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Income Tax Appellate Tribunal, MUMBAI BENCH “G”, MUMBAI
Before: SHRI B.R. BASKARAN & SHRI.NARENDRA KUMAR CHOUDHRY
O R D E R Per N.K. Choudhry (JM): This appeal has been preferred by the Assessee against the order dated 19/05/2023 impugned herein passed, by the National Faceless Appeal Centre (NFAC) Delhi / Ld. Commissioner of Income Tax (Appeal) [in short, „Ld. Commissioner‟ ] under section 250 of the Income-tax Act, 1961 (in short, „the Act‟) for the A.Y. 2018-19.
2 ITA 2430/Mum/2023 Shree Jailaxmi Textile Co 2. Brief facts of the case are that the Assessee by filling its return of income for A.Y. 2018-19 on 31/10/2018 declared total income at Nil. The case was selected under CASS for the reasons(s) "Large business loss set off against other heads of income and Sale consideration of property in ITR is less than sale consideration reported in Form 26QB". Consequently various statutory notices were issued to the Assessee. In response, the Assessee sent replies on 26/04/2021, 28/04/2021, 04/05/2021 along with certain documentary evidence, on the basis of which, the Assessing Officer completed the assessment by holding as under:
(A) It was noticed from form 26AS that the assessee has sold a property situated at Plot No.H-4/2/A, Tarapur Industrial Area, Palgarh-401 506, Maharashtra to one Mr.Nazirahmed Nasibdar for a total consideration of Rs.5,24,00,000/-. An amount of Rs.5,24,000/- as TDS was deducted under section 194IA of the Act. However, in the ITR the assessee has, for the purpose of LTCG, reported only an amount of Rs.3,93,00,000/- as full value of consideration received. In response to a show cause notice dated 23/04/2021 issued by the department, the assessee stated that as per the transfer agreement, the sale consideration of Rs.5,24,00,000/- pertained to land (Rs.3,93,00,000/-) and building (Rs. 1,31,00,0007-). Again, on 04/05/2021, the Assessee stated that the land in question was purchased on 01/04/1985 and has requested to apply the base index rate of 02/04/2021 while calculating the Long Term Capital Gain on land. However, the Assessee had not submitted any documentary evidence such as purchase deed as on 01/04/1985 to claim indexed cost of acquisition. Accordingly, the cost of acquisition is calculated by applying reverse indexation method and Long Term Capital Gain of Rs.1,45,98,992/- was computed. (B) Similarly the Assessee realized an amount of Rs. 1,31,00,000/- by selling the building part of the above property. The assessee stated that it is a depreciable asset. The Assessing Officer observed that the Assessee has not furnished the statement of depreciation as per Income-tax Act. From schedule DOA of the ITR-5 e-filed by the assessee that the WDV of the building as on 01/04/2017 was 3 ITA 2430/Mum/2023 Shree Jailaxmi Textile Co Rs.30,07,782/- and claimed addition for a period of less than 180 days in the previous year of Rs.65,97,883/-. The assessee deducted the above value of building Rs.96,05,665/- (Rs.30,07,782/- + Rs.65,97,883/-) from the sale value of the building (Rs.1,31,00,000/- and offered the balance amount of Rs.34,94,335/-for tax under the head "Short Term Capital Gain". The Assessing Officer observed that the assessee has not substantiated its claim of addition of Rs.65,97,883/- for a period of less than 180 days; therefore, the claim of the assessee in this regard is rejected and a short term capital gain is computed at Rs. 1,00,92,218/-.
2.1 Resultant, the Assessing Officer computed an income of R.2,03,94,774/- as against “Nil” income as declared by the Assessee.
3. The Assessee being aggrieved challenged the action of the Assessing Officer in determining the long term capital gain and short term capital gain to the tune of Rs.1,45,98,992/- and Rs.1,00,92,218/- respectively. Before the Ld. Commissioner, the Assessee more or less claimed that the Government of Maharashtra has created various zones in MIDC such as textile zone, heavy industries, chemical zone, etc. at Boisar, Dist. Palghar near Mumbai. As the Assessee is a registered partnership firm established in 1982 and is in the business of textile manufacturing shirt clothing etc., therefore, the land was given by the Government of Maharashtra on long lease of 99 years to the Assessee herein with a liberty to build the factory and to generate employment by providing employment opportunity to the rural people. Leasehold right is nothing but a right over that property for a agreed period of 99 years and the lesser can use this property for agreed purpose as per the agreement with MIDC. The leasehold rights can be sold to another person, who is in the same business for a consideration 4 ITA 2430/Mum/2023 Shree Jailaxmi Textile Co and such a person would then acquire the rights over that property and carry out the same business in the said area. In the case of the Assessee, the land was taken for long years of 99 years and factory building was constructed on such leasehold land by the Assessee, therefore, building will be considered as a self generated capital asset and the right over the ownership of the building is with the lesser and not the lessee. The Assessee also claimed that such type of long lease are different from usual commercial use which are for throughout the years, but in the instant case, the lease was granted for long period of 99 years with a specific purpose undertaken by manufacturing unit to generate employment for rural people and to develop backward area into manufacturing zone. Therefore, if we go by above interpretation, the building cannot be sold in the name of the lessee and, therefore, the sale can be restricted only to leasehold rights and it cannot be stretched to sale of the building. Consequently, the same / leasehold rights is taxable as capital gain and the cost paid by it will be considered as the cost of acquisition. The Assessee further claimed that the Assessee also enclosed copies of lease agreement with MIDC for a period of 99 years‟ lease period dated 24/02/1982 before set up its factory which took place in the year 1984 and commenced business. There was a change in the constitution of partners and therefore, the Assessee has entered into revised lease agreement dated 13/06/2007 as the land was taken on lease and building was constructed with own funds by the Assessee, therefore, sale of the property under consideration can be restricted only to leasehold rights. The Assessee before the Ld. Commissioner also requested for grant of virtual hearing through video conferencing.
5 ITA 2430/Mum/2023 Shree Jailaxmi Textile Co
The Ld. Commissioner considered the claim of the Assessee and by relying upon the judgment passed by the Hon‟ble Madras High Court in the case of CIT vs Sujatha Jewellers Tax Case (Appeal) No.366 of 2001 wherein it was held “that leasehold rights are property as per section 2(14) of the Act on which capital gains are chargeable” , held that leasehold rights of the Assessee held to be an asset as per definition provided under section 2 of the Act and consequently, capital gain arising out of the transfer of the capital asset under consideration was brought to tax. The Ld. Commissioner further decided “as to how the capital gains are to be calculated” and ultimately recomputed long term capital gain to the tune of Rs.2,74,16,619/- and directed the Assessing Officer to enhance the taxable long term capital gain from Rs.1,45,98,992/- to Rs.2,74,16,619/-. The ld. Commissioner also affirmed the computation of short term capital gain of Rs.1,00,92,218/- by the Assessing Officer.
The Assessee being aggrieved is in appeal before us. 5. The Ld. Counsel for the Assessee, at the outset, claimed that the Assessee vide letter dated 16/05/2023 submitted on portal of the Income-tax Department, has specifically requested for personal hearing through video conferencing, as it appears from impugned order as well at page 4. However, the Ld. Commissioner without affording an opportunity of personal hearing through VC mode or otherwise decided the case against the Assessee and also enhanced the capital gain computed by the Assessing Officer and therefore, the order is liable to be quashed. Further, the Ld. Commissioner also erred in computing indexed cost of acquisition at Rs.16,30,903/- as against Rs.2,85,60,000/- as computed by the Assessee without 6 ITA 2430/Mum/2023 Shree Jailaxmi Textile Co considering and appreciating the fact that the leasehold rights in the property was acquired in the year 1982 on the basis of 99 years‟ lease from MIDC, therefore, the cost of acquisition ought to be calculated based on the indexed value as on the year 2001, whereas the Ld. Commissioner calculated the long term capital gain at Rs.2,74,16,619/- by re-computing cost of acquisition from the year 2007. It is settled law that in case of difference in opinion with regard to the valuation of cost of acquisition, the matter ought to have been referred to the DVO. Therefore, valuation adopted by the Ld. Commissioner is contrary to law.
5.1 We have given thoughtful consideration to the peculiar facts and circumstances of the case and at this juncture by considering the specific fact as it appears in the impugned order itself that the Assessee specifically asked for personal hearing through video conferencing in order to substantiate its claim, however, the Ld. Commissioner not only affirmed the determination of capital gain and short term capital gain but also enhanced the capital gain, without providing any opportunity of being heard. Therefore, without going into the merit of the case, we are inclined to remand the instant case to the file of the Ld. Commissioner for decision afresh, suffice to say, by affording reasonable opportunity of being heard through video conferencing as mandated by the CBDT, vide Faceless Appeal Scheme 2021 notification dated December 28, 2021. The Assessee is also directed to co-operate with the appellate proceedings before the Ld. Commissioner and file the relevant documents, which would be essential for proper adjudication of the case.
7 ITA 2430/Mum/2023 Shree Jailaxmi Textile Co 6. In the result, appeal filed by the Assessee stands allowed, for statistical purpose.