MR. JAIPRAKASH A. MISHRA,MUMBAI vs. ITO 22 (1)(4), MUMBAI

ORDER PER N.K. PRADHAN, A.M. This is an appeal filed by the assessee. The relevant assessment year is 2007-08. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-34, Mumbai [in short ‘CIT(A)’] and arises out of the assessment completed u/s 143(3)r.w.s. 254 of the Income Tax Act 1961, (the ‘Act’).

Mr. Jaiprakash A. Mishra 2

2. The Ld. CIT(A) had erred in law and on facts in not treating Mr. Ramakant Mishra as joint owner and treating the submission of assessee as misrepresentation of facts. 3. The Ld. CIT(A) had erred in law and on facts in treating that the order of Mr. Ramakant Mishra is admitted by the AO while passing the order and not following the direction of the Hon’ble ITAT in letter and spirit and confirming the additions.

Aggrieved by the said order of the AO, the assessee filed an appeal before the Ld. CIT(A). The appeal was partly allowed.

Aggrieved by the said order of the Ld. CIT(A), both the assessee and the Revenue filed appeal before the Tribunal. We find that the Tribunal vide order dated 20.02.2013 (ITA No. 126/M/2011 and CO No. 208/M/2012) held that :

“2. At the outset, Shri Hriday Narain, Ld. Counsel for the assessee mentioned that the issue in these appeals relates to taxability of Long Term Capital Gains earned on sale of house property jointly owned and sold by Shri Jaiprakash A Mishra, and Shri Ramakant R. Mishra. During the proceedings before us, the Learned Representatives

Mr. Jaiprakash A. Mishra 3 of both the parties mentioned that the issue has to be set aside to the files of the AO for adjudicating the issue afresh considering the decision of the AO in the case of Shri Ramakant R Mishra. In said order of assessment, we find the said assessment order was passed prior in time but it is claimed to have come to the hands of the assessee subsequent in time and therefore, assessee is prevented from furnishing the same before the Revenue Authorities at the time of passing of the impugned orders by the AO/CIT(A). Therefore, in our opinion, the order of the AO in the case of Sri Ramakanth R Mishra should be admitted by the AO in the set aside proceedings. Accordingly, we set aside all the grounds of both the appeals to the files of the AO for adjudicating the issue afresh after considering the aforesaid evidences as well as grating a reasonable opportunity of being heard to the assessee. Grounds and the Objections raised are accordingly set aside.

3. In the result, appeal filed by the Revenue and the Cross Objection filed by the assessee are allowed for statistical purposes.”

Mr. Jaiprakash A. Mishra 4 The AO further noted that Shri. Ramakant Mishra is holder of 1/8th share of the property, whereas before the Tribunal it was represented that the assessee and Shri. Ramakant Mishra are the only joint owners of the property. Thus the AO estimated the value of the property for the purpose of calculation of long term capital gains in the hands of the assessee at Rs.11,28,000/-, by allowing cost inflation index from the financial year 2000-01.

“4.3 On perusal of the findings of the AO in the assessment order and the submission of the appellant, the following facts emerge. i. Firstly, the contention of the appellant that the AO had passed the order following the directions of ITAT cannot be accepted. The Hon’ble ITAT directed the AO “In our opinion, the order of the AO in the case of Shri Ramakant R. Mishra be admitted by the AO in the set aside proceedings. Accordingly, we set aside all grounds of both the appeal to the file of AO for adjudicating the issue afresh after considering the aforesaid evidences as well as granting reasonable opportunity of being heard to the assessee” and accordingly the order was set aside.

First of all during the course of assessment proceedings as directed by the Hon’ble ITAT, the order of the AO in the case of Shri Ramakant R. Mishra was admitted by the AO in the set aside proceedings and proceeded for further adjudication by giving adequate opportunity of being heard. ii. The second contention of the appellant that order of ITAT is binding on the AO and any different view other than order of higher authorities is against judiciary discipline cannot be considered.

The appellant stated that he could not submit the Assessment Order of Shri Ramakant Mishra at the time of the assessment proceedings of the appellant

Mr. Jaiprakash A. Mishra 5 before the AO. This was the argument of the appellant before the Tribunal also that he could not submit the order of Ramakant Mishra at the time of his proceedings as Ramakant Mishra is the joint owner of the property. In the light of this argument, the Hon’ble ITAT directed the AO to admit Ramakant Mishra's order in the proceedings of the appellant and directed the AO for adjudicating the issue afresh after considering the aforesaid evidence as well as granting reasonable opportunity of being heard. This doesn't indicate that the order of Shri Ramakant Mishra is required to be followed while deciding the issue in the case of the appellant. It is also to mention here that the A.O of the appellant is not required to follow the order of the other Assessing Officer even in the case of co-owner if the order is wrongly decided. Therefore, there is no judicial precedence of following the order one AO by the other AO. Two different AOs may take different independent views. Appellant has relied upon various case laws with respect to the judicial precedence not respected by the AO which in my opinion is not applicable in this case particularly. iii. The third contention of the appellant that the same analogy can be applied in both the cases is not acceptable due to the fact that in the Assessment Order of Shri Ramakant Mishra passed by ITO-15(3)(3), the share in the property has been mentioned as 1/8th share whereas before the Hon’ble ITAT, it was represented that the appellant and Mr. Ramakant Mishra were joint owners of the property which shows misrepresentation of facts and also Ramakant Mishra's order has been considered by the AO while passing the order in the case of the appellant.

4.4. In view of the above and going by the merits of the case, I agree with the findings of the A.O. that the value of the property for the purpose of calculation of long term capital gain in the hands of the appellant be taxed at Rs.11,28,000/-. The grounds of appeal filed are dismissed.”

Mr. Jaiprakash A. Mishra 6

On the other hand, the Ld. Departmental Representative (DR) supports the order passed by the Ld. CIT(A).

To ascertain the facts, we had asked the Ld. counsel to file a copy of ‘Deed of Conveyance’. The same was filed on 15.02.2021. The facts in the present case and in Shri Nandlal R. Mishra are similar. As recorded by the Tribunal, the facts in the case of Shri Nandlal R. Mishra (supra) are as under :

“2.1. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the property in question was originally purchased by the partnership firm in the year 1975. The father of the assessee expired in 1976 who was a partner in the said firm. The assessee has taken the cost of the property as on 01/04/1981, while computing long term capital gain, at Rs.44,32,500/- as against the cost price given by the valuer as Rs. 44 lakh. For the purpose of claiming rights in the property, the accounts of the firm were made up on the date of sale and sale consideration so received was distributed among all the legal heirs of the partners of the firm. The assessee received 1/8th share out of the total sale consideration and the Mr. Jaiprakash A. Mishra 7 same was offered for tax in his return under the head income from long term capital gain. The Assessing Officer was of the view that the right on the property arise in the hands of the assessee after the dissolution of the firm, therefore, cost inflation index will be allowable after the dissolution of the firm and not as on 01/04/1981. The Assessing Officer estimated the value of the property, for the purposes of computation of LTCG, in the hands of the assessee, at Rs.4,64,250/- i.e. 1/8th of Rs.45,14,000/-, as per valuation of Mundrak Zila Adhikari, thus, the long term capital gain, in the hands of the assessee, was computed at Rs.21,03,705/-.”

On appeal before the Ld. CIT(A), Shri Nandlal R. Mishra relied on the decision of the Hon’ble Bombay High Court in CIT v. Manjula J. Shah (2012) 249 CTR (Bom) 270. The Ld. CIT(A), following the above decision directed the AO to adopt cost inflation index as on 01.04.2008. The Revenue appealed against the order of the Ld. CIT(A) before the Tribunal. We find that vide order dated 01.07.2015, the Tribunal (ITA No. 445/Mum/2014 for the same assessment year 2007-08) held that :

“2.8. It is true that the words of a statute are to be understood in their natural and ordinary sense unless the object of the statute suggests to the contrary. Thus, in construing the words 'asset was held by the assessee' in cl. (iii) of Expln. to s. 48 of the Act, one has to see the object with which the said words are used in the statute. If one reads Expln. 1(i)(b) to s. 2(42A) together with ss. 48 and 49 of the Act, it becomes absolutely clear that the object of the statute is not merely to tax the capital gains arising on transfer of a capital asset acquired by an assessee by incurring the cost of acquisition, but also to tax the gains arising on transfer of a capital asset inter alia acquired by an assessee as provided under s. 49 of the Act where the assessee is deemed to have incurred the cost of acquisition. Therefore, if the object of the legislature is to tax the gains arising on transfer of a capital asset acquired under a gift or will or inheritance by including the period for which the said asset was held by the previous owner in determining the period for which the said asset was held by Mr. Jaiprakash A. Mishra 8 the assessee, then that object cannot be defeated by excluding the period for which the said asset was held by the previous owner while determining the indexed cost of acquisition of that asset to the assessee. In other words, in the absence of any indication in cl. (iii) of the Explanation to s. 48 of the Act that the words 'asset was held by the assessee' has to be construed differently, the said words should be construed in accordance with the object of the statute, that is, in the manner set out in Expln. 1(i)(b) to s. 2(42A) of the Act.

2.9. Apart from the above, s. 55(1)(b)(2)(ii) of the Act provides that where the capital asset became the property of the assessee by any of the modes specified under s. 49(1) of the Act, not only the cost of improvement incurred by the assessee but also the cost of improvement incurred by the previous owner shall be deducted from the total consideration received by the assessee while computing the capital gains under s. 48 of the Act. The question of deducting the cost of improvement incurred by the previous owner in the case of an assessee covered under s. 49(1) of the Act would arise only if the period for which the asset was held by the previous owner is included in determining the period for which the asset was held by the assessee. Therefore, it is reasonable to hold that in the case of an assessee covered under s. 49(1) of the Act, the capital gains liability has to be computed by considering that the assessee held the said asset from the date it was held by the previous owner and the same analogy has also to be applied in determining the indexed cost of acquisition. For determining the capital gain, the cost of acquisition of capital asset is crucial. Thus, keeping in view, the totality of facts, we hold that the long terms capital gains has to be from the date from which the capital asset in question was held by the previous owner and the indexed cost of acquisition also has to be determined on the very same basis, consequently, the indexed cost of acquisition has to be computed with reference to the year in which the previous owner first held the asset and not the year in which the assessee became the owner of such asset. The ratio laid down in B.N. Vyas vs CIT (1986) 159 ITR 141 (Guj.), CIT vs N.N. Mohan & Sons (2001) 250 ITR 131 (Del.), CIT vs Harbhagwan (1998) 145 CTR (P & H) 332, Syndicate Bank Ltd. vs Addl.CIT 155 ITR 681 (Kar.), Ranchodbhai B. Patel vs CIT 81 ITR 446 (Guj.), CIT vs M.

Mr. Jaiprakash A. Mishra 9 Rammaiya Reddy 158 ITR 611 (Kar.), CIT vs Smt. M. Subaida Beebi 160 ITR 557 (Ker.), CIT vs Steel Group Ltd. 131 ITR 234 (Cal.), CIT vs Duncan Brothers & Company Ltd. 209 ITR 44 (Cal.), Arun Suuny vs DCIT (2009) 184 taxman 498 (Ker.) further supports the case of the assessee. Respectfully following the decision from Hon’ble jurisdictional High Court in Manjula J. Shah (Supra), we affirm the conclusion drawn by the ld. Commissioner of Income Tax (Appeals), therefore, the appeal of the Revenue is dismissed.”

7.1 Facts being identical, we follow the order of the Co-ordinate Bench in the case of another co-owner Shri Nandlal R. Mishra and set aside the order of the Ld. CIT(A).

Order pronounced in the open Court on 30/03/2021.