MOHAMED MYNUDEEN MOHAMMED ZAHIRUDEEN, CHENNAI V. ITO INTERNATIONAL TAXATION WARD 1(20, CHENNAI

ITA 3045/CHNY/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 6573 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 08-11-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: U. MOHAMED KHALILULLAH
• Keywords: Cost of acquisition; Set aside
• Section: 56

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . . . , . , % BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ ITA NO.3045/CHNY/2018 ' ' / ASSESSMENT YEAR : 2015-16 SHRI MOHAMED MYNUDEEN MOHAMED ZAHIRUDEEN, NEW NO.254, AMK VILLA, ANNA STREET, GERUGAMBAKKAM, PORUR, CHENNAI - 600 122. PAN : BLGPM 2072 Q V. THE INCOME TAX OFFICER, INTERNATIONAL TAXATION WARD -1(2), CHENNAI. (+/ APPELLANT) (,-+/ RESPONDENT) + . / APPELLANT BY : SHRI U. MOHAMED KHALILULLAH, CA ,-+ . / RESPONDENT BY : SHRI P. MUTHUSHANKAR, JCIT . / DATE OF HEARING : 03.10.2019 . / DATE OF PRONOUNCEMENT : 25.10.2019 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER : THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) -16, CHENN AI, DATED 27.09.2018 AND PERTAINS TO ASSESSMENT YEAR 2015-16. 2. SHRI U. MOHAMED KHALILULLAH, THE LD. REPRESENTAT IVE FOR THE ASSESSEE, SUBMITTED THAT THE ONLY ISSUE ARISES FOR CONSIDERATION IS 2 I.T.A. NO.3045/CHNY/18 DISALLOWANCE OF 1,55,79,303/- PAID TO SHRI DURAI AND OTHERS WHILE COMPUTING CAPITAL GAIN. ACCORDING TO THE LD. REPRE SENTATIVE, THE ASSESSEE PURCHASED A PROPERTY FROM FIVE OWNERS OF T HE LAND. THE VENDORS / OWNERS OF THE LAND HAVE ALREADY ENTERED I NTO AN AGREEMENT FOR SALE. IN ORDER TO CLEAR THE TITLE, T HE ASSESSEE PAID 1,58,00,000/- TO THE AGREEMENT HOLDER DURAI AND ASS OCIATES. THE BALANCE AMOUNT WAS PAID TO THE OWNERS OF THE LAND. WHILE COMPUTING THE CAPITAL GAIN, THE ASSESSEE CLAIMED TH E AMOUNT PAID TO THE AGREEMENT HOLDER DURAI AND ASSOCIATES AS COS T OF ACQUISITION. HOWEVER, ACCORDING TO THE LD. REPRESENTATIVE, THE A SSESSING OFFICER FOUND THAT THE AMOUNT PAID TO DURAI AND ASSOCIATES ARE IN THE NATURE OF BROKERAGE, THEREFORE, IT CANNOT BE CONSIDERED AS COST OF THE PROPERTY UNDER SECTION 56(2)(VII) OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). ACCORDING TO THE LD. REPRESENTAT IVE, THE GUIDELINE VALUE OF THE PROPERTY WAS 3,96,00,000/-. SINCE 1,58,00,000/- WAS PAID TO THE AGREEMENT HOLDER AND EACH CO-OWNER OF T HE PROPERTY WAS PAID 49,00,125/-, THEREFORE, THE TOTAL VALUE OF THE PROP ERTY WAS MORE THAN THE GUIDELINE VALUE. UNLESS THE PAYMENT WAS MADE TO THE AGREEMENT HOLDER, THE ASSESSEE CANNOT PURCHASE THE PROPERTY. ACCORDING TO THE LD. REPRESENTATIVE, THE AGREEMENT HOLDER WOULD 3 I.T.A. NO.3045/CHNY/18 HAVE PRE-EXISTING RIGHT TO PURCHASE THE PROPERTY, T HEREFORE, THE PAYMENT MADE TO AGREEMENT HOLDER WAS ALSO PART OF P URCHASE CONSIDERATION. HENCE, ACCORDING TO THE LD. REPRESE NTATIVE, THERE CANNOT BE ANY ADDITION UNDER SECTION 56(2)(VII) OF THE ACT. 3. ON THE CONTRARY, SHRI P. MUTHUSHANKAR, THE LD. D EPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSEE HAS PAI D 2,40,90,122/- TO FIVE CO-OWNERS OF THE PROPERTY. T HE GUIDELINE VALUE OF THE PROPERTY WAS 3,96,64,800/-. THE PROPERTY WAS REGISTERED DISCLOSING SALE CONSIDERATION AT 1,91,89,997/-. HOWEVER, ACCORDING TO THE LD. D.R., THE REGISTRATIO N AUTHORITIES VALUED THE PROPERTY AT 3,96,64,800/- FOR THE PURPOSE OF LEVY OF STAMP DUTY. THE DIFFERENCE BETWEEN GUIDELINE VALUE AND CONSIDERATION PAID TO THE LAND OWNERS WAS 1,55,74,678/-. THEREFORE, ACCORDING TO THE LD. D.R., THE ASSESSING OFFICER TREATED THE SAME AS INCOME OF THE ASSESSEE UNDER SECTION 56 (2)(VII) OF THE ACT. THE PAYMENT OF 1,58,00,000/- SAID TO BE PAID TO DURAI AND ASSOCIATES, THE AGREEMENT HOLDER OF THE PROPERTY, W AS NOT TAKEN AS SALE CONSIDERATION. ACCORDING TO THE LD. D.R., WHA T WAS PAID TO THE LAND OWNERS CAN ALONE BE CONSIDERED AS COST OF THE PROPERTY AND NOT THE PAYMENT MADE TO THE AGREEMENT HOLDER. ON A QUERY FROM 4 I.T.A. NO.3045/CHNY/18 THE BENCH, WHEN THE LAND OWNERS ENTERED INTO AGREEM ENT FOR SALE WITH THIRD PARTY, HOW THE ASSESSEE BEING PURCHASER COULD PURCHASE THE PROPERTY WITHOUT MAKING PAYMENT TO THE AGREEMEN T HOLDER WHO HAVE PRE-EXISTING RIGHT TO PURCHASE THE PROPERTY? THE LD. D.R. SUBMITTED THAT HE LEAVES THE MATTER TO THE DISCRETI ON OF THE TRIBUNAL. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. ADMITTEDLY, THE ASSESSEE PURCHASED THE PROPERTY FROM FIVE CO-OWNERS . THE ASSESSEE ADMITTEDLY PAID TO THE FIVE LAND OWNERS TO THE EXTENT OF 2,40,90,122/-. THE ASSESSEE HAS ALSO PAID 1,58,00,000/- TO THE AGREEMENT HOLDER DURAI AND ASSOCIATES. THERE IS NO DISPUTE REGARDING PAYMENT MADE TO THE LAND OWNERS. THERE I S ALSO NO DISPUTE ABOUT THE GUIDELINE VALUE ON WHICH THE STAM P DUTY WAS LEVIED BY THE STATE REGISTRATION DEPARTMENT. IN OT HER WORDS, THE REGISTRATION DEPARTMENT ESTIMATED THE MARKET VALUE FOR THE PURPOSE OF LEVY OF STAMP DUTY AT 3,96,64,800/-. THE DIFFERENCE BETWEEN THE AMOUNT PAID TO THE LAND OWNERS AND THE MARKET PRICE ESTIMATED BY THE REGISTRATION DEPARTMENT AT 3,96,64,800/- WAS TAKEN AS INCOME OF THE ASSESSEE UNDER SECTION 56(2)(VII) OF THE ACT . 5 I.T.A. NO.3045/CHNY/18 5. THE QUESTION ARISES FOR CONSIDERATION IS WHETHER THE AMOUNT PAID TO THE AGREEMENT HOLDER FOR PURCHASE OF PROPER TY HAS TO BE TAKEN INTO CONSIDERATION AS COST OF ACQUISITION OR NOT? THERE IS NO DISPUTE THAT THERE WAS PRE-EXISTING RIGHT FOR PURCH ASE OF THE PROPERTY BY DURAI AND ASSOCIATES BY VIRTUE OF AGREEMENT FOR SALE EXECUTED WITH THE LAND OWNERS. THE RIGHT TO PURCHASE THE PR OPERTY CAN BE SPECIFICALLY ENFORCED THROUGH A COURT OF LAW. THER EFORE, WHEN THERE WAS PRE-EXISTING RIGHT TO SELL THE PROPERTY IN FAVO UR OF DURAI AND ASSOCIATES, THE ASSESSEE CANNOT PURCHASE THE PROPER TY UNLESS THE AGREEMENT TO PURCHASE THE PROPERTY IN FAVOUR OF DUR AI AND ASSOCIATES IS DISCHARGED. IN OTHER WORDS, THE AGRE EMENT HOLDER, NAMELY, DURAI AND ASSOCIATES HAS TO BE PAID FOR HIS PRE-EXISTING RIGHT TO PURCHASE THE PROPERTY. THEREFORE, THIS TR IBUNAL IS OF THE CONSIDERED OPINION THAT THE PAYMENT MADE TO PRE-EXI STING AGREEMENT HOLDER TO PURCHASE THE PROPERTY TO THE EX TENT OF 1,58,00,000/- HAS TO BE CONSIDERED AS COST OF THE P ROPERTY/ PURCHASE PRICE. IF THIS AMOUNT OF 1,58,00,000/- PAID TO THE AGREEMENT HOLDER, NAMELY, DURAI AND ASSOCIATES WAS TAKEN INTO CONSIDERATION, ADMITTEDLY, THERE WAS NO BENEFIT ACC RUED TO THE ASSESSEE. IN FACT, THE ASSESSEE HAS PAID MORE THAN THE MARKET 6 I.T.A. NO.3045/CHNY/18 VALUE FIXED BY THE REGISTRATION DEPARTMENT. THEREF ORE, THERE IS NO QUESTION OF COMPUTING ANY INCOME UNDER SECTION 56(2 )(VII) OF THE ACT. IN VIEW OF THE ABOVE, THIS TRIBUNAL IS UNABLE TO UPHOLD THE ORDERS OF THE LOWER AUTHORITIES. ACCORDINGLY, ORDE RS OF BOTH THE AUTHORITIES BELOW ARE SET ASIDE AND THE ADDITION OF 1,55,74,678/- IS DELETED. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE COURT ON 25 TH OCTOBER, 2019 AT CHENNAI. SD/- SD/- (. ) ( . . . ) (S. JAYARAMAN) (N.R.S. GANESAN) / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 5 /DATED, THE 25 TH OCTOBER, 2019. KRI. . ,67 87 /COPY TO: 1. +/ APPELLANT 2. ,-+/ RESPONDENT 3. 9 () /CIT(A)-16, CHENNAI 4. CIT (INTERNATIONAL TAXATION), CHENNAI 5. 7 , /DR 6. ' /GF.