SURESH D. SHROFF (HUF), MUMBAI v. ITO 19(1)(4), MUMBAI

ITA 429/MUM/2014 | 2008-2009
Pronouncement Date: 31-07-2015 | Result: Allowed

Appeal Details

RSA Number 42919914 RSA 2014
Assessee PAN AAHHS2051L
Bench Mumbai
Appeal Number ITA 429/MUM/2014
Duration Of Justice 1 year(s) 6 month(s) 11 day(s)
Appellant SURESH D. SHROFF (HUF), MUMBAI
Respondent ITO 19(1)(4), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 31-07-2015
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted E
Tribunal Order Date 31-07-2015
Assessment Year 2008-2009
Appeal Filed On 20-01-2014
Judgment Text
E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH MUMBAI BEFORE SHRI A.D. JAIN JM AND SHRI RAJENDRA AM .. ./ I.T.A. NO. 429 /MUM/2014 ( / ASSESSMENT YEAR : 2008-09 SURESH D. SHROFF (HUF) IST FLOOR HENLEEN APARTMENT 32 MAIN AVENUE SANTACRUZ (W) MUMBAI 400 054. / VS. INCOME TAX OFFICER 19(1)(4) PIRAMAL CHAMBERS JIJIBHOY LANE LALBAUG MUMBAI 400 012 ./ PAN : AAHHS2051L ( / APPELLANT ) .. ( ! / RESPONDENT ) A PPELLANT BY SHRI V.C. SHAH R E SPONDENT BY : SHRI N.M. WANDRE ' # $ % & ' / DATE OF HEARING : 21-07-2015 ()*+ % & ' / DATE OF PRONOUNCEMENT : [ / O R D E R PER A.D. JAIN J.M . : .. THIS IS ASSESSEES APPEAL FOR A.Y. 2008-09 AGAINST THE ORDER DATED 13- 11-2013 PASSED BY THE LD. CIT(A)-18 MUMBAI. THE FO LLOWING GROUNDS HAVE BEEN TAKEN BY THE ASSESSEE:- 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED CIT (A) ERRED IN NOT PASSING AND GIVING APP ROPRIATE RELIEF BY DIRECTING TO IGNORE THE VALUE FOR COMPUTING CAPITAL GAIN IN R ESPECT OF MEZZANINE FLOOR OF SHOP NO.21 VALUED BY THE VALUATION OFFICER AT RS. 7 76 160/- WHICH WAS ILLEGALLY CONSTRUCTED BY THE PURCHASER AND WHICH W AS NOT IN EXISTENCE AT THE TIME OF SALE EFFECTED IN 2007 AND THE SAME HAVING B EEN CONSTRUCTED BY THE PURCHASER WITHIN A PERIOD OF ITS PURCHASE AND INSPE CTION BY VALUATION OFFICER ITA 429/M/14 2 WHICH WAS DONE IN AUGUST 2012 AND WHICH WAS NOT IN EXISTENCE AS PER THE REGISTERED SALE DEED EXECUTED IN JULY 2007. 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CI'I' (A) ERRED IN NOT GRANTING RELIEF BY D IRECTING TO EXCLUDE THE VALUE FOR COMPUTING CAPITAL GAIN IN RESPECT OF BASEMENT NO.21 SOLD BY THE ASSESSEE ON 27TH JULY 2007 WHICH HAD AN AREA OF 78 SQ. FT. SOL D WHICH WAS CONSTRUCTED TO THE EXTENT OF PERMISSIBLE CONSTRUCTION BY CONSIDERI NG WHEN ILLEGAL EXTENSION DONE BY THE PURCHASER AFTER THE DATE OF PURCHASE BU T BEFORE DATE OF INSPECTION BY THE VALUATION OFFICER WHEREIN THE AREA WAS EXTEN DED TO 176 SQ. FT. I.E. DOUBLE THE PERMISSIBLE AREA WAS NOT IN EXISTENCE AN D PERMISSIBLE WHEN THE REGISTERED AGREEMENT WAS EXECUTED IN 2007. 3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CI'T (A) ERRED IN NOT CONSIDERING AND UNDER STANDING THE EXTENSION OF ILLEGAL AREA OF BOTH THE PROPERTIES SOLD AND IN NOT GIVING ANY APPROPRIATE DIRECTIONS TO EXCLUDE BOTH ILLEGALLY CONSTRUCTED AR EAS WHICH WERE NOT IN EXISTENCE WHEN SALE TOOK PLACE. HE FURTHER ERRED IN MIXING UP THE POSITION OF BOTH THE PROPERTIES. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT (A) ERRED IN CONFIRMING THE DISALLOWANC E OF INTEREST PAID MOUNTING TO RS.7 20 OOOJ- BY IGNORING THE FACT THAT NO INTER EST BEARING BORROWING WERE UTILIZED III GRANTING ADVANCES PARTICULARLY WHEN AL L INTEREST BEARING BORROWING WERE DEPLOYED IN INTEREST EARNING ADVANCES ONLY. 2. GROUND NOS. 1 TO 3 PERTAINS TO ONE ISSUE. THE FA CTS ARE THAT THE A.O. OBSERVED THAT THE ASSESSEE HAD SOLD TWO IMMOVABLE P ROPERTIES NAMELY SHOP NO. 21 AND BASEMENT ATTACHED THERETO IN A BUILDING CONSTRUCTED BY ANDHERI ICE & COLD STORAGE PVT. LTD. FOR A CONSIDERATION O F RS. 14 00 000/- AND RS. 5 00 000/- RESPECTIVELY AND DECLARED LONG TERM CA PITAL GAIN OF RS. 7 26 302/- AFTER INDEXATION. THE A.O. ASKED THE ASS ESSEE TO FURNISH THE RELEVANT PURCHASE DEEDS/SALE DEEDS OF BOTH THE PROP ERTIES. THE ASSESSEE SUBMITTED THE SAME. FROM THE PERUSAL OF THE SALE DE ED THE A.O. NOTICED THAT THE STAMP DUTY VALUATION OF THE PROPERTIES IN QUEST ION WAS RS. 28 01 606/- AND RS. 7 20 000/- RESPECTIVELY WHEREAS THE SALE CONSIDERATION AS PER THE AGREEMENT WAS SHOWN AT RS. 14 00 000/- AND RS. 5 00 000/- RESPECTIVELY. ACCORDINGLY THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE PROVISIONS OF SECTION 50C SHOULD NOT BE INVOKED SINCE THE STAMP DUTY VALUATION OF THE ITA 429/M/14 3 PROPERTY SOLD EXCEEDED THE SALE CONSIDERATION TAKEN FOR COMPUTATION OF LONG TERM CAPITAL GAIN. IN RESPONSE TO THIS THE A.R OF THE ASSESSEE SUBMITTED THAT THE PROPERTIES WERE SOLD FOR A VALUE HIGHER THAN TH E VALUE PUBLISHED IN THE STAMP DUTY READY RECKONER FOR THE YEAR 2007. THE A. O. DID NOT ACCEPT THE ARGUMENT OF THE ASSESSEE AND COMPUTED THE LONG TERM CAPITAL GAIN BY TAKING THE WHOLE CONSIDERATION AS PER THE STAMP DUTY VALUA TION AND AFTER ALLOWING COST OF ACQUISITION AFTER INDEXATION THE CAPITAL G AIN WAS DETERMINED AT RS. 16 27 908/-. AFTER ALLOWING DEDUCTION OF RS. 7 26 3 02/- DECLARED BY THE ASSESSEE AN ADDITION OF RS. 9 01 606/- WAS MADE. BY VIRTUE OF THE IMPUGNED ORDER THE LD. CIT(A) PARTLY ALLOWED THE GROUND TAK EN BY THE ASSESSEE OBSERVING INTER ALIA AS FOLLOWS:- BUT THE CONTENTION OF THE APPELLANT THAT AS PER TH E SALE DEED THE MAZANNINE FLOOR WAS PERMITTED AT 78 SQ.FT. ONLY. HOWEVER AFT ER THE SALE DEED THE PRESENT OCCUPANT HAS EXTENDED THE BASEMENT TO 176 SQ.FT. WH ICH WAS ILLEGAL AND NOT AT THE TIME OF THE SALE DEED. THIS CONTENTION OF THE A PPELLANT IS TRUE AND THE DIFFERENCE OF VALUATION OF THE BASEMENT OF 176 SQ.F T. AND 78 SQ.FT. WILL HAVE TO BE ADOPTED. THE VALUATION OFFICER HAS ADOPTED THE V ALUE FOR MAZANNINE FLOOR AT RS. 7 76 160/- FOR 176 SQ.FT. BUT ACTUAL AREA SOLD WAS AT 78 SQ.FT. AND THE PROPORTIONATE VALUE COMES TO AT RS. 3 20 232/-. SIN CE THE ARGUMENT AND FACTS ADVOCATED BY THE AR OF THE APPELLANT ARE CORRECT T HEREFORE THE AO. IS DIRECTED TO ADOPT THE VALUE OF MAZANNINE FLOOR AT RS. 3 20 2 32/- IN PLACE OF RS. 7 76 160/- ADOPTED BY THE VALUATION OFFICER AND ACC ORDINGLY RECOMPUTED THE LONG TERM CAPITAL GAIN. THUS THE GROUND OF APPEAL IS PARTLY ALLOWED. 4. THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED T HAT THE LD. CIT(A) OUGHT TO HAVE CONSIDERED FIRSTLY THAT THE MEZZANIN E FLOOR OF SHOP NO. 21 WAS NOT IN EXISTENCE WHEN THE ASSESSEE SOLD IT WHICH W AS ILLEGALLY CONSTRUCTED BY THE PURCHASER; THAT THE BASEMENT AREA WAS EXTENDED BEYOND THE AREA PERMISSIBLE BY THE PURCHASER AFTER THE PURCHASE OF THE BASEMENT; AND THAT AS SUCH BOTH THESE CONSTRUCTIONS NEEDED TO BE EXCLUDE D. 5. THE LD. D.R. ON THE OTHER HAND HAS PLACED STRO NG RELIANCE ON THE IMPUGNED ORDER. ITA 429/M/14 4 6. AFTER CONSIDERING THE RIVAL CONTENTIONS IN THE L IGHT OF MATERIAL AVAILABLE ON RECORD WE FIND THAT EVEN AS PER THE IMPUGNED OR DER THE ASSESSEES CONTENTION THAT THE MEZZANINE FLOOR WAS CONSTRUCTED AND THE BASEMENT WAS EXTENDED BOTH ILLEGALLY BY THE PURCHASERS AND NOT BY THE ASSESSEE AND THEREFORE BOTH THESE HAVE TO BE EXCLUDED. A READIN G OF THE ABOVE EXTRACTED RELEVANT PORTION OF THE IMPUGNED ORDER SHOWS THAT T HE LD. CIT(A) HAD ERRONEOUSLY NOT CONSIDERED THE MATTER IN ITS RIGHT PERSPECTIVE. THE UNDISPUTED CONTENTION OF THE ASSESSEE WAS THAT THE MEZZANINE F LOOR HAD BEEN CONSTRUCTED ILLEGALLY. THE LD. CIT(A) HOWEVER ERRED IN OBSERV ING THAT THE CONTENTION OF THE ASSESSEE AS PER THE SALE DEED THE MEZZANINE FLOOR WAS CONSTRUCTED AS 78 SQ. FT ONLY. IN FACT NO MEZZANINE FLOOR AT ALL WAS CO NSTRUCTED AND THE CEILING OF 78 SQ. FT. WAS WITH REGARD TO THE BASEMENT WHICH W AS ILLEGALLY EXTENDED TO 178 SQ. FT. THEREFORE THE VALUE OF BOTH THE MEZZA NINE FLOOR AND THE EXTENDED BASEMENT I.E. 176 SQ.FT. (-) 78.SQ. FT. AMOUNTIN G TO 98 SQ. FT. NEEDS TO BE EXCLUDED IN COMPUTING THE LONG TERM CAPITAL GAIN. WE DIRECT THE A.O. ACCORDINGLY. GROUND NOS. 1 TO 3 ARE THEREFORE AC CEPTED. 7. APROPOS GROUND NO. 4 THE A.O. OBSERVED THAT INT EREST EXPENSES AMOUNTING TO RS. 23 33 321/- STOOD REFLECTED IN THE PROFIT & LOSS ACCOUNT. THE A.O. ISSUED A SHOW-CAUSE NOTICE TO THE ASSESSEE TO EXPLAIN THE DETAILS OF SUCH EXPENSES AND TO FURNISH EVIDENCE FOR LOAN CONFIRMAT IONS WHICH SHOWED THAT ASSESSEE HAS RAISED UNSECURED LOANS OF RS. 4 75 000 1- DURING THE YEAR AND TOOK INTEREST BEARING LOANS TO THE TUNE OF RS. 1 87 94 780/-. THE A.O. ALSO OBSERVED THAT AS PER BALANCE SHEET THE ASSESSEE HA D GIVEN INTEREST-FREE LOANS & ADVANCES TO THE TUNE OF RS. 71 00 000/-. THE ASS ESSEE WAS ASKED TO GIVE JUSTIFICATION FOR SUCH INTEREST FREE ADVANCES WHEN THE INTEREST WAS BEING PAID ON BORROWED MONEY. IN RESPONSE TO THIS THE ASSESSE E SUBMITTED ITS REPLY WHICH HAS BEEN REPRODUCED AT PAGE 4 OF THE ASSESSME NT ORDER. AFTER CONSIDERING THE SAME THE A.O. REJECTED THE SAME AN D GAVE THE FOLLOWING REASONS FOR REJECTION:- ITA 429/M/14 5 (A) THE ASSESSEE HAS NOT PROVED WITH SUPPORTING EVI DENCE THAT THE INTEREST FREE ADVANCES HAVE BEEN GIVEN FROM SURPLUS INTEREST FREE FUND. (B) SECONDLY EVEN IF ASSESSEE HAS SUFFICIENT INTER EST FREE FUND TO GIVE INTEREST FREE ADVANCES THEN THE MOOT QUESTION COME S TO MIND AS TO WHERE DOES THE NECESSITY OF BORRO9WING MONEY ON INT EREST ARISES IN SUCH SITUATION. (C) FURTHER IT IS PERTINENT TO NOTE THAT THE ASSES SEE HAS GIVEN INTEREST FREE ADVANCES TO THE PERSONS OF WHICH BUSINESS RELA TION COULD NOT BE ESTABLISHED BY THE ASSESSEE SINCE ASSESSEE IS IN TH E BUSINESS OF FINANCING. (D) HENCE IT CAN BE LOGICALLY CONCLUDED THAT ASSES SEE HAS UTILIZED INTEREST BEARING FUNDS FOR NON-BUSINESS PURPOSE AN D HENCE THE PROPORTIONATE INTEREST EXPENSES ARE WORKED OUT AS U NDER: INTEREST FREE ADVANCES GIVEN RS. 70 00 000 LESS: OUTSTANDING AMOUNT: RS. 9 00 000 NET INTEREST-FREE ADVANCES RS. 61 00 000 INTEREST @ 12% ON RS. 61 00 000 RS. 7 32 000 IN VIEW OF THE ABOVE INTEREST EXPENSES AMOUNTING T O RS. 7 32 000/- WERE TREATED BY THE A.O. AS INCURRED FOR NON-BUSINESS PU RPOSES AND HE DISALLOWED THE SAME AND ADDED THEM BACK TO THE TOTAL INCOME OF THE ASSESSEE. THE LD. CIT(A) CONFIRMED THE DISALLOWANCE. 8. THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED T HAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE WHILE IGNORIN G THAT INTEREST BEARING BORROWING HAS BEEN UTILIZED IN GRANTING ADVANCES AN D ALL THESE INTEREST BEARING BORROWINGS STOOD DEPLOYED IN INTEREST FREE ADVANCES ONLY. 9. THE LD. D.R. HAS AGAIN RELIED ON THE IMPUGNED ORDER. 10. IN THIS REGARD IT IS SEEN THAT IT REMAINS UNDI SPUTED THAT THE AMOUNT OF RS. 9 LACS REPRESENTED OUTSTANDING SALE CONSIDERATI ON FROM SHRI SHYAM ITA 429/M/14 6 DEVDIGA AND IT WAS NOT IN THE NATURE OF ADVANCE TO HIM. FURTHER THE ASSESSEE GAVE AN AMOUNT OF RS. 55 LACS TO SHRI VASA NT THAKKAR AS BUSINESS VENTURE DEPOSIT. MOREOVER THERE WERE INTEREST FREE BORROWINGS OF RS. 1 51 94 257/- AND INTEREST BEARING LOAN OF RS. 1 87 94 780/- WITH THE ASSESSEE. THE ASSESSEE HAD GRANTED INTEREST BEARING LOAN OF RS. 2 84 68 267/- .THUS ALL THE INTEREST BEARING BORROWINGS STOOD DE PLOYED IN INTEREST BEARING LENDING. IT WAS NOT SHOWN OTHERWISE. THEREFORE NO INTEREST BEARING ADVANCES WERE SHOWN HAVING BEEN MADE OUT OF INTEREST BEARING BORROWINGS TO ANY PARTY. THE LD. CIT(A) HAS GONE WRONG IN OBSERVING T HAT THE GENUINENESS OF THE INTEREST BEARING BORROWED FUNDS RECEIVED BY THE ASS ESSEE DID NOT STAND PROVED. RATHER THE ASSESSEES CONTENTION THAT INTE REST FREE LOANS WERE GIVEN OUT OF INTEREST FREE FUNDS BORROWED AND NOT FROM IN TEREST BEARING FUNDS WAS NOWHERE DEALT WITH EITHER BY THE A.O. OR THE LD. C IT(A) HIMSELF. IT IS THIS ERRONEOUS OBSERVATION THAT HAS LED TO THE ADDITION HAVING BEEN ILLEGALLY CONFIRMED SINCE IT IS ON THE BASIS OF THIS OBSERVA TION THAT IT HAS BEEN CONCLUDED THAT THE INTEREST FREE FUNDS BORROWED BY THE ASSESSEE ALSO DID NOT STAND PROVED. IT IS ERRONEOUS FOR THE LD. CIT(A) TO HAVE OBSERVED THAT THE ASSESSEE FAILED TO SUBMIT ANY EVIDENCE TO PROVE THA T THE INTEREST FREE LOANS WERE GIVEN FOR BUSINESS PURPOSES. RATHER IT WAS T HE ONUS OF THE A.O. TO PROVE TO THE CONTRARY WHICH WAS NOT DISCHARGED BY HIM AND THIS HAS WRONGLY NOT BEEN TAKEN INTO CONSIDERATION BY THE LD. CIT(A) . 11. FOR THE ABOVE DISCUSSION THE GRIEVANCE OF THE ASSESSEE WITH REGARD TO GROUND NO. 4 IS ALSO FOUND TO BE JUSTIFIED AND IT I S ACCEPTED AS SUCH. ITA 429/M/14 7 12. IN THE RESULT APPEAL FILED BY THE ASSESASEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST JULY 2015 % ()*+ ' -. / 0 31-07-2015 ) % 1$ SD/- SD/- (RAJENDRA) (A.D. JAIN ) ACCOUNTANT MEMBER /J UDICIAL MEMBER - ' =$ MUMBAI ; / DATED 31-07-2015 [ #.../ R.K. R.K. R.K. R.K. SR. PS ! ' #$%& ' &$ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. ! / THE RESPONDENT. 3. ' >& () / THE CIT(A)-18 MUMBAI 4. ' >& / CIT- 19 MUMBAI 5. A#B 1 &CD ' CD+ - ' =$ / DR ITAT MUMBAI E BENCH 6. 1 E F $ / GUARD FILE. ! ( / BY ORDER ! A& & //TRUE COPY// )/(* + ( DY./ASSTT. REGISTRAR) - ' =$ / ITAT MUMBAI