M/s. The Lakshmi Mills Co. Ltd., Coimbatore V. Addl. CIT, Coimbatore

ITA 1896/CHNY/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4967 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 02-06-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 17-12-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Cost of acquisition; Fair market value; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH A CHENNAI BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI GEORGE MATHAN, JUDICIAL MEMBER I.T.A. NO. 1896/MDS/2009 ASSESSMENT YEAR : 2006-07 THE LAKSHMI MILLS CO. LTD., 1100, AVANASHI ROAD, PAPPANAICKENPALAYAM, COIMBATORE 641 037. PAN AAACT 7564 R VS. THE ADDITIONAL COMMISSIONER OF INCOME-TAX, RANGE-IV, INCOME-TAX OFFICE, RACE COURSE, COIMBATORE 641 018. (APPELLANT) (RESPONDENT) APPELLANT BY : S HRI PHILIP GEORGE RESPONDENT BY : SHRI SHAJI P. JACOB O R D E R PER DR. O.K. NARAYANAN, VICE-PRESIDENT THE APPEAL IS FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEAR IS 2006-07. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-I , AT COIMBATORE DATED 20.10.2009. THE APPEAL ARISES OUT OF THE ASSESSMENT COMPLETED UNDER SEC.143(3) OF THE INCOM E-TAX ACT, 1961. ITA 1896/09 :- 2 -: 2. THE FIRST ISSUE RAISED IN THIS APPEAL IS THAT TH E COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN CONFIRMING THE FINDING OF THE ASSESSING AUTHORITY THAT THE REPLACEMENT COST OF RI NG FRAMES IS A CAPITAL EXPENDITURE AND NOT ELIGIBLE FOR DEDUCTION. THE PRINCIPLES GOVERNING THE COST RELATING TO REPLACEMENT HAVE BEE N JUDICIALLY EXPLAINED BY THE HON'BLE SUPREME COURT IN A SERIES OF JUDGMENTS BY THEIR LORD-SHIPS INCLUDING THAT OF COMMISSIONER OF INCOME-TAX, MADURAI V. SRI MANGAYARKARASI MILLS LTD. [315 ITR 114]. THIS ISSUE IS REMITTED BACK TO THE ASSESSING OFFICER TO RECONSIDER THE SAME IN THE LIGHT OF THOSE PRINCIPLES ENUNCIATED BY THE APEX COURT. HE SHALL GIVE A FINDING IN ACCORDANCE WITH LAW, AFTER HEARING THE ASSESSEE AND PERUSING THE RELEVANT MATE RIALS. 3. THE SECOND ISSUE RAISED BY THE ASSESSEE IS THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN F IXING THE FAIR MARKET VALUE (FMV) OF THE PROPERTY SOLD BY THE ASSE SSEE AT KOVILPATTI AT ` 1500/- PER CENT AS ON 1.4.1981. THE PROPERTY SITUATES AT KOVILPATTI. THE PROPERTY WAS ACQUIRED BY THE ASSESSEE IN DIFFERENT PARTS DURING THE PERIOD 1954-55. THE ACQUISITION COST OF THE PROPERTY AT THAT POINT OF TIME RANGED FROM ` 8/- TO ` 10/- PER ITA 1896/09 :- 3 -: CENT. CONSIDERING THE DEVELOPMENT OF THE AREA AND OTHER MARKET CONDITIONS AND COMPARABLE TRANSFER DETAILS, THE ASS ESSEE CLAIMED FMV AT ` 4356/- PER CENT. THE ASSESSING OFFICER FIXED THE F MV AT ` 1000/- PER CENT WHICH HAS BEEN MODIFIED TO ` 1500/- PER CENT. 4. IN FACT, THE ASSESSING OFFICER HAS DETERMINED TH E FMV ON THE BASIS OF THE GUIDELINE VALUE (GLV) ISSUED BY TH E STATE GOVERNMENT REGISTRATION AUTHORITIES. IT HAS ALWAYS BEEN THE CONSISTENT ARGUMENT OF THE ASSESSEE THAT GLV IS NOT THE SOLE CRITERION TO DETERMINE THE FMV OF A PROPERTY ON A PARTICULAR DATE. THIS ARGUMENT OF THE ASSESSEE SEEMS TO BE AC CEPTED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) AS EVIDENT FROM HIS DISCUSSION REFLECTED IN PARA 7.6 OF HIS ORDER. HE HAS APPRECIATED THE ARGUMENT OF THE ASSESSEE IN THE LIGHT OF THE FA CTS SUBMITTED BEFORE HIM THAT THE GLV OF THE PROPERTY IN THE YEAR 2002-03 WAS ` 27,900/- PER ACRE WHEREAS THE SALE VALUE OF THE PRO PERTY IN THE YEAR 2005 WAS ` 28,21,000/- PER ACRE. THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS OBSERVED THAT THERE IS A 1 00 TIMES INCREASE IN THE SALE VALUE COMPARED TO THE GLV FIXE D BY THE STATE AUTHORITIES. THIS ITSELF DEMONSTRATES THAT TH E GLV FIXED BY THE ITA 1896/09 :- 4 -: STATE GOVERNMENT AUTHORITIES IS NOT ALWAYS THE SOLE CRITERION TO DETERMINE WHAT SHOULD BE THE FMV OF A PARTICULAR PR OPERTY ESPECIALLY ON A FAR BACK DATE OF 1.4.1981. IT IS A FTER ACCEPTING THE ABOVE CONTENTION OF THE ASSESSEE AS WELL AS OTHER M ATERIAL FACTS GOVERNING THIS PARTICULAR CASE THAT THE COMMISSIONE R OF INCOME- TAX (APPEALS) HAS HELD THAT THE FMV FIXED BY THE AS SESSING AUTHORITY AT ` 1000/- PER CENT WAS LOW. IT IS AS A CONSEQUENCE THAT HE HAS INCREASED THE FMV AT ` 1500/- PER CENT. 5. AFTER EXAMINING THE ORDERS OF THE LOWER AUTHORIT IES AND OTHER MATERIALS AVAILABLE ON RECORD, WE FIND THAT EVEN TH OUGH THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ACCEPTED THE CONTENTION OF THE ASSESSEE ON THE BASIS OF RELEVANT MATERIALS THA T GLV ALONE COULD NOT BE A DECIDING FACTOR IN DETERMINING THE F MV, HE HAS NOT GRANTED RELIEF TO THE ASSESSEE IN COMMENSURATE WITH HIS FINDINGS AND CONVICTION. IT IS TO BE SEEN THAT THE FMV CLAI MED BY THE ASSESSEE ON THE BASIS OF CERTAIN REASONABLE EXPLANA TION WAS ` 4356/- PER CENT. THAT HAS BEEN DECREASED TO ` 1000/- PER CENT ON A MECHANICAL WAY AFTER FOLLOWING THE GLV. THE C OMMISSIONER OF INCOME-TAX (APPEALS) EVEN THOUGH AGREED THE NEED FOR ITA 1896/09 :- 5 -: MODIFICATION, GRANTED ONLY INSUFFICIENT RELIEF BY D ECIDING FMV AT ` 1500/- PER CENT. WE HAVE TO INTERFERE TO RE-FIX TH E FMV AS ON 1.4.1981. THEREFORE, TO BE JUST AND FAIR, WE RE-FI X THE FMV OF THE PROPERTY AS ON 1.4.1981 AT ` 2500/- PER CENT. THE ASSESSING AUTHORITY IS DIRECTED TO MODIFY THE COMPUTATION OF CAPITAL GAINS ACCORDINGLY. 6. THE THIRD GROUND RAISED BY THE ASSESSEE IS THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN N OT ALLOWING EXPENSES OF ` 2 LAKHS AS DEDUCTION INSTEAD OF GIVING THE BENEFIT OF SEC.80G, AFTER TREATING THE SAME AS A DONATION. TH E CLAIM OF THE ASSESSEE IS THAT THE AMOUNT OF ` 2 LAKHS WAS PAID TO A SOCIAL ORGANIZATION AS AN ADVERTISEMENT EXPENDITURE IN SPO NSORING VARIOUS PROGRAMMES. BUT WHAT WE FIND IS THAT THE E XACT NATURE OF PAYMENT WAS A DONATION TO A LOCAL SOCIAL ORGANIZATI ON. THE ELEMENT OF ADVERTISEMENT IN A LOCAL FUNCTION IS MIS SING SO AS TO QUALIFY IT AS A REVENUE EXPENDITURE. THEREFORE, WE FIND THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) IS JUSTIFIED I N TREATING THE AMOUNT OF ` 2 LAKHS AS DONATION QUALIFIED UNDER SEC.80G. THIS GROUND ACCORDINGLY FAILS. ITA 1896/09 :- 6 -: 7. IN RESULT, THIS APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THURSDAY, THE 2 ND DAY OF JUNE, 2011 AT CHENNAI. SD/- SD/- (GEORGE MATHAN) (DR.O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 2 ND JUNE, 2011 MPO* COPY TO : APPELLANT/RESPONDENT/CIT/CIT(A)/DR