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Income Tax Appellate Tribunal, “A”
Before: SHRI S.S.GODARA & SHRI INTURI RAMA RAO
Per S.S.Godara, JM: This assessee’s appeal for Assessment Year 2015-16 is directed against the Principle Commissioner of Income Tax-6, Pune’s order no.PN/PCIT-6/263/2018-19 dated 30/05/2018, in proceedings u/s.263 of the Income Tax Act, 1961 [in short “the Act”].
Heard both the parties. Case file perused.
It emerges at the outset that the assessee’s sole substantive ground pleaded in the instant appeal challenges correctness of the PCIT’s section 263 revision directions terming the corresponding
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regular assessment dated 11.03.2017 framed by the Assessing Officer as an erroneous one causing prejudice to interest of Revenue qua the sole issue of cost of improvement paid relating its capital asset involving Rs.1,08,19,977/- and Rs.1,39,47,652/- representing the twin heads of society payment and furniture and fixtures; respectively. Relevant detailed discussion in the PCIT’s impugned order to this effect reads as follows: “5.2 The first claim of cost of improvement of the assessee company was on account of payment to the Housing Society of Rs.1,08,19,977/-. In this respect, the assessee has contended that the builder from whom the flat was purchased had left the work incomplete, which was later on executed by the society and the cost of which was paid by the flat holders. In support of which the assessee has submitted a single receipt of society for payment of Rs.16,00,000/- & zerox copies of DD/cheques of payment made to society. In the single receipt submitted it is mentioned that, the payment was made on a/c of contribution for remaining building work as per AGM dated 07.02.2010. However, no details whatsoever has been submitted about the nature of work carried out by the society. Further, in the chart of cost of improvement (page no. 03 of annexure) submitted by the assessee itself, an amount of Rs.5,22,930/- is stated to be made towards ‘society reimbursement’. It may be seen from the above, the assessee has made a huge payment to the society without entering into any registered agreement and also failed to submit any documentary evidence about -the nature of work carried out by the society. It is to be noted here that, a co-op. housing society is not bound to complete any pending work of an individual flat holder. Thus, the so called payment might have been made by the assessee to the society on account of some common amenities created/provided by ITA No.1243/PUN/2018 for A.Y. 2015-16 (A)
the society or for repairs or for one time maintenance charges. Thus, the payment made to society cannot be added as cost of improvement of the flat owned by the assessee unless it is proved that the expenditure was incurred specifically for improvement of property in question. It may also be seen from the chart of cost of improvement that, major payment to society was made by the assessee in F.Y.2012-13. It means the assessee was not in possession of the property till F.Y.2012-13. Hence, the year of acquisition of the property would be F.Y.2012-14. However, for the purpose of computing capital gain, the assessee has adopted cost inflation index of the F.Y.2009-10, which ultimately resulted in claiming excess indexed cost of acquisition of the property. The Assessing Officer while completing the assessment did not examine these aspects in a proper manner and accepted the claim without application of mind and proper verification.
PURCHASE OF FURNITURE & FIXTURES OF RS.1,39,47,652/-
3 The next claim of cost of improvement of the assessee company was on account of purchase of furniture and fixtures of Rs. 1,39,47,652/-. In this respect, the assessee has contended that the expenditure incurred is of capital in nature and the cost of which was debited in its books of account from time to time. It has also claimed that the furniture was sold to the same buyer and the sale consideration was composite consideration both for the flat and furniture fixture thereto. In support of this, the assessee company has submitted a confirmation letter of the buyer of the flat stating that possession of flat was received alongwith furniture and fixture, a list of which is enclosed separately with the confirmation letter and photo copies of bills for purchase of furniture and fixture. The contention of the assessee is considered carefully. At the initial stage, it is noted that, such a huge amount
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of sale of furniture and fixture is not evidenced by a registered agreement. The payment for acquisition of property could only be ascertained from the registered sale deed. There was no mention in the sale deed regarding sale of furniture of Rs.2,47,67,629/-. Further, even though the buyer has confirmed purchase of furniture and fixture through a separate letter, the annexure thereof is not attested by the buyer (page no. 02 of annexure) . While referring to the copies of purchase bills of furniture of three different parties at different locations, surprisingly it is noted that, all the bills are signed by a same person (page no. 7 to 19 of annexure). Apart from the incongruity noticed as above, on further perusal of the bills and the annexure to the confirmation letter it is seen that, the furniture & fixture claimed to have been sold by the assessee 40 contains Sofa sets, Beds, Wardrobes, Tables, Cupboards, Benches, Bookcase, Chairs, Desks, Showcases, Door Panels, Mirrors, light fixtures, Bathroom accessories, Curtains, Bedcovers, Pillows, Cushions, Electrical Fittings, Wash Basin, wooden ceiling, wooden pelmets, Marble Flooring, Alluminium windows, Marble Flooring, Doors, Painting, Polishing etc. The main question is, whether all these items can be regarded as capital asset within the meaning of Sec.45(i) of the Act. It may be seen from the above, most of the items of furniture are easily detachable or not at all attached to the property as well as movable one. The relevant provisions of the Act also intends to give the benefit of cost of improvement only in respect of expenditure which is directly incurred on the improvement of asset and such improvement is inseparable from the said asset. If the meaning as desired by the assessee is conferred to the term ‘cost of improvement’, it will amount to provide a tool to the assessee to easily evade the tax. To take care of this situation, the statute itself has specifically excluded the furniture and fixtures from the definition of the capital asset as contained in Sec. 2(14) of the Act, which is reproduced in the ITA No.1243/PUN/2018 for A.Y. 2015-16 (A)
earlier part of the order. The expression 'cost of improvement' is further defined by section 55 of the Act to mean a capital expenditure incurred in making any additions or alterations to the capital asset in question. The expression 'expenditure of a capital nature’ incurred in making any additions or alterations to the capital asset are significant. What is important is that the assessee must have incurred an expenditure of a capital nature with a view to making additions or alterations to the asset. This is so because, the legislative intent behind the imposition of a tax on capital gains is to tax what can be said to be a gain in the hands of the assessee after accounting for the expenditure incurred by the assessee either on the acquisition of the asset or on the improvement thereof as also the expenditure incurred wholly and exclusively in connection with any such transfer. The provisions of sections 48 and 50 of the Act make it clear that the capital gain in the hands of the assessee can be correctly worked out only if what the assessee has himself spent on the acquisition, or the improvement of the asset is deducted from the full value of the consideration received by him. Seen in that light, therefore, it is necessary that before the provisions of section 48 can be called in aid for purposes of deduction of any costs incurred by the assessee on the improvement of the asset, the assessee must not only claim that he has made any such capital expenditure but also demonstrate that any such expenditure could possibly have been incurred by him for purposes of making an improvement in the asset in question. Thus, for the purpose of this section, furniture is even though an ‘asset’ but it is not a ‘capital asset’. In this case, at the most the expenditure on internal construction work, fitting of marble flooring, Plaster work etc. can be considered for the purpose of cost of improvement, after verification. However, by no stretch of imagination, the remaining expenditure incurred for purchase of furniture shall be construed as a cost of improvement of the asset so as to be deducted from the value of consideration
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received by the assessee.
4 Subsequently, the assessee company has relied upon the following judgements in support of its claim.
i) CIT Vs. V. Ramaswamy Mudaliar [1992} 196 ITR 939
In the above mentioned case, the Hon.Madras High Court has held as under:- “but for the incurring of the expenditure by the assessee in the proper maintenance of the mare and the colt and the filly, the assessee would not have been able to realise a price of Rs. 50,000 at the time of their sale. The price for which the animals had been sold by the assessee clearly indicates that there has been an increase in the value and a rise in price at the time of the sale of the animals, referable to their proper maintenance and we are, therefore, of the view that the maintenance expenses on the mare and the offspring, could be regarded as cost of improvement of the capital asset within the meaning of the latter part of section 48(h). We, therefore, answer the second question in the affirmative and against the revenue.”
It may be seen from the above that, the Hon. High Court in this judgement has dealt with the cost of improvement in respect of mare and the colt and the filly i.e. animals and not in respect of any property. Therefore, the facts of the said case are totally different. The judgement is of no assistance to the assessee as the point now sought to be decided by us was never canvassed or considered in that case.
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ii) H. H. Maharaja Rana Hemant Singhji V. CIT (1976) 103 ITR 61 (SC)
In the above mentioned case, the Hon. Supreme Court has held as under:
“We have given our earnest consideration to the submissions of learned counsel for the parties. For a proper decision of the point in question, it is necessary to refer to section 2(4A) of the Act, the relevant portion whereof runs thus :
”2(4A) Capital asset means property of any kind held by an assessee, whether or not connected with this business, profession or vocation, but does not include - ..
(ii) personal effects, that is to say, movable property (including wearing apparel, jewellery and furniture) held for personal use by the assessee or any member of his family dependent on him;"
The expression "personal use" occurring in clause (ii) of the above quoted provision is very significant. A close scrutiny of the context in which the expression occurs shows that only those effects can legitimately be said to be personal which pertain to the assessees person. In other words, an intimate connection between the effect and the person of the assessee must be shown to exist to render them "personal effects".
The enumeration of articles like wearing apparel, jewellery, and furniture mentioned by way of illustrations
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in the above-quoted definition of "personal effects" also shows that the legislature intended only those articles to be included in the definition which were intimately and commonly used by the assessee.
The meaning assigned to the expression "personal effects" in various dictionaries also lends support to this view. In the unabridged Edition of the Random House Dictionary of the English Language, at page 1075, the expression is given the following meaning:
"Personal effects, privately owned articles consisting chiefly of clothing, toilet items, etc., for intimate use by an individual."
In Blacks Law Dictionary, Fourth Edition, at page 1301, the expression is assigned the following meaning:
"Personal effects, articles associated with person, as property having more or less intimate relation to person of possessor."
In Cyclopaedic Law Dictionary, Third Edition, at page 832, the expression "personal effects" without qualifying words is interpreted to include generally such tangible property as is worn or carried about the person.
In "Words and Phrases" (permanent edition), volume 32, at page 277, it is stated that the words "personal effects" when used without qualification, generally include such tangible property as is worn or carried about the person, or to designate articles associated with the person. At another place at the same page, it is stated that the words
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"personal effects" are used to designate articles associated with person, as property having more or less intimate relation to person of possessor or such tangible property as attends the person.
Bearing in mind the aforesaid meaning assigned to the expression in various dictionaries and cases, the silver bars or bullion can by not stretch of imagination be deemed to be "effects" meant for personal use. Even the sovereigns and the silver coins which are alleged to have been customarily brought out of the iron safes and boxes on two special occasions, namely, the Ashtami Day of "Sharadh Paksh" for Maha Lakshmi Puja and for worship on the occasion of Diwali festival cannot also be designated as effects meant for personal use. They may have been used for puja of the deities as a matter of pride or ornamentation but it is difficult to understand how such user can be characterized as personal use. As rightly observed by the income-tax authorities if sanctity of puja were considered so essential by the assessee, the aforesaid articles would not have been delivered by his guardian to the banks for sale.
The language of section 5(i)(viii) of the Wealth-tax Act, 1957, which is in pari materia-with the definition of the expression "personal effects" as given in section 4A(ii) of the Act is also helpful in construing the latter provision. That provision runs as follows:
"5. (1) Subject to the provisions of sub-section (lA), wealth-tax shall not be payable by an assessee in respect of the following assets, and such assets shall not ITA No.1243/PUN/2018 for A.Y. 2015-16 (A)
be included in the net wealth of the assessee -...
(viii) furniture, household utensils, wearing apparel, provisions and other articles intended for the personal or household use of the assessee but not including jewellery."
In G.S. Poddar v. Commissioner of Wealth-tax, where the assessee at the time of his appointment in the year 1945 as a Justice of the Peace was presented with two gold caskets, a gold tray, two gold glasses, a gold cup, saucer and spoons, and photo frames as souvenirs by the dealers and brokers in cloth with whose business he was connected and he kept these articles in glass show case for display in his drawing room and in assessment year 1959- 60, claimed exemption in respect of these articles under the above-quoted provision, i.e., under section 5(i)(viii) of the Wealth-tax Act, 1957, it was held that merely because of the gold caskets were kept in the show case did not make them part of the furniture and the rest of the articles could not be considered to be household utensils as that expression did not embrace within its sweep gold articles meant for ornamental use for special occasions, but meant household articles were normally, ordinarily and commonly so used. It was further held in this case that the use as a decoration in the drawing room which is only calculated to give a pride of possession is not contemplated by the exemption is the use of like nature as the use of other items mentioned in the clause, namely, furniture, household utensils, wearing apparel and provisions. It was further held in that case that the expression "intended for personal or household use" did not meant capable of being intended for personal or ITA No.1243/PUN/2018 for A.Y. 2015-16 (A)
household use. It meant normally, commonly or ordinarily intended for personal or household use. This in our opinion is the true concept of the expression "personal use".
It is also significant that no exemption on behalf of the assessee was claimed in respect of the aforesaid effects under the aforesaid provision of the Wealth-tax Act.
The decision of this court in Commissioner of Wealth-tax v. Arundhati Balkrishna on which strong reliance has been placed by Mr. Desai is of no assistance to the appellant as the point now sought to be agitated before us was never canvassed or considered in that case.
We are, therefore, of the considered view that the aforesaid articles were capital assets and not personal effects as contended on behalf of the assessee-appellant and as such could not be excluded while computing the gains.”
In this judgement, the Hon. Supreme Court has mainly dealt with the issue as to whether the assets sold i.e. silver bars, bullion, sovereigns and the silver coins were capital assets within the meaning of section 2(4A) chargeable to capital gains tax under section 12B of the Indian Income- tax Act, 1922. Considering the vary nature of the said assets, the Hon. Supreme Court held that these are capital assets. In this case also, the Hon. Supreme Court has not dealt with the issue in hand. On the contrary the Hon. Apex Court has observed that, the enumeration of articles like wearing apparel, jewellery, and furniture mentioned by way of illustrations in the above-quoted definition of ITA No.1243/PUN/2018 for A.Y. 2015-16 (A)
"personal effects" also shows that the legislature intended only those articles to be included in the definition which were intimately and commonly used by the assessee. Taking into account the above observation and the specific illustration given in the definition, the judgement is of more help to the revenue. So far the assessee’s argument that ‘the furniture and fixture in no way can be said to pertan to the assessee company’s person nor can there be shown any - -mate connection between the effects and the person of the assessee, when the . mpany is only an artificial judicial person in the eyes of law’ is concerned, it is to be noted that the relevant provisions of the Act are equally applicable also to the case of company assessee as no exclusion cause is provided to such class of assessees in the statute. The articles claimed to have been sold by the assessee itself by its nature are commonly used by every assessee.
5 In this context, the judgement of the Hon. Delhi High Court in the case of Sachinder Mohan Mehta Vs. ACIT (2015) 53 taxmann.com 114 dated 03/12/014 is squarely applicatble to the facts of the present case. In which the Hon. High Court held as under:
“15. From the perusal of the said Section, it is clear that; (1) asset sold should be a capital asset; (2) from the sale consideration, only the cost of acquisition of the asset, cost of improvement, if any, and expenses incurred wholly and exclusively in connection with such transfers, are to be reduced. The issue would be, whether the display windows, partition of drawing room, wooden grills, wooden temples, wardrobes, cupboards, crockery, windows, fans, geysers, light fittings, rugs, furniture, fixtures, can be said to be capital asset,
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which were acquired by the assessee. It is an admitted position as noted by the Authorities below that the assessee had acquired the property by way of four sale deeds, each of Rs. 4.50 lakhs, the total of which, was Rs.18 lakhs. Another amount of Rs. 12 lakhs has been paid for acquisition of furniture and fixtures, which was by way of a following bill:
“ DESCRIPTION R AMOUNT S A . T N E O . ENTIRE L RS.12,00,000/- REMOVABLE . WOOD S WORI THE . FLAT I.E. ORNAMENTAL SHDW- CASE! DISPLAY WINDOWS. WKNH - ENTAL PARTITION ON DRAWING ROOM, WOODEN GRILLS. WOODEN TEMPLE, WARDROBES, CUPBOARDS. CROCKERY, WINDOWS, FANS, GEYSERS ORNAMENTAL LIGHT FITTINGS, RUGS FURNITURE IXTURE COMPLETE. TWELVE LACS RS.12,00,000/- ONLY”
As noted by the Assessing Officer, there was no agreement, nor any registered deed in that regard. The Assessing officer was ITA No.1243/PUN/2018 for A.Y. 2015-16 (A)
right in noting that there was no mention in the sale deeds of Rs. 18 lakhs about purchase of the furniture and fixtures by way of a separate agreement for Rs. 12 lakhs. The purported purchase was only effected by way of a bill. Even the perusal of the bill would not reveal the details of show case, windows, grills, wardrobes, crockery, fans, fittings, furniture etc. It is also not known whether the seller of the property to the appellant assessee had, in fact, sought the benefit of the capital gain. The inventory has noted to mean "except two cotton rugs size 2' X 2' and two Pooja stools" is vague. Similarly, the deed of 2008 also does not give the inventory of the furniture and fixtures as sold in the year 2008, which aspect has been conceded by the learned counsel for the appellant- assessee at the time of the arguments. These findings are primarily findings of fact.
Further, the issue can be looked from another perspective, which is, most of the items which are said to have been acquired, are primarily 'personal effects' which are excluded from the definition of capital asset under Section 2(14) of the Act if they are meant for personal use. It is not the case of the appellant-assessee that the items like wooden temple, crockery, fans, geysers, light fittings etc. were not for personal use, nor such a case was put forth before the Authorities below. In fact, Rs. 12 lakhs was for all the fixtures and fittings including furniture. It is noted, the break up of Rs. 12 lakhs was not given. In any case, as noticed above it is a pure question of fact.”
Thus, it can be seen from the above that, the Hon. High Court decided the issue in favour of revenue holding that where assessee while computing cost of acquisition in terms of Sec.48 claimed deduction of amount spent on items like wooden temple, crockery, fans, light fittings etc., the said items are primarily ‘personal effect’ excluded from definition of capital asset under section 2(14) and therefore, the claim deserves to be rejected.
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The Assessing Officer while completing the assessment did not call for the complete details to examine these aspects in a proper manner and conducted any enquiries and accepted the claim without application of mind and proper verification.
In this case, even if, the contention of the assessee is accepted for the sake of argument, there has a reason to believe that the assessee has computed the capital gain at a lower amount. The reason being this, as per assessee’s own submission the sale consideration received is a composite cost of the flat and furniture and fixture thereto. The sale consideration received is Rs. 28,63,00,000/-. If the cost of furniture and fixture of Rs. 2,47,67,629/- is deducted from the sale consideration of Rs.28,63,00,000/-, the balance amount of Rs.26,15,32,371/- will be the bare value of the property. The valuation of the property as per the Stamp Valuation Authority is Rs,28,58,53,800/-, which is more than the bare value of the property. In this situation, the provisions of Sec.SOC in the case of present assessee and the provisions of Sec.56 in the case of buyer needs to be invoked.
In the light of the discussion made hereinabove, the assessment order dated 11/05/2017 made in this case for the Assessment Year 2015-16 is hereby set aside with a direction to the Assessing Officer to do the same afresh after conducting detailed enquiries and detailed verifications of the relevant documents, after giving the assessee reasonable opportunity of being heard, and as per law.”
Mr. Sarvesh Khandelwal vehemently argued during the course of hearing that the PCIT herein has erred in law and on facts in holding the impugned assessment as an instance of lack of enquiry at ITA No.1243/PUN/2018 for A.Y. 2015-16 (A)
the Assessing Officer’s behest. He took us through the assessee’s twin paper books involving pages 1 to 266 and 1 to 42 to buttress the point that the assessing authority herein had indeed issued section 142(1) notice dated 06.03.2017 including detailed questionnaire [page 5 in former compilation]; wherein, question no.6 comprised of a specific query regarding computation of “low capital gain with respect to sale consideration”. He submitted that the assessee had filed its detailed explanation and submissions on four occasions running from pages 7 to 266 including all the relevant details of the payments made to the society as well as the cost of furniture and fixtures (supra). Mr.Khandelwal’s case therefore is that given the foregoing Assessing Officer’s specific questionnaire as well as the assessee’s detailed reply, there is hardly any doubt that it is not a case of no enquiry as sought to be made in only PCIT’s impugned revision proceedings.
The Revenue has drawn strong support from the PCIT’s foregoing revisions directions in issue.
We have given our thoughtful consideration to vehement rival contentions and find no merit in the assessee’s stand. It is made clear that the learned counsel has not been able to file even a single document or questionnaire coming from the Assessing Officer’s side to the assessee during scrutiny that the former had ever enquired or ITA No.1243/PUN/2018 for A.Y. 2015-16 (A)
examined the issue of cost of improvement involving the above twin heads. We wish to refer to section 263 Explanation-2 inserted in the Act vide in Finance Act, 2015 w.e.f 01.06.2015 involving clauses [a to b] that when an Assessing Officer frames his assessment either without making enquiries or verification which ought to have been made or grants any specific relief without enquiring into the corresponding claim, the same attracts sec 263 revision juri iction. The very factual position gets attracted in the facts of the instant case wherein the Assessing Officer had failed to raise even a specific query of assessee’s cost of improvement during scrutiny. Hon’ble apex court’s landmark decision in Malabar Industrial Company Vs. CIT [2000] 243 ITR 83 (SC) has settled the law longback that such a failure on the Assessing Officer’s part renders an assessment both erroneous as well causing prejudice to the interest of the revenue; simultaneously. We accordingly conclude that the PCIT has herein has rightly exercised his section 263 revision juri iction. The same stands affirmed.
This assessee’s appeal is dismissed.
Order pronounced in the open Court on 26th September, 2022. (INTURI RAMA RAO) JUDICIAL MEMBER पुणे / Pune; "दनांक / Dated : 26th Sep, 2022/ SGR*
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आदेशक""ितिलिपअ"ेिषत / Copy of the Order forwarded to : अपीलाथ" / The Appellant.
""यथ" / The Respondent.
The CIT(A), concerned.
The Pr. CIT, concerned. 5. िवभागीय"ितिनिध, आयकर अपीलीय अिधकरण, “ए” ब"च, पुणे / DR, ITAT, “A” Bench, Pune. गाड"फ़ाइल / Guard File. 6. आदेशानुसार / BY ORDER, //// Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे/ITAT, Pune.
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