DARSHAN HOSIERY INDUSTRIES LTD, MUMBAI V. ITO 9(1)(3), MUMBAI

ITA 6591/MUM/2012

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 3458 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 5 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 17-08-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 31-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D G
• Keywords: Capital asset; Set aside
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D, MUMBAI BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA NO.6591/M/2012 ASSESSMENT YEAR: 2009-10 M/S. DARSHAN HOSIERY INDUSTRIES LTD., KRDN TRUST ESTATE, OFF AAREY ROAD, OPP. PRAVASI INDL. ESTATE, GOREGAON (E), MUMBAI 400 063 PAN: AAACD1595N VS. INCOME TAX OFFICER- 9(1)(3), AAYAKAR BHAVAN, 2 ND FLOOR, NEW MARINE LINES, MUMBAI (APPELLANT) (R ESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI D.V. LAKHANI, A.R. SHRI ROHAN SHAH, A.R. REVENUE BY : SHRI D.G. PANSARI, D.R. DATE OF HEARING : 13.02.2019 DATE OF PRONOUNCEMENT : 30.04.2019 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 12.09.2012 OF THE COMMISSIO NER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS TH E CIT(A)] RELEVANT TO ASSESSMENT YEAR 2009-10. 2. THE ONLY ISSUE RAISED BY THE ASSESSEE FROM GROUN D NO.1 TO 4 IS AGAINST THE ORDER OF LD. CIT(A) CONFIRMING THE ORDER OF AO IN BRINING TO TAX THE LONG TERM CAPITAL GAIN OF RS.3,0 9,87,506/- DESPITE THE FACT THAT SALE HAS TAKEN PLACE IN THE A Y 2012-13 ANS NOT IN THE CURRENT ASSESSMENT YEAR WHEREAS THE ISSU E IN GROUND ITA NO.6591/M/2012 M/S. DARSHAN HOSIERY INDUSTRIES LTD. 2 NO.5 IS IN RESPECT OF LEVY OF INTEREST UNDER SECTIO N 234B OF RS.20,94,477/-. 3. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS A PU BLIC LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF HOSIERY ITEMS BESIDES DOING JOB WORK. THE ASSESSEE ENTERE D INTO AN AGREEMENT TO ACQUIRE ON LEASE A PLOT OF LAND LOCATE D AT MIDC INDUSTRIAL AREA PLOT NO.A/745 & A/746 IN TTD INDUST RIAL AREA, DISTRICT THANE AS PER AGREEMENT DATED 28.02.1992 WI TH M/S. OM TEXTILES PVT. LTD. AS THE SAID PLOT NO.A/745 & A/746 IN TTD INDUSTRIAL AREA, DISTRICT THANE, WAS TAKEN ON LEASE BY THE LATTER PARTY FROM MIDC, THE MIDC WAS THE OWNER AND LESSO R AND M/S. OM TEXTILES PVT. LTD. WAS THE LESSEE. THEREAFTER, THE M/S. OM TEXTILES PVT. LTD. AGREED TO ASSIGN THE LEASEHOLD R IGHTS IN FAVOUR OF THE ASSESSEE WHICH WERE NOT APPROVED BY THE MID C AND THUS NO LEASE DEED COULD BE EXECUTED IN FAVOUR OF THE AS SESSEE, HOWEVER, THE ASSESSEE AFTER TAKING POSSESSION OF TH E SAID PLOT CONSTRUCTED A FACTORY BUILDING AND STARTED MANUFACT URING OF HOSIERY ITEMS FROM THE SAID PLOT. ON 04.04.2008 AS SESSEE FURTHER ENTERED INTO AN AGREEMENT WITH M/S. PATEL H OSIERY MILLS, A PARTNERSHIP CONCERN, TO TRANSFER ITS OCCUPATIONAL RIGHTS IN THE PLOT NO.A/745 & A/746 IN TTD INDUSTRIAL AREA, THANE FOR A CONSIDERATION OF RS.3,25,00,000/- TO M/S. PATEL HOS IERY MILLS . IN THE SAID AGREEMENT IT IS SPECIFICALLY PROVIDED T HAT PERMISSION FROM MIDC IS PRE-CONDITION FOR TRANSFER OF RIGHTS AND IF THE PERMISSION IS DENIED BY MIDC, THE ADVANCE GIVEN TO THE ASSESSEE BY M/S. PATEL HOSIERY MILLS WOULD BE REFUNDED WITHO UT INTEREST. THE ASSESSEE RECEIVED A TOTAL AMOUNT OF RS.2,33,00, 000/- TILL 31.03.2009 FROM M/S. PATEL HOSIERY MILLS AGAINST TH E TOTAL CONSIDERATION OF RS.3,25,00,000/- AND ALSO GAVE PAR T POSSESSION ITA NO.6591/M/2012 M/S. DARSHAN HOSIERY INDUSTRIES LTD. 3 OF THE PLOT AS TOKEN OF SECURITY OF MONEY ALREADY P AID OF RS. 2,33,00,000/-. THE AO DURING THE COURSE OF ASSESSM ENT PROCEEDINGS, CALLED UPON THE ASSESSEE TO FURNISH C OPY OF AGREEMENT DATED 04.04.2008 AND ALSO THE CONFIRMATIO N THEREOF SUBSEQUENTLY WHICH WAS SUPPLIED BY THE ASSESSEE VID E LETTER DATED 07.10.2011 FILING A COPY OF THE AGREEMENT ALO NG WITH FINAL COPY OF CONFIRMATION OF SALE DEED DATED 26.04.2011. THEREAFTER, THE AO CALLED UPON THE ASSESSEE TO SHOW CAUSE AS TO WHY THE CAPITAL GAIN ARISING FROM THE SALE OF THE PREMISES SHOULD NOT BE BROUGHT TO TAX IN A.Y. 2009-10 AS THE SALE HAS TAK EN PLACE IN THE INSTANT YEAR WHICH WAS REPLIED BY THE ASSESSEE BY SUBMITTING THAT THE LAND ON WHICH THE FACTORY BUILD ING WAS CONSTRUCTED BELONGED TO MIDC AND IT IS ONLY THE OC CUPATIONAL RIGHTS ACCRUED IN FAVOUR OF THE ASSESSEE WHICH THE ASSESSEE HAS AGREED TO TRANSFER TO M/S. PATEL HOSIERY MILLS COND ITIONAL UPON MIDC ACCORDING ITS APPROVAL IN FAVOUR OF THE M/S. P ATEL HOSIERY MILLS. THE ASSESSEE SUBMITTED THAT REGISTERED SALE DEED WAS MADE IN FAVOUR OF M/S. PATEL HOSIERY MILLS ON 10.05 .2011 THUS IN TERMS OF AGREEMENT DATED 26.04.2011 M/S. PATEL H OSIERY MILLS BECAME ENTITLED TO LAND AND BUILDING WHEN MIDC FI NALLY REGISTERED THE RIGHTS AS LESSEE IN THE NAME OF M/S. PATEL HOSIERY MILLS ON 10.05.2011. THUS THE ASSESSEE CONTENDED T HAT LONG TERM CAPITAL GAIN AROSE IN A.Y. 2012-13 AND NOT IN THE A.Y. 2009-10 AS HELD BY THE AO. FINALLY, THE AO REJECTIN G THE CONTENTIONS OF THE ASSESSEE TREATED THE LONG TERM C APITAL GAIN OF THE ASSESSEE AS IN A.Y. 2009-10 BY ASSESSING THE TO TAL INCOME AT RS.3,19,93,690/- AS AGAINST THE DECLARING INCOME OF RS.10,06,190/-. ITA NO.6591/M/2012 M/S. DARSHAN HOSIERY INDUSTRIES LTD. 4 4. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) DI SMISSED THE APPEAL OF THE ASSESSEE BY HOLDING THAT THE SALE OF RIGHTS IN RESPECT OF THE SAID PROPERTY HAS TAKEN PLACE IN A.Y . 2009-10 AS THE AGREEMENT WAS EXECUTED ON 04.04.2008 FOR A TOTA L CONSIDERATION OF RS.3,25,00,000/- WHICH WAS PARTLY RECEIVED TO THE TUNE OF RS. 2,33,00,000/- TILL THE YEAR END I. E. 31.03.2009. THE LD. CIT(A) ALSO OBSERVED THAT ASSESSEE HAS GIVE N PART POSSESSION OF THE PREMISES WITH SIGNING OF THIS AGR EEMENT AND THE PARTNERS IN M/S. PATEL HOSIERY MILLS AND DIRECT ORS OF THE ASSESSEE COMPANY WERE COMMON AND THUS CONCLUDED THA T TRANSFER HAS TAKEN PLACE BETWEEN THE RELATED PARTIE S IN THE CURRENT YEAR. THE LD. CIT(A) ALSO NOTED THAT MIDC HAS NEVER CONFIRMED THE LEASE IN FAVOUR OF THE ASSESSEE DESPI TE THAT THE ASSESSEE CONTINUED UNHINDERED MANUFACTURING ACTIVIT Y ON THE SAID PLOT BESIDES CONSTRUCTING 1625.10 SQ. MTR. O F FACTORY BUILDING ON THE SAID PLOT FOR WHICH THE COMPLETION CERTIFICATE WAS ISSUED BY MIDC ON 11.03.1996. THUS THE LD. CIT(A) CONCLUDED THAT THE CONFIRMATION OF LEASE BY MIDC WAS A MERE F ORMALITY TO THE TRANSFER THE PREMISES BY THE ASSESSEE TO M/S. PATEL HOSIERY MILLS AND THUS JUSTIFIED THE ADDITION OF CAPITAL GA IN RESULTING FROM THE SALE OF LAND AND BUILDING IN THE CURRENT Y EAR. 5. THE LD. A.R. VEHEMENTLY SUBMITTED BEFORE THE BEN CH THAT THE TRANSFER OF RIGHTS BY THE ASSESSEE IN PLOT NO.A /745 & A/746 HAD TAKEN PLACE IN A.Y. 2012-13 AS THE FINAL DEED O F CONFIRMATION WAS EXECUTED ON 26.04.2011 AND THE AGR EEMENT DATED 04.04.2008 WAS FOR CONDITIONAL TRANSFER FOR THE CANCELLATION OF THIS AGREEMENT IN THE EVENTUALITY T HE MIDC NOT ACCORDING ITS PERMISSION FOR TRANSFERRING THE RIGH TS IN FAVOUR OF M/S. PATEL HOSIERY MILLS. THE LD. A.R. CANDIDLY AC CEPTED BEFORE ITA NO.6591/M/2012 M/S. DARSHAN HOSIERY INDUSTRIES LTD. 5 THE BENCH THAT ASSESSEE HAS ACCEPTED RS.2,33,00,000 /- OUT OF TOTAL CONSIDERATION OF RS.3,25,00,000/- TILL 31.03. 2009 BUT THE TRANSFER OF THIS PROPERTY CAN NOT BE PREPONED TO TH E CURRENT YEAR BY MERE FACT THAT ASSESSEE HAS RECEIVED 70% OF THE TOTAL CONSIDERATION AND ALSO HANDED OVER A PART OF THE PO SSESSION TO THE SAID BUYER AS SECURITY. THE LD. A.R. SUBMITTED BEFORE US THAT THE SAID CAPITAL GAIN WAS DULY OFFERED TO TAX IN A.Y. 2012-13 BY INVITING OUR ATTENTION TO THE STATEMENT OF TOT AL INCOME AND COPY OF INCOME TAX RETURN FILED AT PAGE NO.12 & 13 OF THE PAPER BOOK. THE LD. A.R. ALSO TOOK US THROUGH THE AGREEM ENT OF TRANSFER EXPLAINING THE VARIOUS CLAUSES IN THE SAID AGREEMENT AND SUBMITTED THAT THE PERMISSION FROM MIDC WAS THE ESSENCE OF THE AGREEMENT AND NON GRANT OF APPROVAL WOULD HA VE RESULTED INTO CANCELLATION OF THIS AGREEMENT AND REFUNDING OF MONEY ALREADY RECEIVED. THE LD. A.R. SUBMITTED THAT IT I S IMMATERIAL THAT THE DIRECTOR OF THE ASSESSEE COMPANY IS ALSO A PARTNER IN THE FIRM PURCHASER M/S. PATEL HOSIERY MILLS AND WOU LD NOT MAKE THE TRANSACTION A COLOURABLE DEVISE WHICH IS NOT TH E CASE OF THE AO OR LD. CIT(A) IN ANY CASE. THE LD. A.R. ALSO SU BMITTED THAT DESPITE ENTERING INTO AGREEMENT DATED 04.04.2008 BY THE ASSESSEE WITH M/S. PATEL HOSIERY MILLS FOR TRANSFER OF LAND AND BUILDING, THE ASSESSEE CONTINUED TO CARRY ITS BUSIN ESS OPERATIONS IN THE SAID PREMISES BY REFERRING TO THE COPIES OF INCOME TAX RETURN FILED WITH THE DEPARTMENT COPIES WHEREOF AR E ATTACHED IN THE PAPER BOOK AT PAGE NO.64 ONWARDS. THE LD. A.R. SUBMITTED THAT THE ASSESSEE WAS DOING SUBSTANTIAL BUSINESS B Y REFERRING TO THE COPY OF P & L ACCOUNT FILED AT PAGE NO.75 OF TH E PAPER BOOK AND SUBMITTED THAT THE SALES DURING THE YEAR WERE RS.4,47,36,781/- VIS--VIS SALE IN THE PRECEDING PR EVIOUS YEAR OF ITA NO.6591/M/2012 M/S. DARSHAN HOSIERY INDUSTRIES LTD. 6 RS.4,36,86,889/-. THE LD. A.R. DREW OUR ATTENTION TO FINAL LEASE DEED DATED 10.05.2011 EXECUTED IN FAVOUR OF THE BU YER TO REINFORCE HIS ARGUMENTS. THE LD. A.R. SUBMITTED TH AT DURING THE YEAR NO TRANSFER OF RIGHT HAS BEEN TAKEN PLACE AS I S CLEAR FROM THE FINAL LEASE DEED EXECUTED ON 10.05.2011 AND THE REFORE SUBMITTED THAT IT CAN NOT BE BROUGHT TO TAX IN CURR ENT YEAR.THE LD AR RELIED ON A SERIES OF DECISIONS IN SUPPORT OF HIS ARGUMENTS NAMELY (I) C.S. ATWAL VS CIT 378 ITR 244 (P & H) (II ) SURAJ LAMP AND INDUSTRIES PVT LTD VS STATE OF HARYANA AND OTHE RS 340 ITE 1 (SC) AND CIT VS TATA TELE SERVICES. 122 ITR 594 B OM. FINALLY THE LD AR PRAYED BEFORE THE BENCH THAT THE ORDER OF CIT(A) MAY BE REVERSED BY DIRECTING THE AO TO DELET E THE LONG CAPITAL GAIN OF RS. 3,09,87,506/- . 6. THE LD DR ON THE OTHER HAND RELIED ON THE ORDERS OF THE AUTHORITIES BELOW BY SUBMITTING THAT THE TRANSFER O F RIGHTS HAVE TAKEN PLACE DURING THE YEAR IN VIEW OF THE FACT THA T THE ASSESSEE HAS ENTERED INTO AGREEMENT FOR TRANSFER OF RIGHTS I N THE LAND AND BUILDING DURING THE YEAR FOR A CONSIDERATION OF RS. 3,25,00,000/- OUT OF WHICH THE ASSESSEE HAS RECEIVED SUBSTANTIAL AMOUNT OF RS. 2,33,00,000/- AND ALSO GIVEN PART POSSESSION OF THE PROPERTY. SO FAR AS THE CONDITIONAL TRANSFER IS CON CERNED AS ARGUED BY THE LD AR , THE LD DR SUBMITTED THAT THE PERMISSION FROM MIDC WAS A MERE FORMALITY. THE LD DR TRIED TO JUSTIFY THE TREATMENT OF SALE DURING THE YEAR BY REFERRING TO T HE FACT THE MIDC NEVER GRANTED PERMISSION OF LEASE IN FAVOUR OF THE ASSESSEE AND ASSESSEE OCCUPIED THE PROPERTY AND CAR RIED ON HIS BUSINESS WITHOUT SUCH PERMISSION. COUNTERING THE ARGUMENT OF LD AR THAT THE INCOME HAS BEEN OFFERED TO TAX IN AY 2012-13, LD DR ARGUED THAT MERE RETURNING THE INCOME IN SUBSEQU ENT YEAR ITA NO.6591/M/2012 M/S. DARSHAN HOSIERY INDUSTRIES LTD. 7 WOULD NOT CHANGE THE CORRECT POSITION OF LAW. FINAL LY DR SUBMITTED THAT IN VIEW OF ALL THESE FACTS THE ORDER OF CIT(A) DESERVED TO BE AFFIRMED. 7. WE HAVE HEARD THE RIVAL CONTENTIONS OF THE PARTI ES AND PERUSED THE MATERIALS ON RECORDS AS PLACED BEFORE U S. THE UNDISPUTED FACTS AS ARISING FROM THE RECORDS AND FR OM THE RIVAL ARGUMENTS ARE THAT THE ASSESSEE AGREED TO TRANSFER ITS OCCUPATIONAL RIGHTS IN THE LAND AND BUILDING COMPRI SED IN IN PLOT NO.A/745 & A/746 TO M/S PATEL HOSIERY MILLS VIDE AGREEMENT DATED 4.4.2008 WHICH WAS REGISTERED AND CONFIRMED O N 26.4.2011 BY THE MIDC. THE SAID AGREEMENT DATED 4.4 .2008 CONTAINED A CONDITION THAT PERMISSION FROM MIDC IS ESSENCE OF THE AGREEMENT AND IN THE EVENTUALITY OF MIDC DECLIN ING IT, THE AGREEMENT WOULD BE CANCELLED AND THE MONEY ALREADY PAID AT THE TIME OF SIGNING WOULD BE REFUNDED. THE ANOTHER IMPO RTANT FACT IS THAT THE ASSESSEE HAS ALREADY OFFERED TO TAX THE GA IN ARISING OUT OF THE SAID TRANSFER OF RIGHTS IN ASSESSMENT YEAR 2 012-13 ON THE BASIS OF FINAL REGISTRATION WHICH WAS DONE ON 26.4. 2011. IT IS ALSO UNDISPUTED THE ASSESSEE DESPITE GIVING PART PO SSESSION OF THE PROPERTY TO M/S PATEL HOSIERY MILLS CONTINUED T O CARRY ON ITS BUSINESS FROM THE SAID PLACE DURING THE INTERVENING PERIOD OF AGREEMENT DATED 4.4.2008 AND FINAL REGISTRATION BY MIDC ON 26.4.2011. AFTER TAKING ALL THESE FACTS INTO CONSID ERATION AND THE RATIO LAID DOWN IN THE VARIOUS DECISIONS REFERRED B Y THE LD AR WE HOLD THAT IT IS SETTLED POSITION OF LAW THAT TRANS FER TAKES PLACE ONLY WHEN THE POSSESSION IS GIVEN WITH FULL SETTLEM ENT OF CONSIDERATION AND REGISTRATION IS NOT A CONDITION FOR TREATING THE TRANSACTION AS SALE FOR THE PURPOSE OF INCOME TAX A CT. IN THE PRESENT CASE THE CONSIDERATION WAS SETTLED IN THE A SSESSMENT ITA NO.6591/M/2012 M/S. DARSHAN HOSIERY INDUSTRIES LTD. 8 YEAR 2012-13 COUPLED WITH REGISTRATION IN FAVOUR OF M/S PATEL HOSIERY MILLS BY MIDC. THUS IN THE PRESENT CASE ALL THESE CONDITIONS WERE NOT SATISFIED DURING THE YEAR. MORE OVER THE GAIN ON THE SAID PROPERTY STOOD ASSESSED TO TAX IN ASSES SMENT YEAR 2012-13 AND DOUBLE TAXATION IS NOT PERMISSIBLE UND ER THE ACT AS IT WOULD AMOUNT TO DOUBLE TAXATION IF THE TRANS ACTION IS TREATED AS SALE DURING THE YEAR. CONSIDERING ALL TH ESE FACTS, WE ARE OF THE CONSIDERED OPINION THAT THE TRANSACTION OF SALE OF OCCUPATION RIGHTS HAS NOT TAKEN PLACE IN THE CURREN T YEAR AND ACCORDINGLY WE SET ASIDE THE ORDER OF CIT(A) AND D IRECT THE AO TO DELETE THE ADDITION. 8. THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30.04.2019. SD/- SD/- ( RAM LAL NEGI) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: .04.2019. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORDER DY/ASS TT. REGISTRAR, ITAT, MUMBAI.