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Income Tax Appellate Tribunal, MUMBAI BENCHES “D”, MUMBAI
Before: Shri Joginder Singh, & Shri Ashwani Taneja
आदेश / O R D E R
Per Joginder Singh (Judicial Member) The Revenue is aggrieved by the impugned order dated 20/05/2014 of the Ld. First Appellate Authority, Mumbai. The only ground argued by the assessee is with respect to penalty imposed u/s 271(1)(c) of the Income Tax Act, 1961 (hereinafter the Act) by claiming that quantum addition has been deleted by the Tribunal for which the ld. counsel filed a copy of the order dated 15/07/2015 (ITA No.3258/Mum/2012). This factual matrix was not controverted by the ld. DR.
We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the relevant portion from the aforesaid order dated 15/07/2015, wherein, the quantum, on the basis of which penalty was imposed, was deleted by the Tribunal, affirming the stand of the Ld. Commissioner of Income Tax (Appeal).
“These cross appeals are directed against the order passed by the CIT(A)-34, Mumbai and they pertain to A.Y. 2008-09.
2. Following grounds were urged by the Revenue: - “1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that there is no basis and justification to allocate Rs.5,28,12,000/- towards the building.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the cost of building is to be taken at Rs.87,12,170/- instead of Rs.5,28,12,000/- as workout by Assessing Officer in a scientific way.
3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the Assessing Officer to work out short term capital gain on building as per Section 50 of the Act of Rs.87,12,170/- instead of Rs.5,28, 12,000/- as work out by Assessing Officer.
4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the Assessing Officer to consider Rs.6,32,87,832/- to work out long term capital gain on transfer of leasehold rights on land and not appreciating the fact that Assessing Officer has correctly worked out Rs.1,91,88,000/- on the basis of fair market value reported by the MIDC Authorities.” In the cross objections filed by the assessee it was contended that the CIT(A) erred in not allowing depreciation on the property which was held for more than 40 years and also submitted that the long term capital gains of 99 years lease should be calculated after taking into consideration the indexation value as on 01.04.1981 as prescribed in Section 55(2)(b) of the Act.
Facts necessary for disposal of the appeal are stated in brief. Assessee was engaged in the business of manufacture of Hydraulics Systems and Components. During the financial year 2007-08 assessee stopped its business and all the assets were sold for a consideration of 7.20 crores. Assessee firm declared long term capital gains of Rs.5,79,63,425/- whereas the cost of building was shown at Rs.67,000/- and valuation of land and building as per Valuation Report for 01.04.1981 was shown as Rs.24,11,789/-.
The AO observed that as per the deed of assignment dated 18.06.2007 between the assessee and M/s. Meyer Organics P.
Ltd. the assessee has assigned its leasehold rights in Plot No. B- 22 together with the building constructed on it in the year 1966, situated in Thane Industrial area. This lease of land had been obtained from the Maharashtra Industrial Development Corporation (MIDC). Since it was an assignment of tenancy rights, the AO was of the view that there is no sale of land involved and as per the provisions of section 55(2)(a) of the I.T. Act the purchase price is to be taken as the cost of acquisition. Since tenancy rights is covered by the provisions of section 55(2)(a), the market value as on 01.04.1981 need not be allowed to be substituted in the computation of long term capital gains. The AO also called upon the assessee to furnish the cost of acquisition of the building and its year of acquisition along with details of depreciation claimed on it.
In response to the notice issued by the AO the assessee submitted that the cost of construction of the building in the year 1965 was approximately Rs.67,000/-. In this regard the AO observed that the details of depreciation claimed on the building were not submitted and the assessee had also not submitted the separate consideration received for land and building. In fact in the deed of assignment the total consideration has been received on the leasehold rights and the building situated on it and the purchaser has paid an amount of Rs.19,14,440/- to MIDC as differential premium. Notice under section 133(6) was issued to the Area Manager of MIDC seeking certain information with regard to the guidelines of assigning leasehold rights to M/s. Meyer Organics P. Ltd. The MIDC submitted that as per Corporation guidelines the differential premium works out to Rs.19,14,400/- because of the fact that the previous rate was Rs.14/- whereas the current rate was Rs.6,000/- per sq.ft. The cost of acquisition of leasehold rights accordingly worked out to Rs.44,772/- in the hands of the assessee and the cost at the time of transfer by the assessee works out to Rs.1,91,88,000/-. The AO observed that as per the provisions of section 55(2)(a) of the Act, in the case of tenancy rights, the purchase price is to be taken as the cost of acquisition and the market value as on 01.04.1981 is not allowed to be substituted. Despite the objection of the assessee he proceeded to compute the long term capital gains at Rs.1,84,41,306/- and short term capital gains of Rs.5,37,54,656/-.
Assessee submitted before the CIT(A) that the AO bifurcated the total consideration of Rs.7.20 crores by taking the value of land at Rs.1.91 crores and the balance amount of Rs.5.28 crores as sale price of building. It was also pointed out that the land valuation taken by the AO is on the basis of differential premium payable to MIDC on the basis of a letter from MIDC to the AO, which specifically stated that the Corporation has not considered the market value in the above calculation of differential premium. It was also brought to the notice of the learned CIT(A) that according to the Ready Reckoner issued by Government of India the market value of the land in that area was Rs.1,557/- per sq.ft. Even if the prevailing rate was 30% to 40% higher, as under the new government policy IT industries are to be promoted in that zone, with double FSI and also other availability of infrastructure. The value of the land which is sold will be approximately 7,00,00,000/- as against the value taken by the AO, i.e. Rs.1.91 crores.
As regards sale price of the building it was submitted that the cost of the building in the year 1966 was approximately Rs.67,000/- which consists of factory admeasuring 627.34 sq.mts., office admeasuring 222.40 sq.mts. and toilet admeasuring 18.31 sq.mts. Even if the said building is constructed new now the total cost of construction will be around Rs.87,00,000/- as against Rs.5.27 lakhs worked out by the AO. The AO had taken the cost of construction at Rs.8,000/- per sq.mt. For a building constructed in 1966 no person will purchase the same at that price. It was therefore submitted that the amount paid by the purchaser was on account of the land cost.
The learned CIT(A) examined the issue and observed that the Hon'ble Bombay High Court, in the case of D.K. Sandhu Bros. Chembur P. Ltd. 249 ITR 265 had considered identical issue wherein it was held that the tenancy right was a capital right and its transfer would attract capital gains. In the instant case the assessee acquired the leasehold rights for an amount of Rs.44,772/- and this should be treated as cost of acquisition.
As regards computation of capital gains the learned CIT(A) noticed that the AO had taken the value of leasehold rights at Rs.1,91,88,000/- whereas the fact remains that the purchaser, M/s. Meyer Organic P. Ltd., vide assignment deed dated 18.06.2007, got the lease on the above land and building by paying Rs.7.2 crores in addition to payment of a sum of Rs.19,14,400/- towards differential premium to MIDC. In fact the AO called for information in respect of differential premium from MIDC wherein it was clarified that the Corporation has not considered the market value in above calculation of differential premium which highlights that the premium rates charged by MIDC is different from the actual market value. He also observed that the estimate made by the AO in arriving at the value of building has no basis. The assessee submitted before the AO that the value of the building should be taken at Rs.87,12,170/- and the AO did not object to the working given by the assessee. He thus directed the AO to substitute the value by Rs.87,12,170/- as against Rs.5,28,12,000/- arrived at by the AO, However, while arriving at this figure he had taken into consideration the WDV of the building and directed the AO to work out the short term capital gains on the building as per section 50 of the I.T. Act.
It could thus be seen that the learned CIT(A) allocated Rs.5,28,12,000/- towards value of land and the balance towards cost of building. The Revenue challenged the order passed by the learned CIT(A) whereas in the cross objections the assessee contends that the market value as computed under section 55(2)(b) has to be taken into consideration in the case of the building, which is more than 40 years old. It is not in dispute that the building is more than 40 years old. As per the Annexure to the cross objections the rate of depreciation of old buildings should be worked out as per the method prescribed in the Ready Reckoner and in the instant case 30% of the value should be taken into consideration which works out to Rs.21,78,043/-.
We have heard the rival submissions and carefully perused the record. In our considered opinion the appeal filed by the Revenue has no merits. The AO has arbitrarily allocated the cost of land by taking into consideration the cost of the building overlooking the claim of the assessee that even if new construction has to be made in the same plinth area it cannot be more than Rs.87,00,000/-. The learned CIT(A) has correctly taken into consideration the fact that the MIDC has not taken into consideration the market value while calculating the differential premium. Since the leasehold rights were transferred to the purchaser at Rs.7.20 crores, the learned CIT(A) had correctly taken into consideration the fact that the purchaser would have paid the amount essentially based on the land cost and the chance of constructing a new building for new I.T. based industries with adjoining infrastructural facilities and hence it is improper to segregate a large chunk of consideration towards cost of building since the dominant object was to acquire the leasehold rights on the land. Under these circumstances we are of the view that the order passed by the learned CIT(A) on this aspect does not call for any interference and hence we dismiss the appeal filed by the Revenue.”
2.1. In the aforesaid order, on quantum addition, the Tribunal vide aforesaid order dated 15/07/2015 dismissed the appeal of the Revenue and decided the issue in favour of the assessee. The quantum addition was deleted on the basis of which penalty was levied/confirmed. In view of this factual matrix, we are of the view that penalty imposed u/s 271(1)(c) will not survive. Our view find support from the decision in K.C. Builders vs ACIT (2004) 265 ITR 562 (SC) and the ratio laid down in CIT vs S.P. Viz, 176 ITR 76 (Patna). Even otherwise, when the quantum addition is deleted, there remains no basis at all for levying the penalty for concealment or furnishing inaccurate particulars. The penalty cannot stand on its legs when addition on the basis of which the penalty was imposed remains no more in existence, thus, appeal of the assessee is allowed and the ld. Assessing Officer is directed to delete the penalty.
Finally, the appeal of the assessee is allowed.
This order was pronounced in the open court in the presence of Ld. representatives from both sides at the conclusion of the hearing on 14/06/2016.