SOLANKI DEVELOPERS, THANE V. DCIT CIR. 3, THANE, THANE

ITA 4700/MUM/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0090 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 11-07-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M SUBRAMANINAN
• Assessee Lawyers: RAJAT MITTAL
• Keywords: Fair market value
• Section: 143(3)

Judgement Text

1 INCOME-TAX APPELLATE TRIBUNAL C BENCH MUMBAI , , BEFORE S/SH. RAJENDRA, ACCOUNTAN T MEMBER & RAMLAL NEGI, JUDICIAL MEMBER ./ I.T.A. NO. 4700//MUM/2016 , / ASSESSMENT YEAR: 2010-11 SOLANKI DEVELOPERS GROUND FLOOR, NIRMAL HOUSE, TEMBHI NAKA, THANE-400 601 PAN:AAEFS 5793 A VS. DCIT, CIRCLE 3, THANE ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI M. SUBRAMANINAN ASSESSEE BY: SHRI RAJAT MITTAL - DR / DATE OF HEARING: 30.01.2018 / DATE OF PRONOUNCEMENT: 01.03.2018 , 1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) , / PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 17.06.2016 OF CIT(A)-II , THANE, THE ASSESSEE HAS FILED THE PRESENT APPEAL.ASSESSEE-FIRM,ENGAGED IN PROPERTY DEVELOPMEN T FILED ITS RETURN OF INCOME ON 07.09.2010 DECLARING INCOME OF RS.1.43 CRORES. THE ASSESSING O FFICER (A.O.) COMPLETED THE ASSESSMENT U/S. 143(3) OF THE ACT, ON 18.08.2013 DETERMINING ITS IN COME AT RS.1.63 CRORES. 2. EFFECTIVE GROUND OF APPEAL IS ABOVE SUSTAINING THE ADDITION OF RS.19.63 LACS, MADE BY THE A.O. U/S. 40A(2)(B) OF THE ACT. DURING THE ASSESSMENT PR OCEEDINGS, THE A.O. FOUND THE ASSESSEE HAD PURCHASED A PLOT OF LAND ON 24.07.2008 FOR RS.4 CRO RES AS AGAINST THE MARKET VALUE OF RS.3.80 CRORES, THAT THE PLOT WAS OWNED BY SHRI UTTAMCHAND SOLANKI, A PARTNER OF THE ASSESSEE FIRM. HE DIRECTED IT TO EXPLAIN AS TO WHY THE EXCESS AMOUNT OF RS.19.63 LACS (RS.4 CRORES RS.3,80,37,000) PAID OVER AND ABOVE THE MARKET VALU E SHOULD NOT BE DISALLOWED TO ITS TOTAL INCOME AS PER THE PROVISIONS OF SECTION 40A(2)(B). THE ASSESSEE IN ITS REPLY STATED THAT THE PLOT OF LAND WAS OWNED BY TWO PERSON THAT ONE OF THEM WAS N OT RELATED TO THE FIRM. THE A.O. MADE AN ADDITION OF THE DIFFERENCE OF RS.19.63 LACS TO THE INCOME OF THE ASSESSEE. 3. AGGRIEVED BY THE ORDER OF THE A.O., THE ASSESSEE PR EFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA) AND MADE DETAILED SUBMISSIONS.AFTER CONSIDERING THE AVAILABLE MATERIAL, HE HELD THAT THE ASSESSEE FIRM HAVE TWO PARTNERS, THAT ONE OF THEM WAS SHRI UTTAMCHAND SOLANKI, THAT IT PURCHASED A PLOT OF LAND FROM SHRI UTTAMCHAND SOLAN KI, PARTNER OF THE FIRM AND SHRI DEVICHAND SOLANKI (RELATIVE OF THE PARTNER), THAT PURCHASE WE RE MADE DURING THE A.Y. 2009-10, THAT IT HAD PAID RS.4 CRORES TO THE OWNERS OF THE PLOT OF LAND AS AGAINST THE MARKET VALUE OF RS.3.80 CRORES, THAT SHRI UTTAMCHAND SOLANKI AND SHRI DEVICHAND SOL ANKI, WERE CLOSE RELATIVE THAT THE ASSESSEE ITA NO. 4700//MUM/2016 SOLANKI DEVELOPERS 2 HAD PROPOSED TO DEVELOP AND CONSTRUCT A BUILDING ON THE SAID PLOT IN 3 YEARS, THAT THE COST OF LAND WAS EQUALLY APPORTIONED, THAT IT HAD DEBITED COST O F LAND AT RS.1.59 CRORES FOR THE YEAR UNDER APPEAL, THAT THE COST OF LAND WAS APPEARING IN THE P & L ACCOUNT, THAT THE CLAIM OF THE ASSESSEE THAT SAME HAD TO BE ADDED IN THE YEAR OF TRANSACTIO N WAS NOT TAXABLE, THAT THE ASSESSEE HAD CLAIMED THAT BOTH THE INDIVIDUALS HAD PAID TAXES ON THE SAID AMOUNT AS PROFIT ACCRUED TO THEM, THAT EVERY ENTITY WAS AN INDEPENDENT ENTITY, THAT T HE ARGUMENT ADVANCED BY THE ASSESSEE WAS NOT TENABLE, THAT THE PROVISIONS OF SECTION 40A(2)(B) O F THE ACT WERE CLEARLY ATTRACTED. FINALLY, HE UPHELD THE ORDER OF THE A.O. 4. DURING THE COURSE OF HEARING BEFORE US, THE AUTHORI SED REPRESENTATIVE (AR) CONTENDED THAT THE TRANSACTION PERTAINED TO EARLIER ASSESSMENT YEAR, T HAT THE A.O. HAD NOT GIVEN ANY FINDING THAT PAYMENT WAS EXCESSIVE AND UNREASONABLE, THAT THE VA LUATION MADE BY THE REGISTRATION AUTHORITY WAS ESTIMATED VALUE, THAT THE DIFFERENCE WAS LESS T HAN 5%, THAT ONE OF THE PARTNER WAS NOT THE RELATIVE, THAT THE ONUS WAS ON THE DEPARTMENT THROU GH THE CONTRAVENTION OF THE PROVISIONS OF SECTION 40A(2)(B). HE RELIED UPON THE CASES OF UPPE R INDIA PUBLISHING HOUSE PVT. LTD. ( 117 ITR 569)AND JOHNSON & JOHNSON (150 DTR 142).THE DEPARTM ENTAL REPRESENTATIVE (DR) ARGUED THAT PROVISIONS OF SECTION 40A(2)(B) DEALT WITH INCURRIN G OF EXPENDITURE, THAT THE ASSESSEE HAD DEBITED THE DISPUTED AMOUNT IN THE P & L ACCOUNT, THAT THE PERSONS WHO SOLD THE PLOT OF LAND WERE RELATED TO THE ASSESSEE FIRM. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT THE ASSESSEE HAD PURCHASED A PLOT OF LAND OWNED BY TWO INDIVIDUALS THAT ONE OF THEM WAS PARTNER OF THE ASSESSEE FIRM, THAT THE A.O. HAD INVOKED THE PR OVISIONS OF SECTION 40A(2)(B), THAT THE FAA CONFIRMED HIS ORDER. WE FIND THAT THE A.O./FAA HAS NOT MENTIONED AS TO HOW THE OTHER PERSON NAMELY SHRI DEVICHAND SOLANKI WAS RELATED TO THE AS SESSEE OR TO SHRI UTTAMCHAND SOLANKI. FOR INVOKING THE PROVISIONS OF SECTION 40A(2)(B),A FIND ING OF FACT ABOUT EXPENDITURE OF BEING UNREASONABLE AND EXCESSIVE AS COMPARED TO THE MARKE T RATE HAS TO BE ESTABLISHED. WE WOULD LIKE TO REFER TO THE CASE OF JOHNSON & JOHNSON LTD.(150D TR142) WHEREIN THE HONBLE HIGH COURT HAS HELD THAT IN TERMS OF SECTION 40A(2), THE BURDEN WA S UPON THE AO TO FORM AN OPINION THAT THE PAYMENT IS EXCESSIVE. WE FIND THAT THE A.O. HAS NOT MADE ANY ENQUIRIES AB OUT THE FAIR MARKET VALUE OF THE PLOT OF THE LAND IN THE SAME LOCALITY. THE CIRCLE RATE ADOPTED BY THE A.O. AND APPROVED BY THE FAA ARE BASICALLY ESTIMATED FAIR MA RKET VALUE. SOME LEVERAGE HAS TO BE GIVEN FOR THE DIFFERENCE. THE BASIC FACT OF SHRI DEVICHAN D SOLANKI BEING RELATED TO THE ASSESSEE FIRM OR TO THE PARTNERS AND PAYMENT BEING EXCESSIVE AND UNR EASONABLE HAS NOT BEEN ESTABLISHED. ITA NO. 4700//MUM/2016 SOLANKI DEVELOPERS 3 THEREFORE,REVERSING THE ORDER OF THE FAA WE DECIDE THE GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE. AS A RESULT, THE APPEAL FILED BY THE ASSESSEE STAND S ALLOWED. . ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST MARCH, 2018. 2018 SD/- SD/- RAMLAL NEGI) (RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 01.03.2018. ROSHANI, SR. PS/JV, SR. PS / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR C BENCH, ITAT, MUMBAI / , , . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.