ADDL CIT 17(2), MUMBAI V. DAMANIA & SONS, MUMBAI

ITA 3258/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93206 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 16-02-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 10-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: KIRAN
• Keywords: Depreciation; Cost of acquisition; Fair market value; Valuation report
• Section: 133(6); 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ' D ' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI SANJAY ARORA , ACCOUNTANT MEMBER ITA NO. 3258/MUM/2012 (ASSESSMENT YEAR: 2008 - 09 ) D C I T - 17(2) VS. M/S. DAMANIA & SONS 2ND FLOOR, PIRAMAL CHAMBERS PAREL, MUMBAI 400012 603, JAME JAMSHED ROAD MATUNGA, MUMBAI 400019 PAN - AACFD0045J APPELLANT RESPONDENT CO NO. 91 /MUM/201 3 (ASSESSMENT YEAR: 2008 - 09 ) M/S. DAMANIA & SONS VS. D C I T - 17(2) 603, JAME JAMSHED ROAD MATUNGA, MUMBAI 400019 2ND FLOOR, PIRAMAL CHAMBERS PAREL, MUMBAI 400012 PAN - AACFD0045J CROSS OBJECTOR APPELLANT IN APPEAL APPELLANT BY: SHRI SANJEEV KASHYAP RESPONDENT BY: SHRI KIRAN PANCHOILI DATE OF HEARING: 15.07.2015 DATE OF PRONOUNCEMENT: 15.07.2015 O R D E R PER SANJAY ARORA, A.M. THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) - 34, MUMBAI AND THEY PERTAIN TO A.Y. 2008 - 09. 2. FOLLOWING GROUNDS WERE URGED BY THE REVENUE: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THERE IS NO BASIS AND JUSTIFICATION TO ALLOCATE RS.5,28,12,000/ - TOWARDS THE BUILDING. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE COST OF BUILDING I S TO BE TAKEN AT RS.87,12,170/ - INSTEAD OF RS.5,28,12,000/ - AS WORKOUT BY ASSESSING OFFICER IN A SCIENTIFIC WAY. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO WORK OUT ITA NO. 3258/MUM/2012 D C I T - 17(2) 2 SHORT TERM CAPITAL GAIN ON BUILDING AS PER SECTION 50 OF THE ACT OF RS.87,12,170/ - INSTEAD OF RS.5,28, 12,000/ - AS WORK OUT BY ASSESSING OFFICER. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO CONSIDER RS.6,32,87,832/ - TO WORK OUT LONG TERM CAPITAL GAIN ON TRANSFER OF LEASEHOLD RIGHTS ON LAND AND NOT APPRECIATING THE FACT THAT ASSESSING OFFICER HAS CORRECTLY WORKED OUT ` 1,91,88,000/ - ON THE BASIS OF FAIR MARKET VALUE REPORTED BY THE MIDC AUTHORITIES. IN THE CROSS OBJECTIONS FILED BY THE ASSESSEE IT WAS CONTENDED THAT THE CIT(A) ERRED IN NOT ALLOWING DEPRECIATION ON THE PROPERTY WHICH WAS HELD FOR MORE THAN 40 YEARS AND ALSO SUBMITTED THAT THE LONG TERM CAPITAL GAIN S OF 99 YEARS LEASE SHOULD BE CALCULATED AFTER TAKING INTO CONSIDERATION THE INDEXATION VALUE AS ON 01.04.1981 AS PRESCRIBED IN SECTION 55(2)(B) OF THE ACT. 3. FACTS NECESSARY FOR DISPOSAL OF THE APPEAL ARE STATED IN BRIEF. ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURE OF HYDRAULICS SYSTEMS AND COMPONENTS. DURING THE FINANCIAL YEAR 2007 - 08 ASSESSEE STOPPED ITS BUSINESS AND ALL THE ASSETS WERE SOLD FOR A CONSIDERATION OF 7.20 CRORES. ASSESSEE FIRM DECLARED LONG TERM CAPITAL GAINS OF ` 5,79,63,425/ - WHEREAS THE COST OF BUILDI NG WAS SHOWN AT ` 67,000/ - AND VALUATION OF LAND AND BUILDING AS PER VALUATION REPORT FOR 01.04.1981 WAS SHOWN AS ` 24,11,789/ - . 4. THE AO OBSERVED THAT AS PER THE DEED OF ASSIGNMENT DATED 18.06.2007 BETWEEN THE ASSESSEE AND M/S. MEYER ORGANICS P. LTD. THE ASSESSEE HAS ASSIGNED ITS LEASEHOLD RIGHT S IN PLOT NO. B - 22 TOGETHER WITH THE BUILDING CONSTRUCTED ON IT IN THE YEAR 1966, SITUATED IN THANE INDUSTRIAL AREA. THIS LEASE OF LAND HAD BEEN OBTAINED FROM THE MAHARASHTRA INDUSTRIAL DEVELOPMENT CORPORATION (MIDC ). SINCE IT WAS AN ASSIGNMENT OF TENANCY RIGHTS, THE AO WAS OF THE VIEW THAT THERE IS NO SALE OF LAND INVOLVED AND AS PER THE PROVISIONS OF SECTION 55(2)(A) OF THE I.T. ACT THE PURCHASE PRICE IS TO BE TAKEN AS THE COST OF ACQUISITION . S INCE TENANCY RIGHTS IS COVERED BY THE PROVISIONS OF SECTION 55(2)(A), THE MARKET VALUE AS ON 01.04.1981 NEED NOT BE ALLOWED TO BE SUBSTITUTED IN THE COMPUTATION OF LONG TERM CAPITAL GAINS. THE AO ALSO CALLED UPON THE ASSESSEE TO FURNISH THE COST OF ACQUISITION OF THE BUILDING AND ITS YEAR OF ACQUISITION ALONG WITH DETAILS OF DEPRECIATION CLAIMED ON IT. ITA NO. 3258/MUM/2012 D C I T - 17(2) 3 5. IN RESPONSE TO THE NOTICE ISSUED BY THE AO THE ASSESSEE SUBMITTED THAT THE COST OF CONSTRUCTION OF THE BUILDING IN THE YEAR 1965 WAS APPROXIMATELY ` 67,000/ - . IN THIS REGARD THE AO OBSERVED THAT THE DETAILS OF DEPRECIATION CLAIMED ON THE BUILDING WERE NOT SUBMITTED AND THE ASSESSEE HAD ALSO NOT SUBMITTED THE SEPARATE CONSIDERATION RECEIVED FOR LAND AND BUILDING. IN FACT IN THE DEED OF ASSIGNMENT THE TOTAL CONSIDERATION HAS BEEN RE CEIVED ON THE LEASEHOLD RIGHTS AND THE BUILDING SITUATED ON IT AND THE PURCHASE R HAS PAID AN AMOUNT OF ` 19,14,440/ - TO MIDC AS DIFFERENTIAL PREMIUM. NOTICE UNDER SECTION 133(6) WAS ISSUED TO THE AREA MANAGER OF MIDC SEEKING CERTAIN INFORMATION WITH REGARD TO TH E GUIDELINES OF ASSIGNING LEASE HOLD RIGHTS TO M/S. MEYER ORGANICS P. LTD. THE MIDC SUBMITTED THAT AS PER C ORPORATION GUIDELINES THE DIFFERENTIAL PREMIUM WORKS OUT TO ` 19,14,400/ - BECAUSE OF THE FACT THAT THE PREVIOUS RATE WAS ` 14/ - WHEREAS THE CURRENT RATE WAS ` 6,000/ - PER SQ. FT . THE COST OF ACQUISITION OF LEASE HOLD RIGHTS ACCORDINGLY WORKED OUT TO ` 44,772/ - IN THE HANDS OF THE ASSESSEE AND THE COST AT THE TIME OF TRANSFER BY THE ASSESSEE WORKS OUT TO ` 1,91,88,000/ - . THE AO OBSERVED THAT AS PER THE PR OVISIONS OF SECTION 55(2)(A) OF THE ACT, IN THE CASE OF TENANCY RIGHTS, THE PURCHASE PRICE IS TO BE TAKEN AS THE COST OF ACQUISITION AND THE MARKET VALUE AS ON 01.04.1981 IS NOT ALLOWED TO BE SUBSTITUTED. DESPITE THE OBJECTION OF THE ASSESSEE HE PROCEEDED TO COMPUTE THE LONG TERM CAPITAL GAINS AT ` 1,84,41,306/ - AND SHORT TERM CAPITAL GAINS OF ` 5,37,54,656/ - . 6. ASSESSEE SUBMITTED BEFORE THE CIT(A) THAT THE AO BIFURCATED THE TOTAL CONSIDERATION OF ` 7.20 CRORES BY TAKING THE VALUE OF LAND AT ` 1.91 CRORES AND THE BALANCE AMOUNT OF ` 5 . 28 CRORES AS SALE PRICE OF BUILDING. IT WAS ALSO POINTED OUT THAT THE LAND VALUATION TAKEN BY THE AO IS ON THE BASIS OF DIFFERENTIAL PREMIUM PAYABLE TO MIDC ON THE BASIS OF A LETTER FROM MIDC TO THE AO, WHICH SPECIF ICALLY STATED THAT THE CORPORATION HAS NOT CONSIDERED THE MARKET VALUE IN THE ABOVE CALCULATION OF DIFFERENTIAL PREMIUM. IT WAS ALSO BROUGHT TO THE NOTICE OF THE LEARNED CIT(A) THAT ACCORDING TO THE READY RECKONER ISSUED BY GOVERNMENT OF INDIA THE MARKET V ALUE OF THE LAND IN THAT AREA WAS ` 1,557/ - PER SQ.FT. EVEN IF THE PREVAILING RATE WAS 30% TO 40% HIGHER, AS UNDER THE NEW GOVERNMENT POLICY IT INDUSTRIES ARE TO BE PROMOTED ITA NO. 3258/MUM/2012 D C I T - 17(2) 4 IN THAT ZONE, WITH DOUBLE FSI AND ALSO OTHER AVAILABILITY OF INFRASTRUCTURE. THE VA LUE OF THE LAND WHICH IS SOLD WILL BE APPROXIMATELY 7,00,00,000/ - AS AGAINST THE VALUE TAKEN BY THE AO, I.E. ` 1.91 CRORES. 7. AS REGARDS SALE PRICE OF THE BUILDING IT WAS SUBMITTED THAT THE COST OF THE BUILDING IN THE YEAR 1966 WAS APPROXIMATEL Y ` 67,000/ - WHICH CONSISTS OF FACTORY ADMEASURING 627.34 SQ.MTS., OFFICE ADMEASURING 222.40 SQ.MTS. AND TOILET ADMEASURING 18.31 SQ.MTS. EVEN IF THE SAID BUILDING IS CONSTR UCTED NEW NOW THE TOTAL COST OF CONSTRUCTION WILL BE AROUND ` 87,00,000/ - AS AGAINST ` 5.27 LAKHS WORKED OUT BY THE AO. THE AO HAD TAKEN THE COST OF CONSTRUCTION AT ` 8,000/ - PER SQ.MT. FOR A BUILDING CONSTRUCTED IN 1966 NO PERSON WILL PURCHASE THE SAME AT THAT PRICE. IT W AS THEREFORE SUBMITTED THAT THE AMOUNT PAID BY THE PURCHASER WAS ON AC COUNT OF THE LAND COST. 8. THE LEARNED CIT(A) EXAMINED THE ISSUE AND OBSERVED THAT THE HON'BLE BOMBAY HIGH COURT, IN THE CASE OF D.K. SANDHU BROS. CHEMBUR P. LTD. 249 ITR 265 HAD CONSIDERED IDENTICAL ISSUE WHEREIN IT WAS HELD THAT THE TENANCY RIGHT WAS A CAPI TAL RIGHT AND ITS TRANSFER WOULD ATTRACT CAPITAL GAINS. IN THE INSTANT CASE THE ASSESSEE ACQUIRED THE LEASEHOLD RIGHTS FOR AN AMOUNT OF ` 44,772/ - AND THIS SHOULD BE TREATED AS COST OF ACQUISITION. 9. AS REGARDS COMPUTATION OF CAPITAL GAINS THE LEARNED CIT(A) NOTICED THAT THE AO HAD TAKEN THE VALUE OF LEASEHOLD RIGHTS AT ` 1,91,88,000/ - WHEREAS THE FACT REMAINS THAT THE PURCHASER, M/S. MEYER ORGANIC P. LTD., VIDE ASSIGNMENT DEED DATED 18.06.2007, GOT THE LEASE ON THE ABOVE LAND AND BUILDING BY PAYING ` 7.2 CRORES IN ADDITION TO PAYMENT OF A SUM OF ` 19,14,400/ - TOWARDS DIFFERENTIAL PREMIUM TO MIDC . IN FACT THE AO CALLED FOR INFORMATION IN RESPECT OF DIFFERENTIAL PREMIUM FROM MID C WHEREIN IT WAS CLARIFIED THAT THE CORPORATION HAS NOT CONSIDERED THE MARKET VALUE IN AB OVE CALCULATION OF DIFFERENTIAL PREMIUM WHICH HIGHLIGHTS THAT THE PREMIUM RATES CHARGED BY MIDC IS DIFFERENT FROM THE ACTUAL MARKET VALUE. HE ALSO OBSERVED THAT THE ESTIMATE MADE BY THE AO IN ARRIVING AT THE VALUE OF BUILDING HAS NO BASIS. THE ASSESSEE SUB MITTED BEFORE THE AO THAT THE VALUE OF THE BUILDING SHOULD BE TAKEN AT ` 87,12,170/ - AND THE AO DID NOT OBJECT TO THE WORKING ITA NO. 3258/MUM/2012 D C I T - 17(2) 5 GIVEN BY THE ASSESSEE. HE THUS DIRECTED THE AO TO SUBSTITUTE THE VALUE BY ` 87,12,170/ - AS AGAINST ` 5,28,12,000/ - ARRIVED AT BY THE AO, HOWEVER, WHILE ARRIVING AT THIS FIGURE HE HAD TAKEN INTO CONSIDERATION THE WDV OF THE BUILDING AND DIRECTED THE AO TO WORK OUT THE SHORT TERM CAPITAL GAINS ON THE BUILDING AS PER SECTION 50 OF THE I.T. ACT. 10. IT COULD THUS BE SEEN THAT THE LEARNED CIT(A ) ALLOCATED ` 5,28,12,000/ - TOWARDS VALUE OF LAND AND THE BALANCE TOWARDS COST OF BUILDING. THE REVENUE CHALLENGED THE ORDER PASSED BY THE LEARNED CIT(A) WHEREAS IN THE CROSS OBJECTIONS THE ASSESSEE CONTENDS THAT THE MARKET VALUE AS COMPUTED UNDER SECTION 5 5(2)(B) HAS TO BE TAKEN INTO CONSIDERATION IN THE CASE OF THE BUILDING, WHICH IS MORE THAN 40 YEARS OLD. IT IS NOT IN DISPUTE THAT THE BUILDING IS MORE THAN 40 YEARS OLD. AS PER THE ANNEXURE TO THE CROSS OBJECTIONS THE RATE OF DEPRECIATION OF OLD BUILDINGS SHOULD BE WORKED OUT AS PER THE METHOD PRESCRIBED IN THE READY RECKONER AND IN THE INSTANT CASE 30% OF THE VALUE SHOULD BE TAKEN INTO CONSIDERATION WHICH WORKS OUT TO ` 21,78,043/ - . 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE RECORD. IN O UR CONSIDERED OPINION THE APPEAL FILED BY THE REVENUE HAS NO MERITS. THE AO HAS ARBITRARILY ALLOCATED THE COST OF LAND BY TAKING INTO CONSIDERATION THE COST OF THE BUILDING OVERLOOKING THE CLAIM OF THE ASSESSEE THAT EVEN IF NEW CONSTRUCTION HAS TO BE MADE IN THE SAME PLINTH AREA IT CANNOT BE MORE THAN ` 87,00,000/ - . THE LEARNED CIT(A) HAS CORRECTLY TAKEN INTO CONSIDERATION THE FACT THAT THE MIDC HAS NOT TAKEN INTO CONSIDERATION THE MARKET VALUE WHILE CALCULATING THE DIFFERENTIAL PREMIUM. SINCE THE LEASEHOLD RIGHTS WERE TRANSFERRED TO THE PURCHASER AT ` 7.20 CRORES , THE LEARNED CIT(A) HAD CORRECTLY TAKEN INTO CONSIDERATION THE FACT THAT THE PURCHASER WOULD HAVE PAID THE AMOUNT ESSENTIALLY BASED ON THE LAND COST AND THE CHANCE OF CONSTRUCTING A NEW BUILDING FOR NEW I.T. BASED INDUSTRIES WITH ADJOINING INFRASTRUCTURAL FACILITIES AND HENCE IT IS IMPROPER TO SEGREGATE A LARGE CHUNK OF CONSIDERATION TOWARDS COST OF BUILDING SINCE THE DOMINANT OBJECT WAS TO ACQUIRE THE LEASEHOLD RIGHTS O N THE LAND. UNDER THESE CIRCU MSTANCES WE ARE OF THE VIEW THAT THE ORDER PASSED BY THE LEARNED CIT(A) ON THIS ASPECT DOES NOT CALL FOR ANY INTERFERENCE AND HENCE WE DISMISS THE APPEAL FILED BY THE REVENUE. ITA NO. 3258/MUM/2012 D C I T - 17(2) 6 12. IN SO FAR AS THE CROSS OBJECTION FILED BY THE ASSESSEE IS CONCERNED, THE ONLY I SSUE IS THAT NO DEPRECIATION WAS EVER CLAIMED AND EVEN IF IT WAS CLAIMED, IN RESPECT OF PROPERTIES WHICH ARE MORE THAN 40 YEARS OLD, THERE WERE STILL TO BE SOME VALUE TO THE SAID PROPERTY AND AS PER THE STAMP DUTY READY RE C K O NE R 2007 THE VALUE OF THE SAID PROPERTY CAN BE ARRIVED AT BY REDUCING IT TO 30% OF THE PRESENT COST. ASSESSEE HAD GIVEN THE CALCULATION, BASED ON SEVERAL PARAMETERS, TO SHOW THAT THE COST OF BUILDING , IF CONSTRUCTED IN FINANCIAL YEAR 2007 - 08 , WORKS OUT TO ` 6, 87,12,170/ - . THE AO MERELY B RUSHED OUT THE SAID CALCULATION OF THE ASSESSEE ARBITRARILY ASSUMING THAT THE PURCHASE COST WOULD BE MORE THAN ` 5 CRORES. IN OUR CONSIDERED OPINION THE MATTER DESERVES TO BE SET ASIDE TO THE FILE OF THE AO WHO IS DIRECTED TO VERIFY THE COMPUTATION GIVEN BY THE ASSESSEE AND IF THE COST OF BUILDING AS COMPUTED BY THE ASSESSEE IS REASONABLE THEN THE REASONABLE VALUE CAN BE ESTIMATED AS ON 01.04.1981 ACCORDINGLY. UNDER THESE CIRCUMSTANCES THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE TREATED AS ALLOWED FOR STA TISTICAL PURPOSES. 13. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH JULY, 2015. SD/ - SD/ - ( D. MANMOHAN ) (SANJAY ARORA) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 15 TH JULY, 2015 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 34 , MUMBAI 4. THE CIT CONCERNED 5. THE DR, D BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI