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Late Mulya B. Das, Through Legal heir Mr. Pankaj Das, 117 B, Vakola Pipe Line, Behind Church, Santacruz (E), Mumbai-400 055 Vs. The ITO Ward 19(2)(4), Mumbai
May, 01st 2014
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                  ./I.T.A. No. 2628/Mum/2012
                  ( [ [ / Assessment Year :2008-09

Late Mulya B. Das,       The ITO Ward 19(2)(4),
Through Legal heir Mr.   Mumbai
Pankaj Das,
117 B, Vakola Pipe Line,
Behind Church,
Santacruz (E),
Mumbai-400 055
    . /   . /PAN/GIR No. : AKLPO 7335L
       ( /Appellant)                  ..          (× / Respondent)
         / Appellant by: `                  Shri Prakash Jhunjhunwala
                                                 Shri Satish Gupta
       ×   /Respondent by :                      Shri Ganesh Bare
                / Date of Hearing                          :23.4.2014
                /Date of Pronouncement :30.4.2014

                                / O R D E R


         This appeal by the assessee is directed against the order of the Ld.
CIT(A)-30, Mumbai dt. 6.2.2012 pertaining to assessment year 2008-09.

2.       The grievances of the assessee can be summed up as under:

         1) The Ld. CIT(A) erred in confirming the assessment order which
            was passed on a dead person
                                      2                       ITA No.2628/M/12

      2) In alternative, the Ld. CIT(A) erred in confirming the action of
          the AO in treating the consideration of Rs. 32 lakhs as short
          term capital gain as against long term capital gain as claimed by
          the assessee
      3) The Ld. CIT(A) erred in not allowing the expenses incurred on
          transfer of residential flat of Rs. 60,000/-

3.    The return of income was filed on 19.9.2008 declaring total income
at Rs. 6,60,500/-. The return was selected for scrutiny. Accordingly,
statutory notices were issued and served upon the assessee.           While
scrutinizing the return of income, the Assessing Officer noticed that the
assessee has declared income from Long term Capital gain and sale of
flat. The assessee was asked to submit the details in respect of the sale of
property and the expenses claimed thereon. After considering the details
filed by the assessee, the AO observed that the assessee has been allotted
flat which he has sold , free of cost, by the developers in lieu of
surrendering/vacating the tenanted structure.        The assessee got the
possession of the flat vide agreement dt. 15.7.2005. The AO further
observed that the assessee has sold his tenancy rights to the developer
who in turn has provided the assessee with a house of the same size, free
of cost. The AO was of the firm belief that since the assessee became the
owner of the said flat on 15.7.2005 and the property has been sold within
a period of 36 months, the gains arising on the transfer is to be taxed as
Short term Capital gain and since the assessee has got the flat free of cost,
the cost of acquisition was taken at Rs. Nil. The AO went on to add the
entire sale consideration of Rs. 32,00,000/- as Short Term Capital Gain.

4.    The assessee carried the matter before the Ld. CIT(A). It was
explained to the Ld. CIT(A) that the assessee was owning a tenancy right
                                      3                      ITA No.2628/M/12

in the flat since 1960 as a tenant. It was further explained on 15.7.2005
the assessee entered in agreement with the builder whereby he
surrendered his tenancy right in lieu of a flat of same size in new
building. The said flat was subsequently sold for a consideration of Rs. 32
lakhs. It was explained that the new flat was acquired pursuant to the
tenancy rights which was nothing but extension of the existing tenancy
rights and conversion of the same into an ownership right. Therefore, the
assessee has rightly computed Long Term Capital gain on the sale of flat.

4.1.   After considering the facts and the submissions, the Ld. CIT(A)
observed that there were two transactions. One when the tenancy right
was surrendered and the assessee got a new flat on ownership basis.
Second transaction took place when the assessee sold the new flat for a
consideration of Rs. 32 lakhs. The Ld. CIT(A) further observed that for
obtaining the tenancy right, the assessee did not pay any cost. Further on
surrendering of tenancy right, the assessee got a new asset in the form of
a flat. The assessee became the owner of the said flat on 15.7.2005. The
Ld. CIT(A) further observed that since the flat was sold within a period of
36 months, the gain arising on transfer has been rightly treated as Short
Term Capital Gain. The Ld. CIT(A) confirmed the action of the AO.
The Ld. CIT(A) further rejected the admission of additional evidence
relating to the valuation of the flat as on 15.7.2005 holding that there is
no cost of acquisition of the new flat.

5.     Aggrieved by this, the assessee is before us. The Ld. Counsel for
the assessee started with the additional plea that the AO has erred in
issuing notices on a dead person and therefore the assessment is bad in
law.   To substantiate, the Ld. Counsel relied upon various judicial
decisions filed before us in the form of paper book.
                                     4                        ITA No.2628/M/12

6.     We have carefully perused the judicial decisions relied upon by the
assessee. We find that in all those cases not only the notices were issued
on a dead person but the assessment was also completed on the dead
person whereas in the case before us, we find that the notice was issued in
the name of the dead person but the assessment has been properly framed
in the hands of the legal heir which means that the AO has substituted the
deceased with the legal heir. Therefore, we do not find any infirmity in
the legality of the assessment order. Moreover, the first appeal was filed
in the name of the legal heir and the first appellate authority has decided
the appeal in the name of the legal heir.

6.1.   On merit of the case, the Ld. Counsel for the assessee reiterated the
facts stating that the assessee was a tenant since 1960 and that tenancy
rights was converted into an ownership rights in a flat by virtue of an
agreement with the builder. The flat was subsequently transferred giving
rise to Long Term Capital Gain. The Hon'ble Jurisdictional High Court
in the case of CIT Vs Abrar Alvi (247 ITR 312) has confirmed the order
of the Tribunal wherein the Tribunal has held that what was transferred
vide sale deed was not tenancy right but the building itself and therefore,
cost of ownership rights was to be allowed as deduction for working out
capital gains. Similarly, the Tribunal , Mumbai Benches , in the case of
Balmukund P. Acharya Vs ITO 133 TTJ 640, has held that asset sold by
the assessee is the property which was given to him on surrender of
tenancy rights. Cost of acquisition of this asset is the market value of the
tenancy right as on the point of time when it was surrendered. It is not in
dispute that the assessee came into possession of the sold flat on
surrender of his tenancy rights. It is also not in dispute that the flat sold
                                      5                        ITA No.2628/M/12

by the assessee is the property which was given to him on surrender of
tenancy rights.

6.2.   Drawing support from the decision of the Hon'ble Jurisdictional
High Court in the case of Abrar Alvi (supra), we direct the AO to
recompute the capital gain tax liability by taking the cost of acquisition of
the flat as market value of the tenancy right as on the point of time when
it was surrendered. We find that the assessee has submitted a valuation
report which was discarded by the Ld. CIT(A). The AO is directed to
consider the valuation report or determine the value by bringing cogent
demonstrative material on record after giving a reasonable opportunity of
being heard to the assessee.

7.     In the result, the appeal filed by the assessee is allowed in part for
statistical purpose.

       Order pronounced in the Open Court on 30th April, 2014

            Û   30.4.2014    

               Sd/-                                     Sd/-
     (D. MANMOHAN )                             (N.K. BILLAIYA)

 Mumbai;            Dated 30.4.2014
.../ RJ , Sr. PS
                           6        ITA No.2628/M/12

    /Copy of the Order forwarded to :
1.  / The Appellant
2.   × / The Respondent.
3.    () / The CIT(A)-
4.     / CIT
5.    ,   , 
     / DR, ITAT, Mumbai
6.   [  / Guard file.
                                / BY ORDER,
          ×  //True Copy//
                    (Dy./Asstt. Registrar)
                    ,  / ITAT, Mumbai
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