BACHUBHAI DHARAMSHI ARETHIYA ,NAVI MUMBAI vs. ASST CIT CC 3, THANE

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “B”, MUMBAI BEFORE SHRI ABY T VARKEY, JUDICIAL MEMBER AND SHRI GAGAN GOYAL, ACCOUNTANT MEMBER ITA No. 890/Mum/2020 (A.Y. 2013-14) Bachubhai Dharamshi Arethiya, 230, 2nd Floor, Big Splash, Plot No. 78-79, Sec.tor-17, Vashi, Navi Mumbai-400705. PAN: ADEPP8750F ...... Appellant Vs. ACIT, CC- 3, Room No. 12, A-Wing, Ashar IT Park, 6th Floor, Road No. 16Z, Wagle Industrial Estate, Thane (West)-400604. ..... Respondent Appellant by : Ms. Ritika Agarwal, Adv. Respondent by : Sh. Chetan M. Kacha, Sr.DR Date of hearing : 18/07/2022 Date of pronouncement : 14/10/2022 ORDER PER GAGAN GOYAL, A.M: This appeal by the assessee is directed against the order of Ld. Commissioner of Income Tax (Appeal), Pune-11 [hereinafter referred to as [‘CIT(A)’] dated 17.01.2020 passed under Section 250 of the Income Tax Act, 1961

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(hereinafter referred to as [‘the Act’] for the Assessment Year (AY) 2013-14. The assessee has raised the following grounds of appeal: Grounds of appeal Tax effect relating to each Ground of appeal (see note below) 1. BECAUSE, the CIT (A) has erred in law and on facts Rs. 258,298/- in confirming disallowance us. 14A r.w. Rule 8D amounting to Rs.8, 35,917/-. 2. BECAUSE, the CIT(A) has erred in law and on facts in confirming the AO's action in invoking Section 14A on account of exempt income from partnership firm u/s. 10(2A) of the Act although the income has already suffered tax in the hands of the firms. 3. BECAUSE, the CIT(A) has erred in law and on facts in confirming AO's action in invoking Section 14A on account of exempt income u/s. 10(38) of the Act, although the investment in that case was made from Appellant's interest free funds. 5. BECAUSE, the CIT(A) has erred in law and on facts Nil in confirming the AO's action of re-computation of long-term capital loss on sale of shops by reckoning the indexation year wise as per payment. 6. BECAUSE the CIT(A) while confirming the AO's action of re-computation of long-term capital gain on sale of shops failed to consider that the AO has erred in not considering an amount of Rs.160,061/- being incurred on account of legal and other charges while recalculating indexed cost of acquisition. Total Tax effect (see note below) Rs. 258,298/-

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share of profit out of firm’s net profit (after deducting interest on capital and remuneration to partner) which is exempt u/s 10(2A). In this whole transaction of the assessee with partnership firm, object is to run a business with other people in the form of partnership. The share received out of net profit of the firms is only a consequential event and assessees intention are not to earn any exempt/dormant income rather within this venture assessee is entitled to receive remuneration and interest on capital employed which are chargeable to tax and whatever the amount of bank loan taken and contributed to the firm, interest there on is duly available for set off against remuneration received and interest on capital employed. In this case the object behind insertion of Sec. 14A doesn’t achieve as the same is not for such type of business ventures of the assessees. 6. We have considered the argument of the assessee along with the law pronounced by the hon’ble jurisdictional High court in the case of CIT Vs Reliance Utilities and Power Ltd (2009) 178 Taxman 135 (Bom.). Wherein it was held that where the appellant has both interest free and interest-bearing fund it is assumed that interest free funds are utilised for giving interest free advances/investments to earn exempted income. To earn long term capital gain amounting to Rs 3,91,16,125/- assessee invested Rs 52,50,000/-. We observed with the personal balance-sheet of the assessee that other than interest bearing loans assessee has ample interest free funds of his own and that can be easily pumped to acquire shares amounting to Rs 52,50,000/- 7. In view of the above discussion we are of considered view that assessee made investments out of his own funds and no part of interest expense can be attributed to earn the exempted income under rule 8D (2)(ii) our this finding is

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limited to the extent of applicability od rule 8D(2)(ii) as no disallowance under rule 8D(2)(i) and 8D(2)(iii) have been worked out and discussed in the assessment order. In the light of above we allow the Ground Nos. 1,2 and 3 raised by the assessee and direct the AO to delete the disallowance made u/s 14(A) amounting to Rs 8,35,917/-. 8. Ground no-4 and 5 pertains to claim of assessee under the head long term capital loss. We have gone to the case record along with paper book containing copies of MOU dated 19-09-2006 in respect of shop no. 1 to 6, copy of deed of declaration dated 22-01-2009 in respect of shops no. 1 to 6, copy of deed of assignment dated 15-09-2011 in respect of shop no. 1 to 6, copy of assignment lease dated 21-11-2012 in respect of shops no 1 to 6. Assessee was owner of these shops along with one Shri Kishore Mujat in the ratio of 50-50. Total consideration involved was Rs 9 Cr. for all the 6 shops and both the persons made payment of Rs 96 lacs along with MOU dated 19-09-2006 and balance payment of Rs 8.04 Cr. was made during FY 2011-2012. During the year under consideration assessee sold all these 6 shops for a total consideration of Rs 9 Cr. vide sale deed attached on pg. 94-137 of the paper-book. Assessee computed indexation u/s 48 on whole value of Rs 9 Cr. keeping in view FY 2006-07 whereas department considered the same in two parts i.e. Rs 96 lakhs in FY 2006-07 and Rs 8.04 Cr. in FY 2011-12. With this change of base year assessees claim of long-term capital loss reduced by Rs 2, 26, 24,739/- 9. For better appreciation of the issue involved we have thoroughly gone through the whole Chapter V, Part E, specifically Sec. 48 along with explanation (iii). We have referred Sec. 2(42) (a) also which defines short term capital assets.

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We observed that particularly in Sec. 2(42) (a) and explanation (iii) to Sec. 48 categorically used the word held. For sake of ready reference, we are reproducing herein below relevant extract of Sec. 2(42) (a) and explanation (iii) to Sec. 48 respectively “"short-term capital asset" means a capital asset “held” by an assessee for not more than [thirty-six] months immediately preceding the date of its transfer” "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 assessee or for the year beginning on the 1st day of April, [2001], whichever is later” 10. In all the Sections in Chapter IV, Part E used the word acquired, owned, disposed of and purchased etc. This word held is used as a matter of exception to establish the clear intentions of the legislature particularly in Sec. 2(42) (a) and explanation to Sec. 48. We have gone through the following citations quoted by the assessee in his favour I. Charanbir Singh Jolly vs ITO (2006)5 SOT 89 (Mum) II. Shrimati Lata G.Rohra vs DCIT 9(2008) 21 SOT 541 (Mum) III. Mysore Minerals Ltd Vs CIT (1994) 239 ITR 775(S.C) The judgements relied upon by the assessee are distinguishable and are not applicable to the facts of the case. 11. Assessees emphasis on base year i.e., FY 2006-07 and cost of acquisition i.e. 9 Cr. are relevant for the purposes of determination of the nature of the asset i.e.

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whether assets are in the nature of short term or long term and for the purposes of Sec. 55 respectively. As far as indexation is concerned that will be governed by explanation (iii) to Sec. 48 and that refers the word held for the purposes of indexation. 12. On this issue the order of Ld. CIT (A), we found to be in order, depicting the right picture of the matter involved. Findings of Ld. CIT (A) we are reproducing herein below: “The jurisdictional Mumbai ITAT in ITA No.28/Mur/2017 Lakshman M. Charanjiva Assessment Year-2013-14 vides its order dated 03/10/2018 has held as under: We have carefully heard the rival contentions and perused the relevant material on record including cited judicial pronouncements. We find that Ld. CIT (A) has referred to two decisions of this Tribunal. Upon perusal, it is found that in the case of Ramprakash Bubna (supra), the benefit of indexation has been provided from the date of agreement for acquisition of the property whereas the decision rendered by this Tribunal in Vikas P. Bajaj (supra) has primarily drawn strength from the decision of Delhi Tribunal rendered in Praveen Gupta Vs ACIT 137 TTJ (Del) 307. The case of Vikas P.Bajaj as well as Praveen Gupta dealt with a situation in which the assessee himself offered capital gains by indexing the actual payments ITA No 28/Mum/2017 Lakshman M. Charangiva Assessment Year-2013- 14 made in the respective AVs by applying the indexes for those years and therefore, is not directly on the issue under hand since the Tribunal, in both the case laws, has confirmed the workings/computations adopted by the assessee. So far as the statutory provisions as contained in Section 48, Explanation (i) as extracted in the impugned order is concerned we find that indexed cost of acquisition has been defined to mean 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 assessee. We find that the expression used is held as against acquired or purchased as used in other Sections like Section 54 /54F which shows that legislatures were conscious while making use of this expression: The expressions like owned acquired has not been used for allowing the indexation benefit to the assessee. However, the important question that arises for consideration, at this juncture, is that whether the indexation benefit of even the

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future instalments would also be allowable to the assessee from the year in which the asset is first held by the assessee. For this, our attention has been drawn to the decision of Hon'ble Gujarat High Court rendered in Nirmal Kumar Seth Vs CIT [17 Taxmann.com 127] wherein Hon'ble court has decided the issue as under- We have heard both the parties at length and gone through the material available on record. From the record, it appears that the land in question was purchased from the Lucknow Development Authority on instalments basis for which registration was made ITA No 28/Mum/2017 Lakshman M. Charanjiva Assessment Year-2013- 14 on 01.12.1982 by paying a sum of Rs .3000/- only. The remaining payment was made in instalments to Lucknow Development Authority, as per the chart given in the AO's order. As per the agreement, the right to get the sale deed registered in favour of the assessee was acquired, though subject to the full and final payment. After making the full and final payment, the assessee got the allotment letter in his favour in the year 1985. On getting the allotment letter, the assessee also obtained the valuable right to have a sale deed in his favour. Thus, the assessee has acquired the capital asset. In the instant case, the plot was sold during the assessment year under consideration. The period is more than 3 years. So, we are in agreement with the observations made by the Tribunal that long term capital gain will have to apply in the assessee's case as per the payment chart. It may be mentioned that the expression "cost of acquisition" is defined in Section 55(2) of the Act. The date of acquisition will have relevance in determining the cost of acquisition. As per the ratio laid down in the case of CIT v. Srinivasa Rao [1987] 166 ITR 593/31 Taxman 466 (AP) the expression of "cost of acquisition" is exhaustive and the language employed is peremptory. It is not open to the Court to introduce any other facts of meaning to the expression "cost of acquisition". From the record, it also appears that the actual amount was paid from time to time after the date of issuance of allotment letter, which has to be considered for the purpose of indexation with reference to the date of payments. The Tribunal has rightly asked to compute the long term capital gain as per the payment schedule. There is nothing wrong in the Tribunal's order, which is based on the well established legal position as well as the CBDT Circular, which have already been mentioned in the impugned order passed by the Tribunal. During the course of argument, we were told that the long term capital gain has already been deposited as per the computation made by the A.O. in the manner claimed by the assessee. When it is so then nothing survives in the appeal. Hence, we decline to interfere with the impugned order passed by the Tribunal, which is hereby sustained along with the reasons mentioned therein. The answer to the substantial questions of law is in favour of the revenue and against the assessee. Respectfully following the wisdom

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of higher judicial forum, we hold that the indexation benefit against the cost of acquisition shall be available to the assessee on the basis of index of the year in which the payments were actually made by the assessee. The payment made up-to the date of agreement i.e. 18/10/2007 shall be indexed by applying the index for Financial Year 2007-08. Accordingly subsequent payments made in ITA No.28/Mum/2017 Lakshman M. Charanjiva Assessment Year-2013-14 different financial years shall be indexed by applying the respective indexes of those years Ground Number-1 stand dismissed. As a logical consequence, the directions of Ld. CIT(A) in not allowing the indexation benefits to payments of Rs. 18.32 Lacs & Rs.13.44 Lacs in FY 2011-12 could not be sustained since the payments made within a period of 36 months before the date of transfer of asset could not alter the nature of gains earned by the assessee and the same remain Long Term Capital Gain in nature only. Ground Number-2 stand allowed” 13. The finding of the Ld. CIT (A) is based on decision of jurisdictional ITAT in ITA no 28/Mum/2017 in the case of Lakhman M. Charanjiva. We further relied on the decision on honourable Gujarat High Court in the case of Nirmal Kumar Seth Vs CIT 17 Taxmann.com 127. 14. In the result with the above discussion Ground No-4 raised by the assessee is dismissed, as we don’t see any reason to interfere in the findings of Ld. CIT (A). 15. Ground no -5 raised by the assessee about non consideration of Rs 160,061 as expenses incurred on account of legal and other charges while recalculating indexed cost of acquisition by the AO. We have gone through the order of AO and Ld. CIT (A) also. In addition to that we have gone through the copy of computation of income as filed by the assessee vide page no 27 to 32 of the paper-book, we observed that assessee himself hasn’t claim any incidental expenses. Moreover, assessee filed his return u/s 139(4) so the same can’t be revised also by Assessee. Keeping in view the facts and decision of Honourable Supreme Court in the case of [2006] 157 Taxman 1 (SC) Goetze (India) Ltd. v. Commissioner of Income-tax,

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this claim of assessee can’t be allowed. So, we are not inclined to interfere in the order of Ld. CIT (A). Hence this ground of appeal of the assessee is also dismissed

Sd/- Sd/- (ABY T VARKEY) (GAGAN GOYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, िदनांक/Dated: 14/10/2022 SK, Sr.PS Copy of the Order forwarded to: 1. अपीलाथ�/The Appellant , 2. �ितवादी/ The Respondent. 3. आयकर आयु�(अ)/ The CIT(A)- 4. आयकर आयु� CIT 5. िवभागीय �ितिनिध, आय.अपी.अिध., मुबंई/DR, ITAT, Mumbai 6. गाड� फाइल/Guard file. BY ORDER, //True Copy// (Dy. /Asstt. Registrar) ITAT, Mumbai