Sri Chandra Prasad., Vijayawada V. The ACIT, Circle-2(1), Vijayawada

ITA 559/VIZ/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 2561 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 09-11-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 05-11-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J SIRI KUMAR
• Assessee Lawyers: C V K PRASAD
• Keywords: Capital asset; Gift; Share purchase agreement; Opportunity of being heard; Cost of acquisition; Corroborative evidences; Capital expenditure; Set aside
• Section: 6

Judgement Text

ITA NO.559/VIZAG/2008-CHANDRA PRASAD, VIJAYAWADA PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO.559/VIZAG/2008 ASSESSMENT YEAR: 2006-07 CHANDRA PRASAD, VIJAYAWADA. VS. ASSISTANT COMMISSIONER OF INCOME TAX, CIR-2(1), VIJAYAWADA . (APPELLANT) PAN NO: AFLPC 1147 G (RESPONDENT) APPELLANT BY: SHRI CVK PRASAD, ADV. RESPONDENT BY: SHRI J SIRI KUMAR, D.R. ORDER PER SHRI B. R. BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 15.8.2008 PASSED BY LD. CIT(A), VIJAYAWADA AND IT R ELATES TO THE ASSESSMENT YEAR 2006-07. 2. THE ISSUES URGED IN THIS APPEAL RELATE TO: A) DISALLOWANCE OF RS.3,82,783/- WHILE COMPUTING T HE LONG TERM CAPITAL GAIN. B) DISALLOWANCE OF RS.4,40,619/-, BEING THE IMPRO VEMENT EXPENSES CLAIMED BY THE ASSESSEE AGAINST THE LONG TERM CAPIT AL GAIN. C) DENIAL OF EXEMPTION CLAIMED UNDER SECTION 10( 38) OF THE ACT ON THE LONG TERM CAPITAL GAIN REALIZED ON SALE OF SHAR ES. 3. THE FACTS RELATING TO THE ISSUES ARE STATED IN BRIEF. THE ASSESSEE IS ONE OF THE JOINT OWNERS OF LAND SITUATED IN YUSUFGU DA, HYDERABAD. HE RECEIVED A SUM OF RS.85.43 LAKHS AS HIS SHARE OF TH E SALE CONSIDERATION, ON ITA NO.559/VIZAG/2008-CHANDRA PRASAD, VIJAYAWADA PAGE 2 OF 7 THE SALE OF THE ABOVE SAID PROPERTY. WHILE COMPUTI NG THE LONG TERM CAPITAL GAIN ON SALE OF LAND, THE ASSESSEE CLAIMED FOLLOWIN G DEDUCTIONS: A) INDEXED COST OF IMPROVEMENT RS.3,83,783/- ,I.E . INDEXED COST OF RS.2.00 LAKHS CLAIMED TO HAVE BEEN INCURRED DURING THE FINANCIAL YEAR 1994- 95. B) IMPROVEMENT EXPENSES AS DETAILED BELOW: (I) BUILDING PERMIT FEE INCURRED ON 9.9.04 - RS.56,136/- (II)WATER CONNECTION CHARGES PAID ON 2.11.0 4 - RS.29,680/- (III) WATER CONNECTION CHARGES PAID ON 23.8. 04 - RS.75,000/- (IV) SECURITY DEPOSIT PAID TO TOWN PLANNING SECTION, HYDERABAD ON 10.10.05 - RS.2,79,806/- THE ASSESSEE COULD NOT FILE ANY EVIDENCE BEFORE THE ASSESSING OFFICER IN SUPPORT OF HIS CLAIM THAT AN AMOUNT OF RS.2.00 LAKH S WAS INCURRED DURING THE FINANCIAL YEAR 1994-95 TOWARDS IMPROVEMENT OF L AND. THE INDEXED AMOUNT OF THE ABOVE SAID RS.2.00 LAKHS STOOD AT RS. 3,83,783/-. IN THE ABSENCE OF ANY SUPPORTING EVIDENCE, THE ASSESSING O FFICER DISALLOWED THE CLAIM OF INDEXED COST OF IMPROVEMENT OF RS.3,83,783 /-. WITH REGARD TO THE CLAIM OF IMPROVEMENT EXPENSES, THE ASSESSING OFFICE R NOTICED THAT SECTION 55 OF THE ACT DEFINES THE COST OF IMPROVEMENT TO MEAN ALL THE EXPENDITURE OF A CAPITAL NATURE INCURRED IN MAKING ANY ADDITION OR ALTERATION TO THE CAPITAL ASSET. ACCORDINGLY, THE ASSESSING OFFICER HELD THAT THE IMPUGNED EXPENSES INCURRED TOWARDS BUILDING PERMIT FEE, WATE R CONNECTION CHARGES AND SECURITY DEPOSIT CANNOT BE TREATED EITHER AS TH E COST OF IMPROVEMENT OR AS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN C ONNECTION THE TRANSFER OF CAPITAL ASSET. ACCORDINGLY, HE DID NOT ALLOW DEDUC TION OF THE IMPROVEMENT EXPENSES ALSO. THE LEARNED CIT(A) CONFIRMED THE ORD ER OF THE ASSESSING OFFICER ON BOTH POINTS. 3.1 THE ASSESSEE DECLARED A SUM OF RS.4,03,607/ - AS LONG TERM CAPITAL GAIN ON SALE OF SHARES AND CLAIMED EXEMPTION UNDER SECTION 10(38) OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE COULD FILE EVIDENCES IN SUPPORT OF THE SALE OF SHARES, BUT COU LD NOT FILE EVIDENCES IN SUPPORT OF THEIR RESPECTIVE PURCHASES. HENCE, THE ASSESSING OFFICER ITA NO.559/VIZAG/2008-CHANDRA PRASAD, VIJAYAWADA PAGE 3 OF 7 DISALLOWED THE CLAIM OF EXEMPTION UNDER SECTION 10( 38), AS THE ASSESSEE COULD NOT ESTABLISH THAT THE SHARES SO SOLD BY HIM ARE LONG TERM CAPITAL ASSETS. BEFORE LEARNED CIT(A), THE ASSESSEE FILED PHOTO COPIES SHARE CERTIFICATES AND CLAIMED THAT SOME SHARES HAVE BEEN RECEIVED AS GIFTS FROM HIS FAMILY MEMBERS. THE LEARNED CIT(A) EXPRESSED T HE VIEW THAT THE EXEMPTION UNDER SECTION 10(38) WOULD BE AVAILABLE O NLY IF THE SECURITY TRANSACTION TAX HAS BEEN CHARGED BOTH AT THE TIME O F PURCHASE AND SALE OF SHARES. SINCE THE ASSESSEE HAS PAID THE SECURITY T RANSACTION TAX ONLY AT THE TIME OF SALE AND NOT AT THE TIME OF ACQUISITION, TH E LEARNED CIT(A) HELD THAT THE ASSESSEE WOULD NOT BE ENTITLED TO EXEMPTION UND ER SECTION 10(38) OF THE ACT. WITH THESE OBSERVATIONS, THE LEARNED CIT( A) SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO CALCULATE THE LONG TERM CAPITAL GAIN AND SHORT TERM CAPITAL GAIN ON THE BASIS OF PERIOD OF HOLDING. AGGRIEVED BY THE ORDER OF LEARNED CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERU SED THE RECORD. IN SUPPORT OF CLAIM OF INDEXED COST OF IMPROVEMENT OF RS.3,83,783/- (EXPENSES INCURRED IN 1994-95 WAS RS.2.00 LAKHS), THE LEARNED . A.R SUBMITTED THAT THESE EXPENSES WERE INCURRED ON LEVELING OF LANDS A ND IN SUPPORT OF THE SAME, HE FILED PHOTO COPIES OF FEW SELF MADE VOUCHE RS. AS STATED EARLIER, THE ASSESSEE HAS FAILED TO FURNISH ANY EVIDENCE IN SUPPORT OF CLAIM OF EXPENDITURE OF RS.2.00 LAKHS BEFORE THE ASSESSING O FFICER. THE ASSESSING OFFICER HAS ALSO OBSERVED THAT THE ASSESSEE WAS NOT ASSESSED TO INCOME TAX DURING THE RELEVANT YEAR AND HENCE THE PRESENT CLAI M OF THE ASSESSEE COULD NOT BE CROSS VERIFIED. THOUGH THE ASSESSEE FILED T HE COPIES OF VOUCHERS BEFORE LEARNED CIT(A), HE DID NOT ADMIT THEM AS THE ASSESSEE FAILED TO EXPLAIN THE CIRCUMSTANCES WHICH PREVENTED HIM TO PR ODUCE THEM BEFORE THE ASSESSING OFFICER. BEFORE US, THE LEARNED A.R HAS FILED THESE VOUCHERS WITHOUT THE REQUIRED CERTIFICATE, MAY BE FOR THE RE ASON THAT THEY WERE NOT ADMITTED BY LEARNED CIT(A). IN THAT CASE, THEY BEC OME ADDITIONAL ITA NO.559/VIZAG/2008-CHANDRA PRASAD, VIJAYAWADA PAGE 4 OF 7 EVIDENCES AND HENCE THE ASSESSEE HAS AN OBLIGATION TO FULFILL THE CONDITIONS SPECIFIED IN RULE 29 OF THE APPELLATE TRIBUNAL RULE S, 1963. IN THE ABSENCE OF ANY SUCH COMPLIANCE, WE DO NOT FIND IT NECESSARY TO TAKE COGNIZANCE OF THE SAME. ACCORDINGLY, WE CONFIRM THE IMPUGNED DIS ALLOWANCE, AS THE ASSESSEE HAS FAILED TO ESTABLISH THAT HE INCURRED A SUM OF RS.2.00 LAKHS IN THE FINANCIAL YEAR 1994-95 TOWARDS THE IMPROVEMENT OF LAND. 5. THE NEXT ISSUE RELATES TO THE CLAIM FOR DEDU CTION OF IMPROVEMENT EXPENSES INCURRED BY THE ASSESSEE. THE ASSESSEE HA S INCURRED EXPENSES TOWARDS BUILDING PERMIT FEE, WATER CONNECTION CHARG ES, SECURITY DEPOSIT AND BETTERMENT CHARGES ETC. THE CONTENTION OF THE LEARNED A.R IS THAT THE SAID PAYMENTS WOULD IMPROVE THE VALUE OF LAND AND H ENCE THEY SHOULD BE ALLOWED AS EXPENDITURE FROM THE CAPITAL GAIN. 5.1 THE ASSET SOLD IN THIS CASE IS A LAND. SE CTION 48 OF THE ACT PRESCRIBES THE MODE OF COMPUTATION OF CAPITAL GAIN, ACCORDING TO WHICH FOLLOWING DEDUCTIONS ARE ALLOWED FROM THE FULL VALU E OF CONSIDERATION RECEIVED BY THE ASSESSEE. (A) EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER. (B) THE COST OF ACQUISITION OF THE ASSET AND THE C OST OF IMPROVEMENT THERETO. THE IMPUGNED EXPENSES WHICH ARE LISTED OUT IN PARA 3 (SUPRA), DO NOT FALL IN THE FIRST CATEGORY STATED ABOVE, I.E. THEY HAVE NOT BEEN INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER. THERE CANNOT BE ANY DISPUTE THAT THEY CANNOT ALSO BE TAKEN AS THE COST OF ACQU ISITION. THE NEXT OPTION WOULD BE, WHETHER THE SAID EXPENSES WOULD FALL UNDE R THE CATEGORY OF COST OF IMPROVEMENT. 5.2 AS NOTICED BY THE ASSESSING OFFICER, THE TE RM COST OF IMPROVEMENT HAS BEEN DEFINED IN SECTION 55 AS ALL EXPENDITURE OF A CAPITAL NATURE ITA NO.559/VIZAG/2008-CHANDRA PRASAD, VIJAYAWADA PAGE 5 OF 7 INCURRED IN MAKING ANY ADDITIONS OR ALTERATIONS TO THE CAPITAL ASSET. BOTH THE TAX AUTHORITIES HAVE OPINED THAT THE IMPUGNED E XPENSES ARE NOT CAPITAL IN NATURE. THOUGH THE ASSESSEE DISPUTES THIS VIEW O F THE TAX AUTHORITIES, YET IN OUR VIEW, THESE EXPENSES DO NOT RESULT IN ANY AD DITIONS OR ALTERATIONS OF THE LAND. TO TAKE AN EXPENDITURE AS COST OF IMPRO VEMENT, IT SHOULD BE OF A CAPITAL EXPENDITURE INCURRED IN MAKING ANY ADDITI ONS OR ALTERATIONS TO THE CAPITAL ASSET, I.E. BOTH THE CONDITIONS SHOULD BE S ATISFIED. HERE, THE ASSESSEE HAS FAILED TO SHOW THAT THESE EXPENSES RES ULT IN ADDITION/ALTERATION OF THE LAND. THE ALTERNATIVE CONTENTION OF LEARNED A.R IS THAT, BY INCURRING THESE EXPENSES, THE VALUE OF LAND GOES UP. WE ARE UNABLE TO AGREE WITH THIS CONTENTION. THE ASSESSEE MAY HIKE THE VALUE O F THE LAND BY CITING THESE EXPENSES. PRIMA FACIE, A PERSON MAY BE ENTIT LED TO RECOVER THE AMOUNT SPENT BY HIM ON THE EXPENSES OF THIS TYPE VI Z., WATER CONNECTION CHARGES, BETTERMENT CHARGES, SECURITY DEPOSIT ETC.. HOWEVER, IN THE INSTANT CASE, IT IS NOT SHOWN TO US THAT THE CONSIDERATION REALIZED BY THE ASSESSEE SPECIFICALLY INCLUDED THE REIMBURSEMENT OF EXPENSES SO INCURRED BY HIM. HENCE, WE ARE OF THE VIEW THAT THESE EXPENSES CANNO T BE TAKEN AS THE COST OF IMPROVEMENT OF LAND. ACCORDINGLY WE CONF IRM THE ORDER OF LEARNED CIT(A) ON THIS ISSUE ALSO. 6. THE NEXT ISSUE RELATES TO THE CLAIM OF EXEMP TION UNDER SECTION 10(38) OF THE ACT. ORIGINALLY, THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM OF EXEMPTION AS THE ASSESSEE HAS FAILED TO ESTABLISH T HAT THE SHARES SO SOLD ARE LONG TERM CAPITAL ASSETS. HOWEVER, LEARNED CIT (A) HAS OPINED THAT THE EXEMPTION UNDER SECTION 10(38) WOULD BE AVAILABLE O NLY IF THE ASSESSEE HAD PAID THE SECURITIES TRANSACTION TAX BOTH AT THE TIM E OF PURCHASE AND ALSO SALES. THE CLAIM OF THE ASSESSEE IS THAT THESE SHA RES HAVE BEEN ACQUIRED MUCH PRIOR TO INTRODUCTION OF SECURITIES TRANSACTIO N TAX. ITA NO.559/VIZAG/2008-CHANDRA PRASAD, VIJAYAWADA PAGE 6 OF 7 6.1 SECTION 10(38) READS AS UNDER: ANY INCOME ARISING FROM THE TRANSFER OF A LONG TE RM CAPITAL ASSET , BEING AN EQUITY SHARE IN A COMPANY OR A UNIT OF AN EQUITY ORIENTED FUND WHERE (A) THE TRANSACTION OF SALE OF SUCH EQUITY SHARE OR UNIT IS ENTERED INTO ON OR AFTER THE DATE ON WHICH CHAPTER VII OF THE FIN ANCE (NO.2) ACT, 2004 COMES INTO FORCE; AND (B) SUCH TRANSACTION IS CHARGEABLE TO SECURITIES TRANSACTION TAX UNDER THAT CHAPTER. THUS IT CAN BE SEEN THAT THE SECURITIES TRANSACTION TAX WAS INTRODUCED BY FINANCE ACT (NO.2) OF 2004. IF THE ASSESSEE HAD PUR CHASED THE SHARES PRIOR TO THE INTRODUCTION OF THE SECURITIES TRANSACTION TAX, HE CANNOT BE EXPECTED TO PAY TAX, WHICH WAS NOT IN EXISTENCE AT THE RELEVANT POINT OF TIME. APART FROM THE ABOVE, A PLAIN READING OF SEC TION 10(38) SUGGESTS THAT THE TRANSACTION OF SALE OF THE EQUITY SHARES SHOULD HAVE BEEN ENTERED AFTER THE DATE ON WHICH CHAPTER VII OF THE FINANCE (N O.2) ACT, 2004 CAME INTO FORCE AND SUCH TRANSACTION (MEANING SUCH SALE OF TRANSACTION ) IS CHARGEABLE TO SECURITIES TRANSACTION TAX. THUS THE SECTION 10(38) DOES NOT APPEAR TO CONVEY THE MEANING THAT THE ASSESSEE SHOU LD HAVE PAID THE SECURITIES TRANSACTION TAX AT THE TIME OF PURCHASE ALSO IN ORDER TO AVAIL THE EXEMPTION UNDER THAT SECTION. ACCORDINGLY, WE SET ASIDE THE OPINION OF LEARNED CIT(A) THAT THE SECURITIES TRANSACTION TAX SHOULD HAVE BEEN PAID BOTH AT THE TIME OF PURCHASE AND ALSO AT THE TIME O F SALE IN ORDER TO AVAIL EXEMPTION UNDER SECTION 10(38) OF THE ACT. 6.2 HOWEVER, WE NOTICE THAT THE ASSESSEE HAS FA ILED TO FURNISH EVIDENCES TO PROVE THAT THE SHARES SO SOLD ARE LONG TERM CAPI TAL ASSETS BEFORE THE ASSESSING OFFICER. IT APPEARS THAT THE ASSESSEE HAS FURNISHED CERTAIN DETAILS IN THIS CONNECTION BEFORE LEARNED CIT(A) AND HENCE THE FIRST APPELLATE AUTHORITY HAS SET ASIDE THE MATTER TO THE FILE OF A SSESSING OFFICER WITH CERTAIN DIRECTIONS. WE HAVE, IN THE EARLIER LINES, SET ASI DE THE OPINION OF LEARNED ITA NO.559/VIZAG/2008-CHANDRA PRASAD, VIJAYAWADA PAGE 7 OF 7 CIT(A) ON THE EXEMPTION UNDER SECTION 10(38) OF THE ACT. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO CONSIDER THE ISSUE AFRESH IN ACCORDANCE WITH LAW, AFTER AFFORDING NECESSARY OPPORTUNITY OF BEING HEARD. THE ORDER OF LEARNED CIT(A) STANDS MODIFIED ACCORDINGLY. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREA TED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 23 RD DECEMBER, 2010. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM, DATE: 23-12-2010 COPY TO 1 CHANDRA PRASAD, NO.32-6-10, PRAJASAKTHI NAGAR, VI JAYAWADA-10. 2 ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2(1) , VIJAYAWADA 3 4. THE CIT, VIJAYAWADA. THE CIT(A), VIJAYAWADA. 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM