Income Tax Appellate Tribunal - Pune
Shanti Builders vs Joint Cit on 22 May, 2001
Equivalent citations: (2002)74TTJ(PUNE)578
ORDER
B.L. Chhibber, A.M. By this petition, the petitioner requires this Tribunal to grant interim stay directing the assessing officer not to proceed with the assessment having regard to the order of the Commissioner passed under section 263 of the Income Tax Act, 1961.
2. The petitioner is a partnership firm, and was formed with the objective of acquiring land and making development thereon. The partnership-firm had three group partners namely, (1) Choithramall Group-40 per cent; (2) Advani Group-40 per cent, and (3) Gidwani Group-20 per cent. By an agreement dated 29-3-1973, the firm purchased a plot of land admeasuring 33,339 sq. mtrs. In the balance sheet, the said land bought by the firm was shown under the heading as 'plot'. On 11-7-1974, notice for acquisition was issued by the Inspecting Assistant Commissioner (Acq.) acquiring the said land. The acquisition proceedings continued till the year 1990. In February 1976, the Urban Land Ceiling Act came into force. Under section 6 of the Urban Land Ceiling Act, the firm had to file a statement declaring the area of land held together with exemption application, if any. The whole land belonging to the firm was declared by the competent authority as surplus land required for public purpose. In view of the above, the competent authority directed that no development could be done on the said land and was deemed as acquired by the Government of Maharashtra, since then land was retained as a passive asset in hands of the firm.
3. In 1976 several disputes arose between the partners of the firm. Several suits were filed with the city civil court by one of the partners namely, Narain M. Gidwani against the other group of partners in the matter of a sister concern M/s. Shantinagar Builder. In view of the land ceiling, acquisition and dispute with the other partners, the firm decided not to continue with any business activity. The bank account of the firm was also closed by the bank as there was no operation in the said account and this account was inoperative from 1977.
4. In the year 1996, the partners of the firm got offers for sale of land. Since there were suspicion and disputes between the said partners, it was mutually decided that each group would separately sell their individual interest to one M/s. Amar Avinash Associates. Upon receiving the sale proceeds legal opinion was sought as to whether the sale proceeds were capital gains or business income and in view of the facts, the partners were advised that since the partnership had not carried on any business activity and there was a decision taken not to do business with each other because of the disputes, the sale proceeds would be taxable under the head 'Capital gains'. Accordingly, some of the sale proceeds were invested in specified accounts under sections 54EA and 54EB in the name of the partner namely, Mr. N.R. Gidwani. The firm disclosed the sale consideration received by two partners as capital gains in the hands of the firm and paid tax thereon. In the original return the amounts invested in various bonds eligible for benefit under sections 54EA and 54EB were not included. However, the firm subsequently revised its return and included the consideration received by Mr. Gidwani and claimed benefit of exemption under sections 54EA and 54EB.
The assessing officer completed the assessment under section 143(3) and taxed the income on sale as capital gain but denied the benefit under sections 54EA and 54EB. The assessing officer in his order also rejected the claim for allowance of separate interest for the purpose of sale.
5. The firm filed an application to the Commissioner under section 264 claiming that the investment made by the partner should be denied to have been made by the firm and the benefit of exemption under sections 54EA and 54EB should be given. The Commissioner after considering the legal position and applying his mind, passed an order on 28-3-2000. The operative paras 3 and 8 at per page 74 and 76 of the order of the Commissioner is reproduced hereunder:
"Para 9 at page 74 :
"Due to dispute, no business was carried out ultimately the land was subject to provisions of Urban Land Ceiling Act, 1976."
Para 8 at page 76 :
"In this case the investments made are out of the sale proceeds of the assets of the firm, i.e., Shanti Builders. The sale proceeds were separately appropriated by the partners and utilised by them. The entire property has been held as belonging to the firm by the assessing officer. The assessing officer has accordingly brought to tax the capital gain in the hands of the firm. The position has now become final."' The learned Commissioner also directed in his order at page 78 of the paper book that the tax amount collected from the firm through its partner Mr. Gidwani amounting to approximately over Rs. 6 crores be refunded to Mr. Gidwani as he had invested the moneys on behalf of the firm into the specified assets. Accordingly, the assessing officer refunded the moneys to Mr. Gidwani.
6. Later on, the successor Commissioner issued a show-cause notice under section 263 on 10-1-2001, as according to him, the order passed by the assessing officer under section 143(b) was erroneous and prejudicial to the interest of revenue. The assessee filed detailed submissions in respect to the show-cause notice but rejecting the same, the Commissioner set aside the order of the learned assessing officer. He gave a finding that the assessing officer should enquire into the matter on allowability of legitimate expenses but that he should assess the sale as profits and gains of business. The learned Commissioner concluded his order in para 102 as under :
"The assessing officer has overlooked the above facts and as well as the law of the land and passed the assessment order which is prejudicial and erroneous in the interest of revenue inasmuch as the assessing officer failed to consider the facts, circumstances and the legal position and as such the assessment order passed by the assessing officer under section 143(3) dated 3-4-1999 is hereby set aside with directions to the assessing officer to consider all the facts mentioned in the above order and other material which may come to his notice during the course of investigation and to pass a fresh assessment order bringing to tax, the total sale proceeds subject to any legally allowable expenditure under the Income Tax Act, 1961 as income from profits and gains of business or profession in respect of the land belonging to the firm."
7. Aggrieved by the same, the petitioner filed an appeal before this Tribunal being IT No. 457/Pn/2001.
8. Mrs. Shobha Jagtiani, the learned counsel for the petitioner, submitted that by this stay application, the petitioner requests the Tribunal to invoke such inherent powers available under section 254 and grant stay of the reassessment proceedings to be made by the assessing officer in pursuance of the order of the Commissioner under section 263 as the assessment is a foregone conclusion and there will inevitably be an enormous demand. She has provided a computation of such demand which works out to Rs. 11,60,55,520 on account of tax liability and another Rs. 6.00 crores on account of interest liability on the above demand. On merits of the case, she submitted that the assessing officer while passing the order under section 143(1) had raised queries on the applicability of head of income. After considering the submissions made by the firm and applying his mind to the facts and law, the assessing officer made the assessment assessing the sale under the head "capital gains". She drew our attention to the order of the predecessor Commissioner passed under section 264 and submitted that the then Commissioner had applied his mind and after considering the facts and law, had given benefit for exemption under sections 54EA and 54EB. The then Commissioner's order, therefore, got merged with the order of the assessing officer since the only issue was capital gains and that was considered by the Commissioner. The fact that exemption under sections 54EA and 54EB was granted, it presupposes that the Commissioner held the view that the same was assessable under the head 'capital gains'. Coming to the order of the successor Commissioner under section 263, the learned counsel submitted that the learned Commissioner erred in holding that the assessment order is erroneous and prejudicial to the interest of revenue on the following grounds :
"(i) Taxing the sale proceeds as capital gains would be a loss to the exchequer (p. 39 para 91 of the Commissioner's order);
(ii) because of the serious disputes and disputes between the partners, there was a definite decision taken not to do commercial activities which has been brushed away by the Commissioner at page 28 of his order;
(iii) the Commissioner has wrongly stated at page 15 of this order that the asset was shown as stock-in-trade when the balance sheet clearly shows plot account;
(iv) the Commissioner was manifestly wrong in stating at page 27, para 61 that the asset was held as stock-in-trade when he admitted in the same para that a fine line requires to be drawn to decide whether the profits from the sale are of trading nature or mere investment;
(v) the Commissioner was in error in stating that only a small portion of land was declared as surplus while the competent authority had declared the whole land as surplus and deemed to be acquired."
9. On the legal aspects of the matter, the learned counsel for the petitioner submitted that the Tribunal has wide and inherent powers to grant stay to collection as also to stay the proceedings. In support of this contention, she relied upon the Supreme Court judgment in the case of ITO v. M.K Mohammed Kunhi (1969) 71 ITR 815 (SC), CIT v. Bansidhar & Sons (1986) 157 ITR 665 (SC), the judgment of Andhra Pradesh High Court in the case of ITO v. Khalid Mohd, Khan (1977) 110 ITR 79 (AP), the judgment of the Bombay High Court in the case of Ritz v. D.D. Vyas & Ors. (1990) 185 ITR 311 (Bom) and the decision of the Patna Bench of the Tribunal in the case of Puranmal Kauntia v. ITO (1975) 98 ITR 39 (Pat) and the decision of the Nagpur Bench of the Tribunal in the case of Sudhir Lodha (1980) Tax 56(6)-94.
10. Again coming to the merits of the case, the learned counsel for the petitioner submitted that if the assessing officer is allowed to proceed with the assessment as per the directions given by the Commissioner under section 263, great injury would be caused to the petitioner because the principal tax liability in the event, the Commissioner's order under section 263 is given effect to, would be around Rs. 11.60 crores and another liability of about Rs. 6 crores on account of interest. The firm has since closed its business and it will not be in a position to discharge the tax liability and if the department proceeds to recover such huge demand, it will cause a great hardship to the partners of the firm. To safeguard the interest of the revenue, she submitted that the partners of the firm are prepared to give adequate security. She has filed an undertaking to this effect from the partners of the firm which read as under :
"Undertaking for recovery of taxes We undertake that we partners of Shanti Builders/Attorneys will not dispose of assets as per the following details till order is passed by the Appellate Tribunal against appeal under section 263 in the case of our firm M/s. Shanti Builders for assessment year 1997-98".
Sr. No. Particulars of the property Market value Rs.
(1)Flat No. 94-A 9th floor, Miramur, situated at 3, L. Jagmohandas Marg, Mumbai-36 60,00,000 (2) Flat No. 12-A 1st floor, Miramur, situated at 3 Jagmohandas Marg, Mumbai-36.
10,00,000 (3) Flat No. 15-A 1st floor, Miramur, situated at 3, L. Jagmohandas Marg, Mumbai-36 30,00,000 (4) Office Nos. 7, 8 and 9 at Bund Garden Road known as Amar Avinash Corporate City 4,50,00,000 (5) Car parking space Nos. 12 to 20 at Bund Garden Road, known as Amar Avinash Corporate city 30,00,000 (6) Flat No. 18-D Sagar Sangent, 18th floor, situated at Colaba P.O. Mumbai-5 90,00,000 (7) Flat No. 18-B Empire Estate, 8th floor situated at Gowalia Tank Road, Mumbai-26 40,00,000 (8) Flat No. 8, Mahavir, situated at Kemps Corner, Warden Road, Mumbai-26.
1,50,00,000 (9) We further submit that bonds of value of Rs. 2.25 crores is retained by the Income Tax Department as security 2,25,00,000 11,00,00,000 For the liability of about Rs. 6 crores which will arise on account of interest, the partners have given a separate undertaking which reads as under :
"Undertaking for recovery of taxes :
We undertake that we partners of Shanti Builders/Attorneys will not dispose of assets as per the following details till order is passed by Tribunal, against appeal under section 263 in case of our firm Shanti Builders for assessment year 1997-98.
Sr. No. Particulars of the property Market value Rs.
1.
Advani Chambers, 4, 5 & 6th floors, admeasuring about 6,000 sq. ft. at Kemps Corner, Mumbai.
6,00,00,000 At the and, the learned counsel concluded that it is a fit case for stay of proceedings both on merits and legal position and in view of adequate security offered by the partners of the firm.
11. Shri O.P. Jain, the learned Departmental Representative strongly opposed the stay petition. He submitted that after considering all the facts and circumstances of the case, the learned Commissioner has rightly passed an order under section 263 as the order passed by the assessing officer under section 143(3) was erroneous inasmuch as it was prejudicial to the interest of revenue. According to the learned Departmental Representative if the stay is not granted, there would be prejudice to the petitioner and he further submitted that grant of interim stay will create precedence in favour of the petitioner.
12. We have considered the rival submissions and have gone through the contents of the stay petition as well as orders of the learned departmental authorities. It is well settled that the Tribunal has powers to grant stay of collection/proceedings. The Hon'ble Supreme Court in the case of M.K. Mohammed Kunhi (supra) has held as under :
"Section 254 of the Income Tax Act which confers on the Tribunal powers of the widest amplitude in dealing with appeals before it, grants by implication the power of doing all such acts, or employing such means, as one essentially necessary to its execution. The statutory powers under section 254 carries with it the duty in proper cases to make such orders for staying recovery proceedings pending an appeal before the Tribunal."
The above view of the Supreme Court was followed by the Hon'ble Andhra Pradesh High Court in the case of Khalid Mohd. Khan (supra) and it was held as under :
"Granting of stay or any other interlocutory order pending the appeal is within the discretion of the Tribunal. However, it is observed that the said power shall not be exercised by the Tribunal in routine manner or as a matter of course, but will be exercised only where a strong prima facie case is made out and after considering the relevant circumstances and only on being satisfied that the entire purpose of the appeal will be frustrated or rendered negating if the proceedings to be stayed are allowed to continue during the pendency of the appeal."
The Hon'ble Bombay High Court in the case of Ritz Ltd. (supra) have also confirmed the above view and held as under :
"The principle laid down by the Supreme Court in Kunhi's case reported in (1969) 71 ITR 815 (SC) was extended in Bansi Dhar case (1986) 157 ITR 665 (SC). The Tribunal can stay reassessment proceedings. But such a power to be used judiciously."
From the above, it is clear that the statutory power of the Tribunal under section 254 carries with it the duty in proper cases to make such orders for staying recovery proceedings pending in appeal before the Tribunal, as will prevent the appeal, if successful, from being rendered nugatory, From the facts of the case and the submissions of the learned counsel, it is evident that the balance of convenience is in favour of the petitioner. Under the circumstances, if the assessing officer proceeds to frame the order under section 143(3) as per the directions given by the Commissioner in his order under section 263, a demand of Rs, 11,60,55,520 on account of tax and Rs. 6 crores on account of interest will be created against the petitioner-firm which already stands dissolved. If the authorities below insist on collecting such huge demand, it will cause great injury to the petitioner-firm. In such a situation the Tribunal's decision, even though in favour of the petitioner-firm, would be of no avail and, therefore, in our opinion, it is a fit case in which stay may be granted on certain conditions. Accordingly, we direct as under :
(a) The assessing officer may proceed to complete the assessment under section 143(3) in accordance with the directions of the Commissioner vide his order under section 263 but shall not issue a demand till the appeal against the order under section 263 is disposed of by this Tribunal;
(b) The assessee shall abide by the surety as given in para 10 above;
(c) The registry is directed to fix the hearing out of turn in the first week of September, 2001.
13. In the result, the stay petition is allowed pro tanto.