The DCIT, Central Circle-1, Baroda V. Phlox Pharmaceuticals Ltd., Baroda

ITA 445/AHD/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 94845 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-12-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 10-09-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 15-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NARENDRA SINGH
• Assessee Lawyers: S N SOPARKAR
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Cost of acquisition
• Section: 50C

Judgement Text

, B IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI G.D. AGRAWAL, VICE-PRESIDENT AND SHRI RAJPAL YADAV, JUDICIAL MEMBER ./ ITA NO.445/AHD/2013 / ASSESSMENT YEAR: 2004-2005 DCIT, CENT.CIR.1 BARODA. VS M/S.PHLOX PHARMACEUTICALS LTD. A/9, SHRADDHADEEP HOUSING COMPLEX, OPP: R.C. PATEL INDUSTRIAL ESTATE, AKOTA, BARODA 390 020. PAN : AABCP 2456 R. ! / (APPELLANT) '# ! / (RESPONDENT) REVENUE BY : SHRI NARENDRA SINGH, SR.DR ASSESSEE BY : SHRI S.N. SOPARKAR / DATE OF HEARING : 10/09/2015 / DATE OF PRONOUNCEMENT: 07/12/2015 $%/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: THE REVENUE IS IN APPEAL BEFORE US AGAINST THE ORD ER OF THE LD.CIT(A)-III, BARODA DATED 12.11.2012 PASSED FOR T HE ASSTT.YEAR 2004- 05. 2. THE GROUNDS OF APPEAL TAKEN BY THE REVENUE READ AS UNDER: 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING TO ALLOW THE SHORT TERM CAPITAL LOSS OF RS.44,70,653/- WHICH IS CLAIMED BY THE ASSESSEE IN THE RETURN OF INCOME. 1.1 IN THE PROCESS, THELD.CIT(A) FAILED TO CONSIDER THAT IN ASSESSEES OWN BOOKS OF ACCOUNTS, THE W.D.V OF THE OFFICE BUILDINGS ID DECLARED AT RS.69,70,653/-. THE LD.CI T(A) ALSO FAILED TO TAKE JUDICIAL NOTICE OF OTHER EVIDENCES AND FACT S, AS NARRATED BY THE AO IN THE ASSESSMENT ORDER. ITA NO.445/AHD/2013 2 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD.CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO ON THE ABOVE POINT. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED ITS RETURN OF INCOME ON 30.10.2004 DECLARING A LOSS OF RS.6,29,31 ,088/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMEN T AND NOTICE UNDER SECTION 143(2) DATED 5.7.2005 WAS ISSUED AND SERVED UPON THE ASSESSEE. ON SCRUTINY OF THE ACCOUNTS, IT REVEALED TO THE AO THAT THE ASSESSEE HAS REVISED ITS RETURN OF INCOME ON 29.3.2 006 WHEREBY IT HAD DECLARED TOTAL LOSS AT RS.5,75,57,975/- AND SHORT T ERM CAPITAL LOSS AT RS.44,70,653/-. THE ASSESSEE HAS COMPUTED SHORT TE RM CAPITAL LOSS AS UNDER: OP. WDV OF OFFICE BUILDING RS.69,70,653/- LESS: SALE CONSIDERATION RECEIVED RS.25,00,000/- TOTAL SHORT TERM LOSS RS.44,70,653/- 3. THE LD.AO HAS CONFRONTED THE ASSESSEE TO EXPLAIN HOW SHORT TERM CAPITAL LOSS HAS ACCRUED TO THE ASSESSEE. IN RESPO NSE TO THE QUERY OF THE AO, IT WAS CONTENDED BY THE ASSESSEE THAT IT HA S SOLD ITS OFFICE BEARING NOS.709 AND 710 SITUATED AT SAKAR-II, ELLIS BRIDGE, AHMEDABAD TO M/SDHRUVE JEWELLERS SITUATED AT 301/6, SIX MINA ROAD, MAHALAXMI LAY-OUT, BANGALORE VIDE TWO AGREEMENTS FOR SALE DAT ED 23.9.2003 FOR A SUM OF RS.12,75,000/- AND RS.12,25,000/- RESPECTIVE LY. THE ASSESSEE FURTHER CONTENDED THAT IT HAD OBTAINED LOAN OF RS.5 0 LAKHS FROM M/S.DHRUVE JEWELLERS IN1998 FOR MEETING ITS REGULAR CAPITAL REQUIREMENTS. OUT OF THIS LOAN, A SUM OF RS.25 LAK HS WAS REPAID TO DHRUVE JEWELLERS, HOWEVER, DUE TO FINANCIAL CRISIS AND SHORTAGE OF FUNDS ON CONTINUOUS BASIS, THE COMPANY COULD NOT PAY THE REMAINING LOAN AND THE INTEREST DUE ON SUCH LOAN. THERE WAS NO REAL C OMMERCIAL ACTIVITY COMMENCED BY THE COMPANY AND NO REVENUE WAS GENERAT ED. KEEPING ITA NO.445/AHD/2013 3 IN VIEW THE FIVE YEARS INTEREST COMPONENTS, IT WAS ASSUMED BY THE COMPANY THAT THE COST OF RS.25 LAKHS LOAN PENDING R EPAYMENT WOULD BE APPROXIMATELY RS.60 LAKHS. THEREFORE, THE ASSESSEE HAS TRANSFERRED THE OFFICE PREMISES TO M/S.DHRUVE JEWELLERS. THE LD.AO ON THE EXPLANATION OF THE ASSESSEE ASSUMED THAT THE ASSESSEE MUST HAVE RECEIVED RS.70 LAKHS. IN OTHER WORDS, HE ESTIMATED THE SALE CONSI DERATION OF THE BUILDING, WHICH WAS OTHERWISE ACTUALLY SOLD BY THE ASSESSEE FOR A SUM OF RS.25 LAKHS. HE WORKED OUT A SHORT TERM GAIN IN IN STEAD OF SHORT CAPITAL LOSS SHOWN BY THE ASSESSEE. THE WORKING MADE BY TH E AO READ AS UNDER: OP.WDV OF OFFICE BUILDING RS.69,70,653/- LESS: SALE CONSIDERATION RECEIVED RS.70,00,000/- TOTAL SHORT TERM GAIN RS. 29,347/- 4. ON APPEAL, THE LD.CIT(A) HAS DELETED THE ALLEGED DISALLOWANCE OF CAPITAL LOSS BY RECORDING FOLLOWING FINDINGS: 4.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND SU BMISSIONS MADE BY THE AR OF THE APPELLANT. THE FIRST CONTENTI ON OF THE APPELLANT IS THAT THE IT ACT, 1961 DOES NOT PERMIT CONSIDERATION OF SALES CONSIDERATION ON A NOTIONAL BASIS BARRING SEC TION 50C WHEREIN THE STAMP DUTY VALUE MAY IN SOME CASES BE S UBSTITUTED FOR THE ACTUAL CONSIDERATION RECEIVED BY THE SELLER . THIS CONTENTION OF THE APPELLANT IS CORRECT. IT MAY BE MENTIONED HE RE THAT TILL 31.3.1988, SECTION 52 WAS PART OF THE IT. ACT, 1961 . THIS SECTION EMPOWERED THE A.O. TO SUBSTITUTE THE FAIR MARKET VA LUE OF A CAPITAL ASSETS INSTEAD OF THE SALE CONSIDERATION SH OWN BY THE ASSESSEE IN CERTAIN CIRCUMSTANCES. BUT HON'BLE SUPR EME COURT IN ITS DECISION IN THE CASE OF K.P. VARGHESE, 131 ITR 597 (SC) HELD THAT SECTION 55 WOULD APPLY ONLY WHERE THE CONSIDER ATION FOR THE TRANSFER IS UNDER STATED OR, IN OTHER WORDS, THE AS SESSEE HAS ACTUALLY RECEIVED A LARGER CONSIDERATION FOR THE TR ANSFER THAN IS DECLARED IN THE INSTRUMENT OF TRANSFER AND NOT WHER E THE FULL VALUE OF THE CONSIDERATION IS CORRECTLY DECLARED. IN THE PRESENT CASE, THERE IS NOTHING ON RECORD TO SHOW THAT THE APPELLA NT HAS RECEIVED MORE THAN THE CONSIDERATION SHOWN IN THE SALE DEED. ITA NO.445/AHD/2013 4 4.3.1 THUS, IN THE PRESENT CASE, NOTIONAL SALES CON SIDERATION CANNOT BE SUBSTITUTED TO COMPUTE CAPITAL GAIN TO TH E APPELLANT. BUT AT THE SAME TIME, THE AO COULD HAVE APPLIED SEC TION 50C. IN THIS REGARD, THE REGISTERED SALE DEEDS WERE CALLED FOR DURING THE COURSE OF APPELLATE PROCEEDINGS. FROM THESE IT IS S EEN THAT THE STAMP DUTY PAID IS AS PER THE SALE CONSIDERATION SH OWN IN THE REGISTERED DEEDS. HENCE, SECTION 50C WILL ALSO HAVE NO APPLICATION IN THIS CASE. 4.3.2 SO FAR AS THE AO'S CONTENTION THAT THE APPELL ANT'S LIABILITY WAS RS. 60 LACS PLUS THE OTHER CHARGES AND HENCE TH IS AMOUNT SHOULD BE TREATED AS CONSIDERATION RECEIVED IS CONC ERNED, THE APPELLANT'S EXPLANATION THAT IN THE BOOKS IT HAS SH OWN LIABILITY OF RS. 25.00 LACS ONLY AND NO PART OF INTEREST OR OTHE R CHARGES HAD BEEN DEBITED IN THE BOOKS OF ACCOUNTS IS CORRECT. U NDER THESE CIRCUMSTANCES, EVEN IF IT IS ASSUMED THAT THE SALE CONSIDERATION INCLUDED THE INTEREST PAYABLE AND THE OTHER CHARGES , THEN ON ONE HAND THE SALE CONSIDERATION SHOWN WILL INCREASE AND ON OTHER HAND THE INTEREST AND OTHER CHARGES PAYABLE WILL HAVE TO BE ALLOWED AS A DEDUCTION IN THE COMPUTATION OF TOTAL INCOME OF T HE APPELLANT. THUS, THE NET EFFECT SO FAR AS COMPUTATION OF TOTAL INCOME IS CONCERNED WILL REMAIN THE SAME. HENCE, THIS CONTENT ION OF AO IS ALSO NOT ACCEPTABLE. 4.4 HENCE THE ADDITION MADE BY THE AO ON ACCOUNT OF NOTIONAL SALE CONSIDERATION IS DIRECTED TO BE DELETED AND TH IS GROUND OF APPEAL IS ALLOWED. 5. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVE, WE HAVE GONE THROUGH THE RECORD CAREFULLY. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE ASSESSEE HAS COMPUTED SHORT TERM CAPITAL L OSS ON THE TRANSFER OF A CAPITAL ASSET BEARING OFFICE BUILDING NO.709 A ND 710 SITUATED AT SAKAR-II, ELLISBRIDGE, AHMEDABAD. THUS, ANY GAIN O R LOSS ON TRANSFER OF A CAPITAL ASSET WOULD BE COMPUTED AS A SHORT TERM C APITAL GAIN OR SHORT TERM CAPITAL LOSS. SECTION 48 OF THE INCOME TAX AC T PROVIDES MODE OF COMPUTATION OF CAPITAL GAIN/LOSS. ACCORDING TO THI S SECTION, THE INCOME CHARGEABLE UNDER THE HEAD CAPITAL GAINS SHALL BE COMPUTED BY DEDUCTING FROM THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET TH E FOLLOWING AMOUNTS, NAMELY, (I) EXPENDITURE INCURRED WHOLLY AND EXCLUSI VELY IN CONNECTION ITA NO.445/AHD/2013 5 WITH SUCH TRANSFER, (II) THE COST OF ACQUISITION OF THE ASSET AND THE COST OF ANY IMPROVEMENT THERETO. SECTION 50C HAS BEEN I NSERTED VIDE FINANCE ACT, 2002 W.E.F. 1.4.2003. THIS SECTION CO NTEMPLATES THAT WHERE CONSIDERATION RECEIVED OR ACCRUING AS A RESUL T OF THE TRANSFER BY AN ASSESSEE OF A CAPITAL ASSET BEING LAND OR BUILDI NG OR BOTH IS LESS THAN THE VALUE ADOPTED OR ASSESSED BY ANY AUTHORITY OF A STATE GOVERNMENT, FOR THE PURPOSE OF PAYMENT OF STAMP DUTY IN RESPECT OF SUCH TRANSFER, THE VALUE SO ADOPTED OR ASSESSED SHALL, FOR THE PUR POSES OF SECTION 48, BE DEEMED TO BE THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF SUCH TRANSFER. IF SECTIONS 48 AND 50C READ TOGETHER, THEN, IT WILL EMERGE OUT THAT THE FULL CONSIDERATIO N DISCLOSED BY AN ASSESSEE WHILE COMPUTING THE CAPITAL GAINS WOULD BE REPLACED BY A DEEMING CONSIDERATION EQUIVALENT TO THE AMOUNTS ON WHICH STAMP DUTY WAS PAID BY THE ASSESSEE FOR THE PURPOSE OF GETTING THE SALE DEED REGISTERED. APART FROM THIS PROVISION, THERE IS NO OTHER PROVISION WHICH AUTHORIZES THE AO TO ASSUME THAT THE ASSESSEE HAS R ECEIVED HIGHER SALE CONSIDERATION. IN THE PRESENT CASE, THE ASSESSEE H AS SHOWN SALE CONSIDERATION OF RS.25 LAKHS. THE AO HAS ASSUMED T HAT SINCE THE ASSESSEE HAS NOT PAID THE INTEREST ON THE LOAN OBTA INED FROM M/S.DHRUVE JEWELLERS IN 1998, THEREFORE, THE SALE C ONSIDERATION IS TO BE CONSIDERED EQUIVALENT TO THE APPROXIMATE COST OF TH E LOAN PLUS INTEREST PLUS DAMAGES. BUT THE ACT NOWHERE AUTHORIZES THE A O TO DEEM SUCH SALE CONSIDERATION. ONLY SECTION 50C PROVIDES A D EEMING SITUATION WHERE THE SALE CONSIDERATION CAN BE REPLACED. THIS ASPECT HAS BEEN CONSIDERED BY THE CIT(A) IN HIS FINDING EXTRACTED ( SUPRA) AND THE LD.FIRST APPELLATE AUTHORITY HAS OBSERVED THAT SALE CONSIDER ATION DISCLOSED BY THE ASSESSEE IS WITHIN THE PARAMETER OF SECTION 50C ALSO. THEREFORE, IN OUR OPINION, THE LD.FIRST APPELLATE AUTHORITY HAS A PPRECIATED THE CONTROVERSY RIGHTLY AND ALLOWED SHORT TERM CAPITAL LOSS SUFFERED BY THE ITA NO.445/AHD/2013 6 ASSESSEE. THE APPEAL OF THE REVENUE IS DEVOID OF A NY MERIT, HENCE DISMISSED. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE COURT ON 7 TH DECEMBER, 2015 AT AHMEDABAD. SD/- SD/- (G.D. AGRAWAL) VICE-PRESIDENT (RAJPAL YADAV) JUDICIAL MEMBER