M/s. Patel Crate & Container, Ahmedabad V. The Income tax Officer,Vapi Ward-2, Vapi

ITA 1253/AHD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 76910 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-07-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 09-07-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 28-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S N DIVETIA
• Assessee Lawyers: B L YADAV
• Keywords: Bogus purchase; Sale consideration of property below Jantri Value; Depreciation; Proportionate interest; Cost of acquisition; Fair market value; Competent authority
• Section: 143(3); 50C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL C HATURVEDI, A.M.) I.T. A. NO. 1156 & 1253/AHD/2011 (ASSESSMENT YEAR: 2007-08) INCOME-TAX OFFICER, VAPI WARD-2, VAPI. V/S M/S. PATEL CRATE AND CONTAINER, 69/4/1, NAROLI ROAD, VILLAGE ATHAL. SILVASSA U.T. OF D & N. H. (APPELLANT) (RESPONDENT) M/S. PATEL CRATE AND CONTAINER, 69/4/1, NAROLI ROAD, VILLAGE ATHAL. SILVASSA U.T. OF D & N. H. V/S INCOME-TAX OFFICER, VAPI WARD-2, VAPI. (APPELLANT) (RESPONDENT) PAN: AAFFP7868N APPELLANT BY : SHRI B.L. YADAV, SR. D.R. RESPONDENT BY : SHRI S.N. DIVETIA ( )/ ORDER DATE OF HEARING : 09-07-201 4 DATE OF PRONOUNCEMENT : 18 -07-2014 PER SHRI ANIL CHATURVEDI,A.M. 1. THESE TWO APPEALS, ONE FILED BY THE ASSESSEE AND THE OTHER FILED BY THE REVENUE ARE AGAINST THE ORDER OF CIT(A), VALSAD DAT ED 31.12.2010 FOR A.Y. 2007-08. 2. THE FACTS AS CULLED OUT FROM THE MATERIAL ON REC ORD ARE AS UNDER. ITA NOS. 1156 & 1253/AHD/2011 . A.Y. 2007- 08 2 3. ASSESSEE IS A PARTNERSHIP FIRM STATED TO BE ENGA GED IN THE BUSINESS OF MANUFACTURING AND TRADING OF PLASTIC MOULDED INDUST RIAL ITEMS FROM PLASTIC GRANULES. ASSESSEE ELECTRONICALLY FILED ITS RETURN OF INCOME FOR A.Y. 07-08 DECLARING TOTAL INCOME OF RS. NIL. THE CASE WAS SEL ECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED UNDER SECTION 143(3) VIDE ORDER DATED 30.12.2009 AND THE TOTAL INCOME WAS DETERMINED AT R S. 30,17,633/-. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER, ASSESS EE CARRIED THE MATTER BEFORE CIT(A). CIT(A) VIDE ORDER DATED 31.12.2010 G RANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE AS WELL AS ASSESSEE ARE NOW IN APPEAL BEFORE US. 4. THE GROUNDS RAISED BY THE REVENUE READS AS UNDER :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.38,21,394/- BY HOLDING THAT CONSTRUCTION CAN BE CONTINUED EVEN AFTER DATE OF COMPLETION CERTIFICATE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF PROPORTIONATE INTEREST EXPENSES RS. 2,10,739/- BY HOLDING THAT THE SAID EXPENSE WAS ACTUALLY UTILIZED FOR THE BUSINESS PURPOSE. 5. THE EFFECTIVE GROUNDS RAISED BY THE ASSESSEE REA DS AS UNDER:- 2.1 THE LD CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND O N FACTS IN CONFIRMING THE LONG TERM CAPITAL GAIN ON SALE OF LAND AS WORKED OUT BY AO AT RS. 2732211. 2.2 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LD. CIT(A) OUGHT NOT TO HAV E UPHELD THE LONG TERM CAPITAL GAIN OF RS. 27,32,211 AS WORKED OUT BY AO . 3.1 THE LD CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND O N FACTS IN CONFIRMING THE SALE PRICE OF LAND AS WORKED OUT BY AO AT RS. 77,76,487. 3.2 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LD. CIT(A) OUGHT NOT TO HAV E UPHELD THE SALE PRICE OF LAND AS WORKED OUT BY AO A T RS. 77,76,487. 3.3 THE ID. CIT(A) HAS GRIEVOUSLY FAILED TO APPRECI ATE THAT NONE OF THE PROVISIONS OF THE ACT EXCEPT F OR SEC. 50C , EMPOWERED THE AO TO EITHER ESTIMATE FAIR MARKET VALUE OR SUBSTITUTE THE APPARENT SALE CONSIDERATION OF ANY IMMOVABLE PROPERTY SO THAT THE ENTIRE ACTION ON PART OF AO TO THAT EXTENT WAS WHOLLY ILLEGAL UNLAWFUL AND WITHOUT JURISDICTION. WE FIRST TAKE UP REVENUES APPEAL IN ITA NO. 1156/A HD/2011 1 ST GROUND IS WITH RESPECT TO DELETION OF ADDITION OF RS. 38,21,394/-. 6. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NOTICED THAT ASSESSEE HAD MADE ADDITION TO FACTORY BUILDING AND ON THE BA SIS OF DETAILS FILED IT WAS ITA NOS. 1156 & 1253/AHD/2011 . A.Y. 2007- 08 3 NOTICED THAT CONSTRUCTION OF NEW FACTORY BUILDING H AD CONTINUED FROM IMMEDIATELY PRECEDING YEAR UP TO THE YEAR END OF TH E CURRENT ACCOUNTING YEAR. HE ALSO NOTICED THAT BASED ON THE OCCUPANCY CERTIFI CATE ISSUED BY ASSOCIATE TOWN PLANNER, DADRA AND NAGAR HAVELI, THE BUILDING WAS COMPLETED AND IT WAS FURTHER STATED IN THE OCCUPANCY CERTIFICATE THA T NO FURTHER CONSTRUCTION WOULD BE CARRIED OUT WITHOUT OBTAINING PRIOR APPROV AL OF THE COMPETENT AUTHORITY. A.O NOTICED THAT ASSESSEE HAD INCURRED E XPENSES AFTER THE APPROVAL DATE I.E. 07.07.2006. HE ALSO NOTICED THAT THE TOTAL AMOUNT OF RS. 68,08,703/- WAS CLAIMED TO HAVE BEEN INCURRED IN TH E PREVIOUS YEAR TOWARDS NEW FACTORY BUILDING CONSTRUCTION OUT OF WHICH RS. 29,87,309/- WAS INCURRED UP TO 07.07.2006. THUS ACCORDING TO THE A.O THE DIF FERENTIAL AMOUNT OF RS. 38,21,394/- (RS. 68,08,703 RS. 29,87,309) COULD N OT HAVE BEEN EXPANDED ON THE CONSTRUCTION OF THE NEW FACTORY BUILDING. A. O WAS FURTHER OF THE VIEW THAT A DELIBERATE CONSCIOUS ATTEMPT HAS BEEN MADE B Y THE ASSESSEE TO INFLATE THE COST OF CONSTRUCTION OF NEW FACTORY BUILDING. H E AFTER ANALYZING THE MONTH- WISE SUMMARY OF LABOUR, STEEL AND CEMENT AS TABULAT ED ON PAGE 5 OF THE ORDER, CONCLUDED THAT THE FACTORY BUILDING HAS BEEN INFLATED BY PROCURING BOGUS PURCHASE OF BILLS OF LABOUR AND MATERIAL. HE ACCORDINGLY REWORKED THE COST OF BUILDING. AGGRIEVED BY THE ORDER OF A.O, AS SESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) AFTER CONSIDERING THE SUBMISS IONS OF THE ASSESSEE DELETED THE ADDITION BY HOLDING AS UNDER:- DECISION : I HAVE CAREFULLY CONSIDERED THE FINDI NGS OF THE AO AND THE SUBMISSIONS MADE BY THE ID. AR. THE AO CONTENDED THAT THE APPELLANT HAD RECEIVE D THE COMPLETION CERTIFICATE OF THE BUILDING AS EARLY AS 7.07.2006 FROM THE COMPETENT AUTHORITY AND THE APPELLANT COULD NOT HAVE EXPENDED SO MUCH AFTER THAT. FURTHER, THE AO SUSPECTED THAT THE APPE LLANT RESORTED TO SUCH DEVISE WITH AN INTENTION TO SET OFF THE CAPITAL GAIN ARISED DUE TO THE SALE OF FACT ORY LAND AND BUILDING. ON THE OTHER HAND, AS MENTIONED IN THE ABOVE PARAS, THE APPELLANT CONTEND ED THAT: I. THE APPELLANT HAD CARRIED OUT THE SAID WORK THROUGH M/S. PIONEER ENTERPRISE AND IT HAS ISSUED BILLS WITH COMPLETE DETAILS AS TO THE NATURE OF WOR K, QUANTITY, RATE ETC. THE PURCHASES OF RAW MATERIAL IS SUPPORTED BY INVOICES. THE APPELLANT HA S PRODUCED HEREWITH THE XEROX COPY OF MANY OF SUCH INVOICES TO PROVE THE PURCHASES IN QUE STION. THE LEDGER A/C. SHOWING FACTORY BUILDING, CONSTRUCTION EXPENSES ALONGWITH LEDGER A/ C. OF M/S. PIONEER ENTERPRISE IS ALSO ENCLOSED HEREWITH. II. THE TOTAL CONSTRUCTION CARRIED OUT EVEN AS PER CERT IFICATE DATED 7.7.2006 OF TOWN PLANNER, DNH, SILVASSA IS 792.29 SQ. MTR. CONSISTING OF GROU ND FLOOR-632.67 SQ.MTR., LOFT-FLOOR-159.62 SQ.MTR. THE TOTAL CONSTRUCTION COST AS PER LEDGER A /C. ENCLOSED HEREWITH WAS OF RS.8I,96,730/- WHICH IS RS. 10346;- (APPROX.) PER SQ.MTR. HOWEVER, AO HAS CONSIDERED THE COST OF RS.29,87,3O9/- AND THE COST COMES TO RS.3770/- PER SQ.MTR. FURTHER, EVEN BY REFERRING TO THE ITA NOS. 1156 & 1253/AHD/2011 . A.Y. 2007- 08 4 CPWD RATES OF CONSTRUCTION COST RELATING TO THIS PE RIOD, AS APPLICABLE TO THE VILLAGE, ATHAL, SILVASSA WILL BE MORE THAN WHAT THE AO HAD ADOPTED. III. THE APPELLANT HAD ALSO OBTAINED REPORT FROM A REGIS TERED VALUER, M/S. PARTH CONSULTANT ESTIMATING FMV AS ON 1.4.2008 SHOWING AS RS.81,37,0 00/- (EXCLUDING LAND COST). IV. THE RELIANCE PLACED BY AO ON THE OCCUPANCY CERTIFIC ATE DATED 7.7.06 TO CONTEND THAT CONSTRUCTION WORK HAD COMPLETED BY THIS DATE IS WHO LLY MISPLACED. THE AO HAS FAILED TO APPRECIATE THAT ISSUANCE OF SUCH CERTIFICATE DOES N OT MEAN THAT THE ENTIRE WORK HAS BEEN FINISHED AND NEITHER ANY PLASTER OR COLOUR WORK ETC , WOULD BE CARRIED OUT BY THE ASSESSEE. EVEN, IN THE PRESENT CASE, SAY FOR EXAMPLE, WORKS L IKE BRICK WALLS, MARBLE FRAME DOOR IN OFFICE (SEE BILL NO.27 DATED 21.2.2007) WERE CARRIED OUT A FTER THAT DATE. THE AO HAS ALSO FAILED TO APPRECIATE THAT EVEN THE MONTH-WISE SUMMARY OF LABO UR, STEEL AND CEMENT GIVEN IN THE ASSTT. ORDER, THE POST-JULY, THE SAID EXPENSES WORKS OUT T O RS6.46.671/- (RS.13,87.464 / LABOUR], + RS.4O,707 [STEEL], + RS.2,18,500 [CEMENT]). THEREFO RE, AO OUGHT NOT HAVE EXCLUDED RS.38,21,394/- FROM THE TOTAL CONSTRUCTION COST. TH E AO HAS ALSO FAILED TO APPRECIATE THAI THE BILLS OF THE LABOUR COST HAVE BEEN RECEIVED FROM PI ONEER ENTERPRISES, WHO WAS ENTRUSTED THE ENTIRE CONSTRUCTION WORK. THE PAYMENT HAS BEEN MADE BY CHEQUES FROM A/C. WITH UNION BANK OF INDIA AND EVEN TDS OF RS. 59.256/- HAS BEEN MADE THEREFROM. FROM THE FACTS AND CIRCUMSTANCES OF THE CASE WHAT E MERGES IS THAT THE AO HAD MAINLY RELIED ON THE COMPLETION CERTIFICATE ISSUED BY THE COMPETENT AUTH ORITY AND HELD THAT THE EXPENSES SHOWN BEYOND THAT DATE WERE NON-EXISTENCE. THE APPELLANT CONTENDED TH AT THE AO HAD IGNORED ALL MATERIAL FACTS TO MAKE SUCH HUGE ADDITIONS IN THIS CASE. I HAVE PERUSED THE RECORDS SUBMITTED BY THE ID. AR. LET US UNDERSTAND WHAT BENEFITS THE APPELLANT PROBABLY COULD DERIVED BY INFLATING THE COST OF THE BUILDING BY RS. 38.21,394/-? THE APPELLANT CAN CLAIM DEPRECIATIONS ON THAT AMOUNT FOR MANY YEARS AT THE RATE OF 10% PER ANNUM. WHY A PRUDENT BUSINESSMAN SHOULD LOCK UP THAT FUND TO DERIVE SPLIT BENEFITS FOR MANY YEARS IN FUTURE? ON THE OTHER HAND, THE AO HAD NOT DOUBTED THE SOURCE OF PAYMENTS. IT WAS SUBMITTED BY THE ID. AR THAT THE PAYMENTS WERE MADE THROUGH BANKS AND TDS HAVE B EEN MADE IN RELEVANT CASES. THERE IS A FORCE IN THE ARGUMENT OF THE APPELLANT T HAT THE COST OF CONSTRUCTION PER SQ.FT. ADOPTED BY THE AO WAS VERY LOW. THE AO HAD NOT BROUGHT OUT ON RECO RDS COGENT REASONS WHY THE WAS DISALLOWED WHEN THE PAYMENTS ARE THROUGH BANKS AND TDS HAVE BE EN MADE. THE AO FAILED TO APPRECIATE OCCUPANCY CERTIFICATE ISSUED BY THE ASSOCIATE TOWN PLANNER. D&HN DOES NOT BAR THE APPELLANT TO CARRY OUT CERTAIN WORKS WHICH DOES NOT ALLOW STRUCTURAL CHANGES. IT IS COMMON PRACTICE THAT CERTAIN WORKS SUCH AS PLASTERING, COLOUR WORK, COMPOUND WAL L, INTERIOR WORKS ETC, ARE CARRIED OUT EVEN AFTER OCCUPANCY CERTIFICATE OBTAINED BY THE ASSESSEE. I HAVE ALSO PERUSED THE LEDGER A/C. OF NEW FACTORY BUILDING. DURING THE YEAR TOTAL AMOUNT OF WORK DONE ON THIS BUILDING WAS RS.68,08,703/- AND THE PIONEER ENTERPRISES HAVE RAISED BILLS OF RS. 51,55, 018/-. THE LEDGER COPY ACCOUNTS DETAILS OF WORKS DONE AND THE PAYMENTS MADE THEREON. IT IS ALSO A FA CT THAT THE PAYMENTS MADE TO M/S. PIONEER ENTERPRISES WERE IN CHEQUES AS SEEN FROM THE LEDGER A/C. FOR DISALLOWING EXPENSES, THE REQUIREMENT IS THAT EVIDENCES SHOULD BE BROUGHT ON RECORDS WHY SUC H EXPENSES ARE NOT FOR THE BUSINESS PURPOSE OR ARE BOGUS IN NATURE. IN THE INSTANT CASE NO SUCH FINDIN G WAS BROUGHT ON RECORD BY THE AO. EVEN THE FIGURE ADOPTED BY THE AO IS NOT CORRECT. IN THIS CIRCUMSTA NCES AND CONSIDERING THE FACTS OF THE CASE. I AM INCLINED TO GRANT RELIEF TO THE APPELLANT. THE AO I S DIRECTED TO DELETE THE ADDITION MADE IN THIS COUN T. THIS GROUND OF APPEAL IS ALLOWED. 7. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NOW IN APPEAL BEFORE US. 8. BEFORE US LD. D.R. TOOK US THROUGH THE FINDINGS OF A.O AND SUPPORTED THE ORDER OF A.O. ON THE OTHER HAND THE LD. A.R. REITER ATED THE SUBMISSIONS MADE BEFORE CIT(A) AND SUPPORTED HIS ORDER. ITA NOS. 1156 & 1253/AHD/2011 . A.Y. 2007- 08 5 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT CIT(A) WHILE DELETING THE ADDITION HAS GI VEN A FINDING THAT A.O HAS NOT DOUBTED THE SOURCE OF PAYMENTS AND FURTHER THE PAYMENTS HAVE BEEN MADE THROUGH BANK AND TDS HAS ALSO BEEN DEDUCTED WH EREVER APPLICABLE. HE HAS FURTHER NOTED THAT A.O HAS FAILED TO APPRECI ATE THAT THE OCCUPANCY CERTIFICATE DOES NOT BAR THE ASSESSEE TO CARRY OUT CERTAIN WORKS WHICH DOES NOT ALLOW STRUCTURAL CHANGES. HE HAS FURTHER NOTED THAT FOR DISALLOWING THE EXPENSES. A.O HAS TO BRING ON RECORD EVIDENCE TO PR OVE THAT THE EXPENSES WERE NOT FOR THE BUSINESS PURPOSE OR WERE BOGUS IN NATURE, WHICH HAS NOT BEEN DONE BY A.O. BEFORE US REVENUE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO CONTROVERT THE FINDINGS OF CIT(A). IN VIE W OF THE AFORESAID FACTS, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A ) AND THUS THIS GROUND OF REVENUE IS DISMISSED. 2 ND GROUND IS WITH RESPECT TO DELETION OF PROPORTIONAT E INTEREST EXPENSES OF RS. 2,10,739/-. 10. ON PERUSING THE PROFIT AND LOSS ACCOUNT, A.O NO TICED THAT ASSESSEE HAS CLAIMED INTEREST EXPENSES OF RS. 7,45,559/-. HE WAS OF THE VIEW THAT THE BORROWED FUNDS HAVE BEEN UTILIZED FOR THE PURPOSE O F CONSTRUCTION OF NEW FACTORY BUILDING BUT NOT TO THE EXTENT AS SHOWN BY ASSESSEE. A.O WAS OF THE VIEW THAT ASSESSEE HAS FAILED TO ESTABLISH THAT THE MONEY BORROWED WAS FULLY UTILIZED BY IT FOR THE PURPOSE OF BUSINESS. HE ACCO RDINGLY WORKED OUT THE PROPORTIONATE AMOUNT OF INTEREST ON THE INFLATED AN D NON INCURRED EXPENDITURE OF RS. 17,56,177 AND ON IT CALCULATED INTEREST @ 12 % AND ACCORDINGLY WORKED OUT THE AMOUNT OF RS. 2,10,739/- AND DISALLOWED TH E SAME. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CI T(A). CIT(A) DELETED THE ADDITION BY HOLDING AS UNDER:- 9.1 THE APPELLANT BEGS TO SUBMIT THAT THE IMPUGNED ACTION IS WHOLLY UNJUSTIFIED BOTH ON FACTS AND IN LAW. FIRSTLY, WHEN THE AO HIMSELF HAS GIVEN A FINDING THAT THE BO RROWED FUNDS WERE UTILIZED FOR THE PURPOSE OF INFLATED EXPENSES IN CONSTRUCTION OF FAC TORY BUILDING, IT CANNOT BE SAID THAT THE APPELLANT HAD FAILED TO PROVE THE PURPOSE FOR WHICH BORROWED FUNDS WERE USED. THE AO HAS GIVEN CONTRADICTORY FINDINGS AND IT APPEARS THAT THE MATTER HAS BEEN DE ALT WITH IN A CASUAL MANNER. SECONDLY, THE APPELLANT ITA NOS. 1156 & 1253/AHD/2011 . A.Y. 2007- 08 6 HAS IN THE PRECEDING PARAGRAPH HAS PROVED THAT THER E WAS NO INFLATED COST OF CONSTRUCTION AND HENCE THE DISALLOWANCE OF INTEREST ON THIS GROUND BY AO D OES NOT REMAIN. THIRDLY, IT WILL BE NOTICED FROM THE LEDGER ACCOUNT OF INTEREST EXPENSES (P) THAT INTERE ST HAS BEEN PAID TO FIVE PARTIES AGGREGATING TO RS.3,56,000/- AND ALL THESE DEPOSITORS ARE OLD WITH EARNED FORWARD BALANCE. THERE IS NO FINDING IN EARLIER YEAR THAT THESE BORROWINGS WERE UTILIZED FO R NON-BUSINESS PURPOSES. THE COPY OF ASSTT. ORDER F OR A.Y.2006-07 DT,....IS ENCLOSED. THE ONLY CHANGE IS THE CAPITAL INTRODUCED BY THE INCOMING PARTNER WHICH HAS BEEN UTILIZED FOR PAYMENT TO THE RETIRING PARTNER. 9.2 DECISION : 1 HAVE CAREFULLY CONSIDERED THE FINDING OF THE AO A ND THE SUBMISSIONS MADE BY THE ID. ALL. THERE IS A FORCE IN THE ARGUMENTS OF THE ID. A R. 1 HAVE ALSO PERUSED THE LEDGER A/C. AND THE LOAN A/C. THE AMOUNT BORROWED WAS USED FOR THE BUSINESS PURPOSES AND THEREFORE, THE INTEREST ACCRUED THEREON IS ALLOWABLE EXPENSES. THUS, THIS GROUND OF APPEAL IS ALLOWED. 11. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NO W IN APPEAL BEFORE US. 12. BEFORE US LD. D.R. RELIED ON THE ORDER OF A.O O N THE OTHER HAND LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE LD. CIT(A) A ND SUPPORTED THE ORDER OF LD. CIT(A). 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND PERUSING THE LEDGER ACCOUNT AND THE LOAN ACCOUNT HA S GIVEN A FINDING BORROWED AMOUNT WAS USED FOR THE BUSINESS PURPOSES AND THEREFORE THE INTEREST WAS ALLOWABLE. LD. CIT(A) HAS ALSO ACCEPTE D THE SUBMISSION OF ASSESSEE THAT THE DEPOSITS WERE CARRIED FORWARD FRO M EARLIER YEARS AND IN EARLIER YEARS NO DISALLOWANCE ON ACCOUNT OF BUSINES S PURPOSE WAS MADE. BEFORE US, REVENUE HAS NOT BROUGHT ANY CONTRARY MAT ERIAL IN ITS SUPPORT TO CONTRADICT THE FINDINGS OF LD. CIT(A). WE THEREFORE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) AND THUS THIS GROUND O F REVENUE IS DISMISSED. 14. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. WE NOW TAKE UP ASSESSEES APPEAL IN ITA NO. 1253/AH D/2011 15. THOUGH ASSESSEE HAS RAISED THE VARIOUS GROUNDS THE LD. A.R. SUBMITTED THAT ONLY EFFECTIVE GROUNDS IS WITH RESPECT TO THE CONFI RMATION OF LONG TERM GAIN ON SALE OF LAND. ITA NOS. 1156 & 1253/AHD/2011 . A.Y. 2007- 08 7 16. A.O NOTICED THAT ASSESSEE HAD PURCHASED LAND AN D FACTORY BUILDING ON 8 TH MAY, 2003 AND THE COST OF ACQUISITION OF LAND WAS R S. 45 LACS. DURING THE YEAR, ASSESSEE HAS STATED TO HAVE SOLD LAND FOR RS. 44,51,500/- AND INCURRED LOSS OF RS. 48,500/- BUT AT THE SAME TIME HAD MADE GAIN ON SALE OF OLD FACTORY BUILDING. INCURRING OF LOSS ON LAND WAS NOT ACCEPTA BLE TO THE A.O IN VIEW OF THE FACT THAT THE PRICES OF LAND IN THE LOCALITY WHERE THE ASSESSEE WAS HAVING LAND WAS HAVING A RISING TREND. A.O WAS OF THE VIEW THAT IF THERE WAS APPRECIATION IN THE VALUE OF DEPRECIABLE ASSET, THERE CANNOT BE DEPRECIATION IN THE VALUE OF LAND. HE THEREAFTER ON THE BASIS OF ENQUIRIES MADE FOUND THAT ANNUAL APPRECIATION OF AT LEAST 20% HAS TAKEN PLACE EVERY YEAR IN THE CASE OF LAND. HE THEREAFTER ON THE BASIS OF AREA OF LAND (8545.59 SQ. MT) AND THE COST OF ACQUISITION (RS. 45 LACS) WORKED OUT THE COST OF AC QUISITION OF RS. 526.59/- PER SQ. MT AND WORKED OUT THE SALE CONSIDERATION RECEI VED ON SALE OF OLD FACTORY LAND AT RS. 910 PER SQ. M. AND RE-WORKED THE CHARGE ABLE CAPITAL GAIN AT RS. 27,32,211/-. AGGRIEVED BY THE ORDER OF A.O, ASSESS EE CARRIED THE MATTER BEFORE CIT(A). CIT(A) AFTER CONSIDERING THE SUBMISS IONS OF THE ASSESSEE CONFIRMED THE ADDITION MADE BY A.O BY HOLDING AS UN DER:- 8.2 1 HAVE CAREFULLY GONE THROUGH THE ASSESSMENT OR DER AND THE SUBMISSIONS MADE BY THE ID. AR. THE DISPUTE BETWEEN THE AO AND THE APPELLANT IS IN THE DETERMINATION OF PRICE OF THE LAND SOLD WITH THE FACTORY BUILDING DURING THE YEAR. THE APPELLANT HAD NOT CLEARED THE FACTUAL ASPECTS IN THIS REGARDS. FROM THE PERUSAL OF THE SALE DEEDS THE FOLLOWING FA CTS ARE EMERGED; THE APPELLANT HAD PURCHASED THE PROPERTY I.E. LAND ADMEASURING 8545 SQ. MT. TOGETHER WITH CONSTRUCTION OF 1136.34 SQ. MT. THEREON FROM M/S. P ATEL PLAST INTERNATIONAL LTD. BY SALE DEED DATED. 8 . 05. 2003. AN AGREEMENT FOR SALE WAS EXECUTED BY AND BETWEEN T HEM ON 24.10.2005 FOR A OF RS.86 LACS. THE PURCHASER PAID RS.11 LACS ON 24.10.2005 TOWARDS PAR T PAYMENT INCOMPLIANCE TO THE SAID SALE AGREEMENTS. THAT MEANS THE APPELLANT HAD SOLD THE P ROPERTY AT A VALUE EXISTED ON 24.10.2005. THE APPELLANT HAD CREATED AN EQUITABLE MORTGAGE CHARGE WITH UBI BY AVAILING LOAN. NO DUE CUM NO CHARGE CERTIFICATE WAS ISSUED BY THE UBI ON 27.04.2 006. PERHAPS THE APPELLANT WANTED TO CLEAR ALL ENCUMBRANCES WHICH TOOK FEW MONTHS AND FINALLY THE PROPERTY WAS REGISTERED TO THE PURCHASER ON 28.4.2006. THE RECORDS BEFORE ME DO NOT SUGGEST THAT TKE APPEL LANT HAD MADE ANY ADDITIONS TO THE SAID LAND AND BUILDING DURING THE PERIOD FROM8.05.2003 AND 28.4.2 006. THEREFORE, THE APPELLANT HAD OWNERSHIP OF THE SAID PROPERTY WAS FOR A PERIOD OF ABOUT 3 YEARS. IN THE INTEREST OF JUSTICE, THE VALUE OF THE LAND T O BE ADOPTED WAS AS 24.10.2005, THE DAY THE SALE AGREEMENT WAS DRAWN. FROM THE RECORDS IT WAS SEEN THAT WHEN THE APPELLAN T PURCHASED THE PROPERTY THE VALUE WAS NOT ASSIGNED SEPARATELY FOR LAND AND CONSTRUCTIONS/STRU CTURES THEREON. ITA NOS. 1156 & 1253/AHD/2011 . A.Y. 2007- 08 8 FROM THE ABOVE, IT IS VERY CLEAR THAT BUILDING/STRU CTURE ON THE LAND EXISTED FOR MANY YEARS AND THE RESPECTIVE OWNERS HAVE CLAIMED DEPRECIATION ON IT. THEREBY, THE VALUE OF THE BUILDING/STRUCTURE WAS DEPLETED OR DIMINISHED OVER THE YEARS. 8.3 IN THE SALE DEEDS DATED 28.4.2006 THE APPELLANT HAD ASSIGNED VALUE FOR THE LAND (8545 SQ. MT.) AT RS. 44,51,500/- I.E. @ RS.250/ SQ.MTS. WHEREAS THE VALUE FOR THE STRUCTURE(L 136.48 SQ.MTS) AT RS. 41,48,500/- I.E. @ RS.3,650/ SQ.MTS. THIS IS WHERE THE AO HAS VALIDLY RAISED THE POINT THAT WHEN THE DEPRECIABLE ASSETS LIKE FACTORY BUILDING FETCHES HI GH RETURN WHY NOT SIMILAR GAIN CAN ARISE IN THE SAL E OF LAND DURING THE PERIOD WHEN THE LAND PRICE WAS M OVING RAPIDLY UPWARD. I HAVE MADE EFFORT TO ASCERTAIN THE VALUE OF THE STRUCTURE AS ON 24.10.20 05 THE DATE OF SALE AGREEMENT BUT NOT .SUCCESSFUL. I ALSO MADE AN ATTEMPT TO ASCERTAINED THE VALUE OF TH E STRUCTURE ON THE DATE OF PURCHASE BY THE APPELLAN T ON 8.05.2003 BUT COULD NOT ASCERTAIN THE VALUE. AT THE SAME TIME IT IS CERTAIN THAT THE OWNERS OF THE SAID PROPERTIES HAVE ENJOYED BENEFITS BY CLAIMING D EPRECIATION OVER THESE YEARS. THE FACTUM OF THE CAS E CLEARLY INDICATES THAT THE APPELLANT ASSIGNED THE V ALUE FOR THE LAND AND THE STRUCTURE SEPARATELY WITH AN INTENTION TO ASSIGN MORE VALUE TO THE STRUCTURE THA N TO THE LAND TO AVOID THE LTCG TAX ON THE CONSIDERATION OF THE LAND. IT WAS ALSO EVIDENT FROM THE SUBMISSION OF THE ID. AR THAT THE PROPERTY WAS NOT SOLD AS ON GOING CONCERN. IN THAT SCENARIO, THE NEW PURCHASER, IN THIS CASE M/S. JALARAM INDUSTRIA L ESTATE, A FIRM, WOULD BE MORE INTERESTED IN THE LAN D THAN THE OLD FACTORY SHED. THUS, THE LAND VALUE SHOULD BE MUCH MORE THAN THE OLD DEPRECIATED FACTOR Y SHED. 1 AM ALSO IN COMPLETE DISAGREEMENT OF THE VALUATION FACTORY SHED BY THE REGISTERED VALUER AT RS.41.48,500/- BECAUSE THE TOTAL COST OF LAND AND BUILDING AS ON 8.05.2003 WAS ONLY RS.45,00,000/-. H OW CAN THE VALUE OF THE DEPRECIATED SHED BE RS.41,48,500/-. THE AO IS FULLY JUSTIFIED THAT IF T HE VALUE OF THE FACTORY SHED CAN INCREASE MANY FOLD THEN WHY NOT THE LAND PRICE? IT WILL BE A TRAVERSY, IF THE LAND VALUE IS ACCEPTED AT RS.250/ SQ.MTS. A ND THE FACTORY SHED AT RS.650/SQ.MTS. BEFORE ME THE ID . AR DID NOT FURNISH THE COST OF THE STRUCTURE. THE AO HAS MAINTAINED THE CONSISTENCY TO THE EXTENT THA T NO VALUE OF THE STRUCTURE WAS ASSIGNED BOTH AT TH E TIME OF PURCHASE AND SALE. THE AO CALCULATED THE CO ST OF THE LAND @ RS.526.59/ SQ. MTS,(RS.45,00,000 78545 - 526.59). IN THE SAME ANAL OGY, THE SALE VALUE OF THE LAND WOULD BE RS.1000.43 PER SQ. MTS. (RS.86,00,000/8545= RS. 10 00.43). CONSIDERING THE PREVAILING SITUATION, THE AO MADE INDEPENDENT ENQUIRY AND ARRIVED AT A CONCLU SION THAT THERE HAS BEEN STEEP RISE OF LAND PRICE AT THAT TIME. SO HE ADOPTED A REASONABLE RATE OF RS .910/ SQ. MTS. FOR THE VALUE OF THE LAND. THOUGH TH E APPELLANT WANTED TO RELY ON THE DECISION IN THE CAS E OF K.P.VARGHESE [131 ITR 597] (SC) BUT IN THE SAID DECISION THE HON'BLE SC HELD THAT THE BURDEN O F PROOF LIES WITH THE REVENUE FOR UNDERSTATEM ENT OF CONSIDERATION BUT ONCE UNDERSTATEMENT IS PROVED REVENUE MAY ADOPT FAIR MARKET VALUE AS ACTUAL CONSIDERATION RECEIVED. THE AO HAS RIGHTLY ADOPTED THE FMV IN THIS CASE. IN THIS CIRCUMSTANCES, I AM INCLINED TO UPHELD THE FINDINGS OF THE A.O AND THE ADDITION MADE IN THIS GROUND IS CONFIRMED. 17. BEFORE US, THE LD. A.R. REITERATED THE SUBMISSI ONS MADE BEFORE A.O AND CIT(A). ON THE OTHER HAND LD. D.R. SUPPORTED THE OR DER OF CIT(A). 18. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE DISPUTE IS IN THE PRESENT CASE IS THE WORKING OF CA PITAL GAIN OF SALE OF LAND. ACCORDING TO ASSESSEE, IT HAS INCURRED LOSS ON SALE OF LAND AND AT THE SAME TIME HAS EARNED GAINS ON THE SALE OF BUILDING (WHIC H IS A DEPRECIABLE ASSET). DURING THE COURSE OF HEARING A SPECIFIC QUERY WAS P UT TO THE LD. A.R. AND HE WAS ASKED ABOUT THE BASIS OF BIFURCATION OF THE VAL UE OF LAND AND BUILDING. THE LD. A.R. COULD NOT SATISFACTORILY EXPLAIN THE BASIS OF BIFURCATION AND THUS THE BASIS OF BIFURCATION APPEARS TO THE ARBITRARY. WE ALSO FIND THAT A.O HAS ARRIVED ITA NOS. 1156 & 1253/AHD/2011 . A.Y. 2007- 08 9 AT A CONCLUSION THAT BY ADOPTING A MOST CONSECUTIVE APPROACH THE ANNUAL APPRECIATION OF LAND WAS 20% ON YEAR TO YEAR BASIS. A.O HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SUPPORT ITS AFORESAID CONCLUS ION. CONSIDERING THE TOTALITY OF FACTS, WE ARE OF THE VIEW THAT AN ESTIMATED ADDI TION AT RS. 10 LACS TO COVER THE REVENUE LOSS DUE TO ARBITRARY BIFURCATION IN TH E VALUATION OF LAND AND BUILDING BY THE ASSESSEE WILL MEET THE ENDS OF JUST ICE. WE THUS DIRECT THAT THE ADDITION BE RESTRICTED TO RS. 10 LACS. THUS THIS GROUND OF ASSESSEE IS PARTLY ALLOWED. 19. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED. 20. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED A ND THE APPEAL OF ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 18 - 07 - 2014. SD/- SD/- (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHM EDABAD