D.C.I.T CIR - 1,KOLKATA, KOLKATA vs. M/S AVERY (INDIA) LTD, KOLKATA

IN THE INCOME TAX APPELLATE TRIBUNAL “C”, BENCH KOLKATA BEFORE SHRI N.V.VASUDEVAN, JM & DR. A.L.SAINI, AM आयकर अपील सं./ITA No.980/Kol/2013 (�नधा�रण वष� /Assessment Year:2006-2007) DCIT, Circle-1, Kolkata, Vs. M/s Avery (India) Limited, Aayakar Bhavan, 7th Floor, 28/2, Waterloo Street, P-7, Chowranghiee Square, Kolkata-700069 Kolkata-69 �थायी लेखा सं./जीआइआर सं./PAN/GIR No.: AACCA 4694 B .. (अपीलाथ� /Assessee) (��यथ� / Respondent) Revenue by : Shri Rajat Kumar Kureel, JCIT Assessee by : Shri Manish Sheth, AR सुनवाई क� तार�ख / Date of Hearing : 08/03/2017 घोषणा क� तार�ख/Date of Pronouncement 26/04/2017 आदेश / O R D E R Per Dr. Arjun Lal Saini, AM The captioned appeal filed by the Revenue, pertaining to Assessment Year 2006-07, is directed against the order passed by ld. Commissioner of Income Tax (Appeals)-XX, Kolkata, in Appeal No.85/CIT(A)-XX/Circle-1/2011-12/Kol, dated 16.01.2013, which in turn arises out of an order passed by the Assessing Officer (AO) Under Section 143(3) of the Income Tax Act 1961, (hereinafter referred to as the ‘Act’), dated 29.12.2009. 2. Brief facts of the case qua the assessee are that the assessee filed its return of income disclosing total income of Rs.3,88,68,115/-.The return of income was processed u/s 143(1). Later on, the assessee’s case was selected for scrutiny u/s.143(3) of the Act and the AO has completed the assessment by making addition on account of short term capital gain at Rs.65,81,000/-. The Assessing Officer observed that the assessee’s claim in respect of surrender of tenancy rights is not accepted because as per

2 ITA No.980/13 M/s Avery (India) Ltd. Section 43(6) of the Act, written down value of a particular block of assets

includes only the ‘actual cost’ of the asset acquired during the previous

year. The term actual cost for the purpose of section 28 to 41 is also

defined in Sub-section 1 of Section 43 which says actual cost means the

actual cost of the assets to the assessee, reduced that portion of the cost

thereof, if any, as has been made directly or indirectly by any other person

or authority. The AO observed that the actual cost of asset in the hand of

the assessee is only Rs.3,92,069/- which comprises of Rates & Taxes and

Stamp Duty actually incurred by the assessee for acquisition of the asset.

Therefore, the consideration value of the property Rs.65,81,000/- cannot

be regarded as the actual cost of the asset in the hand of the assessee

since outgoing of assesee’s resource for acquisition of the asset is only

the tenancy right, value of which is Rs.Nil. As a matter of fact assessee

actually paid nothing other than Rates & Taxes and Stamp Duty to bring

the asset into existence in its books of accounts. For the purpose of

Capital Gain only the actual capital outgoing is to be considered but in

assessee’s case this actual capital outgoing is zero except expenditures

related to the acquisition of the assets. Accordingly, assessee’s claim of

addition to the fixed assets following in the block building is disallowed to

the extent of Rs.65,81,000/- and accordingly the AO treated short term

capital gain under section 50 at Rs. 65,81,000/-.

an appeal before the ld. CIT(A), who has deleted the addition made by

Assessing Officer. The ld CIT (A) observed that the assessee sold a

3 ITA No.980/13 M/s Avery (India) Ltd. depreciable asset of Rs.1,36,00,000/- and which was offered as short

term capital gain u/s 50 of the I.T. Act. The Assessing Officer found that

an amount of Rs.69,73,069/- was added as opening WDV of the block

being market value of a property which was provided by the promoter in

lieu of assessee's surrender of tenancy right in 'Homi house' at Nagpur.

The A.O, concluded that the value of property shown by the assessee as

the actual cost can only be taken at nil as the assessee relinquished only

tenancy right but did not spent any money for acquisition of the new

property. But it is very much clear that the asset acquired by the assessee

in Subhedhar apartment was not transferred free of cost by the developer

but in lieu of surrender value of tenancy right held by the assessee in

'Homi House'. The new premises at 'Subhedhar Apartment' was acquired

at a fair market value of Rs. 65,81,000/- in lieu of the amount that the

assessee was supposed to receive as sale consideration on surrender of

tenancy rights. The mere fact that the assessee instead of receiving the

amount of sale consideration of Rs. 65,81,000/-, opted to receive the new

premises at 'Subhedar Apartment' in exchange of tenancy right should not

change the nature of transaction. The transaction is akin to a situation

where the assessee would have opted to receive the sale consideration of

Rs. 65,81,000/- on surrender of tenancy right and by a separate

agreement would have utilized the same for acquisition of the apartment

which would form cost of the apartment. The assessee computed a long

term capital gain of Rs. 65,81,000/- on surrender of tenancy right wherein

it duly considered the market value of flat acquired of Rs. 65,81,000/- as

4 ITA No.980/13 M/s Avery (India) Ltd. surrender value of tenancy rights and the cost as Nil as per the provisions

of Section 55(2)(a)(ii) of the Income Tax Act. The said market value of flat

acquired becomes the cost of acquisition of flat acquired in exchange of

surrender of tenancy right. As regard the contention of the Assessing

officer, it is submitted that sub section 1 of Section 43 defines actual cost

to mean actual cost of the asset reduced by that portion of cost thereof, if

any, has been met directly or indirectly by any other person. In the instant

case, the assessee surrendered tenancy right against which it was

supposed to receive consideration of Rs. 65,81,000/-. The assessee in

lieu of said consideration or in other words by payment of said

consideration received new premises at 'Subhedhar Apartment'. Hence

the cost of acquisition of the said apartment was nothing but what was

receivable on surrender of tenancy right. Thus, there is definitely a cash

outflow in the hands of assessee in acquiring the premises of apartment.

When a fixed asset is acquired in exchange for another asset, its cost is

usually determined by reference to the fair market value of the

consideration given. It may be appropriate to consider also the fair market

value of the asset acquired if this is more clearly evident. This way, the ld

CIT(A) deleted the addition made by Assessing Officer.

5 ITA No.980/13 M/s Avery (India) Ltd. 5. Ld. DR for the Revenue has primarily relied on the findings of the

AO, which we have already noted in our earlier para and is not being

repeated for the sake of brevity. On the other hand, the Ld. AR for the

assessee has submitted before us that the AO merely erred in coming to

the conclusion without correctly appreciating that the asset acquired by

the assessee in Subhedhar apartment was not transferred free of cost by

the developer but in lieu of surrender value of tenancy right held by the

assessee in 'Homi House'. The Assessing Officer failed to appreciate that

the new premises at 'Subhedhar Apartment' was acquired at a fair market

value of Rs. 65,81,000/- in lieu of the amount that the assessee was

supposed to receive as sale consideration on surrender of tenancy rights.

The mere fact that the assessee instead of receiving the amount of sale

consideration of Rs. 65,81,000/-, opted to receive the new premises at

'Subhedar Apartment' in exchange of tenancy right should not change the

nature of transaction. The transaction is akin to a situation where the

assessee would have opted to receive the sale consideration of Rs.

65,81,000/- on surrender of tenancy right, but the assessee, by a

separate agreement would have utilized the same for acquisition of the

apartment (Subhedar Apartment), which would form cost of the

apartment. The Ld. AR for the assessee also submitted that the assessee

computed a long term capital gain of Rs. 65,81,000/- on surrender of

tenancy right wherein it duly considered the market value of flat acquired

of Rs. 65,81,000/- as surrender value of tenancy rights and the cost as Nil

as per the provisions of Section 55(2)(a)(ii) of the Income Tax Act. The

6 ITA No.980/13 M/s Avery (India) Ltd. said market value of flat acquired becomes the cost of acquisition of flat

acquired in exchange of surrender of tenancy right. The ld. AR for the

assessee also submitted that sub section 1 of Section 43 defines actual

cost to mean actual cost of the asset reduced by that portion of cost

thereof, if any, has been met directly or indirectly by any other person. In

the instant case, the assessee surrendered tenancy right against which it

was supposed to receive consideration of Rs. 65,81,000/-. The assessee

in lieu of said consideration or in other words by payment of said

consideration, received new premises at 'Subhedhar Apartment'. Hence

the cost of acquisition of the said apartment was nothing but what was

receivable on surrender of tenancy right. Thus, there is definitely a cash

outflow in the hands of assessee in acquiring the premises of apartment.

we are of the view that the Assessing Officer failed to appreciate that the

asset acquired by the assessee in Subhedhar apartment was not

transferred free of cost by the developer but in lieu of surrender value of

tenancy right held by the assessee in 'Homi House'. The AO failed to

appreciate that the new premises at 'Subhedhar Apartment' was acquired

at a fair market value of Rs. 65,81,000/- in lieu of the amount that the

assessee was supposed to receive as sale consideration on surrender of

tenancy rights. The mere fact that the assessee instead of receiving the

amount of sale consideration of Rs. 65,81,000/-, opted to receive the new

premises at 'Subhedar Apartment' in exchange of tenancy right should not

change the nature of transaction. The assessee computed a long term

7 ITA No.980/13 M/s Avery (India) Ltd. capital gain of Rs. 65,81,000/- on surrender of tenancy right wherein it duly considered the market value of flat acquired of Rs. 65,81,000/- as surrender value of tenancy rights and the cost as Nil as per the provisions of Section 55(2)(a)(ii) of the Income Tax Act. The said market value of flat acquired becomes the cost of acquisition of flat acquired in exchange of surrender of tenancy right. It may be noted that sub section 1 of Section 43 of the I.T. Act defines actual cost to mean actual cost of the asset reduced by that portion of cost thereof, if any, as has been met directly or indirectly by any other person. In the instant case, the assessee surrendered tenancy right against which it was supposed to receive consideration of Rs.65,81,000/-. The assessee in lieu of said consideration which is to be received by him, has received new premises at 'Subhedhar Apartment'. Hence the cost of acquisition of the said apartment was nothing but what was receivable on surrender of tenancy right. Therefore, considering the factual position, we do not find any force in the argument of ld. DR for the Revenue. Based on the discussion above, we are of the view that the order passed by the CIT(A) is a reasoned order and does not require any modification. Accordingly, we confirm the order passed by ld. CIT(A). 7. In the result, the appeal filed by the Revenue, is dismissed. Order pronounced in the open court on this 26/04/2017. Sd/- Sd/- (N.V.VASUDEVAN) (DR. A.L.SAINI) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER कोलकाता /Kolkata; �दनांक Dated 26/04/2017 �काश �म�ा/Prakash Mishra,Sr.PS.

8 ITA No.980/13 M/s Avery (India) Ltd. आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Assessee-DCIT, Cir-1, Kolkata 2. ��यथ� / The Respondent.- M/s Avery (India) Ltd. 3. आयकर आयु�त(अपील) / The CIT(A), Kolkata. 4. आयकर आयु�त / CIT आदेशानुसार/ �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, कोलकाता / DR, ITAT, Kolkata 5. BY ORDER, 6. गाड� फाईल / Guard file. स�या�पत ��त //True Copy// सहायक पंजीकार (Asstt. Registrar) आयकर अपील�य अ�धकरण, कोलकाता / ITAT, Kolkata