M/S. RIKHIL R. BHAVNANI, MUMBAI v. THE ITO (IT) 3(1), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D BEFORE SHRI N.V. VASUDEVAN (JM) & B. RAMAKOTAIAH (A M) I.T.A.NO. 2682/MUM/2008 (ASSESSMENT YEAR : 2005-0 6) MR. RIKHIL R. BHAVANANI 3 BUCKLEY COURT 5-WODEHOUSE ROAD MUMBAI-400 005. VS. ITO (IT)3(1) INTERNATIONAL TAXATION SCIENDIA HOUSE BALLARD PIER MUMBAI-400 038. APPELLANT RESPONDENT PAN/GIR NO. : AAHPB4359A ASSESSEE BY : SHRI KIRIT S. SANGHAVI DEPARTMENT BY : SHRI T.T. JACOB ORDER PER N.V. VASUDEVAN JM :- THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDE R DATED 25.2.2008 OF LEARNED CIT(A)-XXXIIII MUMBAI RELATIN G TO A.Y.2005-06. 2. GROUND NO. 1&2 RAISED BY THE ASSESSEE READ AS FO LLOWS :- 1) LEARNED CIT(A) ERRED ON FACTS AND IN CIRCUMSTANC ES OF THE CASE AND IN LAW IN CONFIRMING THE ASSESSING OFFICER IN SO FAR AS IT HELD THAT THE BENEFIT OF INDEXATION IN RESPEC T OF CAPITAL ASSET SHOULD BE ALLOWED WITH REFERENCE TO 1 ST APRIL 1981 I.E. THE DATE PRIOR TO WHICH THE PREVIOUS OWNER HAD ACQU IRED THE CAPITAL ASSET. 2) THE LEARNED CIT(A) ERRED ON FACTS IN THE CIRCUMSTA NCES OF THE CASE AND IN LAW IN CONFIRMING THE BENEFIT OF IN DEXATION FROM THE DATE ON WHICH THE ASSESSEE INHERITED THE P ROPERTY. 3. THE ASSESSEE IS AN INDIVIDUAL. HE OWNED ONE AND HALF SHARES OF THE PROPERTY BEING FLAT NO. 19 BUILDING NO. 7A NAVJIV AN C.H.S. LAMINGTON ROAD MUMBAI. DURING THE PREVIOUS YEAR THIS PROPER TY WAS SOLD FOR CONSIDERATION OF RS. 32 43 112/-. THE ASSESSEE BECA ME HALF SHARE OWNER OF THE PROPERTY ON INHERITANCE I.E. ON 28.6.2003. P REVIOUS OWNER (I.E. MR. RIKHIL R. BHAVANANI 2 PERSON FROM WHOM THE ASSESSEE INHERITED HALF OF THE PROPERTY) BECAME OWNER OF THE PROPERTY PRIOR TO 1.4.1981. VALUE ADOP TED FOR THE PURPOSE OF REGISTRATION AND STAMP DUTY IN RESPECT OF PROPERTY WAS RS. 33 00 112/-. IN VIEW OF THE PROVISIONS OF SECTION 50C OF THE ACT THE VALUE ADOPTED BY THE AUTHORITIES FOR STAMP DUTY AND REGISTRATION HAD TO BE TAKEN AS SALE CONSIDERATION RECEIVED ON TRANSFER OF THE PROPERTY. THE ASSESSEE WORKED OUT COMPUTED OF CAPITAL LOSS AS FOLLOWS :- WORKING OF CAPITAL GAINS AND CLAIMS MADE AS PER SE CTION 50C PROPERTY SOLD FOR 32 43 112/- VALUE ADOPTED FOR STAMP DUTY PURPOSES 33 00 000 EXPENDITURE : BROKERAGE 32 000 VALUATION CHARGES 6730 TRANSFER FEES 25000 CONTRIBUTION TO GEN REPAIRS 60001 CONTRIBUTION TO RENO FUND 16001 ADVERTISEMENT FOR TRANSFER 4000 MISC SOC EXP 70 ----------- 143802 3156198 LESS FAIR VALUE AS ON 1.4.1981 673400 INDEXED COST 3232320 - 76122 SHARE IN LOSS -38061 THIS COMPUTATION IS AS PER REVISED WORKING AFTER TH E VALUE AS PER SECTION 50C WAS ADOPTED IN PLACE OF ACTUAL SALE CONSIDERATI ON OF RS. 32 43 112/- 4. AS CAN BE SEEN FROM THE ABOVE CONCLUSION FAIR M ARKET VALUE (FMV) AS ON 1.4.1981 WAS ADOPTED BY THE ASSESSEE AT RS. 6 73 400/-. ON THIS ASSESSEE APPLIED INDEXED COST OF ACQUISITION AND ARRIVED AT THE COST OF ACQUISITION AT RS. 32 32 320/-. METHOD OF COMPUT ATION OF CAPITAL GAIN IS PRESCRIBED U/S. 48 OF THE ACT. IT LAYS DOWN THAT CAPITAL GAIN SHALL BE COMPUTED BY DEDUCTING FROM FULL VALUE OF THE CONSID ERATION RECEIVED OR ACCRUING AS RESULT OF A TRANSFER OF THE CAPITAL ASS ET THE FOLLOWING AMOUNT NAMELY :- MR. RIKHIL R. BHAVANANI 3 1) EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONN ECTION WITH SUCH TRANSFER. 2) COST OF ACQUISITION OF THE ASSET AND COST OF ANY IM PROVEMENT THERETO SECOND PROVISO TO SECTION 48 PROVIDES THAT WHERE LONG TERM CAPITAL GAIN ARISE FROM THE TRANSFER OF LONG T ERM CAPITAL ASSET THEN THE COST OF IMPROVEMENT OR COST OF ACQU ISITION WOULD MEAN THE INDEXED COST OF ACQUISITION AND INDE XED COST OF ANY IMPROVEMENT. EXPLANATION (III) TO SECTION 48 D EFINES INDEXED COST OF ACQUISITION AS FOLLOWS :- III : INDEXED COST OF ACQUISITION MEANS AN AMOUN T WHICH BEARS TO THE COST OF ACQUISITION THE SAME PROPORTION AS COST INFLATION INDEX FOR THE YEAR IN WHICH THE ASSET IS TRANSFERRED BEARS TO THE COST INFLATION INDEX FOR THE FIRST YEAR IN WHICH THE ASS ET WAS HELD BY THE ASSESSEE OR FOR THE YEAR BEGINNING ON THE 1 ST DAY OF APRIL 1981 WHICHEVER IS LATER. 5. ACCORDING TO THE ASSESSING OFFICER AS PER THE P ROVISIONS OF THE ACT INDEXATION IS ALLOWED TO AN ASSESSEE FROM THE FIRST YEAR IN WHICH THE ASSET WAS HELD BY HIM. IN THE INSTANT CASE THE ASS ESSEE HAS HELD THE ASSET FOR THE FIRST TIME ON 28.6.2003 I.E. THE DATE ON WHICH SOCIETY HAS TRANSFERRED THE FLAT TO THE ASSESSEE ON INHERITANCE FROM THE PREVIOUS OWNER. THE INDEXED COST OF ACQUISITION OF THE FLA T WAS WORKED OUT BY THE ASSESSING OFFICER AT RS. 6 98 125/- BY APPLYING COS T OF INFLATION INDEX FOR 2003-04 AS UNDER :- RS. 6 73 400 X 480 = RS. 6 98 125 463 AFTER REDUCING INDEXED COST OF RS. 6 98 125/- THE CAPITAL GAIN IS WORKED OUT TO RS. 25 44 987/- (32 43 112 6 98 125). SINC E THE ASSESSEE IS 50% OWNER OF THE FLAT HIS SHARE OF CAPITAL GAIN WAS WO RKED OUT TO RS. 12 72 494/-. 6. ON APPEAL BY THE ASSESSEE LEARNED CIT(A) AGREED WITH THE VIEW OF THE ASSESSING OFFICER. HE WAS OF THE VIEW THAT THE VIEW OF THE ASSESSING OFFICER IS IN ACCORDANCE WITH THE VIEW EXPRESSED BY THE ITAT MUMBAI BENCH IN THE CASE OF KISHORE KANUNGO 102 ITD 437 ( MUM). LEARNED MR. RIKHIL R. BHAVANANI 4 CIT(A) ALSO FOUND THAT THERE WERE CONTRARY VIEW EXP RESSED BY CHANDIGARH BENCH OF THE TRIBUNAL IN THE CASE OF MRS. PUSHPA SO FAT 81 ITD 1 (CHD) AND KOLKATA BENCH OF TRIBUNAL IN THE CASE OF SMT. M EERA DEOGAN 19 SOT 183 (KOL). LEARNED CIT(A) WAS OF THE VIEW THAT LATE R DECISION OF ITAT IN THE CASE OF KISHORE KANUNGO (SUPRA) SHOULD BE FOLLO WED AND HE ACCORDINGLY UPHELD THE ACTION OF THE ASSESSING OFFI CER. AGGRIEVED BY THE ORDER OF LEARNED CIT(A) THE ASSESSEE HAS RAISED GR OUND NO. 1&2 BEFORE THE TRIBUNAL. 7. AT THE TIME OF HEARING IT WAS BROUGHT TO OUR NO TICE THAT CONFLICT OF VIEW EXPRESSED BY DIFFERENT BENCH OF THE TRIBUNAL O N THE ISSUE RESULTED IN CONSTITUTION OF SPECIAL BENCH AT MUMBAI AND THE SPECIAL BENCH AT MUMBAI IN THE CASE OF DCIT VS. MANJULA J. SHAH 35 SOT 105 (MUM) SB HAS HELD THAT FOR THE PURPOSE OF COMPUTING LONG TER M CAPITAL GAIN IN THE HANDS OF THE ASSESSEE WHO WAS ACQUIRED AN ASSET UN DER A GIFT INDEXED COST OF ACQUISITION OF SUCH CAPITAL ASSET HAS TO BE COMPUTED WITH REFERENCE TO YEAR IN WHICH PREVIOUS OWNER FIRST HEL D CAPITAL ASSET. IN VIEW OF THE ABOVE DECISION OF SPECIAL BENCH WE HOLD THA T INDEXED COST OF ACQUISITION IN THE PRESENT CASE HAS TO BE ADOPTED O N THE BASIS OF YEAR IN WHICH PREVIOUS OWNER ACQUIRED ASSET. THUS GROUND NO. 1&2 RAISED BY THE ASSESSEE ARE ALLOWED. 8. GROUND NO. 3&4 READ AS FOLLOWS :- 3) LEARNED CIT(A) ERRED ON FACTS IN THE CIRCUMSTAN CES OF THE CASE AND IN LAW IN CONFIRMING THE DISALLOWANCE OF R S. 60 000/- BEING A CONTRIBUTION TO THE SOCIETY. 4) LEARNED CIT(A) ERRED ON FACTS IN THE CIRCUMSTANC ES OF THE CASE AND IN LAW IN CONFIRMING THE DISALLOWANCES OF RS. 16 001/- BEING A CONTRIBUTION TO THE SOCIETY. 9. WE HAVE ALREADY EXTRACTED COMPUTATION OF CAPITAL GAIN AS GIVEN BY THE ASSESSEE. ON PERUSAL OF THE SAME REVEALS THAT T HE ASSESSEE HAS CLAIMED A DEDUCTION ON ACCOUNT OF EXPENDITURE INCUR RED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH TRANSFER A SUM OF RS . 76 00 002/- BEING MR. RIKHIL R. BHAVANANI 5 CONTRIBUTION TO GENERAL REPAIRS FUND OF RS. 60 001/ - AND CONTRIBUTION OF RENOVATION FUND OF RS.16 001/-. THUS DONATIONS WER E VOLUNTARY DONATION MADE BY THE ASSESSEE TO SOCIETY OF APARTME NT OWNER ON OCCASION OF TRANSFER OF HIS PROPERTY BY SALE. THE A SSESSING OFFICER WAS OF THE VIEW THAT SINCE THIS WAS VOLUNTARY DONATION TH EY CANNOT BE SAID TO BE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WI TH SALE OF THE FLAT. LEARNED CIT(A) CONCURRED THE VIEW OF THE ASSESSING OFFICER GIVING RISE TO GROUND NO. 3&4 BY THE ASSESSEE BEFORE THE TRIBUNAL. 10. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFO RE US THAT THOUGH ABOVE DONATIONS WERE VOLUNTARY DONATION SOCIETY AS A MATTER OF POLICY DEMANDS ABOVE DONATION AT THE TIME OF SALE OF FLAT. THESE ARE ACTUALLY COMPULSORY IN NATURE THOUGH THEY ARE ON PAPER VOLUN TARY DONATION. WE ARE OF THE VIEW THAT SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE CANNOT BE ACCEPTED. TO CLAIM AN EXPENDITURE AS DEDUCTIBLE U/S. 48(I) OF THE ACT THEY HAVE TO BE WHOLLY AND EXCLUSIVELY IN CONNECTIO N WITH AS TRANSFER. SINCE PAYMENT IN QUESTION WAS A VOLUNTARY PAYMENT IT CANNOT BE SAID TO BE WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SAL E OF THE FLAT BY THE ASSESSEE. DEDUCTION CLAIMED CANNOT BE ALLOWED ON T HE SAME SUBMISSION THAT THESE ARE MANDATORY PAYMENTS DEMANDED BY THE S OCIETY THOUGH THEY ARE CALLED VOLUNTARY DONATION. GROUND NO. 3&4 ARE THEREFORE DISMISSED. 11. IN THE RESULT APPEAL BY THE ASSESSEE IS PARTLY ALLOWED. ORDER HAS BEEN PRONOUNCED ON 30 TH DAY OF APRIL 2010. SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER SD/- (N.V. VASUDEVAN) JUDICIAL MEMBER DATED : 30 TH APRIL 2010 COPY TO : 1. THE ASSESSEE 2. THE RESPONDENT 3. THE CIT(A)-CONCERNED. 4. THE CIT CONCERNED. 5. THE DR CONCERNED MUMBAI MR. RIKHIL R. BHAVANANI 6 6. GUARD FILE BY ORDER TRUE COPY ASSTT. REGISTRAR ITAT MUMBAI PS