EXCEL APPAREL EXPORTS P. LTD, MUMBAI V. DCIT CIR 3(1), MUMBAI

ITA 486/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75500 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 20-01-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 23-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GIRIJA DAYAL
• Assessee Lawyers: B V JHAVERI
• Keywords: Bonafide belief; Cost of acquisition; Wrong claim; Difference of opinion

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E , BENCH, MUMBAI , BEFORE SHRI SANJAY ARORA , AM & SHRI VIJAY PAL RAO, JM ITA NO . 486 / MUM/ 20 1 2 ( ASSESSMENT YEAR : 20 0 4 - 20 0 5 ) M/S EXCEL APPAREL EXPORTS PVT. LTD., 111 - 113, DR. NARIMAN ROAD, NEAR BENGAL CHEMICALS, PRABHADEVI ROAD, MUMBAI - 25 VS. DCIT, CIR3(1), MUMBAI PAN/GIR NO. : AA ACE 031 4 Q ( APPELLANT ) .. ( RESPONDENT ) /ASSESSEE BY : MR. B.V.JHAVERI /REVENUE BY : MR. GIRIJA DAYAL DATE OF HEARING : 23 RD DATE OF PRONO UNCEMENT : O R D E R PER VIJAY PAL RAO , J M : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 21 - 12 - 20 12 OF THE LEARNED CIT(A) - 6 , MUMBAI , ARISING FROM PENALTY ORDER PASSED UNDER SECTION 271(1)(C) OF THE I.T. AC T FOR THE ASSESSMENT YEAR 20 04 - 20 0 5 . 2 . THE ASSESSEE FILED ITS RETURN OF INCOME ON 28 - 10 - 2004 DECLARING LOSS OF RS.3,77,03,790 / - . THE SAID LOSS INCLUDED CLAIM OF THE LONG TERM CAPITAL LOSS OF RS. 1,80,72,000 / - ARISEN ON THE SALE OF FIVE FLATS BY THE ASSESS EE. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE REVISED ITS CLAIM OF LONG TERM CAP ITAL LOSS OF RS. 1,80,72,000 / - TO RS. 2,53,38,838/ - AS IT HAD NOT TAKEN INTO ACCOUNT INDEXED COST OF ITA NO. 486 /1 2 2 ACQUISI TION. WHILE PASSING THE ORDER U/ S 143(3), THE AO DISALLOWED THE CLAIM OF THE ASSESSEE LONG TERM CAPITAL IN THE ENTIRETY . 3 . ON APPEAL, THE CIT CONFIRMED THE DISALLOWANCE ON LONG TERM CAPITAL LOSS, HOWEVER, HE ALLOWED THE SHORT TERM CAPITAL LOSS OF RS. 48,72,0001 - . THE ORDER OF THE CIT IS ACCEPTED BY BOTH THE PARTIES . SUBSEQUENTLY, THE AO INITIATED PROCEEDINGS FOR LEVY OF PENALTY U/S.271 (1)( C) OF THE ACT FOR CONCEALMENT OF INCOME IN RESPECT OF THE CLAIM OF LONG TERM CAPITAL LOSS AND LEVIED THE PENALTY OF RS. 54,57,940/ - VIDE ORDER DATED 31 - 3 - 2009. THE ASSESSEE CHALLEN GED THE ACTION OF THE AO BEFORE THE CIT(A) BUT COULD NOT SUCCEED. 4 . BEFORE US, LEARNED AR OF THE ASSESSEE HAS EXPLAINED THE FACTS THAT M/S PRESTIGE ESTATE & PROPERTIES, A PARTNERSHIP FIRM, HAD ACQUIRED THE DEVELOPMENT RIGHTS IN RESPECT OF A PROPERT Y IN BANGALORE. FURTHER, M/ S PRESTIGE ESTATE & PROPERTIES AND M/ S. HM G INDUSTRIES LTD. AGREED TO JOINTLY DEVELOP THE SAID PROPERTY HAVING SHARE IN THE RATIO OF 75 : 25 RESPECTIVELY. SUBSEQUENTLY, VIDE FINANCE AGREEMENT DATED 25 - 6 - 1995 , THE ASSESSEE AGREED TO FINA NCE RS. 5,82,00,000 / - TO M/ S. HM G INDUSTRIES LTD. AGAINST THE 50% SHARE IN 25% SHARE BELONGING TO M/ S. HM G INDUSTRIES LTD. IN THE SAID PROJECT. RESULTANTLY, THE ASSESSEE HAD 12.5% SHARE IN THE SAID PROJECT. AS PER THE TERMS OF THE SAID FINANCE AGREEMENT, TH E ASSESSEE PAID RS. 3,82,00,000 / - TO M/ S. HM G INDUSTRIES LTD ON 31 - 8 - 1995 AND BALANCE OF RS. 2 CRORES WAS REQUIRED TO BE PAID AS AND WHEN REQUIRED. THE LEARNED AR HAS POINTED OUT THAT AS THE SAID PROJECT COULD NOT STARTED FOR FOUR YEARS, THE ASSESSEE DECIDED TO COME ITA NO. 486 /1 2 3 OUT FROM THE SAID PROJECT. THE ASSESSEE AND M/S HMG INDUSTRIES LTD. EXECUTED CANCELLATION AGREEMENT DATED 31 - 7 - 1999, WHEREBY THE AMOUNT OF RS. 3,82,00,000 / - PAID B Y THE ASSESSEE WAS SETTLED BY M/ S. HMG INDUSTRIES LTD. BY ALLOTTING FIVE FLATS ADMEA SURING 2292 SQ. FT. EACH IN ACRO POLIES PROJECT AT BANGLORE OF M/ S. PRESTIGE ESTATE PROJECTS PVT. LTD. THE ASSESSEE CLAIMED THAT THESE FIVE FLATS WERE ACQUIRED BY THE ASSESSEE ON THE DATE OF AGREEMENT I.E. 31 - 7 - 1999 AT THE COST OF RS. 3.82 CRORES AND THE SAI D FLATS WERE SOLD BY THE ASSESSEE BETWEEN 6 TH MARCH, 2003 AND 15 TH JULY, 2003. THUS, THE ASSESSEE CLAIMED LONG TERM CAPITAL LOSS. THE AO DISALLOWED THE CLAIM OF LONG TERM CAPITAL LOSS ON THE GROUND THAT THE ASSESSEE ENTERED INTO CONSTRUCTION AGREEMENT WITH M/S PRESTIGE ESTATE PROJECTS PVT. LTD. ON 16 TH OCTOBER 2000 , WHEREAS THE FLATS WERE SOLD BETWEEN 6 TH MARCH AND 15 TH JULY, 2003. THUS, THE AO WAS OF THE VIEW THAT THE SALE OF FLAT IS WITHIN THREE YEARS AND THE CLAIM OF LONG TERM CAPITAL LOSS WAS DENIED IN TOTO . THE ASSESSEE HAS TOOK THE COST OF FLATS BEING THE LOAN AMOUNT OF RS. 3.82 CRORES WHICH COMES TO RS. 76,40,000/ - EACH FLAT. THE FLATS WERE SOLD BY THE ASSESSEE AT A NET CONSIDERATION OF RS. 20,25,600/ - EACH AND THEREBY IT CLAIMED LONG TERM CAPITAL LOSS O F RS. 1,80,72,000/ - . HOWEVER, THE AO ADOPTED THE COST OF EACH FLAT AT RS. 50 LAKHS AS MENTIONED IN THE AGREEMENT DATED 16 TH OCTOBER, 2000 EXECUTED BETWEEN THE ASSESSEE AND M/S PRESTIGE ESTATE PROJECTS PVT. LTD. . THEREFORE, THE AO COMPUTED SHORT TERM CAPITAL LOSS OF RS. 48,72,000/ - ON SALE OF THE SAID FIVE FLATS. EVEN THE SAID SHORT TERM CAPITAL LOSS WAS NOT ALLOWED BY THE AO FOR ITA NO. 486 /1 2 4 WANT OF DETAILS OF STAMP DUTY VALUATION. THE LEARNED AR OF THE ASSESSEE, THUS, CONTENDED THAT THE DISALLOWANCE OF LONG TERM CAPITAL L OSS BY THE AO IS BASED ON THE DIFFERENCE OF OPINION BECAUSE THE ASSESSEE TOOK THE DATE OF ACQUISITION AS THE DATE OF CANCELLATION OF FINANCE AGREEMENT AND THEREBY THE AMOUNT OF RS. 3.82 CRORES WAS SETTLED BY M/S HMG INDUSTRIES BY ALLOTTING FIVE FLATS IN THE PROJECT, WHEREAS THE AO TOOK THE DATE OF ACQUISITION AS 16 TH OCTOBER, 2000 WHEN THE ASSESSEE AND M/S PRESTIGE ESTATE PROJECTS PVT. LTD. ENTERED INTO AGREEMENT FOR PURCHASE OF PROPORTIONATE SHARES IN LAND AND CONSTRUCTION OF FLATS. SO FAR AS THE DISALLOWAN CE OF SHORT TERM CAPITAL LOSS COMPUTED BY THE AO, THE SAME HAS BEEN ALLOWED BY THE CIT(A) IN QUANTUM APPEAL. THE LEARNED AR HAS FURTHER SUBMITTED THAT IT ONLY CHANGED THE NATURE OF CAPITAL LOSS FROM LONG TERM CAPITAL LOSS BY TAKING A DIFFERENT DATE OF ACQU ISITION, THEREFORE, IT DOES NOT AMOUNT FURNISHING INACCURATE PARTICULARS OF INCOME OR CONCEALMENT OF INCOME. THE ASSESSEE HAD BONAFIDE BELIEF AND REASON TO COMPUTE THE LONG TERM CAPITAL LOSS BY TAKING INTO THE A CCOUNT THE DATE OF ACQUISITION A S THE CANCELL ATION OF FINANCE AGREEMENT ON 31 - 7 - 1999. THEREFORE, THE LEARNED AR HAS SUBMITTED THAT THE ASSESSEE HAS A BONAFIDE CLAIM AND DISALLOWANCE OF BONAFIDE CLAIM BY THE AO BY TAKING A DIFFERENT VIEW DOES NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS OF INCOME O R CONCEALMENT OF INCOME. HE HAS RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETRO PRODUCTS PVT. LTD., REPORTED IN (2010) 322 ITR 158 (SC ) . LEARNED AR HAS ALSO RELIED UPON ITA NO. 486 /1 2 5 THE ORDER DATED 22 - 5 - 2013 OF THE COORDINATE BENCH OF THI S TRIBUNAL IN THE CASE OF ACIT VS. CHAND BIBI S. ZAIDI, PASSED IN ITA NO. 923/M UM /2011 AS WELL AS IN THE CASE OF ITO VS. ROBORANT INVESTMENTS (P.) LTD., REPORTED IN (2006) 7 SOT 181 (MUM) . 5 . ON THE OTHER HAND, LEARNED DR HAS RELIED UPON THE ORDER OF THE AU THORITIES BELOW AND SUBMITTED THAT THE FLATS IN QUESTION WERE NOT IN EXISTENCE IN THE YEAR 1999 WHEN THE FINANCE AGREEMENT WAS CANCELLED BETWEEN THE ASSESSEE AND M/S HMG INDUSTRIES, THEREFORE, THERE WAS NO QUESTION OF ACQUISITION OF FLAT AS ON THAT DATE. 6 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. THERE ARE TWO ASPECTS OF THE DISALLOWANCE MADE BY THE AO FIRSTLY, TREATING LONG TERM CAPITAL LOSS AS SHORT TERM CAPITAL LOSS BY TAKING A DIFFERENT DATE OF ACQUISITION OF CAP ITAL ASSET IN QUESTION AND SECONDLY THE COST OF ACQUISITION OF THE FLATS IN QUESTION WAS TAKEN BY THE AO AS PER THE AGREEMENT BETWEEN THE ASSESSEE AND M/S PRESTIGE ESTATE PROJECTS PVT. LTD. , WHEREAS THE ASSESSEE TOOK THE COST OF FLAT AS THE SUM OF RS. 3.82 CRORES PAID TO M/S HMG INDUSTRIES AND ON CANCELLATION OF THE FINANCE AGREEMENT THE SAID AMOUNT WAS SETTLED BY GIVING FIVE FLATS IN THE PROJECT. IT IS PERTINENT TO NOTE THAT THE ASSESSEES CLAIM OF LONG TERM CAPITAL LOSS IS BASED ON UNDISPUTED FACTS OF CANC ELATION OF AGREEMENT BETWEEN THE ASSESSEE AND HMG INDUSTRIES AND THEREBY A SUM OF RS. 3.82 CRORES WAS SETTLED BY ALLOTTING THE FIVE FLATS IN A PROJECT OF M/S PRESTIGE ESTATE PROJECTS PVT. LTD. . THUS, THE CLAIM OF THE ASSESSEE IS BASED ON UNDISPUTED FACT, HO WEVER, THE AO DID ITA NO. 486 /1 2 6 NOT ACCEPT THE SAID DATE OF CANCELATION ON 31 - 7 - 1999 AS ACQUISITION OF THE FLAT. BUT ON THE CONTRARY, THE AO TOOK THE DATE OF ACQUISITION AS ON 16 - 10 - 2000 WHEN THE ASSESSEE AND M/S PRESTIGE ESTATE PROJECTS PVT. LTD. ENTERED INTO THE AGREE MENT FOR CONSTRUCTION OF FIVE FLATS. THIS IS A HIGHLY DEBATABLE QUESTION OF FACT AS WELL AS LAW AND THEREFORE, THE DISALLOWANCE OF LONG TERM CAPITAL LOSS BY TAKING A DIFFERENT DATE AS DATE OF ACQUISITION BASED ON DIFFERENCE OF OPINION WOULD NOT I P SO FACTO LEAD TO THE CONCLUSION THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME OR CONCEALED THE PARTICULARS OF INCOME. THERE IS NO DENIAL THAT ALL THE RELEVANT FACTS WERE DULLY EXPLAINED AND PRESENTED BY THE ASSESSEE IN THE ASSESSMENT PROCEEDINGS, THEREFORE, THE DENIAL OF THE CLAIM OF THE LONG TERM CAPITAL LOSS AND TREATING THE SAME AS SHORT TERM CAPITAL LOSS ON THE BASIS OF A DIFFERENCE OF OPINION WOULD NOT LEAD TO THE INFERENCE THAT THE ASSESSEES CLAIM IS FALSE OR BOGUS. 6.1 AS REGARDS THE SEC OND ASPECT OF COST OF ACQUISITION OF THESE FLATS, THE AO HAS NOT DISPUTED THAT ON CANCELLATION OF AGREEMENT, THE ASSESSEE HAS SETTLED A SUM OF RS. 3.82 CRORES AGAINST FIVE FLATS TO BE ALLOTTED IN THE PROJECT OF M/S PRESTIGE ESTATE PROJECTS PVT. LTD. . THEREF ORE, THE COST OF THESE FLATS TO THE ASSESSEE IS THE AMOUNT AGAINST WHICH THE SETTLEMENT HAS ARRIVED BETWEEN THE PARTIES. THOUGH FINALLY THE CONSTRUCTION COST OF THESE FLATS WAS SHOWN AS RS. 50 LAKHS EACH AS AGAINST THE COST SU FFERED BY THE ASSESSEE AT RS. 76 ,40,000/ - IN THE SETTLEMENT. THESE FACTS CLEARLY SHOW THAT THE COST OF ACQUISITION TAKEN BY THE ASSESSEE IS NOT A FALSE CLAIM BUT IT IS THE ACTUAL AMOUNT OF ITA NO. 486 /1 2 7 RS. 3.82 CRORES PAID BY THE ASSESSEE TO M/S HMG INDUSTRIES AND IN THE SETTLEMENT BETWEEN THE PARTIES THESE FIVE FLATS WERE TO BE ALLOTTED TO THE ASSESSEE AGAINST THE SAID AMOUNT. THEREFORE, WE ARE OF THE VIEW THAT THE REAL COST OF FLATS MAY BE LESS THAN RS. 76,40,000/ - PER FLAT , H OWEVER, WHAT COST TO THE ASSESSEE IS RS. 76,40,000/ - EACH FLAT. THEREFORE, TH E SAID CLAIM OF THE ASSESSEE IS NEITHER BOGUS NOR FALSE BUT IT IS BASED ON THE UNDISPUTED FACTS AND THE AO DID NOT ACCEPT THE SAID AMOUNT AS THE REAL COST OF FLATS. 7. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCE OF THE CASE, WE FIND THAT THE EXPLANATION OF THE ASSESSEE REGARDING FACTS AND CIRCUMSTANCES OF THE CASE O N WHICH THE CLAIM WAS BASED IS NOT FOUND AS BOGUS OR ABSOLUTELY FALSE OR INCORRECT AND, THEREFORE, WHEN THE ASSESSEE HAS DISCLOSED RELEVANT FACTS AND PARTICULARS REGARDING THE CLAIM OF LONG TER M CAPITAL LOSS THEN IT CANNOT BE SAID THAT THE ASSESSEE HAS CONCEALED THE INCOME OR FURNISHING INACCURATE PARTICULARS OF INCOME WARRANTING LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT. ACCORDINGLY, WE DELETE THE PENALTY LEVIED UNDER SECTION 271(1)(C) . 8 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 05/02/ 201 4 . /2014 SD/ - ( ) ( SANJAY ARORA ) SD/ - ( ) ( VIJAY PAL RAO ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 05/02 /2014 ITA NO. 486 /1 2 8 /PKM , PS COPY OF THE O RDER FORWARDED TO : / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) , MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//