ANANT B. NAGWAN, MUMBAI V. I.T.O. WD.20(1)(4), MUMBAI

ITA 4587/MUM/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8073 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 06-08-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 06-07-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PITAMBER DAS
• Keywords: Opportunity of being heard; Cost of acquisition; Fair market value; Surrender of tenancy right
• Section: 54F; 54

Judgement Text

A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ./ I.T.A. NO.4587 /MUM/2012 ( / ASSESSMENT YEAR : 2009-2010 SHRI ANANT B. NAGWAN, C-503, SWAPNALOK TOWER, FILMCITY ROAD, PIMPARI PADA, MALAD (EAST), MUMBAI 400 097. / VS. INCOME TAX OFFICER, WARD 20(1)(4), 6 TH FLOOR, R. NO. 608, PIRAMAL CHAMBERS, PAREL, MUMBAI 400 012. ./ PAN : AGZPN1800G ( / APPELLANT ) .. ( / RESPONDENT ) A PPELLANT BY SHRI DHARMESH SHAH R E SPONDENT BY : SHRI PITAMBER DAS / DATE OF HEARING : 12-08-2014 / DATE OF PRONOUNCEMENT : 17-10-2014 [ !' / O R D E R PER B.R. BASKARAN, A.M. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF LD. CIT(A) - 31, MUMBAI DATED 18-05-2012 AND IT RELATES TO THE A.Y. 2009-10. 2. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD. CIT(A) IN RESPECT OF THE FOLLOWING ISSUES, VIZ.,:- (A) IN REJECTING OF CLAIM FOR DEDUCTION OF COST OF IMPROVEMENT OF THE RESIDENTIAL PREMISES INHERITED BY THE ASSESSEE AGAI NST THE LONG TERM CAPITAL GAIN. ITA 4587/M/12 2 (B) IN NOT ALLOWING DEDUCTION U/S 54 OF THE INCOME TAX ACT, 1961 IN RESPECT OF EXPENSES INCURRED ON IMPROVEMENT OF THE NEW RESIDENTIAL HOUSE AND TOWARDS SOCIETY FORMATION CHARGES. 3. THE FACTS RELATING THE CASE ARE STATED IN BRIEF. IN THE RETURN OF INCOME FILED DURING THE YEAR UNDER CONSIDERATION, THE ASSE SSEE CLAIMED DEDUCTION U/S 54 OF THE ACT TOWARDS THE COST OF NEW RESIDENTIAL P ROPERTY PURCHASED BY HIM AGAINST LONG TERM CAPITAL GAIN ARISING ON SALE OF A N OLD HOUSE PROPERTY. ON EXAMINATION OF THE SAID CLAIM, IT WAS NOTICED THAT THE ASSESSEE HAD HELD TENANCY RIGHT OVER A PROPERTY, WHICH HE HAD INHERIT ED FROM HIS FATHER. HE HAS RELINQUISHED HIS TENANCY RIGHT IN FAVOUR OF M/S PLA ZA HOTELS PVT. LTD, FOR A CONSIDERATION OF RS. 87,50,000/-. THE A.O. FURTHER NOTICED THAT THE ASSESSEE, WHILE COMPUTING CAPITAL GAIN, HAD CLAIMED DEDUCTION TOWARDS INDEXED COST OF ACQUISITION / IMPROVEMENT OF PROPERTY AT RS.29,83,0 21/-. THE IMPROVEMENT OF PROPERTY, I.E., CONSTRUCTION OF AUTHORIZED/UNAUT HORIZED CONSTRUCTION WAS CLAIMED TO HAVE BEEN UNDERTAKEN DURING THE PERIOD F ROM 23-01-1976 TO 15-12-1988. THE A.O. NOTICED THAT, AS PER THE PROV ISIONS OF SECTION 55(2)(A)(II) OF THE ACT, THE COST OF ACQUISITION OF TENANCY RIGH T SHOULD BE TAKEN AS NIL. ACCORDINGLY, THE A.O. TOOK THE VIEW THAT THE QUESTI ON OF ALLOWING DEDUCTION TOWARDS COST OF IMPROVEMENT ALSO SHALL NOT ARISE. ACCORDINGLY THE A.O. DISALLOWED THE CLAIM FOR DEDUCTION OF RS.29,83,021/ - MADE BY THE ASSESSEE AGAINST THE LONG TERM CAPITAL GAIN. 4. IN RESPECT OF DEDUCTION CLAIMED U/S 54 OF TH E ACT TOWARDS THE COST OF NEW HOUSE PROPERTY, THE A.O NOTICED THAT THE ASSESS EE, APART FROM CLAIMING DEDUCTION TOWARDS THE COST OF NEW HOUSE, HAS ALSO C LAIMED DEDUCTION OF RS.72,000/- PAID TO THE BUILDER TOWARDS FORMATION O F SOCIETY, DEVELOPMENT CHARGES, PROPORTIONATE SHARE OF TAX AND OTHER CHARG ES. SIMILARLY, THE ASSESSEE HAD ALSO CLAIMED A SUM OF RS. 2,23,830/- T OWARDS EXPENSES INCURRED ON IMPROVEMENT OF THE NEW HOUSE. THE A.O. TOOK THE VIEW THAT BOTH ITA 4587/M/12 3 THE ABOVE SAID AMOUNTS SHALL NOT FORM PART OF COST OF NEW RESIDENTIAL HOUSE AND ACCORDINGLY DISALLOWED THE SAID CLAIMS. 5. IN THE APPEAL FILED BEFORE LD CIT(A), THE ASSESS EE CONTENDED THAT HE HAD INCURRED COST ON CONSTRUCTION OF AUTHORIZED/UNAUTHO RIZED STRUCTURE AND HENCE THE EXPENSES INCURRED THEREON SHOULD BE ALLOW ED AS DEDUCTION U/S 54 OF THE ACT AT THE INDEXED RATE. HOWEVER, THE FIRST APPELLATE AUTHORITY ALSO HELD THAT THE ASSESSEE HAS RECEIVED SALE CONSIDERATION O NLY FOR SURRENDER OF TENANCY RIGHT AND NOT FOR SURRENDER OR SALE OF ANY HOUSE PROPERTY. ACCORDINGLY HE CONFIRMED THE DISALLOWANCE OF RS. 29 ,83,021/- MADE BY THE A.O. WITH REGARD TO THE CLAIM RELATING TO THE SOCI ETY FORMATION CHARGES AND IMPROVEMENT CHARGES MADE U/S 54 OF THE ACT ALSO, TH E LD. CIT(A) UPEHLD THE VIEW TAKEN BY THE A.O. ACCORDINGLY, THE LD. CIT(A) DISMISSED THE APPEAL FILED BY THE ASSESSEE. AGGRIEVED BY THE ORDER OF LD. CIT (A), THE ASSESSEE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND ALSO PER USED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE LD. COUNSEL FOR T HE ASSESSEE PLACED RELIANCE ON THE DECISION RENDERED BY THE CO-ORDINATE BENCH O F THIS TRIBUNAL IN THE CASE OF MEHER R. SURTI VS. ITO [2013] 27 ITR (TRIB) 340 (MUMBAI) TO CONTEND THAT THE PROVISIONS OF SECTION 55(2)(A)(II) OF THE ACT S HALL NOT APPLY IN THE CASES WHERE TENANCY RIGHTS ARE INHERITED AND THE APPLICAB LE PROVISION IS SEC. 55(2)(B)(II) OF THE ACT. THE LD. COUNSEL FOR THE A SSESSEE SUBMITTED THAT THE ASSESSEE HEREIN HAS ALSO INHERITED TENANCY RIGHTS F ROM HIS FATHER AND HENCE THE PROVISIONS OF SECTION 55(2)(B)(II) OF THE ACT S HALL APPLY. ACCORDINGLY THE LD A.R SUBMITTED THAT THE ASSESSE IS ENTITLED TO ADOPT THE FAIR MARKET VALUE OF THE TENANCY RIGHTS AS ON 1-4-1981 AS THE COST OF AC QUISITION OF THE TENANCY RIGHT FOR THE PURPOSE OF COMPUTING THE CAPITAL GAIN , SINCE THE FATHER OF THE ASSESSEE WAS RESIDING IN THE BUILDING PRIOR TO 1.4. 1981 ALSO. ITA 4587/M/12 4 7. ON THE OTHER HAND, THE LD. D.R. CONTENDED THAT T HE PROVISIONS OF SECTION 55(2)(A)(II) OF THE ACT SHALL APPLY TO THE FACTS O F THE INSTANT CASE AND ACCORDINGLY THE COST OF TENANCY RIGHT SHOULD BE TAK EN AS NIL. 8. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE ASSESSEE HAS INHERITED TENANCY RIGHTS FROM HIS FATHER. THE ASSE SSEE HAS CLAIMED THAT HIS FATHER HAS INCURRED EXPENDITURE ON CONSTRUCTION OF CERTAIN BUILDING STRUCTURES IN 1976 ALSO, MEANING THEREBY, THE FATHE R OF THE ASSESSEE WAS RESIDING IN THAT BUILDING PRIOR TO 1.4.1981 ALSO. HOWEVER, SINCE THE ASSESSEE HAS TRANSFERRED ONLY HIS TENANCY RIGHT, IN OUR VIEW , THE ASSESSEE CANNOT CONSIDER THE COST INCURRED ON CONSTRUCTION OF THE S TRUCTURES AS THE COST OF ACQUISITION OF TENANCY RIGHTS. IN OUR VIEW, THE VA LUE OF TENANCY RIGHT HAS TO BE DETERMINED IN ACCORDANCE WITH THE PRACTICE ADOPTED IN REAL ESTATE MARKET. 9. WE NOTICE THAT THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF MEHER R. SURTI (SUPRA) HAS CONSIDERED AN IDENTICAL ISSUE AND HAS TAKEN THE VIEW THAT THE PROVISIONS OF SECTION 55(2)(B)(II) OF THE ACT SHALL APPLY IN THE CASES WHERE TENANCY RIGHTS ARE INHERITED. THE PROV ISIONS OF SEC. 55(2)(B)(II) GIVES AN OPTION TO THE ASSESSEE TO ADOPT THE FAIR M ARKET VALUE AS ON 1.4.1981 AS THE COST OF ACQUISITION IN THE HANDS OF THE ASSE SSEE. ACCORDINGLY THE CO- ORDINATE BENCH HELD THAT THE ASSESSEE IS ENTITLED T O ADOPT FAIR MARKET VALUE OF THE TENANCY RIGHTS AS ON 1-4-1981 AS THE COST OF AC QUISITION. SINCE THE FACTS PREVAILING IN THE INSTANT CASE IS IDENTICAL WITH TH AT OF THE CASE DECIDED BY THE CO-ORDINATE BENCH IN THE CASE OF MEHER R. SURTI (SU PRA), CONSISTENT WITH THE VIEW TAKEN THEREIN, WE ALSO HOLD THAT THE ASSESSEE IS ENTITLED TO ADOPT FAIR MARKET VALUE OF THE TENANCY RIGHTS AS ON 1-4-1981 A S THE COST OF ACQUISITION OF TENANCY RIGHTS. HOWEVER, FROM THE RECORDS WE NO TICE THAT NEITHER THE ASSESSEE NOR THE A.O. HAS ATTEMPTED TO ASCERTAIN TH E FAIR MARKET VALUE OF THE TENANCY RIGHTS AS ON 1-4-1981. ACCORDINGLY, WE ARE OF THE VIEW THAT THE ISSUE RELATING TO THE DETERMINATION OF FAIR MARKET VALUE OF THE TENANCY RIGHTS AS ON ITA 4587/M/12 5 1-4-1981 SHOULD BE DECIDED AFRESH AT THE END OF THE A.O. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF A.O. WITH A DIRECTION TO DETERMINE THE FAIR MARK ET VALUE AS ON 1-4-1981, AFTER AFFORDING PROPER OPPORTUNITY OF BEING HEARD T O THE ASSESSEE AND ACCORDINGLY COMPUTE THE LONG TERM CAPITAL GAIN. 10. FROM THE COMPUTATION OF CAPITAL GAIN MADE BY TH E ASSESSEE, WE NOTICE THAT THE ASSESSEE HAS CLAIMED TO HAVE SPENT RS. 31 LACS FOR CONSTRUCTION OF CERTAIN STRUCTURES ON 15-12-1988 AND CLAIMED INDEXE D COST THEREOF AS DEDUCTION AGAINST CAPITAL GAIN. IN THIS REGARD, WE INCLINED TO AGREE WITH THE VIEW TAKEN BY THE LD. CIT(A) THAT THE ASSESSEE HAS RECEIVED COMPENSATION FOR SURRENDERING THE TENANCY RIGHTS AND NOT TOWARDS SUR RENDER OR SALE OF ANY UNAUTHORIZED OR AUTHORIZED STRUCTURE, SINCE WE HAVE EXPRESSED SIMILAR VIEW IN THE PRECEDING PARAGRAPH. ACCORDINGLY WE ARE OF THE VIEW THAT THE ASSESSEE IS NOT ENTITLED TO CLAIM ANY DEDUCTION TOWARDS THE EXP ENDITURE INCURRED ON CONSTRUCTION OF ANY AUTHORIZED OR ANY UNAUTHORIZED STRUCTURE. 11. THE NEXT ISSUE RELATES TO THE DISALLOWANCE OF P ART OF EXPENDITURE INCURRED IN CONNECTION WITH THE ACQUISITION OF NEW ASSET. ACCORDING TO THE ASSESSEE, HE HAS INCURRED A SUM OF RS. 2,23,830/- T OWARDS IMPROVEMENT OF THE NEW RESIDENTIAL HOUSE TO MAKE IT IN HABITABLE. 12. THE LD. CIT(A) TOOK THE VIEW THAT THE DEDUCTION U/S 54 OF THE ACT IS ALLOWED ONLY IN RESPECT OF INVESTMENT MADE IN PURCH ASE OF A NEW HOUSE AND NOT FOR EXPENDITURE INCURRED ON MAKING COSMETIC ADD ITIONS. THE LD. COUNSEL FOR THE ASSESSEE SUBSTANTIATED THE CLAIM MADE BY TH E ASSESSEE BY PLACING THE RELIANCE OF THE DECISION OF CO-ORDINATE BENCH OF TH IS TRIBUNAL IN THE CASE OF SALEEM FAZELBHOY VS. DCIT [2007] 291 ITR (AT) 169 ( MUMBAI) WHEREIN THE TRIBUNAL HAS HELD THAT THE INVESTMENT MADE IN RESID ENTIAL HOUSE WOULD NOT ONLY INCLUDE THE COST OF PURCHASE OF THE HOUSE BUT ALSO THE COST INCURRED IN MAKING THE HOUSE INHABITABLE SUBJECT TO THE CONDITI ON THAT THE PAYMENT WAS ITA 4587/M/12 6 MADE DURING THE PERIOD SPECIFIED IN SECTION 54F OF THE ACT. WE ARE INCLINED TO FOLLOW THE VIEW TAKEN BY THE CO-ORDINATE BENCH O F THE TRIBUNAL IN THE CASE OF SALEEM FAZEKBHOY (SUPRA). ACCORDINGLY, WE HOLD THAT THE ASSESSEE IS ENTITLED TO INCLUDE THE EXPENDITURE INCURRED ON THE NEW FLAT IN THE COST OF THE NEW FLAT, PROVIDED THEY WERE INCURRED WITHIN IN THE PRESCRIBED TIME. HOWEVER, IN THE INSTANT CASE, THE DETAILS OF EXPENDITURE REL ATING TO RS. 2,23,830/- ARE NOT AVAILABLE ON RECORD. HENCE, IN OUR VIEW, THE C LAIM MADE BY THE ASSESSEE WITH RESPECT TO THE SUM OF RS. 2,23,830/- NEEDS TO BE EXAMINED AFRESH IN THE LIGHT OF THE DECISION RENDERED BY THE CO-ORDINATE B ENCH OF THIS TRIBUNAL IN THE CASE OF SALEEM FAZELBHOY. ACCORDINGLY WE SET ASID E THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND RESTORE THE MATTER BACK TO THE FI LE OF THE A.O. WITH A DIRECTION TO EXAMINE THE CLAIM PUT FORTH BY THE ASS ESSEE AFTER AFFORDING SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. 13. THE NEXT DISALLOWANCE MADE BY THE A.O RELATES T O THE OTHER CHARGES OF RS. 72,000/- CLAIMED TO HAVE BEEN CHARGED BY THE BU ILDER TOWARDS DEVELOPMENT CHARGES, PROPORTIONATE SHARE OF TAX AND OTHER CHARGES. ADMITTEDLY, ALL THESE EXPENSES HAVE BEEN INCURRED B Y THE ASSESSEE FOR PEACEFUL ENJOYMENT OF THE PROPERTY AND NOT FOR ACQU ISITION OF THE PROPERTY. ACCORDINGLY, WE FIND MERIT IN THE DECISION TAKEN BY THE LD. CIT(A) IN CONFIRMING THE DECISION TAKEN BY THE A.O. ACCORDIN GLY WE HOLD THAT THE ASSESSEE IS NOT ENTITLED TO INCLUDE THE AMOUNT OF R S.72,000/- REFERRED ABOVE IN THE COST OF ACQUISITION OF NEW FLAT. ACCORDINGL Y WE UPHOLD THE ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUE. ITA 4587/M/12 7 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH OCTOBER, 2014. !' # $% &! ' 17-10-2014 ( ) SD/- SD/- (VIVEK VARMA) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBE R $ 5 MUMBAI ; &! DATED 17-10-2014. [ .6../ RK , SR. PS ! '#$% &%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. 7 () / THE CIT- 31, MUMBAI 4. 7 / CIT -20,MUMBAI 5. :;( 66<= , <= , $ 5 / DR, ITAT, MUMBAI A BENCH 6. (?@ A / GUARD FILE. ' / BY ORDER, : 6 //TRUE COPY// (/') * ( DY./ASSTT. REGISTRAR) , $ 5 / ITAT, MUMBAI