HATIM A KAPASI, MUMBAI V. ITO 15(2)(2), MUMBAI

ITA 6985/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84470 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2014
• Appeal Filed By: Assessee
• Bench Allotted: H
• Next Hearing Date: 22-09-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 21-11-2012
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR BORA
• Assessee Lawyers: SANJAY DEEPCHANDANI
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Cost of acquisition; Fair market value; Valuation report; Surrender of tenancy right
• Section: 50C; 5(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE S/ SHRI D.MANMOHAN ( VP ) & RAJENDRA (AM) I.T.A. NO. 6985 /MUM/ 20 12 (ASSESSMENT YEAR : 200 7 - 0 8 ) HATIM A. KAPASI C/O. M/S. KAPASI TRADING CO. BARA IMAM ROAD TWO TANKS MUMBAI - 400 003. VS. ITO 15(2)(2) MATARU MANDIR TARDEO ROAD MUMBAI - 400 007. PAN/GIR NO . ( APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY : SHRI SANJAY DEEPCHANDANI DEPARTMENT BY : SHRI VIJAY KUMAR BORA DATE OF HEARING : 11 . 1 2 .2014 DATE OF PRONOUNCEMENT : 11 . 12 .2014 O R D E R PER D. MANMOHAN (VP) : - THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY LEARNED CIT(A) - 26, MUMBAI AND IT PERTAINS TO A.Y. 2007 - 08. COMPUTATION OF CAPITAL GAINS, AS WORKED OUT BY THE ASSESSEE, HAVING NOT BEEN ACCEPTED BY THE A SSESSING OFFICER AS WELL AS LEARNED CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 2. FACTS NECESSARY FOR DISPOSAL OF THE APPEAL ARE STATED IN BRIEF. THE ASSESSEE HAS SOLD FLAT NO. 1303, 13 TH FLOOR, DUDHWALA COMPLEX, BELLASIS ROAD, MUMBAI CENTRAL, MUMBAI VIDE AGREEMENT DATED 30.6.2006 FOR A SUM OF RS. 25 LAKHS AND DECLARED CAPITAL GAINS OF RS. 5,63,909/ - . DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE MARKET VALUE OF THE SAID FLAT AS PER STAMP DUTY AUTHORITIES WAS RS. 4 1,83,179/ - . THE ASSESSEE WAS HATIM A. KAPASI 2 THEREFORE ASKED TO SHOW CAUSE AS TO WHY THE VALUE OF SALE CONSIDERATION SHALL NOT BE TAKEN AT RS. 41,83,179/ - AS PROVIDED U/S. 50C OF THE INCOME TAX ACT. 3. IN REPLY THE ASSESSEE CONTENDED THAT THE VALUE ADOPTED BY THE STAMP DUTY AUTHORITIES IS EXCESSIVE AND REQUESTED THE MATTER TO BE REFERRED TO THE VALUATION OFFICER. ACCORDINGLY THE ASSESSING OFFICER OBTAINED VALUATION REPORT FROM THE DVO , WHO DETERMINED THE VALUE AT RS. 30,62,400/ - . 4. AT THIS JUNCTURE THE ASSESSING OFFICE R NOTICED THAT THE ASSESSEE HAD TAKEN THE COST OF ACQUISITION OF THE PROPERTY AT RS. 17,27,187/ - AS ON 27.6.2003 AND AFTER INDEXATION THE COST WAS DETERMINED AT RS. 19,36,091/ - . THE ASSESSEE WAS CALLED UPON TO PRODUCE DOCUMENTARY EVIDENCE IN SUPPORT OF THE COST OF ACQUISITION ADOPTED. 5. THE ASSESSEE CONTENDED THAT HE WAS HOLDING A TENANTED PROPERTY AND TENANCY RIGHT S WAS SURRENDERED TO THE BUILDER AND IN TURN BUILDER OFFERED HIM A FLAT DURING THE PREVIOUS YEAR RELEVANT TO A.Y. 2004 - 05. AS PER STAMP VALUA TION AUTHORITIES THE COST OF A NEW FLAT WAS RS. 15,97,200/ - . TENANCY RIGHT S HAS NO COST OF ACQUISITION AND HENCE IT WAS SHOWN AS NIL AND THE ASSESSEE OFFERED TO TAX RS. 15,97,200/ - AS CAPITAL GAINS . B Y ADDING THE STAMP DUTY OF RS. 1,29,987/ - PAID THE TOTA L COST WORKED OUT TO RS. 17,27,187/ - . BY APPLYING INDEXATION METHOD THE COST OF THE SAID FLAT WORKED OUT TO RS.19,36,091/ - . IT WAS THUS CONTENDED T HAT U/S. 48 READ WITH SECTION 5 5(2) OF THE ACT , COST OF ACQUISITION OF THE ASSET OWNED BY THE ASSESSEE FROM F.Y. 2003 - 04 WAS CORRECTLY INDEXED AND REDUCED FROM THE SALE PRICE IN THE YEAR UNDER CONSIDERATION AND ACCORDINGLY THE SAME WAS TAKEN INTO CONSIDERATION AT THE TIME OF SALE OF THE SAID FLAT. HATIM A. KAPASI 3 6. THE ASSESSING OFFICER OBSERVED THAT THE EXPRESSION COST OF ACQUISITION MUST BE IN UNDERSTOOD IN THE COMMON SENSE POINT OF VIEW AND IT MUST REPRESENT THE EXPENDITURE INCURRED FOR ACQUIRING THE ASSET; IN THE INSTANT CASE THE ASSESSEE ADOPTED THE VALUE OF THE FLAT AT RS. 17,27,187/ - ON NOTIONAL BASIS AND NO EXPENDIT URE, EXCEPT THE COAST OF STAMP DUTY AND REGISTRATION CHARGES ARE INCURRED. THE ASSESSING OFFICER WAS ALSO OF THE OPINION THAT THE COST OF THE PROPERTY IN F.Y. 2000 - 01 WAS NIL SINCE TENANCY RIGHT WAS OBTAINED . THERE WAS NO COST OF ACQUISITION IN RESPECT OF TH E PROPERTY ALLOTTED BY THE BUILDER. IN OTHERWORDS, THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE FOR CONVERTING HIS TENANCY INTO AN OWNERSHIP PROPERTY. THE OBJECT OF APPLYING COMMERCIAL PRINCIPLES OF ACCOUNTING IS TO ASCERTAIN THE REAL PROFIT WHICH CAN APP ROPRIATELY BE REGARDED AS CAPITAL GAINS WHEREAS , IN THE INSTANT CASE , THE REAL EXTENT OF THE GAIN IS OBVIOUSLY THE DIFFEREN CE AT WHICH THE ASSESSEE SOLD THE PROPERTY AND PRICE WHICH THE ASSESSEE HAD PAID FOR ACQUIRING THE PROPERTY. HE ACCORDINGLY TOOK THE STAMP DUTY VALUE AS COST OF ACQUISITION AND ARRIVED AT THE CAPITAL GAINS AT RS. 29,16,691/ - . SINCE THE ASSESSEE CLAIMED EXEMPTION U/S. 54EC OF THE ACT TO THE EXTENT OF RS. 6 LAKHS THE SAME WAS ALLOWED. 7. AGGRIEVED, THE ASSESSEE CHALLENGED THE VIEW TAKEN BY THE ASSESSING OFFICER ON THE GROUND THAT THE MARKET VALUE OF THE FLAT RECEIVED BY THE APPELLANT FROM THE BUILDER SHOULD BE TREATED AS COST OF ACQUISITION; THE PROPERTY WAS RECEIVED IN EXCHANGE OF TENANCY RIGHTS AND THEREBY IT AMOUNTS TO A TRANSFER IN T ERMS OF SECTION 2(47) OF THE ACT AND IN FACT THE ASSESSEE PAID TAX IN THE YEAR OF SURRENDER ING THE TENANCY RIGHTS AND OWNING THE FLAT IN EXCHANGE THEREOF. 8. LEARNED CIT(A) REJECTED THE CONTENTION OF THE ASSESSEE. HE OBSERVED THAT THE PLEA OF THE ASSESSE E THAT THE MARKET VALUE OF SUCH FLAT IS DEEMED TO BE THE COST OF ACQUISITION IS PURELY AN IMAGINARY HATIM A. KAPASI 4 HYPOTHESIS SINCE HE HAS NOT MADE ANY PAYMENT FOR OWNING THE FLAT . N O DOUBT THE ASSESSEE HAS NEITHER RECEIVED ANY AMOUNT IN LIEU OF HIS TENANCY RIGHTS NOR E NTITLED TO ENTER INTO ANY AGREEMENT WITH THE BUILDER STATING THAT HIS TENANCY RIGHTS ARE DEEMED TO BE REINVESTED INTO THE NEW FLAT. BUT THE FACT REMAINS THAT THE ASSESSEE RECEIVED THIS FLAT WITHOUT INCURRING ANY EXPENDITURE AND HENCE COST OF ACQUISITION OF THE FLAT RECEIVED BY THE ASSESSEE DESERVES TO BE TAKEN A S N IL FOR THE PURPOSE OF WORKING OUT THE CAPITAL GAINS AT THE TIME OF SALE OF SUCH FLAT. HE THUS AFFIRMED THE ACTION OF THE ASSESSING OFFICER. 9. FURTHER AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. LEARNED COUNSEL , APPEARING ON BEHALF OF THE ASSESSEE , SUBMITTED THAT IN SO FAR AS THE TENANCY RIGHTS ARE CONCERNED, SECTION 55(2) CLEARLY SPECIFY THAT COST OF ACQUISITION OF TENANCY RIGHTS SHOULD BE TAKEN AT NIL AT THE TIME OF ACQUISITION OF NEW ASSETS AND ACCORDINGLY THE ASSESSEE WORKED OUT THE COST OF NEW ASSET IN A.Y. 2004 - 05 AND OFFERED TO TAX WHICH IS IN TUNE WITH THE VIEW TAKEN BY THE ITAT, C BENCH, MUMBAI IN THE CASE OF SHRI PRAKASH SAMANT (ITA NO. 4665/MUM/2001 DATED 28.3.2014), WHEREIN THE BEN CH OBSERVED AS UNDER : - 4.4 CONSIDERING THE ENTIRETY OF THE FACTS, WE ARE INCLINED TO ACCEPT THE CONTENTIONS OF THE REVENUE THAT THE ASSESSEE HAD ACQUIRED THE NEW FLAT IN LIEU OF THE SURRENDER OF TENANCY RIGHT IN ADDITION TO THE PAYMENT OF THE CONSIDERATI ON OF RS.36,000/ - AND THEREFORE, THE DIFFERENCE IN VALUE THAT IS GOVERNMENT VALUE OF THE FLAT PURCHASED BY THE ASSESSEE WHICH IS DETERMINED AS THE FAIR MARKET VALUE OF THE FLAT MINUS THE CONSIDERATION OF RS.36,000/ - PAID BY THE ASSESSEE IS TO BE EQUATED WI TH THE CONSIDERATION RECEIVED BY THE ASSESSEE FOR THE RELINQUISHMENT OF THE TENANCY RIGHT IN THE ERSTWHILE FLAT POSSESSED BY THE ASSESSEE AND THE SAME IS LIABLE TO BE TAXED AS LONG TERM CAPITAL GAIN. 10. HE THUS SUBMITTED T HAT THE ASSESSEE HAS CORRECTLY OFFERED TO TAX LONG TERM CAPITAL GAIN S IN A.Y. 2004 - 05. SUCH BEING THE CASE THE SAME WOULD FORM PART OF THE COST OF ACQUISITION AS AT THE TIME OF SALE OF THE HATIM A. KAPASI 5 SAID PROPERTY , IN THE LIGHT OF THE DECISION OF THE ITAT, A BENCH, MUMBAI IN THE CASE OF AMIR A. KAPASI (ITA NO. 6984/MUM/2012 DATED 17.10.2014). IT MAY BE NOTICED THAT IN THE AFORECITED CASE THE TRIBUNAL OBSERVED THAT THE ASSESSEE OFFERED THE AMOUNT OF F MV , OF TENANCY RIGHTS SURRENDERED, FOR TAXATION IN A.Y. 2004 - 05. SINCE T H E SAME WAS ACCEPTED BY THE REVENUE, THE BENCH OBSERVED THAT THE ASSESSEE WOULD BE JUSTIFIED IN ADOPTING THE FMV OF THE TENANCY RIGHTS , TOGETHER WITH THE AMOUNT OF STAMP DUTY PAID, ( FOR ACQUISITION OF NEW FLAT ) AS COST OF ACQUISITION OF NEW FLAT. LEA RNED COUNSEL STRONGLY RELIED UPON THE ABOVE TWO ORDERS AND SUBMITTED THAT THE COMPUTATION OF CAPITAL GAINS AS WORKED OUT BY THE ASSESSEE OUGHT TO HAVE BEEN ACCEPTED BY THE ASSESSING OFFICER AS WELL AS LEARNED CIT(A). 11. ON THE OTHER HAND LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDER PASSED BY LEARNED CIT(A). 1 2 . WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSION AND PERUSED THE RECORD. THE EXPRESSION COST OF ACQUISITION WAS EXPLAINED IN SECTION 55(2) OF THE ACT, IN RELATION TO CAPITAL ASSETS, W HEREIN IT WAS CLARIFIED THAT IN RESPECT OF SURRENDER OF TENANCY RIGHTS, COST OF ACQUISITION SHOULD BE TAKEN AT NIL. IN OTHER WORDS THE NEW ASSET THAT WAS RECEIVED BY THE ASSESSEE AND WHICH IS LIABLE FOR CAPITAL GAIN S TAX SHOULD BE TAXED ON THE FAIR MARKET VALUE THEREOF AND THUS , AT THE TIME OF SALE OF SUCH PROPERTY THE SAME BE COMES COST OF ACQUISITION, IN THE LIGHT OF T HE DECISIONS OF ITAT CITED (SUPRA). WE ARE OF THE VIEW THAT THE ASSESSING OFFICER HAD ACCEPTED THE FAIR MARKET VALUE IN A.Y. 2004 - 05 I.E. YEAR WHEN THE ASSESSEE RECEIVED FLAT FROM THE BUILDER IN LIEU OF THE TENANCY RIGHTS, HENCE THE SAME SHOULD BE TAKEN AS COST OF ACQUISITION. WE THEREFORE ACCEPT THE CLAIM OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO RE WORK THE CAPITAL GAINS ACCORDINGLY. HATIM A. KAPASI 6 12. IN THE RESU LT, APPEAL FILED BY THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 11.12.2014. SD/ - ( RAJENDRA ) ACCOUNTANT MEMBER SD/ - (D. MANMOHAN ) VICE PRESIDENT MUMBAI ; DATED : 11 / 1 2 /20 14 COPY OF THE OR DER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// DY./ASSTT. REGISTRAR) ITAT, MUMBAI PS