KABIR SUDHIR MULJI, MUMBAI V. DIT (IT) II, MUMBAI

ITA 3301/MUM/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0245 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 9 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-02-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 08-05-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R P MEENA
• Keywords: Capital asset; Audit objection; Capital receipt
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH A, MUMBAI BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.3301/M/2014 ASSESSMENT YEAR: 2009-10 SHRI KABIR SUDHIR MULJI, ANAND BHAVAN, 501, 2 ND BABULNATH X LANE, CHOWPATTY, MUMBAI-7 PAN: AAHPM1375M VS. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION)II, SCINDIA HOUSE, GR. FLR., R/NO.007, N.M. MARG, BALLARD PIER, MUMBAI - 38 (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : MS. AASIFA KHAN, A.R. REVENUE BY : SHRI R.P. MEENA, D.R. DATE OF HEARING : 11.01.2018 DATE OF PRONOUNCEMENT : 14.02.2018 O R D E R PER D.T. GARASIA , JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 25.03.2014 OF THE DIRECTOR OF INCOM E TAX (INTERNATIONAL TAXATION) [HEREINAFTER REFERRED TO A S THE DIT(IT)] RELEVANT TO ASSESSMENT YEAR 2009-10. 2. THE ASSESSEE, SHRI KABIR SUDHIR MULJI, IS THE OW NER AND HOLDER OF 105,000 SHARES OF GREAT OFFSHORE LTD. HAVING FAC E VALUE OF RS.10/- PER SHARE AND PURCHASED AT A COST OF RS.34, 58,108.03 AS ITA NO.3301/M/2014 SHRI KABIR SUDHIR MULJI 2 SHOWN IN THE BALANCE SHEET. THE SHARES OF GREAT OFF SHORE LTD. ARE LISTED ON THE RECOGNIZED STOCK EXCHANGE. THE AFORES AID SHARES ARE HELD AS LONG TERM CAPITAL ASSET IN CONFORMITY WITH SECTION 2(29A) READ WITH SECTION 2(42A) OF THE ACT. DURING THE AS SESSMENT YEAR 2009-10, THE ASSESSEE ALONG WITH THE OTHER SHAREHOL DERS ENTERED INTO AN AGREEMENT DATED 21/10/2008 WITH ELEVENTH LAND DE VELOPERS PVT. LTD. FOR THE SALE OF THEIR RESPECTIVE SHAREHOLDING IN GREAT OFFSHORE LTD. TOGETHER CONSTITUTING 7.5% OF PAID-UP EQUITY S HARE CAPITAL OF THE COMPANY AT A FIXED RATE OF RS.540/- PER SHARE ON A SPOT DELIVERY BASIS ON THE TERMS AND CONDITIONS MENTIONED IN THE AGREEM ENT. IN THE AGREEMENT DATED 21/10/2008 CLAUSE 7 PROVIDED THAT I F THE PURCHASER, NAMELY, ELEVENTH LAND DEVELOPERS PVT. LTD. FAILS TO PAY THE PURCHASE CONSIDERATION TO THE AFORESAID MENTIONED SELLER GRO UP INCLUDING THE ASSESSEE ON OR BEFORE 18/11/21008. THE PURCHASER W AS TO PAY LIQUIDATED DAMAGES OF RS.25 CRORES @ 82.32 PER SHAR E. THE PURCHASER FAILED TO MAKE THE PAYMENT. THE PARTIES AGREEMENT DATED 21.10.08 AROUND AT COMPROMISE AND AS PER THE AGREEM ENT THE ASSESSEE HAS RECEIVED LIQUIDATE DAMAGES OF RS.25 CR ORES BEING THE FULL AND FINAL SETTLEMENT TOWARDS ALL SUMS DUE TO T HE SELLER GROUP UNDER THE AGREEMENT. THE ASSESSEE FINALLY RECEIVED A SUM OF RS.34,57,318/- AS LIQUIDATED DAMAGES FROM ELEVENTH LAND DEVELOPERS PVT. LTD. BY CHEQUE DATED 18/03/3009 DRA WN ON ICICI BANK LTD. AS THE ASSESSEE HAD RECEIVED THE LIQUIDAT ED DAMAGES THE ASSESSEE WAS OF AN OPINION THAT IT IS NEITHER TAXAB LE AT CAPITAL GAIN NOR AS REVENUE INCOME. ASSESSEE FILED THE RETURN OF IN COME IN A.Y. 2009-10 AND IN THE SAID RETURN ASSESSEE DID NOT OFF ER THIS AMOUNT OF ITA NO.3301/M/2014 SHRI KABIR SUDHIR MULJI 3 RS.34,57,318/- FOR TAXATION AS EITHER CAPITAL GAIN OR REVENUE RECEIPT. HOWEVER, ASSESSEE HAS FILED THE INCOME TAX RETURN F ORM NO.ITR-2, NOTE ON CAPITAL RECEIPT, COPY OF DEMAT STATEMENT, C OPY OF THE AGREEMENT AND LETTER SHOWING THE COMPROMISE ARRIVED AT BETWEEN THE PURCHASER AND THE SELLER GROUP. THE RETURN OF INCO ME WAS PROCESSED U/S.143(1) OF THE ACT. SUBSEQUENTLY, THE ASSESSMEN T WAS COMPLETED UNDER SECTION 143(3) OF THE ACT. THE AO DID NOT DI SCUSS THE ISSUE OF LIQUIDATED DAMAGES RECEIVED BY THE ASSESSEE IN THE ASSESSMENT ORDER. HE ACCEPTED THE VIEW OF THE ASSESSEE THAT THE LIQUI DATED DAMAGES RECEIVED DURING THE YEAR BY THE ASSESSEE FROM M/S. ELEVENTH LAND DEVELOPERS PVT. LTD. IS NOT TAXABLE EITHER AS CAPIT AL GAINS OR AS REVENUE RECEIPT. THE LD. DIT(IT) ISSUED NOTICE TO THE ASSESSEE UNDER SECTION 263(1) OF THE ACT WHEREIN IT WAS STATED THA T THE AO OMITTED TO ADD BACK THE AMOUNT OF RS.34,57,318/- RECEIVED AS LIQUIDATED DAMAGES WHICH IS TAXABLE U/S.56(2)(VI). THEREFORE, THE ASSESSMENT ORDER WAS PREJUDICIAL TO THE INTEREST OF THE REVENU E IN TERMS OF SECTION 263(1) OF THE ACT. THE SHOW CAUSE NOTICE WAS GIVEN AND THE ASSESSEE HAS FILED THE RETURN AND SUBMITTED BEFORE THE LD. D IT(IT) AND THE LD. DIT(IT) WITHOUT DISCUSSING ANYTHING ABOUT THE CLAIM OF THE ASSESSEE DIRECTED THE AO TO TAX THE SUM RECEIVED OF RS.34,57 ,318/- BY WAY OF LIQUIDATED DAMAGES UNDER SECTION 56(2)(VI) OF THE A CT. 3. THE LD. A.R. ORALLY ARGUED AND ALSO FILED THE WR ITTEN SUBMISSION. ASSESSEES MAIN CONTENTION IS THAT LIQ UIDATED DAMAGES ARE NEITHER TAXABLE AT CAPITAL GAIN NOR AS REVENUE INCOME. SHE FURTHER SUBMITTED THAT THE LD. DIT(IT), IN A NON-SPEAKING O RDER, WITHOUT ITA NO.3301/M/2014 SHRI KABIR SUDHIR MULJI 4 CONSIDERING THE DETAILED EXPLANATION OF THE ASSESSE E, IN A VERY CRYPTIC AND ARBITRARY MANNER AND WITHOUT DUE APPLICATION OF JUDICIAL MIND, DIRECTED THE AO TO TAX THE AMOUNT OF RS.34,57,318/- . THE SECOND CONTENTION OF THE LD. A.R. IS THAT SECTION 263 WAS INVOKED AT THE INSTANCE OF AO AND THE AO HAS MADE A PROPOSAL FOR A CTION OF AUDIT OBJECTION AND HE HAS FORWARDED THE PROPOSAL. THERE FORE, THE PROPOSAL FOR INITIATION OF REVISION PROCEEDING UNDER SECTION 263 MUST BE INITIATED BY COMMISSIONER BUT NOT BY THE AO. THE L D. A.R. RELIED UPON THE DECISIONS OF TRIBUNAL IN THE CASES OF ASHO K KUMAR SHIVPURI V/S. CIT (ITA NO. 631/M/2014 DTD.07/11/2014) (MUM T RIB.), SPAN OVERSEAS LTD. V/S. CIT (ITA NO. 1223/PN/2013 DTD. 2 1/02/2015) (PUNE TRIB.), VINAY PRATAP THACKER V/S. CIT (ITA NO . 2939/M/2011 DTD. 27/02/2013) (MUM TIB.), DHARMENDRA KUMAR BANSA L V/S. CIT (2014) 48 TAXMANN.COM 53, JAIPUR) AND RAJIV ARORA V /S. CIT (2011) 131 ITD 58, JAIPUR. THE LD. A.R. FURTHER SUBMITTED THAT WHEN TWO VIEWS ARE POSSIBLE ONE VIEW IS PERMISSIBLE IN LAW T HEN INVOKING THE PROVISIONS OF SECTION 263 IS NOT VALID. THE LD. A. R. SUBMITTED THAT THE ASSESSEE HAS FILED THE DETAILS AND DOCUMENTS PE RTAINING TO LIQUIDATED DAMAGES. THE AO HAS NOT VERIFIED THE DE TAILS BUT AO WAS SATISFIED WITH THE EXPLANATION OF THE ASSESSEE. TH EREFORE, ORDER IS NOT ERRONEOUS. THE LD. A.R. RELIED UPON THE ORDER OF H ONBLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. VS . CIT (243 ITR 83, SC), CIT VS. MAX INDIA LTD. (295 ITR 282 SC). SHE ALSO RELIED UPON THE DECISIONS OF VARIOUS HIGH COURTS IN THE CASE OF GRASIM INDUSTRIES LTD. VS. CIT (321 ITR 92, BOM) AND CIT VS. DLF POWE R LTD. (329 ITR 289, DEL.). THE LD. A.R. FURTHER SUBMITTED THA T THE ORDER OF LD. ITA NO.3301/M/2014 SHRI KABIR SUDHIR MULJI 5 DIT(IT) IS A NON-SPEAKING ORDER. THE LD. A.R. SUBM ITTED THAT LIQUIDATED DAMAGES ARE NOT TAXABLE EITHER AS CAPITA L GAIN OR REVENUE RECEIPT. SHE ALSO RELIED UPON THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF PARIMISETTI SEETHARAMAMMA VS. CIT (5 7 ITR 532 SC) AND IN THE CASE OF CIT VS. SAURASHTRA CEMENT LTD. [ 325 ITR 422 (SC)]. 4. ON THE OTHER HAND, THE LD. D.R. RELIED UPON THE DECISION OF KOLKATA BENCH IN THE CASE OF STEWARTS & LLOYDS OF I NDIA LTD. 67 TAXMANN.COM 41 (KOLKATA-TRIB.) AND ALSO RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUST RIES WHICH HAS BEEN RELIED BY THE ASSESSEE. 5. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE P ARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT IN THE CASE OF STEWARTS & LLOYDS OF INDIA LTD. (SUPRA) IT HAS BEEN HELD THAT 263 PROPOSAL CAN BE MADE BY AO IF THE OTHER CO NDITIONS OF SECTIONS ARE SATISFIED AND THE TRIBUNAL HAS RELIED UPON THE VARIOUS DECISIONS OF HIGH COURTS AND HELD THAT SECTION 263 CAN BE INVOKED BY THE INSTANCE OF THE AO. WE FIND THAT IN THE SAID D ECISION THE TRIBUNAL HAS ALSO HELD THAT SECTION 263 CAN BE INIT IATED ON THE BASIS OF THE PROPOSAL OF THE AO, IF THE OTHER CONDITIONS ARE SATISFIED. THEREFORE, NOW WE WILL EXAMINE IF THE OTHER CONDITI ONS ARE SATISFIED OR NOT. 6. NOW COMING TO THE FACTS OF THIS CASE. WE HAVE G ONE THROUGH THE ASSESSMENT ORDER WHICH IS PLACED ON RECORD. TH E AO HAS NOT ITA NO.3301/M/2014 SHRI KABIR SUDHIR MULJI 6 DISCUSSED ANYTHING REGARDING LIQUIDATED DAMAGES REC EIVED BY THE ASSESSEE IS TAXABLE AS CAPITAL GAIN OR REVENUE INCO ME OR DOES NOT TAXABLE AS CAPITAL GAIN OR REVENUE INCOME. WE HAVE ALSO INQUIRED FROM THE LD. A.R. THAT BEYOND ASSESSMENT PROCEEDING S WHETHER THE AO HAS ASKED FOR ANY DETAILS REGARDING LIQUIDATED D AMAGES. THE LD. A.R. ADMITTED THAT NO NOTICE REGARDING LIQUIDATED D AMAGES WAS ISSUED BY THE AO. WE ALSO FOUND FROM THE ORDER OF LD. DIT(IT) THAT LD. DIT(IT) HAS PASSED THE ORDER WITHOUT DISCUSSING THE WRITTEN SUBMISSION WHICH WAS FILED BEFORE LD. DIT(IT). THE ASSESSEE HAS TAKEN THE CONTENTION THAT ASSESSEE HAS MADE FULL DI SCLOSURE ALONG WITH DOCUMENT AND DETAILS AND ALL THE DETAILS WERE BEFORE THE AO. THEREFORE, IT IS NOT TAXABLE EITHER AS REVENUE RECE IPT OR CAPITAL RECEIPT. THE LD. A.R. ALSO RELIED UPON THE DECISION OF TRIBU NAL BUT THE FACTS OF THIS CASE ARE NOT SIMILAR TO THE FACTS CITED BEF ORE US. THEREFORE, WE ARE OF THE OPINION THAT THIS CASE IS SQUARELY COVER ED BY THE DECISION OF KOLKATA TRIBUNAL. THEREFORE, WE DO NOT DISCUSS THE JUDGMENT RELIED BY THE ASSESSEE. THE LD. A.R. RELIED ON MAN Y JUDGMENTS AND ARGUED THAT THE LIQUIDATED DAMAGES RECEIVED FROM TH E BRIDGE OF CONTRACT. THEREFORE, IT IS NOT LIABLE. THE LD. A. R. ALSO RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CA SE OF CIT VS. ABBASBHOY DEHGAMWALLA [195 ITR 28 (BOM)] AND SUBMIT TED THAT LIQUIDATED DAMAGES ARE NOT LIABLE. 7. WE HAVE ALSO GONE THROUGH THE ORDER OF AO AND LD. DIT(IT). WE FIND THAT AO HAS NOT EXAMINED REGARDING LIQUIDAT ED DAMAGES AND AO FAILED TO MAKE ENQUIRY. SECONDLY, THE LD. DIT(I T) HAS ALSO NOT ITA NO.3301/M/2014 SHRI KABIR SUDHIR MULJI 7 MADE ENQUIRY WHETHER LIQUIDATED DAMAGES ARE TAXABLE AS CAPITAL GAIN OR REVENUE RECEIPT. THE LD. DIT(IT) HAS COME TO A CONCLUSION THAT IT IS LIABLE FOR TAX UNDER THE PROVISIONS OF SECTION 5 6(2)(VI). THE LD. DIT(IT) HAS ALSO NOT APPLIED HIS MIND PROPERLY. TH EREFORE, WE ARE OF THE OPINION THAT WHETHER THE LIQUIDATED DAMAGES REC EIVED BY THE ASSESSEE ARE AS PER THE DOCUMENT FILED BY THE ASSES SEE IS LIABLE FOR TAXATION OR NOT. WE FIND THAT THE AO AND THE LD. D IT(IT) HAS NOT APPLIED THEIR MIND AT ALL. THEREFORE, IN THE INTER EST OF JUSTICE AND FAIRPLAY, WE ARE OF THE OPINION THAT IT REQUIRES VE RIFICATION AT THE END OF THE AO. THEREFORE, RELYING UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. VS . CIT (243 ITR 83, SC), WE FIND THAT AO FAILED TO APPLY HIS MIND IN PE RSPECTIVE ORDER PASSED BY HIM AND HENCE ERRONEOUS. IT ALSO APPEARS THAT AO HAS NOT APPLIED HIS MIND. THE AO HAS ALSO NOT VERIFIED ANY SUPPORTING MATERIAL AND WITHOUT MAKING ANY ENQUIRY. THEREFORE , WE ARE OF THE OPINION THAT LD. DIT(IT) HAS RIGHTLY EXERCISED THE JURISDICTION UNDER SECTION 263(1). BUT WHEN ALL THE DETAILS WERE FILE D BEFORE THE LD. DIT(IT) THE LD. DIT(IT) HAS WITHOUT MAKING ENQUIRY HAS COME TO A CONCLUSION THAT THIS AMOUNT IS TAXABLE UNDER SECTIO N 56(2)(VI) OF THE ACT. THEREFORE, WE MODIFY THE ORDER OF LD. DIT(IT) AND RESTORE THIS ISSUE BACK TO THE FILE OF AO TO VERIFY THE CLAIM OF THE ASSESSEE THAT THE SUM OF RS.34,57,318/- IS LIABLE TO TAX BEING A CAPITAL INCOME OR REVENUE RECEIPT OR WHETHER NOT TAXABLE AS CAPITAL G AIN OR REVENUE RECEIPT. THEREFORE, WE RESTORE THIS ISSUE BACK TO THE FILE OF THE AO TO PASS A DENOVO ASSESSMENT ORDER. ITA NO.3301/M/2014 SHRI KABIR SUDHIR MULJI 8 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED ORDER PRONOUNCED IN THE OPEN COURT ON 14.02.2018. SD/- SD/- (RAJESH KUMAR) (D.T. GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 14.02.2018. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.