Income Tax Appellate Tribunal - Mumbai
Dcit Cen Cir 4(2) Cen Rg 4, Mumbai vs Sarita S Mantri, Mumbai on 22 January, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "E" MUMBAI
BEFORE SHRI JOGINDER SINGH (VICE PRESIDENT) AND
SHRI N.K. PRADHAN (ACCOUNTANT MEMBER)
ITA No. 5346/MUM/2015
Assessment Year: 2009-10
Smt. Sarita S. Mantri Asst. Comm. of Income Tax,
5 Jolly Bhawan, No 2, Ground Vs. Central Circle-31, Central
Floor, 7 New Marine Lines, Range-7, Mumbai.
Churchgate, Mumbai-400020.
PAN No. ADXPM8070E
Appellant Respondent
ITA No. 5274/MUM/2015
Assessment Year: 2009-10
Deputy Commissioner of Smt. Sarita S. Mantri GA-1,
Income Tax Central Circle- Vs. Court Chambers, Ground
4(2), Mumbai Central Range-4 floor, V. Thakkersey Marg,
Pr. CIT-(C)-2, Mumbai, R. No. 35, New Marine Lines,
411, 4th floor, Aayakar Bhavan, Churchgate, Mumbai-
M.K. Road, Churchgate, 400020.
Mumbai-400020.
PAN No. ADXPM8070E
Appellant Respondent
Revenue by : Mr. Satish Chandra Rajore, DR
Assessee by : Mr. Prakash Jhunjhunwala, AR
Date of Hearing : 02/11/2018
Date of pronouncement: 22/01/2019
Smt. Sarita S. Mantri 2
ITA Nos. 5346 & 5274/Mum/2015
ORDER
PER N.K. PRADHAN, AM
The captioned cross appeals- one by the assessee and the other by the Revenue - are directed against the order of the Commissioner of Income Tax (Appeals)-52, Mumbai [in short 'CIT(A)'] and arise out of the assessment completed u/s 143(3) r.w.s. 254 of the Income Tax Act 1961 (the 'Act'). As common issues are involved, we are proceeding to dispose them off by this consolidated order for the sake of convenience.
ITA No. 5346/MUM/2015Assessment Year: 2009-10
2. In a nutshell, the facts are that the assessee is a Director of M/s Sunil Mantri Reality Ltd. ( in short 'SMRL') and she filed her return of income for the year under consideration on 30.09.2009, declaring total income of Rs.23,09,930/-. The Assessing Officer (AO) completed the assessment u/s 143(3) vide order dated 30.12.2010, assessing the total income at Rs.76,67,525/-. In the assessment, the AO observed that the assessee had purchased total of six flats from SMRL from the housing project located at Mantri Park, Goregaon (East), Mumbai. All these flats are equal in areas admeasuring 630 sq. ft. approx. However, the purchase price varied from Rs.38,82,900/- to Rs.66,53,300/-. Out of the six flats, two were purchased with the purchase price of Rs.38,82,900/- per flat and the other four flats had the purchase price ranging from Rs.64,00,000/- to Rs.66,50,000/-. In connection with the said two flats purchased with lower purchased price, the AO was of the view that SMRL granted or passed on some benefit or perquisite to the assessee Smt. Sarita S. Mantri 3 ITA Nos. 5346 & 5274/Mum/2015 (the employee) by way of concession. Considering the lower purchase price in respect of the said two flats, the AO invoked the provisions of section 17(2) relating to 'perquisite' and proposed to tax the different amount of Rs.53,57,600/-. Accordingly, the AO made an addition of Rs.53,57,600/- to the income returned by the assessee.
Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). We find that the Ld. CIT(A) confirmed the addition made by the AO on the reason that (i) so long as the assessee is a working director and received remuneration, the provisions of section 17 of the Act would apply, (ii) the assessee failed to give justification for variance in purchase price of two sets of flats of the same size and (ii) the assessee could not substantiate the fact that the two flats were purchased in the above conditions.
In further appeal filed by the assessee, the ITAT 'E' Bench Mumbai in assessee's own case for the impugned assessment year (ITA No. 6394/M/2011) vide order dated 12.12.2012 held as under :
"7. We have head both the parties, perused the order of the Revenue along with the paper books and copies of the decisions filed before us. There is no dispute on the fact that the assessee works as working Director in the company who sold the flats to the assessee. It is a fact that the assessee purchased six flats from M/s. SMRL and the purchase price of the two flats is lower vis a vis the purchase price of the other four flats. AO made addition considering the difference in the said purchase prices. The core issue to be decided by us relates to if the AO is justified in making additions relying on the outcome of the straight comparisons and without giving a finding on the issue ie what is the cost of construction/acquisition of the impugned flats Smt. Sarita S. Mantri 4 ITA Nos. 5346 & 5274/Mum/2015 1605 and 1606 located in 16th floor as well as the other four flats and what is their market prices? As such , AO did not invoke any particular provision of the Act for bringing the difference amount of Rs. 53,57,600/- to tax and it is the CIT (A) who invoked the provisions of section 17(2) of the Act before confirming the said addition. Before us, new arguments are brought out which revolve around the provisions of section 2(24)(iv) of the Act and the applicability of the Rule-3(7)(ix) r.w.s 17(2) of the Act. During the proceedings before us, Ld Counsel mentioned that the impugned purchase price of the flats at 16th floor should not be compared with market price for quantifying the disallowance as perquisite and in principle, the should compared only with reference to the construction cost of the flat in the hands of the seller ie M/s. SMRL and relied on the provisions of Rule-3(7)(ix) r.w.s. 17(2) of the Act. It is the argument of the assessee, but for this rule, there is no other rule under which the quantification of perquisite of a immovable property is arrived at. But the perusal of the relevant Rule which relates to value of any other benefit or amenity, service, right or privilege etc. There is no reference to the immovable properties in the said Rule 3(7)(ix) of the I T Rules, 1962. This line of argument was taken for the first time before us and there are no relevant facts with regard to the cost of the flat and therefore, there is need for obtaining the finding of fact on the applicability of Rule- 3(7)(ix) to the facts of the case. It is fair that the revenue must be given a chance to rebut these new lines of arguments.
8. Regarding the applicability of the provision of section 2(24)(iv) of the Act, we find that the same is discussed at length in the order of this Tribunal in the case of Ashok W. Phansalkar vs. ITO (supra) it is the finding of the Tribunal that the similar concessions offered to the Director attract such provisions. The facts of the said case are that the assessee-Director purchased a flat from the company for Rs. 10 lakhs against the market value of Rs. 3.85 crores. AO taxed the difference amount of Rs. 3.75 crores as a value of the Smt. Sarita S. Mantri 5 ITA Nos. 5346 & 5274/Mum/2015 benefit on perquisite invoking the provisions of section 2(24)(iv) of the Act. Honble Tribunal confirmed the fact of benefit in purchasing the properties at a lesser value than they would have been sold in the open market. In principle, the comparison between the market value and purchase value of the property is approved by the Tribunal. The other decisions, relied upon by the Ld Counsel, undisputedly distinguishable on the facts as assets relates to the car or rental value. From the above, it is evident that the provisions of section 2(24)(iv) r.w.s. 17(2) allow the difference in value of the asset between the purchase price and fair market value of the property or flats. Assessee's attempt to compare the value of the flats with that of the flat no.201, in our opinion, is not proper considering the differences narrated above. We do not find the price with reference to the other flats which are comparable with other blocks at 16th floor. The lower authorities have not explored the applicability of the provisions of section 2(24)(iv) of the Act and the market value of the flats in question. The decision in the case of Ashok W. Phansalkar vs. ITO (supra) was not cited before the CIT (A). So far as the employer -employee relationship is concerned that it is a settled issue that there exists such relationship between the Director and the company. May be for that reason the assessee has not raised the ground in this regard as evident from the Form 36 of the Appeal Memo. Therefore, we are of the opinion that for want of market rate of the impugned flats ie all six flats and the corresponding construction cost of the said flats in the hands of the developer, the ground should be set aside to the files of the AO for examining the issue afresh in the light of the discussion given above. AO is directed to grant a reasonable opportunity of being heard to the assessee. Accordingly, grounds raised by the assessee are allowed for statistical purposes.
9. In the result, appeal of the assessee is allowed for statistical purposes."
Smt. Sarita S. Mantri 6 ITA Nos. 5346 & 5274/Mum/2015
3. Thereafter the AO made the assessment u/s 143(3) r.w.s. 254 on 20.03.2014 and worked out the value of perquisite/benefit derived by the assessee at Rs.44,46,098/- as against Rs.53,57,600/- earlier computed and thus gave a relief of Rs.9,11,502/- to the assessee.
In appeal, the Ld. CIT(A) vide order dated 07.08.2015 held as under:
"In my view, only the agreement value for sale of flats in the 'open market' can be considered for determining the 'market' value. For the purpose of determining the market value of the flats sold to be appellant, as stated above, the AO had considered the agreement value for sale of only 14 flats of the name size, in the open market. In my view, the action of the AO in not considering the agreement value for sale of flats having smaller area is not justified, as generally, flats are sold at the same rate, irrespective of their area/size. Therefore, the agreement value for sale of 22 flats of different size, in the open market, is considered and the market value of the flats in question is determined as under:
Total agreement value of 22 flats Rs.12,16,80,090/-
Total area sold 19,404 sq. ft.
Rate per sq. ft. Rs.6,271/-
Thus, the difference in rate comes to Rs.720/- per sq. ft. Therefore, an amount of Rs.13,96,800/- has to be added in the hands of the appellant, as income u/s 2(24)(iv) of the Act, as against Rs.44,46,098/- added by the AO and Rs.9,60,300/- worked out by the appellant. The AO is, accordingly, directed to restrict the addition to Rs.13,96,800/-, and the appellant gets a relief of Rs.30,49,298/-."
Smt. Sarita S. Mantri 7 ITA Nos. 5346 & 5274/Mum/2015
4. Before us, the Ld. counsel of the assessee submits that the addition made by the AO in set-aside assessment is erroneous since it is gross violation to the direction issued by the ITAT. It is submitted by him that the cost of two flats in the hands of SMRL is of Rs.19,60,000/- per flat and such flats had been sold to the assessee at Rs.38,82,900/- per flat, thus there is no loss caused to the employer ( SMRL). Accordingly, no perquisite/benefit had been obtained by the assessee since she purchased the flats at a value which is above the cost of construction of SMRL. Therefore, following the Rule 3(7)(ix), the addition made by the AO u/s 17(2) would be unjustified. The Ld. counsel further submits that the market value (Bazaar Bhav) determined by the Stamp Valuation Authority of such two flats is Rs.24,73,152/- per flat, thus the AO did not apply the provisions of section 50C of the Act and accordingly, it is totally incorrect to presume that the cost of construction of SMRL would be more than Rs.19,60,000/- (cost of M/s SMRL). In any case, there is substantial difference in the market value determined by Stamp Valuation Authority at Rs.24,72,152/- and the value at which the said two flats were sold to the assessee at Rs.38,82,900/- (gap of over 57.03%). It is stated that the AO ought to have considered the cost of construction of Rs.19,60,000/-(having reckoner value of Rs.24,73,152/-) and since the assessee had purchased such flats at Rs.38,82,900/-, the addition made is not justified.
It is stated by him that during the course of assessment, the assessee furnished the copies of registered agreements and ledger account of all six flats purchased from SMRL. As per the submitted Smt. Sarita S. Mantri 8 ITA Nos. 5346 & 5274/Mum/2015 details, the average purchase price (market price) of all six flats is @ 5551 per sq. ft. The assessee purchased the said two flats at fair value of Rs.38,82,900/- per flat which is at arm's length price and is in excess of the cost of construction of SMRL of Rs.19,60,000/- and also in excess of the market rate determined by the Stamp Valuation Authority at Rs.24,73,152/-.
Thus the Ld. counsel submits that the addition of Rs. 13,96,800/- sustained by the Ld. CIT(A) be deleted.
5. On the other hand, the Ld. DR submits that the ITAT has set aside the issue of perquisite to the AO with a direction to find out the construction cost of the flats and market value of the flats, which were purchased from SMRL, in which the assessee is the promoter director. It is stated that the assessee could not furnish any evidence for cost of construction for the flats. Referring to the argument of the counsel of the assessee that the value as per section 50C is to be adopted as market value of the flats, the Ld. DR submits that the same should not be accepted as the flats purchased by the assessee is stock-in-trade in the books of accounts of the builder SMRL.
The Ld. DR further submits that the flats were sold at higher cost than the value of the flat as per section 50C of the Act and therefore, the market value of the flats are to be arrived, based on the selling price of the flats to various customers.
Referring to the calculation made by the AO and the Ld. CIT(A) to arrive at the perquisite value, the Ld. DR submits that the method Smt. Sarita S. Mantri 9 ITA Nos. 5346 & 5274/Mum/2015 adopted by the CIT(A) for arriving perquisite value is wrong for the following reasons:
(i) The perquisite value is to be arrived only for two flats.
Therefore, the average cost of two flats is to be deducted from the average market value of flats, whereas the CIT(A) has deducted the average value of 6 flats from the average market value of flats.
(ii) The average cost of two flats is Rs.4002/sq. ft. The CIT(A) has to deduct the average cost of two flats i.e. Rs.4002/sq. ft. from the market cost of flat i.e. Rs.6271/sq. ft., whereas the CIT(A) has deducted the average cost of 6 flats i.e. Rs.5551/sq. ft. from the average market cost of flats i.e. Rs.6271/sq. ft.
The Ld. DR thus submits that there would not be much difference between the perquisite arrived at by the AO at Rs.44,46,480/- and the one arrived at by the CIT(A) at Rs.44,01,860/- and suitable direction be given to the AO to rectify the mistake in the order of the CIT(A).
5.1 The Ld. DR further relies on the order of the Tribunal in Ashok W. Phansalkar v. ITO (2010) 38 SOT 136 (Mumbai), wherein it is held that
(i) assessee, a promoter director of the company having purchased the property from the company at a value lesser than the market value is liable to tax on the value of benefit or perquisite in terms of section 2(24)(iv) and (ii) where the company has suffered loss by selling its property to its director at lesser value, the loss thus suffered will be taken as the value of benefit received by the director and taxable in his hands u/s 2(24)(iv) of the Act.
Smt. Sarita S. Mantri 10 ITA Nos. 5346 & 5274/Mum/2015
6. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below.
At this moment, we discuss the decision in Ashok W. Phansalkar (supra) relied on by the Ld. DR. In that case the Tribunal held at para 12 and 13 that :
"For the reasons stated above, we are of the view that the assessee had obtained a benefit in purchase of property at a lesser value than the property would have been sold in the open market. The issue, however, boils down to the valuation of the value of property to determine the value of benefit obtained by the assessee u/s 2(24)(iv).
There is direct evidence in the form of loss incurred by the company which in turn can be considered as the benefit obtained by the assessee. We have already referred to the fact that SEPL suffered a loss of Rs.67,16,731/- on sale of the property to the assessee. The same was claimed as loss by SEPL and also was allowed by the AO in its income tax proceedings for the assessment year 2003-04. We are of the view that there is no need to consider any other factor in determining the value of the benefit. Even though the CIT(A) has gone on a different concept to arrive at the value of the benefit which he determined at Rs.80,00,000/-, we are of the opinion that it would be just and proper to go by the book value as per the books of the company in determining the value of the benefit. Since the company has suffered a loss, to the extent of selling the property at a lesser price than the book value, this loss can be directly considered as a benefit received by the assessee u/s 2(24)(iv)."
6.1 In the instant case, the book value (cost) of the employer being Rs.19,60,000/- per flat, which is held by the CIT(A) as Rs.25,00,000/- is less than the consideration paid by the assessee at Rs.38,82,900/- per Smt. Sarita S. Mantri 11 ITA Nos. 5346 & 5274/Mum/2015 flat. Therefore, the instant case is distinguishable from the decision in Ashok W. Phalsankar (supra) relied on by the Ld. DR.
6.2 We refer here to section 2(24)(iv) under which the Ld. CIT(A) has restricted the addition of Rs.13,96,800/- and the same reads as under:
"The value of any benefit or perquisite, whether convertible into money or not, obtained from a company either by a director or by a person who has a substantial interest in the company, or by a relative of the director or such person, and any sum paid by any such company in respect of any obligation which, but for such payment, would have been payable by the director or other person aforesaid."
Let us recapitulate the facts. In the instant case, the cost of construction of the disputed two flats of M/s SMRL (employer) is of Rs.19,60,000/- per flat. The Ld. CIT(A) held it as Rs.25,00,000/-. The above amounts are lower than the consideration paid by the assessee of Rs.38,82,900/- per flat. Thus there is no benefit/perquisite taxable u/s 2(24)(iv) of the Act.
The above employer had sold other three flats to outsiders at a price of Rs.25,00,000/- per flat, whereas the assessee has purchased the disputed two flats at Rs.38,82,900/- per flat.
Also the fact remains that the fair value determined by Stamp Valuation Authorities in registered agreement executed by the assessee on 22.01.2009 is of Rs.24,73,152/- per flat, whereas the assessee had purchased such flats at Rs.38,82,900/- per flat.
Thus it is not a case of bringing to tax u/s 2(24)(iv) of the Act.
Smt. Sarita S. Mantri 12 ITA Nos. 5346 & 5274/Mum/2015 In view of the above factual matrix, the addition confirmed by the Ld. CIT(A) of the disputed two flats of Rs.13,96,800/- (Rs.6,98,400/- per flat) u/s 2(24)(iv) is deleted.
7. In the result, the appeal filed by the assessee is allowed.
ITA No. 5274/MUM/2015Assessment Year: 2009-10
8. During the course of hearing, the Ld. counsel of the assessee submits that the Department's appeal relate to part addition deleted by the CIT(A) of Rs.30,49,298/- resulting into tax effect less than Rs.20,00,000/-. Referring to the CBDT Circular No. 3/2018 dated 11.07.2018, he submits that the Department's appeal be dismissed.
In the above Circular, it has been specified that appeals shall not be filed before the Income Tax Appellate Tribunal (ITAT) in cases where the tax effect does not exceed the monetary limit of Rs.20,00,000/-. For this purchase, 'tax effect' means the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of issues against which appeal is intended to be filed. Further, 'tax effect' shall be taxes including applicable surcharge and cess. However, the tax will not include any interest thereon, except where chargeability of interest itself is in dispute. In case the chargeability of interest is the issue under dispute, the amount of interest shall be the tax effect. In cases where returned loss is reduced or assessed as income, the tax effect would include notional tax on disputed additions. In case of Smt. Sarita S. Mantri 13 ITA Nos. 5346 & 5274/Mum/2015 penalty order, the tax effect will mean quantum of penalty deleted or reduced in the order to be appealed against.
9. At para 13 of the above Circular, it has been mentioned that:
"13. This Circular will apply to SLPs/appeals/cross objection/references to be filed henceforth in SC/HCs/Tribunal and it shall also apply retrospectively to pending SLPs/appeals/cross objections/references. Pending appeals below the specified tax limits in para 3 above may be withdrawn/not pressed."
10. The Ld. DR fairly agrees with the contentions of the assessee that the tax effect in the Department's appeal is less than Rs.20,00,000/-.
11. Thus following the above CBDT Circular, the Department's appeal is dismissed as withdrawn.
12. In the result, the appeal filed by the assessee is allowed, whereas the appeal filed by the Revenue is dismissed.
Order pronounced in the open Court on 22/01/2019.
Sd/- Sd/-
(JOGINDER SINGH) (N.K. PRADHAN)
VICE PRESIDENT ACCOUNTANT MEMBER
Mumbai;
Dated: 22/01/2019
Rahul Sharma, Sr. P.S.
Smt. Sarita S. Mantri 14
ITA Nos. 5346 & 5274/Mum/2015
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent.
3. The CIT(A)-
4. CIT
5. DR, ITAT, Mumbai
6. Guard file.
BY ORDER,
//True Copy//
(Sr. Private Secretary)
ITAT, Mumbai