M/S. WATCO ENGINEERING CO. PVT. LTD, MUMBAI V. THE ACIT 2(3), MUMBAI

ITA 4243/MUM/2007

• Counselvise Citation: 424319914 RSA 2007
• Duration Of Justice: 4 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 26-09-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 05-06-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K NAYAK
• Keywords: Capital asset; Advance ruling
• Section: 143(3); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G BEFORE SHRI R.V. EASWAR (PRESIDENT) & SHRI J SUDHAK AR REDDY (AM) I.T.A.NO. 4243/MUM/2007 (ASSESSMENT YEAR : 2003-04) WATCO ENGINEERING CO. PVT. LTD. MALHOTRA HOUSE 5 TH FLOOR, OPP. GPO, FORT MUMBAI-400 001. VS. ACIT 2(3) MUMBAI. I.T.A.NO. 4619/MUM/2007 (ASSESSMENT YEAR : 2003-04) DCIT-2(3) AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020 VS. WATCO ENGINEERING CO. PVT. LTD. MALHOTRA HOUSE 5 TH FLOOR, OPP. GPO, FORT MUMBAI-400 001. PAN/GIR NO. : AAACW046Q ASSESSEE BY : SHRI VIMAL PUNMIYA DEPARTMENT BY : SHRI A.K. NAYAK DATE OF HEARING : 26.09.2011 DATE OF PRONOUNCEMENT : 29.9.2011 ORDER PER J. SUDHAKAR REDDY, (AM) :- THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDE R OF LEARNED CIT(A)-XXXIII, MUMBAI DATED 30.3.2007 FOR A.Y. 2003 -04. 2. FACTS IN BRIEF. THE ASSESSEE IS A COMPANY AND IN THE BUSINESS OF TRADING IN EXPORT OF SAFETY ROZOR BLADES. DURING TH E YEAR, THE ASSESSEE FILED ITS RETURN OF INCOME ON 27.11.2003 DECLARING TOTAL INCOME OF ` 63,57,950/-. THE ASSESSING OFFICER PASSED AN ORDER U/S. 143(3) ON 30.1.2006 ASSESSING THE INCOME AT ` 72,59,380/-. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER RECOMPUTED CAPITAL GAI NS, EARNED BY THE ASSESSEE ON THE SALE OF LAND. THE ASSESSEE ENTERED INTO AN AGREEMENT WITH M/S. ARIHANT FOUNDATIONS & HOUSINGS LTD. (HERE INAFTER REFERRED TO AFHL) VIDE JOINT DEVELOPMENT AGREEMENT DATED 9.6.20 00 FOR THE DEVELOPMENT OF LAND AT CHENNAI. TOTAL 8 FLOORS WERE TO BE CONSTRUCTED BY AFHL AND CONSTRUCTED AREA WAS TO BE EQUALLY SHARED BETWEEN THE WATCO ENGINEERING CO. PVT. LTD. 2 ASSESSEE AND AFHL. THE ASSESSEE CLAIMED DEDUCTION O F 50% OF INDEXED COST OF LAND. THE ASSESSING OFFICER CAME TO THE CON CLUSION THAT THE ENTIRE LAND REMAINS WITH THE ASSESSEE AND WHAT HAS ACTUALL Y BEEN SOLD IS THE FLOOR SPACE INDEX (FSI) AND THE ASSESSEE CANNOT CLA IM DEDUCTION OF COST OF 50% OF THE LAND. HE CAME TO A CONCLUSION THAT WHAT WAS ACTUALLY SOLD WAS FSI AND HAD ALLOWED AS DEDUCTION OF 35% OF THE COST OF LAND. THE ASSESSEE CARRIED THE MATTER IN APPEAL. FIRST APPELL ATE AUTHORITY, AFTER CONSIDERING VARIOUS CLAUSES IN THE AGREEMENT AS WEL L AS SUPPLEMENTARY AGREEMENT CAME TO A CONCLUSION THAT THE ASSESSEE HA D AGREED TO TRANSFER THE RIGHTS OF 50% OF UNDIVIDED SHARE OF LAND, IN FA VOUR OF THE DEVELOPER OR ITS NOMINEE AND HENCE CLAIM FOR DEDUCTION WAS JUSTI FIED. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 3. IN THE ASSESSEES APPEAL THE SOLE ISSUE IS ON DI SALLOWANCE MADE ON ACCOUNT OF FOREIGN TRAVEL. MRS. ANJALI TALWAR IS AN EMPLOYEE OF THE ORGANIZAT ION AND TRAVELLED ABROAD. THE ASSESSING OFFICER REJECTED THE EXPLANAT ION OF THE ASSESSEE THAT, SHE TRAVELLED ABROAD FOR ASCERTAINING BUSINES S OPPORTUNITIES AVAILABLE IN THE GLOBAL MARKET, ON THE GROUND THAT THE ASSESSEE EXPORTS ONLY TO UNITED ARAB EMIRATE AND WHEREAS MRS. ANJALI TALWAR TRAVELLED TO LONDON. THE ASSESSING OFFICER ALSO OBSERVED THAT TH E ASSESSEE HAS NOT FILED ANY DETAILS OF HER VISIT AND ITS RELATIONSHIP TO THE BUSINESS. ON APPEAL, THE FIRST APPELLATE AUTHORITY AGREED WITH T HE ASSESSING OFFICER ON THE GROUND THAT THE ASSESSEE HAD NOT PRODUCED ANY E VIDENCE TO SHOW THAT THE FOREIGN TRIP RESULTED IN ANY BUSINESS TRAN SACTION EITHER IN THIS YEAR OR IN THE SUBSEQUENT YEAR. HE ALSO OBSERVED TH AT THE ASSESSEE DID NOT PRODUCE ANY DOCUMENTARY EVIDENCE ABOUT THE BUSI NESS ACTIVITIES ATTENDED TO, BY THIS EMPLOYEE ABROAD. AGGRIEVED, THE ASSESSEE FILED AN APPEAL. 4. THE OTHER TWO GROUNDS IN THE ASSESSEES APPEAL A RE ON CHARGING OF INTEREST U/S. 234A, 234B & 234C AND INITIATION OF P ENALTY PROCEEDING U/S. 271(1)(C). 5. WE FIRST TAKE UP THE REVENUES APPEAL IN ITA NO. 4619/MUM/2007. WATCO ENGINEERING CO. PVT. LTD. 3 SHRI A.K. NAYAK, LEARNED DEPARTMENTAL REPRESENTAT IVE SUBMITTED THAT THE ASSESSEE HAS NEVER TRANSFERRED NOR INTENDE D TO TRANSFER ANY LAND AND UNDER THOSE CIRCUMSTANCES, THE CLAIM FOR DEDUCT ION OF COST OF LAND IS BAD IN LAW. HE TOOK THIS BENCH TO VARIOUS CLAUSES O F THE JOINT DEVELOPMENT AGREEMENT WHICH IS AT PAGE 73 TO 104 OF THE PAPER BOOK FILED BY THE ASSESSEE AND ARGUED THAT THE ASSESSEE HAD NUMBER OF CLAUSES IN THE AGREEMENT SO AS TO ENABLE IT TO REFU SE TRANSFER OF PROPERTY. SUM AND SUBSTANCE OF THE SUBMISSION ARE THAT THE AS SESSEE HAS PLACED A NUMBER OF RESTRICTIONS AND CAVEATS BY WHICH DEVELOP ER AFHL WOULD NOT BE ABLE TO CONVEY ITS PORTION OF PROPERTY TO A THI RD PARTY, UNLESS AND UNTIL CONDITIONS OF THE AGREEMENT ARE FULFILLED OR UNLESS THE ASSESSEE GRANTS PERMISSION. HE RELIED ON THE DECISION OF THE AUTHORITY FOR ADVANCE RULINGS IN THE CASE OF JASBIR SINGH SARKARIA, 164 T AXMAN 108 (AAR- NEW DELHI) AND SUBMITTED THAT AS PER THIS JUDGMENT, TO ATTRACT SECTION 2(47)(V), IT IS NOT NECESSARY THAT THE ENTIRE SALE CONSIDERATION UP TO THE LAST INSTALLMENT SHOULD BE RECEIVED BY THE OWNER. H E POINTED OUT THAT THE ASSESSEE HAD ENTERED INTO A JOINT DEVELOPMENT AGREE MENT IN JUNE 2000 AND WHEREAS CAPITAL GAIN HAS BEEN OFFERED TO TAX IN A.Y. 2003-04. HE EMPHASIZED THAT THERE IS NO TRANSFER OF LAND FROM T HE ASSESSEE TO THE DEVELOPER AND HENCE NO DEDUCTION SHOULD BE GRANTED. ON A QUERY FROM THE BENCH, HE SUBMITTED THAT THOUGH THERE IS NO TRA NSFER IN THE LAND, LEVY OF CAPITAL GAIN SURVIVES, AS THE ASSESSEE HAS SU MOTO OFFERED THE SAME TO TAX AND AS THERE IS TRANSFER OF FSI. ON FUR THER QUERY FROM THE BENCH, LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTE D THAT NO WHERE IN THE AGREEMENT OR IN ANY OF THE DOCUMENT, THERE IS A REFERENCE TO FLOOR SPACE INDEX (FSI) OR SURRENDER TRANSFER OF THE SAM E TO AFHL. 7. LEARNED COUNSEL FOR THE ASSESSEE SHRI VIMAL PUNM IYA FILED A PAPER BOOK RUNNING INTO 256 PAGES AND POINTED OUT THAT WH AT HAS BEEN TRANSFERRED, WAS IN FACT 50% OF THE UNDIVIDED SHARE IN THE LAND. HE SUBMITTED THAT THE ASSESSEE HAD CONSIDERED VARIOUS OPTIONS BEFORE IT I.E. COST OF CONSTRUCTION OF ITS PORTION OF AREA, GUIDEL INE VALUE OF LAND, AS WELL AS PRESENT VALUE OF BUILDING AND LAND BASED ON REPL ACEMENT COST OF BUILDING AND ALSO PRESENT VALUE OF LAND AND BUILDIN G BASED ON L&B METHOD AND TOOK HIGHER OF THE VALUE AS THE SALE CON SIDERATION. HE TOOK WATCO ENGINEERING CO. PVT. LTD. 4 THIS BENCH TO VARIOUS CLAUSES OF THE AGREEMENT AND SUBMITTED THAT LEARNED CIT(A) WAS RIGHT IN HOLDING THAT THE COST O F TRANSFER WAS VALUED AT 50% OF THE LAND. 8. RIVAL CONTENTIONS WERE HEARD. ON CAREFUL CONSIDE RATION OF THE FACT AND CIRCUMSTANCES OF THE CASE AND PERUSAL OF THE PA PER BOOKS ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW, WE HOLD AS FOLLOWS. IN CLAUSE 1 OF THE JOINT DEVELOPMENT AGREEMENT READS AS FOLLOWS :- 1) THAT IN CONSIDERATION OF THE OWNER CONSENTING G RANTING TO THE DEVELOPER A PERSONAL LICENCE TO ENTER UPON THE SAID PROPERTY MENTIONED IN THE SCHEDULE A, THERETO ONLY FOR THE PURPOSE OF CONSTRUCTING AND COMPLETING THE COMMERCI AL COMPLEX IN ACCORDANCE WITH THE FINAL PLAN AND SPECIFICATIONS PROPOSED TO BE GOT APPROVED FROM CMD A AND CORPORATION OF CHENNAI AND ALL OTHER NECESSARY AUTH ORITIES AND THE DEVELOPER CARRYING OUT SUCH CONSTRUCTION AN D DEVELOPMENT AT ITS SOLE COSTS, THE OWNER HAS AGREED TO ALLOT TO THE DEVELOPER A RIGHT TO SELL TO THE PURCHASER/P URCHASERS OF THE DEVELOPER 50% OF THE TOTAL AREA TO BE CONSTR UCTED TOGETHER WITH 50% OF UNDIVIDED SHARE OF LAND (INCLU DING 50% OF THE CAR PARKING SPACE) MORE FULLY AND PARTICULARLY MENTIONED IN C SCHEDULE HEREUNDER IN THE MANNER AND ON THE TERMS AND CONDITIONS HEREINAFTER APPEARING. CLAUSE 5&6 READ AS UNDER :- 5. THOUGH THE OWNER HAS AGREED TO EXECUTE A GENERA L POWER OF ATTORNEY IN FAVOUR OF THE DEVELOPER AUTHORIZING THE DEVELOPER TO SELL 50% OF THE UNDIVIDED SHARE OF LAN D AS PROVIDED BY CLAUSE 6 BELOW SHOWN BROWN ON PLAN ANNE XURE 1 HERETO IN FAVOUR OF THEIR PROPOSED PURCHASERS , IT IS MADE CLEAR THAT THE DEVELOPER SHALL BE ENTITLED TO ENTER INTO THE SALE AGREEMENT OR AGREEMENTS, RECEIVE ADVANCE AND THEREAFTER TO EXECUTE THE SALE DEED OR SALE DEEDS O NLY AFTER A PRIOR WRITTEN CONSENT FROM THE OWNER AND AFTER THE OWNER HAS APPROVED THE TERMS AND CONDITIONS OF THE SALE AGREEMENTS AND THE SALE DEEDS. 6. THE EXECUTION AND REGISTRATION OF THE SALE DEED FOR THE UNDIVIDED SHARE OF LAND WITH REGARD TO THE DEVELOPE RS NOMINEE/PURCHASERS SHALL TAKE PLACE ONLY AFTER THE DEVELOPER HAS CONSTRUCTED THE TOTAL RCC WORK AS PER THE SANCTIONED PLAN INCLUDING PUTTING UP WATER TANKS, M ACHINE ROOM, HEAD ROOM OVER THE A SCHEDULE PROPERTY AFTE R OBTAINING ALL NECESSARY PERMISSIONS FROM ALL NECESS ARY AUTHORITIES FOR PUTTING THE NOMINEES/PURCHASER/PURC HASERS OF PREMISES IN POSSESSION. WATCO ENGINEERING CO. PVT. LTD. 5 9. FROM THE ABOVE IT IS CLEAR THAT THE ASSESSEE HAD AGREED THAT HE WOULD SELL 50% OF UNDIVIDED SHARE OF LAND TO THE DE VELOPER AFHL, OR ITS NOMINEE IN CONSIDERATION OF DEVELOPER CONSTRUCTING APPROXIMATELY 70000 SQUARE FEET AND THEREAFTER HANDING OVER TO THE ASSE SSEE 50% SUCH CONSTRUCTED AREA. THUS, IN OUR CONSIDERED OPINION F IRST APPELLATE AUTHORITY WAS RIGHT IN HOLDING THAT THE ASSESSEE HA S IN CONSIDERING OF TRANSFERRING 50% OF UNDIVIDED SHARE OF LAND, RECEIV ED CERTAIN CONSIDERATION, WHICH IS RIGHTLY OFFERED TO CAPITAL GAIN TAX AND THAT COST OF SUCH UNDIVIDED SHARE OF LAND TRANSFERRED HAS TO BE ALLOWED AS A DEDUCTION FROM SALE CONSIDERATION, AFTER INDEXATION . ARGUMENTS OF LEARNED DEPARTMENTAL REPRESENTATIVE ARE DEVOID OF M ERIT. HIS SUBMISSION THAT THERE IS NO TRANSFER AT ALL, IS IN OUR VIEW UN SUSTAINABLE. IF THIS ARGUMENT IS ACCEPTED, THEN THERE IS NO CAPITAL GAIN AT ALL WHICH IS LIABLE TO TAX. WHEN NOWHERE IN THE AGREEMENT AND DOCUMENTS FSI IS MENTIONED, THE ASSESSING AUTHORITY HAS WRONGLY HELD THAT WHAT WAS TRANSFERRED WAS FSI. AGREEMENTS ARE CLEAR IN THIS R EGARD. JUST BECAUSE THE ASSESSEE BY WAY OF PRECAUTION INCORPORATED CERT AIN CLAUSES TO SAFEGUARD ITS INTEREST IN CASE OF DELAY, THE ASSESS ING OFFICER CANNOT CONCLUDE THAT UNDIVIDED SHARE IN LAND WAS NOT REQUI RED TO BE TRANSFERRED. THUS, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, WE UPHOLD THE ORDER OF LEARNED CIT(A) ALLOWING THE CLAIM OF THE A SSESSEE. IN THE RESULT, APPEAL OF THE REVENUE HAS TO BE DISMISSED. 10. WE NOW TAKE UP THE ASSESSEES APPEAL IN ITA NO. 4243/MUM/2007. 11. AFTER CONSIDERING RIVAL CONTENTIONS, WE FIND TH AT A PERSON WHO TRAVELED TO LONDON IS AN EMPLOYEE OF THE COMPANY. L EARNED CIT(A) CONFIRMED THE DISALLOWANCE BY OBSERVING AT PARAGRAP H 8 PAGE 27 OF THE ORDER THAT, THE ASSESSEE COULD NOT PRODUCE ANY EVID ENCE AS TO WHETHER THE FOREIGN TRIP RESULTED IN ANY BUSINESS TRANSACTI ON IN THIS YEAR OR THE SUBSEQUENT YEAR OR NOT. THIS REASON FOR DISALLOWANC E IS NOT SUSTAINABLE IN LAW. THE ASSESSEE IS IN THE BUSINESS OF EXPORTS. IT IS MAINLY EXPORTING TO UAE AND OTHER SUCH COUNTRIES. THE CLAIM IS THAT THE EMPLOYEE TRAVELLED TO LONDON, TO ASCERTAIN AND EXPLORE THE S COPE OF NEW MARKETS WATCO ENGINEERING CO. PVT. LTD. 6 AND OPPORTUNITIES. IN OUR OPINION AN EXPENDITURE IN CURRED FOR SUCH PURPOSE IS ALLOWABLE EXPENDITURE. LEARNED COUNSEL F OR THE ASSESSEE SUBMITTED THAT THE ASSESSEE COULD OBTAIN BUSINESS F ROM UK IN THE SUBSEQUENT ASSESSMENT YEAR. THIS ASPECT IS NOT CONT RADICTED BY REVENUE. THE EXPENSE IS NOT ALLEGED TO BE FOR PERSONAL PURPO SE. ON THIS FACTS AND CIRCUMSTANCES, WE HAVE TO HOLD THAT THE ASSESSING O FFICER HAS WRONGLY DISALLOWED THIS CLAIM OF THE ASSESSEE. LEARNED CIT( A), WITHOUT ANY EVIDENCE THAT THIS IS PERSONAL EXPENDITURE HAS SUST AINED DISALLOWANCE. THIS GROUND OF THE ASSESSEE IS ALLOWED. 12. GROUND NO. 2 OF THE ASSESSEES APPEAL IS ON THE ISSUE OF LEVY OF INTEREST U/S. 234A, 234B & 234C. THE SAME IS DISMIS SED AS MANDATORY AND CONSEQUENTIAL. 13. GROUND NO. 3 OF THE ASSESSEES APPEAL DOES NOT ARISE FROM THE ORDER OF LEARNED CIT(A). IN THE RESULT, THIS GROUND OF THE ASSESSEE IS DISMISSED. 14. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED IN PART WHILE APPEAL OF THE REVENUE IS DISMISSED. ORDER HAS BEEN PRONOUNCED ON 29 TH DAY OF SEPTEMBER, 2011. SD/- (R.V. EASWAR) PRESIDENT SD/- (J.SUDHAKAR REDDY) ACCOUNTANT MEMBER DATED : 29 TH SEPTEMBER, 2011. COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)-CONCERNED. 4. THE CIT, CONCERNED. 5. THE DR CONCERNED, MUMBAI 6. GUARD FILE BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI PS