M/SO. COLUMBUS OVERSEAS LLP, JAIPUR V. ACIT, CIRCLE-1, JAIPUR

ITA 104/JPR/2020

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 8263 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: B
• Assessment Year: 2016-2017
• Appeal Filed On: 26-01-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Gift; Principle of natural justice; Fair market value
• Section: 37; 154; 43CA; 143(3); 50C; 40(b); 142(1); 143(2); 44AB; 48; 22; 20

Judgement Text

vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,’B’ JAIPUR Jh laanhi xkslkbZ] U;kf;d lnL; ,oa Jh jkBkSM deys’k t;arHkkbZ] ys[kk lnL; ds le{k BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA No. 104/JP/2020 fu/kZkj.k o"kZ@Assessment Year :2016-17 M/s Columbus Overseas LLP 16, Raja Park, Adarsh Nagar, Jaipur cuke Vs. Assistant Commissioner of Income Tax, Circle-1, Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAJFC 9914 C vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Sh. S.L. Poddar (Adv.) jktLo dh vksj ls@ Revenue by : Smt. Runi Pal (Addl.CIT) lquokbZ dh rkjh[k@ Date of Hearing : 04/05/2022 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 12/07/2022 vkns'k@ ORDER PER: RATHOD KAMLESH JAYANTBHAI, A.M. This appeal is filed by the assessee aggrieved from the order of the Commissioner of Income Tax (Appeal)-1, Jaipur [ Here in after referred as Ld. CIT(A) ] for the assessment year 2016-17 dated 22.01.2020 which in turn arises from the order passed by the ACIT, Circle-1, Jaipur passed under Section 143(3) of the Income tax Act, 1961 (in short 'the Act') dated 22.12.2018. ITA No. 104/JP/2020 M/s Columbus Overseas LLP, Jaipur vs. ACIT, Jaipur 2 2. The hearing of the appeal was concluded through audio- visual medium on account of Government guidelines on account of prevalent situation of Covid-19 Pandemic, both the parties have placed their written as well as oral arguments during this online hearing process. 3. The grounds raised by the assessee in ITA No. 104/JPR/2020 are as under:- “1. Under the facts and circumstances of the case the learned CIT(A) erred in sustaining the addition of Rs. 1,60,18,918/- u/s 40(b) of the Income Tax Act, 1961 on account of interest payment to partners without considering the reply of the assessee that the assessee has debited only 12% interest in cost calculated for the purpose of computing profits of the concern. 2. Under the facts and circumstances of the case the learned CIT(A) erred in confirming the addition of Rs. 10,72,932/- u/s 43CA of the Income Tax Act, 1961 without considering the reply of the assessee and without referring to the DVO. (3) Under the facts and circumstances of the case the learned CIT(A) erred in sustaining the addition of Rs. 1,18,807/- u/s 37 of the Income Tax Act 1961 by disallowing various expenditure on account of interest payment on statutory liabilities. 4. Under the facts and circumstances of the case the learned CIT(A) erred in confirming the addition of Rs. 3,25,000/- on account of VAT composition provision. 5. Under the facts and circumstances of the case the learned CIT(A) erred in confirming the addition of Rs. 3,33,358/- on account of foreign travelling expenses. 6. The assessee craves your indulgence to add amend or alter all or any grounds of appeal before or at the time of hearing.” 4. During the course of hearing the ld. AR appearing on behalf of the assessee submitted that he is not pressing ground no. 3 to 6 ITA No. 104/JP/2020 M/s Columbus Overseas LLP, Jaipur vs. ACIT, Jaipur 3 thus, the same is not required to be adjudicated as not contested and thus the same are dismissed. He stated that he intends to contest only ground no. 1 & 2 only. 5. The facts as culled out from the records is that the assessee is a limited liability partnership and has filed its return of income (e- return) on 29.09.2016 declaring total income at Rs. 56,68,460/- for the year under consideration. The case was selected for scrutiny assessment through CASS under complete scrutiny and accordingly notices u/s. 143(2) of the Act was issued. The assessee is mainly engaged in the business of real estate developers. 5.1 On examination of submission of the assessee some discrepancies have been emerged and after verifying the submission of the assessee. The assessing officer has made an addition of Rs. 2,73,79,564/- which has been reduced to Rs. 1,60,18,917/- after considering the application of the assessee u/s. 154 of the Act. In an appeal before the ld. CIT(A) the said addition was confirmed and the ld. CIT(A) has observed as under :- “(xii) From the above account statements, it is seen that while filling return of income, the appellant has adopted profit from profit and loss account at Rs. 44,46,276/-. In the computation of income, the appellant has added interest to the partners at Rs. 5,16,95,795/- and equal amount has been reduced, thus, effect of such addition and deduction is Nil. In other words, no disallowance on account of excess interest is reflected in computation of income. On further examination of profit and loss account, it is seen that the appellant has claimed expenses at Rs. 16,75,63,547/- on the basis of Schedule-17. The appellant has further reduced the above quantum of ITA No. 104/JP/2020 M/s Columbus Overseas LLP, Jaipur vs. ACIT, Jaipur 4 expenditure on account of difference in opening and closing stock amounting to Rs. 11,30,27,413/- as per Schedule-18. Thus, the appellant has worked out the income on the basis of total expenses and difference in stock. [ emphasis supplied ] (xiii) On examining the Schedule-17 regarding total expenditure claimed, it is seen that the e above expenditure includes financial expenditure amounting to Rs. 8,29,39,802/-. The above financial expenditure includes interest paid to partners at Rs. 5,16,95,795/- as appearing in Schedule-20 of the above accounts. In other words, while claiming the expenditure, the appellant has considered full amount of interest payment to the partners at Rs. 5,16,95,795/- without giving any consideration on account of excess interest payment. Had the working of interest at 12% rate been considered, then the above figure would have been Rs. 3,56,76,877/-in profit and loss account. of Rs. 5,16,95,795/-. Thus, excess interest has been claimed in (xiv) The appellant's contention that the excess interest has been considered while working out the stock is also examined. It is seen that in the profit and loss account, the difference in stock in trade has been taken at Rs. 11,30,27,413/- as per Schedule-18 of the accounts. In the Schedule-18, the closing stock has been taken at Rs. 42,41,06,440/-. The above figure is coming from the working of closing stock computed as per percentage completion method. In the above working, the total cost of the project has been taken at Rs. 83,80,44,851/- which is coming from total cost incurred upto 31.03.2016. In the above working, the total cost incurred was worked out at Rs. 85,40,63,769/- which was further reduced by an amount of Rs. 1,60,18,918/- on account of excess interest paid to the partners. In other words, while working out the closing stock position, the appellant has reduced the excess interest paid to the partners and worked out the closing stock correctly but this has not impacted the excess expenditure claimed in the profit and loss account under the head 'expenditure on construction'. As per accounting principles, the effect of such excess claim was required to given in both the heads i.e. expenses claimed and difference in stock. [ emphasis supplied ] (xv) From the above discussion, it can be seen that in profit and loss account, the appellant has taken the closing stock correctly, however, effect of excess interest expenses has not been given in total expenditure claimed in profit and loss account. Thus, it has resulted in claim of interest expenses of Rs. 5,16,95,795/- in place of allowable interest expenses of Rs. ITA No. 104/JP/2020 M/s Columbus Overseas LLP, Jaipur vs. ACIT, Jaipur 5 3,56,76,877/-. In other words, the appellant has claimed excess interest expense of Rs. 1,60,18,918/-. The AO after rectifying the assessment order has also disallowed excess interest expenses amounting to Rs. 1,60,18,918/- only. Thus, the AO has disallowed interest expenses correctly as per provisions of law. The ground raised by the appellant is dismissed.” [ emphasis supplied ] 5.2 In addition to the above addition the ld. AO has made an addition of Rs. 10,72,932/- as the assessee has violated the provisions of section 43CA of the Act as sale deed was made on less value from DLC value so adopted by the stamp duty authority endorsed in sale deed of Rs. 91,11,432/- whereas the face value was taken of Rs. 80,38,500/- and thus the assessee did not add back difference amount to its total income. Thus, the difference amount of DLC value and Face Value of Rs. 10,72,932/- was added by the assessing officer. In an appeal before the ld. CIT(A) the said addition was confirmed and the ld. CIT(A) has observed as under :- “(iv) The appellant filed the reply of the above show cause on 19.12.2018, however, no reply was given regarding the above specific query. Thus, it cannot be said that the proper opportunity was not provided to the appellant. The proviso of section 50C(2) of the Act comes into play only when the assessee claims before the AO that the value adopted or assessed by the stamp valuation authority exceeds the fair market value of the property. However, in the case of the appellant, no such claim was made before the AO. The provision of section 43CA of the Act specifically deals with the situation where in calculating profit from business on account of sale of land/building, the value adopted by the stamp valuation authority is considered as full value of sale consideration. In the case of the appellant, the value adopted by the stamp valuation authority was Rs. 91,11,432/-, while the appellant has taken value at Rs. 80,38,500/- in its computation of income. Thus, the AO was justified in making addition of Rs. 10,72,932/- as per provisions of section 43CA of the Act. Hence, the addition made by the AO is upheld and the ground is dismissed.” ITA No. 104/JP/2020 M/s Columbus Overseas LLP, Jaipur vs. ACIT, Jaipur 6 6. During the course of hearing the ld. AR appearing on behalf of the assessee has placed their written submission which is extracted in below in respect of the above ground taken by assessee: “The assessee is a LLP and is engaged in the business of real estate. Return of income for the year under consideration declaring total income of Rs. 56,68,460/- was filed on 29.09.2016. The Learned Assessing Officer completed the assessment u/s 143(3) of the Income Tax Act, 1961 on 22.12.2018 determining income of Rs. 3,50,46,684/- inter-alia making the following additions: - (i) Addition of Rs. 2,73,79,654/- on account of disallowance of interest paid to partners with reference to u/s 40(b) of the Income Tax Act, 1961. (ii) Addition of Rs. 10,72,932/- u/s 43CA of the Income Tax Act, 1961. (iii) Addition of Rs. 2,67,280/- u/s 37 of the Income Tax Act 1961 by disallowing various expenditure on account of interest and statutory liabilities. (iv) Addition of Rs. 3,25,000/- on account of VAT composition provision. (v) Addition of Rs. 3,33,358/- on account of foreign traveling expenses. Aggrieved with the order of the Learned Assessing Officer the assessee has preferred appeal before Learned CIT(A). The Learned CIT(A) has decided the appeal vide order dated 22.01.2020 and allowed part relief. With this background the individual grounds of appeal are discussed as under: - Ground 1- ITA No. 104/JP/2020 M/s Columbus Overseas LLP, Jaipur vs. ACIT, Jaipur 7 Under the facts and circumstances of the case the learned CIT(A) erred in sustaining the addition of Rs. 1,60,18,918/- u/s 40(b) of the Income Tax Act, 1961 on account of interest payment to partners without considering the reply of the assessee that the assessee has debited only 12% interest in cost calculated for the purpose of computing profits of the concern. 1. Facts of the case: - (i) In this case return of income was filed on 29.09.2016 declaring income of Rs. 56,68,460/- A copy acknowledgment of return along with computation of income is available on paper book page no 20 to 23. (ii) During the year under consideration the assesse has claimed interest of Rs. 51,695,795/- This interest include interest on capital account @12% totaling to Rs. 36,39,041/- and interest on current account @18% totaling to Rs. 48,056,754/- thus both totaling to Rs. 51,695,795/- A copy of the audited accounts reflecting the afore said calculation of interest paid to partners (page 33) is available on paper book page no. 24 to 53. (iii) The partners have been paid interest as under: - Name of the partner Amount of Interest paid @12% on Capital Amount of Interest paid @18% on current A/c Total interest paid Suresh Kumar sawalka 1562770 17876649 19439419 Vinod Kumar sawalka 1488176 18414360 19902536 Vimla Sawalka 466262 7030257 7496519 Urmila Sawalka 15041 3932905 3947946 Umang Sawalka 106792 802583 909375 Total 3639041 48056754 51695795 ITA No. 104/JP/2020 M/s Columbus Overseas LLP, Jaipur vs. ACIT, Jaipur 8 Calculation Sheet of Interest in respect of each partner on day to day bases is available on paper book page number cited supra. (iv) During the course of assessment proceedings the learned assessing officer noticed that claim of interest in excess of 12% was not allowable with reference to the provisions of section 40(b) of the Income Tax Act, 1961 and hence interest amounting to Rs. 2,73,79,564/- has been disallowed out of total claim of interest of Rs. 5,16,95,795/-. (v) It is submitted that the addition made by the learned Assessing Officer on account of disallowance of interest is unlawful and unjust. The learned Assessing Officer has made the addition as he failed to appreciate the facts of the case in proper perspective. During the course of assessment proceeding the assessee made a detailed submission under letters dated 01.11.2018. Copy of this letter is available on paper book page no. 54 to 55. (vi) It is submitted that the books of accounts of the assessee are audited u/s 44AB. A copy of audited accounts and report in from no. 3CD are available paper book page cited supra. In the audit report the auditors have not made any adverse remark regarding the working of interest or the payment of interest to partners both on capital as well as current account. As is obvious from the audited P & L account the assessee has not been claiming the payment of interest to partners in the P&L account on the other hand the assessee has accounted for the payment of interest of Rs. 5,16,95,795/- in the financial cost of building. The is apparent from the grouping of the balance sheet (No. 20). Thus the assessee has in fact claimed the payment of interest as cost of construction and has thus accounted for the same in the construction account. This has increased the cost of construction accordingly. (vii) The additions during the year towards cost of construction are of Rs. 854,063,769/- which included the aforesaid payment of Rs. 5,16,95,795/-. This is as per audited accounts available on paper book page no supra. The assesse after claiming the interest @18% on current account has reversed the excess interest over and above @12% that is @6%. Thus an amount of Rs. 16,018,918/- being equivalent to 6% i.e. 1/3rd of 18% has been reduced from the cost of construction and thus in place of Rs. 854,063,769/- cost of construction has been reduced to Rs. 83,80,44,851/-. It is repeated that it was only ITA No. 104/JP/2020 M/s Columbus Overseas LLP, Jaipur vs. ACIT, Jaipur 9 on current account that interest @ 18% was paid to partners which amounted to Rs. 4,80,56,754/-. When interest is allowed @ 12% on the current accounts the claim would be restricted to Rs. 3,56,76,877/- including payment of interest @ 12% of capital account of Rs. 36,39,041/- resulting in disallowance of Rs. 1,60,18,918/-. (51695795- 35676877). The above facts stand corroborated by the final accounts duly audited, copy of which is available on paper book page number cited supra. (viii) Thus the excess claim of interest by 6% i.e. restricting the payment to 12% as against 18% on current account which amounted to Rs. 1,07,18,918/- has been indirectly disallowed by reducing the cost of construction by the same amount. By reducing the cost of construction the assesse stands to increase its profits in the same ratio in the books of accounts so maintained. Considering the aforesaid position when the assessee suo-moto has disallowed the interest by reducing the cost of construction, there was no case with the learned Assessing Officer for disallowing interest and making addition of Rs. 2,73,79,654/- (correctly works out to Rs. 1,60,18,918/-. (ix) It is further submitted the interest in excess of @12% on current account comes to Rs. 16,018,918/- and the assesse has reduced the cost of construction by this amount. This means reducing of the value of stock to same extent. It directly results in profits in the hand of the assesse to the same extent and there is no loss to the revenue by adopting of this method by the assessee. The action of the leaned Assessing Officer in making addition of Rs. 2,73,79,654/- by disallowing interest in excess of 12% has resulted in double addition because the assessee had already had carried the fact of disallowance by way of reducing the cost of construction. (x) It is further submitted for the purposes of clarification that interest has been paid to partners @18% on current account so that the balances in the hands of the partners remain positive and reflect a sound financial position as against negative figures which affect the financial position of partners in business circle particularly before banks. In any case the action of the assesse has not resulted in any loss to the revenue. Therefore, the addition made by the learned Assessing Officer deserves to be deleted. ITA No. 104/JP/2020 M/s Columbus Overseas LLP, Jaipur vs. ACIT, Jaipur 10 However, the learned AO on being filing of application u/s 154 of the Income Tax Act, 1961 has reduced the addition of Rs. 2,73,79,654/- to the extent of Rs. 1,13,60,737/- and restrict the addition of Rs. 1,60,18,917/- against total addition of Rs. 2,73,79,654/-. The Learned CIT(A) has rejected the claim of the assessee by mentioning that effect of excess interest expenses has not been given in total expenditure claimed in profit and loss account. In this regard our submission is that the assessee is showing profit on percentage completion method and the cost of WIP and Stock has been reduced by the excess interest payment. Therefore there is no question of again disallowing the excess interest payment from the computation of the income out of profit as per profit & loss account. Therefore the Learned CIT(A) has wrongly rejected the claim of the assessee which deserve to be deleted. Ground 2- Under the facts and circumstances of the case the learned CIT(A) erred in confirming the addition of Rs. 10,72,932/- u/s 43CA of the Income Tax Act, 1961 without considering the reply of the assessee and without referring to the DVO. 1. Facts of the case: - The Learned Assessing Officer has made the aforesaid addition of Rs. 10,72,932/- as per para 6 and 7 of the assessment order. The addition has been made with reference to provisions of section 43CA. It is the case of the Learned Assessing Officer that the assessee sold immovable property Shivgyan Laxura for an apparent consideration of Rs. 80,38,500/- whereas the registration authority for the purposes of stamp duty adopted the value at Rs. 91,11,432/- and thus as pe`r the Learned Assessing Officer there was under statement of Rs. 10,73,932/- and as such the same has been added with reference to the provisions of section 43CA. The action of the Learned Assessing Officer is not in accordance with law. The learned Assessing Officer has made the addition Straight way without affording any opportunity to the assesse on this issue. Thus the action of the learned Assessing Officer is against the principles of equity and justice. No addition could have been made without providing adequate opportunity to the assesse. The following case laws are quoted in support: - ITA No. 104/JP/2020 M/s Columbus Overseas LLP, Jaipur vs. ACIT, Jaipur 11 (i) Gargi Din Jwala Prasad v. CIT [1974] 96 ITR 97 (All.). Principles of natural justice are applicable - The principles of natural justice are applicable to assessment proceedings. The elementary principle of natural justice is that the assessee should have knowledge of the material which is going to be used against him so that he may be able to meet it – (ii) Tin Box Co. v. CIT [2001] 116 Taxman 491 (SC). When opportunity of hearing was not properly given - Where the Tribunal had recorded that it agreed with the assessee’s submission that the ITO had not given to the assessee proper opportunity of being heard, the Tribunal would not be justified in not setting aside the assessment order and remanding the matter to the assessing authority for fresh consideration after giving opportunity of hearing to the assessee. (iii) Dwijendra Kumar Bhattacharjee V Superintendent of Taxes (1990) 78 STC 393 (Gau.) Opportunity must be real and effective : The opportunity given to the assessee to be heard must be real and reasonable. If an assessee, who is asked to furnish certain particular or submit explanations within a specified time, prays for further time stating his difficulties and/or reasons, his prayer should be considered judiciously. Sometimes, proceedings for assessment for a number of years are taken up together and the assessee asked to appear and produce evidence in support of his returns. It might not be possible for the assessee to submit such evidence instantaneously or at short notice, and may pray for further time to do so. Such prayers cannot be summarily rejected without considering the ground given by the assessee merely because the assessing officer is hard-pressed for time and has to complete the assessment by a specified date or for administrative expediency. Such a rejection would amount to denial of reasonable opportunity of hearing to the assessee and vitiate the assessment." ITA No. 104/JP/2020 M/s Columbus Overseas LLP, Jaipur vs. ACIT, Jaipur 12 (iv) Heirs and LRs of Late Laxmanbhai S. Patel Vs. CIT (Guj) (2009) 222 CTR 138 Legal effect of the statement recorded behind the back of the assesses and without furnishing the copy thereof to the assessee or without giving an opportunity of cross-examination, is that if the addition is made, the same is required to be deleted on the ground of violation of the principles of natural justice. Further the action of the learned Assessing Officer has violated the statutory procedure late down in the provisions of section 43CA read with section 50C(2) which required the Learned Assessing Officer to refer the issue of valuation to DVO. The provisions of section 43CA and section 50C(2) are quoted below - Special provision for full value of consideration for transfer of assets other than capital assets in certain cases – 43CA. (1) Where the consideration received or accruing as a result of the transfer by an assessee of an asset (other than 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, the value so adopted or assessed or assessable shall, for the purposes of computing profits and gains from transfer of such asset, be deemed to be the full value of the consideration received or accruing as a result of such transfer: 56a [Provided that where the value adopted or assessed or assessable by the authority for the purpose of payment of stamp duty does not exceed one hundred and five per cent of the consideration received or accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer shall, for the purposes of computing profits and gains from transfer of such asset, be deemed to be the full value of the consideration.] (2) The provisions of sub-section (2) and sub-section (3) of section 50C shall, so far as may be, apply in relation to determination of the value adopted or assessed or assessable under sub-section (1). ITA No. 104/JP/2020 M/s Columbus Overseas LLP, Jaipur vs. ACIT, Jaipur 13 (3) Where the date of agreement fixing the value of consideration for transfer of the asset and the date of registration of such transfer of asset are not the same, the value referred to in sub-section (1) may be taken as the value assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer on the date of the agreement. (4) The provisions of sub-section (3) shall apply only in a case where the amount of consideration or a part thereof has been received 57 [by way of an account payee cheque or an account payee bank draft or by use of electronic clearing system through a bank account] on or before the date of agreement for transfer of the asset. SECTION 50C 50C. (1) Where the consideration received or accruing as a result of the 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 a State Government (hereafter in this section referred to as the "stamp valuation authority") for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer : Provided that where the date of the agreement fixing the amount of consideration and the date of registration for the transfer of the capital asset are not the same, the value adopted or assessed or assessable by the stamp valuation authority on the date of agreement may be taken for the purposes of computing full value of consideration for such transfer: Provided further that the first proviso shall apply only in a case where the amount of consideration, or a part thereof, has been received by way of an account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account, on or before the date of the agreement for transfer: 75a [Provided also that where the value adopted or assessed or assessable by the stamp valuation authority does not exceed one hundred and five per cent of the consideration received or accruing as a result of the transfer, the consideration so received or accruing as a ITA No. 104/JP/2020 M/s Columbus Overseas LLP, Jaipur vs. ACIT, Jaipur 14 result of the transfer shall, for the purposes of section 48, be deemed to be the full value of the consideration.] (2) Without prejudice to the provisions of sub-section (1), where— (a) the assessee claims before any Assessing Officer that the value adopted or assessed or assessable by the stamp valuation authority under sub-section (1) exceeds the fair market value of the property as on the date of transfer; (b) 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 Officer may refer the valuation of the capital asset to a Valuation Officer and where any such reference is made, the provisions of sub-sections (2), (3), (4), (5) and (6) of section 16A, clause (i) of sub- section (1) and sub-sections (6) and (7) of section 23A, sub-section (5) of section 24, section 34AA, section 35 and section 37 of the Wealth- tax Act, 1957 (27 of 1957), shall, with necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the Assessing Officer under sub-section (1) of section 16A of that Act. Explanation 1.—For the purposes of this section, "Valuation Officer" shall have the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957). Explanation 2.—For the purposes of this section, the expression "assessable" means the price which the stamp valuation authority would have, notwithstanding anything to the contrary contained in any other law for the time being in force, adopted or assessed, if it were referred to such authority for the purposes of the payment of stamp duty. (3) Subject to the provisions contained in sub-section (2), where the value ascertained under sub-section (2) exceeds the value 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 such authority shall be taken as the full value of the consideration received or accruing as a result of the transfer. The provisions of section 43CA require that before adopting the value of property as determined by the state government for the purposes of stamp duty, the learned Assessing Officer shall follow the provision of ITA No. 104/JP/2020 M/s Columbus Overseas LLP, Jaipur vs. ACIT, Jaipur 15 section 50C2 which required that the Assessing Officer should refer the valuation of the capital asset to the valuation of officer if the assesse objects to the value adopted for stamp duty. In this case no opportunity was provided to the assesse before making the addition as such the question of the objection by the assesse did not arise. The Learned Assessing Officer never gave an opportunity on the issue of addition with reference to section 43CA. Even in the assessment order the Learned Assessing Officer has not stated that any opportunity was provided to the assessee specifically with reference to making addition of Rs. 10,72,932/- u/s 43CA. In the assessment order the Learned Assessing Officer has mentioned that notice u/s 142(1) was issued on 17.12.2018 for furnishing submissions on 19.12.2018 i.e. with two days of the notice. However even under this notice no query was raised on the issue of 43CA r.w.s. 50C. Hence assessee was denied to submit his defense and the addition has been made straight way without following the procedure laid down under the Act. When the Learned Assessing Officer wanted to make addition on account of difference between the value taken by the registration authority for stamp duty purposes and the apparent consideration shown in the sale deed, it was incumbent upon the Learned Assessing Officer to have referred the matter to the valuation cell. This having been not done the statutory procedure stands violated and hence the addition deserves to be deleted. The following case laws are quoted: - (i) Sunil Kumar Agarwal vs. CIT (2014) 112 DTR 164 (Cal) For the aforesaid reasons, we are of the opinion that the valuation by the departmental valuation officer, contemplated under Section 50C, is required to avoid miscarriage of justice. The legislature did not intend that the capital gain should be fixed merely on the basis of the valuation to be made by the District Sub Registrar for the purpose of stamp duty. The legislature has taken care to provide adequate machinery to give a fair treatment to the citizen/taxpayer. There is no reason why the machinery provided by the legislature should not be used and the benefit thereof should be refused. Even in a case where no such prayer is made by the learned advocate representing the assessee, who may not have been properly instructed in law, the assessing officer, discharging a quasi judicial function, has the bounden duty to act fairly and to give a fair treatment by giving him an option to follow the course provided by law. ITA No. 104/JP/2020 M/s Columbus Overseas LLP, Jaipur vs. ACIT, Jaipur 16 (ii) CHANDRA NARAIN CHAUDHRI VS CIT (2014) 99 DTR (ALL) 0105 It is mandatory on the part of the AO to make reference to Valuation Officer as per provisions of section 50C where the assessee contended that valuation as done by Stamp Valuation Authority is not acceptable to him. The decision of the AO was not correct where he held that reference to Valuation Officer is optional since the assessee had not objected to value adopted by the State Valuation Authority, there was no need to refer matter to the Valuation Officer [ Kalpataru Industries Vs. ITO ITAT No. 5540/Mum/07 decided on 24.08.2009. (iii) Raj Kumar Agarwal vs. DCIT (2014) 150 ITD 597 (ITAT Agra) Once the assessee claimed that the actual market value of the property is less then the stamp duty valuation, it was incumbent upon the Learned Assessing Officer to refer the matter of valuation to the valuation cell. 2. Value taken by stamp/Registration Authorities not to be followed as a rule of thumb - There are a number of decisions with reference to other provisions of the Income Tax Act where the courts have held that the valuation taken by the Stamp & Registration Authorities is not to be followed as a rule of thumb. The ratio of these decisions is fully application to the facts of the case and accordingly additions made on the basis of value taken by the Stamp and Registration Authority deserves to be deleted. The following case laws are quoted in support: - (i) Executive Engineer Karnataka Power Transmission Corporation Ltd. vs. Assistant Commission & Land Acquisition Officer (2010) 15 SSC 60 (Supreme Court) Consideration mentioned in the sale deed cannot be ignored. High market value cannot be inferred from higher stamp duty paid thereon. Higher stamp duty could have been paid for various reasons. In the absence of proof of under valuation it is not possible to ignore sale ITA No. 104/JP/2020 M/s Columbus Overseas LLP, Jaipur vs. ACIT, Jaipur 17 price mentioned in sale deed which is accepted for computing market value. (ii) MRS. NIRMAL LAXMINARAYAN GROVER vs. APPROPRIATE AUTHORITY & ORS (HIGH COURT OF BOMBAY : NAGPUR BENCH) (1997) 223 ITR 0572 : Purchase of immovable property—Fair market value—The test is of a prudent buyer and a prudent seller and the rates determined by the State Government for purpose of checking evasion of stamp duty are not a good guide (iii) COMMISSIONER OF GIFT TAX vs. R. JAWAHAR (HIGH COURT OF MADRAS) 217 ITR 0059 Valuation for stamp duty purposes by the Sub-registrar of the Properties cannot be the guiding factor for determining the value of gifted immovable property. ..... Tribunal holding that difference between returned value of gift and the value of the Sub-Registrar's is not a deemed gift—Finding of Tribunal based on an earlier judgment and also on the fact that consideration received by assessee was fair and reasonable—No referable question arises. (iv) COMMISSIONER OF GIFT-TAX vs. R. DAMODARAN (HIGH COURT OF MADRAS) (2001) 247 ITR 0698 Valuation for stamp duty purposes by the Sub-registrar of the Properties cannot be the guiding factor for determining the value of gifted immovable property..... The re-opening of the assessment was therefore invalid. The Learned CIT(A) has rejected the grounds of appeal of the assessee by mentioning that the assesses has not raised any objection for the same during the assessment proceedings. In this regard we would like to submit that during the assessment proceedings the Learned AO has not provided any opportunity to the assessee or issued any show cause notice prior to the making of addition on this account. The Learned AO has collected and gathered the information from the data and details submitted by the assessee and state away made the addition without providing any opportunity or giving any show cause notice, which is gross violation of principal of natural justice. Therefore relying on the judgement of Sunil Kumar Agarwal Vs ITA No. 104/JP/2020 M/s Columbus Overseas LLP, Jaipur vs. ACIT, Jaipur 18 CIT(2014) 112DTR164(CAL.) The whole addition deserve to be deleted. Ground 3- Under the facts and circumstances of the case the learned CIT(A) erred in sustaining the addition of Rs. 1,18,807/- u/s 37 of the Income Tax Act 1961 by disallowing various expenditure on account of interest payment on statutory liabilities. Not Pressed Ground 4- Under the facts and circumstances of the case the learned CIT(A) erred in confirming the addition of Rs. 3,25,000/- on account of VAT composition provision. Not Pressed Ground 5- Under the facts and circumstances of the case the learned CIT(A) erred in confirming the addition of Rs. 3,33,358/- on account of foreign traveling expenses. Not Pressed Ground 6- The assessee craves your indulgence to add amend or alter all or any grounds of appeal before or at the time of hearing. General in nature Your Honor is requested to decide the appeal in favour of the assessee by considering the above submission and oblige.” 6.1 In addition to the above written argument the ld. AR of the assessee submitted that the book of accounts are audited by an independent chartered accountant and the tax auditor has already ITA No. 104/JP/2020 M/s Columbus Overseas LLP, Jaipur vs. ACIT, Jaipur 19 pointed out the fact that for the excess interest thought claimed in the ledger account but the excess amount is adjusted to the inventory. Even this finding has been confirmed by the ld. CIT(A) but he has merely based on the fact the same is not reduced from the ledger account confirmed the addition. The ld. AR of the assessee submitted that the assessee is following project completion method and the profit is accordingly offered in the year under consideration as well as in past years and the department has not objected this method of accounting. Merely the excess interest is not reduced from the ledger, though it is adjusted in the cost as agreed by the ld. CIT(A) and reported by the tax auditor the addition sustained by the ld. CIT(A) is not proper. He has read the finding of the ld. CIT(A) on page 22 to 24 and drawn our attention that on the one hand CIT(A) agrees that the assessee has adjusted the cost and on the other hand he confirmed the addition of the AO which is nothing but the double disallowance. He has also argued that revenue has not challenged the findings of the ld. CIT(A) and thus, the same is in accordance with the contentions of the assessee and the addition sustained has no basis and required to be delted. 7. Per Contra, the ld. DR has argued that as regards the excess claim of interest @ 6 % he relied on the findings given in the orders of the lower authorities. As regards the addition made u/s. 43CA the ld. DR submitted that the assessee was given an opportunity during the assessment proceeding and show cause notice was issued to the assessee and he has chosen to remain silent at that ITA No. 104/JP/2020 M/s Columbus Overseas LLP, Jaipur vs. ACIT, Jaipur 20 point of time and now once the assessment is completed the assessee cannot take a plea that they have not been given an opportunity of being heard in the matter. Thus, he has submitted that the contentions of the ld. AR are not tenable on this ground and he has heavily relied upon the orders of the lower authorities on this issue too. 8. We have heard the rival contentions, perused the material available on record and case laws cited by both the parties. It is not disputed that the assessee is regularly assessed to tax and the method of capitalizing interest in the cost of construction is not even not disputed in the earlier years. The assessee has supported his contention by filling the detailed calculation showing that excess claim is considered while computing the stock valuation and the same is confirmed by the ld. CIT(A). This fact is also confirmed by the ld. CIT(A) and we have extracted the findings of the ld. CIT(A) in para 5.1 above, where in at three places the ld. CIT(A) has confirmed that the assessee has given the treatment of the excess interest in the closing stock. The relevant finding of the ld. CIT(A) is at page 22 to 24 in para (xii) to (xv). The said findings of the ld. CIT(A) have not been challenged by the department by filling a separate cross objection and even in the hearing the ld. DR has not pin pointed the said treatment explained in the working filed in the paper book by the assessee. On the other hand, ld. AR of the assessee relying on the findings of the ld. CIT(A) submitted that once the department has accepted that the assessee has given the effect while reducing of the value ITA No. 104/JP/2020 M/s Columbus Overseas LLP, Jaipur vs. ACIT, Jaipur 21 of stock to the same amount, and the department has accepted this fact the separate addition will double the disallowance. The ld. CIT(A) has also confirmed that in the computation of income the interest of partner is added and deducted and thus, the effect while preparing the computation of income is nil and there is no loss of revenue as verified and contended by the ld. CIT(A). Thus, when the assessee has separately adjusted that excess interest while working out the closing inventory and this fact categorically confirmed in the findings of the ld. CIT(A) in his order, we do not find any merit for sustaining the addition merely the assessee has not given effect in the interest account. As rightly argued by the ld. AR of the assessee that if it is to be done so by the assessee then in that case it will result in double addition of that figure one in the interest account and another in inventory holding. The ld. AR heavily relied on findings of the ld. CIT(A) which is also not contradicted by the ld. DR Para (xiv) page 23 of ld. CIT(A) order (xiv) The appelant’s ..........................................method. In the above working, the total cost incurred was worked out at Rs. 85,40,63,769/- which was further reduced by an amount of Rs. 1,60,18,918/- on account of excess interest paid to the partners. In other words, while working out the closing stock position, the appellant has reduced the excess interest paid to the partners and worked out the closing stock correctly but this has not impacted the excess expenditure claimed in the profit and loss account under the head 'expenditure on construction'. Para (xv) page 24 of ld. CIT(A) order “(xv) From the above discussion, it can be seen that in profit and loss account, the appellant has taken the closing stock correctly, however, effect of excess interest expenses has not been given in total expenditure claimed in profit and loss account. .......” ITA No. 104/JP/2020 M/s Columbus Overseas LLP, Jaipur vs. ACIT, Jaipur 22 Thus, it is clearly that the contention of the assessee that the excess interest is adjusted while working out the closing inventory is confirmed by the ld. CIT(A) and is not disputed before us by ther revenue. The ld. AR of the assessee also cited the Annexure C (Page 47 & 48 of assessee paper book ) of the Tax Audit report annexure carried out as per provision of section 44AB of the act, where in the tax auditor has also confirmed this treatment that the excess interest claim has been corresponding reduction in cost of construction. This has not been challenged or discussed by the lower authorities. Merely the said adjustment not done in the profit & loss account the double disallowance cannot be made. Even the ld. CIT(A) has also confirmed that in the computation of income the same is disallowed and allowed giving it the effect as Nil. In terms of these observations the ground no. 1 raised by the assessee is allowed. 9. As regards the ground no. 2 where in the assessee agitated the addition of Rs. 10,72,932/- u/s. 43CA of the Act. The ld. AR of the assessee stated that lower authorities not granted an opportunity and not considered the contentions of the assessee not only that the matter was not sent to DVO for the alleged difference in valuation of the property. 9.1 In this regard we have persuaded the order of the lower authorities where in it was stated that the assessee was given an opportunity to substantiate the difference at the time of assessment proceedings by raising the specific query and at that ITA No. 104/JP/2020 M/s Columbus Overseas LLP, Jaipur vs. ACIT, Jaipur 23 time the assessee has not raised the claim that the matter may be referred to DVO and the assessee choose to remain silent. 9.2 The proviso to section 50C(2) of the Act comes into play only when the assessee claims before the AO that the value adopted or assessed by the stamp valuation authority exceeds the fair market value of the property and in the instant case no such claim was made before the AO. The provision of section 43CA of the Act deals that the provisions of sub-sections (2) and (3) of section 50C shall, so far as may be, apply in relation to determination of the value adopted or assessed or assessable under sub-section(1). It would be better to have extract for the sake brevity about the provision of section 50C(2) : (2) Without prejudice to the provisions of sub-section (1), where— (a) the assessee claims before any Assessing Officer that the value adopted or assessed or assessable by the stamp valuation authority under sub-section (1) exceeds the fair market value of the property as on the date of transfer; (b) 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 Officer may refer the valuation of the capital asset to a Valuation Officer and where any such reference is made, the provisions of sub-sections (2), (3), (4), (5) and (6) of section 16A, clause (i) of sub-section (1) and sub-sections (6) and (7) of section 23A, sub-section (5) of section 24, section 34AA, section 35 and section 37 of the Wealth-tax Act, 1957 (27 of 1957), shall, with necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the Assessing Officer under sub-section (1) of section 16A of that Act. ITA No. 104/JP/2020 M/s Columbus Overseas LLP, Jaipur vs. ACIT, Jaipur 24 Explanation 1.—For the purposes of this section, "Valuation Officer" shall have the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957). Explanation 2.—For the purposes of this section, the expression "assessable" means the price which the stamp valuation authority would have, notwithstanding anything to the contrary contained in any other law for the time being in force, adopted or assessed, if it were referred to such authority for the purposes of the payment of stamp duty. Thus, it is clear from the above provision of the law that the assessee has to claim that the value adopted or assessed or assessable by the stamp valuation authority exceeds the fair market value of the property as on the date of transfer. In the present case the ld. AR of the assessee not placed any evidence that the claim was placed before the ld. AO. All the decision relied upon are applicable where the assessee make a claim and not considered by the lower authority and in that the case the courts have held that the addition made without giving an opportunity to the assessee is not sustainable whereas in this case the assessee has chosen to remain silent on the issue. The relevant finding of the ld. CIT(A) is extracted in the matter to under the correct facts before the lower authorities: “(ii) During the appellate proceedings, it was contended that the AO has not provided the sufficient opportunity to the appellant to offer its explanation. It was also submitted that the AO was required to refer the matter to DVO as per provisions of section 50C(2) of the Act. (iii) I have duly considered the submissions of appellant, assessment order and the material placed on record. On examination of assessment record, it is seen that vide letter dated 17.12.2018, the ITA No. 104/JP/2020 M/s Columbus Overseas LLP, Jaipur vs. ACIT, Jaipur 25 AO issued the show cause to the appellant whereby specific issue regarding difference in value was raised as under:- “i It has been noticed that the sales consideration of property shown in return of income is less than sales consideration reported in form 26QB, therefore, you are requested to show cause, in written along with a copy of all sales deed, sales agreement made during the year and other documentary evidences against the claim of all deductions, if any, as to why the addition may not be made in your case.” (iv) The appellant filed the reply of the above show cause on 19.12.2018, however, no reply was given regarding the above specific query. Thus, it cannot be said that the proper opportunity was not provided to the appellant. The proviso of section 50C(2) of the Act comes into play only when the assessee claims before the AO that the value adopted or assessed by the stamp valuation authority exceeds the fair market value of the property. However, in the case of the appellant, no such claim was made before the AO. The provision of section 43CA of the Act specifically deals with the situation where in calculating profit from business on account of sale of land/building, the value adopted by the stamp valuation authority is considered as full value of sale consideration. In the case of the appellant, the value adopted by the stamp valuation authority was Rs. 91,11,432/-, while the appellant has taken value at Rs. 80,38,500/- in its computation of income. Thus, the AO was justified in making addition of Rs. 10,72,932/- as per provisions of section 43CA of the Act. Hence, the addition made by the AO is upheld and the ground is dismissed.” The ld. AR of the assessee reiterated the submissions raised before the lower authorities and has not countered the finding that this issue has never been raised before the assessing officer and assessee has given their reply on this very specific issue without contending the valuation as per their letter dated 19.12.2018 filed before the AO. In the absence of any cogent evidence placed before us we do not find any reasons to depart on the findings of ITA No. 104/JP/2020 M/s Columbus Overseas LLP, Jaipur vs. ACIT, Jaipur 26 the orders of the lower authorities and thus, this ground no. 2 of the assessee is dismissed. In the result the appeal of the assessee is partly allowed. Order pronounced in the open Court on 12/07/2022. Sd/- Sd/- ¼ lanhi xkslkbZ ½ ¼ jkBkSM deys’k t;arHkkbZ ½ (Sandeep Gosain) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@ Jaipur fnukad@Dated:- 12/07/2022 *Ganesh Kr. vkns'k dh izfrfyfi vxzsf’kr@Copy of the order forwarded to: 1. vihykFkhZ@The Appellant- M/s Columbus Overseas LLP, Jaipur 2. izR;FkhZ@ The Respondent- ACIT, Circle-01, Jaipur 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur. 6. xkMZ QkbZy@ Guard File {ITA No.104/JP/2020} vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar