ASST CIT 21(2), MUMBAI V. KESHAV & COMPANY, MUMBAI

ITA 3036/MUM/2017

• Counselvise Citation: [2018] 124 COUNSELVISE.COM (IT) 9736 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2009-2010
• Appeal Filed On: 27-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Capital asset; Business income; Reason to believe
• Section: 143(3); 234B; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H MUMBAI BEFORE SHRI SANDEEP GOSAIN (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 3036/MUM/2017 ASSESSMENT YEAR: 2009 - 10 ASST. COMMISSIONER OF INCOME TAX, 21(2), ROOM NO. 115, 1 ST FLOOR, PIRAMAL CHAMBERS, LALBAUG, MUMBAI. VS. M/S KESHAV & COMPANY 95, GANPATRAO KADAM MARG, LOWER PAREL (WEST), MUMBAI - 400016. PAN NO. AAHFK1645E APPELLANT RESPONDENT C.O. NO. 268/MUM/2018 (ITA NO. 3036/MUM/2017) ASSESSMENT YEAR: 2009 - 10 M/S KESHAV & COMPANY 95, GANPATRAO KADAM MARG, LOWER PAREL (WEST), MUMBAI - 400016. VS. ASST. COMMISSIONER OF INCOME TAX, 21(2), ROOM NO. 115, 1 ST FLOOR, PIRAMAL CHAMBERS, LALBAUG, MUMBAI. PAN NO. AAHFK1645E APPELLANT RESPONDENT REVENUE BY : MR. RAHUL RAMAN, CIT DR ASSESSEE BY : MR. RAJAN VORA, AR DATE OF HEARING : 06/09/2018 DATE OF PRONOUNCEMENT : 19/09/2018 ORDER PER N.K. PRADHAN, AM THE APPEAL BY THE REVENUE AND THE CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX M/S KESHAV & COMPANY ITA NO. 3036/MUM/2017 & CO. NO. 268/MUM/2018 2 (APPEALS) - 3 3, MUMBAI [IN SHORT CIT(A)] AND ARISE OUT OF THE PENALTY ORDER PASSED BY THE ASSESSING OFFICER (AO) U/S 143(3) R .W.S. OF THE INCOME TAX ACT 196 1, (THE ACT). 2. THE GROUNDS OF APPEAL FILED BY THE REVENUE READ AS UNDER: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, T HE ID. CI T(A) HAS ERRE D IN DELETING THE ADDITION OF RS. 18,13 ,79,450/ - AND QUASHING THE RE - ASSESSMENT PROCEEDING U/S 147 OF THE ACT WITHOUT APPRECIATING THE FACT THAT THE ACTI ON OF THE AO IN RE - OPENING THE ASSESSMENT AND MAKING ADDITION U/S 45(4) OF THE INCOME TAX ACT, 1961 ON ACCOUNT OF L ONG TERM CAPITAL GAIN, WAS CONSEQUE NT TO HAVING REASON TO BELIEVE THAT THE INCOME HAS ESCAPED ASSESSMENT. 2. WHETHER ON THE FACTS AND CIRCUMSTA NCES OF THE CASE AND IN L AW, THE ID. CIT(A) HAS ERRED IN DELETING THE ADDITION WITHOUT APPRECIATING THE FACT THAT THE AO HAS TAXED THE CAPITAL GAIN REL ATING TO 35, 495 SQ. FT IN THE YEAR OF ACTUAL DELIVERY OR DISTRIBUTION AT ITS MARKET VALUE. 3. WHETHER ON THE FACTS AND CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. CI T(A) HAS ERRED IN DELETING THE ADDITION OF RS.18,13,79,450/ - AND QUASHING THE RE - ASSESSMENT PROCEEDINGS U/S 147 OF THE ACT , BASED ON THE DECISION OF THE HON BLE ITAT IN ITA NO.563 9/MUM/2002, DATED 30.09.2016 WITHOUT APPRECIATING THE FACT THAT THE IMPUGNED ITAT ORDER HAS NOT BEEN RECEIVED IN THE OFFICE OF PR. CIT - 21, MUMBAI AND HAS NOT ATTAINED FI NALITY . 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF CONSTRUCTION OF HOUSING AND COMMERCIAL PROPERTIES IN MUMBAI. IT FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR (AY) 2009 - 10 ON 03.12 .2009 DECLARING TOTAL INCOME OF RS.6,99,70,668/ - . IN THE PRESENT CASE, THE REOPENING OF ASSESSMENT BY THE ASSESSING OFFICER (AO) IS ON THE BASIS OF THE ORDER OF THE LD. CIT(A) M/S KESHAV & COMPANY ITA NO. 3036/MUM/2017 & CO. NO. 268/MUM/2018 3 FOR AY 2006 - 07. THE BACKGROUND FACTS AS FOUND FROM THE SUBMISSION DATED 19.12.20 16 FILED BY THE ASSESSEE BEFORE THE LD. CIT(A) ARE AS UNDER: THE FIRM WAS CONSTITUTED ON 13 MARCH 1997 BY THE FOLLOWING TWO PARTNERS: M/S BHARAT BARREL DRUM MFG. CO. LTD. M/S URMI REAL ESTATE PVT. LTD. M/S BHARAT BARREL DRUM MFG. CO. LTD. CONTRIBUTED THE LAND IN THE PARTNERSHIP FIRM AT A PRICE OF RS.19 CRORE AND M/S URMI REAL ESTATE PVT. LTD. DECIDED TO CONTRIBUTE FUNDS AND ITS EXPERTISE IN THE CONSTRUCTION FIELD TOWARDS DEVELOPMENT OF THE LAND. THE TWO NEW PARTNERS, VINOD GOWANI AND HITESH GOWANI WER E ADMITTED IN THE FIRM ON 30 JUNE 1997. THE APPELLANT FILED ITS RETURN OF INCOME FOR AY 2003 - 04 ON 28 MARCH 2005 SHOWING NIL INCOME AS THE PROJECT WAS UNDER CONSTRUCTION AND THERE WAS NO INCOME DURING THE YEAR. THE PROJECT WAS STILL UNDER CONSTRUCTION DURI NG THE FY 2005 - 06 AND NO INCOME ACCRUED TO THE APPELLANT DURING THE YEAR ENDED 31 MARCH 2006. FURTHER ON 30 APRIL 2005, M/S BHARAT DRUMS MFG. CO. LTD., ONE OF THE PARTNERS IN THE FIRM, RETIRED FROM THE FIRM ON THE FOLLOWING TERMS: RS.10 CRORE TO BE PAID A GAINST THE AMOUNT OF CREDIT STANDING OF THE PARTNER (I.E. 16.3 CRORE LESS AMOUNT ALREADY WITHDRAWN FROM THE CAPITAL ACCOUNT OF RS.6.3 CRORE). CONSTRUCTED AREA OF 76,752 SQ. FT TO BE ALLOTTED OUT OF STOCK IN TRADE OF THE FIRM. THE FIRM HAD THE RIGHT TO PU RCHASE THE 41,257 SQ. FT. OF THE ABOVE MENTIONED AREA OF 76,752 SQ. FT. ON OR BEFORE 30 JANUARY 2006. M/S KESHAV & COMPANY ITA NO. 3036/MUM/2017 & CO. NO. 268/MUM/2018 4 THE FIRM EXERCISED ITS RIGHT AND PURCHASED THE AREA FROM THE RETIRING PARTNER FOR RS.17,22,47,975/ - DURING THE ASSESSMENT YEAR 2006 - 07. ACCORDINGLY, TH E AO, IN THE REASSESSMENT ORDER FOR AY 2006 - 07 ASSESSED THE LONG TERM CAPITAL GAINS (LTCG) OF RS.42,86,19,130/ - IN THE HANDS OF THE FIRM ON ACCOUNT OF RETIREMENT OF THE PARTNER FROM THE FIRM, AS AGAINST NIL INCOME SHOWN BY THE ASSESSEE. IN APPEAL FOR THE AY 2006 - 07, THE LD. CIT(A) PROVIDED PARTIAL RELIEF AND REDUCED THE CAPITAL GAINS CHARGEABLE TO TAX IN THE HANDS OF THE ASSESSEE - FIRM TO RS.2,56,41,418/ - . ALSO , THE LD. CIT(A) GAVE DIRECTION TO THE AO TO TAX THE VALUE OF THE BALANCE CONSTRUCTED AREA I.E. 35 ,496 SQ. FT. IN THE YEAR OF ACTUAL TRANSFER I.E. RS.18,13,79,450/ - IN AY 2009 - 10. IN APPEAL, THE ITAT A BENCH MUMBAI ALLOWED THE ASSESSEES GROUND ON NON - APPLICABILITY OF SECTION 45(4) OF THE ACT. 3.1 FOR THE IMPUGNED ASSESSMENT YEAR, THE LD. CIT(A) HA S FOLLOWED THE ORDER OF THE TRIBUNAL FOR 2006 - 07 AND OBSERVED THAT IN THE ABSENCE OF TRANSFER OF CAPITAL ASSET AS WELL ANY DISTRIBUTION OF ASSETS ON DISSOLUTION OR OTHERWISE, SECTION 45(4) WILL NOT BE APPLICABLE. THE LD. CIT(A) AT PARA 9 OF HIS ORDER DATED 08.02.2017 HAS HELD AS UNDER: THE IMPUGNED ADDITION OF RS.18,13,79,450/ - F OR AY 2009 - 10 WAS SOLELY MADE AS A RESULT OF DIRECTION GIVEN BY THE LD. CIT(A) IN HIS ORDER FOR AY 2006 - 07, WHICH WAS NOW BEEN OVERRULED BY THE AFORESAID ORDER OF THE HONBLE MUMB AI ITAT FOR AY 2006 - 07 BY HOLDING THAT SECTION 45(4) OF THE ACT IS NOT APPLICABLE IN THIS CASE AND NO CAPITAL GAINS WERE CHARGEABLE TO TAX IN HANDS OF THE APPELLANT. HENCE THE REOPENING FOR AY 2009 - 10, WHICH WAS BASED ON LD. CIT(A)S DIRECTION FOR AY 2006 - 07 DOES NOT SURVIVE. ACCORDINGLY, THE RE - M/S KESHAV & COMPANY ITA NO. 3036/MUM/2017 & CO. NO. 268/MUM/2018 5 OPENING AND THE CONSEQUENTIAL ADDITION OF RS.18,13,79,450/ - WILL NOT SURVIVE. HENCE, THE GROUNDS OF APPEAL NO. 2, 3, AND 4 ARE ALLOWED IN FAVOUR OF THE APPELLANT. 4. BEFORE US, THE LD. DR SUPPORTS THE ORDER PASSE D BY THE AO. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESSEE RELIES ON THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2006 - 07 AND THUS SUPPORTS THE ORDER OF THE LD. CIT(A). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. WE FIND THAT THE PRESENT ISSUE IS TO BE DECIDED IN FAVOUR OF THE ASSESSEE IN VIEW OF THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2006 - 07 (ITA NO. 5639/MUM/2012 & ITA NO. 6276/MUM/2012). AT PARA 16 OF THE ABOVE ORDER DATED 30.09.2016, THE TRIBUNAL HAS HELD : 16. THUS, IF WE APPLY THE ABOVE RATIO LAID DOWN BY THE FULL BENCH DECISION OF THE HONBLE KARNATAKA HIGH COURT, ON THE FACTS OF THE PRESENT CASE, THEN IT IS OSTENSIBLY CLEAR THAT THE PARTNERSHIP FIRM, THAT IS, THE ASSESSEE DID NOT TRANSFER ANY RIGHT IN TH E CAPITAL ASSET OR ANY OF THE ASSET OF THE PARTNERSHIP FIRM IN FAVOUR OF THE RETIRING PARTNER AND NEITHER IT CEASES ITS HOLD ON THE PROPERTY OF THE FIRM. ITS RIGHT IN THE PROPERTY OF THE FIRM WAS STILL INTACT AND HAS NOT BEEN EXTINGUISHED AT ALL. EVEN THE RETIRING PARTNER DID NOT ACQUIRE ANY RIGHT IN THE PROPERTY, ALBEIT IT HAS ONLY SURRENDERED ITS RIGHT AND INTEREST IN THE PARTNERSHIP FIRM. HERE WHEN THE RETIRING PARTNER TOOK CASH AND ALSO FURTHER CASH IN LIEU OF AGREED CONSTRUCTED AREA FROM THE STOCK IN T RADE OF THE FIRM, IT DID NOT RELINQUISH ITS INTEREST IN THE IMMOVABLE PROPERTY. WHAT IT RELINQUISHED WAS ITS SHARE IN THE PARTNERSHIP FIRM. THEREFORE, THERE IS NO TRANSFER OF A CAPITAL ASSET WITHIN THE SCOPE OF SECTION 45(4), BECAUSE TO ATTRACT SECTION 45( 4), THERE SHOULD BE A TRANSFER OF A CAPITAL ASSET FROM THE FIRM TO THE M/S KESHAV & COMPANY ITA NO. 3036/MUM/2017 & CO. NO. 268/MUM/2018 6 RETIRING PARTNERS, BY WHICH THE FIRMS CEASES TO HAVE ANY RIGHT IN THE PROPERTY WHICH IS SO TRANSFERRED. IN ORDER WORDS, ITS RIGHT TO PROPERTY SHOULD STAND EXTINGUISHED AND THE RETIRING PARTNERS ACQUIRE ABSOLUTE TITLE TO THE PROPERTY. SO FAR AS ALLOTTING OF SOME AREA IN THE CONSTRUCTED AREA WHICH WAS AGREED TO BE GIVEN TO THE RETIRING PARTNER, IT IS UNDISPUTED THAT IN LIEU THEREOF CASH HAS BEEN PAID TO THE RETIRING PARTNER. NO PROPERTY OR THE ASSET OF THE PARTNERSHIP FIRM HAS BEEN HANDED OVER OR GIVEN TO THE RETIRING PARTNER. THE EMPHATIC CONTENTION OF THE REVENUE THAT THE WORD OTHERWISE WILL COVER SUCH SITUATION WHERE THERE IS NO DISSOLUTION AND STRONG RELIANCE ON HONBLE BOMBAY HIGH CO URT JUDGMENT HAS BEEN EXPLAINED AND WELL CLARIFIED BY THE FULL BENCH (AS HIGHLIGHTED ABOVE BY US) AND THEREFORE, THIS PREMISE OF THE REVENUE FOR TAXING THE CAPITAL GAINS IN THE HANDS OF THE ASSESSEE FIRM HAS ALSO NO LEGS TO STAND. THUS, RESPECTFULLY RELYIN G UPON THE RATIO AND DECISION OF THE AFORESAID HONBLE KARNATAKA HIGH COURT, FULL BENCH, WE HOLD THAT THERE IS NO TRANSFER OF ANY CAPITAL ASSET OF THE ASSESSEE FIRM TO ITS RETIRING PARTNER AND HENCE NO CAPITAL GAINS CHARGEABLE TO TAX ARISES IN HANDS OF THE ASSESSEE FIRM AND SECTION 45(4) HAS NO APPLICATION ON THE FACTS OF THE PRESENT CASE. ACCORDINGLY, THE CAPITAL GAIN TAX LEVIED ON THE ASSESSEE FIRM IS DIRECTED TO BE DELETED AND CONSEQUENTLY THE GROUNDS RAISED BY THE ASSESSEE ON THIS SCORE ARE ALLOWED. 5. 1 FACTS BEING IDENTICAL, WE FOLLOW THE ABOVE ORDER OF THE CO - ORDINATE BENCH AND UPHOLD THE ORDER OF THE LD. CIT(A). 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 7. THE CROSS OBJECTION RAISED BY THE ASSESSEE READ AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE AO - 1. ERRED IN OBJECTING THE ORDER OF THE CIT(A) IN QUASHING THE REOPENING OF THE ASSESSMENT UNDER SECTION 147 OF THE ACT; M/S KESHAV & COMPANY ITA NO. 3036/MUM/2017 & CO. NO. 268/MUM/2018 7 2. ERRED IN OBJECTING THE ORDER OF CIT(A) IN DELETING THE ADDITION MADE BY AO UNDER THE HEAD LO NG TERM CAPITAL GAIN OF RS.18,13,79,450/ - (I.E. VALUE OF CONSTRUCTED ARE OF 35,495 SQ. FT), WITHOUT APPRECIATING THAT SECTION 45(4) IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE AS THERE IS NO 'DISSOLUTION OR OTHERWISE OF THE FIRM DURING THE YEAR UND ER CONSIDERATION; 3. ERRED IN OBJECTING THE ORDER OF THE CIT(A), WITHOUT APPRECIATING THAT CIT(A) HAS DELETED THE ENTIRE ADDITION (REOPENING AND ADDITIONS WERE MADE BY AO PURSUANT TO FINDING OF CIT(A) IN AY 2006 - 07), AS CIT(A)'S ORDER FOR AY 2006 - 07 WAS SUBSE QUENTLY REVERSED BY THE HON'BLE TRIBUNAL ON THE GROUND THAT SECTION 45(4) IS NOT APPLICABLE IN THE PRESENT CASE; 4. ERRED IN NOT APPRECIATING THAT THE AO HAS NOT ACCEPTED THE FINDING OF CIT(A)/ITAT IN AY 2005 - 07, WHEREIN ENTIRE CONSIDERATION IS SOUGHT TO BE T AX ED BY AO IN AY 2006 - 07 EITHER AS CAPITAL GA IN OR ALTERNATIVELY AS BUSINESS INCOME, THEREBY CERTAIN PORTION OF THE SAME CANNOT BE BROUGHT TO TAX AGAIN IN AY 2009 - 10 AS IT WOULD LEAD TO DOUBLE TAXATION; 5. ERRED IN DISMISSING THE GROUND ON LEVYING OF INTEREST UNDER SECTION 234A OF THE ACT OF RS.43,710/ - WHILE COMPUTING THE TAX PAYABLE FOR THE YEAR: 6. ERRED IN DISMISSING THE GROUND ON LEVYING OF INTEREST UNDER SECTION 234B OF THE ACT OFRS.2,34,97,183/ - WHILE COMPUTING THE TAX PAYABLE FOR THE YEAR; 7. FAILED TO APPRE CIATE THAT THE TAXABILITY OF CAPITAL GAIN IN THIS YEAR, WAS ON THE BASIS OF CIT(A) ORDER FOR AY 2006 - 07, WHICH WAS PASSED ON 9 JULY 2012 AND HENCE INTEREST UNDER SECTION 234B CANNOT BE LEVIED ON THE BASIS OF SUBSEQUENT EVENT, 8. ERRED IN DISMISSING THE GROUND ON LEVYING OF INTEREST UNDER SECTION 234C OF THE ACT OF RS.36,046/ - WHILE COMPUTING THE TAX PAYABLE FOR THE YEAR. 9. ERRED IN DISMISSING THE GROUND ON INITIATION PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT WITHOUT APPRECIATING THE FACTS AND CIRCU MSTANCES OF THE CASE. M/S KESHAV & COMPANY ITA NO. 3036/MUM/2017 & CO. NO. 268/MUM/2018 8 8. AS WE HAVE DISMISSED THE APPEAL FILED BY THE REVENUE, THE CROSS - OBJECTIONS RAISED BY THE ASSESSEE BECOME INFRUCTUOUS. 9. TO SUM UP, THE APPEAL FILED BY THE REVENUE AND THE CROSS - OBJECTION BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19/09/2018. SD/ - SD/ - ( SANDEEP GOSAIN ) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 19/09/2018 RAHUL SHARMA, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// ( SR. PRIVATE SECRETARY ) ITAT, MUMBAI