ITO 8(1)(2), MUMBAI V. CLUBLINK (INDIA) P. LTD, MUMBAI

ITA 4392/MUM/2010

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0624 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 11 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 20-04-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 28-05-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SACCHIDANAND DUBEY
• Assessee Lawyers: N K ARORA
• Keywords: Capital asset; Difference of opinion; Capital receipt
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI BEFORE SHRI B R BASKARAN, AM & SHRI AMIT SHUKLA, JM ITA NO.4392/MUM/2010 ASSESSMENT YEAR : 2006-07 THE ITO 8(1)(2) MUMBAI VS. M/S. CLUBLINK (INDIA) PVT. LTD. PLOT NO. 1064 A & B NEW LINK ROAD, MALAD (W) MUMBAI- 400 064 PAN AABCC8207D (APPELLANT) RESPONDENT) APPELLANT BY : SHRI SACCHIDANAND DUBEY RESPONDENT BY : SHRI N K ARORA DATE OF HEARING : 2 0 .04.2015 DATE OF PRONOUNCEMENT : 27. 05.2015 O R D E R PER AMIT SHUKLA, JUDICIAL MEMBER THE AFORESAID APPEAL HAS BEEN FILED BY THE REVENUE AGAINST IMPUGNED ORDER DATED 26.03.2010, PASSED BY CIT(A)-16, MUMBAI FOR T HE QUANTUM OF ASSESSMENT PASSED U/S. 143(3) FOR A.Y. 2006-07, ON THE FOLLOWI NG GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.3,73,81 ,280/- ON ACCOUNT OF SALE OF LAND BEING LONG TERM CAPITAL GAIN WITHOUT APPRECIAT ING THE FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN NOT CONSIDERING THIS FACT THAT THE ASSESSING OFFICER HAD RIGHTLY TAXED THE CAPITAL GAIN ON ACCOUNT OF TRANSFER OF CA PITAL ASSETS I.E. LAND WITHIN THE MEANING OF SECTION 2(47) 3. WITHOUT PREJUDICE TO THE ABOVE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN NOT CO NSIDERING THE ASSESSING OFFICERS FINDING IN THE REMAND PROCEEDINGS THAT TH E ADDITION OF RS.3,73,81,280/- SHOULD HAVE BEEN SPLIT AND TAXED A S SHORT TERM CAPITAL GAIN ITA NO.4392/MUM/2010 2 (RS.3,61,84,536/-) AND LONG TERM CAPITAL GAIN (RS.2 4,04,658/-) BEING GAINS ARISING ON ACCOUNT OF SALE OF LAND, WITHOUT APPRECI ATING THE FACTS OF THE CASE. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E WAS INTO BUSINESS OF RUNNING A PRIVATE CLUB. DURING THE COURSE OF THE ASSESSMEN T PROCEEDINGS THE ASSESSING OFFICER ON THE PERUSAL OF NOTES TO THE ACCOUNT NOTE D THAT, IN WAKE OF CONSENT OF SETTLEMENT WITH THE ERSTWHILE SHARE HOLDERS, AN AMO UNT OF RS.3,87,01,260/- WAS CREDITED TO CAPITAL REVALUATION RESERVE, WHICH INCL UDED THE REVALUATION OF THE LAND AND CERTAIN EXPENDITURE INCURRED FOR THE SAID LAND. THE BOOK VALUE OF THE LAND WAS RS.1,12,98,740/- AND AFTER ALLOCATION OF EXPENDITUR E AND CERTAIN LIABILITIES, THE DIFFERENCE IN INCOME WAS TAKEN IN THE BALANCE SHEET TO CAPITAL REVALUATION RESERVE AND WAS NOT RECORDED AS INCOME. THE ASSESSING OFFI CER OBSERVED THAT SUCH A TRANSACTION BETWEEN THE ASSESSEE COMPANY AND THE ER STWHILE SHARE HOLDER IS CLEARLY A CASE OF TRANSFER OF ASSET U/S. 2(47). IN RESPONS E TO SHOW CAUSE NOTICE, THE ASSESSEE EXPLAINED THAT THE TWO SHAREHOLDERS I.E. M ALHOTRA GROUP AND PANDIT GROUP WERE EARLIER RUNNING THE CLUB. HOWEVER, DUE TO SOM E DIFFERENCE AMONGST THEM, THE ASSETS AND LIABILITIES OF THE CLUB WERE DISTRIBUTED BETWEEN THESE TWO GROUPS WITH THE APPROVAL OF THE COURT. AS PER THE COURTS SETTLEME NT, PANDIT GROUP TOOK OVER THE ASSESSEE CLUB ALONG WITH THE MEMBERS LIABILITY AND MALHOTRA GROUP TOOK OVER THE LINK HOUSE AND VACANT LAND ALONG WITH THE LIABILITI ES RELATED TO LINK HOUSE. THERE WAS NO MONEY TRANSACTION WHICH HAS TAKEN PLACE IN P URSUANCE OF THE SETTLEMENT. THE BOOK VALUE OF THE LAND GIVEN TO MALHOTRA GROUP WAS AT RS.1,12,98,740/-. THE REVALUATION OF THE ASSET FOR THE DISTRIBUTION AS PE R THE COURT ORDER WAS CAPITAL APPRECIATION AND HENCE, THE SAME WAS TRANSFERRED TO CAPITAL REVALUATION RESERVE ITA NO.4392/MUM/2010 3 AND THERE IS NO REVENUE RECEIPT. THE ASSESSEE FURT HER STATED THAT THE SETTLEMENT AMONG MALHOTRA GROUP AND PANDIT GROUP TOOK PLACE ON 07.04.2005, FOR THREE PIECES OF LAND ALONG WITH PART CONSTRUCTION. SINCE IT WAS TRANSFERRED AS PER COURT ORDER, THERE WAS NO MONEY TRANSACTION INVOLVED IN SETTLEME NT AS IT WAS PURE DISTRIBUTION OF ASSETS. HENCE, THERE CANNOT BE CAPITAL GAIN. THE ASSESSEE ALSO GAVE WORKING OF VALUE OF THE LAND AS RECORDED IN THE BOOKS AND ALSO THE SETTLEMENT EXPENSES INCURRED THEREON AND SUBMITTED THAT THERE WAS ACTUA L LOSS. THE WORKING HAS BEEN GIVEN AT PAGE 4 OF THE ASSESSMENT ORDER. HOWEVER, THE AO REJECTED THE ASSESSEES CONTENTION AND MADE A VERY IMPORTANT OBSERVATION TH AT THE BLOCK OF FIXED ASSET SHOWED OPENING BALANCE OF LAND AS ON 01.04.2005 AT RS.2,18,76,090/-. OUT OF THIS THE AMOUNT OF RS.1,12,98,740/- WAS DECLARED AS TRAN SFER AND THE BALANCE AMOUNT OF RS.1,05,77,350 WAS SHOWN AS CLOSING BALANCE OF LAND AS ON 31.03.2006. THE LAND WAS SOLD TO MALHOTRA GROUP FOR RS.5 CRORE AND THE D IFFERENCE BETWEEN THE COST PRICE AND SALE PRICE OF RS.3,87,01,260/- WAS PROFIT ON SA LE OF LAND, WHICH WAS NOTHING BUT CAPITAL GAIN WHICH HAS BEEN TRANSFERRED TO CAPITAL REVALUATION RESERVE FUND IN THE BALANCE SHEET. HE ALSO REFERRED TO VARIOUS CLAUSES OF THE AGREEMENT AND ALSO THE TERMS OF CONFIRMATION OF SETTLEMENT AND CAME TO THE CONCLUSION THAT VARIOUS EXPENSES CLAIMED BY THE ASSESSEE HAS ALREADY BEEN C ONSIDERED/PAID BY MALHOTRA GROUP TO PANDIT GROUP. HE THUS, HELD THAT THERE WA S A CLEAR CUT TRANSFER OF LAND BETWEEN THE ASSESSEE COMPANY AND MALHOTRA GROUP ON WHICH A GAIN OF RS.3,87,01,260/- HAD ARISEN. ACCORDINGLY, HE TAXED CAPITAL GAIN AFTER TAKING THE INDEX VALUE. 3. THE LEARNED CIT(A) HOWEVER, DELETED THE SAID ADD ITION ON THE FOOTING THAT THE ASSESSING OFFICER HAS PRESUMED THAT THE AMOUNT REPRESENTS REVALUATION OF ITA NO.4392/MUM/2010 4 LAND WHICH IN FACT IS VALUE OF TRANSFER OF ASSET AS PER COURT SETTLEMENT AND THE CLASSIFICATION MADE IN BALANCE SHEET IS A MISTAKE B Y THE AUDITOR. THE RELEVANT OBSERVATIONS AND FINDINGS OF THE CIT(A) IN THIS REG ARD IS AS UNDER: FROM THE PERUSAL OF THE AGREEMENT DATED 7/2/2005 A S DISCUSSED BY THE AO IN THE ASSESSMENT ORDER IN GREAT LENGTH, IT IS NOTICED THAT THE ASSETS AND LIABILITIES OF M/S. CLUBLINK INDIA PVT. LTD. WERE DISTRIBUTED B ETWEEN MALHOTRA AND PANDIT GROUP IN 60:40 RATIO. THERE IS NO DISPUTE ON THIS ISSUE THAT LAND AND BUILDING AMOUNTING TO RS. 5T CRORE WAS TRANSFERRED TO THE MA LHOTRA GROUP AS PER THIS AGREEMENT AND SETTLEMENT OF THE COURT. THE DISPUTE IS ONLY REGARDING THE ENTRY OF CAPITAL REVALUATION RESERVE OF RS.3,87,01, 260/- IN THE BALANCE SHEET. THE AO HAS PRESUMED THIS AMOUNT AS REVALUATION OF T HE LAND SHOWN AT RS.1,12,98,740/-. ACTUALLY, THE SETTLEMENT AS PER THE AGREEMENT AND THE COURT SETTLEMENT IS THE TRANSFER OF LAND AND BUILDING. T HE VALUE OF BUILDING (WORK IN PROGRESS) WAS SHOWN AT RS.3,87,01,620/- IN THE BALA NCE SHEET OF EARLIER YEARS ALSO. THEREFORE, ACTUALLY THERE WAS NO REVALUATION OF THE ASSETS BUT BY MISTAKE THE AUDITOR HAS WRITTEN AS CAPITAL REVALUATION RESE RVE BUT IT SHOULD HAVE BEEN WRITTEN AS CAPITAL RESERVE OF RS.3,87,01,260/- THI S IS A VALUE OF TRANSFER OF ASSETS AS PER COURT SETTLEMENT AND NOT THE REVALUAT ION OF ASSETS AS MENTIONED IN THE BALANCE SHEET. THE AO HAS ALSO RAISED NO DI SPUTE THAT IT WAS A CAPITAL ASSETS AND THE CAPITAL ASSETS HAS BEEN TRANSFERRED AS PER AGREEMENT AND COURT SETTLEMENT AND NO CASH TRANSACTION HAS BEEN TAKEN P LACE WHICH MEANS THERE IS NO SALE AND PURCHASE OF ANY ASSETS. SECONDLY, IT IS A CAPITAL RECEIPTS BECAUSE THE ENTR IES ARE NOT ROOTED THROUGH THE P & L A/C. ON THIS FACT, NEITHER THE AO NOR THE AP PELLANT HAS ANY DISPUTE. THE ENTRY OF CAPITAL REVALUATION RESERVE HAS CREATED TH E DOUBT IN THE MIND OF THE AO THAT THE ASSETS HAS BEEN REVALUED, THEREFORE, HE WAS OF THE VIEW THAT THE CAPITAL GAIN SHOULD HAVE BEEN CHARGED ON THIS AMOUN T. BUT FROM PERUSAL OF THE BALANCE SHEET, IT IS SEEN THAT THERE IS NO CHAN GE IN THE VALUE OF ASSETS SHOWN IN THE BALANCE SHEET EXCEPT WORD REVALUATION WAS WRITTEN INADVERTENTLY AND ACCEPTED BY THE APPELLANT. SINCE THERE IS NO D ISPUTE THAT THE LAND AND BUILDING ARE TO BE TRANSFERRED TO THE MALHOTRA GROU P BUT THE AO HAS PRESUMED THAT ONLY BUILDING HAS TO BE GIVEN, THEREFORE, HE H AS SEPARATELY TAKEN THE VALUE OF LAND AND BUILDING FOR CAPITAL GAIN. REMAND REPO RT OF THE AO WAS ALSO CALLED FOR AND HE HAS MENTIONED THE SAME FACTS AS GIVEN IN THE ASSESSMENT ORDER. THE AO IS ADAMANT ON THE WORD REVALUATION WRITTEN IN THE BALANCE SHEET, ALTHOUGH THERE IS NO REVALUATION OF WORK IN PROGRES S TRANSFERRED. THE AO HAS CONTENDED THAT ONCE THE APPELLANT HAS MENTIONED WOR K REVALUATION, THEREFORE, CAPITAL GAIN HAS TO BE CHARGED WITHOUT UNDERSTANDIN G THE FACT THAT THERE IS NO REVALUATION OF THE ASSETS. FROM THESE FACTS OF THE CASE, IT IS HELD THAT THE AO HAS ERRED IN TAKING THE AMOUNT AT RS.3,87,01,260/- AS REVALUATION OF ASSETS AND CHARGING CAPITAL GAIN ON THIS AMOUNT. KEEPING IN VIEW ALL THESE FACTS AND CIRCUMSTANCES, IT IS HELD THAT THERE IS NO REVALUAT ION OF LAND AND BUILDING, THEREFORE QUESTION OF LEVING CAPITAL GAIN TAX DOES NOT ARISE. THUS, THE ADDITION ITA NO.4392/MUM/2010 5 MADE BY THE AO IS NOT SUSTAINABLE, HENCE DELETED. THE GROUND OF APPEAL IS ALLOWED. 4. AFTER HEARING BOTH THE PARTIES AT LENGTH AND ON PERUSAL OF THE IMPUGNED ORDER, WE FIND THAT THE ASSESSING OFFICER AND THE C IT(A) HAVE GIVEN TWO DIVERSE REASONS FOR DECIDING THE ISSUE. EARLIER THE TWO GR OUP, I.E. MALHOTRA GROUP AND THE PANDIT GROUP WERE RUNNING THE CLUB WITH THE NAME AN D STYLE OF CLUBLINK INDIA PVT. LIMITED. DUE TO CERTAIN DISPUTE AND DIFFERENCE OF OPINION, BOTH THE PARTIES APPROACHED THE COURT FOR AMICABLE SETTLEMENT FOR DI STRIBUTION OF ASSETS AND LIABILITIES. AS PER THE COURT SETTLEMENT, PANDIT G ROUP TOOK OVER THE ASSESSEE CLUB ALONG WITH THE MEMBERS LIABILITY AND MALHOTRA GROU P TOOK OVER THE LINK HOUSE AND VACANT LAND ALONG WITH THE LIABILITIES ATTACHED THE REIN. THE MAIN DISPUTE REVOLVES AROUND THE LAND SHOWN IN THE REVALUATION RESERVE AC COUNT IN THE BALANCE SHEET. THE LAND AND BUILDING WAS TRANSFERRED TO MALHOTRA G ROUP FOR RS.5 CRORE, THE BOOK VALUE OF WHICH WAS RS.1,12,98,740/- THE ASSESSING OFFICER HELD THE DIFFERENCE OF RS.3,87,01,260/- IS NOTHING BUT A CAPITAL GAIN. TH E ASSESSEE HAD SHOWN THIS AMOUNT OF RS.3,87,01,260/- AS CAPITAL REVALUATION R ESERVE IN THE BALANCE SHEET. THE LEARNED CIT(A) HAS HELD THAT THERE IS NO REVALU ATION OF ASSET AND IT WAS MISTAKE ON THE PART OF THE AUDITOR TO CLASSIFY IT AS CAPITA L REVALUATION RESERVE AND, THEREFORE, THERE IS NO TRANSFER OR TAXABILITY OF CA PITAL GAIN. SINCE THERE IS NO CLARITY OF FACTS, THEREFORE, IN THE INTEREST OF JUSTICE, WE ARE OF THE OPINION THAT THIS MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE ASSESSIN G OFFICER TO CORRECTLY APPRECIATE THE FACTS AFTER TAKING INTO CONSIDERATION THE CONTE NTIONS OF THE ASSESSEE AND THE OBSERVATIONS MADE BY THE CIT(A) IN THE LIGHT OF THE MATERIAL ON RECORD. THE ASSESSING OFFICER WILL DECIDE THE ISSUE AFRESH AFTE R GIVING DUE AND EFFECTIVE ITA NO.4392/MUM/2010 6 OPPORTUNITY OF HEARING TO THE ASSESSEE TO EXPLAIN I TS CASE AND IN ACCORDANCE WITH THE PROVISIONS OF LAW. ACCORDINGLY, THE GROUNDS RAISED BY THE REVENUE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES 5. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 27 TH DAY OF MAY 2015. SD/- SD/- (B R BASKARAN) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED : 27 TH MAY, 2015. SA / COPY OF THE ORDER FORWARDED TO : 1. /THE APPELLANT. 2. / THE RESPONDENT. 3. ( ) / THE CWT(A), MUMBAI. 4. / CWT 5. , , / DR, E BENCH, ITAT, MUMBAI / BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI