MOHAMED YUSUF TRUST, MUMBAI V. ASST CIT 14(1), MUMBAI

ITA 4437/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0290 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-06-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 25-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Earning of tax free income; Retrospective amendment; Fair market value; Valuation report
• Section: 43CA; 43B; 50C; 14A; 147; 148; 37; 139

Judgement Text

INCOME TAX APPELLATE TRIBUNAL,MUMBAI BENCH B, MU MBAI BEFORE SHRI P.K.BANSAL, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO 4437/MUM/2014 FOR ASSESSMENT YEAR 2010- 11 IN THE MATTER OF SIR MOHAMED YUSUF TRUST, NHAVA HOUSE, 1 ST FLOOR, 65, MAHARISHI KARVE ROAD, MUMBAI-400052 PAN: AAATS3048L --------- APPELLANT VERSU S ACIT 14(1), 2 ND FLOOR, EARNEST HOUSE, NARIMAN POINT, MUMBAI-400021 -------- RESPONDENT APPELLANT BY ----- SH. K GOPAL WITH MS NEHA PARAN JPE - ADVOCATE RESPONDENT BY -----SH. V.K. AGGARWAL-DR RESERVE FOR ORDER: 1 ST JUNE 2017 DATE OF PRONOUNCEMENT: 14 TH JUNE 2017 ORDER UNDER SECTION 254(1) OF INCOME-TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. THIS APPEAL BY ASSESSEE UNDER SECTION 253 OF INCOME -TAX ACT IS DIRECTED AGAINST THE ORDER OF COMMISSIONER (APPEALS)-25 MUMB AI, DATED 5 TH MARCH 2 014 FOR ASSESSMENT YEAR 2010- 11. THE ASSES SEE HAS RAISED FOLLOWING GROUNDS OF APPEAL AGAINST THE VARIOUS ADD ITIONS IN ASSESSMENT ORDER, VIDE GROUNDS OF APPEAL DATED 25 JANUARY 2017 ; (I) ADDITION MADE BY INVOKING SECTION 50C OF THE ACT. (II) DISALLOWANCE UNDER SECTION 14 A READ WITH RULE 8D O F RS.2,32,129/- (III) DISALLOWANCE OF REPAIR CESS LEVIED BY BMC OF RS.2, 54,149/- 2 ITA NO.4437/M/14- SIR MOHAMED YUSUF TRUST (IV) DISALLOWANCE OF ESTABLISHMENT EXPENSES UNDER SECTIO N 57(III) OF RS.2,77,574/- IN ADDITION TO THE ABOVE REFERRED GROUNDS THE ASSES SEE VIDE APPLICATION DATED 25 JANUARY 2017 RAISED FOLLOWING ADDITIONAL G ROUNDS OF APPEAL; (V) THE ADDITION MADE CONSIDERING THE FAIR MARKET VALUE OF THE PROPERTY IN QUESTION ON THE DATE OF CONVEYANCE DEED AS FULL VA LUE OF CONSIDERATION FOR THE PURPOSE OF COMPUTING CAPITAL GAINS IS NOT AT AL L JUSTIFIED IN THE LIGHT OF PROVISO TO SECTION 50C OF THE ACT INSERTED VIDE FIN ANCE ACT, 2016. THE PROVISO PROVIDES THAT WHERE THE DATE OF AGREEMENT F IXING THE AMOUNT OF CONSIDERATION AND THE REGISTRATION OF THE TRANSFER OF CAPITAL ASSET ARE NOT THE SAME, THE VALUE ADOPTED OR ASSESSED OR ASSESSABLE B Y STAMP VALUATION AUTHORITY ON THE DATE OF AGREEMENT MAY BE TAKEN FOR THE PURPOSE OF COMPUTING FULL VALUE OF CONSIDERATION FOR SUCH TRAN SFER. THUS, THE ADDITION OF RS.4,29,55,781/- MADE WHILE COMPUTING CAPITAL GAINS IS NOT AT ALL JUSTIFIED AND SAME MAY BE DELETED . 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PRIVATE FAMILY NON DISCRETIONARY TRUST. THE INCOME OF TRUST TAXED AS A N AOP. THE ASSESSEE IN RESPONSE TO THE NOTICE UNDER SECTION 148 OF THE INCOME-TAX ACT DATED 19 TH DECEMBER 2009, FILED RETURN OF INCOME FOR RELEVANT ASSESSMENT YEAR ON 22.12.2009 DECLARING TOTAL INCOME OF RS. 1,59,85 ,830/-. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143 (3) READ WITH SECTION 147 ON 19 TH FEBRUARY 2013 DETERMINING TOTAL INCOME OF ASSESSEE AT RS. 7,08,43,080/-. IN THE RETURN OF INCOME THE ASSESSEE DECLARED LONG-TERM CAPITAL GAIN (LTCG) ON TRANSFER OF IMMOVEABLE ASSET S IN RESPECT OF WORLI PROPERTY AT RS. 3,65,71,500/- AND RS.1,85,00, 000/ FOR MAZGAON PROPERTY. THE ASSESSING OFFICER WHILE FRAMING ASSES SMENT ORDER ADOPTED DEEMED SALE CONSIDERATION AT RS.8,42,06,000/- FOR WORLI PROPERTY AND RS. 2,46,33,500/- FOR MAZGAON PROPERTY ON THE BASI S OF VALUATION OF 3 ITA NO.4437/M/14- SIR MOHAMED YUSUF TRUST STAMP AUTHORITIES. THE ASSESSING OFFICER FURTHER DI SALLOWED RS.2,32,129/- UNDER SECTION 14A, RS. 2,54,149/- ON ACCOUNT OF CESS CHARGE PAID TO BMC FOR REPAIRS OF BUILDING, AND EST ABLISHMENT EXPENDITURE OF RS.2,77,574/-. ON APPEAL BEFORE COMM ISSIONER (APPEALS) THE TREATMENT OF DEEMED SALE CONSIDERATIO N OF BOTH THE PROPERTIES AND VARIOUS DISALLOWANCE WAS SUSTAINED. FURTHER, AGGRIEVED BY THE ORDER OF COMMISSIONER (APPEALS) PRESENT APPE AL IS FILED BEFORE US. 3. WE HAVE HEARD LEARNED COUNSEL FOR ASSESSEE AND LEAR NED DR FOR REVENUE AND PERUSED THE MATERIAL OF LABEL ON RECORD . GROUND NO.(I) AND (IV) RELATES TO TREATMENT OF FULL VALUE OF CONSIDER ATION OF TWO PROPERTIES ON THE BASIS OF RATES OF STAMP VALUATION AUTHORITI ES. THE LEARNED COUNSEL FOR ASSESSEE ARGUED THAT THE VALUATION ADOP TED BY ASSESSING OFFICER AND SUBSEQUENTLY CONFIRMED BY LD COMMISSION ER (APPEALS) FOR CONSIDERING THE FAIR MARKET VALUE OF THE PROPERTY I N DISPUTE, ON THE DATE OF EXECUTION OF CONVEYANCE DEED AS FULL VALUE OF CO NSIDERATION FOR THE PURPOSE OF COMPUTING LONG-TERM CAPITAL GAIN IS NOT AT ALL JUSTIFIED. IT WAS FURTHER ARGUED THAT IN THE LIGHT OF PROVISO TO SECTION 50C OF THE ACT, INSERTED BY FINANCE ACT, 2016. THE SAID PROVISO PRO VIDES THAT WHERE THE DATE OF THE AGREEMENT FIXING THE AMOUNT OF CONSIDER ATION AND THE DATE OF REGISTRATION FOR THE TRANSFER OF CAPITAL ASSET ARE NOT THE SAME, THE VALUE 4 ITA NO.4437/M/14- SIR MOHAMED YUSUF TRUST ADOPTED OR ASSESSED OR ASSESSABLE BY THE STAMP VALU ATION AUTHORITY ON THE DATE OF AGREEMENT MAY BE TAKEN FOR THE PURPOSE OF COMPUTING FULL VALUE OF CONSIDERATION FOR SUCH TRANSFER. THUS, IN VIEW OF THE PROVISO TO SECTION 50C, INSERTED BY LEGISLATURE APPLICABLE WIT H EFFECT FROM 1.04.2017, SHOULD BE TREATED AS HAVING RETROSPECTIV E EFFECT AND THE VALUE OF THE PROPERTY ON THE DATE OF AGREEMENT TO SELL SH OULD BE ADOPTED INSTEAD OF VALUE OF DATE OF EXECUTION OF THE CONVEY ANCE DEED. IT WAS FURTHER ARGUED THAT THE ASSESSEE IS A NON-DISCRETIO NARY TRUST, OWNED A NUMBER OF PROPERTIES IN MUMBAI IN ITS NAME. THE TRU ST DEED MANDATES THAT THE PROPERTY CAN BE SOLD ONLY WITH THE PERMISS ION OF HONBLE BOMBAY HIGH COURT. FOR MAZGAON PROPERTY THE ASSESSE E ENTERED INTO DEVELOPMENT AGREEMENT ON 3 APRIL 2002, WITH M/S HOO R CONSTRUCTION AND THE CONSIDERATION. THE PROPERTY WAS OCCUPIED BY TENANTS; THE CONSIDERATION WAS FIXED ON THE BASIS OF SETTLEMENT OF 40% TO THE TENANTS. THE ASSESSEE RECEIVED RS.5,00,000/- AS ADVANCE MONE Y ON 3 RD APRIL 2002. THE ASSESSEE APPROACHED HONBLE BOMBAY HIGH C OURT AND THE NECESSARY PERMISSION WAS GRANTED ON 28 TH OF APRIL 2005. THE BUILDER/DEVELOPER FAILED TO MAKE THE PAYMENT AS PER SETTLEMENT WITH THE TENANTS AND ULTIMATELY WITH THE APPROVAL OF BOMBAY HIGH COURT SETTLEMENT FOR PURCHASING THE SAID PROPERTY WAS FIN ALISED AT RS. 1,75,00,000/-, WHICH WAS ACCEPTED BY HIGH COURT, VI DE ORDER DATED 21 ST 5 ITA NO.4437/M/14- SIR MOHAMED YUSUF TRUST OF OCTOBER 2008. THUS, THE ASSESSEE AFTER COMPLETIN G ALL LEGAL FORMALITIES EXECUTED CONVEYANCE DEED OF PROPERTY ON 15 TH DECEMBER 2009, REGISTERED ON 25 MARCH 2010. FOR WORLI PROPER TY THE ASSESSEE ENTERED INTO MEMORANDUM OF UNDERSTANDING WITH M/S R AHEJA UNIVERSAL LTD ON 18 TH NOV 2004, FOR SALE OF PROPERTY FOR CONSIDERATION O F RS.3,65,71,500/- AND RECEIVED ADVANCE OF RS.32,85,7 20/- THROUGH CHEQUE ON 18 TH NOV 2004. THE CONSIDERATION WAS FIXED AFTER VARIO US NEGOTIATIONS AND ON THE BASIS OF VALUATION REPORT D ATED 12 TH OCTOBER 2004. THE VALUATION REPORT WAS PREPARED BY GOVERNME NT VALUATION OFFICER. ON THE BASIS OF VALUATION REPORT AND THE C ONSIDERATION DECIDED BETWEEN THE PARTIES THE ASSESSEE FILED PETITION BEF ORE HONBLE BOMBAY HIGH COURT. THE HIGH COURT VIDE ITS ORDER DATED 16 TH FEBRUARY 2006 GRANTED SANCTION. THE ASSESSEE EXECUTED THE CONVEYA NCE DEED ON 8 TH FEBRUARY 2010 AND RECEIVED REMAINING CONSIDERATION OF RS. 3,32,85,780/- THROUGH DEMAND DRAFT DATED 6 TH FEB 2010. THE COPY OF TRUST DEED DATED 29 TH APRIL 1929, AGREEMENT WITH M/S HOOR CONSTRUCTION, LIST OF TENANTS, COPIES OF HIGH COURT ORDER FOR GRANTING PERMISSION OF TRANSFER OF ASSET AND SETTLEMENT OF M ONEY WITH THE BENEFICIARY AND APPROVAL ORDER DATED 21.10.2008 ARE PLACED ON RECORD. FURTHER, THE COPY OF THE MEMO OF UNDERSTANDING WITH UNIVERSAL LTD, OF GOVERNMENT VALUATION OFFICER, THE ORDER OF BOMBAY H IGH COURT DATED 16 6 ITA NO.4437/M/14- SIR MOHAMED YUSUF TRUST FEBRUARY 2006 AND CONVEYANCE DEED DATED 8 TH FEB 2008 IS ALSO PLACED ON RECORD. IN SUPPORT OF HIS SUBMISSION, THE LEARNE D COUNSEL RELIED ON THE DECISIONS OF AHMEDABAD TRIBUNAL IN DHARAMSHIBHA I SONANI VS ACIT ITA NO. 1237/AHD/2013[2016] 75 TAXMAN.COM 141( AHMEDABAD- TRIB) AND VISHAKHAPATNAM TRIBUNAL IN SMT. CHALASANI NAGA VS ITO ITA NO.639/VIZAG/2013 DATED 23.12.2016. ON THE OTHE R HAND THE LEARNED DR FOR THE REVENUE SUPPORTED THE ORDER OF A UTHORITIES BELOW. IT WAS ARGUED THAT NO SUCH PROVISO ATTACHED WITH SECTI ON 50C WAS AVAILABLE IN THE ACT, WHEN THE ASSESSING OFFICER PA SSED THE ASSESSMENT ORDER DATED 19.02.2013, WHILE TAKING INTO CONSIDERA TION THE FULL VALUE OF CONSIDERATION ON THE BASIS OF RATES OF STAMP VALUAT ION AUTHORITY. THE ASSESSING OFFICER ADOPTED THE MARKET VALUE OF THE P ROPERTIES ON THE BASIS OF STAMP DUTY VALUATION ON THE DATE OF EXECUTION OF CONVEYANCE DEED OF BOTH THE PROPERTIES. THE FINDINGS OF THE LOWER AUTH ORITIES DOES WANT WARRANT ANY INTERFERENCE AT THIS STAGE. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. SECTION 50 C OF THE INCOME TAX ACT IS READ AS UNDER; 50C. SPECIAL PROVISION FOR FULL VALUE OF CONSIDERAT ION IN CERTAIN CASES (1) WHERE THE CONSIDERATION RECEIVED OR ACCRUING AS A R ESULT OF THE TRANSFER BY AN ASSESSEE OF A CAPITAL ASSET, BEING LAND OR BUILDING OR BOTH, IS LESS THAN THE VALUE ADOPTED OR ASSESSED 1[OR ASSESSABLE] BY ANY A UTHORITY OF A STATE GOVERNMENT (HEREAFTER IN THIS SECTION REFERRED TO A S THE 'STAMP VALUATION AUTHORITY') FOR THE PURPOSE OF PAYMENT OF STAMP DUT Y IN RESPECT OF SUCH TRANSFER, THE VALUE SO ADOPTED OR ASSESSED [OR ASSE SSABLE] SHALL, FOR THE 7 ITA NO.4437/M/14- SIR MOHAMED YUSUF TRUST PURPOSES OF SECTION 48, BE DEEMED TO BE THE FULL VA LUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF SUCH TRANSFER. [ PROVIDED THAT WHERE THE DATE OF THE AGREEMENT FIXING THE AM OUNT OF CONSIDERATION AND THE DATE OF REGISTRATION FOR TRA NSFER OF THE CAPITAL ASSET AND NOT THE SAME, THE VALUE ADOPTED OR ASSESSED OR ASSE SSABLE BY THE STAMP VALUATION AUTHORITY ON THE DATE OF REGISTRATION MAY BE TAKEN FOR THE PURPOSE OF COMPUTING FULL VALUE OF CONSIDERATION FOR SUCH T RANSFER: PROVIDED FURTHER THAT FOR THE FIRST PROVISO SHALL APPLY ONLY IN CAS E WHERE THE AMOUNT OF CONSIDERATION, OR ANY PART THEREOF, H AS BEEN RECEIVED BY WAY OF AN ACCOUNT PAYEE CHEQUE OR ACCOUNT PAYEE BANK DR AFT OR BY USE OF ELECTRONIC CLEARING SYSTEM THROUGH A BANK ACCOUNT, ON OR BEFORE THE DATE OF THE AGREEMENT FOR TRANSFER] *INSERTED BY FINANCE AC T, W.E.F. 01.04.2017. (2) WITHOUT PREJUDICE TO THE PROVISIONS OF SUB-SECT ION (1), WHERE ( A ) THE ASSESSEE CLAIMS BEFORE ANY ASSESSING OFFICER THAT THE VALUE ADOPTED OR ASSESSED [OR ASSESSABLE] BY THE STAMP VALUATION AUT HORITY UNDER SUB-SECTION (1) EXCEEDS THE FAIR MARKET VALUE OF THE PROPERTY A S ON THE DATE OF TRANSFER; ( B ) THE VALUE SO ADOPTED OR ASSESSED [OR ASSESSABLE] BY THE STAMP VALUATION AUTHORITY UNDER SUB-SECTION (1) HAS NOT BEEN DISPU TED IN ANY APPEAL OR REVISION OR NO REFERENCE HAS BEEN MADE BEFORE ANY O THER AUTHORITY, COURT OR THE HIGH COURT, THE ASSESSING OFFICER MAY REFER THE VALUATION OF THE CAPITAL ASSET TO A VALUATION OFFICER AND WHERE ANY SUCH REFERENCE IS M ADE, THE PROVISIONS OF SUB-SECTIONS (2), (3), (4), (5) AND (6) OF SECTION 16A, CLAUSE ( I ) OF SUB-SECTION (1) AND SUB-SECTIONS (6) AND (7) OF SECTION 23A, SU B-SECTION (5) OF SECTION 24, SECTION 34AA, SECTION 35 AND SECTION 37 OF THE WEALTH-TAX ACT, 1957 (27 OF 1957), SHALL, WITH NECESSARY MODIFICATIONS, APPL Y IN RELATION TO SUCH REFERENCE AS THEY APPLY IN RELATION TO A REFERENCE MADE BY THE ASSESSING OFFICER UNDER SUB-SECTION (1) OF SECTION 16A OF THA T ACT. EXPLANATION [ 1 ].FOR THE PURPOSES OF THIS SECTION, 'VALUATION OFF ICER' SHALL HAVE THE SAME MEANING AS IN CLAUSE ( R ) OF SECTION 2 OF THE WEALTH-TAX ACT, (27 OF 1957) EXPLANATION 2 .FOR THE PURPOSES OF THIS SECTION, THE EXPRESSION 'ASSESSABLE' MEANS THE PRICE WHICH THE STAMP VAL UATION AUTHORITY WOULD HAVE, NOTWITHSTANDING ANYTHING TO THE CONTRARY CONT AINED IN ANY OTHER LAW FOR THE TIME BEING IN FORCE, ADOPTED OR ASSESSED, I F IT WERE REFERRED TO SUCH AUTHORITY FOR THE PURPOSES OF THE PAYMENT OF STAMP DUTY.] (2) SUBJECT TO THE PROVISIONS CONTAINED IN SUB-SECTION (2), WHERE THE VALUE ASCERTAINED UNDER SUBSECTION (2) EXCEEDS THE VALUE ADOPTED OR ASSESSED OR ASSESSABLE BY THE STAMP VALUATION AUTHORITY REFERRE D TO IN SUB-SECTION (1), THE VALUE SO ADOPTED OR ASSESSED OR ASSESSABLE BY SUCH AUTHORITY SHALL BE TAKEN AS THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER. 5. SECTION 50C WAS BROUGHT IN THE STATUE BOOK BY FINAN CE ACT 2002 W.E.F. 01.04.2003. FURTHER, A PROVISO WAS INSERTED IN SECT ION 50C BY FINANCE 8 ITA NO.4437/M/14- SIR MOHAMED YUSUF TRUST ACT 2016 W.E.F. 01.04.2017. WE MAY REFER THAT PROV ISO TO SECTION 50C WAS INSERTED ON THE RECOMMENDATION OF INCOME TAX SI MPLIFICATION COMMITTEE SET UP BY GOVERNMENT OF INDIA, HEADED BY JUSTICE RV EASWAR. WHILE MAKING THE AMENDMENT, IN MEMORANDUM E XPLAINING THE PROVISIONS OF FINANCE ACT IT WAS EXPLAINED THAT: RATIONALISATION OF SECTION 50 C IN CASE OF SALE CONSIDERATION IS FIXED UNDER AGREEMENT EXECUTED PRIOR TO THE DATE OF THE S TATION OF IMMOVABLE PROPERTY. UNDER THE EXISTING PROVISIONS CONTAINED IN SECTION 50 C, IN THE TRANSFER OF THE CAPITAL ASSET MAINLAND BUILDING OR BOTH, THE VALUE ADOPTED OR ASSESSED BY STAMP VALUATION AUTHORITY FOR THE PURPO SE OF PAYMENT OF HIS TERM DUTY SHALL BE TAKEN AS FULL VALUE OF CONSIDERA TION FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAINS. THE INCOME TAX SIM PLIFICATION COMMITTEE (EASWAR COMMITTEE) HAS IN ITS 1 ST REPORT, POINTED OUT THAT THIS PROVISION DOES NOT PROVIDE ANY RELIEF REALTY S ALE HAS ENTERED INTO AGREEMENT TO SELL THE PROPERTY MUCH BEFORE THE ACTU AL DATE OF TRANSFER OF THE IMMOVABLE PROPERTY AND THE SALE CONSIDERATIO N IS FIXED IN SUCH AGREEMENT WHEREAS SIMILAR PROVISION EXISTS IN SECTI ON 43CA OF THE ACT, THAT IS WHEN IMMOVABLE PROPERTIES SOLD AS A STOCK I N TRADE. IT IS PROPOSED TO AMEND THE PROVISIONS OF SECTION 50C SO AS TO PROVIDE THAT WHERE THE DATE OF THE AGREEMENT FIXING THE AMOUNT O F CONSIDERATION FOR THE TRANSFER OF IMMOVABLE PROPERTY AND THE DATE OF REGISTRATION ARE NOT THE SAME, THE STAMP VALUE ON THE DATE OF AGREEMENT MAY BE TAKEN FOR THE PURPOSE OF COMPUTING THE FULL VALUE OF CONSIDER ATION. IT IS FURTHER PROPOSED TO PROVIDE THAT THIS PROVISION SHALL APPLY ONLY IN CASES WHERE THE AMOUNT OF THE CONSIDERATION REFERRED TO THEREIN , OR PART THEREOF, HAS BEEN PAID BY WAY OF ACCOUNT PAYEE CHEQUE OR ACCOUNT PAYEE BANK DRAFT OR USE OF ELECTRONIC CLEARING SYSTEM THROUGH A BANK ACCOUNT, ON OR BEFORE THE DATE OF AGREEMENT FOR THE TRANSFER OF SU CH IMMOVABLE PROPERTY. THESE AMENDMENTS ARE PROPOSED TO BE MADE EFFECTIVE FROM THE 1 ST DAY OF APRIL 2017 AND SHALL ACCORDINGLY APPLY IN R ELATION TO ASSESSMENT YEAR 2017-18 AND SUBSEQUENT YEARS 6. WE MAY NOTE THAT THIS AMENDMENT IN THE SCHEME OF SE CTION 50C HAS BEEN MADE BY THE LEGISLATURE TO REMOVE AN INCONGRUI TY, RESULTING IN UNDUE HARDSHIP TO THE INDIVIDUAL(S)/ ASSESSES AS OB SERVED BY TAX 9 ITA NO.4437/M/14- SIR MOHAMED YUSUF TRUST SIMPLIFICATION COMMITTEE. WE MAY ALSO REFER THAT, W HILE THE STATUTORY AMENDMENTS ARE BROUGHT ON THE STATUTE BOOK TO REMOV E THE UNDUE HARDSHIP TO THE INDIVIDUALS, OUGHT TO REMOVE AN APP ARENT INCONGRUITY, SUCH AMENDMENT IS TO BE TREATED AS EFFECTIVE FROM T HE DATE ON, WHEN THE ORIGINAL PROVISION RELATED TO THE PROVISIONS WAS BR OUGHT ON STATUE BOOKS, WAS INITIALLY INSERTED. 7. THE HONBLE APEX COURT IN CIT VS ALOM EXTRUSION LTD (2009) ITR 319 ITR 306 WHILE CONSIDERING THE SCOPE OF SECOND P ROVISO ATTACH WITH SECTION 43B OF THE ACT (INTRODUCED BY FINANCE ACT 2 003) HELD THAT WHEN A PROVISO IN A SECTION IS INSERTED TO REMEDY U NINTENDED CONSEQUENCES AND TO MAKE A SECTION WORKABLE, THE PR OVISO WHICH SUPPLIES AN OBVIOUS OMISSION THEREIN IS REQUIRED TO BE READ RETROSPECTIVELY IN OPERATION, PARTICULARLY TO GIVE EFFECT TO THE SECTION AS A WHOLE. THUS, THE PROVISO WAS DECLARED AS CURATIVE IN NATURE, HENCE, RETROSPECTIVE IN OPERATION WITH EFFECT FROM 1 ST DAY OF APRIL 1988. 8. THE HONBLE DELHI HIGH COURT IN CASE OF CIT VERSUS ANSAL LANDMARK TOWNSHIP [2015] 377 ITR 365 WHILE CONSIDERING THE S COPE OF PROVISO INSERTED WITH SECTION 40(A)(IA) HELD AS UNDER; (I) THE SECOND PROVISO TO SECTION 40(A) (IA) WAS INSERTED BY THE FINANCE ACT 2012 WITH EFFECT FROM 1ST APRIL 2013. THE EFFECT OF THE SAID PROVISO IS TO INTRODUCE A LEGAL FICTION WHERE AN ASSESSEE FAILS T O DEDUCT TAX IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XVII B. WHERE SUCH A SSESSEE IS DEEMED NOT TO BE AN ASSESSEE IN DEFAULT IN TERMS OF THE FIRST PROVISO TO SUB-SECTION (1) OF SECTION 201 OF THE ACT, THEN, IN SUCH EVENT, IT SH ALL BE DEEMED THAT THE 10 ITA NO.4437/M/14- SIR MOHAMED YUSUF TRUST ASSESSEE HAS DEDUCTED AND PAID THE TAX ON SUCH SUM ON THE DATE OF FURNISHING OF RETURN OF INCOME BY THE RESIDENT PAYEE REFERRED TO IN THE SAID PROVISO. THE FIRST PROVISO TO SECTION 210 (1) OF THE ACT HAS BEE N INSERTED TO BENEFIT THE ASSESSEE. IT ALSO STATES THAT WHERE A PERSON FAILS TO DEDUCT TAX AT SOURCE ON THE SUM PAID TO A RESIDENT OR ON THE SUM CREDITED TO TH E ACCOUNT OF A RESIDENT SUCH PERSON SHALL NOT BE DEEMED TO BE AN ASSESSEE IN DEF AULT IN RESPECT OF SUCH TAX IF SUCH RESIDENT HAS FURNISHED HIS RETURN OF INCOME UNDER SECTION 139 OF THE ACT. NO DOUBT, THERE IS A MANDATORY REQUIREMENT UND ER SECTION 201 TO DEDUCT TAX AT SOURCE UNDER CERTAIN CONTINGENCIES, BUT THE INTENTION OF THE LEGISLATURE IS NOT TO TREAT THE ASSESSEE AS A PERSON IN DEFAULT SUBJECT TO THE FULFILMENT OF THE CONDITIONS AS STIPULATED IN THE FIRST PROVISO T O SECTION 201(1). THE INSERTION OF THE SECOND PROVISO TO SECTION 40(A) (I A) ALSO REQUIRES TO BE VIEWED IN THE SAME MANNER. THIS AGAIN IS A PROVISO INTENDED TO BENEFIT THE ASSESSEE. THE EFFECT OF THE LEGAL FICTION CREATED T HEREBY IS TO TREAT THE ASSESSEE AS A PERSON NOT IN DEFAULT OF DEDUCTING TA X AT SOURCE UNDER CERTAIN CONTINGENCIES. (II) WHAT IS COMMON TO BOTH THE PROVISOS TO SE CTION 40 (A) (IA) AND SECTION 210 (1) OF THE ACT IS THAT THE AS LONG AS THE PAYEE/RES IDENT (WHICH IN THIS CASE IS ALIP) HAS FILED ITS RETURN OF INCOME DISCLOSING THE PAYMENT RECEIVED BY AND IN WHICH THE INCOME EARNED BY IT IS EMBEDDED AND HA S ALSO PAID TAX ON SUCH INCOME, THE ASSESSEE WOULD NOT BE TREATED AS A PERS ON IN DEFAULT. AS FAR AS THE PRESENT CASE IS CONCERNED, IT IS NOT DISPUTED B Y THE REVENUE THAT THE PAYEE HAS FILED RETURNS AND OFFERED THE SUM RECEIVED TO T AX. (III) TURNING TO THE DECISION OF THE AGRA BENCH OF ITAT IN RAJIV KUMAR AGARWAL V. ACIT (SUPRA), THE COURT FINDS THAT IT HAS UNDERTAKEN A T HOROUGH ANALYSIS OF THE SECOND PROVISO TO SECTION 40 (A)(IA) OF THE ACT AND ALSO SOUGHT TO EXPLAIN THE RATIONALE BEHIND ITS INSERTION. IN PARTICULAR, THE COURT WOULD LIKE TO REFER TO PARA 9 OF THE SAID ORDER WHICH READS AS UNDER: ON A CONCEPTUAL NOTE, PRIMARY JUSTIFICATION FOR SUCH A DISALLOWANCE IS TH AT SUCH A DENIAL OF DEDUCTION IS TO COMPENSATE FOR THE LOSS OF REVENUE BY CORRESPONDING INCOME NOT BEING TAKEN INTO ACCOUNT IN COMPUTATION OF TAXA BLE INCOME IN THE HANDS OF THE RECIPIENTS OF THE PAYMENTS. SUCH A POLICY MO TIVATED DEDUCTION RESTRICTIONS SHOULD, THEREFORE, NOT COME INTO PLAY WHEN AN ASSESSEE IS ABLE TO ESTABLISH THAT THERE IS NO ACTUAL LOSS OF REVENUE. THIS DISALLOWANCE DOES DEINCENTIVIZE NOT DEDUCTING TAX AT SOURCE, WHEN SUC H TAX DEDUCTIONS ARE DUE, BUT, SO FAR AS THE LEGAL FRAMEWORK IS CONCERNED, TH IS PROVISION IS NOT FOR THE PURPOSE OF PENALIZING FOR THE TAX DEDUCTION AT SOUR CE LAPSES. THERE ARE SEPARATE PENAL PROVISIONS TO THAT EFFECT. DEINCENTI VIZING A LAPSE AND PUNISHING A LAPSE ARE TWO DIFFERENT THINGS AND HAVE DISTINCTLY DIFFERENT, AND SOMETIMES MUTUALLY EXCLUSIVE, CONNOTATIONS. WHEN WE APPRECIATE THE OBJECT OF SCHEME OF SECTION 40(A)(IA), AS ON THE STATUTE, AND TO EXAMINE WHETHER OR NOT, ON A FAIR, JUST AND EQUITABLE INTERPRETATION OF LAW- AS IS THE GUIDANCE 11 ITA NO.4437/M/14- SIR MOHAMED YUSUF TRUST FROM HONBLE DELHI HIGH COURT ON INTERPRETATION OF THIS LEGAL PROVISION, IN OUR HUMBLE UNDERSTANDING, IT COULD NOT BE AN INTEN DED CONSEQUENCE TO DISALLOW THE EXPENDITURE, DUE TO NON DEDUCTION OF T AX AT SOURCE, EVEN IN A SITUATION IN WHICH CORRESPONDING INCOME IS BROUGHT TO TAX IN THE HANDS OF THE RECIPIENT. THE SCHEME OF SECTION 40(A)(IA), AS WE S EE IT, IS AIMED AT ENSURING THAT AN EXPENDITURE SHOULD NOT BE ALLOWED AS DEDUCT ION IN THE HANDS OF AN ASSESSEE IN A SITUATION IN WHICH INCOME EMBEDDED IN SUCH EXPENDITURE HAS REMAINED UNTAXED DUE TO TAX WITHHOLDING LAPSES BY T HE ASSESSEE. IT IS NOT, IN OUR CONSIDERED VIEW, A PENALTY FOR TAX WITHHOLDING LAPSE BUT IT IS A SORT OF COMPENSATORY DEDUCTION RESTRICTION FOR AN INCOME GO ING UNTAXED DUE TO TAX WITHHOLDING LAPSE. THE PENALTY FOR TAX WITHHOLDING LAPSE PER SE IS SEPARATELY PROVIDED FOR IN SECTION 271 C, AND, SECTION 40(A)(I A) DOES NOT ADD TO THE SAME. THE PROVISIONS OF SECTION 40(A)(IA), AS THEY EXISTED PRIOR TO INSERTION OF SECOND PROVISO THERETO, WENT MUCH BEYOND THE OBVIOU S INTENTIONS OF THE LAWMAKERS AND CREATED UNDUE HARDSHIPS EVEN IN CASES IN WHICH THE ASSESSEES TAX WITHHOLDING LAPSES DID NOT RESULT IN ANY LOSS TO THE EXCHEQUER. NOW THAT THE LEGISLATURE HAS BEEN COMPASSIONATE ENO UGH TO CURE THESE SHORTCOMINGS OF PROVISION, AND THUS OBVIATE THE UNI NTENDED HARDSHIPS, SUCH AN AMENDMENT IN LAW, IN VIEW OF THE WELL SETTLED LE GAL POSITION TO THE EFFECT THAT A CURATIVE AMENDMENT TO AVOID UNINTENDED CONSE QUENCES IS TO BE TREATED AS RETROSPECTIVE IN NATURE EVEN THOUGH IT MAY NOT S TATE SO SPECIFICALLY, THE INSERTION OF SECOND PROVISO MUST BE GIVEN RETROSPEC TIVE EFFECT FROM THE POINT OF TIME WHEN THE RELATED LEGAL PROVISION WAS INTROD UCED. IN VIEW OF THESE DISCUSSIONS, AS ALSO FOR THE DETAILED REASONS SET O UT EARLIER, WE CANNOT SUBSCRIBE TO THE VIEW THAT IT COULD HAVE BEEN AN I NTENDED CONSEQUENCE TO PUNISH THE ASSESSES FOR NON DEDUCTION OF TAX AT SOU RCE BY DECLINING THE DEDUCTION IN RESPECT OF RELATED PAYMENTS, EVEN WHEN THE CORRESPONDING INCOME IS DULY BROUGHT TO TAX. THAT WILL BE GOING M UCH BEYOND THE OBVIOUS INTENTION OF THE SECTION. ACCORDINGLY, WE HOLD THAT THE INSERTION OF SECOND PROVISO TO SECTION 40(A)(IA) IS DECLARATORY AND CUR ATIVE IN NATURE AND IT HAS RETROSPECTIVE EFFECT FROM 1ST APRIL, 2005, BEING TH E DATE FROM WHICH SUB CLAUSE (IA) OF SECTION 40(A) WAS INSERTED BY THE FI NANCE (NO. 2) ACT, 2004. 14. THE COURT IS OF THE VIEW THAT THE ABOVE R EASONING OF THE AGRA BENCH OF ITAT AS REGARDS THE RATIONALE BEHIND THE INSERTION OF THE SECOND PROVISO TO SECTION 40(A) (IA) OF THE ACT AND ITS CONCLUSION TH AT THE SAID PROVISO IS DECLARATORY AND CURATIVE AND HAS RETROSPECTIVE EFFE CT FROM 1ST APRIL 2005, MERITS ACCEPTANCE . 9. THUS, IN VIEW OF THE ABOVE LEGAL POSITION WE MAY HE LD THAT THE PROVISO INSERTED IN SECTION 50C IS IN FACT WOULD HA VE A RETROSPECTIVE 12 ITA NO.4437/M/14- SIR MOHAMED YUSUF TRUST EFFECT I.E. THE SAME DATE WHEN SECTION 50C WAS BROU GHT IN THE INCOME-TAX ACT (W.E.F.1 APRIL 2003). SIMILAR OBSERV ATION WAS MADE BY THE COORDINATE BENCH OF VISAKHAPATNAM TRIBUNAL I N SMT. CHALASANI NAGA (SUPRA ). 10. NOW TURNING TO THE FACTS OF THE PRESENT CASE, THE A SSESSEE ENTERED IN DEVELOPMENT AGREEMENT FOR MAZGAON PROPERTY WITH M/S HOOR CONSTRUCTION ON 03.04.2002 AND ALLEGEDLY RECEIVED A DVANCE MONEY OF RS. 5,00,000/- BY WAY OF CHEQUE NO.863902 DATED 03. 04.2002. FURTHER, FOR WORLI PROPERTY THE ASSESSEE ENTERED IN MEMORAND UM OF UNDERSTANDING WITH M/S RAHEJA UNIVERSAL LTD. ON 18 .11.2004 AND ALLEGEDLY RECEIVED RS. 32,85,720/- VIDE CHEQUE NO. 000814 DATED 18.11.2004. THE CONVEYANCE DEED OF MAZGAON PROPERT Y WAS EXECUTED ON 15.12.2009 AND REGISTERED ON 25.03.2010, SIMIL ARLY, THE CONVEYANCE DEED FOR WORLI PROPERTY WAS EXECUTED ON 08.02.2010. DURING THE ASSESSMENT PROCEEDING, THE ASSESSING OFFICER OBSERV ED THAT THE MARKET VALUE ADOPTED BY THE STAMP VALUATION FOR WORLI PROP ERTY WAS RS. 84206000/- AND FOR MAZGAON PROPERTY WAS RS. 2463350 /-. HOWEVER, THE ASSESSEE CLAIMED TO HAVE SOLD/TRANSFER THE WORLI PR OPERTY AT RS. 3,65,71,500/- AND MAZGAON PROPERTY AT RS. ,185,00,0 00/-, HENCE, THE PROVISIONS OF SECTION 50C ARE ATTRACTED. THE ASSESS EE VIDE NOTICE DATED 19.12.2012 WAS ASKED TO EXPLAIN WHY THE VALUE ADOPT ED BY STAMP 13 ITA NO.4437/M/14- SIR MOHAMED YUSUF TRUST VALUATION AUTHORITY SHOULD NOT BE CONSIDERED AS FUL L VALUE OF CONSIDERATION FOR CALCULATING THE CAPITAL GAIN. THE ASSESSEE FILED ITS REPLY DATED 31.12.2012 AND EXPLAIN THE CIRCUMSTANCE S AND CONTENDED THAT THE ASSESSEE HAS NOT RECEIVED ANY FURTHER AMOU NT EXCEPT THE AMOUNT MENTIONED IN THE AGREEMENT AND MEMORANDUM OF UNDERS TANDING BETWEEN THE ASSESSEE AND THE PURCHASER. THE ASSESSE E ALSO MADE THE SIMILAR CONTENTION AS WE HAVE MENTIONED IN THE SUBM ISSION OF LD. COUNSEL FOR ASSESSEE (SUPRA). THE CONTENTION OF ASS ESSEE WAS NOT ACCEPTED HOLDING THAT THE VALUE DETERMINED BY THE V ALUER BEFORE FOUR YEARS PRIOR TO THE DATE OF CONVEYANCE-DEED. THE ASS ESSING OFFICER FURTHER CONCLUDED THAT THE PROVISIONS OF SECTION 50 C IS DEEMING PROVISION AND MANDATORY IN NATURE AND ADOPTED THE V ALUE OF CONSIDERATION ON THE BASIS OF VALUATION OF STAMP AU THORITIES. THE ASSESSEE MADE A CATEGORICAL SUBMISSION BEFORE THE L D. COMMISSIONER (APPEALS) TO CONSIDER THE VALUE OF PROPERTIES ON T HE DATE OF SIGNING OF AGREEMENT/MOU. ON THE SUBMISSION OF ASSESSEE, THE L D. COMMISSIONER (APPEALS) CALLED THE REMAND REPORT FROM THE ASSESSI NG OFFICER. THE ASSESSING OFFICER IN HIS REMAND REPORT SUBMITTED THAT THE DATE OF TRANSFER OF PROPERTY CANNOT BE TAKEN AS THE DATE ON WHICH AGREEMENT/MOU WAS SIGNED. THE ASSESSING OFFICER AL SO CONTENDED IN THE REMAND REPORT THAT EVEN IF IT ASSUME FOR THE SA ME OF ARGUMENT THAT 14 ITA NO.4437/M/14- SIR MOHAMED YUSUF TRUST PRICE WAS DETERMINED BY HONBLE BOMBAY HIGH COURT, THE SAME HAS NO RELEVANCE FOR DETERMINING FULL VALUE OF CONSIDERATI ON U/S 40H ON ACCOUNT OF LEGAL FICTION U/S 50C, WHICH IS MANDATOR Y IN NATURE. CONSIDERING THE CONTENTION OF ASSESSEE AND THE REMA ND REPORT, THE LD. COMMISSIONER (APPEALS) SUSTAINED THE ACTION OF ASS ESSING OFFICER. 11. CONSIDERING THE LEGAL DISCUSSION AS REFERRED IN PAR A-4 TO 9 AND THE FACTUAL DISCUSSION OF THE CASE REFERRED IN PARA-10 (SUPRA) THAT A PROVISO IN SECTION 50C WAS INSERTED TO MAKE THE SECTION WOR KABLE, AS WE HAVE ALREADY HELD THAT PROVISO TO BE READ RETROSPECTIVEL Y IN OPERATION, PARTICULARLY TO GIVE MEANINGFUL EFFECT TO THE SECTI ON AS WHOLE. THE LOWER AUTHORITY HAS NOT CONSIDERED THE FACTS OF THE PRESE NT CASE, THUS WE DEEM IT APPROPRIATE TO RESTORE THIS GROUND OF APPEAL TO THE FILE OF ASSESSING OFFICER TO EXAMINE THE ISSUE AFRESH AND PASS APPROP RIATE ORDER IN ACCORDANCE WITH LAW. THE ASSESSING OFFICER SHALL EX AMINE, IF ANY AMOUNT OF CONSIDERATION (PART CONSIDERATION) THROUG H ACCOUNT PAYEE CHEQUE OR ACCOUNT PAYEE BANK DRAFT WAS RECEIVED ON OR BEFORE THE DATE OF AGREEMENT FOR TRANSFER. NEEDLESS TO SAY THA T ASSESSING OFFICER SHALL PROVIDE REASONABLE AND FAIR OPPORTUNITY TO TH E ASSESSEE BEFORE PASSING THE ORDER IN ACCORDANCE WITH LAW. THUS, THE GROUND OF APPEAL NO.(I) AND THE ADDITIONAL GROUND OF APPEAL NO. (V) OF THE APPEAL ARE ALLOWED FOR STATISTICAL PURPOSE. 15 ITA NO.4437/M/14- SIR MOHAMED YUSUF TRUST 12. GROUND NO.(II) RELATES TO DISALLOWANCE U/S 14A R. W. RULE 8D OF RS. 2,32,129/- AND GROUND NO.(IV) RELATES TO ESTABLISHM ENT EXPENSES U/S. 57(III). THE LD. AR OF THE ASSESSEE ARGUED THAT DUR ING THE YEAR THE ASSESSEE EARNED DIVIDEND INCOME OF RS. 34,23,236/- WHICH WAS CLAIMED EXEMPTED. THE ASSESSING OFFICER MADE THE DISALLOWAN CE U/S 14A R.W. RULE 8D WITHOUT APPRECIATING THE FACTS THAT ASSESS EE HAS NOT INCURRED ANY EXPENDITURE FOR EARNING EXEMPT INCOME AND THE A DDITION MADE BY INVOKING SECTION 14A IS UNJUSTIFIED. IT WAS FURTHER ARGUED THAT ASSESSING OFFICER MADE THE DISALLOWANCE OF RS. 2,77,574/- BEI NG ESTABLISHMENT EXPENSES WITHOUT APPRECIATING THE FACTS OF THE CASE , WHICH WAS ARGUED THAT BOTH THE DISALLOWANCE CANNOT BE MADE SIMULTANE OUSLY. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUPPORTED THE ORDE R OF AUTHORITIES BELOW. IT WAS ARGUED THAT ASSESSEE MADE THE SIMILAR CONTENTION BEFORE THE LD. COMMISSIONER (APPEALS), AND AFTER CONSIDERI NG THE CONTENTION, THE ACTION OF ASSESSING OFFICER WAS SUSTAINED. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDER OF AUTHORITIES BELOW. THERE IS NO DISPUTE THAT THE ASSESSEE EARNED DIVIDEND INCOME OF RS. 34,23,236/- DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE CLAIMED THAT THEY HAVE NOT INCURRED ANY EXPENDITURE FOR EARNING THE DIVIDEND INCOME. TH E INCOME WAS DIRECTLY CREDITED IN THE BANK ACCOUNT OF ASSESSEE. THE ASSESSEE FURTHER 16 ITA NO.4437/M/14- SIR MOHAMED YUSUF TRUST CONTENDED THAT THE TOTAL EXPENSES INCURRED BY THE A SSESSEE WAS ONLY RS. 5,58,148/- AND THE ASSESSING OFFICER HAS ALREADY DI SALLOWED 50% OF THE EXPENSES I.E. RS. 2,79,074/-. CONSIDERING THE FACT UAL CONTENTION OF LD. COUNSEL FOR THE ASSESSEE, WE DEEM IT APPROPRIATE TO RESTORE BOTH THE GROUNDS OF APPEAL TO THE FILE OF ASSESSING OFFICER TO RECONSIDER THE SAME AND PASS THE ORDER AFRESH. THE ASSESSING OFFICER SH ALL EXAMINE THE NATURE OF INVESTMENT, IF ANY INVESTMENT WAS MADE DU RING THE YEAR UNDER CONSIDERATION, OR THE DIVIDEND INCOME WAS DIRECTLY CREDITED IN THE ACCOUNT OF ASSESSEE. NEEDLESS TO SAY THAT ASSESSING OFFICER SHALL GRANT FAIR AND PROPER OPPORTUNITY TO THE ASSESSEE BEFORE PASSING THE ORDER AFRESH. 14. GROUND NO.3 RELATES TO DISALLOWANCE OF REPAIR CESS OF RS. 2,54,149/- LEVIED BY BMC. THE LD. COUNSEL FOR THE ASSESSEE DUR ING THE HEARING MADE A STATEMENT THAT HE IS NOT PRESSING THIS GROUN D OF APPEAL. CONSIDERING THE STATEMENT AND SUBMISSION OF LD. COU NSEL FOR THE ASSESSEE, THIS GROUND OF APPEAL IS DISMISSED AS NOT PRESSED. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED FOR ST ATISTICAL PURPOSE. S/- SD/- SD/- (P.K. BANSAL) (PAWAN SINGH) VICE-PRESIDENT JUDICIAL MEMBER MUMBAI; DATED 14/06/2017 S.K.PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 17 ITA NO.4437/M/14- SIR MOHAMED YUSUF TRUST BY ORDER, (ASSTT.REGISTRAR) ITAT, MUMBAI 3. THE COMMISSIONER(APPEALS) , MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY/