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Income Tax Appellate Tribunal, ‘C‘ BENCH
Before: SHRI AMIT SHUKLA & SHRI AMARJIT SINGH
आदेश / O R D E R PER AMIT SHUKLA (J.M): The aforesaid appeal has been filed by the assessee against order dated 14/07/2022, passed by ld. CIT(A)-26, New Delhi for the quantum of assessment passed u/s.143(3) r.w.s. 254, which is an order giving effect to the ITAT order in filed by the Revenue for the A.Y.2009-10.
M/s. Indofil Industries Limited 2. In the grounds of appeal assessee has challenged confirming the amount of Rs.22,40,900/- being amount paid to GIDC towards non-usage charges while computing the capital gain.
3. The brief facts and the background of the case are that assessee has filed return of income for A.Y.2009-10 declaring total income of Rs.45,06,20,290/-. One of the issues which were raised during the course of original assessment proceedings was with respect to the capital gain on transfer of plot No.23 at Panoli Industrial Estate. The working capital gain claimed by the assessee was as under:-
Cost of Panoli Land at the time of Demerger 2006-2007 26125540 Add: 2007-2008 2240900 2007-2008 1336053 2008-2009 2500550 6077503 32203043 Cost of Panoli Land as per cost Sales Of Panoli Land - Sale Price 44816360 Less: Transfer fees 7170618 Adjusted Sale Price 37645742 Less: Cost as per books 32203043 Profit on Sale of Fixed Assets as 5442699 per Computation M/s. Indofil Industries Limited 4. The ld. AO noted that the said property was transferred from M/s. Indofil Chemicals Company in favour of M/s. Indofil Organics Industries Ltd., w.e.f. 13/05/2008 by GIDC and subsequently, the plot was transferred by GIDC from assessee company in favour of M/s. Reshmika Mineral & Chemicals Pvt.Ltd. The assessee has shown sale consideration of Rs.3,76,45,742/- after claiming deduction of transfer fees of Rs.71,70,618/- paid to GIDC. Ld. AO held that since the cost of acquisition has to be seen in the case of a demerger, as per the values appearing in the books of accounts immediately before the demerger and therefore, he held that cost of the property shall be cost of assets in the books of accounts immediately before the demerger, which was Rs.1,81,04,710/-. He also noted that assessee had made payment of Rs.22,40,900/- paid to GIDC towards non-usage charges (which is penalty charges for non- usage) and further charges of Rs.13,36,053/- towards arrears of property tax etc., Thus, he held that expenditure to the extent of Rs.36,25,953/- cannot be allowed as cost of acquisition. Accordingly, he computed capital gain in the following manner:-
Cost of Acquisition = Rs. 1,81,04,710/- Cost of Improvement = Rs. 25,00,550/- Cost of Asset : Rs. 2,06,04,710/- The Short term capital gain on the transfer of Plot No. 23 at Panoli is recomputed as under:- Sale consideration Rs. 4,48,16,360/- Less: 1) Transfer Fees- Rs. 71,70,618/- Net Sale Consideration Rs. 3,76,45,742/- M/s. Indofil Industries Limited Less: Cost of acquisition Rs. 2,06,04,710/- (as discussed supra) Taxable Short term capital gain Rs. 1,70,41,032/- Less: Already shown by the assessee Rs. 54,42,699/- Disallowance/Addition Rs. 1,15,98,333/-
In the first round of appeal, ld. CIT(A) accepted the contention of the assessee that the transfer of asset in question was through purchase deed and ld. AO’s view that property was transferred as a result of demerger scheme was rejected by the ld. CIT(A). In so far as the issue of penalty charges paid to GIDC, the ld. CIT(A) had set aside the issue to the file of the ld. AO for non-use of land after observing as under:- “So far as the penal interest of Rs. 13,36,053/- on arrears of property tax is concerned, it is clearly compensatory nature; hence, an allowable deduction. I hold accordingly. So far as a the amount of Rs. 22,40,900/- paid to Gujarat Industrial Development Corporation towards penalty charges is concerned, although in my opinion, the same is also compensatory in nature, still however, since it is termed as penalty charges, in the interests of natural Justice, it would be appropriate to ascertain the nature of this payment. It has to be ascertained as to whether this charge was levied by the concerned authority for any infringement of law or not. The AO is therefore, directed to ascertain from the concerned authority the nature of this charge of Rs. 22,04,900/- levied and in the same is compensatory in nature, the deduction in respect thereof may be granted to the appellant."
The department went in appeal before the Tribunal only on the issue, whether the transfer of asset in question was through purchase deed and as a result of demerger scheme and no such M/s. Indofil Industries Limited issue was raised with regard to setting aside the issue of penalty charges to GIDC in use of land. The Tribunal vide order dated 21/10/2016 had set aside the following issue to the Assessing Officer. “A perusal of the relevant clauses of the agreement shows that it is a case of outright sale and purchase and hence not a demerger as defined in section 2 (19AA). Demerger is covered by Section 47 (vib) but the provisions of Section 49(1)(iii)(e), as they stood at the relevant time, did not cover such transactions and hence do not apply to the case of the assessee. Therefore, cost of acquisition of the asset has to be taken as the value at which the same is acquired by the assessee. We find strength in the argument of the Ld. AR and conclude that transaction is not in the nature of demerger and affirm the stand taken by the CIT(A). Hence, this ground of department is dismissed. Further, we deem it fit to restore the matter to AO for the limited purpose of verifying the cost of acquisition of Rs. 2,16,25,540/- as claimed by the assessee. The assessee is required to substantiate its claim before AO with respect to cost of acquisition.”
Now while giving effect to the ITAT order, the ld. AO added payment of Rs. 22,40,900/- made to GIDC towards penalty charges and disallowed the same from the cost of acquisition. AO’s finding and observation reads as under:- 4.4 The Hon'ble ITAT affirms the stand taken by Ld CIT(A). The Ld. CIT (A) in Para No. 10.11 held that as far as the amount of Rs. 22,40,900/-paid to GIDC towards penalty charges is concerned, although in my opinion, the same is also compensatory in nature, still however, since it is termed as penalty charges, in the interest of natural justice, it would be appropriate to ascertain the nature of this payment. It has to be ascertained as to whether this charge was levied by the M/s. Indofil Industries Limited concerned authority for any infringement of law or not. The AO is therefore directed to ascertain from the concerned authority the nature of this charge of Rs. 22,40,900/- levied and in case the same is compensatory in nature, the deduction in respect thereof may be granted to the appellant, 4.5 A notice u/s 133(6) was issued to the Regional Manager, GIDC on 30 11 2017 to furnish the demand notice issued to assessee, order in which such demand for payment was raised or any other documents related to raising of demand against which Rs. 22,40,900/- was paid to GDIC, so that the nature of payment can be ascertained However no response was received from GIDC Accordingly, a show cause notice was issued to the assessee in absence of any reply from GIDC, why the payment of Rs. 22:40,900/- paid to GIDC towards penalty charge should not be disallowed and added to the income of the assessee, 4.6 The submission of assessee was duly considered but in the absence of proof of the nature of payments as claimed by assessee, the payments of Rs 22,40.900 made to GIDC towards penalty charges is being disallowed and added to the income of the assessee.
The ld. CIT (A) after incorporating all the relevant facts in the background and the directions of the Tribunal has rejected the assessee’s appeal holding that ld.AO has not exceeded the jurisdiction of the direction of the Tribunal, despite that the Tribunal had set aside the issue of cost of acquisition of asset and not issue of improvement or the issue of improvement of asset was not set aside. Accordingly, he confirmed the action of the ld. AO.
M/s. Indofil Industries Limited 9. After hearing both the parties and on perusal of the material placed on record, we find that in the first round, Ld. CIT(A) had set aside this issue of Rs.22,40,900/- paid to GIDC with the direction to ascertain the nature of this payment of and also whether its penal in the nature or is compensatory nature. Now it has been brought on record before us that the AO while giving the effect to the order of the Ld. CIT (A) did not disallow this amount, vide order giving effect dated 21/12/2012. Thereafter, assessee filed rectification application u/s.154 dated 17/04/2013 stating that while giving effect to the ld. CIT(A)’s order, credit of refund adjustment and TDS credit has not been given and he also allowed the relief of Rs.22,46,900/- while computing the capital gain. Thus, this issue stood allowed post the direction of the Ld. CIT (A). In the first round, before the Tribunal, the department’s appeal was only with regard to the issue, whether property transferred, was as a result of demerger or transfer was through purchase deed which was decided in favour of the assessee by the ld. CIT(A). This finding of the ld. CIT (A) was confirmed by the Tribunal and Revenue’s appeal was dismissed. Matter was only restored back to the ld. AO for verifying the cost of acquisition of Rs.2,61,25,540/- which was the cost of land claimed by the assessee and after this claim of Rs.2,61,25,540/- further amount of Rs.22,40,900/- was claimed which is evident from the working of capital gains claimed by the assessee as incorporated in para 11. Nowhere, there was any issue of allowing or disallowing or questioning the direction of the CIT(A) to verify the nature of payment of Rs.22,40,900/-.
M/s. Indofil Industries Limited Thus, ld. AO was strictly circumscribed by the direction of the Tribunal which he could not have transgressed while giving effect to the order of the Tribunal, because there was no such issue before the Tribunal. This issue was decided in the order of the ld. CIT (A) and while giving effect of this order, AO has already allowed this claim of the assessee. Now, the ld. AO cannot rake up this issue and add Rs.22,40,900/-, which he could have, at all, while giving effect to the order of the ld. CIT(A) and not while giving effect to the ITAT order and this was not even the mandate and accordingly, the addition of Rs.22,42,900/- is deleted on the ground that same is beyond the direction of the Tribunal. Accordingly, the appeal of the assessee is allowed.
In the result, appeal of the assessee is allowed. Order pronounced on 31st July, 2023.