Laxmi Enterprise, Baroda V. The Dy.CIT.,Circle-2(1), Baroda

ITA 3303/AHD/2010

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9088 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 17-08-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 13-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAMES KURIAN HEARING CONCLUDED
• Assessee Lawyers: M J SHAH
• Keywords: Business income; Fair market value; Commercial expediency
• Section: 143(3)

Judgement Text

ITA NO. 3303 / AHD/201 0 ASSESSMENT Y EAR: 20 07 - 08 PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR AM AND S S GODARA JM] ITA NO. 3303 /AHD/201 0 ASSESSMENT Y EAR : 20 07 - 08 LAXMI ENTERPRISE, .... ............ APPELLANT SHREEJI KRUPA, 25/C, PRATAPGU NJ SOCIETY, NEAR ROSARY SCHOOL, PRATAPGUNJ, BARODA. [PAN: A ACFL 1033 C ] VS. DY. COMMISSIONER OF I NCOME TAX , CIRCLE 2(1), BARODA. .... ........... RESPONDENT APPEARANCES BY M .J. SHAH FOR THE A PPELLANT JAMES KURIAN FOR THE R E SPONDENT HEARING CONCLUDED ON: 0 2 / 12 / 20 1 6 ORDER PRONOUNCED ON : 27 / 0 2 / 20 1 7 O R D E R PER PRAMOD KUMAR , AM: 1. THIS APPEAL , FILED BY THE ASSESSEE, CHALLENGES CORRECTNESS OF THE ORDER DATED 26 TH AUGUST 2010, PASSED BY THE LEARNED CIT(A), IN THE M ATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 20 07 - 08 . 2. I N THE FIRST GROUND OF APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCE : - 1. THE CIT (APPEALS) ERRED IN UPHOLDING THE ADDITION OF RS.33,74, 000/ - ON THE PRESUMED DIFFERENTIAL SELLING PRICE OF SHOPS. 3. SO FAR AS THIS GRIEVANCE IS CONCERNED, THE RELEVANT MATERIAL FACTS ARE AS FOLLOWS. DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE SOLD CERTAIN SHOPS TO THE OUTSIDERS AS ITA NO. 3303 / AHD/201 0 ASSESSMENT Y EAR: 20 07 - 08 PAGE 2 OF 4 ALSO TO IT S PARTNER. WHILE THE PRICE AT WHICH SHOPS WERE SOLD TO OUTSIDERS WAS COMPUTED BY ADOPTING RATE AT RS.2,500/ - PER SQ. F T., THE ASSESSEE CHARGED ONLY RS.1,200/ - SQ . FT. IN THESE FACTS, THE ASSESSING OFFICER R ECOMPUTED SALE CONSIDERATION, FOR SALE OF SHOPS TO PARTNER S, BY ADOPTING THE RATE AT RS.2,500/ - SQ . FT . , AND BROUGHT THE AMOUNT SO COMPUTED TO TAX. AGGRIEVED, ASSESSEE CARRIED THE MA T TER IN APPEAL BEFORE TH E LEARNED C IT(A) BUT WITHOUT ANY SUCCESS. WHILE CONFIRMING T HE ACTION OF THE ASSESSING O FFI CER, THE LEARNE D CI T(A) OBSERVED AS FOLLOWS : - FROM THE ABOVE CHART IT IS SEEN THAT WHILE SALES AT THE RATE OF MORE THAN 2500 PER SQUARE FEET WERE MADE TO OUTSIDERS, SALES TO PARTNERS AND BROTHER OF THE PART NER ARE MADE AT THE RATE OF RS.1 200/ - PER SQUARE FEET. T HE APPE LLANT'S CONTENTION IS THAT PROVISION OF SECTION 40(A)(2B) OF THE INCOME - TAX ACT IS ONLY APPLICABLE TO INCOME FROM BUSINESS OR PROFESSION AND NOT OF THE CAPITAL GAINS AND THEREFORE ASSESSING OFFICER'S ACTION INVOKING THE SAID PROVISION IS NOT CORRECT. THIS ARGUMENT IS TO BE REJECTED ON BOTH COUNTS. IT HAS BEEN HELD IN THE SUBSEQUENT PARAGRAPHS OF THIS ORDER THAT INCOME OF THE APPELLANT IS FROM BUSINESS OR PROFESSION AND IT IS NOT A CAPITAL GAIN. SECONDLY IF THE TRANSACTION IS NOT AT ARMS LENGTH THE ASSESSI NG OFFICER IS ENTITLED TO BRING TO TAX INCOME WHICH HAS BEEN SUPPRESSED/DIVERTED THROUGH DUBIOUS MEANS UNDER ANY HEAD OF INCOME. SELLING SIMILAR BUT BIGGER PROPERTY TO PARTNERS OR BROTHER OF THE PARTNER AT HALF THE PRICE THAN THE PREVAILING MARKET RATES A S IS OBVIOUS FROM THE SALE OF PROPERTY TO OUTSIDERS, CANNOT BE JUSTIFIED ON THE GROUND THAT THAT THE INCOME IS OFFERED UNDER THE HEAD CAPITAL GAINS. IT HAS BEEN ARGUED BY THE APPELLANT THAT PRICE CONSIDERATION FOR SALE OF PROPERTY TO PARTNERS AND RELATIVE S IS AS PER THE OFFICIAL GOVERNMENT JUNTRY AND IN FACT THE JUNTRY PRICE IS LOWER THAN THE CONSIDERATION RECEIVED FROM THE PARTNERS AND RELATIVES. THIS ARGUMENT OF THE APPELLANT IS ONLY STATED TO BE REJECTED. T HE QUESTION IS NOT WHETHER JANTRY PRICE IS THE FINAL DETERMINANT OF MARKET RATE. SINCE IN THE CASE OF APPELLANT ITSELF SIMILAR PROPERTY HAS BEEN SOLD TO OUTSIDERS AT DOUBLE THE RATE IT IS APPARENT THAT THE MARKET RATE HAS TO BE DETERMINED ON THE BASIS OF T HESE SALE INSTANCES. ANOTHER ARGUMENT IS MADE THAT BECAUSE OF THE FINANCIAL CRISIS THE FIRM HAD SOLD PROPERTY AT HALF THE MARKET PRICE TO THE PARTNERS AND THAT THE PARTNERS HAD REINVESTED LOAN TAKEN ON THESE PROPERTIES AS CAPITAL TO THE EXTENT OF RS.32,90,000 / - . THIS CONTENTION OF THE APPELLAN T ALSO CHALLENGES THE CREDULITY. PARTNERS HAD CAPACITY TO PURCHASE UNITS FROM THE FIRM. T HAT SHOW THAT THE PARTNERS HAD SUFFICIENT FUND. TO USE THE CAPITAL AVAILABLE WITH THE PARTNERS FOR PURCHASING THE FIRM PROPERTY AT HALF THE MARKET RATE ON THE GR OUND THAT FIRM WAS FACING FINANCIAL CRISIS IS A THIN JUSTIFICATION FOR A TRANSACTION WHICH LACKS COMMERCIAL EXPEDIENCY, PARTICULARLY WHEN OUTSIDER ARE PURCHASING THE SAME AT DOUBLE THE RATE. THOUGH NO BANK CERTIFICATE HAS BEEN FILED (DESPITE MAINTAINING T HAT IN PAPER BOOK), THIS IN ITSELF WOULD NOT BE A JUSTIFICATION FOR SELLING THE PROPERTY AT HALF THE MARKET RATE TO PARTNERS. IN FACT IF PROPERTY WERE SOLD TO PARTNER AT MARKET RATE, IT WOULD HAVE PROVIDED GREATER SECURITY FOR BIGGER LOAN. CONSIDERING TH E FACTS AS DISCUSSED ABOVE AND THE DEFENCE OF THE APPELLANT FOR SALE OF COMMERCIAL PROPERTY AT HALF ITA NO. 3303 / AHD/201 0 ASSESSMENT Y EAR: 20 07 - 08 PAGE 3 OF 4 THE MARKET PRICE TO PARTNERS AND RELATIVES IT IS HELD THAT IT IS NOT AT ARM'S LENGTH AND THE ASSESSING OFFICER IS FULLY JUSTIFIED IN BRINGIN G THE DIFFERENCE TO TAX. THIS GROUND IS REJECTED. 4. THE ASSESSEE IS NOT SATISFIED AND IS IN APPEAL BEFORE US. 5. WE HAVE HEARD THE RIVAL CONTENTIONS , PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE L EGAL POSITION. 6. WE FIND THAT IT IS NOT EVEN THE CA S E OF THE ASSESSING O FFICER THAT THERE IS ANY SUP PRESSION OF SALE CONSIDERATION OR THAT ANY AMOUNT HAS BEEN RECEIVED, BY THE ASSESSEE UNDISCLOSED IN THE BOOKS OF ACCOUNTS. THE CASE OF THE ASSESSING O FFI CER AT BEST IS THAT THE SHOPS WERE SOLD AT LE S S THAN FAIR MARKET PRICE BUT EVEN IF THAT BE SO, THERE IS NO STATUTORY PROVISION WHICH ALLOWS THE ASSESSING O FFICER TO ADOPT SUCH FAIR MARKET VALUE AS SALE CONSIDERATION. THE ACTION OF THE ASSESSING O FFICER IN ADOPTING THE SALE CONSIDERATION FOR SHOPS SOLD TO THE PARTNERS, ON THE BASIS OF F AIR MARKET VALUE, IS WHOLLY UNSUSTAINABLE IN LAW. THE LEARNED CIT( A ) OUGHT TO HAVE VACATED THE SAME. IN VIEW OF THE S E DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE C ASE, WE UPHOLD THE PLEA OF THE ASSESSEE AND DIRECT THE ASSESSING O FFICER TO DELETE THE IMPUGNED ADDITION OF RS.33,74,000/ - . 7. GROUND NO.1 IS THUS ALLOWED. 8. IN THE S ECOND GROUND OF APPEAL, THE ASSESSEE H A S RAISED THE FOLLOWING GRIEVANCE: 2. THE CIT (APP EALS) ERRED IN SUSTAINING THE ADDITION OF RS.51,27,000/ - BEING TREATED AS BUSINESS INCOME INSTEAD OF LONG TERM CAPITAL GAINS AS OFFERED BY THE ASSESSEE. 9. LEARNED COUNSEL FOR THE ASSESSEE FAIRLY STATES THAT HE DOES NOT WISH TO PURSUE THIS GROUND EXCEPT TO THE EXTENT THAT WHILE COMPUTING BUSINESS INCOME, DUE DEDUCTION IN RESPECT OF COST OF LAND AND RELATED EXPENDITURE FOR EARNING THIS INCOME SHOULD BE ALLOWED. IT IS SUBMITTED THAT WHAT IS TREATED AS BUSINESS INCOME IS GROSS RECEIPT , BUT ITA NO. 3303 / AHD/201 0 ASSESSMENT Y EAR: 20 07 - 08 PAGE 4 OF 4 ADMISSIBLE DEDUCT IONS HAVE TO BE ALLOWED AS PER LAW. IT IS FOR THIS REASON THAT LEARNED COUNSEL PRAYS FOR REMAND TO THE ASSESSING OFFICER. LEARNED DEPARTMENTAL REPRESENTATIVE DOES NOT OPPOSE THIS STAND OF THE ASSESSEE. IN THIS VIEW OF THE MATTER, THIS ISSUE IS REMITTED TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO COMPUTE BUSINESS INCOME IN ACCORDANCE WITH LAW I.E. AFTER ALLOWING NECESSARY ADMISSIBLE DEDUCTIONS IN RESPECT OF COST OF LAND AND EXPENDITURE INCURRED IN THE BUSINESS. WHILE DOING SO, THE ASSESSIN G O FFICER SHALL GIVE A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE AND DISPOSE OF THE MATTER BY WAY OF A SPEAKING ORDER. WE O R DER SO. 10. GROUND NO.2 IS THUS ALLOWED FOR STATISTICAL PURPOSES. 11. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED IN THE TE RMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT ON THIS 27 TH DAY OF FEBRUARY, 2017 . SD/ - SD/ - S S GODARA PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) DATED: 27 TH DAY OF FEBRUARY , 201 7 . PBN /* COPIES TO : (1) THE APPELLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD