ITO 14(3)-3, MUMBAI V. SANJEEV KHANNA, MUMBAI

ITA 543/MUM/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 4369 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-10-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2006-2007
• Appeal Filed On: 22-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VANDANA SAGAR
• Assessee Lawyers: SHIV PRAKASH
• Keywords: Capital asset; Gift; Cost of acquisition

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES I, MUMBAI BEFORE SHRI. A.L. GEHLOT (A.M.) AND SMT. ASHA VIJAY ARAGHAVAN (J.M.) ITA NO.543/MUM/2010 ASSESSMENT YEAR : 2006-2007 I.T.O. 13(3)-3 6 TH FLR., EARNEST HOUSE, NARIMAN POINT, MUMBAI 400 021. VS. SANJEEV KHANNA KHANNA BROTHERS, 156-L K MARKET ZAVERI BAZAR, MUMBAI 400 002. PAN : AFGPK4937B (APPELLANT) (RESPONDENT) APPELLANT BY : SMT VANDANA SAGAR RESPONDENT BY : SHRI SHIV PRAKASH O R D E R PER ASHA VIJAYARAGHAVAN, J.M. THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 12.11.2009 OF THE CIT(A)-XXV, MUMBAI RELATING TO A SSESSMENT YEAR 2006- 07. 2. FOR THE ABOVE ASSESSMENT YEAR THE ASSESSEE FILED HIS RETURN SHOWING INCOME AT ` 9,00,720/-. THE ABOVE INCOME ALSO INCLUDES TAXABL E LONG TERM CAPITAL GAIN OF ` 1,82,429/- (AFTER CLAIMING EXEMPTION U/S.54 AND AF TER SET OFF AND BROUGHT FORWARD CAPITAL LOSS) ARISING OUT O F SALE OF A RESIDENTIAL FLAT IN WHICH THE ASSESSEE HAD HALF SHARE. THE FLAT WAS AC QUIRED BY THE ASSESSEE BY WAY OF INHERITANCE AFTER THE DEATH OF HIS FATHER ON 14.07.2003. THE SAID FLAT WAS, HOWEVER, PURCHASED BY THE ASSESSEES FATHER IN 1974. THE ASSESSEE EXCISED HIS OPTION OF TAKING THE COST OF ACQUISITIO N AS AT 01.04.1981. THE APPROVED VALUER DETERMINED THE VALUE OF FULL FLAT A T ` .62,89,000/- AS ON 01.04.1981. SINCE THE PROPERTY IN QUESTION WAS PUR CHASED BEFORE 01.04.1981, THE ASSESSEE WORKED OUT THE CAPITAL GAI N ARISING OUT OF IT BY TAKING THE COST INDEXING RATE OF F.Y.1981-82 FOR CA LCULATING THE INDEXED COST OF ACQUISITION, WHICH WORKED OUT TO ` .1,83,77,770/-. HOWEVER, THE LD ITA NO.543/MUM/2010 ASSESSMENT YEAR : 2006-2007 2 ASSESSING OFFICER APPLIED THE COST INDEXATION RATE APPLICABLE TO THE F.Y.2003-04 FOR WORKING OUT THE INDEXED COST OF ACQ UISITION AND ARRIVED AT FIGURE OF ` 67,50,827/- ON THAT ACCOUNT (FOR THE FULL FLAT). HE CALCULATED NET CAPITAL GAIN AT ` .6,12,61,023/-, AND THE ASSESSEES SHARE AT ` .3,06,30,511/-. 3. ON APPEAL BEFORE THE CIT(A), THE CIT(A) HELD AS FOLLOW: THE HONBLE ITAT SPECIAL BENCH MUMBAI HAD THUS HELD THAT FOR THE PURPOSE OF COMPUTING LONG TERM CAPITAL GAIN ARI SING FROM THE TRANSFER OF A CAPITAL ASSET WHICH HAD BECOME PR OPERTY OF THE ASSESSEE UNDER GIFT, FIRST YEAR IN WHICH THE CA PITAL ASSET WAS HELD BY THE ASSESSEE HAS TO BE DETERMINED TO WO RK OUT INDEXED COST OF ACQUISITION AS ENVISAGED IN EXPLANA TION (III) TO SECTION 48 AFTER TALKING INTO ACCOUNT THE PERIOD FO R WHICH THE SAID CAPITAL ASSET WAS HELD BY THE PERVIOUS OWNER, IN THAT VIEW OF THE MATTER, WE HOLD THAT INDEXED COST OF ACQUISI TION OF SUCH CAPITAL ASSET HAS TO BE COMPUTED WITH REFERENCE TO THE YEAR IN WHICH THE PREVIOUS OWNER FIRST HELD THE ASSET. ACC ORDINGLY WE ANSWER THE QUESTION REFER TO US IN FAVOUR OF THE AS SESSEE AND UPHOLD THE IMPUGNED ORDER OF THE LD CIT(A) OF THIS ISSUE. SINCE IN THE CASE OF THE ASSESSEE ALSO THIS DECISION OF T HE HONBLE ITAT, SPECIAL BENCH, MUMBAI BOTH ON FACTS AND ON LA W IS APPLICABLE AS TRANSFER OF CAPITAL ASSET UNDER GIFT OR WILL IS NOT REGARDED A TRANSFER AS PER SEC.47(III) AND THE ASSESSEE HAVING ACCURATE IN THIS PROPERTY/CAPITAL ASSET BY W AY OF WILL AND IN INHERITANCE/SUCCESSION. ACCORDINGLY, WE RE SPECTFULLY FOLLOWING THIS DECISION OF THE HONBLE ITAT, SPECIA L BENCH (SUPRA), THE AO IS DIRECTED TO ADOPT THE COST INFLA TION INDEX IN THE CASE OF CAPITAL ASSET TRANSFERRED DURING THE YE AR AS PERTAINING TO F.Y.1981-82 AND NOT AS A F.Y.2003-04 BY HIM. THE GROUND RAISED THEREFORE, IS ALLOWED IN FAVOUR O F THE ASSESSEE. 4. AGGRIEVED REVENUE IS IN APPEAL AND HAS RAISED TH E FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE CIT(A)-XV, MUMBAI, ERRED IN DELETING THE ADDITION O N ACCOUNT OF ADOPTING THE COST INFLATION INDEX IN CASE OF CAPITA L ASSET TRANSFERRED DURING THE YEAR AS PERTAINING TO F.Y.20 03-04. 2. THE LD CIT(A) HAS FAILED TO APPRECIATE THE FACT THAT THE PROPERTY IN QUESTION WAS HELD BY ASSESSEE BY WAY OF INHERITANCE AFTER THE DEATH OF FATHER ON 14.07.2003 . FOLLOWING BOMBAY BENCH ITAT ORDER IN THE CASE OF DCIT VS. KIS HORE KANUGO (102 ITR 437) WHEREIN THAT CASE IN VIEW OF S PECIFIC PROVISIONS OF EXPLANATION 3 OF SECTION 48, INDEXATI ON THAT TO BE CONSIDERED FOR THE FIRST YEAR IN WHICH THE ASSESSEE ACQUIRES A PROPERTY BY ANY MODE PRESCRIBED IN SEC.49(1) OF THE I.T. ACT. ITA NO.543/MUM/2010 ASSESSMENT YEAR : 2006-2007 3 5. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE R IVAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD WE FIND M ERIT THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAI NST THE REVENUE BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN DY .CIT VS. MANJULA J. SHAH (2010) 35 SOT 105 (MUM.)(SB) (SUPRA), WHEREIN IT HA S BEEN HELD VIDE PARA- 20 OF ITS ORDER DATED 16.10.2009 AS UNDER : 20. FOR THE REASONS GIVEN ABOVE, WE ARE OF THE VIE W THAT FOR THE PURPOSE OF COMPUTING LONG TERM CAPITAL GAIN ARI SING FROM THE TRANSFER OF A CAPITAL ASSET WHICH HAD BECOME PR OPERTY OF THE ASSESSEE UNDER GIFT, THE FIRST YEAR IN WHICH TH E CAPITAL ASSET WAS HELD BY THE ASSESSEE HAS TO BE DETERMINED TO WO RK OUT THE INDEXED COST OF ACQUISITION AS ENVISAGED IN EXPLANA TION (III) TO SECTION 48 AFTER TAKING INTO ACCOUNT THE PERIOD FOR WHICH THE SAID CAPITAL ASSET WAS HELD BY THE PREVIOUS OWNER. IN THAT VIEW OF THE MATTER, WE HOLD THAT THE INDEXED COST OF ACQ UISITION OF SUCH CAPITAL ASSET HAS TO BE COMPUTED WITH REFERENC E TO THE YEAR IN WHICH THE PREVIOUS OWNER FIRST HELD THE ASS ET. ACCORDINGLY, WE ANSWER THE QUESTION REFERRED TO US IN FAVOUR OF THE ASSESSEE AND UPHOLD THE IMPUGNED ORDER OF THE L EARNED CIT(A) ON THIS ISSUE. RESPECTFULLY FOLLOWING THE ABOVE DECISION WE ARE OF THE VIEW THAT THE INDEXED COST OF ACQUISITION OF SUCH CAPITAL ASSETS HAS TO B E COMPUTED WITH REFERENCE TO THE YEAR IN WHICH THE PREVIOUS OWNER FIRST HELD THE ASSETS AND ACCORDINGLY THE REVENUE AUTHORITIES WERE NOT JUSTIFIED IN TAKIN G THE COST INFLATION INDEX OF THE F.Y. 1984-85. THEREFORE WE DISMISS THE GROUND S TAKEN BY THE REVENUE. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED ON THIS 8 TH DAY OF OCTOBER, 2010. SD/- (A.L. GEHLOT) ACCOUNTANT MEMBER SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER MUMBAI, DATED 8 TH OCTOBER, 2010. JANHAVI ITA NO.543/MUM/2010 ASSESSMENT YEAR : 2006-2007 4 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- , MUM BAI 4. COMMISSIONER OF INCOME TAX, CITY- , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH , MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI