ASST CIT 16(1), MUMBAI V. RATAN J BATLIBOI, MUMBAI

ITA 7313/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100539 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 12-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LOVE KUMAR
• Assessee Lawyers: KISHOR CHAUDHARI
• Keywords: Capital asset; Cost of acquisition; Capital receipt; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI R.C . SHARMA , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER ITA NO. 7313 /MUM./ 2013 ( ASSESSMENT YEAR : 200 9 10 ) ASSTT. COMMISSIONER INCOME TAX CIRCLE 1 6 (1), MATRU MANDIR TARDEO RO AD, MUMBAI 400 007 .. APPELLANT V/S SHRI RATAN J. BATLIBOI RAJMAHAL, 33 ALTAMOUNT ROAD MUMBAI 400 026 PAN AASPB0864F .... RESPONDENT REVENUE BY : SHRI LOVE KUMAR ASSESSEE BY : SHRI KISHOR CHAUDHARI DATE OF HEARING 13 .0 5 .2015 DATE OF PRONOUNCEMENT 13.05.2015 O R D E R PER SANJAY GARG, JUDICIAL MEMBER TH E PRESENT APPEAL PREFERRED BY THE REVENUE IS DIRECTED AGAINST THE IMPUGNED ORDER DATED 24 TH SEPTEMBER 2013 , PASSED BY THE LEARNED COMMISSIONER (APP EALS) 27 , MUMBAI , FOR THE ASSESSMENT YEAR 20 0 9 10 . THE GROUNDS RAISED BY THE REVENUE ARE AS FOLLOWS: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES AND IN LAW, THE L D. CIT (A) HAS ERRED IN DELETION OF INTEREST INCOME RECEIVED BY ASSESSEE, AND TREATING IT A S CAPITAL IN NATURE, FROM VENDEE AS PER CONSENT DECREE WHICH STIPULATED INTEREST @ 18% PER ANNUM FOR DELAYED PAYMENT TOWARDS BREACH OF CONTRACT? SHRI RATAN J. BATLIBOI 2 2. WHETHER ON THE FACTS AND CIRCUMSTANCES AND IN LAW, THE L D. CIT (A) ERRED IN TREATING INTEREST RECEIVED AND TAX DEDUCTED AT SOURCE FROM THE SAME U/S 194A AS CAPITAL IN NATURE WITHOUT APPRECIATING FACT THAT COMPENSATION HAS TO BE FIXED AND DEFINITE IN NATURE TO BE CONSIDERED AS CAPITAL IN NATURE? 2. FACTS IN BRIEF : THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WIT H MAZDA CONSTRUCTION PVT. LTD., FOR SALE OF HIS OFFICE PREMISES OWNED BY ASSESSEE AND HIS WIFE I.E., UNITS NO.301, 302 AND 303 SITUATED AT PANDE HOUSE, WHICH WAS UNDER REDEVELOPMENT. HOWEVER, THE BUILDER DID NOT OBEY THE TERMS OF THE CONTRACT AND ASKED FOR ADDITIONAL TIME TO MAKE PAYMENT. THE ASSESSING OFFICER, FROM THE PERSONAL BALANCE SHEET OF THE ASSESSEE, NOTICED THAT THE ASSESSEE HAS SHOWN A LIABILITY OF ` 69,13,649, AS ADVANCE FROM MAZDA AND WAS OF THE VIEW THAT THIS AMOUNT WAS TAXABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS AND PROFESSION . THE ASSESSEE WAS TO RECEIVE A TOTAL SUM OF ` 5,59,13,649, BEFORE 1 ST NOVEMBER 2007, FROM THE BUILDER AS PER THE CONSENT TERMS IN CIVIL DECREE IN CIVIL SUIT NO.1169 OF 2005 DATED 31 ST JANUARY 2007. A FURTHER C ONSENT DECREE DATED 1 ST MARCH 2007, WAS ALSO PASSED BY WHICH THE BUILDER WAS ALLOWED MORE TIME TO MAKE PAYMENT OF THE PURCHASE PRICE TO THE ASSESSEE AND HIS WIFE. ACCORDING TO THE ASSESSEE, BECAUSE THE BUILDER HAS BROKEN THE TERMS OF THE CONTRACT, THEREFOR E, THE BUILDER IS REQUIRED TO PAY COMPENSATION FOR DAMAGES. THE AMOUNT OF ` 69 , 13 , 649, REPRESENTS SUCH LIQUIDATED DAMAGES RECEIVED BY THE ASSESSEE AND IT IS A PART OF THE TOTAL AMOUNT THAT IS SHRI RATAN J. BATLIBOI 3 RECEIVABLE BY THE ASSESSEE TOWARDS SALE CONSIDERATION WHICH IS N OT INCOME OF THE ASSESSEE. THE ASSESSEE, IN SUPPORT OF THIS CONTENTION, RELIED UPON THE DECISION OF THE HON'BLE SUPREME COURT IN TRAVANCORE RUBBER AND TEA CO. LTD. V/S CIT, (CIVIL APPEAL NO.385 386 OF 1999) DECIDED ON 14 TH MARCH 2000). THE ASSESSING OFFICE R , HOWEVER, MADE THE ADDITION KEEPING IN VIEW THE AMOUNT APPEARING IN FORM NO.26AS WHERE THE BUILDER HAD TREATED THE PAYMENT AS INTEREST AND DEDUCTED TDS UNDER SECTION 194A. THE ASSESSING OFFICER STATED THAT AS PER THE DETAILS EX TRACTED FROM 26AS THE VENDE E HAD TREATED THE IMPUGNED PAYMENT AS INTEREST AND HA D MADE TDS UNDER SECTION 194A AS APPLICATION TO THE INTEREST PAYMENT. SINCE THE BUILDER HAD DEDUCTED TAX AND CLAIMED IT AS REVENUE EXPENDITURE IN HIS BOOKS, THEREFORE, THE IMPUGNED AMOUNT WA S HELD TO BE REVENUE RECEIPT IN THE HANDS OF THE ASSESSEE. ACCORDINGLY, THE ASSESSING OFFICER ADDED A SUM OF ` 69,13,649, TO THE TOTAL INCOME OF THE ASSESSEE. 3. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BEFORE THE FIRST APPELLATE AUTHORITY, WHEREIN THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER GOT CONFUSED BETWEEN THE FIGURE OF ` 69,13,649 WHICH PERTAINED TO ADVANCE FOR SALE OF PREMISES RELATING TO ASSESSMENT YEAR 2009 10 AND ` 69,76,457, PERTAINED TO COMPENSATION RELATING TO ASSESSMENT YEAR 2010 11. INSTEAD OF LATER FIGURE, THE EARLIER FIGURE HA D BEEN WRONGLY TAKEN BY THE ASSESSING OFFICER. ACCORDING TO HIM, BOTH THE AMOUNTS WE RE CAPITAL IN NATURE. SHRI RATAN J. BATLIBOI 4 THE LEARNED CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, REVERSED THE ORDER OF TH E ASSESSING OFFICER AND ALLOWED THE CLAIM OF THE ASSESSEE AFTER OBSERVING AS UNDER: 2.4.7 HAVING CONSIDERED THE SUBMISSIONS AND THE DOCUMENTS WHICH WERE ALSO AVAILABLE BEFORE THE LD. AO, I AM OF THE CONSIDERED OPINION THAT THE COMPENSATION RECEIVED FOR BREACH OF CONTRACT IS NOT CHARGEABLE TO TAX AT THE TIME OF RECEIPT BUT IT WOULD GO TO REDUCE THE COST OF ACQUISITION OF THE ASSET WHILE RECKONING CAPITAL GAINS AT THE TIME OF ITS ULTIMATE SALE AND AS THE POSSESSION OF THE PROPERTY IS STILL WITH THE APPELLA NT, SALE OF THE ASSET IS NOT COMPLETE AND HENCE, THE AMOUNT ADDED BY THE LD. AO CANNOT BE THE SUBJECT MATTER OF THE ADDITION IN THE A.Y. 2009 - 10 IMPUGNED BEFORE ME. IN THIS REGARD, RELIANCE IS PLACED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. SAURASHTRA CEMENT, 192 TAXMANN 300 (SC) AND CIT VS. BOMBAY BURMAH TRADING CORPN., 161 ITR 386 (SC). 2.4.8 IN THE CASE OF RAFIQUE A. MALIK V/S DCIT, [2004] 3 SOT 11 (MUM.), THE HONBLE MUMBAI BENCH OF THE ITAT HAS HELD THAT RECEIPT TOWARDS DAM AGES FOR CAUSING DE LAY BY BUYER IN EXECUTING CONTRACT OF SALE OF IMMOVABLE PROPERTY, IS CAPITAL RECEIPT NOT CHARGEABLE TO TAX. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 4. LEARNED DEPARTMENTAL REPRESENTATIVE, BEFORE US, HAS RELIED ON THE O RDER OF THE ASSESSING OFFICER . 5. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, REITERAT ING THE SUBMISSIONS, AS WERE MADE BEFORE THE AUTHORITIES BELOW, SUBMITTED THAT THE ASSESSING OFFICER HAS MADE ADDITION ONLY BECAUSE THE AMOUNT APPEARING IN FO RM NO.26AS WHERE THE BUILDER HAS WRONGLY TREATED THE PAYMENT AS INTEREST AND DEDUCTED TDS UNDER SECTION 194A OF THE ACT , THOUGH , THE AMOUNT OF ` 69,13,459 RECEIVED SHRI RATAN J. BATLIBOI 5 BY THE ASSESSEE WAS C OMPENSATION FOR BREACH OF CONTRACT RELATING TO CAPITAL ASSETS , HENCE, T HE SAME WAS OF CAPITAL IN NATURE . M ERELY BECAUSE THE BUILDER HAD DEDUCTED TAX AND HAD CLAIMED IT AS REVENUE EXPENDITURE IN HIS BOOKS, THE SAME CANNOT BE TREATED AS REVENUE RECEIPT IN THE HANDS OF THE ASSESSEE. 6. AFTER CONSIDERING THE SUBMISSIONS OF THE RIVA L PARTIES AND ON A PERUSAL OF THE MATERIAL AVAILABLE ON RECORD, WE FIND MERIT IN THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE. MERELY BECAUSE THE TAX HAS BEEN DEDUCTED BY THE BUILDER AND RECORDED IT IN HIS BOOKS OF ACCOUNT AS REVENUE EXPENDITURE , THE SAME CANNOT BE TREATED AS REVENUE RECEIPT. THE COMPENSATION RECEIVED FOR BREACH OF CONTRACT WHICH RELATES TO CAPITAL ASSETS AND, THEREFORE, THE LEARNED CIT(A) HAS RIGHTLY HELD IT TO BE CAPITAL IN NATURE. THUS, WE DO NOT FIND ANY COGENT REASON TO DIST URB THE REASONED ORDER PASSED BY THE LEARNED CIT(A) AND DECLINE TO INTERFERE IN THE MATTER AS SUCH. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE DISMISSED. 7. IN THE RESULT, REVENUE S APPEAL STANDS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT O N 13 TH MAY 2015. SD/ - R.C. SHARMA ACCOUNTANT MEMBER SD/ - SANJAY GARG JUDICIAL MEMBER MUMBAI, DATED : 13.08.2015 SHRI RATAN J. BATLIBOI 6 COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, ITAT, MUMBAI; (6) GUARD FILE . TRUE COP Y BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY (DY./ASSTT. REGISTRAR) ITAT, MUMBAI