Unipran Sales Pvt. Ltd., New Delhi vs Assessee

1 ITA No.4469/Del/2010

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH 'H': NEW DELHI

BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER and SHRI GEORGE GEORGE K., JUDICIAL MEMBER

ITA No.4469/Del/2010 (ASSESSMENT YEAR : 2006-07)

M/s. Unipran Sales Pvt. Ltd., vs. ITO, Ward 18 (1), 407, Rohit House, New Delhi. 3, Tolstoy Marg, New Delhi - 110 001.

(PAN : AAACU0036F)

(APPELLANT) (RESPONDENT)

ASSESSEE BY : Shri Sanjiv Sapra, CA REVENUE BY : Shri J.P. Chandrekar, CIT DR

Date of Hearing : 24.04.2015 Date of Pronouncement : 27.05.2015

ORDER

PER SHRI GEORGE GEORGE K, JM:

This appeal, at the instance of the assessee company, is directed against

the order of the CIT (A)-XXI, New Delhi dated 31.08.2010. The relevant

assessment year is 2006-07.

2. The assessee has, in its grounds of appeal, raised three effective grounds

as under :-

2 ITA No.4469/Del/2010 "(1) That the CIT (A) ought to have deleted the disallowance of Rs.1,07,574/- and not Rs.49,224/- especially when the Assessing Officer had himself worked out the disallowance U/s 14A at Rs.49,224/-. The deletion of Rs.49,224/- by the learned Commissioner of Income Tax (Appeals) deserves to be substituted by the deletion of Rs.1,07,574/-;

(2) That the addition of Rs.15,62,890/- on account of short-

term capital gain [STCG] as made towards the assessable income of the assessee was arbitrary, unjust and illegal; &

(3) That the Long Term Capital Loss [LTCL] on account of sale of immovable properties as declared at Rs.5,61,184/- ought to have been allowed and carried forward/set off against such income in the subsequent assessment years."

3. Since the third ground raised by the assessee is consequent to the second

ground, the same has not been adjudicated.

4. We shall now proceed to adjudicate the issues raised by the assessee as

under :

5. Briefly stated, the facts of the issues are as follows:

The assessee company was engaged in the business of portfolio

management, dealing in shares, securities and mutual fund. The assessee had

furnished its return of income for the AY under dispute on 22.11.2006,

admitting a total income of Rs.3,73,151/- which was, initially, processed u/s

143(1) of the Act and, subsequently, taken up by the AO for scrutiny. During

the course of assessment proceedings, the AO had observed that the assessee

was in receipt of dividend income of Rs.10.7 lakhs which was claimed as 3 ITA No.4469/Del/2010

exempt u/s 10(34) of the Act. Accordingly, the assessee was required to work

out the disallowance u/s 14A r.w. Rule 8D of I.T. Rules. The assessee worked

out the disallowance u/s 14A at Rs.49,224/-. After due verification of the

details furnished, the AO had disallowed Rs.49,224/-. Further, the AO observed

that the assessee had sold two properties on which LTCL of Rs.5,61,184/- was

shown. Since the assets were shown in the schedule of fixed assets on the block

of assets and depreciation has been claimed, the assessee was show-caused by

the AO, (i) as to why the assets sold by it should not be taken as depreciable

assets u/s 50(1) of the Act and also, (ii) why the gains should not be taken as

STCG and the indexation should not be disallowed. The assessee's contention

was that in the case of Oriental Home property, even though the conveyance

deed was registered only on 20.9.2004, the payments have been made from the

FYs 1996-97 to 2004-05. The AO took a stand that since assessee had become

the owner of the asset only on 20.9.2004, the indexation benefit of

Rs.10,63,213/- claimed by the assessee was disallowable and the resultant gain

of Rs.13,01,440/- was, accordingly, treated as STCG u/s 50(1) of the Act.

Likewise in the sale of another asset, namely, Aravali Retreat, the AO, after due

consideration of the assessee's contentions as mentioned in the assessment

order, took a view that since the subject asset was shown as business asset and

classified along with the other fixed assets of the assessee, but, when the

resultant profit comes under consideration so as to avoid taxation it was

classified as investment and declared LTCG as against STCG, the indexation 4 ITA No.4469/Del/2010

benefit of Rs.10,60,861/- claimed was disallowed and the resultant gain of

Rs.2,61,450/- was treated as STCG. In substance, a total addition of

Rs.15,62,890/- was made by the AO on this count.

6. Aggrieved, the assessee took up those issues, among others, before the

CIT (A). After taking into account the submissions made by the assessee as

detailed in his impugned order under dispute, the CIT (A) had recorded his

findings, chronologically, as under:

(i) Addition of Rs.49,224/-:

"3 Ground No.1: The contention of the appellant was verified

from the Paper Book submitted during the course of appellate proceedings. On Page 6 of the paper book which is statement of total income wherein, assessee has already added back an amount of Rs.1,07,574/- on account of expenses attributable for earning tax free income. Thus, there is no case for AO for addition of Rs.49,224/- u/s 14A of the IT Act as it will amount to double addition. Therefore, addition of Rs.49,224/- is deleted."

(ii) Addition of Rs.15,62,890/-:

"4.1 In this regard, there are two properties to be considered while determining the issue of short term capital gain or long term capital gain. The property known as Aravali Retreat was booked on 18.7.96 vide allotment letter issued by M/s. Ansal Properties & Industries Ltd for which payment was made in instalments during the period 18.7.96 to 9.2.2002. The same property was sold for the consideration of Rs.21 lacs to Shri Rajesh Kumar vide an Agreement to Sale dated 6.7.2005. 4.2 There is another property known as Oriental Home which was book (sic) booked through agreement dated 1.10.96 and payments of Rs.25,98,560/- had been made in instalments during the period 1996-97 to 2004-05. This property was sold vide Sale Agreement dated 27.7.2005. Assessee has claimed both the assets 5 ITA No.4469/Del/2010

as investment. However, AO has treated these assets as depreciable assets. The AO has observed that assets were shown in schedule of fixed assets and vide order sheet entry dated 18.11.2008, AO has raised query as to why assets should not be treated as depreciable assets u/s 50(1) of the IT Act and the gain should not be taken as short term capital gain and why indexation should not be disallowed. From the reply of the assessee, it is very apparent that properties were purchased in instalments of almost 6 or 7 years as in the property No.1 (Aravali Retreat) for the period 18.7.96 to 9.2.2002, for the property No.2 (Oriental Home) for the period 1996-97 to 2004-05 and property No.2 was sold on 27.7.2005. So as per conveyance deed dated 20.9.2004, the possession of property No.2 was taken as on 20.9.2004 and the same was sold as on 27.7.2005. Thus, it is as case wherein actual possession was taken only on 20.9.2004. It is not the case that possession was taken from the date of beginning of instalment payment. As per the provision of the Transfer of Property Act, 1882, the transfer of property has been defined in section 5 in which sale has been defined in Sec. 54, as per which, sale is a transfer of ownerships in exchange for a priced paid. In the instant case, ownership was transferred only on 20.9.2004 in the case of Oriental Home not in the period of instalment payments. Thus, this case is hit by provision of Transfer of Property Act and assessee's claim of transfer of property has not been materialized in the period of the instalment payments.

4.3 Similar treatment is applicable in the case of Property No.1 (Aravali Retreat) which was also acquired through instalment payment. So, during the period of instalment payment, ownership was not transferred. Therefore, assessee's contention with regard to treating the properties as long term capital gain gets defeated and AO's addition , amounting to Rs.15,62,890/- sustains. In this regard, reliance is placed on the decision of Assam Vegetable & Oil Products Ltd v. CIT & Others, Gauhati High Court reported at 264 ITR Page 47, wherein, Hon'ble High Court has held as under:

"Assessee enters into purchase agreement, pays entire sum and takes possession of property and gets Power of Attorney from Vendor, transfer the property within one year, this was held as short term capital gain."

6 ITA No.4469/Del/2010

The ratio of this judgment clearly fits the present case............."

7. Being aggrieved, the assessee has up before us with the present appeal.

During the course of hearing, the submissions made by the learned AR are

summarized as under :

"> that as the AO had himself conceded and, accordingly, worked out the disallowance u/s 14A works out to only Rs.49,224/- he ought to have deleted Rs.1.07 lakhs added back by the assessee u/s 14A of the Act in its computation of income. At any rate, Rs.1.07 lakhs deserved to be deleted by the CIT (A) as against the relief of Rs.49,224/-. It was, therefore, pleaded for further relief of Rs.57,350 [Rs.1,07,574 - 49,224];

Aravali Retreat Farm:

> that the assessee had vide allotment letter dt.18.7.1996 issued by M/s.Ansal Properties & Industries Ltd [APIL] purchased the same for the purposes of investment, for which, payments were made in instalments during the period 18.7.1996 to 9.2.2002; and that the same was sold for Rs.21 lakhs vide an agreement to sell dated 6.7.2005 thereby earned LTCG of Rs.2.61 lakhs, but, by taking indexation benefit of Rs.10,60,861/-, there was a LTCL of Rs.7,99,411/-;

> that the assessee derived the right in the property from the date of allotment letter dt.18.7.96 and that the entire payment of Rs.18.38,550/- for the acquisition of subject property was made in instalments during the period from 18.7.96 to 9.2.2002 and, thus, the CIT (A) was not justified in confirming the disallowance of the indexation benefit of Rs.10,60,861/- and to treat Rs.2,61,450/- as STCG when the sale took place after more than 3 years on 6.7.2005;

Oriental Home:

> that Oriental Home was purchased as an investment vide Plot Buyers Agreement dt.10.1996 from M/s. Adharshila Towers Pvt Ltd for Rs.1.66 lakhs and construction agreement dt.1.10.1996 on such plot was entered into by the assessee with M/s.Ansal Properties & Industries Ltd for Rs.23,33,344/-, that the aggregate 7 ITA No.4469/Del/2010

payments of Rs.25,98,560/- was made by the assessee in instalments during the FYs 1996-97 to 2004-05; and that this property was sold vide agreement to sell dt 27.7.2005 to Sri Nikhil Kumar Vasudeva for Rs.39 lakhs, thereby the LTCG worked out to Rs.2,38,227/-;

> that the CIT (A) was not justified to confirm the disallowance of the indexation benefit of Rs.10,63,213/- and to treat the resultant gain of Rs.13,01,440/- as STCG by ignoring the fact that substantial payments were made from FYs 1996-97 to 1998-99;

> that both the above assets were shown in the balance sheets and they did not form part of depreciable assets under the schedule of fixed assets and that neither the assessee had claimed any depreciation nor allowed by the Revenue;

> that the assessee derived the right in the said assets the day the agreements were signed in the FY 1996-97 and retained such rights on account of timely payments of instalments and that the developers lost the rights over the assets the day on which they entered into agreements with the assessee;

> that the CIT(A)'s observation at para 4.2 is not tenable specifically regarding that the provisions of the Transfer of Property Act are taken to override the Explanations of the Income-tax Act;

> that the reliance placed by the CIT (A) in the case of Assam Vegetable and Oil Products Ltd v. CIT (supra) has relevance to the instance case as the facts were different; > that the addition of Rs.15,62,890/- made by the AO and sustained by the CIT (A) deserves to be deleted and the net LTCL of Rs.5,61,184/- as claimed from the sale of subjects assets requires to be carried forward for set off in the subsequent years; & > Reliance has been placed on the following judgments, namely:

(i) Mrs.MadhuKaul v. CIT &Another (2014) 363 ITR 54 (P&H);

(ii) CIT v. K Ramakrishnan (2014) 363 ITR 59 (Del)"

8 ITA No.4469/Del/2010 7.1 On the other hand, the learned D R supported the stand of the CIT (A) on

both the issues. It was, therefore, pleaded that the assessee's appeal requires to

be rejected.

8. We have carefully considered the rival submissions, duly perused the

relevant materials on record and also the documentary evidences produced by

the learned AR in the form of Paper Book. The issues raised by the assessee are

dealt with chronologically as under :

As far as the first issue is concerned, we would like to point out that

during the course of assessment proceedings, the assessee had furnished the

details of disallowance u/s 14A r.w. rule 8D of I.T. Rules of Rs.49,224/-. On the

basis of the details furnished by the assessee, the AO had disallowed a sum of

Rs.49,224/-. The assessee in its return of income had disallowed Rs.1.07 lakhs.

The concerned assessment year being Assessment Year 2006-07, Rule 8D does

not have application. During the course of first appellate proceedings and even

before us also, the assessee had not placed any material to justify its claim for

the disallowance of Rs.1.07 lakhs as against Rs.49,224/- made by the AO. In

his finding, the CIT (A) had clearly mentioned that "3. On Page 6 of the paper

book which is statement of total income wherein, assessee has already added

back an amount of Rs.1,07,574/- on account of expenses attributable for

earning tax free income. Thus, there is no case for AO for addition of

Rs.49,224/- u/s 14A of the IT Act as it will amount to double addition...." 9 ITA No.4469/Del/2010

(Para 3). In view of the above, we are declined to interfere with the CIT (A)'s

stand.

9. With regard to the addition of Rs.15,62,890/- on account of STCG made

by the AO and, subsequently, sustained by the CIT (A), we find that the

assessee was in receipt of allotment letter dt.18.7.1996 [Source: P 32 to 40 of

PB] from APIL for the purchase of an asset - Aravali Retreat Farm - for

Rs.18,38,550/-, for which the assessee had made payments in instalments, right

from 18.7.1996 to 9.2.2002, aggregating to Rs.18,38,550/- [Refer: Page 31 of

PB]. Moreover, the assessee, while accepting the allotment letter, had endorsed

that 'I/we hereby accept the allotment on the terms, conditions/stipulations

mentioned herein above." On a perusal of the details of instalment schedule, we

find that the assessee had made payments to the tune of Rs.18 lakhs out of the

total amount of Rs.18,38,550/- through cheques within a span of one year from

the date of receipt of allotment letter dt.18.7.1996. Likewise, Oriental Home

property was concerned, the assessee had entered into an agreement with

Adharshila Towers (P) Ltd on 1.10.1996 for the purchase of the subject property

for Rs.1,66,656/- [Source: Pages 75 to 85 of PB] and simultaneously entered

into a Construction Agreement on 1.10.1996 with M/s. Ansal Properties &

Industries Ltd for an amount of Rs.23,33,344/- [Refer: Pages 22 to 30 of PB]

and the payments in instalments were made through cheques from 24.6.1996 to

6.1.1999 to the tune of Rs.23,56,344/- [Rs.25,89,920 - Rs.2,33,576] [Source:

page 13 of PB]. Substantial payments in instalments have since been made more 10 ITA No.4469/Del/2010

than three years before the date of conveyance deed. In respect of the AO's

allegation that '....Since the assets were shown in the schedule of fixed assets

and on the block of assets depreciation has been claimed by the

assessee....[Refer: Para 3 of the Asst. order], it is observed that no depreciation

has been claimed by the assessee as alleged by the AO [Page 51 of PB]. On a

further verification of the Statement of allowable depreciation for the AY under

dispute [page 68A of PB], it is observed that no depreciation in respect of both

subject assets were claimed by the assessee. Though the CIT (A) was in

agreement with the contention of the assessee that the subject assets were not

depreciable as alleged by the AO, the CIT (A) took a stand that

"4.2..............So as per conveyance deed dated 20.9.2004, the possession of

property No.2 was taken as on 20.9.2004 and the same was sold as on

27.7.2005. Thus, it is as case wherein actual possession was taken only on

20.9.2004. It is not the case that possession was taken from the date of

beginning of instalment payment. As per the provision of the Transfer of

Property Act, 1882, the transfer of property has been defined in section 5 in

which sale has been defined in Sec. 54, as per which, sale is a transfer of

ownerships in exchange for a priced paid. In the instant case, ownership was

transferred only on 20.9.2004 in the case of Oriental Home not in the period of

instalment payments. Thus, this case is hit by provision of Transfer of Property

Act and assessee's claim of transfer of property has not been materialized in the 11 ITA No.4469/Del/2010

period of the instalment payments."Thus, the issue is: whether the AO as well

as the CIT (A) were justified in treating the subject properties as STCG?

10. At this juncture, we would like to refer to the judicial pronouncements on

such an issue, as under :

(i) The Hon'ble Punjab & Haryana High Court has, in the case of

Mrs.MadhuKaul v. CIT & another reported in [2014] 363 ITR 54

(P&H), held as under :

"......that the flat was allotted to the assessee on June 7, 1986, by a letter conveyed to the assessee on June 30, 1986. The assessee paid the first instalment on July 4, 1986, thereby conferring a right upon the assessee to hold a flat, which was later identified and possession was delivered on a later date. The mere fact that possession was delivered later did not detract from the fact that the allottee was conferred a right to hold the property on issuance of an allotment letter. The payment of the balance instalments, identification of a particular flat and delivery of possession were consequential acts, that related back to and arose from the rights conferred by the allotment letter."

(ii) The Hon'ble jurisdictional High Court in the case of CIT v. K.

Ramakrishnan reported in [2014] 363 ITR 59 (Del) has held that:-

12 ITA No.4469/Del/2010 'the assessee acquired possession of the plot on December 12, 2005, and sold it through a registered sale deed dated January 9, 2008. Having regard to the findings recorded by the Tribunal, the assessee had acquired the beneficial interest in the property and at least 96 per cent of the amount was paid by October 3, 1999. Thus, the sale proceeds were to be considered as long term capital gains."

11. In the instant case, as mentioned earlier, in case of Aravali Retreat, the

entire payment of Rs.18,38,550/- was made in instalments during the period

18.07.1996 to 09.02.2002. The impugned property was sold only on

06.07.2005. Therefore, from the last date of payment of instalment, namely,

09.02.2002 to date of sale of impugned property, more than 36 months have

expired. Similarly, for the orient property, the substantial payment (90.76%) of

total consideration was paid before 06.01.1999 and assessee acquired the

beneficial interest to the property. The Hon'ble jurisdiction High Court and

Hon'ble Punjab & Haryana High Court had categorically held that date of

allotment of plot to assessee is to be considered and not the date of execution of

conveyance deed. Further, the judgment relied on by the CIT (A) in the case of

Assam Vegetable and Oil Products Ltd. reported in 264 ITR 47 is

distinguishable on facts. In that case, the assessee itself on sale of property had

disclosed the profits as short term capital gains. The revenue in that case was of

the view that the profit is to be assessed under the head 'income from other

sources'. The Hon'ble High Court upheld the stand of the assessee. The issue 13 ITA No.4469/Del/2010

raised in the instant case is different and the facts are distinguishable. Taking

into account the facts and circumstances of the issue as deliberated upon in the

fore-going paragraphs and in consonance with the judgments of the Hon'ble

jurisdictional High Court and the Hon'ble Punjab & Haryana High Court

(supra), we are of the view that the CIT (A) was not justified in confirming the

stand of the AO. It is ordered accordingly.

12. In the result, the assessee's appeal is partly allowed.

Order pronounced in open court on this 27th day of May, 2015.

Sd/- sd/- (S.V. MEHROTRA) (GEORGE GEORGE K.) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated the 27th day of May, 2015 TS

Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A)-XXI, New Delhi. 5. CIT(ITAT), New Delhi. AR, ITAT NEW DELHI.