HEATEX PRODUCTS P. LTD, MUMBAI V. ACIT 2(1), MUMBAI

ITA 8197/MUM/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3999 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 22-07-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 26-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ARUN SATHE
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Depreciation; Opportunity of being heard; Period of limitation; Cost of acquisition; Fair market value; Valuation report
• Section: 50C

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL H B ENCH, MUMBAI . . , !'#$ , % &' BEFORE SHRI H.L. KARWA, PRESIDENT AND SHRI N.K. BILLAIYA, AM ./ I.T.A. NO. 8197/MUM/2010 ( ( ( ( ( / ASSESSMENT YEAR :2007-08 M/S. HEATEX PRODUCTS PVT. LTD., LAXMI HOUSE, T.H. KATARIA MARG, MATUNGA (W), MUMBAI-400 016 THE ACIT-2(1), AAYAKAR BHAVAN, MUMBAI-400 020 ') % ./ *+ ./PAN/GIR NO. : AACCM 3756E ( ), /APPELLANT ) .. ( -.), / RESPONDENT ) ), / / APPELLANT BY : ` SHRI ARUN SATHE & SMT. AARTI SATHE -.), 0 / /RESPONDENT BY : SHRI ABHINAY KUMBHAR 0 12% / DATE OF HEARING :22.07.2013 34( 0 12% / DATE OF PRONOUNCEMENT : 24.7.2013 &5 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ORDER OF THE LD. CIT(A)-4, MUMBAI DT.22.09.2010 PERTAINING TO A.Y. 2007-08. 2. THE ASSESSEE HAS RAISED 4 SUBSTANTIVE GROUNDS OF APPEAL. THE GRIEVANCE OF THE ASSESSEE CAN BE DIVIDED INTO TWO P ARTS. THE FIRST ITA NO.8197/M/2010 2 GRIEVANCE RELATES TO THE APPLICABILITY OF PROVISIO NS OF SEC. 50C OF THE ACT. IT IS THE CLAIM OF THE ASSESSEE THAT THE SAI D PROVISIONS OF SEC. 50C OF THE ACT ARE NOT APPLICABLE ON THE FACTS OF THE CASE OF THE ASSESSEE. THE SECOND GRIEVANCE RELATES TO NOT GRANTING OF EXEMPTI ON U/S. 54EC OF THE ACT ON INVESTMENT OF RS. 50,00,000/- IN THE PURCHAS E OF REC BONDS. 3. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PRO CEEDINGS, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS S HOWN LONG TERM CAPITAL GAINS ON SALE OF LAND AT THANE OF RS. 22,72 ,750/- AND HAS CLAIMED EXEMPTION U/S. 54EC OF THE ACT IN RESPECT OF PURCHA SE OF REC BONDS AT RS. 50,00,000/-. THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS RELATING TO THIS TRANSACTION. ON RECEIVING THE DETAILS, THE AO NOTICED THAT AS PER THE AGREEMENT FOR SALE OF PROPERTY OF THANE, THE MARKET VALUE IS SHOWN AT RS. 1,87,33,000/- AS PER THE RECEIPT OF REGISTRATION AU THORITIES. THE AO SOUGHT EXPLANATION FROM THE ASSESSEE REQUIRING IT T O SHOW CAUSE AS TO WHY THE PROVISIONS OF SEC. 50C SHOULD NOT BE MADE APPLI CABLE IN ITS CASE. THE ASSESSEE FILED A DETAILED REPLY VIDE LETTER DT. 23. 11.2009. HOWEVER, THE REPLY WAS SILENT RELATING TO THE APPLICABILITY OF S EC. 50C OF THE ACT. THE ASSESSEE WAS ONCE AGAIN GIVEN AN OPPORTUNITY TO EXP LAIN THE ISSUE OF APPLICABILITY OF PROVISIONS OF SEC. 50C OF THE ACT AND PROOF OF INVESTMENT U/S. 54EC OF THE ACT. IN RESPONSE TO WHICH, THE AS SESSEE FILED VALUATION REPORT DT. 19.4.2007 VALUING THE FAIR MARKET VALUE OF THE PROPERTY AS ON 1.4.1981. ONCE AGAIN THE REPLY OF THE ASSESSEE WAS SILENT IN RESPECT OF APPLICABILITY OF SEC. 50C OF THE ACT NOR HAD THE AS SESSEE FILED ANY DETAIL RELATING TO THE CLAIM OF EXEMPTION U/S. 54EC OF THE ACT. THE AO CONCLUDED THAT THE ASSESSEE HAS NO EXPLANATION TO O FFER. THEREAFTER THE AO WENT ON TO DISCUSS THE PROVISIONS OF SEC. 50C OF THE ACT AND RECOMPUTED THE LONG TERM CAPITAL GAINS ADOPTING THE STAMP DUTY VALUE ITA NO.8197/M/2010 3 OF RS. 1,87,33,000/- AS FULL VALUE OF SALE CONSIDER ATION. THE AO FURTHER DISALLOWED THE CLAIM OF DEDUCTION U/S 54EC OF THE A CT HOLDING THAT THE INVESTMENTS IN REC BONDS HAVE BEEN MADE IN THE PURC HASE OF BONDS BEYOND THE PERIOD MENTIONED UNDER THE PROVISIONS OF SEC. 54EC OF THE ACT. 4. AGGRIEVED BY THESE TWO ADDITIONS, THE ASSESSEE C ARRIED THE MATTER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. 5. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE TOOK AN ALTOGETHER NEW PLEA THAT THE TRANSFER OF LAND WHICH HAS RESULTED I NTO LONG TERM CAPITAL GAINS WAS INFACT TRANSFER OF A LEASEHOLD RIGHT , T HEREFORE PROVISIONS OF SEC. 50C ARE NOT AT ALL APPLICABLE. FOR THIS PROPO SITION , THE LD. COUNSEL RELIED UPON THE DECISION OF THE TRIBUNAL, MUMBAI BE NCH IN THE CASE OF ATUL G. PURANIK VS ITO IN ITA NO. 3051/MUM/2010 FOR A.Y. 2006-07 REPORTED IN 58DTR 208. IT IS THE SAY OF THE LD. CO UNSEL THAT THE ASSESSEE HAS TRANSFERRED LEASE RIGHTS THEREFORE PROVISIONS O F SEC. 50C ARE NOT APPLICABLE. 6. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUBMITTED THAT THE PLEA TAKEN BY THE ASSESSEE BEFORE THE TRIB UNAL WAS NEVER TAKEN BEFORE ANY OF THE LOWER AUTHORITIES; THEREFORE, IF THE PLEA OF THE ASSESSEE IS ACCEPTED BY THE TRIBUNAL AT THIS STAGE, THE REVENUE AUTHORITIES SHOULD BE GIVEN AN OPPORTUNITY TO EXAMINE THE ISSUE AFRESH. ITA NO.8197/M/2010 4 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL EVIDENCE PLACED ON OUR RECORD IN THE FORM OF PAPER BOOK. A PERUSAL OF THE VALUATION REPORT FILED BY THE ASSESSEE BEFORE THE AO PARTICULARLY AT PAGE-60 OF T HE PAPER BOOK SHOW THAT THE VALUER HAS MENTIONED THAT THE PROPERTY IS LEASEHOLD AND THE LEASE PERIOD IS 99 YEARS. IT HAS ALSO BEEN MENTIONED BY THE VALUER THAT HE HAS PERUSED THE LEASE DOCUMENT MADE ON 20.2.1969 BETWEE N MIDC AS THE LESSER AND SHRI GAURISHANKAR K. GHUWALEWALA AND SMT . SUSHILADEVI G. AGRAWAL PARTNERS OF THE FIRM INDIAN INDUSTRIAL DIST RIBUTORS AS LESSEE. THE VALUER HAS ALSO MENTIONED THAT HE HAS PERUSED THE LICENCE MADE ON 13 TH AUGUST 1976 BETWEEN MIDC AND SHRI GAURISHANKAR K. G HUWALEWALA AND SMT. SUSHILADEVI G. AGRAWAL AS LESSEES AND ASSESSE E AS AN ASSIGNEE. WE HAVE ALSO THE BENEFIT OF GOING THROUGH THE LICEN CE AGREEMENT REFERRED TO BY THE VALUER. WE HAVE ALSO GONE THROUGH THE DE ED OF ASSIGNMENT MADE BETWEEN THE ASSESSEE AS THE ASSIGNOR AND M/S. INDCOIL TRANSFORMERS PVT. LTD. AS THE ASSIGNEE. THIS DEED OF ASSIGNMEN T DT. 19.12.2006 AND AS PER THIS DEED OF ASSIGNMENT , THE ASSESSEE HAS A SSIGNED THE LEASE HOLD RIGHT TO THE ASSIGNEE WHICH HAS RESULTED INTO THE IMPUGNED CAPITAL GAINS. CLAUSE 2 OF THIS DEED OF ASSIGNMENT WHICH IS PAGE-3 9 OF THE PAPER BOOK PROVIDED AS UNDER: THE ASSIGNOR SHALL TRANSFER THE LEASE HOLD RIGHTS TO THE ASSIGNEE BY EXECUTING THE DEED OF ASSIGNMENT AND RE GISTER THE SAID DEED OF ASSIGNMENT WITH THE SUB-REGISTRAR OF ASSURANCE. 8. THESE FACTS CLEARLY SHOW THAT WHAT HAS BEEN TR ANSFERRED IS A LEASEHOLD RIGHT. THAT BEING THE FACT OF THE MATTER , THE DECISION OF THE TRIBUNAL IN THE CASE OF ATUL G. PURANIK (SUPRA) SQU ARELY APPLIES ON THE ITA NO.8197/M/2010 5 FACTS OF THE CASE. THE TRIBUNAL AT PARA 11.3 AND 1 1.4 OF ITS ORDER HAS HELD AS UNDER: 11.3 IT IS A SETTLED LEGAL PROPOSITION THAT A DEEMI NG PROVISION CANNOT BE EXTENDED BEYOND THE PURPOSE FOR WHICH IT IS ENACTED. THE HONBLE APEX COURT IN CIT V. AMARCHAND N. SHROF F (1963) 48 IT 59 (SC) HAS CONSIDERED THE SCOPE OF A DEEMING PR OVISION AND CAME TO HOLD THAT IT CANNOT BE EXTENDED BEYOND THE OBJECT FOR WHICH IT IS ENACTED. SIMILAR VIEW HAS BEEN REITERAT ED BY THE HONBLE SUPREME COURT IN CIT VS. MOTHER INDIA REFRI GERATION INDUSTRIES P. LTD. (1985) 155 ITR 711 (SC) BY LAYIN G DOWN THAT LEGAL FICTIONS ARE CREATED ONLY FOR SOME DEFINITE PURPOSE AND THESE MUST BE LIMITED TO THAT PURPOSE AND SHOULD NOT BE E XTENDED BEYOND THEIR LEGITIMATE FIELD. IN CIT VS. ACE BUILDERS P. LTD. (2006) 281 ITR 210 (BOM), THE HONBLE JURISDICTIONAL HIGH COUR T CONSIDERED THE FACTS OF 17 ITA NO.3051/M/10 ATUL G. PURANIK A CASE IN WHICH THE ASSESSEE WAS A PARTNER IN A FIRM WHICH WAS DISS OLVED IN THE YEAR 1984 AND THE ASSESSEE WAS ALLOTTED A FLAT TOWA RDS THE CREDIT IN THE CAPITAL ASSET WITH THE FIRM. THE ASSESSEE SHOWE D THE FLAT AS CAPITAL ASSET IN ITS BOOKS OF ACCOUNT AND DEPRECIAT ION WAS CLAIMED AND ALLOWED FROM YEAR TO YEAR. IN THE PREVIOUS YEAR RELEVANT TO ASST. YEAR 1992-93, THE ASSESSEE SOLD THE FLAT AND INVESTED THE NET SALE PROCEEDS IN A SCHEME ELIGIBLE U/S.54E OF THE A CT AND ACCORDINGLY DECLARED NIL INCOME UNDER THE HEAD CAP ITAL GAINS. THE AO FORMED THE VIEW THAT SINCE THE BLOCK OF BUIL DING CEASED TO EXIST ON ACCOUNT OF SALE OF FLAT DURING THE YEAR, T HE WRITTEN DOWN VALUE OF THE FLAT WAS LIABLE TO BE TAKEN AS COST OF ACQUISITION U/S.54E OF THE ACT. HE FURTHER HELD THAT SINCE THE ASSESSEE HAD AVAILED DEPRECIATION ON SUCH ASSET, WHICH WAS OTHER WISE A LONG- TERM CAPITAL ASSET, THE DEEMING PROVISION U/S.50 WO ULD APPLY AND IT WOULD BE TREATED AS CAPITAL GAIN ON THE SALE OF SHO RT-TERM CAPITAL ASSET AND HENCE NO BENEFIT U/S.54E COULD BE ALLOWED . WHEN THE MATTER CAME UP BEFORE THE HONBLE BOMBAY HIGH COURT , IT WAS NOTICED THAT SUB-SECTIONS (1) AND (2) OF SEC. 50 CO NTAINED A DEEMING PROVISION AND SUCH FICTION WAS RESTRICTED O NLY TO THE MODE OF COMPUTATION OF CAPITAL GAIN CONTAINED IN SECTION S 48 AND 49 AND HENCE IT DID NOT APPLY TO OTHER PROVISIONS. THE ASS ESSEE WAS HELD TO BE ELIGIBLE FOR EXEMPTION U/S.54E IN RESPECT OF CAP ITAL GAIN ARISING OUT OF THE CAPITAL ASSET ON WHICH DEPRECIATION WAS ALLOWED. ITA NO.8197/M/2010 6 11.4 IN VIEW OF THE AFORENOTED JUDGMENTS RENDERED B Y THE HONBLE APEX COURT AND THAT OF THE HONBLE JURISDICTIONAL H IGH COURT, IT IS CLEAR THAT A DEEMING PROVISION CAN BE APPLIED ONLY IN RESPECT OF THE SITUATION SPECIFICALLY GIVEN AND HENCE CANNOT GO BE YOND THE EXPLICIT MANDATE OF THE SECTION. TURNING TO SEC. 50C, IT IS SEEN THAT THE DEEMING FICTION OF SUBSTITUTING ADOPTED OR ASSESSED OR ASSESSABLE VALUE BY THE STAMP VALUATION AUTHORITY AS FULL VALU E OF CONSIDERATION IS 18 ITA NO.3051/M/10 ATUL G. PURANI K APPLICABLE ONLY IN RESPECT OF LAND OR BUILDING OR BOTH. IF TH E CAPITAL ASSET UNDER TRANSFER CANNOT BE DESCRIBED AS `LAND OR BUIL DING OR BOTH, THEN SEC. 50C WILL CEASE TO APPLY. FROM THE FACTS O F THIS CASE NARRATED ABOVE, IT IS SEEN THAT THE ASSESSEE WAS AL LOTTED LEASE RIGHT IN THE PLOT FOR A PERIOD OF SIXTY YEARS, WHICH RIGH T WAS FURTHER ASSIGNED TO M/S. PATHIK CONSTRUCTION IN THE YEAR IN QUESTION. IT IS AXIOMATIC THAT THE LEASE RIGHT IN A PLOT OF LAND AR E NEITHER `LAND OR BUILDING OR BOTH AS SUCH NOR CAN BE INCLUDED WITHI N THE SCOPE OF `LAND OR BUILDING OR BOTH. THE DISTINCTION BETWEEN A CAPITAL ASSET BEING `LAND OR BUILDING OR BOTH AND ANY `RIGHT IN LAND OR BUILDING OR BOTH IS WELL RECOGNIZED UNDER THE I.T. ACT. SEC . 54D DEALS WITH CERTAIN CASES IN WHICH CAPITAL GAIN ON COMPULSORY A CQUISITION OF LAND AND BUILDING IS CHARGED. SUB-SEC.(1) OF SEC. 5 4D OPENS WITH : SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), WHER E THE CAPITAL GAIN ARISES FROM THE TRANSFER BY WAY OF COMPULSORY ACQUISITION UNDER ANY LAW OF A CAPITAL ASSET, BEING LAND OR BUI LDING OR ANY RIGHT IN LAND OR BUILDING, FORMING PART OF AN INDUS TRIAL UNDERTAKING... IT IS PALPABLE FROM SEC. 54D THAT `LAND OR BUILDING IS DISTINCT FROM `ANY RIGHT IN LAND OR BU ILDING. SIMILAR POSITION PREVAILS UNDER THE W.T. ACT, 1957 ALSO. SE CTION 5(1) AT THE MATERIAL TIME PROVIDED FOR EXEMPTION IN RESPECT OF CERTAIN ASSETS. CLAUSE (XXXII) OF SEC. 5(1) PROVIDED THAT THE VALU E, AS DETERMINED IN THE PRESCRIBED MANNER, OF THE INTEREST OF THE AS SESSEE IN THE ASSETS (NOT BEING ANY LAND OR BUILDING OR ANY RIGHT S IN LAND OR BUILDING OR ANY ASSET REFERRED TO IN ANY OTHER CLAU SES OF THIS SUB- SECTION) FORMING PART OF AN INDUSTRIAL UNDERTAKING SHALL BE EXEMPT FROM TAX. HERE ALSO IT IS WORTH NOTING THAT A DISTI NCTION HAS BEEN DRAWN BETWEEN `LAND OR BUILDING ON ONE HAND AND `O R ANY RIGHTS IN LAND OR BUILDING ON THE OTHER. CONSIDERING THE FACT THAT WE ARE DEALING WITH SPECIAL PROVISION FOR FULL VALUE OF CO NSIDERATION IN CERTAIN CASES U/S.50C, WHICH IS A DEEMING PROVISION , THE FICTION CREATED IN THIS SECTION CANNOT BE EXTENDED TO ANY A SSET OTHER THAN THOSE SPECIFICALLY PROVIDED THEREIN. AS SEC. 50C AP PLIES ONLY TO A 19 ITA NO.3051/M/10 ATUL G. PURANIK CAPITAL ASST, B EING LAND OR BUILDING OR BOTH, IT CANNOT BE MADE APPLICABLE TO L EASE RIGHTS IN A ITA NO.8197/M/2010 7 LAND. AS THE ASSESSEE TRANSFERRED LEASE RIGHT FOR S IXTY YEARS IN THE PLOT AND NOT LAND ITSELF, THE PROVISIONS OF SEC.50C CANNOT BE INVOKED. WE, THEREFORE, HOLD THAT THE FULL VALUE OF CONSIDERATION IN THE INSTANT CASE BE TAKEN AS RS.2.50 CRORES. 9. HOWEVER, WE FIND THAT NONE OF THE LOWER AUTHORIT IES HAVE DISCUSSED THIS ISSUE IN THEIR RESPECTIVE ORDER. THEREFORE, IN THE INTEREST OF JUSTICE AND FAIR PLAY, WE RESTORE THIS ISSUE BACK TO THE FI LES OF THE AO. THE AO IS DIRECTED TO VERIFY WHETHER THE IMPUGNED LAND WAS A LEASEHOLD LAND IN THE HANDS OF THE ASSESSEE AND WHAT HAS BEEN TRANSFERRED IS ONLY LEASEHOLD RIGHTS. THE ASSESSEE IS DIRECTED TO FILE ALL NECESS ARY RELATED DOCUMENTS/EVIDENCES BEFORE THE AO. THE AO IS EXPEC TED TO GIVE A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. IF THE AO IS CONVINCED THAT WHAT HAS BEEN TRANSFERRED IS A LEASE HOLD RIGHT, THEN THE ISSUE IS TO BE DECIDED IN THE LIGHT OF THE DECISION OF THE TRIBUNAL IN THE CASE OF ATUL G. PURANIK (SUPRA). 10. THE SECOND ISSUE RELATES TO THE DISALLOWANCE OF EXEMPTION CLAIMED BY THE ASSESSEE U/S. 54EC OF THE ACT. THE CLAIM HA S BEEN DENIED BECAUSE THE ASSESSEE HAS INVESTED IN THE REC BONDS BEYOND T HE PERIOD OF LIMITATION PRESCRIBED UNDER THE SAID SECTION. IT I S THE SAY OF THE LD. COUNSEL THAT SUCH BONDS WERE NOT AVAILABLE DURING T HE PERIOD OF LIMITATION, THEREFORE, THE ASSESSEE COULD NOT HAVE PURCHASED THE BONDS WITHIN THE SPECIFIED PERIOD. THEREFORE, WE RESTORE THIS ISSUE ALSO BACK TO THE FILES OF THE AO. THE AO IS DIRECTED TO VERIFY WHETHER REC BONDS WERE AVAILABLE DURING THE PERIOD OF LIMITATION AND IF THE BONDS WERE NOT AVAILABLE, THEN THE ASSESSEE CANNOT BE PENALIZED FO R DOING SOMETHING IMPOSSIBLE TO PERFORM BECAUSE REC BONDS ARE GOVERNM ENT BONDS AND IF THEY ARE NOT AVAILABLE IN THE MARKET, THE REVENUE C ANNOT EXPECT THE ITA NO.8197/M/2010 8 ASSESSEE TO FULFILL THE CONDITIONS OF SEC. 54EC OF THE ACT. THE ASSESSEE IS ALSO DIRECTED TO SUBSTANTIATE ITS CLAIM THAT THE BO NDS WERE NOT AVAILABLE DURING THE PERIOD OF LIMITATION. BOTH THE GROUNDS ARE RESTORED BACK TO THE FILES OF THE AO. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 24.7.2013 . &5 0 4( % 6 7&8 24.7.2013 4 0 9 SD/- SD/- (H.L. KARWA ) (N.K . BILLAIYA ) /PRESIDENT % &' / ACCOUNTANT MEMBER MUMBAI; 7& DATED 24/070. /2013 . . ./ RJ , SR. PS &5 &5 &5 &5 0 00 0 -1! -1! -1! -1! :!(1 :!(1 :!(1 :!(1 / COPY OF THE ORDER FORWARDED TO : 1. ), / THE APPELLANT 2. -.), / THE RESPONDENT. 3. ; ( ) / THE CIT(A)- 4. ; / CIT 5. !<9 -1 , , / DR, ITAT, MUMBAI 6. 9= > / GUARD FILE. &5 &5 &5 &5 / BY ORDER, .!1 -1 //TRUE COPY// ? ?? ? / @ @ @ @ * * * * (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI