GOVARDHAN G VANANI, MUMBAI V. DCIT (OSD-1) CEN RG-7, MUMBAI

ITA 3247/MUM/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2300 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 16-07-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 26-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: B V JHAVERI
• Keywords: Capital asset; Revised return
• Section: 143(3); 63

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES G, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.3247/MUM/2013 ASSESSMENT YEAR: 2011-12 M/S GOVARDHAN G. VANANI, 112-115, JEWEL, TATA RD-2, OPERA HOUSE, MUMBAI -400004 / VS. D CIT (OSD - 1) CENT RG-7 MUMBAI (ASSESSEE ) (REVENUE) P.A. NO. AABPV5861F / ASSESSEE BY SHRI B.V. JHAVERI (AR) / REVENUE BY S HRI SATYAJIT MANDAL (DR) / DATE OF HEARING : 29/10/2015 / DATE OF ORDER: 04/12/2015 / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-4 0, MUMBAI {(IN SHORT LD. CIT(A)} DATED 18.02.2013 FOR THE ASSESSMENT YEAR 2010-11, DECIDED AGAINST THE ASSESS MENT ORDER PASSED BY THE ASSESSING OFFICER (IN SHORT AO ) U/S 143(3) OF THE ACT. THE ASSESSEE HAS FILED FOLLOWING GROUND S OF APPEAL: GOVARDHAN G. VANANI 2 1.TAXING THE LONG TERM CAPITAL GAIN AT RS.4,51,95, 233/- AS AGAINST NILAS CLAIMED IN THE REVISED COMPUTATI ON. 2. NOT ALLOWING THE CLAIMED LONG TERM LOSS OF RS.3,70,50,000/- IN RESPECT OF INVESTMENT IN SHARES OF NIRU JEWELS PVT. LTD. OF WHICH HE WAS A SHAREHOLDER. 2 . DURING THE COURSE OF HEARING, SHRI B.V. JHAVERI AUTHORISED REPRESENTATIVE (LD. COUNSEL) ON BEHALF O F THE ASSESSEE AND SHRI SATYAJIT MANDAL, DEPARTMENTAL REPRESENTATIVE (LD DR) ON BEHALF OF THE REVENUE, AR GUED THE CASE. 3 . AFTER HEARING THE PARTIES, ALL THESE GROUNDS ARE ADJUDICATED AS UNDER: 4. GROUND NO.1: IN THIS GROUND, THE ASSESSSEE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN CONFIRMING THE ACTION O F LD. AO IN TAXING LONG TERM CAPITAL GAIN AT RS. 4,51,95,233/ -, AS AGAINST NIL AS WAS CLAIMED BY THE ASSESSEE IN THE REVISED COMPUTATION OF INCOME FILED DURING THE COURSE OF ASSESSMENT PRO CEEDINGS. 4.1. DURING THE COURSE OF HEARING, IT HAS BEEN ARGUED B Y THE LD. COUNSEL THAT THE ASSESSEE HAS IN THE ORIGINAL R ETURN SHOWN LONG TERM CAPITAL GAIN OF RS.4,53,22,995/-, ACCRU ED TO THE ASSESSEE ON ACCOUNT OF SALE OF AGRICULTURAL LAND. B UT SUBSEQUENTLY, THIS TRANSACTION WAS CANCELLED AND CA NCELLATION DEED WAS ALSO REGISTERED WITH THE CONCERNED AUTHORI TIES, AND ASSESSEE HAD REFUNDED THE ENTIRE AMOUNT, AND THUS, NO INCOME OF CAPITAL GAIN WAS ACTUALLY EARNED BY THE ASSESSEE, AND THEREFORE, IN THESE CIRCUMSTANCES ASSESSEE FILE D REVISED GOVARDHAN G. VANANI 3 COMPUTATION SHEET WHEREIN THE INCOME FROM CAPITAL GAIN WAS SHOWN AS NIL, WHICH WAS NOT ACCEPTED BY THE AO ON THE GROUND THAT ONCE TRANSACTION HAD TAKEN PLACE, THEN THE AMOUNT OF CAPITAL GAIN EARNED BECOMES TAXABLE IN THE YEAR OF TRANSFER ITSELF. HE HAS DRAWN OUR ATTENTION ON VARI OUS PAGES OF THE PAPER BOOK SHOWING CANCELLATION DEED WHICH WAS REGISTERED WITH THE CONCERNED AUTHORITIES AND ALSO SHOWING THAT ENTIRE AMOUNT WAS REFUNDED BY THE ASSESSEE TO CONCERNED PARTIES. IT WAS FURTHER SUBMITTED BY HIM THAT THE T RANSFER WAS VOID AB INITIO AS PER LAW. SINCE THE TRANSFER WAS ILLEGAL SINCE INCEPTION. IN FACT, NO TRANSFER HAD ACTUALLY TAKEN PLACE, AND THEREFORE NO CAPITAL GAIN INCOME WAS EARNED BY TH E ASSESSEE. HE DREW OUR ATTENTION TO SECTION 63 OF THE GUJARAT TENANCY & AGRICULTURAL LAND ACT, 1948 WHEREIN IT HAS BEEN PRO VIDED THAT THE TRANSFER OF AGRICULTURAL LAND TO NON-AGRICULTUR ISTS WAS BARRED UNDER THE LAW. HE RELIED, IN SUPPORT OF HIS VIEW, UPON THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE C ASE OF CIT VS. VITHALBHAI P. PATEL [236 ITR 1001] AND A JUDGME NT OF HONBLE SUPREME COURT IN THE CASE OF RAMANLAL BHAIL AL PATEL & ORS. VS. STATE OF GUJARAT (2008) 5 SCC 499, WHERE IN IT HAS BEEN HELD THAT ANY TRANSFER IN VIOLATION OF SECTION 63 OF THE GUJARAT TENANCY & AGRICULTURAL LAND ACT, 1948 SHALL BE VOID IN THE EYES OF LAW. 4.2. IT WAS FURTHER SUBMITTED BY LD. COUNSEL THAT THE A SSESSE HAD FILED REVISED COMPUTATION OF INCOME WHICH HAS N OT BEEN REJECTED BY THE AO, AND THUS PARTICULARS OF INCOME SHOWN THEREIN HAVE BEEN ACCEPTED IN THE ASSESSMENT ORDER. LASTLY, IT GOVARDHAN G. VANANI 4 WAS SUBMITTED BY HIM THAT IN ANY CASE AND IN ANY VI EW OF THE MATTER, REAL INCOME THEORY SHOULD BE FOLLOWED AND A SSESSMENT SHOULD BE DONE ONLY FOR THE INCOME ACTUALLY EARNED B Y THE ASSESSEE, AND THAT, IT SHALL BE UNJUSTIFIED AND UNF AIR IF THE ASSESSEE IS MADE TO PAY TAXES ON THE INCOME WHICH H AS NOT BEEN ACTUALLY EARNED BY IT. 4.3. ON THE OTHER HAND, THE LD. DR HAS READ BEFORE US T HE ORDERS OF THE LOWER AUTHORITIES AND CONTENDED THAT IT HAS BEEN RIGHTLY HELD THAT SINCE THE TRANSFER HAD TAKEN PLAC E DURING THE YEAR, THEREFORE, PROVISIONS OF ASSESSMENT OF CAPITA L GAIN SHALL BE ATTRACTED AND ASSESSEE CAN CLAIM THE BENEFIT IN THE LATER YEAR, IF AND WHEN, ANY TRANSFER IS CANCELLED. HE RE QUESTED FOR UPHOLDING THE ORDER OF THE LOWER AUTHORITIES. 4.4. WE HAVE GONE THROUGH THE SUBMISSIONS MADE BY BOTH THE SIDES, ORDER OF THE LOWER AUTHORITIES, MATERIAL PLA CED BEFORE US FOR OUR CONSIDERATION AS WELL AS JUDGMENTS RELIED U PON BEFORE US. THE FACTS OF THE CASE, AS PER THE ASSESSMENT OR DER AND THE DETAILS FILED DURING THE COURSE OF APPELLATE PROCEE DINGS BEFORE THE LD CIT(A), ARE THAT IN THE COMPUTATION OF TOTAL INCOME FILED ALONG WITH THE RETURN OF INCOME, THE ASSESSEE HAD S HOWN LONG TERM CAPITAL GAIN OF RS. 4,53,22,995/- ON SALE OF L AND. AGAINST THE SAME, THE ASSESSEE MADE SET OFF OF LOSS OF RS. 3,70,50,000/- ON ACCOUNT OF LOSS IN THE INVESTMENTS IN THE COMPANY NIRU JEWELS PVT. LTD. FURTHER, THE ASSESSEE ALSO MADE SET OFF OF THE LONG TERM CAPITAL LOSS BROUGHT FORWARD FROM A.Y. 2009-10 AMOUNTING TO RS. 82,72,995/- (TO THE E XTENT LONG TERM CAPITAL GAIN WAS AVAILABLE). THUS, AS PER THE COMPUTATION GOVARDHAN G. VANANI 5 OF TOTAL INCOME, NO CAPITAL GAIN WAS SHOWN AS CHARG EABLE TO TAX. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, T HE ASSESSEE FILED A REVISED COMPUTATION OF TOTAL INCOM E, WHEREIN THE LONG TERM CAPITAL GAIN ON SALE OF LAND WAS NO T INCLUDED, STATING THAT THE TRANSFER MADE DURING THE YEAR WAS VOID AS THE ASSESSEE HAD NO RIGHT TO SELL THE PROPERTY, AND, TH EREFORE, THE SALE AGREEMENT WAS CANCELLED AND THE LAND WAS REPUR CHASED AND THUS, NO CAPITAL GAIN AROSE. 4.5. BUT THE AO DID NOT ACCEPT THE ASSESSEES CLAIM THA T NO CAPITAL GAIN AROSE DURING THE YEAR, AND IGNORED THE REVISED COMPUTATION FILED BY THE ASSESSEE, HOLDING THAT DUR ING THE IMPUGNED YEAR, AN EFFECTIVE TRANSFER HAD TAKEN PLAC E, GIVING RISE TO ACCRUAL OF TAXABLE AMOUNT OF CAPITAL GAINS . ACCORDINGLY, THE AO BROUGHT TO TAX THE LONG TERM C APITAL GAINS ON SALE OF LAND. 4.6. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER I N APPEAL BEFORE THE LD. CIT(A) WHEREIN THE ASSESSEE SUBMITTE D THAT THE ORIGINAL SALE DEED WAS IN FACT VOID, AS HE HAD NO R IGHT TO SELL THE PROPERTY. THE PROPERTY HAS BEEN MORTGAGED TO LE NDER BANK AND WHILE MAKING THE SALE DEED, NO CONFIRMATION FRO M THE BANKERS HAD BEEN OBTAINED. ACCORDINGLY, A CANCELLAT ION DEED DATED 27.11.2011 WAS DRAWN SUBSEQUENTLY AND THE CONSIDERATION RECEIVED WAS ALSO PAID BACK. THEREFOR E, IN LAW AND EQUITY, NO SALE COULD BE DEEMED TO HAVE TAKEN P LACE. THE ASSESSEE ALSO STATED THAT BOTH, THE SALE DEED AS WE LL AS CANCELLATION DEED, WERE REGISTERED AND COPIES OF TH E SAME WERE FURNISHED TO THE AO. BUT LD. CIT(A) DID NOT ACCEPT THE GOVARDHAN G. VANANI 6 SUBMISSIONS OF THE ASSESSEE, AND IT WAS HELD BY HIM THAT THE CANCELLATION TOOK PLACE ON 28.11.2011 WHICH FELL IN A.Y. 2012- 13, AND THUS, IN THE YEAR UNDER CONSIDERATION THE T RANSFER HAD ALREADY TAKEN PLACE, AND HENCE, LONG TERM CAPITAL GAIN HAS RIGHTLY BEEN TAXED BY THE AO IN THE IMPUGNED YEAR. 4.7. LD. COUNSEL OF THE ASSESSEE HAS CHALLENGED THE ACT IONS OF THE LOWER AUTHORITIES IN VIEW OF THE SUBMISSION WHI CH HAVE BEEN MENTIONED IN THE ABOVE PARA. 4.8. WE HAVE VERY CAREFULLY ANALYSED ALL THESE FACTS AN D SUBMISSIONS. WE AGREE WITH THE VIEW OF THE AO TO EX TENT THAT AS PER LAW, THE CAPITAL GAINS SHALL BE CHARGED TO TAX IN THE YEAR IN WHICH TRANSFER HAS TAKEN PLACE. BUT, IN OUR CONSIDERED VIEW, IF THE ASSESSEE IS ABLE TO DEMONSTRATE THAT T HE SUBSEQUENT EVENTS LED TO A SITUATION TO NULLIFY THE LEGAL EFFECT OF THE TRANSFER IN SUCH A WAY, AS IF THE TRANSFER W AS A NULLITY SINCE INCEPTION, THEN IN SUCH CIRCUMSTANCES, THE AS SESSEE CANNOT BE COMPELLED TO PAY TAX ON THE CAPITAL GAIN ON A TRANSFER WHICH ACTUALLY NEVER EXISTED IN THE EYES OF LAW. FOR ANALYSING THE FACTS OF THIS CASE AND LEGAL POSITION IN THIS REGARD, WE FIRST REFER TO SECTION 63 OF THE GUJARAT TENANCY & AGRICULTURAL LAND ACT 1948, WHICH PROVIDES THAT THE TRANSFER OF AN AGRICULTURAL LAND TO NON-AGRICULTURISTS SHALL BE BARRED IN CERTAIN SITUATIONS, AS PROVIDED IN THE SAID SECTION . IT PROVIDES THAT NO SUCH TRANSFER SHALL BE VALID IN FAVOUR OF A PERSON WHO IS NOT AN AGRICULTURIST. GOVARDHAN G. VANANI 7 4.9. IT IS TO BE NOTED THAT THE IMPUGNED AGRICULTURAL L AND IS SITUATED IN THE STATE OF GUJARAT AND THEREFORE PROV ISIONS APPLICABLE IN THE STATE OF GUJARAT SHALL BE APPLICA BLE ON THIS CASE. LD. COUNSEL HAS DRAWN OUR ATTENTION ON THE CA NCELLATION DEED DATED 28 TH NOVEMBER, 2011 AVAILABLE AT PAGE NO. 115 ONWARDS OF THE PAPER BOOK, WHICH HAS BEEN ENTERED B ETWEEN THE ASSESSEE AND THE PARTIES WITH WHOM THE IMPUGNED LAND WAS INTENDED TO BE TRANSFERRED. THE RELEVANT PORTIO N OF THE SAID DEED READS AS UNDER: ON TODAY I THE PARTY OF THE SECOND PART HEREBY EXE CUTE THE CANCELLATION OF SALE DEED AGREEMENT IN YOUR FAVOUR I.E. IN FAVOUR OF THE PARTY OF THE FIRST PART ON 01.01.2010 IN RESPECT OF CANCELLATION OF REGISTERED SALE DEED NO. 84 WHICH IS AS FOLLOWS. THE PROPERTY DESCRIBED IN THE SAID SALE DEED WHICH IS SITUATED AT DISTRICT SURAT SUB DISTRICT CITY SURAT VILLAGE SINGAPOR, BLOCK/R.S. NO.139 T.P.S. NO. IS 26, ORIGI NAL PLOT NO. 69F. PLOT NO.105/1 AND THE AREA OF THE FINAL PL OT IS 8950 SQ. MTRS. AND THE SAID LAND AND INSIDE AND OUT SIDE ALL RIGHTS, TITLES AND INTEREST IS PURCHASED BY THE PARTY OF THE SECOND PART FROM THE PARTY OF THE FIRST PART VI DE REGISTERED SALE DEED DATED 01.01.2010 BEARING SALE DEED NO.84 FOR AN AMOUNT OF RS.4,57,00,000/-. AND THE SA ID SALE DEED WAS REGISTERED WITH THE OFFICE OF THE HON BLE SUB REGISTRAR SURAT 4 KATARAGAM ON 01.01.2010 AT SR. NO . 84 IN BOOK NO.1 AND IN THIS WAY FROM THE STATE OF THE SAID SALE DEED THE SAID LANDS IS AGRICULTURAL LAND AND I THE GOVARDHAN G. VANANI 8 PARTY OF THE SECOND PART IS NOT A FARMER AND HENCE I CANNOT HOLD THE SAID LAND. AND AT PRESENT UNDER SEC TION 63 OF THE CALCULATION ACT THE PERMISSION IS ALSO NO T RECEIVED FROM THE GUJARAT STATE. AND IT IS ALSO IMP OSSIBLE TO OBTAIN PERMISSION UNDER SECTION 65 OF THE REVENU E ACT IN RESPECT OF THE SAID PROPERTY DUE TO SOME REASON. HENCE DUE TO THE ABOVE MENTIONED REASON I DONT WANT TO K EEP THE SAID LAND WITH ME WHICH IS MENTIONED AND DESCRI BED IN THE FOLLOWING ANNEXURE AND I WANT TO HAND OVER T HE SAID LAND TO YOU I.E. THE PARTY OF THE FIRST PART. AND HENCE BOTH THE PARTIES HAVE DECIDED TO CANCEL THE SALE DE ED EXECUTED BY AND BETWEEN BOTH THE PARTIES. WE I.E. T HE PARTY OF THE SECOND PART HEREBY REFUND THE AMOUNT O F RS.4,57,00,000/- (RUPEES FOUR CRORES FIFTY SEVEN LA KHS ONLY) TO YOU I.E. TO THE PARTY OF THE FIRST PART IN THE FOLLOWING MANNER AND THE SAME IS ACCEPTED. HENCE THE PARTY OF THE FIRST PART IS NOT IN ARREARS TO THE PARTY OF THE SE COND PART AND IN THIS CONNECTION I WILL NOT RAISE ANY OBJECTI ON AND IF MADE SO THEN IN THAT EVENT THE SAME WILL BE CANCELL ED VIDE THIS AGREEMENT. (EMPHASIS SUPPLIED) 4.10. IT IS FURTHER NOTED FROM THE FACTS NARRATED BEFORE US THAT ENTIRE AMOUNT OF SALE CONSIDERATION WAS REFUNDED AN D ORIGINAL DOCUMENTS WITH RESPECT TO THIS PROPERTY WERE ALSO R ECEIVED BACK BY THE ASSESSEE. THE PERUSAL OF THE ABOVE CLEA RLY SHOWS THAT TRANSFER WAS ILLEGAL IN THE EYES OF LAW FROM T HE VERY BEGINNING AND THEREFORE, IT CAN BE CLEARLY SAID THA T THE TRANSFER WAS VOID AB INITIO . IT IS ALSO NOTED BY US THAT ALL THESE GOVARDHAN G. VANANI 9 DOCUMENTARY EVIDENCES WERE PROVIDED BY THE ASSESSEE TO THE LOWER AUTHORITIES, AND NOTHING WRONG HAS BEEN FOUND THEREIN AND THESE HAVE NOT BEEN CONTROVERTED OR REJECTED. T HUS, IMPLIEDLY, THE AO AS WELL AS LD. CIT(A) HAVE ACCEPT ED THE FACT OF CANCELLATION OF THE TRANSACTION. THE REVISED COM PUTATION SHEET OF INCOME FILED BY THE ASSESSEE HAS ALSO NOT BEEN REJECTED BY THE LD. AO. HOWEVER, THE AO REFUSED TO GIVE EFFECT TO THE CLAIM MADE BY THE ASSESSEE THEREIN, ON THE G ROUND THAT PROVISIONS REGARDING TAXABILITY OF CAPITAL GAINS GO T TRIGGERED THE MOMENT TRANSFER TOOK PLACE, AND SUBSEQUENT DEVELOPM ENTS WOULD NOT ERASE THE ORIGINAL TRANSACTION EXECUTED I N THE IMPUGNED YEAR. 4.11. IN THESE FACTS, WE EXAMINED THE LEGAL EFFECT OF TH E IMPUGNED SALE DEED THAT WAS EXECUTED BY THE ASSESSE E DURING THE YEAR GIVING RISE TO IMPUGNED AMOUNT OF CAPITAL GAIN, AND PERUSED THE SAME ALONG WITH THE AFORESAID CANCELLAT ION DEED, REVERSING THE EFFECT OF AFORESAID SALE DEED. IN THE GIVEN FACTUAL SITUATION, WITH A VIEW, TO APPRECIATE THE CORRECT L EGAL POSITION, WE REFER TO THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF RAMANLAL BHAILAL PATEL (SUPRA) WHEREIN IT HAS BEEN HELD BY THEIR LORDSHIPS THAT IN VIEW OF PROVISIONS OF SECTION 63 OF THE GUJARAT TENANCY & AGRICULTURAL LAND ACT, 194 8, SALE OF AN AGRICULTURAL LAND TO NON-AGRICULTURISTS WILL NOT BE VALID UNDER THE LAW, AND OWNERSHIP OF ANY SUCH LAND PURCH ASED BY THE NON-AGRICULTURISTS MAY HAVE TO VEST IN THE STAT E GOVERNMENT SUBJECT TO, PROVISIONS OF SECTION 84C OF THE SAID ACT. WE FURTHER REFER TO THE JUDGMENT OF HONBLE GUJARAT HIGH GOVARDHAN G. VANANI 10 COURT IN THE CASE OF CIT VS . VITHALBHAI P. PATEL (SUPRA), WHEREIN IT WAS HELD THAT IF THE SALE WAS NULL AND VOID UNDER THE LAW, THEN THERE WAS NO SALE TRANSACTION IN THE EYES OF LAW, AND THEREFORE, THERE WOULD BE NO CAPITAL GAIN ARI SING OUT OF A NULL AND VOID TRANSFER OF SUCH LAND. IT WAS ACCOR DINGLY HELD BY THE HONBLE HIGH COURT THAT NO CAPITAL GAIN HAD ACC RUED TO THE ASSESSEE. 4.12. THUS, IN THE GIVEN FACTS OF THIS CASE AND POSITION OF LAW AS DISCUSSED ABOVE IT CAN BE SAID THAT NO LEGAL RIG HTS HAD ACCRUED TO THE PARTIES ON EXECUTION OF SALE DEED, A S THE SAME WAS VOID AB INITIO IN THE EYES OF LAW. 4.13. IT IS FURTHER NOTED BY US THAT SIMILAR VIEW HAS BEE N TAKEN BY HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. LOK HOUSING & CONSTRUCTIONS LTD. 232 TAXMANN 159/58 TAXMANN.COM 179 (BOMBAY). IN THIS CASE THE FACTS WE RE THAT AGREEMENT TO SALE ENTERED INTO BY THIS ASSESSEE WAS CANCELLED. SUBSEQUENTLY, THE SAID COMPANY FILED REVISED RETURN DECLARING NIL INCOME AND CLAIMED THAT INCOME DECLARED IN ORIGINA L RETURN IN RESPECT OF SALE OF LAND/FSI STOOD WITHDRAWN DUE TO CANCELLATION OF SALE AGREEMENT. BUT THE AO DID NOT ACCEPT THE REVISE RETURN AND HELD THAT CAPITAL GAIN WAS TAXABL E. IN VIEW OF THESE FACTS HONBLE HIGH COURT HAS HELD AS UNDER: 12. ON BOTH COUNTS, THE TRIBUNAL HAS IN A DETAILED DISCUSSION OF MORE THAN 40 PARAGRAPHS FOUND THAT TH ERE IS NO SUBSTANCE IN THE OBJECTIONS OF THE REVENUE. IF T HE REVENUE IS TRYING TO SHOW THAT THE RELEVANT TRANSAC TIONS GOVARDHAN G. VANANI 11 WERE SHAM AND NOT REAL, THEN IT HAS TO BRING IN SAT ISFACTORY MATERIAL. THE TRIBUNAL FOUND IN PARAS 37 TO 40 OF T HE IMPUGNED ORDER THAT THE INCOME WHICH WAS EARLIER DISCLOSED WAS NOT AS SUCH BECAUSE THE AGREEMENTS WE RE TERMINABLE OR COULD HAVE BEEN CANCELLED. ONCE THEY WERE CANCELLED, THE PROPERTIES HAVE REVERTED BACK TO THE ASSESSEE. THEY ARE DULY REFLECTED IN THE BALANCE SH EET AND AS ASSETS OF THE ASSESSEE. THERE WERE REVISED ACCOU NTS AND WHICH WERE ALSO SCRUTINIZED. THEY WERE FOUND TO BE IN ORDER AND MEETING THE ACCOUNTING PRACTICE ADOPTED. THEREFORE, THE ACCOUNTING POLICY ALSO COULD NOT HAV E BEEN FAULTED. IN PARA 42 OF THE IMPUGNED ORDER, THE TRIB UNAL HELD THAT INCOME COULD NOT HAVE REALLY ACCRUED BECA USE OF THE FACT THAT THESE AGREEMENTS WERE CANCELLED. THEN THE ISSUE OF THEIR CANCELLATION HAS BEEN GONE INTO, AND IN EXTENSIVE DETAILS. THE CORRECT LEGAL PRINCIPLES WER E APPLIED AND A FINDING OF FACT IS ARRIVED AT IN PARA 48, THA T NO INCOME COULD BE SAID TO HAVE REALLY ACCRUED TO THE ASSESSEE AS A RESULT OF THE FIVE TRANSACTIONS IN TH E IMMOVABLE PROPERTIES AND WHICH INCOME WAS CHARGEABL E TO TAX IN THE YEAR UNDER CONSIDERATION. ONCE INCOME HAD NOT ACCRUED TO THE ASSESSEE IN THE REAL SENSE, THEN THE ORIGINAL RETURN REPRESENTS WRONG STATEMENT WHICH WAS CORRECTED BY THE ASSESSEE BY FILING A REVISED RETURN. THEREFORE, NO HYPOTHETICAL INCOME O F THE ASSESSEE COULD HAVE BEEN BROUGHT TO TAX. GOVARDHAN G. VANANI 12 4.14. THUS, IN VIEW OF THE FACTS OF THE CASE AND POSITIO N OF LAW AS DISCUSSED ABOVE, IT CAN BE HELD THAT, IN FACT, N O TRANSFER OF THE IMPUGNED LAND HAD TAKEN PLACE, AND THEREFORE, N O AMOUNT OF CAPITAL GAIN WAS TAXABLE AS PER LAW. WE HAVE E XAMINED THIS SITUATION FROM ANOTHER ANGLE ALSO. WHEN THE TECHNIC AL CONSIDERATIONS ARE PITTED AGAINST THE SUBSTANTIVE J USTICE, THEN THE LATTER MUST PREVAIL. THE OBJECTIVE OF THE INCOM E TAX PROCEEDINGS IS TO DETERMINE AMOUNT OF INCOME TAXABL E AS PER LAW IN THE HANDS OF ASSESSEE AND TAX PAYABLE THEREO N. THE OBJECTIVE IS NOT AT ALL TO NAIL DOWN AN ASSESSEE IN ONE WAY OR THE OTHER, AND TO RECOVER THE MAXIMUM TAX BY USING FORCE OF LAW. THE REVENUE AUTHORITIES SHOULD NEVER FORGET TH AT AS PER CLEAR MANDATE OF ARTICLE 265 OF CONSTITUTION OF IND IA, NO TAX CAN BE COLLECTED WITHOUT THE AUTHORITY OF LAW. THER EFORE, UNDER THE GIVEN FACTS, WE SHOULD KEEP IN MIND THE CONCEPT OF REAL INCOME THEORY. ACCORDING TO THIS THEORY, AN ASSESS EE CAN BE MADE TO PAY TAX ONLY AND TO THE EXTENT OF INCOME AC TUALLY EARNED BY HIM, AND NOT BEYOND THAT. IN THE FACTS BE FORE US, THE ACCEPTED FACTUAL AND LEGAL POSITION IS THAT NO VALI D TRANSFER (OF THE IMPUGNED LAND) HAD TAKEN PLACE AS PER LAW, AND THEREFORE, NO QUESTION CAN ARISE OF EARNING OF CAPITAL GAIN AND TAXING THE SAME UNDER THE INCOME TAX LAW. IT IS FURTHER NOTED BY US THAT IT IS SETTLED LAW THAT AN ASSESSEE CAN RESILE FROM ITS RETURN IF IT IS FOUND AT ANY LATER STAGE THAT THE INCOME OFFERED THEREIN WAS NOT TAXABLE IN ACCORDANCE WITH LAW. IMMEDIATE REFER ENCE CAN BE MADE ON THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF BHARAT GENERAL REINSURANCE 81 ITR 303 (DEL), WHICH WAS SUBSEQUENTLY APPROVED BY HONBLE SUPREME COURT IN THE GOVARDHAN G. VANANI 13 CASE OF RAMPUR DISTILLERY AND CHEMICAL CO LTD VS CIT 187 ITR 561 (SC) . THUS, TAKING INTO ACCOUNT ALL THE FACTS AND CIRCUMSTANCES OF THE CASE, AND LAW APPLICABLE THERE ON, WE HOLD THAT THE ADDITION MADE BY THE AO ON ACCOUNT OF CAPI TAL GAIN FOR AN AMOUNT OF RS.4,51,95,233/- WAS NOT TAXABLE U NDER THE LAW, AND THEREFORE, THE SAME IS DIRECTED TO BE DELE TED. ACCORDINGLY, GROUND NO.1 IS ALLOWED. 5. GROUND NO.2: IN THIS GROUND THE ASSESSEE HAS CHALLENGED THE ACTION OF LOWER AUTHORITIES IN NOT ALLOWING THE CLAIM OF LONG TERM LOSS OF RS. 3,70,50,000/- IN RESPECT OF INVEST MENT IN SHARES OF NIRU JEWELS PVT. LTD., OF WHICH HE WAS A SHAREHOLDER. 5.1. DURING THE COURSE OF HEARING, IT HAS BEEN SUBMITTE D BY THE LD. COUNSEL THAT THE ASSESSEE MADE A CLAIM OF L OSS FOR DECLINING VALUE OF THE SHARES OF THE ABOVE SAID COM PANY BUT THE SAME HAS NOT BEEN ALLOWED TO THE ASSESSEE BY TH E LOWER AUTHORITIES. IT HAS BEEN SUBMITTED THAT THIS CLAIM HAS BEEN MADE AS VALUE OF THE SHARES OF THE SAID COMPANY HAD BECOME ZERO, THE ASSETS OF THE SAID COMPANY WERE SEIZED BY ITS CREDITORS, WHO HAD TAKEN POSSESSION OF ITS ASSETS I NCLUDING FACTORY PREMISES WHICH WERE MORTGAGED BY THE SAID C OMPANY WITH THE STATE BANK OF INDIA. 5.2. IT WAS FURTHER SUBMITTED BY HIM THAT THIS LOSS WAS CLAIMED BY THE ASSESSEE IN THE BOOKS OF ACCOUNT IN COMPLIANCE TO ACCOUNTING STANDARD (AS-13) BEING INVESTMENT ACC OUNTING STANDARD, ISSUED BY THE INSTITUTE OF CHARTERED ACCO UNTANTS OF GOVARDHAN G. VANANI 14 INDIA, NEW DELHI, AS PER WHICH, WHEN THERE IS A PER MANENT DECLINE IN THE VALUE OF LONG TERM INVESTMENTS, THE RESULTANT REDUCTION IS TO BE CHARGED TO THE PROFIT AND LOSS S TATEMENT. 5.3. ON THE OTHER HAND, LD. DR HAS VEHEMENTLY SUPPORTED THE ORDER OF LOWER AUTHORITIES AND SUBMITTED THAT ASSES SEE HAD NEITHER SOLD THESE SHARES NOR TRANSFERRED TO ANY PE RSON DURING THE YEAR. THIS LOSS HAS BEEN PROVIDED IN THE BOOKS AND CLAIM IN THE RETURN OF INCOME OF NOTIONAL BASIS, AND THER EFORE, THE CLAIM OF THE ASSESSEE WAS WITHOUT THE AUTHORITY OF THE LAW, AND THEREFORE SAME HAS BEEN RIGHTLY REJECTED BY BOTH TH E LOWER AUTHORITIES. 5.4 WE HAVE GONE THROUGH THE SUBMISSIONS MADE BY BOTH THE SIDES AS WELL AS ORDERS OF THE LOWER AUTHORITIES. T HE BRIEF FACTS ARE THAT THE ASSESSEE MADE A CLAIM OF LOSS FOR THE SAID AMOUNT ON ACCOUNT OF INVESTMENTS IN THE SAID COMPANY. DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS NOT IN A POSITION TO GIVE ANY DETAILS WITH REGARD TO SALE OR TRANSFER OF THESE SHARES, AND ACCORDINGLY IT WAS ADDED BY THE A O. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A), WHEREIN IT WAS SUBMITTED THAT THE ASSESEE WAS HAVIN G AN INVESTMENT FOR THE AFORESAID AMOUNT IN SHARE CAPITA L OF THE AFORESAID COMPANY. THE SAID COMPANY SUFFERED LOSSES AND ITS CAPITAL GOT SUNK AND THE LENDER BANK TOOK POSSESSIO N OF THE LAND OF THE COMPANY ALONG WITH PROPERTY AND DEBTS. THE DEBTS VALUE MORE THAN THE VALUE OF PROPERTY, AND THEREFOR E, NOTHING WAS LEFT AND THAT IS HOW THE ASSESSEE CLAIMED LONG TERM CAPITAL GOVARDHAN G. VANANI 15 LOSS. IT WAS ALSO SUBMITTED THAT IT SHOULD BE TREAT ED AS A CASE OF DEEMED TRANSFER. BUT THE LD. CIT(A) DID NOT ACCE PT THE CLAIM OF THE ASSESSEE ON THE GROUND THAT IN FACT, NO TRAN SFER OF SHARES TOOK PLACE DURING THE YEAR, AND THEREFORE, T HERE WAS NO QUESTION OF INCURRING OF ANY LOSS OR GAIN ON THE SA ID SHARES AND THEREFORE, IT WAS RIGHTLY REJECTED BY THE AO. 5.5 WE HAVE EXAMINED ALL THE THESE FACTS VERY CAREFULL Y AND AGREE WITH THE VIEW TAKEN BY THE LOWER AUTHORITIES THAT A LOSS OR GAIN CAN ARISE U/S 45 OF THE INCOME TAX ACT 1961 ONLY FROM TRANSFER OF A CAPITAL ASSET, EFFECTED IN THE PREV IOUS YEAR. SINCE, NO TRANSFER OF THE AFORESAID SHARES WAS EFFE CTED DURING THE PREVIOUS YEAR, THEREFORE, NO CLAIM OF LOSS COUL D HAVE BEEN ALLOWED TO THE ASSESSEE, AS PER LAW. THE CONTENTION OF THE LD. COUNSEL THAT PROVISION FOR DECLINE IN VALUE OF INVE STMENT HAS BEEN MADE BECAUSE OF MANDATORY REQUIREMENT OF ACCOU NTING STANDARD-13, IS ALSO NOT SUSTAINABLE FOR THE REASON THAT ACCOUNTING ENTRIES ARE NOT DETERMINATIVE FOR THE TA XABILITY OR OTHERWISE OF THE TRANSACTIONS OF THE ASSESSEE. IT I S SETTLED LAW THAT TAXABILITY OF THE TRANSACTIONS OF THE ASSESSEE HAS TO BE DETERMINED IN VIEW OF THE PROVISIONS OF THE INCOME TAX ACT, AND NOT ON THE BASIS OF ENTRIES MADE IN THE BOOKS O F ACCOUNTS BY THE ASSESSEE. THEREFORE, KEEPING IN VIEW ALL THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE SAID LO SS WAS NOT ALLOWABLE, UNDER THE LAW AND THEREFORE, THE CLAIM O F THE ASSESSEE WAS RIGHTLY REJECTED, AND THEREFORE, NO IN TERFERENCE IS CALLED FOR IN THE ORDER OF LD. CIT(A) AND THE SAME IS UPHELD. THUS, GROUND NO. 2 IS REJECTED. GOVARDHAN G. VANANI 16 6 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PART LY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH DECEMBER, 2015. SD/- (SAKTIJIT DEY ) SD/- (ASHWANI TANEJA) ! / JUDICIAL MEMBER '! / ACCOUNTANT MEMBER MUMBAI; DATED : 04/12/2015 CTX? P.S/. .. # $%&'&($ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !'# / THE RESPONDENT. 3. $# $# % ( ) / THE CIT, MUMBAI. 4. $# $# % / CIT(A)- , MUMBAI 5. ()*# ! + , $# # + - , / DR, ITAT, MUMBAI 6. *. / / GUARD FILE. / BY ORDER, '#( ! //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI FIT FOR PUBLICATION SD/- SD/- (JM) (AM)