DCIT CIR 20(3), MUMBAI v. SHALIL S. SHROFF, MUMBAI

ITA 4761/MUM/2010 | 2005-2006
Pronouncement Date: 29-07-2011 | Result: Dismissed

Appeal Details

RSA Number 476119914 RSA 2010
Assessee PAN AABPS6589H
Bench Mumbai
Appeal Number ITA 4761/MUM/2010
Duration Of Justice 1 year(s) 1 month(s) 19 day(s)
Appellant DCIT CIR 20(3), MUMBAI
Respondent SHALIL S. SHROFF, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 29-07-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted F
Tribunal Order Date 29-07-2011
Assessment Year 2005-2006
Appeal Filed On 09-06-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F MUMBAI BEFORE SHRI T.R. SOOD (AM) AND SMT. ASHA VIJAYARAGH AVAN (JM) ITA NO. 4761/MUM/2010 ASSESSMENT YEAR - 2005-06 THE DY. CIT-20(3) PIRAMAL CHAMBERS LALBAUG PAREL MUMBAI-400 012 VS. SHRI SHALIL S. SHROFF PLOT NO.645/646 OBEROI CHAMBERS 2 4 TH & 5 TH FLOOR NEW LINK ROAD ANDHERI (W) MUMBAI-400 053 PAN-AABPS 6589H (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI R.K. GUPTA RESPONDENT BY: SHRI CHARUL TOPRANI DATE OF HEARING : 25.7.2011 DATE OF PRONOUNCEMENT: 29 TH JULY 2011 O R D E R PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AG AINST THE ORDER DATED 29.3.2010 PASSED BY THE LD. CIT(A)-31 FOR THE ASSESSMENT YEAR 2005- 06. 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE HELD 6% SHARE IN THE PROPERTY AT EXCEL ESTATE GOREGAON. THE SAID PROPERTY WAS A CQUIRED BY THE ASSESSEE THROUGH TRANSMISSION ON DEATH OF SHRI S.D. SHROFF I N THE YEAR 1997 AND THIS PROPERTY WAS ACQUIRED BY SHRI S.D. SHROFF FATHER O F SHRI SHALIL SHROFF IN 1967. DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2005-06 THE ASSESSEE SOLD HIS SHARE IN THE PROPERTY. IN THE RETU RN OF INCOME FILED BY THE ASSESSEE THE TOTAL CONSIDERATION WAS SHOWN AT RS.7 50 00 000/- AND AFTER DEDUCTING THE INDEXED COST OF ACQUISITION AND THE I NVESTMENT MADE UNDER ITA NO. 4761/M/2010 2 CAPITAL GAIN BONDS UNDER SECTION 54EC THE CAPITAL GAINS WAS SHOWN AT RS.NIL. THE RETURN OF INCOME FILED BY THE ASSESSEE WAS NOT SELECTED FOR SCRUTINY. IN CASE OF SHALL S. SHROFF (HUF) FOR ASSESSMENT YEAR 2 005-06 THE ASSISTANT COMMISSIONER OF INCOME-TAX HAD MADE REFERENCE TO DI STRICT VALUATION OFFICER UNDER SECTION 55A OF THE ACT TO DETERMINE THE FAIR MARKET VALUE OF PROPERTY. THE VALUATION REPORT WAS RECEIVED BY THE ASSISTANT COMMISSIONER ON 19 TH SEPTEMBER 2008. IN THE MEANWHILE IN CASE OF SHALI L S. SHROFF (HUF) ASSESSMENT UNDER SECTION 143(3) WAS COMPLETED ON 31 ST DECEMBER 2007 BY CONSIDERING THE FAIR MARKET VALUE OF LAND AS PER TH E REGISTERED APPROVAL VALUER SINCE THE VALUATION REPORT FROM DISTRICT VAL UATION OFFICER WAS NOT RECEIVED AND AFTER ADOPTING THE COST INFLATION INDE X FOR THE YEAR 1997 INSTEAD OF 1981. 3. AN APPEAL WAS FILED AND THE ADDITION WAS DROPPED IN THE CASE OF SHALIL S. SHROFF (HUF) FOR THE AFORESAID ASSESSMENT YEAR. A NOTICE DATED 28 TH MARCH 2008 WAS ISSUED UNDER SECTION 148 OF THE ACT FOR RE OPENING OF THE ASSESSMENT FOR THE AFORESAID ASSESSMENT YEAR. IN OR DER TO COMPLY WITH THE AFORESAID NOTICE THE ASSESSEE FILED A RETURN OF IN COME ON 10 TH APRIL 2008 DECLARING THE TOTAL INCOME AT RS.32 97 770/-. THE A SSESSEE ALSO REQUESTED THAT THE REASONS RECORDED FOR RE-OPENING BE FURNISH ED TO HIM. A NOTICE DATED 2 ND JUNE 2008 WAS ISSUED UNDER SECTION 143(2) OF THE ACT REQUIRING THE ASSESSEE TO PRODUCE DOCUMENTS ACCOUNTS AND OTHER EVIDENCES IN CONNECTION WITH THE RETURN FILED. BASED ON THE VALUATION REPOR T DATED 19 TH SEPTEMBER 2008 RECEIVED IN CASE OF SHALIL SHROFF (HUF) THE AS SISTANT COMMISSIONER OF INCOME-TAX ASKED THE ASSESSEE TO SHOW CAUSE AS TO WH Y THE VALUE AS ON 1 ST APRIL 1981 DETERMINED BY THE DISTRICT VALUATION OF FICER SHOULD NOT BE ADOPTED. IN THE NOTICE DATED 14 TH OCTOBER 2008 ISSUED UNDER SECTION 142(1) OF THE ACT THE ASSESSEE WAS REQUIRED TO FILE COPY OF SALES DEED AND PURCHASE DEED OF PROPERTY SOLD ALONG WITH A COPY OF VALUATIO N REPORT. 4. THE ASSESSEE VIDE LETTER DATED 3 RD NOVEMBER 2008 SUBMITTED COPY OF SALES DEED AND A COPY OF VALUATION REPORT DATED 15 TH JANUARY 2005 ISSUED BY BHARAT SHAH AND ASSOCIATES DETERMINING THE FAIR MAR KET VALUE OF THE PROPERTY ITA NO. 4761/M/2010 3 AS ON 1 ST APRIL 1981. DURING THE COURSE OF ASSESSMENT THE A SSESSEE WAS ASKED TO SHOW CAUSE WHY THE YEAR OF INDEXATION ADOP TED BY THE ASSESSEE AS 1981 SHOULD NOT BE REPLACED BY THE INDEXATION YEAR 1997 IN ORDER TO WORK OUT THE INDEXED COST OF ACQUISITION SINCE THE PROPERTY WAS TRANSFERRED TO THE ASSESSEE ON THE DEATH OF HIS FATHER IN THE YEAR 199 7. THE ASSESSEE VIDE LETTER DATED 3 RD NOVEMBER 2008 MADE DETAILED SUBMISSION ON THE SAI D ISSUE. 5. THE ASSESSEE VIDE LETTER DATED 3 RD NOVEMBER 2008 6 TH NOVEMBER 2008 AND 19 TH NOVEMBER 2008 ALSO SUBMITTED THAT THE FAIR MARKET VALUE AS ON 01.04.81 AS DETERMINED BY THE DISTRICT VALUATION OFFICER SHOULD NOT BE TREATED AS COST OF ACQUISITION OF THE PROPERTY WHIL E COMPUTING THE CAPITAL GAINS. IN THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) READ WITH SECTION 147 THE ASSESSEES SUBMISSIONS HAVE BEEN REJECTED ON THE GROUND THAT CLAUSE (III) OF THE EXPLANATION 48 CLARIFIES THAT T HE COST INFLATION INDEX IS TO BE APPLIED FOR THE FIRST YEAR IN WHICH THE ASSET IS HE LD BY THE ASSESSEE I.E. FROM THE YEAR 1997 I.E. AFTER THE DEATH OF HIS FATHER T HE COST INFLATION INDEX HAS BEEN APPLIED WITH REFERENCE TO 1997 AND NOT 1981. F URTHER THE ASSESSEES SUBMISSION THAT THE ASSESSING OFFICER HAS NO POWER TO MAKE REFERENCE TO THE DISTRICT VALUATION OFFICER TO DETERMINE THE FAIR MA RKET VALUE AS ON 01.04.91 IN A CASE WHERE THE ASSESSEE HAS OBTAINED A VALUATI ON FROM A REGISTERED VALUER HAS BEEN REJECTED. ACCORDINGLY IN THE ASSES SMENT ORDER THE LONG TERM CAPITAL GAIN HAS BEEN RECOMPUTED AT RS.1 76 00 476/- BY CONSIDERING FAIR MARKET VALUE OF THE LAND AS PER THE VALUATION REPORT OBTAINED FROM DISTRICT VALUATION OFFICER AND AFTER CONSIDERING TH E COST INFLATION INDEX FOR THE YEAR 1997 I.E. THE YEAR WHEN ASSET WAS TRANSFERRED TO THE ASSESSEE AS PER THE WILL OF HIS FATHER. 6. ON FURTHER APPEAL THE LD. CIT(A) HAS FOLLOWED TH E DECISION OF THE SPECIAL BENCH IN THE CASE OF MANJULA J. SHAH AND HE LD AS FOLLOWS: REGARDING THE DETERMINATION OF INDEXED COST OF AC QUISITION UNDER THE GIVEN FACTS AND CIRCUMSTANCES OF THE CAS E AS DISCUSSED ABOVE I FIND THAT THE SAME IS COVERED BY THE DECISI ON OF HON'BLE ITA NO. 4761/M/2010 4 JURISDICTIONAL ITAT IN THE CASE OF SMT. MANJULA J. SHAH (SUPRA); WHEREIN IT IS HELD THAT FOR THE PURPOSE OF COMPUTI NG LONG TERM CAPITAL GAIN ARISING FROM THE TRANSFER OF A CAPITAL ASSET W HICH HAD BECOME PROPERTY OF THE ASSESSEE AND THE INHERITANCE THE F IRST YEAR IN WHICH THE CAPITAL ASSET WAS HELD BY THE ASSESSEE HAS TO B E DETERMINED TO WORK OUT THE INDEXED COST OF ACQUISITION AS AND ENV ISAGED IN EXPLANATION (III) TO SECTION 48 AFTER TAKING INTO A CCOUNT THE PERIOD FOR WHICH THE SAID CAPITAL ASSET WAS HELD BY THE PREVIO US OWNER. THE HON'BLE ITAT IN PARA 16 & 17 OF ITS ORDER HAS HELD IN THIS REGARD AS UNDER : 16. IT IS ALSO NOTED THAT IF THE INTERPRETATION AS SOUGHT BY THE LEARNED DR IS ASSIGNED TO CLAUSE (III) OF EXPLANATI ON TO SECTION 48 IT WOULD LEAD TO SUCH WORKING OF INDEXED COST O F ACQUISITION IN SOME CASES WHICH IS TOTALLY ILLOGICAL AND UNREAS ONABLE. FOR INSTANCE IN THE CASE WHERE CAPITAL ASSET HAS BECOM E A PROPERTY OF THE ASSESSEE UNDER A GIFT PRIOR TO THE CUT OFF D ATE OF 01.04.1981 BUT THE SAME IS TRANSFERRED BY HIM ONLY AFTER 01.04.1981; SAY IN F.Y. 1987-88 THE YEAR TO BE ADO PTED FOR INDEXATION AS PER THE CONTENTION OF THE LEARNED CIT (A) D.R. WOULD BE F.Y. 1987-88. HOWEVER THE COST OF ACQUISI TION OF CAPITAL ASSET IN SUCH CASE WOULD BE TAKEN AS FAIR M ARKET VALUE OF 01.04.1981 BEING THE CUT OFF DATE EMBEDDED IN TH E INDEXATION SCHEMEN AS AGREED EVEN BY THE LEARNED DR . THE SITUATION WILL THUS ARISE WHERE THE COST OF ACQUIS ITION OF CAPITAL ASSET WOULD BE TAKEN AS OF 01.04.1981 WHEREAS THE C OST INFLATION INDEED FOR THE YEAR 1987-88 WOULD BE APPL IED TO THE SAID COT TO WORK OUT THE INDEXED COST OF ACQUISITIO N. SUCH A WORKING WILL NOT STAND TO ANY REASONABILITY OF LOGI C AND WILL CERTAINLY DEFEAT THE VERY PURPOSE OF INDEXATION SCH EME AS EXPLAINED IN THE AFORESAID CIRCULAR NO.636 DATED 31 .08.90. 17. FOR THE REASON GIVEN ABOVE WE ARE OF THE VIEW THAT FOR THE PURPOSE OF COMPUTING LONG TERM CAPITAL GAIN ARI SING FROM THE TRANSFER OF A CAPITAL ASSET WHICH HAD BECOME PR OPERTY OF THE ASSESSEE UNDER GIFT THE FIRST YEAR IN WHICH THE CA PITAL ASSET WAS HELD BY THE ASSESSEE HAS TO BE DETERMINED TO WORK O UT THE INDEXED COST OF ACQUISITION AS ENVISAGED IN EXPLANA TION (III) TO SECTION 48 AFTER TAKING INTO ACCOUNT THE PERIOD FOR WHICH THE SAID CAPITAL ASSET WAS HELD BY THE PREVIOUS OWNER. IN THIS VIEW OF THE MATTER WE HOLD THAT THE INDEXED COST OF ACQ UISITION OF SUCH CAPITAL ASSET HAS TO BE COMPUTE WITH REFERENCE TO THE YEAR IN WHICH THE PREVIOUS OWNER FIRST HELD THE ASSET. A CCORDINGLY WE ANSWER THE QUESTION REFERRED TO US IN FAVOUR OF THE ASSESSEE AND UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(A) CIT (A) ON THIS ISSUE. ITA NO. 4761/M/2010 5 FURTHER REGARDING THE MEANING OF PREVIOUS OWNER TO BE CONSIDERED IN THIS REGARD THE CBDT AS PER ITS EXPL ANATION NOTES TO THE FINANCE ACT 1965 IN CIRCULAR NO.3-P DATED 11.10.19 65 (PARA 112) HAS STATED AS UNDER: UNDER S.49 THE COST OF ACQUISITION OF A CAPITAL ASSET WHICH BECOMES THE PROPERTY OF THE ASSESSEE UNDER A GIFT O R WILL OR BY SUCCESSION INHERITANCE OR DEVOLUTION ETC. IS DEEM ED TO BE THE COST FOR WHICH THE PREVIOUS OWNER OF THE PROPERTY A CQUIRED IT AS INCREASED BY THE COST OF ANY IMPROVEMENT OF THE ASS ETS INCURRED BY THE PREVIOUS OWNER OR THE ASSESSEE AS THE CASE MAY BE. HOWEVER IT IS POSSIBLE THAT THE PREVIOUS OWNER OF THE CAPITAL ASSET MAY HAVE ACQUIRED THE ASSET UNDER A GIFT OR W ILL OR BY ANY OTHER MODE OF ACQUISITION REFERRED TO IN S.49. IN SU CH A CASE IT COULD BE URGED THAT UNDER S.49 THE COST OF ACQUISIT ION OF THE ASSET TO THE ASSESSEE WAS NIL. THE FINANCE ACT 196 5 HAS THEREFORE AMENDED THIS SECTION W.E.F. 1 ST APRIL 1965 BY WAY OF ADDING AN EXPLANATION TO IT TO THE EFFECT THAT THE EXPRESSION PREVIOUS OWNER OF THE PROPERTY IN RELATION TO A C APITAL ASSET OWNED BY AN ASSESSEE MEANS THE LAST PREVIOUS OWNER OF THE CAPITAL ASSET WHO ACQUIRED IT BY A MODE OF ACQUISIT ION OTHER THAN THAT REFERRED TO IN S.49. THEREFORE IN THE LIGHT OF THE AFORESAID DISCUSSION FACTS AND CIRCUMSTANCES BROUGHT ON RECORD I FIND THAT THE AO IS NOT JUSTIFIED IN MAKING ADDITION ON ACCOUNT OF NON-TERM CAPITAL GAIN S ON SALE OF PROPERTY IN THE CASE OF THE APPELLANT BY NOT ACCEPT ING THE APPELLANTS SUBMISSIONS OF ADOPTION OF FAIR MARKET VALUE AS ON 01.04.1981 DETERMINED BY THE APPROVED VALUER AS WELL AS ADOPTI NG THE INDEXED COST OF ACQUISITION OF THE YEAR 1997 INSTEAD OF 198 1. ACCORDINGLY ON ACCOUNT OF THE ABOVE THE ENTIRE ADDITION MADE ON TH IS ACCOUNT IS DIRECTED TO BE DELETED. 7. THE LD. CIT(A) DELETED THE ADDITION MADE BY THE AO ON ACCOUNT OF ADOPTING YEAR FOR CALCULATING THE INDEXED COST OF A CQUISITION AS 1997 TO CALCULATE THE COST OF ACQUISITION AND DIRECTED THE AO TO ADOPT THE SAME AS 1981 INSTEAD OF 1997. THE CIT(A) DELETED THE ENTIR E ADDITION MADE BY THE AO FOLLOWING THE DECISION OF THE SPECIAL BENCH IN THE CASE OF MANJULA J. SHAH (SUPRA). 8. ON FURTHER APPEAL BEFORE US THE DEPARTMENT HAS R AISED THE FOLLOWING GROUNDS: ITA NO. 4761/M/2010 6 1. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW AN D IN THE CIRCUMSTANCES OF THE CASE IN DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF ADOPTING YEAR FOR CALCULAT ING THE INDEXED COST OF ACQUISITION AS 1997 TO CALCULA TE THE COST OF ACQUISITION AND DIRECTING THE AO TO ADOPT T HE SAME AS 1981 INSTEAD OF 1997. 2. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW AND IN THE CIRCUMSTANCES OF THE CASE FAILED TO APPRECIATE THE FACT THAT THE EXPLANATION TO SEC. 48 CLEARLY SPELLS OUT THE YEAR OF COST OF INFLATION INDEX TO BE THE YEAR IN WHICH THE ASSET HAS BEEN HELD BY THE ASSESSEE AND NOT THE PREVIOUS OWNER. 9. WE FIND THAT THE AO IS NOT JUSTIFIED IN MAKING A DDITION ON ACCOUNT OF LONG-TERM CAPITAL GAINS ON SALE OF PROPERTY IN THE CASE OF THE APPELLANT BY NOT ACCEPTING THE APPELLANTS SUBMISSIONS OF ADOPTION O F FAIR MARKET VALUE AS ON 01.04.1981 DETERMINED BY THE APPROVED VALUER AS WEL L AS ADOPTING THE INDEXED COST OF ACQUISITION OF THE YEAR 1997 INSTEA D OF 1981. ACCORDINGLY ON ACCOUNT OF THE ABOVE THE ENTIRE ADDITION MADE ON TH IS ACCOUNT IS DIRECTED TO BE DELETED. 10. IN THE RESULT THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED ON THIS 29 TH DAY OF JULY 2011 SD/- SD/- (T.R. SOOD) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUD ICIAL MEMBER MUMBAI DATED 29 TH JULY 2011 RJ ITA NO. 4761/M/2010 7 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR F BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR I.T.A.T MUMBAI ITA NO. 4761/M/2010 8 DATE INITIALS 1. DRAFT DICTATED ON: 25.7.2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 26.07.2011 SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: SR. PS/PS 6. ORDER PRONOUNCED ON: SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: SR. PS/PS 9. DATE ON WHICH FILE GOES TO AR 10. DATE OF DISPATCH OF ORDER: