IN INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH AHMEDABAD BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER. IT(SS)A. No. 207/Ahd/2006 (Assessment Year: Block Period 1.4.1996 to 02.07.2002) Shri Rahabhai B. Bharwad Behind Harni Jakat Naka, Harni Road, Baroda Appellant Vs. Asstt. Commissioner of Income Tax, Central Circle-2, Baroda Respondent PAN: AGKPB8624M & IT(SS)A. No. 208/Ahd/2006 (Assessment Year: Block Period 1.4.1996 to 02.07.2002) Shri Harishbhai B. Bharwad Behind Harni Jakat Naka, Harni Road, Baroda Appellant Vs. Asstt. Commissioner of Income Tax, Central Circle-2, Baroda Respondent IT(SS)A Nos.207 & 208/Ahd/06 [Shri Rahabhai B. Bharwad & Shri Harishbhai B. Bharwad] Page 2 PAN: AGNPB3168R By Appellant :Shri S. N. Soparkar, A.R. By Respondent :Shri Sanjay Agrawal, CIT D.R. Date of Hearing : 27.07.2016 Date of Pronouncement : 20.09.2016 ORDER PER SHAILENDRA KUMAR YADAV, J.M: Both appeals have been filed by two assessees against orders of Commissioner of Income Tax (Appeals)-IV, Ahmedabad, dated February 2, 2006. Since both appeals pertain to same family and similar issues were raised in both appeals; therefore, these were heard together and are being disposed of by this common order for sake of convenience. 2. In ITA No.208/Ahd/2006 in case of Shri Harishbhai B. Bharwad, assessee has taken following grounds of appeal:- 1. Ld. CIT(A)-IV, Ahmedabad has erred in law and in facts in confirming order of Ld. Assessing Officer in determining capital gains of Rs. 18,03,385/- (1/2 of total capital gains of Rs. 36,06,770/-) in relation to transfer of land admeasuring about 46,300 sq. ft. determination of capital gains and its assessment in case of appellant being erroneous in law and in facts, deserves to be deleted. IT(SS)A Nos.207 & 208/Ahd/06 [Shri Rahabhai B. Bharwad & Shri Harishbhai B. Bharwad] Page 3 2. Ld. CIT(A)-IV, Ahmedabad has erred in law and in facts in disregarding various contentions of appellant with regard to claim that capital gains in case of appellant was indeterminable on account of following: i) cost of acquisition of property is to be taken at Rs. Nil as such property was received by appellant from erstwhile Ruling Family of Baroda without any cost. Since there was no cost to previous owners, cost acquisition in hands of appellant was indeterminable and consequently, capital gains was unquantifiable. ii) agreement for sale of property was made in violation of provisions of Sec.43 of Bombay Tenancy and Agricultural Land Act and, therefore, transfer was void ab initio and thus no capital gains could have been determined as property transferred was invalid being prohibited under other Act. iii) agreement for sale was unsigned, ambiguous, devoid of clarity of terms, therefore, provisions of sec. 2(47)(v) were not applicable to transaction of transfer of property. iv) agreement for sale is made with Shri Ashok Gupta while possession of property is given to Company M/s. R.B.G Infrastructure Pvt. Ltd., Company independent of individual with whom agreement for sale is signed and, therefore, possession handed over to another person than person named in agreement for sale cannot be basis for invoking provisions of sec. 2(47)(v). 3. Ld. CIT(A)-IV, Ahmedabad has further erred in law and in facts in confirming disallowance of claim of expenditure of Rs.36.00 lakhs incurred for IT(SS)A Nos.207 & 208/Ahd/06 [Shri Rahabhai B. Bharwad & Shri Harishbhai B. Bharwad] Page 4 vacating charge / rights hi property to Shri Bandish Shah. Such expense being incurred in connection with transfer / cost of improvement of property deserves to be allowed in computing capital gains. 4. Ld. CIT(A)-IV, Ahmedabad has further erred in law and in facts in confirming interest expenses of Rs.2,30,000/- on amount borrowed for payment to Shri Bandish Shah above mentioned. Such expenditure being incurred in connection with transfer / cost of improvement of property deserves to be allowed in computing capital gains. 2.1. Assessee filed his return of income at nil, however, Assessing Officer has assessed same as Rs.18,03,358/-. main issue before us with regard to capital gain on property transacted during year under consideration. main contention of assessee is that agreement on basis of which property namely land bearing survey no.1081/1 has been considered as transferred was not valid contract, hence invoking of provision of Section 2(47)(v), in charging capital gain is illegal, unwarranted and unjustified in law. He has also challenged disallowance of Rs.36 lacs as expenditure, while working out capital gain and has also disputed disallowance of Rs.2,30,000/- being interest paid on amount borrowed for payment to Shri Bandish Shah. facts as reported by Assessing Officer in his assessment order are as under: (i) assessee is son of Shri Becharbhai Bharwad resident of Harni Village, Vadodara. Shri Becharbhai Bharwad was cultivating land in capacity of Ganotaya on S.No. 123, 125, 164 , 166, 216 313, 314, 319 & 1081 belonging to Shri IT(SS)A Nos.207 & 208/Ahd/06 [Shri Rahabhai B. Bharwad & Shri Harishbhai B. Bharwad] Page 5 Vijaysinh Khanderao Gaekwad. land owner filed application before District Court of Baroda to get possession of these land from farmer i.e. Shri Becharbhai Bharwad. He filed objection before Hon'ble Court of Law., that he was protected Ganotaya and land in question are covered by Bombay Tenancy and Agricultural Lands Act and therefore, it is outside purview of jurisdiction of District Court of Baroda. Thereafter settlement was arrived at between Shri Becharbhai Bharwad and owners of land v i.e. Shri Vijaysinh Khanderao Gaekwad and others. As per said settlement agreement dated 5/4/66, lands bearing S.No.313, 314, 319, 216 & 1081/1 was to be transferred in name of Shri Becharbhai Bharwad and possession of land bearing S.Nos. 123, 125, 164 166 were to be handed over to original land owner i.e. Shri Vijaysinh Khanderao Gaekwad. (ii) There was subsequently another dispute between Shri Becharbhai Bharwad and Urban Land Development Authority. order of Competent Authority of Urban Land Development was quashed by Secretary of Urban Land Commission, Ahmedabad. matter was contested before Hon'ble Gujarat High Court on 4.2.1994 vide Special Civil Application No.7463/1990 and Hon'ble High Court of Gujarat remanded vide order dated 4.2.1994, that application was to be disposed off on top priority preferably by 31.5.1994 (Page No.129 of Annex. LP-2) Shri Becharbhai Bharwad along with his legal heirs including possession of this land survey No. 1081/1 on 4.12.1991 to (i) Smt. Ketkiben B. Shah (ii) Shri Kamlesh Rasiklal Shah and (iii) Smt.Sonalben Arunkumar Shah in part performance of "an agreement to sale" with these three-persons dated 4.12.1991 ( Page No. 139 to 141 of Annexure LP-2) said deal was then cancelled vide deed dated 15.4.1998 as published in local newspaper Sandesh dt.17.04.1998. There after agreement to sale dt.20.6.98 was executed with Shri Ashok IT(SS)A Nos.207 & 208/Ahd/06 [Shri Rahabhai B. Bharwad & Shri Harishbhai B. Bharwad] Page 6 R.Gupta and others at agreed price of Rs.lll per sq.ft. for total land area 2,50,000 sq.ft i.e. Rs.2,77,50,000. As per terms No.7 of said agreement ( Page No.100 to 103 of Annex. LP -2 ), possession of land was to be given either at time of sale deed or as per consent of both parties. These agreement has been signed by legal heirs of Shri Becharbhai Bharwad in witnesses of Kanubhai Bharwad , Ankit Bharwad and Ashok Gupta and was notarized before Shri M.C.Vaidhya , Notary. As per page No. 4 & 5 of Annexure A/17 found and seized from office of Shri Ashok Gupta and Shri Vikram Gupta, it is written that l,15,000/-sq.ft at rate Rs.lll/- per sq.ft. totaling to Rs.1,27,65,000/- from Shri Kanubhai Bharwad who is son of Shri Rahabhai Becharbhai Bharwad and 65,000 sq.ft. at rate of Rs.lll/- per sq.ft. totaling to Rs.72,15,000/- from Shri Harishbhai Bharwad. In both of these accounts,Rs. 20,00,000/- each has been credited as additional amounts decided (Refer to page 4 & 5 of Annex A-17). It indicates that 1,80,000 sq.ft. land was finally decided for total consideration of Rs.2,23,80,000/-. Both these accounts are updated upto 24/3/2000/- and are matter of record as per seized papers. assessee in his statement u/s.132(4) of Act admitted that Rs.20 lacs were received from Shri Ashok Gupta during 23/2/1998 to 24/3/1998 which were deposited in his bank account No.2126 with State Bank of Saurashtra. (iii) It appears from seized record that Airport Authority of India has lodged claim in year 1999-2000 regarding ownership of said entire under R.S.No. land 1081 out of which assessee group was owning R.S.No. 1081/1. Based on claim of Air Port Authority of India, Town Development Officer of VMC,Baroda vide his letter dated 4.2.2001 withdrew permission of construction granted vide order dated 18.5.2000 ( Page No.145 of Annex. LP-2). 2.2 Considering above facts of case, assessee was communicated that for purpose of Section 45 of Act IT(SS)A Nos.207 & 208/Ahd/06 [Shri Rahabhai B. Bharwad & Shri Harishbhai B. Bharwad] Page 7 transfer of property i.e. capital assets has taken place and capital gain has accrued vide this office letter dated 14.07.04 and was asked to explain as to why capital gain shall not be worked out and taxed accordingly. Assessee made following submissions in this regard: "i) That cost of acquisition in respect of land sold was nill as land was acquired by father of legal heir out of Settlement with Gaikwad. ii) That he agreement to sell and power of attorneys in favour of Gupta family is not valid. asset in question could not be legally transferred as per provisions of 43 of Bombay Tenancy and Agricultural Land Act. agreement to sale and power of Attorney are not signed by legal owner of land. iii) That transfer of capital assets has not taken place within meaning of Section 2(47). Since there was no legal and enforceable contract. transaction has been finalized after search vide agreement dated 11/9/2003 between assessee and R.B.G. Infrastructure Pvt. Ltd. 2.3 Assessing Officer did not accept contention on behalf of assessee and determined capital gain of Rs.18,03,385/- (1/2 of capital gain of Rs.36,06,770/- in relation to controversy of land admeasuring about 46300 sq. ft.). said order was confirmed by CIT(A). 2.4 stand of assessee before us has been that Assessing Officer was not justified in levying capital gain of Rs.18,03,385/- in relation to transfer of land in question. According to assessee, capital gains in case of assessee was indeterminable on account of cost of acquisition of IT(SS)A Nos.207 & 208/Ahd/06 [Shri Rahabhai B. Bharwad & Shri Harishbhai B. Bharwad] Page 8 property was to be taken at Rs.Nil as such property was received by assessee from erstwhile Ruling Family of Baroda without any cost. Since, there was no cost to previous owners, cost acquisition in hands of assessee was indeterminable and consequently, capital gains were unquantifiable. Learned Authorized Representative submitted that agreement for sale of property was made in violation of provisions of Section 43 of Bombay Tenancy and Agricultural Land Act and, therefore, transfer was void ab initio and thus no capital gains could have been determined as property transferred was invalid being prohibited under other Act. Assessee also pointed out defects in sale deed. Assessee has claimed expenditure of Rs.36 lacs incurred for vacating charge/rights in property to Shri Bandish Shah. Such expense being incurred in connection with transfer / cost of improvement of property deserves to be allowed in computing capital gains and further revenue authorities were not justified in confirming he interest expenses of Rs.2,30,000/- on account of borrowed for payment to Shri Bandish Shah. So, addition in question be deleted. On other hand, learned Departmental Representative relied on order of CIT(A). 2.5 We find land in question was acquired by father of legal heir vide settlement agreement between Shri Becharbhai Bharwad and Vijaysinh Khanderao Gaekwad, original owner of said land on 05.06.1966. As per said IT(SS)A Nos.207 & 208/Ahd/06 [Shri Rahabhai B. Bharwad & Shri Harishbhai B. Bharwad] Page 9 settlement agreement filed by assessee during proceeding land bearing S.Nos. 1081/1,313, 314 ,319, 216, were transferred in name of Shri Becharbhai Bhaiwad, in lieu of handing over possession of land bearing S.Nos. 123, 125, 164 166. Both parties had exchanged possession these lands in pursuance of deed executed in Court of Civil Judge (S.D),Baroda on 5.4.1996. During course of search at residence of assessee, loose papers and other documents found and seized were inventorised as per Annexure LP No.1 to LP No.4. At strength of its possessory rights over land in question, it was recognized by erstwhile owner that land bearing S.No.1081/1 was retained in lieu of exchange of rights in certain other lands as per agreement discussed above. Revenue authorities stated that acquisition of land was not free of cost as claimed by assessee because it is in exchange of land. But basic fact remains is that assessee s father had adverse possessory rights over land for long period, which was also acknowledged by erstwhile owner. Ultimately issues were settled by virtue of whether possession over S.No.1081/1 was allowed to be retained by assessee as per agreement stated above. So, it is not case of possession in lieu of other land but it is case of retaining portion of land as per agreement which also envisaged that possession over land was not with erstwhile owner. Further, it is abundantly clear that land in question was having no value in hands of ancestor of assessee from whom assessee has inherited property IT(SS)A Nos.207 & 208/Ahd/06 [Shri Rahabhai B. Bharwad & Shri Harishbhai B. Bharwad] Page 10 possessory rights being legal heir. Thus, there was no cost in hands of assessee or its ancesotrs. We find that Hon ble Gujarat High Court in case of CIT vs. Mandharsinhji P. Jadeja (2006) 281 ITR 19 (Guj), wherein assessee inherited certain property on death of his father, which was acquired by his forefathers by conquest. Said property was sold by Income Tax Department in public auction in order to effect recovery of outstanding dues towards certain tax demands and estate duty payable. It was held that there was neither cost nor date of acquisition of property were ascertainable, no capital gain could be brought to tax in respect of said property. ratio of CIT vs. Mandharsinhji P. Jadeja (supra) squarely applies facts of case before us, wherein ancestors of assessee had acquired land without consideration but by virtue of adverse possession. Possession is best title except owner. said adverse possession has been duly recognized by settlement as discussed above. Since, there is no cost in hands of father of assessee as well as assessee, no capital gain would be leviable on transfer of said land by assessee. case relied by learned Departmental Representative is not applicable to facts of assessee s case. Under facts and circumstances, Assessing Officer is directed to delete addition made by way of levying capital gain in question. 3. As result, appeal filed by assessee in ITA No.208/Ahd/2006 is allowed. IT(SS)A Nos.207 & 208/Ahd/06 [Shri Rahabhai B. Bharwad & Shri Harishbhai B. Bharwad] Page 11 4. Similar issue arose in ITA No.207/Ahd/2006. Assessee being brother of Shri Harishbhai B. Bharwad, we have discussed and decided similar issue in favour of assessee. Facts being similar, so following same reasoning, Assessing Officer is directed to grant relief to assessee as prayed. 5. In result, both appeals filed by assessee are allowed. Pronounced in open Court on this 20th day of September, 2016. Sd/- Sd/- (N. K. BILLAIYA) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad: Dated 20/09/2016 True Copy S.K.SINHA Copy of Order Forwarded to:- 1. Revenue 2. Assessee 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/ Rahabhai B. Bharwad v. Asstt. Commissioner of Income Tax, Central Circle-2, Baroda