MAANRAJ TRADING P.LTD ( NOW UNDER LIQUIDATION ), MUMBAI V. ITO CIR 6(3)(3), MUMBAI

ITA 5563/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84622 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 10-12-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 28-07-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIVEK BATRA
• Keywords: Sale consideration of property below Jantri Value; Business income; Earning of tax free income
• Section: 143(3); 50C; 14A; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B, MUMBAI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 5563/MUM/2011 ASSESSMENT YEAR: 2007-08 MAANRAJ TRADIN G P. LTD (NOW UNDER LIQUIDATION) POONAM CHAMBERS, 101E, 1 ST FLOOR, DR. A.B. ROAD, WORLI, MUMBAI 400 020 PAN:AAACM 0150 E VS. ITO CIR 6(3)(3) MUMBAI (APPELLANT) (RESPON DENT) ASSESSEE BY : SHRI KIRIT KAMDAR REVENUE BY : SHRI VIVEK BATRA DATE OF HEARING : 10 . 12 . 2014 DATE OF ORDER : 22 . 12 .2014 PER AMIT SHUKLA, JM: THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST ORDER DATED 07.01.2011, PASSED BY THE LD.CIT-12, MUMBAI, FOR TH E QUANTUM OF ASSESSMENT PASSED U/S 143(3) FOR THE A.Y. 2007-08. 2. IN GROUND NO. 1 THE ASSESSEE HAS CHALLENGED THE FINDING OF THE LD.CIT(A) IN UPHOLDING THE ACTION OF THE AO IN TAXI NG THE INCOME FROM SALE OF INVESTMENT UNDER THE HEAD BUSINESS INCOME I NSTEAD OF CAPITAL GAIN. 3. BEFORE US, LEARNED COUNSEL ADMITTED THAT SIMILAR ISSUES WERE INVOLVED IN EARLIER YEARS ALSO, WHEREIN THE TRIBUNA L HAS DECIDED THIS ISSUE AGAINST THE ASSESSEE RIGHT FROM ASSESSMENT YEARS 20 01-02 TO 2006-07. ITA NO. 5563/MUM/2011 MAANRAJ TRADING P. LTD ASSESSMENT YEAR: 2007-08 2 4. AFTER CONSIDERING THE ENTIRE FACTS OF THE CASE A ND THE ISSUE INVOLVED, WE FIND THAT SO FAR AS SALE OF SHARES/INV ESTMENT AND THE INCOME ARISING FROM SUCH SALES HAVE BEEN TREATED AS BUSINESS INCOME BY THE DEPARTMENT WHICH HAS BEEN UPHELD BY THE TRIBUNA L RIGHT FROM THE A.YS. 2001-02 TO 2006-07. THUS CONSISTENT WITH THE VIEW TAKEN IN THE EARLIER YEARS, WE HOLD THAT LD.CIT(A) JUSTIFIED IN TREATING THE INCOME FROM PURCHASE AND SALE OF SHARES/MUTUAL FUNDS AS IN COME FROM BUSINESS. ACCORDINGLY GROUND NO. 1 IS TREATED AS DI SMISSED. 5. IN GROUND NO. 2 , THE ASSESSEE HAS RAISED ALTERN ATIVE GROUND THAT IF THE PROFIT AND SALE OF INVESTMENT/SHARES IS TO B E TAXED UNDER THE HEAD BUSINESS INCOME THEN THE SAID INVESTMENT OUGHT TO H AVE BEEN CONSIDERED AS STOCK AND TRADE FROM THE YEAR OF PURC HASE AND SAME CANNOT BE TREATED AS INVESTMENT IN THE YEAR OF SALE . ONCE, THE INCOME FORM SALE OF SHARES IS TREATED AS BUSINESS INCOME T HEN IT HAS TO BE TREATED AS IN TRADE AND THERE IS NO QUESTION OF TRE ATING THEM AS INVESTMENT. THE GROUND NO. 2 THUS RAISED BY THE ASS ESSEE IS DEVOID OF ANY MERITS AND THEREFORE THE SAME IS DISMISSED. 6. IN GROUND NO. 3 THE ASSESSEE HAS CONTENDED THAT THE FOLLOWING WAS RAISED ADDITIONAL GROUND BEFORE THE LD.CIT(A) W HICH HAS NOT BEEN ADJUDICATED. THE APPELLANT PRAYS THAT IN CASE THE PROFIT ON SAL E OF INVESTMENTS IS TAXED AS BUSINESS INCOME, THEN THE D ISALLOWANCE UNDER SECTION 14A OF THE INCOME-TAX ACT MADE IN THE RETURN OF INCOME OUGHT TO BE DELETED. 7. AFTER HEARING BOTH THE PARTIES AND ON PERUSAL OF THE IMPUGNED ORDER, WE FIND THAT THIS ADDITIONAL GROUND RAISED B EFORE THE FIRST APPELLATE AUTHORITY HAS NOT BEEN ADJUDICATED. THERE FORE, WE ARE ITA NO. 5563/MUM/2011 MAANRAJ TRADING P. LTD ASSESSMENT YEAR: 2007-08 3 REMITTING THIS GROUND TO THE FILE OF THE LD.CIT(A) TO DECIDE THIS ISSUE AFRESH AND IN ACCORDANCE WITH LAW. 8. IN GROUND NO. 4, THE ASSESSEE HAS RAISED THE CON TENTION THAT GROUND NO. 2 TAKEN BEFORE THE LD.CIT(A) HAS NOT BEE N ADJUDICATED OR NO PROPER FINDING HAS BEEN GIVEN. THE SAID GROUND READ S AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE INCOME-TAX OFFICER ERRED IN ADDING AN AMOUNT OF RS. 16,69,975/- (BEING LONG TERM CAPITAL GAINS WHICH WERE ;EXEMPT U NDER SECTION 10(38) UNDER THE HEAD SHARE TRADING INCOME WITHOUT APPRECIATING THE FACT THAT ONCE THE PROFIT ON SALE OF INVESTMENTS AGGREGATING TO RS.7,52,681/- HAD BEEN TREATED AS BU SINESS INCOME, THE SAME INCLUDED PROFIT ON SALE OF ALL INV ESTMENTS AND ACCORDINGLY, THERE WAS NO QUESTION OF MAKING A SEPA RATE ADDITION. 9. BEFORE US, LEARNED COUNSEL SUBMITTED THAT RECTIF ICATION APPLICATION U/S 154 WAS ALSO FILED BEFORE THE AO WHICH HAS NOT BEEN ADJUDICATED UPON. EVEN THE GROUNDS RAISED BEFORE THE LD.CIT(A) HAS NOT BEEN PROPERLY ADJUDICATED, THEREFORE, THIS MATTER SHOULD BE RESTORED BACK TO THE FILE TO THE LD.CIT(A). ACCORDINGLY, WE RESTORE THIS GROUND TO THE FILE OF THE LD.CIT(A) TO DECIDE THE ISSUE AFRESH AND IN ACCORDANCE WITH LAW. 10. IN GROUNDS NO. 5 AND 6, ASSESSEE HAS CHALLENGED THE DISALLOWANCE MADE U/S 14A. THE BRIEF FACTS QUA THE ISSUE INVOLVE D IS THAT, ASSESSEE HAD EARNED DIVIDEND OF RS.5,34,31,609/- WHICH WAS C LAIMED AS EXEMPT. IN RESPONSE TO THE SHOW CAUSE NOTICE AS TO WHY DISA LLOWANCE U/S 14A SHOULD NOT BE MADE IN ACCORDANCE WITH RULE 8D, THE ASSESSEE SUBMITTED THAT, IT HAS ALREADY ATTRIBUTED EXPENSES TO THE TUN E OF RS.13,90,651/- FOR THE PURPOSE OF DISALLOWANCE U/S 14A, ON ACCOUNT OF EARNING OF EXEMPT INCOME THEREFORE, THERE IS NO QUESTION OF APPLYING RULE 8D FOR MAKING THE DISALLOWANCE U/S 14A. HOWEVER, THE LEARNED ASSE SSING OFFICER ITA NO. 5563/MUM/2011 MAANRAJ TRADING P. LTD ASSESSMENT YEAR: 2007-08 4 APPLYING THE DECISION OF ITAT SPECIAL BENCH IN THE CASE OF M/S. DAGA CAPITAL MANAGEMENT LTD., HELD THAT RULE 8D WOULD AP PLY AND ACCORDINGLY WORKED OUT THE DISALLOWANCE AT RS.15,90,335/- AS PE R RULE 8D. THE LD.CIT(A) HAS ALSO UPHELD THE SAID DISALLOWANCE. 11. BEFORE US, LEARNED COUNSEL SUBMITTED THAT ADMIT TEDLY IN THIS YEAR, RULE 8D IS NOT APPLICABLE. FURTHER THE ASSESSEE ON A PRO RATA BASIS HAS OFFERED FOR DISALLOWANCE U/S 14A WHICH WAS BASED ON METHOD FOLLOWED AND ACCEPTED BY THE DEPARTMENT, THEREFORE, NO FURTH ER DISALLOWANCE SHOULD BE MADE. ON THE OTHER HAND, LD. DR STRONGLY RELIED UPON THE ORDER OF THE AO AS WELL AS LD.CIT(A). 12. WE HAVE HEARD THE RIVAL SUBMISSION AND ALSO PER USED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDERS. ADMITTEDLY IN THE IMPUGNED ASSESSMENT YEAR, RULE 8D IS NOT APPLICABLE. THE ASS ESSEE HAS ALREADY ALLOCATED EXPENDITURE OF RS.13,90,651/- ON A PRO-R ATA BASIS, WHICH CAN BE SAID TO BE REASONABLE ALLOCATION OF EXPENSES FOR THE PURPOSE OF EARNING OF THE EXEMPT INCOME. THE ASSESSING OFFICER WITHOUT FINDING ANY DEFECT IN SUCH AN ATTRIBUTION OF EXPENSES HAS BLIND LY APPLIED RULE 8D. SUCH AN APPLICATION OF RULE 8D IN THE PRESENT ASSES SMENT YEAR IS NOT APPLICABLE AND THEREFORE, DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE LD.CIT(A) OVER AND ABOVE THE AMOUNT DISALLOW ED BY THE ASSESSEE IS DELETED. ACCORDINGLY GROUND NO. 5 AND 6 IS TREAT ED AS ALLOWED. 13. FROM GROUND NO. 7 TO 9, THE ASSESSEE HAS CHALLE NGED THE ADDITION IN RESPECT OF SALE OF OFFICE PREMISES, AMOUNTING TO RS.36,29,494/-, BY TAKING A DIFFERENT VALUE OTHER THAN SALE CONSIDERAT ION SHOWN BY THE ASSESSEE. THE BRIEF FACTS ARE THAT THE ASSESSEE HAS SOLD THE PROPERTY ADMEASURING 327 SQ.FT @ 6,500 IN POONAM CHAMBERS, W HICH SOLD ON THE BASIS SIMPLE DEED NOT REGISTERED WITH THE REGISTRAR OF STAMP. ON FURTHER ITA NO. 5563/MUM/2011 MAANRAJ TRADING P. LTD ASSESSMENT YEAR: 2007-08 5 EXAMINATION AO NOTICED THAT THE ASSESSEE IN AND ARO UND SAME TIME HAS SOLD AN AREA OF 946 SQ.FT @ RS.11,099.37 PER SQ.FT FOR A TOTAL CONSIDERATION OF RS.1,05,00,000/- WHICH WERE DULY R EGISTERED WITH THE REGISTRAR AND STAMP DUTY WAS PAID. FROM THIS, THE A O OBSERVED THAT THE ASSESSEE HAS SOLD THE AREA OF 327 SQ.FT AT LOWER PR ICE. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED THAT IT WAS A SET BACK AREA AND DOES NOT FETCH THE SAME PRICE AS THAT OF T HE MAIN OFFICE AREA. HOWEVER, THE AO REJECTED THE ASSESSEES CONTENTION AND HELD THAT THE RATE OF RS.11,099.37 PER SQ.FT SHOULD BE APPLIED AN D ACCORDINGLY HE TREATED THE BALANCE AMOUNT AS DEEMED CAPITAL GAINS IN THE FOLLOWING MANNER:- FULL VALUE OF CONSIDERATION (327X11099.37) = RS.36 ,29,494 LESS: DEEMED SHORT TERM CAPITAL GAIN = RS. 18,87,931 (OFFERED BY THE ASSESSEE) ---------------- BALANCE DEEMED CAPITAL GAIN =R S.17,41,563 14. THE LD.CIT(A) TOO HAS CONFIRMED THE ACTION OF T HE ASSESSING OFFICER, AFTER OBSERVING AND HOLDING AS UNDER: I HAVE CAREFULLY CONSIDERED THE ABOVE SUBMISSION AN D I AND THAT THE PREMISES SOLD BY THE APPELLANT ARE SITUATED IN THE SAME POONAM CHAMBER'. THE APPELLATE EXPLANATION THAT 327 SQ. FT. HAS BEEN SOLD AT A LESSER VALUE BECAUSE OF THE SETBACK IN WHICH IT IS SITUATED AND THE OTHER AREA OF 946 SQ. FT. HAS BEEF ) SOLD AT A HIGHER RATE BECAUSE IT IS THE MAIN OFFICE AREA CANN OT BE ACCEPTED. IT IS POSSIBLE THAT THE EXACT LOCATION OF THE AREAS CONCERNED MAY HAVE A BIT OF A DIFFERENCE REGARDING THE PRICING BU T FROM THE DETAILS AVAILABLE IT IS SEEN THAT THE DIFFERENCE AS SUBMITTED BY THE APPELLANT IS ALMOST DOUBLE. AS THE APPELLANT HAS SO LD THE OFFICE PREMISES AT AN ACTUAL VALUE OF RS.11099.37 PER SQUA RE FEET THIS VALUE WOULD THEREFORE BE THE ACTUAL MARKET VALUE OF THE AREAS IN POONAM CHAMBER. THE AO'S RELIANCE I FIND IS ON THE DETAILS SUBMITTED BY THE APPELLANT REGARDING SALE OF PROPER TY IN THE SAME BUILDING AND ALMOST AT THE SAME TIME. THIS ACTION O F THE AO IS NOT BASED ON PRESUMPTION AND SURMISES BUT ON ACTUAL FAC TS AS SUBMITTED BY THE APPELLANT ITSELF. THIS ACTION OF T HE AO THEREFORE CANNOT BE- FAULTED. I FIND THAT THE AO HAS CORRECTL Y HELD THAT THE ITA NO. 5563/MUM/2011 MAANRAJ TRADING P. LTD ASSESSMENT YEAR: 2007-08 6 PROPERTY SOLD SHOULD FETCH THE ACTUAL VALUE AS DECL ARED IN THE REGISTERED DEED. AS THE SALE WAS UNREGISTERED GOING BY THE APPELLANT'S OWN STATEMENT, SEE. SOC OF THE LT. ACT WOULD NOT BE APPLICABLE THEREFORE THE AO'S ACTION IN TAKING THE VALUE AS DECLARED IN THE APPELLANT' OWN SUBMISSION IS PERFEC TLY CORRECT, FAIR AND LOGICAL. UNDER THE CIRCUMSTANCE UPHOLDING THE A CTION OF THE AO I AM NOT INCLINED TO INTERFERE WITH THE ASSESSME NT ORDER ON THIS ISSUE. THIS GROUND OF APPEAL IS THEREFORE DISM ISSED. 15. BEFORE US, LEARNED COUNSEL SUBMITTED THAT THE A REA OF 327 SQ.FT WAS A SET BACK AREA WHICH CANNOT BE USED FOR A PROP ER OFFICE PURPOSE AND IS DIFFERENT FROM THE MAIN OFFICE PREMISES. WHE N THE OFFICE PREMISES OF 946 SQ.FT WAS SOLD THE SAME WAS SOLD AT 11,099 PER SQ.FT, WHEREAS THE STAMP DUTY VALUE ON REGISTRATION WAS FIXED ONLY @ RS.7567 PER SQ.FT . IF OVER ALL VALUE OF THE ENTIRE AREA IS TAKEN INT O CONSIDERATION, THEN THE SALE CONSIDERATION IS MORE THAN THE STAMP VALUE. FU RTHER THE ASSESSING OFFICER HAS NO POWER TO CHANGE THE SALE CONSIDERATI ON, EXCEPT U/S 50C OF THE ACT. THUS, WITHOUT ANY MATERIAL ON RECORD THE S ALE VALUE CANNOT BE CHANGED. 16. ON THE OTHER HAND LD. DR STRONGLY RELIED UPON T HE ORDER OF THE LD.CIT(A) AND SUBMITTED THAT, FOR THE SAME PREMISE S ON A SAME BUILDING, THERE CANNOT BE SUCH A HUGE DIFFERENCE IN THE SALE RATE. IT WAS ALREADY ON THE RECORD THAT THE ASSESSEE HAD SOLD TH E OFFICE AREA @ RS. 11099 PER SQ.FT, THEN HOW ANOTHER AREA OF THE SAME OFFICE PREMISES HAS BEEN SOLD ALMOST AT A HALF RATE. THEREFORE, THE ADD ITION AS MADE BY THE AO AND CONFIRMED BY THE LD.CIT(A) IS JUSTIFIED. 17. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDERS. THE ASSESSING OFFICER HAS MADE THE ADDITION BY CHANGING THE SALE VALUE ON THE GROU ND THAT, SIMILAR PROPERTY IN THE SAME PREMISES WAS SOLD AT A RATE OF RS.11099 PER SQ.FT, ITA NO. 5563/MUM/2011 MAANRAJ TRADING P. LTD ASSESSMENT YEAR: 2007-08 7 THEN HOW THE SAID PROPERTY ADMEASURING 327 SQ.FT HA D BEEN SOLD @ 6500/-. FROM THE ORDER OF THE LD.CIT(A) AND THE SUB MISSIONS MADE BY THE ASSESSEE, IT IS SEEN THAT THE AREA OF 327 SQ.FT RELATE TO SET BACK AREA WHICH WAS NOT PART OF THE SALE AGREEMENT REGISTERED FOR THE OFFICE PREMISES ADMEASURING 946 SQ.FT WHICH WAS SOLD @ 11 099.37. IF THE ASSESSEE HAD SHOWN THE SALE OF 327 SQ.FT, AREA WHIC H WAS A SET BACK AREA @ RS.6,500/- THEN THE ASSESSING OFFICER SHOULD HAVE MADE SOME KIND OF INQUIRY FOR ASCERTAINING THE CORRECT SALE V ALUE. SIMPLY BECAUSE THE COVERED OFFICE PREMISES IN THE MAIN OFFICE AREA HAS BEEN SOLD AT A HIGHER RATE, THEN THE SAME RATE CANNOT BE IMPUTED F OR THE SET BACK AREA ALSO. THE ASSESSING OFFICER CANNOT ENHANCE THE SALE VALUE, UNLESS THERE IS SOME KIND OF INQUIRY OR MATERIAL ON RECORD TO SH OW THAT EVEN THE SET BACK AREA WILL FETCH THE SAME MARKET PRICE. IT IS O NLY U/S 50C, THAT THE STATUTE HAS GIVEN POWER TO THE ASSESSING OFFICER TO ENHANCE THE SALE VALUE TO BE IN CONSONANCE WITH THE SALE RATE DETERM INED BY THE STAMP VALUATION AUTHORITY. THUS UNDER THE FACTS AND CIRCU MSTANCES, WHEN THERE IS NO CONTRARY MATERIAL ON RECORD OR ANY INQUIRY BY THE AO, THE SALE CONSIDERATION SHOWN BY THE ASSESSEE IS LIABLE TO BE ACCEPTED. ACCORDINGLY THE SALE VALUE SHOWN BY THE ASSESSEE WI TH REGARD TO THE AREA OF 327 SQ.FT IS ACCEPTED. ACCORDINGLY GROUND N O. 7 TO 9 IS TREATED AS ALLOWED. 18. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 22 ND DAY DECEMBER, 2014. SD/- SD/- (N.K. BILLAIYA) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 22.12.2014 *SRIVASTAVA ITA NO. 5563/MUM/2011 MAANRAJ TRADING P. LTD ASSESSMENT YEAR: 2007-08 8 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR B BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.