D.C.I.T Cir - 1,kolkata, Kolkata V. M/s Avery (India) Ltd, Kolkata

ITA 980/KOL/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1878 (ITAT-KOLKATA)
• Duration Of Justice: 4 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2017
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 08-09-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 26-04-2013
• Court: TRIBUNAL
• Department Lawyers: RAJAT KUMAR KUREEL
• Assessee Lawyers: MA NISH SHETH
• Keywords: Cost of acquisition; Fair market value; Surrender of tenancy right
• Section: 143(3); 28; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C, BENC H KOLKATA BEFORE SHRI N.V.VASUDEVAN, JM & DR. A.L.SAINI, AM ./ ITA NO.980/KOL/2013 ( / ASSESSMENT YEAR:2006-2007) DCIT, CIRCLE-1, KOLKATA, AAYAKAR BHAVAN, 7 TH FLOOR, P-7, CHOWRANGHIEE SQUARE, KOLKATA-69 VS. M/S AVERY (INDIA) LIMITED, 28/2, WATERLOO STREET, KOLKATA-700069 ./ ./PAN/GIR NO.: AACCA 4694 B ( /ASSESSEE ) .. ( / RESPONDENT ) REVENUE BY : SHRI RAJAT KUMAR KUREEL, JCIT ASSESSEE BY : SHRI MANISH SHETH, AR / DATE OF HEARING : 08/03/2017 /DATE OF PRONOUNCEMENT 26/04/2017 / O R D E R PER DR. ARJUN LAL SAINI, AM THE CAPTIONED APPEAL FILED BY THE REVENUE, PERTAINI NG TO ASSESSMENT YEAR 2006-07, IS DIRECTED AGAINST THE OR DER PASSED BY LD. COMMISSIONER OF INCOME TAX (APPEALS)-XX, KOLKATA, I N APPEAL NO.85/CIT(A)-XX/CIRCLE-1/2011-12/KOL, DATED 16.01.2 013, WHICH IN TURN ARISES OUT OF AN ORDER PASSED BY THE ASSESSING OFFI CER (AO) UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961, (HEREINA FTER REFERRED TO AS THE ACT), DATED 29.12.2009. 2. BRIEF FACTS OF THE CASE QUA THE ASSESSEE ARE THA T THE ASSESSEE FILED ITS RETURN OF INCOME DISCLOSING TOTAL INCOME OF RS. 3,88,68,115/-.THE RETURN OF INCOME WAS PROCESSED U/S 143(1). LATER ON, THE A SSESSEES CASE WAS SELECTED FOR SCRUTINY U/S.143(3) OF THE ACT AND THE AO HAS COMPLETED THE ASSESSMENT BY MAKING ADDITION ON ACCOUNT OF SHORT T ERM CAPITAL GAIN AT RS.65,81,000/-. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEES CLAIM IN RESPECT OF SURRENDER OF TENANCY RIGHTS IS NOT AC CEPTED BECAUSE AS PER ITA NO.980/13 M/S AVERY (INDIA) LTD. 2 SECTION 43(6) OF THE ACT, WRITTEN DOWN VALUE OF A P ARTICULAR BLOCK OF ASSETS INCLUDES ONLY THE ACTUAL COST OF THE ASSET ACQUIR ED DURING THE PREVIOUS YEAR. THE TERM ACTUAL COST FOR THE PURPOSE OF SECTI ON 28 TO 41 IS ALSO DEFINED IN SUB-SECTION 1 OF SECTION 43 WHICH SAYS A CTUAL COST MEANS THE ACTUAL COST OF THE ASSETS TO THE ASSESSEE, REDUCED THAT PORTION OF THE COST THEREOF, IF ANY, AS HAS BEEN MADE DIRECTLY OR INDIR ECTLY BY ANY OTHER PERSON OR AUTHORITY. THE AO OBSERVED THAT THE ACTUAL COST OF ASSET IN THE HAND OF THE ASSESSEE IS ONLY RS.3,92,069/- WHICH COMPRISES OF RATES & TAXES AND STAMP DUTY ACTUALLY INCURRED BY THE ASSESSEE FOR AC QUISITION OF THE ASSET. THEREFORE, THE CONSIDERATION VALUE OF THE PROPERTY RS.65,81,000/- CANNOT BE REGARDED AS THE ACTUAL COST OF THE ASSET IN THE HAND OF THE ASSESSEE SINCE OUTGOING OF ASSESEES RESOURCE FOR ACQUISITIO N OF THE ASSET IS ONLY THE TENANCY RIGHT, VALUE OF WHICH IS RS.NIL. AS A M ATTER OF FACT ASSESSEE ACTUALLY PAID NOTHING OTHER THAN RATES & TAXES AND STAMP DUTY TO BRING THE ASSET INTO EXISTENCE IN ITS BOOKS OF ACCOUNTS. FOR THE PURPOSE OF CAPITAL GAIN ONLY THE ACTUAL CAPITAL OUTGOING IS TO BE CONSIDERED BUT IN ASSESSEES CASE THIS ACTUAL CAPITAL OUTGOING IS ZER O EXCEPT EXPENDITURES RELATED TO THE ACQUISITION OF THE ASSETS. ACCORDING LY, ASSESSEES CLAIM OF ADDITION TO THE FIXED ASSETS FOLLOWING IN THE BLOCK BUILDING IS DISALLOWED TO THE EXTENT OF RS.65,81,000/- AND ACCORDINGLY THE A O TREATED SHORT TERM CAPITAL GAIN UNDER SECTION 50 AT RS. 65,81,000/-. 3. AGGRIEVED FROM THE ORDER OF ASSESSING OFFICER, T HE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A), WHO HAS DELETED TH E ADDITION MADE BY ASSESSING OFFICER. THE LD CIT (A) OBSERVED THAT THE ASSESSEE SOLD A ITA NO.980/13 M/S AVERY (INDIA) LTD. 3 DEPRECIABLE ASSET OF RS.1,36,00,000/- AND WHICH WAS OFFERED AS SHORT TERM CAPITAL GAIN U/S 50 OF THE I.T. ACT. THE ASSES SING OFFICER FOUND THAT AN AMOUNT OF RS.69,73,069/- WAS ADDED AS OPENING WD V OF THE BLOCK BEING MARKET VALUE OF A PROPERTY WHICH WAS PROVIDED BY THE PROMOTER IN LIEU OF ASSESSEE'S SURRENDER OF TENANCY RIGHT IN 'H OMI HOUSE' AT NAGPUR. THE A.O, CONCLUDED THAT THE VALUE OF PROPERTY SHOWN BY THE ASSESSEE AS THE ACTUAL COST CAN ONLY BE TAKEN AT NIL AS THE ASS ESSEE RELINQUISHED ONLY TENANCY RIGHT BUT DID NOT SPENT ANY MONEY FOR ACQU ISITION OF THE NEW PROPERTY. BUT IT IS VERY MUCH CLEAR THAT THE ASSET ACQUIRED BY THE ASSESSEE IN SUBHEDHAR APARTMENT WAS NOT TRANSFERRED FREE OF COST BY THE DEVELOPER BUT IN LIEU OF SURRENDER VALUE OF TENANCY RIGHT HEL D BY THE ASSESSEE IN 'HOMI HOUSE'. THE NEW PREMISES AT 'SUBHEDHAR APARTM ENT' WAS ACQUIRED AT A FAIR MARKET VALUE OF RS. 65,81,000/- IN LIEU O F THE AMOUNT THAT THE ASSESSEE WAS SUPPOSED TO RECEIVE AS SALE CONSIDERAT ION ON SURRENDER OF TENANCY RIGHTS. THE MERE FACT THAT THE ASSESSEE INS TEAD OF RECEIVING THE AMOUNT OF SALE CONSIDERATION OF RS. 65,81,000/-, OP TED TO RECEIVE THE NEW PREMISES AT 'SUBHEDAR APARTMENT' IN EXCHANGE OF TEN ANCY RIGHT SHOULD NOT CHANGE THE NATURE OF TRANSACTION. THE TRANSACTION I S AKIN TO A SITUATION WHERE THE ASSESSEE WOULD HAVE OPTED TO RECEIVE THE SALE CONSIDERATION OF RS. 65,81,000/- ON SURRENDER OF TENANCY RIGHT AND B Y A SEPARATE AGREEMENT WOULD HAVE UTILIZED THE SAME FOR ACQUISIT ION OF THE APARTMENT WHICH WOULD FORM COST OF THE APARTMENT. THE ASSESSE E COMPUTED A LONG TERM CAPITAL GAIN OF RS. 65,81,000/- ON SURRENDER O F TENANCY RIGHT WHEREIN IT DULY CONSIDERED THE MARKET VALUE OF FLAT ACQUIRE D OF RS. 65,81,000/- AS ITA NO.980/13 M/S AVERY (INDIA) LTD. 4 SURRENDER VALUE OF TENANCY RIGHTS AND THE COST AS N IL AS PER THE PROVISIONS OF SECTION 55(2)(A)(II) OF THE INCOME TAX ACT. THE SAID MARKET VALUE OF FLAT ACQUIRED BECOMES THE COST OF ACQUISITION OF FLAT AC QUIRED IN EXCHANGE OF SURRENDER OF TENANCY RIGHT. AS REGARD THE CONTENTIO N OF THE ASSESSING OFFICER, IT IS SUBMITTED THAT SUB SECTION 1 OF SECT ION 43 DEFINES ACTUAL COST TO MEAN ACTUAL COST OF THE ASSET REDUCED BY THAT PO RTION OF COST THEREOF, IF ANY, HAS BEEN MET DIRECTLY OR INDIRECTLY BY ANY OTH ER PERSON. IN THE INSTANT CASE, THE ASSESSEE SURRENDERED TENANCY RIGHT AGAINS T WHICH IT WAS SUPPOSED TO RECEIVE CONSIDERATION OF RS. 65,81,000/ -. THE ASSESSEE IN LIEU OF SAID CONSIDERATION OR IN OTHER WORDS BY PAY MENT OF SAID CONSIDERATION RECEIVED NEW PREMISES AT 'SUBHEDHAR A PARTMENT'. HENCE THE COST OF ACQUISITION OF THE SAID APARTMENT WAS N OTHING BUT WHAT WAS RECEIVABLE ON SURRENDER OF TENANCY RIGHT. THUS, THE RE IS DEFINITELY A CASH OUTFLOW IN THE HANDS OF ASSESSEE IN ACQUIRING THE P REMISES OF APARTMENT. WHEN A FIXED ASSET IS ACQUIRED IN EXCHANGE FOR ANOT HER ASSET, ITS COST IS USUALLY DETERMINED BY REFERENCE TO THE FAIR MARKET VALUE OF THE CONSIDERATION GIVEN. IT MAY BE APPROPRIATE TO CONSI DER ALSO THE FAIR MARKET VALUE OF THE ASSET ACQUIRED IF THIS IS MORE CLEARLY EVIDENT. THIS WAY, THE LD CIT(A) DELETED THE ADDITION MADE BY ASSESSING OFFIC ER. 4. NOT BEING SATISFIED WITH THE ORDER OF LD. CIT(A) , THE REVENUE IS IN APPEAL BEFORE US AND HAS TAKEN THE FOLLOWING GROUND S OF APPEAL :- 1 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED AND IS NOT JUSTIFIED IN DELETING THE ENHA NCEMENT MADE ON ACCOUNT OF SHORT TERM CAPITAL GAIN TO THE TUNE OF R S.65,81,000/-. 2. THAT THE ASSESSEE CRAVES LEAVE TO ADD, ALTER/OR AMEND ANY OF THE GROUNDS OF APPEAL DURING THE COURSE OF HEARING. ITA NO.980/13 M/S AVERY (INDIA) LTD. 5 5. LD. DR FOR THE REVENUE HAS PRIMARILY RELIED ON THE FINDINGS OF THE AO, WHICH WE HAVE ALREADY NOTED IN OUR EARLIER PARA AND IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. ON THE OTHER HAND , THE LD. AR FOR THE ASSESSEE HAS SUBMITTED BEFORE US THAT THE AO MERELY ERRED IN COMING TO THE CONCLUSION WITHOUT CORRECTLY APPRECIATING THAT THE ASSET ACQUIRED BY THE ASSESSEE IN SUBHEDHAR APARTMENT WAS NOT TRANSFE RRED FREE OF COST BY THE DEVELOPER BUT IN LIEU OF SURRENDER VALUE OF TEN ANCY RIGHT HELD BY THE ASSESSEE IN 'HOMI HOUSE'. THE ASSESSING OFFICER FAI LED TO APPRECIATE THAT THE NEW PREMISES AT 'SUBHEDHAR APARTMENT' WAS ACQUI RED AT A FAIR MARKET VALUE OF RS. 65,81,000/- IN LIEU OF THE AMOUNT THAT THE ASSESSEE WAS SUPPOSED TO RECEIVE AS SALE CONSIDERATION ON SURREN DER OF TENANCY RIGHTS. THE MERE FACT THAT THE ASSESSEE INSTEAD OF RECEIVIN G THE AMOUNT OF SALE CONSIDERATION OF RS. 65,81,000/-, OPTED TO RECEIVE THE NEW PREMISES AT 'SUBHEDAR APARTMENT' IN EXCHANGE OF TENANCY RIGHT S HOULD NOT CHANGE THE NATURE OF TRANSACTION. THE TRANSACTION IS AKIN TO A SITUATION WHERE THE ASSESSEE WOULD HAVE OPTED TO RECEIVE THE SALE CONSI DERATION OF RS. 65,81,000/- ON SURRENDER OF TENANCY RIGHT, BUT THE ASSESSEE, BY A SEPARATE AGREEMENT WOULD HAVE UTILIZED THE SAME FOR ACQUISITION OF THE APARTMENT (SUBHEDAR APARTMENT), WHICH WOULD FORM CO ST OF THE APARTMENT. THE LD. AR FOR THE ASSESSEE ALSO SUBMITT ED THAT THE ASSESSEE COMPUTED A LONG TERM CAPITAL GAIN OF RS. 65,81,000/ - ON SURRENDER OF TENANCY RIGHT WHEREIN IT DULY CONSIDERED THE MARKET VALUE OF FLAT ACQUIRED OF RS. 65,81,000/- AS SURRENDER VALUE OF TENANCY RI GHTS AND THE COST AS NIL AS PER THE PROVISIONS OF SECTION 55(2)(A)(II) OF TH E INCOME TAX ACT. THE ITA NO.980/13 M/S AVERY (INDIA) LTD. 6 SAID MARKET VALUE OF FLAT ACQUIRED BECOMES THE COST OF ACQUISITION OF FLAT ACQUIRED IN EXCHANGE OF SURRENDER OF TENANCY RIGHT. THE LD. AR FOR THE ASSESSEE ALSO SUBMITTED THAT SUB SECTION 1 OF SECTI ON 43 DEFINES ACTUAL COST TO MEAN ACTUAL COST OF THE ASSET REDUCED BY TH AT PORTION OF COST THEREOF, IF ANY, HAS BEEN MET DIRECTLY OR INDIRECTL Y BY ANY OTHER PERSON. IN THE INSTANT CASE, THE ASSESSEE SURRENDERED TENANCY RIGHT AGAINST WHICH IT WAS SUPPOSED TO RECEIVE CONSIDERATION OF RS. 65,81, 000/-. THE ASSESSEE IN LIEU OF SAID CONSIDERATION OR IN OTHER WORDS BY PAYMENT OF SAID CONSIDERATION, RECEIVED NEW PREMISES AT 'SUBHEDHAR APARTMENT'. HENCE THE COST OF ACQUISITION OF THE SAID APARTMENT WAS N OTHING BUT WHAT WAS RECEIVABLE ON SURRENDER OF TENANCY RIGHT. THUS, THE RE IS DEFINITELY A CASH OUTFLOW IN THE HANDS OF ASSESSEE IN ACQUIRING THE P REMISES OF APARTMENT. 6. HAVING HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL ON RECORD, WE ARE OF THE VIEW THAT THE ASSESSING OFFICER FAILE D TO APPRECIATE THAT THE ASSET ACQUIRED BY THE ASSESSEE IN SUBHEDHAR APARTME NT WAS NOT TRANSFERRED FREE OF COST BY THE DEVELOPER BUT IN LI EU OF SURRENDER VALUE OF TENANCY RIGHT HELD BY THE ASSESSEE IN 'HOMI HOUSE'. THE AO FAILED TO APPRECIATE THAT THE NEW PREMISES AT 'SUBHEDHAR APAR TMENT' WAS ACQUIRED AT A FAIR MARKET VALUE OF RS. 65,81,000/- IN LIEU O F THE AMOUNT THAT THE ASSESSEE WAS SUPPOSED TO RECEIVE AS SALE CONSIDERAT ION ON SURRENDER OF TENANCY RIGHTS. THE MERE FACT THAT THE ASSESSEE INS TEAD OF RECEIVING THE AMOUNT OF SALE CONSIDERATION OF RS. 65,81,000/-, OP TED TO RECEIVE THE NEW PREMISES AT 'SUBHEDAR APARTMENT' IN EXCHANGE OF TEN ANCY RIGHT SHOULD NOT CHANGE THE NATURE OF TRANSACTION. THE ASSESSEE COMP UTED A LONG TERM ITA NO.980/13 M/S AVERY (INDIA) LTD. 7 CAPITAL GAIN OF RS. 65,81,000/- ON SURRENDER OF TEN ANCY RIGHT WHEREIN IT DULY CONSIDERED THE MARKET VALUE OF FLAT ACQUIRED O F RS. 65,81,000/- AS SURRENDER VALUE OF TENANCY RIGHTS AND THE COST AS N IL AS PER THE PROVISIONS OF SECTION 55(2)(A)(II) OF THE INCOME TAX ACT. THE SAID MARKET VALUE OF FLAT ACQUIRED BECOMES THE COST OF ACQUISITION OF FLAT AC QUIRED IN EXCHANGE OF SURRENDER OF TENANCY RIGHT. IT MAY BE NOTED THAT S UB SECTION 1 OF SECTION 43 OF THE I.T. ACT DEFINES ACTUAL COST TO MEAN ACTU AL COST OF THE ASSET REDUCED BY THAT PORTION OF COST THEREOF, IF ANY, AS HAS BEEN MET DIRECTLY OR INDIRECTLY BY ANY OTHER PERSON. IN THE INSTANT CASE , THE ASSESSEE SURRENDERED TENANCY RIGHT AGAINST WHICH IT WAS SUPP OSED TO RECEIVE CONSIDERATION OF RS.65,81,000/-. THE ASSESSEE IN LI EU OF SAID CONSIDERATION WHICH IS TO BE RECEIVED BY HIM, HAS R ECEIVED NEW PREMISES AT 'SUBHEDHAR APARTMENT'. HENCE THE COST OF ACQUISI TION OF THE SAID APARTMENT WAS NOTHING BUT WHAT WAS RECEIVABLE ON SU RRENDER OF TENANCY RIGHT. THEREFORE, CONSIDERING THE FACTUAL POSITION, WE DO NOT FIND ANY FORCE IN THE ARGUMENT OF LD. DR FOR THE REVENUE. BASED ON THE DISCUSSION ABOVE, WE ARE OF THE VIEW THAT THE ORDER PASSED BY THE CIT(A) IS A REASONED ORDER AND DOES NOT REQUIRE ANY MODIFICATI ON. ACCORDINGLY, WE CONFIRM THE ORDER PASSED BY LD. CIT(A). 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE, IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 26/04/ 2017. SD/ - (N.V.VASUDEVAN) SD/ - (DR. A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /KOLKATA ; ! DATED 26/04/2017 '#$%& /PRAKASH#MISHRA ,SR.PS. ITA NO.980/13 M/S AVERY (INDIA) LTD. 8 / COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( ASSTT. REGISTRAR) $ % , / ITAT, KOLKATA 1. / THE ASSESSEE-DCIT, CIR-1, KOLKATA 2. / THE RESPONDENT.- M/S AVERY (INDIA) LTD. 3. 0 ( ) / THE CIT(A), KOLKATA. 4. 0 / CIT 5. 12 3 4456 , 56 , / DR, ITAT, KOLKATA 6. 3 78 / GUARD FILE. 1 4 //TRUE COPY//