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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEYAND SHRI MANOJ KUMAR AGGARWAL
IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, MUMBAI
BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBERAND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER
ITA no.6602/Mum./2011 (Assessment Year : 2008–09) Ajay Indrajit Thakore 1416, Dalamal Towers Free Press Journal Marg ……………. Appellant Nariman Point, Mumbai 400 021 PAN – AABPT0802G v/s Asstt. Commissioner of Income Tax ……………. Respondent Circle–11(2), Mumbai Assessee by : Shri Ajay I. Thakore Revenue by : Shri S. Michael Jerald
Date of Hearing – 15.10.2019 Date of Order – 08.01.2020
O R D E R PER SAKTIJIT DEY. J.M.
The captioned appeal has been filed by assessee challenging the order dated 25th July 2011, passed by the Commissioner of Income Tax (Appeals)–3, Mumbai, for the assessment year 2008–09.
The present appeal was earlier heard and disposed off by the Bench vide order dated 13th April 2016. However, subsequently, on the basis of a misc. application filed by the assessee, the appeal order was
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recalled vide order dated 15th June 2018, in M.A. no.307/Mum./ 2016. This is how the present appeal came up for hearing before this Bench.
The assessee has raised three effective grounds in this appeal. At the outset, the assessee appearing in person has expressed his intention not to contest ground no.1(a). Accordingly, ground no.1(a) is dismissed as not pressed.
In ground no.1(b), the assessee has raised the issue of computation of cost inflation index in reverse manner while computing long term capital gain on transfer of tenancy rights.
Brief facts are, the assessee is an individual and advocate by profession. For the assessment year under dispute, the assessee filed his return of income on 20th September 2008, declaring total income of ` 56,22,683. In the course of assessment proceedings, the Assessing Officer, on verifying the return of income filed by the assessee, noticed that the assessee has offered capital gain derived from sale of his 1/8th share in property at Gramdevi, Mumbai, and has claimed exemption under section 50EC of the Income Tax Act, 1961 (for short "the Act"). However, he has not offered capital gain arising out of sale of his half share in the tenancy rights involving the same property which was sold for a consideration of ` 1,83,33,334. The explanation of the assessee for not offering the gain is, since, it was received by the assessee in
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inheritance, it is in the nature of capital receipt and not taxable within the meaning of section 55(2)(ii) of the Act. Alternatively, the assessee claimed that fair market value as on 1st April 1981, may be adopted and indexed cost of acquisition may be considered for the purpose of computation of capital gain arising out of tenancy right. The Assessing Officer did not find merit in either of the submissions made by the assessee. Relying upon the order passed under section 144A of the Act by the Jt. Commissioner of Income Tax, the Assessing Officer not only held that the gain derived from transfer of tenancy right is subject to long term capital gain tax, but, he also held that the cost of acquisition of tenancy right is to be taken as nil. Accordingly, he brought the entire sale consideration of ` 1,83,33,334, to tax as long term capital gain. The assessee challenged the aforesaid decision of the Assessing Officer before learned Commissioner (Appeals). As regards assessee’s claim of non–taxability of the gain derived from transfer of tenancy right, learned Commissioner (Appeals) concurred with the view expressed by the Assessing Officer. As regards assessee’s claim of cost of acquisition, learned Commissioner (Appeals) referring to the provisions of section 55(2) r/w section 49(1) of the Act, held that indexed cost of acquisition would be allowable to the assessee for computing long term capital gain. He observed, since the assessee has exercised his option to substitute the fair market value as on 1st April
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1981, the fair market value (FMV) as per valuation made by the registered valuer of the assessee should be considered for indexation of the cost of acquisition of tenancy right. Accordingly, he directed the Assessing Officer to adopt the cost of acquisition as on 1st April 1981, as per the value determined by the registered valuer. It is relevant to observe, before learned Commissioner (Appeals), the assessee had made an alternative claim that cost of acquisition as on 1st April 1981, should be adopted by reverse indexation method. The aforesaid claim of the assessee was not entertained by learned Commissioner (Appeals).
The assessee submitted, reverse indexation for arriving at cost of acquisition is a valid method, hence, his claim for reverse indexation should have been allowed. In support of such contention, he relied upon the following decisions:–
i) Shantadevi Gaikwad (Dec.) v/s DCIT, [2012] 72 DTR 241 (Guj.); and ii) Jahanganj Cold Storage v/s ACIT, [2010] 133 TTJ (Agra) (TM).
The assessee submitted that in view of the decision of the Hon’ble Gujarat High Court, assessee’s claim of reverse indexation should be allowed.
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The learned Departmental Representative strongly relying upon the observations of learned Commissioner (Appeals) submitted, assessee’s claim of cost of indexation benefit since has been allowed as per statutory provision, the alternative claim of reverse indexation has been rightly rejected.
We have considered rival submissions in the light of the decisions relied upon and perused the material on record. As could be seen from the facts on record, initially, the assessee had claimed that the gain derived from transfer of tenancy right is not at all taxable. However, before us, the assessee has expressed his intention not to contest the aforesaid issue. Therefore, in the present appeal, we are not concerned with this issue. The only other issue which survives for adjudication is, assessee’s claim of reverse indexation benefit with regard to cost of acquisition as on 1st April 1981. As could be seen from the facts on record, the Assessing Officer while computing long term capital gain on transfer of tenancy right has not allowed the benefit of cost of acquisition as per section 48(1) of the Act. However, learned Commissioner (Appeals) accepting assessee’s claim has allowed indexation benefit in relation to cost of acquisition by accepting the fair market value of the asset as determined by the registered valuer of the assessee as on 1st April 1981. Thus, from the aforesaid facts, it is evident, the assessee himself has furnished a
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valuation report of a registered valuer determining the FMV of the tenancy right as on 1st April 1981. That being the case, the cost of acquisition for indexation benefit has to be given as per the statutory provision contained under section 48 r/w section 49 and section 55(2)(a) and section 55(2)(b) of the Act. Learned Commissioner (Appeals) has allowed indexation benefit of the assessee in relation to the cost of acquisition in terms of the aforesaid statutory provisions. Therefore, in our considered view, the assessee should not have any grievance against the aforesaid decision of learned Commissioner (Appeals). As regards assessee’s claim of reverse indexation benefit, it is to be noted that no such method has been provided under the relevant statutory provisions. Therefore, reverse indexation method applied by the assessee being contrary to the statutory provisions cannot be accepted. As regards the decision of the Hon’ble Gujarat High Court in Shantadevi Gaikwad (Dec.) (supra) relied upon by the learned Authorised Representative, the facts of the case clearly reveal that applicability of the reverse indexation in the facts of that case was accepted by both the assessee and the Revenue which is not the fact in the present case. Further, in case of Jahanganj Cold Storage (supra), the facts would so that the FMV of the asset as on 1st April 1981, was not available. Therefore, reverse indexation method was applied. In any case of the matter, the Tribunal, Ahmedabad Special
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Bench, in Vijay R. Rathore v/s ITO, [2007] 107 TTJ (Ahd.) 593 (SB), held that FMV as on 1st April 1981, has to be taken as cost of acquisition after allowing benefit of indexation. In the facts of the present case, the FMV of the asset transferred as on 1st April 1981 is available as per the valuation report of the registered valuer of the assessee. Therefore, when the FMV of the tenancy right as on 1st April 1981 is available, there is no valid reason to discard it and adopt the cost of acquisition as per reverse indexation method merely because it is more beneficial to the assessee. In view of the aforesaid, we do not find any merit in the ground raised by the assessee. This ground is dismissed.
In ground no.1(c), the assessee has challenged disallowance of expenditure under section 14A of the Act r/w rule 8D.
Brief facts are, during the assessment proceedings the Assessing Officer noticed that in the year under consideration the assessee has earned exempt income by way of dividend amounting to ` 6,17,983. Whereas, he has not disallowed any expenditure under section 14A of the Act r/w rule 8D, on account of expenditure attributable to earning of exempt income. When called upon to explain, the assessee submitted that the entire expenditure debited to the Profit & Loss Account is incurred towards earning of his professional income and no
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part of the expenditure is attributable to earning of exempt income. However, the Assessing Officer did not accept the aforesaid submission of the assessee and proceeded to disallow 0.5% of the average value of investment under rule 8D(2)(iii) which worked out to ` 60,255. Though, the assessee challenged the aforesaid disallowance before the first appellate authority, however, he was unsuccessful.
The learned Authorised Representative reiterating the stand taken before the Departmental Authorities submitted, entire expenditure debited to the Profit & Loss Account was for the purpose of accounting professional income and no part of it is attributable towards earning of exempt income. He submitted, when there is no nexus between the expenditure incurred and exempt income earned, no notional disallowance can be made under section 14A r/w rule 8D. In support of such contention, he relied upon the following decisions:–
i) Justice Sam P. Bharucha v/s ACIT, [2012] 53 SOT 192 (Mum.) (URO); and ii) CIT v/s Glenmark Pharmaceuticals Ltd., [2013] 351 ITR 359 (Bom.).
We have considered rival submissions in the light of the decisions relied upon and perused the material on record. Undisputedly, the assessee is a professional and his main source of income is from carrying out legal profession. From the assessment stage itself it is the
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claim of the assessee that the entire expenditure debited to the Profit & Loss Account is integrally connected to the professional activity and no part of it is attributable to the investments on which he has earned exempt income. It is seen, the Assessing Officer has rejected the aforesaid submission of the assessee in a mechanical manner. As per section 14A(2), the Assessing Officer has to record a satisfaction that the claim of the assessee with regard to the expenditure incurred for earning exempt income is incorrect having regard to the books of account. In the facts of the present case, the Assessing Officer has not made any discussion as to which part of the expenditure can be attributed towards earning of exempt income. Considering the fact that the assessee is engaged in full time profession and out of the income earned has made some investment in exempt income earning assets, it cannot be said that the assessee is carrying on his investment activity in an organized manner by employing men and infrastructure. Unless the Assessing Officer refutes assessee’s claim of non–incurring of any expenditure for investment activity with cogent reasoning, no disallowance under section 14A r/w rule 8D(2)(iii) can be made. The decisions relied upon by the assessee support the aforesaid view. Accordingly, we delete the disallowance made under section 14A r/w rule 8D. This ground is allowed.
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In the result, appeal is partly allowed. Order pronounced in the open Court on 08.01.2020
Sd/- Sd/- MANOJ KUMAR AGGARWAL SAKTIJIT DEY ACCOUNTANT MEMBER JUDICIAL MEMBER
MUMBAI, DATED: 08.01.2020 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary
Assistant Registrar ITAT, Mumbai