Bhatgar Hill Station Private Ltd., Pune V. Income-tax Officer,

ITA 2156/PUN/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 2677 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 5 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 03-10-2018
• Assessment Year: 2011-2012
• Appeal Filed On: 14-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Cost of acquisition; Fair market value; Valuation report
• Section: 143(3); 250

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO. 2 156 /P U N/201 6 / ASSESSMENT YEAR : 20 11 - 12 BHATGAR HILL STATION PVT. LTD., 263, NAVI PETH, LBS ROAD, PUNE 411030 . / APPELLANT PAN: A A DCB4167D VS. THE INCOME TAX OFFICER , WARD 1(1), PUNE . / RESPONDENT / APPELLANT BY : SHRI NIKHIL PATHAK / RESPONDENT BY : S HRI SUDHENDU DAS / DATE OF HEARING : 04 . 0 2 .201 9 / DATE OF PRONOUNCEMENT: 08 . 0 3 .201 9 / ORDE R PER SUSHMA CHOWLA, J M : THE APPEAL FILED BY ASSESSEE IS AGAINST ORDER OF CIT (A) , PUNE - 1, PUNE, DATED 1 6 . 06 .201 6 RELATING TO ASSESSMENT YEAR 20 11 - 12 AGAINST ORDER PASSED UNDER SECTION 143(3) / 250 OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - ON FACTS AND IN LAW, 1] THE LEARNED COMMISSIONER OF INCOME TAX APPEALS - 1 ERRED IN CONFIRMING THE DISALLOWANCE U/S 40(A)(2)(B), AMOUNTING TO RS . 4557905/ - MADE BY THE LEARNED ASSESSING OFFICER WITHOU T CONSIDERING TO SUBMISSION MADE. ITA NO. 2156 /P U N/20 1 6 BHATGHAR HILL STATION PVT. LTD. 2 2] THE LEARNED COMMISSIONER OF INCOME TAX APPEALS - 1 WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE U/S 40A(2)(B) AMOUNTING TO RS . 4557905/ - PAID TO RANJIT SHITOLE, AS THE CONSIDERATION PAID IS AT FAIR MARKET VALUE PREVAI LING THE SAID AREA. 3] THE LEARNED COMMISSIONER OF INCOME TAX APPEALS - 1 FAILED TO APPRECIATE THAT - A . THE PURCHASE TRANSACTION OF LAND SITUATED AT KURUNGAWADI, TALUKA BHOR, DISTRICT - PUNE, MADE BY THE APPELLANT WITH ONE OF ITS DIRECTORS NAMELY SHRI RANJIT S HITOLE, AMOUNTING TO RS .1 ,75,00,000/ - IS AT CORRECT VALUE AS PER THE PREVAILING MARKET CONDITION IN THE SAID AREA. B . THE COMPANY HAS SUBSEQUENTLY DEVELOPED THE SAID LAND AND DIVIDED INTO VARIOUS PLOTS OF VARIOUS SIZES AND HAS SOLD THE SAME TO CUSTOMERS AT M UCH HIGHER RATES THAN THE GOVERNMENT READY REKANER VALUE AND PURCHASE VALUE OF LAND. 3. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE HAD FURNISHED RETURN OF INCOME DECLARING TOTAL INCOME OF 1,65,352/ - . THE CASE OF ASSESSEE WAS PICKED UP FOR SCRUTINY. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF DEVELOPING AND SELLING PLOTS. DURING THE YEAR, THE ASSESSEE HAD PURCHASED LAND AT POST KURUNGWADI, TAL:BHOR, DIST: PUNE. THE ASSESSEE COMPANY HAD DEVELOPED VARIOUS PLOTS ON THE SAID LAND AND HAD RECEIVED ADVANCES FROM THE CUSTOMERS AGAINST SALE OF PLOTS. THE ASSESSING OFFICER NOTED THAT DURING ASSESSMENT YEAR 2011 - 12, THE ASSESSEE HAD PURCHASED PLOT OF LAND FROM ITS DIRECTOR MR. RANJIT SHITOLE FOR CONSIDERATION OF 1,75,00,000/ - . THE VALUE OF THE SAID LAND FOR STAMP DUTY PURPOSE WAS 30,00,000/ - . THE ASSESSEE WAS ASKED TO EXPLAIN REASON FOR MAKING SUBSTANTIALLY HIGH PAYMENT FOR PURCHASE OF LAND. THE ASSESSEE WAS ALSO ASKED TO JUSTIFY WHY DISALLOWANCE SHOULD NOT BE MADE UNDER SECTION 40A(2)(B) OF THE ACT. THE ASSESSING OFFICER ALSO REFERRED THE MATTER TO THE GOVERNMENT APPROVED VALUER FOR DETERMINATION OF FAIR MARKET VALUE OF LAND. AS PER REPORT OF THE GOVERNMENT APPROVED VALUER, FAIR MARKET VALUE WORKED OUT TO 1,29,42,095/ - . THE ASSESSING OFFICER WAS OF THE VIEW THAT THE PAYMENT MADE IN EXCESS OF FAIR MARKET VALUE OF LAND OF 45,57,907/ - WAS DISALLOWABLE UNDER SECTION 40A(2)(B) OF THE ACT AND SHOW CAUSE NOTICE IN ITA NO. 2156 /P U N/20 1 6 BHATGHAR HILL STATION PVT. LTD. 3 THIS REGARD WAS ISSUED TO THE ASSESSEE. THE ASSESSEE EXPLAINED THAT THERE WERE INSTANCES OF SALE OF SMALL PLOTS WHERE THE CONSIDERATION RECEIVED BY ASSESSEE WAS HIGHER THAN THE PURCHASE PRICE PAID TO THE DIRECTOR. IT WAS FURTHER POINTED OUT THAT PROVISIONS OF SECTION 40A(2)(B) OF THE ACT COVERED ON LY TRANSACTIONS RELATING TO GOODS, SERVICES AND FACILITIES. IT WAS FURTHER POINTED OUT THAT TERM GOODS WAS NOT DEFINED UNDER THE ACT AND AS PER THE SALE OF GOODS ACT, THE DEFINITION OF GOODS DID NOT COVER IMMOVABLE PROPERTY AND HENCE, THE SAID PROVISION S OF THE ACT WERE NOT APPLICABLE. THE ASSESSEE ALSO POINTED OUT THAT THE VALUE ADOPTED BY THE GOVERNMENT VALUER WAS NOT ACCEPTABLE. THE SUBMISSIONS OF ASSESSEE WERE NOT ACCEPTED BY THE ASSESSING OFFICER AS THE ASSESSEE HAD FAILED TO POINT OUT ANY MATERIA L INFIRMITIES IN THE VALUATION REPORT OF GOVERNMENT APPROVED VALUER. FURTHER, THE ASSESSING OFFICER NOTED THAT TOTAL PLOT AREA WHICH WAS PURCHASED BY ASSESSEE WAS 61,409 SQUARE METERS, WHEREAS THE AREA OF PLOTS SOLD BY ASSESSEE WERE ONLY 324 SQUARE METERS AND 353 SQUARE METERS. THE ASSESSING OFFICER WAS OF THE VIEW THAT WHERE THE SIZE OF PLOTS WAS SO SMALL, THE VALUE OF SAID PLOTS COULD NOT BE APPLIED TO ADOPT THE PURCHASE PRICE OF LARGER PLOT OF LAND. FURTHER, THE ASSESSING OFFICER OBSERVED THAT SINCE T HE TERM GOODS WAS NOT DEFINED UNDER THE ACT, WHERE THE ASSESSEE WAS DEALING IN IMMOVABLE PROPERTY AND HENCE FOR TRADING PURPOSE, THEN THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT WERE ATTRACTED. THE ASSESSING OFFICER THUS, HELD THAT WHERE THE ASSESSEE HAD PAID EXCESS VALUE OVER AND ABOVE THE MARKET VALUE TO ONE DIRECTOR AND WHERE THE ASSESSEE HAS NOT PROVIDED ANY JUSTIFICATION FOR THE SAME, THEN SUM OF 45,57,905/ - WAS TO BE DISALLOWED UNDER SECTION 40A(2)(B) OF THE ACT. ITA NO. 2156 /P U N/20 1 6 BHATGHAR HILL STATION PVT. LTD. 4 4. BEFORE THE CIT(A), THE ASS ESSEE FILED WRITTEN SUBMISSIONS EXPLAINING ITS CASE. HOWEVER, THE CIT(A) HAS UPHELD THE ORDER OF ASSESSING OFFICER AND DISMISSED THE PLEA OF ASSESSEE. 5. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A) BEFORE US. 6. THE LEARNED AUTHORIZED REPRESEN TATIVE FOR THE ASSESSEE POINTED OUT THAT THE VALUE AS DETERMINED BY STAMP DUTY AUTHORITY COULD NOT BE THE BASIS FOR DETERMINING THE CONSIDERATION FOR PURCHASE OF PLOT OF LAND. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE DREW OUR ATTENTION TO TH E WRITTEN SUBMISSIONS FILED BEFORE THE CIT(A), WHICH ARE INCORPORATED IN HIS ORDER AND POINTED OUT THAT PURCHASE CONSIDERATION PAID BY IT WAS AS PER MARKET CONDITIONS AND WAS TO BE ACCEPTED IN TOTO. HE FURTHER POINTED OUT THAT OUT OF LARGE PLOT OF LAND PU RCHASED BY ASSESSEE, THE ASSESSEE HAD DEVELOPED 264 PLOTS OF VARIOUS SIZES ON THE SAID LAND, OUT OF WHICH 207 PLOTS WERE SOLD FOR TOTAL CONSIDERATION OF 17.85 CRORES AS AGAINST TOTAL PURCHASE COST OF LAND WHICH WAS 2.16 CRORES. THIS IS WHERE 57 PLOTS HAVE YET TO BE SOLD BY THE ASSESSEE. ANOTHER POINT WHICH WAS RAISED BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE WAS THAT THE MARKET VALUE AS PER STAMP DUTY VALUATION OF THE AFORESAID PLOTS SOLD WAS 49,940/ - BUT THE SALE CONSIDERATION RECEIVED BY ASSESSEE WAS 9,90,165/ - SHOWING HUGE DIFFERENCE BETWEEN SALE VALUE OF PLOT AND THE GOVERNMENT READY RECKONER VALUE, WHICH CLEARLY PROVES THAT TH E FAIR MARKET VALUE WAS MUCH HIGHER THAN THE GOVERNMENT / STAMP DUTY VALUATION. THE DECISION WAS TAKEN AS PRUDENT BUSINESSMAN AND COULD NOT BE DOUBTED. IT WAS FURTHER POINTED OUT THAT THE LAND OWNER SHRI RANJIT SHITOLE WAS TAKEN AS DIRECTOR IN SHAREHOLDE R AS THE ASSESSEE DID NOT HAVE SUFFICIENT FUNDS FOR OUTRIGHT PURCHASE OF LAND. ITA NO. 2156 /P U N/20 1 6 BHATGHAR HILL STATION PVT. LTD. 5 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. T HE ISSUE ARISING IN THE PRESENT APPEAL IS AGAINST THE ADDITION MADE UNDER SECTION 40A(2)(B) OF THE ACT. THE SAID SECTION PROVIDES THAT WHERE THE ASSESSEE INCURS ANY EXPENDITURE, IN RESPECT OF WHICH PAYMENT HAS BEEN OR IS TO BE MADE, TO ANY PERSON REFERRED TO IN CLAUSE (B) AND THE ASSESSING OFFICER IS OF OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE, HAVING REGARD TO THE MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH PAYMENT IS MADE OR THE LEGITIMATE NEEDS OF BUSINESS OR PROFESSION , THEN SO MUCH OF EXPENDITURE AS IS CONSIDERED BY HIM TO BE EXCESSIVE OR UNREASONABLE, SHALL NOT BE ALLOWED AS DEDUCTION. CLAUSE (B) THEREUNDER DEFINES THE RELATED PARTIES. 9. NOW, COMING TO THE FACTS OF PRESENT CASE, THE ASSESSEE DURING THE YEAR HAD PUR CHASED LAND WORTH 1.75 CRORES FROM ONE OF THE DIRECTORS NAMELY RANJIT SHITOLE . THE SAID LAND SITUATED AT POST KURUNGWADI, TAL:BHOR, DIST: PUNE WAS SUBSEQUENTLY DEVELOPED BY THE ASSESSEE COMPANY AND SUB - DIVIDED INTO VARIOUS PLOTS OF VARIOUS SIZES AND WERE SOLD TO CUSTOMER S AT LARGE. THE ASSESSEE HAD DEVELOPED 264 PLOTS OF VARIOUS SIZES ON THE SAID LAND, OUT OF WHICH TILL DATE OF FILING WRITTEN SUBMISSIONS BEFORE THE CIT(A), THE ASSESSEE HAD SOLD 207 PLOTS FOR TOTAL CONSIDERATION OF 17.85 CRORES. THE ASSESSEE HAD PAID 1.75 CRORES TO THE DIRECTOR AND FURTHER ACQUIRED ANOTHER PIECE OF LAND FROM NON DIRECTOR AND THE TOTAL CONSIDERATION PAID FOR PURCHASE OF LAND WAS 2.16 CRORES. THE STAMP DUTY VALUATION OF TOTAL PLOT PURCHASED BY ASSESSEE WAS ONLY 30 LAKHS. THE ASSES SING OFFICER DURING ASSESSMENT PROCEEDINGS HAD REFERRED THE VALUATION OF SAID PLOT OF LAND TO THE GOVERNMENT APPROVED VALUER, ITA NO. 2156 /P U N/20 1 6 BHATGHAR HILL STATION PVT. LTD. 6 WHO DETERMINED THE FAIR MARKET VALUE OF LAND AS ON THE DATE OF PURCHASE AT 1,29,42,095/ - . THE ASSESSING OFFICER HAD INVOKED TH E PROVISIONS OF SECTION 40A(2)(B) OF THE ACT IN RESPECT OF DIFFERENTIAL PAYMENT OF 45,57,905/ - BEING PAYMENT MADE IN EXCESS TO THE FAIR MARKET VALUE OF THE LAND AND WHY THE SAME SHOULD NOT BE DISALLOWED UNDER SECTION 40A(2)(B) OF THE ACT. IN THIS REGARD , WE MAY ALSO LOOK AT THE OTHER SIDE OF THE TRANSACTION I.E. SALE OF PLOTS WHICH WERE DEVELOPED BY THE ASSESSEE. UNDOUBTEDLY, THE PLOTS WHICH ARE SO DEVELOPED ARE SMALLER IN SIZE AND WOULD FETCH HIGHER PRICE AS COMPARED TO THE PRICE PAID FOR THE LARGE PLO TS OF LAND. THERE IS NO DISPUTE TO THE SAME. HOWEVER, WE MUST CONSIDER THE SALE TRANSACTION ENTERED INTO BY THE ASSESSEE, WHEREIN THE SAID PLOT OF LAND MEASURING 300 SQUARE METERS WAS SOLD FOR 9,90,165/ - I.E. SALE PRICE AGREED UPON BETWEEN THE PARTIES. THE MARKET VALUE OF SAID PIECE OF LAND AS PER STAMP DUTY VALUATION WAS 49,940/ - . THE SALE CONSIDERATION HAS BEEN ACCEPTED BY THE ASSESSING OFFICER IN TOTO AND ADOPTED FOR WORKING THE INCOME IN THE HANDS OF ASSESSEE. HOWEVER, IF WE CONSIDER THE TOTALITY OF FACTS, WE FIND THAT THE MARKET VALUE AS DETERMINED BY STAMP DUTY AND SALE CONSIDERATION RECEIVED BY THE ASSESSEE HAD HUGE DIFFERENCE IN VALUE. THE FAIR MARKET VALUE OF THE PROPERTY WAS MUC H HIGHER THAN THE GOVERNMENT / STAMP DUTY VALUATION. ON SUCH SIMILE , PLOT WHICH WAS PURCHASED BY THE ASSESSEE FOR 1.75 CRORES AS NEGOTIATED AND FOR BUSINESS NEEDS OF ASSESSEE, WHEREIN ON ITS SALE (PARTIAL), THE ASSESSEE HAD ALREADY RECEIVED 17.85 CRORES, IT CANNOT BE SAID THAT THE ASSESSEE HAS PAID MORE THAN THE MARKET VALUE OF PLOT OF LAND TO THE DIRECTOR AND HEN CE, PROVISIONS OF SECTION 40A(2)(B) OF THE ACT ARE ATTRACTED / APPLIED. THERE IS NO MERIT IN THE STAND OF AUTHORITIES BELOW IN THIS REGARD. 10. ANOTHER ASPECT WHICH NEEDS TO BE KEPT IN MIND IS THAT PERSON SHRI RANJIT SHITOLE FROM WHOM THE SAID PLOT OF LA ND WAS PURCHASED WAS TAKEN AS DIRECTOR / ITA NO. 2156 /P U N/20 1 6 BHATGHAR HILL STATION PVT. LTD. 7 SHAREHOLDER AND ALSO GIVEN OPTION TO SHARE THE PROFITS BY THE ASSESSEE COMPANY, SINCE IT WAS NOT IN A POSITION TO PAY HUGE AMOUNT TO THE SAID PERSON. IN THE TOTALITY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES, WE FI ND NO MERIT IN THE ORDERS OF AUTHORITIES BELOW IN APPLYING THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT ON THE GROUND THAT TRANSACTION IS WITH RELATED PARTY AS DEFINED IN SECTION 40A(2)(B) OF THE ACT. WE DELETE THE ADDITION OF 45,57,905/ - . THE GROUND S OF APPEAL RAISED BY ASSESSEE ARE THUS, ALLOWED. 11 . IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 8 TH DAY OF MARCH , 201 9 . SD/ - SD/ - (ANIL CHATURVEDI) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 8 TH MARCH , 201 9 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / T HE APPELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT(A) , PUNE - 1, PUNE ; 4. THE PR. CIT - 1 , PUNE ; 5. 6. , , / DR B , ITAT, PUNE ; / GUARD FILE . / BY O RDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE