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Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI
Before: SHRI JOGINDER SINGH & SHRI RAJESH KUMAR
Per Rajesh Kumar, Accountant Member:
The above titled appeals by the Revenue and cross appeal by the assessee have been preferred against the order (Revenue’s appeal) 2. The Revenue has filed the appeal challenging the deletion of addition of Rs.60,09,000/- by Ld. CIT(A) as made by the AO under section 50C of the Act.
At the outset, the Ld. A.R. has submitted that tax effect involved in this appeal is less than Rs.20 lacs and therefore covered by the CBDT Circular No.3/2018 (F.No.279/MISC.142/2007-ITJ (PT).] dated 11.07.2018. The ld AR submitted that the appeal be dismissed in terms of Circular No.3/2018 (F.No.279/MISC.142/2007-ITJ (PT).] dated 11.07.2018.
After hearing both the parties and perusing the material on record, we find that the tax effect in this appeal does not exceed Rs.20 lakhs and therefore the appeal has to be dismissed in terms of Circular No.3/2018 (F.No.279/MISC.142/2007-ITJ (PT).] dated 11.07.2018. We, therefore, following the circular issued by the CBDT, dismiss the appeal filed by the Revenue. (Assessee’s appeal) 5. The grounds raised by the assessee are as under:
“1. BECAUSE, Id. CIT(A) has erred in law and on facts in treating the "stock- in-trade" being leasehold rights as "capital asset".
3 Shri Babu Teja Patel Bangari 2. BECAUSE, Id. CIT(A) has erred in law and on facts in upholding disallowance of interest expenditure of Rs.12,09,357/- though allowable against the gain on assignment of leasehold rights on erroneous assumption of facts that the appellant has failed to file any co-relation between loans received and plot acquired, which stood filed.
The respondent craves leave to add, alter, amend, modify, withdraw or delete any grounds of appeal.”
6. The issue raised in ground No.1 is against the order of Ld. CIT(A) treating the stock in trade being leasehold rights as capital assets and the issue raised in ground No.2 is against the confirmation of disallowance of interest expenditure of Rs.12,09,357/- while calculating the income from gain.
The facts in brief are that the assessee filed return of income on 11.06.2010 declaring an income of Rs.9,34,000/- Thereafter, the case of the assessee was selected under scrutiny and notice under section 143(2) and 142(1) of the Act were duly issued and served upon the assessee. During the year, the assessee has transferred leasehold rights acquired from CIDCO in respect of plot No.27, Kamothe for a consideration of Rs.75,00,000/- and the profit from the said sale Rs.7,44,058/- was treated as business income by treating the said leasehold rights as stock in trade after reducing interest paid of Rs.12,09,357/-. However, the AO during the assessment proceedings came to the conclusion that the leasehold rights were not a stock in trade but a capital asset and accordingly calculated the short term capital gain by applying section 50C and made addition of Rs.79,63,415/- by disallowing the interest of Rs.12,09,357/-.
4 Shri Babu Teja Patel Bangari 8. In the appellate proceedings, the Ld. CIT(A) reversed the order of AO on the issue of invoking the provision of section 50C by holding that the provisions of section 50C of the Act are not applicable to leasehold rights while upholding the leasehold rights as capital assets as against the stock in trade treated by the assessee and also upheld the disallowance of interest expenditure of Rs.12,09,357/- by observing and holding as under: “5.2 I have gone through the argument of the appellant and have also perused the ledger account submitted by the appellant. I find that appellant had borrowed funds and also paid interest even prior to the acquisition of plot in question as is evident from the copy of the ledger account that the appellant paid Rs.2,01,924/- upto 31st March 2008 meaning thereby that these funds were not utilized for the acquisition of plot as claimed. Further, appellant has claimed interest as preoperative expenses for the F.Y. 2008-09 as well. However, appellant has not given details of loan received vis-a-vis payment made for the acquisition of plot. In the absence of such details, it is diffict.ikt to accept the argument of the appellant that there was axy co-relation between loans received and plot acquired. Further, as against the cost of acquisition of Rs.55,45,585/- the borrowals are shown at Rs.69,91,570/- which clearly indicate that the claim made by the appellant is not with respect to the plot purchased but could be for any other purposes certainly not related to the aforesaid plot of land. This should also be viewed in the light of appellant changing his stand of treating the amount on the one hand as business profit whereas the balance sheet shows otherwise. It is also pertinent to note that as per appellant’s stand if the amount was to be treated as business income, then in that case the interest paid in the preceding previous year would have been debited to P&L account as against preoperative expenses. Considering these facts, I do not find any infirmity in A.O’s order not allowing any interest as cost of acquisition. Accordingly, this ground is dismissed.”
After hearing both the parties and perusing the material on record, we find that the assessee has sold leasehold rights and transferred the same for a consideration of Rs.75,00,000/-. The profit from the said sale of rights Rs.7,44,058/- was shown as profit under the head business from income by treating the same as stock in trade whereas the Ld. CIT(A) treated the same as capital asset and not stock
5 Shri Babu Teja Patel Bangari in trade and also denied the deduction of interest paid on loan taken for acquisition of the said leasehold rights to tune of Rs.12,09,357/-.Considering the facts in totality and after examining the records before us, we find no reason to deviate from the finding of the Ld. CIT(A) on the issue of treating the same as capital asset as the assessee has no history of carrying on the business of sale and purchase of rights/properties. However, we are not in agreement with the Ld. CIT(A) on the issue of disallowance of interest of Rs.12,09,357/- which is incurred on the loan taken for acquiring the leasehold rights. The Ld. A.R. took us through the statement as placed at page no.66 of the paper book which was also placed before the Ld. CIT(A) explaining that the loan taken was utilised for the purpose of purchase of lease rights in the property in the flat, permission of CIDCO charges, stamp duty charges etc. Under these circumstances, we are of the considered view that the assessee should be allowed deduction of Rs.12,09,357/- while computing the income from sale of the said leasehold rights by way of short term capital gain. Accordingly, we uphold the order of Ld. CIT(A) on the issue of treating the sale of leasehold rights as a capital assets while we reverse the order of the Ld. CIT(A) on the issue of upholding the disallowance of interest of Rs.12,09,357/- as there is correlation between the funds borrowed and acquisition of lease rights. Accordingly , the AO is directed to allow deduction of the interest paid of Rs.12,09,357/- from the short term capital gain. The ground no. 1 is dismissed and ground no 2 is allowed.
The appeal of the Revenue is dismissed and appeal of the assessee is partly allowed.
Order pronounced in the open court on 25.07.2018.