Ashoka Powerlines Industries Pvt Ltd, v. DCIT Cir 1(1),

ITA 1119/PUN/2003 | misc
Pronouncement Date: 28-10-2010 | Result: Partly Allowed

Appeal Details

RSA Number 111924514 RSA 2003
Bench Pune
Appeal Number ITA 1119/PUN/2003
Appellant Ashoka Powerlines Industries Pvt Ltd,
Respondent DCIT Cir 1(1),
Appeal Type Income Tax Appeal
Pronouncement Date 28-10-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted Not Allotted
Tribunal Order Date 28-10-2010
Assessment Year misc
Appeal Filed On 02-11-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A PUNE BEFORE SHRI I.C.SUDHIR JM AND SHRI D. KARUNAKARA RA O AM I.T.A. NO. 1119/PN/2003 (ASSTT. YEAR : 1998-99) M/S. ASHOKA POWERLINES INDUSTRIES PVT. LTD. APPELLANT C/O. SHRI AMOL SALVE LIVESTONIA 1 PALM GROVES GHORPAID PUNE 36. PAN : NOT AVAILABLE VS. DY. COMMISSIONER OF INCOME-TAX RESPONDENT CIRCLE 1(1) PUNE APPELLANT BY : SHRI. M.K. KULKARNI RESPONDENT BY : SHRI ABHAY DAMLE ORDER PER I.C. SUDHIR JM THE ASSESSEE HAS QUESTIONED FIRST APPELLATE ORDER O N THE FOLLOWING GROUNDS : 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THERE WAS A DIVERSION OF INCOME BY MEANS OF AN OVERRIDING TIT LE AS THE FUNDS RECEIVABLE BY THE ASSESSEE-APPELLANT COMPANY WERE DIVERTED AT SOURCE BY THE BANK WHICH GOT ITSELF SATISFIED WITH THE LOAN AMOUNT BE FORE IT WAS TRANSFERRED TO ITS OWN CLIENT BY MAKING NECESSARY ENTRIES IN ITS ACCOUNTS. UNDER THE CIRCUMSTANCES NO CAPITAL GAIN EITHER SHORT TERM/LO NG TERM WAS ACCRUED TO THE ASSESEE-APPELLANT COMPANY ON ACCOUNT OF SUCH TRANSF ER AND THEREFORE LD. C.I.T.(A) WAS NOT JUSTIFIED IN CONFIRMING THE CAPIT AL GAIN ASSESSED OF RS. 31 91 215/- BEING LONG TERM AND RS. 18 73 861/- AS SHORT TERM. 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND LAW AND ALTERNATIVELY IT IS AN ADMITTED FACT THAT THE LAND WAS A LEASED LAND TAKEN FROM MIDC PUNE FOR A PERIOD OF 99 YEARS WHERE PREMIUM WA S PAID AND ANNUAL NOMINAL RENT WAS FIXED CALLED AS SITTING RENT. TH EN IT WAS ESSENTIAL THAT THE VALUATION OF LAND SHOULD HAVE BEEN DONE BASED ON UN EXPIRED PERIOD OF LEASE AND THE TERMINAL LIFE OF THE BUILDING AND THE PREMI UM PAYABLE ON LEASE. THE LD. C.I.T(A) WAS THEREFORE NOT JUSTIFIED IN CONFIR MING THE COMPUTATION OF LONG TERM AND SHORT TERM CAPITAL GAIN AS DONE BY THE ASS ESSMENT OFFICER. 3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE DISALLOWANCE OF INTEREST OF RS. 2 36 830/- WITHOUT ANY PROPER OPPORTUNITY TO THE ASSESSEE IS NOT PROPER AND SUCH ADDITION BE DEL ETED. 4) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE APPELLANT COMPANY DENIES ITS LIABILITY TO PAY INTER EST U/S. 234-B OF THE ACT OF ITA NO.1119/PN/2003 M/S.ASHOKA POWERLINES INDUSTRIES PVT. LTD. (ASSSTT.YEAR 1998-99 2 RS. 6 07 840/- ON THE BASIS OF DEMAND NOTICE. THER E IS NO SPECIFIC MENTION IN THE ASSESSMENT ORDER FOR THE CHARGE OF SUCH INTERES T. THE HONBLE SUPREME COURT IN THE CASE OF RANCHI CLUB LTD. (2000) 164 CT R P.200 HAD HELD THAT THE IN THE ABSENCE OF SPECIFIC MENTION IN THE ASSESSMEN T ORDER THE INTEREST U/S. 234-A 234-B CANNOT BE RECOVERED ONLY ON THE BASIS OF DEMAND NOTICE. SINCE THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF RANCHI CLUB LTD. IS NOT DISCUSSED IN THE SUBSEQUENT JUDGMENT OF THE SUP REME COURT IN THE CASE OF ANJUM M.H. GHASWALLA IT HAS A BINDING FORCE UNDE R ARTICLE 141 OF THE CONSTITUTION OF INDIA. 2. WE HAVE HEARD AND CONSIDERED THE ARGUMENTS ADVAN CED BY THE PARTIES IN VIEW OF ORDERS OF THE LOWER AUTHORITIES AND THE DEC ISIONS RELIED UPON. GROUND 1. 3. THE RELEVANT FACTS ARE THAT THE ASSESSEE ENGAGED IN THE MANUFACTURE OF TRANSFORMERS AND REPAIRS HAD TAKEN LOAN ON LAND AN D BUILDINGS FROM MIDC ON LEASE BASIS FOR 99 YEARS. THE PROPERTIES WERE MORTGAGED/ HYPOTHECATED WITH RUPEE CO- OPERATIVE BANK. SINCE THE ASSESSEE COULD NOT PAY T HE LOAN AMOUNT THE BANK ITSELF FOUND CUSTOMERS GOT DISCHARGED THE LIABILITY OF TH E ASSESSEE COMPANY. THE A.O ASSESSED RS.3191215/- AS LONG TERM CAPITAL GAIN AND RS. 18 73 861/- AS SHORT TERM CAPITAL GAIN AND RS. 18 73 861/- AS SHORT TERM CAPITAL GAINS. THE LD CIT(A) HAS UPHELD THE SAME. THE CONTENTION OF THE LD. A.R . IN SUPPORT OF GROUND 1 IS THAT THERE WAS DIVERSION OF INCOME BY MEANS OF A OVERRID ING TITLE AS THE FUNDS RECEIVABLE BY THE ASSESSEE COMPANY WERE DIVERTED AT SOURCE BY BANK WHICH GOT ITSELF SATISFIED THAT THE LOAN AMOUNT BEFORE IT WAS TRANSFERRED TO I TS OWN CLIENT BY MAKING NECESSARY ENTRIES IN ITS ACCOUNTS. UNDER THE CIRCU MSTANCES NO CAPITAL GAIN EITHER SHORT TERM OF LONG TERM WAS ACCRUED TO THE ASSESSEE ON ACCOUNT OF SUCH TRANSFER. SIMILAR ARGUMENT WAS ADVANCED BEFORE THE LD CIT(A) AND RELIANCE WAS PLACED ON THE DECISION OF HONBLE KERALA HIGH COURT IN THE C ASE OF SALAY MOHAMMED IBRAHIM SAIT V. ITO (1994) 210 ITR 700 (KER.) THE LD CIT( A) HAS HOWEVER UPHELD THE ACTION OF THE A.O FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF ITA NO.1119/PN/2003 M/S.ASHOKA POWERLINES INDUSTRIES PVT. LTD. (ASSSTT.YEAR 1998-99 3 VSMR JAGDISHCHANDRA V. CIT (1997) 227 ITR 240 (SC) AND IN THE CASE OF R.M. ARUNACHALAM V. CIT (1997) 227 ITR 222 (SC). 4. THE LD. D.R. AS ON THE OTHER HAND PLACED RELIA NCE ON THE ORDERS OF THE LOWER AUTHORITIES. HE ALSO REFERRED DEFINITIONS OF TRANSF ER IN RELATION TO A CAPITAL ASSET GIVEN IN SUB-SECTION (2) OF THE I.T. ACT 1961. 5. HAVING GONE THROUGH THE ORDERS OF THE LOWER AUTH ORITIES IN VIEW OF THE ABOVE SUBMISSION WE FIND THAT ALMOST SIMILAR FACTS WERE THERE IN THE CASE OF VSMR JAGDISHCHANDRA V. CIT (SUPRA) BEFORE THE HONBLE SU PREME COURT. IN THAT CASE ASSESSEE HAD SOLD A HOUSE FOR A SUM OF RS. 90 000/- SUBJECT TO INSURANCE IN THE A.Y. 1975-76 AND IN THE SAME A.Y HE SOLD CERTAIN PLOTS FOR A SUM OF RS. 12 600/-. THE I.T.O COMPUTED THE CAPITAL GAINS IN RESPECT OF THE SAID PROPERTIES AT RS. 68 400/-. THE ASSESSEE QUESTIONED THE COMPUTATION OF CAPITAL GAINS BEFORE THE APPELLATE ASSISTANT COMMISSION AND CONTENDED THAT THE DATES IN RESPECT OF WHICH MORTGAGE HAD BEEN EXECUTED BY THE BUYER HIMSELF OUT OF THE S ALE PROCEEDS THAT THE DATES SHOULD BE CONSIDERED AS AND WHEN INCREASE IN THE CO ST OF ACQUISITION OF THE PROPERTIES AND THAT IN ANY EVENT THE DATES MAY BE TREATED AS IMPROVEMENT TO THE PROPERTY OR AS THE COST OF THE OBTAINING CLEAR TITL E TO THE PROPERTY. THE APPELLANT ASSTT. COMMISSIONER REJECTED THE SAID CONTENTION. HE HOWEVER UPHELD THE CONTENTION OF THE ASSESSEE THAT THERE WAS AN OVERRI DING OF CREDITORS IN RESPECT OF THE SALE PROCEEDS AND THEREFORE THERE WAS DIVERSION AT SOURCE ON THE BASIS OF SUCH OVERRIDING TITLE AND THE ASSESSEE WAS NOT LIABLE T O CHARGE UNDER THE CAPITAL GAINS IN RESPECT OF THE SALE OF THE PROPERTIES THEREFORE H E UPHELD THE CAPITAL GAINS OF RS. 68 48 000/- COMPUTED BY THE I.T.O. THE TRIBUNAL H ELD THAT THE CLEARING OFF OF THE MORTGAGE DEBTS SHOULD NEITHER BE TREATED AS COST O F ACQUISITION NOR AS COST OF IMPROVEMENT MADE BY THE ASSESSEE. THE HONBLE HIG H COURT REJECTED THE REFERENCE APPLICATION U/S. 256(2) PREFERRED BY THE ASSESSEE. IN APPEAL BY SPECIAL LEAVE TO THE HONBLE SUPREME COURT THE ASSESSE CO ULD NOT SUCCEED. A TRANSFER HAS ITA NO.1119/PN/2003 M/S.ASHOKA POWERLINES INDUSTRIES PVT. LTD. (ASSSTT.YEAR 1998-99 4 BEEN DEFINED UNDER SUB-SECTION 47 TO SECTION 2 OF T HE I.T. ACT WHEREBY TRANSFER IN RELATION TO A CAPITAL ASSET ALSO INCLUDES RELINQ UISHMENT OF THE ASSET OR THE EXTINGUISHMENT OF ANY RIGHT THEREIN. THE DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF SALAY MOHAMMED IBRAHIM SAIT V. ITO (199 4) 210 ITD 700 (KER.) RELIED UPON BY THE LD. A.R. DOES NOT HELP THE ASSESSEE AS THEREIN ALSO IT HAS BEEN HELD BY THE HONBLE KERALA HIGH COURT THAT THE AMOUNT SPENT FOR DISCHARGE OF THE MORTGAGE WOULD NOT BE DEDUCTED IN THE COMPUTATION OF THE CA PITAL GAINS. IT WAS HELD THAT THERE WAS NO DIVERSION OF ANY AMOUNT AT SOURCE OR B Y OVERRIDING TITLE AS THE AMOUNT HAD ACTUALLY REACHED THE PETITIONERS AND HAD BEEN A PPLIED IN DISCHARGE OF THEIR DUES. THE WRIT PETITION PREFERRED BY THE ASSESSEE WAS ACC ORDINGLY DISMISSED. UNDER THESE CIRCUMSTANCES WE DO NOT FIND SUBSTANCE IN THE CON TENTION OF THE LD. A.R. THAT SINCE THE CONSIDERATION NEVER REACHED THE ASSESSEE HERE IN NO CAPITAL GAIN THAT COULD BE AROSE TO THE ASSESSEE. WE THUS RESPECTFULLY FOLL OWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SALAY MOHAMMED IBRAHI M SAIT V. ITO (SUPRA) HOLD THAT THE LD CIT(A) HAS RIGHTLY UPHELD THE ACTION OF THE A.O COMING TO THE CONCLUSION THAT CAPITAL GAIN HAS ARISEN TO THE ASSESSEE DUE T O THE TRANSACTION IN QUESTION. THE GROUND NO. 1 IS ACCORDINGLY REJECTED. GROUND NO. 2 6. IT IS AN ALTERNATIVE GROUND. THE LD. A.R. SUBMI TTED THAT ADMITTEDLY LAND WAS LEASED LAND TAKEN FROM MIDC PUNE FOR A PERIOD OF 9 9 YEARS WHERE PREMIUM WAS PAID AND ANNUAL NOMINAL RENT WAS FIXED. THEN IT W AS ESSENTIAL THAT THE VALUATION OF THE LAND SHOULD HAVE BEEN DONE BASED ON UNEXPIRED PERIOD OF LEASE AND THE TERMINAL LIFE OF THE BUILDING AND THE PREMIUM PAYAB LE ON LEASE. THE LD. D.R. ON THE OTHER HAND HAS TRIED TO JUSTIFY THE FIRST APPELLAT E ORDER. 7. SIMILAR ISSUE WAS RAISED BEFORE THE LD CIT(A) W HO HAS REJECTED THE SAME WITH THIS FINDING THAT THE LAND WAS SOLD AT MARKET VALUE HENCE THERE WAS NO CASE FOR VALUING IT OTHERWISE. WE DO NOT FIND ANY REAS ON TO DEVIATE FROM THIS FINDING OF THE LD CIT(A) UNDER THIS ADVERTED FACT THAT THE SA LE CONSIDERATION FOR THE PROPERTY ITA NO.1119/PN/2003 M/S.ASHOKA POWERLINES INDUSTRIES PVT. LTD. (ASSSTT.YEAR 1998-99 5 WAS AS PER ITS MARKET VALUE. IT IS ALSO NOT THE CA SE OF THE ASSESSEE THAT SUCH OBJECTION WAS RAISED BEFORE THE A.O. UNDER THESE CIRCUMSTANCES FIRST APPELLATE ORDER ON THIS ISSUE IS UPHELD. THE GROUND NO. 2 IS ACCORDINGLY REJECTED. GROUND NO. 3 8. IN THIS GROUND THE ASSESSEE HAS QUESTIONED DISA LLOWANCE OF INTEREST OF RS.2 36 830/- UPHELD BY THE LD CIT(A) ON THE BASIS THAT PROPER OPPORTUNITY TO THE ASSESSEE TO PRESENT ITS CASE ON THE ISSUE WAS NOT A FFORDED. BEFORE THE TRIBUNAL THE LD. A.R. SUBMITTED THAT THE ASSESSEE DOES NOT WISH TO PRESS THIS GROUND. THE GROUND NO. 3 IS ACCORDINGLY REJECTED AS NOT PRESS ED. GROUND NO.4 9. IN THIS GROUND THE ASSESSEE HAS QUESTIONED FIRS T APPELLATE ORDER WHEREBY THE LD CIT(A) HAS HELD THE ASSESSEE LIABLE TO PAY INTER EST U/S. 234B OF THE ACT AT RS.6 07 840/- ON THE BASIS OF DEMAND NOTICE. THE C ONTENTION OF THE LD. A.R. REMAINED THAT THERE WAS NO SPECIFIC MENTION ABOUT CHARGING OF SUCH INTEREST U/S. 234B IN THE ASSESSMENT ORDER HENCE AS PER THE DECI SION OF HONBLE SUPREME COURT IN THE CASE OF RANCHI CLUB LTD. (2000) 164 CTR (S C) 200 THE SAME CANNOT BE CHARGED. THE FURTHER SUBMISSION OF THE LD. A.R. RE MAINED THAT IN THE CASE OF ANJUM M.H. GHASWALA 253 ITR 01 (SC) RELIED UPON BY THE L D CIT(A) THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF RANCHI CLUB LT D (SUPRA) HAS NOT BEEN DISCUSSED. THE LD. D.R. ON THE OTHER HAND TRIED TO JUSTIFY THE FIRST APPELLATE ORDER ON THE ISSUE. 10. THE ISSUE RAISED IN THE GROUND HAS BEEN DISCUSS ED IN DETAIL BY SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MOTOROLA INC. V. DCI T (2005) 95 ITD 269 (DEL)(SB). THE SPECIAL BENCH WHILE DISCUSSING SEVERAL DECISION S INCLUDING JURISDICTION OF HONBLE SUPREME COURT IN THE CASE OF RANCHI CLUB LT D. (SUPRA) KALYANKUMAR RAY AND VANIA SILK MILLS P. LTD. 191 ITR 654 (SC) AND A NJUM M.H. GHASWALA (SUPRA) HAS ITA NO.1119/PN/2003 M/S.ASHOKA POWERLINES INDUSTRIES PVT. LTD. (ASSSTT.YEAR 1998-99 6 COME TO THE CONCLUSION THAT THE LEVY OF INTEREST U/ S. 234A TO 234C CANNOT BE HELD TO BE INVALID MERELY ON ACCOUNT OF THERE BEING NO S PECIFIC DIRECTION IN THE ASSESSMENT ORDER OR ON THE GROUND THAT THE SECTION UNDER WHICH THE INTEREST IS LEVIED IS NOT SPECIFIED IN THE BODY OF THE ASSESSM ENT ORDER PROVIDED THAT THE ASSESSMENT FALL IN ITNS 150 CONTAINS THIS SPECIFIC REFERENCE TO THE SECTION UNDER WHICH THE INTEREST IS CHARGED THE CALCULATIONS AR E SHOWN UNDER THE RELEVANT COLUMNS AND THE SAID FORM IS SIGNED AND INITIALED B Y THE SAME A.O SHOULD SIGN THE ASSESSMENT ORDER AND IS ALSO TREATED. SINCE RELAT ED FACTS ARE NOT CLEAR IN THE PRESENT CASE WE RESTORE THE MATTER TO THE FILE OF THE A.O TO DECIDE THE ISSUE AFRESH IN VIEW OF THE DECISION OF THE SPECIAL BENCH IN THE CASE OF MOTOROLA INC. V. DCIT (SUPRA) AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUND NO. 4 IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 11. IN THE RESULT APPEAL IS PARTLY ALLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON OCTOBER 2010. SD/- SD/- (D. KARUNAKARA RAO) (I.C.SUDHIR) ACCOUNTANT MEMBER JUDICI AL MEMBER PUNE DATED THE 28 TH OCTOBER 2010 THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 28.10. 2010 SD/- SD/- (G.S.PANNU) (I.C. SUDHIR) A.M. J.M. US COPY OF THE ORDER IS FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A)- I PUNE 4. CIT I PUNE 5. D.R. ITAT A BENCH 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES PUNE