXPENDITURE ALONGWITH THE COPY OF THE ACCOUNTS AND THE NECESSARY EVIDENCE. MAJOR PAYMENT HAS BEEN INCURRED BY THE ASSESSEE TO M/S. FUTURE HOTELS PVT. LTD. AND M/S. ORIENT (WORKS) CONTRACTORS PVT. LTD. THROUGH ACCOUNT PAYEE CHEQUE. THE RUNNING BILLS ARE TO BE CHECKED BY M/S. URBAN RESORTS PVT. LTD. AND ACCORDINGLY, THEY HAVE TO REIMBURSE THE PAYMENT TO THE ASSESSEE. THE ASSESSEE HAS INCURRED A SUM OF RS.1,96,87,132/ - AGAINST WHICH THE ASSESSEE HAS RECEIVED A SUM OF RS. 1,99,50,000/ - . IT IS ONLY THE SURPLUS ARISING OUT OF THIS, IN OUR OPINION, WHICH CAN BE ASSESSED I.E. RS.2,62,868/ - AND THIS HAS TO BE ASSESSED UNDER THE HEAD I NCOME FROM BUSINESS AND NOT UNDER I NCOME FROM CAPITAL GAINS . IN OUR OPINION, CIT(A) WAS NOT CORRECT IN ASSESSING IT UNDER THE HEAD CAPITAL GAINS. THE ASSESSMENT FOR A.Y 200 5 - 0 6 IN WHICH THE EXPENDITURE HAS BEEN INCURRED HAS NOT BEEN RE - OPENED. THE EXPENDITURE INCURRED BY THE ASSESSEE ON REPAIRS, RENOVATION AND UPGRADATION IN THIS REGARD HAS DULY BEEN ACCEPTED. THE EXPENDITURE WHICH HAVE NOT BEEN INCURRED BY THE ASSESSEE DURING THE IMPUGNED ASSESSMENT YEAR EVEN CANNOT BE DISALLOWED IN THIS YEAR BY ANY STRETCH OF IMAGINATIO N SINCE THE MOU WAS EXECUTED ON 25.1.2005 AND ALL 12 ITA NOS. 270 & 271/PNJ/2013 (ASST. YEAR : 2006 - 07) THE REPAIRS, RENOVATION AND UPGRADATION WAS ALSO CARRIED OUT BY 31.3.2005. THE SURPLUS SO ARRIVED AT, IN OUR OPINION, WILL ACCRUE TO THE ASSESSEE ONLY IN A.Y 2005 - 06 AND NOT IN THE IMPUGNED ASSESSMENT YEAR . THEREFORE, WE DELETE THE ADDITION SO FAR IT RELATES TO THE REPAIRS, RENOVATION AND UPGRADATION RELATING TO THE SUM OF RS.1,99,50,000/ - RECEIVED BY THE ASSESSEE. 2. 5 .1 NOW, COMING TO THE CAPITAL GAINS ARISING OUT OF THE SALE DEED EXECUTED BY THE ASSESSEE ON 24.5.2005, WE NOTED THAT THE ASSESSEE HAS SOLD THE LAND AND BUILDING AND OTHER ASSETS OF THE HOTEL FOR CONSIDERATION OF RS.1,85,00,000/ - . THE LAND WAS BOUGHT BY THE ASSESSEE FOR A SUM OF RS.10 LACS IN MAY, 1988. THE ASSESSEE SHOULD GET THE BE NEFIT OF INDEXED COST OF THE LAND WHICH WILL COME TO RS.30,86,957/ - . COST OF THE SUPERSTRUCTURE AS INCURRED BY THE ASSESSEE EXCLUDING THE LAND COST TILL 31.3.2005 WAS RS. 1, 58,61,444/ - . THE CAPITAL GAINS, THEREFORE, IN ACCORDANCE WITH THE PROVISIONS OF S EC. 48 HAS TO BE COMPUTED AS UNDER : CONSIDERATION RS. 1,85,00,000 LESS: A) LAND COST AS ON MAY 1988 RS. 10,00,000.00 X 497 161 INDEXED COST RS. 30,86,957.00 B) COST OF SUPERSTRUCTURE RS. 1, 58,61,444 .00 TOTAL (A) + (B) RS. 1,89,48,401 .00 ( - )RS. 4,48,401 .00 THE ASSESSEE HAS COMPUTED THE LOSS TO BE AT RS.2,18,730/ - AND ULTIMATELY PROFIT ON TRANSFER OF ASSETS AT RS.44,138/ - AND ASSESSEE HAS NOT MADE ANY REVISED CLAIM EXCEPT TAKING THE SUBMISSION BEFORE US. THE SALE DEED HAS DULY BEEN REGISTERED BEFORE THE SUB - REGISTRAR, WHICH WE PERUSED. THE CONSIDERATION RECEIVED ON THE SALE HAS NOT BEEN DISPUTED BY THE REVENUE. WE ALSO NOTED THAT AS PER THE SCHEDULE OF FIXED ASSETS, THE ASSESSEE HAS TRANSFERRED THE LAND 13 ITA NOS. 270 & 271/PNJ/2013 (ASST. YEAR : 2006 - 07) ADMEASURING 14750 SQ. MTRS. AND BUILT - UP AREA MEASURING 1387 SQ. MTRS. THE SCHEDULE IS REPRODUCED AS UNDER : SCHEDULE ALL THAT LANDS KNOWN AS BELVACHI GALLY SITUATED AT ANJUNA IN BARDEZ TALUKA, IN THE REGISTRATION SUB DISTRICT OF BARDEZ, DISTRICT GOA, WHICH IS DESCRIBED IN THE LAND REGISTRATION OFFICE UNDER NO.11104 AT PAGE 51 OF BOOK NO. B - 29 NEW AND SURVEYED IN THE RECORD OF RIGHTS AS VAGATOR UNDER NO. 373/ 1 OF VILLAGE ANJUNA. IT ADMEASURES 14750 (FOURTEEN THOUSAND, SEVEN HUNDRED AND FIFTY) SQUARE METRES OUT OF WHICH BUILT UP AREA IS 1387 SQ. MTS. AND BOUNDED AS UNDER: - EAST : BY THE COCONUT GROOVE AND CASHED GROOVE OF COMMUNIDADE OF ANJUNA, WEST : BY THE COCONUT GROO VE OF VINCENT MENDONSA AND COCONUT GROOVE OF EGIDIO RODRIGUES, NORTH : BY THE COCONUT GROOVE OF TOLENTINE D SOUZA AND COCONUT GROOVE OF DADU BHAT AND OTHERS AND SOUTH : BY A PUBLIC WAY. THE ASSESSEE HAS NOT SOLD THE PLANT AND MACHINERY AND FURNITURE AND FIXTURES. EVEN NO EVIDENCE WAS PRODUCED BEFORE US EXCEPT THE CLAIM BEING MADE BY THE ASSESSEE. WE ARE, THEREFORE, OF THE OPINION THAT THE ASSESSEE CANNOT BE ALLOWED DEDUCTION WHILE COMPUTING THE CAP ITAL GAINS IN RESPECT OF COST OF PLANT AND MACHINERY, FURNITURE AND FIXTURES AMOUNTING TO RS.8,43,454/ - AND RS.6,58,997/ - TOTALLING TO RS.15,02,451/ - . WE, THEREFORE, SET ASIDE THE ORDER OF THE AUTHORITIES BELOW AND DIRECT THE AO TO COMPUTE THE CAPITAL GAI NS AS UNDER : CONSIDERATION RS. 1,85,00,000 LESS: A) LAND COST AS ON MAY 1988 RS. 10,00,000.00 X 497 161 INDEXED COST RS. 30,86,957.00 B) COST OF SUPERSTRUCTURE RS. 1, 58,61,444 .00 TOTAL (A) + (B) RS. 1,89,48,401 .00 ( - )RS. 4,48,401 .00 14 ITA NOS. 270 & 271/PNJ/2013 (ASST. YEAR : 2006 - 07) THUS, AS PER OUR COMPUTATION THERE WILL BE CAPITAL LOSS OF RS.4,48,401/ - BUT SINCE THE ASSESSEE HAS CLAIMED ON THIS TRANSACTION PROFIT OF RS.44,138/ - , WE, THEREFORE, DIRECT THE AO TO TAKE THE INCOME FROM THIS TRANSACTION AT RS.44,138/ - . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED TO THE ABOVE EXTENT WHILE REVENUE APPEAL STAND DISMISSED . 3. ORDER PRONOUNCED IN THE OPEN COURT ON 28 .0 3 .2014. SD/ - SD/ - (D.T.GARASIA) JUDICIAL MEMBER (P.K. BANSAL) ACCOUNTANT MEMBER PLACE : PANAJI / GOA DATED : 28 .0 3 .2014 *SSL* COPY TO : (1) APPELLANT (2) RESPONDENT (3) CIT CONCERNED (4) CIT(A) CONCERNED (5) D.R (6) GUARD FILE TRUE COPY, BY ORDER SR. P RIVATE S ECRETARY ITAT, PANAJI, GOA