ASHA P. KHATIWALA, V. ITO 2(3)(2),

MA 361/MUM/2014

• Counselvise Citation: [2015] 124 COUNSELVISE.COM (IT) 2886 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 15 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 27-02-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 12-08-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VIVEK BATRA
• Keywords: Capital asset; Business income; Date of conversion
• Section: 45(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUM BAI , BEFORE SHRI D. MANMOHAN, VP AND SHRI SANJAY ARORA, AM ! !' #! ./MA NOS. 360 & 361/MUM/2014 (ARISING OUT OF ITA NOS. 8944 & 8955/MUM/2010) ( / ASSESSMENT YEARS: 2006-07 & 2005-06) ASHA P. KHATIWALA JAYSHREE 28, J. N. ROAD, VAKOLA, SANTACRUZ (E), MUMBAI $ VS. ITO-2(3)(2), MUMBAI %$#&# ./PAN/GIR NO. AAHPK 3853 A ( APP LICANT ) : ( RESPONDENT ) APPLICANT BY : MS. RITIKA AGARWAL RESPONDENT BY : SHRI VIVEK BATRA ' !()*+ / DATE OF HEARING : 12.12.2014 ,-.)*+ / DATE OF PRONOUNCEMENT : 27.02.2015 #/$ O R D E R PER SANJAY ARORA, A. M.: THE PRESENT PETITIONS U/S.254(2) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) ARISE OUT OF THE TRIBUNALS ORDER U/S. 254(1) DATED 26.02.2013 AND THE ASSESSEES CASE FOR ASSESSMENT YEARS (A.YS.) 2006-0 7 AND 2005-06, ALLOWING THE ASSESSEES CAPTIONED APPEALS FOR STATISTICAL PURPOS ES. 2. THE SAID APPLICATIONS HAVE BEEN FILED ON ACCOUNT OF CERTAIN ERROR/ANOMALIES, STATED TO BE PRESENT, PERHAPS INADVERTENTLY, IN THE IMPUGN ED ORDER, SO THAT NECESSARY RECTIFICATION/CLARIFICATION IS CALLED FOR. WE SHALL TAKE UP EACH OF THEM IN SERIATIM: OBJECTION # 1 3. THE FIRST OBJECTION IS WITH REGARD TO THE USE OF THE WORD ADMITTEDLY IN THE FIRST SENTENCE OF PARA 4.2 OF THE IMPUGNED ORDER, REPRODU CED AS UNDER: (PAGE 5 OF THE ORDER) 2 MA NOS. 360 & 361/M/14 (A.YS. 06-07 & 05-06) ASHA P. KHATIWALA VS. ITO 4.2 THE ASSESSEE AS WELL AS SHRI BHARAT H. KHATIWA LA, THE OTHER CO-OWNER, ARE ADMITTEDLY IN THE BUSINESS OF REAL ESTATE DEVELOPMENT; THE ASS ESSEE HAVING IN FACT SOLD PROPERTIES DEVELOPED BY HER DURING THE RELEVAN T YEARS. (UNDERLINING , OURS) IT IS STATED THAT THERE HAS BEEN NO ADMISSION BY EI THER THE ASSESSEE OR SHRI BHARAT KHATIWALA, WHOSE APPEAL WAS NOT BEFORE THE BENCH, S O THAT NO FINDING, DE HORS ANY MATERIAL ON RECORD, COULD HAVE BEEN GIVEN BY IT IN HIS RESPECT. IN THIS REGARD, WE FIRSTLY STATE THAT, UNDENIABLY, NO FINDING DE HORS ANY MATERIAL ON RECORD COULD BE ISSUED BY THE TRIBUNAL, WHETHER QUA THE ASSESSEE OR ANY OTHER. FURTHER, THE IMPUGNED OB SERVATION BY THE TRIBUNAL, WE MAY CLARIFY, IS IN ENDORSEMENT OF THE FINDINGS BY THE FIRST APPELLATE AUTHORITY, PARTICULARLY AT PARA 11.3 OF HIS ORDER, REPRODUCED ALONG WITH THE PARAS 11.4 AND 11.5 (BEING DEEMED RELEVANT) AT PARA 4.1 OF THE TRIBUNAL S ORDER. THE WORD ADMITTEDLY (IN PARA 4.2) IS NOT USED IN THE SENSE OF AN ADMISSION BY THE TWO CO-OWNERS AS SUCH, BUT IN VIEW OF THE ADMITTED, UNDISPUTED BACKGROUND FACTS O F THE CASE, LISTED AT PARA 2 OF THE IMPUGNED ORDER, GIVING RISE TO THE RELEVANT FINDING S BY THE LD. CIT(A), WHOSE ORDER CAME UP FOR REVIEW BEFORE THE TRIBUNAL. THE TRIBUNAL, UP ON A PRELIMINARY REVIEW THEREOF, I.E., THE BACKGROUND FACTS OF THE CASE AND THE FINDINGS B Y THE FIRST APPELLATE AUTHORITY, FRAMED THE ISSUES ARISING, NOTED AT PARA 3 (ISSUE (I)) AND AT PARA 5 (ISSUE (II)). THE IMPUGNED OBSERVATION IS A PRELIMINARY OBSERVATION, IN ANSWER ING THE RELEVANT ISSUES, AND WHOSE IMPORT WOULD BECOME CLEAR UPON READING THE WHOLE PA RA; THE WORDS WHO ARE IN THE BUSINESS OF DEVELOPMENT OF PROPERTY, AND OF T HE TWO MEMBERS THEREOF WHO ARE IN THE BUSINESS OF REAL ESTATE DEVELOPMENT. IN FAC T OCCURRING TWICE QUA THE TWO CO-OWNERS IN THE FIRST SUB-PARA OF PARA 4.2 ITSELF. THE ORDER HAS TO BE READ HOLISTICALLY, AS A WHOLE, AND IN CONTEXT, AND NOT BY PICKING A SENTENCE IN IS OLATION. WE, ACCORDINGLY, WHILE EXPLAINING THE BASIS, RELEVANCE AND IMPORT OF OUR O BSERVATIONS, MAY ALSO CLARIFY THAT IN OUR VIEW, WHERE SO READ, THE SAME DOES NOT LEAD TO ANY ADVERSE FINDING BY THE TRIBUNAL QUA SHRI BHARAT KHATIWALA, WHOSE ACTION/S QUA THE VAKOLA PROPERTY ONLY, UNDERTAKEN JOINTLY OR IN CONJUNCTION WITH THE ASSESSEE, WAS SU BJECT MATTER OF REVIEW BY US. NO MODIFICATION TO OUR ORDER IN THIS REGARD IS, ACCORD INGLY, CALLED FOR. WE ANSWER THE OBJECTION ACCORDINGLY. 3 MA NOS. 360 & 361/M/14 (A.YS. 06-07 & 05-06) ASHA P. KHATIWALA VS. ITO OBJECTION # 2 4. THE ASSESSEES SECOND OBJECTION CONCERNS THE DEC ISION BY THE TRIBUNAL IN RESTORING THE MATTER QUA THE DETERMINATION OF THE CAPITAL GAINS ASSESSABLE U /S.45(2) OF THE ACT, OCCURRING AT SUB-PARA 3 (OF PARA 5.1) OF ITS ORDER, WHICH WE REPRODUCE AS UNDER, UNDERLINING THE OBSERVATIONS WHICH STAND IMPUGNED: OUR SECOND OBSERVATION IS THAT THE ASSESSEE HAS WO RKED OUT THE AREA FINALLY RETAINED (6172.75 SQ. FT.), AND WHICH WOULD THEREFORE BE SUBJECT TO CAPITAL GAINS U/S. 45(2), AT 11%, QUA WHICH THERE IS THOUGH NO ADJUDICATION . BESIDES, HOW AND IN WHAT MANNER, IN CASE OF ANY DIF FERENCE BETWEEN THE PARTIES, WOULD THE ISSUE GET RESOLVED. THE LD. CIT( A) HAS ALSO HIMSELF NOT GIVEN FINDING OF THE ENTIRE CAPITAL GAINS AS HAVING BEEN COMPUTED BY THE ASSESSEE IN TERMS OF HIS FINDINGS. WE HAVE ALREADY STATED THAT WE CONSIDER THIS ASPECT AS INTEGRAL TO THE INCOME DETERMINATION ( QUA THE RELEVANT AGREEMENT). ACCORDINGLY, WHILE PRESENTING OUR OBSER VATIONS IN THE MATTER (WHICH MAY NOT BE CONSIDERED AS FINAL FINDINGS, BUT ONLY AS REPRESENTING OUR UNDERSTANDING), WE REMIT THIS ASPECT BACK TO THE FI LE OF THE FIRST APPELLATE AUTHORITY, SO THAT THE DUE PROCESS OF ADJUDICATION IS OBSERVED AND NO PREJUDICE CAUSED TO EITHER SIDE; THERE BEING NO ARG UMENT ON THIS ASPECT OF THE MATTER BEFORE US. WE SHALL, NEVERTHELESS, CLEAR LY STATE THE BASIS ON WHICH OUR CALCULATION IS PREMISED TO ENABLE ITS APPRECIAT ION. (AT PG. 12 OF THE ORDER) IT IS STATED THAT THIS WAS NOT THE SUBJECT MATTER O F DISPUTE AS THE REVENUE IS NOT IN APPEAL. THE OBJECTION IS, TO OUR MIND, AGAIN, MISCO NCEIVED. WHY DID THE LD. CIT(A) CALL FOR THE REVISED COMPUTATIONS OF INCOME (FOR THE REL EVANT YEARS) IF THE MATTER WAS NOT SUBJUDICE BEFORE HIM? IN FACT, HE HIMSELF, VIDE PAR A 14.2 TO 14.5 OF HIS ORDER, WHEREBY THE ASSESSEE STATES THE LD. CIT(A) TO HAVE DEALT WITH T HE MATTER, REQUIRED THE A.O. TO TAKE THE COGNIZANCE OF THE REVISED COMPUTATIONS AND VERIFY T HE SAME; THE LAST SENTENCE OF THE SAID PARA 14.5 READING AS UNDER: (AT PG. 24 OF THE ORDER ) 14.5 . THE APPELLANT IS DIRECTED TO COOPERATE WITH THE AO FOR THE PURPOSE OF NECESSARY VERIFICATION. THIS IS PRECISELY WHAT THE TRIBUNAL HAS DONE, FINDI NG ITS CALCULATION OF CAPITAL GAINS CHARGEABLE U/S.45(2), I.E., IN TERMS OF PROPO RTION OF LAND AREA, AT 21.77%, WHOSE BASIS IT PROVIDES (I.E., 12760.75 6588/12760.75 X 45%; ALSO REFER PARA 5.2) TO BE AT 4 MA NOS. 360 & 361/M/14 (A.YS. 06-07 & 05-06) ASHA P. KHATIWALA VS. ITO VARIANCE WITH THE 11% COMPUTED BY THE ASSESSEE. THE TRIBUNAL, WHOSE POWER IS THE SUBJECT MATTER OF ASSESSMENT (REFER: AHMEDABAD ELECTRICITY CO. LTD. VS. CIT [1993]199 ITR 351 (BOM)(FB)), MINDFUL THAT ITS OBSERVATIONS SHOULD NOT CAUSE ANY PREJUDICE, NOTES (AT THE SAID PARA) THAT ITS OBSERVATIONS MAY NOT BE CONSIDERED AS ITS FINAL FINDINGS. THE CALCULATION OF CAPITAL GAIN IS GERMANE TO THE ISSUE OF CONVERSION OF THE CAPITAL ASSET INTO STOCK-IN-TRADE, AND QUA WHICH IT STATES OF NO SPECIFIC FINDING BY THE LD. C IT(A), FURTHER OBSERVING THAT THE SAME OUGHT TO HAVE BEEN SUBJECT TO THE COMMENTS BY THE A.O. (REFER PARA 5.1). THE VERIFICATION QUA THE INFORMATION GIVEN TO THE LD. CIT(A), BY THE A.O ., WHICH WE HAVE CONSIDERED AS INCUMBENT ON THE FORMER , IS IN ANY CASE A REGULAR FEATURE, AND WOULD NOT, AS STATED IN THE APPLICATION, AMOUNT TO ENLARGING THE SCOPE OF THE CONTROVERSY, EVEN IF THE LD. CIT(A) HAD NOT SO DIRE CTED SPECIFICALLY. THE TRIBUNALS FINDING RATHER ENABLES RESOLUTION OF THE MATTER, WHICH WOUL D ONLY BE UPON DEFINITE AND FINAL FINDINGS OF FACT. WE DECIDE ACCORDINGLY, DISMISSING THE ASSESSEES SECOND OBJECTION. OBJECTION # 3 5. VIDE ITS THIRD OBJECTION, THE ASSESSEE STATES T HAT THE TRIBUNALS FINDINGS PER PARA 7(B) AND 7(C), REPRODUCED AS UNDER, ARE CONTRADICTO RY, AND CANNOT BE GIVEN EFFECT TO. WE DO NOT CONSIDER IT AS SO; THE TRIBUNAL ONLY ISSUING FINDINGS IN AGREEMENT WITH ITS FACTUAL OBSERVATIONS AND THE LAW IN THE MATTER: (PG.16 OF T HE ORDER) 7. FINDINGS WE MAY CAPSULE OUR FINDINGS FOR THE SAKE OF CLARITY : A) NO CAPITAL GAINS ARISES TO THE ASSESSEE PRIOR TO A. Y. 2005-06, WHEREAT THE ENTIRE CAPITAL GAIN UNDER THE AGREEMENT DATED 28.08.2001, AS MODIFIED BY THE CONCILIATION DEED DA TED 05.04.2004, INURES. B) TO THE EXTENT, THE SAME IS AGAINST CASH CONSIDERATI ON, THE CAPITAL GAIN IS ASSESSABLE U/S.45(1), WHILE TO THE EXTENT IT IS AGAINST THE CONSIDERATION IN KIND, I.E., THE CONSTRUCTED SPACE, THE SAME IS ASSESSABLE U/S.45(2) AND, THUS, LIABLE TO TAX IN TH E YEAR OF SALE OF THE CORRESPONDING STOCK-IN-TRADE. C) THE VALUE OF THE CAPITAL ASSET (LAND) TREATED AS STOCK-IN-TRADE AND THE CONSTRUCTION THEREON, AS RECKONED FOR COMPUTING THE CAPITAL GAINS, 5 MA NOS. 360 & 361/M/14 (A.YS. 06-07 & 05-06) ASHA P. KHATIWALA VS. ITO SHALL BECOME THE COST THEREOF FOR THE PURPOSE OF CO MPUTING THE BUSINESS INCOME ON ITS SALE/TRANSFER. THE CAPITAL G AIN, THOUGH ARISING IN THE YEAR OF CONVERSION/TREATMENT AS STOCK-IN-TRA DE, SO THAT THE SAME IS TO BE COMPUTED APPLYING THE FAIR MARKET VAL UE ON THE DATE OF CONVERSION/TREATMENT, I.E., 05.04.2004 IN THE INSTA NT CASE, THE CHARGE TO TAX IS DEFERRED TO THE YEAR OF ACTUAL SALE OR TR ANSFER OF THE ASSET. CLEARLY, THE DIFFERENCE BETWEEN THE FINAL SALE (TRA NSFER) CONSIDERATION AND THE COST, SO ARRIVED AT, WOULD BE CHARGEABLE U/ S.28 AS BUSINESS INCOME; THE ASSESSEE SELLING ONE FLAT AND TWO FLATS IN THE PREVIOUS YEARS RELEVANT TO A.YS. 2005-06 AND 2006-07 RESPECT IVELY. WE HAVE FIRSTLY, AS STATED IN THE MISCELLANEOUS APP LICATION, NOWHERE STATED OF THE TRANSFER OF LAND BEING AT 39%. RATHER, THE VERY FAC T OF THE WIDE VARIANCE ITSELF SHOWS THE NEED ON THE PART OF THE LD. CIT(A) TO HAVE CAUSED R ESOLUTION OF THIS ASPECT, I.E., CONSISTENT WITH HIS FINDING UPHOLDING THE CONVERSION OF THE CA PITAL ASSET (INTO STOCK-IN-TRADE) AND VALIDATES THE TRIBUNALS DECISION IN EMPHASIZING ON VERIFICATION, CONSCIOUS THAT THE SAME MAY LEAD TO VARIANCE/S; RATHER, SUGGESTING THE MANN ER IN WHICH THE CAPITAL GAIN U/SS.45(1) AND 45(2) IS TO BE WORKED OUT AT PARA 5.2, EVEN AS PARA 6.1 OF ITS ORDER IS ALSO RELEVANT IN THIS REGARD, FURTHER CLARIFYING IT TO ONLY REPRESEN T ITS UNDERSTANDING AND, THEREFORE, NOT MANDATORY. WE, HOWEVER, DO NOT OBSERVE ANY CONTRADI CTION BETWEEN PARA 7 (B) AND 7 (C), AND NEITHER WAS ANY BROUGHT TO OUR NOTICE DURING TH E COURSE OF HEARING; RATHER, AS STATED, WE FIND THEM TO BE CONSISTENT WITH THE OBSERVATIONS AND THE LAW IN THE MATTER. FURTHER, IN- AS-MUCH AS THESE ARE RECTIFICATION, AND NOT REVIEW, PROCEEDINGS, WE DECLINE ANY FURTHER COMMENT IN THE MATTER. WE DECIDE ACCORDINGLY, DISMI SSING THE ASSESSEES THIRD OBJECTION AS WELL. 6. IN THE RESULT, THE ASSESSEES MISCELLANEOUS APPL ICATIONS ARE DISMISSED. 0.*12'30*) ! !' #!0)*4 ORDER PRONOUNCED IN THE OPEN COURT ON FEBRUARY 27, 2015 SD/- SD/- (D. MANMOHAN) (SANJAY ARORA) / VICE PRESIDENT / ACCOUNTANT MEMBER ' 5( MUMBAI; 6 DATED : 27.02.2015 !2$ ROSHANI , SR. PS 6 MA NOS. 360 & 361/M/14 (A.YS. 06-07 & 05-06) ASHA P. KHATIWALA VS. ITO ! ' #$%& ' &$ $ COPY OF THE ORDER FORWARDED TO : 1. %7 / THE APPLICANT 2. 89%7 / THE RESPONDENT 3. ## ' :* ; < / THE CIT(A) 4. ## ' :* / CIT - CONCERNED 5. !=>82*2?' # +?'. ' 5( / DR, ITAT, MUMBAI 6. >3@( $ GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , ' 5( / ITAT, MUMBAI