M/s M. Venkateswara Rao & Co, Guntur V. The ITO, Ward -2(1), Guntur, Guntur

CO 9/VIZ/2014

• Counselvise Citation: [2017] 123 COUNSELVISE.COM (IT) 3019 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 24 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 28-04-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 15-03-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 03-04-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Cost of acquisition; Non-deduction of tax; Fair market value; Corroborative evidences
• Section: 147; 148; 144

Judgement Text

ITA NO.7&8/VIZAG/2012 & CO NOS.9 & 10/VIZAG/2012 M/S. M. VENKATESWARA RAO & CO., GUNTUR 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NOS.7 & 8/VIZAG/2012 ( / ASSESSMENT YEARS: 2007-08 & 2008-09) ITO, WARD - 2(1), GUNTUR M/S. M. VENKATESWARA RAO & CO. , TOBACCO EXPORTERS (P) LTD., GUNTUR [PAN NO. AAECM9856H ] ( % / APPELLANT) ( &'% / RESPONDENT) C.O. NOS.9 & 10/VIZAG/2014 (ARISING OUT OF I.T.A.NOS.7 & 8/VIZAG/2012) ( / ASSESSMENT YEARS: 2007-08 & 2008-09) M/S. M. VENKATESWARA RAO & CO. , TOBACCO EXPORTERS (P) LTD., GUNTUR ITO, WARD - 2(1), GUNTUR ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI M.N. MURTHY NAIK, DR / RESPONDENT BY : SHRI G.V.N. HARI, AR / DATE OF HEARING : 21.04.2017 / DATE OF PRONOUNCEMENT : 28.04.2017 ITA NO.7&8/VIZAG/2012 & CO NOS.9 & 10/VIZAG/2012 M/S. M. VENKATESWARA RAO & CO., GUNTUR 2 / O R D E R PER SHRI G. MANJUNATHA, ACCOUNTANT MEMBER: THESE TWO APPEALS FILED BY THE REVENUE AND TWO CRO SS OBJECTIONS FILED BY THE ASSESSEE ARE DIRECTED AGAI NST COMMON ORDER OF THE COMMISSIONER OF INCOME TAX (A), GUNTUR DATED 9. 11.2011 FOR THE ASSESSMENT YEAR 2007-08 AND 2008-09. SINCE, THE FA CTS ARE IDENTICAL AND ISSUES ARE COMMON, THEY ARE CLUBBED, HEARD TOGE THER AND DISPOSED- OFF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CON VENIENCE. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A COMPANY IN WHICH THE PUBLIC ARE NOT SUBSTANTIALLY INTERESTED W AS INCORPORATED IN THE YEAR 1962, FOR THE PURPOSE OF CARRYING ON TOBACCO B USINESS. THE ASSESSEE COMPANY HAD ACQUIRED A LAND ADMEASURING 2 ACRES 32 CENTS IN SURVEY NO.172 & 173, SITUATED AT KORATIPADU ON 24.3 .1962 FOR THE PURPOSE OF CONSTRUCTION OF FACTORY BUILDING. THE C OMPANY HAS CONSTRUCTED A RCC ROOF BUILDING IN THE YEAR 1987-88 AND 1988-89 ADMEASURING 40,000 SQ.FT. THE COMPANY DID NOT COMME NCE ITS ACTIVITIES RIGHT FROM THE DATE OF INCORPORATION. AS THE ASSES SEE COMPANY DID NOT CARRY ON ANY BUSINESS ACTIVITY, IT HAS LEASED OUT T HE PROPERTY AND WAS RECEIVING RENTAL INCOME. THE ASSESSEE HAS SOLD THE IMPUGNED PROPERTY FOR A CONSIDERATION OF RS.3,25,00,000/- BY WAY OF T WO REGISTERED SALE ITA NO.7&8/VIZAG/2012 & CO NOS.9 & 10/VIZAG/2012 M/S. M. VENKATESWARA RAO & CO., GUNTUR 3 DEEDS IN FAVOUR OF M/S. SARADA ESTATES AS PER WHICH ONE PORTION OF PROPERTY HAS BEEN SOLD ON 18.12.2006 FOR A CONSIDER ATION OF RS.2,75,00,000/- AND THE REMAINING PORTION OF THE L AND HAS BEEN SOLD ON 19.12.2007 FOR A CONSIDERATION OF RS.50 LAKHS. THU S, TWO SALE TRANSACTIONS FALLS IN TWO FINANCIAL YEARS RELEVANT TO ASSESSMENT YEARS 2007-08 AND 2008-09. 3. THE ASSESSEE COMPANY DID NOT FILED RETURN OF INC OME FOR THE ASSESSMENT YEAR 2007-08 AND 2008-09. A NOTICE U/S 148 OF THE ACT, WAS ISSUED TO RE-OPEN THE ASSESSMENT FOR THE REASON THAT THE INCOME CHARGEABLE TO TAX HAD BEEN ESCAPED ASSESSMENT WITHI N THE MEANING OF SECTION 147 OF THE ACT. IN RESPONSE TO THE NOTICE, THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007-08 ON 30.9.2010 DECLARING TOTAL INCOME OF RS.1,61,33,531/- INCLUDIN G LONG TERM CAPITAL GAIN OF RS.1,57,36,230/- TOWARDS SALE OF LAND AND B UILDING. SIMILARLY, THE ASSESSEE HAS FILED RETURN OF INCOME FOR THE ASS ESSMENT YEAR 2008-09 ON 30.9.2010 DECLARING A TOTAL INCOME OF RS.35,93,3 27/- INCLUDING LONG TERM CAPITAL GAIN OF RS.15,95,960/- TOWARDS SALE OF LAND. WHILE FILING THE RETURN OF INCOME, THE ASSESSEE HAS COMPUTED LONG TE RM CAPITAL GAIN FOR THE ASSESSMENT YEAR 2007-08 AND 2008-09 AFTER CLAIM ING DEDUCTIONS TOWARDS EXPENSES OF TRANSFER BEING BROKERAGE AND CO MMISSION OF ITA NO.7&8/VIZAG/2012 & CO NOS.9 & 10/VIZAG/2012 M/S. M. VENKATESWARA RAO & CO., GUNTUR 4 RS.2,75,000/- AND INDEXED COST OF ACQUISITION BEING COST OF LAND AND COST OF BUILDING ALONG WITH IMPROVEMENT AND ADDITIONS. 4. THE CASES HAVE BEEN SELECTED FOR SCRUTINY AND AC CORDINGLY, NOTICE U/S 143(2) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS THE ACT) WAS SERVED ON THE ASSESSEE. THE ASSESSEE NEITHER A PPEARED BEFORE THE A.O. NOR FURNISHED ANY DETAILS ON THE DATE OF HEARI NG. THEREFORE, A LETTER WAS ISSUED ON 11.10.2010 CALLING FOR CERTAIN INFORMATION. SINCE THE ASSESSEE FAILED TO APPEAR BEFORE THE A.O., THE A.O. HAS GIVEN TWO MORE OPPORTUNITIES OF HEARING ON VARIOUS DATES AS M ENTIONED IN HIS ASSESSMENT ORDER. SINCE, THE ASSESSEE FAILED TO AP PEAR BEFORE THE A.O. TO FURNISH THE NECESSARY INFORMATION FOR COMPLETION OF ASSESSMENT, THE A.O. PROCEEDED TO PASS EX-PARTE ASSESSMENT ORDER U/ S 144 OF THE ACT, BASED ON THE INFORMATION AVAILABLE ON RECORD. WHIL E COMPLETING THE ASSESSMENT, THE A.O. HAS REWORKED LONG TERM CAPITAL GAIN COMPUTED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2007-08 AND 20 08-09, BY DISALLOWING EXPENSES OF TRANSFER AND ALSO RE-WORKIN G INDEXED COST OF LAND AND BUILDING AND IMPROVEMENT FOR BOTH THE ASSE SSMENT YEARS. THE A.O. DISALLOWED EXPENSES OF TRANSFER BEING BROKERAG E AND COMMISSION ON THE GROUND THAT THE ASSESSEE FAILED TO FURNISH A NY SUPPORTING EVIDENCES AND ALSO FAILED TO DEDUCT TAX AT SOURCE U /S 194H OF THE ACT, THEREFORE, DISALLOWED EXPENDITURE U/S 40(A)(IA) OF THE ACT. IN SO FAR AS ITA NO.7&8/VIZAG/2012 & CO NOS.9 & 10/VIZAG/2012 M/S. M. VENKATESWARA RAO & CO., GUNTUR 5 INDEXED COST OF ACQUISITION BEING COST OF LAND AND BUILDING AND DEVELOPMENT, THE A.O. OBSERVED THAT INSPITE OF REPE ATED OPPORTUNITIES, THE ASSESSEE FAILED TO SUBSTANTIATE THE CLAIM OF CO ST OF ACQUISITION AS WELL AS IMPROVEMENT. THE A.O. FURTHER OBSERVED THA T THE ASSESSEE FAILED TO FILE THE RETURN OF INCOME FOR ALL THE ASS ESSMENT YEARS, THEREFORE, IN THE ABSENCE OF RETURN OF INCOME, THE GENUINENESS OF AMOUNT INCURRED FOR CONSTRUCTION OF BUILDING CANNOT BE ASCERTAINED. IN SO FAR AS LITIGATION EXPENSES, THE A.O. OBSERVED THAT THE ASSESSEE FAILE D TO FURNISH NECESSARY EVIDENCES OF PAYMENT OF COMPENSATION FOR SETTLEMENT OF DISPUTES, THEREFORE, DISALLOWED EXPENSES IN THE NAT URE OF COMPENSATION PAID. 5. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE A SSESSEE HAS FILED ELABORATE WRITTEN SUBMISSIONS. THE ASSESSEE FURTHE R CONTENDED THAT THE A.O. WAS ERRED IN RE-WORKING INDEXED COST OF LAND B Y TAKING INTO ACCOUNT THE COST OF LAND AS APPEARED IN THE BALANCE SHEET, IGNORING THE FACT THAT THE ASSESSEE HAS PURCHASED THE IMPUGNED LAND MUCH P RIOR TO 1 ST APRIL, 1981. THE ASSESSEE FURTHER SUBMITTED THAT AS PER T HE PROVISIONS OF SECTION 48 OF THE ACT, THE ASSESSEE AT HIS OPTION C AN ADOPT COST OF THE LAND OR FAIR MARKET VALUE OF THE LAND AS ON 1.4.198 1 IN THE CASES WHERE THE PROPERTY WAS PURCHASED PRIOR TO 1.4.1981. SINC E, THE LAND WAS ITA NO.7&8/VIZAG/2012 & CO NOS.9 & 10/VIZAG/2012 M/S. M. VENKATESWARA RAO & CO., GUNTUR 6 PURCHASED IN THE YEAR 1962, THE ASSESSEE HAS ADOPTE D FAIR MARKET VALUE OF THE LAND AS ON 1.4.1981, BASED ON THE MARKET VAL UE FIXED BY THE SRO FOR THE PURPOSE OF PAYMENT OF STAMP DUTY, WHICH WAS FURTHER SUPPORTED BY A CERTIFICATE ISSUED BY THE JURISDICTIONAL SUB R EGISTRAR OFFICE. THE ASSESSEE FURTHER SUBMITTED THAT THE A.O. WAS ERRED IN DISALLOWING INDEXED COST OF BUILDING AND INDEXED COST OF IMPROV ED TO BUILDING IGNORING THE FACT THAT ASSESSEE HAS CONSTRUCTED 40, 000 SQ.FT. BUILDING ON THE IMPUGNED LAND WHICH WAS LET OUT ON A MONTHLY RE NTAL AND THE RENTAL INCOME WAS SUBJECT TO TAXATION FOR THE EARLIER PERI OD. THE ASSESSEE FURTHER SUBMITTED THAT THE EXISTENCE OF BUILDING WA S WITNESSED IN THE SALE DEED, WHEREIN THE APPROXIMATE MEASUREMENT OF B UILDING HAS BEEN MENTIONED, THEREFORE, THE A.O. WAS ERRED IN DISALLO WING INDEXED COST OF BUILDING MERELY ON THE GROUND THAT THE ASSESSEE HAS NOT FILED RETURN OF INCOME. 6. IN SO FAR AS EXPENSES OF TRANSFER BEING COMPENSA TION PAID FOR SETTLEMENT OF DISPUTE ON THE IMPUGNED LAND, THE A.O . WAS ERRED IN DISALLOWING THE AMOUNT IGNORING THE FACT THAT THE A SSESSEE HAS ENTERED INTO A COMPROMISE WITH THE LITIGANT BEFORE THE COUR T OF LAW AND THE COMPENSATION HAS BEEN PAID BY WAY OF DEMAND DRAFT. THE ASSESSEE FURTHER SUBMITTED THAT THE A.O. DISALLOWED IMPUGNED AMOUNT MERELY ON THE GROUND THAT THE ASSESSEE HAS NOT FILED THE RETU RN OF INCOME. ONCE ITA NO.7&8/VIZAG/2012 & CO NOS.9 & 10/VIZAG/2012 M/S. M. VENKATESWARA RAO & CO., GUNTUR 7 THE GENUINENESS OF THE EXPENDITURE WAS NOT DOUBTED, THE EXPENDITURE CANNOT BE DISALLOWED ON THE GROUND THAT THE ASSESSE E HAS NOT FILED RETURN OF INCOME. THE FILING OF RETURN OF INCOME I S BASED ON THE TAXABILITY OF INCOME, IN CASE THE ASSESSEE DOES NOT HAVE TAXABLE INCOME NEED NOT TO FILE RETURN OF INCOME UNDER THE PROVISI ONS OF INCOME TAX ACT, 1961, THEREFORE, THE A.O. WAS ERRED IN DISALLOWING THE EXPENDITURE FOR NON-FILING OF RETURN OF INCOME, EVEN THOUGH THE ASS ESSEE HAS PROVED THE EXPENDITURE. 7. THE CIT(A) AFTER CONSIDERING THE EXPLANATIONS OF THE ASSESSEE, HELD THAT THE PROVISIONS OF SECTION 48 OF THE ACT, CLEARLY INDICATES THAT WHEREVER THE PROPERTY WAS ACQUIRED PRIOR TO 1.4.198 1, THE ASSESSEE HAS OPTION EITHER TO ADOPT THE FAIR MARKET VALUE AS ON 1.4.1981 OR ACTUAL COST OF THE PROPERTY. SINCE, THE LAND WAS PURCHASE D PRIOR TO 1.4.1981, THE A.O. IS NOT CORRECT IN ADOPTING THE PURCHASE CO NSIDERATION OF THE LAND AS COST OF ACQUISITION. THE CIT(A) FURTHER OB SERVED THAT IN SO FAR AS VALUE OF THE PROPERTY AS ON 1.4.1981, THE ASSESSEE HAS CLAIMED FAIR MARKET VALUE OF THE PROPERTY BASED ON A CERTIFICATE ISSUED BY THE REGISTERING AUTHORITY, WHEREIN THE COST OF LAND WAS FIXED AT RS.40/- PER SQ.YD., THEREFORE, DIRECTED THE A.O. TO DETERMINE T HE FAIR MARKET VALUE AS ON 1.4.1981 BASED ON THE CERTIFICATE FURNISHED BY T HE ASSESSEE AND WORKED OUT INDEXED COST OF ACQUISITION. IN SO FAR AS ITA NO.7&8/VIZAG/2012 & CO NOS.9 & 10/VIZAG/2012 M/S. M. VENKATESWARA RAO & CO., GUNTUR 8 DEVELOPMENT/IMPROVEMENT, THE CIT(A) OBSERVED THAT T HE ASSESSEE HAS CONSTRUCTED 40,000 SQ.FT. BUILDING WITH A COST OF RS.26,52,000/- WHICH WAS RECORDED IN THE BOOKS OF ACCOUNTS. THE A.O.S CONTENTION IS THAT THE SAME IS NOT ALLOWABLE AS THE ASSESSEE DID NOT FILE THE RETURN OF INCOME IS NOT CORRECT. THE QUESTION TO BE DETERMINED WHETHER THERE IS ANY DEVELOPMENT OF THE LAND AND IF SO WHAT WOULD BE SUC H AMOUNT. THE ASSESSEE HAS PROVED THE IMPROVEMENT WITH NECESSARY EVIDENCES. THE AMOUNT SPENT FOR CONSTRUCTION HAS BEEN RECORDED IN THE BOOKS OF ACCOUNTS. THEREFORE, THE A.O. WAS INCORRECT IN DIS ALLOWING THE COST OF IMPROVEMENT AND ACCORDINGLY, DIRECTED THE A.O. TO A LLOW DEDUCTION CLAIMED TOWARDS COST OF IMPROVEMENT. 8. THE NEXT ISSUE IS DISALLOWANCE MADE TOWARDS BROK ERAGE AND COMMISSION PAID. THE CIT(A) OBSERVED THAT THE A.O. DISALLOWED BROKERAGE AND COMMISSION UNDER THE PROVISIONS OF SE CTION 40(A)(IA) OF THE ACT. THE SAID PROVISION APPLIES ONLY TO THE CO MPUTATION OF INCOME FROM BUSINESS, BUT NOT INCOME FROM CAPITAL GAIN. T HE OPENING WORDS IN SECTION 40 OF THE ACT, CLEARLY INDICATE THAT THE AL LOWABILITY OF THE AMOUNT IN SECTION 40 OF THE ACT IS ONLY WHILE COMPUTING TH E INCOME FROM BUSINESS AND NOT INCOME FROM CAPITAL GAINS. THEREF ORE, DIRECTED THE A.O. TO ALLOW THE EXPENSES OF TRANSFER BEING BROKER AGE AND COMMISSION. IN SO FAR AS EXPENSES OF TRANSFER BEING COMPENSATIO N PAID FOR SETTLEMENT ITA NO.7&8/VIZAG/2012 & CO NOS.9 & 10/VIZAG/2012 M/S. M. VENKATESWARA RAO & CO., GUNTUR 9 OF DISPUTE, THE CIT(A) OBSERVED THAT AS PER THE INF ORMATION AVAILABLE ON RECORD, THERE IS SUIT FILED BY SHRI M.V. RAO ON THE IMPUGNED PROPERTY. THERE IS ALSO A COMPROMISED DECREE AND THE MATTER W AS REFERRED TO THE LOK ADALAT IN COMPLIANCE TO THE COMPROMISED DECREE AS APPROVED BY THE LOK ADALAT. THE ASSESSEE MADE PAYMENT OF RS.20 LAK HS THROUGH DEMAND DRAFT DRAWN ON INDIAN OVERSEAS BANK. THE CI T(A) FURTHER OBSERVED THAT THE A.O. NEVER DOUBTED THE GENUINENES S OF EXPENDITURE. THE A.O. DISALLOWED THE EXPENDITURE ONLY ON THE GRO UND THAT THE ASSESSEE HAS NOT FILED RETURN OF INCOME FOR THE EAR LIER YEARS. MERELY BECAUSE THE RETURN OF INCOME WAS NOT FILED, THE GEN UINENESS OF EXPENDITURE CANNOT BE DOUBTED, DESPITE THE FACT THA T THE ASSESSEE HAS PROVED THE EXPENDITURE WITH NECESSARY EVIDENCES. T HEREFORE, DIRECTED THE A.O. TO ALLOW EXPENDITURE OF RS.22 LAKHS AS AGA INST EXPENDITURE CLAIMED BY THE ASSESSEE OF RS.24,70,000/-. AGGRIEV ED BY THE CIT(A) ORDER, THE REVENUE IS IN APPEAL BEFORE US. 9. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS RE-WORKING INDEXED COST OF LAND AND BUILDING. THE A.O. RE-WOR KED INDEXED COST OF LAND AND BUILDING BASED ON THE COST OF LAND AND BUI LDING APPEARED IN THE BALANCE SHEET. ACCORDING TO THE A.O., THE ASSESSE E HAS CLAIMED A COST OF ACQUISITION OF RS.36,737/- WHEREAS, CLAIMED FAIR MARKET VALUE AS ON 1.4.1981 AT RS.40/- PER SQ.YD. WHICH IS MUCH HIGHER SIDE, THEREFORE, ITA NO.7&8/VIZAG/2012 & CO NOS.9 & 10/VIZAG/2012 M/S. M. VENKATESWARA RAO & CO., GUNTUR 10 RE-WORKED COST OF ACQUISITION OF LAND BASED ON THE PURCHASE COST OF THE PROPERTY AS PER BOOKS OF ACCOUNTS. IT IS THE CONTE NTION OF THE ASSESSEE THAT THE IMPUGNED LAND WAS PURCHASED IN THE YEAR 19 62 AND AS PER THE PROVISIONS OF SECTION 48 OF THE ACT, THE ASSESSEE A T ITS OPTION CAN ADOPT COST OF THE LAND OR FAIR MARKET VALUE OF THE LAND A S ON 1.4.1981, WHICHEVER IS HIGHER. SINCE, THE FAIR MARKET VALUE OF THE LAND AS ON 1.4.1981 IS ON HIGHER SIDE, THE ASSESSEE HAS ADOPTE D COST OF THE LAND AS PER THE CERTIFICATE ISSUED BY THE SRO WHICH SHOWS T HAT THE COST OF LAND AS ON 1.4.1981 IS AT RS.40/- PER SQ.YD. 10. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATE RIAL ON RECORD, WE FIND THAT THE A.O. HAS RE-WORKED COST OF LAND MA INLY ON THE GROUND THAT AS PER THE BOOKS OF ACCOUNTS, THE COST OF LAND IS MUCH BELOW THE COST OF LAND CLAIMED BY THE ASSESSEE AS ON 1.4.1981 . WE DO NOT FIND ANY MERITS IN THE FINDINGS OF THE A.O., FOR THE REA SON THAT THE IMPUGNED PROPERTY WAS PURCHASED IN THE YEAR 1962. WE FURTHE R OBSERVED THAT AS PER PROVISIONS OF SECTION 48 OF THE ACT, THE ASSESS EE CAN ADOPT EITHER COST OF THE LAND OR FAIR MARKET VALUE AS ON 1.4.198 1 WHEN THE LAND WAS PURCHASED PRIOR TO 1.4.1981. IN THIS CASE, ADMITTE DLY, THE LAND WAS PURCHASED PRIOR TO 1.4.1981. THEREFORE, WE ARE OF THE VIEW THAT THERE IS NO ERROR IN ADOPTING THE FAIR MARKET VALUE OF THE L AND AS ON 1.4.1981, AS AGAINST THE COST OF LAND IN THE BOOKS OF ACCOUNTS. ITA NO.7&8/VIZAG/2012 & CO NOS.9 & 10/VIZAG/2012 M/S. M. VENKATESWARA RAO & CO., GUNTUR 11 11. HAVING SAID, LET US EXAMINE WHAT IS THE FAIR MA RKET VALUE OF THE LAND AS ON 1.4.1981. THE ASSESSEE HAS CLAIMED COST OF ACQUISITION OF LAND AS ON 1.4.1981 BASED ON A CERTIFICATE ISSUED B Y THE SRO WHICH SHOWS COST OF RS.40/- PER SQ.YD. THE ASSESSEE CLAI MS THAT ITS LAND IS LOCATED IN A MAIN ROAD, THEREFORE, THE FAIR MARKET VALUE OF THE LAND IS MUCH MORE HIGHER THAN THE RATE FIXED BY THE SRO OFF ICE. WE FIND FORCE IN THE ARGUMENT OF THE ASSESSEE, FOR THE REASON THA T AS PER THE PROVISIONS OF SECTION 48 OF THE ACT, THE ASSESSEE A T ITS OPTION CAN ADOPT FAIR MARKET VALUE OF THE PROPERTY AS ON 1.4.1981, W HEN THE LAND WAS PURCHASED PRIOR TO 1.4.1981. BUT, THERE SHOULD BE A BASIS FOR ADOPTION OF PARTICULAR COST EITHER ON THE BASIS OF SOME COMP ARABLE CASES OR GUIDANCE VALUE FIXED BY THE STATE GOVERNMENT FOR TH E PURPOSE OF PAYMENT OF STAMP DUTY. IN THIS CASE, THE ASSESSEE HAS ADOPTED COST OF ACQUISITION BASED ON THE CERTIFICATE ISSUED BY THE SRO. ON THE OTHER HAND, THE A.O. HAS ADOPTED COST OF ACQUISITION AS P ER THE PURCHASE COST OF THE LAND, WHICH WAS PURCHASED PRIOR TO 1.4.1981. THEREFORE, WE ARE OF THE VIEW THAT THE A.O. WAS ERRED IN WORKING OUT INDEXED COST OF LAND BASED ON THE PURCHASE COST OF THE PROPERTY, IGNORIN G THE PROVISIONS OF SECTION 48 OF THE ACT, AS WELL AS THE SRO VALUE FIX ED BY THE STATE GOVERNMENT. THE CIT(A) AFTER CONSIDERING RELEVANT PROVISIONS OF THE ACT, HAS RIGHTLY DIRECTED THE A.O. TO ALLOW COST OF ACQUISITION OF THE LAND ITA NO.7&8/VIZAG/2012 & CO NOS.9 & 10/VIZAG/2012 M/S. M. VENKATESWARA RAO & CO., GUNTUR 12 AS ON 1.4.1981. WE DO NOT FIND ANY ERROR IN THE ORD ER OF THE CIT(A). HENCE, WE UPHOLD THE CIT(A) ORDER AND REJECT THE GR OUND RAISED BY THE REVENUE. 12. THE NEXT QUESTION IS INDEXED COST OF BUILDING. THE ASSESSEE HAS CLAIMED COST OF BUILDING OF RS.1,77,624/- FOR THE F INANCIAL YEAR 1988-89 AND COMPUTED INDEXATION TO WORK OUT INDEXED COST OF RS.5,72,089/-. THE A.O. DISALLOWED INDEXED COST OF LAND FOR THE RE ASON THAT THE ASSESSEE HAS FAILED TO PROVE THE COST OF LAND WITH NECESSARY EVIDENCES. THE A.O. FURTHER OBSERVED THAT THE ASSESSEE HAS NOT FILED RETURN OF INCOME FOR THE EARLIER YEARS, THEREFORE, IT IS DIFF ICULT TO ASCERTAIN THE GENUINENESS OF COST OF BUILDING CLAIMED BY THE ASSE SSEE. WE DO NOT FIND ANY MERITS IN THE OBSERVATIONS OF THE A.O., FOR THE REASON THAT THE ASSESSEE HAS CLAIMED COST OF BUILDING AS PER THE BO OKS OF ACCOUNTS AND FINANCIAL STATEMENTS FILED FOR THE RESPECTIVE FINAN CIAL YEARS. THE ASSESSEE HAS INCURRED AN AMOUNT OF RS.1,77,624/- TO WARDS CONSTRUCTION OF BUILDING FOR THE FINANCIAL YEAR 1988-89 WHICH WA S DECLARED IN THE BOOKS OF ACCOUNTS. THE A.O. NEVER DOUBTED THE SOUR CE OF EXPENDITURE INCURRED FOR CONSTRUCTION OF BUILDING. BUT, HE DOU BTED THE GENUINENESS OF THE EXPENDITURE FOR FAILURE TO FILE THE RETURN O F INCOME BY THE ASSESSEE. THEREFORE, WE ARE OF THE VIEW THAT THE A .O. WAS INCORRECT IN DISALLOWING THE COST OF BUILDING, DESPITE THE ASSES SEE HAS PROVED THE ITA NO.7&8/VIZAG/2012 & CO NOS.9 & 10/VIZAG/2012 M/S. M. VENKATESWARA RAO & CO., GUNTUR 13 COST OF BUILDING WITH NECESSARY EVIDENCES AND ALSO WHICH WAS FURTHER SUPPORTED BY THE SALE DEED WHEREIN THE EXISTENCE OF BUILDING WAS RECORDED IN THE SCHEDULE OF THE PROPERTY. THE CIT( A) AFTER CONSIDERING RELEVANT PROVISIONS OF THE ACT, HAS RIGHTLY DIRECTE D THE A.O. TO ALLOW COST OF BUILDING. WE FIND NO ERROR IN THE ORDER OF THE CIT(A). HENCE, WE UPHOLD CIT(A) ORDER AND REJECT GROUND RAISED BY THE REVENUE. 13. THE NEXT QUESTION IS COST OF DEVELOPMENT AND IM PROVEMENT TO THE BUILDING. THE A.O. DISALLOWED COST OF DEVELOPMENT/ IMPROVEMENT ON THE GROUND THAT THE ASSESSEE FAILED TO PROVE THE COST O F DEVELOPMENT WITH NECESSARY EVIDENCES. THE A.O. FURTHER OBSERVED THA T SINCE THE ASSESSEE DID NOT FILE THE RETURN FOR THE EARLIER PERIOD, IT IS DIFFICULT TO ASCERTAIN THE GENUINENESS OF EXPENDITURE CLAIMED TOWARDS COST OF IMPROVEMENT. IT IS THE CLAIM OF THE ASSESSEE THAT IT HAS CONSTRUCTED 4 0,000 SQ.FT. RCC ROOF BUILDING, WHICH WAS LEASED OUT ON RENTAL BASIS AND THE RENTAL INCOME HAS BEEN ASSESSED TO INCOME TAX. THE ASSESSEE FURTHER CONTENDED THAT THE EXISTENCE OF BUILDING WAS NARRATED IN THE SCHEDULE TO THE SALE DEED, THEREFORE, THE A.O. WAS INCORRECT IN DISALLOWING CO ST OF IMPROVEMENT/DEVELOPMENT MERELY ON THE GROUND THAT T HE ASSESSEE HAS NOT FILED RETURN OF INCOME. WE FIND FORCE IN THE A RGUMENTS OF THE ASSESSEE, FOR THE REASON THAT THE A.O. HAS NEVER DO UBTED THE SOURCES OF EXPENDITURE INCURRED FOR CONSTRUCTION OF BUILDING. WE FURTHER OBSERVED ITA NO.7&8/VIZAG/2012 & CO NOS.9 & 10/VIZAG/2012 M/S. M. VENKATESWARA RAO & CO., GUNTUR 14 THAT THE EXISTENCE OF BUILDING WAS VERY MUCH NARRAT ED IN THE SCHEDULE OF THE PROPERTY IN THE SALE DEED AND ALSO THE ASSESSEE HAS FILED RELEVANT FINANCIAL STATEMENTS FOR THE EARLIER YEAR, WHEREIN THE ASSESSEE HAS DISCLOSED AMOUNT INCURRED TOWARDS CONSTRUCTION OF B UILDING. THEREFORE, WE ARE OF THE VIEW THAT THE A.O. WAS ERRED IN DISAL LOWING COST OF IMPROVEMENT/DEVELOPMENT MERELY ON THE GROUND THAT T HE ASSESSEE HAS NOT FILED RETURN OF INCOME. THE FILING OF RETURN O F INCOME IS BASED ON THE TAXABLE INCOME FOR THE RELEVANT ASSESSMENT YEARS,. IN CASE THE ASSESSEE DOES NOT HAVE TAXABLE INCOME, THE ASSESSEE NEED NOT TO FILE THE RETURN OF INCOME. JUST BECAUSE RETURN OF INCOME WAS NOT F ILED IT CANNOT BE HELD THAT THE ASSESSEE HAS NOT PROVED THE EXPENDITU RE. IN THIS CASE, THE ASSESSEE HAS FILED BALANCE SHEETS FILED WITH THE RO C, WHEREIN THE AMOUNT INCURRED FOR CONSTRUCTION OF BUILDING HAS BE EN DISCLOSED. THE ASSESSEE ALSO DISCLOSED THE EXISTENCE OF BUILDING I N THE SALE DEED. THEREFORE, WE ARE OF THE VIEW THAT THE A.O. WAS COM PLETELY ERRED IN DISALLOWING EXPENSES INCURRED TOWARDS IMPROVEMENT O F BUILDING. THE CIT(A) AFTER CONSIDERING RELEVANT FACTS HAS RIGHTLY DIRECTED THE A.O. TO ALLOW COST OF DEVELOPMENT/IMPROVEMENT. WE DO NOT FI ND ANY ERROR IN THE ORDER OF THE CIT(A), HENCE WE INCLINED TO UPHOL D THE CIT(A) ORDER AND REJECT GROUND RAISED BY THE REVENUE. ITA NO.7&8/VIZAG/2012 & CO NOS.9 & 10/VIZAG/2012 M/S. M. VENKATESWARA RAO & CO., GUNTUR 15 14. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS DISALLOWANCE OF BROKERAGE AND COMMISSION. THE A.O. DISALLOWED B ROKERAGE AND COMMISSION U/S 40(A)(IA) OF THE ACT, FOR FAILURE TO DEDUCT TAX AT SOUIRCE. IT IS THE CONTENTION OF THE ASSESSEE THAT THE A.O. WAS ERRED IN DISALLOWING BROKERAGE AND COMMISSION U/S 40(A)(IA) OF THE ACT, AS THE SAID SECTION REQUIRES DISALLOWANCE ONLY IN THE CASE OF COMPUTATION OF INCOME FROM PROFITS AND GAINS OF BUSINESS OR PROFES SION, BUT NOT UNDER THE HEAD INCOME FROM CAPITAL GAINS. WE FIND FORCE IN THE ARGUMENTS OF THE ASSESSEE, FOR THE REASON THAT THE SECTION 40(A) (IA) OF THE ACT ONLY APPLIES WHEN INCOME IS COMPUTED UNDER THE HEAD PRO FIT & GAINS FROM BUSINESS OR PROFESSION, BUT NOT UNDER THE HEAD INC OME FROM CAPITAL GAINS. THEREFORE, WE DIRECT THE A.O. TO ALLOW EXP ENDITURE CLAIMED UNDER THE HEAD BROKERAGE AND COMMISSION. 15. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS DISALLOWANCE OF EXPENSES ON TRANSFER BEING COMPENSATION PAID FOR PROPERTY DISPUTE FOR THE ASSESSMENT YEAR 2008-09. THE A.O. DISALLOW ED COMPENSATION PAID ON THE GROUND THAT THE ASSESSEE FAILED TO SUBS TANTIATE THE EXPENDITURE WITH NECESSARY EVIDENCES. IT IS THE CO NTENTION OF THE ASSESSEE THAT THERE WAS A CIVIL DISPUTE ON THE PROP ERTY AND ONE SHRI M.V. RAO HAS FILED A SUIT BEFORE THE 7 TH ADDITIONAL DISTRICT JUDGE, GUNTUR CLAIMING THAT THE SALE EFFECTED BY THE COMPANY IS N OT VALIED ON THE ITA NO.7&8/VIZAG/2012 & CO NOS.9 & 10/VIZAG/2012 M/S. M. VENKATESWARA RAO & CO., GUNTUR 16 GROUND THAT THE SIGNATORIES TO THE SALE DEED HAVE N O RIGHT TO DISPOSE OF THE PROPERTY. THE ASSESSEE FURTHER CONTENDED THAT LATER ON THE ADVICE OF THE ELDERS, THE DIRECTOR OF THE COMPANY AND SHRI M.V. RAO HAD COME TO THE COMPROMISE ACCORDING TO WHICH, IT HAS PAID A COMPENSATION OF RS.20 LAKHS BY WAY OF DEMAND DRAFT DRAWN ON INDIAN OVERSEAS BANK. THE ASSESSEE FURTHER CONTENDED THAT IT HAS INCURRED EXPENDITURE OF RS.4,70,000/- IN THE PROCESS OF LITIGATION. WE FIN D FORCE IN THE ARGUMENTS OF THE ASSESSEE, FOR THE REASON THAT THE ASSESSEE HAS FILED NECESSARY EVIDENCES BEFORE CIT(A) TO PROVE THE EXIS TENCE OF DISPUTE ON THE PROPERTY. WE FURTHER OBSERVED THAT THE ASSESSE E HAS PAID COMPENSATION OF RS.20 LAKHS THROUGH DEMAND DRAFT DR AWN ON INDIAN OVERSEAS BANK. THE CIT(A) AFTER CONSIDERING THE RE LEVANT DOCUMENTS HAS DIRECTED THE A.O. TO ALLOW A SUM OF RS.22 LAKHS OUT OF RS.24,70,000/- CLAIMED BY THE ASSESSEE TOWARDS EXPE NSES OF TRANSFER BEING COMPENSATION PAID FOR RESOLVING DISPUTE AND A LSO EXPENSES OF LITIGATION. WE DO NOT FIND ANY ERROR IN THE ORDER O F THE CIT(A). HENCE, WE INCLINED TO UPHOLD THE CIT(A) ORDER AND REJECT T HE GROUND RAISED BY THE REVENUE. 16. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IN ITA NOS.7 & 8/VIZAG/2012 FOR THE ASSESSMENT YEARS 2007-08 & 200 8-09 AND THE ITA NO.7&8/VIZAG/2012 & CO NOS.9 & 10/VIZAG/2012 M/S. M. VENKATESWARA RAO & CO., GUNTUR 17 CROSS OBJECTIONS FILED BY THE ASSESSEE IN ITA NOS.9 & 10/VIZAG/2012 ARE DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT O N 28 TH APR17. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 28.04.2017 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT THE ITO, WARD-2(1), GUNTUR 2. / THE RESPONDENT M/S. M. VENKATESWARA RAO & CO., TOBACCO EXPORTERS (P) LTD., AMARAVATHI ROAD, GUNTUR 3. + / THE CIT, GUNTUR 4. + ( ) / THE CIT (A), GUNTUR 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY //