VISHWANATH ACHREKAR, MUMBAI V. ITO 19(1)(2), MUMBAI

ITA 7423/MUM/2011

• Counselvise Citation: 742319914 RSA 2011
• Duration Of Justice: 2 year(s) 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-08-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 31-12-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 04-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SAMBIT MISHRA
• Assessee Lawyers: VISHWAS MEHANDALE
• Keywords: Capital asset; Depreciation; Cost of acquisition
• Section: 54

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE HONBLE S/SHRI D. MANMOHAN , VICE-PRESIDENT AND B.R.BASKARAN (AM) . , . . , ! ./I.T.A. NO.7423/MUM/2011 ( '#$ % / ASSESSMENT YEAR : 2006-07) SHRI VISHWANATH ACH R EKAR, RAMAKRISHNA NAGAR, BLOCK NO.18/226, KHAR(W), MUMBAI-400052 / VS. INCOME TAX OFFICER - 19 (1) ( 2 ), MUMBAI. ( !&' / APPELLANT) .. ( ()&' / RESPONDENT) & ./ *+ ./PAN/GIR NO. : AABPA3223C !&' , / APPELLANT BY : SHRI VISHWAS MEHANDALE ()&' - , /RESPONDENT BY : SHRI SAMBIT MISHRA . / - 01 / DATE OF HEARING : 30.7.2014 2 %$ - 01 /DATE OF PRONOUNCEMENT : 20.8.2014 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 23.8.2011 PASSED BY LD CIT(A)-22, MUMBAI AND IT REL ATES TO THE ASSESSMENT YEAR 2006-07. 2. THE ASSESSEE HAS RAISED AS MANY AS 7 GROUNDS OF APPEAL. AT THE TIME OF HEARING, THE LD. AR DID NOT PRESS GROUND NO.6 AND H ENCE THE SAME IS DISMISSED AS WITHDRAWN. GROUND NO.7 IS GENERAL IN NATURAL A ND IT DOES NOT REQUIRE ANY ADJUDICATION. 3. THE GROUND NO.3 PERTAINS TO THE AMOUNT OF R S.2,20,000/- RELATING TO THE AMOUNT RECEIVED BY THE ASSESSEE FROM THE DEVELOPER AS RENT COMPENSATION. I.T.A. NO.7423/MUM/2011 2 ACCORDING TO THE ASSESSEE, THE AO HAS ASSESSED THE SAME AS PART OF CAPITAL GAINS. HOWEVER, WE NOTICE THAT THE FIRST APPELLATE AUTHORITY HAS REJECTED THE IDENTICAL GROUND URGED BEFORE HIM ON THE REASONING THAT THERE IS NO DISCUSSION IN THE ASSESSMENT ORDER ABOUT THE ASSESSABILITY OF THE AMOUNT OF RS.2,20,000/-, REFERRED ABOVE. AT THE TIME OF HEARING, THE LD A.R ADMITTED THAT THE AO DID NOT DISCUSS ABOUT THE TAXABILITY OF RS.2.20,000/- REFE RRED ABOVE. HENCE, WE ARE OF THE VIEW THAT THE LD. CIT(A) WAS JUSTIFIED IN REJEC TING THIS CLAIM, AS THE SAME IS NOT AN ISSUE ARISING OUT OF THE ASSESSMENT ORDER. 4. BEFORE DISCUSSING ABOUT OTHER GROUNDS, IT IS NE CESSARY TO DISCUSS ABOUT THE FACTS RELATING TO THE CASE, AS IT WILL HELP TO APPRECIATE THE CONTENTIONS IN A BETTER MANNER. THE ASSESSEE WAS HAVING A FLAT AT NO .226, BUILDING NO.18, 1 ST FLOOR SUNSHINE CHS, RAM KRISHNA NAGAR, KHAR (W), M UMBAI. THE FATHER OF THE ASSESSEE HAD INHERITED THIS PROPERTY IN THE YEAR 19 75 FROM THE MOTHER OF THE ASSESSEE. LATER ON IT WAS TRANSFERRED TO THE NAME OF THE ASSESSEE ON 30.7.2000, WHICH IS EVIDENT FROM THE NOTING MADE IN THE RECORD OF THE SOCIETY. THE ABOVE SAID SOCIETY ENTERED INTO A DEVELOPMENT A GREEMENT DATED 16.4.2004 WITH A BUILDER FOR RE-DEVELOPMENT OF THE AREA IN WH ICH THE ASSESSEES FLAT WAS LOCATED. ACCORDING TO THE SAID AGREEMENT, THE ASS ESSEE WAS AGREED TO BE GIVEN A FLAT HAVING CARPET AREAS OF 451 SQ. FT. AND A SU M OF RS.2.50,000/- TOWARDS COMPENSATION FOR HARDSHIP AND INCONVENIENCE AND RS. 2,20,000/- AS RENT COMPENSATION. THE ASSESSEE RECEIVED THE MONETARY CO NSIDERATION OF RS.2,50,000/- AND RS.2,20,000/- AS REFERRED ABOVE O N 14.7.2005. I.T.A. NO.7423/MUM/2011 3 5. IN THE RETURN OF INCOME, THE ASSESSEE DID NOT DI SCLOSE ANY CAPITAL GAIN RELATING TO THE ABOVE SAID TRANSACTIONS. HENCE, TH E AO CALLED FOR EXPLANATIONS FROM THE ASSESSEE IN THIS REGARD. THE ASSESSEE, HO WEVER, CONTENDED THAT NO CAPITAL GAIN HAS ARISEN IN RESPECT OF THIS TRANSACT ION. THE AO DID NOT AGREE WITH THE CONTENTION OF THE ASSESSEE. HENCE, HE PROCEEDE D TO COMPUTE THE CAPITAL GAINS AS UNDER : COST OF ACQUISITION OF OLD FLAT : THE PREVIOUS OWNER NAMELY PANDURANG ACHREKAR FATHER OF THE ASSESSEE HAS RECEIVED THE PROPERTY BY WAY OF INHERITANCE ON 29.7.1995 (SIC. 1975) FROM ASHALATA P ACHREKAR. THE COST OF ACQUISITION OF T HE ASSET TO THE PREVIOUS OWNER IS NIL, HENCE, APPLYING THE PROVISIONS OF SECTION 49(1)(III)(A) NIL CAPITAL GAINS-SALE CONSIDERATION (I) MARKET VALUE OF FLAT HAVING 441 SQ.FT. @ RS.63 20 PER SQ. FT AS PER READY RECKONER @ 68000 PER SQ. MTS. RS.27,87,120/- LESS : DEPRECIATION @ 20% (SINCE OLD BLDG) RS.5,57 ,424/- RS.22,29,696/- (II) COMPENSATION VALUE IN CASH AS PER TERMS OF DEVELOPMENT AGREEMENT RS.2,50,000/- CAPITAL GAINS RS.24,79,696/- IT IS PERTINENT TO NOTE THAT THE AO TOOK THE COST OF ACQUISITION OF ASSET AS NIL SINCE THE COST TO THE FATHER OF THE ASSESSEE WAS NI L, AS THE FATHER HAD INHERITED THE PROPERTY FROM HIS WIFE. THE ASSESSEE CLAIMED D EDUCTION U/S 54 OF THE ACT IN RESPECT OF THE COST OF NEW FLAT. THE AO ALSO REJEC TED THE SAID CLAIM SAYING THAT THE NEW FLAT IS NEITHER PURCHASED BY THE ASSESSEE N OR CONSTRUCTED BY HIM. 6. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). THE FIRST APPELLATE AUTHORITY HELD THAT THE IMPUGNED TRANSACT ION WOULD GIVE RISE TO CAPITAL GAIN, SINCE UNDER THE PROVISIONS OF SECTION 2(47) OF THE INCOME TAX ACT, 1961 (THE ACT) TRANSFER INCLUDES EXCHANGE. THE LD. CIT(A) HELD THAT THE AO HAS RIGHTLY TAKEN THE COST AS ON 1.4.1981 AS NIL SI NCE THE COST WAS NIL TO THE FATHER OF THE ASSESSEE. THE LD. CIT(A) ALSO HELD T HAT THE SUM OF RS.2,50,000/- I.T.A. NO.7423/MUM/2011 4 RELATING TO THE COMPENSATION FOR HARDSHIP IS FORMI NG PART OF SALE CONSIDERATION. HOWEVER, THE LD. CIT(A) DID NOT ADJUDICATED THE ISS UE RELATING TO DEDUCTION CLAIMED BY THE ASSESSEE U/S 54 OF THE ACT. AGGRIEV ED BY THE ORDER OF LD. CIT(A) THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 7. IN GROUND NO.1, THE ASSESSEE IS CONTESTING T HAT THE IMPUGNED TRANSACTION WOULD NOT GIVE RISE TO ANY CAPITAL GAIN. WE HAVE H EARD THE PARTIES ON THIS ISSUE. ADMITTEDLY, THE ASSESSEE, ALONG WITH THE OTHER FLAT OWNERS, HAS GIVEN THE LAND AND BUILDING FOR DEVELOPMENT PURPOSES. THERE SHOU LD NOT BE ANY DOUBT THAT THE BUILDER HAS COME WITH THE PROPOSAL OF DEVELOPMENT, ONLY BECAUSE HE COULD MAKE THE PROFIT BY CONSTRUCTING ADDITIONAL FLATS BY USIN G THE TDR AVAILABLE AND SELLING THOSE ADDITIONAL FLATS. IN THIS PROCESS, THE ASSESS EE HAS ACTUALLY SOLD HIS SHARE OF RIGHT IN THE TDR AND HAS ALSO PARTED WITH HIS OLD F LAT AND THE SAID TRANSACTIONS, IN OUR VIEW ALSO, WOULD GIVE RISE TO CAPITAL GAIN. FU RTHER, AS OBSERVED THE LD CIT(A), THE ASSESSEE HAS EXCHANGED THE EXISTING FLA T WITH A NEW FLAT PLUS COMPENSATION AMOUNT. UNDER SEC. 2(47) OF THE ACT, THE EXPRESSION TRANSFER INCLUDES EXCHANGE ALSO. HENCE, IN OUR VIEW, THE LD CIT(A) WAS JUSTIFIED IN HOLDING THAT THE IMPUGNED TRANSACTION WOULD GIVE RI SE TO CAPITAL GAINS. 8. GROUND NO.2 RELATES TO THE ASSESSMENT OF RS. 2,50,000/- RECEIVED AS COMPENSATION TOWARDS HARDSHIP AND OTHER INCONVENIEN CES AS PART OF CONSIDERATION. WE HAVE ALREADY NOTICED THAT THE AS SESSEE WAS ENTITLED TO RECEIVE A FLAT OF 441 SQ. FT. AND RS.2,50,000/- IN CASH TOW ARDS HARDSHIP COMPENSATION. SINCE THE ABOVE SAID AMOUNT HAS BEEN GIVEN AS CONSI DERATION FOR HANDING OVER THE OLD FLAT, IN OUR VIEW, THE TAX AUTHORITIES ARE JUSTIFIED IN TAKING AS PART OF CONSIDERATION. I.T.A. NO.7423/MUM/2011 5 9. GROUND NO.4 RELATES TO THE DECISION OF TAX A UTHORITIES IN TAKING COST OF THE OF FLAT AS NIL. THE ASSESSEE HAD INHERITED THE PRO PERTY FROM HIS FATHER. THE FATHER OF THE ASSESSEE HAD INHERITED THE PROPERTY F ROM HIS WIFE (MOTHER OF THE ASSESSEE). SINCE THE COST WAS NIL IN THE HANDS OF THE FATHER OF THE ASSESSEE, FROM WHOM THE ASSESSEE HAD INHERITED, THE TAX AUTHO RITIES HAVE REJECTED THE CLAIM OF THE ASSESSEE FOR ADOPTING THE MARKET VALUE AS ON 1.4.1981 AS THE COST OF THE ASSESSEE. IN THIS REGARD, IT IS PERTINENT T O EXTRACT BELOW THE EXPLANATION GIVEN UNDER SEC. 49(1) OF THE ACT:- EXPLANATION:- IN THIS SUB SECTION THE EXPRESSION PREVIOUS OWNER OF THE PROPERTY IN RELATION TO ANY CAPITAL ASSET OWNED B Y AN ASSESSEE MEANS THE LAST PREVIOUS OWNER OF THE CAPITAL ASSET WHO AC QUIRED IT BY A MODE OF ACQUISITION OTHER THAN THAT REFERRED TO IN CLAUSE ( I) OR CLAUSE (II) OR CLAUSE (III) OR CLAUSE (IV) OF THIS SUB-SECTION. THE ASSESSEES FATHER HAD INHERITED THE FLAT FROM H IS WIFE (MOTHER OF THE ASSESSEE). HOWEVER, THE MOTHER OF THE ASSESSEE HAS OBTAINED ALLOTMENT OF THE SAID FLAT IN THE YEAR PRIOR TO 1960 BY MHADA UNDER THE LIG HOUSING FOR LOWER INCOME GROUP SCHEME. IN VIEW OF THE EXPLANATION EX TRACTED ABOVE THE MOTHER OF THE ASSESSEE BECOMES THE PREVIOUS OWNER OF THE PROPERTY. SINCE SHE HAS ACQUIRED THE PROPERTY PRIOR TO 1.4.1981, THE ASSESS EE IS ENTITLED TO ADOPT THE MARKET VALUE AS ON 1.4.1981 AS THE COST OF ACQUISIT ION OF THE PROPERTY. ACCORDINGLY WE SET ASIDE THE ORDER OF LD CIT(A) AND DIRECT THE AO TO ADOPT THE MARKET VALUE AS ON 1.4.1981 AS COST OF THE PROPERTY FOR THE PURPOSE OF COMPUTING THE CAPITAL GAIN. WE HAVE GIVEN THIS DIR ECTION ON THE IMPRESSION THAT THE ASSESSEE HEREIN HAS INHERITED THE OLD FLAT FROM HIS FATHER. WE NOTICE THAT THE MANNER OF ACQUISITION OF THE OLD FLAT BY THE ASSESS EE IS NOT CLEARLY BROUGHT OUT IN THE ORDERS. HENCE, THE AO MAY ALSO VERIFY THE MANN ER OF ACQUISITION OF FLAT AND I.T.A. NO.7423/MUM/2011 6 IF IT IS FOUND THAT THE MANNER OF ACQUISITION IS NO T IN THE METHODS LISTED OUT IN SEC.49 OF THE ACT, THE AO MAY THEN DECIDE THE ISSUE IN ACCORDANCE WITH THE LAW. 10. THE FIFTH GROUND RELATES TO THE REJECTION O F DEDUCTION CLAIMED BY THE ASSESSEE U/S 54 OF THE ACT. WE NOTICE THAT THE LD CIT(A) DID NOT ADJUDICATE THIS ISSUE. WE NOTICE THAT THE AO REJECTED THE ABOVE SA ID CLAIM ON THE REASONING THAT THE ALLOTMENT OF NEW FLAT CANNOT BE CONSIDERED AS E ITHER PURCHASE OR CONSIDERATION. WE ARE UNABLE TO AGREE WITH THE SAM E, SINCE WE HAVE ALREADY HELD THAT THE HANDING OVER OF THE POSSESSION OF THE OLD FLAT IS A TRANSFER WITHIN THE MEANING OF SEC. 2(47) OF THE ACT. IN CONSIDERA TION OF THE TRANSFER, THE ASSESSEE HAS OBTAINED A NEW FLAT AND CERTAIN SUM BY WAY OF MONEY. WHEN THE VALUE OF NEW FLAT IS TAKEN AS PART OF SALE CONSIDER ATION, THEN THE SAID VALUE SHOULD ALSO BE CONSIDERED AS INVESTMENT MADE BY THE ASSESSEE ELIGIBLE FOR DEDUCTION U/S 54 OF THE ACT. HOWEVER, THE ASSESSIN G OFFICER IS REQUIRED TO EXAMINE WHETHER THE NEW FLAT WAS CONSTRUCTED WITHIN THE PRESCRIBED PERIOD. FROM THE ASSESSMENT ORDER, THE RELEVANT FACTS ARE E MANATING. HENCE, WE SET ASIDE THIS MATTER ALSO TO THE FILE OF THE AO WITH T HE DIRECTION TO RE-EXAMINE THE ISSUE OF DEDUCTION CLAIMED U/S 54 OF THE ACT. 11 IN THE RESULT, THE APPEAL FILED BY THE ASSES SEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT O N 20 AUG, 2014 . 2 %$ . 3 4 5 6 20TH AUG, 2014 - 7/ 8 SD SD ( . / D. MANMOHAN ) ( . . , / B.R. BASKARAN ) / VICE- PRESIDENT / ACCOUNTANT MEMBER I.T.A. NO.7423/MUM/2011 7 . / MUMBAI: 20TH AUG,2014. . ' . ./ SRL , SR. PS !'#$% &%'# / COPY OF THE ORDER FORWARDED TO : 1. !&' / THE APPELLANT 2. ()&' / THE RESPONDENT. 3. . =0 ( ! ) / THE CIT(A)- CONCERNED 4. . =0 / CIT CONCERNED 5. >?7 ('0'@# , !1 !@#$ , . / / DR, ITAT, MUMBAI CONCERNED 6. 7 / / GUARD FILE. A . / BY ORDER, TRUE COPY * (ASSTT. REGISTRAR) !1 !@#$ , . / /ITAT, MUMBAI