MANOHAR H KAKWANI, MUMBAI V. ITO 13(3)(1), MUMBAI

ITA 972/MUM/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83525 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 11-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V R PATIL
• Assessee Lawyers: K R LAKHSHMI NARAYAN
• Keywords: Sale consideration of property below Jantri Value; Principle of natural justice; Cost of acquisition; Benefit of exemption
• Section: 50C; 54

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI .., ! , ' , # BEFORE SHRI I.P.BANSAL, JM AND SHRI RAJENDRA, AM ITA NO.972/MUM/2014 (A.Y.2009-10) MANOHAR H.KAKWANI, 8, BAGHUBHAI, CHAMBERS, NN STREET, MASJID BUNDER, MUMBAI 400009 PAN: AABPK 3395H THE INCOME TAX OFFICER 13(3)(1) 4 TH FLOOR, AAYKAR BHAVAN, MUMBAI 400 020 ( $% / // / APPELLANT) ' ' ' ' / VS. ( ()$%/ RESPONDENT) $% * + * + * + * + /APPELLANT BY : SHRI K.R.LAKHSHMI NARAYAN ()$% * + * + * + * + /RESPONDENT BY : SHRI V.R.PATIL ' * ,-' / / / / DATE OF HEARING : 11.8.2014 ./0 * ,-' / DATE OF PRONOUNCEMENT : 11.08.2014 1 1 1 1 / / / / O R D E R PER I.P.BANSAL (JM) : THIS IS AN APPEAL FILED BY THE ASSESSEE. IT IS DI RECTED AGAINST ORDER PASSED BY LD. CIT(A)-24, MUMBAI DATED 27/11/2013 FOR ASSESSME NT YEAR 2009-10. GROUNDS OF APPEAL READ AS UNDER: 1. THE ORDER PASSED BY THE LEARNED CIT (A) IS BAD IN LAW. 2. (A) THE LEARNED CIT (A) ERRED IN NOT HOLDING THA T THE COMPENSATION RECEIVED BY THE APPELLANT FROM DEVELOPER FOR GRANTING DEVELOPMENT R IGHTS IS ENTITLED TO EXEMPTION ON THE BASIS OF VARIOUS DECISIONS OF MUMBAI ITAT GIVEN AN ANNEXURE. (B) THE LEARNED CIT (A) ERRED IN ENHANCING THE INCO ME OF THE APPELLANT WITHOUT GIVING PROPER OPPORTUNITY TO THE APPELLANT BY HOLDING THAT THE APPELLANT IS ENTITLED TO EXEMPTION U/S.54 LIMITED TO ONE FLAT ONLY AND WITHD RAWING THE EXEMPTION EARLIER ALLOWED BY THE ASSESSING OFFICER IN RESPECT OF MORE THAN ONE FLAT. 3. THE LEARNED CIT (A) FAILED TO APPRECIATE THAT TH E APPELLANT HAD SURRENDERED TO THE DEVELOPER AGGREGATE CARPET AREA OF 5580 SQ. FT., AN D IN ITS PLACE RECEIVED THE SAME CARPET AREA OF 5580 SQ. FT. 4. THE LEARNED CIT (A) FAILED TO TAKE NOTE OF THE F OLLOWING DECISIONS HOLDING THAT AN ASSESSEE IS ENTITLED TO CLAIM EXEMPTION ULS.54 TO M ORE THAN ONE FLAT. CIT V. GITA DUGGAL - 357 ITR 153 DEL. CIT V. SMT. K. G. RUKMINI AMMA-331 ITR 211 KAR ITA NO.972/MUM/2014 (A.Y.2009-10) 2 VITTAL KRISHNA CONJEEVARAM V. ITO - 144 ITD 325 HYD . CIT V. D. ANAND BASAPPA 309 ITR 329 KAR CIT V. SYED ALI ADIL -352 ITR 418 AP. 5. IT IS PRAYED THAT THE APPELLANT MAY BE ALLOWED ( I) EXEMPTION TO THE COMPENSATION RECEIVED FROM DEVELOPER FOR GRANT OF DEVELOPMENT RI GHT AND ALSO; (II) EXEMPTION ULS.54 TO THE 3 FLATS RECEIVED BY DEVELOPMENT AGREEMENT. 2. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO FOUND THAT IN THE RETURN OF INCOME FILED BY THE ASSESSEE A SUM OF RS.3.04 CRORES HAS BEEN SHOWN IN THE EXEMPTED INCOME COLUMN WHICH INCLUDE RECEIPT ON AC COUNT OF TRANSFER OF DEVELOPMENT RIGHTS AMOUNTING TO RS.2.97 CRORES. HE REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY LONG TERM CAPITAL GAIN OF RS.2,82 ,56,608/- HAS NOT BEEN OFFERED FOR TAXATION. IN REPLY TO SUCH QUERY OF THE AO THE ASS ESSEE OFFERED AN AMOUNT OF RS.2,32,56,607/- AS LONG TERM CAPITAL GAIN. THE CA LCULATION IS AS UNDER: SALE CONSIDERATION RS.3,80,00,000/- LESS: I. COST OF ACQUISITION RS.17, 43,393/- II. EXPENSES TOWARDS COST OF CONSTRUCTION RS .80,00,000/- III. EXEMPTION U/S.54EC REC CAPITAL GAIN BOND RS.50,00 ,000/- RS. 1,47,43,393/- LONG TERM CAPITAL GAIN RS.2,32,56,607/- ====== ========= 2.1 ACCORDINGLY, AN INCOME OF RS.2,32,56,607/- HAS BEEN ASSESSED AS LONG TERM CAPITAL GAIN ON TDR SALES. THE ADDITION WAS AGITAT ED IN AN APPEAL FILED BEFORE LD. CIT(A). IT WAS SUBMITTED THAT AO COMMITTED AN ERRO R IN NOT ACCEPTING THE SUBMISSION OF THE ASSESSEE THAT NO TAX COULD BE CHA RGED IN RESPECT OF SALE OF TDRS IN ACCORDANCE WITH THE DECISION OF MUMBAI TRIBUNAL IN THE CASE OF RAMKUMAR MALHOTRA IN ITA NO.4853/MUM/2009 DATED 14/5/2010. 3. LD. CIT(A) DID NOT ACCEPT SUCH SUBMISSION OF THE ASSESSEE AND HAS ALSO ENHANCED THE ASSESSMENT BY TREATING THE VALUE OF 3 FLATS AS ADDITIONAL CONSIDERATION OF TRANSFER OF DEVELOPMENT RIGHTS AND COMPUTED THE CAPITAL GAIN AT A HIGHER FIGURE. THE VALUE OF 3 FLATS WAS ESTIMAT ED AT RS.7.00 CRORES AND DEDUCTION UNDER SECTION 54 OF THE INCOME TAX ACT, 1961(THE AC T) HAS BEEN RESTRICTED TO ONE FLAT ITA NO.972/MUM/2014 (A.Y.2009-10) 3 BY WITHDRAWING THE DEDUCTION ALLOWED BY THE AO IN RESPECT OF 2 FLATS. IT IS AGAINST THESE FINDINGS OF LD. CIT(A) THE ASSESSEE H AS FILED AFOREMENTIONED GROUNDS. 4. IT WAS SUBMITTED BY LD. AR THAT AT THE FIRST PLA CE NO CAPITAL GAIN COULD BE CHARGED ON TRANSFER OF DEVELOPMENT RIGHTS AND ONLY ON THE INSTRUCTIONS RECEIVED FROM AO THE CALCULATION REGARDING WORKING OF COST O F ACQUISITION WAS SUBMITTED. IT WAS SUBMITTED BY LD. AR THAT EVEN WITHOUT PREJUDICE TO THE AFOREMENTIONED ARGUMENTS OF ASSESSEE LD. CIT(A) HAS ALSO COMMITTED AN ERROR IN ESTIMATING THE VALUE OF 3 FLATS ACQUIRED BY THE ASSESSEE AT RS.7 .00 CRORES AS THE STAMP DUTY VALUE OF THE ENTIRE TRANSACTION WAS ONLY AN AMOUNT OF RS.3.80 CRORES AND SUCH VALUATION BY THE LD. CIT(A) IS IN VIOLATION OF SECT ION 50C OF THE ACT. LD. AR SUBMITTED THAT THOUGH THE ISSUE IS COVERED BY VARI OUS DECISIONS OF THE TRIBUNAL THAT AMOUNT RECEIVED BY THE ASSESSEE FROM DEVELOPER FOR TRANSFER OF DEVELOPMENT RIGHTS IS NOT TAXABLE BUT LD. CIT(A) HAS COMMITTED AN ERRO R IN DECIDING THE APPEAL ON 27/11/2013 WHEN THE CASE HAS ALREADY BEEN ADJOURNED BY LD. CIT(A) FOR 19/12/2013. LD. AR HAS FILED A SYNOPSIS OF HIS ARG UMENTS, WHICH READ AS UNDER: THE FACTS OF THE CASE ARE AS UNDER: THE APPELLANT WAS OWNING A PLOT OF LAND WITH A BUIL DING STANDING THEREON. DURING THE YEAR, THE APPELLANT HAD TRANSFERRED THE DEVELOPMENT RIGHTS IN RESPECT OF THE SAID PROPERTY FOR A CONSIDERATION OF RS.3.80 CRS., RETAI NING WITH HIM THE FSI ADMEASURING 5580 SQ. FT., USING WHICH THE DEVELOPER WAS TO CONS TRUCT 3 FLATS ON BEHALF OF THE APPELLANT FOR WHICH THE DEVELOPER WAS TO BE PAID RS .80 LAKHS. THE ASSESSING OFFICER DID NOT ALLOW THE CLAIM OF TH E APPELLANT MADE IN THE RETURN OF INCOME THAT THE CAPITAL GAIN ON TRANSFER OF DEVELOP MENT RIGHTS IS NOT TAXABLE. HE, HOWEVER, ALLOWED DEDUCTION ULS.54EC OF AN AMOUNT OF RS.50 LAKHS AND HE ALSO ALLOWED DEDUCTION ULS.54 OF RS.80 LAKHS FOR THE 3 FLATS. THE APPELLANT TOOK THE MATTER IN APPEAL TO CIT (A). THE CIT (A) DID NOT ALLOW THE APPEAL OF THE APPELLANT AGAINST TAXATION OF CAPITAL GAINS IN RESPECT OF TRANSFER OF DEVELOPMENT RIGHTS. ON THE OTHER HAND, HE ENHANCED THE ASSESSME NT BY TREATING THE VALUE OF 3 FLATS AS ADDITIONAL CONSIDERATION FOR TRANSFER OF D EVELOPMENT RIGHTS AND THEREBY COMPUTING THE CAPITAL GAIN AT HIGHER FIGURE. FOR TH IS PURPOSE HE ESTIMATED THE VALUE OF THESE 3Y2 FLATS AT RS.7 CRS. HE FURTHER RESTRICTED THE DEDUCTION ULS.54 TO ONE FLAT ONLY WITHDRAWING THE DEDUCTION ALLOWED BY THE ASSESSING OFFICER IN RESPECT OF 2 FLATS. EVEN THOUGH THERE WAS NO TAXABLE CAPITAL GAIN FROM TRANSFER OF DEVELOPMENT RIGHTS, THE APPELLANT, UNDER INSTRUCTIONS FROM ASSESSING OFFICE R SUBMITTED THE WORKING OF COST OF ACQUISITION. IT IS VERY HUMBLY SUBMITTED THAT THE ORDER OF CIT ( A) SUFFERS FROM INFIRMITIES LISTED BELOW 1) IN PARA 6.1.10 OF HIS ORDER, THE LEARNED CIT (A) HAS WRONGLY HELD THAT THERE IS TRANSFER OF PROPERTY AND HAS COMPUTED THE LONG TERM CAPITAL GAIN ARISING THEREFROM AT RS.8,12,56,6071- WHEREAS ACCORDING TO CLAUSE (I) OF DEVELOPMENT AGREEMENT THE ITA NO.972/MUM/2014 (A.Y.2009-10) 4 APPELLANT HAS RETAINED FOR HIMSELF FSI ADMEASURING 5580 SQ. FT., TO BE UTILIZED IN THE CONSTRUCTION OF 3 FLOORS IN THE NEW BUILDING WHI CH THE DEVELOPER CONSTRUCTED AND HANDED OVER TO THE APPELLANT FOR AN AMOUNT OF RS.80 ,00,000/- TOWARDS COST OF CONSTRUCTION. IN OTHER WORDS, CAPITAL GAIN CANNOT A RISE ON ACCOUNT OF A PROPERTY WHICH IS NOT TRANSFERRED TO THE DEVELOPER. ASSUMING, BUT NOT ADMITTING THAT CAPITAL GAIN ARISES ON TRANSFER OF DEVELOPMENT RIGHTS, IT CAN AR ISE ONLY ON THE PORTION OF FSI WHICH WAS TRANSFERRED WHICH WAS USED BY THE BUILDER TO CO NSTRUCT A FEW FLATS WHICH WERE ULTIMATELY SOLD IN THE OPEN MARKET. 2) THE CIT (A) WAS IN ERROR IN ESTIMATING THE VALUE OF 3 V2 FLATS ACQUIRED BY THE APPELLANT AT RS.7 CRS. IT MAY BE POINTED OUT THAT T HE STAMP DUTY VALUE OF THE ENTIRE TRANSACTION IS RS.3.80 CRS. THE ESTIMATED VALUE OF RS.7 CRS., IS FAR IN EXCESS OF THE STAMP DUTY VALUE OF RS.3.80 CRS., IS IN VIOLATION O F SEC.50-C. 3) THE LEARNED CIT (A) WAS IN ERROR IN HASTILY PASS ING THE APPELLATE ORDER ON 27-11-2013 WITHOUT AFFORDING PROPER OPPORTUNITY TO THE APPELLA NT. THE APPEAL HEARING WAS FIXED ON 28-11-2013. THE MARRIAGE OF APPELLANTS A.R.S GRAN D DAUGHTER WAS FIXED ON SAME DAY VIZ. 28-11-2013. THE A.R. APPLIED IN WRITING ON 25- 1 1-2013 TO CIT (A) SEEKING ADJOURNMENT ON THAT GROUND. THE CASE WAS ADJOURNED TO 19-12-2013. HOWEVER THE LEARNED CIT (A) PASSED THE ORDER ON 27-11-2013, THU S DENYING PROPER OPPORTUNITY TO THE APPELLANT TO PRESENT HIS CASE WHEREBY THE HUGE DEMA ND WOULD NOT HAVE ARISEN THE APPELLANT SEEKS THE PERMISSION OF HONBLE ITAT TO CONSIDER THE FOLLOWING PRAYERS WHICH ARE INDEPENDENT OF AND WITHOUT PREJUDICE TO E ACH OTHER. (I) THE ENTIRE AMOUNT OF RS.3.80 CRS., RECEIVED BY HIM FROM THE DEVELOPER FOR TRANSFER OF DEVELOPMENT RIGHTS MAY BE HELD AS NOT TAXABLE. [PLE ASE REFER TO THE CASE LAWS IN THE PAPER BOOK] (II) IN CASE THE SAME IS NOT ALLOWABLE COST OF ACQU ISITION OF RS.17,43,393/- ALLOWED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER MAY B E DULY INDEXED FOR COST INFLATION AND MAY BE ALLOWED AS DEDUCTION. (III) BENEFIT OF EXEMPTION U/S.54 ALLOWED BY THE AS SESSING OFFICER FOR THE 3 FLATS MAY BE RESTORED. [PLEASE REFER TO THE CASE LAWS IN THE PAPER BOOK] (IV) IN CASE, EXEMPTION IS TO BE RESTRICTED TO ONE FLAT ONLY, THE VALUE OF REMAINING 2 FLATS MAY BE TAKEN PROPORTIONATELY AT RS.57,14,285/ ON THE BASIS OF COST OF RS.80 LAKHS PAID TO THE DEVELOPER FOR THE 3 FLATS. 4.1 THUS, IT WAS SUBMITTED BY LD. AR THAT THE ORDER PASSED BY LD. CIT(A) SHOULD BE SET ASIDE AND APPROPRIATE RELIEF SHOULD BE GRANT ED TO THE ASSESSEE. 5. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDER PASSED BY LD. CIT(A). 6. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. THE IMPUGNED ORDER PASSED BY LD. CIT(A ) IS DATED 27/11/2013. AS PER SUBMISSIONS MADE BEFORE US THE APPEAL WAS FIXED FOR HEARING ON 28/11/2013. THE MARRIAGE OF GRANDDAUGHTER OF THE AUTHORIZED REPRESE NTATIVE WHO WAS ARGUING THE MATTER BEFORE LD. CIT(A) WAS FIXED FOR 28/11/2013. THEREFORE, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE HAD APPLIED FOR ADJO URNMENT ON 25/11/2013 AND THE ITA NO.972/MUM/2014 (A.Y.2009-10) 5 MATTER WAS ADJOURNED BY LD. CIT(A) TO 19/12/2013. SUCH SUBMISSION OF THE ASSESSEE IS SUPPORTED BY AN APPLICATION SUBMITTED B Y LD.A.R VIDE LETTER DATED 23/11/2013, COPY PLACED AT PAGE 61 OF THE PAPER BO OK. THE SAID LETTER HAS DULY BEEN RECEIVED IN THE OFFICE OF LD. CIT(A) ON 25/11/ 2013. THE CONTENTS OF THE SAID APPLICATION ARE AS UNDER: SIR, OUR CLIENT IS IN RECEIPT OF THE NOTICE DATED 20.11. 2013 SENT BY YOUR OFFICE FIXING THE HEARING OF THE APPEAL FILED BY OUR CLIENT ON 28.11. 2013. THE UNDERSIGNED IS UNABLE TO ATTEND HEARING ON ACCOUNT OF THE MARRIAGE/RECEPTION OF HIS GRANDDAUGHTER TAKING PLACE ON THE VERY SAME DAY. IT IS REQUESTED THAT THE HEARING MAY PLEASE BE ADJ OURNED BY 10 DAYS. 6.1 IF THE ABOVE FACTS ARE CONSIDERED, THE ORDER PA SSED BY LD. CIT(A) WILL BE IN GROSS VIOLATION OF NATURAL JUSTICE, FIRSTLY, FOR TH E REASON THAT WHEN APPEAL ITSELF WAS FIXED FOR HEARING ON 28/11/2013, ORDER COULD NOT BE PASSED BY LD. CIT(A) ON 27/11/2013 I.E. A DAY AHEAD OF THE FIXED DATE OF H EARING OF THE APPEAL. SECONDLY, THE REQUEST OF THE ASSESSEE FOR ADJOURNMENT OF HEAR ING THE APPEAL WAS FOR GOOD AND SUFFICIENT REASON WHICH COULD NOT BE TURNED DOWN. MOREOVER, THE ADJOURNMENT WAS GIVEN FOR 19/12/2013. THUS, THE ORDER PASSED BY LD . CIT(A) IS IN GROSS VIOLATION OF NATURAL JUSTICE AND HAS TO BE SET ASIDE WITH A DIR ECTION TO THE LD. CIT(A) TO RE- ADJUDICATE THE ENTIRE APPEAL FILED BY THE ASSESSEE AFTER GIVING THE ASSESSEE A REASONABLE AND SUFFICIENT OPPORTUNITY OF BEING HEAR D. LD. CIT(A) IS ALSO DIRECTED TO TAKE INTO CONSIDERATION EACH OF THE SUBMISSIONS OF THE ASSESSEE AND DISPOSE OF THE SAME BY WAY OF A SPEAKING ORDER. WITH THESE DIRECT IONS WE RESTORE THIS APPEAL TO THE FILE OF LD. CIT(A) AND THE APPEAL FILED BY THE ASSE SSEE SHALL BE CONSIDERED TO BE ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER AFOR E SAID. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER AFORESAID. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 11 TH AUG., 2014. 1 * ./0 2'3 11.08.2014 / * 9 SD/- SD/- (RAJENDRA) (I.P.BANSAL) ' ' ' ' / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; 2' DATED : 11TH AUG. 2014. ITA NO.972/MUM/2014 (A.Y.2009-10) 6 VM. 1 * (,: ; :0, 1 * (,: ; :0, 1 * (,: ; :0, 1 * (,: ; :0,/ COPY OF THE ORDER FORWARDED TO : 1. $% / THE APPELLANT 2. ()$% / THE RESPONDENT. 3. <() / THE CIT, MUMBAI. 4. < / CIT(A)-13, MUMBAI 5. :?9 (,' , , / DR, ITAT, MUMBAI 6. 9@ A / GUARD FILE. 1' 1' 1' 1' / BY ORDER, ):, (, //TRUE COPY// B BB B/ // /C C C C (DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI ITA NO.972/MUM/2014 (A.Y.2009-10) 7 DATE INITIAL 1. DRAFT DICTATED ON 11.8.2014 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 11.08.2014 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. FILE SENT TO THE BENCH CLERK SR.PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER. 11. DRAFT DICTATION SHEETS ARE ATTACHED SR.PS