M/S REED RELAYS AND ELECTRONICS LIMITED, KRISHNAGIRI V. ACIT CORPORATE CIRCLE 5 (3), CHENNAI

ITA 575/CHNY/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 2984 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 19-02-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M SUBASHRI
• Assessee Lawyers: M VISWANATHAN
• Keywords: Cost of acquisition; Fair market value; Capital Gains

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . , . , BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I.T.A.NO.575/CHNY/2018 / ASSESSMENT YEAR: 2006-07 M/S. REED RELAYS AND ELECTRONICS LIMITED, PLOT NOS. 617 & 618, BASAVANNAPURAM, GOBACHANDIRAM, KOTTAMADUGU PANCHAYAT, THALLI POST, KRISHNAGIRI DISTRICT, TAMIL NADU 635118. [PAN: AAACR3076N] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 5(3), CHENNAI 600 034. ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI M. VISWANATHAN, C.A. / RESPONDENT BY : MS. M. SUBASHRI, JCIT / DATE OF HEARING : 20.02.2019 /DATE OF PRONOUNCEMENT : 04.03.2019 / O R D E R PER DUVVURU RL REDDY, JUDICIAL MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 3, CHENNAI, DATED 29.12.2017 RELEVANT TO THE ASSESSMENT YEAR 2006-07. THE GROUNDS RAISED BY THE ASSESSEE ARE THAT (I) THE LD. CIT(A) ERRED IN CONFIRMING THE GUIDE LINE VALUE TAKEN BY THE ASSESSING OFFICER FOR COMPUTING THE INDEXED COST OF ACQUISITION AND (II) THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST EXPENSES. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE SOLD A PIECE OF HIS LAND AT I.T.A. NO. 575/CHNY/18 2 OKKIYAM THORAIPAKKAM VILLAGE AND THE EXTENT OF THE PROPERTY SOLD WAS 8.504 GROUNDS. THE SAID LANDS WERE PURCHASED IN THE YEAR 1973 AND HENCE THE ASSESSEE HAS TAKEN THE FAIR MARKET VALUE AS ON 01.04.1981 AT .55,103/- PER GROUND BASED ON THE APPROVED VALUERS REPORT. HOWEVER, BASED ON THE ASSESSMENT FOR THE ASSESSMENT YEAR 2004-05, THE ASSESSING HAS ADOPTED THE FAIR MARKET VALUE AT .4,000/- AND DETERMINED THE INDEXED COST OF ACQUISITION. 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) CONFIRMED THE ASSESSMENT. 4. ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD BOTH THE SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THE FAIR MARKET VALUE ADOPTED BY THE ASSESSING OFFICER IS VERY LOW COMPARING TO THE VALUE OF REGISTERED VALUERS REPORT AND PRAYED FOR ENHANCING THE FAIR MARKET VALUE. THE BENCH WAS OF THE OPINION THAT .10,000/- PER GROUND WOULD BE MORE REASONABLE FAIR MARKET VALUE AS ON 01.04.1981 FOR COMPUTING THE INDEXED COST OF ACQUISITION. SINCE BOTH THE PARTIES HAVE DULY AGREED FOR THE SAME, WE DIRECT THE ASSESSING OFFICER TO RE-DETERMINE THE INDEXED COST OF ACQUISITION FOR COMPUTING LONG I.T.A. NO. 575/CHNY/18 3 TERM CAPITAL GAINS. THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 6. THE NEXT GROUND RAISED IN THE APPEAL OF THE ASSESSEE IS WITH REGARD TO DISALLOWANCE OF INTEREST EXPENSES. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS GIVEN .30,84,194/- TO M/S. CROSS POINT SWITCHING LTD. (CPS) TO ENABLE THEM TO MEET THEIR REPAYMENT OBLIGATIONS TO THE BANK. IT WAS ALSO SUBMITTED THAT THE ASSESSEE WAS ALSO A GUARANTOR TO CPS WHICH IS HIS SISTER CONCERN AS WELL. THE ASSESSING OFFICER NOTICED THAT THE AMOUNT ADVANCED TO CPS WAS TO HELP THEM TO MEET ITS OBLIGATION AND THUS, THE AMOUNT ADVANCED HAS GOT NOTHING TO DO WITH THE BUSINESS ACTIVITY OF THE ASSESSEE. EVEN THOUGH THE ASSESSEE HAS CLAIMED THAT THE AMOUNT WAS GIVEN OUT OF INTERNAL GENERATION, THE ASSESSING OFFICER NOTICED THAT DURING THE PERIODS THE ASSESSEE PAID TO CPS, THE ASSESSEE HAD SUFFERED INTEREST EXPENSES IN HIS BANK ACCOUNT. SINCE THE INTEREST EXPENSES INCURRED BY THE ASSESSEE WAS NOT A BUSINESS EXPENSE, THE INTEREST CLAIMED WAS BOUGHT TO TAX, WHICH WAS CONFIRMED BY THE LD. CIT(A) ON APPEAL AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 6.1. WE HAVE HEARD THE RIVAL CONTENTIONS. BEFORE US, THE LD. DR HAS RELIED ON THE DECISION IN THE CASE OF A. MURALI & CO. (P) LTD. V. ACIT 357 ITR 580, WHEREIN, THE HONBLE JURISDICTIONAL HIGH COURT HAS HELD THAT WHERE THE I.T.A. NO. 575/CHNY/18 4 ASSESSEE UTILIZED BORROWED FUNDS IN ADVANCING LOANS TO ITS DIRECTORS INSTEAD OF USING SAME FOR BUSINESS PURPOSES, THE AUTHORITIES BELOW WERE JUSTIFIED IN REJECTING ASSESSEES CLAIM FOR DEDUCTION OF INTEREST EXPENSE. IN THE CASE IN HAND, THE ASSESSEE HAS NOT BROUGHT ON RECORD ANY MATERIAL TO CONTROVERT THE FINDINGS OF THE ASSESSING OFFICER THAT THE INTEREST EXPENSES INCURRED BY THE ASSESSEE WAS NOT A BUSINESS EXPENSE AND MOREOVER, THE ASSESSEE HAS SUFFERED INTEREST EXPENSE IN ITS BANK ACCOUNT. IN VIEW OF THE ABOVE, WE SUSTAIN THE ORDER OF THE LD. CIT(A) IN CONFIRMING THE DISALLOWANCE OF INTEREST EXPENSES CLAIMED BY THE ASSESSEE. THUS, THE GROUND RAISED BY THE ASSESSEE IS DISMISSED. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 4 TH MARCH, 2019 IN CHENNAI. SD/- SD/- (A.MOHAN ALANKAMONY) ACCOUNTANT MEMBER (DUVVURU RL REDDY) JUDICIAL MEMBER CHENNAI, DATED, 04.03.2019 VM/- /COPY TO: 1. / APPELLANT, 2. / RESPONDENT, 3. ( ) /CIT(A), 4. /CIT, 5. /DR & 6. /GF.