TaxTMI 
TaxTMI 
2017 (1) TMI 1765
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.... to Assessment Year 2009-10. For the sake of convenience, all these appeals were heard together and are being disposed of by this common order. ITA No. 1310/PUN/2013 and ITA No.1485/PUN/2013 ) : 2. Ground of appeal No.1 by the assessee and all grounds raised by the Revenue relate to the part relief granted by the CIT(A) out of the disallowance of Rs. 68,86,009/- made by the Assessing Officer u/s.14A r.w. Rule 8D of the I.T. Rules. 3. Facts of the case, in brief, are that the assessee is an individual and engaged in the business of builders, promoters and developers. He filed his return of income on 31-10-2009 declaring total income of Rs. 8,55,29,700/-. During the course of assessment proceedings the Assessing Officer observed that assessee has substantial investments from which it is receiving exempt income. Most of these investments are in the form of investments in shares of companies and in partnership firms, the income from which is exempt. He, therefore, asked the assessee to explain as to why proportionate disallowance should not be made as per the provisions of section 14A r.w. Rule 8D. The assessee filed a detailed explanation according to which the interest free ....
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....aintained separate books of account for his business which related the exempt income and the one which has earned taxable income is concerned, it was submitted that there is no condition u/s.14A for non maintenance of separate books of account. It was accordingly argued that the disallowance made by the Assessing Officer should be deleted. 8. However, the CIT(A) was not fully satisfied with the explanation given by the assessee. Referring to the decision of Hon'ble Bombay High Court in the case of Godrej & Boyce reported in 328 ITR 81 he observed that as per the said decision the Assessing Officer is authorized to recompute the disallowance u/s.14A as per the prescribed method only in case he is not satisfied with the claim of the assessee having regard to its accounts. 9. So far as the argument of the assessee that its own funds are more than the investment made and no direct nexus between the borrowed funds and the investment is established is concerned, he observed that assessee has not demonstrated its justification by way of any accounting method or by its cash flow which can lead to inference that no expenditure has been incurred. He observed that the Assessing Officer ....
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....ons : 1. Shri Ravi Kumar Shewani Vs. DCIT vide ITA No.2120/PN/2013 order dated 23-01-2015 2. ACIT Vs. Bedmutha Industries Ltd. vide ITA No.1277/PN/2013 order dated 29-01-2015 3. Gillette Group India Pvt. Ltd. Vs. ACIT reported in 51 SOT 221 (Delhi) 13. The Ld. Departmental Representative on the other hand heavily relied on the order of the CIT(A). He submitted that Rule 8D has come into force from the A.Y. 2008-09. Therefore, the various decisions relied on by the assessee before the CIT(A) are not applicable to the facts of the present case. The assessee has also not explained the nexus between the borrowed funds and the investment in the partnership firms and shares of different companies. Therefore, Rule 8D has to be applied. He submitted that the assessee has not shown any work-in-progress. Land was not shown in the work-in-progress and the assessee has not proved that he has capitalized the interest. 14. The Ld. Counsel for the assessee in his rejoinder drew the attention of the Bench to the observation of the CIT(A) at para 3.5 of the order which reads as under : "3.5. . . . . . . . . . . . . . . . It is an undisputed fact that the appellant had made investm....
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....n the ground that assessee has not maintained separate books of account for its business which is yielding exempt income and for its business which is yielding taxable income. Further, the assessee has common pool of funds for its entire business operation including the business which is yielding the exempt income. We find in appeal the Ld.CIT(A) held that the interest expenditure which has been capitalised cannot be considered for computing the disallowance u/s.14A r.w. Rule 8D. He, however, applying the provisions of section 14A r.w. Rule 8D restricted such disallowance to Rs. 10,53,815/-. 16. It is the submission of the Ld. Counsel for the assessee that since own capital and free reserves are more than the investment in the partnership firm and the investment in shares of Indian Companies, therefore, no disallowance u/s.14A r.w. Rule 8D is called for. It is his alternate submission that the disallowance u/s.14A r.w. Rule 8D in any case cannot exceed the amount of interest expenditure claimed in the profit and loss account. 17. We find some force in the above argument of the Ld. Counsel for the assessee. From the various details furnished by the assessee in the paper book w....
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.... allowed. 20. Grounds of appeal No.2 and 3 by the assessee read as under : "2. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A)-II, Pune erred in confirming the addition of capital gain of Rs. 12,15,54,375/- in respect of transfer of plot of land situated at Gat No.1277 & 1278, Village Wagholi, Dist. Pune without appreciating the facts of the case in proper perspective. The appellant hereby prays that the addition may please be deleted. 4. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A)-II, Pune failed to appreciate the following feature/facts of the transaction of sale of land and various obligations to be performed by the appellant and co-owners. (a) That the transaction under consideration has two limbs (i) sale of the plot of land situated at Gat No.1277 and 1278, Village Wagholi, Dist. Pune at and for the consideration of Rs. 125.50 lacs against the transfer of the land under consideration and (ii) the consideration of Rs. 125.50 lacs against the performance of various obligation mentioning clause no.iv of the sale deed dated 2nd May 2008. (b) That the capital gain arising from the transfer of the ....
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....f various obligations mentioned as per clause (v) of the sale deed dated 2-5-2008. Thus, it was contended before the Assessing Officer that the income neither accrued nor was received by the assessee and that the consideration of Rs. 251 lakhs per acre was much more than the prevailing market value of the land and the said amount embedded the consideration of performance of various obligations. 23. However, the Assessing Officer was not satisfied with the explanation given by the assessee. He arrived at the conclusion that the entire consideration as per the sale agreement was taxable as capital gains and not 50% of the amount as declared by the assessee. He noted that the assessee along with the other vendors had sold 70 acres of land at Wagholi to M/s Wagholi Properties Pvt. Ltd. and the possession of the said property had also been passed to the buyers and the stamp duty arising from the transaction on the aggregate consideration of Rs. 1,75,80,04,250/- at Rs. 7,03,20,170/- had also been paid and that the value of the entire transaction of 70 acres of land at Wagholi had been confirmed in the Index- II at Rs. 1,75,80,04,250/-. He observed that the contention of the assessee o....
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....d as such there was no ambiguity * regarding the sale consideration @ Rs. 2.51 crore per acre and there being no dispute for the same between the parties. The Assessing Officer also rejected the claim of the assessee that the effective date of transfer of the property did not depend solely on the agreement but also on the intention of the parties in the transaction. The Assessing Officer relied on the decision of the jurisdictional Hon'ble Bombay High Court in the case of Chatturbhuj Dwarkadas Kapadia reported in 260 ITR 497, wherein it has been held that after introduction of section 2(47) (v) r.w. sub-section 45, capital gain is taxable in the year in which such transaction is entered into even if the transfer of immovable property is not effective or complete under the general law. Distinguishing the various decisions cited before him the Assessing Officer held that since the sale deed agreement for the sale of 70 acres of land was duly registered on 02-05-2008 and the stamp duty was paid and the possession over the property was also passed on to the purchaser, therefore, the entire consideration has to be considered for the purpose of computing the capital gains. The Assess....
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....ng capital gain on sale of the aforesaid land on the plea that the balance 50% of the amount of Rs. 1,25,50,000/- per acre is payable on performance of certain obligations as per the clauses of the sale deed. Thus the contention of the appellant is that the transaction has two limbs - one relating to the transfer of property i.e. sale of land and second relating to performance of obligations. The materials brought on record clearly indicate that the possession of the property in question has been passed on to the buyers and the stamp duty arising on the total aggregate consideration of Rs. 1,75,80,04,250/- of Rs. 7,03,20,170/- has also been paid in its entirety. The sale deed of the property has also been duly registered with the registering authority on 2-5-2008. 4.4 In the scheme of the Act, whenever an assessee receives money or money's worth in the course of the transaction, income embedded therein accrues or arises to him. The chargeability of income to 'capital gains' is with reference to the full value of consideration received or accruing as a result of the transfer of capital asset deducting the expenditure incurred therein. The charge of capital gains arise....
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....e accounting year during which the taxable event falls. Now the financial year is mandatorily the accounting year, there would be no controversy in respect of the assessment year as long as the taxable event with reference to the date of transfer is determined. The appellant's contention of 'Right to Receive" in this context is not relevant as it is relevant for the purpose of business and other sources. In the case of CIT Vs Ramesh Khanna (2001) 249 ITR 359 (Del), it was decided in that for A.Y. 1976-77, when financial year was not mandatory, ,the assessee could choose the accounting year with reference to the previous year for which accounts are kept by him purportedly following the ruling of Supreme Court in CIT Vs Lady Kanchanbai (1970) 77 ITR 123 (SC). But assessee's method of accounting and the choice of accounting year is relevant only for business or other sources so that the decision of the Supreme Court could not have applied for income from capital gains. In the present case, however, the consideration is determinate as per the fact on record as the entire sale consideration fixed for the land has been determined in the sale deed and the buyer M/s Wagholi Pro....
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....79) 116 ITR 950 (AP) it was held that to attract the liability to tax u/s 45, it is sufficient if, in the accounting year profit have arisen out of the transfer of capital asset, in other words the assessee had a right to receive the profits. Actual receipt of profits is not a relevant consideration. Where once profit have arisen in the accounting year out of the transfer of the capital asset that would be sufficient to attract liability u/s 45. This view was later affirmed in G.M. Omar Khan Vs Addl CIT (1992) 196 ITR 269 (SC). The Madras High Court in the case of T.V. Sundaram Iyengar & Sons Ltd Vs CIT (1959) 37 ITR 26 (Mad) held that the Sec. 45 does not speak of any arising receipt at all. The crucial word used here is arising. Even in a case where transfer is made in a current year but price is to be paid at any future date during the next year the assessee would have received a right to receive the price in the year of transfer. Therefore, profits would have arisen to the assessee in the year in which transfer took place even though the price was paid in a subsequent year. 4.5.2 In ICI India Vs DCIT (2002) 80 ITD 58 (Cal) (Trib) there was a single agreement and by a single ....
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....nt the full value of consideration received by the transferee in exchange of the capital asset transferred by him. The Supreme Court also observed that in the case of a sale the full value of consideration is the full sale price actually paid. It was further of the view that the expression 'full value' means the whole price without any deduction, whatsoever, and it cannot refer to the adequacy or inadequacy of the price bargained for. In the case of CIT Vs Gillanders Arbuthnot & Co. (1973) 87 ITR 407 (SC) the Hon'ble court observed that in the case of a sale price of an asset all that one had to see was what was the consideration bargained for. Thus the decisions make it more clear that the expression 'full value of consideration' that is used in section 48 is to the reference only to the consideration referred to in the sale deeds as the sale price of the assets which have been transferred. 4.5.4 In the case of CIT Vs Smt. Nilofer I. Singh (2009) 309 ITR 233 (Del), it was held that the expression 'full value of consideration' that is used in section 48 does not have any reference to the market value but only to the consideration referred to in the sa....
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....nder consideration as the same has not yet been transferred by the appellant. The appellant's contention of the performance of various obligations be treated as business transaction, it is seen that the appellant, as is evident from material on record has been the owner of the land for a substantial period of time and shown it as an investment and not stock-in-trade. The material on record as brought out during the course of the appellate proceedings prima facie indicate that the purchase of land was not for the purpose of business and that the appellant was also not a dealer in land and the appellant has not carried on any business with respect to land. The gains arising from transfer of land will be 'capital gains' and not business income since the land has been shown to have been held as investment and not stock-intrade. In any case, the aforesaid issue is not relevant as the said transaction of the procuring 38 acres of land is not the issue in this ground of appeal raised by the appellant. 4.7 In view of the above facts, the action of the Assessing officer in adopting the full value of consideration for computing the capital gains of Rs. 24,31,08,750/- as agains....
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....38,000/- per Hectare only. Thus the market value is Rs. 41 crores whereas the consideration agreed between the parties is Rs. 1,75,80,04,250/- and the stamp duty is Rs. 7,03,20,170/-. He submitted that the assessee has delivered the possession for 70 Acres and not 108 Acres. He further submitted that nobody will pay such a huge amount for a single sale of land. Referring to pages 82 to 89 of the paper book the Ld. Counsel for the assessee drew the attention of the Bench to the various clause of the Maharashtra Regional and Town Planning Act, 1966. Referring to clause 5.2 (i) of the said Act (page 85 of the paper book) he drew the attention of the Bench to the following : "5.2 SPECIAL TOWNSHIP IN AGRICULTURE/NO DEVELOPMENT ZONE (i) Development of Special Townships project in Agricultural/No Development Zone, Green Zone and Urbanizable Zone, contained in the Regional plan shall be permissible subject to conditions that 50% of the gross area of the project shall be kept open while the project of Special Township shall be executed on the remaining 50% land with gross built up area /FSI of 0.50 worked out on the entire gross area of the project. Further, while developing such p....
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....29-03-2016 he submitted that the Hon'ble High Court in the said decision has held that when the consideration is postponed then the capital gain has to be taxed in the later year. 32. Referring to page 3 of the paper book No.3 the Ld. Counsel for the assessee drew the attention of the Bench to the map containing the access road. Referring to page 5 of the paper book No.3 he drew the attention of the Bench to the letter dated 11-12-2015 by M/s. Proxima Creations to the assessee according to which they have agreed to hand over the area of 490 sq.mtrs out of their land bearing S.No.68/1B, Kharadi to the concerned authorities of Municipal Corporation, Pune at the request of the assessee for the Township Project by M/s. Wagholi Properties Pvt. Ltd. on the land sold by the assessee. Referring to the letter written by Marvel Landmarks Pvt. Ltd. on 11-12-2015, copy of which is placed at page 6 of the paper book, the Ld. Counsel for the assessee submitted that they have also agreed to hand over the portion of land admeasuring 5260.94 sq.mtrs out of their land holding of 64314.66 sq.mtrs. to the concerned Municipal authorities for getting the road executed. Referring to the letter written....
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....itibank N.A. reported in 261 ITR 570. 35. Referring to decision of the Hon'ble Supreme Court in the case of CIT Vs. Hindustan Housing and Land Development Trust Ltd. reported in 161 ITR 524 he submitted that the Hon'ble Supreme Court in the said decision has held that there is a clear distinction between cases where the right to receive payment is in dispute and it is not a question of merely quantifying the amount to be received and cases where the right to receive the payment is admitted and the quantification only of the amount payable is left to be determined in accordance with the settled or accepted principles. Accordingly, they upheld the decision of Hon'ble Calcutta High Court in holding that it is only on the final determination of the amount of compensation that the right to such income in the nature of compensation arises or accrues and till then there is no liability in praesenti in respect of the additional amount of compensation claimed by the owner of the land. He submitted that right to receive in the instant case is disputed. Therefore, the case of the assessee squarely falls with the case decided by the Hon'ble Supreme Court in the case of Hindustan Housing and....
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....ce the assessee had sufficient land with him. He accordingly submitted that the Assessing Officer was fully justified in bringing to tax the whole of the amount and the CIT(A) was also justified in upholding the same. He accordingly submitted that the grounds raised by the assessee should be dismissed. He also relied on the decision of Hon'ble Supreme Court in the case of K.P. Varghese Vs. ITO reported in 131 ITR 597. 39. The Ld. Counsel for the assessee in his rejoinder submitted that the deed has to be read as a whole. We cannot ignore the various other clauses of the sale deed. If the agreement is read as a whole the amount of Rs. 175, 80,04,250/- does not accrue to the assessee. Transfer is complete only for 70 Acres. The consideration received was as a result of transfer and the result of fulfilment of the obligations. He submitted that the assessee had declared the extent of the amount received during the year since it could not have waited for 5 years to get his money for small tax savings. 40. So far as the submission of the Ld. Departmental Representative that the as per the clause there is absolute transfer and there is peaceful and vacant possession is concerned he....
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....bligations were not carried out during the impugned assessment year, therefore, the right to receive although accrued has not become due. According to him if a part of the consideration is postponed due to non-fulfilment of certain conditions, then the capital gain has to be taxed in the later year, i.e. in the year in which such amount is received and the entire amount cannot be brought to tax in the year of the transfer. 42. We find some force in the above argument of the Ld. Counsel for the assessee. We find clause (iii to v) of the sale deed (page 64 to 66 of the paper book and page 11 to 13 of the sale deed) read as under : "iii. The purchaser has informed the parties to this Agreement that they intend to acquire the said property more particularly described in Schedule V hereunder written for the purpose of development of a Special Township, project in accordance with the Regulations framed by the Development of Special Township by the Government under the provisions of the Maharashtra Regional and Town Planning Act, 1966 for which purpose the Purchaser are required to acquire land admeasuring a minimum area of 100 acres. The Vendors and Consenting parties have agreed t....
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....ance plots, so as to enable the Purchaser to obtain all other permissions as would be required for smooth implementation of the Special Township Project. f. Delivery of all original title documents, revenue records and other relevant documents to the satisfaction of the Purchaser herein relating to the entire contiguous land of 108 acres (approximately) including the land in the schedule herein; g. to record Occupant Class I on 7/12 extract of Gat No.1277 (old 2263) in accordance with mutation entry No.1021 dated 10.12.2003. h. To repay and obtain No dues certificate from relevant authorities with respect of the loan amount owed by Shri Balu Daulati Avhali and Sou. Asha Balasaheb Avhali to the Wagholi VKS Credit Society and to get the charge created thereon vide Mutation Entry Nos.6205 and 6206 dated 15.04.1998 removed. v. As the Vendors and the Consenting Parties require time to fulfil the said obligations, it is agreed by and between the parties that the Purchaser shall pay 50 (fifty) per cent of the total consideration as more specifically described in Schedule VI hereunder in respect of the said property at the time of execution of this Sale Deed and the balance 50 ....
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....(Shete family) of M/s. Unisol were to receive in aggregate a sum of Rs. 20 crores in the subject assessment year and proceeded to tax the entire amount of Rs. 20 crores in the subject assessment year in the hands of all co-owners of shares. This resulted in the respondent assessee being taxed on her share of capital gain at Rs. 4.48 crores after availing exemption u/s.54EC of the Act. Thus, the Assessing Officer computed the income at Rs. 4.60 crores. In appeal CIT(A) deleted the addition of Rs. 4.48 crores made by the Assessing Officer on the ground that it is notional. He noted that in terms of the agreement the respondent assessee alongwith other co-owners of shares of M/s. Unisol were to receive Rs. 2.70 crores as initial consideration. The respondent assessee had offered her share out of Rs. 2.70 crores received as initial consideration to tax in her return of income for the said assessment year. The CIT(A) further observed that the agreement dated 25-01-2006 also provided for deferred consideration which was capped at Rs. 20 crores which had to be paid in terms of formula prescribed in the agreement dated 25-01-2006. Working out of the formula led to a situation where no amou....
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....ade by M/s. Unisol in each of the years. Thus in case M/s. Unisol does not make net profit in terms of the formula for the year under consideration for payment of deferred consideration then no amount would be payable to the respondent-assessee as deferred consideration. The consideration of Rs. 20 crores is not an assured consideration to be received by the Shete family. It is only the maximum that could be received. Therefore it is not a case where any consideration out of Rs. 20 crores or part thereof (after reducing Rs. 2.70 crores) has been received or has accrued to the respondent-assessee. As observed by the Apex Court in Morvi Industries Ltd. vs. CIT (1971) 82 ITR 835. "The income can be said to accrue when it becomes due.... The moment the income accrues, the assessee gets vested right to claim that amount, even though not immediately." In fact the application of formula in the agreement dated 25th January, 2006 itself makes the amount which is receivable as deferred consideration contingent upon the profits of M/s.Unisol and not an ascertained amount. Thus in the subject assessment year no right to claim any particular amount gets vested in the hands of the respondent-ass....
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....ssessee during the subject assessment year. We are informed that for the subsequent assessment year (save Assessment Year 2007-08 for which there is no deferred consideration on application of formula), the Assessee has offered to tax the amounts which have been received on the application of formula provided in the agreement dated 25th January, 2006 pertaining to the transfer of shares. 9. The contention of the Revenue that the impugned order is seeking to tax the amount on receipt basis by not having brought it to tax in the subject assessment year, is not correct. This for the reason, that the amounts to be received as deferred consideration under the agreement could not be subjected to tax in the assessment year 2006- 07 as the same has not accrued during the year. As pointed out above, accrual would be a right to receive the amount and the respondentassessee alongwith its co-owners have not under the agreement dated 25th January, 2006 obtained a right to receive Rs. 20 crores or any specified part thereof in the subject assessment year. 10. In the above view there could be no occasion to bring the maximum amount of Rs. 20 crores, which could be received as deferred consi....
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.... of the enhanced compensation would have fallen altogether. This is a case which must be distinguished from that decided by this court in Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC), where the liability to sales tax arose immediately on a dealer effecting sales which were subject to sales tax and what remained to be done was a mere quantification of that liability. The case compares rather with CIT v. Jai Prakash Om Parkash Co. Ltd. [1961] 41 ITR 718 (Punj). The very foundation of the claim made by the assessee was in serious jeopardy and nothing would be due if the appeal was decided against the assessee. Our attention has been drawn by the Revenue to Pope The King Match Factory v. CIT [1963] 50 ITR 495 (Mad). That case, however, proceeded on the basis that excise duty was payable and its quantification alone remained to be decided in the appeal. We may point out that the Andhra Pradesh High Court, dealing with the taxability of compensation received under the Land Acquisition Act in Khan Bahadur Ahmed Alladin & Sons v. CIT [1969] 74 ITR 651 (AP), held that when land was taken over by the Government, the right of the owner to compensation was an inchoate right until....
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.... compensation. Can it be said that the final determination by the highest court of the compensation would entitle the Income-tax Officer, notwithstanding the period of limitation fixed under the Income-tax Act, to reopen the assessment in which he had included the initial compensation awarded by the Collector and recompute the entire income on the basis of the final compensation? We do not think there can be any justification for such a proposition. On a proper construction of the terms 'accrue' or 'arise', we are of the view that such an interpretation cannot be placed. The interpretation given by us does not affect the interests of the Revenue. At the same time, it safeguards the assessee and prevents harassment. To hold otherwise would be contrary to the provisions of law." "The legal position was explained in further detail by the Gujarat High Court in Topandas Kundanmal v. CIT [1978] 114 ITR 237. The High Court was called upon to decide whether the right to receive the enhanced compensation under the Land Acquisition Act accrued or arose to the assessee when be sought a reference under section 18 of the Act or when the award was made by the Civil judge altho....
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....t one, where the right to receive payment is in dispute and it is not a question of merely quantifying the amount to be received, and cases where the right to receive payment is admitted and the quantification only of the amount payable is left to be determined in accordance with settled or accepted principles. We are of the opinion that the High Court is right in the view taken by it and, therefore, this appeal must be dismissed. The appeal is dismissed. There is no order as to costs." 45. We find from the Maharashtra Regional and Town Planning Act, 1966 that for the purpose of development of a Special Township, the area required is on contiguous unbroken and uninterrupted area of not less than 100 acres at one place. Admittedly, from the copy of the sale deed the assessee and the co-owners were having only 70 acres of contiguous land and they had agreed to arrange the balance land and also to deliver a legal and practical 24 metres access road to the contiguous 108 acres of the land. Since vendors and the consenting parties require time to fulfil the various obligations contained in the sale deed it was agreed by and between the parties that the purchaser shall pay 50% of t....
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....y of dues in case of the assessee, he has categorically stated that the balance amount of Rs. 17.01 crores is payable only after fulfillment of certain conditions mentioned in the agreement. In our opinion, the contents of the agreement has to be read as a whole and the revenue cannot re-write the agreement. The various decisions relied on by CIT(A) in our opinion are distinguishable and not applicable to the facts of the present case. In all those cases, the right to receive the consideration has been postponed. However, in the instant case the right to receive the consideration is on fulfillment of certain obligations. Further, the assessee has offered the balance amount to tax in A.Y. 2014-15 as business income. In view of the above discussion and respectfully following the decisions cited above, we are of the considered opinion that assessee is liable to capital gain tax only on 50% of the consideration that has been received during the year. We, therefore, set aside the order of the CIT(A) and allow the grounds raised by the assessee. 48. The Ld. Counsel for the assessee at the time of hearing did not press ground of appeal No.4 for which the Ld. Departmental Representative....