ASST CIT 19(3), MUMBAI vs. AKHAND ABHAR CO OP HOUSING SOCIETY LTD, MUMBAI

PDF · subscribers
ITA 3220/MUM/2014Status: DisposedITAT Mumbai03 December 2015AY 2002-037 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that since the quantum addition, which formed the basis for the penalty, was deleted, the penalty could not stand on its own. The appeal of the Revenue was therefore dismissed.

What were the facts?

The Revenue appealed against the deletion of a penalty imposed under Section 271(1)(c) of the Income Tax Act. The penalty was based on a quantum addition that had previously been deleted by the appellate authority.

What were the issues?

Whether penalty under Section 271(1)(c) can be sustained if the underlying addition is deleted. Whether receipts from transfer of TDR are taxable as capital gains.

Which sections of the Income-tax Act were involved?

Section 271(1)(c),Section 45

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCHES “A”, MUMBAI

Before: Shri Joginder Singh, & Shri Rajendra

For Respondent: Shri S.M. Bandi
Hearing: 03/12/2015

Per Joginder Singh (Judicial Member) The Revenue is aggrieved by the impugned orders both dated 21/02/2014 of the ld. First Appellate Authority, Mumbai. The only ground raised in this appeal pertains to 2 AKhand Abhar Co-op Housing Society deleting the penalty of Rs.24,96,503/- imposed u/s 271(1)(c) of the Income Tax Act, 1961 (hereinafter the Act)

2.

During hearing of this appeal, the ld. DR, Shri Mohammed Rizwaan, advanced arguments, which is identical to the ground raised. On the other hand, the ld. counsel for the assessee, Shri S.M. Bandi, invited our attention to the order of the Tribunal in the case of assessee itself (ITA No.2494/Mum/2011) for A.Y. 2002-03 order dated 20/10/2015, wherein, on quantum addition, the appeal was decided in favour of the assessee. This factual matrix was not controverted by the ld. DR.

2.1.

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 of the order of the Tribunal dated 20/10/2015 for ready reference, passed by the co-ordinate Bench.:-

“ The present appeal filed by the assessee is directed against the order of the CIT(A) -30, Mumbai, dated 25.01.2011 pertaining to A.Y. 2002-03. 2. The assessee has raised as many as eight grounds of appeal, however, the sole issue relates to the taxing of sum of Rs.77,15,157/- as Long term capital gains u/s. 45 of the I.T. Act on transfer of FSI/TDR.

3.

The brief facts of the case are that the assessee is a housing society. A survey action u/s. 133A of the Act was conducted on 31.03.2001 in the case of the assessee society. It was found that the assessee had entered into an agreement with M/s. Divine Construction Co., the developer vide which the assessee had sold

3 AKhand Abhar Co-op Housing Society the development rights for a consideration of Rs.1.40 crores. On the basis of the said survey action, assessment was reopened u/s. 147 of the Act. During the course of reassessment proceedings, the AO noticed that the above stated amount of Rs.1.40 crores was received by the society on transfer of development rights/TDR. However, the assessee society contended that the said amount was not taxable in the hands of the society since the same was distributed equally among the society members. The AO however, held that the transfer of FSI in the form of TDR was available to the society and not to the member. The society had transferred the right in the property to the developer. The rights such as excess FSI/TDR were in the nature of intangible rights, which are embedded and firmly rooted to the rights in the ownership of the land. Such rights basically flow and emanate out of the right of ownership of the land. Any gain arising from the sale/transfer of such TDR/ FSI would be fully attributable to the ownership right. Thus, the capital gain will be chargeable to the assessee on transfer of TDR/FSI being intangible property and would fall within definition of section 2(14) of the Act. He further observed that the rights created by the Development Control Regulation of 1991 were attached to the land owned by the assessee society which was acquired for value given or money paid. The ownership of the plot entitles the assessee to consume the permissible FSI. The TDR rules extend the permissible FSI limit of the assessee’s plot of land. The effect of this extension was to spread the original cost of land over increased FSI provided by the Development Control Regulation of 1991. He therefore held that the principle, which is applicable to bonus shares will be applicable in the case of additional FSI, if any, granted to the society under the amended rules. He therefore estimated the cost of acquisition of the TDR on the basis that the same was embedded in the ownership right of the property and took the value as on 01.04.1191 and computed capital gain over it. Being aggrieved, the assessee preferred appeal before the CIT(A), but without any success. Thus, the assessee is in appeal before us.

4.

We have heard the rival contentions. The TDR was transferred by the society to the builder and the amount in lieu thereof was received by the assessee society which was further distributed among the members of the society. Hence, it is the assessee society which transferred the TDR for consideration hence, the entire amount has to be considered as receipt in the hands of the assessee’s society.

4 AKhand Abhar Co-op Housing Society

5.

Now coming to the issue whether the capital gains received by the assessee in lieu of transfer of TDR can be assessed under section 45 of the Act or not, the base decision in this respect is in the case of CIT v. B.C. Srinivasa Shetty (1981) 128 ITR 294; (1981) 2 SCC 460 wherein the Hon’ble Supreme Court has held that all transactions encompassed by section 45 must fall within the computation provisions of section 48. If the computation as provided under section 48 could not be applied to a particular transaction, it must be regarded as "never intended by section 45 to be the subject of the charge". The Hon’ble Supreme Court in the case of ‘PNB Finance ltd. vs. CIT (2008) 307 ITR 75’ has reiterated the above proposition of law. In the case of CIT v. B.C. Srinivasa Shetty (supra) the court was considering whether a firm was liable to pay capital gains on the sale of its goodwill to another firm. The court found that the consideration received for the sale of goodwill could not be subjected to capital gains because the cost of its acquisition was inherently incapable of being determined. Thereafter Section 55 (2) was amended to provide that the cost of acquisition of, inter alia, a tenancy right, good will etc. would be taken as nil. However, the rights obtained by way of additional TDR have not been included in the provision neither in the charging section 45 nor in the section 48 which provides mode of computation. Though the Parliament has made an amendment that in certain type of assets like goodwill, tenancy rights etc., the cost of acquisition would be taken as actual cost incurred and if no cost incurred, the same be taken at nil, however the said deeming section is applicable to the assets which have been specifically brought within the purview of the said provision. The assets or the rights which do not find mention in the relevant provision, cannot be brought within the ambit of charging section, in the light of the decision of the Hon’ble Supreme Court. So far as the question that the cost of additional TDR is determinable or not, the issue is now squarely covered by the decision of the Hon’ble Bombay High Court in the case of “CIT vs. Shambaji Nagar Co-operative Housing Society Ltd.” 370 ITR 325, wherein Hon’ble Bombay High Court while relying upon the proposition of law laid down by the Hon’ble Supreme Court in the case of CIT v. B.C. Srinivasa Shetty (supra) has held that in the case of the society ,the receipt in lieu of transfer of TDR rights cannot be subjected to capital Gains Tax.

6.

The Hon’ble High Court agreed with the view of the Tribunal that the assessee has not incurred any cost of acquisition in respect of right which emanated from the relevant rules/

5 AKhand Abhar Co-op Housing Society Development Control Regulation making the assessee eligible to additional FSI. Even after the transfer of the right or the additional FSI, the position did not undergo any change. Hence, nocost of acquisition was incurred by the assessee in respect of the TDR or even the same was not determinable.

7.

We further find that identical issue has been decided by the coordinate bench of this Tribunal in the case of “Land Bridge Co- operative Housing Society Ltd” vide order dated September 14, 2012 reported as (2013) 21 ITR Trib. 467 (Mum.) wherein it has been held that though the transferrable development right amounts to transfer of capital asset by the society, however, the same could not be subjected to tax under the head ‘Capital Gains’

for the reasons that there was no cost of acquisition in acquiring the right which had been transferred and, therefore, the computational mode given in section 48 thus fails. The matter was carried by way of appeal by the Revenue to the Hon’ble Bombay High Court. The Hon’ble jurisdictional High Court vide order dated 11.03.2015 passed in ITA No.334/2013 styled as “CIT vs. Land Bridge Co-operative Housing Society Ltd.” while relying upon the another decision of the Hon’ble High Court in the case of “CIT vs. Shambaji Nagar Co-operative Housing Society Ltd.” 370 ITR 325 upheld the order of the Tribunal. Hence, the same analogy will also apply to the case of the assessee society.

Respectfully following the decision of the Hon’ble Bombay High Court, it is held that the TDR receipts in the hands of the assessee are not taxable.

8.

In the result, the appeal is allowed.”

2.2.

If the conclusion drawn in the aforesaid order is analyzed, we find that the issue before the earlier Bench was with respect to taxing sum of Rs.77,15,157/- as long term capital gains u/s 45 of the Act on transfer of FSI/TDR. Finally, the Co-oridnate Bench after following decision from Hon’ble jurisdictional High Court in CIT vs Sambhaji Nagar Co-operative Housing Society Ltd. 370 ITR 325 (Bom.) along with the decision from Hon’ble Apex Court in PNB Finance Ltd. vs CIT (2008) 307 ITR 75 (SC) and also CIT vs B/C.

6 AKhand Abhar Co-op Housing Society Srinivasa Shetty (1981) 128 ITR 294 held that the TDR receipts in the hands of the assessee are not taxable and thus gave relief to the assessee.

2.3.

In view of the above, since, the quantum addition has been deleted by the Co-ordinate Bench on the basis of which penalty was imposed, we find no merit in the appeal of the Revenue. Our view finds supports from the decision of the Tribunal in M/s Parle Bottling Pvt. Ltd. (ITA No.1209/Mum/2014) order dated 23/11/2015 and the ratio laid down in CIT vs S.P Viz Construction company 176 ITR 47 (Patna) and K.C. Builders vs ACIT 265 ITR 562 (Supreme Court). We are of the view that where the penalty for concealment or furnishing inaccurate particulars was levied and after deleting the quantum addition, there remains no basis at all for levying the penalty. Ordinarily, penalty cannot stand in itself if the addition made in the assessment itself is set aside or cancelled by the superior authority/Court. The penalty cannot stand by itself because false result may be produced by the falsity of one or more of the constituent items in the return. The word ‘inaccurate particulars’ would cover falsity in the final figure and also the constituent elements or items. They simply would mean inaccurate in some specific or definite respect whether in the constituent or subordinate items of income or the end result. Concealment or furnishing inaccurate particulars implies some deliberate act on the part of the assessee in withholding

7 AKhand Abhar Co-op Housing Society the true facts from the authorities. Since, the basis of levying penalty remains no more in existence, after deletion of quantum addition, therefore, from this angle, the stand of the ld. Commissioner of Income tax (Appeals) is justified.

Finally, the appeal of the Revenue is dismissed.

This Order was pronounced in the open court in the presence of ld. representatives from both sides, at the conclusion of the hearing on 03/12/2015. (Rajendra) (Joginder Singh) लेखा सद"य / ACCOUNTANT MEMBER "या"यक सद"य /JUDICIAL MEMBER

मुंबई Mumbai; "दनांक Dated : 03/12/2015 f{x~{tÜ? P.S/."न.स.

आदेश क" ""त"ल"प अ"े"षत/Copy of the Order forwarded to : 1. अपीलाथ" / The Appellant

2.

""यथ" / The Respondent. 3. आयकर आयु"त(अपील) / The CIT, Mumbai. 4. आयकर आयु"त / CIT(A)- , Mumbai

5.

"वभागीय ""त"न"ध, आयकर अपील"य अ"धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड" फाईल / Guard file. आदेशानुसार/ BY ORDER, स"या"पत ""त //// उप/सहायक पंजीकार (Dy./Asstt.

More judgments on Section 271(1)(c)

All 25,141 judgments and leading authorities on Section 271(1)(c) →

Recent GST High Court judgments

Search GST case law →