Boda Dinesh Reddy (HUF), Hyderabad V. ITO, Nizamabad

ITA 296/HYD/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59224 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 13-06-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 27-02-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T DIWAKAR PRASAD
• Keywords: Capital asset; Business income; Depreciation; Assessment record

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBE R. ITA NO.296/HYD/2009 (ASSESSMENT YEAR 2004-05) SHRI BODA DINESH REDDY (HUF), HYDERABAD (PAN - AABHB 6971 L ) V/S DY. COMMISSIONER OF INCOME - TAX CENTRAL CIRCLE-6, HYDERABAD . (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI A.SRINIVAS RESPONDENT BY : SHRI T.DIWAKAR PRASAD DATE OF HEARING 18. 1.2012 DATE OF PRONOUNCEMENT 25.1.2012 O R D E R PER ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE CIT(A)-VI, HYDERABAD DATED 1.1.2009 FOR THE ASS ESSMENT YEAR 2004-05. 2. BRIEF FACTS OF THE CASE LEADING TO THE FILING OF THE PRESENT APPEAL ARE THAT THE ASSESSEE IS AN HUF DERIVING INC OME FROM PROPERTY, BUSINESS AND OTHER SOURCES. RETURN OF INCOME FOR TH E ASSESSMENT YEAR 2004-05 WAS FILED ON 31.3.2005, DECLARING A LOSS OF RS.47,660 AND LONG TERM CAPITAL GAINS OF RS.3,92,050. AS AGAINST THIS, THE ASSESSING OFFICER COMPLETED THE ASSESSMENT ON A TAXABLE INCOM E OF RS.23,93,607, AFTER MAKING CERTAIN ADDITIONS/DISALL OWANCES, INCLUDING IN RELATION TO THE CAPITAL GAINS DISCLOSED BY THE A SSESSEE. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE SOLD LAND SI TUATED AT SITUATED AT STATION ROAD, NIZAMABAD MEASURING 320.62 SQ. YARDS, FOR A CONSIDERATION OF RS.21,00,051. AS PER THE SALE DEE D ONLY LAND WAS TRANSFERRED WHEREAS IN THE STATEMENT OF COMPUTATION OF LONG-TERM CAPITAL GAINS, THE INDEXED COST OF A BUILDING EXITI NG BEFORE THE TRANSFER ITA NO.296/HYD/2009 SHRI BODA DINESH REDDY (HUF), HYDERABAD 2 OF THE LAND WAS DEDUCTED AND THE TAX WAS PAID ONLY ON THE BALANCE. THE ASSESSING OFFICER HELD THAT THE ASSET TRANSFERR ED WAS ONLY LAND, AND THEREFORE, THE INDEXED COST OF THE BUILDING WHICH H AD NEVER EXISTED ON THE LAND WAS NOT TO BE DEDUCTED. HE ACCORDINGLY RE -COMPUTED THE LONG TERM CAPITAL GAINS, AND BROUGHT TO TAX AN AMOUNT OF RS.18,03,157, AND ALSO MADE AN ADDITION OF RS.5,00,000, UNDER THE HEA D OTHER SOURCES ON ACCOUNT OF CONSIDERATION RECEIVED TOWARDS SALVAG E VALUE OF BUILDING. THE ASSESSING OFFICER ALSO DISALLOWED THE CLAIM OF THE ASSESSEE FOR SET OF AGAINST INCOME FROM OTHER SOURCES, EXPENSES ON A CCOUNT OF CAR REPAIRS, PETROL AND DIESEL, DEPRECIATION AND INTERE ST ON CAR LOAN ACCOUNT AMOUNTING TO RS.1,38,112 (BEING 50% OF ACTUALS), AN D BROUGHT TO TAX THE ENTIRE INCOME OF RS.90,450 RETURNED BY THE ASSE SSEE UNDER THE HEAD OTHER SOURCES. THE ASSESSING OFFICER THUS C OMPLETED THE ASSESSMENT ON A TOTAL INCOME OF RS. 23,93,607, VIDE ORDER UNDER S.143(3) READ WITH S.147 OF THE ACT DATED 28.12.200 7. 3. ON APPEAL, THE CIT(A) HELD THAT THE SALE OF SUPER STRUCTURE PRIOR TO THE SALE OF LAND IS A DISTINCT A ND DIFFERENT TRANSACTION AND THEREFORE, THE VIEW TAKEN BY THE ASSESSING OFF ICER THAT INDEXED COST OF THE BUILDING IS NOT TO BE DEDUCTED IS TO BE CONFIRMED. THE CIT(A) ALSO HELD THAT THE MATERIAL USED IN THE OLD BUILDING HAS BEEN SOLD AT ITS SALVAGE VALUE BY BREAKING DOWN THE STRU CTURE, AND THEREFORE, PROCEEDS FROM THIS TRANSACTION HAVE TO B E TAXED UNDER THE RESIDUARY HEAD INCOME FROM OTHER SOURCES AND HENC E THE ADDITION HAS BEEN RIGHTLY MADE BY THE ASSESSING OFFICER UNDER TH AT HEAD. EVEN WITH RESPECT TO EXPENSES CLAIMED BY THE ASSESSEE AGAINST INCOME FROM OTHER SOURCES, THE CIT(A) CONFIRMED THE DISALLOWANC E MADE BY THE ASSESSING OFFICER. 4. AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS- ITA NO.296/HYD/2009 SHRI BODA DINESH REDDY (HUF), HYDERABAD 3 1. THE APPELLANT SUBMITS THAT THE LEARNED COMMISSI ONER OF INCOME-TAX(APPEALS) ERRED BOTH ON LAW AND ON FACTS OF THE CASE IN SUSTAINING THE ADDITIONS/DISALLOWANCES. 2. THE APPELLANT SUBMITS THAT THE TRANSACTION BEING TRANSFER OF A CAPITAL ASSET BEING BUILDING AND LAND THE INDEXED COST OF BUILDING OUGHT TO HAVE BEEN ALLOWED IN COMPUTING CA PITAL GAINS AND THE SALE PROCEEDS OF BUILDING RECEIVED FROM CON TRACTOR TO WHOM THE BUILDING WAS TRANSFERRED SHOULD NOT HAVE B EEN TREATED AS INCOME FROM OTHER SOURCES 3. THE APPELLANT SUBMITS THAT LEARNED FIRST APPELLA TE AUTHORITY HAVING RECORDED THE FACT THAT THERE ARE TWO DISTINC T TRANSACTIONS VIZ. ONE THAT OF SALE OF BUILDING TO C ONTRACTOR AND THE OTHER THAT OF SALE OF LAND, OUGHT TO HAVE ALLOW ED THE INDEX COST OF BUILDING AS DEDUCTION AND TREAT THE AMOUNT RECEIVED FROM CONTRACTOR AS SALE CONSIDERATION, AS RIGHTLY D ONE BY THE APPELLANT. 4. THE APPELLANT SUBMITS THAT THE LEARNED COMMISSIO NER OF INCOME-TAX(APPEALS) CONTRADICTED HIMSELF BY HOLDING THAT THE TRANSACTION IS NOT A SALE TRANSACTION WHILE HE HIMS ELF HAS RECORDED CATEGORICALLY THAT THERE IS A SALE OF BUIL DING. 5. THE APPELLANT SUBMITS THAT GIVEN THE CIRCUMSTANC ES OF HIS CASE, FROM ANY POINT OF VIEW THE TRANSACTION WITH RESPECT TO BUILDING IS COVERED UNDER THE MEANING OF TRANSFER DEFINED UNDER SECTION 2(47) OF THE INCOM E TAX ACT, 1961 AND AS SUCH THE INDEXED THEREOF SHOULD BE ALLOWED AS DEDUCTION WHIL E COMPUTING LONG TERM CAPITAL GAINS. 6. THE APPELLANT SUBMITS THAT 6THE JUDGMENTS RELIED ON BY THE FIRST APPELLATE AUTHORITY ARE NOT APPLICABLE TO THE FACTS OF THE APPELLANTS CASE. 7. THE APPELLANT SUBMITS THAT THE LEARNED COMMISSIO NER (APPEALS) OUGHT TO HAVE ALLOWED THE CLAIM OF EXPENDITURE UNDE R THE BUSINESS HEAD AS THEY ARE DIRECTLY RELATED TO EARNI NG INCOME FROM THE PARTNERSHIP AND ALL THE EVIDENCE IN RESP ECT OF THE SAME HAS BEEN FILED BEFORE THE ASSESSING OFFICER AN D THE SAME IS ON ASSESSMENT RECORD. 8. THE APPELLANT SUBMITS THAT THE LEARNED FIRST APP ELLATE AUTHORITY ERRED IN OBSERVING THAT EARNING OF INTEREST ON CAPI TAL ENTAILS SUCH A MASSIVE AMOUNT OF TRAVELLING AND EXPENDITURE , WHEN IT HAS BEEN CATEGORICALLY RECORDED THAT THE APPELLANT HAS WORKED FOR THE FIRM ON FULL TIM E BASIS. 9. ON THE BASIS OF THE ABOVE AND FURTHER GROUNDS TH AT MAY BE PERMITTED TO BE RAISED IN THE COURSE OF THE APPELLA TE PROCEEDINGS THE APPELLANT PRAYS THAT A. THE AMOUNT FOR S.5 LACS RECEIVED FROM THE CONTRACTO R BE TREATED AS FULL VALUE OF CONSIDERATION RECEIVED ON TRANSFER OF ITA NO.296/HYD/2009 SHRI BODA DINESH REDDY (HUF), HYDERABAD 4 BUILDING AND ACCORDINGLY BROUGHT UNDER THE HEAD CA PITAL GAINS B. THE INDEXED COST OF BUILDING OF RS.22,08,000 BE ALL OWED AS DEDUCTION FROM THE PROCEEDS OF RS.5.00 LACS RECEIVED FROM THE CONTRACTOR C. THE EXPENDITURE OF RS.1,38,112 BE ALLOWED AS DEDUCT ION FROM BUSINESS INCOME. 5. LEARNED COUNSEL FOR THE ASSESSEE, REITERATING T HE CONTENTIONS URGED BEFORE THE LOWER AUTHORITIES, SUB MITTED THAT THE PURCHASER WAS NOT WILLING TO BUY THE PLOT OF LAND W ITH SUPER STRUCTURE AND THEREFORE, ASSESSEE HAD TO DEMOLISH THE STRUCTU RE. HENCE, THE DEMOLITION WORK ALSO FALLS UNDER THE CATEGORY OF CO ST OF IMPROVEMENT, AND HENCE, THE INDEXED COST OF BUILDING, WHICH WAS EXISTING PRIOR TO TRANSFER OF LAND HAS TO BE DEDUCTED AND TAX HAS TO BE COMPUTED ONLY ON THE BALANCE. HE PLACED STRONG RELIANCE ON THE D ECISION OF HYDERABAD BENCH DECISION OF THE TRIBUNAL IN THE CAS E OF PRABHANDAM PRAKASH V.S ITO (22 SOT 58). FURTHER, REFERRING TO THE SALE AGREEMENT, MORE PARTICULARLY CLAUSE 2 THEREOF, HE S UBMITTED THAT IT WAS WRONG TO SAY THAT IT IS ONLY VACANT LAND, WHEN THE SALE TOOK PLACE, AND SUBMITTED THAT THE SAID CLAUSE, CLEARLY SPECIFI ED THAT THE VENDOR HAS TO GIVE POSSESSION OF THE VACANT LAND, WITHOUT ANY SUPER STRUCTURE THEREON AND IT THUS CLEARLY DEMONSTRATES THAT THE B UILDING, THAT WAS EXISTING BY THE TIME OF SALE AGREEMENT, HAS BEEN DE MOLISHED. 6. AS FOR THE ADDITION RELATING TO DISALLOWANCE O F DEDUCTION IN RESPECT OF EXPENDITURE RELATING TO INCOME FROM OTHE R SOURCES, LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE EXPENDI TURE IS DIRECTLY RELATABLE TO THE EARNING OF INCOME FROM THE PARTNER SHIP FIRM AND ALL THE EVIDENCE IN RESPECT OF THE SAME HAD BEEN FILED BY T HE ASSESSEE BEFORE THE ASSESSING OFFICER AND THEREFORE, SUCH EXPENDITU RE SHOULD HAVE BEEN ALLOWED UNDER THE HEAD BUSINESS INCOME ITSELF. ITA NO.296/HYD/2009 SHRI BODA DINESH REDDY (HUF), HYDERABAD 5 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, RELIED ON THE ORDERS OF THE LOWER AUTHORITIES 8. WE HEARD THE PARTIES. IT IS EVIDENT FROM THE F ACTS OF THE CASE AND MATERIAL ON RECORD THAT THE ASSESSEE HAS D EMOLISHED THE BUILDING EXISTING ON THE LAND IN QUESTION AS ON THE DATE OF SALE AGREEMENT, BEFORE THE TRANSFER OF THE LAND WAS EFFE CTED. IN A SIMILAR CASE, DEALING WITH THE ASPECT OF TREATMENT TO BE GI VEN TO THE COST OF SUPERSTRUCTURE WHILE COMPUTING THE CAPITAL GAINS ON TRANSFER OF LAND, COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF PRA BHANDAM OPRAKASH (SUPRA) HELD AS FOLLOWS- IN THE AGREEMENT IN QUESTION, IT WAS DECLARED THA T THE PROMOTER SHALL DEMOLISH THE EXISTING STRUCTURE AND CONSTRUCT THEREON A NEW COMPLEX. IT WOULD BE AT THE COST OF THE PROMOTER ONLY. THIS CLEARLY INDICATED THAT UNLESS T HE SUPERSTRUCTURE WAS ALSO TRANSFERRED, THE PROMOTER C OULD NOT TAKE POSSESSION AND DEMOLISH THE SAME. FURTHER, THE QUESTION OF NOT ALLOWING THE COST OF THE HOUSE WOULD ARISE O NLY IF IT WAS RETAINED BY THE ASSESSEE HIMSELF. THIS WAS NOT THE CASE IN THE TRANSACTION IN QUESTION. WHAT THE TRANSFEREE DID TO THAT ASSET WAS NOT THE CONCERN OF THE TRANSFEROR. IT WAS ALSO NOT THE CASE OF THE REVENUE THAT THE INCOME GENERATED, IF ANY, F ROM THE SALE OF SCRAP WAS APPROPRIATED BY THE ASSESSEE. EVEN AC CEPTING FOR THE SAKE OF ARGUMENT THAT THE SUPERSTRUCTURE HAD NO VALUE FOR THE PROMOTER, IT COULD NOT BE DENIED THAT THE LAND BELOW THAT STRUCTURE WAS CERTAINLY OF VALUE AND WAS USEFUL FOR THE PROMOTER. THIS WAS BECAUSE, IF HE HAD TO BUILD A N EW COM PLEX, HE WOULD HAVE TO MAKE USE OF THAT LAND. THEREFORE, IN ORDER TO USE THE LAND WHICH WAS BENEATH THE STRUCTURE, HE HA D TO ACQUIRE THE STRUCTURE ALSO AND THEN HE MIGHT DEMOLI SH IT. THEREFORE, THERE WAS NO GAINSAYING THAT THE SUPERST RUCTURE WAS NOT TRANSFERRED TO THE PROMOTER. CONSIDERING THE I SSUE FROM THE VIEW POINT OF THE TRANSFEROR, SINCE HE WAS PART ING WITH AN ASSET, FOR WHICH HE HAD INCURRED COST, THAT COST HA D TO BE ALLOWED AS DEDUCTION WHILE COMPUTING CAPITAL GAINS. THEREFORE, THE SUPERSTRUCTURE ON THE LAND WAS ALSO TRANSFERRED BY THE ASSESSEE TO THE PROMOTER AND THE COST OF CONSTRUCTI ON THEREOF WAS TO BE ALLOWED TO THE ASSESSEE WHILE COMPUTING H IS CAPITAL GAINS. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF COORDI NATE BENCH OF THE TRIBUNAL, WE HOLD THAT THE INDEXED COST OF THE BUIL DING WHICH EXISTED AS ITA NO.296/HYD/2009 SHRI BODA DINESH REDDY (HUF), HYDERABAD 6 ON THE DATE OF SALE OF THE BUILDING, HAS TO BE DEDU CTED WHILE COMPUTING THE CAPITAL GAINS. WE ACCORDINGLY SET ASIDE THE OR DERS OF THE LOWER AUTHORITIES ON THIS ISSUE, AND DIRECT THE ASSESSING OFFICER TO RECOMPUTE THE CAPITAL GAINS. 9. AS FOR THE DISALLOWANCE OF EXPENDITURE OF RS.1, 38,112, IN VIEW OF THE PLEADING OF THE ASSESSEE BEFORE US THAT IT SHOULD HAVE BEEN ALLOWED UNDER THE HEAD BUSINESS INCOME ITSELF, WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES ON THIS ASPECT, AND RESTORE THE MATTER TO LTHE FILE FO THE ASSESSING OFFICER, WITH A DIREC TION TO VERIFY THE DETAILS OF THE EXPENDITURE OF RS.1,38,112, AND ALLOW THE SA ME AGAINST BUSINESS INCOME OF THE ASSESSEE, IF THE ASSESSEE IS ABLE TO SUBSTANTIATE ITS CLAIM THAT THE EXPENDITURE IN QUESTION IS RELAT ABLE TO THE BUSINESS INCOME ITSELF, BY PRODUCING EVIDENCE TO THE SATISFA CTION OF THE ASSESSING OFFICER. THE ASSESSING OFFICER IS ACCORD INGLY DIRECTED TO REDECIDE THIS ISSUE IN ACCORDANCE WITH LAW AFTER GI VING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS PART LY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 25.1.2012 SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER. JUDICIAL MEMBER. DT/- 25TH JANUARY, 2012 COPY FORWARDED TO: 1. SHRI BODA DINESH REDDY (HUF) (NIZAMABAD), M/S. V.SR IDHAR & CO., CHARTERED ACCOUNTANTS, 12-2-823/A/78, GEETHA APARTMENTS, SANTOSH NAGAR COLONY, MEHDIPATNAM, HYDE RABAD 500 0238. ITA NO.296/HYD/2009 SHRI BODA DINESH REDDY (HUF), HYDERABAD 7 2. INCOME - TAX OFFICER, WARD - 2, NIZAMABAD 3. COMMISSIONER OF INCOME-TAX(APPEALS) VI, HYDERABA D 4. COMMISSIONER OF INCOME - TAX V HYDERABAD 5. THE D.R., ITAT, HYDERABAD. B.V.S.