ADDL CIT RG 19(2), MUMBAI v. RATAN PHROZE VEVAINA, MUMBAI

ITA 1053/MUM/2011 | 2006-2007
Pronouncement Date: 28-04-2015 | Result: Allowed

Appeal Details

RSA Number 105319914 RSA 2011
Assessee PAN AABPV6463G
Bench Mumbai
Appeal Number ITA 1053/MUM/2011
Duration Of Justice 4 year(s) 2 month(s) 23 day(s)
Appellant ADDL CIT RG 19(2), MUMBAI
Respondent RATAN PHROZE VEVAINA, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 28-04-2015
Appeal Filed By Department
Order Result Allowed
Bench Allotted D
Tribunal Order Date 28-04-2015
Date Of Final Hearing 19-01-2015
Next Hearing Date 19-01-2015
Assessment Year 2006-2007
Appeal Filed On 04-02-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D MUMBAI BEFORE SHRI VIJAY PAL RAO JUDICIAL MEMBER AND SHRI B.R. BASKARAN ACCOUNTANT MEMBER ITA NO. 1053 /M/2011 ASSESSMENT YEAR: 200 6 - 0 7 ACIT 19(2) ROOM NO.315 3 RD FLOOR PIRAMAL CHAMBERS LAL BAUG PAREL MUMBAI 400 012 VS. SHRI RATAN PHIROZE VEVAINA MITHI MINAR JUHU TARA ROAD JUHU SANTACRUZ (W) MUMBAI 400 0 54 PAN: AABPV 6463G (APPELLANT) (RESPONDENT) CO NO. 51 /M/2013 ASSESSMENT YE AR: 2006 - 07 LATE RATAN PHIROZE VEVAINA BY EXECUTOR MR. SHACHIN JAGDISH NANAVATI MITHI MINAR JUHU TARA ROAD JUHU SANTACRUZ (W) MUMBAI 400 054 PAN: AABPV 6463G VS. THE ADDL. COMMISSIONER OF INCOME TAX CIR. 19(2) ROOM NO.315 3 RD FLOOR PIRAMAL CHAMBERS LALBAUG PAREL MUMBAI 400 012 (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI JIGNESH R. SHAH A.R. REVENUE BY : SHRI LOVE KUMAR D.R. DATE OF HEARING : 2 8 .04. 201 5 DATE OF PRONOUNCEMENT : 28.04.2015 O R D E R PER VIJAY PAL RAO JUDICIAL MEMBER: THIS APPEAL BY THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 12.11 .201 0 OF CIT(A) FOR THE ASSESSMENT YEAR 2006 - 0 7 . THE REVENUE HAS RAI SED THE FOLLOWING GROUNDS OF APPEAL: ITA NO.1053/M/2011 SHRI RATAN PHIROZE VEVAINA 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN ALLOWING THE EXPENDITURE OF RS.68 85 000/ - CLAIMED BY THE ASSESSEE AGAINST THE SA L E CONSIDERATION OF RS.2 CRORES BEING P AYMENT OF RS.65 00 000 / - TO A TENANT RESIDING IN GROUND FLOOR AND RS.3 85 000/ - TO A TENANT OF BASEMENT GARAGE TO VACATE THE PREMISES ON THE GROUNDS THAT THE AGREEMENT WAS TRANSFERRED THE TENANCY RIGHTS IGNORING THE FACT THAT BOTH THESE EXPENDITURE CANNOT BE TREATED AS EITHER COST OF ACQUISITION OF PROPERTY OR COST OF IMPROVEMENT OF PROPERTY OR COST CONNECTED TO TRANSFER OF PROPERTY AS PER PROVISION OF SECTION 48 OF THE I.T. ACT. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND BE S ET ASIDE AND THAT OF THE AO BE RESTORED. 2. THE FACTS RELATING TO THE ISSUE RAISED IN THIS APPEAL EMERGING FROM THE RECORD ARE THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS SOLD THE PROPERTY BEARING PLOT NO.8B OF GAMD EVI ESTATE KNOWN AS HILL VIEW MALABAR HILL DIVISION SITUATED AT HUGHES ROAD MUMBAI FOR A CONSIDERATION OF RS.2 CRORES. THE ASSESSEE HAS SHOWN LONG TERM CAPITAL GAIN FROM SALE OF THE SAID PROPERTY AFTER CLAIMING EXPENDITURE OF RS.68 85 000/ - PAID FOR VACATING THE TENANCY OF GR OUND FLOOR AND GARAGE. THE ASSESSING OFFICER (AO) DISALLOWED THE CLAIM OF EX PENDITURE MAINLY ON TWO GROUNDS FIRSTLY THAT THE PAYMENT OF RS.65 00 000/ - WAS NOT MADE TO THE TENANT MRS. LEILA LAKHANI AND THE PAYMENT OF RS.3 85 000/ - ALLEGEDLY MADE TO M/S. E VERLASTING CONSTRUCTION WHEREIN THE ASSESSEE IS ONE OF THE DIRECTORS . T HUS THE AO FOUND THAT THE PAYMENT IN QUESTION WAS NOT MADE FOR GETTING THE PROPERTY VACATED FROM THE TENANTS BECAUSE THE PAYMENT TO MRS. LEILA LAKHANI WAS NOT MADE BY THE ASSESSEE AND IT WAS MADE BY ONE MR. J.C. NANAVATI IN WHOSE FAVOUR THE TENANCY WAS TRANSFERRED BY THE ASSESSEE BEFORE THE PROPERTY WAS SOLD TO THE DEVELOPER/BUILDER. IN CASE OF ALLEGED PAYMENT OF RS.3 85 000/ - TO M/S. EVERLASTING CONSTRUCTION THE AO FOUND THAT THE ASSE SSEE IS ONE OF THE DIRECTORS IN THE SAID COMPANY AND THEREFORE THERE WAS NO NEED OF MAKING ANY PAYMENT FOR GETTING THE PROPERTY VACATED. THE SECOND GROUND OF DISALLOWING THE CLAIM OF EXPENDITURE STATED BY THE AO IS THAT THE ALLEGED EXPENDITURE WAS NOT ITA NO.1053/M/2011 SHRI RATAN PHIROZE VEVAINA 3 INC URRED IN RESPECT OF TRANSFER OF THE PROPERTY IN QUESTION AND THEREFORE IT DOES NOT FALL IN THE PURVIEW OF EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER OF THE PROPERTY OR THE COST OF ACQUISITION OF THE ASSET OR COST OF ANY IMP ROVEMENT THERETO AS PER SECTION 48 OF THE INCOME TAX ACT. IN SUPPORT OF HIS FINDING THE AO HAS PLACED RELIANCE ON THE VARIOUS JUDGMENTS OF THE HONBLE HIGH COURTS AND HONBLE SUPREME COURT . 3. THE ASSESSEE CHALLENGED THE ACTION OF THE AO BEFORE THE LD. CIT(A) AND CONTENDED THAT THE PAYMENT IN QUESTION WAS MADE BY THE ASSESSEE FOR GETTING THE PROPERTY VACATED FROM THE TENANTS AND THEREFORE IT HAS A DIRECT LINK WITH THE TRANSFER AND ONLY MADE TO BETTER TITLE FOR ENHANCEMENT OF THE SALABILITY OF THE PROPER TY AND THEREFORE THE SAID EXPENDITURE IS ALLOW ABLE AS PER THE PROVISIONS OF SECTION 48 OF THE INCOME TAX ACT. THE LD. CIT(A) HAS ACCEPTED THE CLAIM OF THE ASSESSEE AND HELD THAT THE SAID EXPENDITURE OF RS.68 85 000/ - IS AN ALLOWABLE DEDUCTION ON ACCOUNT O F VACATING THE PROPERTY WHILE COMPUTING THE LONG TERM CAPITAL GAIN. 4. BEFORE US THE LD. D.R. HAS VEHEMENTLY ARGUED THAT THE PAYMENT IN QUESTION SO FAR AS ALLEGEDLY PAID TO MRS. LEILA LAKHANI FOR GETTING THE GROUND FLOOR OF THE PROPERTY VACATED WAS NOT MADE BY THE ASSESSEE AND FURTHER IT WAS NOT MADE FOR GETTING THE PROPERTY VACATED RATHER THE PAYMENT WAS MADE BY ONE MR. J.C. NANAVATI IN WHOSE FAVOUR THE ASSESSEE HAS TRANSFERRED THE TENANCY OF THE GROUND FLOOR FROM MRS. LEILA LAKHANI THEREFORE THE SAI D PAYMENT IS NOT FOR VACATING THE PREMISES IN QUESTION BUT IT WAS ONLY FOR TRANSFER OF THE TENANCY FROM ONE TENANT TO ANOTHER TENANT. HE TOOK US TO THE RELEVANT FACTS DISCUSSED BY THE AO AS WELL AS THE DOCUMENTS UNDER WHICH THE TENANCY WAS TRANSFERRED IN FAVOUR OF MR. J.C. NANAVATI AND FURTHER TO M/S. KAK ADIA EXPORTS. THUS THE LD. D.R. HAS SUBMITTED THAT THE FINDING GIVEN BY THE LD. CIT(A) IS CONTRARY TO THE RECORD AND THE FACTS BROUGHT OUT ON RECORD BY THE AO. ITA NO.1053/M/2011 SHRI RATAN PHIROZE VEVAINA 4 5. ON THE OTHER HAND THE LD. A.R. OF THE A SSESSEE HAS SUBMITTED THAT THE ASSESSEE GOT VACATED STATUTORY TENANCY AND THEREBY THE VALUE OF THE PROPERTY GOT ENHANCED . THE PAYMENT WAS MADE BY THE ASSESSEE FOR GETTING THE PROPERTY VACATED FROM THE TENANT . H E HAS REFERRED LETTER DATED 11.02.05 OF M/S. PATDIAM BRIK CONSTRUCTION COMPANY THE PURCHASER OF THE PROPERTY AND SUBMITTED THAT IT WAS A PRECONDITION OF THE TRANSACTION OF PURCHASE AND SALE THAT THE ASSESSEE SHOULD OBTAIN VACANT POSSESSION FROM THE TENANT OF THE GROUND FLOOR PREMISES AND THE GARAGE AREA. THUS THE LD. A.R. HAS SUBMITTED THAT WITHOUT GETTING THE GROUND FLOOR AND GARAGE VACATED FROM THE TENANT THE SALE COULD NOT HAVE TAKEN PLACE. HE HAS THEN REFERRED THE LETTER DATED 15.10.05 OF THE ASSESSEE WHEREBY HE HAS ACKNOWLEDGED THE PAYMENT OF RS.65 00 000/ - BY MR. J.C. NANAVATI TO MRS. LEILA LAKHANI A TENANT ON THE GROUND FLOOR OF THE PROPERTY IN QUESTION. THE LD. A.R. HAS SUBMITTED THAT THE PAYMENT WAS FINALLY MADE BY THE ASSESSEE TO MR. J.C. NANAVATI AND THEREFORE THE FINAL PAYMENT WAS MADE BY THE ASSESSEE THROUGH MR. J.C. NANAVATI TO THE TENANT FOR GETTING THE PROPERTY VACATED . IN SUPPORT OF HIS CONTENTION THAT THE AMOUNT PAID BY THE ASSESSEE IS ALLOWABLE DEDUCTION AGAINST THE CAPITAL GAIN ARISING FROM THE SALE OF PROPERTY HE HAS RELIED UPO N VARIOUS DECISIONS AS UNDER: I) CIT V MISS. PIROJA C. PATEL [2000] 242 ITR 582 (BOM.) II) CIT V SHAKUNTALA KANTILAL [1991] 190 ITR 56 (BOM) III) NAOZAR CHENOY V CIT [1998] 234 ITR 95 (AP) IV) CIT V SHAKUNTALA RAJESHWAR [19 86 ] 19 6 ITR 840 ( DEL ) V) CIT V A. VENKA TRAMAN & OTHERS [1982] 137 ITR 846 (AP) VI) CIT V ABRAR ALVI [2001] 247 ITR 312 (BOM) VII) CIT V BRADFORD TRADING CO. PVT. LTD. [ 2003 ] 261 ITR 222 ( MAD ) VIII) CIT V EAGLE THEATRES [2012] 205 TAXMAN 449 (DEL) IX) MS. NITA A. PATEL V ITO [ 2011 ] 1 28 IT D 24 ( MU M) X) CIT V S PENC ER & CO. LTD. (NO.3) [ 2013 ] 359 ITR 644 ( MAD ) XI) IT O V TAJ SERVICES (P) LTD. [ 2012 ] 1 43 T TJ ( MU M BAI ) 70 XII) KRA HOLDING & TRADING (P.) LTD. V. DY. CIT [2011] 46 SOT 19 (PUNE) ITA NO.1053/M/2011 SHRI RATAN PHIROZE VEVAINA 5 6. THUS THE LD. A.R. HAS SUPPORTED THE FINDING OF THE LD. CIT(A) AND SUBMITTED THAT TH E LD. CIT(A) HAS GIVEN THE FINDING OF FACT AFTER EXAMINATION OF THE RECORD AND THEREFORE IN THE ABSENCE OF ANY CONTRARY FACT BROUGHT BY THE REVENUE THE FINDING OF FACT RECORDED BY THE LD. CIT(A) SHOULD BE ACCEPTED. 7. WE HAVE CONSIDERED THE RIVAL SUBMISS IONS AS WELL AS RELEVANT MATERIAL ON RECORD. AS FAR AS THE LEGAL PROPOSITION ON THE POINT OF ALLOWABILITY OF THE EXPENDITURE BEING PAYMENT MADE TO THE TENANT FOR GETTING THE PROPERTY VACATED THERE IS NO QUARREL THAT IF THE PAYMENT IS MADE BY THE ASSESSEE FOR GETTING THE PROPERTY VACATED FROM THE TENANT BEFORE IT WAS TRANSFERRED THEN THE SAID PAYMENT WILL BE REGARDED AS THE EXPENDITURE INCURRED BY THE ASSESSEE IN CONNECTION WITH THE TRANSFER OF THE PROPERTY AND IMPROVEMENT THERETO. AS PER THE ASSESSEES OWN CLAIM AND STATEMENT THE FOLLOWING EXPENDITURE WERE CLAIMED TO BE INCURRED IN RELATION TO THE TRANSFER AS DEDUCTION: I) PAYMENT TO GROUND FLOOR TENANT MRS. LEILA LAKHANI; (UNDER AN AGREEMENT TO TRANSFER THE TENANCY RIGHT) (PAID BY MR. J .C. NANAVATI WHICH WAS SUBSEQUENTLY REFUNDED) RS.65 00 000/ - II) PAYMENT TO TENANT OF BASEMENT GARAGE TO VACATE RS. 3 85 000/ - III) BROKERAGE PAID TO FOR THE SALE OF PROPERTY RS. 1 00 000/ - IV) LEGAL CHARGES PAID TO M/S. A.H. PARPIA & CO. RS. 2 00 000/ - V) M/S. J. SAGAR ASSOCIATES RE. TRANSFER TO TENANCY AND THE RS. 76 840/ - TITLE CERTIFICATE ETC. THUS THE ASSESSEE ITSELF HAS ADMITTED THIS FACT THAT INITIALLY THE PAYMENT OF RS.65 00 000/ - WAS MADE BY ONE MR. J.C. NANAVATI TO M RS. LEILA LAKHANI THE TENANT AT GROUND FLOOR. THE AO HAS REPRODUCED THE CLAUSES OF THE AGREEMENT DATED 03.03.05 UNDER WHICH MRS. LEILA LAKHANI HAS TRANSFERRED THE TENANCY RIGHT IN FAVOUR OF MR. J.C. NANAVATI. THE CLAUSE (D) & (E) OF THE ITA NO.1053/M/2011 SHRI RATAN PHIROZE VEVAINA 6 RECITALS AS WELL AS THE RELEVANT PART OF THE AGREEMENT HAS BEEN REPRODUCED BY THE AO AT PAGE 7 OF THE ORDER AS UNDER: '(D) THE TRANSFEROR - TENANT IS WITH THE CONSENT OF THE LANDLORD DESIROUS OF TRANSFERRING AND ASSIGNING THE TENANCY RIGHTS IN THE SAID PREMISES TO THE TRA NSFEREE - TENANT ON THE AGREED TERMS AND CONDITIONS HEREINAFTER APPEARING. (E) THE LANDLORDS HAVE CONSENTED TO THE TRANSFER OF THE TENANCY IN TERMS HEREOF AND AGREED TO ACCEPT THE TRANSFEREE - TENANT AS THE NEW TENANT OF THE SAID PREMISES. ------- NOW THIS A GREEMENT WITNESSETH THE TRANSFEROR - TENANT HEREBY AGREES TO TRANSFERS CONVEYS AND ASSIGN THE TENANCY RIGHTS IN FLAT ADMEASURING 163.44 SQ. METERS ON THE GROUND FLOOR OF THE SAID BUILDING KNOWN AS 'HILL VIEW' SITUATED AT PLOT NO. 8 - B GAMDEVI ESTATE MUMBA I 400 007 TOGETHER WITH ALL OTHER AND INCIDENTAL RIGHTS AND INTEREST( HEREINAFTER CALLED 'T HE SAID PREMISES) UNTO THE TRANSFEREE - TENANT. 1. THE TRANSFEREE - TENANT AS ON OR BEFORE THE EXECUTION HEREOF PAID TO TRANSFEROR - TENANT A SUM OF RS.65 LACS (RUPEES SIX TY FIVE LACS ONLY) IN CONSIDERATION OF THE TRANSFER AND ASSIGNMENT OF THE SAID TENANCY RIGHTS - - - - 8. THE MATTER DID NOT REST AT THIS STAGE BUT SUBSEQUENTLY THE ASSESSEE REPAID THE SAID AMOUNT OF RS.65 00 000/ - TO MR. J.C. NANAVATI AND EXECUTED A TENA NCY AGREEMENT IN FAVOUR OF M/S. KAKADIA EXPORTS . THUS IT IS MANIFEST FROM THE RECORD THAT IT IS NOT A SIMPLE CASE OF PAYMENT TO THE TENANT FOR GETTING THE TENANCY VACATED BUT BEFORE THE PROPERTY WAS TRANSFERRED/SOLD TO THE PURCHASER THE ASSESSEE HAS CHAN GED THE TENANTS IN RESPECT OF THE GROUND FLOOR OF THE PROPERTY . IT IS PERTINENT TO NOTE THAT ANY CHANGE IN THE TENANCY OF THE PROPERTY SHALL HAVE A DIRECT BEARING IN RESPECT OF THE RIGHTS OF THE TENANT IN THE PROPERTY TO BE DEVELOPED BY THE PURCHASER. TH OUGH THE ASSESSEE HAS CONTENDED THAT THE ENTIRE EXERCISE WAS NOTHING BUT TO GET THE PROPERTY VACATED FROM THE TENANT AND TO HANDOVER THE POSSESSION TO THE PURCHASER AND THEREFORE THE PAYMENT IS AN ALLOWABLE DEDUCTION. HOWEVER THIS IS ONLY THE ASSERTION A ND SUBMISSIONS OF ITA NO.1053/M/2011 SHRI RATAN PHIROZE VEVAINA 7 THE ASSESSEE AND THERE WAS NO EXAMINATION ON THIS ASPECT WHETHER THE IN DUC TION OF TWO NEW TENANTS IN THE PROPERTY JUST BEFORE TRANSFER OF THE PROPERTY IN QUESTION HAS CREATED ANY RIGHTS IN FAVOUR OF SUCH TENANTS IN THE PROPERTY TO BE DEVE LOPED BY THE DEVELOPER. SINCE IT IS NOT A SIMPLE CASE OF PAYMENT FOR GETTING THE PROPERTY VACATED BUT THE PAYMENT HAS ROOTED THROUGH THIRD PARTY AND FURTHER AT THE TIME OF TRANSFER OF THE PROPERTY TO THE PURCHASER BY THE ASSESSEE THE STATUS OF THE PROPERT Y REMAIN ED SAME EXCEPT THE CHANGE OF TENANT. THE LD. CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE BY ACCEPTING THE CONTENTION BUT WITHOUT ANY EVIDENCE BROUGHT ON RECORD TO ESTABLISH THAT THE TWO INTERMEDIARY TENANTS NAMELY MR. J.C. NANAVATI AND M/S. KAKAD IA EXPORTS GOT NOTHING OUT OF THIS TRANSACTION. 9. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE WE FIND THAT THE MATTER HAS NOT BEEN PROPERLY EXAMINED BY THE AUTHORITIES BELOW AND THEREFORE THE SAME IS SET ASIDE TO THE RECORD OF THE AO F O R PROPER VERIF ICATION AND EXAMINATION OF RELEVANT FACT PARTICULARLY ON THE POINT WHETHER TWO TENANTS INTRODUCED BY THE ASSESSEE PRIOR TO THE TRANSFER OF THE PROPERTY GOT ANY RIGHT OR INTEREST IN THE PROPERTY TO BE DEVELOPED BY THE PURCHASER. NEEDLESS TO SAY THE ASSESSEE WILL BE GIVEN AN OPPORTUNITY OF HEARING. 10. IN THE CROSS OBJECTION THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) CORRECTLY ALLOWED DEDUCTION OF RS.68 85 000/ - AS D EDUCTION IN COMPUTING THE LONG TERM CAPITAL GAIN ON SALE OF PROPERTY. 2. (A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED ASSESSING OFFICER SHOULD BE DIRECTED TO TAKE MARKET VALUE OF THE PROPERTY AS ON 1 - 4 - 81 AND ALLOW THE INDEX COST WH ERE ON. (B) THE LEARNED ASSESSING OFFICER AS ERRED IN TAKING THE VALUE AT RS.65 100/ - AS ON 1 - 4 - 81 WHICH IS NOT THE MARKET VALUE. ITA NO.1053/M/2011 SHRI RATAN PHIROZE VEVAINA 8 11. GROUND NO.1 IS NOTHING BUT SUPPORTS THE FINDING OF THE LD. CIT(A) THEREFORE IN VIEW OF OUR FINDING ON THE APPEAL OF THE REVENUE THE GROUND NO.1 OF THE CROS S OBJECTION STANDS DISPOSED OFF BEING DISMISSED. GROUND NO.2 : 12. AT THE TIME OF HEARING THE LD. A.R. OF THE ASSESSEE HAS STATED THAT THE ASSESSEE DOES NOT PRESS THE GROUND NO.2 AND THE SAME MAY BE DISMISSED. T HE LD. D.R. HAS RAISED NO OBJECTION IF THE GROUND NO.2 OF THE CROSS OBJECTION IS DISMISSED AS NOT PRESSED. ACCORDINGLY GROUND NO.2 OF THE CROSS OBJECTION IS DISMISSED BEING NOT PRESSED. 13. IN THE RESULT APPEAL OF THE REVENUE IS ALLOWED FOR STATISTIC AL PURPOSE AND CROSS OBJECTION OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 .04. 201 5 . SD/ - SD/ - ( B.R. BASKARAN ) ( VIJAY PAL RAO ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED: 28 .04.2015 . * KISHORE SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT CONCERNED MUMBAI THE CIT ( A) CONCERNED MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR ITAT MUMBAI.