After considering the rival submissions and perusing the relevant material on record it is observed that the due date for filing the return of income by the assessee under section 139(1) for the relevant year is 30.11.2006. The AO has drawn a chart at page-4 of the assessment order showing the dates of actual deposits and due dates for the said contributions of EPF and ESIC. The Hon'ble Supreme Court in the case of CIT v. Alom Extrusions Ltd.[2009] 319 ITR 306has held the amendment to the first proviso and the omission of the second proviso to section 43B by the Finance Act 2003 as retrospective. In the case of CIT v. Vinay Cements Ltd. [2007] 213 CTR 268 (SC), the Hon'ble Supreme Court has held that the amount of EPF etc. deposited before the filing of return cannot be disallowed under section 43B. The Hon'ble Delhi High Court in the case of CIT v. Aimil Ltd.[2010] 321 ITR 508 allowed deduction in respect of employees' shares if deposited before the due date of filing the return by following the judgment of Hon'ble Supreme Court in the case of Vinay Cements Ltd. (supra). In view of the foregoing discussions it is clear that the amount of EPF etc. deposited late by the assessee beyond the due date under respective Act but before the due date of filing the return of income as per section 139(1) of the Act, cannot be disallowed. We, therefore, overturn the impugned order on this issue and this ground is allowed.
ITAT MUMBAI BENCH 'K'
Tara Jewels Export (P.) Ltd.
v.
Assistant Commissioner of Income-tax, 8(3)
IT Appeal No. 6972 (Mum.) OF 2010
[ASSESSMENT YEAR 2006-07]
[ASSESSMENT YEAR 2006-07]
JANUARY 23, 2013
ORDER
R.S. Syal, Accountant Member – This appeal by the assessee is directed against the order passed by AO under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (the Act) on 27.7.2010 in relation to the assessment year 2006-07.
2. The assessee filed revised grounds, which have been taken into consideration while disposing of the present appeal. The first five grounds are against the addition made by the AO pursuant to the adjustment proposed by the Transfer Pricing Officer (TPO) in respect of international transactions.
3. Briefly stated, the facts of these grounds are that the assessee is engaged in the manufacturing and export of studded precious jewellery. It reported international transactions of purchase and sale of studded jewellery. The benchmarking was done on the basis of Cost Plus method. For the reasons given by the TPO in his order dated 29.10.2009, the Cost plus method was rejected and instead the Transactional Net Margin Method (TNMM) was applied. In so applying the method of TNMM, the TPO worked out the assessee's Operating Profit/Total Cost (OP/TC) at 1.77%. Certain comparable cases were chosen by the TPO whose average margin was found at 4.79%. The TPO determined arm's length profit by considering a particular figure of Rs. 2,2,90,49,767/- which he computed vide para 7 of his order by first computing figure of Rs. 216,67,59,595/- by totalling amount of Sales (Rs. 161,69,75,273/-), Labour charges (Rs. 10,18,435/-), Other income (Rs. 3,85,485/-) and Closing stock Rs. 54,83,80,771/-). From this figure of Rs. 216.67 crores, the TPO reduced the amount of non-operating income such as Dividend on shares, Interest on income tax refund and Sales tax refund all totalling Rs. 34,473/-, thereby determining the so called amount of Operating income at Rs. 216,67,25,492/-. He also found out the amount of Total expenses before interest and taxes at Rs. 212,90,49,767/-. This figure was determined by reducing the amount of Non-operating expenses, that is, Donation and Interest after adding bank charges being non-interest element, to the amount of total expenses debited to the P&L account of Rs. 215,82,57,038/-. It is on this figure of Rs. 212,90,49,767/- that the TPO applied rate of 4.79%, being arithmetical mean of the comparable cases chosen by him and hence worked out the figure of adjustment at Rs. 6,43,05,759/-. Eventually, the AO made addition for this proposed adjustment.
4. The grievance of the Ld.AR to this adjustment is only two fold. His first contention is that the figure of closing stock should be excluded from the total income determined by the TPO and second the rate of 4.79% computed by the TPO of the comparable cases chosen by him should be applied only in respect of the international transactions with the AEs. We will take up both these objections one by one for discussions and our conclusion thereon.
5. The first objection is against the inclusion of figure of closing stock in the total income of Rs. 216.67 cores. Before we proceed further on this issue it is relevant to note that under the TNMM, the operating profit margin is computed in relation to one of the several basis given, such as Cost incurred or Sales effected or Assets employed or Any other relevant base. This is the prescription of rule 10B(1)(e) of Income-tax Rules, 1962. Only one of such bases is chosen as a Profit Level Indicator (PIL) under the TNMM. The TPO has computed Operating profit margin of the assessee at Rs. 3,76,75,725/- (1.77%) by considering the PLI as OP/TC. In this exercise, he adopted the figure of Operating income at Rs. 216,67,25,492/- by excluding non-operating income of Rs. 34,473/- from the alleged amount of sales at Rs. 216,67,59,965/-. The said figure of Rs. 216,67,59,965/-, as noticed above also includes the amount of closing stock at Rs. 54.83 crores. It is but natural that when total cost is computed then that is required to be adjusted not only by the figure of closing stock but also by the figure of opening stock. Cost of goods sold is determined by adding the amount of purchases to the figure of opening stock and then reducing the figure of closing stock. Such figure of cost on goods sold when considered with other items of cost constitutes the total cost. It is impermissible to add up figure of closing stock without giving effect to the figure of opening stock. In our considered opinion the TPO erred in computing operating profit of the assessee at Rs. 3.76 crores by considering wrong figure of sales at Rs. 216,67,59,965/- also inclusive of the figure of closing stock without giving effect to the figure of opening stock. It was open to the TPO to apply the PLI as OP/Sales, in which case again only the figure of sales, was required to be considered without any reference to the figures of opening or closing stocks. As the TPO has erred in deducing the correct figures of either total cost or the sales, being the possible constituents of PLI, we set aside the impugned order and restore the matter to the file of AO / TPO to determine the rate of assessee's operating profit margin by applying correct base of Total Cost. Needless to say the same base as applied by the AO / TPO for determining the rate of OP/TC shall be applied in comparable cases also to find out the profit rate for the purposes of benchmarking.
6. We consider it our duty to record that the ld. AR has neither raised any objection to the application of TNMM as the most appropriate method nor to the selection of comparable cases as chosen by the TPO.
7. The second objection taken by the ld. AR is about the application of the average margin of comparables to the figures of entity as a whole instead of transaction with the AEs. After considering the rival submissions and perusing relevant material on record it is seen that Chapter-X of the Act contains special provisions relating avoidance of tax. Section 92, which is the substantive section of the Chapter, provides that : `Any income arising from an international transaction shall be computed having regard to the arm's length price'. The term "international transaction" has been defined in section 92B as "…. a transaction between two or more associated enterprises, either or both of whom are non-residents ………..". The term 'associated enterprise' has been defined in section 92A. A conjoint reading of these provisions divulges that the transfer pricing adjustment is required to be made only in respect of transactions between the AEs. In the provisions, as are applicable to the assessment year under consideration, it is wholly impermissible to apply such provisions in respect of transactions with non-AEs. We, therefore, overturn the impugned order on this score and direct the AO / TPO to compute ALP in respect of international transactions alone and restrict the amount of adjustment, if any, to such transactions only.
8. Ground No.6 about disallowance under section 14A of the Act was not pressed by Ld. AR. The same is, therefore, dismissed.
9. The only other ground which survives for our consideration is against disallowance of PF and ESIC dues amounting to Rs. 28,986/- paid beyond the due date under respective Acts but before the due date of filing the return of income under section 139 of the Act.
10. After considering the rival submissions and perusing the relevant material on record it is observed that the due date for filing the return of income by the assessee under section 139(1) for the relevant year is 30.11.2006. The AO has drawn a chart at page-4 of the assessment order showing the dates of actual deposits and due dates for the said contributions of EPF and ESIC. The Hon'ble Supreme Court in the case of CIT v. Alom Extrusions Ltd.[2009] 319 ITR 306/185 Taxman 416 has held the amendment to the first proviso and the omission of the second proviso to section 43B by the Finance Act 2003 as retrospective. In the case of CIT v. Vinay Cements Ltd. [2007] 213 CTR 268 (SC), the Hon'ble Supreme Court has held that the amount of EPF etc. deposited before the filing of return cannot be disallowed under section 43B. The Hon'ble Delhi High Court in the case of CIT v. Aimil Ltd.[2010] 321 ITR 508 allowed deduction in respect of employees' shares if deposited before the due date of filing the return by following the judgment of Hon'ble Supreme Court in the case of Vinay Cements Ltd. (supra). In view of the foregoing discussions it is clear that the amount of EPF etc. deposited late by the assessee beyond the due date under respective Act but before the due date of filing the return of income as per section 139(1) of the Act, cannot be disallowed. We, therefore, overturn the impugned order on this issue and this ground is allowed.
11. In the result, the appeal filed by the assesee is partly allowed--
IT: Where dominant intention of assessee behind purchase and sale of shares was to quickly realize profits by frequently turning over stock of shares and not to earn dividend from them, income would be assessed as business income
■■■
[2013] 32 taxmann.com 6 (Rajkot - Trib.)
IN THE ITAT RAJKOT BENCH
Deputy Commissioner of Income-tax, Surendranagar Circle
v.
Mukeshbhai Babulal Shah*
T.K. SHARMA, JUDICIAL MEMBER
AND D.K. SRIVASTAVA, ACCOUNTANT MEMBER
AND D.K. SRIVASTAVA, ACCOUNTANT MEMBER
IT APPEAL NO. 318 (RAJKOT) OF 2011
[ASSESSMENT YEAR 2008-09]
[ASSESSMENT YEAR 2008-09]
FEBRUARY 8, 2013
Section 28(i), read with section 45, of the Income-tax Act, 1961 - Business income - Chargeable as [Share dealings] - Assessment year 2008-09 - Whether income from purchase and sale of shares would be assessed as business income if intention of assessee behind their purchase and sale is to quickly realize profits - Held, yes - Whether, however, if intention of assessee behind purchasing and holding shares is to earn dividend and not to realize profit by turning over shares as it is done in course of business, profit arising on sale of shares would be assessable as capital gains under section 45 -Held, yes - Assessee bifurcated his dealing in purchase and sale of shares under two heads namely - (1) future and options which was treated as business income; and (2) purchase and sale of shares based on delivery in his books of account which was shown as capital gain - Assessing Officer held that entire income was assessable as business income under section 28 - It was undisputed that in tax audit report, nature of business of assessee had been shown as trading of shares and assessee had no other business - Further, stock turnover ratio of assessee was 1:16 and capital turnover ratio was 1:14 which is normally found in business and not in investment - Dividend as percentage of average capital worked out to 0.05 per cent - Whether above facts clearly indicated that dominant intention of assessee behind purchase and sale of shares was to quickly realize profits by frequently turning over stock of shares and not to earn dividend from them - Held, yes - Whether, therefore, income arising from purchase and sale of shares was in nature of business income as defined under section 28 - Held, yes [Para 13][In favour of revenue]
FACTS
Facts
| • | During the course of assessment proceedings, the Assessing Officer noticed that the assessee had shown transactions on account of trading in future and options as business income while profits from transactions in respect of shares purchased and sold on delivery basis had been shown as capital gain. | |
| • | The Assessing Officer concluded that profits from purchase and sale of shares on delivery basis were also in the nature of business income. | |
| • | The Commissioner (Appeals) accepted the claim of the assessee and held that where shares were held for more than a month, they should be treated as investments and on their sale short term capital gain should be charged. When shares were held for less than a month, gain on them should be treated as profit from business. |
HELD
Charging of tax under section 28
| • | Section 28 brings the profits and gains of any business or profession carried on by the assessee at any time during the previous year to the charge of income tax. Sub-section (13) of section 2 defines 'business' as including any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. | |
| • | It is therefore quite evident that the subject matter of charge under section 28 is not only the profit from any trade, commerce or manufacture but also profit from any adventure or concern in the nature of trade, commerce or manufacture. [Para 9] |
Charging of tax under section 45
| • | The subject matter of charge under section 45 on the other hand, is capital gains, i.e., any profit or gain arising from the transfer of capital receipt effected in the previous year. Capital asset is defined in sub-section (14) of section 2 as property of any kind held by assessee, whether or not connected with his business or profession, but does not include, inter-alia, any stock-in-trade. [Para 9] | |
| • | The various decisions make it amply clear that the income from purchase and sale of shares would be assessed as business income if the intention of the assessee behind their purchase and sale is to quickly realize profits. | |
| • | However, if the intention of the assessee behind purchasing and holding the shares is to earn dividend and not to realize the profit by turning over the shares as it is done in the course of business, the profit arising on sale of shares would be assessable as capital gains under section 45. [Para 12] |
Intention of assessee was to quickly realize profits
| • | In the instant case, the stock-turnover ratio, is as high as 1:16. Such high stock-turnover ratio is found in business segment and not in investment segment. This shows that the intention of the assessee was to turn over the stock as frequently as possible to ensure quick realization of profits on sale of shares. | |
| • | In the Tax Audit Report, the nature of the business of the assessee has been shown as trading of shares. The tax auditor has come to the aforesaid conclusion after due examination of the books of account. The assessee has no other business. He is fully engaged in dealing with shares. He himself has treated the profit from purchase and sale of shares as gross profit in his books of account. | |
| • | The capital-turnover ratio, is as high as 1:14 which is normally found in business and not in investment. This shows that the intention of the assessee was to optimally utilize his capital to secure large turnover of shares as in the case of business. | |
| • | The fact that the shares were not held as a source of revenue is evident from the fact that dividend as percentage of average capital works out to 0.05 per cent. | |
| • | Neither in the books of account nor otherwise the assessee has proceeded to compute the income from purchase and sale of shares in the manner laid down under section 48. He has simply treated the entire profit arising on purchase and sale of shares as gross profit in the books of account. | |
| • | It is further observed that the assessee has utilized its own funds for trading not only in futures and options but also in purchase and sale of shares. | |
| • | All these facts clearly indicate that the dominant intention of the assessee behind purchase and sale of shares was to quickly realize profits by frequently turning over the stock of shares and not to earn dividend from them. [Para 13] |
Assessee treated shares as stock-in-trade
| • | The aforesaid indicators lend credent to the fact that the assessee treated the shares more as stock-in-trade than as a capital asset. | |
| • | On the facts of the case, the view taken by the Assessing Officer that the income arising from purchase and sale of shares is in the nature of business income as defined under section 28 read with section 2(13) is endorsed.. | |
| • | In this view of the matter, the order passed by the Assessing Officer deserves to be confirmed and is accordingly confirmed. [Para 13] | |
| • | In view of the aforesaid the appeal filed by the revenue is allowed. [Para 16] |
CASES REFERRED TO
Sugamchand C. Shah v. Asstt. CIT [2011] 48 SOT 189/16 taxmann.com 204 (Ahd.) (URO) (para 3), Wallfort Financial Services Ltd. v. Addl. CIT [2010] 41 SOT 200/6 taxmann.com 66 (Mum) (para 5), Sardar Indra Singh & Sons Ltd. v. CIT [1953] 24 ITR 415 (SC) (para 9), G. Venkataswami Naidu & Co. v. CIT [1959] 35 ITR 594 (SC) (para 10), H. Mohmed& Co. v. CIT [1977] 107 ITR 637 (Guj.) (para 11) and CIT v.Gopal Purohit [2011] 336 ITR 287/[2010] 188 Taxman 140 (Bom.) (para 14).
Ankur Garg for the Appellant. Apurva Mehta for the Respondent.
ORDER
D.K. Srivastava, Accountant Member - The appeal filed by the Revenue is directed against the order passed by the CIT(A) on 14-06-2011, on the following grounds:-
| 1. | The Ld. CIT(A) erred in law and on facts in deleting the addition of Rs.86,87,101/- made by the AO, treating the income disclosed under the head Short Term Capital Gain as Business income, without properly appreciating the facts of the case and the materials brought on record by the AO. | |
| 2. | The Ld. CIT(A) erred in law and on facts in directing to treat where the holding of the shares is for a period of less than one month, the purchase and sale of shares is to be treated as business of the assessee, and where the period of holding of the shares is more than one month, the purchase of shares is to be treated as investment of the assessee, according to the period of holding of such shares. | |
| 3. | On the facts and circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. | |
| 4. | It is therefore prayed that the order of the Ld. CIT(A) may be set aside and that of the order of the Assessing Officer be restored to the above extent. |
2. The assessee is an individual. He filed his return of income for the assessment year under appeal on 16-07-2008 returning total income at Rs. 96,75,150/-. Perusal of the Tax Audit Report filed by the assessee for the assessment year under appeal shows that he is engaged in the business of "trading of shares" and in no other business. "Trading of shares" is his full time activity and source of income in respect of which he has maintained, as per Tax Audit Report, various books of accounts, namely, ledger, bank book, cash book, purchase register, ales register and journal. It is also stated in the Tax Audit Report that the tax auditor has examined the aforesaid books of account before giving his Tax Audit Report stating that the assessee is engaged in the business of "trading of shares". During the course of assessment proceedings, the AO noticed that the assessee has shown income from his business at Rs. 10,69,519/-; income from short term capital gain at Rs. 86,87,102/- and income from other sources at Rs. 18,452/-. On further scrutiny of his accounts, the Assessing Officer noticed that profits from transactions on account of trading in Future and Options have been shown as business income while profits from transactions in respect of shares purchased and sold on delivery basis have been shown as capital gain. The Assessing Officer called upon the assessee to justify his claim that as to how the income on account of purchase and sale of shares on delivery basis was in the nature of capital gain and not in the nature of business income u/s.28 of the Income-tax Act. After taking into account the submissions of the assessee, the Assessing Officer concluded that the profits from purchase and sale of shares on delivery basis were in the nature of business income and not in the nature of capital gains as claimed by the assessee. In this view of the matter, he taxed a sum of Rs.86,86,102/- shown by the assessee as short term capital gain as income from business u/s 28 of the Income-tax Act for the reasons given by the AO in Para 4 of the assessment order.
3. On appeal, the ld. CIT(A) accepted the claim of the assessee that the impugned profits from purchase and sale of shares were in the nature of short term capital gain as claimed by the assessee and not in the nature of business income as held by the Assessing Officer following the judgment of this Tribunal in Sugamchand C. Shah v. Asstt. CIT [2011] 48 SOT 189/16 taxmann.com 204 (Ahd.) (URO) with the following observations:-
"2.11 However, the controversy relating to the taxability of the transactions of purchase and sale of shares and securities and the treatment to be given to such transactions has been resolved and set at rest by the Hon'ble Ahmedabad Tribunal in the case of Sugamchand C. Shah v. ACIT 37 DTR (Ahd) (Trib.) 345. The Hon'ble Ahmedabad Tribunal has held in the aforesaid case that:
"Considering the totality and peculiarity of the facts of this case, we find that assessee is neither fully acting as a trader nor as fully investor. Demarcation is quite hazy, though in the books he is showing all the purchases as investment but frequency of transaction in several cases is so large and holding period in many cases is so small form 0 to a week or so that assessee is de facto selling and purchasing shares as trader. He is also holding shares for long period-indicating that they are held as investment. Therefore, a criteria has to be fixed for determining as to when he is acting as trader and when as investor. Accordingly, we decide following criteria to hold when gains are to be taxed as profit to be earned under business or to be treated as short term capital gain, we hold that if shares are not held even say for a month, then the intention is clearly to reap profit by acting as trader and he did not intend to hold them in investment portfolio. We believe that if a person intends to hold his purchases of shares as investment, he would watch the fluctuation of rates in the market for which a minimum time is necessary, which we estimate at one month. Where shares are held for more than a month, they should be treated as investments and on their sale short term capital gain should be charged. When shares are held for less than a month, gain on them should be treated as profit from business".
2.12 Considering the aforesaid discussion in para-2.2 to para-2.7 and specifically following the aforesaid binding decision of the Hon'ble Ahmedabad Tribunal in the case of Sugamchand C. Shah, it is held that where the holding of the shares is for a period of less than one month, the purchase and sale of shares is to be treated as business of the assessee and the resultant profit/loss is subject to tax as business income/loss. However, where the period of holding of the shares is more than one month, the purchases of shares is to be treated as investment and the assessee will be subjected to tax on short term capital gain or long term capital gain on the sales thereof according to the period of holding of such shares. The Assessing Officer is directed to re-calculate the business income or the short term capital gains as the case may be on the basis of period of holding of share as held by the Hon'ble jurisdictional Tribunal in the case of Sugamchand C. Shah (supra)."
4. Aggrieved by the aforesaid order passed by the CIT(A), the Revenue is now in appeal before this Tribunal. In support of appeal, the ld. Departmental Representative invited our attention to the factual aspects of the case. Referring to the Tax Audit Report filed by the assessee for the year under appeal in which the nature of business of the assessee has been shown as "TRADING OF SHARES", he submitted that the assessee was a mere trader in shares and therefore his entire income from trading of shares was assessable as trading/business income u/s 28 of the Income-tax Act. His next submission was that the assessee himself has shown profits from trading of shares as gross profit in his account duly audited by tax auditors and therefore the aforesaid treatment given by the assessee to the income arising from purchase and sale of shares was nothing but his business income. His third submission was that the assessee has bifurcated his dealing in purchase and sale of shares under two heads, namely, (1) Future and Options, and (2) purchase and sale of shares based on delivery in his books of account. His fourth submission was that the stock turnover ratio of the assessee was 1:16 while gross profit rate was 5%. He further submitted that the capital turnover ratio was 1:14 and dividend as percentage of average capital was 0.01%. On the basis of the aforesaid facts, he contended that the assessee was not an investor but a dealer in shares. According to him, the frequency to turnover, volume of turnover and the intention of the assessee to realize the profit quickly were sufficient to establish that the assessee was not an investor in shares but a trader in shares. He submitted that the aforesaid facts fully confirmed the observations of the tax auditor that the assessee was mere a trader of shares and not investor in shares.
5. He also referred to several judgments particularly those referred to by the AO in his assessment order. He, in particular, referred to the decision of this Tribunal in Wallfort Financial Services Ltd. v. Addl. CIT [2010] 41 SOT 200/6 taxmann.com 66 (Mum).
6. In reply, the ld. Authorized Representative for the assessee supported the order passed by the CIT(A). He filed two sets of written submissions till the date of hearing and third set of written submissions was sent by him by post after the closure of hearing on 21-01-2013. His submissions, in brief, are as under:-
| i. | The Books of Accounts shows the purchase and sell as the investment and that shows that the appellant is engaged in the investment activity. | |
| ii. | Appellant has made investments from his own funds and not from the borrowed funds. | |
| iii. | The motive of the appellant was capital appreciation and not to make instant profit. | |
| iv. | The appellant has no infrastructure or administrative set up and that shows that the activity in which the appellant is engaged is purely an investment activity. All the decisions and actions were taken by appellant himself. | |
| v. | The appellant is maintaining two portfolios and which is well accepted now as per the decision in the case of Gopal Purohit v. JCIT. (Supra). | |
| vi. | In the previous years, the similar treatment was given and the same has been accepted by the Ld. DCIT. | |
| vii. | All other small issues like period of holding, frequency etc. are also covered by few of the decision narrated here in above." |
7. He has also relied upon several judgments most of which have been referred to by the CIT(A) in his appellate order.
8. In his rejoinder, the ld. Departmental Representative referred to the observations made by the CIT(A) in para-2.7 of his appellate order in which it is stated that the assessee was consistently maintaining two portfolios, one relating to investment in shares and another relating to business activities and submitted that the aforesaid findings recorded by the CIT(A) were factually incorrect inasmuch as no such accounts were maintained by the assessee in his books. According to him, the assessee has bifurcated his activity into two sets of transactions, one relating to future and options and the other relating to profits from shares based on delivery. He also referred to paras-2.8 and 2.9 of the appellate order passed by the CIT(A) and submitted that the ld. CIT(A) has wrongly held that (i) there was no transaction without delivery, (ii) the assessee has used his own surplus funds for investing in shares, and (iii) the assessee has received substantial dividend on the investments. He submitted that all the aforesaid findings recorded by the CIT(A) in para-2.9 of his appellate order were factually incorrect.
9. We have heard both the parties and carefully considered their submissions as also the materials available on record. Section 28 of the Income-tax Act brings the profits and gains of any business or profession carried on by the assessee at any time during the previous year to the charge of income tax. Sub-section (13) of section 2 defines "business" as including any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. It is therefore quite evident that the subject matter of charge u/s.28 is not only the profit from any trade, commerce or manufacture but also profit from any adventure or concern in the nature of trade, commerce or manufacture. The subject matter of charge u/s.45 of the Income-tax Act, on the other hand, is capital gains, i.e., any profit or gain arising from the transfer of capital receipt effected in the previous year. Capital asset is defined in sub-section (14) of section 2 as property of any kind held by assessee, whether or not connected with his business or profession, but does not include, inter-alia, any stock-in-trade. The distinction between income from business assessable u/s 28 and income from capital gain assessable under section 45 of the Income-tax Act has been explained by a Bench of five Judges of the Hon'ble Supreme Court in Sardar Indra Singh & Sons Ltd. v. CIT [1953] 24 ITR 415 as under:-
"The principle applicable in all such cases is well settled and the question always is whether the sales which produced the surplus were so connected with the carrying on of the assessee's business that it could fairly be said that the surplus is the profits and gains of such business. It is not necessary that the surplus should have resulted from such a course of dealing in securities as by itself would amount to the carrying on of a business of buying and selling securities. It would be enough if such sales were effected in the usual course of carrying on the business or, in the words used by thePrivy Council in Punjab Co-operative Bank Ltd. v. Income-tax Commissioner, Lahore, if the realization of securities is a normal step in carrying on the assessee's business. Though that case arose out of the assessment of a banking business, the test is one of general application in determining whether the surplus arising out of such transactions is a capital receipt or a trading profit. The question is primarily one of fact and there are numerous cases falling on either side of the line but illustrating the same principle. On the facts found in regard to the nature and course of the company's business, there can be no doubt that the present case falls on the Revenue's side of the line."
10. In G. Venkataswami Naidu & Co. v. CIT [1959] 35 ITR 594, the Hon'ble Supreme Court has held as under:-
"As we have already observed it is impossible to evolve any formula which can be applied in determining the character of isolated transactions which come before the courts in tax proceedings. It would besides be inexpedient to make any attempt to evolve such a rule or formula. Generally speaking, it would not be difficult to decide whether a given transaction is an adventure in the nature of trade or not. It is the cases on the border line that cause difficulty. If a person invests money in land intending to hold it, enjoys its income for some time, and then sells it at a profit, it would be a clear case of capital accretion and not profit derived from an adventure in the nature of trade. Cases of realization of investments consisting of purchase and resale, though profitable, are clearly outside the domain of adventures in the nature of trade. In deciding the character of such transactions several factors are treated as relevant. Was the purchaser a trader and were the purchase of the commodity and its resale allied to his usual trade or business or incidental to it? Affirmative answers to these questions may furnish relevant data for determining the character of the transaction. What is the nature of the commodity purchased and resold and in what quantity was it purchased and resold? If the commodity purchased is generally the subject-matter of trade, and if it is purchased in very large quantities, it would tend to eliminate the possibility of investment for personal use, possession or enjoyment. Did the purchaser by any act subsequent to the purchase improve the quality of the commodity purchased and thereby made it more readily resaleable? What were the incidents associated with the purchase and resale? Were they similar to the operations usually associated with trade or business? Are the transactions of purchase and sale repeated? In regard to the purchase of the commodity and its subsequent possession by the purchaser, does the element of pride of possession come into the picture? A person may purchase a piece of art, hold it for some time and if a profitable offer is received may sell it. During the time that the purchaser had its possession he may be able to claim pride of possession and aesthetic satisfaction; and if such a claim is upheld that would be a factor against the contention that the transaction is in the nature of trade. These and other considerations are set out and discussed in judicial decisions which deal with the character of transactions alleged to be in the nature of trade. In considering these decisions it would be necessary to remember that they do not purport to lay down any general or universal test. The presence of all the relevant circumstances mentioned in any of them may help the court to draw a similar inference; but it is not a matter of merely counting the number of facts and circumstances pro and con; what is important to consider is their distinctive character. In each case, it is the total effect of all relevant factors and circumstances that determines the character of the transaction; and so, though we may attempt to derive some assistance from decisions bearing on this point, we cannot seek to deduce any rule from them and mechanically apply it to the facts before us."
11. In H. Mohmed & Co. v. CIT [1977] 107 ITR 637 (Guj.) the Hon'ble jurisdictional High Court has held as under: -
"………………These two illustrations of the circulating library and the car-hiring business clearly go to show the essential characteristics of stock-in-trade, viz., that it must be a commodity in which there is a dealing, i.e; which is bought and sold as distinguished from a commodity with which the business is carried on, viz., from the exploitation of which the income is derived. The distinction is between selling outright in the course of the business activity as distinguished from deriving income from exploitation of one's assets."
12. The aforesaid decisions make it amply clear that the income from purchase and sale of shares would be assessed as business income if the intention of the assessee behind their purchase and sale is to quickly realize profits. However, if the intention of the assessee behind purchasing and holding the shares is to earn dividend and not to realize the profit by turning over the shares as it is done in the course of business, the profit arising on sale of shares would be assessable as capital gains u/s 45 of the Income-tax Act. This aspect of the matter has been considered by this Tribunal in its well- reasoned order in Wallfort Financial Services Ltd. (supra) as under:-
"2.23 Though frequency and volume are indicative of a trading transaction, the same are not conclusive. The volume will depend upon funds deployed by the assessee and therefore the same could be high even in case of investment. Frequency is also not conclusive because even an investor may be frequently buying and selling shares and still he may remain an investor because the shares he is buying he may not be selling during the year and the shares sold may be those purchased more than a year ago. Therefore even if the number of transactions is large and volume is high, the assessee may still be an investor. Crucial factor is the period of holding which will be very short in case of a trader and long in case of an investor because a trader buys the commodity not for holding it in contrast to an investor who buys the commodity for holding it so as to earn some income from investment and have decent appreciation. In case of shares, income is in the form of annual dividend and therefore an investor in shares will normally be holding shares for more than a year and any sale before one year has to be explained from the circumstances of the case. The profit motive is also relevant but this is also not conclusive because even an investor may earn profit by way of appreciation."
13. Turning to the facts of the case, the stock-turnover ratio, as rightly pointed out by the ld. Departmental Representative, is as high as 1:16. Such high stock-turnover ratio is found in business segment and not in investment segment. This shows that the intention of the assessee was to turn over the stock as frequently as possible to ensure quick realization of profits on sale of shares. In the Tax Audit Report, the nature of the business of the assessee has been shown as trading of shares. The tax auditor has come to the aforesaid conclusion after due examination of the books of account. The assessee has no other business. He is fully engaged in dealing with shares. He himself has treated the profit from purchase and sale of shares as gross profit in his books of account. The capital-turnover ratio, as pointed by ld. Departmental Representative, is as high as 1:14 which is normally found in business and not in investment. This shows that the intention of the assessee was to optimally utilize his capital to secure large turnover of shares as in the case of business. The fact that the shares were not held as a source of revenue is evident from the fact that dividend as percentage of average capital works out to 0.05%. Neither in the books of account nor otherwise the assessee has proceeded to compute the income from purchase and sale of shares in the manner laid down u/s 48 of the Income-tax Act. He has simply treated the entire profit arising on purchase and sale of shares as gross profit in the books of account. It is further observed that the assessee has utilized its own funds for trading not only in futures and options but also in purchase and sale of shares. All these facts clearly indicate that the dominant intention of the assessee behind purchase and sale of shares was to quickly realize profits by frequently tuning over the stock of shares and not to earn dividend from them. The aforesaid indicators lend credent to the fact that the assessee treated the shares more as stock-in-trade than as a capital asset. On the facts of the case, we endorse the view taken by the AO that the income arising from purchase and sale of shares is in the nature of business income as defined u/s 28 r.w.s. 2(13) of the Income-tax Act. In this view of the matter, the order passed by the AO deserves to be confirmed and is accordingly confirmed.
14. The ld. Authorized Representative for the assessee has cited a large number of decisions in support of the order passed by the CIT(A). We have perused all of them. They are distinguishable on facts. The finding as to whether a particular income has arisen from trading activity or investment is essentially a finding of fact as held by the Hon'ble Bombay High court in CIT v. Gopal Purohit [2011] 336 ITR 287/[2010] 188 Taxman 140 and by the Hon'ble Supreme Court in Sardar Indra Singh & Sons Ltd. (supra). The facts in the case before us are completely different from those in the decisions cited by the assessee. In our view, the principles laid down by this Tribunal in Wallfort Financial Services Ltd. (supra). re in conformity with the judgments of the Hon'ble Supreme Court and High Court some of which have been referred to above.
15. It was also contended on behalf of the assessee that the assessee is not a broker engaged in dealing with shares and therefore the income arising from purchase and sale of shares cannot be assessed in his hand as dealer/trader in shares. We are unable to accept the aforesaid submission. A broker in shares/securities in one who brokers a deal between purchaser and seller of shares/securities and in that process gets his brokerage. He does not himself purchase or sell the shares in his own right. A dealer/trader, on the other hand, purchases and sells the shares in his own right in order to quickly realize the profits for which purpose he frequently turns over the stock. Therefore, the mere fact that the assessee is not a broker in shares does not mean that he is also not a dealer/trader in shares.
16. In view of the aforesaid, the appeal filed by the Department is allowed.
IT : Loss from eligible business under section 80-IB(10) can be set off against other business income
■■■
[2013] 32 taxmann.com 16 (Bangalore - Trib.)
IN THE ITAT BANGALORE BENCH 'C'
Assistant Commissioner of Income-tax, Cir. 12(3), Bangalore
v.
Sterling Developers (P.) Ltd.*
N.V. VASUDEVAN, JUDICIAL MEMBER
AND JASON P. BOAZ, ACCOUNTANT MEMBER
AND JASON P. BOAZ, ACCOUNTANT MEMBER
IT APPEAL NO. 487 (BANG.) OF 2012
[ASSESSMENT YEAR 2008-09]
[ASSESSMENT YEAR 2008-09]
JANUARY 31, 2013
Section 80-IB, read with sections 80A, 80B and 80-IA, of the Income-tax Act, 1961 - Deductions - Profits and gains from industrial undertakings other than infrastructure development undertakings [Housing projects] - Assessment year 2008-09 - Assessee claimed set off of loss from a project, qualified for deduction under section 80-IB(10), against other business income - Assessing Officer held that section 80-IA(5) required income from eligible business to be treated as a single source of income and loss could not be set off - Considering definition of gross total income under section 80B(5) and provisions of section 80A(1), Commissioner (Appeals) allowed set off of loss under section 70(1) - Whether loss from eligible business under section 80-IB(10) could be set off against other business income in view of provisions of section 80-IA(5) - Held, yes [Paras 5.3.3 & 5.3.4] [In favour of assessee]
FACTS
| • | The assessee, a builder and developer of real estate, claimed loss of Rs. 13 crores from a project qualified for deduction under section 80-IB(10). Assessee had claimed deduction of profits thereunder for past two assessment years as well. | |
| • | The Assessing Officer held that loss incurred by assessee in respect of the project could not be set off against other business income as the provisions of section 80-IA(5) required income from eligible business to be treated as a single source of income. Therefore, he disallowed the loss from the project. | |
| • | Considering the definition of gross total income under section 80B(5), as well as provisions of section 80A(1), the Commissioner (Appeals) allowed the loss from the project to be set off, in terms of section 70(1). | |
| • | On appeal, the revenue contended that the assessee had claimed deduction under section 80-IB(10) in past assessment years and if present loss was considered, the project as a whole did not earn any profit. Therefore, the set off of loss would give double benefit to assessee. | |
| • | The assessee claimed that section 80-IA(5) would not be applicable to the deduction claimed under section 80-IB(10), as there was no concept of initial assessment year under section 80-IB(10). |
HELD
| • | From a perusal and comparison of the provisions, of sections 80-I-(6) and 80-IA(5), it is seen that the provisions of section 80-IA(5) are couched in similar language to the erstwhile provisions of section 80-I(6). In other words, the restriction contemplated under section 80-I(6), is the same as the restriction contemplated under section 80-IA(5). | |
| • | The Apex Court in the case of Synco Industries Ltd. v. Assessing Officer [2008] 299 ITR 444/168 Taxman 224, held, that the contention, that under section 80I-(6) the profits derived from one industrial undertaking cannot be set off against loss suffered from another and that the profit is required to be computed as if profit making industrial undertaking was the only source of income, has no merits. While computing the quantum of deduction under section 80-I(6), the Assessing Officer has to treat the profits derived from an industrial undertaking as the only source of income in order to arrive at the deduction under Chapter VI-A. However, the non obstante clause appearing in section 80-I(6), is applicable only to the quantum of deduction, whereas, the gross total income under section 80B(5) shall be arrived at after adjusting the losses of the other division against the profits derived from an industrial undertaking. Section 80A(2) and section 80B(5) are declaratory in nature. They apply to all the sections falling in Chapter VI-A. They impose a ceiling on the total amount of deduction and therefore the non obstante clause in section 80-I(6) cannot restrict the operation of sections 80A(2) and 80B(5) which operate in different spheres. [Para 5.3.2] | |
| • | The above decision of the Apex Court squarely supports the case of the assessee that the provisions of section 80-IA(5) would not restrict the operation of the provisions of section 70(1) with respect to the set off of loss. The operation of the provision of section 80-IA(5) is restricted to the computation of the quantum of deduction for which it has to be considered that the eligible business is the only source of income. That restriction, however, cannot be applied to render the concept of gross total income, in terms of section 80B(5) to be determined before the set off of the losses under section 70(1). [Para 5.3.3] | |
| • | The assessee has rightly contended that the provisions of section 80-IA(5) apply in computing the profits of an eligible business for the purposes of working out the quantum of deduction for the initial assessment year and for every subsequent year thereafter. The incentive deductions, both under sections 80-IA and 80-IB have the concept of initial assessment year in respect of almost all eligible business. However, with respect to the eligible business to which the provisions of sections 80-IB(10) apply, there is no concept of 'initial assessment year'. The deduction is granted to undertakings engaged in the business of developing and building housing projects on certain conditions being fulfilled. The provisions of section 80-IB(13), that makes the provisions of section 80-IA(5) applicable to section 80-IB also, applies only 'so far as may be'. Thus, by virtue of the fact that there is no concept of initial assessment year under section 80-IB(10), the provisions of section 80-IA(5) would not be applicable to the deduction claimed under section 80-IB(10). From this angle of the matter also, there is no merit in the view taken by revenue. [Para 5.3.4] | |
| • | In these circumstances, there is no reason to interfere with the order of the Commissioner (Appeals) in this case, and therefore, his order is confirmed. [Para 6] |
CASE REVIEW
Synco Industries Ltd. v. Assessing Officer [2008] 299 ITR 444/183 Taxman 349 (SC) (para 5.3.3) followed.
CASES REFERRED TO
Liberty India v. CIT [2009] 317 ITR 218/183 Taxman 349 (SC) (para 2.1) and Synco Industries Ltd. v. Assessing Officer [2008] 299 ITR 444/168 Taxman 224 (SC) (para 2.2).
Etwa Munda for the Appellant. V. Srinivasan for the Respondent.
ORDER
Jason P. Boaz, Accountant Member - This appeal by revenue is directed against the order of the Commissioner of Income Tax (Appeals)-III, Bangalore dated 5.1.2012 for Assessment Year 2008-09.
2. The facts of the case, in brief, are as under :
2.1 The assessee, a company carrying on business as builders and developers of real estate, filed its return of income for Assessment Year 2008-09 on 30.9.2008 declaring loss of Rs. 52,00,137. Subsequently, the assessee filed a revised statement of income revising its income to Rs. 2,35,33,877 in order to add back an amount of Rs. 2,84,28,446 claimed under section 40(a)(ia) of the Income Tax Act, 1961 (herein after referred to as 'the Act') since its claim to this extent was allowed in Assessment Year 2007-08. The case was taken up for scrutiny. In the course of assessment proceedings the Assessing Officer found that the assessee had claimed loss of Rs. 12,91,01,772 from a project called 'Sterling Brookside' which project qualified for deduction. 80IB(10) of the Act and that the assessee had claimed deduction thereunder for Assessment Years 2006-07 & 2007-08. The Assessing Officer invoked the provisions of section 80IA(5) r.w.s. 80IB(10) of the Act and held that the loss incurred by the assessee in respect of the 'Sterling Brookside' project cannot be set off against other business income of the assessee and relied on the ratio of the decision of the Hon'ble Apex Court in the case of Liberty India v. CIT [2009] 317 ITR 218/183 Taxman 349. Accordingly, the Assessing Officer concluded the assessment disallowing the loss of the 80IB 'Sterling Brookside' project amounting to Rs. 12,91,01,772 and thereby determining the income at Rs. 15,26,35,640 in his order under section 143(3) of the Act dt.13.12.2010.
2.2 Aggrieved by the order of assessment for Assessment Year 2008-09 dt.13.10.2010, the assessee went in appeal before the learned CIT (Appeals) raising inter alia several grounds with regard to the disallowance of loss. The learned CIT (Appeals) vide his order dt.5.1.2012 allowed the assessee's appeal holding therein that the assessee was entitled to set off the loss from the project 'Sterling Brookside' against other business income by virtue of the provisions of section 70(1) of the Act. In coming to this finding, the learned CIT (Appeals) considered the definition of Gross Total Income under section 80B(5) of the Act as well as the provisions of section 80A(1) of the Act. The learned CIT (Appeals) placing reliance on the decision of the Hon'ble Apex Court in the case of Synco Industries Ltd. v. Assessing Officer [2008] 299 ITR 444/168 Taxman 224, held that the provisions of section 80IA(5) of the Act would not superimpose the notional condition on the operation of section 70 of the Act which is a different process. The learned CIT (Appeals) in his order has distinguished the decision of the Hon'ble Apex Court in the case of Liberty India (Supra) on the ground that the issue considered in that case was totally different. The learned CIT (Appeals), therefore, directed the Assessing Officer to allow the set off of loss from 'Sterling Brookside' project in terms of section 70(1) of the Act.
3. Aggrieved by the order of the learned CIT (Appeals) dt.5.1.2012 for Assessment Year 2008-09, the revenue is in appeal before us. In this appeal, revenue has raised the following grounds :
"1. The order of the learned CIT (Appeals) is opposed to law and facts of the case.
2. The CIT (Appeals) erred in holding that loss of an 80IB(10) project of Rs. 12,91,01,772 has to be allowed for set off against taxable incomes, without appreciating that non-obstante clause in sub-section (5) of 80IAas equally applicable to this section, makes it obligatory to treat this project as a single source of income for claiming deduction and while treating so, there is no scope for application of provisions of section 70(1) as it may lead to an absurd situation of claiming deduction of a sum more than profits earned by the eligible project.
3. The CIT (Appeals) erred in not appreciating that the assessee had, in the past assessment years, shown profits on the same project and claimed deduction under section 80IB(10) by declaring revenue on percentage completion method and if the present loss shown in this year is considered, the project as a whole did not earn any profit. Hence the set off of the loss shown in this year against taxable incomes has caused double benefit to the assessee.
4. The CIT (Appeals) has relied on the order of the Hon'ble Supreme Court in the case of Synco Industries Ltd. v. A.O. and Anr. [2008] 299 ITR 444 (SC) but in that order the issue was setting off of losses from industrial undertaking eligible for deduction under section 80I(6) whereas in the present case, the deduction under section 80IB is specific to the project and therefore, the overall profits/losses have to be considered.
5. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT (Appeals) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored.
6. The appellant craves leave to add, alter, amend and / or delete any of the grounds mentioned above."
4. The grounds raised at S.Nos.1, 5 and 6 being general in nature, no adjudication is called for thereon.
5.1 The grounds raised at S. Nos. 2 to 4 (supra) contend that the learned CIT (Appeals) erred in allowing set off of the loss of Rs. 12,91,01,772 under section 80IB(10) project without considering the provisions of section 80IA(5). The learned Departmental Representative assailing the order of the learned CIT (Appeals) submitted that there was no scope for application of the provisions of section 70(1) of the Act. He submitted that the assessee had claimed deduction under section 80IB(10) of the Act in the past Assessment Years and if the present loss is considered, the project as a whole did not earn any profits. The set off of this loss as directed by the learned CIT (Appeals) would give double benefit to the assessee. He also submitted that the provisions of section 80IA(5) require that the income from the eligible business is to be treated as a single source of income. He further submitted that the decision of the Hon'ble Apex Court in the case of Synco Industries Ltd (supra) cannot be applied to the present case. The learned Departmental Representative vehemently pleaded that the finding in the order by the learned CIT (Appeals) on this issue be reversed and that of the Assessing Officer be restored.
5.2 Per contra, the learned counsel for the assessee supported the orders of the learned CIT (Appeals). The learned counsel for the assessee submitted that the provisions of section 80IA(5) of the Act would not impinge on the set off of the losses to arrive at the gross total income. He further submitted that section 80IA(5) of the Act, would not be applicable to the deduction claimed under section 80IB(10) of the Act, as there is no concept of initial assessment year under section 80IB(10) of the Act. The learned counsel for the assessee also submitted that the provisions of section 80IB(13) of the Act, which makes applicable the provisions of section 80IA(5) to section 80IB also, is clear in the sense that the provisions would apply only 'so far as may be'. The provisions of section 80IB(5), cannot apply to the deduction claimed under section 80IB(10) of the Act, in the absence of initial assessment year. In these circumstances, the learned counsel for the assessee pleaded that the order of the learned CIT (Appeals) be upheld.
5.3.1 We have heard both parties and have carefully perused and considered the material on record. At the outset it must be mentioned here that the Hon'ble Apex Court in the case of Synco Industries Ltd (supra) was concerned with tot withstanding anything contained in any other provisions of Section 80-I(6) of the Act, as it existed at that relevant point of time and the same is extracted hereunder for clarity :
"Section 80-I(6) - Notwithstanding anything contained in any other provisions of this Act, the profits and gains of an industrial undertaking on a ship or the business of a hotel (or the business of repairs to ocean going vessels or other powered craft) to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under sub-section (1) for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such industrial undertaking or ship or business of the hotel (or the business of repairs to ocean going vessels or other powered craft) were the only source of income of the assessee during the previous years relevant to the initial assessment year and to every subsequent assessment year upto and including the assessment year for which the determination is to be made."
Let us also peruse and consider the provisions of section 80-IA(5) of the Act which is relied on by the Assessing Officer which is also extracted hereunder :
"Section 80-IA(5) - Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made."
5.3.2 From a perusal and comparison of both these provisions, namely sections 80-I(6) and 80-IA(5) of the Act, it is seen that the provisions of section 80-IA(5) of the Act, it is seen that the provisions of section 80-IA(5) of the Act are couched in similar language to the erstwhile provisions of section 80I(6) of the Act. In other words, the restriction contemplated under section 80I(6) of the Act, is the same as the restriction contemplated under section 80-IA(5) of the Act. It is in this context that the Hon'ble Apex Court in the case of Synco Industries Ltd (supra) held after an elaborate analysis of the provisions at paras 12 and 13 of its order which are extracted and reproduced hereunder :
"12. The contention that under section 80-I(6) the profits derived from one industrial undertaking cannot be set off against loss suffered from another and the profit is required to be computed as if profit making industrial undertaking was the only source of income, has no merits. Section 80-I(1) lays down that where the gross total income of the assessee includes any profits derived from the priority undertaking/unit/division, then in computing the total income of the assessee, a deduction from such profits of an amount equal to 20 per cent has to be made. Section 80-I(1) lays down the broad parameters indicating circumstances under which an assessee would be entitled to claim deduction. On the other hand section 80-I(6) deals with determination of the quantum of deduction - section 80-I(6) lays down the manner in which the quantum of deduction has to be worked out. After such computation of the quantum of deduction, one has to go back to section 80-I(1) which categorically states that where the gross total income includes any profits and gains derived from an industrial undertaking to which section 80-I applies then there shall be a deduction from such profits and gains of an amount equal to 20 per cent. The words "includes any profits" used by the legislature in section 80-I(1) are very important which indicate that the gross total income of an assessee shall include profits from a priority undertaking. While computing the quantum of deduction under section 80-I(6) the Assessing Officer, no doubt, has to treat the profits derived from an industrial undertaking as the only source of income in order to arrive at the deduction under Chapter VI-A. However, this court finds that the non obstante clause appearing in section 80-I(6) of the Act, is applicable only to the quantum of deduction, whereas, the gross total income under section 80B(5) which is also referred to in section 80-I(1) is required to be computed in the manner provided under the Act which presupposes that the gross total income shall be arrived at after adjusting the losses of the other division against the profits derived from an industrial undertaking. If the interpretation as suggested by the appellant is accepted it would almost render the provisions of section 80A(2) of the Act nugatory and therefore the interpretation canvassed on behalf of the appellant cannot be accepted. It is true that under section 80-I(6) for the purpose of calculating the deduction, the loss sustained in one of the units, cannot be taken into account because sub-section (6) contemplates that only the profits shall be taken into account as if it was the only source of income. However, section 80A(2) and section 80B(5) are declaratory in nature. They apply to all the sections falling in Chapter VI-A. They impose a ceiling on the total amount of deduction and therefore the non obstante clause in section 80-I(6) cannot restrict the operation of sections 80A(2) and 80B(5) which operate in different spheres. As observed earlier section 80-I(6) deals with actual computation of deduction whereas section 80-I(1) deals with the treatment to be given to such deductions in order to arrive at the total income of the assessee and therefore while interpreting section 80-I(1), which also refers to gross total income one has to read the expression 'gross total income' as defined in section 80B(5). Therefore, this court is of the opinion that the High Court was justified in holding that the loss from the oil division was required to be adjusted before determining the gross total income and as the gross total income was 'Nil' the assessee was not entitled to claim deduction under Chapter VI-A which includes section 80-I also.
13. The proposition of law, emerging from the above discussion is that the gross total income of the assessee has first got to be determined after adjusting losses, etc., and if the gross total income of the assessee is 'Nil' the assessee would not be entitled to deductions under Chapter VI-A of the Act."
5.3.3 The above decision of the Hon'ble Apex Court squarely supports the case of the assessee that the provisions of section 80 IA(5) of the Act would not restrict the operation of the provisions of section 70(1) of the Act with respect to the set off of the loss. The operation of the provision of section 80 IA(5) of the Act is restricted to the computation of the quantum of deduction for which it has to be considered that the eligible business is the only source of income. That restriction, however, cannot be applied to render the concept of gross total income in terms of section 80B(5) to be determined before the set off of the losses under section 70(1) of the Act. We are, therefore, of the view that the learned CIT (Appeals) has rightly applied the decision of the Hon'ble Apex Court in the case of Synco Industries Ltd (supra) and that there is no merit in the plea of revenue that the said judgment is not applicable to the facts of the present case of the assessee.
5.3.4 That apart, the learned counsel for the assessee has rightly contended that the provisions of section 80IA(5) of the Act applies in computing the profits of an eligible business for the purposes of working out the quantum of deduction for the initial assessment year and for every subsequent year thereafter. The incentive deductions both under section 80 IA and 80 IB of the Act have the concept of initial assessment year in respect of almost all eligible business. However, with respect to the eligible business to which the provisions of section 80IB(10) of the Act apply, there is no concept of "initial assessment year." The deduction is granted to undertakings engaged in the business of developing and building housing projects on certain conditions being fulfilled. The provisions of section 80IB(13) of the Act, that makes the provisions of section 80IA(5) applicable to section 80 IB also, applies only 'so far as may be'. Thus, by virtue of the fact that there is no concept of initial assessment year under section 80IB(10) of the Act, we are also of the view that the provisions of section 80IA(5) of the Act would not be applicable to the deduction claimed under section 80IB(10) of the Act. From this angle of the matter also, we find no merit in the view taken by revenue.
6. In these circumstances, as discussed above from paras 5.3.1 to 5.3.4 of this order, we do not find any reason to interfere with the order of the learned CIT (Appeals) in this case and therefore confirm his order.
7. In the result revenue's appeal is dismissed.
2013-TIOL-217-ITAT-DEL
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'H' NEW DELHI
BENCH 'H' NEW DELHI
ITA No.1694/Del./2012
Assessment Year: 2007-08
Assessment Year: 2007-08
ASSTT COMMISSIONER OF INCOME TAX
CENTRAL CIRCLE-12, NEW DELHI
CENTRAL CIRCLE-12, NEW DELHI
Vs
M/s TRUE ZONE BUILDWELL PVT LTD
12, RING ROAD, LAJPAT NAGAR-IV, NEW DELHI
PAN NO:AABCT9812B
12, RING ROAD, LAJPAT NAGAR-IV, NEW DELHI
PAN NO:AABCT9812B
CO No.247/Del/2012
ITA No.1694/Del./2012
Assessment Year: 2007-08
ITA No.1694/Del./2012
Assessment Year: 2007-08
ITA No.2092/Del./2012
Assessment Year: 2007-08
Assessment Year: 2007-08
M/s TRUE ZONE BUILDWELL PVT LTD
12, RING ROAD, LAJPAT NAGAR-IV, NEW DELHI
PAN NO:AABCT9812B
12, RING ROAD, LAJPAT NAGAR-IV, NEW DELHI
PAN NO:AABCT9812B
Vs
ASSTT COMMISSIONER OF INCOME TAX
CENTRAL CIRCLE-12, NEW DELHI
CENTRAL CIRCLE-12, NEW DELHI
R P Tolani, JM and B C Meena, AM
Dated: January 4, 2013
Appellants Rep by: Shri Rajiv Saxena, Abhishek Verma, Advs. & Shri Mayank Goyal, CA
Respondent Rep by: Mrs Sushma Singh, CIT-DR
Respondent Rep by: Mrs Sushma Singh, CIT-DR
Income Tax - Sections 68, 69C, 132, 142, 143(2), 143(3), 144, 153A, Rule 46A - Whether the material found during search of a company in the premises of the Director, can be a basis for making assessment u/s 153A - Whether such assessment can be said to have been made on the basis of outside the search material and after the change of opinion - Whether after initiation of search proceedings u/s 153A, all the pending assessments have to abate mandatorily - Whether an addition can be made merely on the basis of correspondence on the presumption when addition is to be made u/s 69C while making the assessment u/s 153A - Whether addition u/s 153A can be made on presumption basis - Whether when there is no incriminating material found during search, any disallowance if any made can be said only on the basis of change in the opinion - Whether when the assessing officer has blindly applied the provisions of section 68 for making huge additions and passing an order u/s 144, the same is valid as per law.
A) Assessee is a company. A search and seizure operation was carried out u/s 132 along with other group cases on 31.07.2008. The search was also carried out at the residence of the Director, Shri Rakesh Kumar Garg where certain documents relating to the assessee were found and seized. It was contended by the assessee that the assessment was framed on the basis of outside the search material and change of opinion.
B) Next appeal was against sustaining the addition of Rs.5,99,130/- being the commission paid u/s 69C. On appeal, the CIT (A) had granted the part relief. Revenue has also taken another ground in its appeal against deleting part addition. The revenue has also taken a ground against admitting additional evidence in contravention of Rule 46A. The assessee had also taken ground no.1 in its cross objection for stating that no fresh evidences were filed before CIT (A) and all material was available to AO in search material. The revenue's plea that CIT (A) had admitted any additional evidence in contravention of Rule 46A while assessee objected it on the ground that all seized material was available to AO. On this issue, we find that the evidences relied upon by the CIT (A) were also available in seized material which was in the possession of the AO. Thus, there was no fresh evidence filed before the CIT (A) which could be considered for violation of Rule 46A. Further we also hold that AO has not appreciated the seized material under his possession, rather ignored the seized material which was under his possession. The AO had also not raised any query on these issues. Therefore, CIT(A) held that there was no contravention of Rule 46A. This plea of revenue was dismissed.
C) The issue was related to deleting the disallowance of interest of Rs.23,37,215/- out of the interest paid by the assessee. The revenue had also challenged the issue on account of admitting additional evidence by taking the shelter of Rule 46A. The assessee had also taken ground no.2 in its cross objection against the issue raised in ground no.3 of revenue's appeal for contravention of Rule 46A. We find that the documents/evidences on the basis of which the CIT(A) had granted the relief were available to AO as the same were under his possession which had not been examined. The details of interest free funds were available before the AO, who had not analyzed the same. In our considered view, CIT(A) had not admitted any fresh evidence as no fresh evidence was furnished. The analysis of interest free funds made available by the assessee was nothing but only the analysis of books of account which were examined by the AO himself.
D) The issue was against the deletion of addition of Rs.54,51,00,877/- made by AO u/s 68 and holding order u/s 144 as null and void. Before Tribunal, the DR had submitted that the addition was made while making the assessment u/s 144 where the assessee had not filed the details before the AO. The addition was also made u/s 153A. On the other hand, the AR hadsubmitted that the addition was made while making illegal assessment u/s 144 stating that evidences were not filed, hence AO could not examine evidences. Assessee had submitted all relevant documents before AO during proceedings u/s 153A. The AO had also ignored these evidences which were submitted during the assessment proceeding u/s 153A. During assessment, the AO had issued specific questionnaire where all details were called for. Assessee had filed all details. The parties from whom the share application money was received were also examined at the time of making the assessment for the AY 2006-07 u/s 143(3). It was also pleaded that all companies who had invested money in the assessee company were group companies whose assessment was also being made by the same AO as all cases of the group were centralized. The assessment of these group companies had been made after examination of the books of accounts and no addition had been made. The AR had submitted that the AO raised questionnaires which had been duly replied by the assessee. Subsequently, queries raised by the AO were also replied to the satisfaction of the AO. The AO had not found any fault in these details. The AO had conveniently ignored the details submitted before him during the assessment proceedings u/s 153A and made a huge addition without any basis. He further submitted that CIT (A) had quashed the order made u/s 144 in assessee's appeal no.170/09-10 and 133/10 and the revenue had not filed any appeal against that order. The AO had not raised any further query during the assessment proceedings. All the parties were assessed by the same AO. All the details were available before him. No additional evidences were filed before the CIT (A). No fresh material filed before the CIT (A). In such circumstances, the CIT (A) had rightly deleted the addition and he pleaded to sustain the same.
Having heard the matter, the Tribunal held that:
A) ++ we have upheld the assessment on the basis of similar facts and circumstances in assessee's own case in ITA No.2091/Del/2012 for AY 2006-07 vide order dated 31.12.2012, wherein it was observed that there was a seized material found at the residence of the Director which has to be considered for making the assessment u/s 153A in the case of assessee company and on the basis of such seized material as far as it relates to the undisclosed income of the assessee the addition is required to be made. It is not the material, whether the seized material was found at the premises of the assessee or at the residence of the Director. The company is represented through its Directors, therefore, material found at the residence of the Director is relevant and has to be considered for making the assessments u/s 153A. As far as the scope of the assessment is concerned, we hold that wherever the issues have been considered u/s 143(3) and the assessment has been concluded prior to the initiation of the search the scope of assessment remains limited to the search material and other issues not considered at the time of making the assessment u/s 143(3). Considering the totality of the facts and circumstances, we are unable to agree with the contention of the assessee that assessment u/s 153A has been made on the basis of outside the search material and after the change of opinion;
++ moreover, in this year, the assessment was made u/s 144 on 09.12.2009. The same was held invalid as there was a search operation at the premises of the assessee on 31.07.2008. In view of the provisions of section 153A, the pending assessments abate. The order passed u/s 144 was against the law. Considering all the relevant facts, we dismiss this ground of assessee's appeal;
B) ++ the similar issue was also involved in AY 2006-07 where also both the sides were in appeal. It was observed therein that the seized material relates to certain correspondence by which the brokers have demanded their commission. As per these correspondences, the rate of commission asked was varying from 4–6%. There is no document referred by the AO or by the CIT (A) or even before us by the revenue which could show that the rate of commission was in the range of 4–6%. Further the revenue has failed to confirm the contents of the correspondence with the brokers by way of verifying their books of account or recording the statement of concerned persons. The AO has not made any enquiry in respect of correctness of the contents of the correspondence by the brokers. There is no evidence found with regard to the payment of these bills from any source of income. The assessee's claim that payments of commission had been made by cheques and the necessary TDS were deducted had some force. Thus, no addition can be made merely on the basis of certain correspondence on the presumption when addition is to be made u/s 69C while making the assessment u/s 153A;
++ no addition can be made under the scope of section 153A on presumption basis. The revenue has to bring certain corroborative evidence or supporting material by way of making investigation or enquiries. All the brokers were located in Delhi, however, the revenue has done nothing in this regard. Some of the brokers were even corporate assessees. Their records could have been easily verified. The seized material relied upon by the AO alone cannot be made a basis for driving adverse inference with regard to the undisclosed expenditure which can be added u/s 69. In our considered view, material relied upon by the AO for making the addition was merely a correspondence which alone cannot lead to the inference that assessee had incurred such expenditure. This cannot be made basis for addition made u/s 69 while framing the assessment u/s 153A. There is no evidence gathered by revenue from anywhere, which could establish a bit of the fact that assessee has paid anything more than whatever recorded in the books of account. Therefore, in our considered view, such addition cannot be sustained. We have also considered the issue raised in the cross objection regarding the violation of Rule 46A. As far as the issue raised in the revenue's appeal and cross objection of the assessee are concerned, we hold that the issue is covered by our decision in assessee's own case for Assessment Year 2006-07 which has been reproduced above. As far as the issue raised in assessee's appeal is concerned, we find that the CIT (A) has considered the reconciliation for the difference in the amount and the CIT (A) was justified in sustaining the addition of Rs.5,99,130/-. Therefore, we find no fault in the order of the CIT (A) on this issue. This ground of assessee's appeal stands dismissed;
C) ++ we have also decided the issue by deciding the revenue's appeal in ITA No.1693/Del/2012 for AY 2006-07, where Tribunal had held that, the issue is deletion of interest on loan to sister concerns. On this, we hold that the earlier assessment was completed u/s 143(3) and no such disallowance was made on this issue. The issue was considered at that time by AO and asked for details. There is no new evidence or incriminating document found and seized during the search operation which can make the AO to form a belief that income has escaped assessment on this account. In such circumstances, in absence of any evidence of any sort, such disallowances shall be only on the basis of change in the opinion and the same is not permissible in law. Further, on merits also, the assessee was having sufficient and adequate non-interest bearing funds by way of share capital, reserves and advances received from the booking of the plots. The revenue has failed to establish any nexus between the borrowed funds and interest free advances given to sister concerns. In such circumstances, we find there was no infirmity in the order of CIT(A) and we sustain the same on this issue. Being no change in the facts of the case, we dismiss this ground of revenue's appeal, we also allow the plea of the assessee that there was no contravention of Rule 46A;
D) ++ the order u/s 144 was passed by the AO for non-compliance of notice u/s 143(2) and 142. The order was made ex-parte. There was a change in the address of the assessee from Delhi to Calcutta in view of the order of the Company Law Board dated 26.10.2007. Thus, there was no service of notice on the assessee. AO passed ex-parte order u/s 144. There was a search operation prior to making the assessment u/s 144, therefore, the order passed u/s 144 was null and void in view of the provisions of section 153A. Further while making the assessment u/s 143(3) read with section 153A, the AO has simply added the amount in the total income of the assessee by writing that income assessed as per order u/s 144 dated 09.12.2009 made by ITO, Ward 16(4). Since the assessment framed u/s 144 itself was void and illegal, additions made on that basis itself cannot be sustained. Further the assessee has submitted necessary details like PAN number, Income-tax Return, Bank accounts, confirmations, balance sheets of all the relevant persons but the AO has ignored the same. The persons from whom the share application money, share capital and share premium including the loans taken and the creditors belonging to the same group companies, the same AO is the AO of these persons also. The necessary evidence, confirmations, bank accounts, etc. were available with the AO to verify the genuineness of the transactions. The AO has not taken any cognizance of these documents. The AO has blindly applied the provisions of section 68 for making huge additions as per ex-parte order wherein all the outstanding balances were added to the income of the assessee. Therefore, in our considered view, the CIT (A) has rightly deleted the addition and we sustain the same. In the result, the appeal of the revenue is dismissed, appeal of the assessee is partly allowed and the cross objection filed by the assessee is allowed.
Revenue's appeal dismissed; Assessee's appeal partly allowed
Cases followed:
ITA No.2091/Del/2012
ITA No.1693/Del/2012
ORDER
Per: B C Meena:
The revenue has filed ITA No.1694/Del/2012 and the assessee has preferred Cross Objection No.247/Del/2012 against this appeal. The assessee has also filed ITA No.2092/Del/2012 on certain issues against the order of CIT (A) dated 31.01.2012. The grounds of appeal taken in these three matters are as under :-
ITA No.1694/Del/2012"1. The order of Ld. CIT(A) is not correct in law and facts.2. On the facts and in the circumstances of the case, the Ld CIT(A) has erred in deleting the addition of Rs.89,51,418/- (Rs.47,23,372/- in respect of M/s Omway Builders Pvt. Ltd., Rs.33,27,337/- in respect of M/s Unison Estate Pvt. Ltd., RS.8,72,659/- in respect of M/s Vardhman Associates Pvt. Ltd and Rs.28,050/- in respect of Shree Ganesh Estate) out of the total addition of Rs.95,50,548/- made by the Assessing officer in respect of disallowance of commission by admitting additional evidence in contravention of rule 46A of Income Tax Rules, 1962.3. On the facts and in the circumstances of the case, the Ld CIT(A) has erred in law as well as in facts in deleting the disallowance of interest of Rs.23,37,215/-made by the assessing officer as the advances given by the assessee was utilized for non-business purpose by admitting additional evidence in contravention of rule 46A of Income Tax Rules, 1962 even though the assessee did not furnish information to the assessing officer during the course of assessment proceedings.4. On the facts and in the circumstances of the case, the Ld CIT(A) has erred in law as well as in facts in deleting the addition of Rs.54,51,00,877/- made by the Assessing officer u/s 68 of I.T. Act, 1961 in respect of unexplained share capital, share premium, share application money, unsecured loans and sundry creditors.5. On the facts and in the circumstances of the case, the Ld CIT(A) has erred in holding that the assessment order passed by the AO u/s 144 of I.T.Act, 1961 is a nullity in view of the provisions of section 153 A of I.T.Act, 1961.6. The order of Ld CIT(A) is perverse in law and on facts.7. The appellant craves leave to add, amend any/all the grounds of appeal before or during the course of hearing of the appeal."CO No.247/Del/2012"1. That the Ld AO has erred in law as well as on facts in raising Ground No.2 on admitting additional evidence:a) Because the evidence relied upon by the CIT(A) was amount of the seized material already in possession of the AO and not fresh evidenceb) Because AO has erred in appraising part evidence for making disallowance, ignoring the other seized material already in possession without raising any query on the doubts in his minds.c) Because Rule 46A is applicable only admission of additional evidence not produced before the AO but not on the evidence in possession of the AO.2. That the Ld. AO has also erred in law as well as on facts in raising ground no.-3 on admission of additional evidence of 46A:a) Because CIT(A) has not admitted any additional evidence which was not examined or was in possession of the AO.b) Because analysis of interest free funds was out of the material already in possession of the AO and out of amount of books of accounts examined by him.c) Because there was no fresh evidence furnished but analysis of the funds was prepared from the entries of receipts already made in the books of the accounts examined by the AO and the material placed before him.d) Because AO made the disallowance without appraising the details and evidence in his possession and without raising any query in his mind after analysis was made by him.3. The respondent craves leave for addition, modification, alteration, amendment of any of the cross objection.ITA No.2092/Del/2012"1. Whether on the facts and circumstances of the case, the Ld. CIT(A)-XXXI is correct in upholding the assessment framed outside the search material and after the change of opinion?2. That on the facts and circumstance of the case, the Ld. CIT(A)-XXXI erred in confirming the addition of Rs.5,99,130/- being the amount of out of books commission paid by the assessee company u/ s 69C of the Income Tax Act, 1961.3. The assessee craves for the addition, modification and deletion of the grounds of appeal."
2. A search and seizure operation was carried out u/s 132 of the Incometax Act, 1961 along with other group cases on 31.07.2008. The search was also carried out at the residence of the Director, Shri Rakesh Kumar Garg where certain documents relating to the assessee were found and seized.
3. Ground Nos.1, 6 & 7 of revenue's appeal (ITA No.1694/Del/2012), ground no.3 of cross objection and ground no.3 of assessee's appeal (ITA No.2092/Del/2012) are general in nature and do not require any adjudication, hence the same are dismissed.
4. First of all, we will consider the issue raised in assessee's appeal in the ground no.1. The issue involved in this ground is upholding the assessment framed by the Assessing Officer. The assessee's contention is that the assessment was framed on the basis of outside the search material and change of opinion.
5. We have heard both the sides on the issue. We have upheld the assessment on the basis of similar facts and circumstances in assessee's own case in ITA No.2091/Del/2012 for Assessment Year 2006-07 vide order dated 31.12.2012. The relevant para of the said order is reproduced as under:-
"6. We have considered rival submissions on the issue and has gone through the material on record and relevant pages of the paper book. In our considered view, there was a seized material found at the residence of the Director which has to be considered for making the assessment u/s 153A in the case of assessee company and on the basis of such seized material as far as it relates to the undisclosed income of the assessee the addition is required to be made. It is not the material, whether the seized material was found at the premises of the assessee or at the residence of the Director. The company is represented through its Directors, therefore, material found at the residence of the Director is relevant and has to be considered for making the assessments u/s 153A. As far as the scope of the assessment is concerned, we hold that wherever the issues have been considered u/s 143(3) and the assessment has been concluded prior to the initiation of the search the scope of assessment remains limited to the search material and other issues not considered at the time of making the assessment u/s 143(3) of the Act. Considering the totality of the facts and circumstances, we are unable to agree with the contention of the assessee that assessment u/s 153A has been made on the basis of outside the search material and after the change of opinion."
Moreover, in this year, the assessment was made u/s 144 of the Income-tax Act, 1961 on 09.12.2009. The same was held invalid as there was a search operation at the premises of the assessee on 31.07.2008. In view of the provisions of section 153A, the pending assessments abate. The order passed u/s 144 was against the law. Considering all the relevant facts, we dismiss this ground of assessee's appeal.
6. Ground No.2 of assessee's appeal is against sustaining the addition of Rs.5,99,130/- being the commission paid u/s 69C of the Income-tax Act, 1961. The CIT (A) granted the part relief. Revenue has also taken ground no.2 in its appeal against deleting part addition. The revenue has also taken a ground against admitting additional evidence in contravention of Rule 46A of Income-tax Rules, 1962. The assessee has also taken ground no.1 in its cross objection for stating that no fresh evidences were filed before CIT (A) and all material was available to Assessing Officer in search material. The revenue's plea that CIT (A) has admitted any additional evidence in contravention of Rule 46A while assessee objected it on the ground that all seized material was available to Assessing Officer. On this issue, we find that the evidences relied upon by the CIT (A) were also available in seized material which was in the possession of the Assessing Officer. Thus, there was no fresh evidence filed before the CIT (A) which could be considered for violation of Rule 46A of Income-tax Rules. Further we also hold that Assessing Officer has not appreciated the seized material under his possession, rather ignored the seized material which was under his possession. The Assessing Officer has also not raised any query on these issues. Therefore, in our considered view, there was no contravention of Rule 46A of the Income-tax Rules, 1962. This plea of revenue stands dismissed.
7. On the other aspect of deletion / sustaining of addition, we have heard both the sides. Brief facts of this issue are as under :-
Following bills were found at the time of search at the residence of Shri Rakesh Kumar Garg on 31.07.2008 :-
DETAIL OF BILLS FOUND AT THE TIME OF SEARCH AT THE RESIDENCE OF SH. RAKESH KUMAR GARG ON 31-7-2008 | ||||
| Period 1.4.2006 - 31.3.2007 | PARTY A-1 | |||
| S.NO. | Annexure no/PAGE | DATE | NAME OF THE PARTY | AMOUNT |
| 1 | A-1/42 | 31.10.2006 | OMWAY BUILDERS (P) LTD. | 5885444 |
| 2 | A-1/44 | 25.10.2006 | UNISON ESTATE PRIVATE LTD. | 2011340 |
| 3 | A-1/44 | 20.10.2006 | UNISON ESTATE PRIVATE LTD. | 323251 |
| 4 | A-2/5 | 30.8.2006 | SHREE GANESHA ESTATES | 28050 |
| 5 | A-2/69 | 20.9.2006 | VARDHMAN ASSOCIATES (P) LTD. | 766038 |
| 6 | A-2/70 | 20.9.2006 | VARDHMAN ASSOCIATES (P) LTD. | 682500 |
| 7 | A-1/36 | 15.1.2007 | UNISON | 1015997 |
TOTAL | 10712620 | |||
CIT (A) granted part relief by holding as under :-
5.3 I have carefully considered the submission, perused the order of assessment and evidence on record. The dispute, as raised by the appellant, pertains to the addition of Rs.95,50,548/- made by the A.O. on account of commission paid out of books u/s 69C of the. Income Tax Act. As per the AO, amount paid for commission during the year is less than the amount of bills of commission seized by the department at the time of search and therefore an addition of difference amount was made by the AO. In contention to that the AR has submitted detailed explanation party wise and also submitted the reconciliation for the difference amount. After considering the submissions made and documents submitted, I am of the considered opinion that an addition of Rs.5,75,879 is to be retained against Rs.14,48,538/- of Vardhaman Associates Pvt. Ltd and Rs.23,251/- against Rs.33,50,588/- of Unison Estates Pvt Ltd. In the case of M/s Unison Estates Pvt Ltd the amount of Rs.20,11,340/- is finally settled for 10,15,997/- as evident from the seized records itself and the payment of this amount has been shown in the books. However from the bill of Rs.323,251 of the same party, the payment in the books is shown at Rs.3,00,000 thus the difference of Rs.23251/- is liable to be confirmed. Further, an addition of Rs.28,050 of Shree Ganesh Estate has been found to be unwarranted as reflected in the books of account, thus deleted. In relation to commission of Rs.58,85,444/- of M/s Omway Builders Pvt. Ltd it was submitted that same has been settled in the subsequent year for Rs.27,55,688 as per annexure A- 2/6 of party A-1 at serial no.6 of page no.3 of the Assessment order 2008- 09 and an amount of Rs.22,65,146 has been booked and paid by the appellant in his books of account of F.Y 2007-2008 relevant to A.Y 2008- 2009 and Rs.2,92,500 was outstanding as per the same seized document supra, therefore, on comprehension of the submission of the AR, an addition of Rs.1,98,042 (Rs.27,55,688 – Rs.22,65,146 – Rs.2,92,500) if any out of Rs.58,85,444/- shall be considered in the order of A.Y. 2008-09. The ground raised by the appellant is thus partly allowed."
7.1 The similar issue was also involved in Assessment Year 2006-07 where also both the sides were in appeal. The relevant para of the order for Assessment Year 2006-07 dated 31.12.2012 is as under :-
"13. We have heard both the sides on the issue. These bills were raised by brokers were found during the search operation at the residence of Director of assessee. As per revenue, the payments of all these bills were not accounted for in the books of account as these cannot be reconciled with the books of account and only on this basis, the revenue presumed that these payments have been made out of undisclosed source. We have perused the seized material and the relevant provisions of section 69C of the Act. This seized material relates to certain correspondence by which the brokers have demanded their commission. As per these correspondences, the rate of commission asked was varying from 4–6%. There is no document referred by the AO or by the CIT (A) or even before us by the revenue which could show that the rate of commission was in the range of 4–6%. Further the revenue has failed to confirm the contents of the correspondence with the brokers by way of verifying their books of account or recording the statement of concerned persons. The Assessing Officer has not made any enquiry in respect of correctness of the contents of the correspondence by the brokers. There is no evidence found with regard to the payment of these bills from any source of income. The assessee's claim that payments of commission had been made by cheques and the necessary TDS were deducted had some force. In our considered view, no addition can be made merely on the basis of certain correspondence on the presumption when addition is to be made u/s 69C of the Incometax Act while making the assessment u/s 153A of the Incometax Act. No addition can be made under the scope of section 153A on presumption basis. The revenue has to bring certain corroborative evidence or supporting material by way of making investigation or enquiries. All the brokers were located in Delhi, however, the revenue has done nothing in this regard. Some of the brokers were even corporate assessees. Their records could have been easily verified. The seized material relied upon by the AO alone cannot be made a basis for driving adverse inference with regard to the undisclosed expenditure which can be added u/s 69 of the Income-tax Act. In our considered view, material relied upon by the AO for making the addition was merely a correspondence which alone cannot lead to the inference that assessee had incurred such expenditure. This cannot be made basis for addition made u/s 69 of the Income-tax Act while framing the assessment u/s 153A of the Income-tax Act, 1961. There is no evidence gathered by revenue from anywhere, which could establish a bit of the fact that assessee has paid anything more than whatever recorded in the books of account. Therefore, in our considered view, such addition cannot be sustained.13.1 The revenue has also raised the issue of admitting additional evidence in contravention of Rule 46A of the Incometax Rules. Our notice was brought to the relevant copies of the ledger account showing payments to various parties on which TDS was deducted. The confirmation of the account was also filed along with ledger account. These evidences were part of the assessment record and in our considered view, nothing new has been brought into notice of CIT(A). Therefore, there was no violation of Rule 46A of Income-tax Rules, 1962. These documents were filed before the Assessing Officer and this was not filed for the first time before the CIT (A). Therefore, the revenue's contention is not tenable.13.2 We dismiss this ground of revenue's appeal and allow the assessee's ground of appeal."
7.2 We have considered rival submissions. We have also perused the order made by authorities below. We have also perused the paper book in this regard. We have also considered the issue raised in the cross objection regarding the violation of Rule 46A. As far as the issue raised in the revenue's appeal and cross objection of the assessee are concerned, we hold that the issue is covered by our decision in assessee's own case for Assessment Year 2006-07 which has been reproduced above. As far as the issue raised in assessee's appeal is concerned, we find that the CIT (A) has considered the reconciliation for the difference in the amount and the CIT (A) was justified in sustaining the addition of Rs.5,99,130/-. Therefore, we find no fault in the order of the CIT (A) on this issue. This ground of assessee's appeal stands dismissed.
8. In the ground no.3 of revenue's appeal, the issue relates to deleting the disallowance of interest of Rs.23,37,215/- out of the interest paid by the assessee. The revenue has also challenged the issue on account of admitting additional evidence by taking the shelter of Rule 46A of Income-tax Rules, 1962. The assessee has also taken ground no.2 in its cross objection against the issue raised in ground no.3 of revenue's appeal for contravention of Rule 46A of Income-tax Rules, 1962. We find that the documents/evidences on the basis of which the CIT-(A) has granted the relief were available to Assessing Officer as the same were under his possession which has not been examined. The details of interest free funds were available before the Assessing Officer. Assessing Officer has not analyzed the same. In our considered view, CIT (A) has not admitted any fresh evidence as no fresh evidence was furnished. The analysis of interest free funds made available by the assessee was nothing but only the analysis of books of account which were examined by the Assessing Officer himself.
9. We have heard both the sides on this issue. We have also decided the issue by deciding the revenue's appeal in ITA No.1693/Del/2012 for Assessment Year 2006-07 vide order dated 31.12.2012 where we have held as under :-
"17.3 In ground no.5 of revenue's appeal, the issue is deletion of interest on loan to sister concerns. On this, we hold that the earlier assessment was completed u/s 143(3) of the Income-tax Act, 1961 and no such disallowance was made on this issue. The issue was considered at that time by Assessing Officer and asked for details. There is no new evidence or incriminating document found and seized during the search operation which can make the Assessing Officer to form a belief that income has escaped assessment on this account. In such circumstances, in absence of any evidence of any sort, such disallowances shall be only on the basis of change in the opinion and the same is not permissible in law. Further, on merits also, the assessee was having sufficient and adequate non-interest bearing funds by way of share capital, reserves and advances received from the booking of the plots. The revenue has failed to establish any nexus between the borrowed funds and interest free advances given to sister concerns. In such circumstances, we find there was no infirmity in the order of CIT (A) and we sustain the same on this issue."
Being no change in the facts of the case, we dismiss this ground of revenue's appeal, we also allow the plea of the assessee that there was no contravention of Rule 46A of Income-tax Rules, 1962.
10. In the ground nos.4 & 5 of revenue's appeal, the issue is against the deletion of addition of Rs.54,51,00,877/- made by Assessing Officer u/s 68 of Income-tax Act, 1961 and holding order u/s 144 dated 09.12.2009 as null and void.
11. The ld. DR submitted that the addition was made while making the assessment u/s 144 of the Income-tax Act, 1961 where the assessee has not filed the details before the Assessing Officer. The addition was also made u/s 153A. He relied on the orders of the Assessing Officer.
12. The ld. AR submitted that the addition was made while making illegal assessment u/s 144 of the Act stating that evidences were not filed, hence Assessing Officer could not examine evidences. Assessee submitted all relevant documents before Assessing Officer during proceedings u/s 153A of the Act. The Assessing Officer has also ignored these evidences which were submitted during the assessment proceeding u/s 153A of the Income-tax Act, 1961. During the assessment proceedings u/s 153A, the Assessing Officer issued specific questionnaire where all details were called for. Assessee filed all details. This is evident from paper book. Material is placed in the paper book at pages 65 to 135 in respect of unsecured loans of Rs.51,16,780/- where PAN number, income-tax return, confirmation of accounts, bank statements and audited accounts of all four parties were submitted. Similarly, details of sundry creditors of Rs.37,97,44,080/- were also submitted. All these creditors were related or sister concerns of assessee. Copy of their PAN number, income-tax return, confirmation of accounts and audited accounts were filed. These details are available at pages 13l7 to 295 of the paper book. Similarly, documents relating to share application money of Rs.81,55,000/- received from three parties were also filed. Copy of PAN number, income-tax return, confirmation of accounts, audited accounts and bank statements of these parties are available at pages 297 to 332 of the paper book. These parties from whom the share application money was received were also examined at the time of making the assessment for the Assessment Year 2006-07 u/s 143(3) of the Income-tax Act, 1961. All these confirmations are available at pages 333 to 345 of the paper book. He also pleaded that all companies who have invested money in the assessee company are group companies whose assessment is also being made by the same Assessing Officer as all cases of the group are centralized. The assessment of these group companies have been made after examination of the books of accounts and no addition has been made. The ld. AR submitted that the Assessing Officer raised questionnaires which have been duly replied by the assessee. Subsequently, queries raised by the Assessing Officer were also replied to the satisfaction of the Assessing Officer. The Assessing Officer has not found any fault in these details. The Assessing Officer has conveniently ignored the details submitted before him during the assessment proceedings u/s 153A and made a huge addition without any basis. He further submitted that CIT (A) has quashed the order made u/s 144 in assessee's appeal no.170/09-10 and 133/10 and the revenue has not filed any appeal against that order. The Assessing Officer has not raised any further query during the assessment proceedings. All the parties were assessed by the same Assessing Officer. All the details were available before him. No additional evidences were filed before the CIT (A). No fresh material filed before the CIT (A). In such circumstances, the CIT (A) has rightly deleted the addition and he pleaded to sustain the same.
13. We have heard both the sides on this issue. The facts of the case show that search and seizure operation was carried out on 31.07.2008. The return for the income was filed by the assessee on 27.03.2008 which was selected for scrutiny and notice u/s 143(2) was issued on 23.09.2008. As per the provisions of section 153A, the pending assessments abate wherever the search operation takes place. The Assessing Officer without giving any cognizance to the search operation made an assessment u/s 144 of the Income-tax Act, 1961 and made an addition of Rs.54,41,00,877/- by holding that assessee has not furnished details. Its source is not explained with documentary evidence/confirmation. While making the assessment u/s 153A/143(3) of Income-tax Act, 1961, the same addition has been made by Assessing Officer and the relevant para of the order read as under :-
"3. It is gathered that in this case original assessment was completed u/ 144 of the Act as the assessee failed to comply with the notices issued during that proceedings. For the reasons mentioned in the as order dated 9.12.2009, an addition of R.54,51,00,877/- was made u/s 68 of the Act. Thus, the original assessment was completed at a taxable income of Rs.54,75,67,118/-. It is also gathered that an appeal against this order is pending before CIT (A), therefore, for the reasons mentioned in that order, the same addition is being retained while completing assessment u/s 153A/143(3) of the Act."
The CIT (A) has granted the relief by holding as under :-
"7.6 I have carefully considered the submissions, perused the order of assessment and, evidence on record. The dispute, as raised by the appellant, pertains to the additions made by the AO on account of section 68 of the Income Tax Act. After analyzing the submissions made by the AR of the appellant, I am of the considered opinion that AO has completed the assessment u/ s 144 on 09/12/2009 at Rs.54,51,00,877/ - which is after the date of the search initiated (i.e. 31.07.2008) on the appellant by the Income tax department. The order passed by the AO u/s 144 is thus a nullity in the light of provisions of section 153A of the Income Tax Act. This view has been endorsed in the case of Abhay Kumar Shroff vs. CIT (2007) 290 ITR 114, 123 Jharkhand. Further, the same addition affirmed and retained by the A.O. of CC-12 u/s 153A without going into the merits of the addition u/s 144 by ITO ward 16(4) I not sustainable. The assessment which is held as void cannot be made basis of subsequent assessment by the AO, CC-12, I am unable to understand why the A.O. of CC-12 preferred to borrow the addition u/s 144 for Rs.54,51,00,877/- when he was seized of the matter and completing a search assessment under section 153A. The A.O. of CC-12 rather than analyzing the papers submitted before him for the identity, genuineness and creditworthiness retained the additions of previous A.O. which was completed after search and without jurisdiction. Further, while framing the assessment of the group companies appearing as investors and creditors to the appellant company, the A.O. has not given an adverse finding as regard to their identity, creditworthiness and genuineness of the transaction. The same A.O. has assessed these group companies under 153A/153C. Therefore, the additions made by the A.O. while importing addition u/s 144 in the assessment u/s 153A cannot pass muster the judicial scrutiny. The department has used its long arm of search and seizure and there is no justification to retain assessment u/s 144 for want of details. Thus the ground no.4 of appeal no.333/10-11 and ground no.1 of appeal no.170/09-10 of the appellant are allowed."
14. We have perused the orders of the authorities below on this issue. We have considered the relevant material to the issue. We have heard both the sides on the issue. After hearing we hold that the order u/s 144 was passed by the Assessing Officer for non-compliance of notice u/s 143(2) and 142. The order was made ex-parte. There was a change in the address of the assessee from Delhi to Calcutta in view of the order of the Company Law Board dated 26.10.2007. Thus, there was no service of notice on the assessee. Assessing Officer passed ex-parte order u/s 144 of Income-tax Act, 1961. There was a search operation prior to making the assessment u/s 144 of the Act, therefore, the order passed u/s 144 was null and void in view of the provisions of section 153A of the Income-tax Act, 1961. Further while making the assessment u/s 143(3) read with section 153A of the Act, the Assessing Officer has simply added the amount in the total income of the assessee by writing that income assessed as per order u/s 144 dated 09.12.2009 made by ITO, Ward 16(4). Since the assessment framed u/s 144 itself was void and illegal, additions made on that basis itself cannot be sustained. Further the assessee has submitted necessary details like PAN number, Income-tax Return, Bank accounts, confirmations, balance sheets of all the relevant persons but the Assessing Officer has ignored the same. The persons from whom the share application money, share capital and share premium including the loans taken and the creditors belonging to the same group companies, the same Assessing Officer is the Assessing Officer of these persons also. The necessary evidence, confirmations, bank accounts, etc. were available with the Assessing Officer to verify the genuineness of the transactions. The Assessing Officer has not taken any cognizance of these documents. The Assessing Officer has blindly applied the provisions of section 68 for making huge additions as per ex-parte order wherein all the outstanding balances were added to the income of the assessee. Therefore, in our considered view, the CIT (A) has rightly deleted the addition and we sustain the same.
15. In the result, the appeal of the revenue is dismissed, appeal of the assessee is partly allowed and the cross objection filed by the assessee is allowed.
(Order pronounced in open court on this 4.1.2013.)
2013-TIOL-219-ITAT-AGRA
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH (SMC), AGRA
BENCH (SMC), AGRA
ITA No.330/Agra/2012
Assessment Year: 2004-05
Assessment Year: 2004-05
LATE INDER CHAND JAIN
THROUGH L/H SMT SONA DEVI JAIN
24/173, BAGH RAM SAHAI LOHAMANDI, AGRA
PAN NO:ABZPJ6714E
THROUGH L/H SMT SONA DEVI JAIN
24/173, BAGH RAM SAHAI LOHAMANDI, AGRA
PAN NO:ABZPJ6714E
Vs
INCOME TAX OFFICER
2(1), AGRA
2(1), AGRA
Bhavnesh Saini, JM
Dated: February 8, 2013
Appellant Rep by: Shri K K Jain, Adv.
Respondent Rep by: Shri K K Mishra, Jr. DR
Respondent Rep by: Shri K K Mishra, Jr. DR
Income Tax - Sections 50C(2), 147, 148 - Stamp Valuation Authority - brokerage charges - remand report - Whether when the assessee had not filed any objections to the valuation report at the proceedings stage or in the remand proceedings before the assessing authority, the objection on the same can be filed before the Tribunal - Whether when the assessee has not produced any evidence for payment of brokerage, the deduction for the same can be allowed while computing sales consideration.
Assessee is an individual. Its assessment had been reopened u/s. 147 on the basis that the assessee had sold a shop for which, while computing the capital gain, he had not taken the sale consideration as per the provision of section 50C. While selling the shop, total sale consideration was shown at Rs.3,90,000/-, but the value of the property assessed for stamp duty purpose was determined at Rs.5,23,000/- and hence, the AO after recording reason to believe that there was a difference of Rs.1,33,000/- in the value of sale consideration declared by the assessee for the purpose of computation of capital gain and therefore, the income has escaped assessment to the extent of Rs.1,33,000/- and hence, he issued a notice u/s. 148. After rejecting the objection of the assessee for reopening, the AO had completed the assessment at an assessed income of Rs.2,66,450/- as against the returned income of the assessee at Rs.1,29,200/- after computing the income of the assessee. Therefore, there was an addition of Rs.1,37,252/- to the income of the assessee. On appeal before CIT(A), AR had submitted that the valuation report of registered valuer in the said property was filed determining the FMV of the property at Rs.3,12,395/-, which was less than the sale consideration of Rs.3,90,000/- shown by the assessee for computation of CG and request was made to the AO that if he does not agree with the valuation report of the registered valuer, the matter was referred to the DVO as per provisions of section 50C(2), but the matter was not referred to the concerned Valuation Officer and assessment was completed on the basis of valuation determined by the Stamp Valuation Authority. The AO was, therefore, directed to refer the matter of valuation of property to the DVO as per provisions of section 50C(2) to determine the value of sale consideration for the purpose of computation of capital gain as per directions of the CIT(A). The AVO vide his report dated 27.12.2011 valued the property at Rs.4,14,870/-. The remand report from the AO was also submitted, in which the AO agreed with the report of AVO valuing property at Rs.4,14,870/-. The report of the Valuation officer provided to the assessee for his comments as to why the valuation determined by the AVO should not be taken for the purpose of computation of capital gains. The CIT(A) had held that since the value of sale consideration determined by the AVO at Rs.4,14,870/- was the FMV. Therefore, it should be adopted as against the Stamp Valuation Authority, therefore, the addition was restricted to Rs.29,122/-. Further, since no supporting evidence of payment of brokerage was produced, therefore, such a ground was dismissed.
Before Tribunal, the AR had referred to page 17 of the paper book to show circle rate of the property in the area of Lohamandi was Rs.6000/- per Sq. Meter, which was also mentioned in the sale deed (PB-1), therefore, AVO should not have taken the rates at Rs.6000/- + 50% (Rs.9000/-). He has, however, admitted that the assessee did not challenged the report of AVO before the CIT(A). Further no objections have been raised before the Stamp Valuation Authorities with regard to the valuation of the property. The AR had also admitted that there was no evidence to prove payment of brokerage on sale of property. He had, after making the arguments submitted that the assessee had already expired and appeal was filed through legal heir and since the legal heir does have any amount to be paid, therefore, the present appeal had been filed.
Held that:
++ it is not in dispute that Stamp Valuation Authorities have assessed the value of property for stamp duty purposes at Rs.5,23,000/-. The assessee claimed before the CIT(A) that a report of registered valuer was filed showing valuation of property at Rs.3,12,395/-. Therefore, request was also made to the AO that if he did not agree with the report of registered valuer, the matter may be referred to the DVO as per section 50C(2). The CIT(A) on such plea of the assessee referred the matter to the DVO for determining the valuation of the property and the DVO opined value at Rs.4,14,870/-. This figure was also agreed to by the AO in the remand report. It is admitted fact that the assessee never objected to the valuation report submitted by the AVO at Rs.4,14,870/-. If the assessee was at all aggrieved against the valuation report at Rs.4,14,870/-, the assessee should have raised objection to said valuation report at the proceedings before the CIT(A) or in the remand proceedings before the AO. Since the assessee did not object to the report of DVO filed u/s. 50C(2), therefore, the assessee could not be allowed to dispute the same report at this stage;
++ further, the AVO in the valuation report has referred to the basis of the circle rate adopted by him as per orders issued by ADM(F)/Sub- Registrar on 15.01.2003 effective at that time on sale of shops. No material is produced before us even to dispute the correctness of the order issued by ADM/Sub-Registrar in this regard. Nothing is clarified before me or before the authorities below as to why the assessee now would take a stand of lower valuation of property as against the valuation determined by the DVO. There may be several directions or revision of the circle rates in respect of different properties at different times, therefore, if the assessee felt aggrieved against the rate taken by the DVO, it would have been proper for the assessee to raise objection on the basis of some material or evidence before the DVO, before the AO at the remand proceedings or at least before the CIT(A). The assessee did not choose to do anything in the matter and merely raised the objection that since valuation was less than 15% in difference, therefore, no addition should be made. Such a plea was alien to the provisions of section 50C. Further section 50C is a special provision for full value of consideration in certain cases and deals with the transfer of capital asset by the assessee in land or building or both. Therefore, whatever is now claimed in the grounds of appeal, cannot be subjected to favourable consideration to the assessee. The impugned order reproduced above would clearly reveal that the CIT(A) on proper appreciation of provisions of section 50C and the facts of the case rightly concluded that the valuation of sale consideration was to be taken at Rs.4,14,870/- as per valuation report and since cost of acquisition is admitted by the assessee at Rs.3,85,748/-, therefore, the addition was rightly restricted to Rs.29,122/-. It is also admitted fact that the assessee has no evidence to support the plea of payment of brokerage on sale of property, therefore, the claim of assessee for such deduction has rightly disallowed by the CIT(A). Considering the above facts of the case and a very small addition sustained by the CIT(A), it is clear that it was a very small matter and the assessee without reasons has filed the present appeal. The Counsel for the assessee submitted that since the appeal is filed through legal heir and legal heir is not in a position to pay small tax, therefore, present appeal has been filed. Such a reason itself is not justified in filing the frivolous appeal before the Tribunal. Since it is a very small matter, therefore, I do not propose to impose cost on the legal heir of the assessee, otherwise it was a fit case for dismissal of appeal of assessee subject to cost. In view of the above findings, the appeal of the assessee is liable to be dismissed.
Assessee's appeal dismissed
ORDER
This appeal by the assessee is directed against the order of ld. CIT(A)-I, Agra dated 19.01.2012 for the assessment year 2004-05 on the following grounds :
1. Because the chargeability of capital gains under the head capital gains being separately in respect of land and superstructure parts and accordingly the Stamp Valuation Authority assessed the value of land part and superstructure part separately, the authorities below erred in not accepting the value of land part as assessed by the Stamp Valuation Authority.2. Because according to the provisions of section 50C(3), the value of land as assessed by the stamp valuation authority ought to have been taken as full value of the consideration received on such transfer, the authorities below erred in deviating from the value of land as determined by Stamp Valuation Authority.3. Because the value of land part as assessed by the stamp valuation authority at Rs.141660j- by applying the circle rate @6000 per sq. mtr. duly mentioned in the sale deed ought to have been taken while computing the capital gain on sale of property.4. Because applying the provisions of section 50C(3) on the facts of the case, the authorities below erred in valuing and assessing the value of land part more than the value assessed by the Stamp Valuation Authority.5. Because the appellant had paid brokerage on the sale of impugned property to the broker through account payee cheque duly cleared from the bank account of the appellant, the CIT(A) erred in disbelieving the payment of Rs.7700/-which is incidental and bonafide expenses."
2. In this case, assessment proceedings have been reopened u/s. 147 after receiving information that the assessee has sold a shop for which, while computing the capital gain, he has not taken the sale consideration as per the provision of section 50C. While selling the shop, total sale consideration was shown at Rs.3,90,000/-, but the value of the property assessed for stamp duty purpose was determined at Rs.5,23,000/- by Stamp Valuation Authority and hence, the AO after recording reason to believe that there was a difference of Rs.1,33,000/- in the value of sale consideration declared by the assessee for the purpose of computation of capital gain and therefore, the income has escaped assessment to the extent of Rs.1,33,000/- and hence, he issued a notice u/s. 148 dated 25.08.2008. After rejecting the objection of the assessee for reopening of assessment proceeding u/s. 147, the AO completed the assessment at an assessed income of Rs.2,66,450/- as against the returned income of the assessee at Rs.1,29,200/- after computing the income of the assessee as under :
| Stamp value of the property | Rs.5,23,000/- |
| Less:Cost of acquisition as taken by the assessee Himself in the computation of income | Rs.3,85,748/- |
Rs.1,37,252/- |
Therefore, there will be an addition of Rs.1,37,252/- to the income of the assesseeIncome is computed as under :
| Income as shown by the assessee | Rs.1,29,200/- |
| Addition on account of capital gain | Rs.1,37,252/- |
Rs.2,66,452/- | |
Or say | Rs.2,66,450/- |
2.1 The assessee challenged the addition on account of capital gain before the ld. CIT(A) and it was submitted that the valuation report of registered valuer in the said property was filed determining the fair market value of the property at Rs.3,12,395/-, which is less than the sale consideration of Rs.3,90,000/- shown by the assessee for computation of capital gain and request was made to the AO that if he does not agree with the valuation report of the registered valuer, the matter may be referred to the Departmental Valuation Officer as per provisions of section 50C(2), but the matter was not referred to the concerned Valuation Officer and assessment was completed on the basis of valuation determined by the Stamp Valuation Authority. The AO was, therefore, directed to refer the matter of valuation of property to the DVO as per provisions of section 50C(2) to determine the value of sale consideration for the purpose of computation of capital gain as per directions of the ld. CIT(A). The AVO vide his report dated 27.12.2011 valued the property at Rs.4,14,870/-. The remand report from the AO was also submitted, in which the AO agreed with the report of AVO valuing property at Rs.4,14,870/-. The report of the Valuation officer provided to the assessee for his comments as to why the valuation determined by the AVO should not be taken for the purpose of computation of capital gains. The assessee on going through the report of the valuation officer filed a letter before the ld. CIT(A) on perusal of the valuation report and stated that the assessee has been advised to take additional grounds of appeal stating therein that since difference in the valuation is less than 15%, therefore, no addition should be made and further when the value determined by the Valuation Officer is less than the value adopted by the Stamp Valuation Authority u/s. 50C, the sale consideration shown by the assessee on Rs.3,90,000/- declared in the return should be accepted. It was also pleaded that the assessee has paid brokerage amounting to Rs.7,700/- to the broker, therefore, such claim should not have been denied. The assessee also filed written submission which is incorporated in the appellate order. The ld. CIT(A) considered the issue in the light of submissions of the assessee and the material on record held that since the value of sale consideration determined by the AVO at Rs.4,14,870/- is the fair market value. Therefore, it should be adopted as against the Stamp Valuation Authority, therefore, the addition was restricted to Rs.29,122/-. Further, since no supporting evidence of payment of brokerage was produced, therefore, such a ground was dismissed. The detailed findings of ld. CIT(A) in para 5.6 to 5.11 of the appellate order are reproduced as under :
"I have considered all the submissions made by the Ld. AR with respect to his argument for taking the actual sale consideration value of the property as the value of sale consideration for the purpose of computation of capital gain as raised in the additional grounds no.8, 9 & 10 taken by the appellant. In this regard, the valuation report of the AVO as well as discussion made by the AO in the assessment order has been considered. I find that in the instant appeal, the main issue to be decided is about taking of value of sale consideration for the purpose of computation of capital gain by applying the provision of section 50C. On going through the provision of section 50C, I find that as per the provision of sub section (1) of section 50C, where the consideration received or accruing as a result of transfer by an assessee of a capital asset being land or building or both, is less than the value adopted or assessed or assessable by any authority of State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed be deemed to be the full value of the consideration received or accruing as a result of such transfer for the purpose of section 48.Sub section (2) of section 50C provides an exception to application of sub section (1) under certain conditions. In sub-section (2), the condition are prescribed under clause (a) that, if the assessee claims before the AO that the value adopted or assessed by the stamp valuation authority referred to in sub section (1) exceeds the fair market value of the property as on the date of transfer and under clause (b) that, if the assessee is able to show that the value so adopted or assessed or assessable by stamp valuation authority under sub section (1) has not been disputed in any appeal or revision or no reference has been made before any other authority, Court or a High Court, the Assessing authority may refer the valuation of the capital asset to a Valuation Officer and the provision of the Act in respect of the valuation would apply. As per sub section (3) of section 50C, if the value as arrived at by the Valuation Officer on reference from the AO under section 50C(2) is found to exceed the valuation as adopted or assessed or assessable by the stamp valuation authority referred to in sub section (1), the value so adopted or assessed or assessable by the stamp valuation authority is to be taken as the full value of the receipts or accruing as a result of a transfer.5.7 In view of the above provision of section 50C, it is clear that the value determined by the stamp valuation authority is the bench mark for the determination of the full value of sale consideration accruing to assessee on sale of some property but this value can be altered under the provision of sub section (2) of section 50C by referring the said property to a Valuation Officer, if the assessee claims that the value determined by the stamp valuation authority exceeds fair market value. Considering the claim of the appellant that the value determined by the stamp Valuation authority at Rs. 5,23,000/- has exceed the fair market value of the property as determined by the Regd. Valuer at Rs.3,12,395/-, as per the valuation report, submitted by her, the AO has been directed to refer this property for valuation to AVO and on the basis of the report of the AVO, the valuation has been determined at Rs.4,14,870/-. On this valuation of the property by the AVO, now, the Ld. AR has contended by taking three additional grounds 8, 9, & 10 that the sale consideration shown by the appellant is less than 15% and Rs. 25,000/- from the value determined by the AVO and therefore, the fair market value determined by the AVO being less than the valuation computed by the valuation authority, the sale consideration of the property should be taken at Rs.3,90,000/- as declared in the return and in the opinion of the Ld. AR, provision of section 50C(1) would not be applicable in case of the appellant. In support of his argument, the Ld. AR has referred to the provision of 55A read with rule 111A taking the plea that no adverse inference should be drawn where ever the difference is less than 15% and Rs.25,000/- and in such circumstance, the actual sale consideration should be taken for working out the capital gain. In support of his this argument, he has also relied on a decision of Hon'ble Chennai Bench of ITAT in the case of ITO Vs Ms. Kumudini Venugopal (2011) 16 Taxmann.com 136 (Chennai) by citing relevant portion of this decision, stating that "where in course of proceeding u/s 50C(2), DVO determined value of a property on a figure much lower than value as fixed by Stamp Valuation authority, the AO was to be directed to accept sale consideration of property as admitted by the assessee in her return of income".5.8. Both the above arguments of the Ld. AR have been considered by me for deciding about the valuation of sale consideration to be adopted for the purpose of capital gain. As the matter of determining the fair market value of the property under consideration has been referred for valuation to AVO, the provision of section 50C(2) would undoubtedly apply in case of the appellant. In this respect, I find that the reliance of the Ld. AR on the provision of section 55A read with Rule 111A is misplaced because this section and rule applies to provide conditions for making reference to Valuation Officer in respect of determining the cost of acquisition of a property specially for the cases covered by the provisions of section 55A(b). In this respect, the Hon'ble ITAT, Mumbai in case of Smt. Sarla N. Sakraney Vs. ITO (2010) 46 DTR (Mum) (Trib) 208 based on the decision of the Hon'ble Gujrat High Court in the case of Hiaben Jayantilal Shah (2009) 310 ITR 31, has held that the clause (b) of section 55A can be invoked only in any other case, namely when the value of the asset claimed by the assessee is not supported by the estimate made by the Regd. Valuer and in the case when a report of the Regd. Valuer is filed, clause (b) of section 55A cannot be invoked. In view of this interpretation of clause (b) of section 55A by the Hon'ble Gujarat High Court, I find that criterion given in the rule 111A read with section 55A(b)(i) cited by the Ld. AR that no adverse inference should be drawn where the difference is less than 15% and Rs.25,000/- between estimated value determined by the Valuation Officer and the actual sale consideration, would not at all apply, firstly because this rule is not applicable for determination of the fair market value u/s 50C (2) and secondly because in case of the appellant, valuation report of a Regd. Valuer has been filed and hence, provision of section 55A(b)(i) would not apply as held by the Hon'ble Gujrat· High Court. Therefore: the Addl. Ground no. 8 taken in this respect is dismissed.5.9 For adopting the sale consideration shown by the appellant in the return of income, the appellant has placed reliance on the decision of the Hon'ble Chennai Bench of ITAT in case of ITO Vs Ms. Kumudini Venugopal (2011) 16 Taxmann.com 136 (Chennai) quoting that if AVO determined valuation of property is much lower than that figure as fixed by the Stamp Valuation Authority, the sale consideration as shown by the appellant in her return of income should be adopted. In order to examine this claim of the Ld. AR, I have gone through the decision of Hon'ble ITAT, Chennai Bench. In this case, there were two appeals before the Hon'ble Tribunal, one filed by Ms. Kumudini Venugopal and another filed by Kum. Rajini Venugopal. In case of Ms. Kumudini Venugopal, the sale deed was not registered but in the case of Kum. Rajini Venugopal, the sale deed was registered. Therefore, while finally deciding both the appeals after getting the property valued by the Valuation Officer, it has been held by the Hon'ble Tribunal that the fact that OVO has valued the property much lower than the value fixed by the Stamp Valuation Authority, shows that the claim of the appellant is true and correct and the provisions of 50C(1) would have to be read with section 50C(2) and the value as arrived at as per the provisions of section 50C(2) of the Act would have to be adopted in the case of Kum. Rajini Venugopal. But in case of Ms. Kumudini Venugopal, the Hon'ble Members noticed that the sale agreement in respect of the property has not been registered and therefore, it has been held by the Ld. Member that the provisions of section 50C would not apply, in case of Ms. Kumudini Venugopal under these circumstances, they confirmed the decision of CIT(A), directing the AO to adopt the sale consideration as per the valuation report of the DVO in case of Kum. Ranjjni Venugopal and in case of Ms. Kumudini Venugopal, the AO was directed to accept the sale consideration as admitted by the assessee in his return of income. In order to show the applicability of this case law in case of the appellant, full decision is reproduced as under :"2. I.T.A. No. 1172/Mds/2009 is an appeal filed by the Revenue against the order passed by the learned Commissioner of Income-tax (Appeals)-I, Coimbatore, in Appeal No. 247/07-08 dated May 6, 2009 for the assessment year 2005-06 in the case of Ms. Kumudini Venugopal and I.T.A. No.1173/Mds/2009 is an appeal filed by the Revenue against the order passed by the learned Commissioner of Income-tax (Appeals)-I, Coimbatore in Appeal No. 246/07-08 dated May 6, 2009 for the assessment year 2005-06 in the case of Kum. Rajini Venugopal. Shri Tapas Kumar Duffa, the learned Departmental representative represented on behalf· of the Revenue and Shri V. Jagadisan, chartered accountant represented on behalf of the assessees.It was submitted by the learned Departmental representative that the assessee had sold certain agricultural land in Coimbatore. The assessee invested the sale proceeds in NHB and NABARO bonds and claimed exemption under section 54EC. In the course of assessment, it was noticed that the provision of section 50C applied to the assessee's case and as per the direction of the Additional Commissioner of Income-tax, Range II, Coimbatore under section 144A of the Act, the valuation of the property as per the guideline value of the stamp valuation authority had been applied as the same was found to be higher than the sale consideration disclosed by the assessees. It was the submission that the learned Commissioner of Income-tax (Appeals) had deleted the addition made by the Assessing Officer and directed the Assessing Officer to adopt the sale consideration as per the valuation report of the DVO in the case of Kum. Rajini Venugopal. In the case of Ms. Kumudhini Venugopal, the Assessing Officer was directed to accept the sale consideration as admitted by the assessee in her return of income.4. It was the submission that the provisions of section 50C were mandatory and as the sale consideration disclosed by the assessee was lower than the valuation as per the stamp valuation authority, the value as fixed by the stamp valuation authority was liable to be adopted. It was the submission that the order of the learned Commissioner of Income-tax (Appeals) is liable to be reversed and that of the Assessing Officer restored.5. The learned authorised representative has submitted that as per the provisions of section 50C, the Assessing Officer had referred the valuation to the ova. However, as per the directions of the Additional Commissioner of Income-tax under section 144A of the Act, the Assessing Officer had adopted the value as fixed by the stamp Valuation authority. It was the submission that in the course of assessment proceedings, the assessee had submitted that the provisions of section 50C could not be considered as the land was agricultural land and the land had substantial defects as it was in odd shape and was a low lying land. It was the submission that the assessee had also produced evidence in the form of land acquisition done by the Coimbatore Municipal Corporation, wherein the value of the land had been fixed at the rate of Rs.5,000 per cent in 1996. It was the submission that the Assessing Officer was bound to follow the sub-section (1) of section 50C and adopt the lower of the value fixed by the ova or the value as determined by the stamp valuation authority. For this proposition, he relied upon the decision of the Lucknow Bench of the Income-tax Appellate Tribunal in the case of Jitendra Mohan Saxena v. ITO [2008J 305 ITR (AT) 62. He further submitted that the reference to the DVO under section 50C(2) was not discretionary, but mandatory for which proposition he relied upon the decision of the Jodhpur Bench of the Income-tax Appellate' Tribunal in the case of Meghraj Baid v. ITO [2008} 114 ITJ 841 / (URO). It was the submission that the order of the ld. Commissioner of Income-tax (Appeals) was right and the same was liable to be upheld.6. We have considered the rival submissions. Reading of the provisions of section 500 shows that as per the provision of sub section (1) of section 50C where the consideration received or accruing as a result of transfer by the assessee of a capital asset being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer for the purpose of section 48, such value as fixed by the authority of the State Government is to be deemed to be the full value of the consideration as a result of such transfer. Subsection (2) of section 50C carves out the exemption to subsection (1). In sub-section (2), the conditions are prescribed, under clause (a), if the assessee claims before the Assessing Officer that the value adopted or assessed by the stamp valuation authority referred to in sub-section (1) exceeds the fair market value of the property as on the date of transfer and under clause (b), if the assessee is able to show that the value so adopted or assessed or assessable by the stamp valuation authority under sub-section (1) has not been disputed in any appeal or revision or no reference has been made before any other authority, court or the High Court, the assessing authority may refer the valuation of the capital asset to a Valuation Officer and the provisions of the Act in respect of the valuation would apply. As per subsection (3) of section 50C, if the value as arrived at by the ova on the reference from the Assessing Officer under section 50C(2) is found to exceed the valuation as adopted or assessed or assessable by the stamp valuation authority referred to in subsection (1), then the value so adopted or assessed or assessable by the stamp valuation authority is to be taken as the full value of the receipt or accruing as a result of the transfer. Thus, as per section 50C(1), the valuation as fixed by the stamp valuation authority is taken as a bench mark, as per sub-section (2) of section 50C the bench mark can be reviewed by the reference to the valuation officer if the assessee claims that such value exceeds the fair market value. As per sub-section (3), if the valuation as arrived at by the OVO as a consequence of the reference made to him by the Assessing Officer on account of the assessee's claim and such valuation is found to be higher than the value as fixed by the stamp valuation authority then the value as fixed by the stamp valuation authority being the lower of the two is to be applied. With these particulars in mind, if we see the facts of the assessee's case, it is noticed in the course of assessment itself the assessee has invoked her right under section 50C(2) of the Act, wherein, it is specifically claimed that the value as fixed by the stamp valuation authority is on the higher side. This is evidenced from paragraph 8 of the assessment order. It is also noticed that the Assessing Officer had found merit in the claim of the assessee and had consequently referred the valuation of the property to the DVO. It is noticed that in the meantime, the assessee had also applied to the Additional Commissioner of Income-tax for direction under section 144A and the learned Additional Commissioner of Income-tax for direction under section 144A and the learned Additional Commissioner of Income-tax, Range II, Coimbatore, had issued direction under section 144A. It is also noticed that by the time the assessment was completed, the DVO had not given any report of valuation to the Assessing Officer. Consequently, the Assessing Officer had complied with the direction of the Additional Commissioner of Income-tax and had applied the provisions of section 50C(1) of the Act. During the appeal proceedings before the learned Commissioner of Income tax (Appeals), the valuation report of the DVO had come and the learned Commissioner of Income-tax (Appeals) had considered the DVO's report while passing the appellate order. Thus what is noticed here is that the assessee has made claim under section 50C(2) and the Assessing Officer did find· merit in the claim of the assessee and as per the requirements of the Act, the Assessing Officer had rightly referred the valuation of the property to the OVO and the DVO had valued the property at a figure much lower than the value as fixed by the stamp valuation authority which also shows that the provisions of section 50C(3) have no application to the present case. Obviously, the valuation as done by the DVO is not a Subject-matte of the appeal before us. The fact that the DVO has valued the properly much lower than the value fixed by the stamp valuation authority, shows that the claim of the assessee is true and correct and the provisions Of section 50C(1) would have to be read with section 50C(2) and the value a arrived at as per the provisions of section 50C(2) of the Act would have to be adopted in the case of Kum. Ranjini Venugopal. In the case of Ms. Kumudini Venugopal, it is noticed that the sale agreement in respect of the property has not been registered. Consequently, the provisions of section 50C would not apply. Under these circumstances, we are of the view that the findings as arrived at by the learned Commissioner of Incometax (Appeals) is on a right footing and both the appeals of the Revenue are dismissed."5.10 In the case of the appellant, sale deed has been registered and hence, even by following the decision of Hon'ble Chennai Tribunal referred by the Ld. AR, the sale consideration has to be adopted as per the valuation report of the DVO. In fact, the Ld. AR has wrongly referred the decision of Hon'ble Chennai ITAT in the case of Ms. Kumudini Venugopal in whose case sale agreement was not registered. Therefore, it is undisputedly proved that once a property is referred to the Departmental Valuation Officer for determination of fair market value of a property sold on which capital gain is to be computed, if the value determined by the DVO/AVO is less than the value determined by the stamp valuation authority, the same value should be adopted as determined by the DVO/AVO for the purpose of taking the value of sale consideration in order to compute the capital gain and the value of actual sale consideration can be taken only in those cases in which the sale agreement is not registered. Therefore, I hold that in case of the appellant, the value of sale' consideration should be adopted at Rs.4,14,870/- as determined by the AVO as being fair market value and hence, the additional ground no. 9 taken by the appellant is dismissed. The value of sale consideration has to be determined in the case of the appellant as per the provision of 50C(2) read with the section 50C(1) and the provisions of 50C(1) would not be applicable exclusively and accordingly, additional ground No. 10 is partly allowed. In view of my above decision, the AO is directed to take the value of sale consideration for computation of capital gain on sale of property shown by the appellant at Rs.4,14,870/- instead of Rs.5,23,000/- taken by him and thus, the capital gain would be computed as under :
| Value of sale consideration | Rs.4,14,870/- |
| Less cost of acquisition as taken by the Appellant in computation of income | Rs.3,85,748/- |
| The value of LTCG | Rs. 29,122/- |
In view of the above computation, the AO is directed to take long term capital gain at Rs.29,122/- to be added to the income of the appellant, instead of Rs.1,37,252/- as added in the assessment order. Therefore, Ground no. 1 to 3 are partly allowed.5.11. As regards to Additional Ground No. 11, the Ld. AR could not produce any supporting document showing that the amount of Rs.7,700/- was paid to any brokerage on sale of the property. Therefore, no deduction of Rs.7,700/- would be allowable from the sale consideration and hence, ground No. 11 is dismissed."
3. The ld. Counsel for the assessee referred to page 17 of the paper book to show circle rate of the property in the area of Lohamandi is Rs.6000/- per Sq. Meter, which is also mentioned in the sale deed (PB-1), therefore, AVO should not have taken the rates at Rs.6000/- + 50% (Rs.9000/-). He has, however, admitted that the assessee did not challenge the report of AVO before the ld. CIT(A). Further no objections have been raised before the Stamp Valuation Authorities with regard to the valuation of the property. The ld. Counsel for the assessee also admitted that there is no evidence to prove payment of brokerage on sale of property. He has, after making the arguments submitted that the assessee had already expired and appeal is filed through legal heir and since the legal heir does have any amount to be paid, therefore, the present appeal has been filed.
4. On the other hand, the ld. DR relied upon the orders of the authorities below.
5. I have considered the rival submissions, perused findings of authorities below and the material available on record. It is not in dispute that Stamp Valuation Authorities have assessed the value of property for stamp duty purposes at Rs.5,23,000/-. The assessee claimed before the ld. CIT(A) that a report of registered valuer was filed showing valuation of property at Rs.3,12,395/-. Therefore, request was also made to the AO that if he did not agree with the report of registered valuer, the matter may be referred to the DVO as per section 50C(2) of the IT Act. The ld. CIT(A) on such plea of the assessee referred the matter to the DVO for determining the valuation of the property and the DVO opined value at Rs.4,14,870/-. This figure was also agreed to by the AO in the remand report. It is admitted fact that the assessee never objected to the valuation report submitted by the AVO at Rs.4,14,870/-. If the assessee was at all aggrieved against the valuation report at Rs.4,14,870/-, the assessee should have raised objection to said valuation report at the proceedings before the ld. CIT(A) or in the remand proceedings before the AO. Since the assessee did not object to the report of DVO filed u/s. 50C(2) of the IT Act, therefore, the assessee could not be allowed to dispute the same report at this stage. Further, the AVO in the valuation report has referred to the basis of the circle rate adopted by him as per orders issued by ADM(F)/Sub- Registrar on 15.01.2003 effective at that time on sale of shops. No material is produced before us even to dispute the correctness of the order issued by ADM/Sub-Registrar in this regard. Nothing is clarified before me or before the authorities below as to why the assessee now would take a stand of lower valuation of property as against the valuation determined by the DVO. There may be several directions or revision of the circle rates in respect of different properties at different times, therefore, if the assessee felt aggrieved against the rate taken by the DVO, it would have been proper for the assessee to raise objection on the basis of some material or evidence before the DVO, before the AO at the remand proceedings or at least before the ld. CIT(A). The assessee did not choose to do anything in the matter and merely raised the objection that since valuation was less than 15% in difference, therefore, no addition should be made. Such a plea was alien to the provisions of section 50C of the IT Act. Further section 50C is a special provision for full value of consideration in certain cases and deals with the transfer of capital asset by the assessee in land or building or both. Therefore, whatever is now claimed in the grounds of appeal, cannot be subjected to favourable consideration to the assessee. The impugned order reproduced above would clearly reveal that the ld. CIT(A) on proper appreciation of provisions of section 50C and the facts of the case rightly concluded that the valuation of sale consideration is to be taken at Rs.4,14,870/- as per valuation report and since cost of acquisition is admitted by the assessee at Rs.3,85,748/-, therefore, the addition was rightly restricted to Rs.29,122/-. It is also admitted fact that the assessee has no evidence to support the plea of payment of brokerage on sale of property, therefore, the claim of assessee for such deduction has rightly disallowed by the ld. CIT(A). Considering the above facts of the case and a very small addition sustained by the ld. CIT(A), it is clear that it was a very small matter and the assessee without reasons has filed the present appeal. The ld. Counsel for the assessee submitted that since the appeal is filed through legal heir and legal heir is not in a position to pay small tax, therefore, present appeal has been filed. Such a reason itself is not justified in filing the frivolous appeal before the Tribunal. Since it is a very small matter, therefore, I do not propose to impose cost on the legal heir of the assessee, otherwise it was a fit case for dismissal of appeal of assessee subject to cost. In view of the above findings, the appeal of the assessee is liable to be dismissed.
6. In the result, the appeal of the assessee is dismissed.
(Order pronounced in the open court.)
Regards,
Pawan Singla
BA (Hon's), LLB
Audit Officer
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