M/s M.N.Globex Pvt. Ltd. (Previously M.N.Capital Pvt. Ltd.), Indore V. The DCIT, Circle- 1(1), Indore

ITA 578/IND/2010

• Counselvise Citation: 57822714 RSA 2010
• Duration Of Justice: 1 year(s) 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 06-09-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ARUN DEWAN
• Assessee Lawyers: S S MUNDRA; GIRDHAR GARG CAS
• Keywords: Cost of acquisition; Revenue expenditure
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARM A, A.M. PAN NO. : AABCM1736F I.T.A.NO.578/IND/2010 A.Y. : 2007-08 M/S.M.N.GLOBEX PVT.LTD. (PREVIOUSLY M.N. CAPITAL PVT.LTD.) DY. CIT, CIRCLE 1(1), INDORE. 412, CITY CENTRE, VS 570 M. G. ROAD, INDORE. APPELLANT RESPONDENT APPELLANT BY : SHRI S. S. MUNDRA AND SHRI GIRDHAR GARG, CAS RESPONDENT BY : SHRI ARUN DEWAN, SR. DR DATE OF HEARING : 24.11.2011 DATE OF PRONOUNCEMENT : 25.11.2011 O R D E R PER R. C. SHARMA, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) DATED 10.6.2010 FOR THE ASSESSMENT YEAR 2 007-08, IN -: 2: - 2 THE MATTER OF ORDER PASSED U/S 143(3) OF THE INCOME -TAX ACT, 1961. 2. FOLLOWING TWO EFFECTIVE GROUNDS HAVE BEEN TAKEN BY THE ASSESSEE :- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD. CIT(A)-I, INDORE HAS ERRED IN NOT ALLOWING THE DEDUCTION CLAIM OF FOLLOWING PAYMENTS (BEING THE COST OF ACQUISITION OF ASSETS) FROM HE SHORT TERM CAPITAL GAIN SHOWN OF SALE OF PROPERTY. 1. COMPOUNDING CHARGES RS.1,00,000/- 2. MAINTENANCE CHARGES RS. 22,490/- 3. PROPERTY TAX RS. 34,892/- 4. PAYMENT TO NAKODA CONSTRUCTION FOR CONSTRUCTION RS.5,00,000/- 5. PAYMENT TO SITARAM KUMAWAT FOR CONSTRUCTION RS.300000/- RS.9,57,382/- 2. THE LD. CIT(A)-I, INDORE, WAS FURTHER UNJUSTIFIE D IN CONFIRMING THE DISALLOWANCE U/S 14A AT RS. 1,26,434 /- , THE SAME IS ARBITRARY, ILLEGAL AND BAD IN LAW. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. IN THE RETURN OF INCOME, THE ASSESSEE HAS DECLARED SHORT TERM CAPITAL GAINS, INCOME FROM INVESTMENT, D IVIDEND -: 3: - 3 INCOME ETC. WHILE WORKING OUT CAPITAL GAINS, IN THE COST OF ACQUISITION OF PROPERTY, THE HAS ADDED THE FOLLOWIN G AMOUNTS :- 1. COMPOUNDING CHARGES RS.1,00,000/- 2. MAINTENANCE CHARGES RS. 22,490/- 3. PROPERTY TAX RS. 34,892/- 4. PAYMENT TO NAKODA CONSTRUCTION FOR CONSTRUCTION RS.5,00,000/- 5. PAYMENT TO SITARAM KUMAWAT FOR CONSTRUCTION RS.300000/- RS.9,57,382/- 4. THE AO HAS DISALLOWED COMPOUNDING CHARGES ON THE PLEA THAT THE PAYMENTS WERE MADE TOWARDS IRREGULAR CONSTRUCTION DETECTED BY THE LOCAL AUTHORITIES. WE FOUND THAT THE ASSESSEE HAS PAID RS. 1 LAC BY CHEQUES NO. 3720 54 DRAWN ON STATE BANK OF MYSORE TO NAKODA CONSTRUCTION. M/S . NAKODA CONSTRUCTION HAD MADE PAYMENT TO MUNICIPAL CORPORATION TOWARDS COMPOUNDING CHARGES AND PROPORTIONATELY RECOVERED FROM INDIVIDUAL UNIT HOLD ER FOR WHICH NO RECEIPT WAS ISSUED TO THE ASSESSEE. IT APP EARS THAT THE AO HAS MADE AN INQUIRY THROUGH INSPECTOR AND FO UND THAT NO PAYMENT WAS MADE TO NAKODA CONSTRUCTION. THIS IN QUIRY REPORT WAS NOT MADE AVAILABLE TO THE ASSESSEE NOR A NY -: 4: - 4 OPPORTUNITY TO CROSS EXAMINE WAS GIVEN. IN THE INTE REST OF JUSTICE, WE RESTORE THIS MATTER BACK TO THE FILE OF AO WITH A DIRECTION TO ALLOW THE ASSESSEE OPPORTUNITY OF CROS S EXAMINATION AND IF THE AO FIND THAT THE PAYMENT HAS BEEN MADE BY ACCOUNT PAYEE CHEQUE, THE SAME IS LIABLE TO BE ALLOWED, NOTWITHSTANDING THE FACT THAT THE ASSESSEE HAS NOT MADE DIRECT PAYMENT TO MUNICIPAL AUTHORITIES ON ACC OUNT OF COMPOUNDING CHARGES. THE AO IS TO DECIDE THE MATTER AFRESH AFTER GIVING DUE OPPORTUNITY TO THE ASSESSEE. 5. THE AO HAS ALSO DISALLOWED MAINTENANCE CHARGES AND PROPERTY TAX WHICH WAS CLAIMED BY THE ASSESSEE AS C OST OF ACQUISITION. THERE IS NO JUSTIFICATION FOR SUCH DIS ALLOWANCE IN SO FAR AS PAYMENT WAS ACTUALLY MADE AND THE SAME IS TO BE ALLOWED EITHER AS A REVENUE EXPENDITURE OR AS A COS T OF ACQUISITION OF THE PROPERTY. ACCORDINGLY, THE AO IS DIRECTED TO VERIFY THE FACT THAT THE ASSESSEE HAS NOT CLAIMED T HESE EXPENDITURE UNDER ANY OTHER HEAD. IF THE EXPENDITUR E HAS NOT BEEN CLAIMED, THE SAME IS ELIGIBLE FOR INCLUSION IN THE COST OF ACQUISITION. ACCORDINGLY, AO TO CONSIDER THE SAME W HILE COMPUTING CAPITAL GAINS ARISING ON SALE OF PROPERTY . -: 5: - 5 6. THE AO HAS ALSO DISALLOWED A PAYMENT OF RS. 5 LAKHS TO M/S. NAKODA CONSTRUCTION TOWARDS DEVELOPMENT CHA RGES OF THE PREMISES. FROM THE RECORD, WE FOUND THAT PARTNE R OF M/S. NAKODA CONSTRUCTION COMPANY VIDE HIS LETTER ADDRESS ED TO THE AO HAD CONFIRMED THAT HIS FIRM HAD RECEIVED A SUM O F RS. 5 LAKHS FROM THE ASSESSEE TOWARDS DEVELOPMENT CHARGES OF THE PREMISES SITUATED AT 502-B, 504, D. M. TOWER, INDOR E. THERE IS NO MATERIAL IN THE RECORD TO SUPPORT THE OBSERVATIO N OF THE AO THAT PAYMENT SO MADE WAS JUST FOR ACCOMMODATION ENT RY. IN THE INTEREST OF JUSTICE, THIS GROUND IS ALSO RESTOR ED BACK TO THE FILE OF AO FOR DECIDING AFRESH AND IF HE FINDS THAT SUCH PAYMENT IS ACTUALLY MADE FOR DEVELOPMENT OF PROPERTY, THE S AME IS ELIGIBLE TO BE ALLOWED AS A COST OF ACQUISITION WHI LE COMPUTING CAPITAL GAINS. AO IS TO GIVE FULL OPPORTUNITY TO TH E ASSESSEE TO SUBSTANTIATE ITS CLAIM FOR PAYMENT ON ACCOUNT OF DE VELOPMENT OF PROPERTY. FULL DETAILS OF DEVELOPMENT WORK UNDER TAKEN BY NAKODA CONSTRUCTION COMPANY IS TO BE FILED BY ASSES SEE. 7. THE AO HAS ALSO DISALLOWED A PAYMENT OF RS. 3 LAKH S TO SHRI SITARAM KUMAWAT ON ACCOUNT OF CONSTRUCTION WORK. IT APPEARS THAT THE AO HAS CONDUCTED INQUIRY TO FIND O UT THE -: 6: - 6 WHEREABOUT OF SHRI SITARAM KUMAWAT. AS PER THE INSP ECTORS REPORT, SHRI SITARAM S/O KALURAM KUMAWAT WAS NOT RE SIDING AT THE GIVEN ADDRESS. HOWEVER, AS PER THE INSPECTOR S REPORT ONE SITARAM S/O KALURAM NIRVALE RESIDED ON SUCH ADD RESS. IT MAY BE POSSIBLE THAT THERE MAY BE CONFUSION IN THE SURNAME OF THE SITARAM. THE PERSON SITARAM S/O KALURAM IS R ESIDING IN THE GIVEN ADDRESS AND THERE IS NO DIFFERENCE IN THE NAME OF FATHER OF SITARAM AND HE IS ALSO DOING THE CONSTRUC TION RELATED WORK. IN THE INTEREST OF JUSTICE, WE RESTORE THIS G ROUND ALSO BACK TO THE FILE OF THE AO FOR DECIDING AFRESH AFTE R MAKING A FRESH VERIFICATION. WE DIRECT ACCORDINGLY. 8. THE ASSESSEE IS ALSO AGGRIEVED FOR DISALLOWANCE OF INTEREST OF RS. 1,26,434/- U/S 14A OF THE INCOME-TA X ACT, 1961. BY OBSERVING THAT THE ASSESSEE HAD MADE INVES TMENT IN SHARES AMOUNTING TO RS. 35.16 LAKHS, THE AO DISALLO WED INTEREST EXPENDITURE OF THE ASSESSEE. DURING THE CO URSE OF HEARING BEFORE US, THE LD. AUTHORIZED REPRESENTATIV E CONTENDED THAT THERE IS NO ENTRIES IN THE INVESTMENT DURING T HE YEAR, THEREFORE, HE SHOULD NOT HAVE DISALLOWED THE INTERE ST EXPENDITURE WHICH HAS ACTUALLY BEEN INCURRED FOR OT HER -: 7: - 7 INVESTMENT. HE FURTHER CONTENDED THAT RULE 8-D IS A PPLICABLE FOR ASSESSMENT YEAR 2008-09 AND THE SAME IS NOT RETROSPECTIVE. THEREFORE, THE AO SHOULD NOT HAVE IN VOKED RULE 8-D FOR THE ASSESSMENT YEAR 2007-08 UNDER CONSIDERA TION. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND FOUND FROM RECORD THAT INVESTMENT IN SHARES/MUTUAL FUNDS IN THE PREVIOUS YEAR WAS RS. 37.37 LAKHS. AGAINST THIS , INVESTMENT DURING THE YEAR UNDER CONSIDERATION WAS RS. 35.16 LAKHS. THUS, THERE WAS DECLINE IN THE INVESTMENT DU RING THE YEAR UNDER CONSIDERATION. SINCE THERE WAS NO INVEST MENT IN THE SHARES DURING THE YEAR, RATHER THE INVESTMENT H AS BEEN DECREASED FROM PREVIOUS YEAR, IT CAN SAFELY BE SAID THAT NO BORROWED FUND WAS BEING UTILIZED FOR INVESTMENT ACT IVITIES DURING THE YEAR TO EARN TAX FREE INCOME. ACCORDINGL Y, WE DO NOT FIND ANY MERIT FOR DISALLOWANCE OF INTEREST EXPENDI TURE, IN SO FAR AS DURING THE YEAR UNDER CONSIDERATION THERE IS NO INCREASE IN THE INVESTMENT ON ACCOUNT OF SHARES AND MUTUAL F UNDS. ACCORDINGLY, THE AO IS DIRECTED TO DELETE THE DISAL LOWANCE OF INTEREST OF RS.1,26,434/-. -: 8: - 8 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D IN PART IN TERMS INDICATED HEREINABOVE. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 25 TH NOVEMBER, 2011. SD/- SD/- (JOGINDER SINGH) ( R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 25 TH NOVEMBER, 2011. CPU* 2425