MANOJ M. MOTWANI, MUMBAI V. ASST CIT CIR 9(1), MUMBAI

ITA 4057/MUM/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4335 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-04-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 14-03-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 21-05-2013
• Court: TRIBUNAL
• Department Lawyers: D PRABHAKAR REDDY
• Assessee Lawyers: B V JHAVERI

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) & SHRI PAWAN SINGH (JM) I.T.A. NO. 4057 /MUM /2013 (ASSESSMENT YEAR 2009 - 10 ) SHRI MANOJ N. MOTWANI 701, MYSTIQUE ROSE PLOT NO. 196 EAST AVENUE SANTACRUZ WEST MUMBAI - 4 00 054. VS. ACIT,CIRCLE - 9(1) PIRAMAL CHAMBERS LALBAUG MUMBAI - 400 012. ( APPELLANT ) ( RESPONDENT ) PAN NO. AAJPM7437Q ASSESSEE BY SHRI B.V. JHAVERI DEPARTMENT BY SHRI D. PRABHAKAR REDDY DATE OF HEARING 14 .3 . 201 6 DATE OF PRONOUNCEMENT .4 . 201 6 O R D E R PER B.R. BASKARAN, A M : - THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 6.3.3013 PASSED BY LEARNED CIT(A) - 30, MUMBAI AND IT RELATES TO A.Y. 2009 - 10. 2. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LEARNED CIT(A) IN UP HOLDING THAT THE INCOME OF RS. 62,50,000/ - HAS TO BE TAXED IN THE HANDS OF THE ASSESSEE ON ACCRUAL BASIS UNDER THE HEAD PROFITS AND GAINS OF BUSINESS. FURTHER THE ASSESSEE ALSO PLEADS THAT THE EXPENDITURE INCURRED BY HIM TOWARDS STAMP DUTY AND REGISTRAT ION CHARGES ARE TO BE REDUCED FROM INCOME OFFERED BY HIM. 3. FACTS RELATING TO THE ISSUE S ARE STATED IN BRIEF. THE ASSESSEE ENTERED INTO AN AGREEMENT ON 7.9.2006 WITH M/S. INDO SAIGON AGENCY (ISA) FOR PURCHASE OF A FLAT NUMBERED AS 408 IN PRANIK CHAMBER S, MUMBAI FOR CONSIDERATION OF RS. 50,00,000/ - . THE ASSESSEE PAID A SUM OF RS. 30,00,000/ - IN THAT REGARD AND THE BALANCE AMOUNT WAS AGREED TO BE PAID AT THE TIME OF TAKING POSSESSION. IT SHRI MANOJ N. MOTWANI 2 IS ALSO CLAIMED THAT THE ASSESSEE INCURRED EXPENDITURE TOWARDS STAM P DUTY AND REGISTRATION AGGREGATING TO ABOUT RS. 9.14 LAKHS AT THE TIME OF PURCHASE IN THE YEAR 2006. THE FLAT WAS ORIGINALLY DEVELOPED BY A CONCERN NAME M/S. SUPREME INDO SAIGON ASSOCIATES, FROM WHOM SELLER ISA PURCHASED FLAT S NUMBERED AS 419, 420, 421 & 422 ON 4 TH FLOOR OF PRANIK CHAMBERS . M/S ISA SUBSEQUENTLY JOINED THESE FLATS AND RENUMBERED THEM AS 408. AS P ER THE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND ISA , THE AREA OF FLAT WAS STATED AS 2500 SQUARE FEET . 4. WHEN THIS SALE TRANSACTI ON CAME TO THE NOTICE OF THE DEVELOPER M/S SUPREME INDO SAIGON AGENCY (SISA), IT INFORMED THE ASSESSEE THAT THE AREA SOLD BY ISA CONSISTED OF 460 SQ.FT. NOT BELONGING TO ISA AND ACCORDINGLY INFORMED THAT THE TITLE TO THE PROPERTY WAS NOT PERFECT. DUE TO TH IS DISPUTE AND ENCUMBRANCE, THE ASSESSEE FINALLY SOLD THE FLAT TO THE DEVELOPER M/S SISA, VIDE AGREEMENT DATED 27 - 01 - 2009, FOR A CONSIDERATION OF RS.1,12,50,000/ - . HOWEVER, THE ASSESSEE RECEIVED THE SALE CONSIDERATION IN IN STALMENTS FROM SIS A . 5. THE ASSESSEE OFFERED THE PROFIT ARISING FROM THIS TRANSACTION AS CAPITAL GAINS. THE AO TOOK THE VIEW THAT THE ASSESSEE HAS NOT PURCHASED THE FLAT, BUT ONLY MADE INVESTMENT TOWARDS PURCHASE OF THE SAME. ACCORDINGLY HE TOOK THE VIEW THAT THE AR RANGEMENT SO MADE BY HIM HAS RESULTED IN A PROFIT AND HENCE THE SAID PROFIT IS REQUIRED TO BE ASSESSED AS INCOME FROM OTHER SOURCES. ACCORDINGLY HE ASSESSED A SUM OF RS.83.30 LAKHS AS INCOME OF THE ASSESSEE. 6. THOUGH THE ASSESSEE CHALLENGED THE SAID DECISION OF THE AO BY FILING APPEAL BEFORE LD CIT(A), YET HE AGREED WITH THE VIEW OF THE AO DURING THE COURSE OF APPELLATE PROCEEDINGS. HOWEVER, THE ASSESSEE DISPUTED THE WORKINGS MADE BY THE AO AND FURTHER HE CONTENDED THAT THE INCOME SHOULD BE ASSESSED ON RECEIPT OF BASIS IN THE CONCERNED YEAR OF RECEIPTS. THE LD CIT(A), HOWEVER, TOOK THE VIEW THAT THE TRANSACTION OF PURCHASE AND SALE IS A CIRCULAR TRANSACTION CREATED BY THE PARTIES CONCERNED IN ORDER TO SUIT THEIR PURPOSES. SHRI MANOJ N. MOTWANI 3 ACCORDINGLY HE TOOK THE VIE W THAT THE PROFIT ALLEGED TO HAVE BEEN EARNED BY THE ASSESSEE SHOULD BE ASSESSED IN THE INSTANT YEAR ITSELF, AS IT HAS CRYSTALLISED DURING THIS YEAR. WITH REGARD TO THE CLAIM FOR DEDUCTION OF STAMP DUTY AND REGISTRATION CHARGES, THE LD CIT(A) TOOK THE VIE W THE SAME IS NOT DEDUCTIBLE SINCE THERE WAS NO GENUINE PURCHASE. AGGRIEVED BY THE ORDER OF LD CIT(A), THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 7. WE HEARD THE PARTIES AND PERUSED THE RECORD. WE NOTICE THAT THE ASSESSEE HIMSELF HAS AG REED THAT THE PROFIT ARISING FROM THE TRANSACTION OF PURCHASE AND SALE OF FLAT IS REQUIRED TO BE ASSESSED AS INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. THE DISPUTE IS WITH REGARD TO THE YEAR IN WHICH THE SAID PROFIT IS ASSESSABLE. THE CLAIM OF THE ASSESSEE IS THAT THE PROFIT SHOULD BE ASSESSED ON RECEIPT BASIS, WHEREAS THE LD CIT(A) HAS TAKEN THE VIEW THAT THE SAME IS ASSESSABLE ON ACCRUAL BASIS. 8. WE NOTICE THAT BOTH THE PARTIES HAVE AGREED TO THE FACT THAT THE TITLE TO THE PROPERTY DID NOT PASS ON TO THE ASSESSEE. FURTHER THE AREA OF THE FLAT AGREED TO BE PURCHASED BY THE ASSESSEE INCLUDED AN UNAUTHORISED AREA ALSO. IN VIEW OF THE SAID ENCUMBRANCES, IT WOULD NOT NORMALLY NOT POSSIBLE FOR THE ASSESSEE TO SELL THE SAME TO THE OUTSIDE RS. FURTHER, WE NOTICE THAT THE PURCHASE AGREEMENT WAS ENTERED ON 07 - 09 - 2006 AND THE SALE AGREEMENT WAS ENTERED ON 27 - 01 - 2009. THE PURCHASE AGREEMENT WAS ENTERED WITH ONE OF THE BUYERS OF THE FLAT, WHO HAD PURCHASED THE SAME FROM THE DEVELOPER M/S SISA. DUE TO THE ENCUMBRANCES, THE ASSESSEE HAS THOUGHT IT FIT TO SELL THE FLAT TO THE SAME DEVELOPER. 9. WE NOTICE THAT THE LD CIT(A) HAS TAKEN THE VIEW THAT THESE ARE DUBIOUS CIRCULAR TRANSACTIONS. WE NOTICE THAT THE LD CIT(A) HAS COME TO SUCH A CONC LUSION WITHOUT ESTABLISHING THE NEXUS OR RELATIONSHIP BETWEEN THE PARTIES INVOLVED. WE NOTICE THAT THE TRANSACTION WAS FIRST INITIATED BY M/S SISA BY SELLING THE FLAT TO M/S ISA. THEREAFTER, M/S ISA SOLD THE FLAT TO THE ASSESSEE IN SEPTEMBER, 2006. SUBS EQUENTLY, THE ASSESSEE SOLD THE FLAT TO M/S SISA IN SHRI MANOJ N. MOTWANI 4 JANUARY, 2009. IT CAN BE SEEN THAT THERE IS A GAP OF ABOUT TWO AND HALF YEARS BETWEEN THE TRANSACTION OF PURCHASE AND SALE. THIS TIME GAP, IN FACT, DOES NOT SUPPORT THE VIEW TAKEN BY LD CIT(A). FURTHER, I N THE CASE OF DUBIOUS TRANSACTION, THE BENEFIT SHALL NORMALLY ACCRUE TO THE PERSON WHO INITIATED THE TRANSACTION. IN THE INSTANT CASE, IT IS NOT SHOWN THAT THE BENEFIT HAS ACCRUED TO M/S SISA DUE TO THESE CIRCULAR TRANSACTIONS. WE NOTICE THAT THE ASSE SSEE HAS GIVEN PROPER REASONING AS TO WHY HE HAD TO SELL THE FLAT TO M/S SISA. UNDER THESE SET OF FACTS, WE ARE OF THE VIEW THAT THERE IS NO REASON TO SUSPECT THE GENUINENESS OF THE TRANSACTIONS, THAT TOO, WITHOUT BRINGING ANY MATERIAL ON RECORD TO SUPPOR T SUCH A VIEW. 10. SINCE THE INCOME FROM THESE TRANSACTIONS HAS BEEN AGREED TO BE ASSESSED AS INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES, THE SAME IS REQUIRED TO BE ASSESSED AS PER THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE. THE CLAIM O F THE ASSESSEE IS THAT HE IS FOLLOWING CASH SYSTEM OF ACCOUNTING IN RESPECT OF THIS SOURCE. THE LD A.R SUBMITTED THAT THE ASSESSEE HAS OFFERED THE INCOME IN THE SUBSEQUENT YEARS AS AND WHEN THE SALE CONSIDERATION WAS RECEIVED. NO MATERIAL HAS BEEN BROUGHT ON RECORD BY LD CIT(A) TO CONTRADICT THIS CLAIM. ACCORDINGLY, WE FIND MERIT IN THE SAID CLAIM OF THE ASSESSEE. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO ASSESS THE INCOME ARISING FROM THESE TRANSACTIONS ON RECEIP T BASIS. 11. THE ASSESSEES CLAIM FOR DEDUCTION OF STAMP DUTY AND REGISTRATION CHARGES HAS BEEN REJECTED BY LD CIT(A) ON THE REASONING THAT THE CLAIM OF PURCHASE OF FLAT WAS NOT GENUINE. SINCE, WE HAVE SET ASIDE THE SAID REASONING OF THE LD CIT(A) , WE ARE OF THE VIEW THAT THE SAID CLAIM OF THE ASSESSEE NEEDS TO BE EXAMINED. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE AO WITH THE DIRECTION TO EXAMINE THE SAID CLAIM OF THE ASSESSEE AND TAKE APPROPRIATE DECISION IN ACCORDANCE WITH THE LAW. SHRI MANOJ N. MOTWANI 5 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED. ORDER HAS BEEN PRONOU NCED IN THE OPEN COURT ON 1 .4 .2016 . SD/ - SD/ - (PAWAN SINGH ) (B.R.BASKARAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 1 / 4 /20 1 6 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( DY./ASSTT. REGISTRAR) ITAT, MUMBAI PS