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Income Tax Appellate Tribunal, MUMBAI BENCH “D”, MUMBAI
Before: SHRI ABY T VARKEY & SHRI GAGAN GOYALShri Dosu A Bhiwandiwala,
This appeal by Revenue is directed against the order of Commissioner of Income Tax (Appeals)-32, Mumbai [for short ‘CIT(A)’] dated 25.04.2017 under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (for short ‘the Act’) for Assessment Year (AY) 2009-10. The Revenue has raised the following grounds of appeal:
“1. Whether on the facts and circumstances and in law of the case the Ld. CIT(A) was right to delete the short-term capital gains of Rs. 5,88,77,650/- when the facts of the case are as under:
(1) The assessee had executed Agreement of Assignment" in which the assessee agreed to assign and transfer to M/s. U. S. Reality Pvt. all the said plot of land at Dronagiri, Sector 62 together with all the estate, rights interest in the said allotment." (2) The assessee by confirming and ratifying the Agreement of Assignment" by executing the Deed of Confirmation has assigned/transferred to M/s. U. S. Reality Pvt. all the said plot of land at Dronagiri, Sector- 62 together with all the estate, rights interest in the said allotment."
2. Whether on the facts and circumstances and in law of the case the Ld. CIT(A) was right to allow the deduction claimed u/s 57(iii) of the Income Tax Act of the bank guarantee commission paid of Rs. 5,20,875/- when the fact remains that the assessee has received compensation against the sale of land and all the expenses against the same will have to be capitalized and hence the bank guarantee commission is a capital expenditure." 3. "The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the A.O. be restored.”
Brief facts of the case are that assessee had not filed his return of income for A.Y. 2009-10. During the course of assessment proceedings in the case of M/s. U.S. Realty and M/s. U.S. Roofs Ltd. It was observed that assessee had sold leasehold rights of land situated at Dronagiri to M/s. U.S. Realty and M/s. U.S. Roofs Ltd. for a total consideration of Rs. 2.5 Cr. Since the assessee was a non- filer, case was reopened and assessment was made u/s. 143(3) r.w.s. 147 of the Act at a figure of Rs. 6,16,73,930/- against the returned income of Rs. 4,60,832/-. Being aggrieved with this order of AO, assessee preferred an appeal before the Ld. CIT(A), which in turn allowed the assessee’s appeal and deleted the addition made by the AO.
Revenue being aggrieved with the order of Ld. CIT(A) preferred this appeal before us. We have gone through the order of AO, Order of Ld. CIT(A) and submissions of the assessee. We observed following facts relevant to the issue as under:
I. Assessee was absolute owner of certain parcel of land at village Boripakhadi and village Mhadivali, taluka Panvel and District Raigadh. This parcel of land was compulsorily acquired by the government of Maharashtra for development of nodes. II. Against this acquisition the SIDCO authorities as a compensation in lieu of these parcels of lands allotted the assessee a plot under 12.5% scheme at sector-22 Drona Giri Taluka Panvel District Raigarh vide allotment letter dated 07-07-2008 ad measuring 10,950/- sq. mts. III. This plot was assigned by the assessee to M/s U.S.Realty Pvt. Ltd for a consideration of Rs 2.5cr vide agreement of assignment dated 21-10-2007. A deed of confirmation for continuation of agreement of assignment was also executed on 10-07-2009. IV. The assessee has received the entire consideration from the buyers at various occasions from 08-05-2006 to 05-04-2011. The assessee had kept this money in various fixed deposits and earned interest on it. V. The value of this plot as per sec 50C was Rs. 5,91,30,000/-. It is also observed that district collector pointed out various irregularities and manipulation in the allotment of the land under the 12.5% scheme and pending completion of enquiry/investigation it was decided to stop the ongoing development of the plot and transfer to any other 3rd party with immediate effect. VI. To protect his intertest assessee has given bank guarantee to the government and disputed the compensation amount in the appropriate forum and the appeal is still pending. This bank guarantee was issued by the bank against the amount of FD taken by the assessee. On which assessee was earning interest and also paying bank guarantee charges. VII. From the facts mentioned supra it is crystal clear that the right of the assessee in the plot were not certain vide letter of SIDCO/district collector dated 07-10-2013 mentioned supra. The transaction in which assessee entered is simply an assignment of a right which may become permanent in future and then by virtue of this agreement of assignment final transfer will take place. VIII. As per Contract Act 1872, a party can never transfer a better title to the other party what he has. Secondly ownership of assessee on the plot as well as his ability to develop/transfer the plot is under question. In this situation none of the prudent businessmen especially those who are dealing with the matters of real estate will never enter into any agreement of transfer of plot. They may enter into an agreement which binds the so-called owner of plot subject to favorable future outcome.
These Facts and contention of the assessee were duly conveyed to the AO and Ld. CIT(A). but AO chosen not to consider these material facts and instead of giving any rebuttal of the assessee contention factually and legally, he simply proceeded assuming these transactions as transfer. Whereas the basic condition of transfer was totally missing in this case till the time assessee get clearance from the appropriate authorities for development and transfer of the plot.
It is further observed that buyer of the plot had very clear understanding with the assessee that if in future something went wrong with the property under consideration the whole amount received by the assessee is fully refundable. Up- till the facts narrated are not under challenge by the revenue also in that case we do not find any fault in the order of Ld.CIT(A) and not inclined to interfere in the order of Ld.CIT(A). in these term Ground no. 1 raised by the revenue is dismissed and findings of Ld.CIT(A) sustained.
Next Ground of appeal pertains to allowability of bank guarantee charges amounting to Rs. 5, 20, 875/- u/s 57(iii). As discussed above that assessee earned interest of Rs. 28,19,308/- on FD taken to arrange bank guarantees issued to the state government. In this transaction other than interest earning assessee incurred bank guarantee charges also amounting to Rs. 5,20,875/- which he claimed against interest earning of Rs. 28,19,308/- and disallowed by the AO as capital expenditure.Ld.CIT(A) allowed the same on the ground that both the transactions i.e. taking FD and issuance of bank guarantee against the same are inextricably linked to each other hence when interest is chargeable to tax under the head income from other sources, bank guarantee charges are available for deduction u/s 57(iii) of the act. We concur with the finding of the Ld.CIT(A) that both the transaction is inextricably link and there is nothing like capital receipt or capital expenditure hence the same is allowable to the assessee. On this issue also we don’t see any wrong finding delivered by the Ld.CIT(A) hence, decline to interfere. In the result this ground of appeal is also dismissed.
In the result, appeal of the Revenue is dismissed.
Order pronounced in the open court on 25th day of January, 2023.