KANAKLAKSHMI INVESTMENT P.LTD, MUMBAI V. DCIT (OSD) 9(1), MUMBAI

ITA 5877/MUM/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7962 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 12-06-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 26-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N R NINAWE
• Section: 143(3)

Judgement Text

A IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI . . . . . . . . , ! ! ! ! '!! '!! '!! '!! ! ! ! ! , # # # # BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER . : . : . : . : 5877 5877 5877 5877/ // / / // / 2012, ) ! 2009-10 ITA NO. : 5877/MUM/2012 , AY 2009-10 KANAKLAXMI INVESTMENT P LTD, 201, SATELLITE, 58, TAGORE ROAD, SANTACRUZ(W), MUMBAI -400 054 / .: PAN: AABCK 6536 D VS DCIT(OSD) -9(1), AAYAKAR BHAVAN, M K MARG, MUMBAI -400 020 /0 (APPELLANT) 12/0 (RESPONDENT) APPELLANT BY : SHRI VIPUL JOSHI SHRI ABHISEAK TILAK RESPONDENT BY : SHRI N R NINAWE )! 34 5 /DATE OF HEARING : 12-06-2014 67 34 5/ DATE OF PRONOUNCEMENT : 13-08-2014 8 8 8 8 O R D E R '!! '!! '!! '!! ! ! ! ! , . . . . . .. . PER VIVEK VARMA, J.M. : THE APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORD ER OF CIT(A)- 19, MUMBAI, DATED 30.07.2012, WHEREIN, THE FOLLOWIN G GROUNDS HAVE BEEN TAKEN: 1.1 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEAL S) -19, MUMBAI [THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF THE DY. COMMISSIONER OF INCOME TAX (O.D.S.) -9(1), MUMBAI ( THE AO) WHEREBY THE AO DISALLOWED SHORT-TERM CAPITAL LOSS O F RS. 62,73,440/-. 1.2 WHILE DOING SO, THE CIT(A) ERRED IN: (I) BASING HER ACTION ONLY ON SURMISES, SUSPICION A ND CONJECTURE; (II) TAKING INTO ACCOUNT IRRELEVANT AND EXTRANEOUS CONSIDERATIONS; AND (III) IGNORING RELEVANT MATERIAL AND CONSIDERATIONS AS SUBMITTED BY THE APPELLANT. KANAKLAXMI INVESTMENT P LTD ITA 5877/MUM/2012 2 1.3 IT IS SUBMITTED THAT IN THE FACTS AND THE CIRCU MSTANCES OF THE CASE, AND IN LAW, NO SUCH DISALLOWANCE WAS CALLED F OR. 2.1 THE LD. CIT(A) ERRED IN DIRECTING THE AO TO EXAM INE THE TAXABILITY OF RS. 62,73,440/- IN THE HANDS OF THE DIRECTOR UNDE R SECTION 28(IV) OR SECTION 17 OF THE INCOME TAX ACT, 1961. 2.2 IT IS SUBMITTED THAT IN THE FACTS AND IN THE CI RCUMSTANCES OF THE CASE, AND IN LAW, NO SUCH DIRECTION WAS CALLED FOR. 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, DELETE OR MODIFY ALL OR ANY OF THE ABOVE GROUND AT THE TIME OF HEARING. 2. IN THE GROUNDS AS RAISED IN THE APPEAL, THE SOLI TARY ISSUE THAT EMERGES IS THE DISALLOWANCE OF RS. 62,73,440/- CLAI MED AS SHORT TERM CAPITAL LOSS (STCL) ON THE SALE OF FLAT. 3. THE FACTS AS SUBMITTED BEFORE THE AO AND STATED IN SOF ARE THAT THE ASSESSEE PURCHASED A FLAT SITUATED AT NATURA, J K MEHTA ROAD, SANTACRUZ (WEST), MUMBAI FROM M/S DSD BUILDERS & DE VELOPERS FOR RS. 3,93,73,440/-. THIS FLAT WAS SOLD BY THE ASSESS EE TO MR. K. NARAYANAN, DIRECTOR OF THE ASSESSEE COMPANY WITHIN THE FINANCIAL YEAR FOR A CONSIDERATION OF RS. 3,31,00,000/-, THEREBY, INCURRING A LOSS OF RS. 62,73,440/-, WHICH THE ASSESSEE CLAIMED IN ITS RETURN AT STCL. 4. IN THE REGULAR ASSESSMENT PROCEEDINGS U/S 143(3) , THE AO NOTICED THE CLAIM OF LOSS AND CALLED FOR A DETAILED EXPLANATION ALONG WITH THE DOCUMENTS. THE ASSESSEE FURNISHED COMPLETE DETAILS AND EXPLANATION AS TO WHY THE ASSESSEE HAS SOLD THE FLA T TO ITS DIRECTOR AT A LOSS. THE MAIN REASON GIVEN BY THE ASSESSEE WAS THA T DUE TO SUDDEN ECONOMIC MELTDOWN, TRIGGERED IN THE US AND CONSEQUE NTLY EFFECTING THE WORLD ECONOMY, THE PRICES STARTED TO SLIDE AND TO A RREST THE DECLINE IN PRICES AND TO STIMULATE CASH POSITION, THE ASSESSEE DECIDED TO SELL THE FLAT TO ITS DIRECTOR AT THE MARKET RATE. THE ASSESS EE FURTHER SUBMITTED THAT IN SO FAR AS THE DIRECTOR, MR K NARAYANAN WAS CONCERNED, HE STILL HOLDS THE FLAT AS HIS INVESTMENT. 5. THIS EXPLANATION OF THE ASSESSEE DID NOT IMPRESS THE AO, WHO OBSERVED THAT THE FLAT WAS ACQUIRED BY THE COMPANY THROUGH ITS KANAKLAXMI INVESTMENT P LTD ITA 5877/MUM/2012 3 DIRECTOR, WHO WAS AUTHORIZED TO NEGOTIATE THE PURCH ASE. HE ALSO OBSERVED THAT THE ASSESSEE LATER ON SOLD THE SAME F LAT TO THE SAME DIRECTOR AT A LESSER CONSIDERATION. ACCORDING TO TH E AO, THE ASSESSEE HAS SIMPLY TAKEN A ROUTE TO BOOK LOSS IN ITS BOOKS OF ACCOUNTS. 6. THE AO ALSO DID NOT GET IMPRESSED WITH THE THEOR Y OF ECONOMIC MELTDOWN WORLD OVER. THE AO SIMPLY CAME TO THE CONC LUSION THAT IT WAS A PROFIT REDUCING DEVICE, WHICH WAS APPARENT FR OM THE FACT THAT, THAT THE ASSESSEE SOLD THE SAME FLAT TO THE SAME PE RSON WHO WAS INSTRUMENTAL TO PURCHASE THE FLAT. THE AO, THEREFOR E, CONCLUDED THAT ON THE FACE OF IT, THE TRANSACTION WAS A DEVICE TO REDUCE TAXABLE PROFITS OF THE ASSESSEE AND HENCE IT WAS A SHAM TRANSACTION . THE AO, THEREFORE, DISALLOWED THE CLAIM OF STCL OF RS. 62,7 3,440/-. 7. THE ASSESSEE APPROACHED THE CIT(A) AGAINST THE A BOVE DISALLOWANCE AND PLEADED BEFORE HIM THAT THERE WAS NO INHERENT DEVICE AND REITERATED THE SUBMISSIONS MADE BEFORE THE AO. 8. THE CIT(A), AFTER CONSIDERING THE SUBMISSIONS AN D DETAILED EXPLANATION, HELD, I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE SUBMISSIONS OF THE APPELLANT AND THE ASSESSMENT ORD ER. FROM THE ASSESSMENT ORDER, IT IS SEEN THAT ASSESSEE COMPA NY IS A PRIVATE LIMITED COMPANY AND THE DIRECTOR OF THE COM PANY HAS COMPLETE HOLD OVER THE AFFAIRS OF THE COMPANY. I FA IL TO COMPREHEND THAT WHY THE COMPANY HAS PURCHASED A PRO PERTY AT A HIGHER PRICE AND SOLD IT AT A LOWER PRICE IN SUCH A SHORT SPELL OF TIME. IT IS TRUISM OF FACTS THAT THERE WAS A FINANC IAL CRISIS IN U.S. TOWARDS END OF 2008. BUT THIS IS ALSO A FACT THAT I NDIA SHOWED EXTREME RESILIENCE TO THIS FINANCIAL CRISIS BY VIRT UE OF ITS STRONG FUNDAMENTALS IN ECONOMY. THERE IS NO REALISTIC DATA TO SHOW THAT THE FALL IN BSE SENSEX IMPACTED THE PROPERTY P RICE IN MUMBAI. THE READY RECKNOR RATE PUBLISHED BY THE GOVER NMENT OF MAHARASHTRA AND THE STAMP DUTY RATES LEVIED BY G OVT. OF MAHARASHTRA HAS NOT SHOWN ANY DOWNWARD REVISION IN THE PROPERTY PRICE DURING THE FALL OF BSE SENSEX. THE A PPELLANT ALSO AT THE TIME OF APPELLATE PROCEEDING HAS PRODUCED NO EVIDENCE TO SHOW THAT THE FALL IN BSE SENSEX LED TO FALL IN PRO PERTY PRICES. THUS THE APPELLANT'S CONTENTION THAT THE SHARP FALL IN VALUATION OF PROPERTY THREATENED TO ERODE SMALL EQUITY BASE O F APPELLANT KANAKLAXMI INVESTMENT P LTD ITA 5877/MUM/2012 4 COMPANY WHICH WAS ONLY RS. 5,01,000/- IS ALSO NOT SU PPORTED BY ANY EVIDENCE AS IT IS NOTICED THAT THE COMPANY E VEN IN THIS PRECARIOUS ENVIRONMENT WAS ABLE TO PAY OFF THE LOAN OF RS.2 CRORES TO THE DIRECTOR, SHRI K. NARAYAN, TO PURCHAS E THE PROPERTY IN QUESTION FROM THE COMPANY. SO WHAT THE COMPANY G OT FROM RIGHT HAND WAS TAKEN BY THE DIRECTOR FROM LEFT HAND . THE COMPANY BY VIRTUE OF THIS TRANSACTION ERODED THE CO MPLETE CAPITAL BASE OF RS. 5,01,000/- BY INCURRING A LOSS O F RS. 62,73,440/-. IT IS TRUE THAT THE ENTIRE TRANSACTION HAS TAKEN THROUGH BANKING CHANNELS BUT NONE THE LESS NO PRUDE NT BUSINESSMAN WILL INDULGE IN A TRANSACTION LIKE THIS WHERE COMPLETE EQUITY BASE OF COMPANY IS ERODED. IN VIEW OF THIS, THE SHORT TERM CAPITAL LOSS INCURRED BY THE COMPANY AMOU NTING TO RS. 62,73,440/- IS NOT ALLOWED. THE AO MAY EXAMINE TH E TAXABILITY OF RS. 62,73,440/- IN THE HANDS OF THE DI RECTOR U/S 28(IV) OR U/S 17 OF THE I.T. ACT 9. THE CIT(A), THUS SUSTAINED THE DISALLOWANCE. 10. AGGRIEVED, THE ASSESSEE IS NOW BEFORE THE ITAT. 11. BEFORE US, THE AR REITERATED THE SUBMISSIONS MA DE BEFORE THE REVENUE AUTHORITIES AND SUBMITTED THAT THE REVENUE AUTHORITIES ERRED IN OBSERVING THAT THE ASSESSEE BOUGHT AND SOLD THE FLAT FROM MR. K. NARAYANAN. THE AR SUBMITTED THAT THE FACT IS THAT T HE DIRECTOR ON BEHALF OF THE ASSESSEE COMPANY, PURCHASED THE PROPE RTY FROM M/S DSD BUILDERS & DEVELOPERS AND SOLD THE SAME TO ITS DIRECTOR MR. K. NARAYANAN. 12. THE AR ALSO SUBMITTED THAT, IN THE TIME WHEN TH E FLAT WAS IN POSSESSION OF THE ASSESSEE, THE SLUMP IN PROPERTY M ARKET WAS ALSO FELT, BECAUSE WHICH, THE ASSESSEE SOLD THE PROPERTY AT TH E PREVAILING MARKET RATE. 13. THE AR, THEREFORE, SUBMITTED THAT THE ASSESSEE DID NOT INDULGE IN ANY SHAM TRANSACTION AND THAT THE CLAIM WAS GENU INE AND REASONABLE. KANAKLAXMI INVESTMENT P LTD ITA 5877/MUM/2012 5 14. THE DR ON THE OTHER HAND SUPPORTED THE ORDERS O F THE REVENUE AUTHORITIES AND SUBMITTED THAT ON THE FACT OF TRANS ACTION, IT IS SHAM AND HENCE THE CLAIM WAS RIGHTLY REJECTED. 15. WE HAVE HEARD THE ARGUMENTS AND HAVE PERUSED TH E DOCUMENTS APPENDED IN THE APB, WHICH SAYS THAT THE PAPERS WER E SUBMITTED BEFORE BOTH THE LOWER AUTHORITIES. FROM THE DOCUMEN TS, IT IS CLEAR THAT THE ASSESSEE PURCHASED THE FLAT FROM DSD BUILDERS A ND DEVELOPERS THROUGH ITS DIRECTOR MR. K. NARAYANAN. IN OUR OPINI ON THE REVENUE AUTHORITIES ERRED IN OBSERVING THAT THE ASSESSEE BO UGHT THE FLAT FROM MR. K. NARAYANAN AND SOLD THE SAME FLAT TO MR. K. N ARAYANAN. IT IS OBVIOUS THAT THE COMPANY, THOUGH A SEPARATE ENTITY FOR ALL LEGAL ASPECTS, BUT IT ACTS THROUGH ITS DIRECTORS. IN THE PRESENT SET OF CIRCUMSTANCES, MR. K. NARAYANAN ACTING FOR THE ASSE SSEE, PURCHASED THE FLAT FROM DSD BUILDERS AND DEVELOPERS AS THE PR IMARY TRANSACTION. LATER ON, THE ASSESSEE SOLD THE FLAT TO ITS DIRECTO R AS SECONDARY TRANSACTION. 16. ON GOING THROUGH THE DOCUMENTS APPENDED IN THE APB, WE DO NOT FIND ANY TRACE OF ANY CONNECTION OF MR. K NARAY ANAN TO BE ASSOCIATED WITH THE PRIMARY SELLER, I.E. DSD BUILDE RS AND DEVELOPERS, TO GIVE EVEN A FAINT HINT THAT THE TRANSACTION WAS A COLLUSIVE TRANSACTION. 17. COMING TO THE MACRO ECONOMIC THEORY, AT NO POIN T, THE ASSESSEE/AR PROVIDED ANY EVIDENCE TO SHOW THAT AT T HE TIME WHEN THE PROPERTY WAS SOLD TO MR. K. NARAYANAN, THERE WAS AC TUAL MELT DOWN IN THE PROPERTY RATES AS WELL, OR IN THE SAME SPECTRUM , ANY EVIDENCE OF COMPARABLE RATES WITHIN THE VICINITY, SHOWING THAT THE RATES OF SIMILAR TYPE OF PROPERTY HAD BEEN DEPRESSED, ON THE DATE WH EN THE ASSESSEE SOLD THE IMPUGNED PROPERTY TO ITS DIRECTOR OR THERE WAS A DOWNWARD KANAKLAXMI INVESTMENT P LTD ITA 5877/MUM/2012 6 VALUATION. IN SUCH A SCENARIO, TREADING ONLY ON MAC RO ECONOMIC THEORY WOULD BE UNJUSTIFIED. THE BURDEN IS SQUARELY ON THE ASSESSEE TO PROVE AS TO HOW A LOSS OF RS. 62,73,440/- IS JUSTIFIED AN D ACCEPTABLE. THIS JUSTIFICATION IS STILL LACKING. WE, THEREFORE, REST ORE THE ISSUE TO THE FILE OF THE AO, BEFORE WHOM, THE ASSESSEE SHALL DEMONSTR ATE, AS TO HOW, THE LOSS CLAIMED WAS GENUINE AND ACCEPTABLE. 18. THE ASSESSEE SOLD THE IMPUGNED PROPERTY TO ITS DIRECTOR, WHO ACTUALLY RETAINED THE SAME AND THAT IT DID NOT GET ECLIPSED FROM THE ASSESSEE, OR ITS DIRECTOR CLEARLY SHOWS THAT THE IM PUGNED FLAT WAS MEANT TO BE RETAINED. 19. ON THE ISSUE AND ARGUMENTS OF THE REVENUE AUTHO RITIES THAT THE ASSESSEE PAID BACK THE LOAN TO MR. K. NARAYANAN ON 31.03.2009, ALSO NEEDS FURTHER VERIFICATION. 20. IN THESE CIRCUMSTANCES, WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE AO TO VERIFY THE GENUINESS OF THE CLAIM OF LOSS OF RS. 62,73,440/- ON THE SALE OF PROPERTY, NEEDLESS TO ME NTION, THAT ADEQUATE AND REASONABLE OPPORTUNITY SHALL BE GIVEN TO THE ASSESSEE TO SUBSTANTIATE ITS CLAIM. 21. IN THE RESULT, THE APPEAL AS FILED BY THE ASSES SEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH AUGUST, 2014. SD/- SD/- ( . . . . . . . . ) ('!! ! '!! ! '!! ! '!! ! ) (R.C. SHARMA) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 13 TH AUGUST, 2014 KANAKLAXMI INVESTMENT P LTD ITA 5877/MUM/2012 7 14/ COPY TO:- 1) /0/ THE APPELLANT. 2) 12/0/ THE RESPONDENT. 3) THE CIT (A)-19, MUMBAI. 4) ; 5 , MUMBAI / THE CIT-5, MUMBAI. 5) '!< =14) A, , THE D.R. A BENCH, MUMBAI. 6) = >? COPY TO GUARD FILE. 8 ) / BY ORDER / / TRUE COPY / / [ @/A B , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI *DEA ) !.). * CHAVAN, SR. PS