ASST CIT 21(3), MUMBAI vs. SHREE KRISHNA PHARMACY, MUMBAI

This is an appeal filed by the Revenue against the order of CIT(A) – 33, Mumbai dated 30/03/2016 for A.Y.2007-08 in the matter of order passed u/s.143(3) r.w.s. 147 of the IT Act.

During the course of hearing, learned AR has raised an additional legal ground to the fact that assessee’s case is covered by the proviso to Section 147, therefore, AO could not have reopened the assessment after completion of four years, since assessment was originally completed u/s.143(3). Learned AR contended that as per the reasons recorded, Shree Krishna Pharmacy there is no failure on the part of the assessee to disclose fully and truly all material facts.

We have considered rival contentions and carefully gone through the reasons recorded by the AO and found that in the reasons so recorded, the AO has clearly mentioned as under:- “It is clear from the above that the assessee has not incurred any cost of acquisition of the said property during F.Y.2006-07. Therefore, action of assessee to consider acquisition cost of Rs.18,19,200/- and working of indexation cost of Rs.54,68,176/- is not in order and has to be disallowed.”

It is clear from the above reasoning that there was failure on the part of the assessee to disclose the fact that no cost has been incurred for the acquisition of the said property. Accordingly, there is not merit in the legal ground taken by the assessee.

In the Revenue’s appeal, Revenue is aggrieved for deleting the addition made u/s.50C of the IT Act.

Rival contentions have been heard and record perused.

During the course of scrutiny assessment, AO made addition by invoking provisions of Section 50C.

By the impugned order, CIT(A) deleted the same after observing as under:- 9. The appellant acquired 'Shop No. 2, Sumeet Sadan' vide agreement dated 04.04.1989 from M/s Abis Construction admeasuring 1200 sq. ft (carpet) on ownership basis free of cost. The said property was acquired in lieu of tenancy rights. As per declaration of the appellant, sum of Rs. 56,350/- & Rs. 1,12,700/- were paid towards stamp duty and penalty for the agreement dated 04.04.1989. This shop no. 2, Sumeet Sadan was sold by the appellant in the F.Y. 2006-07 corresponding to A.Y. 2007-08. According to the AO, the appellant has not incurred any cost of acquisition and, therefore, no cost can be attributed for Shree Krishna Pharmacy acquiring the said shop. On the other hand, the appellant has claimed that the shop was allotted to it on ownership basis in lieu of surrender of tenancy right and, therefore, the market value of the acquired shop should be taken as the cost of acquisition as on 04.04.1989. The market value of the shop no. 2 was calculated on the basis of cost incurred for purchase of two other flats i.e., A - 3 and A - 4 on the first floor of the same building which were also sold along with the said Shop no. 2 at Rs. 18,19,200/- (Rs.6,96,600/-*1200/460).

In this regard, I find that the case of the appellant is identical to decision of Hon'ble ITAT, Mumbai in the case of Mrs. Tauqeer Fatema Rizvi in dated 02.05.2014. In the case of Mrs Tauqeer Fatema RIZVI too the assessee has got the ownership right of the property in exchange of tenancy rights as the assessee was an old tenant in the same building. The date of agreement "with the builder was 6th May, 1982. The said newly acquired flat was sold on 29th October, 2004. The assessee did not pay any consideration to the builder except security deposit of Rs. 2,000/-. For the calculation of capital gains, the assessee on the basis of similar transactions undertaken by the builder in the Month of May, 1982, adopted the value of Rs. 3,64,OOO/- as the cost of acquisition. The A.O took the cost at Rs. 2,0007- and rejected the claim of Rs. 3,64,0007-. The Hon'ble ITAT allowed the appeal of the assessee and directed the A.O to adopt the value of flat as on the date on which the assessee got the possession of the flat. The ratio of the said judgment is reproduced as under: , "It is now quite settled that for the purpose of cost of acquisition under section 48 and 49, the tenancy rights is to be taken into consideration. This is evident from sub-section (2) of section 55. The builder has given the alternate flat to the assessee only by virtue of surrender of tenancy rights by the assessee. Had there been no tenancy right, the builder would have not offered any flat to the assessee, on ownership basis. Thus, it is a valuable right on which cost of acquisition has to be determined. It is not a case that the cost of acquisition cannot be determined in lieu of the surrender of tenancy right at all. Once the cost of acquisition is determinate, the benefit of such acquisition has to be given while computing the tax on capital gain. In the present case, the tenancy right got converted into acquisition of a flat, when the assessee must have got the possession of new flat constructed by the builder. Thus, the market value of the said flat as on the date of its possession would be the cost of its acquisition and, accordingly, such cost deductible while computing income by way of capital gains, whether long term capital gain, as the case may be. This is as the holding period of the capital assets, being the said residential flat, would Shree Krishna Pharmacy only commence from the date the assessee u/s put in possession thereof after its completion. Accordingly, we set aside the impugned border passed by the learned Commissioner (Appeals) and restore the issue back to the file of the Assessing Officer and direct him to take the value of the flat for the purpose of cost of acquisition from the year in which the assessee got the actual possession of the flat and then only he shall compute the capital gain. Thus, the assessee's ground is partly allowed for statistical purposes."

Since facts of the instant case is identical to the facts of Mrs. Tauqeer Fatema Rizvi (supra) respectfully following the decision of Hon'ble Tribunal, the AO is directed to recompute the long term capital gain on sale of shop no. 2, Sumeet Sadan by taking the cost of acquisition as on 04.04.1989 at Rs. 18,19,200/- and allowing the indexation from FY 1989-90 to the date of sale. Hence, grounds of appeal no. 1 and 2 are allowed.