ITO 18(1)(3), MUMBAI V. D. CHETAN KUM,AR & CO, MUMBAI

ITA 6886/MUM/2011

• Counselvise Citation: 688619914 RSA 2011
• Duration Of Justice: 2 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 17-02-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 11-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJEEV JAIN
• Assessee Lawyers: HIRO RAI
• Keywords: Sale consideration of property below Jantri Value; Depreciation
• Section: 54; 50C

Judgement Text

, MH MHMH MH INCOME TAX APPELLATE TRIBUNAL,MUMBAI - D BENCH. , MK0 ,L VH ,E IKOYU MK0 ,L VH ,E IKOYU MK0 ,L VH ,E IKOYU MK0 ,L VH ,E IKOYU BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & DR. S.T.M . PAVALAN,JUDICIAL MEMBER /. ITA NO.6886/MUM/2011, ! ! ! ! / ASSESSMENT YEAR-2008-09 ITO 18(1)(3) 1 ST FLOOR, PIRAMAL CHAMBERS PAREL, MUMBAI-400012 VS M/S. D. CHETAN KUMAR & CO. 13, CAMA INDL. ESTATE, SUN MILL COMPOUND, LOWER PAREL, MUMBAI-400013 PAN:AACFD9579M ( '# / APPELLANT) ( $%'# / RESPONDENT) ' ( / REVENUE BY : SHRI SANJEEV JAI N )* ' ( / ASSESSEE BY : SHRI HIRO RAI ' '' ' *+ *+ *+ *+ / DATE OF HEARING : 20-02-2014 ,-! ' *+ / DATE OF PRONOUNCEMENT : 05-03-2014 , 1961 ' '' ' 254 )1( *.* *.* *.* *.* / / / / ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM : CHALLENGING THE ORDER DATED 08.08.2011 OF CIT(A)-29 ,MUMBAI ASSESSING OFFICER (AO) HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE APPEAL OF THE ASSESSEE AND DELETING SHORT TERM CAPI TAL GAIN OF RS. 47,69,046/- AND ALSO DIRECTING THE AO TO ADOPT THE VALUE OF ASSET AS DETERMINED BY THE DVO IF THE VALUATION IS REFERRED TO IT. 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) FAILED TO APPRECIATE THAT THE ASSESSEE ONLY ACQUIRED RIGHT IN THE PROPER TY BY MAKING ADVANCE PAYMENT FOR THE GALAS AND THE SAME WAS NEITHER IN POSSESSION OF THE ASSESSEE NOR WAS PUT TO USE FOR THE PURPOSE OF BUSINESS DURING THE RELEVANT FINANCIAL YEAR THEREFORE IT CAN NOT FORM PART OF THE BLOCK OF ASSETS FOR THE RELEVANT FINANCIAL YEAR FOR THE PURPOSE OF CAPITAL GAIN. 3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) FAILED TO APPRECIATE THAT THE REFERENCE TO THE DVO FOR THE VALUATION OF THE PROPERTY IN SECTION 50C(2) OF THE I.T.ACT IS DISCRETIONARY AS THE WORD USED IN THE ACT IS MAY AND NOT SHALL AND THE AO IS NOT DUTY BOUND TO REFER THE MATTER TO THE DVO AS HELD BY THE LD. CIT( A). 4) FOR THESE AND OTHER REASONS IT IS SUBMITTED THAT TH E ORDER OF THE CIT(A) MAY BE SET ASIDE AND THAT OF THE AO RESTORED. 5) THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GR OUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. FIRST GROUND OF APPEAL IS ABOUT DELETION OF ADDITIO N OF RS. 47.69 LACS UNDER THE HEAD SHORT TERM CAPITAL GAIN.ASSESSEE,AN INDIVIDUAL,FILED HIS RETUR N OF INCOME ON 23.03.2009 DECLARING TOTAL INCOME OF RS. 11,142/-.ASSESSMENT WAS FINALISED BY THE AO ON 01.12.2010 DETERMINING THE INCOME OF THE ASSESSEE AT RS.47.80LAKHS. 2 ITA NOS. 6886/MUM/2011 M/S D.CHETAN KUMAR & CO. . 2. DURING THE ASSESSMENT PROCEEDINGS,AO FOUND THAT THE ASSESSEE HAD SOLD A BUSINESS PREMISES A/6 IN TARDEO EVEREST PREMISES CHS LTD. AS PER AGREEMEN T DATED 05.04.2007 FOR A SALE CONSIDERATION OF RS. 39,00,000/-,THAT THE VALUE AS PER THE STAMP DUTY VALUATION OF THE SAID PROPERTY WAS SHOWN AT RS. 48,47,850/-,THAT DEPRECIATION WAS CLAIMED ON TH E PREMISES IN THE BLOCK ASSET,THAT THE ASSESSEE HAD PURCHASED TWO NEW GALAS VIDE AGREEMENTS DATED 2 8.03.2008 FOR RS. 27,28,462/- AND RS.12,71,538/-,THAT THE BUILDING IN WHICH GALAS WER E PURCHASED WAS UNDER CONSTRUCTION AND THE POSSESSION WAS TO BE GIVEN BY DECEMBER 2008.HE HELD THAT THE ASSESSEE WAS NOT IN POSSESSION OF THESE GALAS AS ON 31.03.2008,THAT THE GALAS COULD N OT BE SAID TO BE PUT TO USE FOR THE BUSINESS PURPOSE, THEREFORE SAME COULD NOT FORM PART OF THE BLOCK OF ASSETS FOR THE FY ENDING 31. 03.2008,THAT THE PREMISES WAS SOLD BY THE ASSESSEE ON 05.04.2007,THAT SAME WAS REDUCED FROM THE BLOCK OF ASSETS THEN THE BLOCK OF ASSET WOULD CEASE TO EXIST,THAT THE EXCESS SALE PROCEEDS WERE TAXABLE AS THE INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION.HE FURTHER HELD THAT THE ASSESSEE HAD NOT DISPUTED THE VALUE ADOPTED BY THE STAMP AUTHORITIES IN ANY APPEAL,THAT VALUE OF THE PROPERTY COULD BE TAKEN COULD BE ADOPTED AT RS . 48,47,850/-,AS PER THE PROVISIONS OF SECTION 50C OF THE ACT.IN VIEW OF THE ABOVE FACTS AMOUNT OF RS. 47,69,046/- WAS TREATED AS SHORT TERM CAPITAL GAIN U/S.50 OF THE ACT AND WAS TAXED AS INC OME OF THE ASSESSEE FOR THE YEAR UNDER APPEAL , BY THE AO. 3. IN THE APPELLATE PROCEEDINGS,FIRST APPELLATE AUTHOR ITY(FAA)HELD THAT A READING OF SECTION 43 CLAUSE (C) INDICATED THAT THE WRITTEN DOWN VALUE HA D TO BE ADJUSTED BY THE ACTUAL COST OF ANY ASSET FALLING WITHIN THE BLOCK ACQUIRED DURING THE YEAR,T HAT THE ASSESSEE HAD PURCHASED TWO GALAS AND ENTIRE AMOUNT OF RS. 40 LACS HAD BEEN PAID,THAT REG ISTRATION HAD BEEN COMPLETE,THAT THE ASSESSEE HAD ACQUIRED THE ASSETS AS PER SECTION 43(6)(C),THA T THE ASSESSEE HAD PAID THE AMOUNT OF RS. 40 LACS ON 18.02.2008 AND 23.02.2008,THAT THE TERM USED IN SECTION 50 WAS ACQUIRED DURING THE PREVIOUS YEAR.REFERRING TO THE DECISION OF THE JURISDICTION AL TRIBUNAL IN THE CASE OF ORIENT CARTONS PVT. LTD.(60 ITD 87),HE HELD THAT THE USE OF THE ASSET W AS NOT A CONDITION PRECEDENT FOR MAKING AN ADJUSTMENT IN THE BLOCK OF ASSET,THAT THERE WAS NO EXPLICIT REQUIREMENT IN THE STATUTORY PROVISION TO THE EFFECT THAT THE NEW ASSET SHOULD ALSO BE USED I N A BUSINESS CARRIED ON BY THE ASSESSEE AND IF THERE WAS NO BUSINESS CARRIED ON BY HIM THE DEDUCTI ON COULD NOT BE GIVEN. HE FURTHER HELD THAT THE WORD ACQUIRED IN SECTION 50 WAS OF A VERY AMORPHO US WORD AND THE ACQUISITION OF THE PROPERTY IN THAT SECTION WAS NOT SYNONYMOUS WITH ACQUISITION OF TITLE TO THE PROPERTY,THAT THE ASSESSEE HAD ACQUIRED THE PREMISES WITHIN THE MEANING OF SECTION 50 OF THE ACT AND THEREFORE HE WAS ENTITLED FOR ADJUSTMENT OF THE COST OF THE PROPERTY WITH THA T OF WDV OF THE BLOCK OF ASSET, FOR THE PURPOSES OF CAPITAL GAINS.FINALLY,DISALLOWANCE MADE BY THE A O WAS IS DELETED BY THE FAA. 4. DURING THE COURSE OF HEARING BEFORE US DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDER OF THE AO.AUTHORISED REPRESENTATIVE (AR) SUBMITTED THAT ASSESSEE HAD PAID RS. 40 LACS, THAT FORMALITIES OF REGISTRATION WERE OVER DURING THE YE AR UNDER APPEAL, THAT ASSESSEE HAD ACQUIRED THE ASSET,THAT FOR THE PURPOSE OF SECTION UNDER CONSIDE RATION THERE WAS NO DIFFERENCE BETWEEN PURCHASER AND ACQUIRER OF THE ASSET, THAT USE OF TH E ASSET WAS NOT AN ESSENTIAL CONDITION FOR AVAILING THE BENEFITS OF PROVISIONS OF SECTION 50 UNLIKE THE PROVISIONS OF SECTION 32.HE REFERRED TO PAGE NO. 29,31 AND 35 OF THE PAPER BOOK.HE RELIED UPON THE D ECISION OF MRS HILLA J.B.WADIA (216 ITR 376) DELIVERED BY THE HONBLE BOMBAY HIGH COURT, HE ALSO REFERRED TO THE ORDER OF M/S LALBHAI KALIDAS AND CO. LTD. (ITA NO. 5832/MUM/2011-AY 2007 -08 DATED 08.11.2013.WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFO RE US.WE FIND THAT HONBLE BOMBAY HIGH COURT IN THE CASE OF MRS HILLA J.B.WADIA (SUPRA) HA S HELD AS UNDER:- SECTION 54 OF THE INCOME-TAX ACT, 1961, HAS TO BE CONSTRUED IN THE CONTEXT OF THE MANNER IN WHICH RESIDENTIAL PROPERTIES ARE NOW BEING CONSTRUC TED IN A CITY LIKE BOMBAY WHERE, LOOKING TO THE COST OF THE LAND, CO-OPERATIVE HOUSING SOCIETIES AR E BEING FORMED FOR CONSTRUCTING A BUILDING IN WHICH FLATS ARE ALLOTTED TO MEMBERS. THIS MUST ALSO BE VIEWED AS A METHOD OF CONSTRUCTING RESIDENTIAL TENEMENTS. WHAT WE HAVE TO SEE IS WHETH ER THE ASSESSEE HAS ACQUIRED A RIGHT TO A SPECIFIC FLAT IN SUCH A BUILDING WHICH IS BEING CON STRUCTED BY THE SOCIETY AND WHETHER HE HAS MADE A SUBSTANTIAL INVESTMENT WITHIN THE PRESCRIBED PERI OD WHICH WILL ENTITLE HIM TO OBTAIN POSSESSION OF 3 ITA NOS. 6886/MUM/2011 M/S D.CHETAN KUMAR & CO. . THE FLAT SO CONSTRUCTED AND IN WHICH HE INTENDS TO RESIDE. THE MATERIAL TEST IN THIS CONNECTION IS DOMAIN OVER THE FLAT AND INVESTMENT IN IT. CENTRAL BOARD OF DIRECT TAXES CIRCULAR NO. 471*, DATED OCTOBER 15, 1986, DEALS WITH INVESTMENT IN FLATS UN DER THE SELF-FINANCING SCHEME OF THE DELHI DEVELOPMENT AUTHORITY. THE BOARD HAS STATED IN THE CIRCULAR THAT WHEN AN ALLOTMENT LETTER IS ISSUED TO AN ALLOTTEE UNDER THIS SCHEME ON PAYMENT OF THE FIRST INSTALMENT OF THE COST OF CONSTRUCTION, THE ALLOTMENT IS FINAL UNLESS IT IS C ANCELLED. THE ALLOTTEE, THEREUPON, GETS TITLE TO TH E PROPERTY ON THE ISSUANCE OF THE ALLOTMENT LETTER AN D THE PAYMENT OF INSTALMENTS IS ONLY A FOLLOW-UP ACTION AND TAKING DELIVERY OF POSSESSION IS ONLY A FORMALITY. THE BOARD HAS DIRECTED THAT SUCH AN ALLOTMENT OF A FLAT UNDER THIS SCHEME SHOULD BE TRE ATED AS A CASE OF CONSTRUCTION FOR THE PURPOSE OF CAPITAL GAINS. IN THE CASE OF LALBHAI KALIDAS & CO. LTD. (SUPRA),T O WHICH ONE OF US WAS THE PARTY,SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL. RESPECTFULLY FOLLOW ING THE ABOVE DECISIONS, WE UPHOLD THE ORDER OF THE FAA.GROUND NOS. 1 & 2 ARE DECIDED AGAINST TH E AO. 5. GROUND NO.3 IS ABOUT REFERENCE TO BE MADE TO THE DI STRICT VALUATION OFFICER (DVO) FOR THE VALUATION OF PROPERTY AS PER THE PROVISIONS OF SECT ION 50C(2) OF THE ACT.IN THE APPELLATE PROCEEDI - NGS, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSES SEE ,FAA HELD THAT HE HAD MADE AN ALTERNATIVE CLAIM,THAT THE ASSESSEE HAD ALREADY DISPUTED THE VA LUATION BEFORE THE AO AND THE AO WAS DUTY BOUND TO SEND THE MATTER TO THE DVO FOR VALUATION.A S THE AO DID NOT ANY MENTION OF REFERENCE TO THE DVO IN THE ASSESSMENT ORDER,HE DIRECTED THE AO TO ADOPT THE VALUE DETERMINED BY THE DVO, IN CASE MATTER WAS REFERRED BY HIM TO THE DVO.BEFOR E US, DR SUPPORTED THE ORDER OF THE AO.AR RELIED UPON THE JUDGEMENT OF S. MUTHURAJA (218TAXMA N73) DELIVERED BY THE HONBLE MADRAS HIGH COURT.WE HAVE HEARD THE RIVAL SUBMISSIONS.WE F IND THAT THE MANDATE OF SECTION 50C(2)IS VERY CLEAR AND AO IS LEFT WITH NO OPTION,BUT TO REF ER THE MATTER TO THE DVO.THEREFORE,IF THE FAA HAS GIVEN A CONDITIONAL DIRECTION IN ACCORDANCE WIT H THE PROVISIONS OF THE ACT,THEN HIS ORDER HAS TO BE UPHELD.GROUND NO.3 IS DECIDED AGAINST THE AO. AS A RESULT,APPEA L FILED BY THE AO STANDS DISMISSED. 0*1 )* + 2 3 ) ' * 45. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH MARCH,2014 . / ' ,-! 7 8 5 EKPZ EKPZ EKPZ EKPZ , 201 4 - ' . 9 SD/- SD/- ( MK MKMK MK0 00 0 ,L VH ,E IKOYU ,L VH ,E IKOYU ,L VH ,E IKOYU ,L VH ,E IKOYU / DR. S.T.M.PAVALAN) ( / RAJENDRA) / JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, 8 /DATE: 05.03.2014. SK / / / / ' '' ' $*: $*: $*: $*: ;:!* ;:!* ;:!* ;:!* / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / '# 2. RESPONDENT / $%'# 3. THE CONCERNED CIT(A)/ < = , 4. THE CONCERNED CIT / < = 5. DR D BENCH, ITAT, MUMBAI / :>. $* M MM MH HH H , . . . 6. GUARD FILE/ . 0 %:* %:* %:* %:* $* $*$* $* //TRUE COPY// / / BY ORDER, ? / 4 DY./ASST. REGISTRAR , /ITAT, MUMBAI