HIRANANDANI INDUSTRIAL ENTERPRISES,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-17(1), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “H” MUMBAI BEFORE SHRI RAVISH SOOD (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER)

ITA No. 2305/MUM/2018 Assessment Year: 2010-11 Hiranandani Industrial Enterprises, The Assistant Commissioner of 514, Dalamal Towers, 211, F P J Vs. Income Tax, Circle-17(1), Marg, Nariman Point, Mumbai- Room no. 117, Aayakar Bhavan, 400021 Mumbai-400020. PAN No. AAAFH1372E Appellant Respondent

Assessee by : Shri Chetan A. Karia, AR Revenue by : Shri V. Vinod Kumar, DR Date of Hearing : 05/11/2019 Date of pronouncement : 27/12/2019

ORDER PER N.K. PRADHAN, A.M. This is an appeal filed by the assessee. The relevant assessment year is 2010-11. The appeal is directed against the order of the Commissioner of Income Tax-56, Mumbai [in short ‘CIT(A)’] and arises out of the assessment completed u/s 143(3) r.w.s. 147 of the Income Tax Act 1961, (the ‘Act’). 2. The grounds raised by the assessee in this appeal read as under : 1. The Ld. CIT(A) erred in confirming action of the Assessing Officer in adding Rs.31,09,920/- to Short Term Capital Gain under section 50C of the IT Act,

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1961 by taking Sale consideration based on value assessed by Stamp valuation authority. 2. The Ld. CIT(A) failed to understand that appellant is engaged in business of construction and development of properties and units sold were stock in trade and not capital asset and therefore provisions of Section 50C are not applicable in appellant’s case. 3. The Ld. CIT(A) erred in setting aside the assessment to make reference to DVO. 4. The Ld. CIT(A) erred in holding that not making reference to DVO is a procedural lacunae. 3. Briefly stated, the facts of the case are that the appellant filed its return of income of the assessment year (AY) 2010-11 on 23.09.2010 declaring total income at Rs.1,09,42,845/-. The appellant is a real estate developer. During the year under consideration, the appellant has offered Rs.1,04,37,020/- as Short Term Capital Gains (STCG) from sale of three units namely, B-104, B- 105, B-106 within the Cypress Building constructed by it. The AO received information from the Central Information Branch (CIB) of the Income Tax Department that the appellant has offered sale value instead of market value of the three units. In response to a query raised by the AO explain why section 50C should not be applied in the instant case, the appellant filed a reply stating that in the impugned assessment year, it has sold the above- mentioned three units for a consideration of Rs.1,11,30,000/- and since it had claimed depreciation on these units, profit from the same was offered to tax as STCG as per provisions of section 50 of the Act. It was further stated before the AO that for unit B-106, the sale consideration value is more than the market value and for the remaining units i.e B-104 and B-105, the

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provisions of section 50C are not applicable as these units constitute stock- in-trade and depreciated assets. However, the AO was not convinced with the above explanation of the assessee for the reason that section 50C applies where the subject matter of transfer is a capital asset being land or building or both; there is a difference between apparent consideration and the value adopted by the Stamp Valuation Authority. Therefore, the AO computed STCG u/s. 48 after substituting the apparent consideration shown in the agreement by the value adopted or assessed by the Stamp Valuation Authority for the purpose of payment of stamp duty in terms of section 50C. Relying on the decision of the Special Bench of the Tribunal in the case of ITO v. United Marine Academy dated 28.04.2011, the AO re-computed the STCG on sale of office premises at Rs.1,35,46,940/- as against Rs.1,09,42,850/- shown by the assessee. 4. In appeal, the ld. CIT(A) held that as per the history of the property submitted before him, it had three different characters prior to sale i.e. initially it was stock and was converted to fixed assets ; over the period 1993-94 to 2003-04 depreciation was claimed ; from 2004-05 to 2009-10 depreciation was not claimed as it was leased out. Therefore, the Ld. CIT(A) held that despite lease, it continued to be depreciable asset even though no depreciation was claimed; the asset was not re-converted to stock. Thus he held the asset as depreciable and accordingly, the AO was right in invoking section 50C of the Act.

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Observing that section 50 r.w.s. 50C outlines that sale value/deemed value is to be reduced inter alia by WDV of the transferred asset, the Ld. CIT(A) found the computation done by the AO to be in accordance with the method prescribed by law. Regarding not making reference to valuation officer in accordance with provisions of section 50C(2), the Ld. CIT(A) held as under : “In this case the 3 units were sold, not on uniform prices. I find that in paragraph 9 of letter dated 27.10.2014 the assessee had made the submissions as an alternative claim. This was to be considered by the Assessing officer. This procedural lacunae needs to be cleared. Accordingly Assessing Officer is directed to make a reference to Valuation Officer in accordance with provisions of section 50C(2) and adopt figure as determined by him read with provisions of relevant section. The ground is treated as partly allowed.” 5. Before us, the Ld. counsel for the assessee relies on the decision in ITO v. M/s Aditya Narain Verma (HUF) (ITA No. 4166/Del/2013) for AY 2009-10; ACIT v. Tarun Agarwal (ITA No. 343/Agra/2017) for AY 2013-14; K.P. Varghese v. ITO (1981) 131 ITR 597 (SC) ; UoI v. A. Sanyasi Rao (1996) 219 ITR 330 (SC) ; Karanpura Development Co. Ltd. v. CIT (1962) 44 ITR 362 (SC). Also the Ld. counsel files a copy of the written submission furnished before the AO and CIT(A). 5.1 Referring to para 15 of the order of the Ld. CIT(A), the Ld. counsel submits that as per section 251 of the Act, the CIT(A), in an appeal against an order of assessment, may confirm, reduce, enhance or annul the assessment

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and therefore, he has no power to restore/set aside the matter to the file of the AO. 6. On the other hand, the Ld. Departmental Representative (DR) submits that rightly it is held by the Ld. CIT(A) that initially the property was stock and it was converted to fixed assets ; over the period from 1993-94 to 2003-04, depreciation was actually claimed ; from 2004-05 to 2009-10 depreciation was not claimed as it was leased out ; however despite lease, it continued to be depreciable asset even though no depreciation was claimed; the asset was not reconverted to stock. Reliance is placed on the order of the Special Bench of the Tribunal dated 28.04.2011 in ITO v. United Marine Academy. Thus the Ld. DR supports the order passed by the CIT(A). 6.1 Regarding the contentions of the assessee that the CIT(A) has no power to restore/set aside the order to the file of the AO, the Ld. DR explains that in the instant case the Ld. CIT(A) has only corrected a procedural lacunae and therefore, there is no violation of the provisions of section 251 of the Act. 7. We have heard the rival submissions and perused the relevant materials on record. Now we discuss the relevant case laws relied on by the Ld. counsel. In M/s Aditya Narain Verma (HUF) (supra), the Tribunal held that when the assessee had claimed before the Assessing Officer that the value adopted or assessed by the stamp valuation authority under sub-section (1) exceeds the fair market value of the property as on the date of transfer, the Assessing Officer should have referred the valuation of the capital asset to a Valuation Officer instead of adopting the value taken by the state authority for the purpose of stamp duty ; the very purpose of sub-section (2) to section 50C is

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that a valuation officer is an expert of the subject for such valuation and is certainly in a better position than the Assessing Officer to determine the valuation ; the non-compliance of the provisions laid down under sub-section (2) by the Assessing Officer cannot be held valid and justified. In Tarun Agarwal (supra), the Tribunal held that the Department cannot be allowed a second inning, by sending the matter back to the AO, enabling him to fill the lacunae and shortcomings and putting the assessee virtually to face a retrial for no fault of him and to again prove before the AO that the sale consideration was the “fair market value” of the property sold by him. 7.1 We now discuss the case-law relied on by the Ld. DR. In United Marine Academy (supra), the main issue for consideration was as to whether in a case where capital gain arising from the transfer of depreciable asset is computed as per the special provisions contained in section 50, the provisions of section 50C can be applied so as to adopt the value assessed for the purpose of payment of stamp duty to be the full value of the consideration received or accruing as a result of such transfer. The Tribunal held that the Assessing Officer was right in applying the provision of section 50C to the transfer of depreciable capital assets covered by section 50 and in computing the capital gain arising from the said transfer by adopting the stamp duty valuation. 7.2 It is found that the property was initially held as stock and then converted to fixed assets; from 1993-94 to 2003-04 depreciation was actually claimed; from 2004-05 to 2009-10 depreciation was not claimed as it was leased out; however, despite lease it continued to be depreciable asset even though no depreciation was claimed; the asset was not reconverted to stock.

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In view of the above factual matrix, the case of the appellant in the instant appeal is distinguishable from the case-laws relied on by the Ld. counsel. We hold that the asset is depreciable. Thus we agree with the view of the Ld. CIT(A). 7.3 However, it is found that in para 15 of the order dated 23.03.2018 the Ld. CIT(A) has directed the AO to make a reference to Valuation Officer in accordance with the provisions of section 50C(2) and adopt figure as determined by him read with provisions of relevant section. As per section 50C(2), if the following conditions are satisfied, the Assessing Officer may refer the valuation of relevant asset to a Valuation Officer in accordance with section 55A of the Act : i. Where the assessee claims before the Assessing Officer that the value adopted or assessed of assessable by the stamp valuation authority exceeds the fair market value of the property as on the date of transfer ; and ii. The value so adopted or assessed or assessable by stamp valuation authority has not been disputed, in any appeal or revision or reference before any authority or Court. It is held in S. Muthuraja v CIT (2013) 218 Taxman 73(Mag) (Mad) that where specific objection was made by assessee to Assessing Officer adopting market value of property u/s 50C(2), the Assessing Officer ought to have referred valuation of capital asser to valuation officer. We find that along with Form No. 35 filed before the CIT(A), the assessee had raised the following ground of appeal :

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“2.e.- the AO failed to consider the alternative claim of appellant in accordance with provisions of sub-section (2) of section 50C and refer valuation of the asset to a Valuation Officer.” Power of the first appellate authority to set aside the assessment order has been withdrawn. It is pertinent to note that due to the omission (w.e.f. 1- 6-2001) by the Finance Act, 2001 (14 of 2001) of certain words, viz.,- -“or he may set aside the assessment and refer the case back to the Assessing Officer for making a fresh assessment in accordance with the directions given by the Commissioner (Appeals) and after making such further inquiry as may be necessary, and the Assessing Officer shall thereupon proceed to make such fresh assessment and determine, where necessary, the amount of tax payable on the basis of such fresh assessment” from section 251(1)(a), the power for the first appellate authority to set aside the assessment order has been withdrawn (w.e.f. 1-6-2001). Further, the first appellate authority cannot- -(w.e.f. 1-6-2001) refer the case back to the Assessing Officer for making a fresh assessment in accordance with the directions given by the Commissioner (Appeals) and after making such further inquiry as may be necessary, the Assessing Officer shall thereupon- -(w.e.f. 1-6-2001) proceed to make such fresh assessment and -(w.e.f. 1-6-2001) determine, where necessary, the amount of tax payable on the basis of such fresh assessment. 7.4 In the instant case, the Ld. CIT(A) has directed the AO to make a reference to the Valuation Officer in accordance with provisions of section

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50C(2) of the Act. As mentioned earlier, the CIT(A), in an appeal against an order of assessment, may confirm, reduce, enhance or annul the assessment. He has no power to set aside/restore the order to the file of the AO. In such a scenario, the order passed by the Ld. CIT(A) being not in conformity with section 251 of the Act is bad in law. Consequently, we annul the impugned order. 8. In the result, the appeal is allowed. Order pronounced in the open Court on 27/12/2019.

Sd/- Sd/- (RAVISH SOOD) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 27/12/2019 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, //True Copy// (Assistant Registrar) ITAT, Mumbai