Income Tax Appellate Tribunal - Mumbai
Shalil S. Shroff , Mumbai vs Department Of Income Tax on 25 July, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH 'F' MUMBAI
BEFORE SHRI T.R. SOOD (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM)
ITA No. 4761/Mum/2010
Assessment year - 2005-06
The Dy. CIT-20(3), Shri Shalil S. Shroff,
Piramal Chambers, Lalbaug, Plot No.645/646,
Parel, Oberoi Chambers 2,
Mumbai-400 012 Vs. 4th & 5th Floor, New Link Road,
Andheri (W),
Mumbai-400 053
PAN-AABPS 6589H
(Appellant) (Respondent)
Appellant by: Shri R.K. Gupta
Respondent by: Shri Charul Toprani
Date of Hearing : 25.7.2011
Date of pronouncement: 29th July, 2011
ORDER
PER ASHA VIJAYARAGHAVAN (JM) This appeal preferred by the Revenue is directed against the order dated 29.3.2010 passed by the ld. CIT(A)-31 for the Assessment Year 2005-
06.
2. The facts in brief are that the assessee held 6% share in the property at Excel Estate, Goregaon. The said property was acquired by the assessee through transmission on death of Shri S.D. Shroff in the year 1997 and this property was acquired by Shri S.D. Shroff, father of Shri Shalil Shroff in 1967. During the previous year relevant to the assessment year 2005-06, the assessee sold his share in the property. In the return of income, filed by the assessee the total consideration was shown at Rs.7,50,00,000/- and after deducting the indexed cost of acquisition and the investment made under 2 ITA No. 4761/M/2010 capital gain bonds under section 54EC, the capital gains was shown at Rs.Nil. The return of income filed by the assessee was not selected for scrutiny. In case of Shall S. Shroff (HUF) for assessment year 2005-06 the Assistant Commissioner of Income-tax had made reference to District Valuation Officer under section 55A of the Act to determine the fair market value of property. The valuation report was received by the Assistant Commissioner on 19th September, 2008. In the meanwhile, in case of Shalil S. Shroff (HUF), assessment under section 143(3) was completed on 31st December, 2007 by considering the Fair Market Value of land as per the Registered Approval Valuer since the valuation report from District Valuation Officer was not received and after adopting the cost inflation index for the year 1997 instead of 1981.
3. An appeal was filed and the addition was dropped in the case of Shalil S. Shroff (HUF) for the aforesaid assessment year. A notice dated 28th March, 2008 was issued under section 148 of the Act for reopening of the assessment for the aforesaid assessment year. In order to comply with the aforesaid notice, the assessee filed a return of income on 10th April, 2008 declaring the total income at Rs.32,97,770/-. The assessee also requested that the reasons recorded for re-opening be furnished to him. A notice dated 2nd June, 2008 was issued under section 143(2) of the Act requiring the assessee to produce documents, accounts and other evidences in connection with the return filed. Based on the valuation report dated 19th September, 2008 received in case of Shalil Shroff (HUF) the Assistant Commissioner of Income-tax asked the assessee to show cause as to why the value as on 1st April, 1981 determined by the District Valuation Officer should not be adopted. In the notice dated 14th October, 2008 issued under section 142(1) of the Act, the assessee was required to file copy of sales deed and purchase deed of property sold along with a copy of valuation report.
4. The assessee vide letter dated 3rd November, 2008 submitted copy of sales deed and a copy of valuation report dated 15th January, 2005 issued by Bharat Shah and Associates determining the fair market value of the property 3 ITA No. 4761/M/2010 as on 1st April, 1981. During the course of assessment the assessee was asked to show cause why the year of indexation adopted by the assessee as 1981 should not be replaced by the indexation year 1997 in order to work out the indexed cost of acquisition since the property was transferred to the assessee on the death of his father in the year 1997. The assessee vide letter dated 3rd November, 2008 made detailed submission on the said issue.
5. The assessee vide letter dated 3rd November, 2008, 6th November, 2008 and 19th November, 2008 also submitted that the fair market value as on 01.04.81 as determined by the District Valuation Officer should not be treated as cost of acquisition of the property while computing the capital gains. In the assessment order passed under section 143(3) read with section 147, the assessee's submissions have been rejected on the ground that clause (iii) of the Explanation 48 clarifies that the cost inflation index is to be applied for the first year in which the asset is held by the assessee i.e. from the year 1997 i.e. after the death of his father, the cost inflation index has been applied with reference to 1997 and not 1981. Further, the assessee's submission that the Assessing Officer has no power to make reference to the District Valuation Officer to determine the Fair Market Value as on 01.04.91, in a case where the assessee has obtained a valuation from a registered valuer has been rejected. Accordingly, in the assessment order, the Long Term Capital Gain has been recomputed at Rs.1,76,00,476/- by considering Fair Market Value of the land as per the Valuation Report obtained from District Valuation Officer and after considering the cost inflation index for the year 1997 i.e. the year when asset was transferred to the assessee as per the will of his father.
6. On further appeal the Ld. CIT(A) has followed the decision of the Special Bench in the case of Manjula J. Shah and held as follows:
"Regarding, the determination of indexed cost of acquisition, under the given facts and circumstances of the case as discussed above, I find that the same is covered by the decision of Hon'ble 4 ITA No. 4761/M/2010 Jurisdictional ITAT in the case of Smt. Manjula J. Shah (supra); wherein, it is held that for the purpose of computing long term capital gain arising from the transfer of a capital asset which had become property of the assessee and the inheritance, the first year in which the capital asset was held by the assessee has to be determined to work out the indexed cost of acquisition as and envisaged in Explanation (iii) to section 48 after taking into account the period for which the said capital asset was held by the previous owner. The Hon'ble ITAT in para 16 & 17 of its order has held in this regard as under :
"16. It is also noted that if the interpretation as sought by the learned DR is assigned to clause (iii) of Explanation to section 48, it would lead to such working of indexed cost of acquisition in some cases which is totally illogical and unreasonable. For instance, in the case where capital asset has become a property of the assessee under a gift prior to the cut off date of 01.04.1981 but the same is transferred by him only after 01.04.1981; say in F.Y. 1987-88, the year to be adopted for indexation as per the contention of the learned CIT(A) D.R. would be F.Y. 1987-88. However, the cost of acquisition of capital asset in such case would be taken as Fair Market Value of 01.04.1981 being the cut off date embedded in the indexation schemen as agreed even by the learned DR. the situation, will thus arise where the cost of acquisition of capital asset would be taken as of 01.04.1981 whereas the cost inflation indeed for the year 1987-88 would be applied to the said cot to work out the indexed cost of acquisition. Such a working will not stand to any reasonability of logic and will certainly defeat the very purpose of indexation scheme as explained in the aforesaid circular No.636 dated 31.08.90.
17. For the reason given above, we are of the view that for the purpose of computing long term capital gain arising from the transfer of a capital asset which had become property of the assessee under gift, the first year in which the capital asset was held by the assessee has to be determined to work out the indexed cost of acquisition as envisaged in Explanation (iii) to section 48 after taking into account the period for which the said capital asset was held by the previous owner. In this view of the matter, we hold that the indexed cost of acquisition of such capital asset has to be compute with reference to the year in which the previous owner first held the asset. Accordingly, we answer the question referred to us in favour of the assessee and uphold the impugned order of the learned CIT(A) CIT(A) on this issue."5 ITA No. 4761/M/2010
Further, regarding the meaning of previous owner to be considered in this regard, the CBDT as per its Explanation Notes to the Finance Act, 1965 in circular No.3-P dated 11.10.1965 (para 112) has stated as under:
"Under s.49, the 'cost of acquisition' of a capital asset which becomes the property of the assessee under a gift or will, or by succession, inheritance or devolution, etc. is deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets incurred by the previous owner or the assessee, as the case may be. However, it is possible that the previous owner of the capital asset may have acquired the asset under a gift or will or by any other mode of acquisition referred to in s.49. In such a case, it could be urged that under s.49 the cost of acquisition of the asset to the assessee was nil. The Finance Act, 1965 has, therefore, amended this section w.e.f. 1st April, 1965, by way of adding an Explanation to it to the effect that the expression "previous owner of the property" in relation to a capital asset owned by an assessee means the last previous owner of the capital asset who acquired it by a mode of acquisition other than that referred to in s.49.
Therefore, in the light of the aforesaid discussion, facts and circumstances brought on record, I find that the AO is not justified in making addition on account of non-term capital gains on sale of property in the case of the appellant by not accepting the appellant's submissions of adoption of fair market value as on 01.04.1981 determined by the approved valuer as well as adopting the indexed cost of acquisition of the year 1997 instead of 1981. Accordingly, on account of the above the entire addition made on this account is directed to be deleted."
7. The Ld. CIT(A) deleted the addition made by the AO on account of adopting year for calculating the indexed cost of acquisition as 1997 to calculate the cost of acquisition and directed the AO to adopt the same as 1981 instead of 1997. The CIT(A) deleted the entire addition made by the AO following the decision of the Special Bench in the case of Manjula J. Shah (supra).
8. On further appeal before us the department has raised the following grounds:
6 ITA No. 4761/M/2010"1. The Ld. CIT(A) has erred on facts and in law and in the circumstances of the case in deleting the addition made by the AO, on account of adopting year for calculating the indexed cost of acquisition as 1997, to calculate the cost of acquisition and directing the AO to adopt the same as 1981 instead of 1997.
2. The Ld. CIT(A) has erred on facts and in law and in the circumstances of the case failed to appreciate the fact that the explanation to Sec. 48 clearly spells out the year of cost of inflation index to be the year in which the asset has been held by the assessee and not the previous owner."
9. We find that the AO is not justified in making addition on account of long-term capital gains on sale of property in the case of the appellant by not accepting the appellant's submissions of adoption of fair market value as on 01.04.1981 determined by the approved valuer as well as adopting the indexed cost of acquisition of the year 1997 instead of 1981. Accordingly, on account of the above the entire addition made on this account is directed to be deleted.
10. In the result, the appeal filed by the Revenue is dismissed.
Order pronounced on this 29th day of July, 2011 Sd/- Sd/-
(T.R. SOOD) (ASHA VIJAYARAGHAVAN)
Accountant Member Judicial Member
Mumbai, Dated 29th July, 2011
Rj
7 ITA No. 4761/M/2010
Copy to :
1. The Appellant
2. The Respondent
3. The CIT-concerned
4. The CIT(A)-concerned
5. The DR ' F' Bench
True Copy
By Order
Asstt. Registrar, I.T.A.T, Mumbai
8 ITA No. 4761/M/2010
Date Initials
1. Draft dictated on: 25.7.2011 Sr.
PS/PS
2. Draft placed before author: Sr.
26.07.2011 PS/PS
3. Draft proposed & placed before JM/AM
the second member:
4. Draft discussed/approved by JM/AM
Second Member:
5. Approved Draft comes to the Sr. Sr.
PS/PS: PS/PS
6. Order pronounced on: Sr.
PS/PS
7. File sent to the Bench Clerk:
8. Date on which file goes to the Sr.
Head Clerk: PS/PS
9. Date on which file goes to AR
10. Date of dispatch of Order: