Sh. Jagdeep Singal, Ludhiana V. DCIT, Ludhiana

ITA 225/CHANDI/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73519 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-03-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 26-02-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 03-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Earning of tax free income; Fair market value; Valuation report
• Section: 143(3); 50C; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A CHANDIGARH BEFORE SHRI T.R.SOOD ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.225/CHD/2010 ASSESSMENT YEAR : 2006-07 SHRI JAGDEEP SINGAL, VS THE DY. COMMISSIONER OF C/O EASTMAN IMPEX, INCOME TAX, INDUSTRIAL AREA C, CIRCLE V, SUA ROAD, LUDHIANA. DHANDARI KALAN, LUDHIANA. PAN : ADVS8357G (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUDHIR SEHGAL RESPONDENT BY : SHRI AKHILESH GUPTA DATE OF HEARING : 26.02.2014 DATE OF PRONOUNCEMENT : 06.03.2014 O R D E R PER SUSHMA CHOWLA, JM THE APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-II, LUDHIANA D ATED 17.12.2009 RELATING TO ASSESSMENT YEAR 2006-07 AGAINST THE ORD ER PASSED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 ( 'THE A CT' FOR SHORT). 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF A PPEAL : 1. THAT THE WORTHY CIT(A) HAS ERRED IN UPHOLDING DISA LLOWANCE OF INTEREST EXPENDITURE OF RS. 4,43,967/- U/S 14A OF THE ACT. 2. THAT THE DISALLOWANCE OF INTEREST EXPENDITURE H AS BEEN UPHELD BY THE CIT(A) AGAINST THE FACTS AND CIRCUMSTANCES OF THE C ASE AND BY NOT CONSIDERING OUR SUBMISSIONS PROPERLY. 3. THAT THE WORTHY CIT(A) HAS ERRED TO CONSIDER THAT PROVISIONS OF SECTION 14A ARE NOT APPLICABLE FOR THE DISALLOWANCE OF INTEREST EXPENDITURE. 4. THAT THE WORTHY CIT(A) - II, LUDHIANA HA S ERRED IN GIVING ONLY PART RELIEF OF RS. 48,300/- IN RESPECT OF ADDITION UNDER THE HEAD SHORT TERM CAPITAL GAIN ON SALE OF PLOTS IN NEW SHAM NAGAR UND ER THE PROVISIONS OF SECTION 50C OF THE INCOME TAX ACT, 1961. THUS, UPHO LDING OF ADDITION 2 OF RS. 4,25,700/- BY THE CIT(A) AGAINST RS. 4,74,00 0/- AS WORKED BY THE ASSESSING OFFICER UNDER THE HEAD SHORT TERM CAP ITAL GAIN ON SALE OF PLOT IS AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE AND BY NOT CONSIDERING OUR SUBMISSIONS PROPERLY. 5. THAT THE WORTHY CIT(A), LUDHIANA HAS ERRED IN NOT CONSIDERING THE VERSION OF THE ASSESSEE THAT MARKET VALUE OF PL OT SOLD WAS LESS THAN THE VALUE ON WHICH THE STAMP DUTY WAS PAID. 6. THAT THE WORTHY CIT(A), LUDHIANA HAS ERRED IN N OT DISPOSING OF THE OBJECTION RAISED BY THE APPELLANT AGAINST THE R EPORT OF VALUATION OFFICER OF THE DEPARTMENT. 7. THAT THE WORTHY CIT(A) HAS ALSO ERRED IN GIVING HIS FINDING THAT THE ASSESSING OFFICER IS BOUND TO ACCEPT THE VALUAT ION MADE BY THE VALUER AND CANNOT CHANGE AND INTERFERE WITH THE SAM E. 3. THE ISSUE IN GROUND NOS. 1 TO 3 IS AGAINST THE D ISALLOWANCE UNDER SECTION 14A OF THE INCOME TAX ACT. 4. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT T HE ASSESSEE WAS A PARTNER IN M/S EASTMAN IMPEX AND VARIOUS OTHER FIRM S. THE ASSESSEE HAD BORROWED CAPITAL ON WHICH IT WAS PAYING INTEREST WH ICH IN-TURN WAS INVESTED BY THE ASSESSEE AS CAPITAL IN THE PARTNERS HIP FIRM M/S EASTMAN IMPEX. THE ASSESSEE HAD SET OFF THE INTEREST PAID ON BORROWED CAPITAL AGAINST THE INTEREST INCOME EARNED FROM THE PARTNER SHIP CONCERN. THE ASSESSING OFFICER WAS OF THE VIEW THAT IN ADDITION TO THE INTEREST INCOME EARNED BY THE ASSESSEE, THE ASSESSEE HAS ALSO RECEI VED SHARE OF PROFIT FROM THE SAID PARTNERSHIP CONCERN, WHICH WAS NOT TA XABLE IN THE HANDS OF THE ASSESSEE AND HENCE, THE PROVISIONS OF SECTION 1 4A OF THE ACT WERE ATTRACTED VIS--VIS THE INTEREST PAID ON BORROWED C APITAL BEING RELATABLE TO THE EXEMPT INCOME. THE ASSESSING OFFICER, INVOK ING THE PROVISIONS OF SECTION 14A OF THE ACT MADE DISALLOWANCE OF RS. 443 ,967/-, WHICH HAS BEEN UPHELD BY THE COMMISSIONER OF INCOME TAX (APP EALS). 5. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF T HE COMMISSIONER OF INCOME TAX (APPEALS). 3 6. SHRI SUDHIR SEHGAL APPEARED FOR THE ASSESSEE AND SHRI AKHILESH GUPTA APPEARED FOR THE REVENUE AND PUT FORWARD THEI R RIVAL CONTENTIONS. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING VIDE GROUND NOS. 1 TO 3 IN THE PRESEN T APPEAL IS AGAINST THE DISALLOWANCE UNDER SECTION 14A OF THE ACT. THE ASS ESSMENT YEAR UNDER CONSIDERATION BEFORE US IS A.Y. 2006-07 AND THE PRO VISIONS OF SECTION 14A OF THE ACT ARE ATTRACTED IN RELATION TO THE EXE MPT INCOME. HOWEVER, THE PROVISIONS OF RULE 8D OF IT RULES ARE NOT APPLI CABLE TO THE ASSESSEE UNDER CONSIDERATION AS HELD BY THE HON'BLE BOMBAY H IGH COURT IN M/S GODREJ & BOYCE VS CIT 234 CTR 1 (BOM). 8. IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE A DMITTEDLY HAD BORROWED FUNDS ON INTEREST WHICH IN-TURN WERE UTILI ZED AS CAPITAL CONTRIBUTION TO THE PARTNERSHIP CONCERN M/S EASTMAN IMPEX. THE ASSESSEE, IN ADDITION TO THE SHARE OF PROFIT FROM O THER CONCERN, HAD ALSO RECEIVED INTEREST ON HIS CAPITAL CONTRIBUTION. THE SHARE OF PROFIT EARNED BY THE ASSESSEE WAS EXEMPT UNDER SECTION 10(23) OF THE ACT AND THE ISSUE ARISING IN THE PRESENT APPEAL IS THE INTEREST EXPEN DITURE RELATABLE TO SUCH EXEMPT INCOME EARNED BY THE ASSESSEE. THE ASSESSIN G OFFICER HAD DISALLOWED A SUM OF RS. 443,967/- OUT OF INTEREST E XPENDITURE IN VIEW OF THE PROVISIONS OF SECTION 14A OF THE ACT. FOLLOWIN G THE RATIO LAID DOWN BY THE HON'BLE BOMBAY HIGH COURT IN M/S GODREJ & BO YCE VS CIT (SUPRA) THOUGH THE PROVISIONS OF RULE 8D OF IT RULE S ARE NOT TO BE APPLIED BUT SOME DISALLOWANCE IS MERITED UNDER SECT ION 14A OF THE ACT AND WE RESTRICT THE DISALLOWANCE TO RS. 50,000/- IN THE HANDS OF THE ASSESSEE. THE GROUND NOS. 1 TO 3 RAISED BY THE ASSE SSEE ARE THUS, PARTLY ALLOWED. 9. THE ISSUE IN GROUND NOS. 4 TO 7 RAISED BY THE AS SESSEE IS AGAINST THE ADDITION MADE UNDER SECTION 50C OF THE ACT. 4 10. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD DECLARED SHORT TERM CAPITAL GAINS ON SALE OF PLOTS OF LAND AT SHEKHPURA AND NEW SHAM NAG AR. THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS HAD FUR NISHED THE REGISTERED SALE DEEDS IN RESPECT OF THE SAID PLOTS WHICH WERE REGISTERED AT A HIGHER VALUE THAN DECLARED BY THE ASSESSEE. T HE ASSESSING OFFICER SHOW CAUSED THE ASSESSEE AS TO WHY THE SALE VALUE A S PER THE REGISTERED DOCUMENT BE NOT ADOPTED FOR COMPUTING THE INCOME IN THE HANDS OF THE ASSESSEE. THE OBJECTION OF THE ASSESSEE THAT IT HA D ACTUALLY RECEIVED THE SAID AMOUNT AND THE FAIR MARKET VALUE WAS NOT CORRE CT, WAS DISMISSED BY THE ASSESSING OFFICER IN VIEW OF THE PROVISIONS OF EC 50C OF THE ACT AND THE SHORT TERM CAPITAL GAINS WAS RECOMPUTED IN THE HANDS OF THE ASSESSEE RESULTING IN ADDITION OF RS. 4,74,000/- 11. BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) , THE GRIEVANCE OF THE ASSESSEE WAS THAT BEFORE COMPLETING THE ASSE SSMENT, THE ASSESSING OFFICER HAD FAILED TO MAKE A REFERENCE TO THE VALUA TION OFFICER AS THE ASSESSEE HAD CLAIMED THAT THE VALUE ADOPTED BY THE STAMP VALUATION AUTHORITY WAS HIGHER THAN THE FAIR MARKET VALUE OF THE PROPERTIES IN QUESTION. THE COMMISSIONER OF INCOME TAX (APPEALS) VIDE LETTER DATED 18.08.2009 DIRECTED THE ASSESSING OFFICER TO REFER THE VALUATION OF THE PLOTS IN QUESTION TO THE VALUATION OFFICER WHO IN T URN FORWARDED THE REPORT OF THE VALUATION OFFICER DATED 30.11.2009 TO THE COMMISSIONER OF INCOME TAX (APPEALS). AS PER THE VALUATION OF THE VALUATION OFFICER, THE FAIR MARKET VALUE OF THE LAND AS ON THE DATE OF TRANSFER WAS ESTIMATED AT RS. 18,45,700/-. THE ASSESSEE RAISED THE OBJECT IONS TO THE SAID VALUATION REPORT. THE COMMISSIONER OF INCOME TAX ( APPEALS) VIDE PARA 6 OBSERVED THAT THERE WAS NO MERIT IN THE CONTENTIO N OF THE ASSESSEE THAT THE VALUATION OFFICER HAD NOT ESTIMATED THE FAIR MA RKET VALUE OF THE PROPERTIES CORRECTLY. APPLYING THE PROVISIONS OF S ECTION 50C OF THE ACT, 5 THE COMMISSIONER OF INCOME TAX (APPEALS) REDUCED TH E SALE VALUE OF THE PROPERTY AS DETERMINED BY THE VALUATION OFFICER AS AGAINST THE VALUE IN THE REGISTERED DOCUMENTS RESULTING IN RELIEF OF RS. 48,300/-. 12. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). 13. THE LD. AR FOR THE ASSESSEE POINTED OUT THAT TH E RELIANCE UPON THE VALUATION REPORT OF THE VALUATION OFFICER IS INCORR ECT AS THE SAID REPORT IS BASED ON THE CIRCLE RATES AND THE SITUATION OF THE PROPERTY HAS NOT BEEN CONSIDERED BY THE VALUATION OFFICER BEFORE DETERMIN ING THE VALUE IN THE HANDS OF THE ASSESSEE. 14. THE LD. DR FOR THE REVENUE PLACED RELIANCE ON T HE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). 15. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. UNDER THE PROVISIONS OF SECTION 50C OF THE ACT, IT IS LAI D DOWN THAT WHERE THE CONSIDERATION RECEIVED OR ACCRUING, AS A RESULT OF THE TRANSFER OF A CAPITAL ASSET BY THE ASSESSEE, BEING LAND OR BUILDING OR BO TH, IS LESS THAN THE VALUE ADOPTED OR ASSESSED BY ANY AUTHORITY OF STATE GOVERNMENT, FOR THE PURPOSE OF PAYMENT OF STAMP DUTY IN RESPECT OF SUCH TRANSFER, THAN THE VALUE SO ADOPTED OR ASSESSED IN THE HANDS OF THE AS SESSEE, SHALL BE DEEMED TO BE THE FULL VALUE OF CONSIDERATION RECEIV ED OR ACCRUING ON SUCH TRANSFER, FOR THE PURPOSE OF SECTION 48 OF THE ACT. SUB-SECTION (2) TO SECTION 50C OF THE ACT PROVIDES THAT IN CASES WH ERE THE ASSESSEE CLAIMS BEFORE ANY ASSESSING OFFICER THAT THE VALUE ADOPTED OR ASSESSED BY THE STAMP VALUATION AUTHORITY UNDER SUB-SECTION (1) EXCEEDS THE FAIR MARKET VALUE OF THE PROPERTY AS ON THE DATE OF TRAN SFER AND WHERE THE VALUE SO ADOPTED OR ASSESSED BY THE STAMP VALUATION AUTHORITY HAS NOT BEEN DISPUTED IN ANY APPEAL OR REVISION OR WHERE NO REFERENCE HAS BEEN 6 MADE BEFORE ANY OTHER AUTHORITY, COURT OR THE HIGH COURT, THEN THE ASSESSING OFFICER MAY REFER THE VALUATION OF THE CA PITAL ASSET TOWARDS VALUATION OFFICER. UNDER SUB-SECTION (3) TO SECTIO N 50C OF THE ACT, IT IS LAID DOWN THAT WHERE THE VALUE ASCERTAINED BY THE V ALUATION OFFICER UNDER SUB-SECTION (2) EXCEEDS THE VALUE ADOPTED OR ASSESSED OR ASSESSABLE BY THE STAMP VALUATION OFFICER, THEN THE VALUE SO ADOPTED OR ASSESSED BY SUCH AUTHORITY SHALL BE TAKEN AS A FULL VALUE OF CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER. 16. IN THE FACTS OF THE PRESENT CASE BEFORE US, THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD SOLD TWO PLOTS OF LAND AGAINST WHICH IT HAD DECLARED SHORT TERM CAPITAL GAINS ON SALE OF THE I MMOVABLE ASSET. THE ASSESSEE, WHILE COMPUTING THE INCOME FROM SHORT TER M CAPITAL GAINS HAD DECLARED THE VALUE OF THE PLOT OF LAND AT SHEKH PURA SOLD ON 04.07.2005 AT RS. 10,21,924/- AND THE VALUE OF THE PLOT OF LAND SOLD AT NEW SHAM NAGAR ON 16.07.2005 AT RS. 292,650/-. DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE FURNISHED TWO REGISTERED SALE DEEDS AND THE TOTAL SALE CONSIDERATION AS PER THE SAID SA LE DEEDS WAS RS. 18,94,000/- AS AGAINST RS. 14,20,000/- ADOPTED BY T HE ASSESSEE WHILE COMPUTING ITS INCOME. THE ASSESSING OFFICER ADOPTE D THE SALE CONSIDERATION OF RS. 18,94,000/- IN VIEW OF THE PRO VISIONS OF SECTION 50C OF THE ACT. THE CASE OF THE ASSESSEE BEFORE US IS THAT WHERE THE ASSESSEE HAD OBJECTED TO THE VALUE ADOPTED OR ASSESSED BY TH E STAMP VALUATION OFFICER, THE ISSUE OF VALUATION OF THE PROPERTY SHO ULD HAVE BEEN SENT TO THE VALUATION OFFICER. THIS PLEA WAS RAISED BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) WHO IN-TURN DIRECTED THE ASSES SING OFFICER TO GET THE VALUATION OF THE PROPERTY DONE FROM THE VALUATI ON OFFICER. AS PER THE REPORT OF THE VALUATION OFFICER SUBMITTED DURIN G THE COURSE OF APPELLATE PROCEEDINGS, THE FAIR MARKET VALUE OF THE PROPERTY WAS DETERMINED AT RS. 18,45,700/-. THE ASSESSEE IS AGI TATED AND IS IN APPEAL 7 BEFORE US IN RESPECT OF THE SAID DETERMINATION OF T HE FAIR MARKET VALUE AT RS. 18,45,700/-. THE PLEA OF THE ASSESSEE IN THIS REGARD WAS THAT THE VALUATION OFFICER HAD RELIED UPON THE VALUATION RAT ES OF THE STAMP VALUATION AUTHORITY TO WORK OUT THE VALUE OF THE PR OPERTY AND HAS NOT CONSIDERED THE VARIOUS ASPECTS I.E. THE IRREGULAR S HAPE OF THE PLOT OF LAND AND THE SITUATION OF THE PLOT OF LAND BEFORE VALUIN G THE AFORESAID PROPERTIES. 17. IN THE INTEREST OF JUSTICE, WE ARE OF THE VIEW THAT BEFORE ADOPTING THE VALUE UNDER SECTION 50C OF THE ACT, ESPECIALLY IN CASES WHERE THE ASSESSEE HAS OBJECTED TO THE SAID VALUE BEING ASSES SED BY THE STAMP VALUATION OFFICER, DUTY IS CAST UPON THE ASSESSING OFFICER AS PER THE PROVISIONS OF THE ACT TO REFER THE VALUATION OF THE SAID ASSET TO THE VALUATION OFFICER. FURTHER, DUTY IS CAST UPON THE VALUATION OFFICER TO DETERMINE THE FAIR MARKET VALUE OF THE PROPERTY AFT ER CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES. WE FIND T HAT THOUGH THE VALUATION OFFICER IN THE PRESENT CASE HAD DELIVERED THE VALUATION REPORT BUT THE SAME WAS BASED UPON THE CIRCLE RATES ISSUED BY THE STAMP VALUATION OFFICER AND THE OTHER ISSUES AFFECTING TH E VALUE OF THE PROPERTY HAVE NOT BEEN PROPERLY CONSIDERED BY THE VALUATION OFFICER. IN ALL FAIRNESS, WE DEEM IT FIT TO RESTORE MATTER OF VALUA TION BACK TO THE FILE OF ASSESSING OFFICER WHO IN-TURN SHALL REFER THE VALUA TION OF THE SAID PROPERTIES TO THE VALUATION OFFICER, WHO WOULD PROV IDE REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE AND DETERMIN E THE FAIR MARKET VALUE OF THE PROPERTY AS ON THE DATE OF SALE, WHICH IN-TURN WOULD BE ADOPTED BY THE ASSESSING OFFICER TO COMPUTE THE INC OME FROM CAPITAL GAINS IN THE HANDS OF THE ASSESSEE IN VIEW OF THE P ROVISIONS OF SECTION 50C OF THE ACT. THE ASSESSING OFFICER SHALL AL SO AFFORD REASONABLE 8 OPPORTUNITY OF HEARING TO THE ASSESSEE BEFORE COMPU TING THE INCOME IN HIS HAND. ACCORDINGLY, THE ISSUE IS REMITTED BACK T O THE FILE OF ASSESSING OFFICER. THE GROUND OF APPEAL NOS. 4 TO 7 RAISED BY THE ASSESSEE ARE THUS, ALLOWED FOR STATISTICAL PURPOSES. 18. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH MARCH,2014. SD/- SD/- ( T.R.SOOD) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUD ICIAL MEMBER DATED: 6 TH MARCH,2014 POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR. ASSISTANT REGISTRAR ITAT,CHD.