RAJIVKUMAR D. AGARWAL, MUMBAI V. CIT 21, MUMBAI

ITA 4865/MUM/2013

• Counselvise Citation: 486519914 RSA 2013
• Duration Of Justice: 1 year(s) 11 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 22-01-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 24-06-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SANTOSH KUMAR
• Assessee Lawyers: SATISH R MODY
• Keywords: Capital asset; Revision of order; Cost of acquisition
• Section: 263; 2; 143(3); 142(1)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI . . , , BEFORE SHRI R.C. SHARMA, ACCOUNTATN MEMBER AND SHRI VIJAYPAL RAO , JUDICIAL MEMBE R . / ITA NO . 4865 / MUM./ 2013 ( / ASSESSMENT YEAR : 200 8 09 ) SHRI RAJKUMAR D. AGARWAL 39, MEHRA INDUSTRIAL ESTATE SAKINAKA, ANDHERI KURLA ROAD MUMBAI 400 072 PAN ACYPA2510K .. / APPELLANT V/ S INCOME TAX OFFICER WARD 31(3)(4), MUMBAI .... / RESPONDENT / ASSESSEE BY : S HRI SATISH R. MODY / REVENUE BY : SHRI SANTOSH KUMAR / DATE OF HEARING 30.04.2015 / DATE OF ORDER 29.05.2015 / ORDER , / PER VIJAYPAL RAO , JUDICIAL MEMBER TH E PRESENT APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE IMPUGNED REVISION ORDER DATED 25 TH MARCH 2013 , PASSE D BY THE COMMISSIONER ( APPEALS) 2 1 , UNDER SECTION 263 OF THE INCOME TAX ACT, SHRI RAJKUMAR D. AGARWAL 2 1961 (FOR SHORT 'THE ACT' ) MUMBAI, FOR THE ASSESSMENT YEAR 200 8 09 . FOLLOW ING GROUNDS HAVE BEEN RAISED BY THE ASSESSEE : - 1. THE LEARNED CIT(A) ERRED IN PASSING AN ORDER U/S 263 OF THE ACT. THE SAME NEEDS TO BE QUASHED AND ANNULLED, SINCE IT IS ILLEGAL AND IT IS CONTRARY TO THE APPLICABLE LAW, AS ALSO THE FACTS OF THE CASE. 2. THE LEARNED CIT(A) ERRED IN CANCELLING THE ORDER U/S 143 DATED 14 TH DECEMBER 2010, AS BEING PREJUDICIAL TO THE INTERESTS OF THE REVENUE AND DIRECTING THE ASSESSING OFFICER TO FRAME IT AFRESH. 3. THE LEARNED CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO RE EXAMINE THE STATEMENT OF AFFAIRS OF THE PARTNERSHIP FIRM IN WHICH THE ASSESSEE HAS A SHARE AND HIS LATE MOTHER IS A PARTNER / GUARANTOR AND CONSEQUENTLY DISALLOW AMOUNT APPROPRIATED BY THE BANK TOWARDS MORTGAGE DEBT AS COST OF ACQUISITION OF THE FLAT SOLD. 2. THE ASSESSMENT, IN THE CASE OF THE ASSESSEE , WAS COMPLETED UNDER SECTION 143(3) OF THE ACT ON 14 TH DECEMBER 2010. SUBSEQUENTLY, ON A PERUSAL OF THE RECORD, THE LEARNED CIT NOTED THAT THE ASSESSEE HAD INHERITED TWO FLATS FROM HIS MOTHER AND THE SAME WERE SOLD DURING THE YEAR UNDER CONSIDERATION FOR A TOTAL CONSIDERATION OF ` 2.40 CRORES. HOWEVER, TH E ASSESSEE, WHILE COMPUTING THE CAPITAL GAIN, HAS CONSIDERED ONLY ` 77,52,076, AS FULL VALUE CONSIDERATION RECEIVED AS THE BALANCE AMOUNT WAS APPROPRIATED BY THE UNION BANK OF INDIA TOWARDS DISCHARGE OF MORTGAGE DEBT. SINCE THE FULL VALUE OF SALE CONSIDERA TION IS ` 2.40 CRORES AND THE SAME WAS NOT ADOPTED FOR COMPUTATION OF CAPITAL GAIN. THEREFORE, THE CORRECT CAPITAL GAIN WAS NOT OFFERED TO TAX. THE LEARNED CIT FURTHER NOTED THAT THE ASSESSEE HAS NOT DEDUCTED TDS OF ` 22,868, ON CONTRACT PAYMENTS AS STATED IN THE AUDIT SHRI RAJKUMAR D. AGARWAL 3 REPORT. ACCORDINGLY, THE LEARNED CIT FOUND THAT THE ORDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE AND, ACCORDINGLY, A SHOW CAUSE UNDER SECTION 263 OF THE ACT, WAS ISSUED. IN RESPONSE, THE ASSESS EE FILED ITS REPLY / SUBMISSIONS VIDE LETTER DATED 20 TH MARCH 2013, AND CONTENDED THAT THE AMOUNT APPROPRIATED TOWARDS DISCHARGE OF MORTGAGE LIABILITY OF THE BANK IS AN ALLOWABLE DEDUCTION AS PER SECTION 48 OF THE ACT. THE LEARNED CIT DID NOT ACCEPT THE CO NTENTION OF THE ASSESSEE AND HELD THAT THE ASSESSING OFFICER HAS FAILED TO CARRY OUT NECESSARY VERIFICATION WHICH HAS RENDERED THE ASSESSMENT ORDER ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. ACCORDINGLY, THE ASSESSMENT ORDER WAS SET ASIDE FOR MA KING FRESH ORDER. 3. ON THE ISSUE OF NON DEDUCTION OF TDS ON CONTRACTUAL PAYMENTS, THE LEARNED CIT HELD THAT THE ASSESSEE CONTRAVENED THE PROVISIONS OF TDS AND, HENCE, SUCH EXPENDITURE NEEDS TO BE DISALLOWED. 4. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE CONTENTION RAISED BEFORE THE LEARNED CIT AND SUBMITTED THAT THESE FLATS WERE MORTGAGED BY HER MOTHER WITH THE BANK FOR GRANT OF CREDIT FACILITIES TO M/S. VARUN OVERSEAS, A PARTNERSHIP FIRM WHEREIN HIS MOTHER WAS A PARTNER. THUS, THE FLATS W ERE CHARGED AND ENCUMBRANCE WAS CREATED THEREUPON BY THE MOTHER OF THE ASSESSEE. THE ASSESSEE HAS INHERITED THE FLATS FROM HIS MOTHER ALONG WITH THE ENCUMBRANCE ON SHRI RAJKUMAR D. AGARWAL 4 ACCOUNT OF MORTGAGE CREATED BY HIS MOTHER, THEREFORE, THE PAYMENT MADE TO THE BANK TO DISCHA RGE THE MORTGAGE CREATED BY THE MOTHER / PREVIOUS OWNER WILL BE PART OF COST OF ACQUISITION OF THE PROPERTY IN QUESTION INHERITED BY THE ASSESSEE. IT WAS AN OBLIGATION ON ACCOUNT OF MORTGAGE THAT CREATED BY THE PREVIOUS OWNER AND, THEREFORE, TO DISCHARGE T HE SAID OBLIGATION, THE SALE CONSIDERATION HAS BEEN APPROPRIATED BY THE BANK AND ONLY THE BALANCE CONSIDERATION WAS RECEIVED BY THE ASSESSEE ON TRANSFER OF THE PROPERTY IN QUESTION. 5. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON THE DECISION OF THE TRIB UNAL, MUMBAI BENCH, IN VILAS KASHINATH SAKPAL V/S ITO, ITA NO.3885/MUM./2010, ORDER DATED 6 TH JUNE 2012, AND SUBMITTED THAT IN THE IDENTICAL FACTS, THE TRIBUNAL HAS HELD THAT THE AMOUNT PAID TO THE BANK FOR DISCHARGE OF MORTGAGE OBLIGATION / DEBT IS AN ALL OWABLE EXPENDITURE UNDER SECTION 48 OF THE ACT. THUS, THE LEARNED COUNSEL SUBMITTED THAT THE PAYMENT MADE BY THE ASSESSEE FOR THE PURPOSE OF CLEARING THE MORTGAGE CREATED BY THE PREVIOUS OWNER IS TO BE TREATED AS COST OF ACQUISITION OF THE PROPERTY AND, TH EREFORE, THE SAME IS DEDUCTIBLE UNDER SECTION 48 OF THE ACT. 6. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF THE LEARNED CIT AND SUBMITTED THAT THE MORTGAGE WAS CREATED BY MOTHER OF THE ASSESSEE FOR GRANT OF CREDIT LIMIT TO M/S. VARUN OVERSEAS, A PARTNERSHIP FIRM, THEREFORE, THE CHARGE SHRI RAJKUMAR D. AGARWAL 5 CREATED ON THE PROPERTY IN QUESTION IS NOTHING TO DO WITH THE ACQUISITION OF THE PROPERTY OR TITLE OF THE PROPERTY BUT IT WAS ONLY FOR THE BUSINESS OF THE PARTNERSHIP FIRM. THE ASSESSEE HAS ALSO INHERITED THE BUSINESS AND ASSETS OF THE PARTNERSHIP FIRM FROM HIS MOTHER AND, THEREFORE, THE LIABILITY OF RE PAYMENT OF THE DUE AMOUNT TO THE BANK IS A LIABILITY OF THE ASSESSEE IN CONNECTION WITH THE BUSINESS INHERITED OF PARTNERSHIP FIRM. THE ASSES SEE HAS USED THE SALE CONSIDERATION OF THE PROPERTY IN QUESTION FOR DISCHARGE OF BUSINESS LIABILITY, THEREFORE, THE SAME IS NOT ALLOWABLE UNDER SECTION 48 OF THE ACT. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THE RE IS NO DISPUTE ON THE POINT THAT AN EXPENDITURE TO REMOVE IMPEDIMENT OR ENCUMBRANCE IN THE WAY OF TRANSFER OF CAPITAL ASSET IS AN ALLOWABLE DEDUCTION UNDER SECTION 48 OF THE ACT, HOWEVER, SUCH AN IMPEDIMENT OR ENCUMBRANCE BY WAY OF MORTGAGE OF THE PROPER TY BY THE PREVIOUS OWNER HAS TO BE IN CONNECTION WITH THE ACQUISITION OF THE PROPERTY, IMPROVEMENT OF THE PROPERTY, TITLE OF THE PROPERTY OR FOR SOME OTHER PERSONAL OBLIGATION OF THE PREVIOUS OWNER. IN THE PRESENT CASE, THE PROPERTIES WERE MORTGAGED BY THE MOTHER OF THE ASSESSEE TO FACILITATE THE BANK CREDIT TO THE PARTNERSHIP FIRM IN WHICH THE MOTHER OF THE ASSESSEE WAS A PARTNER. DURING THE COURSE OF HEARING, ON A QUERY FROM THE BENCH, THE ASSESSEE HAS ACCEPTED THAT THE ASSESSEE HAS INHERITED THE BUSINESS / SHRI RAJKUMAR D. AGARWAL 6 ASSET OF THE PARTNERSHIP FIRM. THERE IS NO DISPUTE THAT THE MORTGAGE ON THESE PROPERTIES WAS CREATED FOR THE PURPOSE OF BUSINESS OF THE PARTNERSHIP FIRM. TO DISCHARGE THE OUTSTANDING DUES OF THE BANK IS THE OBLIGATION OF THE PRINCIPAL DEBTOR WHICH IS TH E PARTNERSHIP FIRM. EVEN OTHERWISE, THE PARTNERSHIP FIRM IS A SEPARATE BUSINESS ENTITY AND ALSO A SEPARATE PERSON FOR THE PURPOSE OF INCOME TAX. IN A CASE WHERE A PARTNERSHIP FIRM WAS NOT ABLE TO DISCHARGE THE LIABILITY TOWARDS THE BANK, THE RECOVERY CAN B E EFFECTED BY SALE OF THE MORTGAGED PROPERTY. IN THE PRESENT CASE, IT IS NOT THE CASE OF THE ASSESSEE THAT PARTNERSHIP FIRM WAS NOT IN A POSITION OR CAPABLE TO DISCHARGE THE LIABILITY OF THE BANK AND DEFAULTED THE RE PAYMENT OF DUES TO THE BANK. THUS, IT I S NOT THE CASE OF THE ASSESSEE THAT THE DUE TO THE DEFAULT BY THE PARTNERSHIP FIRM THE ASSESSEE WAS UNDER OBLIGATION BEING THE OWNER OF THE PROPERTY TO RE PAY THE BANK DUES. IT IS PERTINENT TO NOTE THAT EVEN IN THE CASE WHEN THE ASSESSEE INHERITED THE BUSI NESS OF HIS MOTHER THE N THE BUSINESS LIABILITY CANNOT BE IMPUTED TO THE PRIVATE PROPERTY OF THE PARTNER UNTIL AND UNLESS A CASE IS MADE OUT THAT THE PARTNERSHIP FIRM HAS DEFAULTED IN DISCHARGE OF ITS LIABILITY. EVEN IN SUCH CASE, WHEN THE PARTNERSHIP DEFAU LTED TO DISCHARGE THE LIABILITY AND THE SAME IS RECOVERED FROM THE ASSESSEE / THE MORTGAGED PROPERTY , THE RIGHT OF THE ASSESSEE TO RECOVER THE SAID AMOUNT FROM THE PARTNERSHIP FIRM IS NOT F E TTERED. IN ANY CASE, THE DISCHARGE OF THE LIABILITY BY THE ASSESSE E IS ONLY IN THE CAPACITY OF A GUARANTOR AND ON BEHALF OF THE PRINCIPAL SHRI RAJKUMAR D. AGARWAL 7 DEBTOR, THEREFORE, THE ASSESSEE SHALL HAVE A RIGHT TO RECOVER THE AMOUNT FROM THE PRINCIPAL DEBTOR I.E., THE PARTNERSHIP FIRM. 8. THE ENCUMBRANCES ON THE PROPERTY WERE NOT ON ACCOUNT OF THE PERSONAL LIABILITY OF THE MOTHER OF THE ASSESSEE BEING THE OWNER OF THE PROPERTY BUT IT WAS FOR THE BUSINESS OF THE PARTNERSHIP FIRM. ACCORDINGLY, THE ASSESSEE CANNOT CLAIM THE AMOUNT PAID TO THE BANK AS EXPENDITURE OR COST OF ACQUISITION OF THE PROPE RTY WHEN THE LIABILITY PERTAINS TO THE PARTNERSHIP FIRM / PRINCIPAL DEBTOR. DIVERSION OF PAYMENT FROM BUSINESS LIABILITY TO PARTNERS CAPITAL ASSET IS NOTHING BUT TO AVOID THE DUE TAX ON THE CAPITAL GAIN . T HE SOLE PURPOSE OF THE CLAIM IS TO REDUCE THE TAX LIABILITY ON CAPITAL GAIN IN S TE AD OF DISCHARGING THE SAME BY THE FIRM. THE CHARGE ON THE PROPERTY HAS NO DIRECT OR INDIRECT OR PROXY NEXUS WITH THE ACQUISITION, IMPROVEMENT OR TITLE OF THE PROPERTY AS IT WAS NOT THE PERSONAL LIABILITY OF THE PREVIOUS OWNER . THEREFORE, WHEN THE ASSESSING OFFICER HAS NOT EVEN TAKEN UP THE ISSUE FOR EXAMINATION, THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE FOR WANT OF ENQUIRY AND APPLICATION OF MIND. WE FIND THAT THE ASSESSMEN T ORDER DOES NOT EXHIBIT ANYTHING TO DEMONSTRATE ANY THOUGHT PROCESS ON THE PART OF THE ASSESSING OFFICER. THE ORDER OF THE ASSESSING OFFICER IS SO CRYPTIC AND NON SPEAKING THAT A GLANCE OF THE SAME IS SUFFICIENT TO NOTE THAT THERE IS A COMPLETE LACK OF EN QUIRY AND APPLICATION OF MIND ON THE PART SHRI RAJKUMAR D. AGARWAL 8 OF THE ASSESSING OFFICER. FOR READY REFERENCE, WE REPRODUCE THE RELEVANT PART OF THE ASSESSMENT ORDER DATED 14 TH DECEMBER 2010: THE RETURN OF INCOME FOR A.Y. 2008 09 WAS E FILED BY THE ASSESSEE ON 30.09.2008 DEC LARING TOTAL INCOME AT ` 1,67,510. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS. NOTICE U/S 143(2) WAS ISSUED ON 06.08.2009. THEREAFTER, NOTICE U/S 142(1) WAS ISSUED ON 28.04.2010 AND 09.07.2010 DULY SERVED UPON THE ASSESSEE. IN RESPONSE TO THE ABOVE NOTES, THE ASSESSEE SHRI RAJIV AGARWAL HIMSELF ATTENDED FROM TIME TO TIME AND PRODUCED THE DETAILS CALLED FOR AND THE CASE WAS DISCUSSED WITH HIM. THE ASSESSEE IS DERIVES INCOME FROM HIS MANUFACTURING AND EXPORTING TEXTILES BUSINESS. SUBJECT T O THE ABOVE REMARKS, RETURNED INCOME OF THE ASSESSEE IS ACCEPTED. TOTAL INCOME ` 1,67,510 ASSESSED ACCORDINGLY CHARGE INTEREST AS APPLICABLE ISSUE DEMAND NOTICE AND CHALLAN. 9. THERE IS NOTHING EITHER IN THE ASSESSMENT ORDER OR IN ANY OTHER RECORD TO SUG GEST THAT ANY QUESTION OR QUERY RAISED BY THE ASSESSING OFFICER ON THIS ISSUE, THEREFORE, THIS IS A CASE OF COMPLETE LACK OF ENQUIRY AND NON APPLICATION OF MIND BY THE ASSESSING OFFICER. THE DECISION RELIED UPON BY THE ASSESSEE ARE NOT APPLICABLE ON THE FA CTS OF THE CASE BECAUSE THE ASSESSEE HAS FAILED TO SHOW THAT THE PARTNERSHIP FIRM WAS NOT IN A POSITION TO DISCHARGE THE DEBT LIABILITY OF THE BANK AND, THEREFORE, THE ASSESSEE HAD NO OPTION BUT TO DISCHARGE THE SAME. SHRI RAJKUMAR D. AGARWAL 9 ACCORDINGLY, IN THE FACTS AND CIRCUMST ANCES OF THE CASE, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE IMP UGNED ORDER OF THE LEARNED CIT. 10. 10. IN THE RESULT, ASSESSEES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT O N 29. 5.2015 SD/ - . . R.C. SHARMA ACCOUNTANT MEMBER SD/ - , VIKAYPAL RAO JUDICIAL MEMBER MUMBAI, DATED : 29.5.2015 / COPY OF THE ORDER FORWARDED TO : (1) / THE ASSESSEE; (2) / THE REVENUE ; (3) ( ) / THE CIT(A); (4) / THE CIT, MUMBAI CITY CONCERNED; (5) , , / THE DR, ITAT, MUMBAI; (6) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI