MAHENDRA VISHNU CHITRE,MUMBAI V. DY. CIT 22 (1), MUMBAI, MUMBAI

ITA 1287/MUM/2025

AI Insights

The case revolves around the reassessment of the assessee, Mahendra Vishnu Chitre, for the Assessment Year 2015-16, concerning the transfer of tenancy rights and the subsequent tax implications. The Assessing Officer had treated the transfer of tenancy rights as a taxable event, computing short-term capital gains based on the market value of the property as per the registered agreement for permanent alternate accommodation. The assessee contested this, arguing that the transfer was exempt under section 56(2)(vii) as it was a transfer from a relative without consideration. The Tribunal agreed with the assessee, noting that the transfer did not constitute a taxable event as it fell within the exempted category of transfers between relatives.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 711686 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-07-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2015-2016
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Cost of acquisition; Reopening of assessment
• Section: 147; 142(1); 56(2); 54F; 234B

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH MUMBAI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No. 1287/MUM/2025 Assessment Year: 2015-2016 Mahendra Vishnu Chitre First Floor, 55, Ratanmai Mahal, L J Road, Mahim, Mumbai - 400016 (PAN: ARNPC9692A) Vs. Deputy Commissioner of Income Tax - 22 (1), Mumbai (Appellant) (Respondent) Present for: Assessee : Shri Ashish Thakurdesai, CA Revenue : Shri Mahadevan A.M. Krishanan, Addl. CIT Date of Hearing : 24.04.2025 Date of Pronouncement : 21.07.2025 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal filed by assessee is against the order of Ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi, vide order no. ITBA/NFAC/S/250/2024-25/1072074880(1), dated 10.01.2025 passed against the assessment order by Assessment Unit, u/s. 147 r.w.s. 144B of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 14.03.2024 for Assessment Year 2015-16. Printed from counselvise.com 2 ITA No.1287/MUM/2025 Mahendra Vishnu Chitre AY 2015-2016 2. Grounds taken by the assessee are reproduced as under: 1. On facts, in circumstances of the case and in law, the learned Commissioner of Income Tax- Appeals, National Faceless Appeal Centre ought to have held that reopening of assessment of the appellant is invalid in law. 2. On facts, in circumstances of the case and in law, the learned Commissioner of Income Tax – Appeals, National Faceless Appeal Centre ought to have held that since the impugned notices under section 148, 148A(b) & 148A(d) have been issued by Jurisdictional Assessing Officer, the subsequent assessment order passed by the Assessing Officer is null and void. 3. On facts in circumstances of the case and in law, the learned Commissioner of Income Tax – Appeals, National Faceless Appeal Centre ought to have held that since the posession of the property has continued to be with the appellant and no development activity has taken place, there is no transfer of tenancy right under the permenant alternate accommodation agreement. 4. On facts, in circumstances of the case and in law, the learned Commissioner of Income Tax – Appeals, National Faceless Appeal Centre erred in confirming addition of Rs.90,90,708/- by the Assessing Officer , as short term capital gain. 5. On facts, in circumstances of the case and in law, the learned Commissioner of Income Tax – Appeals, National Faceless Appeal Centre ought to have taxed the capital gain as long term capital gain and correspondingly allowed exemption u/s 54F of the Income Tax Act, 1961. 6. On facts, in circumstances of the case and in law, the learned Commissioner of Income Tax – Appeals, National Faceless Appeal Centre ought to have deleted interest charged of Rs.21,65,778/- u/s 234A and Rs.28,87,704/- u/s 234B of the Income Tax Act, 1961. 2. Brief facts of the case are that assessee had not filed his return of income for the year under consideration. In accordance with risk management strategy formulated by the Central Board of Direct Taxes (CBDT) on the insight portal of the Department, information available with the ld. Assessing Officer was that assessee had purchased an immovable property valued at Rs.90,90,708/-, registered with Joint Sub-Registrar, Mumbai City which led to re-assessment proceedings u/s.148 by issuing notice on 22.03.2022. Assessee filed his return of income in response to the said notice on 17.06.2022, reporting total Printed from counselvise.com 3 ITA No.1287/MUM/2025 Mahendra Vishnu Chitre AY 2015-2016 income at Rs.1,45,930/-. Case of the ld. Assessing Officer is that assessee got tenancy rights from his maternal uncle without any consideration which were ultimately transferred to the developer of the flat in the same building which is to be redeveloped. Ld. Assessing Officer has disregarded the relationship between the assessee and the tenant for its coverage in the definition of relative given in Section 56(2). By taking cost of acquisition as nil of the tenancy rights, he computed short term capital gain of Rs.90,90,708/-, equivalent to the consideration being market value recorded in the registered agreement for the purpose of stamp duty. 2.1 Submissions of the assessee are that he had been occupying the premise at Room No.55, 1st Floor, Ratanmai Mahal, L.J. Road, Mahim West, Mumbai – 400 016, where his maternal uncle Shri MarutiGurav was the tenant having the tenancy rights. Assessee, along with his family and his maternal uncle had been staying for the last several years at this premise while taking care of his maternal uncle. Assessee submitted that they were staying with the maternal uncle until his death on 22.12.2020, when he as of the age of 79 years. In the year 2014, landlords of the building, i.e. Sai Sadguru Developers, desired to redevelop this property and approached the tenants to handover the possession of the tenanted premise for facilitating its re-development. Against this re-development, the developer offered to provide the tenant/occupant with residential premises in the proposed new building. In this respect, an agreement for permanent alternative accommodation recording terms and conditions of re-development and transfer of rights therein was entered into which was registered on 29.09.2014 by paying applicable stamp duty on the market value. Assessee claims that the said re-development under the agreement did not materialise. Since no re-development took place, tenant/occupant Printed from counselvise.com 4 ITA No.1287/MUM/2025 Mahendra Vishnu Chitre AY 2015-2016 continued to stay in the same place. In order to demonstrate continued living in the same premise, assessee furnished copies of rent receipts and electricity bills which also substantiated that no re- development had taken place under the registered agreement, dated 29.09.2014. 2.2 According to the assessee, though no re-development had taken place, however, transfer of tenancy rights had occurred under the same agreement from his material uncle to the assessee. The transfer of tenancy rights from the maternal uncle of the assessee is recorded in the said agreement in clause 4.4 which states “The occupant shall be entitled to hold the said new premises as owner thereof after the vacant and peaceful possession of the same is given to the occupant.” In this agreement, which is triparty agreement between the developer, i.e. Sai Sadguru Developers as party of one part and Shri MarutiGurav, i.e., the tenant, party of the second part and the assessee, i.e., the occupant, party of the third part. The recitals in clause B of this agreement list down the primary facts in respect of the tenanted premises for which the tenancy rights have been transferred by the tenant to the occupant (assessee). The same are reproduced for ready reference: - “B) The Tenant is the monthly Tenant in respect of Room No. 55, 1) admeasuring 215.71 square feet area, on the First floor of the said Existing Building (\"the Tenanted Premises\"), and pays a monthly rent of Rs. 198/- in respect thereof. The Occupant herein is the nephew of the Original Tenant and is occupying the tenanted premises along with the original tenant. The Occupant has been paying all the rent for the said tenanted premises for the last 30 years and all the relevant documents such as the electricity bill and Ration Card are in the name of the Occupant. As per MHADA rules applicable for 33(7) D.C rules, the Developers are offering 300 Sq. Ft. Carpet area + 105 Sq. Ft. Carpet Fungible area i.e.Total 405 Sq. Ft. Area all free of cost to the Tenant/Occupant. Now the Original tenant who is the maternal uncle of the occupant is desirous of transferring his rights, title and interest in the tenanted premises and all benefits thereto to that of his nephew i.e. the Occupant herein out of their mutual love and affection and without any consideration.” Printed from counselvise.com 5 ITA No.1287/MUM/2025 Mahendra Vishnu Chitre AY 2015-2016 2.3. Assessee, thus claims that transfer of tenancy rights had taken place in the tenanted premise in the name of the assessee by the maternal uncle out of natural love and affection and without any consideration. According to the assessee, this transfer of tenancy rights which is undoubtedly capital asset falls within the exempted category u/s. 56(2) of the Act, as the relationship between maternal uncle and the assessee falls within the definition of “relative” given in the explanation to section 56(2)(vii). 2.4. According to the ld. Sr.DR, addition has been rightfully made by the ld. Assessing Officer in view of the registered agreement for permanent alternate accommodation dated 29.09.2014 whereby transfer of tenancy rights has taken place. According to him, ld. Assessing Officer has rightfully taken the cost of acquisition of tenancy right as nil and has worked out short term capital gain by taking the market value as recorded in the registered agreement as the consideration. 3. From the perusal of the impugned assessment order, we take note of certain factual statements recorded by the ld. Assessing Officer which remain undisputed and uncontroverted and have been made after taking into consideration the submissions made by the assessee. In para 1.4(i), ld. Assessing Officer notes that assessee got the tenancy rights from his maternal uncle and that tenancy rights were ultimately transferred to the developer for a flat in the same building which is to be re-developed. From this, we note that ld. Assessing Officer has no dispute on assessee receiving the tenancy right from his maternal uncle. Printed from counselvise.com 6 ITA No.1287/MUM/2025 Mahendra Vishnu Chitre AY 2015-2016 3.1. In para-1.5, ld. Assessing Officer notes that assessee was in possession of the immovable property which falls under the definition of asset and therefore it is case of income chargeable to tax, escaping assessment. In this respect again, we note that ld. Assessing Officer accepts that assessee had the possession of the property in which the tenancy rights were transferred to him by the maternal uncle. Ld. Assessing Officer had issued a show cause notice u/s. 142(1) against which assessee had made various submissions. 3.2. Ld. Assessing Officer notes in para 3.1, about the submissions made by the assessee by stating that assessee had furnished copy of return of income, computation of income, statement of Union Bank of India, registered copy of agreement for permanent alternate accommodation, dated 29.09.2014, copy of electricity bill, rent receipt, letter received from re-development proposed in 2023, full agreement of permanent alternate accommodation and copy of marriage invitation. 3.3. Subsequently, ld. Assessing Officer issued another show cause notice dated 01.03.2024, as noted by him in para-4. Ld. Assessing Officer has reproduced operational part of the show cause notice in the impugned order. From the reproduced contents of show cause notice, it is noted that ld. Assessing Officer has observed the factual position based on verification of the agreement which according to him reveals that the maternal uncle, i.e., Shri MarutiMahadevGurav (the tenant) was desirous of transferring his rights, title and interest in the tenanted premises and all the benefits thereto to his nephew, i.e., the assessee (the occupant) out of their mutual love and affection and without any consideration. For this the developer had agreed to transfer the tenancy to that in the name of the assessee whose name Printed from counselvise.com 7 ITA No.1287/MUM/2025 Mahendra Vishnu Chitre AY 2015-2016 was entered as the person receiving the benefit of the re-development scheme, entitling assessee to all the benefits under the re-development in place of the tenant. Further, ld. Assessing Officer records that as per the agreement, tenant has transferred the rights in the property to the assessee without any consideration. 3.4. Assessee had made a detailed submission to this effect, contents of which are reproduced in the impugned order in para-5 whereby it was reiterated that agreement itself establishes the transaction of transfer of tenancy rights from the maternal uncle to the assessee which falls under the exempt category of transfer u/s.56(2)(vii), since the relationship between the maternal uncle and the assessee falls within the definition of relative given in explanation to section 56(2)(vii). 3.5. While concluding in para-6, ld. Assessing Officer records without any doubt that the assessee and his family resided with Shri MarutiGurav, i.e. the maternal uncle since last many decades. He further, records without doubt that as per the agreement the maternal uncle being the tenant of the premises has transferred his rights, title and interest in the tenanted premise with all benefits to his nephew, i.e., the assessee out of love and affection and without any consideration. Contrary to this, while completing the assessment, ld. Assessing Officer took an adverse view by stating that assessee could not prove that the tenant is covered as a blood relative defined in section 56(2). Thus, he computed short term capital gain by taking cost of acquisition as nil and made the addition of the market value recorded in the agreement for the purpose of stamp duty. Printed from counselvise.com 8 ITA No.1287/MUM/2025 Mahendra Vishnu Chitre AY 2015-2016 4. In the given set of facts and circumstances and factual observation made by ld. Assessing Officer from the registered agreement which remains uncontroverted and undisputed, since nothing cogent and positive has been brought on record for the view adopted by the ld. Assessing Officer, we find that there is a transfer of tenancy rights by the maternal uncle to the assessee without consideration which falls within the exempted category as per the meaning given to the term “relative” in explanation to section 56(2)(vii). Further, it is noted that the initial agreement for permanent alternate accommodation entered into in 2014 was not acted upon by the developer and assessee continued to live in the same premise holding the tenancy rights as transferred by his maternal uncle under the same agreement. However, assessee claims that subsequently, the same property had undergone into re-development by fresh agreement executed in 2024. Thus, by the initial agreement of 2014, the transfer took place to the extent of tenancy rights from the maternal uncle to the assessee which falls within the exempted category u/s. 56(2). For the remainder portion of the agreement for transfer of tenancy rights to the developer for the purpose of re-development did not materialise. This remainder portion of the transaction has been undertaken under a new agreement for the proposed re-development in 2024. Accordingly, in the present set of facts and circumstances, the addition made by the ld. Assessing Officer adopting market value recorded in the agreement for permanent alternate accommodation executed in 2014 for the purpose of stamp duty and by taking cost of acquisition of transfer of tenancy rights as nil is not tenable. The addition so made is deleted. Grounds raised by the assessee on the merits of the case, vide ground no.4 and 5 are allowed. Printed from counselvise.com 9 ITA No.1287/MUM/2025 Mahendra Vishnu Chitre AY 2015-2016 5. Assessee has also raised legal issues vide ground no.1, 2 and 3 which are kept open since appeal is already allowed on the merits of the case. Also, ground no.6 in respect of charging of interest u/s.234A and 234B is consequential in nature and needs no separate adjudication. 6. In the result, appeal of the assessee is allowed. Order is pronounced in the open court on 21st July, 2025 Sd/- Sd/- (Amit Shukla) (Girish Agrawal) Judicial Member Accountant Member Dated: 21st July, 2025 MP, Sr.P.S. Copy to : 1 The Appellant 2 The Respondent 3 DR, ITAT, Mumbai 4 5 Guard File CIT BY ORDER, (Dy./Asstt.Registrar) ITAT, Mumbai Printed from counselvise.com "