TMI Blog2010 (2) TMI 739X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the assessee has invested borrowed funds in investment of Rs. 150.83 million. We, therefore, delete the addition of Rs. 20,60,000. - IT Appeal No. 648 (Mum.) of 2009 - - - Dated:- 9-2-2010 - R.K. Gupta, A.L. Gehlot, JJ. H.N. Shah for the Appellant Daya Shankar for the Respondent JUDGEMENT A.L. Gehlot, Accountant Member:- 1. This appeal filed by the assessee is directed against the order of CIT(A)-XXVII, Mumbai, passed on 26-11-2008 for the assessment year 2004-05 wherein the assessee has raised the following grounds of appeal:- "1. The learned CIT(A), Mumbai erred in rejecting the claim of long-term capital loss amounting to Rs. 3,69,08,837 being loss incurred on part surrender of leasehold land to MIDC and part transfer to Lucas TVS Ltd. on the ground that the assessee had never owned the capital asset. 2. Without prejudice to above, it is submitted that the learned CIT(A) should have considered the loss on transfer of leasehold rights to Lucas TVS Ltd. as allowable long-term capital loss. 3. The learned CIT(A) erred in disallowing a sum of Rs. 1,17,818 being 10 per cent of exempt income under section 14A of the Income-tax Act, 1961 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e consideration of Rs. 3,36,02,000 payable on execution of supplemental agreement. Tripartite agreement between the assessee, MIDC and Lucas TVS Ltd. was executed on 11-3-2004. 4.3 The Assessing Officer was of the view that the assessee never became owner of the land nor any right in a capital asset had accrued to the assessee in this transaction because MIDC had entered into a conditional MoU with the assessee to the effect that the MIDC will be bound to lease the land to the assessee on a long leave basis provided the assessee fulfilled certain conditions which were specified in MoU, which included construction of a factory building on that land. Since the assessee failed to observe the basic conditions and requested to return back of the amount deposited by it with MIDC in accordance with the aforesaid MoU, the transaction of lease of the land to the assessee never look place. The Assessing Officer further noticed that when the assessee never owned an asset, he could not have transferred it. A capital gain or loss arises on the transfer of capital asset. The Assessing Officer held that the assessee never owned the capital asset, which he could transfer. Therefore, there is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase hereby contemplated shall be executed and registered but the Licensee shall only have a licence to enter upon the said land for the purpose of performing this agreement.' 1.8 In clause (3) of the agreement, such conditions are enumerated for observation and performance by the appellant. I have noted from the above MoU that the appellant had never been allotted a plot of land by MIDC for 95 years of lease which could have definitely followed after appellant's fulfilling the terms and conditions as enumerated in the MoU. In view of the above clauses and conditions in the MoU, I find the Assessing Officer is justified in rejecting the claim of the appellant that the appellant had been the owner of the land acquired from MIDC and while returning back the said plot of land to MIDC, the appellant had incurred a capital loss amounting to Rs. 3,69,08,817. This ground is dismissed." 5. The learned AR submitted that lease of right is in the nature of capital assets. The land was acquired by the assessee by an agreement. The possession of the land was taken. Consideration was paid. This valuable right was surrendered by the assessee, therefore, there is Transfer of a capital asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semiprecious stone, and whether or not worked or sewn into any wearing apparel; (b) precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel;] [(iii) agricultural land in India, not being land situate:- (a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year; or (b) in any area within such distance, not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said plot which is evident from the fact that after sub-division of plot, one of the portion of plot was given to M/s. Lucas TVS Ltd. vide agreement dated 11-3-2004 wherein the assessee was one of the party along with MIDC and consent of the assessee was taken. Under the circumstances, surrender of rights of the assessee referred to above would amount to extinguishment of his rights in the land/capital asset and, therefore, it attracts capital gains/loss. The orders of the revenue authorities are set aside and claim of the assessee is allowed. 8. Ground No. 4 is in respect of disallowance of interest of Rs. 20,60,000 under section 36(1)(iii) of the Act. 9. During the course of assessment proceedings, the Assessing Officer noticed that the assessment made investment of Rs. 150.83 million. The Assessing Officer relied upon the judgment of the Apex Court in the case of Bengal and Assam Investors Ltd. v. CIT[1966] 59 ITR 547 and in the case of CIT v. Distributors (Baroda) (P.) Ltd. [1972] 83 ITR 377 and held that making investment is not carrying on of business. The Assessing Officer further noted that the assessee borrowed funds amounting to Rs. 44.08 million as on 31-3-20 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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