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TMI Blog2012 (5) TMI 416X X X X Extracts X X X X X X X X Extracts X X X X ..... out of the capital gain. 3. Facts of the case, in brief, are that the assessee is an individual and earned long term capital gain of Rs. 2,89,96,269/- on account of sale of 89,014 shares of M/s Newgen Imaging and Rs. 5,41,860/- on account of sale of Flat No. 18-B/04, Takshashila both totaling to Rs. 2,95,38,130/-. The assessee claimed long term capital gain as exempt u/s 54 of the Act being investment in a new house. From the various details submitted by the assessee, the A.O. noted that the assessee has shown investment in two new flats in Enchante Building, Khar (west) as follows:- Flat No. 701 Rs. 93,15,000 Flat No. 702 Rs. 96,85,000/- The A.O. noted that the building was under construction stage and the assessee had chosen to pay the entire advance and therefore exemption u/s 54 cannot be given. Further, these are two separate properties and deduction under this section cannot be claimed on two different flats as a single unit. Since they are in a very nascent stage, it cannot be known that they would be used as one property. On being further questioned by the A.O., the assessee revised the above amount of investment in these two flats at Rs. 2,32,13,500/- which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd consequently the assessee would be entitled to exemption. It was submitted that in the assessee's case the Flat No. 701 and 702 are adjacent to each other and have been converted into a single habitable unit. The assessee has incurred an amount of Rs. 25,33,000/- on such conversion and related work. The combined units have a common kitchen, passage etc. as is apparent from the subsequent leave and licence agreement dtd. 23.11.2006 which was entered into between the assessee and M/s Reliance Industries Ltd. for the accommodation of its executive. Referring to the agreement with Reliance Industries Ltd., it was submitted that the units so leased out are for the sole use of the said executive and his family members as a single house. A certificate obtained from his Architect was filed before the ld. CIT(A) to the proposition that both the units 701 and 702 are converted into one dwelling unit. It was accordingly submitted that the assessee is entitled to exemption u/s 54F of the Act. 3.3 Based on the arguments advanced by the assessee and the additional evidences filed before him, the ld. CIT(A) called for a remand report from the A.O. Considering the remand report given by the A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two flats. Therefore, the decision of the Special Bench of the Tribunal in the case of Ms. Sushila M. Jhaveri (supra) is not applicable. He submitted that neither the A.O. nor the CIT(A) has given a finding that unless the lift and staircase are demolished both the flats cannot be clubbed together as single unit and therefore it cannot be said that these are two adjacent flats. He submitted that because of time constrains, the A.O. could not make proper enquiry. Therefore, the issue may be sent back to A.O. for fresh adjudication. 5. The ld. counsel for the assessee, on the other hand submitted that all the facts were before the A.O. and the ld. CIT(A) and the ld. CIT(A) called for a remand report on the basis of various evidences filed by the assessee and copy of the same is placed at page 210 of the paper book. Therefore, the matter need not be sent back to the A.O. So far as the issue relating to the allowability of section 54F deduction he submitted that the assessee sold shares on 5.10.2004 on which the long term capital gain arose. The last date for claiming benefit u/s 54F was 4th October, 2006. The assessee has entered into two separate agreements with the builders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... flats which is being constructed by the builder, therefore, in view of the decision of the Hon'ble Bombay High Court in the case of Mrs. Hilla J.B. Wadia (supra) the benefit of deduction u/s 54F cannot be denied to the assessee. 6.1 Now, coming to the next issue i.e whether the assessee is entitled to claim the benefit of deduction u/d 54F for both the flats treating the same as single unit, we do not agree with the contention of the ld. CIT(A) who has followed the decision of the Special Bench of ITAT in the case of Ms. Sushila M. Jhaveri (supra). In that case it has been held that where more than one units are purchased which are adjacent to each other and the same are converted into one house for the purpose of residence having common passage/kitchen etc. then it would be a case of investment in one unit and consequently the assessee would be entitled to exemption. However, in the instance case, the assessee has purchased two separate flats under two separate agreements. Although both the flats are situated at the same floor, however, from the drawing/design of the flats filed in the paper book, it is absolutely clear that both the flats are not adjacent to each other bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... term loss because otherwise the assessee would have to pay huge tax on account of short term/long term capital gain. Further, according to the A.O. if the intention was to just transfer the ownership to her, the same could have been gifted to her. Since the assessee during the impugned assessment year has made long term profit of Rs. 3.19 crores and short term capital gain of Rs. 36.91 lakhs, the A.O. came to the conclusion that the assessee has entered into many dubious transactions so as to avoid paying tax on the same. He, therefore, was of the opinion that the so-called sale is not a valid sale and asked the assessee to explain as to why the long term capital loss on sale of the flats should not be disallowed. From the various details furnished by the assessee, the A.O. noted that the assessee in his balance sheet has disclosed the investment in Flat no. 18B/13at Rs. 20,68,750/- and the investment in the other flats No. 18B/13 and 14 was never disclosed and in fact are his unaccounted investment. There is quite a lot of contradiction in the various details submitted by the assessee. The sale agreement of flats were not deliberately registered to avoid provisions of section 50- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of property by husband to wife and the transaction cannot be regarded as different from third party transaction and, hence, cannot be discriminated on account of above facts. Relying on a number of decisions, it was submitted that no disallowance can be made on account of long term capital loss and the same should be allowed. 7.3 Based on the arguments advanced by the assessee, the ld. CIT(A) directed the A.O. to allow the claim of the assessee. While doing so, he noted that the assessee got the value of the said flats ascertained as per ready reckoner for stamp duty purposes through an independent techno legal consultant Mr. Ashwin V. Shetty. The three flats have been sold by the assessee to his wife vide three sale deeds dated 7.01.2005 for price equal to figure of registered valuer which was slightly higher than the stamp duty rate. The transfer is registered with the society and the title of the flat is in the name of wife Smt. Girija Ram. The registration of these documents is not mandatory under Indian Registration Act. Nothing has been brought out by the A.O. to say that the transaction is sham transaction. The A.O. has only presumed things and arrived at certain conclus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t every right to find out the genuineness of such sale price. We find the ld. CIT(A) accepted the contention of the assessee on the basis of the valuation report given by the registered valuer. On a perusal of the valuation report given by the registered valuer we find he has determined the fair market value of the property on the basis of enquiries made with the reputed builders, estate agents and other investors in the vicinity using market value method taking into account all the factors mentioned as above in the said report. However, not a single instance of sale of such property in the vicinity has been given by verifying the records of the District Sub. Registrar. Therefore, the same apparently appears to be a self serving document. We also find some force in the submission of the ld. D.R. that because of time constraint by the A.O., it was not examined properly by the AO and, therefore, the matter may be sent back to the file of the A.O. for fresh adjudication. Considering the totality of the facts of the case and in the interests of justice, we deem it proper to restore the matter back to the file of the A.O. with a direction to give one more opportunity to the assessee to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e actual sale consideration was received by the assessee from his wife is reflected in the bank account and the transfer deed as required under the law was also executed. Although the fair value report was not furnished before the A.O., it was requested to the ld. CIT(A) to accept the same as an additional evidence. 12.1 Based on the arguments advanced before him and after obtaining the remand report, the ld. CIT(A) directed the A.O. to allow the claim of the assessee on the ground that the assessee has executed the transfer deed for the shares as required under the company Law and the sale value of the shares is supported by a valuation report. Further, the assessee has received the consideration for the transaction. Aggrieved with such order of the ld. CIT(A), the Revenue is in appeal before us. 12.2 The ld. D.R. submitted that the shares are unquoted shares of a private limited company and the shares are sold to his wife at a lower price. The Ld. Counsel for the assessee on the other hand, supported the order of the Ld. CIT(A). 12.3 After hearing both the sides, we find the impugned A.Y.is 2005-06 and the valuation is based on the auditors statement as on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al No. 1 in ITA No.4237/Mum/2008 has challenged the order of the ld. CIT(A) in confirming the disallowance of short term capital loss amounting to Rs. 45,90,000/- on sale of distressed assets. 16.1 Facts of the case in brief are that the A.O. during the course of assessment proceedings noted that the assessee had made short term capital gain of Rs. 36,91,611/- on sale of shares of Newgen Imaging. The assessee has neutralized the short term capital gain by showing short term capital loss of Rs. 45,90,000/- on sale of assets. On being questioned by the A.O., it was submitted that the assessee had given security of shares as a guarantor for a loan taken by one Mr. Subhash Chopra from M/s Cholamandalam Finance and Investment Co. Ltd. Since Shri Chopra had defaulted, the assessee had paid a sum of Rs. 50,40,000/- on 05.04.2004 towards balance due on the said loan and got released the shares pledged for the loan of Subhash Chopra. The A.O. noted that Mr. Subhash Chopra had pledged his shares of Mastek Ltd. The assessee had also pledged his shares of Mastek Ltd. as additional security. According to the A.O. it was not clear as to whether the lender company encashed the shares of M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; 17. In appeal, the ld. CIT(A) confirmed the action of the A.O. by holding as under:- "7.4 I have considered the arguments of the A.R. and have also examined the records. The A.O. has disallowed this loss on the ground that the assessee failed to satisfactorily explain the need of selling the so called distressed assets at such a huge loss, and so far as the excuse that the appellant wanted to wind-up his affairs in India and moving to US is concerned, the appellant did not similarly dispose off his other assets. The A.O.'s observations in this regard are worth highlighting:- "(a) The assessee had stated that he had given security of his shares as a guarantor to a loan taken by one Mr. Subhash Chopra from M1s. Cholamandalam Finance and Investment Co. Ltd. As per the assessee, Mr. Chopra had defaulted, and he had paid a sum of Rs. 50,40,000/- on 5/04/04 towards balance due on the said loan and got released the shares pledged for the loan of Subhash Chopra. From the details by the assessee, it is seen that Mr. Subhash Chopra had pledged his shares of Mastek Ltd. Assessee also had pledged his/his family's shares of Mastek Ltd. as additional security. It is not clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce. Nothing in the director's report or in the auditor's remarks shows that the said company has ventured into a new line of business. Thus, it is clear that the said arrangement has been entered into just to accommodate the assessee and create a fiction of loss to enable him to avoid the tax on the Short Term Capital Gain made by him during the year. In the light of the above, the assessee was asked to explain why the so called Short Term Capital Loss on sale of assets should not be disallowed. In this reply dated 27/12/2007, the assessee has merely reiterated the facts, without offering any comment on the above observations. He has further stated that he had moved to US. during April, 2005 and had to wind up his affairs in India and therefore, he had disposed off the above distressed asset at a mutually agreed price of Rs. 4,50,000/-. It was a commercial call taken by him and the loss has been rightfully offset. Accordingly, he has objected to the disallowance of the short term capital loss. The assessee's reply has been considered but the same does not appear to be reasonable and is devoid of any merit. The assessee has failed to satisfactorily explain t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - was arrived at, but she could not give any explanation in this regard. Also, the said company did not make any effort to recover the loan from Mr. Chopra till the time of assessment proceedings were going on although almost 2 years had passed. (vi) The appellant's explanation regarding the need to sell the said asset is also not satisfactory in view of detailed observations of the A.O. (vii) On the whole the said arrangement to create a short term capital loss appears to be a fishy affair and the transaction does not appear to be bonafide, specially in view of the fact that neither Mr. Subhash Chopra, nor Cholamandalam Finance and Investment Company Ltd. come forward to answer the queries of the A.O. (viii) Vide letter dated 01.11.2003, Shri Subhash Chopra thanked the appellant for pledging his shares of Mastek Limited as additional security against loan taken by Shri Subhash Chopra. But nothing is disclosed thereafter, as to what happened to those pledged shares of appellant and of Shri Chopra. (ix) No documents to support the fact that the appellant was a guarantor for Subhash Chopra for the said loan have been furnished. Also, no details of circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges." 7.7 Ground of appeal No.2 is therefore, dismissed." Aggrieved with such order of the ld. CIT(A), the assessee is in appeal before us. 18. We have considered the rival arguments made by both the sides, pursued the orders of the Assessing Officer and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. From the various documents filed in the paper book as well as submissions made before the A.O. and the ld. CIT(A) we find there is no commercial benefit to the assessee in selling the assets at a loss of Rs. 45,90,000/-. There was no commercial relationship between Mr. Subhash Chopra and the assessee except the fact that they are friends. The assessee stood as a guarantor for the loan taken by Mr. Subhash Chopra. The same, in ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that since the assessee has not made the claim in the return of income filed u/s 139(1), therefore, the same cannot be done without taking recourse to revised return u/s 139(5) of the Act. Relying on the decision of Hon'ble Supreme Court in the case of Goetze (India) Ltd. v. CIT [2006] 28 4 ITR 323/ 157 Taxman 1, he held that the entitlement of set off of carried forward long term capital loss from A.Y. 2001-02 against long term capital gain in the current year would have been available only if the assessee had filed a revised return u/s 139(5) of the Act. It is not allowable because the assessee has not claimed the same in the return of income. He accordingly upheld the action of the A.O. Aggrieved with such order of the ld. CIT(A), the assessee is in appeal before us. 19.4 After hearing both the sides we find the Co-ordinate Bench of the Tribunal in the case of Chicago Pneumatic India Ltd. v. Dy. CIT [2007] 15 SOT 252 (Mum.) has held that the assessee has a right to make a new claim before the assessing authority without recourse to filing of a revised return. Therefore we admit the ground raised by the assessee and restore the issue to the file of the A.O. to verify the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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