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Income Tax Appellate Tribunal, MUMBAI BENCHES “G”, MUMBAI
Before: SHRI S. RIFAUR RAHMAN, HONBLE & SHRI RAHUL CHAUDHARY, HONBLE
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES “G”, MUMBAI BEFORE SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER AND SHRI RAHUL CHAUDHARY, HON'BLE JUDICIAL MEMBER
ITA NO.3895/DEL/2015 (A.Y. 2011-12) DCIT –Circle – 10(1) v. M/s. Golden Falcon Pacific Ltd New Delhi Off. 101, Real Tech Park Sector-30, Vashi, Near Railway Station Navi Mumbai - 400705 PAN: AADCG8569L (Appellant) (Respondent)
ITA NO.3653/DEL/2015 (A.Y. 2011-12) M/s. Golden Falcon Pacific Ltd v. DCIT –Circle – 12(1) now 10(1) C/o. M/s. Saraf & Chandra (C.A) Room No. 416-A Bharat Ins. Bldg, 3rd Floor, 15-A Central Revenue Building Horniman Circle, Fort, Mumbai – 01 I.P. Estate, New Delhi - 110002 PAN: AADCG8569L (Appellant) (Respondent)
Assessee Represented by : Shri Dr. P. Daniel Department Represented by : Smiti Samant
Date of Hearing : 06.12.2022 Date of Pronouncement : 28.12.2022
2 ITA NO.3895 & 3653/DEL/2015 (A.Y. 2011-12) M/s. Golden Falcon Pacific Ltd O R D E R PER S. RIFAUR RAHMAN (AM)
These cross appeals are filed by the revenue and assessee against order of Learned Commissioner of Income Tax (Appeals)–4, New Delhi [hereinafter in short “Ld.CIT(A)”] dated 25.03.2015 for the A.Y.2011-12.
Brief facts of the case are, assessee filed its return of income on 31.03.2012 declaring total loss of ₹.5,79,87,398/-. The case was selected for scrutiny and notice u/s. 143(2) and 142(1) of Income-tax Act, 1961 (in short “Act”) were issued and served on the assessee. In response AR of the assessee attended and submitted the relevant information as called for.
The Assessing Officer observed that assessee is not doing any business activities during the year under consideration. However, he observed that assessee has sold property for ₹.62.10 crores to M/s.Dosti Realty Limited, Mumbai on 18.06.2014 vide sale deed registered at Collector of Stamps, Mumbai. The details of property as mentioned in the registered sale deed is freehold vacant Land situated at Antop Hill abutting on Vidyalankar College Road, Wadala (East), Mumbai admeasuring 12775.17 Sq. Meters and another freehold vacant land
3 ITA NO.3895 & 3653/DEL/2015 (A.Y. 2011-12) M/s. Golden Falcon Pacific Ltd measuring 5991.91 Sq. Meters at Matunga division. The Assessing Officer observed that assessee has declared value of land in the Books of Accounts as on 31.03.1999 and 31.09.2009 at the cost of ₹.1,70,145/- which is evidenced from the balance sheet submitted by the assessee. Further, he observed that assessee has declared income from capital gain against sale proceeds of ₹.62.10 crores and claimed indexed cost on cost of acquisition and also further claimed indexed cost of acquisition of ₹.63,31,97,403/- and ₹.4,44,43,835/-. The Assessing Officer observed that it shows that assessee has reduced capital gain by claiming various expenses as addition in capital. Accordingly, assessee was asked to show cause why the other indexed cost of acquisition claimed should not be reduced from the calculation of capital gain. In response, assessee submitted as under: - “M/s Golden Falcon Pacific Ltd. Is now subsidiary company of M/s.Ken Construction Ltd. During the year 2009-10 M/s Ken Construction Ltd. & M/s Dosti Realty Ltd. Had acquired M/s Golden Falcon Pacific Ltd. In joint association from Official Liquidator as per the order passed by the Hon'ble High Court, Delhi, dated 23.03.2010, copy of order attached to this letter. There were two properties in the Company (M/s Golden Falcon Pacific Ltd.) one located at Matunga (Wadala), Mumbai and second at MIDC, Turbhe, which is there still there in the company and the other property at Wadala has been transferred to M/s Dosti Realty Ltd. In the financial year 2010-11, by virtue of Memorandum of understanding between Ken Construction Ltd. and Dosti Realty Ltd. copy of registered agreement along with copy of MOU, is attached for reference and record.
4 ITA NO.3895 & 3653/DEL/2015 (A.Y. 2011-12) M/s. Golden Falcon Pacific Ltd The payment of various liabilities, due and obligations of the Company during earlier years and during the year, has been capitalised to both the properties as there is no asset left in the Company except these two lands."
After considering the submissions of the assessee, Assessing Officer observed from the propounding scheme filed by the assessee before Hon'ble Delhi High Court in March 2008 wherein it has been clearly stated that after discharge of liability of the company in liquidation, the applicants should have charge over the assets of the company for realization in future. The Assessing Officer reproduced portion of the propounding scheme in his order in Page No. 3 of the order. Further, he observed that the Hon'ble Delhi High Court approved the scheme of propounding stating that the applicants discharging the liability of the company would have charge for the assets of the company from realization in future. Thus, the Hon'ble Delhi High Court clearly held that the applicants of the propounding scheme will have right to recovery their dues in future from the assets of the company but the Hon'ble High Court nowhere approved the scheme that assessee will not pay capital gain on account of the sale of property lying with company. The applicants of the propounding scheme M/s. Dosti Realty Limited and M/s. Ken Construction Pvt. Ltd., disclosed the amount paid by them to various unions as amount payable to both the companies as
5 ITA NO.3895 & 3653/DEL/2015 (A.Y. 2011-12) M/s. Golden Falcon Pacific Ltd evident from the final accounts filed by the assessee company wherein the amount spent by them for discharging the liability of the company is clearly shown as current liabilities in the balance sheet for A.Y.2010-11. He reproduced the table as under: - Particulars As at 31.03.2010 As at 31.03.2009 Schedule : 6 Current Liabilities & provision Sundry Creditors 0.00 38302594.00 Other Liability 0.00 42416694.00 Prov. For Income Tax 0.00 30310.00 Sundry Creditor’s for expenses 55150.00 0.00 Dosti Realty Ltd., 662406326.00 0.00 Ken Construction Pvt. Ltd., 504142574.53 0.00 1166604050.00 80749598.00
Further, Assessing Officer observed from the balance sheet schedule submitted before him and observed that the assessee company has artificially increased the cost of acquisition of land whereas no new land has been purchased by the assessee. Further, the court’s order also allow the applicant of income of the assessee to meet the obligation of discharging the liabilities of propounders.
He also observes that the propounding scheme was filed in 2008 and also acknowledges that M/s. Dosti Realty Limited and M/s Ken Construction Ltd. entered into agreement with various applicants and claimed huge amount being paid to various parties without there being
6 ITA NO.3895 & 3653/DEL/2015 (A.Y. 2011-12) M/s. Golden Falcon Pacific Ltd any compliance to TDS provisions. The assessee has filed details of expenses and various claims settled by M/s. Dosti Realty Limited before the Assessing Officer. After considering the details submitted by the assessee Assessing Officer after considering the propounding scheme filed before the Hon'ble High Court in the month of March, 2008 he has listed the factual matrix in his order at Page No. 5 of the order, for the sake of clarity it is reproduced below: -
7 ITA NO.3895 & 3653/DEL/2015 (A.Y. 2011-12) M/s. Golden Falcon Pacific Ltd
8 ITA NO.3895 & 3653/DEL/2015 (A.Y. 2011-12) M/s. Golden Falcon Pacific Ltd 7. By considering the above factual matrix on record, Assessing Officer observed that the expenses incurred by M/s. Dosti Realty Limited and M/s Ken Construction Ltd. as per propounding scheme by Hon'ble High Court both the applicants are secured creditors of the company and the amount expended by them is recoverable from the assets of the company in future but the same cannot be claimed as addition in land thereby reducing capital gain tax payable by the company. The Hon'ble High Court has clearly held that to the extent of investment made by the applicant in discharge of the liability of the company in liquidation, the applicants would have charge over the assets of the company for realization in future. With the above observation Assessing Officer came to the conclusion that the taxability of capital gain has also to be examined with reference to charging section 48 & 55. With reference to the above said section he rejected the claim of the assessee indexed cost of acquisition other than actual value of free hold land mentioned in the balance sheet. Accordingly, he made the addition of ₹.62,06,53,322/-.
Further, Assessing Officer observed that M/s. Dosti Realty Limited, purchaser of the land also holding 50% of the share capital of the assessee company. Therefore, the Assessing Officer was of the view
9 ITA NO.3895 & 3653/DEL/2015 (A.Y. 2011-12) M/s. Golden Falcon Pacific Ltd that valuation of the property to be done by the DVO to ascertain fair market value u/s. 55A/14A of the Act. Accordingly a reference was made to the DVO at Mumbai and in compliance there to the DVO estimated the value of the property /fair market value the property on the date of the sale at ₹.71,16,92,000/- as against sale consideration of ₹.62.10 crores. The copy of the fair market value is provided to the assessee and asked the assessee to show cause why the value determined by the DVO should not be adopted for computation of the capital gain.
In response assessee submitted as under: - “1. The value of the consideration received by our client is as determined by the stamp valuation authority. 2. Under the provision of section 50C(1) of the Income Tax Act, 1961, where the consideration, received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by any authority of a state Government (hereinafter in this section referred to as the "stamp valuation authority") for the purpose payment of stamp duty in respect of such transfer, the value so adopted or assessee or assessable shall, for the purpose of section 48, be deemed the full value of the consideration received or accruing as a result of such transfer, However, the Assessing officer may refer the valuation of the capital asset to a valuation officer, where a. The assesse claims before any assessing officer that the value adopted or assessed or assessable by the stamp valuation authority under sub-section (1) exceeds the fair market value of the property as on the date of transfer,
10 ITA NO.3895 & 3653/DEL/2015 (A.Y. 2011-12) M/s. Golden Falcon Pacific Ltd b. The value so adopted or assessed or assessable by the stamp action authority under sub section (1) has not disputed in any appeal or revision or no reference has been made before any other authority, court or the High Court. However, without prejudice of the above, we state that; 1. The reference to the valuation for report for determining the fair value of the property under section 50C(1) of the Act, is not correct as our client has not sold the property below the valuation by done by the stamp valuation authority. 2. The value as determined by the District Valuation Officer is at Rs. 71,16,92,000/- which is excessive and unreasonable considering the fact that the property is still under litigation and use on this land, being industrial land, is still not yet decided and any activity on this land cannot be undertaken until all the litigation are settled. Which may take further take 2-3 year from today. 3. The difference in the valuation is ₹.09,06,92,000/- which is less than 15% of the consideration at which the land is sold and which is acceptable as per the principles laid down by the Supreme Court in ese of CB Gautam V union of India (1992) 65 TAXMANN 440 (SC), copy of the full order is enclosed for your reference and record. 4. We are also enclosing herewith a copy of decision by ITAT Kolkata B bench in case of M/s Heilgers Development & Construction CO (p) Lt. V Deputy Commissioner of Income tax, Central Circle-II Kolkata (2013) 32 TAXMANN 147 (Kolkata- Trib.) pronounced recently in favour of the assessee based on the above principle 5. Considering the above we hereby on behalf of our request your good self to kindly ignore the difference in the fair market value determined by the District Valuation officer and the consideration received by our client as per the stamp duty valuation have considered all the facts of the case, plea of the assessee.”
After considering the submissions of the assessee, Assessing Officer rejected the submissions made by the assessee and proceeded to adopt the value determined by the DVO and calculated the capital gains u/s. 48 r.w.s. 55A of the Act/142A to the extent of ₹.9,06,92,000/-.
11 ITA NO.3895 & 3653/DEL/2015 (A.Y. 2011-12) M/s. Golden Falcon Pacific Ltd 11. Aggrieved assessee preferred an appeal before the Ld.CIT(A) and before the Ld.CIT(A) assessee made detailed submissions. After considering the submissions of the assessee Ld.CIT(A) recorded the undisputed facts in Para No. 6.2 as under: - (i) Pursuant upon the order of Hon'ble Delhi High Court dated 23.3.2010, the official liquidator had handed over the assets to the appellant company back to it, having been satisfied with the payment/ arrangements made in respect of outstanding liabilities against the appellant company. (ii) The status report filed by the official liquidator before the Hon'ble Delhi High Court on 26.10.2009 clearly shows that the appellant company was in possession of only 2 assets namely; property at Wadala and property at MIDC, Turbhe, both of which are in the nature only of land and building. There is no mention of any plant and machinery and any other asset thereon. (iii) The land at Wadala was acquired in July 1959 at the cost of Rs.1,59,000/-. The said land is free-hold in the nature. The land at MIDC, Turbhe was allotted in July 1979 and is lease- hold land. Being a free-hold land, the land at Wadala can be used as per the sole discretion of the appellant company. The land at MIDC, Turbhe cannot be used without seeking permission from Maharashtra Industries Development Corporation and is limited for use for industrial purpose. (iv) The land at Wadala was sold at a value, which is not below the value adopted by Stamp Duty Authority.
The Ld.CIT(A) remanded the matter to the Assessing Officer and after considering the remand report filed by the Assessing Officer and submissions/rejoinder of the assessee, the Ld.CIT(A) gave relief to the assessee to the extent of secured liability of Standard Chartered Bank and interest payable on the above said secured loan which the
12 ITA NO.3895 & 3653/DEL/2015 (A.Y. 2011-12) M/s. Golden Falcon Pacific Ltd propounders M/s.Dosti Realty Limited and M/s Ken Construction Ltd. have settled by treating the same as direct encumbrance on the two lands held by the assessee. The interest paid by the propounders were apportioned in the ratio of 67.8 and 32.2 respectively between the properties in Wadala and Matunga. At the same time, he rejected the other settlements made by the propounders relating to settlement of other statutory payments and dues to laborer unions which are in the nature of revenue.
With regard to the adoption of DVO value in the place of stamp duty valuation, the Ld.CIT(A) considered the plea and submissions of the assessee and directed the Assessing Officer to adopt the cost of acquisition as per the values as on 01.04.1981 and also directed the Assessing Officer not to adopt the DVO valuation in place of the stamp duty valuation, when the assessee adopted the stamp duty value which is the fair market value and the same cannot be replaced with the DVO value by relying on the decision of the ITAT Benches of Amritsar and Lucknow.
Aggrieved with the above order revenue as well as assessee are in appeal before us raising following grounds in its appeal: -
13 ITA NO.3895 & 3653/DEL/2015 (A.Y. 2011-12) M/s. Golden Falcon Pacific Ltd 15. Revenue has raised following grounds in its appeal: -. “1. Whether on the facts and circumstances of the case & in law, the ld. CIT(A) erred in deleting the addition is capital gain of Rs.62,06,53,322/- made on account cost of acquisition. 2. Whether on the facts and circumstances of the case & in law, the ld. CIT(A) erred in deleting the addition of Rs. 9,06,92,000/- on account of capital gain u/s 48 r.w.s. 55 A/142A.
Assessee has raised, following grounds in its appeal: -, “1. FIRST GROUND OF APPEAL: 1.1. The Learned Commissioner of Income Tax (Appeals) has erred in allowing partly the disallowance in cost of acquisition by the assessing officer passed u/s. 143(3) of the I. T. Act, 1961, in respect of confirming the disallowance of various payments like payments to labour unions to settle the labour dues, Electricity dues, municipal taxes, water charges etc. amounting to Rs.7,53,28,594/- incurred by the Appellant to revive the Company and remove the Official Liquidator on the Company, while determining the Capital Gain on transfer of land without considering the facts of the case and submissions made. 1.2. The Learned Commissioner of Income tax (Appeals) failed to appreciate the facts that these expenses were necessary to bring back the existence of the Company and to restore the title of the assets. 2. SECOND GROUND OF APPEAL: 2.1. The Appellant craves to leave to add, amend and/or alter all or any of the above Grounds of Appeal”
At the time of hearing, Ld. AR made following submissions: - “The factual matrix about the situation of the Respondent Company is brought out by the learned AO in the assessment order page 5 & 6. It clearly bring out the fact that the Respondent Company was originally M/s Krishna Steels Ltd (KSL) which was incorporated in 1950 and on 16.08.1973 KSL created a joint equitable mortgage of Immovable properties situated at Wadala and Navi Mumbai in favour of SBI. On 25.08.1988 due to lack of funds to carry out its operations both its projects at Wadala and Navi Mumbai were
14 ITA NO.3895 & 3653/DEL/2015 (A.Y. 2011-12) M/s. Golden Falcon Pacific Ltd closed. On 26.05.1993, AAIFR sanctioned a rehabilitation scheme involving merger of KSL and East India Tobacco Co. Ltd. Subsequent to the merger the new co. was renamed as Golden Falcon Pacific Ltd. On 15.02.1999 the AAIFR declared the scheme had failed and remanded the matter to BIFR for winding up of the company. The major issues involved in these appeals are that the Hon. Delhi High Court directed the Custodian to liquidate the assets of the Company and hence the Official Liquidator took possession of all the assets and also the records as available. As per the Submission of Official Liquidator before the Hon. High Court at Delhi declared that the Company "GOLDEN FALCON PACIFIC LTD" have only two assets and that is land at Navi Mumbai and at Wadala, Mumbai. (Please see P.B. p. 105) The two propounders, viz. M/s. Dosti Realty Ltd. and M/s. Ken Constructions Pvt. Ltd. have submitted before the Delhi High Court and submitted a proposal of propounding by which they agreed to revive the Company, viz. M/s. Golden Falcon Pacific Ltd. by settling with the people who have claim over the Company Assets. Firstly they settled with M/s. Standard Chartered Bank who have taken over the loan from SBI for an amount of Rs. 78 Crores and various other Creditors have been paid by them as directed by the Hon. Delhi High Court The Hon. Delhi High Court order dated 23.03.2010 appearing at p. 131 to 135 of the P.B. The factual matrix as supplied before th Hon. Delhi High Court by the Propounders of the Scheme is appearing at page 136 to 150, particularly at page 141 to 146 of the Paper Book. 2. At page 7 of the assessment order the page starts with A.O. categorically stating as under: "In view of all the facts noted above it is clear that the expenses incurred by M/s Dosti Realty and Ken Construction Pvt. Ltd. as per propounding scheme approved by the Hon. High court both the applicants are secured creditors of the company and the amount expended by them is recoverable from the assets of the company in future....... ..". There are only two assets which is land at Wadala and leased land at Navi Mumbai sea P.105 of Paper Book. 3. The accounting principle says that the principle and interest paid for protection of the assets is an addition to the assets. The treatment in accounts, it adds to the Cost of Acquisition.
15 ITA NO.3895 & 3653/DEL/2015 (A.Y. 2011-12) M/s. Golden Falcon Pacific Ltd 4. In this case as per the propounding scheme Dosti Realty Ltd and Ken Constructions Pvt Ltd had totally incurred an amount of RS.1,52,88.29.219/- and the share of Dosti Realty was Rs.76,22,51,166/-, It was as under; Standard Chartered Bank to : 78,00,00,000 release the Assets of the Co Labour union settlement, MSEDCL : 74,88,29,219 dues, Official Liquidator charge, Property taxes and Collectors expenses : 1,52,88,29,219 5. As per the status report submitted by the official liquidator before the Hon High court of Delhi at New Delhi, that the company had only land at Wadala and at Navi Mumbai. The land at Wadala is freehold and land at Navi Mumbai is leasehold. There are no other assets moveable or immoveable (Please see Page 105 of the Paper Books) 6. Subsequently the property at Wadala and Antop Hill were conveyed to Dosti Realty for an amount of Rs.62,10,00,000/- This was adjustment of the credit which stands against them. 7. While filling the return of income the assessee Co. claimed a long-term Capital loss of Rs.5,69,87,910/- and a total loss of Rs.5,79,87,398/-. The assessee worked out the capital gain on the basis of the addition to cost of acquisition in view of the decision of the Gujarat High Court in the case of CIT Vs Daksha Ramanlal reported in (1992) 197 ITR 123 (Guj) which has been approved by the Hon. Supreme court in the case of R. M. Arunachalam Vs CIT (1997) 227 ITR 222 (SC) at Page 239. 8. It is also pertinent to mention here that the repayment loan to Standard Chartered Bank which was an amount of Rs.78 Crores in 2007. The bifurcation is as under: Prin. Rs.23.65,00,000/- Interest Rs.54,35,00,000/- Rs.78,00,00,000/- 9. The loans were taken in the year 1973 by Krishna Steels Ltd from State Bank of India which was subsequently assigned to Standard Chartered Bank.
16 ITA NO.3895 & 3653/DEL/2015 (A.Y. 2011-12) M/s. Golden Falcon Pacific Ltd 10. The Learned A.O at Page.7 of the assessment order says that this cannot be claimed as addition in land. It is submitted that as per Indian Accounting Standard 23 core Principle says. 10-a "Borrowing costs that are directly attributable to the acquisition, construction or productions of a qualifying asset form part of the cost of the asset". In its definition Borrowing costs may include. Borrowing costs are Interest and other costs that an entity incurs in connection with the borrowing funds. 10-b Interest expenses calculated using the effective interest method as described in Indian Accounting Standard 39. 11. It is prayed that the payment of loan and interest thereon being borrowing cost, the assessee claimed the same. The Learned CIT (A) accepted the claim of the assessee, against which the Department is in appeal. 12. Another proposition is propounders are builders, there interest is only in land. The High Court permitted first revival of the Co and then share the land. In this process, the propounders incurred loss. They had incurred more money than the value of the land. On this proposition the case of R.M Arunachalam V. CIT (SC) clearly apply to the case. 13. Besides, it is also important to express our Submissions of the payment of interest and its treatment in Cost of acquisition. Our submissions are as under: 14. As per INCOME COMPUTATION AND DISCLOSURE STANDARD IX RELATING TO "BORROWING COST" Definition 2(1)(a) "Borrowing cost" are interest and other costs incurred by a person in connection with the borrowing of the funds and include: (i) Commitment charges on borrowings: (ii) Amortised amount of discounts or premiums relating to borrowings (iii) Amortised amount of ancillary cost incurred in with the arrangement of borrowings: (iv) Finance charges in respect of assets acquired under finance leases or under other similar arrangements.
17 ITA NO.3895 & 3653/DEL/2015 (A.Y. 2011-12) M/s. Golden Falcon Pacific Ltd 15. The commentary on Income Tax Law by Kanga & Palkhiwala 10th Edition at page 1219 states as under: "The Cost of acquisition may increase in a subsequent year as a result of a liability or expenditure incurred after the date of acquisition eg. interest on money borrowed for payment of the purchase price." 16. In the case of C.I.T. v K. raja Gopala Rao reported in (2001) 252 ITR 459 (Mad) the Hon. Madras High Court held; "That the Cost of acquisition to assessee was not merely the amount that he had paid to the Vendor but also the cost of the borrowing made by him for the purpose of paying the Vendor and obtaining the sale deed. The fact that the mortgage was executed after the sale deed was obtained even though both the documents were signed and registered on the same day did not render the mortgage and the borrowings made thereunder irrelevant to the task of determining the cost of acquisition 17. The Hon. Andhra Pradesh High Court in the case of Addl C.I.T. v K. S. Gupta reported in (1979) 119 ITR 372 (AP) held that; "CAPITAL GAINS - Land purchased with borrowed money - Interest paid on such borrowing should be included in Cost of acquisition for purpose of determining of Capital Gain.." this decision also held: "Held, that the expression "actual cost" has not been defined in the Act and as such the expression should be construed in the same sense which no commercial man would misunderstand. The accepted principle of accountancy is that, for the determination of the cost of acquisition of a fixed asset, all the expenditure incurred for bringing into existence such asset, must be included in the cost of acquisition. In the instance case, the assessee incurred interest to a tune of R 11,344/- on the amount borrowed by him for acquisition of the Capital asset and therefore the capitalized interest must be included in the actual cost of the site. Determination of actual cost of site by any other method would be contrary to Principles of accountancy." 18. In the aforesaid decision, the Hon. Court followed the decision of the Hon. Supreme Court in the case of CHALLAPALLI SUGARS LTD v C.LT. (1975) 98 ITR 167 (SC) and CIT v Mithilesh Kumari (1973) 92 ITR 9 (Delhi) followed. The Hon. Delhi High Court in the case of CIT v Mithilesh Kumari reported in (1973) 92 ITR 9 (Delhi) held:
18 ITA NO.3895 & 3653/DEL/2015 (A.Y. 2011-12) M/s. Golden Falcon Pacific Ltd "(i) that interest paid by the assessee on the money borrowed for the purchase of open plot of land constituted part of actual cost of the assessee within the meaning of sec. 12B(2)(ii) of the Indian Income Tax Act, 1922 for the purpose of determining the capital gain derived from the sale of land." 19. Recently on 05-01-2022, the Hon. Delhi ITAT, F Bench in ITA/4854/Del/2018 in the case of Zuari Investments Ltd v ITO reported in (2022) 139 Taxmann.com 92 (Delhi Trib.) held; "where assessee utilized borrowings for acquisition of shares, since interest paid on said borrowings was not claimed as deduction under business head, same should be fall for deduction u/s 48 and would be considered as part of cost of acquisition while computing Capital gains on sale of shares." 20. The Hon. Karnataka High Court in the case of CIT v MaithreyaPai (1985) 152 ITR 247 (Kar) also held the same view. The Hon. Karnataka High Court in the case of CIT v Shri Hariram Hotels Pvt. Ltd. in (2010) 325 ITR 136(Kar) also held that interest paid becomes cost of acquisition In view of all these fact, it is submitted that the interest being Cost of acquisition, the same kindly be allowed. 21. In view of all these propositions. It is prayed that the order of the CIT (A) on this ground be confirmed, and the Department appeal be dismissed. 22 In the meantime while calculating the capital gain the learned A.O did not consider the value as on 01.04.1981 but took the purchase cost which is not at all valid. The learned CIT(A) has directed the learned A.O to correct the value as on 01.04.1981 for the purpose of Computation of Capital Gain by making reference to DVO in this regards. Hence the A.O. arrived at the valuation as on 1.4.81 as per Reckoner Valuation in the order giving effect to the CIT (A) order. 23. With regard to Ground of Appeal point no.2 it is submitted that the addition of Rs.9.06,92,000/- on account of capital gain u/s 48 r.w.s. 55A/142A of the Act is the difference in valuation between Stamp duty valuation and DVO valuation of the property transferred. The stamp duty valuation can not be substituted by the DVO valuation as long as the full value has been adopted as per value assessed by the stamp authorities and in view of decision by Hon'ble ITAT Amritsar in Punjab Poly Jute Corporation vs ACIT reported in 2009 313 ITR (AT) 178 and in case of Jitendra Mohan
19 ITA NO.3895 & 3653/DEL/2015 (A.Y. 2011-12) M/s. Golden Falcon Pacific Ltd Saxena vs ITO reported in (2008) 305 ITR (AT) 62 Hon'ble ITAT Lucknow, the valuation of stamp duty authority if taken in full as consideration can not be replaced by the valuation of DVO if the DVO valuation is higher than Stamp Duty valuation. As it is a statutory requirement and the provisions of section 50C of the Income Tax Act, 1961 is very clear about the proposition. The assessee is supported by various case laws as stated hereinabove. 24. As the CIT (A) has considered various case laws and has accepted the submissions of assessee in this respect, the order of the Learned CIT (A) may kindly be confirmed, and the Departmental Appeal be dismissed. 25. Reg. the assessee appeal in ITA/3653/Del/2015 the assessee has filed the appeal against the decision of the CIT (A) in not granting certain expenses incurred by the propounders of the revival scheme to remove various hurdles to the tune of Rs.7,53,28,594/- to be permitted for capitalization as cost of acquisition of the land. It is prayed that the same may kindly be allowed.
On the other hand, Ld.DR submitted that the Hon'ble High Court order which does not give clear direction not to pay any capital gain but only approved the scheme submitted by the propounders and it is clearly held that they have only a charge over the assets of the property in future and the assessee cannot allowed claim other expenses which were settled by the propounders as part of the cost of acquisition which is not as per law. He objected to the relief granted by the Ld.CIT(A) and prayed that the findings of the Assessing Officer may be sustained.
With regard to adoption of DVO valuation he submitted that the present transactions are with the related concern and the Assessing
20 ITA NO.3895 & 3653/DEL/2015 (A.Y. 2011-12) M/s. Golden Falcon Pacific Ltd Officer rightly obtained the DVO valuation of the property and he supported the method of calculation adopted by the Assessing Officer and prayed that the value determined by the DVO has to be adopted considering the fact that the transactions is with the related concern. With regard to other expenditure or other settlement claims by the assessee as part of the cost of improvement claimed by the assessee he objected the above said submissions and submitted that it cannot be part of the cost of acquisition in case of the assessee.
Considered the rival submissions and material placed on record, we observe that the assessee company which was established in the year 1950 in the name of Krishna Steel Limited (KSL). The KSL taken a secured loan by creating equitable mortgage of the land situated at Wadala in Navi Mumbai in favour of the State Bank of India in the year 1973. Due to the finance constrain and not able to meet the financial obligations the KSL has filed a rehabilitation package, however, it failed to materialize the same. The KSL could not have carried out its operation and accordingly, it closed its operation in Wadala in Navi Mumbai in the year 1988. The case was referred to BIFR and accordingly, BIFR directed the winding up of the above said company. Subsequently in the year 1993 out of the rehabilitation scheme merger
21 ITA NO.3895 & 3653/DEL/2015 (A.Y. 2011-12) M/s. Golden Falcon Pacific Ltd of KSL with one East India Tobacco Company Limited and this new company was renamed as “M/s. Golden Falcon Pacific Limited” (The present name of the assessee company). Due to various reasons the rehabilitation scheme could not be implemented and AAIFR remanded the matter back to BIFR.
The assessee company failed to pay the payments of workmen, workers union at kalwa, Navi Mumbai and the workers union filed a Company Petition No. 212 of 1999 for winding up of the company before Hon'ble Delhi High Court. The Hon'ble Delhi High Court admitted the petition and in order to safeguard the assets of the company, official liquidator was appointed as provisional liquidator of the company in the year 2000. Subsequently in the year 2006 the SBI assigned the secured liability to Standard Chartered Bank. In the year 2007 the total amount due to Standard Chartered Bank was settled by propounders M/s. Dosti Realty Limited and M/s Ken Construction Ltd. After settlement of the Standard Chartered Bank liability, a petition was moved before Hon'ble Delhi High Court with the prayer for modification of order dated 04.10.2000 for permitting to sell the properties of the company by public auction and seeking direction to the R.O., DRT Mumbai restraining in from the Ex. directors or with any other person. On 07.05.2007 vide
22 ITA NO.3895 & 3653/DEL/2015 (A.Y. 2011-12) M/s. Golden Falcon Pacific Ltd order dated 07.05.2007 the RO DRT Mumbai was restrained from selling/transferring or alienating the rights in the properties of the company in liquidation in favor of ex-directors or any person till the next date of hearing.
With the above factual matrix on record, we observe that assessee company is not functional and does not have any assets in the company except two lands situated at Wadala and Matunga and it had huge liability payable to the secured loans of SBI/Standard Chartered Bank and other workmen payments and other secured liability in the balance sheet. It is peculiar fact on record that there are only two freehold lands with the assessee against the whole liabilities. Therefore, there is direct lien on these freehold lands. The propounders i.e. M/s. Dosti Realty Limited and M/s Ken Construction Ltd. were aware of the fact that the assessee has only two freehold land properties and in order to acquire the land they have to settle all the secured liabilities and accordingly they have settled all the liabilities. It its fact on record that even assessee has replaced all the liabilities payable which ultimately settled by the propounders and the same were replaced with unsecured liabilities in the balance sheet in schedule 6 of the current liability and provision. It clearly indicates that the assessee had only two properties
23 ITA NO.3895 & 3653/DEL/2015 (A.Y. 2011-12) M/s. Golden Falcon Pacific Ltd of free holding land at Wadala and Matunga and no other properties left in the company.
The Hon'ble High Court has clearly directed that the applicants of the propounding scheme will have the right to recover the dues in future from the assets of the company. It clearly indicates that the assets available in the business are only two lands at Wadala and Matunga. The lien over the property is said to removed unless the liabilities are settled, the propounders of the properties cannot transfer or sell the properties. We observe that Ld.CIT(A) has rightly considered the lien on the property with regard to the secured bank loan i.e. from Standard Chartered Bank and also relevant interest payable on the above said loan which the propounders have settled the same. However, Ld.CIT(A) has rejected the other lien on the property i.e. settlement made to trade unions and other liabilities of the assessee company. Since the Ld.CIT(A) has allowed the secured loan and interest payment in favour of the assessee against which revenue is in appeal and the rejection of the other liabilities against which assessee is in appeal.
After considering the various facts on record, we observe that assessee has only two lands in Wadala and Matunga other than that
24 ITA NO.3895 & 3653/DEL/2015 (A.Y. 2011-12) M/s. Golden Falcon Pacific Ltd there are no other assets available in the balance sheet. In our view, the cost of acquisition includes all those cost, which the purchaser incurs to retain the property. In this peculiar case, the assessee has various lien on these freehold lands. This includes, secured loan, interest cost and other liabilities. As held in the case of CIT. v. K. raja Gopala Rao reported in (2001) 252 ITR 459 (Mad) the Hon'ble Madras High Court held; "That the Cost of acquisition to assessee was not merely the amount that he had paid to the Vendor but also the cost of the borrowing made by him for the purpose of paying the Vendor and obtaining the sale deed. The fact that the mortgage was executed after the sale deed was obtained even though both the documents were signed and registered on the same day did not render the mortgage and the borrowings made thereunder irrelevant to the task of determining the cost of acquisition”. The Hon'ble Andhra Pradesh High Court in the case of Addl C.I.T. v K. S. Gupta reported in (1979) 119 ITR 372 (AP) held that; "CAPITAL GAINS - Land purchased with borrowed money - Interest paid on such borrowing should be included in Cost of acquisition for purpose of determining of Capital Gain." this decision also held: "Held, that the expression "actual cost" has not been defined in the Act and as such the expression should be construed in the same sense
25 ITA NO.3895 & 3653/DEL/2015 (A.Y. 2011-12) M/s. Golden Falcon Pacific Ltd which no commercial man would misunderstand. The accepted principle of accountancy is that, for the determination of the cost of acquisition of a fixed asset, all the expenditure incurred for bringing into existence such asset, must be included in the cost of acquisition. In the instance case, the assessee incurred interest to a tune of ₹.11,344/- on the amount borrowed by him for acquisition of the Capital asset and therefore the capitalized interest must be included in the actual cost of the site. Determination of actual cost of site by any other method would be contrary to Principles of accountancy. In our view, in the present peculiar case, the assessee has to clear all the dues then only assessee will be able to sell/transfer the lands. Any liability has to be settled against the above said properties and as per section 48 of the Act the capital gain shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset. The assessee has allowed to claim cost of acquisition and cost of any improvement by applying indexation. Further, assessee is also allowed to claim the expenditure incurred wholly and exclusively in connection with such transfer. Since assessee did not have any other property the propounders has to settle the lien of the property which is in the nature of secured loan due to the various unions and other
26 ITA NO.3895 & 3653/DEL/2015 (A.Y. 2011-12) M/s. Golden Falcon Pacific Ltd secured creditors. Unless these are settled the lien on the property held by the assessee cannot be cleared and it will lead to further litigation. As per the principles laid down in companies Act in the process of liquidation, the assets has to be valued and first the secured liability has to be settled and if there is any statutory dues and workers due has to be settled and if there is any amounts remains after the above settlements it will be part of the equity fund, by applying the above logic in the present case the assessee has only the above said lands and the propounders has settled all the related liabilities, it only adds to the cost to be settled to the propounders. Even the Hon'ble High Court held that the propounders will have the right over the property. Therefore, the assessee has sold the property in Wadala at ₹.62.10 crores and assessee has indexed the cost of acquisition and further, claimed the settlement made to secured loan as well as other liabilities of the business. The propounders have settled the liabilities and the assessee has to compensate the propounders out of the property held in the business. It is fact on record that the only Asset in the business are freehold land. We cannot appreciate the views of the Assessing Officer that they have only right over the property in the future. Once the freehold lands are sold, there is no other property available in the company to make future
27 ITA NO.3895 & 3653/DEL/2015 (A.Y. 2011-12) M/s. Golden Falcon Pacific Ltd claim. Even the Ld.CIT(A) has given part relief and failed to acknowledge the above aspect. Therefore, the expenditure incurred by the assessee for settlement of the secured as well as other liabilities can only be treated as expenditure incurred wholly and exclusively in connection with such transfer. Therefore, we do not find any reason not to allow the claim of the assessee by treating the claim of the assessee as expenditure incurred wholly and exclusively in connection with the transfer. Accordingly, the ground raised by the revenue is dismissed and ground raised by the assessee is allowed.
Coming to the Ground No. 2 raised by the revenue, we observe that Assessing Officer referred the valuation of the lands and obtained the valuation from DVO. He treated the difference of ₹.9,06,92,000/- on account of capital gain u/s 48 r.w.s. 55A/142A of the Act is the difference in valuation between Stamp duty valuation and DVO valuation of the property transferred. We observe that in the case of Punjab Poly Jute Corporation v. ACIT reported in 2009 313 ITR (AT) 178, Tribunal held as under: “4. We have heard both the parties and perused the material on record. Relevant paragraph of section 50C reads as under: “50C. Special provision for full value of consideration in certain cases. (1) Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being
28 ITA NO.3895 & 3653/DEL/2015 (A.Y. 2011-12) M/s. Golden Falcon Pacific Ltd land or building or both, is less than the value adopted or assessed by any authority of a State Government (hereinafter in this section referred to as the 'stamp valuation authority) for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall, for the purposes of section 48, be deemed to be the full value of the con- sideration received or accruing as a result of such transfer." 5. It is observed that section 50C by the Finance Act, 2002, came into force with effect from April 1, 2003. Clause 24 of the Finance Bill as per Notes on Clauses states that the insertion of this provision is to provide for a special provision for the full value of consideration in certain cases. It has been provided that where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land and building or both, is less than the value adopted or assessed by any authority of a State Goverment (hereafter in this section referred to as the "stamp valuation authority") for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer. 6. Memorandum Explaining the Provisions in the Finance Bill, 2002, states in this regard as under ([2002]254 ITR (St.) 190, 217): The Bill proposes to insert a new section 50C in the Income-tax Act to make a special revision for determining the full value of consideration in cases of transfer of immovable property. It is proposed to provide that where the consideration declared to be received or accruing as a result of the transfer of land or building or both, is less than the value adopted or assessed by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall be deemed to be the full value of the consideration and capital gains shall be computed accordingly under section 48 of the Income-tax Act. It is further proposed to provide that where the assessee claims that the value adopted or assessed for stamp duty purposes exceeds the fair market value of the property as on the date of transfer and he has not disputed the value so adopted or assessed in any appeal or revision or reference before any authority or court, the Assessing Officer may refer the valuation of the relevant asset to a Valuation Officer in accordance with section 55A of the Income-tax Act. If the fair market value determined by the Valuation Officer is less than the value
29 ITA NO.3895 & 3653/DEL/2015 (A.Y. 2011-12) M/s. Golden Falcon Pacific Ltd adopted for stamp duty purposes, the Assessing Officer may take such fair market value to be full value of consideration. However, if the fair market value determined by the Valuation Officer is more than the value adopted assessed for stamp duty purposes, the or Assessing Officer shall not adopt such fair market value and will take the full value of consideration to be the value adopted or assessed for stamp duty purposes. It is also proposed to provide that if the value adopted or assessed for stamp duty purposes is revised in any appeal, revision or reference, the assessment made shall be amended to recompute the capital gains by taking the revised value as the full value of consideration. These amendments will take effect from April 1, 2003, and will, accordingly, apply in relation to the assessment year 2003-04 and subsequent years." 7. From the perusal of Notes on Clauses and memorandum explaining the provisions in the Finance Bill, 2002, it becomes explicitly clear that if the consideration declared to be received on sale of land or building or both is less than the value adopted or assessed by any authority of the State Government for the purposes of stamp duty in respect of such transfer, the value so adopted or assessed shall be deemed to be the full value of consideration and capital gain shall be computed accordingly under section 48 of the Act. 8. In the present case, the property is registered at Rs. 16.34 lakhs at Rs.220.81 per sq. yd. The contention of the Department is that the value of the land is at Rs. 500 per sq. yd., since there is a difference, section 50C is applicable. In our opinion, the argument of the Department is misconceived. Section 50C comes into play only when there is valuation at a higher value for stamp valuation purposes by the State authority than declared by the assessee in the sale deed. When there is such difference noticed, valuation adopted by the stamp valuation authority has to be substituted for the sale consideration of such property mentioned in the sale deed. In the present case, the property is registered at a particular rate, which is adopted for registration purpose and there is no question of replacing the valuation adopted by the stamp valuation authority with the Departmental Valuation Officer for the purpose of computing the capital gain. The purpose of section 50C is that the property, which is under transfer from the to another person, should have been assessed at higher value for stamp valuation purpose than that received by the assessee. Since the stamp valuation authority had accepted the consideration declared by the assessee in the sale deed, there is no question of once again
30 ITA NO.3895 & 3653/DEL/2015 (A.Y. 2011-12) M/s. Golden Falcon Pacific Ltd referring the matter to the Departmental Valuation Officer. Accordingly, we allow the ground taken by the assessee.”
Respectfully following the above said decision, we are of the considered view that the stamp duty valuation cannot be substituted by the DVO Valuation as long as the full value has been adopted as per value assessed by the stamp authorities. Accordingly, we reject the ground raised by the revenue.
In the result, appeals filed by the revenue is dismissed and appeal filed by the assessee is allowed. Order pronounced in the open court on 28th December, 2022
Sd/- Sd/- (RAHUL CHAUDHARY) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai /Dated 28.12.2022 Giridhar, Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER
(Asstt. Registrar) ITAT, Mum