ACIT 17(2), MUMBAI V. DAMANIA & SONS, MUMBAI

ITA 5120/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3063 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-06-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2008-2009
• Appeal Filed On: 07-08-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAKESH RANJAN SR DR
• Keywords: Depreciation; Cost of acquisition; Fair market value; Valuation report
• Section: 133(6)

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.5120/MUM/2014 ASSESSMENT YEAR: 2008-09 DCIT-17(2), R.NO.217, 2 ND FLOOR, PIRAMAL CHAMBERS, MUMBAI-400012 / VS. M/S DAMANIA & SONS, JAME JAMSHED ROAD, MATUNGA, MUMBAI-400019 ( / REVENUE) ( ! ' /ASSESSEE) PAN. NO . AACFD0045J / REVENUE BY SHRI RAKESH RANJAN SR.DR ! ' / ASSESSEE BY SHRI MILIN DATTANI # $ % ' & / DATE OF HEARING : 14/06/2016 % ' & / DATE OF ORDER: 14/06/2016 ITA NO.5120/MUM/2014 M/S DAMANIA & SONS 2 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DATE D 20/05/2014 OF THE LD. FIRST APPELLATE AUTHORITY, MU MBAI. THE ONLY GROUND ARGUED BY THE ASSESSEE IS WITH RESP ECT TO PENALTY IMPOSED U/S 271(1)(C) OF THE INCOME TAX ACT , 1961 (HEREINAFTER THE ACT) BY CLAIMING THAT QUANTUM ADDI TION HAS BEEN DELETED BY THE TRIBUNAL FOR WHICH THE LD. COUN SEL FILED A COPY OF THE ORDER DATED 15/07/2015 (ITA NO.3258/MUM/2012). THIS FACTUAL MATRIX WAS NOT CONTROVERTED BY THE LD. DR. 2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN VIEW O F THE ABOVE, WE ARE REPRODUCING HEREUNDER THE RELEVANT PO RTION FROM THE AFORESAID ORDER DATED 15/07/2015, WHEREIN, THE QUANTUM, ON THE BASIS OF WHICH PENALTY WAS IMPOSED, WAS DELETED BY THE TRIBUNAL, AFFIRMING THE STAND OF THE LD. COMMISSIONER OF INCOME TAX (APPEAL). THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A)-34, MUMBAI AND THEY PERTAIN TO A.Y. 2008 -09. 2. FOLLOWING GROUNDS WERE URGED BY THE REVENUE: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THERE IS N O BASIS AND JUSTIFICATION TO ALLOCATE RS.5,28,12,000/- TOWARDS THE BUILDING. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE COST OF BU ILDING IS TO BE ITA NO.5120/MUM/2014 M/S DAMANIA & SONS 3 TAKEN AT RS.87,12,170/- INSTEAD OF RS.5,28,12,000/- AS WORKOUT BY ASSESSING OFFICER IN A SCIENTIFIC WAY. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFF ICER TO WORK OUT SHORT TERM CAPITAL GAIN ON BUILDING AS PER SECTION 50 OF THE ACT OF RS.87,12,170/- INSTEAD OF RS.5,28, 12,000/- AS WORK OUT BY ASSESSING OFFICER. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFF ICER TO CONSIDER RS.6,32,87,832/- TO WORK OUT LONG TERM CAPITAL GAIN ON TRANSFER OF LEASEHOLD RIGHTS ON LAND AND NOT APPRECIATING THE F ACT THAT ASSESSING OFFICER HAS CORRECTLY WORKED OUT RS.1,91, 88,000/- ON THE BASIS OF FAIR MARKET VALUE REPORTED BY THE MIDC AUT HORITIES. IN THE CROSS OBJECTIONS FILED BY THE ASSESSEE IT WA S CONTENDED THAT THE CIT(A) ERRED IN NOT ALLOWING DEPRECIATION ON THE PROPERTY WHICH WAS HELD FOR MORE THAN 40 YEARS AND ALSO SUBMITTED THAT THE LONG TERM CAPITAL GAINS OF 99 YE ARS LEASE SHOULD BE CALCULATED AFTER TAKING INTO CONSIDERATIO N THE INDEXATION VALUE AS ON 01.04.1981 AS PRESCRIBED IN SECTION 55(2)(B) OF THE ACT. 3. FACTS NECESSARY FOR DISPOSAL OF THE APPEAL ARE S TATED IN BRIEF. ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURE OF HYDRAULICS SYSTEMS AND COMPONENTS. DURING THE FINAN CIAL YEAR 2007-08 ASSESSEE STOPPED ITS BUSINESS AND ALL THE A SSETS WERE SOLD FOR A CONSIDERATION OF 7.20 CRORES. ASSESSEE F IRM DECLARED LONG TERM CAPITAL GAINS OF RS.5,79,63,425/- WHEREAS THE COST OF BUILDING WAS SHOWN AT RS.67,000/- AND VALUATION OF LAND AND BUILDING AS PER VALUATION REPORT FOR 01.04.1981 WAS SHOWN AS RS.24,11,789/-. 4. THE AO OBSERVED THAT AS PER THE DEED OF ASSIGNM ENT DATED 18.06.2007 BETWEEN THE ASSESSEE AND M/S. MEYER ORGA NICS P. ITA NO.5120/MUM/2014 M/S DAMANIA & SONS 4 LTD. THE ASSESSEE HAS ASSIGNED ITS LEASEHOLD RIGHTS IN PLOT NO. B- 22 TOGETHER WITH THE BUILDING CONSTRUCTED ON IT IN THE YEAR 1966, SITUATED IN THANE INDUSTRIAL AREA. THIS LEASE OF LA ND HAD BEEN OBTAINED FROM THE MAHARASHTRA INDUSTRIAL DEVELOPMEN T CORPORATION (MIDC). SINCE IT WAS AN ASSIGNMENT OF T ENANCY RIGHTS, THE AO WAS OF THE VIEW THAT THERE IS NO SAL E OF LAND INVOLVED AND AS PER THE PROVISIONS OF SECTION 55(2) (A) OF THE I.T. ACT THE PURCHASE PRICE IS TO BE TAKEN AS THE COST O F ACQUISITION. SINCE TENANCY RIGHTS IS COVERED BY THE PROVISIONS O F SECTION 55(2)(A), THE MARKET VALUE AS ON 01.04.1981 NEED NO T BE ALLOWED TO BE SUBSTITUTED IN THE COMPUTATION OF LON G TERM CAPITAL GAINS. THE AO ALSO CALLED UPON THE ASSESSEE TO FURNISH THE COST OF ACQUISITION OF THE BUILDING AND ITS YEA R OF ACQUISITION ALONG WITH DETAILS OF DEPRECIATION CLAIMED ON IT. 5. IN RESPONSE TO THE NOTICE ISSUED BY THE AO THE A SSESSEE SUBMITTED THAT THE COST OF CONSTRUCTION OF THE BUIL DING IN THE YEAR 1965 WAS APPROXIMATELY RS.67,000/-. IN THIS RE GARD THE AO OBSERVED THAT THE DETAILS OF DEPRECIATION CLAIMED O N THE BUILDING WERE NOT SUBMITTED AND THE ASSESSEE HAD AL SO NOT SUBMITTED THE SEPARATE CONSIDERATION RECEIVED FOR L AND AND BUILDING. IN FACT IN THE DEED OF ASSIGNMENT THE TOT AL CONSIDERATION HAS BEEN RECEIVED ON THE LEASEHOLD RI GHTS AND THE BUILDING SITUATED ON IT AND THE PURCHASER HAS PAID AN AMOUNT OF RS.19,14,440/- TO MIDC AS DIFFERENTIAL PREMIUM. NOT ICE UNDER SECTION 133(6) WAS ISSUED TO THE AREA MANAGER OF MI DC SEEKING CERTAIN INFORMATION WITH REGARD TO THE GUID ELINES OF ASSIGNING LEASEHOLD RIGHTS TO M/S. MEYER ORGANICS P . LTD. THE ITA NO.5120/MUM/2014 M/S DAMANIA & SONS 5 MIDC SUBMITTED THAT AS PER CORPORATION GUIDELINES T HE DIFFERENTIAL PREMIUM WORKS OUT TO RS.19,14,400/- BE CAUSE OF THE FACT THAT THE PREVIOUS RATE WAS RS.14/- WHEREAS THE CURRENT RATE WAS RS.6,000/- PER SQ.FT. THE COST OF ACQUISITION O F LEASEHOLD RIGHTS ACCORDINGLY WORKED OUT TO RS.44,772/- IN THE HANDS OF THE ASSESSEE AND THE COST AT THE TIME OF TRANSFER BY TH E ASSESSEE WORKS OUT TO RS.1,91,88,000/-. THE AO OBSERVED THAT AS PER THE PROVISIONS OF SECTION 55(2)(A) OF THE ACT, IN THE C ASE OF TENANCY RIGHTS, THE PURCHASE PRICE IS TO BE TAKEN AS THE CO ST OF ACQUISITION AND THE MARKET VALUE AS ON 01.04.1981 I S NOT ALLOWED TO BE SUBSTITUTED. DESPITE THE OBJECTION OF THE ASSESSEE HE PROCEEDED TO COMPUTE THE LONG TERM CAPITAL GAINS AT RS.1,84,41,306/- AND SHORT TERM CAPITAL GAINS OF RS.5,37,54,656/-. 6. ASSESSEE SUBMITTED BEFORE THE CIT(A) THAT THE AO BIFURCATED THE TOTAL CONSIDERATION OF RS.7.20 CRORES BY TAKING THE VALUE OF LAND AT RS.1.91 CRORES AND THE BALANCE AMOUNT OF RS .5.28 CRORES AS SALE PRICE OF BUILDING. IT WAS ALSO POINT ED OUT THAT THE LAND VALUATION TAKEN BY THE AO IS ON THE BASIS OF D IFFERENTIAL PREMIUM PAYABLE TO MIDC ON THE BASIS OF A LETTER FR OM MIDC TO THE AO, WHICH SPECIFICALLY STATED THAT THE CORPO RATION HAS NOT CONSIDERED THE MARKET VALUE IN THE ABOVE CALCUL ATION OF DIFFERENTIAL PREMIUM. IT WAS ALSO BROUGHT TO THE NO TICE OF THE LEARNED CIT(A) THAT ACCORDING TO THE READY RECKONER ISSUED BY GOVERNMENT OF INDIA THE MARKET VALUE OF THE LAND IN THAT AREA WAS RS.1,557/- PER SQ.FT. EVEN IF THE PREVAILING RA TE WAS 30% TO 40% HIGHER, AS UNDER THE NEW GOVERNMENT POLICY IT I NDUSTRIES ITA NO.5120/MUM/2014 M/S DAMANIA & SONS 6 ARE TO BE PROMOTED IN THAT ZONE, WITH DOUBLE FSI AN D ALSO OTHER AVAILABILITY OF INFRASTRUCTURE. THE VALUE OF THE LA ND WHICH IS SOLD WILL BE APPROXIMATELY 7,00,00,000/- AS AGAINST THE VALUE TAKEN BY THE AO, I.E. RS.1.91 CRORES. 7. AS REGARDS SALE PRICE OF THE BUILDING IT WAS SUB MITTED THAT THE COST OF THE BUILDING IN THE YEAR 1966 WAS APPROXIMA TELY RS.67,000/- WHICH CONSISTS OF FACTORY ADMEASURING 6 27.34 SQ.MTS., OFFICE ADMEASURING 222.40 SQ.MTS. AND TOIL ET ADMEASURING 18.31 SQ.MTS. EVEN IF THE SAID BUILDING IS CONSTRUCTED NEW NOW THE TOTAL COST OF CONSTRUCTION WILL BE AROUND RS.87,00,000/- AS AGAINST RS.5.27 LAKHS WORK ED OUT BY THE AO. THE AO HAD TAKEN THE COST OF CONSTRUCTION A T RS.8,000/- PER SQ.MT. FOR A BUILDING CONSTRUCTED IN 1966 NO PE RSON WILL PURCHASE THE SAME AT THAT PRICE. IT WAS THEREFORE S UBMITTED THAT THE AMOUNT PAID BY THE PURCHASER WAS ON ACCOUNT OF THE LAND COST. 8. THE LEARNED CIT(A) EXAMINED THE ISSUE AND OBSERV ED THAT THE HON'BLE BOMBAY HIGH COURT, IN THE CASE OF D.K. SAND HU BROS. CHEMBUR P. LTD. 249 ITR 265 HAD CONSIDERED IDENTICA L ISSUE WHEREIN IT WAS HELD THAT THE TENANCY RIGHT WAS A CA PITAL RIGHT AND ITS TRANSFER WOULD ATTRACT CAPITAL GAINS. IN TH E INSTANT CASE THE ASSESSEE ACQUIRED THE LEASEHOLD RIGHTS FOR AN A MOUNT OF RS.44,772/- AND THIS SHOULD BE TREATED AS COST OF A CQUISITION. 9. AS REGARDS COMPUTATION OF CAPITAL GAINS THE LEAR NED CIT(A) NOTICED THAT THE AO HAD TAKEN THE VALUE OF L EASEHOLD RIGHTS AT RS.1,91,88,000/- WHEREAS THE FACT REMAINS THAT THE ITA NO.5120/MUM/2014 M/S DAMANIA & SONS 7 PURCHASER, M/S. MEYER ORGANIC P. LTD., VIDE ASSIGNM ENT DEED DATED 18.06.2007, GOT THE LEASE ON THE ABOVE LAND A ND BUILDING BY PAYING RS.7.2 CRORES IN ADDITION TO PAYMENT OF A SUM OF RS.19,14,400/- TOWARDS DIFFERENTIAL PREMIUM TO MIDC . IN FACT THE AO CALLED FOR INFORMATION IN RESPECT OF DIFFERE NTIAL PREMIUM FROM MIDC WHEREIN IT WAS CLARIFIED THAT THE CORPORA TION HAS NOT CONSIDERED THE MARKET VALUE IN ABOVE CALCULATIO N OF DIFFERENTIAL PREMIUM WHICH HIGHLIGHTS THAT THE PREM IUM RATES CHARGED BY MIDC IS DIFFERENT FROM THE ACTUAL MARKET VALUE. HE ALSO OBSERVED THAT THE ESTIMATE MADE BY THE AO IN A RRIVING AT THE VALUE OF BUILDING HAS NO BASIS. THE ASSESSEE SU BMITTED BEFORE THE AO THAT THE VALUE OF THE BUILDING SHOULD BE TAKEN AT RS.87,12,170/- AND THE AO DID NOT OBJECT TO THE WOR KING GIVEN BY THE ASSESSEE. HE THUS DIRECTED THE AO TO SUBSTIT UTE THE VALUE BY RS.87,12,170/- AS AGAINST RS.5,28,12,000/- ARRIV ED AT BY THE AO, HOWEVER, WHILE ARRIVING AT THIS FIGURE HE HAD T AKEN INTO CONSIDERATION THE WDV OF THE BUILDING AND DIRECTED THE AO TO WORK OUT THE SHORT TERM CAPITAL GAINS ON THE BUILDI NG AS PER SECTION 50 OF THE I.T. ACT. 10. IT COULD THUS BE SEEN THAT THE LEARNED CIT(A) A LLOCATED RS.5,28,12,000/- TOWARDS VALUE OF LAND AND THE BALA NCE TOWARDS COST OF BUILDING. THE REVENUE CHALLENGED THE ORDER PASSED BY THE LEARNED CIT(A) WHEREAS IN THE CROSS OBJECTIONS THE ASSESSEE CONTENDS THAT THE MARKET VALUE AS COMPUTED UNDER SE CTION 55(2)(B) HAS TO BE TAKEN INTO CONSIDERATION IN THE CASE OF THE BUILDING, WHICH IS MORE THAN 40 YEARS OLD. IT IS NO T IN DISPUTE THAT THE BUILDING IS MORE THAN 40 YEARS OLD. AS PER THE ANNEXURE ITA NO.5120/MUM/2014 M/S DAMANIA & SONS 8 TO THE CROSS OBJECTIONS THE RATE OF DEPRECIATION OF OLD BUILDINGS SHOULD BE WORKED OUT AS PER THE METHOD PRESCRIBED I N THE READY RECKONER AND IN THE INSTANT CASE 30% OF THE VALUE S HOULD BE TAKEN INTO CONSIDERATION WHICH WORKS OUT TO RS.21,7 8,043/-. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE RECORD. IN OUR CONSIDERED OPINION THE APPEAL FI LED BY THE REVENUE HAS NO MERITS. THE AO HAS ARBITRARILY ALLOC ATED THE COST OF LAND BY TAKING INTO CONSIDERATION THE COST OF THE BUILDING OVERLOOKING THE CLAIM OF THE ASSESSEE THAT EVEN IF NEW CONSTRUCTION HAS TO BE MADE IN THE SAME PLINTH AREA IT CANNOT BE MORE THAN RS.87,00,000/-. THE LEARNED CIT(A) HAS CO RRECTLY TAKEN INTO CONSIDERATION THE FACT THAT THE MIDC HAS NOT TAKEN INTO CONSIDERATION THE MARKET VALUE WHILE CALCULATI NG THE DIFFERENTIAL PREMIUM. SINCE THE LEASEHOLD RIGHTS WE RE TRANSFERRED TO THE PURCHASER AT RS.7.20 CRORES, THE LEARNED CIT(A) HAD CORRECTLY TAKEN INTO CONSIDERATION THE F ACT THAT THE PURCHASER WOULD HAVE PAID THE AMOUNT ESSENTIALLY BA SED ON THE LAND COST AND THE CHANCE OF CONSTRUCTING A NEW BUIL DING FOR NEW I.T. BASED INDUSTRIES WITH ADJOINING INFRASTRUCTURA L FACILITIES AND HENCE IT IS IMPROPER TO SEGREGATE A LARGE CHUNK OF CONSIDERATION TOWARDS COST OF BUILDING SINCE THE DOMINANT OBJECT WAS TO ACQUIRE THE LEASEHOLD RIGHTS ON THE LAND. UNDER THE SE CIRCUMSTANCES WE ARE OF THE VIEW THAT THE ORDER PAS SED BY THE LEARNED CIT(A) ON THIS ASPECT DOES NOT CALL FOR ANY INTERFERENCE AND HENCE WE DISMISS THE APPEAL FILED BY THE REVENU E. 2.1. IN THE AFORESAID ORDER, ON QUANTUM ADDITION, THE TRIBUNAL VIDE AFORESAID ORDER DATED 15/07/2015 DISM ISSED ITA NO.5120/MUM/2014 M/S DAMANIA & SONS 9 THE APPEAL OF THE REVENUE AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE QUANTUM ADDITION WAS DELETED ON T HE BASIS OF WHICH PENALTY WAS LEVIED/CONFIRMED. IN VIEW OF T HIS FACTUAL MATRIX, WE ARE OF THE VIEW THAT PENALTY IMPOSED U/S 271(1)(C) WILL NOT SURVIVE. OUR VIEW FIND SUPPORT FROM THE DE CISION IN K.C. BUILDERS VS ACIT (2004) 265 ITR 562 (SC) AND T HE RATIO LAID DOWN IN CIT VS S.P. VIZ, 176 ITR 76 (PATNA). E VEN OTHERWISE, WHEN THE QUANTUM ADDITION IS DELETED, TH ERE REMAINS NO BASIS AT ALL FOR LEVYING THE PENALTY FOR CONCEALMENT OR FURNISHING INACCURATE PARTICULARS. T HE PENALTY CANNOT STAND ON ITS LEGS WHEN ADDITION ON T HE BASIS OF WHICH THE PENALTY WAS IMPOSED REMAINS NO MORE IN EXISTENCE, THUS, APPEAL OF THE ASSESSEE IS ALLOWED AND THE LD. ASSESSING OFFICER IS DIRECTED TO DELETE THE PENALTY . FINALLY, THE APPEAL OF THE ASSESSEE IS ALLOWED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 14/06/2016. SD/- SD/- ( ASHWANI TANEJA ) (JOGINDER SINGH) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER # $ MUMBAI; ( DATED : 14/06/2016 F{X~{T? P.S/. . . ITA NO.5120/MUM/2014 M/S DAMANIA & SONS 10 %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. *+,- / THE APPELLANT 2. ./,- / THE RESPONDENT. 3. 0 0 # 1' ( *+ ) / THE CIT, MUMBAI. 4. 0 0 # 1' / CIT(A)- , MUMBAI 5. 34 .' , 0 *+& * 5 , # $ / DR, ITAT, MUMBAI 6. 6$ / GUARD FILE. / BY ORDER, /3+' .' //TRUE COPY// / (DY./ASSTT. REGISTRAR) , # $ / ITAT, MUMBAI