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Biren Kantilal Vora 514, Anjani Complex, Pareira Hill Road, Andheri Kurla Road, Andheri (E), Mumbai-400 099 Vs. I.T.O. 20(1)(2), Piramal Chambers, Lalbaug, Parel, Mumbai
August, 11th 2014

  . . ,        ,                                    

                    ./I.T.A. No. 1758/Mum/2012
                   (   / Assessment Year: 2008-09)

Biren Kantilal Vora                               I.T.O. 20(1)(2),
514, Anjani Complex,                              Piramal Chambers, Lalbaug, Parel,
Pareira Hill Road,                       /        Mumbai
Andheri Kurla Road, Andheri (E),         Vs.
Mumbai-400 099

     . /  . /PAN/GIR No. AABPV 2715 N
        ( /Appellant)                       :           (      / Respondent)

       / Appellant by                      :     Shri Nishit Gandhi

          /Respondent by                   :     Shri Anurag Srivastava

                        /                  :     05.08.2014
                  Date of Hearing
                                           :     08.08.2014
          Date of Pronouncement

                                     / O R D E R
Per Sanjay Arora, A. M.:

      This is an Appeal by the Assessee directed against the Order by the Commissioner
of Income Tax (Appeals)-31, Mumbai (`CIT(A)' for short) dated 16.02.2012, dismissing
the assessee's appeal contesting its assessment u/s.143(3) of the Income Tax Act, 1961
(`the Act' hereinafter) for the assessment year (A.Y.) 2008-09 vide order dated
                                                        ITA No. 1758/Mum/2012 (A.Y. 2008-09)
                                                                   Biren Kantilal Vora vs. ITO

2.     The facts of the case are that the assessee returned short term capital gain (STCG)
on the sale of a flat at 404, Rudraksh Building, Nariman Road, Vile Parle (E), Mumbai,
vide an Agreement of Sale dated 28.03.2008, at Rs.5,46,800/-, claiming from the sale
consideration (Rs.77.40 lacs), apart from the cost of acquisition and costs incidental to
transfer (at Rs.65,16,720/-), other charges (Rs.6,76,480/-), comprising interest on housing
loan (Rs.1,50,000/-) and pre-closure charges (Rs.5,26,480/-) paid to bank. The Assessing
Officer (A.O.) disallowed both; the interest on housing loan having been also claimed
u/s.24, so that there was a double claim in its respect, assessing the said capital gain at
Rs.12,23,280/-. In appeal, while the assessee accepted the disallowance of Rs.1,50,000/-,
the pre-closure charges was argued as deductible u/s.48(i), i.e., expenses incurred wholly
and exclusively in connection with the transfer. The same did not find favour with the ld.
CIT(A). The assessee had not been able to substantiate its claim of the said charge as
being an encumbrance on the property. The said expense was incurred only because the
loan was paid prior to its due date (of repayment) and, therefore, only in the nature of
additional charges/interest levied by the bank, and had nothing to do with the transfer.
Aggrieved, the assessee is in second appeal.

3.     Before us, the assessee's case was principally in terms of the pre-closure charge
being an expenditure necessary to effect transfer and, accordingly, deductible u/s. 48(i).
A perusal of the transfer agreement, furnished during the course of the hearing, however,
revealed that the assessee had received only a sum of Rs.1,50,000/- during the relevant
year, i.e., upon the execution of the agreement, and the balance Rs.75.90 lacs was to be
received on or before 30.04.2008, and whereupon vacant and peaceful possession of the
relevant flat was to be handed over to the transferees (Cl. 4 of the agreement). The ld.
Authorized Representative (AR), on being questioned, confirmed that the balance
payment (of Rs.75.90 lacs) was received in April, 2008 and the agreement registered on
04.04.2008. Though he would insist that there was a transfer during the relevant year, we
are under the circumstances unable to, at least prima facie, agree that the possession had
been transferred during the relevant year, i.e., on the receipt of the signing amount
                                                         ITA No. 1758/Mum/2012 (A.Y. 2008-09)
                                                                    Biren Kantilal Vora vs. ITO

(Rs.1.50 lacs), and in breach of the agreement itself. Even otherwise the hon'ble courts
have regularly emphasized on substantial compliance of the agreement as being
determinative of the issue of possession. The ld. AR would then submit that in that case
there was no transfer during the year and, consequently, no capital gain would arise for
the current year in the first place. We agree. No doubt, the same amounts to the assessee
taking a contradictory stand, having returned the income for the current year, but then it
is the correct legal position that is relevant, and not the view that the parties may take of
their rights in the matter (refer: CIT v. C. Parakh & Co. (India) Ltd. (1956) 29 ITR 661
(SC); Kedarnath Jute Mfg. Co. Ltd. v. CIT (1971) 82 ITR 363 (SC)).
       As regards the deduction qua pre-closure charges to bank, the same would assume
relevance only if the capital gain becomes assessable for the current year. Toward this,
the issue would be as to the nature of the charges. The matter in our view is principally
factual. The test in this respect would be whether the said charge would stand to be
incurred, i.e., independent of the transfer, as where, say, the assessee has funds with him
to repay the bank loan or, say, is able to access funds at a cheaper rate, so that it makes
economic sense for him to switch or swap the loan with the said line of credit. That the
assessee was required to liquidate the loan prematurely in the present case on account of
his decision to transfer the flat, is an altogether different matter, and of no moment in
determining the nature of the charge. The apex court in CIT vs. Tata Iron & Steel [1998]
231 ITR 285 (SC) clarified that the manner of repayment of a loan or non-repayment will
not alter the cost of an asset. That is, that the cost of an asset and its financing
arrangement and separate and independent matters, so that one would not have any
bearing on the other. Though rendered in the context of determination of cost of
(acquisition of) a capital asset, it would have application in principle where costs in
respect of financing arrangements are imputed/ascribed to transactions relating to transfer
of capital assets; the acquisition cost being also incurred on its transfer ­ acquisition for
one being disposal for the other.
       With regard to the assessee's claim u/s. 48(i), on the ground of it being an
encumbrance, the same would need to be established as a fact inasmuch as it appears to
                                                            ITA No. 1758/Mum/2012 (A.Y. 2008-09)
                                                                       Biren Kantilal Vora vs. ITO

be only a contractual obligation arising out the financing arrangement. Further, as regards
the law in the matter, i.e., qua encumbrance, the decisions in the case of CIT vs.
Roshanbabu Mohammed Hussein Merchant [2005] 275 ITR 231 (Bom) and Sonia Maria
Mistry vs. ITO [2013] 141 ITD 508 (Mum) would be relevant.
       We, however, do not consider it necessary for the disposal of this appeal to issue
any final findings, which shall stand to be decided by the A.O., drawing on and being
guided by our foregoing observations, where deemed relevant. This is as the antecedent
question of `transfer' during the relevant year shall have to be determined first. There
having been no examination of this aspect in the matter; the A.O. having proceeded on
the footing that there had indeed been a transfer during the relevant year qua the said flat,
we only consider it fit and proper that the matter is restored back to his file to determine
the transfer date, and adjudicate the issue of capital gains on the said flat, including its
computation, where required, determining the relevant issues, after allowing due
opportunity of hearing to the assessee, per a speaking order. We decide accordingly.

4.     The second and the only other issue is with regard to the disallowance u/s. 14A(1),
i.e., at Rs.2,10,915/-, following Rule 8D of the Income Tax Rules, 1962. The ld. AR
would bring to our notice certain factual aspects, having a bearing in the matter, viz. of
jewellery, a capital asset (in the form of cut and polished diamonds), having been
included as a part of the qualifying investment and, two, the repayment of credit card (at
Rs.4.42 lacs) as having been taken as a part of the said investment, both impacting the
sum arrived at with reference to rule 8D(2)(iii). The A.O. shall, in the set aside
proceedings, also cause to verify the same; the onus to establish the facts though, i.e., the
stated or other errors in the AO's working, would only be on the assessee, so that the
matter is to this limited extent also restored back to his file.
       As regards the assessee's claim of there being hardly any investment during the
current year, so that there was no occasion to disallow interest in terms of rule 8D(2)(ii),
we find the assessee's claim as misconceived. The disallowance u/s.14A(1) is a statutory
disallowance, so that in the absence of assessee showing the utilization of its borrowed
                                                         ITA No. 1758/Mum/2012 (A.Y. 2008-09)
                                                                    Biren Kantilal Vora vs. ITO

funds toward specific assets, not being assets yielding income not forming part of the
total income, the average formula as prescribed under r. 8D shall apply. Reference in this
context may be made to the decision in the case of Godrej & Boyce Mfg. Co. Ltd. vs. Dy.
CIT [2010] 328 ITR 81 (Bom) (refer paras 85, 86 at pgs. 135-136), besides several by the
tribunal, as in the case of Kunal Corporation vs. Asst. CIT [2013] 28 ITR (Trib) 277
(Mum), rendered following the same. The assessee having not established its facts in the
matter, the proportionate method of r. 8D stood correctly applied. We decide accordingly.

5.    In the result, the assessee's appeal is partly allowed for statistical purposes.


                    Order pronounced in the open court on August 08, 2014

            Sd/-                                          Sd/-
       (I. P. Bansal)                                (Sanjay Arora)
         / Judicial Member                             / Accountant Member

  Mumbai;  Dated : 08.08.2014

. ../Roshani, Sr. PS

         /Copy of the Order forwarded to :
1.  / The Appellant
2.  / The Respondent
3.     () / The CIT(A)
4.      / CIT - concerned
5.                ,     ,  / DR, ITAT, Mumbai
6.     / Guard File
                                                      / BY ORDER,

                                              /  (Dy./Asstt. Registrar)
                                          ,  / ITAT, Mumbai
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