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Late Shri Gordhandas S. Garodia Through L/h Shri Mahesh G. Garodia Versus Dy. Commissioner of Income Tax Circle–22 (1) , Mumbai

2017 (11) TMI 383 - ITAT MUMBAI

Disallowance of business loss - treating the income derived by the assessee from Portfolio Management Services (PMS) transaction as short term capital gain - Held that:- Undisputedly, the assessee has invested an amount of ₹ 5 crore in the mutual fund which is managed by ICICI Prudential Assets Management Co. Pvt. Ltd. The amount received from the assessee towards mutual fund, in turn, was invested in various scrips of companies listed in the stock exchange to maximize the gain to the asse .....

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the assessee fairly submitted that the issue has been decided against the assessee by virtue of decision of the Tribunal, Mumbai Bench, in Capt. Animesh Chandra Batra (2016 (5) TMI 155 - ITAT MUMBAI). In view of the aforesaid, we uphold the order of the learned Commissioner (Appeals) by dismissing the ground no.2 raised by the assessee. - Computing long term capital gain on sale of Salt Pan Land - sale of development rights - year of taxability - Held that:- The amount of ₹ 50 crore ha .....

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that:- It is manifest from the assessment order that the Assessing Officer being of the view that cost of acquisition shown by the assessee on the basis of registered valuer’s report is more than FMV had made a reference to the DVO for determining the FMV of the capital asset transferred by the assessee. As held by the Hon'ble Jurisdictional High Court in Pooja Prints (2014 (1) TMI 764 - BOMBAY HIGH COURT), as per the existing provisions of section 55A(a), which was applicable to the relevant as .....

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this issue. Grounds raised are dismissed. - ITA no.5097/Mum./2015 And ITA no.5113/Mum./2015 - Dated:- 1-11-2017 - SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER For The Assessee : Dr. K. Shivram a/s Shri Rahul K. Hakani For The Revenue : Shri Abhijit Patankar ORDER PER SAKTIJIT DEY, J.M. Captioned cross appeals arise out of order dated 3rd August 2015, passed by the learned Commissioner (Appeals)-25, Mumbai, pertaining to assessment year 2010-11. ITA no.5097/Mum./201 .....

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r, the assessee was the co-owner of Arthur and Jenkins Salt Works. For the assessment year under consideration, the assessee filed his return of income on 23rd November 2010, declaring total income at ₹ 1,67,26,51,378. During the assessment proceedings, the Assessing Officer found that the assessee had invested an amount of ₹ 5 crore in ICICI Prudential PMS. However, in the computation of income, the assessee has neither shown any gain nor loss from the said investment. He, therefore .....

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CIC Prudential PMS being in the nature of business, the loss suffered by the assessee amounting to ₹ 4,15,973 should be treated as business loss and set-off against income against other sources. The Assessing Officer, however, did not find merit in the submissions of the assessee. On verifying the details of transactions, the Assessing Officer was of the view that gain derived from sale of securities is to be treated as capital gain as it was an investment activity of the assessee and not .....

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volume of PMS transaction it is nothing but a business transaction of the assessee, hence, the gain derived therefrom should not be assessed as capital gain. Without prejudice to the aforesaid contention, he submitted, even if the gain derived from PMS transaction is treated as capital gain, management fees, security transaction tax and audit fee should be considered as part of cost of acquisition for computing capital gain. 7. Learned Departmental Representative strongly relying upon the obser .....

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le while computing capital gain. In this context, he relied upon the decision of the Tribunal, Mumbai Bench, in Capt. Animesh Chandra Batra v/s DCIT, [2016] 158 ITD 604. 8. We have heard rival contentions and perused the material available on record in the light of the decisions relied upon. Undisputedly, the assessee has invested an amount of ₹ 5 crore in the mutual fund which is managed by ICICI Prudential Assets Management Co. Pvt. Ltd. The amount received from the assessee towards mutu .....

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ness activity of the assessee. As far as allowability of PMS cost and other expenditure, the learned Counsel appearing for the assessee fairly submitted that the issue has been decided against the assessee by virtue of decision of the Tribunal, Mumbai Bench, in Capt. Animesh Chandra Batra (supra). In view of the aforesaid, we uphold the order of the learned Commissioner (Appeals) by dismissing the ground no.2 raised by the assessee. 9. In ground no.3, the assessee has challenged the addition of .....

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nt rights on 500 acres of Salt Pan Land at Village Kanjur and Bhandup to Shapoorji Pallonji And Company Ltd., for a total consideration of ₹ 521 crore vide agreement dated 13th August 2009. He also found that the lease rights over the major part of land was acquired by the assessee prior to 1981 and a part of it was acquired by virtue of decree of the Hon'ble Jurisdictional High Court on 20th November 1986. He also found that the assessee and his son being co-owners of the property, th .....

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cer called upon the assessee to explain the reason for reducing the amount of ₹ 50 crore, it was submitted by the assessee, as per the terms of agreement the amount of ₹ 50 crore was receivable only after a part of land under CRZ regulation is permitted to be utilised for development purposes. It was submitted, since, the land in question is still under CRZ regulation, assessee has neither received the amount of ₹ 50 crore nor was entitled to receive it. The Assessing Officer, .....

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served, since, as per the sale agreement, the total sale consideration is ₹ 521 crore, the said amount has to be considered for the purpose of computing capital gain. Accordingly, the Assessing Officer proceeded to compute capital gain on the sale of consideration of ₹ 521 crore. the assessee challenged the aforesaid decision of the Assessing Officer in an appeal preferred before the learned Commissioner (Appeals). 11. The learned Commissioner (Appeals) after considering the submissi .....

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g to the area realized for development. He observed, however, as per the agreement the mutually agreed total consideration is ₹ 521 crore. Hence, capital gain has to be computed on the total sale of consideration of ₹ 521 crore. 12. The learned Authorised Representative submitted, though, the total sale consideration as per sale agreement is ₹ 521 crore, however, as per clause-3.4 of the said agreement, an amount of ₹ 50 crore out of the total sale consideration would be .....

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equently the assessee has not received the amount of ₹ 50 crore out of the total sale consideration. Drawing our attention to sale agreement, learned Authorised Representative submitted, the assessee has obtained the lease over a land for the period of 99 years and in the meanwhile the lease period has expired since February 2016. Therefore, as on date, the assessee has no right to receive the balance amount of ₹ 50 crore. He submitted, in any case of the matter, the assessee has not .....

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16] 68 taxmann.com 319. Without prejudice to the aforesaid submissions, the learned Counsel submitted to safeguard the interest of Revenue, the assessee is ready to furnish an undertaking before the Assessing Officer offering to tax the amount of ₹ 50 crore in case it is received in any future assessment year. 13. Learned Departmental Representative relied upon the observations of the Assessing Officer and the learned Commissioner (Appeals). 14. We have patiently and carefully considered r .....

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r which speaks of total sale consideration payable to the assessee, the Departmental Authorities have concluded that long term capital gain has to be computed on the total sale consideration of ₹ 521 crore irrespective of the fact whether the assessee has received the amount of ₹ 50 crore out of such sale consideration. In this context, it is necessary to examine the sale agreement dated 13th August 2009, between the assessee and M/s. Shapoorji Pallonji And Company Ltd., the develope .....

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ration shall be payable by the developer to the assessee as under:- i) ₹ 175 crore paid before execution of sale deed; ii) ₹ 200 crore paid in favour of the lessee in proportion to and as per the lessee s direction; iii) ₹ 96 crore to be paid to the lessees within 90 days of execution of the sale deed; and iv) Finally as per clause 2.3.4 of the sale deed, the balance sum of ₹ 50 crore is payable to lessees towards the areas which are covered by the CRZ notification, rules .....

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5 of the agreement provides that in case area of the property is less than 500 acres, the lessees shall be liable to return the consideration paid under the agreement on a pro-rata basis. Thus, a reading of clause 2.3.4 and 2.3.5 of the agreement makes it clear that the payment of final tranch of ₹ 50 crore is contingent upon release of part of land covered under CRZ regulation for development work. There is no dispute to the fact that till date a portion of the land is still covered under .....

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agreement has to be read as a whole to find out the real intention of the parties with regard to sale of land as well as consideration payable for such sale. When there is a specific clause in the agreement imposing condition for payment of ₹ 50 crore, on happening of certain events, unless such condition is fulfilled and restriction has been removed, it cannot be said that the assessee is liable to be assessed for the entire sale consideration mentioned in clause 2.1 of the agreement irr .....

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bjected to capital gain on the amount of ₹ 50 crore, though, it may be a part of the total sale consideration mentioned in the agreement, considering the fact that the assessee was supposed to receive the said amount on fulfillment of certain conditions and as per the facts on record, the assessee has not received the said amount, since, the conditions have not been fulfilled. 16. The observations of the Departmental Authorities that capital gain has to be computed on the total sale consid .....

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G and 54H]]]]], be chargeable to income-tax under the head "Capital gains", and shall be deemed to be the income of the previous year in which the transfer took place. 17. A plain reading of section 45 of the Act would suggest that any profit or gain arising from transfer of a capital asset shall be deemed to be the income of the assessee of the relevant previous year, wherein, such transfer takes place. Thus, as per this provision, taxability of capital gain would depend upon arising .....

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he expression accrue means a right acquired by the assessee to receive income. Unless, a debt due by somebody has been created in favour of assessee, it cannot be said that he has acquired a right to receive the income or that income has accrued to him. An amount can accrue to assessee if he acquires a legally enforceable right to receive it from the debtor. Keeping in perspective the aforesaid statutory provisions, if we examine the facts of the present case, it cannot be said that assessee has .....

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patent and obvious, the conditions as mentioned in clause 3.4 of the sale deed have not been fulfilled. Therefore, the assessee does not have any legally enforceable right under the agreement to receive the amount of ₹ 50 crore. In these circumstances, computation of capital gain on the amount of ₹ 50 crore, in our view, is not only improper but against the scheme of the Act. The entire purpose of the Income Tax Act, 1961 is to assess the real income of the assessee. Therefore, the D .....

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was to be received over a period of four years based on a formula. As per the working of the formula a situation may arise where no amount on account of deferred consideration could be receivable by the assessee. It so happened, the assessee could not receive part of the deferred consideration in assessment year 2006-07. However, the Assessing Officer held that, since, as per the terms of the agreement, assessee was to receive the deferred consideration in four assessment years, it is liable to .....

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eferred consideration to be received by the respondent-assessee in the four years would be dependent upon the profits made by M/s. Unisol in each of the years. Thus in case M/s. Unisol does not make net profit in terms of the formula for the year under consideration for payment of deferred consideration then no amount would be payable to the respondent-assessee as deferred consideration. The consideration of ₹ 20 crores is not an assured consideration to be received by the Shete family. It .....

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n fact the application of formula in the agreement dated 25th January, 2006 itself makes the amount which is receivable as deferred consideration contingent upon the profits of M/s.Unisol and not an ascertained amount. Thus in the subject assessment year no right to claim any particular amount gets vested in the hands of the respondent-assessee. Therefore, entire amount of ₹ 20 crores which is sought to be taxed by the Assessing Officer is not the amount which has accrued to the respondent .....

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sic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody. There must be as is otherwise expressed debitum in presenti, solvendum in futuro …. …. ….". In this case all the co-owners of the shares of M/s. Unisol have no right in the subject assessment year to receive ₹ 20 crores but that is the maximum which could be received by them. This amount which could be received as deferred consideration is depe .....

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attracted, viz., the accrual of its income or its receipt; but the substance of the matter is income, if income does not result, there cannot be a tax, even though in book-keeping an entry is made about a hypothetical income, which does not materialize." In this case ₹ 20 crores cap in the agreement is not income in the subject assessment year. It has been observed by the Apex Court in the case of K.P. Varghese v. ITO [1981] 131 ITR 597/7 Taxman 13 that one has to read capital gain p .....

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mounts which have been received on the application of formula provided in the agreement dated 25th January, 2006 pertaining to the transfer of shares. 18. The ratio laid down by the Hon'ble Jurisdictional High Court, as aforesaid, squarely applies to the facts of the present case. In view of the aforesaid, we hold that the amount of ₹ 50 crore having neither been received by the assessee nor accrued in the financial year relevant to the assessment year under dispute, it cannot be consi .....

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of the learned Commissioner (Appeals) in directing the Assessing Officer to adopt the cost of property shown by the assessee as per the report of the registered value. 22. Brief facts are, during the assessment proceedings, the Assessing Officer found that while computing the cost of acquisition, assessee on the basis of a valuation report of the registered valuer has adopted the cost of asset as on 1st April 1981 at ₹ 29.77 crore, The Assessing Officer found that major part of the lease h .....

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value of the capital asset as on 1st April 1981. The DVO in his report dated 25th February 2013, determined the value of capital asset at ₹ 23,14,33,000. The Assessing Officer adopting the value determined by the DVO computed the capital gain. The assessee challenged the decision of the DVO before the learned Commissioner (Appeals). 23. The learned Commissioner (Appeals) following the decision of the Hon'ble Jurisdictional High Court in CIT v/s Pooja Prints, [2014] 360 ITR 697, decided .....

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