DCIT CIR 7(1), MUMBAI V. PENINSULA LAND LTD, MUMBAI

ITA 4600/MUM/2009

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 5935 (ITAT-MUMBAI)
• Duration Of Justice: 13 year(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-08-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2006-2007
• Appeal Filed On: 05-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset converted into stock in trade; Business income; Business expenditure; Retrospective amendment; Question of law; Fair market value; Valuation report; Revenue expenditure; Capital Gains
• Section: 45(2); 143(3); 133(6); 55A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL "F" BENCH, MUMBAI SHRI B.R. BASKARAN, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER ITA No. 4600/MUM/2009 (Assessment Year: 2006-07) Assistant Commissioner of Income Tax, Circle 7(1), Mumbai, 622, Aayakar Bhavan, M.K. Marg, Mumbai Peninsula Land Limited, Peninsula Spenta, Mathurdas Mill Compound, Senapati Bapat Marg, Lower Parel, Mumbai - 400012 [PAN: AAACT5173A] .................. Vs ............... Appellant Respondent ITA No. 4556/MUM/2009 (Assessment Year: 2006-07) Peninsula Land Limited, Peninsula Spenta, Mathurdas Mill Compound, Senapati Bapat Marg, Lower Parel, Mumbai - 400012 [PAN: AAACT5173A] Deputy Commissioner of Income Tax, 7(1), Mumbai 622, Aayakar Bhavan, M.K. Marg, Mumbai .................. Vs .................. Appellant Respondent ITA No. 1479/MUM/2012 (Assessment Year: 2007-08) Deputy Commissioner of Income Tax, Circle 7(1), Mumbai, 622, Aayakar Bhavan, M.K. Marg, Mumbai Peninsula Land Limited, Peninsula Spenta, Mathurdas Mill Compound, Senapati Bapat Marg, Lower Parel, Mumbai - 400012 [PAN: AAACT5173A] .................. Vs ............... Appellant Respondent ITA. No. 4600 & 4456/Mum/2009: Assessment Year: 2006-07 ITA No. 1479 & 1636 /Mum/2012: Assessment Year: 2007-08 2 ITA No. 1636/MUM/2012 (Assessment Year: 2007-08) Peninsula Land Limited, Peninsula Spenta, Mathurdas Mill Compound, Senapati Bapat Marg, Lower Parel, Mumbai - 400012 [PAN: AAACT5173A] The Additional Commissioner of Income Tax, 7(1), Mumbai 622, Aayakar Bhavan, M.K. Marg, Mumbai .................. Vs ............... Appellant Respondent Appearances For the Department For the Assessee : : Shri Vijay Mehta Shri Achal Sharma Date of conclusion of hearing Date of pronouncement of order : : 30.06.2022 18.08.2022 O R D E R Per Rahul Chaudhary, Judicial Member: 1. These are two sets are cross-appeals pertaining to Assessment Year 2006-07 and 2007-08 involving identical issues which were heard together and are being disposed by way of common order. Appeal by Revenue : ITA No. 4600/Mum/2009 & Appeal by Assessee : ITA No. 4556/Mum/2009 2. We would first take up first set of cross-appeal for the Assessment Year 2006-07 which arose from the order, dated 22.05.2005, passed by the Commissioner of Income Tax (Appeals)-VII, Mumbai [hereinafter referred to as „the CIT(A)‟], which in turn arose from the Assessment Order, dated ITA. No. 4600 & 4456/Mum/2009: Assessment Year: 2006-07 ITA No. 1479 & 1636 /Mum/2012: Assessment Year: 2007-08 3 29.12.2008, passed under Section 143(3) of the Income Tax Act, 1961 [hereinafter referred to as „the Act‟]. 3. The relevant facts in brief are that Assessee, a company engaged in the business of property development, reality sales and services, filed its original return of income on 23.08.2007 which was revised on 29.03.2008 declaring income of INR 2,93,07,811/-. The case of the Assessee was selected for scrutiny. 4. The Assessing Officer completed the assessment on the Assessee vide, order dated 29.12.2008, under Section 143(3) of the Act at total income of INR 51,24,75,320/- after making, inter alia, following addition/disallowances: (a) The Assessing Officer rejected the system of accounting followed by the Assessee and re-calculated the business income arising from the project „Ashok Towers‟ by following his own method as opposed to the percentage completion method followed which was being consistently followed by the Assessee. The Assessing Officer computed business income, being profit on sale of land, at INR 34,38,80,220/-. In doing so, the Assessing Officer took the average sale value of INR 6,670/- per Sq. Ft. (120% of per Sq. Ft. value of INR 5558 adopted for AY 2005-06) and the average cost of construction at INR 750/- per Sq. Ft. (b) The Assessing Officer made addition of INR 16,15,26,066/- by re-computing the capital gains arising on conversion of land into stock-in-trade (liable to tax in ITA. No. 4600 & 4456/Mum/2009: Assessment Year: 2006-07 ITA No. 1479 & 1636 /Mum/2012: Assessment Year: 2007-08 4 the year of sale of such stock-in-trade) by computing sale consideration taking the Fair Market Value of land on the date of conversion at INR 3,000/- per Sq. Ft. and computing cost of acquisition of such land at INR 16.32 per Sq. Ft. taking the Fair Market Value of such land as on 01.04.1981 (as opposed to INR 240 per Sq. Ft. adopted by the Assessee). (c) The Assessing Officer disallowance Long Term Capital Loss of INR 71,36,76,307/- that was set off by the Assessee against Capital Gains of INR 24,06,55,093/- during the relevant previous year in the return of income while the balance of INR 47,30,21,214/- was carried forward to the subsequent years. The Long Term Capital Loss of INR 71,36,76,307/- consisted of the long term capital loss of INR 68,02,52,707/- arising from sale of shares of Piramid Retain & Merchandising Pvt. Ltd (PRMPL) and Long Term Capital Loss of INR 2,57,60,600/- and INR 76,63,000/- arising from sale of Debentures of Advent Investment & Finance Co. Pvt. Ltd. and Charlie Finance Co. Pvt. Ltd., respectively. (d) The Assessing Officer made ad-hoc disallowance of INR 15,64,33,363/-, being 75% of the certain business expenses of INR 20,85,77,817/- consisting of (i) Power and Fuel Expenses of INR 2,35,20,482/-(ii) Rent, Taxes and Water Charges of INR 3,30,56,915/-, (iii) Professional Fee of INR 2,60,33,494/-, (iv) Deferred Revenue Expenditure of INR 6,06,41,449/- and (v) Miscellaneous ITA. No. 4600 & 4456/Mum/2009: Assessment Year: 2006-07 ITA No. 1479 & 1636 /Mum/2012: Assessment Year: 2007-08 5 Expenses of INR 6,53,25,477/- debited to Profit & Loss Account. 5. Being aggrieved, the Assessee filed appeal before CIT(A). The CIT(A), vide order dated 22.05.2009, granted the following relief to the Assessee: (a) The CIT(A) deleted the additions/disallowances specified in para 4(a) and 4(b) above following the decision of CIT(A) for the Assessment Year 2005-06. (b) As regards, rejection claim of Long Term Capital Loss specified in para 4(c) above, the CIT(A) granted partial relied by accepting claim of Long Term Capital Loss of INR 68,02,52,707/- arising from sale of shares of PRMPL. However, the CIT(A) confirmed the rejection of claim of Long Term Capital Loss of INR 3,34,23,600/- (INR 2,57,60,600/- plus INR 76,63,000/-) arising from sale of Debentures. (c) As regards ad-hoc disallowance of business expenditure specified in para 4(d) above, the CIT(A) recomputed the disallowance in respect of (i) Power and Fuel Expenses (ii) Rent, Taxes and Water Charges and (iii) Miscellaneous Expenses adopting reduced rate to 25% (as opposed to 75% adopted by the Assessing Officer) by following the order of CIT(A) for the Assessment Year 2005 – 06 taking amount of expenses debited to Profit & Loss Account reduced by the amount already disallowed by the Assessee as the base. Further, the CIT(A) deleted the disallowance of INR 1,95,25,120/- (75% of INR ITA. No. 4600 & 4456/Mum/2009: Assessment Year: 2006-07 ITA No. 1479 & 1636 /Mum/2012: Assessment Year: 2007-08 6 2,60,33,494/-) pertaining to Profession Fee Expenses, and INR 4,54,81,087/- (75% of INR 6,06,41,449/-) pertaining to Deferred Revenue Expenditure. 6. Both, the Revenue and the Assessee, being aggrieved by the order passed by the CIT(A), have preferred the present set of cross appeals. We have considered the rival submissions advanced by the Ld. Authorised Representative for the Assessee and the Ld. Departmental Representative. We have also perused material on record including order dated 27.10.2021 passed by the Tribunal in cross appeals filed by the Assessee/Revenue for the Assessment Year 2005-06 (ITA No. 3696 & 3440/Mum/2009). 7. We would first take up the appeal by Revenue [4600/Mum/2009] along with related ground raised by the Assessee in appeal [4556/Mum/2009] on common issues. ITA No.4600/Mum/2009 Ground No.1 8. Ground No. 1 raised by the Revenue is directed against the order of CIT(A) overturning the decision of the Assessing Officer of re-computing the business profits of the project „Ashok Towers‟ by adopting his own method while rejecting the project completion method consistently adopted by the Assessee. We note that the CIT(A) had deleted the addition by following the order of CIT(A) in the case of the Assessee for the Assessment Year 2005-06 which stands confirmed by the order, dated 27.10.2021, passed by the Tribunal [ITA No. 3696&3440/Mum/2009] whereby identical ground raised by the ITA. No. 4600 & 4456/Mum/2009: Assessment Year: 2006-07 ITA No. 1479 & 1636 /Mum/2012: Assessment Year: 2007-08 7 Revenue in appeal for the Assessment Year 2005-06 have been dismissed by the Tribunal holding as under: “5. Upon careful consideration of factual matrix, it could be gathered that the assessee converted its land into stock-in- trade and thus computed the capital gains as provided in Sec. 45(2) of the Act. The land stood converted into stock-in-trade and the assessee constructed premises / buildings on this land. During the year, the assessee entered into agreement for sale of these premises. For the purpose of revenue recognition, the assessee followed percentage completion of method of accounting. Since project was completed to the extent of 11% during the year as certified by the Architect, the assessee recognized projected revenues to that extent in its books of accounts. The said method was recognized method of accounting as per Accounting Standards issued by ICAI and this method was consistently followed in subsequent years to recognize the revenue. This method was accepted in earlier years also. Therefore, Ld. AO, in our considered opinion, was not justified in rejecting the methodology adopted by the assessee and estimating the business profits on sale of land as well as profits from construction activities separately since the land merged into the stock-in-trade and the premises including the undivided share in the land was sold to various buyers during the year. The perusal of chart placed before us would show that finally, the project has been completed in AY 2010-11 and revenue has been recognized from AYs 2005-06 to 2010-11 based on percentage of completion method of accounting. Therefore, finding no infirmity in the impugned order on this issue, we dismiss ground no.1 of revenue‟s appeal.”(Emphasis Supplied) 8.1. In view of the above, it is clear that the issue stands covered in favour of the Assessee by the above decision of the Tribunal and therefore, respectfully following the same we dismiss Ground No.1 raised by the Revenue. ITA. No. 4600 & 4456/Mum/2009: Assessment Year: 2006-07 ITA No. 1479 & 1636 /Mum/2012: Assessment Year: 2007-08 8 Ground No. 2 9. Ground No. 2 raised by the Revenue is directed against the order of CIT(A) deleting the addition of INR 16,15,26,066/- being Long Term Capital Gains arising on conversion of land into stock-in-trade taxed by the Assessing Officer in the hands of the Assessee in terms of Section 45(2) of the Act. This issue also stands decided in favour of the Assessee by the order of the above said order of the Tribunal for the Assessment Year 2005-06. The relevant extract of the order of the Tribunal reads as under: “7. Upon perusal of factual matrix, we find that there are two facets of the dispute i.e. FMV as on 01/04/1981 as well as FMV on 24/12/2003 i.e. the date of conversion. The FMV, on both the dates, as adopted by the assessee is duly supported by the valuation report of registered valuers, the copies of which are on record (page nos.54 to 61 of Paper-Book). So far as the valuation as on 24/12/2003 is concerned, we find that Ld. CIT(A) has already directed Ld. AO to accept the valuation of Rs.1750/- per square feet subject to the revision of the same upon receipt of DVO‟s report. It was submitted by Ld. AR that the valuation report has already been received on the basis of which FMV as on 24/12/2003 may be recomputed by Ld. AO and for the same, the assessee do not have any grievance. This being so, the directions given by Ld. CIT(A), to that extent, could not be faulted with since the valuation of DVO is binding on Ld.AO. The Ld. AO is directed to re-compute the gains by taking FMV as on 24/12/2003 as valued by Ld. DVO. No further directions would be required from our side with respect to Ground No.3 of revenue‟s appeal and this ground becomes infructuous. So far as valuation as on 01/04/1981 is concerned, we find that the FMV adopted by the assessee is Rs.240/- per square feet which is as per valuation made by the registered valuer. ITA. No. 4600 & 4456/Mum/2009: Assessment Year: 2006-07 ITA No. 1479 & 1636 /Mum/2012: Assessment Year: 2007-08 9 The Ld. AO has adopted the rate of Rs.16.32 per square feet on the basis that in respect of one of the land on which assessee constructs Peninsula Chamber Units II, the assessee took cost of land at Rs.16.32 per square feet as per assessment order of AY 2004-05. However, upon perusal of Assessment order of AY 2004-05 as placed on record, it could be noted that the aforesaid observation is factually incorrect. The rate of Rs.16.32 per square feet is the actual cost of acquisition and not FMV as on 01/04/1981. In fact, during assessment proceedings, the assessee sought substitution of actual cost of acquisition with FMV as on 01/04/1981 at Rs.260/- per square feet. Though Ld. AO had denied the same, however, the same was allowed in first appellate proceedings which were confirmed by the Tribunal by way of dismissal of revenue‟s grounds. Therefore, the rate of Rs.16.32 per square feet as taken by Ld. AO is without any basis. On the other hand, the valuation adopted by the assessee is supported by registered valuer‟s report. The second aspect of the matter is that prior to 01/07/2012, no reference to DVO could be made u/s 55A where Ld. AO was of the view that FMV was less than value declared by the assessee as held by Hon‟ble High Court of Bombay in CIT V/s Puja Prints (43 Taxmann.com 247; 15/01/2014). It was held as under: - 7. We find that Section 55A(a) of the Act very clearly at the relevant time provided that a reference could be made to the Departmental Valuation Officer only when the value adopted by the assessee was less then the fair market value. In the present case, it is an undisputed position that the value adopted by the respondent assessee of the property at Rs.35.99 lakhs was much more than the fair market value of Rs.6.68 lakhs even as determined by the Departmental Valuation Officer. In fact, the Assessing Officer referred the issue of valuation to the Departmental Valuation Officer only because in his view the valuation of the property as on 1981 as made by the respondent-assessee was higher then the fair market value. In the aforesaid circumstances, the invocation of Section 55A(a) of the Act is not justified. ITA. No. 4600 & 4456/Mum/2009: Assessment Year: 2006-07 ITA No. 1479 & 1636 /Mum/2012: Assessment Year: 2007-08 10 8. The contention of the revenue that in view of the amendment to Section 55A(a) of the Act in 2012 by which the words "is less then the fair market value" is substituted by the words " "is at variance with its fair market value" is clarifactory and should be given retrospective effect. This submission is in face of the fact that the 2012 amendment was made effective only from 1 July 2012. The Parliament has not given retrospective effect to the amendment. Therefore, the law to be applied in the present case is Section 55A(a) of the Act as existing during the period relevant to the Assessment Year 2006-07. At the relevant time, very clearly reference could be made to Departmental Valuation Officer only if the value declared by the assessee is in the opinion of Assessing Officer less than its fair market value. 9. The contention of the revenue that the reference to the Departmental Valuation Officer by the Assessing Officer is sustainable in view of Section 55A(a) (ii) of the Act is not acceptable. This is for the reason that Section 55A(b)of the Act very clearly states that it would apply in any other case i.e. a case not covered by Section 55A(a) of the Act. In this case, it is an undisputable position that the issue is covered by Section 55A(a) of the Act. Therefore, resort cannot be had to the residuary clause provided in Section 55A(b)(ii) of the Act. In view of the above, the CBDT Circular dated 25 November 1972 can have no application in the face of the clear position in law. This is so as the understanding of the statutory provisions by the revenue as found in Circular issued by the CBDT is not binding upon the assessee and it is open to an assessee to contend to the contrary. 10. The contention of the revenue that the Assessing Officer is entitled to refer the issue of valuation of the property to the Departmental Valuation Officer in exercise of its power under Sections 131, 133(6) and 142(2) of the Act is entirely based upon the decision of the Guwahati High Court in Smt. Amiya Bala Paul (supra). However, the Apex Court in Smt. Amiya Bala Paul (supra) has reversed the decision of the Guwahati High Court and held that if the power to refer any dispute with regard to the valuation of the property was already available under Sections 131(1), 136(6) and 142(2) of the Act, there was no need to specifically empower the Assessing Officer to do so in ITA. No. 4600 & 4456/Mum/2009: Assessment Year: 2006-07 ITA No. 1479 & 1636 /Mum/2012: Assessment Year: 2007-08 11 circumstances specified under Section 55A of the Act. It further held that when a specific provision under which the reference can be made to the Departmental Valuation Officer is available, there is no occasion for the Assessing Officer to invoke the general powers of enquiry. In view of the above and particularly in view of clear provisions of law as existing during the period relevant to Assessment Year 2006-07, we are of the view that questions (a) and (b) do not raise any substantial question of law. Viewed from any angle, the substitution of FMV as on 01/04/1981 by Ld.AO cannot be held to be in accordance with law. Therefore, finding no infirmity in the impugned order, in this respect, we dismiss ground no.2 of revenue‟s appeal.” (Emphasis Supplied) 9.1. In view of the above, Ground No.2 raised by the Revenue is dismissed. Ground No. 3 & 4 along with Ground No. I (1 to 4) of ITA No,4556/Mum/2009 10. Ground No. 3 & 4 of appeal by the Revenue and Ground No. I (1 - 4) of appeal by Assessee relate to the disallowance of business expenses. 10.1 Identical grounds raised by the Revenue in appeal filed against the order of CIT(A) for the Assessment Year 2005-06 deleting the disallowance of Profession Fee Expenses, and Deferred Revenue Expenditure were dismissed by the Tribunal holding as under: “Disallowance of Professional fees “8.1 The assessee claimed Rs.130.52 Lacs as professional fees which was paid to different persons / entities. Upon perusal of ITA. No. 4600 & 4456/Mum/2009: Assessment Year: 2006-07 ITA No. 1479 & 1636 /Mum/2012: Assessment Year: 2007-08 12 assessee‟s submissions, Ld.AO opined that the submissions do not give any picture as to the fact that the expenses were incurred wholly and exclusively for the purpose of business. Accordingly, 75% of these expenses were disallowed which came to Rs.97.89 Lacs. 8.2 During appellate proceedings, it was submitted that complete details of professional fees paid by the assessee was furnished. The fees include certification fees for representing before tax authorities, fees for limited review etc. The same being for business purposes were allowable expenditure. Concurring with the same, Ld. CIT(A) directed Ld. AO to allow the same. Aggrieved, the revenue is in further appeal before us. 8.3 We find that the assessee has furnished name of payees, nature of expenses and the amount paid to each of them (Page no. 83 of the Paper Book). No defect has been pointed out in these details. The expenses are in the nature of certification work, management consultancy, fees for appearance before Tax Authorities, company secretarial work and these expenses are incurred for business purposes of the assessee. Therefore, no fault could be found in the impugned order deleting the estimated disallowance as made by Ld. Assessing Officer. Ground No. 4 stand dismissed.” Deferred revenue expenditure u/s 35DDA 9.1 In computation of income, the assessee disallowed VRS expenses amortized in books for Rs.1143.92 Lacs but claimed VRS expenses of Rs.1866.34 Lacs u/s 35DDA. The deduction was claimed @1/5th of expenditure paid in FYs 2000-01 to 2003-04. It transpired that the assessee sold its textile division under slump sale to M/s Morarjee Textiles Limited (MTL) during financial year 2003-04 and paid VRS payments to the workers of textile division. The assessee incurred deferred revenue expenditure of Rs.1702.57 Lacs (including Rs.1143.92 Lacs VRS payment). However, rejecting assessee‟s submission, Ld. AO denied deduction of Rs.1866.34 Lacs along with balance deferred revenue ITA. No. 4600 & 4456/Mum/2009: Assessment Year: 2006-07 ITA No. 1479 & 1636 /Mum/2012: Assessment Year: 2007-08 13 expenditure of Rs.558.65 Lacs (Rs.1702.57 Lacs less expenses already disallowed by the assessee Rs.1143.92 Lacs). The gross disallowance came to Rs.2424.98 Lacs. The detail of deferred revenue expenditure as debited by the assessee was as under: - Particulars Unit I Unit II Amount VRS 9,17,68,906 2,26,23,774 114,392,680 GTO 6,30,117 6,30,117 Export- Quota/Trade Mark 11,90,714 11,90,714 Subscription 53,000 53,000 Professional & Legal Charges 3,82,500 3,82,500 Seagull Services 37,50,514 37,50,514 Wages 17,68,000 41,98,434 59,66,434 Ex-Gratia Wages 20,20,973 80,29,722 1,00,50,695 Ex-Gratia Salaries 2,11,849 75,000 2,86,849 PL Encashment 1,83,413 3,95,363 5,78,776 Gratuity 2,30,53,990 65,84,815 2,96,38,805 DCML-VRS 33,35,916 12,50,13,976 4,19,07,108 17,02,57,000 9.2 During appellate proceedings, the assessee submitted that the claim was in accordance with the provisions of Sec.35DDA and the same was certified by the Tax Auditor. Concurring with the same, Ld. CIT(A) observed that Sec.35DDA does not debar the assessee to claim deduction in case of slump sale and therefore, the disallowance was to be deleted. Aggrieved, the revenue is in further appeal before us. 9.3 We find that the provisions of Sec.35DDA entitle the assessee to amortize the expenses incurred on voluntary retirement scheme and allow 1/5th of such expenditure starting from the year in which the expenditure has been incurred by the assessee. The perusal of computation of income would show that VRS expenditure has been incurred by the assessee during FYs 2000-01 to 2003- ITA. No. 4600 & 4456/Mum/2009: Assessment Year: 2006-07 ITA No. 1479 & 1636 /Mum/2012: Assessment Year: 2007-08 14 04 and the same are claimed as per the mandate of Sec.35DDA. The same has been claimed to the extent of 1/5th of expenditure incurred in earlier years. The deduction of the same has been allowed to the assessee in past assessments. Therefore, there could be no occasion to disallow the same in this year. Hence, the disallowance of Rs.1866.34 Lacs has rightly been deleted in the impugned order. So far as the balance expenditure of Rs.558.65 Lacs is concerned, the perusal of above table would show that majority of these payments are in the nature of wages, ex- gratia payment, leave encashment, gratuity, VRS expenses etc. paid by the assessee. Upon perusal of the same, it could be seen that these are normal business liability of the assessee paid during normal conduct of the business. Therefore, these are incurred wholly and exclusively for the purpose of business and thus qualify for deduction u/s 37(1). This being so, we confirm the stand of Ld. CIT(A) in deleting the same. Ground No.5 stand dismissed.” 10.2 The CIT(A) had granted relief to the Assessee by following the order of CIT(A) for the Assessment Year 2005-06 on the issue under consideration which stands confirmed by the order, dated 27.10.2021, passed by the Tribunal [ITA No. 3696&3440/Mum/2009]. We do not see any infirmity in the order passed by the CIT(A). Ground No. 3&4 raised by the Revenue are dismissed. 10.3 As regards Ground No. I (1 - 4) raised by the Assessee, we note that the Tribunal had granted further relief to the Assessee in appeal filed by the Assessee for the Assessment Year 2005-06 in respect of Rent, Taxes and Water Charges and Miscellaneous Expenses by further reducing the percentage of ad-hoc disallowance to 10% holding the same to be reasonable. ITA. No. 4600 & 4456/Mum/2009: Assessment Year: 2006-07 ITA No. 1479 & 1636 /Mum/2012: Assessment Year: 2007-08 15 Further, the Tribunal had deleted the addition on account of Power & Fuel Expenses. Nothing has been placed before us to persuade us to depart from the earlier view taken by the Tribunal in case of the Assessee for the immediately preceding Assessment Year 2005-06 in identical facts and circumstances. Accordingly, we delete the addition on account of Power and Fuel Expenses, and reduce the ad-hoc disallowance rate to 10% from 25% in case of Rent, Taxes and Water Charges and Miscellaneous Expenses. In terms of the aforesaid, Ground No, 1(1-4) raised by the Assessee are partly allowed. Ground No. 5(a) & (b) along with Ground No. II (1 to 3) of ITA No,4556/Mum/2009 11. Ground No. 5(a)&(b) along with Ground No. II (1-3) of ITA No. 4456/Mum/2009 arise from the claim of Long Term Capital Loss of INR 71,36,76,307/- disallowed by the Assessing Officer. The Revenue is aggrieved by the order of CIT(A) accepting the claim of Long Term Capital Loss to the extent of INR 68,02,52,707/- pertaining to sale of share of PRMPL, whereas the Assessee is aggrieved by the order of CIT(A) confirming the rejecting of claim of Long Term Capital Loss of INR 3,34,23,600/- pertaining to the sale of Debentures. 11.1. We would first take up Ground No. 5(a)&(b) raised by the Revenue. In order to adjudicate this issue it would be pertinent to consider the relevant facts which are as follows. During the Assessment Proceedings the 11.2. We note that the decisions of the Assessing Officer to disallow the Long Term Capital Loss of INR 68,02,52,707/- was. to some ITA. No. 4600 & 4456/Mum/2009: Assessment Year: 2006-07 ITA No. 1479 & 1636 /Mum/2012: Assessment Year: 2007-08 16 extent. Influenced by the adverse inference drawn by the Assessing Officer on the basis of the past conduct of the Assessee as would become clear from the following observations of the Assessing Officer in paragraph 9.4 and 9.5 of the Assessment Order. “9.4 Further the similar issue had also arisen for consideration in the preceding assessment year in respect of share transfer of another group company viz. Morarjee Textiles Ltd. The predecessor AO has found in that year also that the transaction of the said transfer was also not genuine and not only ignored the capital loss, but had converted the same into capital gain. 9.5 For the detailed reasons on the nature of the said transactions made by the predecessor AO in respect of Morarjee Textiles, the present long term capita loss claimed by the assessee for set off against the taxable capital gain is ignored in its entirety by rejecting the claim as a fabricated one.” 11.3. It would be pertinent to note that issue relating to claim of Short/Long Term Capital Loss arising from the transfer of shares of Morarjee Textiles Ltd (MTL) travelled to the Tribunal and vide order dated 27.10.2021 passed in appeal for Assessment Year 2005-06 [ITA No. 3696 & 3440/Mum/2009] the Tribunal dismissed identical contentions, raised by the Revenue alleging the transaction of sale of shares of MTL resulting in Short/Long Term Capital Loss being a colorable device hit by the judgment of the Hon‟ble Supreme Court in the case of McDowells & Co (154 ITR 148). The relevant extract of the above decision of the Tribunal reads as under: ITA. No. 4600 & 4456/Mum/2009: Assessment Year: 2006-07 ITA No. 1479 & 1636 /Mum/2012: Assessment Year: 2007-08 17 “11. The undisputed facts that emerges are that the assessee was holding shareholding in the joint venture entity namely MTL. The other partner expressed intention to quit from the joint venture and accordingly, his shareholding was acquired by the assessee during financial year 2003-04. A part of the holding was sold by the assessee to MGM Shareholder benefit Trust in that year. Since MTL had accumulated losses, a restructuring plan was proposed and the assessee subscribed to additional shares @Rs.15.50 per share. The shares were subsequently listed. The Ld.AO missed the fact that the application for purchase of shares was made in June, 2004 and the scheme of arrangement was filed subsequently. Another pertinent fact to be noted is that the funds were already lying with MTL by way of advances and the same were converted into share capital since MTL was a loss making entity and could not have returned the money. The action of the assessee facilitated financial restructuring and listing of shares of MTL. The entire purpose was to infuse the funds, make the business viable, get the share listed and derive value of investment. Further, the funds were to be utilized as per the scheme of arrangement u/s 391 of the Companies Act, 1956 as approved by Hon‟ble Bombay High Court. As per the approved scheme, the assessee surrendered the shares and computed capital gains thereon, as applicable. It could be seen that Ld.AO has computed average price per share at Rs.69.10 per share. The three prices of Rs.93.81, Rs.81 & Rs.146 are the rates that were prevailing after the capital restructuring involving reduction of share capital was over which would lend support to assessee‟s submissions. As rightly observed by Ld. CIT(A), merely on the basis of intention, a valid claim made within the four corner of the Act, could not be disallowed unless established to the contrary. The Ld. AO has not conducted any independent enquiry to prove that the above mentioned claims of capital losses were not bona-fide or lacked credentials. Concurring with the same, we would hold that the allegations of Ld. AO ITA. No. 4600 & 4456/Mum/2009: Assessment Year: 2006-07 ITA No. 1479 & 1636 /Mum/2012: Assessment Year: 2007-08 18 and conclusion drawn there-from has no legs to stand. We also concur that the statutory provisions do not empower Ld. AO to substitute actual consideration received by the assessee with hypothetical sale consideration. The consideration which never accrued or which was never received by the assessee could not be brought to tax as capital gains or business income. It could further be seen that similar allegations were leveled by Ld. AO in assessment order for AY 2004-05 and few of these allegations have merely been reproduced in the assessment of this year. However, all such allegations as well as disallowances as made in AY 2004-05 stood settled in assessee‟s favor by the cited decision of Tribunal for AY 2004- 05. We find no reason to deviate from the same. Therefore, considering the facts and circumstances of the case, no error could be found out in the order of Ld. CIT(A) reversing the stand of Ld.AO, in this regard. This ground as well as the revenue‟s appeal stand dismissed.”(Emphasis Supplied) 11.4. On perusal of above, it can be seen that the Assessing Officer had also made similar allegations for the Assessment Year 2004-05 which were also rejected by the CIT(A)/Tribunal. In our view, the disallowance has been made by the Assessing Officer on the basis of conjunctures and surmise. The fact that Assessee chose to make investment in the shares of the PRMPL instead of granting inter-corporate loan/deposit, and the Assessing Officer in hindsight believes that the Assessee would have been better off investing money as inter-corporate loan cannot, in our view, be sole basis to rejecting the claim of Long Term Capital Loss. Apart from inference drawn by the Assessing Officer from the past transaction of sale of shares of MTL, there is nothing on record that casts any sort of doubt about the genuineness of the transaction. No independent ITA. No. 4600 & 4456/Mum/2009: Assessment Year: 2006-07 ITA No. 1479 & 1636 /Mum/2012: Assessment Year: 2007-08 19 inquiry has been conducted by the Assessing Officer. There are no findings on fact to support the conclusion drawn by the Assessing Officer. It has been categorically stated by the Assessee that the shares of PRMPL were sold to a third party. Last Investment was made in November 2004. According to the Assessee, PRML suffered operational losses which prompted the Assessee to offload share in one go during the relevant previous year. The Assessing Officer simply rejected the contentions of the Assessee labeling the same as vague without any basis and proceeded to reject claim of Long Term Capital Loss of INR 68,02,52,707/-. The CIT(A) has allowed the claim of the Assessee after considering the submissions advanced by the Assessee and the detail facts forming part of statement of facts filed before the CIT(A) along with appeal in Form No. 35. 11.5. In view of the above, we do not see any infirmity in the order passed by the CIT(A), Ground No. 5(a) and 5(b) raised by the Revenue are dismissed. 12. In Ground No. II (1-3) of raised by the Assessee in appeal [ITA No. 4456/Mum/2009] the Assessee has challenged the order of CIT(A) confirming the rejection the claim of loss of INR 3,34,23,600/- arising from sale of debentures. 12.1. During the assessment proceedings, the Assessing Officer noted that the Assessee had sold debentures of Advent Investment & Finance Company Pvt. Ltd. purchased for a consideration of INR 2,57,85,600/- for a sale consideration of INR 25,000/-. Thus, suffering a loss of INR 2,57,60,600/-. Similarly, Assessee had sold debentures of Charlie Finance Pvt. ITA. No. 4600 & 4456/Mum/2009: Assessment Year: 2006-07 ITA No. 1479 & 1636 /Mum/2012: Assessment Year: 2007-08 20 Ltd. purchased for a consideration of INR 76,88,000/- for a sale consideration of INR 25,000/-. Thus, suffering a loss of INR 76,63,000/-. The Assessee had, therefore, claimed Long Term Capital Loss of INR 3,34,23,600/-. The Assessing Officer had, vide detailed query letter dated 05.12.2008, raised the following query on the Assessee: "You have claimed long term capital loss of Rs. 71,36,76,307/- on sale of shares as per annexure 5 to the last revised computation. This annexure shows sale of shares of your own group company also viz. Piramyd Retail & Mecahandizing Ltd. Please furnish the break up value of the shares as per the balance sheet of that company in the relevant period so as to verify whether or not the value at which you have sold the same is understated for sale. Similarly please also state whether the shares of the other two companies viz. Advent Investment & Finance Ltd and Charlie Finance Ltd are your associate enterprises. If so the above details of break up value may be furnished in that case also." (Emphasis Supplied) 12.2. The contention of the Assessee in appellate proceedings has been that in response to the above query raised by the Assessing Officer no detail were furnished as Advent Investment & Finance Ltd. and Charlie Finance Ltd. were not associated enterprises of the Assessee. Since, no information was furnished the Assessing Officer rejected the claim of Long Term Capital Loss. We note that the CIT(A) has confirmed the aforesaid order of the Assessing Officer holding that the Assessee has failed to file any documents before CIT(A). The Ld. Authorised Representative for the Assessee appearing before us had contended that the Assessee would be able to produce all the relevant documents in case an opportunity is granted to the Assessee. Whereas the Ld. Departmental ITA. No. 4600 & 4456/Mum/2009: Assessment Year: 2006-07 ITA No. 1479 & 1636 /Mum/2012: Assessment Year: 2007-08 21 Representative had vehemently contended that the Assessee had failed to file any supporting document and therefore the Assessing Officer as well as CIT(A) were justified in rejecting the claim of Long Term Capital Loss made by the Assessee. On perusal of paragraph 9.6 of the assessment order we note that the Assessing Officer had, as rightly pointed out by the Ld. Authorised Representative for the Assessee, moved on incorrect premise that the Assessee had purchased shares instead of debentures. Even the Assessee had, in our view, failed to appreciate the query raised by the Assessing Officer and erred in not filing relevant documents. In view of the aforesaid facts and circumstances, we deem it just and appropriate to remand the issue back to the file of Assessing Officer for fresh adjudication with the directions to the Assessee to furnish all the relevant information/documents pertaining to purchase and sale of debentures to support the claim of Long Term Capital Loss INR 3,34,23,600/-. 12.3. In view of the above, Ground No. II (1-3) of raised by the Assessee in appeal [ITA No. 4456/Mum/2009] is allowed for statistical purposes. Appeal by Revenue : ITA No. 1479/Mum/2012 & Appeal by Assessee : ITA No. 1636/Mum/2012 13. Both the sides agreed that our findings in cross appeals for the Assessment Year 2006-07 would apply mutatis mutandis to the respective issued raised by the Revenue/Assessee in appeal(s) for the Assessment Year 2007-08. ITA. No. 4600 & 4456/Mum/2009: Assessment Year: 2006-07 ITA No. 1479 & 1636 /Mum/2012: Assessment Year: 2007-08 22 13.1. Accordingly, Ground No. 1 and 2 raised by the Revenue (ITA No. 1479/Mum/2012) are dismissed in view of our findings in paragraph 8 to 8.1 and 9 to 9.1 above. 13.2. Similarly, Ground No. 1, 2 & 4 raised by the Assessee are partly allowed of in terms of our findings in paragraph 10 to 10.3 above. Accordingly, we delete the addition on account of Power and Fuel Expenses, and reduce the ad-hoc disallowance rate to 10% from 25% in case of Rent, Taxes & Taxes. In view of the aforesaid, Ground No. 3 raised by the Assessee is dismissed. 14. In result, ITA No. 4600/Mum/2009 (Assessment Year 2006-07) and ITA No. 1479/Mum/2012 (Assessment Year 2007-08) filed by the Revenue are dismissed. ITA No. 4456/Mum/2009 (Assessment Year 2006-07) and ITA No. 1636/Mum/2012 (Assessment Year 2007-08) filed by the Assessee are partly allowed. Order pronounced on 18.08.2022. Sd/- Sd/- (B.R. Baskaran) Accountant Member (Rahul Chaudhary) Judicial Member म ुंबई Mumbai; दिन ुंक Dated : 18.08.2022 Alindra, PS ITA. No. 4600 & 4456/Mum/2009: Assessment Year: 2006-07 ITA No. 1479 & 1636 /Mum/2012: Assessment Year: 2007-08 23 आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त(अपील) / The CIT(A)- 4. आयकर आय क्त / CIT 5. दिभ गीय प्रदिदनदि, आयकर अपीलीय अदिकरण, म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file. आिेश न स र/ BY ORDER, सत्य दपि प्रदि //True Copy// उप/सह यक पुंजीक र /(Dy./Asstt. Registrar) आयकर अपीलीय अदिकरण, म ुंबई / ITAT, Mumbai