N.Rajarajan, CHENNAI V. ACIT, CHENNAI

ITA 40/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8255 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-10-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 08-01-2016
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Assessee Lawyers: S SRIDHAR
• Keywords: Capital asset; Cost of acquisition; Fair market value; Valuation report

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI , . !' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G.PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A.NO.40/MDS./2016 / ASSESSMENT YEAR :2010-11 SHRI N.RAJARAJAN, NO.662,4 TH AVENUE, ANNA NAGAR EXTENSION, CHENNAI 600 101. VS. THE ASSISTANT COMMISSIONER OF INCOME TAX , CORPORATE CIRCLE XIV, CHENNAI 34. [PAN AQFPR 4579 Q ] ( #$ / APPELLANT) ( %&#$ /RESPONDENT) / APPELLANT BY : MR.S.SRIDHAR,ADVOCATE /RESPONDENT BY : MR.SHIVA SRINIVAS, JCIT D.R / DATE OF HEARING : 24 - 0 8 - 201 6 !' / DATE OF PRONOUNCEMENT : 26 - 10 - 2016 ' / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-7, CHENNA I DATED 04.12.2015 PERTAINING TO ASSESSMENT YEAR 2010-11. ITA NO. 40/MDS./2016 :- 2 -: 2. THE FIRST GROUND IN THIS APPEAL IS WITH REGA RD TO FAIR MARKET VALUE (FMV) AS ON 01.04.1981 OF THE PROPERTY AS CAPITAL A SSET AT ` 4,500/- PER ACRE AS AGAINST ` 6,000/- PER ACRE CLAIMED BY THE ASSESSEE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IN HIS COMPUTATION HAS TAKEN THE FMV OF LAND AS ON 01.04.1 981 AS ` 6,000/- PER ACRE ON THE BASIS OF A VALUATION REPORT OBTAINE D FROM A CHARTERED ENGINEER. DURING THE COURSE OF ASSESSMENT PROCEEDIN GS, THE AO MADE A REFERENCE TO THE SUB-REGISTRAR AT MELUR,TUTICORIN . AS PERTHE INFORMATION RECEIVED FROM THE SUB REGISTRAR VIDE HI S LETTER DATED 22.2.2013, THE VALUE OF THE PROPERTY AS ON 01.04.19 81 WAS ` 3,000/- PER CENT. THE AO IN VIEW OF THE INFORMATION RECEIVE D, SUBSTITUTED THE FMV AS ON 01.04.1981 FILED BY THE ASSESSEE AT ` 6,000/- PER ACRE, TO ` 3,000/- PER ACRE. AGGRIEVED WITH THE ORDER OF AO, T HE ASSESSEE CARRIED THE APPEAL BEFORE THE LD.CIT(A). ON APPEAL, THE LD.CIT(A) OBSERVED THAT WHILE THE ASSESSEE HAS THE SUPPORT OF THE CHARTERED ENGINEERS VALUATION REPORT, THE AO HAS PLACED RELI ANCE ON THE FMV AS ASCERTAINED FROM THE SUB-REGISTRAR. BOTH THE VALUAT IONS ARE BASED ON A DEFINITE FOOTING AND AS SUCH PLACING RELIANCE ON ON E OVER THE OTHER WILL BE ARBITRARY. UNDER THESE CIRCUMSTANCES, THE LD.CIT (A) PLACED RELIANCE IN THE DECISION OF CHENNAI TRIBUNAL IN THE CASE OF M/S.KUTTY FLUSH DOORS WHEREIN ON SIMILAR FACTS, THE TRIBUNAL DIRECT ED THAT THE AVERAGE ITA NO. 40/MDS./2016 :- 3 -: OF THE TWO VALUATION BE ADOPTED. THEREFORE, LD.CIT( A) DIRECTED THE AO TO ADOPT THE FMV AS ON 01.04.1981 AT THE RATE OF ` 4,500/- PER ACRE BEING THE AVERAGE OF THE TWO VALUATIONS. AGGRIEVED WITH THE ORDER OF LD.CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE, LD.CIT(A) HAD CONSIDERED THE AVERAGE OF REGISTERED VALUER AND SUB-REGISTRAR VALUATION FOR DETERMINING THE FMV OF THE PROPERTY AS ON 01.04.1981. THIS DECISION OF LD.CIT(A) IS BASED ON THE ORDER OF THE TRIBUNAL, CHENNAI BENCH IN THE CASE OF M/S.KUTTY FLUSH DOORS IN ITA NO.2017/MDS./2014 DATED 29.10.20 14. BEING SO, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD.CIT (A). THE SAME IS CONFIRMED. 5. THE NEXT GROUND IS WITH REGARD TO DENIAL OF LOA N LIABILITY FROM THE COST OF ACQUISITION AS DEDUCTION OF ` 1,06,76905/- AS DEDUCTION IN THE COMPUTATION OF LONG TERM CAPITAL GAINS. 6. THE FACTS OF THE CASE ARE THAT THE AO HAD DENIE D THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF ` 1,06,76905/- AS DEDUCTION IN THE COMPUTATION OF LONG TERM CAPITAL GAINS. THE AO HAS DENIED THE CLAIM OF DEDUCTION BY ASSESSEE ON THE GROUND OF FOLLOWING RE ASONS. ITA NO. 40/MDS./2016 :- 4 -: A) THE IMPUGNED CAPITAL ASSET WAS SETTLED BY THE G RANDMOTHER (SMT.SUSILA AMMAL) OF THE ASSESSEE IN HIS FAVOUR VI DE SETTLEMENT DEED DATED 14.07.2004.IN THE SETTLEMENT DEED THERE WAS N O NARRATION OF THE PRE-EXISTING CHANGE/MORTAGE IN THE CAPITAL ASSE T. B) THE LOAN LIABILITY WAS RELATED TO A PARTNERSHIP FIRM M/S.S.ALBERT & CO., TAKEN FOR THE BUSINESS PURPOSES OF THE AFORESA ID FIRM. THE ASSESSEES GRANDMOTHER SMT.SUSILA AMMAL WAS ONE OF THE PARTNERS OF THE FIRM. THIS PARTNERSHIP FIRM WAS LATER ON INCORP ORATED INTO M/S.S.ALBERT & CO. PVT LTD., IN THE YEAR 1998. THE COMPANY TOOK OVER THE PARTNERSHIP FIRM-LOCK, STOCK AND BARREL. HENCE, AO WAS OF THE OPINION THAT THE LOAN LIABILITY WAS RELATABLE TO TH E PARTNERSHIP FIRM/COMPANY AND NOT TO THE ASSESSEE. C) THE SALE CONSIDERATION HAS NOT BEEN PAID BY THE SELLERS TO THE SBI FOR THE DISCHARGE OF LOAN BUT TO DIFFERENT PERSONS. THE AO HAS GIVEN A FINDING THAT THE ASSESSEE WAS NOT ABLE TO ESTABLISH A DIRECT LINK BETWEEN THE DISCHARGE OF LOAN AND THE SALE OF THE P ROPERTY. IT HAS ALSO BEEN MENTIONED THAT THE PROPERTY WAS SOLD IN FEBRUA RY, 2010 WHEREAS THE LOAN SETTLEMENT TOOK PLACE EARLIER IN 2009 ITSE LF. HENCE NO PART OF THE SALE CONSIDERATION WAS APPROPRIATED TOWARDS THE LOAN LIABILITY OF THE SBI BY THE ASSESSEE. AGGRIEVED, THE ASSESSEE C ARRIED THE APPEAL BEFORE THE LD.CIT(A). ITA NO. 40/MDS./2016 :- 5 -: 6.1 ON APPEAL, THE LD.CIT(A) UPHELD THE ORDER OF L D. ASSESSING OFFICER WITH THE FOLLOWING REASONS. (1) THE LOAN WAS NOT TAKEN BY SMT.SUSILA AMMAL, AS SESSEES MOTHER. AS MENTIONED EARLIER, THE LOAN WAS TAKEN FO R BUSINESS PURPOSES BY THE AFORESAID FIRM. AS ONE OF THE PARTNERS, SMT.SUSILA AMMAL HAD OFFERED HER ASSET AS COLLATERAL SECURITY. ( 2) THE LOAN WAS FINALLY SETTLED BY M/S. S.ALBERT & CO. PRIVATE LIMITED, THE COMPANY THAT SUBSUMED THE ERSTWHILE FI RM, AS PER THE MEMO OF COMPROMISE BETWEEN SBI AND THE COMPANY. (3) IT IS NOT THE CASE THAT THE BANKERS HAD TAKEN OVER THE POSSESSION OF THE IMPUGNED PROPERTY, AND THAT THE C OMPANY WAS FORCED TO SELL THE PROPERTY AND LIQUIDATE THE L OAN AS PER THE MEMO OF COMPROMISE. THE BANKERS HAD GIVEN A POSSESSION NOTICE ON 04.12.2005, FOLLOWING WHICH TH E COMPANY GOT ITS ACT TOGETHER, AND ENTERED INTO THE MEMO OF COMPROMISE. IT IS SEEN FROM THE SCHEDULE OF PAYMENT S FURNISHED BY THE APPELLANT THAT THE FIRST PAYMENT F OR ITA NO. 40/MDS./2016 :- 6 -: LIQUIDATION LOAN WAS MADE IN APRIL, 2007, AND THE L AST ON FEBRUARY 2010. (4) THE APPELLANT HAS FAILED TO CONTROVERT THE FIND ING IN THE ASSESSMENT ORDER THAT THE SALES CONSIDERATION WAS N OT UTILIZED TO CLEAR THE LOAN LIABILITY. (5) IN ANY CASE, APPELLANTS GRANDMOTHER WAS JUST A GUARANTOR. THE PRIMARY RESPONSIBILITY FOR THE LOAN STANDS ON T HE BORROWER, I.E. THE COMPANY THAT HAD TAKEN OVER THE FIRM. THE CHARGE OF THE BANK WAS ON THE COMPANY, AND NOT APPELLANTS GRANDMOTHER. THE COMPANY WAS ABLE TO DISCHARGE THE LOAN THROUGH NEGOTIATION AND STRUCTUR ING WITHOUT ALIENATING THE IMPUGNED PROPERTY WHICH WAS A COLLATERAL. ONCE THE LOAN WAS RESTRUCTURED AS PER. THE MEMO OF COMPROMISE, THE SAME WAS HONORED BY THE COMPANY AS PER THE SCHEDULE OF PAYMENT FILED. IT IS OF CRUCIAL IMPORTANCE TO NOTE THAT THE ENTITY WHICH TOOK THE LOAN, LIQUID ATED IT WITHOUT DISTURBING THE NATURE AND POSSESSION OF THE IMPUGNED PROPERTY THAT WAS A COLLATERAL. WHEN THE PROPERTY IN QUESTION IS SOLD AT A LATER DATE HOW DOES THE IN TEREST PAID BY ANOTHER ENTITY FOR ITS OWN LOAN BE TRANSFERRED A S THE LIABILITY OF ASSESSEES GRAND MOTHER? AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. ITA NO. 40/MDS./2016 :- 7 -: 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE LD.A.R RELIED ON THE DECISION OF CO-ORD INATE BENCH OF CHENNAI TRIBUNAL IN THE CASE OF M/S.SIVANANDHA MILL S LTD., IN ITA NOS.1216 & 2016/MDS,/2013 TO THE PROPOSITION THAT T HE PAYMENT OF LOAN L IABILITY TO THE STATE BANK OF INDIA SETTLED THROUGH THE DEBT RECOVERY TRIBUNAL IS HAVING A DIRECT NEXUS WITH TRANSFER OF CAPITAL ASSETS AND IT IS TO BE DEDUCTED FROM THE SA LE CONSIDERATION OF CAPITAL ASSETS AND ACCORDINGLY CAPITAL GAINS TO BE COMPUTED. IN OUR OPINION, THE DECISION CANNOT BE APPLIED TO THE FACT S OF THE PRESENT CASE. IN THIS CASE, THE PROPERTY WAS GIVEN AS A CO LLATERAL SECURITY FOR THE LOAN AVAILED BY OTHER THAN THE ASSESSEE, WHICH IS A M/S.S.ALBERT & CO., AS POINTED OUT BY THE AO IN HIS ASSESSMENT ORD ER AND NEITHER THE ASSESSEE NOR THE ASSESSEES GRANDMOTHER WHO SETTLED THE PROPERTY IN FAVOUR OF THE ASSESSEE, IS BORROWER NOR A PARTY TO THE SUIT, THE MORTGAGE DEBT CANNOT BE CONSIDERED AS A COST OF ACQ UISITION OF PROPERTY SO AS TO GIVE DEDUCTION WHILE COMPUTING TH E CAPITAL GAINS FROM THE TRANSFER OF THE PROPERTY. IF THE CONSIDERA TION OF SALE OF PROPERTY APPORTIONED TOWARDS THE OUTSTANDING DEBT I N BANK, THE ASSESSEE IS HAVING VERY WELL RIGHT TO CLAIM FROM TH E BORROWER OF THE BANK WHOSE DEBT WAS SETTLED. IN VIEW OF THIS WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A). THE SAME I S CONFIRMED. ITA NO. 40/MDS./2016 :- 8 -: 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON 26 TH OCTOBER, 2016, AT CHENNAI. SD/ - SD/ - ( . ) ( G.PAVAN KUMAR ) / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED: 26 TH OCTOBER, 2016 K S SUNDARAM &'(()*( +* / COPY TO: ( 1 . / APPELLANT 3. ( ,(- . / CIT(A) 5. */0 (1 / DR 2. / RESPONDENT 4. ( , / CIT 6. 02(3 / GF