LAXMANKUMAR R. DAGA, MUMBAI V. ITO 14(1)(1), MUMBAI

ITA 3326/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7827 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 09-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: NIKITA AGARWAL
• Keywords: Cost of acquisition; Capital receipt; Surrender of tenancy right

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 3326/MUM/2014 ASSESSMENT YEAR: 2004-05 SHRI LAXMANKUMAR R. DAGA, VS. ITO 14(1)(1) 18/22, SHEIKH MEMON STREET AAYAKAR BHAWAN, 5 TH FLOOR, M.K. ROAD, MUMBAI 400 002 MUMBAI 400 020 (APPELLANT) (RESPONDENT) ASSESSEE BY : MS. NIKITA AGARWAL, AR REVENUE BY: SHRI MAURYA PRATAP, DR DATE OF HEARING : 20/1 2/2016 DATE OF PRONOUNCEMENT: 15/03/2017 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVA NT ASSESSMENT YEAR IS 2004-05. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER (APPEALS) 25, MUMBAI AND ARISES OUT OF ORDER U/S 271(1)(C) OF THE INCOME TAX ACT, 1961 (THE ACT). 2. THE EFFECTIVE GROUND OF APPEAL FILED BY THE ASSE SSEE READS AS UNDER:- THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF T HE A.O. IN LEVYING PENALTY OF RS. 4,80,725/- U/S 271(1)(C) OF THE ACT ON THE ALLEGATION OF FILING INACCURATE PARTICULARS OF INCOME BY THE A PPELLANT WITH RESPECT TO THE COMPENSATION RECEIVED BY THE APPELLA NT FROM THE BUILDER ON ACCOUNT OF BREACH OF CONDITIONS AND HARA SSMENTS. ITA NO. 3326/MUM/2014 2 3. IN A NUTSHELL, THE FACTS ARE THAT THE ASSESSING OFFICER (AO) NOTICED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT THE ASSESSEE HAD RECEIVED COMPENSATION OF RS. 16,50,000 /- ON ACCOUNT OF HARDSHIP FACED DUE TO DELAY IN DELIVERY OF FLAT AT SURAJ APARTMENT FROM THE DEVELOPERS. IT WAS OBSERVED BY THE AO THAT THE AFORESAID COMPENSATION RECEIVED BY THE ASSESSEE HAD NOT BEEN OFFERED FOR TAXATION. IN THE ASSESSMENT, THE AO TREATED SUCH CO MPENSATION RECEIVED ON SURRENDER OF TENANCY RIGHTS AS LONG TER M CAPITAL GAINS TO BE TAXED U/S 48 OF THE ACT. THEN THE AO LEVIED A MI NIMUM PENALTY OF RS. 4,80,725/- U/S 271(1)(C) OF THE ACT. 4. THE ASSESSEE FILED AN APPEAL AGAINST THE PENALTY ORDER OF THE AO BEFORE THE LEARNED CIT(A). THE AR OF THE ASSESSEE S UBMITTED BEFORE THE LEARNED CIT(A) THAT HE HAD DISCLOSED THE RECEIP TS ON ACCOUNT OF COMPENSATION ON THE FACE OF THE BALANCE SHEET AND T HE SAID BALANCE SHEET WAS PART OF THE RETURN OF INCOME AND THE AUDI TOR IN FORM 3CD HAD SPECIFICALLY MENTIONED SUCH CAPITAL RECEIPTS. T HUS IT IS SUBMITTED BY HIM THAT THE ASSESSEE HAD NEITHER CONCEALED THE PARTICULARS OF HIS INCOME NOR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. THE ASSESSEE VIDE HIS LETTER DATED 11.07.2012 RELIED ON THE ORDER OF THE ITAT, MUMBAI IN THE CASE OF KUSHAL K. BANGIA VS. ITO (ITA NO. 2349/MUM/2011 DATED 31.01.2012 FOR A.Y. 2007-08) WH EREIN THE TRIBUNAL HELD THAT RECEIPTS DURING THE REDEVELOPME NT ARE CAPITAL RECEIPTS AND NOT REVENUE AND SUCH RECEIPTS REDUCE T HE COST OF ASSESSEE AND SHOULD BE TAKEN INTO ACCOUNT WHEN SUCH REDEVELOPED PROPERTIES ARE SOLD. WE FIND THAT THE LEARNED CIT( A) HELD THAT THOUGH IT HAS MADE SMALL DISCLOSURE IN IS ACCOUNTS BUT SUC H DISCLOSURE DOES NOT CONFER ANY RIGHT TO THE ASSESSEE TO MAKE A CLAI M WHICH IS PATENTLY WRONG. HAD THIS BEEN A CASE, THEN NO ONE WILL PAY E VEN A SINGLE RUPEE TAX. EACH AND EVERY ASSESSEE WILL MAKE A DISCLOSURE AND WILL NOT OFFER ITA NO. 3326/MUM/2014 3 THE INCOME FOR TAX. ONCE IT IS DETECTED BY THE DEPA RTMENT, THEY WILL PAY THE TAX AND NO PENALTY. NOW A DAYS ONLY FEW CAS ES ARE SELECTED FOR SCRUTINY. HAD THE CASE OF THE ASSESSEE NOT BEEN SEL ECTED IN SCRUTINY, THE ABOVE TAX EVASION WOULD HAVE NEVER BEEN DETECTE D. THUS THE LEARNED CIT(A) CONFIRMED THE PENALTY OF RS. 4,80,72 5/- LEVIED BY THE AO U/S 271(1)(C) OF THE ACT ON THE GROUND THAT THE ASSESSEE HAD SUBMITTED INACCURATE PARTICULARS OF INCOME. 5. BEFORE US THE LEARNED COUNSEL OF THE ASSESSEE SU BMITS THAT IN THE BALANCE SHEET AS ON 31.03.2004, THE ASSESSEE HA S SHOWN IN THE CAPITAL ACCOUNT THE COMPENSATION / DAMAGE RECEIVED FROM MR & DR THACKER FOR MULTIPLE SHIFTING AND INCONVENIENCE OF RS. 16,50,000/-. THE ASSESSEE HAD RECEIVED COMPENSATION IN LIEU OF S URRENDER OF TENANCY RIGHTS OF RS. 16,50,000/- ON ACCOUNT OF HAR DSHIP FACED DUE TO DELAY IN DELIVERY OF PERMANENT ACCOMMODATION (FLAT) AT SURAJ APARTMENT FROM THE DEVELOPER M/S. MR & DR THACKER F OR SURRENDER OF MONTHLY TENANCY AND THE SAME TREATED AS CAPITAL RECEIPT AND DULY REFLECTED IN PROPRIETORS CAPITAL ACCOUNT AS ADDITI ON TO CAPITAL IN THE BALANCE SHEET FILED ALONG WITH THE RETURN OF INCOME . THE LEARNED COUNSEL RELIES ON THE ORDER OF THE ITAT A BENCH M UMBAI IN THE CASE OF KUSHAL K. BANGIA VS. ITO (ITA NO. 2349/MUM/2011) FOR THE A.Y. 2007-08. RELIANCE IS ALSO PLACED BY HIM ON THE JUDG MENT OF THE HON'BLE SUPREME COURT IN CIT VS. RELIANCE PETRO PRODUCTS (P) LTD. (2010) 322 ITR 158 (SC). 6. ON THE OTHER HAND, THE LEARNED DR SUPPORTS THE O RDER PASSED BY THE LEARNED CIT(A) CONFIRMING THE PENALTY IMPOSED B Y THE AO. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS FOUND FROM THE BALANCE SH EET SUBMITTED BY THE ASSESSEE ALONG WITH THE RETURN OF INCOME THAT T HE ASSESSEE HAD ITA NO. 3326/MUM/2014 4 DULY REFLECTED RECEIPT OF COMPENSATION / DAMAGE AMO UNTING TO RS. 16,50,000/- FROM M/S. MR & DR THACKER IN THE PROPRI ETORS CAPITAL ACCOUNT AS ADDITION TO CAPITAL. IN THE CASE OF KUSHAL K. BANGIA (SUPRA) , RELIED ON BY THE LEARNED COUNSEL OF THE ASSESSEE, T HE ASSESSEE HAD RECEIVED RS. 11,75,000/- AS CASH COMPENSATION. TH E ASSESSEE WAS A MEMBER OF A HOUSING SOCIETY BY THE NAME OF VILE PAR LE RAMESH CHS LTD. THIS HOUSING SOCIETY, ALONG WITH ITS MEMBERS, ENTERED INTO AN AGREEMENT WITH A DEVELOPER AND UNDER THE SAID AGREE MENT, THE DEVELOPER WAS TO DEMOLISH THE RESIDENTIAL BUILDING OWNED BY THE HOUSING SOCIETY, AND RECONSTRUCT A NEW MULTI-STORIE D BUILDING BY USING THE FSI ARISING OUT OF THE PROPERTY AND BY UT ILIZING OUTSIDE TDR UNDER DEVELOPMENT CONTROL REGULATIONS. UNDER THIS A RRANGEMENT, THE ASSESSEE AS A MEMBER OF THE HOUSING SOCIETY, RECEIV ED A SLIGHTLY LARGER FLAT IN THE NEW BUILDING, WHICH HAD AN ADDITIONAL A REA OF 173 SQ. FT.; A DISPLACEMENT COMPENSATION OF RS. 6,12,000/- WHICH WAS COMPUTED @ RS. 34,000/- P.M. FOR THE PERIOD OF CONSTRUCTION OF THE NEW BUILDING AND AN ADDITIONAL COMPENSATION OF RS. 11,75,000/-. THE AO BROUGHT TO TAX THE CASH COMPENSATION OF RS. 11,75,000/- AS CASUAL INCOME. IN FURTHER APPEAL, THE LEARNED CIT(A) CONFIRMED THE AB OVE ADDITION MADE BY THE AO. ON THE OTHER HAND, THE ITAT HELD AS UNDER: IN OUR CONSIDERED VIEW, THE RECEIPT OF RS. 11,75,000 /- BY THE ASSESSEE CANNOT BE SAID TO BE OF REVENUE NATURE, AND ACCORDINGLY, THE SAME IS OUTSIDE THE AMBIT OF INCOME UNDER SECTION 2(24) OF THE ACT. HOWEVER, I N OUR CONSIDERED OPINION AND AS LEARNED COUNSEL FOR THE ASSESSEE FAIRLY AGREES , THE IMPUGNED RECEIPT ENDS UP REDUCING THE COST OF ACQUISITION OF THE ASSET , I.E. FLAT, AND, THEREFORE, THE SAME WILL BE TAKEN INTO ACCOUNT AS SUCH AS AND WHEN OCCASION ARISES FOR COMPUTING CAPITAL GAINS IN RESPECT OF THE SAID ASSET . SUBJECT TO THESE OBSERVATIONS, GRIEVANCE OF THE ASSESSEE IS UPHELD. 7.1 IN VIEW OF THE ORDER OF THE ITAT IN THE CASE OF KUSHAL K. BANGIA (SUPRA) , THE TAXABILITY OF COMPENSATION OF RS. 16,50,000/- RECEIVED BY ITA NO. 3326/MUM/2014 5 THE ASSESSEE AS LONG TERM CAPITAL GAIN BY THE AO IS A DEBATABLE ISSUE. AN ANALOGY MAY BE DRAWN HERE. WHERE THE ASSESSEE, P RIOR TO COMMENCEMENT OF ITS BUSINESS HAD RECEIVED INTEREST, WHICH WAS CAPITALISED AS PART OF PRE-OPERATIVE EXPENSES, THE ASSESSMENT TREATING IT AS TAXABLE INCOME CANNOT BY ITSELF JUSTIFY LEVY OF PENALTY. IT WAS SO DECIDED BY THE HON'BLE DELHI HIGH COURT IN CIT VS MUSHASHI AUTOPARTS INDIA PVT. LTD. (2011) 330 ITR 545 (DEL). 7.2 AS MENTIONED EARLIER, THE ASSESSEE HAS DISCLOSE D THE RECEIPT OF RS. 16,50,000/- IN THE BALANCE SHEET FILED ALONG WI TH THE RETURN OF INCOME. IT HAS BEEN HELD BY THE HON'BLE SUPREME COU RT IN RELIANCE PETRO PRODUCTS (P) LTD. (SUPRA) THAT MERELY BECAUSE THE ASSESSEE HAD CLAIMED EXPENDITURE, WHICH CLAIM WAS NOT ACCEPTED O R WAS NOT ACCEPTABLE TO REVENUE, THAT BY ITSELF WOULD NOT ATT RACT PENALTY U/S 271(1)(C) OF THE ACT. 8. IN VIEW OF THE REASONS GIVEN AT PARA 7 TO 7.2 HE RE-IN-ABOVE, THE PENALTY OF RS. 4,80,725/- IMPOSED BY THE A.O. U/S 2 71(1)(C) IS DELETED. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15/03/2017 SD/- SD/- (MAHAVIR SINGH) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTA NT MEMBER MUMBAI; DATED: 15/03/2015 BISWAJIT, 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 ITA NO. 3326/MUM/2014 6 6. GUARD FILE . B Y ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI