SUPREME CAPITAL MANAGEMENT LTD., MUMBAI V. D.C.I.T. Circle-3(3), MUMBAI

ITA 6934/MUM/2012

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0004 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2006-2007
• Appeal Filed On: 16-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V JUSTIN
• Keywords: Sale consideration of property below Jantri Value; Earning of tax free income
• Section: 143(3); 50C

Judgement Text

1 ITA 6934/MUM/2012 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI BEFORE SHRI SAKTIJIT DEY (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO.6934/MUM/2012 (ASSESSMENT YEAR: 2006-07) SUPREME CAPITAL MANAGEMENT LTD, 612, RAHEJA CHAMBERS, 231, NARIMAN POINT, MUMBAI-400 021 PAN : AAACSA7243J VS DCIT, CIRCLE 3(3), MUMBAI APPELLANT BY SHRI NITESH JOSHI REVENUE BY SHRI V JUSTIN DATE OF HEARING 22-01-2018 DATE OF PRONOUNCEMENT 28-02-2018 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST ORDER OF THE CIT(A)-7, MUMBAI DATED 16-08-2012 AND IT PERTAINS T O AY 2006-07. THE ASSESSEE HAS FILED THE FOLLOWING GROUNDS OF APPEAL: - 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOLDING THE ACTION OF LEARNED DEPUTY COMMISSIONER OF INCOME TAX (HEREINAFTER REFERRED TO AS 'THE ASSESSING OFFICER'), IN TREATING LIABILITY FOR PAYMENT OF INTEREST AMOUNTING TO RS.13,01,663/- AS INCOME UNDER SECTION 41(1) ON THE GROUND THAT THE SAID INTEREST LIABILITY HAS BEEN WRITTEN OFF BY SUPREME INDUSTRIES LIMITED (SIL) AND BOTH THE APPELLANT AND SIL ARE RELATED PA RTIES HAVING COMMON DIRECTORS. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) ERRED IN UPHOLDING THE ACTION 1 OF THE ASSESSING OFFICER IN TREATING S ERVICE CHARGES RECEIVED FROM INSURANCE COMPANIES AMOUNTING TO RS.26,65,834/- UND ER THE HEAD 'INCOME FROM OTHER SOURCES' AS AGAINST ITS TREATMENT AS 'PR OFITS AND GAINS OF BUSINESS OR PROFESSION' AS PER RETURN OF INCOME FILED BY THE APPELLANT, BY HOLDING THAT 2 ITA 6934/MUM/2012 SINCE THE APPELLANT IS NOT AN INSURANCE BROKER, EAR NING OF INSURANCE COMMISSION IS NOT ITS BUSINESS .ACTIVITY, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN UPHOLDING THE ACTION OF ASSESSING OFFICER IN ADDING A SUM OF RS. 10,31,900/- TO SHORT TERM CAPITAL GAINS AS PER THE PROVISIONS OF SECTION 50C OF THE ACT, ON AN ERRONEOUS FINDING THAT WHILE CALCULATING VALUE AS PER STAMP D UTY PROVISIONS, THE APPELLANT HAS IGNORED MARK UP OF 10% AS THERE IS A LIFT IN TH E BUILDING 4. THE APPELLANT SUBMITS THAT THE ASSESSING OF FICER BE DIRECTED TO DELETE :- A. THE ADDITION IN RESPECT OF INTEREST LIABIL ITY UNDER SECTION 41(1) AMOUNTING TO RS.13,01,663/-; B. TO TREAT SERVICE CHARGES RECEIVED AMOUNTIN G TO RS.26,65,834/- AS INCOME UNDER HEAD 'PROFITS & GAINS OF BUSINESS AND PROFESS ION' AND NOT UNDER HEAD 'INCOME FROM OTHER SOURCES'; C. THE ADDITION OF RS. 10,31,900/- FROM SHORT TERM CAPITAL GAINS; AND TO MODIFY THE ASSESSMENT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY HAS FILED ITS RETURN OF INCOME ON 14-11-2006 DECLARING TOTAL INCOME AT RS.47,46,198 BEFORE SET OFF OF BROUGHT FORWARD LOSS ES UNDER NORMAL PROVISIONS OF THE ACT. THE CASE HAS BEEN SELECTED FOR SCRUTINY AND NOTICE U/S 143(2) OF THE ACT ALONGWITH DETAILED QUE STIONNAIRE WAS ISSUED. IN RESPONSE TO NOTICE, AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME TO TIME AND FURNISHED THE DETAIL S, AS CALLED FOR. THE ASSESSMENT HAS BEEN CONCLUDED U/S 143(3) ON 12-12-2 008 DETERMINING THE TOTAL INCOME AT NIL AFTER MAKING VARIOUS ADDITI ONS TOWARDS INTEREST NOT PAYABLE U/S 41(1) OF THE ACT AS CESSATION OF LIABIL ITY, DISALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME U /S 14A, ADDITION TOWARDS DIFFERENCE IN SALE CONSIDERATION OF PROPERT Y U/S 50C OF THE ACT AND SERVICE CHARGES DISCLOSED UNDER THE HEAD INCOM E FROM BUSINESS TREATED AS INCOME FROM OTHER SOURCES. 3 ITA 6934/MUM/2012 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED APPEAL BEFORE CIT(A). BEFORE THE CIT(A), ASSESSEE HAS FIL ED ELABORATE WRITTEN SUBMISSIONS IN RESPECT OF ADDITIONS MADE BY THE AO. THE CIT(A) VIDE HIS ORDER DATED 16-08-2012 PARTLY ALLOWED APPEAL FI LED BY THE ASSESSEE, WHEREIN HE HAS ALLOWED PARTIAL RELIEF TOWARDS ADDIT ION MADE U/S 14A; HOWEVER, CONFIRMED ADDITION MADE BY THE AO TOWARDS INTEREST NOT PAYABLE U/S 41(1), ADDITION MADE U/S 50C OF THE ACT AND DIFFERENCE IN TREATMENT FOR SERVICE CHARGES CONSIDERED UNDER THE HEAD INCOME FROM OTHER SOURCES AS AGAINST THE ASSESSEES DISCLOSURE UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS IN APPEAL BEFORE US. 4. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS ADDITION MADE TOWARDS INTEREST NOT PAYABLE AS INCOME U/S 41(1) ON THE GROUND THAT THE SAID INTEREST LIABILITY HAS BEEN WRITTEN OFF BY SUP REME INDUSTRIES LTD. THE AO MADE ADDITION OF RS.13,01,663 AS PER THE LETTER ADDRESSED BY SUPREME INDUSTRIES LTD WHEREIN IT WAS STATED THAT T HEY HAVE WRITTEN OFF INTEREST RECEIVABLE OF RS.13,01,663 FROM THE ASSESS EE IN ITS BOOKS OF ACCOUNT IN PREVIOUS YEAR ENDED ON 31-03-2013, I.E. RELEVANT TO AY 2003- 04. ACCORDING TO THE AO, LIABILITY TOWARDS INTERES T IS NO LONGER PAYABLE AS THE CREDITOR HAS WRITTEN OFF INTEREST RECEIVABLE AN D ALSO BOTH PARTIES ARE RELATED PARTIES AND ACCORDINGLY, THE ASSESSEE OUGHT TO HAVE CONSIDERED INTEREST WRITTEN OFF AS ITS INCOME U/S 41(1) OF THE ACT. IT IS THE CONTENTION 4 ITA 6934/MUM/2012 OF THE ASSESSEE THAT MERELY MAKING ENTRIES IN THE B OOKS OF ACCOUNT AND THE LENDER WRITING IT OFF, THE LIABILITY DOES NOT A MOUNT TO CESSATION OF LIABILITY WHICH IS TAXABLE U/S 41(1) OF THE ACT. T HE ASSESSEE FURTHER SUBMITTED THAT IT IS WILLING TO PAY THE SAID AMOUNT PROVIDED ITS CASH FLOW IMPROVES. THE ASSESSEE FURTHER CONTENDED THAT CESS ATION OF LIABILITY IS TAXABLE U/S 41(1) IN THE YEAR IN WHICH SUCH LIABILI TY HAS BEEN WRITTEN OFF BY THE CREDITOR. IN THIS CASE, THE CREDITOR HAS WRITT EN OFF INTEREST IN THE FINANCIAL YEAR RELEVANT TO AY 2003-04, WHEREAS THE AO HAS MADE ADDITION IN THE IMPUGNED ASSESSMENT YEAR. THE ASSE SSEE ALSO MADE AN ALTERNATIVE PLEA THAT IT HAS TREATED INTEREST WRITT EN OFF BY THE CREDITOR AS ITS INCOME U/S 41(1) IN THE FINANCIAL YEAR RELEVANT TO AY 2008-09. THEREFORE, ARGUED THAT SINCE IT HAS ALREADY CONSIDERED THE SAI D AMOUNT AS ITS INCOME IT IS REVENUE NEUTRAL AND THERE IS NO REVENU E LOSS TO THE DEPARTMENT AND HENCE, THE AO IS INCORRECT IN MAKING ADDITION. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. THE FACTS WITH REGARD TO WRITE OFF OF I NTEREST ACCRUED BY THE CREDITOR IN ITS BOOKS OF ACCOUNT FOR THE ASSESSMENT YEAR 2003-04 HAS NOT BEEN DISPUTED BY BOTH THE PARTIES. IT IS THE CASE OF THE AO THAT ONCE THE TAX LIABILITY IS NO LONGER PAYABLE, THE ASSESSEE OU GHT TO HAVE TREATED IT AS ITS INCOME U/S 41(1); HOWEVER, FAILED TO CONSIDER T HE SAID LIABILITY U/S 41(1) OF THE ACT. IT IS THE CONTENTION OF THE ASSE SSEE THAT MERELY BECAUSE THE LENDER HAS WRITTEN OFF THE LIABILITY UNILATERAL LY IN ITS BOOKS OF ACCOUNT, IT 5 ITA 6934/MUM/2012 DOES NOT MEAN THAT LIABILITY IS NO LONGER PAYABLE A ND THE CREDITOR CAN ALWAYS SUE THE ASSESSEE FOR PAYMENT. THE ASSESSEE FURTHER CONTENDED THAT IF AT ALL ADDITION IS REQUIRED U/S 41(1), IT C AN BE ADDED ONLY IN THE YEAR IN WHICH SUCH LIABILITY HAS BEEN WRITTEN OFF WHICH IS EVIDENT FROM THE WORDINGS OF SECTION 41(1) WHEREIN IT IS CATEGORICAL LY STATED THAT THE LIABILITY WRITTEN OFF IS CONSIDERED AS INCOME IN TH AT YEAR IN WHICH SUCH LIABILITY HAS BEEN WRITTEN OFF. THE ASSESSEE ALSO MADE AN ALTERNATIVE PLEA THAT IT HAS ALREADY TREATED THE LIABILITY AS I TS INCOME FOR THE FINANCIAL YEAR RELEVANT TO AY 2008-09. THEREFORE, FURTHER AD DITION BY THE AO IN THE IMPUGNED ASSESSMENT YEAR AMOUNTS TO DOUBLE TAXATION . 6. HAVING HEARD BOTH THE SIDES, WE FIND MERITS IN T HE ARGUMENTS OF THE ASSESSEE FOR THE REASON THAT IF AT ALL ANY ADDITION IS REQUIRED FOR CESSATION OF LIABILITY U/S 41(1) IT CAN BE MADE ONLY IN THE Y EAR IN WHICH SUCH LIABILITY HAS BEEN WRITTEN OFF BY THE CREDITOR OR THE ASSESSE E HAS DERIVED SOME BENEFIT. WE FURTHER NOTICE THAT THE ASSESSEE CLAIM S TO HAVE TREATED THE SAID LIABILITY AS ITS INCOME U/S 41(1) FOR THE FINA NCIAL YEAR RELEVANT TO AY 2008-09. IF THE ASSESSEE HAS ALREADY CONSIDERED TH E SAID LIABILITY AS ITS INCOME U/S 41(1) FOR THE ASSESSMENT YEAR, FURTHER A DDITION BY THE AO IN THE IMPUGNED ASSESSMENT YEAR AMOUNTS TO DOUBLE TAXA TION OF THE SAME AMOUNT. THEREFORE, WE ARE OF THE CONSIDERED VIEW T HAT THE ISSUE NEEDS TO BE RE-EXAMINED BY THE AO IN THE LIGHT OF THE CLA IM OF THE ASSESSEE THAT THE SAID LIABILITY HAS ALREADY BEEN CONSIDERED AS I NCOME FOR THE 6 ITA 6934/MUM/2012 ASSESSMENT YEAR 2008-09. HENCE, WE SET ASIDE THE I SSUE TO THE FILE OF THE AO AND DIRECT HIM TO CONSIDER THE ISSUE AFRESH IN THE LIGHT OF OUR OBSERVATIONS ABOVE. IF IT IS FOUND THAT THE ASSESS EE HAS ALREADY CONSIDERED THE SAID LIABILITY AS ITS INCOME U/S 41( 1) FOR THE PREVIOUS YEAR RELEVANT TO AY 2008-09, THEN THE AO IS DIRECTED TO DELETE ADDITION MADE IN THE IMPUGNED ASSESSMENT YEAR. 7. THE SECOND ISSUE THAT CAME UP FOR OUR CONSIDERAT ION IS UPHOLDING THE ACTION OF THE AO IN TREATING SERVICE CHARGES RE CEIVED FROM INSURANCE COMPANIES AMOUNTING TO RS.26,65,834 UNDER THE HEAD INCOME FROM OTHER SOURCES AS AGAINST ITS TREATMENT AS PROFITS AND GAINS OF BUSINESS OR PROFESSION. THE LD.AR FOR THE ASSESSEE AT THE TIME OF HEARING SUBMITTED THAT AS THERE IS NO REVENUE EFFECT ON THIS ISSUE, H E DOES NOT WANT TO PRESS THE GROUND AT PRESENT KEEPING OPTION OPEN TO CHALLENGE THE ISSUE AT APPROPRIATE TIME. THEREFORE, THE GROUND TAKEN B Y THE ASSESSEE HAS BEEN DISMISSED AS NOT PRESSED. 8. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATIO N IS ADDITION MADE BY THE AO TOWARDS SHORT TERM CAPITAL GAINS AS PER T HE PROVISIONS OF SECTION 50C OF THE ACT. THE FACTS WITH REGARD TO T HE IMPUGNED DISPUTE ARE THAT DURING THE YEAR UNDER CONSIDERATION THE AS SESSEE SOLD ITS OFFICE PREMISES TO THE CO-OWNER OF THE PROPERTY FOR A CONS IDERATION OF RS.97,79,000 AND OFFERED THE RESULTANT GAIN UNDER T HE HEAD SHORT TERM CAPITAL GAIN. THE ASSESSEE WAS ASKED TO FURNISH T HE VALUE AS PER THE 7 ITA 6934/MUM/2012 STAMP DUTY VALUATION. IN RESPONSE TO NOTICE, THE A SSESSEE HAS FILED A CALCULATION ADOPTING STAMP DUTY VALUE OF THE PROPER TY. HOWEVER, IN SUCH CALCULATION, THE ASSESSEE HAS IGNORED THE MARK UP O F 10% ON THE STAMP DUTY VALUE ON PER STAMP DUTY RECKONER, AS THE BUILD ING HAS LIFT AND ACCORDINGLY RE-COMPUTED SALE CONSIDERATION BY ADDIN G 10% MARK UP VALUE OF STAMP DUTY VALUE AND DETERMINED VALUE OF T HE PROPERTY AT RS.1,07,56,700 AND DIFFERENTIAL AMOUNT OF RS.10,31, 900 HAS BEEN ADDED TO THE INCOME U/S 50C OF THE ACT. IT IS THE CONTEN TION OF THE ASSESSEE THAT THE AO WAS ERRED IN MARKING UP THE VALUATION O F BUILDING BY 10% OF THE VALUE ON THE GROUND THAT THE SAID BUILDING IS H AVING LIFT. BUT, THE FACT REMAINS THAT OFFICE PREMISES WAS SITUATED ON THE 4 TH FLOOR AND AS PER STAMP DUTY RECKONER, MARK UP VALUE OF BUILDING HAS TO BE MADE FROM 5 TH FLOOR ONWARDS. THE RELEVANT EXTRACTS FROM STAMP DU TY RECKNONER HAS BEEN FURNISHED WHICH WAS REPRODUCED BY THE LD.CIT(A ) IN HIS ORDER AT PAGE 8.2 ON PAGE 15. 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. THE AO MADE ADDITION TOWARDS DIFFERENTI AL CONSIDERATION U/S 50C OF THE ACT, ON THE GROUND THAT THE ASSESSEE FAI LED TO ADD MARK UP VALUE TO THE BUILDING EVEN THOUGH SUCH BUILDING HAS LIFT FACILITY AND ACCORDINGLY RE-WORKED STAMP DUTY VALUE BY ADDING 10 % MARK UP VALUE ON SALE CONSIDERATION. IT IS THE CONTENTION OF THE ASSESSEE THAT THOUGH THE BUILDING HAS LIFT FACILITY, BUT ITS OFFICE PREM ISE IS SITUATED ON THE 4 TH 8 ITA 6934/MUM/2012 FLOOR AND AS PER THE STAMP DUTY RECKONER, MARK UP V ALUE OF BUILDING HAS TO BE MADE FROM 5 TH FLOOR ONWARDS. 10. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATE RIAL AVAILABLE ON RECORD, WE FIND MERITS IN THE ARGUMENTS OF THE ASSE SSEE FOR THE REASON THAT AS PER THE REPRODUCTION MADE BY THE LD.CIT(A) IN HIS ORDER ON PAGE 5, IF THERE IS A LIFT IN AN OFFICE OR RESIDENTIAL P REMISE, THE RATE MENTIONED IN READY RECKONER WILL BE INCREASED ONLY FROM 5 TH FLOOR ONWARDS. THE ASSESSEE CLAIMS THAT ITS OFFICE PREMISES IS SITUATE D ON THE 4 TH FLOOR. THESE FACTS NEEDS TO BE VERIFIED BY THE AO. THEREF ORE, WE ARE OF THE CONSIDERED VIEW THAT THE ISSUE NEEDS TO BE RE-EXAMI NED BY THE AO IN THE LIGHT OF THE CLAIM OF THE ASSESSEE THAT THE SAID PR OPERTY IS LOCATED ON 4 TH FLOOR OF THE BUILDING. HENCE, WE SET ASIDE THE ISS UE TO THE FILE OF THE AO AND DIRECT HIM TO CONSIDER THE ISSUE IN THE LIGHT O F THE CLAIM OF THE ASSESSEE AND ALSO ON THE BASIS OF STAMP DUTY READY RECKONER MANUAL. IF IT IS FOUND THAT THE BUILDING IS SITUATED ON THE 4 TH FLOOR, THEN THE AO IS DIRECTED TO DELETE ADDITION MADE TOWARDS DIFFERENTI AL SALE CONSIDERATION U/S 50C OF THE ACT. 11. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED, FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH FEBRUARY, 2018. SD/- SD/- (SAKTIJIT DEY) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 28 TH FEBRUARY, 2018 PK/- 9 ITA 6934/MUM/2012 COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER SR.PS, ITAT, MUMBAI