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Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI
Before: SHRI PAWAN SINGH & SHRI RAJESH KUMAR
Per Rajesh Kumar, Accountant Member:
The present appeal has been preferred by the assessee against the order dated 02.12.2013 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2009-10.
The various grounds raised by the assessee are as under: “Being aggrieved by the order of the Commissioner of Income Tax (Appeals)- 30, Mumbai (hereinafter referred to as Learned CIT(A) ) dated 30.12.2013 under section 250, the appellant submits this appeal on the following grounds each of which may please be considered without prejudice to one another:
ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW:-
Long Term Capital Gain ('LTCG') on Sale of Flat
2 ITA No.987/M/2014 Mr. Niranjan Shrichand Matta 1.1 The learned CIT (A) erred in considering the share of the assessee in the sale consideration of flat sold at Rs, 44,26,083 instead of Rs. 43,33,300/- as considered in the return filed by the assessee.
1.2 The learned CIT (A) further erred in not allowing indexation on the Cost of improvement of Rs. 95,000/-.
1.3 The learned CIT (A) further erred in disallowing brokerage & legal fees incurred in relation to sale of flat to the extent of Rs.8,500/-.
1.4 The learned CIT (A) further erred in considering taxable LTCG at Rs.5,31,085/-.
Income from other sources
2.1 The learned CIT (A) erred in adding back an amount of Rs. 2,66,800/- as income from other sources, which was received by the appellant as compensation towards temporary alternate accomodation.
2.2 The learned CIT (A) further erred in not appreciating the fact that the compensation received was not in nature of a commercial transaction.
2.3 The learned CIT (A) further erred in not appreciating the fact that the compensation was received was for the dislocation and hardship caused to the appellant
2.4 The learned CIT (A) further erred in considering the compensation as a revenue receipt instead of capital receipt.
Deduction under Chapter VI-A
3.1 The learned CIT (A) erred in disallowing deduction under section 80C to the extent of Rs. 17,071/-.
General
4.1 The learned CIT (A) deprived the Appellant of adequate opportunity to represent his case.
4.2 The appellant prays to Your Honour to cancel the order passed by the Learned CIT(A) under Sec. 250 and prays to allow the correct amount of expenses and deduction claimed as referred to in the grounds hereinbefore or alternatively prays to grant such relief as Your Honour may deem fit.
4.3 The Appellant craves leave to add, delete, withdraw and/or modify any one/more or all the above grounds of appeal on or before the date of final hearing.”
3 ITA No.987/M/2014 Mr. Niranjan Shrichand Matta 3. The issue raised in sub ground No.1.1 is against the order of Ld. CIT(A) taking the assessee’s share in the sale consideration of the flat sold at Rs.44,26,083/- instead of Rs.43,33,300/- as shown by the assessee while computing the long term capital gain.
The facts in brief are that the assessee entered into development agreement in respect of a plot of land in which he was one of the co-owners. The said property was inherited by the assessee on death of his father who was also a co- owner in the said property with his three brothers. The total consideration was Rs. 3,99,00,000/- out of which the share of assessee family was Rs. 1,33,00,000/- in which the assessee has 1/4th share. Thus assessee calculated the long term capital gain by taking sales consideration of Rs. 43,00,000/-. The AO recalculated the capital gain by taking the sale price [under section 50C(1) of the Act] at Rs.44,26,083/- as against the actual share of the assessee of Rs.43,33,300/-. The AO substituted the actual sale consideration with the fair market value on the basis of sale deed and thus framed the assessment by making an addition of Rs. 5,31,085/- towards long term capital gain by rejecting the indexation on the cost of improvement and also not allowing part of the commission paid in connection with the said transfer.
The Ld. CIT(A) upheld the action of the AO of taking the sale consideration equal to fair market value after taking into consideration the contentions of the assessee.
4 ITA No.987/M/2014 Mr. Niranjan Shrichand Matta 6. We have heard the rival submissions of both the parties and perused the material on record. The difference between the fair market value and actual sale consideration received by the assessee is less than 10% and therefore no addition can be made on that account. The Ld. A.R. relied on the decision of co-ordinate bench of the Tribunal in the case of M/s. John Flower (India) Pvt. Ltd. vs. DCIT in ITA No.7545/M/2014 for A.Y. 2010-11 wherein the Tribunal has held as under: “7. We have heard the rival submissions and perused the orders of the authorities below and the case law relied on. Considering the entire facts of the assessee's case, the submissions of the assessee cannot be ignored, The sale consideration of these two plots sold on the same day though be separated agreements, is more than the stamp duty valuation by Rs.3,00,00,000/-. Even assuming for a movement that the sale consideration in respect of Plot in survey No. 22 and 42 is less than the Stamp valuation it is Rs.33,48,284/- which is less than 10% of the stamp duty valuation of the said plot. Therefore, in view of the ratio of the decisions re1ied on by the assessee, the assessee should succeeded in its appeal. The Jaipur Bench in the case of Smt. Sita Bai Ketan (Supra) held as under:-
4.2 "We, have heard rival contentions and perused the material available on record. We find that the Hon'ble coordinate Bench in ITA No.1543/PN/2007 in the case of Rahul Constructions Vs. DCIT (Supra) has held as under:-
“We find that the Pune Bench of the Tribunal I the case of Asstt. CIT vs. vs. Harpreet Hotels (P) Ltd. Vide ITA No.1156- 1160/Pn/2007 and relied on by the learned counsel for the assessee had dismissed the appeal filed by the Revenue where the CIT(A) had deleted the unexplained investment in house construction on the ground that the difference between the figure shown by the assessee and the figure of the DVO is hardly 10 per cent. Similarly, we find that the Pune Bench of the Tribunal in the case of ITO vs. Kaaddu Jayghosh Appasahebh, the learned counsel for the assessee following the decision of the J&K High Court in the case of Honest Group of Hotels (P) Ltd. vs. CIT (2002) 177 CTR (J & K) 232 had held that when the margin between the value as given by the assessee and the Departmental valuer was less than 10 per cent, the difference is liable to be ignored and the addition made by the AO cannot be sustained.
5 ITA No.987/M/2014 Mr. Niranjan Shrichand Matta
Since in the instant case such difference is less than 10 per cent and considering the fact that valuation is always a matter of estimation where some degree of difference is bound to occur, 'we are of the considered opinion that the AO in the instant case is not justified in substituting the sale consideration at Rs.20,55,000/- as against the actual sale consideration of Rs.149,00,000 disclosed by the assessee. We, therefore, set aside the order of the CIT(A) and direct the AO to take Rs.19,00,000/- only as the sale consideration of the property. The grounds raised by the assessee are accordingly allowed.”
In the instant case, the difference between the valuation adopted by the Stamp Valuation Authority and declared by the assessee is less than 10%. Therefore, respectfully following the decision of the Hon’ble Coordinate Bench, we hereby direct the AO to adopt the value as declared by the assessee. This ground of the assessee is allowed”.
Since the facts of the present case are materially same as that of the decision of the co-ordinate bench of the Tribunal as stated hereinabove, we are , therefore, inclined to set aside the order of Ld. CIT(A) on this issue and direct the AO to take the sale consideration at Rs.43,33,300/-. The sub ground No.1.1 is allowed.
The issue raised in ground No.1.2 is against the order of Ld. CIT(A) confirming the non indexation on the cost of improvement of Rs.95,000/-. The facts in brief are that the assessee has claimed the cost of improvement at Rs.95,000/- which was indexed by taking the current index at Rs.582/- and base index of Rs.100 and thus index cost was calculated at Rs.5,52,900/-. However, the AO during the assessment proceedings while recalculating the capital gain denied the benefit of indexation to the assessee. However, the cost of
6 ITA No.987/M/2014 Mr. Niranjan Shrichand Matta improvement of Rs.95,000/- was allowed. The AO cited the various reasons such as non furnishing of bills and vouchers by the assessee.
The Ld. CIT(A) confirmed the action of the AO.
Having heard both the sides and perused the material on record, we find that the AO has admitted the fact of having incurred Rs.95,000/- on cost of improvement of the property while denying the benefit of indexation to the assessee. We find merits in the arguments of the Ld. A.R. that once the fact of expenses having been incurred is accepted by the AO the indexation can not be denied. The Ld. A.R. relied on the decision of the co-ordinate bench of the Tribunal in the case of Mrs. Usha Srichand Matta in ITA No.988/M/2014 for A.Y. 2009-10 wherein the co-ordinate bench of the Tribunal has held as under:
“5. We have considered the submissions of the parties and perused the material on record. The mode of computation of Long term capital gains has been provided u/s. 48 of the Income Tax Act 1961. As per the said provision income chargeable under the head Long term capital gain shall be computed after deducting the following amounts – i) expenditure incurred wholly and exclusively in connection with such transfer ii)the cost of acquisition of the asset and the cost of any improvement thereto. The said provision further provides that in case of Long term capital gains arising from the transfer of long term capital asset in case of a resident, cost of acquisition and cost of any improvement would mean indexed cost of acquisition and indexed cost of any improvement. Keeping in view the aforesaid statutory provision if we examine the facts of the present case, it is noticed that the AO has accepted the assessee's claim of cost of improvement of Rs.1,25,000/-, which is evident from the working of Long term capital gains made by the AO. Therefore, the AO in principle having accepted assessee's claim of cost of improvement of Rs.1,25,000/- as a natural consequence indexed cost of improvement has to be allowed in terms with section 48 of the Act. A deduction allowed under the provisions of a statute cannot be taken away/disallowed by mutual agreement between the assessee and the
7 ITA No.987/M/2014 Mr. Niranjan Shrichand Matta department, if at all there is any. Moreover, the AO being a creature of the statute has to act within the four corners of the statutory provisions. Since as per mode of computation provided u/s. 48 of the Act cost of any improvement would mean ITA No.988/Mum/2014 indexed cost of any improvement, which is to be reduced from the full consideration, while computing Long term capital gains, in our view, the AO cannot disallow assessee's claim of indexed cost of any improvement. Accordingly, we direct him to allow asessee's claim of indexed cost of improvement. This ground is allowed.” 11. The facts of the case are materially same as that of the decision of the co-ordinate Bench as cited above. We, therefore, set aside the order of the Ld. CIT(A) and direct the AO to allow the benefit of indexation on the cost of improvement of Rs.95,000/-. The ground is allowed.
The issue raised in ground No.1.3 is against the confirmation of disallowance by Ld. CIT(A) of Rs.8,500/- as brokerage and legal fees incurred in relation to the sale of flat.
The facts in brief are that the assessee claimed Rs.43,500/- as brokerage and legal fee paid in connection with the transfer property and produced before the AO copies of bank statement evidencing the payment however, could not produce the bills as the same were misplaced. The AO disallowed Rs.8,500/- by observing that the only two payments were considered as allowable and remaining to be disallowed. The Ld. CIT(A) affirmed the order of AO on this issue.
Considering the relevant records as placed before us, we find that the assessee has produced before the AO the records evidencing the payment of brokerage and legal expenses which were paid in connection with the transferred property.
8 ITA No.987/M/2014 Mr. Niranjan Shrichand Matta However, the AO has partly allowed the payment of the assessee by reasoning that only two payments of Rs.20,000/- & Rs.15,000/- were allowable and the remaining was disallowed without assigning any specific reasons. The Ld. CIT(A) also upheld the order of the AO on this issue summarily without any reason reasoning. Now taking into account the facts that when the assessee has made payments from the banking channel, the AO can not disallow the same at his whims and fancies. The AO has to point out specific defects/deficiencies in the evidences produced before him and only then the disallowances can be made but nothing of the sort has been done in th present case. We, therefore, set aside the order of Ld. CIT(A) on this issue and direct the AO to allow the brokerage and legal fee of Rs.8,500/-. Ground No.1.3 is allowed.
Sub ground 1.4 raised by the assessee is consequential and needs no adjudication specifically.
The issue raised in ground No.2 is against the confirmation of addition of Rs.2,66,800/- by Ld. CIT(A) as made by the AO under the head “Income from other sources” towards the money received by the assessee as compensation for taking temporary alternative accommodation for 18 months and thereby Ld. CIT(A) not appreciating the fact that the compensation received was not of commercial nature but was a compensation for dislocation and hardship caused to the assessee and is a capital receipt.
9 ITA No.987/M/2014 Mr. Niranjan Shrichand Matta 17. The facts in brief are that the AO observed from the development agreement made between the developer and the assessee that the developer has paid some amount to the assessee as compensation for alternative accommodation as per clause 5 of the said agreement to the tune of Rs.2,66,800/- and accordingly a show cause notice was issued to the assessee as to why the same should not be added as income from other sources which was replied by assessee vide letter dated 15.12.2011 submitting therein that payment received of Rs.2,66,800/- was for alternative accommodation which was paid as rent for the flat taken on lease during the period of construction. However, the reply of the assessee did not find favour with the AO and he added the same as the income from the other sources.
The Ld. CIT(A) upheld the same in the appellate proceedings.
After hearing both the parties and perusing the facts of the case carefully, we find that the assessee has received Rs.2,66,800/- as compensation for the displacement/ harassment during the period of construction and for taking alternative accommodation on rent for a period of 18 months. We find that the assessee has paid the same by way of rent for the premises which was in fact taken on rent. Under these facts and circumstances, we are not in agreement with the conclusion drawn by the Ld. CIT(A) that the income is assessable as income from other sources. The case of the assessee is further reinforced by the decision of co-ordinate
10 ITA No.987/M/2014 Mr. Niranjan Shrichand Matta bench of the Tribunal in the case of (2012) 21 taxman.com 316 (Mum.) wherein the co-ordinate bench of the Tribunal has held that displacement compensation or compensation received for alternative accommodation is not related to any capital asset but is received by assessee for taking alternative accommodation to facilitate the construction of the flat. The co-ordinate bench of the Tribunal has further held that the actual payment being lower than the amount received as compensation for taking alternative accommodation is net income to the assessee which has to be taxed as income from other sources. On the same analogy, we set aside the order of Ld. CIT(A) and direct the AO to treat the same as compensation for alternative accommodation and only if any net saving is made by the assessee i.e. if the rent paid is less than the amount of compensation only the difference part can be assessed as income from other sources and not the entire. The AO is directed accordingly by setting aside the order of ld CIT(A) on this issue. Ground is allowed accordingly.
The third issue raised is against the confirmation of disallowance under section 80C to the extent of Rs.17,071/-.
The facts in brief are that the assessee has claimed deduction u/s 80C of Rs. 1,03,481/- which was reduced by the AO to RS. 86,410/- in the assessment order without doing any discussion on the said issue or raising any query on the assessee. The assessee did not raise the ground before the ld CIT(A). After perusing the records as placed before us and after hearing both the parties, we find that the issue is
11 ITA No.987/M/2014 Mr. Niranjan Shrichand Matta emanating from assessment records and therefore the assessee is within his rights to raise the ground. However the issue is required to be examined in the lights of payments receipts and we therefore deem it fit to restore this issue to the file of the AO to examine the issue and decide the same as per law after affording a reasonable opportunity of hearing to the assessee. Needless to say that if the payment is made by the assessee as per the provisions of the Act the same has to be allowed. This ground is allowed for statistical purposes.
In the result, appeal of the assessee is partly allowed.
Order pronounced in the open court on 22.06.2018.
Sd/- Sd/- (Pawan Singh) (Rajesh Kumar) JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai, Dated: 22.06.2018. * Kishore, Sr. P.S.
Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The CIT (A) Concerned, Mumbai The DR Concerned Bench //True Copy// [ By Order
Dy/Asstt. Registrar, ITAT, Mumbai.