THE ITO 21(1)(3), MUMBAI V. SHRI MUKESH K. BHARMANI, MUMBAI

ITA 3901/MUM/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1622 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-10-2009
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 04-06-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PRADIP S HADAOO
• Assessee Lawyers: K SHIVARAM
• Keywords: Capital asset; Cost of acquisition; Set aside; Capital Gains
• Section: 133(6); 54EC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: MUMBAI BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SMT ASHAVIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO 3901/MUM/2008 (ASSESSMENT YEAR: 2005-06) ITO, WD-21(1)(3), ROOM NO 605, 6TH FLOOR, PRATYAKSHAKAR BHAVAN, BANDRA-KURLA COMPLEX, BANDRA, MUMBAI -400 051 VS SHRI MUKESH K BHARMANI, KAILASH SADAN, BAJAJ ROAD, VILE PARLE (W), MUMBAI -400 056 PAN: AACPB 1309 H APPELLANT RESPONDENT APPELLANT BY: SHRI PRADIP S HADAOO RESPONDENT BY: SHRI K SHIVARAM ORDER PER PRAMOD KUMAR , ACCOUNTANT MEMBER 1. THIS APPEAL FILED BY THE REVENUE ARISES OUT OF T HE ORDER PASSED BY THE CIT (A) - XXI, MUMBAI, ON 31.03.2008 IN RELATIO N TO THE ASSESSMENT YEAR 2005-06. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE HAD ONE SHOP IN THE BUILDING KNOWN AS IRLA CO-OPERATIVE HOUSING LTD . THE SAID SOCIETY HAD ORIGINALLY ENTERED INTO AN AGREEMENT WITH M/S PRIME DEVELOPERS FOR REDEVELOPMENT OF THE SAID SOCIETY IN TO PRIME MALL. IN THE CONTINUATION OF THE SAID AGREEMENT, THE DEVELOPERS ENTERED INTO IND IVIDUAL AGREEMENTS WITH EACH SHOP OWNER INCLUDING THE ASSESSEE. PURSUA NT TO SUCH AGREEMENT, THE ASSESSEE SURRENDERED HIS ALL RIGHTS, TITLES AND INTEREST IN THE OLD PROPERTIES AND IN LIEU OF THE SAID SURRENDER, THE D EVELOPERS GAVE CONSIDERATION IN THE FORM OF ONE NEW SHOP OF EQUIVA LENT CARPET AREA AND COMPENSATION OF RS. 17.00 LAKHS. APART FROM THAT, O NE CAR PARKING SPACE IN THE STILT AREA WAS ALSO PROVIDED TO THE ASSESSEE. A TEMPORARY ALTERNATE ACCOMMODATION WAS GIVEN BY THE DEVELOPER TO THE ASS ESSEE FOR THE PERIOD TILL THE MALL WAS CONSTRUCTED. THE ASSESSEE DID NOT OFFER ANY CAPITAL GAIN ON THE TRANSFER OF HIS SHOP ON THE GROUND THAT THE SUM OF RS. 17.00LAKH WAS SHRI MUKESH K BHARMANI 2 INVESTED IN THE BONDS WITHIN THE PRESCRIBED LIMIT U /S 54EC OF THE ACT. THE AO CAME TO THE CONCLUSION THAT THE QUESTION OF LONG TERM CAPITAL GAINS DID NOT ARISE. HE HELD THAT THE AMOUNT OF RS. 17.00 LAK H WAS TO BE TAXED AS INCOME FROM OTHER SOURCES AND, HENCE, NO DEDUCTIO N WAS AVAILABLE IN RESPECT OF INVESTMENT IN RURAL ELECTRIFICATION BOND S (IN SHORT REC BONDS). SINCE THE ASSESSEE AVAILED ALTERNATE ACCOMMODATION FROM THE BUILDER FOR 10 MONTHS DURING THE YEAR UNDER CONSIDERATION, THE AO FOUND THAT THE SAME WAS TAXABLE @ RS. 8,000/- PER MONTH. THE SAID ADDITION OF RS. 80,000/- WAS ALSO MADE UNDER THE HEAD INCOME FROM OTHER SOURCES. INFORMATION WAS ALSO CALLED FOR U/S 133(6) FROM THE DEVELOPER M/S PRIME DEVELOPERS, WHO FURNISHED THE DETAILS OF 18 SHOPS S OLD TO OUTSIDE PARTIES AT VARYING RATES FROM RS. 10,773/- TO 24,000/- PER SQ. FT. DURING THE PERIOD FROM 15.07.2005 TO 01.11.2007. SINCE, THE ASSESSEE WAS OWNER OF OLD SHOP, WHICH WAS DEMOLISHED AND NEW SHOP WAS GIVEN T O THE ASSESSEE OF THE SAME CARPET AREA WITH BETTER AMENITIES AND FACI LITIES IN A POSH MALL, WHICH WAS CENTRALLY AIR-CONDITIONED AND HAVING ESCA LATORS AND OTHER LATEST FACILITIES, THE AO HELD THAT THERE WAS AN ENHANCEME NT IN THE VALUE OF THE PROPERTY OF THE ASSESSEE @ RS. 4,000/- PER SQ.FT. A S THE TOTAL CARPET AREA TRANSFERRED BY THE ASSESSEE WAS 184 SQ.FT., THE AO MADE ADDITION OF RS. 7,36,000/- (RS. 4,000 X 184 SQ.FT.) ON THIS COUNT U NDER THE HEAD INCOME FROM OTHER SOURCES. APART FROM THAT, IN VIEW OF TH E STILT PARKING AREA PROVIDED BY THE BUILDER, THE AO VALUED THE SAME AT RS. 2,00,0000/- AND TAXED IT ALSO UNDER THE HEAD INCOME FROM OTHER SOU RCES. 3. THE LEARNED CIT(A) CONCURRED WITH THE SUBMIS SIONS ADVANCED ON BEHALF OF THE ASSESSEE AND CONCLUDED THAT IT WAS A TRANSACTION IN THE NATURE OF EXCHANGE OF AN ASSET AND, HENCE, CAPITAL GAIN WAS LIABLE TO BE COMPUTED. HE OPINED THAT THE SALE OF OLD SHOP OR AD DITIONAL FSI WAS DEFINITELY THE TRANSFER OF CAPITAL ASSET RESULTING INTO A LONG TERM CAPITAL GAIN AND HENCE, RS. 17.00 LAKH WAS CHARGEABLE TO TA X UNDER THE HEAD CAPITAL GAINS. AS THE REC BONDS WERE PURCHASED FO R THE EQUAL AMOUNT, THE SHRI MUKESH K BHARMANI 3 LEARNED CIT(A) HELD THAT THE SAID INVESTMENT WAS EL IGIBLE U/S 54EC OF THE ACT. 4. REGARDING ADDITION OF RS. 80,000/-, AS DEEMED RE NT, THE LEARNED CIT(A) HELD THAT IF THE DEEMED VALUE WAS ADOPTED, T HE SAME WOULD BE TREATED AS PART OF THE CAPITAL GAIN ITSELF AND IN L IEU OF SUCH DEEMING GAIN, IT WILL ALSO BE TREATED AS DEEMED EXPENDITURE FOR CARR YING OUT THE REGULAR BUSINESS OF THE ASSESSEE. HENCE, THIS ADDITION WAS HELD TO BE NOT SUSTAINABLE. 5. AS REGARDS THE ADDITION OF RS. 7,36,000/- MADE B Y THE AO, THE LEARNED CIT(A) HELD THAT THERE WAS NO JUSTIFICATION PROVIDED IN THE ASSESSMENT ORDER FOR ESTIMATION OF COST OF CONSTRUC TION @ RS. 4,000/- PER SQ.FT. AS THE IMPROVED CONSTRUCTION WAS ALSO DEPLOY MENT OF CAPITAL GAIN BY THE ASSESSEE, TREATMENT OF SURPLUS FUND OF RS. 17.0 0 LAKH WAS HELD TO BE ON THE SAME LINES AS THE TREATMENT GIVEN TO THE COS T OF CONSTRUCTION. HE DELETED THIS ADDITION AS WELL. 6. AS REGARDS THE LAST ADDITION ON ACCOUNT OF CAR P ARKING FACILITY, VALUED BY THE AO AT RS. 2,00,000/-, THE LEARNED CIT(A) CAM E TO THE CONCLUSION THAT THE ASSESSEE HAD NOT RECEIVED ANY TRANSFERABLE RIGHT AND, HENCE, IT WILL NOT BECOME PART OF NEW BLOCK OF ASSETS. HE AGR EED WITH THE SUBMISSION MADE ON BEHALF OF THE ASSESSEE THAT THE VALUE ADOPT ED BY THE REGISTRAR FOR STAMP DUTY PURPOSES SHOULD BE CONSIDERED FOR DETERM INING THE VALUE OF CAR PARKING, WHICH WAS HELD TO BE CONSIDERED AT 20% OF THE VALUE OF THE ENTIRE AGREEMENT ADOPTED BY THE STAMP DUTY OFFICER TO BE C ONSIDERED AS CAR PARKING FOR THIS PURPOSE. IN THE NUTSHELL, HE SUSTA INED THE ADDITION AT RS. 1,35,000/- ONLY. 7. THE REVENUE IS IN THE PRESENT APPEAL AGAINST THE FINDINGS GIVEN BY THE LEARNED CIT(A). THE ASSESSEE ACCEPTED THE ORDER OF THE LD. CIT(A) AND DID NOT PREFER ANY CROSS APPEAL. SHRI MUKESH K BHARMANI 4 8. HAVING HEARD THE RIVAL CONTENTION AND HAVING PER USED THE MATERIAL, WE FIND THAT THE ISSUES IN APPEAL ARE COVERED BY OR DER DATED 5.10.2009 OF A CO-ORDINATE BENCH, IN THE CASE OF ITO VS PRAKASH BH ARMANI (ITA NO. 3913/M/08), WHEREIN THE CO-ORDINATE BENCH HAS OBSER VED AS FOLLOWS:- WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E RELEVANT MATERIAL ON RECORD. THE UNDISPUTED FACT IS THAT ALO NG WITH OTHER SHOP OWNERS IN IRLA CO-OPERATIVE HOUSING SOCIETY LTD., T HE ASSESSEE TRANSFERRED ITS SHOPS TO M/S PRIME DEVELOPERS. IN L IEU OF THE SURRENDER OF THE RIGHTS IN THE SAID SHOP, THE ASSES SEE WAS GIVEN A SUM OF RS. 17.00 LAKHS IN ADDITION TO SHOP WITH THE SAME CARPET AREA I.E. 184 SQ.FT. IN THE NEW PREMISES. APART FROM THA T, THE ASSESSEE WAS TO BE ALLOWED CAR PARKING IN THE NEW MALL BESIDES A N ALTERNATE ACCOMMODATION FOR 10 MONTHS OF THIS YEAR. THE ASSE SSEE SHOWED LONG TERM CAPITAL GAIN AT RS. NIL BY CONSIDERING THE SALE CONSIDERATION AT RS. 17.00 LAKHS AND CLAIMED THE BE NEFIT U/S 54EC OF THE ACT IN VIEW OF THE INVESTMENT OF EQUAL AMOUNT I N ELIGIBLE BONDS. THE AO HELD THAT IT WAS NOT A CASE OF TRANSFER AN D, HENCE, THE PROVISIONS OF `CAPITAL GAINS ARE NOT ATTRACTED. HE MADE ALL THE ADDITIONS UNDER THE HEAD INCOME FROM OTHER SOURCES . WE ARE NOT CONVINCED WITH THE VIEW TAKEN BY THE AO ON THE SAID TRANSFER OF RIGHTS IN THE OLD SHOPS, WHICH CONSTITUTE CAPITAL A SSET. IT IS OBVIOUS THAT THE OLD STRUCTURE WAS HANDED OVER BY THE ASSES SEE TO M/S PRIME DEVELOPERS AND IN EXCHANGE OF THAT, THE ASSESSEE WA S GIVEN A SUM OF RS. 17.00 LAKH ALONG WITH A SHOP WITH SAME CARPET A REA AND PARKING FACILITY IN THE NEW MALL TO BE CONSTRUCTED ON THE L AND OF THE SOCIETY. THE LEARNED AR HAS RIGHTLY RELIED UPON CERTAIN DECI SIONS FOR CONTENDING THAT SURRENDER OF SUCH RIGHTS AMOUNTS TO TRANSFER OF CAPITAL ASSET. IN PRINCIPLE, WE ARE IN AGREEMENT WI TH THE ARGUMENT RAISED BY THE LEARNED AR THAT IT WAS TRANSFER OF CA PITAL ASSET BY THE ASSESSEE AGAINST WHICH THE SPECIFIC CONSIDERATIONS WERE RECEIVED. SECTION 45(1) OF THE ACT PROVIDES THAT ANY PROFITS OR GAINS ARISING FROM TRANSFER OR CAPITAL ASSET EFFECTED IN THE PREV IOUS YEAR SHALL BE CHARGEABLE TO INCOME TAX UNDER THE HEAD CAPITAL GA INS. THE MODE OF COMPUTATION OF THE INCOME CHARGEABLE UNDER THE HEAD CAPITAL GAINS HAS BEEN PROVIDED FOR IN SECTION 48, ACCORDING TO W HICH EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER AND ALSO THE COST OF ACQUISITION OF THE ASSET AND COST OF ANY IMPROVEMENT THERETO, ARE TO BE REDUCED FROM THE FULL VALUE OF T HE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF TRANSFER OF CAP ITAL ASSET. IT, THEREFORE, TRANSPIRES THAT CAPITAL GAIN IS TO BE COMPUTED U/S 48 OF THE ACT, BY CONSIDERING THE `FULL VALUE OF CONSIDER ATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPITA L ASSET ON ONE HAND SHRI MUKESH K BHARMANI 5 AND DEDUCTING THEREFROM THE COST OF ACQUISITION AND COST OF IMPROVEMENT TOGETHER WITH THE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER. THE A SSESSEE HAS PROCEEDED WITH THE PREMISE THAT ONLY A SUM OF RS. 1 7.00 LAKH IS THE SALE CONSIDERATION AND SINCE THE EQUAL AMOUNT WAS I NVESTED IN THE ELIGIBLE BONDS, NO AMOUNT IS CHARGEABLE TO TAX UNDE R THE HEAD CAPITAL GAINS. IN OUR OPINION THE COMPUTATION OF CAPITAL G AINS SO MADE BY THE ASSESSEE BY CONSIDERING THAT ONLY A SUM OF RS. 17.00 LAKHS, CONSTITUTES FULL VALUE OF CONSIDERATION, IS ERRONEO US. IN FACT EVERY THING RECEIVED OR TO BE RECEIVED BY THE ASSESSEE IN MONEY OR MONEY WORTH, IN LIEU OF TRANSFER OF SHOP, IS PART OF THE FULL VALUE OF CONSIDERATION, BE IT THE VALUE OF NEW BUILDING, VAL UE OF CAR PARKING FACILITY AND RENTAL VALUE OF THE PROPERTY PROVIDED BY THE DEVELOPER TO THE ASSESSEE FOR THE INTERREGNUM. THE LEARNED CIT( A) HAS ERRED IN COMING TO THE CONCLUSION THAT DEEMED RENT OF RS. 8 0,000/- WILL ALSO BE TAKEN TO BE THE EXPENDITURE FOR CARRYING OUT REG ULAR BUSINESS BY THE APPELLANT. HAVING HELD, AND RIGHTLY SO THAT CA PITAL GAIN WAS ATTRACTED IN THIS CASE, THE QUESTION WAS TO COMPUT E THE VALUE OF THE BENEFIT RECEIVED BY THE ASSESSEE IN LIEU OF SURREND ER OF ASSESSEES RIGHT IN THE PROPERTIES. THERE WAS NO QUESTION OF A LLOWING ANY DEDUCTION TOWARDS DEEMED EXPENDITURE INCURRED FOR C ARRYING ANY BUSINESS BY THE ASSESSEE. HIS FURTHER VIEW WAS THAT ADDITION OF RS. 7,36,000/- TOWARDS COST OF CONSTRUCTION AND RS. 2.0 0 LAKH AS VALUE OF CAR PARKING WAS NOT INCLUDIBLE AT ALL AND ONLY THE SUM OF RS. 1,35,000/- WAS TO BE INCLUDED IS A PART OF HIS MIST AKEN APPROACH IN THE MATTER. NO DOUBT THESE TWO ADDITIONS PER SE CAN NOT BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE BUT THE AMOUNT RECEIVED AND THE VALUE OF WHATEVER WAS ACQUIRED BY THE ASSESSEE IN L IEU OF THE SURRENDER OF HIS RIGHTS IN SHOPS WAS TO BE CONSIDER ED AS `FULL VALUE OF CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF T RANSFER OF CAPITAL ASSET. SINCE BOTH THE AUTHORITIES BELOW HAVE CHOSE N TO DEAL WITH THE ISSUE IN A MANNER, WHICH IS ABSOLUTELY NOT SUPPORTE D BY ANY STATUTORY PROVISION, WE ARE OF THE CONSIDERED OPINION THAT TH E ORDER OF THE CIT(A) CANNOT BE UPHELD. THE IMPUGNED ORDER IS, THE REFORE, SET ASIDE AND THE MATTER IS RESTORED TO THE FILE OF THE AO FO R COMPUTING THE AMOUNTS CHARGEABLE TO TAX UNDER THE HEAD CAPITAL G AINS AS PER THE PROVISIONS OF THE ACT AFTER ALLOWING REASONABLE OPP ORTUNITY OF HEARING TO THE ASSESSEE. IT IS FURTHER CLARIFIED THAT IF TH E AMOUNT OF RS. 17.00 LAKHS IS INVESTED IN THE ELIGIBLE BONDS, THE AO, AF TER VERIFICATION, WILL GRANT DEDUCTION U/S 54EC OF THE ACT IN THE FRESH CO MPUTATION OF INCOME ON THIS COUNT UNDER THE CAPITAL GAINS 9. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER, THAN THE VIEW SO TAKEN BY OUR ESTEEMED COLLEAGUES. SHRI MUKESH K BHARMANI 6 10. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-O RDINATE BENCH, WE REMIT THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION IN THE LIGHT OF ABOVE OBSERVATIONS. 11. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIS TICAL PURPOSES. PRONOUNCED IN THE OPEN COURT TODAY ON THE 22ND DAY OF OCTOBER 2009. SD/- (ASHAVIJAYARAGHAVAN) JUDICIAL MEMBER SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER MUMBAI, DATE: 22ND OCTOBER 2009 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A)-XXI, MUMBAI. 4) THE CITCITY-21, MUMBAI. 5) THE D.R. B BENCH, ITAT, MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR CHAVAN* I.T.A.T., MUMBAI SHRI MUKESH K BHARMANI 7 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 20.10.09 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 20.10.09 SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.PS SR.PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS 7 FILE SENT TO THE BENCH CLERK SR.PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER