THE ITO WD 18(1)(3), MUMBAI V. M/S. KARNALA RESORTS, MUMBAI

ITA 292/MUM/2008

• Counselvise Citation: 29219914 RSA 2008
• Duration Of Justice: 3 year(s) 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 30-05-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 11-01-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GOLI SRINIWAS RAO
• Assessee Lawyers: DR K SHIVARAM
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Cost of acquisition
• Section: 50C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI, J. SUDHAKAR REDDY, ACCOUNTANT MEMBER A ND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 292/MUM./2008 (ASSESSMENT YEAR : 2004-05 ) DATE OF HEARING: 30.5.2011 INCOME TAX OFFICER WARD-18(1)(3) ROOM NO.106 PIRAMAL CHAMBERS, PAREL MUMBAI 400 012 .. APPELLANT V/S M/S. KARNALA RESORTS ST-1, ADHYARU INDL. ESTATE SUN MILL COMPOUND, LOWER PAREL MUMBAI 400 013 AAAFK3815H .... RESPONDENT REVENUE BY : MR. GOLI SRINIWAS RAO ASSESSEE BY : DR. K. SHIVARAM O R D E R PER J. SUDHAKAR REDDY, A.M. THIS APPEAL PREFERRED BY THE REVENUE, IS DIRECTED A GAINST THE IMPUGNED ORDER DATED 17 TH OCTOBER 2007, PASSED BY THE COMMISSIONER (APPEALS)-XVIII, MUMBAI, FOR ASSESSMENT YEAR 2004-0 5. 2. THE FACTS OF THE CASE ARE BROUGHT OUT BY THE COMMIS SIONER (APPEALS) AT PARA-4 OF HIS ORDER, WHICH IS EXTRACTED FOR READ Y REFERENCE:- 4. THE FACTS OF THE CASE IN BRIEF ARE THAT THIS FIR M WAS CONSTITUTED ON 30.10.1986, WITH TWO PARTNERS AND AS PER THE DEC LARATION DATED 1.4.2003, THE ACTIVITY OF THE PARTNERSHIP FIRM WAS STATED TO BE THAT OF KARNALA RESORTS ITA NO.292/MUM./2008 2 ACQUIRING / DEVELOPING / CONSTRUCTING AND RUNNING H OTELS, RESORTS, HOLIDAY HOMES, CLUB, JUNGLE RESORTS, ETC. AND IN OT HER BUSINESS OR THE BUSINESS WHICH IS AGREED UPON BY THE PARTNERS AS PE R CLAUSE-I OF 3 PAGE DECLARATION DATED 1.4.2003. THE SAID PARTNERSH IP FIRM ACQUIRED AS IMMOVABLE PROPERTY AT VILLAGE SHIRDHON DIST. RAIGAD MEASURING ABOUT 1.6 ACRES OUT OF WHICH 77 ACRES WERE LATER ON ACQUI RED BY SPECIAL LAND ACQUISITION OFFICER LEAVING 90 ACRES IN THE OWNERSH IP OF THE POSSESSION OF THE FIRM. THE FIRM WAS LATER ON RECONSTITUTED ON VARIOUS OCCASION BY INCLUDING NEW PARTNERSHIP AND RETIRING SOME OLD PAR TNERS. THE DECLARATION DATED 1.4.2003 IS NARRATED AS FOLLOWING IN TERMS OF THE ASSESSMENT ORDER AT PAGE-11. (A) THAT ALTHOUGH THE LAND WAS ACQUIRED BY THE FIRM NO ACTIVITY HAS BEEN CARRIED OUT ON THE SAME SINCE THE DATE OF ITS ACQUISITION SINCE 1986. (B) THAT THE SAID LAND HAD BEEN REFLECTED IN THE BALANC E SHEET UNDER THE HEAD ASSETS AND THERE WAS NO INTENTION TO DEAL IN THE SAME. (C) THAT THE LAND WAS PURCHASED FOR ` 15 LACS BUT THE SAME WAS REVALUED IN THE BOOKS TO ` 275 LACS (APPROX.) BY CREDITING THE PARTNERS CAPITAL ACCOUNT ABOUT 6-7 Y EARS BACK. (D) THAT THOUGH THE LAND HAD BEEN REFLECTED IN THE BOOK S OF ACCOUNT OF THE FIRM, THE ERSTWHILE PARTNERS AND THE PARTIES TO THE DECLARATION ALWAYS INTENDED TO HOLD THE SAME IN THE CO-OWNERSHIP AS A RESULT OF WHICH NO ACTIVITY HAS B EEN CARRIED OUT. (E) THAT A REVERSAL ENTRY FOR THE REVALUATION ENTRY OF THE LAND MADE WOULD BE PASSED AND THE VALUE OF THE LAND WOUL D BE RESTORED TO ITS ORIGINAL HISTORICAL COST. (F) THAT THE DECLARANTS AGREED TO DIVIDE THE LAND BY MA KING PHYSICAL DIVISION THEREOF FOR WHICH COLLECTORS OFF ICE WOULD BE APPROACHED AND VATAP PATRA AND 7/12 WOULD BE MAD E SEPARATELY FOR EACH CO-OWNER. (G) THAT SINCE THE ALLEGED FIRM NEVER CARRIED ON ANY BU SINESS AT ANY TIME AND THE SAID LAND WAS ALWAYS TREATED AS FIXED ASSETS, THE PROPERTY SHALL BE HELD BY THE DECLARANT S AS CO- OWNERS WITH THE SHARE OF THE CO-OWNERS AS NARRATED BELOW. THE SHARE NARRATED IN THE DECLARATION IS AS UNDER:- (TO COPY SHARE FROM PARTNERSHIP DEED) (THIS IS REPRODUCED AS IS APPEARING IN THE DECLARAT ION DATED 1.4.2003) KARNALA RESORTS ITA NO.292/MUM./2008 3 (H) THAT THE DECLARANTS AGREED TO PASS RECTIFICATION EN TRIES IN THE BOOKS OF THE FIRM BY DEBITING THE RESPECTIVE PA RTNERS CAPITAL ACCOUNT WITH HIS SHARE OF LAND AND CREDITIN G LAND ACCOUNT. (I) THAT SIMULTANEOUSLY IT WAS AGREED TO PASS A SUITABL E ENTRY IN THE BOOKS OF THE DECLARANTS BY DEBITING LAND ACC OUNT AND CREDITING FIRMS ACCOUNT. (J) THAT WHATEVER WAS STATED IN THE DECLARATION WAS TRU E TO THE KNOWLEDGE OF THE DECLARANTS AND STATED CONSCIEN TIOUSLY TO REFLECT A TRUE STATE OF AFFAIRS. 3. THE CONCLUSION OF THE ASSESSING OFFICER IS BROUGHT OUT AT PARA-7 OF THE COMMISSIONER (APPEALS)S ORDER, WHICH IS EXTRACTED FOR READY REFERENCE. 7. THE A.O. HAS SUMMARISED THE DISCUSSION IN THE AS SESSMENT ORDER IN THE FOLLOWING MANNER ON PAGE-15 OF THE ASS ESSMENT ORDER. I) THE PARTNERSHIP FIRM M/S. KARNALA EXPORTS HAD PURCHASED THE ASSET I.E., LAND AT VILLAGE SHIRDHON, TAL. PANVEL, DIST. RAIGAD FOR A PURCHASE CONSIDERATION O F ` 15,00,000 IN TERMS OF AGREEMENT DATED 13.11.1986. II) THE FIRM WAS CREATED WITH THE OBJECTIVE OF ACQUIRIN G, DEVELOPING, CONSTRUCTING AND RUNNING HOTELS, RESORT S, HOLIDAY HOMES, CLUBS, JUNGLE RESOTRS, ETC. III) THE LAND ADMEASURING ABOUT 167 ACRES PURCHASED BY THE PARTNERSHIP FIRM M/S. KARNALA EXPORTS WAS IN TENDED TO BE USED FOR THE BUSINESS OBJECTIVE I.E., TO CONS TRUCT FARM HOUSES, RESORTS, ETC. AS STATED BY SHRI RAJU D. THA KKAR, THE MANAGING PARTNER AND THE ONLY CONTINUING PARTNE R OF THE FIRM SINCE ITS INCEPTION WHO HAS BEEN PARTY TO NOT ONLY THE ORIGINAL CREATION OF THE PARTNERSHIP AND THE PU RCHASE OF THE LAND BUT ALSO WAS PARTY TO ALL THE SUBSEQUENT RECONSTITUTION / RETIREMENTS / MODIFICATION IN THE PARTNER- SHIP AND AT EACH SUCH STAGE, THE FIRM HAD TIME AND AGAIN REITERATED THAT IT WOULD CONTINUE WITH ITS OBJECT O F ACQUIRING, DEVELOPING, CONSTRUCTING AND RUNNING HOT ELS, RESORTS, HOLIDAY HOMES, CLUBS, JUNGLE RESORTS, ETC. IV) THE REASONS FOR THE ACTIVITY OF THE FIRM NOT TAKING OFF HAS ALSO BEEN STATED BY SHRI RAJU D. THAKKAR IN HIS STATEMENT AND THE REASON, AS STATED BY HIM, WAS PAU CITY OF FUNDS AND NOTHING ELSE OTHER THAN THAT. HE HAD G ONE TO THE EXTENT OF SAYING THAT RIGHT SINCE THE INCEPTION OF NEW PARTNERS AND JOINT VENTURE PARTNERS WERE CONSTANTLY BEEN KARNALA RESORTS ITA NO.292/MUM./2008 4 LOOKED FOR WITH AN INTENTION TO FURTHER THE OBJECTS OF THE PARTNERSHIP. V) THE SUBSEQUENT DECLARATION DATED 1.4.2003, STATING THEREIN THAT THE PARTNERSHIP WAS NEVER INTENDED AT CARRYING OUT ANY ACTIVITY WITH REGARD TO THE LAND A ND THAT THE STATEMENT THEREIN CLAIMING THE LAND TO BE A FIX ED ASSET AND THAT THE LAND WAS NEVER INTENDED TO BE USED FOR THE BUSINESS ACTIVITY OF THE FIRM IS NOTHING SHORT OF B LATANT LIE. THE DECLARATION DATED 1.4.2003 WITH SUCH SELF SERVI NG STATEMENTS ARE ONLY PROJECTING THE INTENTION OF THE PARTNERS TO TRY AND RE-WRITE HISTORY WITH REGARD TO THE ACTIVITY OF THE FIRM, THE OWNERSHIP OF THE PROPERTY AND THE ACTIVITY / USE TO WHICH THE LAND WAS MEANT TO BE PU T TO. VI) THE COPY OF THE 7/12 EXTRACT FURNISHED DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS AS ANNEXURE TO LETTER DATED 1.11.2006, IS CLEAR ABOUT THE FACT THA T THE PROPERTY WAS HELD BY THE PARTNERS FOR AN ON BEHALF OF THE FIRM AND NOT AS CO-OWNERS IN THEIR INDIVIDUAL CAPAC ITY. THE SUBSEQUENT 7/12 EXTRACTS DATED 25.8.2003 FURNISHED ALONG WITH THE LETTER OF THE AUTHORIZED REPRESENTATIVE DA TED 2.12.2006, CLEARLY INDICATES THE CHANGE OF OWNERSHI P IN VIEW OF THE FACT THAT THE NAME OF THE PERSON HOLDIN G THE LAND HAS NOW BEEN INDICATED AS THE INDIVIDUAL PARTN ER. 4. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BEFORE T HE FIRST APPELLATE AUTHORITY, WHEREIN THE COMMISSIONER (APPEALS) HELD THAT IT IS MANDATORY TO DETERMINE THE VALUATION IN TERMS OF SECTION 50C OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ). HE RELIED ON THE FIGURES GIVEN BY THE ASST. SUB REGISTRAR AND DETERMINE THE LONG TERM CAPITAL GAINS . AGGRIEVED, THE REVENUE IS IN APPEAL ON THE FOLLOWING GROUNDS:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LE ARNED CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE A.O. OF ` 3,81,07,315 ON ACCOUNT OF PROFIT ON TRANSFER OF LAND, REFLECTED IN THE BAL ANCE SHEET WRONGLY HOLDING THAT THERE WAS NO BUSINESS TRANSACTION. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE LONG T ERM CAPITAL GAIN WOULD BE OF ` 90,29,224 ON TRANSFER OF LAND BY ADOPTING VALUATIO N GIVEN BY THE SUB-REGISTRAR WITHOUT APPRECIATING THE FACT THAT THE A.O. HAS WORKED OUT THE LONG TERM CAPITAL GAIN AT ` 3,45,90,684 ON THE BASIS OF VALUE OF LAND ADOPTED BY THE ASSESSEE FOR A.Y. 1999-2000 AFTER ADDING 10% INCREASE OF THE VALUE FOR EACH AND ALLOWING REDUCTION ON ACCOUNT OF INDEXED PURCHASE COST OF 15 LAKHS AS WELL AS AGGREGATE EXPENSES OF ` 6,20,843 INCURRED FOR A.Y. 1999-2000 TO 2004-05. KARNALA RESORTS ITA NO.292/MUM./2008 5 5. WE HAVE HEARD, MR. GOLI SRINIWAS RAO, LEARNED DEPAR TMENTAL REPRESENTATIVE, ON BEHALF OF THE REVENUE AND DR. K. SHIVARAM, LEARNED COUNSEL APPEARING ON BEHALF OF THE ASSESSEE. THE ON LY ISSUE THAT IS ARGUED AND DISPUTED BY THE REVENUE BEFORE US IS, WHETHER THE COMMISSIONER (APPEALS) WAS RIGHT IN ADOPTING THE VALUE OF THE LA ND AS DETERMINED BY THE ASSTT. SUB REGISTRAR, WHICH IS THE STAMP DUTY AUTHO RITY OF THE STATE GOVT. IN PREFERENCE TO A VALUATION DONE BY THE ASSESSING OFF ICER. THE OTHER ISSUE I.E., WHETHER THERE IS A TRANSFER OF THE ASSETS OF THE FI RM, ETC., IS NOT BEFORE US. THE FIRST APPELLATE AUTHORITY, AT PAGE-11/PARA-16 T O 18, HELD AS FOLLOWS:- 16. IN THIS REGARD, THERE WILL BE A QUESTION OF VAL UATION. THE A.O. HAS BASED HIS COMPUTATION OF LONG TERM CAPITAL GAIN BY TAKING INITIAL FIGURE OF ` 2,74,64,078. THIS FIGURE HAS BEEN ADOPTED FROM THE RECORD OF THE APPELLANT FOR F.Y. 1998-99 WHEN THE LAND IS QUESTION WAS VALUED TO THIS EXTENT BUT THIS ENTRY WAS LATER ON REVERSED . THE A.O. HAS NOT POINTED OUT ANY BASIS AS TO WHY THIS FIGURE WAS TAK EN INTO ACCOUNT. THE APPELLANT HAS NOT ONLY REVALUED THE LAND TO A HIGHE R VALUE BUT ALSO HAS REVERSED THE ENTRY SUBSEQUENTLY. THEREFORE, IF THE VERSION OF THE APPELLANT IS TO BE BELIEVED IT MUST BE BELIEVED IN BOTH SITUATIONS. OTHERWISE, THE A.O. MUST INDICATE THE LOGICAL BASIS OF DETERMINING THIS VALUE. THE A.R. HAS SUBMITTED THAT THERE WERE COMME RCIAL CONSIDERATION OF REVALUATING HIS PROPERTY AS A THIR D PARTY BUSINESS TIE- UP WAS EXPECTED. THIS VALUATION IS NOT SUPPORTED BY ANY THIRD PARTY / AUTHORITY CERTIFICATION, ETC. 17. THE INCOME-TAX ACT HAS NOW MADE IT MANDATORY TO DETERMINE THE VALUATION IN TERMS OF SECTION 50C OF THE ACT. A S PER THIS SECTION, IT IS THE VALUATION OF THE STAMP DUTY AUTHORITY OF THE STATE GOVT. WHICH IS TO BE TAKEN INTO CONSIDERATION. THERE WAS ALSO AN O PTION AVAILABLE WITH THE A.O. TO REFER THE MATTER TO THE DVO. THE A.O. N EITHER BASED HIS COMPUTATION UPON THE DETERMINATION OF THE DVO NOR U PON THE FIGURE GIVEN BY THE REGISTERING AUTHORITY OF THE STATE GOV T. IF THE PROVISIONS OF SECTION 50C ARE TAKEN INTO CONSIDERATION, THE VA LUATION GIVEN BY THE ASSTT. SUB-REGISTRAR OF THE ARE AT ` 6.13 LAKHS AS ON 7.9.2007 PER HECTARE WOULD BE ACCEPTABLE. IF THE COMPUTATION ARE BASED UPON THE VALUATION GIVEN BY THE ASSTT. REGISTRAR AFTER PROVI DING FOR 10% REDUCTION FOR EACH FINANCIAL YEAR (AS PER THE COMPU TATIONS GIVEN BY THE A.R. IN THE WRITTEN SUBMISSIONS ARE REPRODUCED AS ABOVE), THE CALCULATION IN LONG TERM CAPITAL GAIN ARRIVED AT WO ULD BE AT A FIGURE GIVEN BY THE ASSTT. SUB REGISTRAR IN CONSONANCE WIT H THE PROVISIONS OF SECTION 50C O FTHE ACT. THE LD. A.R. HAS ALSO BROUG HT TO MY ATTENTION TO THE FACT THAT THE APPELLANT LAND IS LAND LOCKED FRO M ALL THE SIDES AND THERE IS NO ROAD ACCESS TO THE SAME. KARNALA RESORTS ITA NO.292/MUM./2008 6 18. IN VIEW OF THIS DISCUSSION, I HOLD THAT THE LON G TERM CAPITAL GAIN IN THE CASE WOULD BE ` 90,29,224. 6. WE FIND NO INFIRMITY IN THE SAME. THE ASSESSING OFF ICER HAS NOT REFERRED THE MATTER TO THE VALUATION OFFICER AND HE HAS ADOPTED HIS OWN METHODOLOGY TO ARRIVE AT THE VALUATION. THE FIRST A PPELLATE AUTHORITY WENT BY THE VALUATION GIVEN BY THE ASSTT. SUB REGISTRAR OF THE AREA. THERE IS NO INFIRMITY IN THE SAME. 7. IN THE RESULT, APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 15.6.2011 SD/- VIJAY PAL RAO JUDICIAL MEMBER SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI, DATED: 15.6.2011 COPY TO : (1) THE ASSESSEE; (2) THE RESPONDENT; (3) THE CIT(A), MUMBAI, CONCERNED; (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, H BENCH, ITAT, MUMBAI. TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT, MUMBAI BENCHES, MUMBAI