ESTATE OF LATE MAKHANLAL K. PODDAR, MUMBAI v. ADDL CIT 14(2), MUMBAI

ITA 6609/MUM/2009 | 2006-2007
Pronouncement Date: 15-07-2011 | Result: Partly Allowed

Appeal Details

RSA Number 660919914 RSA 2009
Assessee PAN AAFPE0317F
Bench Mumbai
Appeal Number ITA 6609/MUM/2009
Duration Of Justice 1 year(s) 6 month(s) 16 day(s)
Appellant ESTATE OF LATE MAKHANLAL K. PODDAR, MUMBAI
Respondent ADDL CIT 14(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 15-07-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted J
Tribunal Order Date 15-07-2011
Date Of Final Hearing 28-06-2011
Next Hearing Date 28-06-2011
Assessment Year 2006-2007
Appeal Filed On 29-12-2009
Judgment Text
1 ITA NO. 6609/MUM/2009 (ASST YEAR 2006-07) IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI J BENCH MUMBAI BENCHES MUMBAI BEFORE SHRI PRAMOD KUMAR AM & SHRI VIJAY PAL RAO JM ITA NO. 6609/MUM/2009 (ASST YEAR 2006-07) ESTATE F LATE MAKHANLAL K PODDAR 312 KALBADEVI ROAD MUMBAI 400 002 VS THE ADDL COMMR OF INCOME TAX WARD 14(2) MUMBAI (APPELLANT) (RESPONDENT) PAN NO. AAFPE0317F ASSESSEE BY SHRI HARIDAS BHAT REVENUE BY SHRI S K INGH PER VIJAY PAL RAO JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 27.10.2009 OF THE CIT(A) FOR THE ASSESSMENT YEAR 2006-07. 2 THE ASSESSEE HAS RAISED THE FOLLOWING EFFECTIVE G ROUNDS IN THIS APPEAL: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN CONSIDERING THE NET LONG TERM CAPITAL GAIN ON SALE OF TDR LOADING RIGHTS AS BUSINESS INCOME. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LA W THE CIT(A) FAILED TO APPRECIATE THAT IN THE ABSENCE OF ANY COS T OF ACQUISITION IN RESPECT OF TDR LOADING RIGHTS TRANSFERRED THE PROVISIONS FOR CHARGING CAPITAL GAINS CANNOT BE APPLIED AND HENCE THE AMOUNTS STATED IN T HE AGREEMENT AS RECEIVABLE BY THE ASSESSEE CANNOT BE CHARGED TO TAX A T ALL. 2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN NOT ALLOWING THE FOLLOWING EXPENSES AGAIN ST THE SALE OF TDR LOADING RIGHTS IGNORING THE FACT THAT AS PER THE TERMS OF AGR EEMENT THE SAME ARE REQUIRED TO BE SPENT BY THE ASSESSEE: I) DEVELOPMENT EXPENSES A) FEES TO M/S MAHIMTURA &CORS. 5 00 000/- B) PAYMENT TO BMC RS 22 95 5 85/- II) LEGAL FEES RS. 75 000/- 2 ITA NO. 6609/MUM/2009 (ASST YEAR 2006-07) 3 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN NOT ALLOWING THE BROKERAGE PAID OF RS. 19 5000/- AGAINST THE SALE OF FLATS IN WING A. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE CIT(A) ERRED IN CONSIDERING RS. 9 00 000/- THE DAMAGES AWA RDED BY THE ARBITRATOR FOR VARIOUS BREACH OF THE AGREEMENT AS INCOME FROM OTHER S OURCES INSTEAD OF CAPITAL GAINS. 3 GROUND NO.1 REGARDING TAXABILITY OF THE AMOUNT RE CEIVED ON SALE OF TDR LOADING RIGHTS. 3.1 BRIEF RELEVANT FACTS AS RECORDED BY THE LOWER A UTHORITIES IN THIS CASE ARE THAT THE ASSESSEE OWNED CERTAIN PROPERTIES AT KANDIVALI (W) M G ROAD PRIOR TO 1.4.1981. THE ASSESSEE CONVERTED THE PART OF THE PROPERTY BEI NG THE LAND FSI AS STOCK IN TRADE ON 1.7.2000 AND DEVELOPED THE CONVERTED LAND FSI AN D CONSTRUCTED A BUILDING. AFTER COMPLETION OF THE CONSTRUCTION THE ASSESSEE OFFERE D THE RESULTANT BUSINESS INCOME TO TAX IN THE YEAR 2005-06. DURING THE ASSESSMENT YEAR THE ASSESSEE HAS ENTERED INTO AN AGREEMENT WITH M/S ORBIT VENTURES AND CO. FOR TRANSFER OF TDR LOADING RIGHTS TO BE USED ON THE REMAINING PART OF THE LAND IN QUESTION FOR CONSTRUCTION OF THE BUILDING NAMELY WING B. THE ASSESSEE HAS OFFERED TO TAX THE LONG TERM CAPITAL GAINS ARISING OUT OF THE AGREEMENT WITH M/S ORBIT VENTURE S & CO. ON ACCOUNT OF SALE OF TDR LOADING RIGHTS. SOME DISPUTES WERE ALSO ARIS EN BETWEEN THE ASSESSEE AND M/S ORBIT VENTURES & CO. AND THE MATTER WAS REFERRED T O THE ARBITRATION. AS PER THE ARBITRATION AWARD THE ASSESSEE RECEIVED RS. 9 LACS TOWARDS DAMAGES FOR VARIOUS BREACHES COMMITTED BY M/ ORBIT VENTURES & CO. THIS AWARD OF RS 9 LACS WAS OVER AND ABOVE THE CONSIDERATION AGREED BETWEEN THE PART IES AS PER THE AGREEMENT. THE ASSESSEE HAS ALSO RECEIVED THE CONSIDERATION OF RS. 52 90 000/- TOWARDS SALE OF FLATS AFTER DEDUCTING THE COST OF ACQUISITION OF R S. 27 27 400/-. THIS CONSIDERATION OF RS. 52 90 000/- WAS RECEIVED BY THE ASSESSEE TOWARD S THE TWO RETAINABLE FLATS SOLD BY M/S ORBIT VENTURES & CO. THE ASSESSEE CLAIMED TO HAVE SPENT SOME EXPENDITURE 3 ITA NO. 6609/MUM/2009 (ASST YEAR 2006-07) ON TRANSFER OF TDR LOADING RIGHTS AS PER THE TERMS OF THE AGREEMENT. ACCORDINGLY THE ASSESSEE OFFERED TO TAX THE NET CONSIDERATION RECEI VED BY THE ASSESSEE ON SUCH SALE OF TDR LOADING RIGHTS AS LONG TERM CAPITAL GRAINS A ND CLAIMED THE COST OF ACQUISITION AS NIL. THE ASSESSING OFFICER INTER-ALIA CONSIDER ED THE SAID LONG TERM CAPITAL GAINS ON SALE OF TDR LOADING RIGHTS AS BUSINESS INCOME. 3.2 ON APPEAL THE CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER IN TREATING THE RECEIPT ON TRANSFER OF TDR LOADING RIGHTS AS BU SINESS INCOME. 4 BEFORE US THE LD AR OF THE ASSESSEE HAS SUBMITTE D THAT AS PER THE DEVELOPMENT CONTROL REGULATIONS RELAXED BY MUNICIPA L CORPORATION AN ADDITIONAL AREA WAS ALLOWED TO BE CONSTRUCTED ON THE SAME PLOT TO CERTAIN EXTENT. UNDER THE AMENDED REGULATIONS THE OWNER OR THE APPOINTED DEV ELOPER CAN LOADS AN EQUIVALENT TDR ON SUCH PLOT BEING TDR RECEIVABLE PLOT. HE FURTH ER CONTENDED THAT THE ASSESSEE BEING THE OWNER OF THE PLOT OF LAND BE CAME ENTITLED TO RIGHT TO CONSTRUCT ADDITIONAL AREA ON THE PLOT PROVIDED IT. THE ASSESSEE ENTERED INTO AN AGREEMENT WITH M/S ORBIT VENTURES & CO AND THE DEVE LOPER WHO AGREED TO CONSTRUCT BUILDING WING B USING THE TDR OWNED/ACQ UIRED BY THE ASSESSEE FROM OUTSIDE AND THEREBY EXPLOIT THE RIGHTS CONFERRED BY THE DEVELOPMENT REGULATIONS. SINCE THE DEVELOPMENT RIGHTS CONFERRED UPON THE ASS ESSEE BY AMENDMENT IN THE DEVELOPMENT REGULATIONS DID NOT HAVE ANY COST OF AC QUISITION; THEREFORE THE AMOUNT RECEIVED BY THE ASSESSEE ON THIS ACCOUNT IS IN THE NATURE OF CAPITAL RECEIPT AND NOT CHARGEABLE TO TAX. HOWEVER THE ASSESSEE O FFERED THE NET RECEIPT TO TAX AS LONG TERM CAPITAL GAINS. 4 ITA NO. 6609/MUM/2009 (ASST YEAR 2006-07) 4.1 THE LD AR OF THE ASSESSEE HAS REFERRED THE DEVE LOPMENT AGREEMENT AND SUBMITTED THAT THE CONSIDERATION RECEIVED BY THE AS SESSEE IS TOWARDS TRANSFER/GRANT OF TDR IN RESPECT OF WING B TO THE DEVELOPER. THE C ONSIDERATION WAS CALCULATED @ RS.801/- PER SQF.FT ON SALEABLE TDR. 4.1 THE LD AR OF THE ASSESSEE HAS FORCEFULLY CONTEN DED THAT THE CONVERSION PART OF THE PROPERTY ON 1.7.2000 BEING STOCK IN TRADE WA S ONLY SALEABLE FSI. THE ASSESSEE DEVELOPED THE CONVERTED SALEABLE FSI AND AFTER COMP LETION OF THE CONSTRUCTION OFFERED THE BUSINESS INCOME TO TAX. DESPITE THE DEV ELOPMENT OF CONVERTIBLE SALEABLE FSI THE ASSESSEE REMAINS THE OWNER OF THE LAND AND PARTICULARLY THE UNUTILIZED LAND ON WHICH THE TDR LOADING RIGHTS WER E USED FOR CONSTRUCTION OF WING B. THUS THE LD AR OF THE ASSESSEE SUBMITTED THAT THE RECEIPT AGAINST THE TRANSFER OF DEVELOPMENT RIGHTS CANNOT BE TREATED AS BUSINESS IN COME OF THE ASSESSEE. HE HAS RELIED UPON THE FOLLOWING DECISIONS: I) IN THE CASE OF JETHALAL D MEHTA VS DCIT 2 SOT 422(MUM) II) IN THE CASE OF MAHESWAR PRAKASH 2 CHS LTD V S ITO 24 SOT 366 (MUM) III) NEW SHAILAJA CHS LTD VS ITO 121 TTJ 62 (MUM) IV ITO VS BAGUIO INVESTMENT P LTD 33 DTR 457 V) ITO VS SHRI RAM KUMAR MALHOTRA (2010)TIOL 512 I TAT MUM (BCAJ) 4.2 THE LD AR HAS ALSO RELIED UPON THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE CHATRBHUJ DWARKADAS KAPADIA VS CIT REPORTE D IN 260 ITR 491 AND SUBMITTED THAT THE FLATS ON SALEABLE FSI DOES NOT AMOUNT TRANSFER OF TITLE OF LAND IN QUESTION. THE ASSESSEE ACQUIRED DEVELOPMENT TDR ON THE PLOT OF LAND IN QUESTION BY VIRTUE OF OWNERSHIP OF THE ASSESSEE. THE LD AR FURTHER SUBMITTED THAT THE ASSESSEE IS NOT A BUILDER NOR HAS CONSTRUCTED WING B BUILDIN G IN QUESTION. THE CONSTRUCTION OF WING A WAS ONLY A ONE TIME VENTURE AND THEREAFTER N O BUSINESS WAS DONE BY THE ASSESSEE. THE ASSESSEE SOLD THE RIGHTS TO CONSTRUC T THE ALLOWED TDR WHICH WAS 5 ITA NO. 6609/MUM/2009 (ASST YEAR 2006-07) ACQUIRED FROM THE MARKET. IN THIS MANNER THE ASS ESSEE HAS NOT CONDUCTED ANY BUSINESS BUT ONLY SOLD THE LONG TERM RIGHT IN THE S HAPE OF TDR. SINCE THE LAND IS OWNED BY THE ASSESSEE THE TDR LOADING RIGHTS CAN B E SOLD BY WAY OF DEVELOPMENT WHICH CANNOT BE TREATED AS BUSINESS OF THE ASSESSEE . THERE IS NO TRANSFER OF ANY PROPERTY BY VIRTUE OF DEVELOPMENT; BUT IT WAS ONLY TRANSFER OF TDR LOADING RIGHTS WHICH MEANS THE DEVELOPER HAS THE RIGHT TO CONSTRUC T AND SELL THE FLATS. THE LAND IN QUESTION IS STILL OWNED AND CONTINUES TO BE OWNED B Y THE ASSESSEE. THE LD AR HAS SUMMARISED THE CONTENTIONS RAISED BEFORE THE CIT(A ) AS UNDER: I) THE ASSESSEE DID NOT DEVELOP THE PROPERTY AND DID NOT DO ANY ACTIVITY WHICH CAN BE TERMED AS BUSINESS IN THE TRANSACTION OF SALE OF TDR LOADING RIGHTS. II) THE DEVELOPMENT AGREEMENT MENTIONS ABOUT THE USE OF TDR LOADING RIGHTS WHICH ARE OWNED BY THE ASSESSEE. TDR WHICH CA N BE BOUGHT IN OPEN MARKET IS AN EXPENSE WHICH THE ASSESSEE AGREED TO SPEND AS PER TERMS OF AGREEMENT. III) THE ASSESSEE DID NOT DO ANY TRADING OF TDR ONL Y THE TDR WAS ACCOUNTED FOR BY THE ASSESSEE AS PER THE TERMS OF AGRE EMENT. THERE WAS NO PROFIT ELEMENT IN THE EXPENSES. IV) THE ASSESSEE HAS NOT CONVEYED THE LAND AND THE SAME IS STILL OWNED AND ENJOYED BY THE ASSESSEE BUT CONVERTED ONLY THE FSI INTO STOCK IN TRADE WHICH WAS USED BY IT TO DEVELOP WING A AND T HE INCOME OF THE SAME WAS SHOWN AS BUSINESS INCOME IN THE EARLIER YE ARS. V) THE USABLE FSI AS PER THE SANCTIONED PLANS IS CON VERTED TO STOCK IN TRADE BY ASSESSEE THE LAND IS STILL OWNED AND ENJ OYED BY THE ASSESSEE AND SHALL CONTINUE TO BE OWNED AND ENJOYED BY THE A SSESSEE IN FUTURE ALSO. VI AS PER THE AGREEMENT THE ASSESSEE HAS RETAINED ALL THE RIGHTS IT OWNS EXCEPT THE ONES EXPRESSLY TRANSFERRED VIZ TDR LOADIN G RIGHTS OR RIGHT TO CONTRACT WING B ONLY. VII) THE COMPLETE FSI TRANSFERRED TO STOCK N TRADE WAS UTILIZED IN THE DEVELOPMENT DONE BY THE ASSESSEE IN THE EARLIER YEAR . VIII) THE TDR LOADING RIGHTS AND FSI ARE DIFFERENT CLASSES OF ASSETS IX) THE TDR LOADING RIGHTS WERE NEVER TRANSFERRED IN TO STOCK IN TRADE 6 ITA NO. 6609/MUM/2009 (ASST YEAR 2006-07) X) THE TDR LOADING RIGHTS CAME INTO EXISTENCE AS PER DC RULES IN 1991 AND ACCORDINGLY THE ASSESSEE GAINED SUCH A RIGHT WITHOUT ANY COST OF ACQUISITION . XI) THE SAID RIGHTS WERE NEVER SHOWN AS INVESTMENTS S INCE THERE WAS NO COST OF ACQUISITION AND NEVER SHOWN IN STOCK FOR THE SAME REASON MORE SO SINCE IT WAS NEVER CONVERTED INTO STOCK IN THE FIRST PLACE. XII) IT IS THE RIGHTS SOLD WHICH SATISFIES ALL THE C ONDITIONS OF CAPITAL GAIN THERE IS NO COLOUR GIVEN TO TRANSACTION AS ALLEGED B Y THE ASSESSING OFFICER. 4.3 ON THE OTHER HAND THE LD DR HAS FORCEFULLY COU NTERD THE CONTENTIONS OF THE ASSESSEE AND SUBMITTED THAT WHEN THE ASSESSEE CONVE RTED THE PROPERTY IN QUESTION INTO STOCK IN TRADE IN THE YEAR 2000 AND THEREAFTER DEVELOPED THE SAME AND OFFERED THE INCOME AS BUSINESS INCOME; THEN ANY SUBSEQUENT SALE OF ANY RIGHT ATTACHED TO THE SAID PROPERTY WOULD BE THE INCOME IN THE NATURE OF BUSINESS INCOME OF THE ASSESSEE. ONCE THE ASSESSEE CONVERTED THE PROPERTY INTO STOCK IN TRADE THEN THE LAND IN QUESTION CEASED TO BE CAPITAL ASSET AND ANY INCOME ON ACCOUNT OF SALE OF ANY RIGHT IS ESSENTIALLY BUSINESS INCOME OF THE ASS ESSEE. HE HAS RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES. 5 WE HAVE CONSIDERED THE RIVAL CONTENTION AND PERUS ED THE RELEVANT MATERIAL ON RECORD. THE AO HAS ADDRESSED THIS ISSUE IN PARA 7 OF HIS ORDER AS UNDER: IN ITS COMPUTATION OF INCOME THE ASSESSEE HAS CLAI MED THE ENTIRE PROCEEDS RECEIVED FROM M/S ORBIT VENTURES & CO AS SALE OF TDR LOADING RIGHTS AND OFFERED THE SAME TO TAX UNDER THE HEAD LONG TERM CA PITAL GAINS. AT THE VERY OUTSET THIS ABOVE NOMENCLATURE OF THE ASSESSE E IS MISLEADING SINCE THE AGREEMENT ENTERED BETWEEN THE ASSESSEE AND M/S ORBIT VENTURE & CO IS A DEVELOPMENT AGREEMENT AS PER WHICH THE ASSESSEE WAS TO CONTRIBUTE THE TDR TO BE USED IN THE PROJECT AND THE DEVELOPER HAS T O COMPLETE AND DEVELOP THE PROJECT USING SUCH TDR. THIS IS A PURE BUSINESS ARRANGEMENT AS 7 ITA NO. 6609/MUM/2009 (ASST YEAR 2006-07) PER WHICH THE AMOUNT RECEIVABLE BY THE ASSESSEE WAS P REDETERMINED. FURTHERMORE GOING INTO THE HISTORY OF THE CASE AS H AS ALREADY BEEN DISCUSSED IN PARA 3 OF THE ORDER EARLIER THE ASSESSE E HAD EARLIER CONVERTED HIS INVESTMENT I.E. LAND INTO STOCK IN TRADE AND HA S ALREADY OFFERED THE PROFIT FROM WING A AS BUSINESS INCOME. MERELY BECAUSE UNLIKE WING A THE ASSESSEE ITSELF HAS NOT DEVELOPED AND CONSTRUCTED WI NG B THE INCOME SO GENERATED OUT OF WING B WILL NOT ASSUME A COLOUR OF CAPITAL GAINS. THE LAND ON WHICH WING B HAS BEEN CONSTRUCTED AS WELL AS ON W HICH THE TDR WAS LOADED CONTINUES TO BE THE STOCK IN TRADE OF THE ASS ESSEE. THUS AT NO STRETCH OF IMAGINATION THIS TRANSACTION CAN BE GIVEN A COL OUR OF INVESTMENT SO AS TO GIVE THE PROFIT THE COLOUR OF CAPITAL GAINS. THE ASSE SSEE HAS NEVER SHOWN THE TDR HELD BY IT AS CAPITAL ASSETS OR INVESTMENTS. IN FACT THE EXAMINATION OF THE BALANCE OF THE ASSESSEE AS ON 31.3.2005 REVEALED THAT NO SUCH TDR HAS BEEN SHOWN UNDER THE HEAD INVESTMENTS. IN VIEW OF THE ABOVE THE ASSESSEES TREATMENT OF THE AMOUNT RECEIVED FROM M/S ORBIT VENTURES & CO AS LONG TERM CAPITAL GAIN CANNOT BE ACCEPTED. ACCORDI NGLY THE ENTIRE AMOUNT OF RS. 4 65 38 100/- RECEIVED BY VIRTUE OF A GREEMENT DT 22.9.2003 THE SAME IS TREATED AS BUSINESS INCOME. 5.1 FROM THE ASSESSMENT ORDER WE FIND THAT THE ASS ESSING OFFICER WAS GUIDED BY THE FACTS THAT WHEN THE ASSESSEE HAS ALREADY CONVER TED THE PROPERTY INTO STOCK IN TRADE AND OFFERED THE PROFIT FROM THE WING A AS BUS INESS INCOME THE INCOME FROM WING B CANNOT BE TREATED AS CAPITAL GAIN. APART FR OM THIS THE ASSESSING OFFICER HAS ALREADY TAKEN INTO CONSIDERATION THE DEVELOPMENT A GREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND M/S ORBIT VENTURE &CO WHI CH IN THE OPINION OF THE ASSESSING OFFICER IS A PURELY BUSINESS ARRANGEMENT. ON APPEAL THE ASSESSEE CONTENDED BEFORE THE CIT(A) AS UNDER: 5.1 IT IS ALSO STATED THAT THE ASSESSEE OFFERED TO TAX A NET CONSIDERATION ON SUCH ALE OF TDR LOADING RIGHTS AS LONG TERM CAPITAL GAIN TAKING THE COST OF ACQUISITION AS NIL. THE ASSESSING OFFICER CONSIDER ED THE SAID LTCG ON SALE OF TDR LOADING RIGHTS AS BUSINESS INCOME. THE ASSESSIN G OFFICER ALSO CONSIDERED THE SAID ADDITIONAL COMPENSATION OF RS. 9 00 000/- AS INCOME FROM OTHER SOURCES. IT IS SUBMITTED THAT THE ASSESSEE DID NO T DEVELOP THE PROPERTY WING B AND DID NOT DO ANY ACTIVITY WHICH CAN BE TERMED A S BUSINESS IN THE TRANSACTION OF SALE OF TDR RIGHTS. THE DEVELOPMENT AGREEMENT MENTIONS ABOUT THE USE OF TDR LOADING RIGHTS WHICH ARE OWNED BY THE ASSESSEE TDR WHICH CAN BE BOUGHT IN OPEN MARKET IS AN EXPENSE WH ICH THE ASSESSEE AGREED TO SPEND AS PER THE TERMS OF AGREEMENT. THE ASSESSEE DID NOT DO ANY TRADING OF TDR ONLY THE COST OF PURCHASE OF TDR WA S ACCOUNTED FOR BY THE ASSESSEE AS PER THE TERMS OF AGREEMENT. THE ASSESSE E HAD CONVERTED ONLY THE 8 ITA NO. 6609/MUM/2009 (ASST YEAR 2006-07) LAND FSI INTO THE STOCK IN TRADE WHICH WAS USED BY IT TO DEVELOP AND THE INCOME OF THE SAME WAS SHOWN AS BUSINESS INCOME IN THE EARLIER YEARS. ONLY THE USABLE LAND FSI AS PER THE SANCTIONED PLANS IS CONVERTED TO STOCK IN TRADE BY ASSESSEE THE LAND IS STILL OWNED AND ENJOYED BY THE ASSESSEE. AS PER THE AGREEMENT THE ASSESSEE HAS RETAINED ALL THE RIGHTS EXCEPT THE ONES EXPRESSLY TRANSFERRED VIZ TDR LOADING RIGHTS. THE COMPLETE LA ND FSI IS DIFFERENT CLASSES OF ASSETS. THE TDR LOADING RIGHTS OR POTENTIAL TO LOAD TDR WERE NEVER TRANSFERRED TO STOCK IN TRADE. THE TDR LOADING RIGHTS CAME INTO EXISTENCE AS PER DEVELOPMENT CONTROL RULES IN 1991 AND ACCORDINGLY THE ASSESSEE GAINED SUCH A RIGHT WITHOUT ANY COST OF ACQUISITION BY VIR TUE OF HIS OWNING THE LAND WHICH CONTINUES TO BE A CAPITAL ASSETS. THE SAID RI GHTS WERE NEVER SHOWN AS INVESTMENTS SINCE THERE WAS NO COST OF ACQUISITION AND NEVER IN STOCK FOR THE SAME REASON. MORE SO SINCE IT WAS NEVER CONVERTED INTO THE STOCK IN THE FIRST PLACE IT IS THE RIGHT TO CONSTRUCT WING B WHICH AR E SOLD AND WHICH SATISFIES ALL THE CONDITIONS OF CAPITAL GAINS. THERE IS NO COLOUR GIVEN TO TRANSACTION AS ALLEGED BY THE ASSESSING OFFICER. THE ASSESSING OFF ICER IGNORED THE WRITTEN SUBMISSIONS MADE BY THE ASSESSEE CLARIFYING THE ISS UE. THE POTENTIAL FOR CONSTRUCTION/CONSUMING/LOADING THE TDR IS A RIGHT W HICH ATTACHED TO THE LAND HAS NOT BEEN VALUED NOR HAS BEEN CONVERTED IN STOCK IN TRADE AT THE TIME OF CONVERSION OF LAND FSI IN THE YEAR 2000. THE APPELL ANT THEREFORE PRAYS THAT NET GAIN ON THE SALE OF TDR LOADING RIGHTS BE TAXED AS CAPITAL GAIN. 5.2 IT IS FURTHER STATED THAT WITHOUT PREJUDICE TO THE ABOVE AS THE APPELLANT IS OWNER OF PROPERTY PRIOR TO 1981 AND AT THAT TIM E THERE WAS NO RIGHTS AVAILABLE OF TDR AND SOMETIME IN THE YEAR 1991 MUN ICIPAL CORPORATION OF GREATER MUMBAI AMENDED THE DEVELOPMENT CONTROL REGU LATIONS SUCH THAT ADDITIONAL AREA WAS ALLOWED TO BE CONSTRUCTED ON TH E SAME LOT TO CERTAIN EXTENT PERMISSIBLE UNDER THE AMENDED REGULATIONS PR OVIDED THAT THE OWNER OR THE APPOINTED DEVELOPER LOADS AS EQUIVALENT TDR( TRANSFERABLE DEVELOPMENT RIGHTS) ON SUCH PLOTS. AS A RESULT OF S UCH AMENDMENT IN THE DEVELOPMENT CONTROL REGULATIONS THE APPELLANT BECA ME ENTITLED TO THE RIGHT TO CONSTRUCT ADDITIONAL AREA ON THE PLOT PROVIDED IT HELD OR PURCHASED TDR. THE APPELLANT ENTERED INTO AN AGREEMENT WITH THIRD PARTY DEVELOPER WHO AGREED TO CONSTRUCT THE AREA OF TDR OWNED/ACQUIRED BY IT FROM OUTSIDE AND ATTACHED TO THE LAND AFTER ALL DUE SANCTIONS AND AP PROVALS AND THEREBY EXPLOIT THE RIGHTS CONFERRED BY THE DEVELOPMENT REG ULATIONS. UNDER THE AGREEMENT THE APPELLANT WAS TO ALLOW THE DEVELOPER TO CONSTRUCT THE WING B BY CONSUMING AND UTILIZING THE SANCTIONED TDR AREAS ON THE PLOT FOR AN AGREED CONSIDERATION. THE APPELLANT CONTENTS THAT T DR DEVELOPMENT RIGHTS DID NOT HAVE ANY COST OF ACQUISITION AND AS SUCH FO LLOWING THE PRINCIPLES LAID DOWN BY SUPREME COURT IN CIT VS B C SRINIVAS SETTY 128 ITR 294 WHICH IS FOLLOWED BY THE HIGH COURTS IN SEVERAL OTHER SIMIL AR MATTERS AND ALSO BY THE MUMBAI BENCH OF ITAT IN A CASE EXACTLY IDENTICAL TO THAT OF THE APPELLANT NO CHARGEABLE CAPITAL GAINS ARISE IF AND WHEN THE RIGH TS LEFT EXTINGUISHED OR TRANSFERRED. IN THE ABSENCE OF ANY COST OF ACQUISIT ION IN RESPECT OF TDR LOADING RIGHTS TRANSFERRED THE PROVISIONS FOR CHAR GING CAPITAL GAINS CANNOT BE APPLIED AND HENCE THE AMOUNT STATED IN THE AGREEMEN T AS RECEIVABLE FROM THE DEVELOPER CANNOT BE CHARGED TO TAX AT ALL. THER EFORE THE INCOME FROM BUSINESS AS ASSESSED BY THE ASSESSING OFFICER BE DE LETED. 9 ITA NO. 6609/MUM/2009 (ASST YEAR 2006-07) 5.2 THE CIT(A DISCUSSED THE ISSUE IN PARA 6 OF HIS ORDER AS UNDER: 6. I HAVE CAREFULLY CONSIDERED THE FACTS AND ABOVE SUBMISSIONS OF THE APPELLANT AND ALSO GONE THROUGH THE ORDER OF THE AS SESSING OFFICER. I FIND THAT THE ASSESSING OFFICER HAS DISCUSSED THIS ISSUE IN P ARA 7OF HIS ORDER BY STATING THAT IN ITS COMPUTATION OF INCOME THE ASSESSEE HAS CLAIMED THE ENTIRE PROCEEDS RECEIVED FROM M/S ORBIT VENTURE &CO AS SA LE OF TDR LOADING RIGHTS AND OFFERED THE SAME TO TAX UNDER THE HEAD LONG TE RM CAPITAL GAINS. AT THE VERY OUTSET THE ABOVE NOMENCLATURE OF THE ASSESSEE IS MISLEADING SINCE THE AGREEMENT ENTERED BETWEEN THE ASSESSEE AND M/S ORBI T VENTURES & CO. IS A DEVELOPMENT AGREEMENT AS PER WHICH THE ASSESSEE WAS TO CONTRIBUTE THE TDR TO BE USED IN THE PROJECT AND THE DEVELOPER HAS TO COMPLETE AND DEVELOP THE PROJECT USING SUCH TDR THIS IS A PURE B USINESS ARRANGEMENT AS PER WHICH THE AMOUNT RECEIVABLE BY THE ASSESSEE WAS PRE DETERMINED. FURTHERMORE GOING INTO THE HISTORY OF THE CASE AS HAS ALREADY BEEN DISCUSSED IN PARA 3 OF THE ORDER EARLIER THE ASSESSEE HAD EA RLIER CONVERTED ITS INVESTMENT I.E. LAND INTO STOCK IN TRADE AND HAS AL READY OFFERED THE PROFIT FROM WING B AS BUSINESS INCOME. MERELY BECAUSE UNLIKE WI NG A THE ASSESSEE ITSELF HAS NOT DEVELOPED AND CONSTRUCTED WING B THE INCOM E SO GENERATED OUT OF WING B WILL NOT ASSUME A COLOUR OF CAPITAL GAIN. TH E LAND ON WHICH WING B HAS BEEN CONSTRUCTED AS WELL AS ON WHICH THE TDR WA S LOADED CONTINUES TO BE THE STOCK IN TRADE OF THE ASSESSEE. THUS AT NO STRETCH OF IMAGINATION THIS TRANSACTION CAN BE GIVEN A COLOUR OF INVESTMENT SO AS TO GIVE THE PROFIT THE COLOUR OF CAPITAL GAINS. THE ASSESSEE HAS NEVER SHO WN THE TDR HELD BY IT AS CAPITAL ASSETS OR INVESTMENTS. IN FACT THE EXAMINA TION OF BALANCE SHEET OF THE ASSESSEE AS ON 31.3.2005 REVEALS THAT NO SUCH TDR H AS BEEN SHOWN UNDER THE HEAD INVESTMENT. IN VIEW OF THE ABOVE THE ASSESS EES TREATMENT OF THE AMOUNT RECEIVED FROM M/S ORBIT VENTURE AND CO AS LO NG TERM CAPITAL GAIN CANNOT BE ACCEPTED. ACCORDINGLY THE ENTIRE AMOUNT OF RS.4 65 38 10/- RECEIVED BY VIRTUE OF AGREEMENT DATED 29.2.2003 IS TREATED AS BUSINESS INCOME. 5.3 THE CIT(A) OBSERVED THAT THE ASSESSEE NEVER SHO WN THE TDR HELD BY IT AS CAPITAL ASSET OR INVESTMENT. HE HAS REFERRED THE B ALANCE SHEET AS ON 31.3.2005 AND OBSERVED THAT NO SUCH TDR HAS BEEN SHOWN UNDER THE HEAD INVESTMENT. IT IS TO BE NOTED THAT THE TDR LOADING IS A RIGHT AS PER THE DE VELOPMENT CONTROL REGULATIONS 1991 AVAILABLE IN CONSIDERATION OF PLOT BEING RESE RVED FOR PUBLIC PURPOSES UNDER DEVELOPMENT PLAN. THUS THE TDR ARE THE RIGHTS TO C OMPENSATE THE LOSSES OF THE PLOT BEING RESERVED FOR PUBLIC PURPOSES AND ACCORDINGLY A PERSON WHO LOSE HIS BUILDING GET CERTAIN DEVELOPMENT RIGHTS FOR ADDITIONAL FLOOR INDEX (FSI) EQUIVALENT TO THE FLOOR SPACE SO LOST IN RELATION TO THE BUILDING RESERVED FOR PUBLIC PURPOSES. HENCE THE 10 ITA NO. 6609/MUM/2009 (ASST YEAR 2006-07) DEVELOPMENT RIGHTS ARE TRANSFERABLE IN NATURE AND T HEREFORE EITHER THE PERSON RECEIVING THE TDR CAN USE THE RIGHTS HIMSELF OR TRA NSFER THE SAME TO ANOTHER PERSON. THESE DEVELOPMENT RIGHTS CAN BE USED ONLY ON THE PL OTS WHICH ARE CALLED AS RECEIVING PLOTS WITH CERTAIN LIMITATION. BY USING THESE DEVELOPMENTS RIGHTS THE RECEIVING PLOT GETS ADDITIONAL FSI APART FROM THE O RIGINAL FSI AVAILABLE TO THE OWNER OF SUCH PLOT. THUS THE TDR LOADING RIGHTS IS NOT AN A SSET IN EXISTENCE AND THEREFORE NOT NECESSARILY BE SHOWN EITHER AS INVESTMENT OR STOCK IN TRADE. THE TDR RIGHTS ARE NOT OFFERED AUTOMATICALLY ON THE RECEIVING PLOT BUT THE SE ARE AVAILABLE ONLY AGAINST THE LOSS OF FSI DUE TO PLOTS BEING RESERVED FOR PUBLIC PURPOSES AND EQUIVALNT FSI CAN BE USED EITHER BY THE OWNER OF SUCH PLOT BEING RESERV ED FOR PUBLIC PURPOSES OR CAN BE USED BY THE OWNER OF THE RECEIVING PLOT ON ACQUISIT ION OF SUCH RIGHTS. THEREFORE WE ARE OF THE CONSIDERED OPINION THAT THE REASONS GIVE N BY THE CIT(A) THAT THE ASSESSEE HAS NOT SHOWN THE TDR AS CAPITAL ASSET OR INVESTMEN T IN THE BALANCE SHEET AS ON 31.3.2005 IS NOT PROPER AND CORRECT. 5.4 FURTHER IF WE GO BY ANALOGY OF NOT SHOWING TH E TDR AS CAPITAL ASSET OR INVESTMENT THEN AT THE SAME TIME NO STOCK IN TRADE WAS SHOWN IN THE BOOKS OF ACCOUNT BY THE ASSESSEE. ONCE THE ASSESSEE ALREADY SOLD OUT THE SALEABLE FSI IN THE SHAPE OF WING A NO STOCK IN TRADE WAS LEFT WITH TH E ASSESSEE BECAUSE THE FSI CONVERTED INTO THE STOCK IN TRADE IN THE YEAR 2000 HAS ALREADY BEEN SOLD AND THE INCOME ARISING FROM THE SALE OF SUCH FSI HAS BEEN O FFERED AS BUSINESS INCOME. THEREFORE AFTER CONSUMING THE AVAILABLE FSI AT THE RELEVANT POINT OF TIME AND SELLING OUT THE SAME NO STOCK IN TRADE OR CAPITAL ASSET/INV ESTMENT WAS LEFT WITH THE ASSESSEE. DUE TO THE DEVELOPMENT CONTROL REGULATIONS THE ASS ESSEE WAS ELIGIBLE TO ACQUIRE ADDITIONAL FSI ON THE PLOT ON LAND IN QUESTION. BY VIRTUE OF THE ASSESSEE BEING THE OWNER OF THE LAND IN QUESTION THE ASSESSEE IS ENTI TLED TO THE RIGHTS TO CONSTRUCT 11 ITA NO. 6609/MUM/2009 (ASST YEAR 2006-07) ADDITIONAL AREA ON THE PLOT SUBJECT TO THE CONDITIO NS THAT EITHER THE ASSESSEE HELD OR PURCHASED TDR AS PER THE DEVELOPMENT CONTROL REGULA TIONS. THE FSI AVAILABLE WITH THE ASSESSEE PRIOR TO THE ACQUISITION OF TDR WAS CO NVERTED INTO STOCK IN TRADE AND UTILIZED FOR CONSTRUCTION OF WING A. THUS WHATEVE R STOCK IN TRADE EXISTED PRIOR TO ACQUISITION OF TDR WAS CONSUMED FOR CONSTRUCTION OF WING A. AS SUCH WING B BUILDING WAS NEITHER IN THE EXISTENCE NOR WAS POSSIBLE EVEN IN CONCEPTION IN THE AVAILABLE FSI WITH THE ASSESSEE ON THE PLOT OF LAND IN QUEST ION WHICH WAS CONVERTED INTO STOCK IN TRADE. 5.4 THE TRIBUNAL IN THE CASE OF JETHALAL D MEHTA ( SUPRA) HAS DISCUSSED ALL THE RELEVANT ASPECTS OF THE DEVELOPMENT CONTROL REGULAT IONS ADDITIONAL FSI IN THE SHAPE OF TDR AND HELD IN PARA 5 AS UNDER: 5. WE MAY MENTION THAT AS FAR CADELL WVG. MILL CO. (P) LTD.S CASE (SUPRA) IS CONCERNED THE SPECIAL BENCH DECISION OF THE TRIBUN AL HAS SINCE BEEN REVERSED BY THE HONBLE BOMBAY HIGH COURT IN THE JUDG MENT REPORTED AS CADELL WVG. MILL CO. (P) LTD. VS. CIT (2001) 166 CT R (BOM) 7 : (2001) 249 ITR 265 (BOM). SUFFICE TO SAY THAT FOR THIS REASON ALONE REV ENUES REJECTION OF ASSESSEES CLAIM BY RELYING UPON CADELL WVG. MILL CO. (P) LTD.S CASE (SUPRA) IS NO LONGER SUSTAINABLE IN LAW. WE NEED NOT GO FURTHER INTO THIS ASPECT OF THE MATTER. THE ONLY OTHER REASON OF REJECTING THE CLAIM THAT THE ASSIGNMENT OF ADDITIONAL FSI IS THAT ACCORDING TO THE AUTHORITIES BELOW THIS RIGHT HAS COST OF ACQUISITION WHICH CONSISTS OF COST OF PURCHASE OF PL OT COSTS OF GETTING THE DESIGNS APPROVED AND COSTS OF CONSTRUCTING THE BUILD ING. IN THIS CONTEXT HOWEVER WHAT IS NECESSARY TO APPRECIATE IS THAT THE RIGHTS ASSIGNED TO THE DEVELOPER ARE THE RIGHTS TO RECEIVE AND APPLY THE TRA NSFERABLE DEVELOPMENT RIGHTS AND THAT THESE RIGHTS AROSE TO THE ASSESSEE B Y THE VIRTUE OF INTRODUCTION OF DCR. UNTIL THE POINT OF TIME THESE DEVELOPMENT REGULATION CAME INTO EXISTENCE THE ASSESSEE DID NOT HAVE RIGHT TO RECEIV E AND APPLY THE TRANSFERABLE DEVELOPMENT RIGHTS. IT IS THESE RIGHTS ON THE ASSIGNMENT OF WHICH THE ASSESSEE HAS RECEIVED THE IMPUGNED AMOUNT. THEREF ORE THE EXPENDITURE INCURRED ON PURCHASE OF PLOT AND CONSTRUCTION THEREON CANNOT BE SAID TO BE THE COSTS FOR ACQUISITION OF THESE RIGHTS. THE RIGHTS ARE ACQUIRED BY THE VIRTUE OF BEING OWNER OF THE PLOT IN THE SPECIFIED AREA BUT THA T DOES NOT MEAN THAT THE COST INCURRED ON THE PLOT IS THE COST OF ACQUIRING TH ESE RIGHTS. THE EFFECT OF THE RIGHTS BEING RELATABLE TO THE LEASEHOLD RIGHTS IN THE PLOT COULD AT BEST BE THAT 12 ITA NO. 6609/MUM/2009 (ASST YEAR 2006-07) THE AMOUNT RECEIVED BY THE ASSESSEE ON ASSIGNMENT OF RIGHTS TO RECEIVE THE TRANSFERABLE DEVELOPMENT RIGHTS ENDS UP REDUCING EFF ECTIVE COST OF ACQUISITION OF THE LAND AND BUILDING IN THE SAID PL OT. THEREFORE AS AND WHEN THE ASSESSEE TRANSFERS THE SAID PLOT BUILDING OR AN Y PORTION THEREOF AND WHILE DETERMINING CAPITAL GAINS ARISING ON SUCH SALE THE COST OF ACQUISITION MAY STAND REDUCED BY THE AMOUNT RECEIVED BY THE ASSESSEE ON ASSIGNMENT OF RIGHTS TO RECEIVE THE TDRS. THE CIT(A)S OBSERVATIONS THAT THIS RIGHT CANNOT BE SAID TO BE WITHOUT ANY COST OF ACQUISITION BECAUSE THE TDRS HAVE BEEN RECEIVED ON SURRENDER OF RESERVED PLOT TO THE GOVERNMEN T IS EX FACIE INCORRECT INASMUCH AS WHAT WE ARE REALLY CONCERNED W ITH IS THE RIGHT TO RECEIVE THE TDR ON THE PLOT OWNED BY THE ASSESSEE A ND NOT WITH THE RIGHT TO RECEIVE THE TDR FROM THE GOVERNMENT. THE PERSON GETTI NG TDRS FROM THE GOVERNMENT HAS TO SURRENDER THE RESERVED PLOT BUT THE P ERSON ON WHOSE PLOT SUCH TDRS CAN BE USED AS IS THE CASE WE ARE IN SEI SIN OF DOES NOT DO ANYTHING MORE THAN OWNING THE RECEIVING PLOT. THE C OSTS INCURRED BY A THIRD PARTY FOR ACQUIRING THE TDR HAS NOTHING TO DO WITH THE RIGHT TO AVAILING THE SAID TDR ON ASSESSEES PLOT. SIMILARLY THE COSTS OF PLOT AND COSTS OF CONSTRUCTION ARE ALSO NOT THE COST OF ACQUISITION OF THESE RIGHTS. WH AT THE ASSESSEE HAS TRANSFERRED IS NOT THE PLOT OR THE BUILDING BUT A R IGHT PARTING WITH WHICH DOES NOT RESULT IN PARTING WITH LAND OR BUILDING. THE COS TS OF OBTAINING BMC APPROVAL FOR THE BUILDING PLAN CAN ALSO NOT BE SAID TO BE THE COSTS OF ACQUISITION OF THESE RIGHTS AS THESE RIGHTS DO NOT ARISE BY THE VIR TUE OF GETTING THESE APPROVALS BUT BY THE VIRTUE OF A LEGAL RIGHT INDEPEND ENT THEREOF. THE LAW IS TRITE AND THERE IS NO DISPUTE ON THE SAID POSITION THAT WHEN AN ASSET HAS NO COST OF ACQUISITION THE GAINS ON SALE OR TRANSFER O F SAME CANNOT BE BROUGHT TO TAX. THE LAW LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. B.C. SRINIVASA SETTY (SUPRA) CLEARLY HOLDS SO. FOR AL L THESE REASONS WE ARE OF THE CONSIDERED VIEW THAT THE RECEIPTS ON SALE OF ASSIGNME NT OF RIGHTS TO RECEIVE TDRS ARE NOT LIABLE TO TAX. THE AUTHORITIES BELOW ER RED IN LAW AND ON FACTS IN HOLDING TO THE CONTRARY. 5.5 THE TRIBUNAL HAS HELD IN THE CASE OF JETHALAL D MEHTA (SUPRA) THAT THE EFFECT OF THE RIGHTS BEING RELATABLE TO THE LEASEHOLD RIGH TS IN THE PLOT COULD AT BEST BE THAT THE AMOUNT RECEIVED BY THE ASSESSEE ON ASSIGNMENT O F RIGHTS TO RECEIVE THE TRANSFERABLE DEVELOPMENT RIGHTS ENDS UP REDUCING EF FECTIVE COST OF ACQUISITION OF THE LAND AND BUILDING IN THE SAID PLOT. 13 ITA NO. 6609/MUM/2009 (ASST YEAR 2006-07) 6 IN THE CASE IN HAND THE ASSESSEE HAD ACQUIRED TD R FROM MARKET AND THEN ENTERED INTO DEVELOPMENT AGREEMENT FOR UTILIZATION OF THE SAID TDR FOR CONSTRUCTION OF WING B BY THE DEVELOPER. THE ASSESSEE HAS RECEIV ED THE AMOUNT FOR UTILIZATION OF THE SAID TDR BY DEVELOPER FOR CONSTRUCTION OF WING B AND THEREAFTER SALE OF FLATS. WHATEVER THE AMOUNT THE ASSESSEE RECEIVED IS CONNEC TED WITH THE UTILIZATION OF THE TDR RIGHTS ON THE PLOT OF LAND AND NOT AGAINST THE SALE OF LAND OR THE CONSTRUCTED FLATS. THEREFORE IN VIEW OF THE DECISION OF THE T RIBUNAL IN THE CASE OF JETHALAL D MEHTA (SUPRA) WHICH HAS BEEN CONSISTENTLY FOLLOW ED BY THIS TRIBUNAL IN VARIOUS SUBSEQUENT DECISIONS THE AMOUNT RECEIVED BY THE AS SESSEE IS CAPITAL IN NATURE. SINCE THE ASSESSEE HIMSELF HAS OFFERED THE SAID REC EIPTS AS LONG TERM CAPITAL GAINS TO TAX THE ALTERNATIVE PLEA OF THE ASSESSEE IS NOT SU STAINABLE. MOREOVER THE ASSESSEE HAS ALSO CLAIMED CERTAIN EXPENDITURE IN ACQUIRING T HE TDR FROM THE MARKET AND IN RESPECT OF UTILIZATION OF THE SAME BY THE DEVELOPER . THEREFORE THE ALTERNATIVE PLEA OF THE ASSESSEE THAT THE SAID AMOUNT IS NOT AT ALL TAX ABLE IS NOT IN CONSONANCE WITH THE FACTS OF THE PRESENT CASE. 7 GROUND NO.2 REGARDING DISALLOWANCE OF EXPENSE AGA INST SALE OF TDR LOADING RIGHTS. 7.1 THE ASSESSEE CLAIMED RS.31 45 585/- AS DEVELOPM ENT EXPENSES AND LEGAL FEE OF RS. 75 000/- AGAINST THE SALE RECEIPT OF TDR LOA DING RIGHTS. THE DEVELOPMENT EXPENSES CONSISTS OF RS. 5 LACS BEING FEE PAID TO M/S MAHIMATURA & CO AND A SUM OF RS. 22 95 585/- PAID TO BMC AND OTHER LOCAL BODI ES. THE ASSESSING OFFICER NOTED THAT AS REGARDS THE FEE PAID TO M/S MAHIMATURA & CO OF RS. 5 LACS THE ASSESSEE DID NOT EXPLAIN THE PURPOSE FOR WHICH THE PAYMENT WAS MADE AND ALSO COULD NOT FURNISH THE INVOICE FOR THE ENTIRE PAYMENT AND A RE CEIPT FOR THE PAYMENT OF 14 ITA NO. 6609/MUM/2009 (ASST YEAR 2006-07) RS. 2 25 000/- ONLY WAS FURNISHED. THE ASSESSING OFFICER AFTER REFERRING THE CLAUSES OF AGREEMENT DATED 22.9.2003 AS WELL AS ARBITRATION AW ARD DATED 16.1.26 REJECTED THE CLAIM OF THE ASSESSEE FOR RS. 5 LACS. 7.2 AS REGARDS THE EXPENDITURE OF RS. 22 95 585/- P AID TO BMC AND OTHER LOCAL BODIES THE ASSESSING OFFICER DOUBTED THAT IT IS NOT ESTABLISHED WHETHER THESE EXPENSES ARE RELATABLE TO WING A OR WING B OR BOTH. HE HAS OBSERVED THAT SINCE ALL OTHER COSTS CHARGES TAXES AND REFUNDABLE DEPOSITS ETC. SHALL BE PAID BY M/S ORBIT VENTURE & CO AND THE ASSESSEE COULD NOT PROVE THAT THE AMOUNTS PAID TO BMC ARE IN THE NATURE OF PREMIUM DEVELOPMENT CHARGES AND S CRUTINY FEE; ACCORDINGLY THE ASSESSING OFFICER DENIED THE CLAIM OF THE ASSESSEE ON ACCOUNT OF PAYMENT MADE TO BMC OF RS. 22 95 585/- 7.3 SIMILARLY THE ASSESSING OFFICER HAS OBSERVED T HAT NO DETAILS OF LEGAL FEE OF RS. 75 000/- WAS FURNISHED BY THE ASSESSEE AND ACCO RDINGLY THE SAID CLAIM OF THE ASSESSEE WAS ALSO REJECTED. 7.4 ON APPEAL THE CIT(A) HAS CONFIRMED THE DISALLO WANCE MADE BY THE ASSESSING OFFICER ON THIS ACCOUNT. 8 BEFORE US THE LD AR OF THE ASSESSEE HAS SUBMITTE D THAT THE ASSESSEE FILED THE SUPPORTING MATERIAL AND EVIDENCES TOWARDS THE DEVEL OPMENT EXPENSES DURING THE ASSESSMENT PROCEEDINGS AS WELL AS BEFORE THE CITA). HE HAS POINTED OUT THAT THE 15 ITA NO. 6609/MUM/2009 (ASST YEAR 2006-07) LEGAL FEE OF RS. 5 LACS WAS PAID TO M/S MAHIMATRA & CO SOLICITORS AND ADVOCATES. THE LD AR OF THE ASSESSEE HAS FURTHER CONTENDED THA T THE ASSESSING OFFICER REPRODUCED CERTAIN CLAUSES OF THE AGREEMENT IN THE ASSESSMENT ORDER UNDER PARA 3 WHICH CLEARLY SHOW THAT THE ASSESSEE WAS UNDER OBLI GATION TO INCUR THE EXPENSES FOR GETTING THE PLAN SANCTIONED FOR THE CONSTRUCTION OF THE WING B AND OBTAINING THE COMMENCEMENT CERTIFICATE . THE ASSESSEE WAS ALSO U NDER OBLIGATION TO PAY THE PREMIUM DEVELOPMENT CHARGES ETC IN THIS REGARD. TH E LEGAL FEE IS REGARDING THE TRANSACTION IN QUESTION AND PARTICULARLY SEVERAL DO CUMENTS AND LEGAL WORKS INVOLVED IN THE TRANSACTION. THE FEE PAID TO THE ADVOCATES AND SOLICITORS ARE PART OF THE COST OF TRANSFER OF THE TDS LOADING RIGHTS. HE HAS POIN TED OUT THAT THE ASSESSEE HAS DEDUCTED TDS ON SUCH PAYMENTS. SIMILARLY THE LEGA L FEE PAID TO ARBITRATOR INCLUDES ARBITRATION FEE AS WELL AS ADVOCATE FEE IN RESPECT OF ARBITRATION PROCEEDINGS; THEREFORE THE SAME IS ALLOWABLE EXPENDITURE. THE ASSESSEE HAS ALSO DEDUCTED TDS ON SUCH PAYMENTS. 8.1 AS REGARDS THE PAYMENT TO BMC THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT BMC RECEIPTS ARE VERY MUCH SELF EXPLANATORY AND CLE ARLY MENTIONED ABOUT THE DEVELOPMENT CHARGES PREMIUM CHARGES ETC COLLECTED BY IT. HE HAS FURTHER POINTED OUT THAT THE COMMENCEMENT CERTIFICATE HAS BEEN ISSU ED BY MCGM ONLY AFTER ALL SUCH PAYMENTS ARE PAID BY THE ASSESSEE. AS PER TH E AGREEMENT THE ASSESSEE IS UNDER OBLIGATION TO SPEND AND INCUR ALL THESE EXPEN SES; THEREFORE THE LD AR OF THE ASSESSEE HAS URGED THAT THE EXPENSES INCURRED BY TH E ASSESSEE AS PER TERMS OF THE AGREEMENT IS ALLOWABLE CLAIM. HE HAS FURTHER POIN TED OUT THAT THE ACTUAL PAYMENT OF THE EXPENSE HAS NOT BEEN DISPUTED BY THE LOWER A UTHORITIES AND THE SAME HAS BEEN PAID BY ACCOUNT PAYEE CHEQUE. FURTHER THE LD AR CONTENDED THAT THE 16 ITA NO. 6609/MUM/2009 (ASST YEAR 2006-07) ASSESSING OFFICER HAS NOT GIVEN ANY OPPORTUNITY T O THE ASSESSEE TO EXPLAIN AND ESTABLISH THE NEXUS OF THE EXPENSES WITH THE WING B BEFORE DISALLOWING THE CLAIM OF THE ASSESSEE. 8.2 THE LD DR ON THE OTHER HAND HAS RELIED UPON T HE ORDERS OF THE LOWER AUTHORITIES AND SUBMITTED THAT WHEN THE ASSESSEE HA S FAILED TO EXPLAIN AND ESTABLISH THAT THOSE PAYMENTS ARE MADE IN RELATION TO WING B AND FURTHER THE ASSESSEE COULD NOT PRODUCE THE RECEIPT OF THE ENTIRE PAYMENT THEN THE ASSESSING OFFICER IS JUSTIFIED IN DISALLOWING THE CLAIM OF THE ASSESSEE. THE LD D R FURTHER CONTENDED THAT THE LOWER AUTHORITIES HAVE CLEARLY BROUGHT OUT THE FACT THAT THE ASSESSEE FAILED TO ESTABLISH THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS ONLY TO WARDS WING B AND PERTAINS TO DEVELOPMENT CHARGES PREMIUM SCRUTINY FEE ETC. HE HAS POINTED OUT THAT AS PER THE TERMS OF AGREEMENT EXCEPT DEVELOPMENT CHARGES PREMIUM SCRUTINY FEE AND SANCTION OF THE PLAN AND OBTAINING OF COMMENCEMENT CERTIFICATE ALL OTHER EXPENSES HAD TO BE BORNE BY THE DEVELOPER M/S ORBIT VENTURE & CO. 9 WE HAVE CONSIDERED THE RIVAL CONTENTION AND PERUS ED THE RELEVANT MATERIAL ON RECORD. THE ASSESSING OFFICER DISALLOWED THE C LAIM OF THE ASSESSEE REGARDING EXPENSES MAINLY ON TWO COUNTS; FIRSTLY THE ASSESSEE E FAILED TO ESTABLISH THAT THESE EXPENSES RELATE TO WING B WHICH IS A SUBJECT MATTE R IN QUESTION; AND SECONDLY THE ASSESSEE FAILED TO PRODUCE THE DETAILS OF THE ENTIR E PAYMENT. 17 ITA NO. 6609/MUM/2009 (ASST YEAR 2006-07) 9.1 IT IS EVIDENT FROM THE ASSESSMENT ORDER THAT TH E ASSESSING OFFICER HAS NOT ISSUED ANY SHOW CAUSE NOTICE OR INVITES ANY EXPLANATION OF THE ASSESSEE BEFORE DISALLOWING THE CLAIM OF THE ASSESSEE ON THIS ACCOUNT. THE CIT (A) HAS ALSO CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON SIMI LAR LINES. THEREFORE IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN THE INTEREST O F JUSTICE WE ARE OF THE CONSIDERED OPINION THAT THIS ISSUE HAS NOT BEEN PRO PERLY EXAMINED BY THE LOWER AUTHORITIES AND THE ASSESSEE HAS NOT BEEN GIVEN PRO PER AND EFFECTIVE OPPORTUNITY TO EXPLAIN AND ESTABLISH ITS CLAIM. ACCORDINGLY THE ISSUE IS SET ASIDE TO THE RECORD OF THE ASSESSING OFFICER TO DECIDE THE SAME AFRESH AS PE R LAW AFTER VERIFICATION AND EXAMINATION OF THE RELEVANT RECORDS AS WELL AS AFTE R CONSIDERING THE CONTENTION OF THE ASSESSEE. 10 GROUND NO. 3 REGARDING DISALLOWANCE OF RS. 1 95 000/- TOWARDS BROKERAGE PAID AGAINST SALE OF FLAT IN WING A. 11 WE HAVE HEARD THE LD AR OF THE ASSESSEE AS WELL AS THE LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. SINCE THE MAIN IS SUE REGARDING THE RECEIPT ON SALE OF TDR LOADING RIGHTS HAS BEEN DECIDED BY US BY HOL DING THAT THE SAME IS IN THE NATURE OF CAPITAL RECEIPT AND NO OTHER BUSINESS HAS BEEN CARRIED OUT BY THE ASSESSEE; THEREFORE THE CLAIM OF BROKERAGE PAID BY THE ASSESSEE WITH REGARD TO WING A CANNOT BE CLAIMED AGAINST THE RECEIPT FOR T DR LOADING RIGHTS. ACCORDINGLY WE DECIDE THIS ISSUE AGAINST THE ASSESSEE. 18 ITA NO. 6609/MUM/2009 (ASST YEAR 2006-07) 12 GROUND NO.4 REGARDING DISALLOWANCE OF DAMAGES OF RS. 9 LACS AWARDED BY THE ARBITRATOR WHICH WAS TREATED BY THE AO AS INC OME FROM OTHER SOURCES INSTEAD OF CAPITAL GAIN. 13 WE HAVE HEARD THE LD AR OF THE ASSESSEE AS WELL AS THE LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE AND M/S ORBIT VENTURE CO HAVE ENTERED INTO A DEVELOPMENT AGREEMENT DATED 22.9.200 3 WHEREBY THE ASSESSEE AGREED TO GRANT DEVELOPMENT RIGHTS TO THE DEVELOPER FOR CONSTRUCTION OF WING B. IT WAS ALSO AGREED BETWEEN THE PARTIES THAT THE ASSESS EE COULD HAVE A RIGHT AND ENTITLED TO RETAIN WITH ITSELF 17 FLATS ADMEASURING 12000 SQ.FT SALEABLE AREA IN WING B OF THE BUILDING. THE CLAUSES OF THE AGREEMENT PRESC RIBE THAT IN CASE THE ASSESSEE DECIDES OR EXERCISE THE SAID RIGHT TO RETAIN THE SA ID FLATS THEN IN THAT EVENT THE CONSIDERATION OF RS.4 65 38 100 WOULD BE REDUCED BY RS. 1 56 00 000/- BEING CALCULATED @ RS. 1300/- PER SQ.FT OF THE SALEABLE A REA. THE ASSESSEE WOULD BECOME SOLE AND ABSOLUTE OWNER OF THE RETAINED FLATS AND E NTITLED TO DEAL WITH AND DISPOSE IF ANY THE SAME IN THE MANNER AS THE ASSESSEE DEEM FIT. IT WAS ALSO AGREED THAT IN CASE THE ASSESSEE RETAIN ONLY A PART OF THE RETAINE D FLATS THEN THE CONSIDERATION WOULD BE REDUCED BY SUCH AMOUNT CALCULATED @ RS. 13 00/- PER SA.FT OF THE SALEABLE AREA ON THE PART OF THE RETAINED FLATS. A DISPUTE BETWEEN THE ASSESSEE AND THE DEVELOPER AROSE REGARDING THE EXERCISE OF RIGHT ON THE RETENTION OF 11 FLATS OUT OF THE TOTAL 17 FLATS. THE DEVELOPMENT AGREEMENT CONTA INS AN ARBITRATION CLAUSE AND ACCORDINGLY THE MATTER WAS REFERRED FOR ARBITRATIO N. THE LD ARBITRATOR PASSED AN AWARD DT 16.1.2006 WHEREBY IT WAS HELD THAT THE ASS ESSEE IS ENTITLED TO RETAIN 11 FLATS OUT OF THE TOTAL RETAINED FLATS. SINCE THE DEVELOP ER HAD ALREADY SOLD SOME OF THE FLATS IN RESPECT OF WHICH THE ASSESSEE EXERCISED IT S OPTION TO RETAIN THE SAME. THE LD 19 ITA NO. 6609/MUM/2009 (ASST YEAR 2006-07) ARBITRATOR HELD THAT THE ASSESSEE IS ENTITLED TO SA LE CONSIDERATION OF RS. 52 90 000/- IN RESPECT OF THE TWO RETAINED FLAT S SOLD BY THE DEVELOPER. APART FROM THE AWARD OF THE CLAIM THE LD ARBITRATOR HAS ALSO AWARDED RS. 9 LACS TOWARDS DAMAGES TO THE ASSESSEE ON ACCOUNT OF VARIOUS BREAC HES COMMITTED BY THE DEVELOPER. 13.1 THE ASSESSING OFFICER TREATED THE AMOUNT OF RS. 9 LACS AS INCOME FROM OTHER SOURCES AGAINST THE CLAIM OF THE ASSESSEE AS CAPITA L GAIN. IT IS TO BE NOTED THAT THIS DAMAGE HAS BEEN AWARDED BY THE ARBITRATOR IN RESPEC T OF THE DISPUTE ARISING FROM THE DEVELOPMENT AGREEMENT. THE DEVELOPMENT AGREEME NT PERTAINS TO THE CONSIDERATION FOR TRANSFER OF TDR LOADING RIGHTS. T HUS IT IS CLEAR THAT THE DAMAGES AWARDED BY THE LD ARBITRATOR IS IN RESPECT OF THE C LAIM OF THE ASSESSEE FOR CONSIDERATION TOWARDS TRANSFER OF TDR LOADING RIGHT S. 13.2 MOREOVER THE DAMAGES HAS BEEN AWARDED TOWARD S LOSS SUFFERED BY THE ASSESSEE ON ACCOUNT OF THE BREACHES COMMITTED BY TH E DEVELOPER. THIS LOSS THOUGH HAS NOT BEEN QUANTIFIED IN TO DIFFERENT HEADS AND I TEMS HOWEVER IT INCLUDES THE LOSS ON ACCOUNT OF VARIOUS EXPENSES INCURRED BY THE ASSE SSEE FOR ARBITRATION PROCEEDINGS INCLUDING LEGAL FEE ARBITRATION FEE ARBITRATORS FEE AND ADVOCATE/SOLICITORS FEE ETC. APART FROM THIS THE DAMAGE AWARDED ALSO INCLUDES M ENTAL AND PHYSICAL AGONY AS WELL AS WASTAGE OF TIME IN THE LITIGATION. THEREFOR E THE AWARD OF DAMAGE CANNOT BE SEPARATED FROM THE MAIN AWARD PASSED IN FAVOUR OF T HE ASSESSEE. ACCORDINGLY THE DAMAGES AWARDED BY THE ARBITRATOR WOULD BE IN THE N ATURE OF INCOME SIMILAR TO THE CLAIM BEING AWARDED BY THE ARBITRATOR VIDE ORDER DA TED 16.1.2006. ACCORDINGLY WE 20 ITA NO. 6609/MUM/2009 (ASST YEAR 2006-07) HOLD THAT RS 9 LACS RECEIVED BY THE ASSESSEE BEING DAMAGES AWARDED BY THE ARBITRATOR WOULD BE A RECEIPT OF CAPITAL IN NATURE AS BEING PART OF THE CONSIDERATION FOR TRANSFER OF TDR LOADING RIGHTS. ACCORDINGLY W E DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. 14 IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THE 15 TH DAY OF JULY 2011. SD/- SD/- (PRAMOD KUMAR ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 15 TH JULY 2011 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR ITAT MUMBAI