Income Tax Appellate Tribunal - Mumbai
Kanaklakshmi Investment P.Ltd, Mumbai vs Assessee on 13 August, 2014
आयकर अपीलीय अिधकरण "A" Ûयायपीठ मुंबई मɅ।
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "A", MUMBAI
ौी आर.
आर. सी.
सी. षमा[, लेखा सदःय एवं ौी ǒववेक वमा[, Ûयाियक सदःय के सम¢ ।
BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER
AND SHRI VIVEK VARMA, JUDICIAL MEMBER
आयकर अपील सं. : 5877/
5877/मुम/2012, िनधा[रणवष[ 2009-10
ITA No. : 5877/Mum/2012, AY 2009-10
Kanaklaxmi Investment P Ltd, Vs DCIT(OSD) -9(1),
201, Satellite, Aayakar Bhavan,
58, Tagore Road, M K Marg, Mumbai -400 020
Santacruz(W),
Mumbai -400 054
ःथयी लेखा सं.:PAN: AABCK 6536 D
अपीलाथȸ(Appellant) ू×यथȸ(Respondent)
Appellant by : Shri Vipul Joshi
Shri Abhiseak Tilak
Respondent by : Shri N R Ninawe
सुनवाईकȧतारȣख /Date of Hearing : 12-06-2014
घोषणाकȧतारȣख/Date of Pronouncement : 13-08-2014
आ दे श
ORDER
ौी ǒववेक वमा[, Ûया.
Ûया. स.
PER VIVEK VARMA, J.M.:
The appeal is filed by the assessee against the order of CIT(A)- 19, Mumbai, dated 30.07.2012, wherein, the following grounds have been taken:
"1.1 The learned Commissioner of Income-tax (Appeals) -19, Mumbai ["the ld. CIT(A) erred in confirming the action of the Dy. Commissioner of Income tax (O.D.S.) -9(1), Mumbai ("the AO") whereby the AO disallowed short-term capital loss of Rs. 62,73,440/-".
1.2 While doing so, the CIT(A) erred in:
(i) basing her action only on surmises, suspicion and conjecture;
(ii) taking into account irrelevant and extraneous considerations; and
(iii) ignoring relevant material and considerations as submitted by the Appellant.
2 Kanaklaxmi Investment P Ltd ITA 5877/Mum/2012 1.3 It is submitted that in the facts and the circumstances of the case, and in law, no such disallowance was called for. 2.1 The ld. CIT(A) erred in directing the AO to examine the taxability of Rs. 62,73,440/- in the hands of the Director under section 28(iv) or section 17 of the Income tax Act, 1961. 2.2 It is submitted that in the facts and in the circumstances of the case, and in law, no such direction was called for.
3. The Appellant craves leave to add, alter, delete or modify all or any of the above ground at the time of hearing".
2. In the grounds as raised in the appeal, the solitary issue that emerges is the disallowance of Rs. 62,73,440/- claimed as Short Term Capital Loss (STCL) on the sale of flat.
3. The facts as submitted before the AO and stated in SOF are that the assessee purchased a flat situated at Natura, J K Mehta Road, Santacruz (West), Mumbai from M/s DSD Builders & Developers for Rs. 3,93,73,440/-. This flat was sold by the assessee to Mr. K. Narayanan, Director of the assessee company within the financial year for a consideration of Rs. 3,31,00,000/-, thereby, incurring a loss of Rs. 62,73,440/-, which the assessee claimed in its return at STCL.
4. In the regular assessment proceedings u/s 143(3), the AO noticed the claim of loss and called for a detailed explanation along with the documents. The assessee furnished complete details and explanation as to why the assessee has sold the flat to its Director at a loss. The main reason given by the assessee was that due to sudden economic meltdown, triggered in the US and consequently effecting the world economy, the prices started to slide and to arrest the decline in prices and to stimulate cash position, the assessee decided to sell the flat to its Director at the market rate. The assessee further submitted that in so far as the Director, Mr K Narayanan was concerned, he still holds the flat as his investment.
5. This explanation of the assessee did not impress the AO, who observed that the flat was acquired by the company through its 3 Kanaklaxmi Investment P Ltd ITA 5877/Mum/2012 director, who was authorized to negotiate the purchase. He also observed that the assessee later on sold the same flat to the same director at a lesser consideration. According to the AO, the assessee has simply taken a route to book loss in its books of accounts.
6. The AO also did not get impressed with the theory of economic meltdown world over. The AO simply came to the conclusion that it was a profit reducing device, which was apparent from the fact that, that the assessee sold the same flat to the same person who was instrumental to purchase the flat. The AO, therefore, concluded that on the face of it, the transaction was a device to reduce taxable profits of the assessee and hence it was a sham transaction. The AO, therefore, disallowed the claim of STCL of Rs. 62,73,440/-.
7. The assessee approached the CIT(A) against the above disallowance and pleaded before him that there was no inherent device and reiterated the submissions made before the AO.
8. The CIT(A), after considering the submissions and detailed explanation, held, "I have carefully considered the facts of the case, the submissions of the appellant and the assessment order. From the assessment order, it is seen that Assessee Company is a private limited Company and the Director of the company has complete hold over the affairs of the company. I fail to comprehend that why the company has purchased a property at a higher price and sold it at a lower price in such a short spell of time. It is truism of facts that there was a financial crisis in U.S. towards end of 2008. But this is also a fact that India showed extreme resilience to this financial crisis by virtue of its strong fundamentals in economy. There is no realistic data to show that the fall in BSE sensex impacted the property price in Mumbai. The Ready Recknor rate published by the Government of Maharashtra and the Stamp Duty rates levied by Govt. of Maharashtra has not shown any downward revision in the property price during the fall of BSE sensex. The appellant also at the time of appellate proceeding has produced no evidence to show that the fall in BSE sensex led to fall in property prices. Thus the appellant's contention that the sharp fall in valuation of property threatened to erode small equity base of appellant 4 Kanaklaxmi Investment P Ltd ITA 5877/Mum/2012 company which was only Rs. 5,01,000/- is also not supported by any evidence as it is noticed that the company even in this precarious environment was able to pay off the loan of Rs.2 crores to the Director, Shri K. Narayan, to purchase the property in question from the company. So what the company got from right hand was taken by the director from left hand. The company by virtue of this transaction eroded the complete capital base of Rs. 5,01,000/- by incurring a loss of Rs. 62,73,440/-. It is true that the entire transaction has taken through banking channels but none the less no prudent businessman will indulge in a transaction like this where complete equity base of company is eroded. In view of this, the short term capital loss incurred by the company Amounting to Rs. 62,73,440/- is not allowed. The AO may examine the taxability of Rs. 62,73,440/- in the hands of the Director u/s 28(iv) or u/s 17 of the I.T. Act"
9. The CIT(A), thus sustained the disallowance.
10. Aggrieved, the assessee is now before the ITAT.
11. Before us, the AR reiterated the submissions made before the revenue authorities and submitted that the revenue authorities erred in observing that the assessee bought and sold the flat from Mr. K. Narayanan. The AR submitted that the fact is that the director on behalf of the assessee company, purchased the property from M/s DSD Builders & Developers and sold the same to its director Mr. K. Narayanan.
12. The AR also submitted that, in the time when the flat was in possession of the assessee, the slump in property market was also felt, because which, the assessee sold the property at the prevailing market rate.
13. The AR, therefore, submitted that the assessee did not indulge in any sham transaction and that the claim was genuine and reasonable.
5 Kanaklaxmi Investment P Ltd ITA 5877/Mum/2012
14. The DR on the other hand supported the orders of the revenue authorities and submitted that on the fact of transaction, it is sham and hence the claim was rightly rejected.
15. We have heard the arguments and have perused the documents appended in the APB, which says that the papers were submitted before both the lower authorities. From the documents, it is clear that the assessee purchased the flat from DSD Builders and Developers through its director Mr. K. Narayanan. In our opinion the revenue authorities erred in observing that the assessee bought the flat from Mr. K. Narayanan and sold the same flat to Mr. K. Narayanan. It is obvious that the company, though a separate entity for all legal aspects, but it acts through its directors. In the present set of circumstances, Mr. K. Narayanan acting for the assessee, purchased the flat from DSD Builders and Developers as the primary transaction. Later on, the assessee sold the flat to its director as secondary transaction.
16. On going through the documents appended in the APB, we do not find any trace of any connection of Mr. K Narayanan to be associated with the primary seller, i.e. DSD Builders and Developers, to give even a faint hint that the transaction was a collusive transaction.
17. Coming to the macro economic theory, at no point, the assessee/AR provided any evidence to show that at the time when the property was sold to Mr. K. Narayanan, there was actual melt down in the property rates as well, or in the same spectrum, any evidence of comparable rates within the vicinity, showing that the rates of similar type of property had been depressed, on the date when the assessee sold the impugned property to its director or there was a downward 6 Kanaklaxmi Investment P Ltd ITA 5877/Mum/2012 valuation. In such a scenario, treading only on macro economic theory would be unjustified. The burden is squarely on the assessee to prove as to how a loss of Rs. 62,73,440/- is justified and acceptable. This justification is still lacking. We, therefore, restore the issue to the file of the AO, before whom, the assessee shall demonstrate, as to how, the loss claimed was genuine and acceptable.
18. The assessee sold the impugned property to its director, who actually retained the same and that it did not get eclipsed from the assessee, or its director clearly shows that the impugned flat was meant to be retained.
19. On the issue and arguments of the revenue authorities that the assessee paid back the loan to Mr. K. Narayanan on 31.03.2009, also needs further verification.
20. In these circumstances, we set aside the order of the CIT(A) and direct the AO to verify the genuiness of the claim of loss of Rs. 62,73,440/- on the sale of property, needless to mention, that adequate and reasonable opportunity shall be given to the assessee to substantiate its claim.
21. In the result, the appeal as filed by the assessee is treated as allowed for statistical purposes.
Order pronounced in the open Court on 13th August, 2014.
Sd/- Sd/-
(आर. सी. षमा[)
आर. सी. (ǒववे
ǒववेक वमा[)
लेखा सदःय Ûयाईक सदःय
(R.C. SHARMA) (VIVEK VARMA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Date: 13th August, 2014
7 Kanaklaxmi Investment P Ltd
ITA 5877/Mum/2012
ूित/Copy to:-
1) अपीलाथȸ/TheAppellant.
2) ू×यथȸ/The Respondent.
3) The CIT (A)-19, Mumbai.
4) आयकरआयुƠ - 5, Mumbai/The CIT-5, Mumbai.
5) ǒवभागीयूितिनिध "A", आयकरअपीलीयअिधकरण,मुंबई The D.R. "A" Bench, Mumbai.
6) गाड[ फाईल Copy to Guard File.
आदे शानुसार/By Order / / True Copy / / [ उप/सहायकपंजीकार आयकरअपीलीयअिधकरण,मुंबई Dy./Asstt. Registrar I.T.A.T., Mumbai *चåहानव.िन.स *Chavan, Sr. PS