DCIT, MUMBAI vs. SUASHISH DIAMONDS LTD., MUMBAI

PER OM PRAKASH KANT, AM

These appeals by the Revenue are directed against two separate orders, both dated 09.08.2024, passed by the Ld.
Commissioner of Income-tax (Appeals) – National Faceless Appeal
Centre, Delhi [in short ‗the Ld. CIT(A)‘] for assessment year 2017-18

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and 2022-23 respectively. As both the appeals being connected with the same assessee, these were heard together and disposed of by way of this consolidated order for sake of conveyance.
2. Firstly, we take up the appeal of the Revenue bearing ITA No.
5256/M/2024 for A.Y. 2017-18. The grounds raised in the appeal are reproduced as under:
“1. The Ld CIT (A) has erred in law and on facts and in circumstances of the case in deleting addition made by AO of Rs. 8,64,85,351 to Long term Capital gain on sale of Bharat Diamonds Bourse (BDB) Property ignoring that occupation rights were vested with the assessee, vide a registered document and Bharat Diamond Bourse itself had acquired the leasehold rights from MMRDA on 31.03.2010. 2. The Ld CIT (A) has erred in law and on facts and in circumstances of the case in deleting addition made by AO of Rs.8,64,85,351 to Long term Capital gain on sale of BDB Property ignoring the fact that equity shares and occupancy rights in relation to the property were allotted to the assessee in August 2010, therefore acquisition of rights in the property were bestowed on the assessee only from the said date and the allotment of office space in BDB was closely connected to the allocation of an equivalent number of equity shares, which were granted to the assessee on the same date of final allotment, i.e., 27.08.2010. 3 The appellant prays that the order of the CIT(A)on the grounds be set aside and confirm the order of the AO.

4 The appellant craves leave to add, amend or alter all or any of the grounds of appeal.”

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assessment, and statutory notices under the Income-tax Act, 1961
(hereinafter referred to as "the Act") were duly issued and complied with. During the course of assessment proceedings, the Assessing
Officer noted that the assessee had reported a Long-Term Capital
Gain (LTCG) of ₹9,92,94,883/- in respect of the sale of 5,683 square feet out of a total saleable area of 9,089 square feet of office premises bearing No. EC8010, along with one garage out of seven garages and corresponding split equity shares in Bharat Diamond
Bourse (BDB), Mumbai. For computing the indexed cost of acquisition, the assessee considered the date of tentative/provisional allotment by BDB, vide letter dated
28.01.1992 (PB-149), as the date of acquisition of the said office space. The assessee claimed total payments towards the cost of acquisition amounting to ₹6,27,03,548/- for the office premises and ₹24,50,000/- for the seven garages. The total indexed cost of acquisition was accordingly computed at ₹23,82,67,253/-. However, the Assessing Officer took the view that the letter dated 28.01.1992
was merely a letter of intent and did not confer any enforceable right or title upon the assessee. It was further observed that the right to the property crystallised only upon issuance of the final allotment letter dated 27.08.2010, which allocated a specific office space along with the corresponding equity shares in BDB. The Assessing Officer therefore adopted Financial Year 2010-11 as the base year for the purpose of indexation. As the assessee had sold only a portion of the property during the year under consideration,

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acquisition of ₹6,17,07,495/- against the assessee‘s claim of ₹14,81,92,846/-, thereby disallowing the balance indexed cost amounting to ₹8,64,85,351/-.
3. In the course of appellate proceedings before the learned
Commissioner of Income Tax (Appeals) [CIT(A)], the assessee contended, inter alia, Firstly, during the period between Financial
Year 1991-92 (being the year of application and provisional allotment) and Financial Year 2010-11 (being the year of completion of construction and final allotment), certain allottees/members of the Bharat Diamond Bourse (BDB) had transferred their allotted rights or area to third parties or other members of the BDB, with the approval of the BDB Managing Committee. It was thus contended that such transfer of rights would not have been permitted had the original allottees not possessed any enforceable or transferable rights in the office premises from the date of provisional allotment. Secondly, it was submitted that many of the original allottees/members had availed working capital loans from banks by offering their respective rights in the BDB premises as security. According to the assessee, this indicates that financial institutions recognized the provisional allotment or membership rights in the BDB office space as having sufficient legal or beneficial interest so as to be treated as loanable property. Also before the Ld.
CIT(A), the assessee relied on the decision of Hon‘ble Bombay High

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Court in the case of Vembu Vaidyanathan (2019) 413ITR248
(BOM), wherein it is held that appellant gets title of the property on the basis of the allotment letter and payment of installment was only a follow up action and taking delivery of possession is only a formality. The assessee also relied on decision of the coordinate bench of the Bangalore Tribunal in the case of Shri Mahendra
Singh Ram Singh vs ITO (ITA No. 32/Bang/2018), wherein also similar finding has been given. After considering submission of assessee, the Ld. CIT(A) deleted the disallowance observing as under:
“7.2.19. I have considered carefully the submissions of the assessee and the findings of the AO. The AO in his assessment order was of the opinion that indexation should be calculated from the year in which final allotment of the property was vested to the assessee i.e. F.Y 2010-11. The detailed findings and rebuttals of the AO to assessee's contention have been discussed in the preceding paras.
7.2.20. The facts of the case and the judicial pronouncements in similar facts of the case as that of the assessee have been perused and examined carefully. The relevant judgments of the juri ictional Tribunal are discussed here as under:

"Where assessee had been issued provisional allotment of office space in year 1998 and subsequently it made several payments though final allotment letter was issued on 29-7-
2010, date of acquisition of office premises was to be reckoned from date of allotment i.e., in year 1998-99, and Suashish Diamonds Ltd.
thus sale of said office premises on 19-5-2012 would result in long term capital gains."

"9. By now it is settled principle of law that date of allotment letter of the property of which possession is to be delivered and sale deed is to be registered on subsequent date after making payment of entire sale consideration, is to be taken as a date of acquisition of the property for the purpose of computing the capital gain. Hon'ble Bombay High Court in case of Vembu Vaidyanathan (supra) held that the date of allotment of the property is the date of acquisition unless allotment is not cancelled or the allottee has withdrawn from the scheme. In the instant case the assessee has got the property allotted on 28.01.1992 by making initial payment of Rs. 1,87,500/- and thereafter continued to make the payment up to FY. 2009-10 and paid the entire sale consideration of Rs.80,00,000/- and ultimately on 15.09.2010 sale deed was registered in his favour. The assessee sold the property in question on 08.02.2011 for a consideration of Rs.84,33,000/-
.

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states that the communication was merely in the nature of a "letter of intent" and did not amount to a firm or binding allotment. It was further pointed out that, at the time of such provisional allotment,
BDB had not yet acquired possession of the land from the MMRDA, nor had any building plans been approved. Accordingly, the Ld. DR submitted that no legal or proprietary rights could be said to have accrued in favour of the assessee at that stage—particularly when the BDB had itself clarified in the said communication that no right was, or was intended to be, created against it. The Ld. DR further referred to the assessment order, particularly page 16, wherein it is recorded that the assessee was allotted Office No. EC8010 (the subject property, part of which was subsequently sold) only on 03.12.1999, by way of a lottery system. It was argued that this was the first instance where a specific office unit was earmarked in favour of the assessee, although even at that stage, no explicit transfer of ownership or legal title was conferred. The Ld. DR emphasized that BDB, being a company registered under Section 25 of the Companies Act, 1956, had structured the office allotments through the issuance of equity shares. The office space allotted was merely the underlying asset linked to such shares, and it was only upon issuance of the equity shares on 27.08.2010 that enforceable rights in the office space and garages became vested in the assessee. It was further submitted that the capital asset held by the assessee, as on the date of sale, was in fact the equity shares themselves—albeit with an underlying interest in the office

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premises and garages. The transaction in question, although executed as a transfer of the physical property, necessarily involved a simultaneous transfer of the equity shares to the purchaser, who was also inducted as a member of the BDB. It was argued that the assessee did not have an unrestricted right to sell the office space to any third party; transfer of shares—and thereby, the associated premises—could occur only upon the transferee‘s admission as a member of the BDB. The Ld. DR also sought to distinguish the decision in Vembu Vaidyanathan relied upon by the learned CIT(A), by submitting that the said judgment dealt with the allowability of deduction under Sections 54 and 54F of the Act, and not with the question of the appropriate date for computing the indexed cost of acquisition. Furthermore, it was submitted that the question whether the capital asset transferred by the assessee was the equity share (with office space as the underlying asset) or the office space itself had not been considered in the decisions cited by the assessee or relied upon by the CIT(A). Lastly, it was emphasized that during the Financial Year 1992-93—when the assessee claims to have acquired rights in the property—BDB had neither acquired leasehold rights from MMRDA, nor had any construction activity commenced. In fact, no building plans had been sanctioned at that time. In such circumstances, the Ld. DR argued that any claim of an existing or accruing right to immovable property in favour of the assessee was entirely illusory and lacked any foundation in fact or law.

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4.2 Per contra, learned counsel for the assessee placed reliance on the decisions referred to by the learned Commissioner of Income
Tax (Appeals) and submitted that in each of those cases, the date of allotment has been judicially recognised as the date of acquisition of the capital asset for the purposes of computing indexed cost of acquisition under the Act. It was thus contended that the benefit of indexation ought to be granted from the year in which the initial allotment of the property was made in favour of the assessee. The learned counsel further submitted that, as per the definition of "capital asset" under Section 2(14) of the Income-tax Act, 1961, what is relevant is the date on which the property is "held" by the assessee. Emphasis was laid on the term "held," which, according to the counsel, does not necessitate legal ownership in the strict sense but includes beneficial interest in the property. It was further submitted that there is no dispute as to the fact that the property in question was provisionally allotted to the assessee vide letter dated
28.01.1992. According to the learned counsel, the assessee thereby acquired rights and interest in the property sufficient to constitute
"holding" within the meaning of the Act, and therefore, indexation of the cost of acquisition must be reckoned from Financial Year 1991-
92, being the year of allotment. In support of this proposition, learned counsel reiterated reliance on the well-reasoned findings recorded by the learned CIT(A), and urged that the same deserve to be upheld.

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4.3 We have heard the rival submissions of the parties and perused the material available on record. The assessee, in the present case, has sold a portion of the equity shares held in the Bharat Diamond Bourse (BDB), along with the corresponding office premises and garages allotted to him therein, to purchasers who subsequently became members of the BDB. The assessee disclosed long-term capital gains arising from such sale and, while computing the same, claimed the benefit of indexed cost of acquisition. It is not in dispute that the computation of the sale consideration and the basic cost of acquisition is accepted by both parties. The sole point of controversy pertains to the year from which indexation of the cost of acquisition ought to be allowed. According to the assessee, indexation should be reckoned from the assessment year corresponding to the date of allotment letter dated 28.01.1992. The Assessing Officer, however, has taken the view that indexation should commence only from the date on which the equity shares were actually allotted to the assessee, namely 27.08.2010, in conjunction with the formal allotment of the corresponding office space and garages in the BDB. The BDB is admittedly a company registered under Section 25 of the Companies Act, 1956 (now
Section 8 of the Companies Act, 2013).
4.4 Since the issue in dispute is relating to indexed cost of acquisition, it is relevant to refer the section 48 of the Income Tax

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gains. It permits deduction from the full value of the consideration received or accruing as a result of the transfer of a capital asset, of (i) the expenditure incurred wholly and exclusively in connection with such transfer, and (ii) the cost of acquisition of the asset and the cost of any improvement thereto. For the purposes of computing long-term capital gains, the cost of acquisition and cost of improvement are to be substituted by the indexed cost of acquisition and the indexed cost of improvement, as defined in the Explanation to Section 48. The indexed cost of the acquisition as defined in explanation below sec. 48 of the Act is reproduced as under:
“Explanation- For the purposes of this section,-
(i)
……
(ii)
……
(iii)
“indexed cost of acquisition” means an amount which bears to the cost of acquisition the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the first year in which the asset was held by the assessee³ or for the year beginning on the 1st day of April, [1981], whichever is later;
(iv)
……
(v)
……”
4.5 Thus, while computing indexed cost of acquisition, for generating a factor to be multiplied with the cost of acquisition, the cost inflation Index for the year in which property is sold, is divided by the cost inflation index when the property is held by the assessee. The expression "held" is central to the resolution of the present dispute. Mere payment of an advance does not, by itself, vest the assessee with an asset capable of being said to be "held."

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assessee.
4.6 The Hon‘ble Juri iction High Court in the case of PCIT Vs
Vembu Vaidyanathan (supra) has held that the assessee gets title of property on the basis of the allotment letter and payment of installment was only a follow up action and taking delivery of possession is only a formality. Further in the case of Suresh
Brothers v. ACIT (supra) also the sale office space in Bharat
Diamond Bourse is involved wherein also the Tribunal held that date of acquisition of the property under consideration is to be taken from the date of allotment letter. In the case of Sumit Export
Vs ACIT (supra), the Tribunal considered the provisional allotment of the office space in BDB in the year 1998, though installment were paid up to the final allotment letter dated 29/07/2010. The Tribunal in the facts of the case considered date of acquisition of the office premises from the date of allotment in the year 1998-99. In D.K. Brothers Vs ITO (supra) also, the Tribunal following the various decision including the decision of Hon‘ble Bombay High
Court in the case of Vembu Vaidyanathan (supra), considered the date of allotment as the date of the acquisition for the purpose of computing capital gain.

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4.7 In the background of these judicial pronouncements, we must evaluate the facts of the present case. Three dates are of significance:
1. 28.01.1992 – The date on which a provisional allotment letter was issued to the assessee.
2. 03.12.1999 – The date on which office space No. EC8010 was allotted to the assessee through a lottery system.
3. 27.08.2010 – The date on which final allotment was made specifying the office space with defined carpet area and the corresponding equity shares were issued to the assessee.
4.8 The assessee contends that the letter dated 28.01.1992
created enforceable rights in the office premises. However, on a perusal of the material on record, it appears that on the said date, the subject property—namely, the office premises No. EC8010—was not in existence. The allotment letter explicitly stated that it did not confer any rights against the BDB or its proposed complex.
4.9 As regards the date 03.12.1999, there is a dearth of evidence on record to demonstrate whether, on that date, the construction of the office premises was sufficiently advanced so as to render the allotment effective in conferring a substantive right of possession or enjoyment.

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4.10 It is only on 27.08.2010 that the office premises bearing No.
EC8010, measuring 6362 sq. ft. carpet area and 9089 sq. ft. built- up area, along with 9089 equity shares of BDB, were finally allotted and handed over to the assessee. This is evident from the sale agreement placed before us for the first time, which records that occupancy rights were granted by virtue of the said allotment and that possession had been delivered, subject to the Articles of Association of BDB and terms of the lease deed executed with MMRDA on 31.03.2010. 4.11 Before us the assessee filed a copy of the sale agreement of the said property. The relevant part of which is reproduced as under:
“(a) BHARAT DIAMOND BOURSE, is a Company registered under provisions of Section 25 of the Companies Act, 1956 (hereinafter referred to as the "Said BDB"), with the main object of establishing a Bourse for the promotion of exports of Gem & Jewellery from India and to provide for this purpose, infrastructure and other facilities its India for Indian and overseas buyers and sellers of Gem & Jewellery. The paid BDB has in pursuance of its Memorandum and Articles of Association acquired the said Plot defined below for the construction of the Bourse comprising of buildings thereon to be used and occupied in accordance with the provisions of the Articles of Association of the said

(b) The Said BDB had by two Agreements to Lease dated 1st day of March, 1993 and 18th day of May, 1993 with Mumbai Metropolitan
Region Development Authority (MMRDA) acquired lease of two pieces of the land which were duly amalgamated Into Plot No. C-28 at G Block
Bandra Kurla Complex, situated and lying in CTS No. 4207, Village
Kolekalyan, Taluka Andheri Registration District of Mumbai Suburban
(hereinafter Bertie Said Plot") and more particularly described in the First Schedule hereunder. In pursuance to the above two agreements, said BDB has executed and registered the Lease Deed dated 31st
March, 2010, with MMRDA in respect of the said Plot, under Registration
No. BDR9-03277-2010 on 31 March, 2010. (c) The said BDB has constructed a commercial office complex comprising of eight towers known as "Bharat Diamond Bourse Complex"
on the said Plot having several offices and premises therein to be Suashish Diamonds Ltd.
("OC") in respect of the buildings constructed by them.

(d) Vide an Allotment Letter dated 27.08.2010, (hereinafter referred to as the "Said Allotment Letter") executed between the said BDB and the Vendor/Transferor herein, the Said BDB have allotted to the Vendor/Transferor Office premises Bearing No.
EC8010, admeasuring 6362 sq. ft. Carpet Area equivalent to 9089 sq. ft. Saleable/Built up Area in E Tower, Central Wing, on the 8th Floor in the building known as "Bharat Diamond Bourse
Complex" constructed in the year 2009 on all that piece and parcel of Land bearing Plot No. C-28 at G-Block Bandra Kurla
Complex, situated and lying in CTS
No.
4207,
Village
Kolekalyan, Taluka Andheri, Registration District of Mumbai
Suburban (hereinafter the office premises and the said Shares are collectively referred to as "the Said Entire Premises") and more particularly described in the Second Schedule hereunder.
The said allotment letter has been duly registered with the Sub-