VIVEEK MATHREJA, MUMBAI V. ITO 21 (2)(4), MUMBAI

ITA 7645/MUM/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 8061 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 12-12-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJAY J SETHI
• Assessee Lawyers: N R AGARWAL
• Keywords: Cost of acquisition; Capital expenditure
• Section: 48

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC, MUMBAI BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER . 7645 / /20 19 (. . 2011-12 ) ITA NO.7645/MUM/2019 (A.Y.2011-12) VIVECK MATHREJA, PLOT NO.5, TRISHUL, ROAD NO.6, HATKESH SOCIETY, JUHU, VILE PARLE, MUMBAI-400056. PAN: ACXPM8278M ...... / APPELLANT VS. ITO, 21(2)(4), KAUTILYA BHAVAN, BANDRA EAST, MUMBAI-400050. ..... / RESPONDENT / APPELLANT BY : SH. N.R. AGARWAL / RESPONDENT BY : SH. SANJAY J. SETHI / DATE OF HEARING : 01/06/2021 / DATE OF PRONOUNCEMENT : 27/08/2021 / ORDER PER VIKAS AWASTHY, J.M: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-37, MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] DATED 30.11.2019 FOR THE ASSESSMENT YEAR (AY) 2011-12. 2. SH. N.R. AGARWAL APPEARING ON BEHALF OF THE ASSESSEE NARRATING THE FACTS OF THE CASE SUBMITTED, THAT THE ASSESSEE DURING THE PERIOD RELEVANT TO AY UNDER APPEAL HAD SOLD AN IMMOVABLE PROPERTY FOR A CONSIDERATION OF RS. 1.60 CRORES. AFTER DEDUCTING INDEX COST OF ACQUISITION, BROKERAGE, STAMP DUTY, COST 2 . 7645 / /20 19 (. .2011-12 ) ITA NO.7645/MUM/2019 (A.Y.2011-12) OF IMPROVEMENT, ETC. THE ASSESSEE OFFERED LONG TERM CAPITAL GAIN (LTCG) OF RS. 43,38,125/- TO TAX. THE IMMOVABLE PROPERTY SOLD DURING THE RELEVANT PERIOD WAS CONSTRUCTED ON LEASE HOLD LAND. THE INDEXED COST OF PROPERTY WITH THE YEAR 1998 AS BASE THE LTCG WAS COMPUTED AS UNDER: SALE CONSIDERATION RS. 1,60,00,000/- LESS (-) INDEX COST OF ACQUISITION RS. 1,15,96,175/- TOTAL RS. 43,38,125/- THE ENTIRE LTCG WAS INVESTED IN BONDS BY THE ASSESSEE, HENCE, NIL TAX WAS OFFERED ON SAID LTCG. IN ASSESSMENT PROCEEDINGS, THE AO DISALLOWED: LEASE RENT CAPITALIZATION RS. 1,34,247/-, PAYMENT OF VACANT LAND TAX RS. 1,14,662/-, WATER PROOFING CHARGES RS. 2,11,001/-, PROPERTY TAX RS. 3,05,530/-. THE LD. AR SUBMITTED THAT THE AO HAS DISALLOWED LEASE RENT PAYMENTS ON THE GROUND THAT LEASE RENTS DOES NOT ADD VALUE TO THE ASSET AND HENCE, CANNOT BE CAPITALIZED. WATER PROOFING CHARGES WERE DISALLOWED AS THEY WERE STATED TO BE IN THE NATURE OF REPAIRS AND MAINTENANCE. 2.1. THE LD. AR SUBMITTED THAT THE PAYMENT OF LEASE RENT ARE CAPITAL IN NATURE, THEREFORE, SHOULD BE INCLUDED IN THE COST OF PURCHASE, IN SUPPORT OF THIS CONTENTION, THE AR PLACED RELIANCE ON THE DECISION OF TRIBUNAL IN THE CASE OF ITO VS. WADHWA & ASSOCIATES REALTORS PVT. LTD. (146 ITD 494 (MUM TRIB.). THE LD. AR ASSERTED THAT THE LAND ON WHICH CONSTRUCTION WAS MADE IS ON LEASE HOLD FOR 30 YEARS AND THE LEASE RENTS ARE PAID AS PER DEED WITH KONKAN HOUSING AND AREA DEVELOPMENT BOARD, A UNIT OF MAHARASHTRA HOUSING AND AREA DEVELOPMENT AUTHORITY (MHADA), THE AO HAS ACCEPTED PAYMENT OF INITIAL INSTALMENT OF LEASE RENTAL AS CAPITAL AND HAS DISALLOWED REMAINING INSTALMENTS AGGREGATING TO RS. 1,34,247/- 3 . 7645 / /20 19 (. .2011-12 ) ITA NO.7645/MUM/2019 (A.Y.2011-12) 2.2. IN RESPECT OF WATER PROOFING CHARGES, THE LD. AR SUBMITTED THAT WATER PROOFING IS ALWAYS DONE AFTER CONSTRUCTION OF BUILDING IS COMPLETE. WATER PROOFING CHARGES ARE INTEGRAL PART OF CONSTRUCTION ACTIVITY. THE LD. AR ASSERTED THAT IN ALTERNATE WATER PROOFING CHARGES CAN BE ALLOWED AS COST OF IMPROVEMENT UNDER SECTION 48(2) OF THE ACT. THE LD. AR POINTED THAT WATER PROOFING CHARGES WERE PAID ON 29.10.2007 AND 20.12.2007 AND OCCUPANCY CERTIFICATE (OC) FOR THE BUILDING WAS OBTAINED ON 04.06.2007. THOUGH, THERE IS NO CO-RELATION BETWEEN WATER PROOFING AND OBTAINING OC, HOWEVER, PROXIMITY OF THE DATES WOULD SHOW THAT WATER PROOFING OF THE BUILDING IS THE FINAL PART OF CONSTRUCTION ACTIVITY. 3. THE LD. AR SUBMITTED THAT IN GROUND NO.2 OF APPEAL, THE ASSESSEE HAS ASSAILED THE FINDINGS OF CIT(A) IN NOT ALLOWING BENEFIT OF INDEXATION OF LAND COST FROM 31.03.1997, I.E. WHEN THE LAND WAS FIRST HELD BY THE ASSESSEE. THE LAND WAS ALLOTTED TO THE ASSESSEE ON 10.12.1996 FOR WHICH PAYMENT WAS MADE ON 06.01.199. THE ASSESSEE GOT RIGHT IN LAND ON PAYMENT OF ENTIRE CONSIDERATION. REGISTRATION OF LAND WAS GOT DONE ON 03.07.1998. THE AO INSTEAD OF GRANTING BENEFIT OF INDEXATION FROM 31.03.1997 HAS ERRED IN ADOPTING 31.03.1999 AS DATE FOR INDEXATION AND MADE ADDITION OF RS. 7,41,384/-. THE CIT(A) HAS UPHELD THE FINDINGS OF AO. THE LD. AR CONTENDED THAT THE BENEFIT OF INDEXATION SHOULD BE ALLOWED TO THE ASSESSEE FROM THE FIRST DATE WHEN THE LAND WAS HELD BY THE ASSESSEE. IN SUPPORT OF HIS CONTENTIONS, THE LD. AR PLACED RELIANCE ON FOLLOWING DECISIONS: 1. LATA G. ROHRA VS. DCIT 121 SOT 541 (MUM.). 2. NITA A. PATEL VS. ITO 132 TTJ 468 (MUM.). 4 . 7645 / /20 19 (. .2011-12 ) ITA NO.7645/MUM/2019 (A.Y.2011-12) 4. ON THE OTHER HAND, SH. SANJAY J. SETHI REPRESENTING THE DEPARTMENT VEHEMENTLY DEFENDED THE IMPUGNED ORDER AND PRAYED FOR DISMISSING THE APPEAL OF ASSESSEE. THE LD. DR SUBMITTED THAT EXPENDITURE CLAIMED BY THE ASSESSEE IN THE FORM OF LEASE RENTS, WATER PROOFING CHARGES, VACANT LAND TAX/PROPERTY TAX ARE NOT IN THE NATURE OF CAPITAL EXPENDITURE, HENCE, WERE RIGHTLY REJECTED BY THE AO AND THE CIT(A). IN RESPECT OF GROUND NO.2, THE LD. AR SUBMITTED THAT THE TITLE DOCUMENT OF THE PROPERTY WAS REGISTERED ON 03.07.1997, HENCE, IT IS FROM THE DATE OF REGISTRATION, THE AO HAS RIGHTLY ALLOWED THE BENEFIT OF INDEXATION. 5. BOTH SIDES HEARD, ORDERS OF AUTHORITIES BELOW EXAMINED. THE ASSESSEE IN APPEAL HAS ASSAILED THE ORDERS OF CIT(A) ON TWO COUNTS I.E. 1. DISALLOWANCE OF CERTAIN EXPENDITURE BEING NOT CONSIDERED AS CAPITAL/COST OF IMPROVEMENT; AND 2. THE CORRECT DATE OF INDEXATION FOR COMPUTING LTCG. 6. IN GROUND NO.1 OF APPEAL, THE ASSESSEE HAS ASSAILED THAT WHILE COMPUTING COST OF ACQUISITION, THE AO HAS EXCLUDED: 1. LEASE RENTAL PAYMENTS - RS. 1,34,247/- 2. WATER PROOFING CHARGES - RS. 2,11,001/- 3. VACANT LAND TAX AND - RS. 1,14,662/- 4. PROPERTY TAX. - RS. 3,05,530/- TOTAL RS. 7,65,440/- 7. A PERUSAL OF ASSESSMENT ORDER REVEALS THAT THE AO WHILE COMPUTING COST OF ACQUISITION HAS INCLUDED ONLY ONE INITIAL INSTALMENT OF LEASE RENTAL AND THE SUBSEQUENT INSTALMENTS PAID HAVE BEEN EXCLUDED ON THE GROUND THAT THE EXPENDITURE IS IN THE NATURE OF ANNUAL LEASE RENT TO BE PAID ON THE LAND AND 5 . 7645 / /20 19 (. .2011-12 ) ITA NO.7645/MUM/2019 (A.Y.2011-12) DOES NOT ADD TO THE VALUE OF ASSET. THE TRIBUNAL IN THE CASE OF ITO VS. WADHWA & ASSOCIATES REALTORS PVT. LTD. (SUPRA) AFTER FOLLOWING THE DECISION IN THE CASE OF CIT VS. KHIMLINE PUMPS LTD. 258 ITR 459 (BOM.) HELD THAT PAYMENT FOR ACQUIRING LEASE HOLD LAND IS CAPITAL EXPENDITURE. THE AO AFTER HAVING ACCEPTED INITIAL INSTALMENT OF LEASE RENT AS CAPITAL HAS ERRED IN REJECTING SUBSEQUENT INSTALMENTS NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE. THE ASSESSEE HAS CONSTRUCTED BUILDING ON LEASE HOLD LAND. THE LEASE OF THE LAND WAS ALLOWED TO THE ASSESSEE FOR 30 YEARS, THEREFORE, LEASE BEING IN THE NATURE OF LONG TERM LEASE, THE LEASE RENTALS ARE CLEARLY IN THE NATURE OF CAPITAL EXPENDITURE. 7.1. AS REGARDS WATER PROOFING CHARGES, THE ASSESSEE HAS POINTED THAT WATER PROOFING WAS DONE IMMEDIATELY AFTER COMPLETION OF CONSTRUCTION, THIS FACT IS EVIDENT FROM INVOICES VIDE WHICH WATER PROOFING CHARGES WERE PAID. THE OC WAS RECEIVED BY THE ASSESSEE IN THE MONTH OF JUNE 2007 AND THE WATER PROOFING CHARGES WERE PAID IN THE MONTH OF OCTOBER & DECEMBER 2007. THE WATER PROOFING DEFINITELY ADDS VALUE TO THE ASSET AS IT IMPROVES THE LIFE OF THE STRUCTURE/BUILDING. THE SUBSEQUENT WATER PROOF COATING MAY BE CONSIDERED IN THE NATURE OF REPAIRS AND MAINTENANCE, IN SO FAR AS INITIAL WATER PROOFING IS CONCERNED IT IS INTEGRAL PART OF CONSTRUCTION ACTIVITY, HENCE, IT IS TO BE INCLUDED TOWARDS THE COST OF ASSET. 7.2. THE 3 RD COMPONENT THAT HAS BEEN DISALLOWED BY THE AO/CIT(A) IS VACANT LAND TAX AND PROPERTY TAX. THE PAYMENT OF SAID TAXES TO THE MUNICIPAL AUTHORITIES ARE PERENNIAL AND DOES NOT ADD VALUE TO THE PROPERTY, HENCE, ARE NOT CAPITAL IN NATURE. PAYMENT OF TAXES IS STATUTORY OBLIGATION TO BE DISCHARGED AS AND WHEN DUE. I FIND NO MERIT IN THE SUBMISSIONS OF ASSESSEE TO INCLUDE VACANT LAND TAX AND PROPERTY TAX IN THE COST OF ACQUISITION. 6 . 7645 / /20 19 (. .2011-12 ) ITA NO.7645/MUM/2019 (A.Y.2011-12) IN THE LIGHT OF ABOVE OBSERVATIONS, THE GROUND NO.1 OF THE APPEAL IS PARTLY ALLOWED. 8. IN GROUND NO.2 OF APPEAL, THE ISSUE IS: WHETHER THE BENEFIT OF INDEXATION SHOULD BE ALLOWED TO THE ASSESSEE FROM THE DATE OF ALLOTMENT OF LAND OR FROM THE DATE THE DOCUMENT WAS REGISTERED IN THE NAME OF ASSESSEE? A PERUSAL OF LETTER DATED 10.12.1996 FROM MHADA SHOWS THAT PLOT NO.C-6 AT MAJIWADE-II, THANE WAS OFFERED TO THE ASSESSEE AGAINST TENDER DATED 28.08.1996. THE ASSESSEE WAS REQUIRED TO COMMUNICATE ACCEPTANCE OF THE OFFER AND PAY SUM OF RS. 21,48,300/- ON OR BEFORE 09.01.1997. THE ASSESSEE PAID THE AFORESAID AMOUNT ON 06.01.1997 AND ACCEPTED THE OFFER. SINCE, THE ASSESSEE HAD PAID THE AGREED AMOUNT WITHIN THE SPECIFIED TIME, THE ASSESSEE HAD ACQUIRED RIGHT IN THE PROPERTY UPON PAYMENT OF CONSIDERATION. THE ASSESSEE HELD THE RIGHT IN PROPERTY UPON COMPLYING WITH THE CONDITIONS SET OUT IN OFFER LETTER I.E. PAYMENT OF AMOUNT AND ACCEPTING THE OFFER OF ALLOTMENT. THOSE CONDITIONS WERE COMPLIED IN JANUARY 1997 ALTHOUGH REGISTRATION OF TITLE DOCUMENT WAS DONE IN JULY 1998. HERE IT WOULD BE RELEVANT TO REFER TO EXPLANATION (III) TO SECTION 48 OF THE ACT, WHERE INDEXED COST OF ACQUISITION IS DEFINED. EXPLANATION:- (III). INDEXED COST OF ACQUISITION MEANS AN AMOUNT WHICH BEARS TO THE COST OF ACQUISITION THE SAME PROPORTION AS COST INFLATION INDEX FOR THE YEAR IN WHICH THE ASSET IS TRANSFERRED BEARS TO THE COST INFLATION INDEX FOR THE FIRST YEAR IN WHICH THE ASSET WAS HELD BY THE ASSESSEE OR FOR THE YEAR BEGINNING ON THE 1 ST DAY OF APRIL [2001], WHICHEVER IS LATER; A BARE PERUSAL OF ABOVE DEFINITION WOULD SHOW THAT THE EXPRESSION THE FIRST YEAR IN WHICH THE ASSET WAS HELD BY THE ASSESSEE, CANNOT BE INTERPRETED IN 7 . 7645 / /20 19 (. .2011-12 ) ITA NO.7645/MUM/2019 (A.Y.2011-12) NARROW SENSE TO MEAN DATE OF TRANSFER OF PHYSICAL POSSESSION OF ASSET OR DATE OF REGISTRATION OF TITLE DEED ALONE. THE EXPRESSION INTER ALIA INCLUDES A DATE WHEN BOTH SIDES PERFORM CERTAIN LEGAL OBLIGATIONS WHICH ULTIMATELY CULMINATES IN TRANSFER OF TITLE AND PHYSICAL TRANSFER OF IMMOVABLE PROPERTY. THE DATE ON WHICH SUCH LEGAL OBLIGATIONS ARE CARRIED OUT WOULD BE THE DATE WHEN THE ASSET WAS FIRST HELD BY ASSESSEE. IN THE PRESENT CASE IT IS THE PAYMENT OF CONSIDERATION AND ACCEPTANCE OF OFFER. 9. IN THE CASE OF NITA A. PATEL (SUPRA), THE ISSUE BEFORE THE TRIBUNAL WAS RELEVANT DATE FOR ALLOWING THE BENEFIT OF COST OF ACQUISITION. THE TRIBUNAL HELD THAT FOR THE PURPOSE OF DETERMINING INDEXED COST ON ACQUISITION OF PROPERTY, THE BENEFIT OF INDEXATION SHOULD BE ALLOWED TO THE ASSESSEE FROM THE DATE ON WHICH OWNERSHIP RIGHTS IN PROPERTY WERE HELD BY THE ASSESSEE AND NOT THE PHYSICAL OWNERSHIP OR PHYSICAL POSSESSION. 10. THUS, THE RELEVANT DATE FOR PROVIDING THE BENEFIT OF INDEXATION IS WHEN THE ASSESSEE HAD FIRST ACQUIRED RIGHT IN THE PROPERTY, EXECUTION OF REGISTERED DOCUMENT IS SUBSEQUENT EVENT TO REINFORCE AND PROTECT LEGAL SANCTITY OF THE OWNERSHIP OF PROPERTY. I AM OF CONSIDERED VIEW THAT THE BENEFIT OF INDEXATION SHOULD BE ALLOWED TO THE ASSESSEE IN THE YEAR, THE ASSESSEE HAD ACQUIRED RIGHT IN THE PROPERTY AFTER PAYMENT OF ENTIRE PURCHASE CONSIDERATION. IN THE INSTANT CASE, SINCE THE ASSESSEE HAD PAID THE CONSIDERATION AMOUNT IN JANUARY 1997 IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THE TENDERS FLOATED BY MHADA, THE BENEFIT OF INDEXATION SHOULD BE ALLOWED TO THE ASSESSEE FROM 31.03.1997. THE FINDINGS OF THE CIT(A) ON THIS ISSUE ARE SET-ASIDE AND GROUND NO.2 OF THE APPEAL IS ALLOWED. 8 . 7645 / /20 19 (. .2011-12 ) ITA NO.7645/MUM/2019 (A.Y.2011-12) 11. IN THE RESULT, APPEAL OF ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON FRIDAY , THE 27 TH DAY OF AUGUST, 2021. SD/- (VIKAS AWASTHY) / JUDICIAL MEMBER / MUMBAI, / DATED: 27/08/2021 SK, PS COPY OF THE ORDER 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