Parminder Kumar Sharma, Zirakpur V. ACIT, Patiala

ITA 952/CHANDI/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68434 (ITAT-CHANDIGARH)
• Duration Of Justice: 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 18-07-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 20-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Capital asset; Gift; Search and seizure; Cost of acquisition; Fair market value

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE SHRI T.R. SOOD, A.M AND MS. SUSHMA CHOWLA, JM ITAS NO. 952, 953 & 954/CHD/2012 ASSESSMENT YEAR : 2004-05 TO 2006-07 PARWINDER KUMAR SHARMA V A.C.I.T. VILLAGE LOHAGARH CENTRAL CIRCLE WARD 6, NAC PATIALA ZIRAKPUR ABAPK 1577F (APPELLANT) (RESPONDENT) APPELLANT BY SHRI SUDHIR SEHGAL RESPONDENT BY: SHRI MANJIT SINGH DATE OF HEARING 18.7.2013 DATE OF PRONOUNCEMENT 23.8.2013 O R D E R PER T.R.SOOD, A.M THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDERS DATED 17.7.2012, 1.8.2012 & 17.7.2012 OF THE LD. CIT(A)-I, LUDHIANA. 2 IN ALL THESE APPEALS THE ASSESSEE HAS RAISED VARI OUS GROUNDS SOME OF WHICH ARE NOT PRESSED AND ONLY GROU ND IN RESPECT OF INDEXATION OF COST OF ACQUISITION WAS P RESSED BEFORE US. SINCE THE ISSUES ARE COMMON, THEREFORE, WE ARE REPRODUCING THE GROUNDS FOR ASSESSMENT YEAR 2004-05 I.E. ITA NO. 952/CHD/2012. OUT OF WHICH GROUNDS NO. 4 TO 6 WERE NOT PRESSED. THE OTHER GROUNDS RELATE TO THE ISSUE I.E . INDEXATION TO BE APPLIED FOR COST OF ACQUISITION. 1 THAT THE LEARNED CIT(A) HAS ERRED IN UPHOLDING T HE ADDITION OF RS. 45,814/- (BEING 1/3 RD SHARE OF THE ASSESSEE) AS MADE BY THE ASSESSING OFFICER BY ASSESSING LONG TER M CAPITAL GAIN OF RS. 19,22,448/- AGAINST THE LONG TERM CAPIT AL GAIN OF RS. 18,76,634/- DISCLOSED BY THE ASSESSEE AS PER PA RA 8 OF THE ORDER. 2 2 THAT WHILE CONFIRMING THE ADDITION AS PER GROUND NO. 1, THE CIT(A) HAS WRONGLY TAKEN COST OF ACQUISITION AT RS. 2,32,655/- INSTEAD OF RS. 3,70,097/- TAKEN BY THE A SSESSEE (IN WHICH ASSESSEE HAS 1/3 RD SHARE) AS PER PARA 10 OF THE ORDER. 3 THAT THE LEARNED CIT(A) HAS ERRED IN CONFIRMING I NDEX COST OF ACQUISITION IN RESPECT OF SALE OF 1/3 RD SHARE OF PLOT MEASURING 3419 SQ, YARDS AT VILLAGE LOHGARH AT RS. 1,98,317/- INSTEAD OF RS. 3,15,473/- TAKEN BY THE ASSESSEE AS PER PARA 14 OF THE ORDER. 4 THAT THE LEARNED CIT(A) HAS ERRED IN CONFIRMING A DDITION ON ACCOUNT OF SO-CALLED UNDISCLOSED PROFIT ON TRANS ACTIONS OUTSIDE THE BOOKS OF ACCOUNT OF RS. 24,360/- MADE B Y THE ASSESSING OFFICER ON ESTIMATION AND GUESS WORK. 5 THAT THE LEARNED CIT(A) WHILE CONFIRMING THE ABOV E SAID ADDITIONS HAVE NOT CONSIDERED THAT NO INCRIMINATING DOCUMENTS WERE FOUND / SEIZED DURING THE COURSE OF SEARCH AND SEIZURE OPERATION. 6 NOTWITHSTANDING ABOVE SAID GROUNDS OF APPEAL, IT IS SUBMITTED THAT THE LEARNED CIT(A) HAS ERRED IN NOT CONSIDERING THAT NO ADDITION CAN BE MADE AS NO INCRIMINATING NA TURE OF DOCUMENTS WERE FOUND AND SEIZED DURING THE COURSE OF SEARCH AND SEIZURE OPERATION IN VIEW OF THE SPECIAL BENCH JUDGMENT IN THE CASE OF ALL CARGO GLOBAL LOGISTICS LIMITED & OTHERS AS REPORTED IN 147 TTJ 513. 3 BRIEF FACTS OF THE CASE ARE THAT CERTAIN PLOTS WE RE SOLD BY THE ASSESSEE WHICH WERE RECEIVED FROM SHRI VISHAWNA TH SHARMA WHO IS FATHER OF THE ASSESSEE. IT WAS CONTEN DED THAT COST OF ACQUISITION HAS TO BE DETERMINED BY APPLYI NG INDEX ON THE DATE WHEN THE ASSET WAS ACQUIRED BY THE PREVIOU S OWNER. SINCE THE ASSESSEES FATHER HAD INHERITED THESE LAN DS LONG BACK, THEREFORE, FAIR MARKET VALUE AS ON 1.4.1981 IS TO BE ADOPTED AND THEN INDEXATION HAS TO BE DONE FROM THA T YEAR. HOWEVER, THE ASSESSING OFFICER DID NOT AGREE WITH T HIS POSITION OF INFLATION INDEX OF THE PLOT FROM THE DATE WHEN T HE ASSESSEE INHERITED THESE PROPERTIES. ACTION OF THE ASSESSIN G OFFICER WAS CONFIRMED BY THE LD. CIT(A). 4 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMIT TED IN CASE OF SHRI VISHAWNATH SHARMA V ACIT, ITA NO. 956/ CHD/2012 3 IT HAS BEEN HELD THAT COST OF INDEX HAS TO BE TAKEN IN CASE OF PREVIOUS OWNER. 5 ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUP PORTED THE ORDER OF THE LD. CIT(A). 6 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT THIS ISSUE WAS CONSIDERED BY THE SPECIAL BENCH IN CASE O F CIT V. MANJULA J. SHAH, 68 DTR 269 (BOM) WHEREIN IT WAS H ELD THAT INDEXATION HAS TO BE APPLIED FROM THE DATE WHEN THE PREVIOUS OWNER ACQUIRED THE ASSET. THIS POSITION HAS BEEN C ONFIRMED BY HON'BLE BOMBAY HIGH COURT IN CASE OF CIT V. MANJULA J. SHAH, 204 TAXMAN 691. HEAD NOTE OF THIS DECISION READS A S UNDER: CAPITAL GAINS COST OF ACQUISITION RELEVANT YEA R FOR INDEXATION VIS--VIS PROPERTY ACQUIRED UNDER GIFT- PROPERTY PURCHASED BY ASSESSEES DAUGHTER ON 29 TH JAN., 1993, GIFTED TO ASSESSEE ON 30 TH JUNE, 2003 AS THE PREVIOUS OWNER HELD THE CAPITAL ASSET FROM 29 TH JAN., 1993, AS PER EXPLN. 1(I)(B) TO S. 2(42A) THE ASSESSEE IS DEEMED TO HAVE HELD THE C APITAL ASSET AS LONG-TERM CAPITAL ASSET FROM 29 TH JAN., 1993 THEREFORE, IN DETERMINING THE INDEXED COST OF ACQUI SITION UNDER S. 48, THE ASSESSEE MUST BE TREATED TO HAVE HELD TH E ASSET FROM 29 TH JAN, 1993 AND ACCORDINGLY THE COST INFLATION INDEX FOR 1992-93 WOULD BE APPLICABLE IN DETERMINING THE INDE XED COST OF ACQUISITION- CONTENTION OF REVENUE THAT AS THE A SSESSEE HELD THE ASSET W.E.F 1 ST FEB., 2003, THE FIRST YEAR OF HOLDING THE ASSET WOULD BE FINANCIAL YEAR 2002-03 AND ACCORDING LY, THE COST INFLATION INDEX FOR 2002-03 WOULD BE APPLICABL E IS DEVOID OF MERIT, BECAUSE IN THAT CASE, THE ASSESSEE WOULD NOT BE LIABLE FOR LONG-TERM CAPITAL GAINS TAX BY APPLYING THE DEEMED FICTION CONTAINED IN EXPLN. 1(I)(B) TO S. 2(42A) AN D S.49(1)(II)- IN CONSTRUING THE WORDS ASSET WAS HELD BY THE ASSE SSEE IN CL.(III) OF S. 48, ONE HAS TO SEE THE OBJECT WITH W HICH THE SAID WORDS ARE USED IN THE STATUTE- IN THE ABSENCE OF AN Y INDICATION IN CL. (III) OF THE EXPLANATION TO S.48 THAT THE WO RDS ASSET WAS HELD BY THE ASSESSEE HAVE TO BE CONSTRUED DIFFEREN TLY, THE SAID WORDS SHOULD BE CONSTRUED IN ACCORDANCE WITH T HE OBJECT OF THE STATUTE, THAT IS, IN THE MANNER SET OUT IN E XPLN. 1(I)(B) TO S. 2(42A)- IF THE MEANING GIVEN IN S.2(42A) IS NOT ADOPTED IN CONSTRUING THE WORDS USED IN S.48, THEN THE GAINS A RISING ON TRANSFER OF A CAPITAL ASSET ACQUIRED UNDER A GIFT W ILL BE OUTSIDE THE PURVIEW OF THE CAPITAL GAINS TAX AND THE PROVIS ION OF S.55(1)(B)(2)(II) WILL BECOME UNWORKABLE. 4 A SIMILAR VIEW WAS TAKEN BY THE HON'BLE DELHI HIGH COURT IN CASE OF ARUN SHUNGLOO TRUST, 68 DTR 279 (DEL). HEA D NOTE OF THIS DECISION READS AS UNDER: CAPITAL GAINS- COST OF ACQUISITION RELEVANT YEAR FOR INDEXATION OF COST VIS--VIS PROPERTY ACQUIRED UNDE R GIFT, TRUST, ETC.- THERE IS NO REASON TO HOLD THAT CL.(III) OF T HE EXPLANATION BELOW S.48 INTENTS TO REDUCE OR RESTRICT THE INDEX ED COST OF ACQUISITION TO THE PERIOD DURING WHICH THE ASSESSE E HAS HELD THE PROPERTY AND NOT THE PERIOD DURING WHICH THE PR OPERTY WAS HELD BY THE PREVIOUS OWNER- HELD BY THE ASSESSEE USED IN EXPLN. (III) TO S.48 HAS TO BE UNDERSTOOD IN THE CO NTEXT AND HARMONIOUSLY WITH OTHER SECTIONS- COST OF ACQUISITI ON STIPULATED IN S.49 MEANS THE COST FOR WHICH THE PRE VIOUS OWNER HAD ACQUIRED THE PROPERTY TERM HELD BY THE ASSES SEE SHOULD BE INTERPRETED TO INCLUDE THE PERIOD DURING WHICH THE PROPERTY IN TRUST ON 5 TH JAN., 1996, WHICH PROPERTY WAS ACQUIRED BY THE PREVIOUS OWNER SOMETIME BEFORE 1 ST APRIL, 1981, ON SALE OF PROPERTY BY THE ASSESSEE IN ASST.Y R.2001-02, IT WAS ENTITLED TO THE BENEFIT OF INDEXED COST OF A CQUISITION FROM 1 ST APRIL, 1981, AND NOT FOR THE PERIOD ON OR AFTER 5 TH JAN., 1996. HELD AS PER S.49, THE COST OF ACQUISITION IN THE HANDS O F AN ASSESSEE IS TREATED AS THE COST OF ACQUISITION BY T HE PREVIOUS OWNER. SIMILAR BENEFIT / ADVANTAGE IS GIVEN IN RESP ECT OF COST OF IMPROVEMENT. SECS. 48 AND 49 HAVE TO BE READ HARMONIOUSLY TO GIVE FULL EFFECT TO THE LEGISLATIVE INTENT. ON READING OF CL. (IV) OF EXPLANATION TO S.48, IT IS A PPARENT THAT THE TERM COST OF IMPROVEMENT WOULD INCLUDE THE COST O F IMPROVEMENT(S) MADE BY THE PREVIOUS OWNER. THE BENE FIT OF INDEXED COST OF IMPROVEMENT WOULD BE AVAILABLE EVEN IF THE CAPITAL ASSET IS ACQUIRED BY THE ASSESSEE UNDER ANY GIFT, WILL OR SUCCESSION, TRUST ETC. AND IMPROVEMENT WAS MADE BY THE PREVIOUS OWNER. IF THE CONTENTION OF THE REVENUE IS ACCEPTED, THEN BENEFIT OF INDEXED COST OF ACQUISITION WILL NO T BE AVAILABLE TO AN ASSESSEE IN A CASE COVERED BY S.49 FROM THE D ATE ON WHICH THE ASSET WAS HELD BY THE PREVIOUS OWNER BUT ONLY FROM THE DATE THE CAPITAL ASSET WAS TRANSFER TO THE ASSE SSEE. THIS WILL LEAD TO A DISCONNECT AND CONTRADICTION BETWEEN INDEXED COST OF ACQUISITION AND INDEXED COST OF IMPROVEME NT IN THE CASE OF CAPITAL ASSETS WHERE S.49 APPLIES. THIS CAN NOT BE THE INTENTION BEHIND THE ENACTMENT OF S.49 AND EXPLANAT ION TO S.48. THERE IS, NO REASON OR GROUND WHY THE LEGISLA TIVE WOULD WANT TO DENY OR DEPRIVE AN ASSESSEE BENEFIT / ADVAN TAGE OF THE PREVIOUS HOLDING FOR COMPUTING INDEXED COST OF ACQUISITION WHILE ALLOWING THE SAID BENEFIT FOR CO MPUTING INDEXED COST OF IMPROVEMENT. (PARAS 10,13 & 14) 5 THE CONSTRUCTION PLACED BY THE REVENUE WILL LEAD TO INCONSISTENCY AND INCONGRUITIES, WHEN ONE REFERS T O S.49 AND CL. (IV) OF EXPLN. (1) TO S. 48. THIS WILL RESULT I N ABSURDITIES BECAUSE THE HOLDING OF PREDECESSOR HAS TO BE ACCOUN TED FOR THE PURPOSE OF COMPUTING THE COST OF ACQUISITION , COST OF IMPROVEMENT AND INDEXED COST OF IMPROVEMENT BUT AS PER THE REVENUE NOT FOR THE PURPOSE OF INDEXED COST OF ACQU ISITION. EVEN FOR THE PURPOSE OF DECIDING WHETHER THE TRANSA CTION IS A SHORT-TERM CAPITAL GAIN OR LONG-TERM CAPITAL GAIN, THE HOLDING BY THE PREDECESSOR IS TO BE TAKEN INTO CONSIDERATIO N. BENEFIT OF INDEXED COST OF INFLATION IS GIVEN TO ENSURE THAT T HE TAXPAYER PAYS CAPITAL GAIN TAX ON THE REAL OR ACTUAL GAIN AND NOT ON THE INCREASE IN THE CAPITAL VALUE OF THE PROPERTY D UE TO INFLATION. THIS IS THE OBJECT OR PURPOSE IN ALLOWIN G BENEFIT OF INDEXED COST OF IMPROVEMENT, EVEN IF THE IMPROVEMEN T WAS BY THE PREVIOUS OWNER IN CASES COVERED BY S.49. ACCORD INGLY THERE IS NO JUSTIFICATION OR REASON TO NOT ALLOW TH E BENEFIT OF INDEXATION TO THE COST OF ACQUISITION IN CASES COVE RED BY S.49. THIS IS NOT THE LEGISLATIVE INTENT BEHIND CL.(III) OF EXPLANATION TO S.48. THERE IS NO REASON AND JUSTIFICATION TO HOLD THAT CL.(III) OF THE EXPLANATION BELOW S.48 INTENTS TO REDUCE OR RES TRICT THE INDEXED COST OF ACQUISITION TO THE PERIOD DURING WHICH THE ASSESSEE HAS HELD THE PROPERTY AND NOT THE PERIOD D URING WHICH THE PROPERTY WAS HELD BY THE PREVIOUS OWNER. THE INTERPRETATION RELIED BY THE ASSESSEE IS REASONABLE AND IN CONSONANCE WITH THE OBJECT AND PURPOSE BEHIND SS. 4 8 AND 49. THE EXPRESSION HELD BY THE ASSESSEE USED IN EXPLN . (III) TO S. 48 HAS TO BE UNDERSTOOD IN THE CONTEXT AND HARMONIO USLY WITH OTHER SECTIONS. THE COST OF ACQUISITION STIPULATED IN S.49 MEANS THE COST FOR WHICH THE PREVIOUS OWNER HAD ACQ UIRED THE PROPERTY. THE TERM HELD BY THE ASSESSEE SHOULD BE INTERPRETED TO INCLUDE THE PERIOD DURING WHICH THE PROPERTY WAS HELD BY THE PREVIOUS OWNER. CIT VS. MANJULA J, SH AH (2012) 68 DTR (BOM,) 269 CONCURRED WITH. FOLLOWING THE ABOVE DECISION WE ARE OF THE OPINION THAT IN CASE CAPITAL ASSET HAS BEEN RECEIVED BY THE ASSESSE E BY WAY OF GIFT OR INHERITANCE THEN COST OF INFLATION INDEX HAS TO BE APPLIED FROM THE DATE WHEN SUCH ASSET WAS ACQUIRED BY THE PREVIOUS OWNER. ACCORDINGLY WE SET ASIDE THE ORDE R OF THE LD. CIT(A) AND DIRECT THE ASSESSING OFFICER TO APPLY I NFLATION INDEX AS PER OUR OBSERVATIONS. 7. AS OBSERVED AT THE BEGINNING OF THIS ORDER, THE FACTS AND THE ISSUES INVOLVED IN ASSESSMENT YEAR 2005-06 AND 2006-07 IN ITAS NO. 953 & 954/CHD/2012 ARE IDENTICAL, THEREFOR E, SAME DECISION WOULD BE APPLICABLE TO THOSE APPEALS. 6 8 IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE AR E ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23.8.2013 SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 23.8.2013 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR