M/s O.T.Gandhi (HUF), Indore V. The ITO 5(3), Indore

CO 10/IND/2012

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7199 (ITAT-INDORE)
• Duration Of Justice: 2 month(s) 28 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 28-05-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2005-2006
• Appeal Filed On: 01-03-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ARUN DEWAN
• Keywords: Sale consideration of property below Jantri Value; Cost of acquisition; Fair market value; Bad and doubtful debts
• Section: 143(3); 50C; 80G; 139(5)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER ITA NOS. 3, 4 & 5/IND/2012 A.YS. 2005-06, 2006-07 & 2007-08 ITO-5(3), INDORE :: APPELLANT VS M/S. O.T. GANDHI (HUF), INDORE PAN AAAHO 3877 K :: RESPONDENT CROSS-OBJECTION NOS.10 & 11/IND/2012 (ARISING OUT OF ITA NOS. 3 & 5/IND/2012) A.YS. 2005-06 & 2007-08 M/S. O.T. GANDHI (HUF), INDORE PAN AAAHO 3877 K :: OBJECTOR VS ITO-5(3), INDORE :: RESPONDENT DEPARTMENT BY SHRI ARUN DEWAN ASSESSEE BY SHRI ANIL KAMAL GARG 2 DATE OF HEARING 23 . 05 .2012 DATE OF PRONOUNCEMENT 2 8 . 05. 2012 O R D E R PER JOGINDER SINGH, JUDICIAL MEMBER THE REVENUE AS WELL AS THE ASSESSEE, BOTH ARE AGGRIEVED BY THE ORDER OF THE LEARNED FIRST APPELLATE AUTHORITY, INDORE. FIRST, WE SHALL TAKE UP APPEAL OF THE REVENUE WHEREIN THE COMMON GROUND RAISED IS THAT ON T HE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LEARNED CIT (A) ERRED IN DELETING THE ADDITION OF RS.10,34,196/- (AY 2005- 06), RS.11,30,708/- (AY 2006-07) AND RS.17,25,781/- (AY 2007-08), RESPECTIVELY, ON ACCOUNT OF EXCESS PAYMENT OF INTEREST, U/S 40A(2)(A) OF THE ACT WITHOUT APPRECIATIN G THE FACT THAT THE ASSESSEE RECEIVED INTEREST @4% AND 5% ON ADVANCES GIVEN BY HIM WHEREAS HE PAID INTEREST @8% TO 13% (AY 2005-06), RECEIVED @5% TO 9% AND PAID 10% (AY 2006-07), RECEIVED INTEREST @5% AND PAID @9% (AY 2007 - 3 08), RESPECTIVELY, ON THE LOANS TAKEN BY HIM FROM HIS RELATIVES AND CONNECTED PERSONS WITHOUT ESTABLISHING T HE REASON FOR PAYING THE HIGHER RATE OF INTEREST AND FURT HER ERRED IN NOT CONSIDERING THAT THE ASSESSEE DID NOT PR OVE THE NEXUS BETWEEN THE LOANS TAKEN AND ADVANCE AND ALSO THE BUSINESS EXIGENCIES. 2. DURING HEARING, WE HAVE HEARD SHRI ARUN DEWAN, LEARNED SENIOR DR AND SHRI ANIL KAMAL GARG, LD. COUNSE L FOR THE ASSESSEE. THE CRUX OF ARGUMENTS ON BEHALF OF T HE REVENUE IS IDENTICAL TO THE GROUND RAISED IN THE RESP ECTIVE APPEAL WHEREAS THE LD. COUNSEL FOR THE ASSESSEE DEFEND ED THE IMPUGNED ORDER. 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL AVAILABLE ON THE RECORD. SINCE THE ISSUES INVOLVED IN THE RESPECTIVE APPEAL OF THE REVENUE ARE IDENTICAL, THEREFORE, THESE APPEALS CAN BE DISPOSED OF BY A COMMON AND CONSOLIDATED ORDER FOR THE SAKE OF BREVITY. THE 4 FACTS, IN BRIEF, ARE THAT THE ASSESSEE HUF IS CONSISTIN G OF SHRI JANAK GANDHI, SMT. REKHA GANDHI, SHRI VIJAY GANDHI AND SMT. VANDANA B. SHAH AND SHRI O.T. GANDHI IS THE KARTA. THE ASSESSEE FAMILY DERIVES INCOME FROM RENT AS W ELL AS FROM THE BUSINESS OF MONEYLENDING. MONEYLENDING BUSINESS IN ITS OWN NAME AND ALSO PROPRIETORSHIP CONC ERN M/S. VIJAY FINANCE CORPORATION. THE ASSESSEE FAMILY FURNISHED ORIGINAL RETURN U/S 139(1) OF THE ACT (FOR AY 2005-06) ON 29.7.2005 DECLARING INCOME AT RS.11,970/- ANNEXED WITH COPY OF HIS BALANCE SHEET, P & L ACCOUNT WHICH WAS PROCESSED U/S 143(1) OF THE ACT ON 31.3.20 07. THE CASE OF THE ASSESSEE FAMILY WAS SELECTED FOR SCRUTI NY FOR WHICH NOTICES U/S 143(2) WERE ISSUED WHICH WERE COM PLIED WITH BY THE ASSESSEE. THE ASSESSEE FURNISHED WRITTEN SUBMISSION AND PRODUCED BOOKS OF ACCOUNTS. A REVISE RETURN U/S 139(5) OF THE ACT WAS FILED ON 23.11.2007 CLAIMING LONG TERM CAPITAL LOSS FROM SALE OF HOUSE AT 77 /4, 5 VALLABH NAGAR, INDORE AT RS.6,78,000/-, WHICH COULD NOT BE CLAIMED IN THE ORIGINAL RETURN. THE LD. ASSESSING OFF ICER FRAMED THE ASSESSMENT U/S 143(3) OF THE ACT ON 19.12.2007 DETERMINING THE TOTAL INCOME AT RS.13,53,3 24/- (OTHER THAN LONG TERM CAPITAL GAIN) AND LONG TERM CAPITAL GAIN FROM THE SALE OF HOUSE AT RS.11,87,900/- WHICH RESULTED INTO ADDITION OF RS.32,07,254/-. THE SAME IS SUMMARIZED AS UNDER: S.NO. HEAD OF ACCOUNT AMOUNT (RS.) 1 DONATION 30,000 2 ADHOC DISALLOWANCE OF ADMINISTRATIVE EXPENSES AND DISALLOWANCE OF TDS DEBITED IN P & L ACCOUNT 5,896 3 ALLEGED EXCESSIVE PAYMENT OF INTEREST U/S 40A(2)( A) 10,34,196 4 DISALLOWANCE OF CLAIM OF BAD DEBTS U/S 36(2) 3,00 ,000 5 ADDITION ON ACCOUNT OF LONG TERM CAPITAL GAIN ON SALE OF HOUSE BY: - ENHANCING SALES CONSIDERATION U/S 50C 5,71,100 - DISALLOWING CLAIM FOR EXPENSES ON TRANSFER 30,000 - REDUCING INDEXED COST OF ACQUISITION (BY TAKING THE FAIR MARKET VALUE OF LAND & BUILDING AT RS.4,96,500/- AS AGAINST THE SAME CLAIMED BY THE ASSESSEE AT RS.7,60,000/-) 12,64,800 ------------- 18,65,900 6 ADDITION ALLOWANCE OF DEDUCTION U/S 80G AND U/S 3 5AC (DUE TO INCREASE IN GTI) (-)28,738 TOTAL 32,07,254 6 THE LD. ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS CHARGED LESS INTEREST FROM PARTIES WHEREAS PAID MORE INTEREST ON THE LOANS/ADVANCES TAKEN FROM RELATIVES AND CONCERNED PERSONS, THEREFORE, HE OPINED THAT THE ASSE SSEE HAS PAID EXCESSIVE AND UNREASONABLE INTEREST, CONSEQUENTLY, HE DISALLOWED THE IMPUGNED AMOUNTS BY FURTHER OBSERVING THAT THE PAYMENT WAS NOT FOR LEGITI MATE NEEDS OF HIS BUSINESS. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) EXAMINED THE CLAI M OF THE ASSESSEE AND HELD THAT THE PAYMENT OF INTEREST WAS NEITHER EXCESSIVE NOR UNREASONABLE AS COMPARED TO PREVAILING MARKET RATES BY HOLDING THAT THE OBSERVATION OF THE ASSESSING OFFICER WAS BASELESS AS HE DID NOT IDEN TIFY SPECIFIC LOANS AND SPECIAL RATES OF INTEREST ALLEGEDLY PAID TO BE EXCESSIVE IN COMPARISON TO FAIR MARKET RATES AND DELE TED THE ADDITION/DISALLOWANCE WHICH IS UNDER CHALLENGE BEFO RE THIS TRIBUNAL. 7 3.1 IF THE OBSERVATION MADE IN THE ASSESSMENT ORDER, CONCLUSION DRAWN IN THE IMPUGNED ORDER AND THE ASSERT ION MADE BY THE LD. RESPECTIVE COUNSEL ARE KEPT IN JUXTAP OSITION AND ANALYSED, WE FIND THAT CLEARLY IT WAS NOT A CASE OF DISALLOWANCE U/S 36(1)(III) OF THE ACT BASED ON THE PROVISIONS OF SEC. 40A(2)(A) OF THE ACT BECAUSE FIRST LY, THE LD. ASSESSING OFFICER HAS NOT SPECIFICALLY MENTIONED ABOUT THE LOANS AND THE INTEREST RATES AS TO HOW IT WAS EXCESS IVE AND AT THE SAME TIME, THE BUSINESS EXIGENCIES ARE TO BE CONSIDERED BY THE ASSESSEE. ADMITTEDLY, IT IS NOT TH AT IN EVERY CASE, THE INTEREST ON BORROWED LOANS HAS TO BE ALLOWED BUT IT DEPENDS ON FACTS AND CIRCUMSTANCES OF TH E RESPECTIVE CASE. SO FAR AS THE MEASUREMENT OF COMMERCI AL EXPEDIENCY IS CONCERNED, IT HAS TO BE JUDGED BY THE ASSESSEE. THE EXPRESSION FOR THE PURPOSE OF BUSINES S IS WIDER IN SCOPE THAN THE EXPRESSION FOR THE PURPOSE O F EARNING INCOME, PROFIT AND GAINS. INTEREST AND BORROWAL S IS 8 ALLOWABLE AS DEDUCTION ONLY WHEN THE BORROWALS ARE USED FOR THE PURPOSE OF BUSINESS AND CONTINUED AS SUCH WHE RE THE ASSESSEE PAID INTEREST ON BORROWALS FOR USE OF HIS BUSINESS, ITS REASONABLENESS IS TO JUDGED BY THE ASSES SEE ALONE AND THE REVENUE IS NOT EXPECTED TO SIT ON THE ARMCHAIR OF THE BUSINESSMAN UNLESS AND UNTIL A GLARING UNREASONABLENESS FOR NON-BUSINESS PURPOSES IS BROUGHT ON RECORD. THERE IS A CATEGORICAL FINDING IN THE IMPUGNED ORDER THAT NO CASE HAS BEEN MADE OUT BY THE LD. ASSESSING OFF ICER FOR SUSTAINING THE DISALLOWANCE OF INTEREST. EVEN OTHE RWISE, SEC. 40A(2)(A) CANNOT HAVE ANY APPLICATION UNLESS IT IS F IRST HELD THAT THE EXPENDITURE WAS EXCESSIVE AND UNREASONABLE . OUR VIEW IS FORTIFIED BY THE DECISION FROM HON'BLE APEX COURT IN UPPER INDIA PUBLISHING HOUSE (P) LIMITED VS . CIT (117 ITR 569) (SC). THE RATIO LAID DOWN IN SA BUILDER S LIMITED VS. CIT (288 ITR 1) (SC), CIT VS. DALMIA CEME NT BHARAT LIMITED (183 TAXMAN 422) (DEL) AND CALDARN 9 PHARMACEUTICALS LIMITED VS. CIT (265 ITR 244) (CAL) SUPPORTS OUR VIEW. THE ASSESSEE FAMILY IS HAVING SUBSTANTIAL OPENING CAPITAL OF RS.81,96,061/- AND EVEN AFTER CONSIDERING THE INVESTMENT MADE IN THE FIXED ASS ET AT RS.21,63,105/-, INVESTMENT AT RS.11,99,419/- AND LAND ADVANCES OF RS.16,63,000/-, STILL SUBSTANTIAL FUNDS (INTEREST FREE) REMAINS TO THE TUNE OF RS.48,33,541/ - AT ITS DISPOSAL FOR MAKING INVESTMENT IN MONEYLENDING BUSIN ESS. IT IS FURTHER SEEN THAT THE ASSESSEE EARNED INTEREST I NCOME OF RS.3,98,733/- EVEN AFTER MAKING PAYMENT OF INTERES T BORROWINGS, THEREFORE, EVERY TIME, THE ASSESSEE IS N OT EXPECTED TO MAXIMIZE ITS PROFIT. THE ADDITION WAS MAD E BY THE LD. ASSESSING OFFICER MERELY ON THE PREMISES TH AT LOWER RATE OF INTEREST WAS CHARGED BY THE ASSESSEE FROM ITS T WO RELATIVES AND JUMPED TO THE CONCLUSION THAT THE ASSESS EE MADE EXCESSIVE PAYMENT. THE CBDT IN CIRCULAR NO. 6P DATED 6.7.1968, WHILE EXAMINING THE REASONABLENESS OF 10 EXPENDITURE, HAS CLARIFIED THAT THE ASSESSING OFFICER IS EXPECTED TO EXERCISE ITS JUDGMENT IN A REASONABLE AND FAIR MANNER AND SHOULD NOT APPLY THE REASONABLENESS WHICH CAUSE HARDSHIP IN BONA FIDE CASES. AS DISCUSSED EARLIE R, THE REASONABLENESS OF THE EXPENDITURE FOR THE PURPOSE OF BUSINESS HAS TO BE JUDGED FROM THE VIEWPOINT OF A BUSINESSMAN AND NOT OF THE REVENUE. OUR VIEW IS FORTI FIED BY THE DECISION IN CIT VS. EDWARD KEVENTER (P) LIMIT ED (86 ITR 37) (CAL) WHICH WAS AFFIRMED BY HON'BLE APEX COURT IN CIT VS. EDWARD KEVENTER (P) LIMITED (1978) CTR (SC) 164, ABBAS WAZIR P. LIMITED VS. CIT, 185 CTR (ALL) 152 AND CIT VS. COMPUTER GRAPHICES LIMITED (285 ITR 84) (MAD). S O FAR AS THE CONTENTION OF THE ASSESSING OFFICER REGARDING FAIR MARKET RATE IS CONCERNED, IT DEPENDS ON SO MANY FACTORS AS GETTING THE BORROWALS FROM BANKS IS CONNECTED WITH SO MANY FORMALITIES WHEREAS BORROWING FROM OPEN MARKET OR FROM RELATIVES OR FRIENDS IS HAGGLE-FREE, THOUGH, MAY BE ON 11 HIGHER RATE OF INTEREST. SO FAR AS ESTABLISHING BUSINES S EXIGENCIES ARE CONCERNED, IT HAS TO BE JUDGED BY THE BUSINESSMAN AND NOT BY THE REVENUE UNLESS AND UNTIL SOME ADVERSE MATERIAL IS BROUGHT ON RECORD, THEREFORE, WE FIND NO INFIRMITY IN THE CONCLUSION DRAWN IN THE IM PUGNED ORDERS. SAME ARE AFFIRMED. 4. NOW, WE SHALL TAKE UP THE CROSS-OBJECTION OF THE ASSESSEE WHEREIN IT HAS BEEN OBJECTED THAT THE LEARNED FIRST APPELLATE AUTHORITY ERRED IN NOT ACCEPTING THE DETAILED EXPLANATION WITH REGARD TO LONG TERM CAPITAL GAIN ON THE SALE OF THE HOUSE AND FURTHER NOT ACCEPTING THE FAIR MAR KET VALUE AS ON 1.4.1998 BY REJECTING THE CLAIM OF LOSS ON ACCOUNT OF SALE OF THE HOUSE. 4.1 DURING HEARING OF THIS CROSS-OBJECTION, THE LD. COUNSEL FOR THE ASSESSEE ADVANCED HIS ARGUMENT WHICH IS IDENTIC AL TO THE GROUND RAISED BY FURTHER EXPLAINING THAT ONE HO USE SITUATED AT 77, VALLABH NAGAR, INDORE WAS CONSTRUCTED BY 12 THE PREVIOUS OWNER IN THE YEAR 1960, WHICH WAS SOLD THROUGH A REGISTERED SALE DEED FOR A CONSIDERATION OF R S.30 LAKHS ON 6.12.2004. THE STAMP VALUATION AUTHORITY DETERMINED THE VALUE AT RS.35,71,000/- FOR THE PURPOS ES OF STAMP DUTY LEVY. THE ASSESSEE COMPUTED LONG TERM CAPIT AL LOSS OF RS.6,78,000/- ON THE SALE OF THE HOUSE. IT W AS CLAIMED THAT THE FAIR MARKET VALUE SHOULD HAVE BEEN ADOPTED AT RS.5,11,000/-. THE LD. SR. DR DEFENDED THE IMPUGNED ORDER. 4.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIAL AVAILABLE ON THE RECORD. UNDER THE FACTS MENTIONED HEREINABOVE, WE FIND THAT THE LD. ASSESSING OFFICER MADE ADDITION OF RS.11,87,000/- ON ACCOUNT OF LONG TERM CAPITAL GAIN ON THE SALE OF THE HOUSE. THE ASSESSEE SOLD THE HOUSE FOR RS.30 LAKHS AS PER SALE AGREEMENT AN D CLAIMED LOSS OF RS.6,78,000/-. THE MATTER WAS REFERRED TO THE STAMP DUTY OFFICER WHO VALUED THE SAME AT 13 RS.35,71,100/- AND AFTER DEDUCTING THE INDEXED COST AT RS.23,83,200/-, DETERMINED THE LONG TERM CAPITAL GAIN AT RS.11,87,900/-. THE MATTER WAS ALSO REFERRED TO VALUATIO N OFFICER OF THE DEPARTMENT AT THE INSTANCE OF THE LEARNE D FIRST APPELLATE AUTHORITY AND VIDE REPORT DATED 24.11.20 08, THE FAIR MARKET VALUE OF THE HOUSE WAS DETERMINED AT RS.36,52,000/- AS ON DECEMBER 2004 AGAINST THE DECLARED FAIR MARKET VALUE BY THE ASSESSEE AT RS.30 LAKHS AND THE VALUATION BY THE STAMP DUTY OFFICER AT RS.35,71,100/-. BEFORE US, THE ASSESSEE HAS CHALLENGED THE VALUATION. WE HAVE PERUSED THE REASONS RECORDED IN PARA 3.4.2, 3.4.3 AND 3.4.4 TO 3.4.6 OF THE ASSESSMENT ORDER AND THE CONCLU SION MADE IN THE IMPUGNED ORDER. WE FIND THAT THE VALUATION ADOPTED, APPROVED BY THE DVO IS BASED UPON DETAILED WORKING AND THE VALUE OF THE HOUSE AS ON 1.4.1981 INCLUDING THE COST OF THE LAND/COST OF THE CONSTRUC TION. THERE ARE VERY MINOR VARIATIONS IN THE APPROACH OF THE 14 AUTHORITIES. IN VIEW OF THESE FACTS, WE DO NOT FIND AN Y INFIRMITY IN THE DIRECTION OF THE LEARNED COMMISSION ER OF INCOME TAX (APPEALS) TO RECALCULATE THE LONG TERM CAPI TAL GAIN BY TAKING THE SALE CONSIDERATION AT RS.35.71 LAKHS BY ADOPTING THE COST OF THE HOUSE AS ON 1.4.1981 AT RS.5. 11 LAKHS AS DETERMINED BY THE DVO. THE STAND OF THE LEARNE D COMMISSIONER OF INCOME TAX (APPEALS) IS AFFIRMED ON T HIS ISSUE. 5. IN ANOTHER CROSS-OBJECTION (CO NO.11/IND/2012), T HE ASSESSEE HAS CHALLENGED THE SUSTAINANCE OF DISALLOWANCE OF RS.9,52,500/- AS BAD DEBTS 5.1 THE LD. COUNSEL FOR THE ASSESSEE HAS CHALLENGED TH E CONCLUSION DRAWN IN THE IMPUGNED ORDER ON IDENTICAL PLEA WHEREAS THE LD. SR. DR DEFENDED THE IMPUGNED ORDER. 5.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIAL AVAILABLE ON THE RECORD. THE FACTS, IN BRIE F, ARE 15 THAT THE ASSESSEE DEBITED RS.12,43,500/- UNDER THE HE AD BAD DEBTS WHICH WAS DISALLOWED ON THE PLEA THAT IDENTICALLY IN EARLIER ASSESSMENT YEAR ALSO, THE BAD DEB T WAS DISALLOWED. THE COPY OF THE BAD DEBT LEDGER HAS BEE N REPRODUCED IN PARA 4.3.1 OF THE IMPUGNED ORDER. THE EXPLANATION AND THE DISCUSSION HAS BEEN REPRODUCED IN PARA 4.3.2 TO 4.3.4 AND CONCLUSION IS IN 4.3.5 OF THE IMPUGNED ORDER. AFTER ANALYZING EACH AND EVERY ENTRY OF THE BAD DEBT, IT WAS FOUND THAT THE DISALLOWANCE OF RS.2,91,000/- WAS UNJUSTIFIED, THEREFORE, THE RELIEF WAS GIVEN TO THE ASSESSEE AND FOR THE REMAINING AMOUNT OF RS.9,52,500/- IN RESPECT OF FIXED DEPOSITS AND RECUR RING DEPOSITS WITH GUJARAT MERCANTILE BANK ARE CONCERNED, THESE CAN BE CONSIDERED AS CAPITAL LOSS, THEREFORE, THE ASSESSING OFFICER IS DIRECTED TO EXAMINE THE CLAIM OF THE ASSESSEE, CONSEQUENTLY, THE AMOUNT TO THE EXTENT OF RS.9,52,500/- IS REMANDED BACK FOR CONSIDERATION OF T HE LD. 16 ASSESSING OFFICER FOR WHICH DUE OPPORTUNITY OF BEIN G HEARD BE PROVIDED TO THE ASSESSEE. THE ASSESSEE IS ALSO AT LI BERTY TO FURNISH ANY EVIDENCE, IF ANY, IN SUPPORT OF ITS C LAIM, THEREFORE, THIS CROSS-OBJECTION IS ALLOWED FOR STATIS TICAL PURPOSES ONLY. FINALLY, 1. THE APPEALS FILED BY THE REVENUE ARE DISMISSED 2. CROSS-OBJECTION NO.10/IND/2012 FILED BY THE ASSESSEE IS ALSO DISMISSED. 3. CROSS-OBJECTION NO.11/IND/2012 FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES ONLY. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 28.5.2012. SD SD (R.C.SHARMA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED:28.5.2012 COPY TO: APPELLANT, RESPONDENT, CIT, CIT(A), DR, GU ARD FILE !VYS!