PADMAKUMAR NAGESH GAIKAR, THANE V. ITO WD 3(3), MUMBAI

ITA 460/MUM/2017

• Counselvise Citation: [2018] 112 COUNSELVISE.COM (IT) 4702 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 20-01-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ABI RAMA KARTIKIYEN
• Assessee Lawyers: NEEL KAHANDELWAL
• Keywords: Capital asset; Business income; Principle of natural justice; Cost of acquisition; Capital receipt; Set aside; Capital Gains
• Section: 54F; 201

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) & SHRI RAMLAL NEGI (JM) I.T.A. NO. 460 /MUM/ 2017 (ASSESSMENT YEAR 20 12 - 13 ) MR. PADMAKAR NAGESH GAIKAR VIGHNAHARATA BUNGLOW KHAMBALPADA, BHOIRWADI DOMBIWALI (E), DISTRICT THANE - 421 201. PAN : AFFPG1346F V S . ITO WARD 3(3) KALYAN ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY SHRI NEEL KAHANDELWAL DEPARTMENT BY SHRI ABI RAMA KARTIKIYEN DATE OF HEARING 05.09 . 201 8 DATE OF PRONOUNCEMENT 30 . 1 1 . 201 8 O R D E R PER B.R. BASKARAN (AM) : THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 27 - 10 - 2016 PASSED BY LD CIT(A) - 1, THANE AND IT RELATES TO THE ASSESSMENT YEAR 2012 - 13. AT THE TIME OF HEARING, THE LD A.R DID NOT PRESS CERTAIN GROUNDS, VIZ., A PART OF 1(A), GROUND NO.2 & 3. REMAINING GROUNDS RELATE TO THE TAXABILITY OF MONEY RECEIVED ON SALE OF TDRS. 2. THE FACTS RELATING TO THE ISSUE, CITED ABOVE, ARE DISCUSSED IN BRIEF. THE AO NOTICED FROM AIR INFORMATION THAT THE ASSESSEE HAS SOLD TDR (TRANSFER RABLE DEVELOPMENT RIGHTS) ON 24.11.2011 OF 2000 SQ. METERS EACH FOR A CONSIDERATION OF RS.50.00 LAKHS AND RS.55.00 LAKHS RESPECTIVELY. THE AO NOTICED THAT THE ASSESSEE HAS NOT DISCLOSED THE SAME IN ITS RETURN OF INCOME. BEFORE THE AO, THE ASSESSEE CONTEN DED THAT THE TDRS WERE SOLD BY A PARTNERSHIP CONCERN NAMED M/S SHREE GANRAJ CONSTRUCTION AND NOT BY HIM. IT WAS ALSO CONTENDED THAT THE SALE CONSIDERATION OF TDR RIGHTS IS A CAPITAL RECEIPT NOT LIABLE TO TAX. THE AO NOTICED THAT THE ASSESSEE HAS BEEN SHO WN AS PROPRIETOR OF SHRE GANRAJ MR. PADMAKAR NAGESH GAIKAR 2 CONSTRUCTION IN VARIOUS DOCUMENTS. ACCORDINGLY THE AO REJECTED THE CONTENTIONS OF THE ASSESSEE AND ASSESSED ENTIRE AMOUNT OF RS.105 LAKHS AS INCOME OF THE ASSESSEE. 3. BEFORE LD CIT(A), THE ASSESSEE REITERATED THE CONT ENTIONS URGED BEFORE THE AO. IN THE ALTERNATIVE, THE ASSESSEE CONTENDED THAT THE ASSESSEE HAS ACQUIRED THE LAND OVER WHICH THE TDR RIGHTS WERE RECEIVED AND ACCORDINGLY SUBMITTED THAT THE GAIN ARISING ON TRANSFER OF TDRS IS LIABLE FOR CAPITAL GAINS. ACCOR DINGLY, IT WAS CONTENDED THAT THE EXPENDITURE INCURRED IN ACQUIRING RIGHTS OVER TDRS SHOULD BE ALLOWED AS DEDUCTION WHILE COMPUTING CAPITAL GAIN. THE ASSESSEE ALSO CLAIMED DEDUCTION U/S 54F OF THE ACT IN RESPECT OF A RESIDENTIAL HOUSE PURCHASED BY HIM. 4 . THE LD CIT(A), HOWEVER, HELD THAT THE GAIN ARISING ON SALE OF TDRS IS BUSINESS PROFITS OF THE ASSESSEE. THE LD CIT(A) ALLOWED DEDUCTION OF PROPORTIONATE AMOUNT OF MONEY PAID BY THE ASSESSEE TO THE ORIGINAL PLOT OWNERS, INSTEAD OF AMOUNT PAYABLE BY TH E ASSESSEE. THE LD CIT(A) REJECTED THE CLAIM FOR DEDUCTION OF IMPROVEMENT EXPENSES FOR WANT OF EVIDENCES. SINCE THE INCOME HAS BEEN DIRECTED TO BE ASSESSED AS BUSINESS INCOME, THE LD CIT(A) HELD THAT THE DEDUCTION U/S 54F OF THE ACT IS NOT ALLOWABLE. TH E ASSESSEE IS AGGRIEVED BY THE DECISION SO RENDERED BY LD CIT(A). 5. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. AT THE TIME OF HEARING, THE ASSESSEE ACCEPTED THAT HE HAS CARRIED OUT ALL THE TRANSACTIONS. HENCE THE ISSUE WHETHER THESE TRANSACTI ONS BELONG TO PARTNERSHIP CONCERN OF TO THE ASSESSEE DOES NOT ARISE. THE FACTS RELATING TO THE ISSUE UNDER CONSIDERATION ARE DISCUSSED IN BRIEF. A PLOT ADMEASURING 7920 SQ. METERS WERE OWNED BY SMT. KASHIBAI KRUSHNA MUNDHE AND OTHERS. WHEN THEY WANTED T O SELL THE PLOT, THE ASSESSEE APPROACHED THEM AND ACCORDINGLY AN AGREEMENT TITLED AS DEVELOPMENT AGREEMENT WAS ENTERED ON 10 - 07 - 2006 BY THE ASSESSEE WITH THE OWNERS OF PLOT. A FREE HAND TRANSLATION OF THE AGREEMENT HAS BEEN PLACED ON RECORD. A PERUSAL OF THE SAME WOULD SHOW THAT THE AGREEMENT HAS BEEN POORLY MR. PADMAKAR NAGESH GAIKAR 3 DRAFTED AND THE INTENTIONS OF THE PARTIES HAVE NOT BEEN PROPERLY CONVEYED THEREIN. BE THAT AS IT MAY, THE OWNERS OF THE PLOT ALSO EXECUTED AN IRREVOCABLE POWER OF ATTORNEY ON 11.07.2006 IN FAVOUR O F THE ASSESSEE. 6. THE SUBMISSION OF THE ASSESSEE IS THAT HE HAS ACTUALLY ACQUIRED THE LAND FROM THE OWNERS AND HAS BECOME ABSOLUTE OWNER OF THE LAND. THOUGH THE ASSESSEE INITIALLY INTENDED TO DEVELOP THE LAND BY CONSTRUCTING HOUSING FLATS, LATER IT CAME TO THE KNOWLEDGE OF THE ASSESSEE THAT THE PLOT HAS BEEN EARMARKED BY THE KALYAN - DOMBIVILI MUNICIPAL CORPORATION (KDMC) FOR PUBLIC PURPOSES, MEANING THEREBY, THE PLOT COULD NOT BE DEVELOPED AT ALL. HENCE THE ASSESSEE WAS CONSTRAINED TO HOLD THE SAM E AS HIS CAPITAL ASSET. AFTER DUE PROCESS, THE ASSESSEE HAD TO SURRENDER 6458 SQ. MTS TO KDMC AND IN LIEU OF THE SAME, THE ASSESSEE WAS ALLOTTED TDRS FOR EQUIVALENT AREA OF 6458 SQ. MTS. THE ASSESSEE HAS SOLD THE SAME TO VARIOUS PERSONS, OUT OF WHICH 400 0 SQ. MTS WERE SOLD TO M/S SADGURU CONSTRUCTIONS FOR RS.105 LAKHS ON 24.11.2011. THE ASSESSEE HAS ALSO SOLD 722 SQ.MTS TO M/S JAI AMBE ENTERPRISES DURING THE YEAR UNDER CONSIDERATION, I.E., 15.12.2011 FOR A CONSIDERATION OF RS.25.00 LAKHS. THE AO DID NOT EXAMINE THE SALE OF 722 SQ.MTS, BUT THE LD CIT(A) HAS DIRECTED THE AO TO ASSESSEE THE ABOVE SAID AMOUNT OF RS.25.00 LAKHS. THUS, THE AGGREGATE AMOUNT OF SALE CONSIDERATION RECEIVED BY THE ASSESSEE ON SALE OF TDRS, DURING THE YEAR UNDER CONSIDERATION, WAS RS.130 LAKHS. 7. THE MAIN QUESTION THAT ARISES IS WHETHER THE MONEY RECEIVED BY THE ASSESSEE ON SALE OF TDRS IS CAPITAL RECEIPT ASSESSABLE UNDER THE HEAD CAPITAL GAINS OR IT IS BUSINESS INCOME IN THE HANDS OF THE ASSESSEE. WE HAVE NOTICED THAT THE ASS ESSEE HAS ENTERED INTO A DEVELOPMENT AGREEMENT WITH THE OWNERS OF THE LAND ON 10 - 07 - 2006 AND ALSO OBTAINED IRREOABLE POWER OF ATTORNEY ON 11.07.2006 FROM THEM. A PERUSAL OF THE DEVELOPMENT AGREEMENT WOULD SHOW THAT THE ASSESSEE HAS AGREED TO PAY A SUM OF RS.23.67 LAKHS TO THEM AS PER THE BREAK UP DETAIL GIVEN CLAUSE 2 (THE AGGREGATE AMOUNT WAS, HOWEVER, STATED AS RS.26.67 LAKHS) OF THE AGREEMENT. A PERUSAL OF VARIOUS CLAUSES WOULD SHOW THAT THE ASSESSEE HAS, IN FACT, PURCHASED THE PLOT FROM THE OWNERS. MR. PADMAKAR NAGESH GAIKAR 4 (A) CLAUSE 8 STATES THAT THE OWNERS HAVE DECIDED TO SELL THE PROPERTY TO THE ASSESSEE. THE OWNERS DO NOT HAVE OBJECTION IN TRANSFERRING ALL RIGHTS AND RESPONSIBILITIES TO THE ASSESSEE. (B) CLAUSE 9 STATES THAT THE OWNERS DO NOT HAVE ANY OBJECTION/QUERY AND WOULD ALSO GET SIGNATURE FROM ALL NOMINEES. (C) CLAUSE 10 STATES THAT THE OWNERS DO NOT HAVE OBJECTION IN TAKING NEARBY LAND AND ALSO FOR USE OF TDR OF THE NEARBY PROPERTY ON THE IMPUGNED PLOT OR TRANSFER OF TDR BELONGING TO THE IMPUGNED PROPERTY TO OTHER PERSONS. THEY DONT HAVE OBJECTION IN SELLING TDR RIGHTS. (D) CLAUSE 13 STATES THAT THE ASSESSEE CAN SELL THE FLATS DEVELOPED ON THE IMPUGNED PLOT FOR ANY AMOUNT AND THE SAID AMOUNT FULLY BELONGS TO THE ASSESSEE ONLY. (E) CLAUSE 19 STATES THAT TH E OWNERS TAKE ANY OF THE FLAT TOWARDS THE AMOUNT PAYABLE TO THEM, THEN THE STAMP DUTY SHALL BE BORNE BY THE OWNERS. ALL THESE CLAUSES WOULD SHOW THAT THE ASSESSEE HAS ACTUALLY PURCHASED THE PLOT BY EXECUTING A IRREVOCABLE POWER OF ATTORNEY AND A DEVELOPM ENT AGREEMENT. THE ASSESSEE HAS ALSO PAID PART CONSIDERATION AND ALSO TAKEN POSSESSION OF THE PLOT. HENCE FOR THE PURPOSES OF INCOME TAX ACT, THE ASSESSEE HAS BECOME OWNER OF THE PLOT WHEN HE EXECUTED THE DEVELOPMENT AGREEMENT AND THE IRREVOCABLE POWER O F ATTORNEY, MADE PART PAYMENT AND TAKEN POSSESSION OF PLOT. 8. THOUGH THE AGREEMENT WAS EXECUTED FOR DEVELOPMENT OF THE PLOT IN JULY, 2006, IT SO HAPPENED THAT THE KDMC HAS EARMARKED THIS PLOT FOR PUBLIC PURPOSES. IN VIEW OF THE SAME, IT WAS STATED T HAT THE ASSESSEE HAD TO ABANDON THE OBJECT OF DEVELOPMENT OF THE PLOT. ACCORDINGLY, IT WAS SUBMITTED THAT, SINCE THE ASSESSEE HAS ALREADY PURCHASED THE PLOT, HE CONTINUED TO HOLD IT AS HIS CAPITAL ASSET. THERE IS MERIT IN THIS SUBMISSION OF THE ASSESSEE. WHEN THE ASSESSEE COULD NOT DEVELOP THE PLOT AS ORIGINALLY ENVISAGED, IN OUR VIEW, IT CANNOT BE SAID THAT THE INTENTION OF THE ASSESSEE SHALL BE TO CONTINUE TO HOLD THE ASSET AS HIS BUSINESS ASSET. NO PRUDENT BUSINESSMAN WOULD HOLD THE ASSET MR. PADMAKAR NAGESH GAIKAR 5 AS BUSINESS A SSET, WHEN IT CANNOT BE USED FOR BUSINESS AT ALL. ACCORDINGLY, WE AGREE WITH THE SUBMISSION OF THE ASSESSEE THAT HE HAS HELD THE ASSET AS HIS CAPITAL ASSET ONLY. THE STAND TAKEN BY THE ASSESSEE ALSO GETS SUPPORT FROM THE DECISION RENDERED BY CO - ORDINATE BENCH IN THE CASE OF ACIT VS. M/S S.K.M. CONSTRUCTION P LTD (ITA NO.6272/MUM/2009 DATED 30 - 06 - 2011). IN THE ABOVE SAID CASE ALSO, THE DISPUTE WAS WHETHER THE MONEY RECEIVED ON SALE OF TDR WAS ASSESSABLE AS CAPITAL GAIN OR BUSINESS INCOME. IN THIS CASE AL SO, THE LAND ACQUIRED BY THE ASSESSEE WAS TRANSFERRED TO PUNE MUNCIPAL CORPORATION AS THE SAME WAS RESERVED FOR A GARDEN. THE ASSESSEE RECEIVED TDRS AND SOLD THE SAME IN THE MARKET. THE AO ASSESSED THE SAME UNDER THE HEAD BUSINESS. THE LD CIT(A), HOWEVE R, HELD THAT THE SAME IS ASSESSABLE AS CAPITAL GAIN AND THE TRIBUNAL HAS UPHELD THE VIEW SO TAKEN BY LD CIT(A). 9. IN THE INSTANT CASE, WE HAVE NOTICED THAT THE ASSESSEE HAS SURRENDE RE D THE PLOT DURING THE YEAR UNDER CONSIDERATION TO KDMC AND IN TURN, HE HAS RECEIVED TDR TO THE EXTENT OF 6458 SQ. METERS FROM KDMC. THE ASSESSEE HAS SOLD 4722 SQ. METERS OF TDR DURING THE YEAR UNDER CONSIDERATION FOR A SUM OF RS.130 LAKHS. THE SAME SHALL CONSTITU T E SALE CONSIDERATION TOWARDS SALE OF PLOT OF 6458 SQ. MET ERS AND CAPITAL GAINS SHALL BE COMPUTED BY ADOPTING THE SAID FIGURE ONLY. 10. WITH REGARD TO THE COST OF ACQUISITION OF LAND, WE NOTICE THAT THE LD CIT(A) HAS RECOGNISED ONLY RS.5.00 LAKHS FOR COMPUTING PROFIT ON SALE OF LAND. HOWEVER, AS PER THE DEVELO PMENT AGREEMENT, THE ASSESSEE HAS AGREED TO PAY RS.23.67 LAKHS AS COMPENSATION TO THE OWNERS OF THE PLOT. HENCE THERE IS NO JUSTIFICATION IN ADOPTING RS.5.00 LAKHS ONLY AS COST OF THE LAND. ACCORDINGLY WE ARE OF THE VIEW THAT THE COST OF PLOT FOR THE EXT ENT OF 7920 SQ. METERS SHOULD BE TAKEN AS RS.23.67 LAKHS AND THE PROPORTIONATE AMOUNT OF COST SHOULD BE TAKEN FOR THE PURPOSE OF COMPUTING CAPITAL GAINS. SINCE THE ASSESSEE HAS HELD THE LAND FOR MORE THAN THREE YEARS, THE ASSESSEE SHALL BE ELIGIBLE FOR IN DEXATION BENEFITS ALSO. MR. PADMAKAR NAGESH GAIKAR 6 11. THE ASSESSEE HAS CLAIMED EXPENDITURE TOWARDS IMPROVEMENT OF LAND. THOUGH THE DETAILS OF PAYMENTS TO VARIOUS PERSONS HAVE BEEN GIVEN ALONG WITH THE DATES OF PAYMENTS, THE LD CIT(A) DID NOT CONSIDER THE SAME FOR THE REASON THA T THE ASSESSEE DID NOT FURNISH ANY EVIDENCE TO SUPPORT THE CLAIM OF IMPROVEMENT OF LAND. WE NOTICE THAT THE LD CIT(A) HAS REJECTED THE CLAIM OF THE ASSESSEE ONLY FOR WANT OF EVIDENCES. HENCE, IN THE INTEREST OF NATURAL JUSTICE, WE ARE OF THE VIEW THAT TH E ASSESSEE MAY BE PROVIDED WITH ONE MORE OPPORTUNITY TO FURNISH EVIDENCES. ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND RESTORE THE ISSUE RELATING TO CLAIM OF IMPROVEMENT EXPENSES TO THE FILE OF THE AO FOR EXAMINING THE SAME. THE ASSESSEE IS ALSO DIRECTED TO FURNISH EVIDENCES TO SUPPORT HIS CLAIM. 12. THE ASSESSEE HAS ALSO CLAIMED DEDUCTION U/S 54F OF THE ACT. THE LD CIT(A) REJECTED THE SAME FOR THE REASON THAT THE PROFIT WAS ASSESSED AS BUSINESS INCOME OF THE ASSESSEE. SI NCE WE HAVE HELD THAT THE PROFIT IS ASSESSABLE AS LONG TERM CAPITAL GAIN, IN OUR VIEW, THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 54F OF THE ACT SHOULD BE EXAMINED AFRESH. ACCORDINGLY WE RESTORE THIS ISSUE ALSO TO THE FILE OF THE AO FOR EXAMINING THE CLA IM FOR DEDUCTION U/S 54F OF THE ACT. 13. WE ORDER ACCORDINGLY. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 30 . 1 1 . 201 8 . SD/ - SD/ - (RAMLAL NEGI) (B.R.BASKARAN) J U DICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 30 / 1 1 / 20 1 8 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT MR. PADMAKAR NAGESH GAIKAR 7 5. DR, ITAT, MUMBAI 6. GUARD FI LE. BY ORDER, //TRUE COPY// ( SENIOR P RIVATE S ECRETARY ) PS ITAT, MUMBAI