DCIT, Circle - 1, Kolkata, Kolkata V. M/s. Ajanta Fine Foods Pvt. Ltd., Howrah

ITA 588/KOL/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4622 (ITAT-KOLKATA)
• Duration Of Justice: 5 year(s) 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-07-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 10-05-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 13-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SALLONG YADEN ACIT SRDR
• Assessee Lawyers: P J BHIDE
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Depreciation; Cost of acquisition
• Section: 143(3); 50C; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH A KOLKATA BEFORE SHRI N.V.VASUDEVAN, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 588 / KOL / 2011 ASSESSMENT YEAR :2007-08 DCIT, CIRCLE-1, 7 TH FLOOR, AAYAKAR BHAWAN, KOLKATA-600 069 V/S . M/S AJANTA FINE FOODS PVT. LTD., 121/34A, J.N.MUKHERJEE ROAD, HOWRAH-711207 [ PAN NO.AACCA 1693 E ] /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI SALLONG YADEN, ACIT-SR-DR /BY RESPONDENT SHRI P.J.BHIDE, FCA /DATE OF HEARING 10-05-2016 /DATE OF PRONOUNCEMENT 05-07-2016 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE REVENUE IS ARISING OUT OF ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-I, KOLKATA IN APPEAL NO.328/CI T(A)-I/C-1/09-10 DATED 31.01.2011. ASSESSMENT WAS FRAMED BY DCIT, CI RCLE-1, KOLKATA U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REF ERRED TO AS THE ACT) VIDE HIS ORDER DATED 25.11.2009 FOR ASSESSMENT YEAR 2007 -08. SHRI P.J.BHIDE, LD AUTHORIZED REPRESENTATIVE APPEA RED ON BEHALF OF ASSESSEE AND SHRI SALLONG YADEN, LD DEPARTMENTAL R EPRESENTATIVE APPEARED ON BEHALF OF REVENUE. ITA NO.588/KOL/2011 A.Y.2007-08 DCIT CIR-1, KOL. V. M/S AJANTA FINE FOODS PVT . LTD. PAGE 2 2. FIRST ISSUE RAISED BY REVENUE IN GROUND NO.1 IS THAT LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY ASSESSING OFFICER FOR 62,07,472/- ON ACCOUNT OF SHORT TERM CAPITAL GAINS (STCG FOR SHORT). FOR THIS, GROUND REPRODUCED BELOW:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.62, 07,472/- ON ACCOUNT OF SHORT TERM CAPITAL GAIN ARISING OUT OF TRANSFER OF COST OF IMPROVEMENT BEING ADDITION TO BUILDING BY OBSERVING THAT SE COMPANY WAS NOT THE OWNER OF THE ASSET WHEN SUCH COST TOWAR DS ADDITION TO BUILDING WAS INCURRED BY THE ASSESSEE COMPANY, CAPI TALIZED THE SAME IN ITS ACCOUNTS, DEPRECIATION WAS CLAIMED IN THE RE TURNS AND WAS ALLOWED IN ASSESSMENT. 3. FACTS IN BRIEF ARE THAT ASSESSEE IS A PRIVATE LI MITED COMPANY ENGAGED IN THE BUSINESS OF FRUIT PROCESSING. DURING THE ASS ESSMENT PROCEEDINGS, ASSESSEE HAS FILED ITS RETURN OF INCOME DECLARING NIL INCOME. THE DIRECTOR OF THE ASSESSEE-COMPANY PURCHASED LAND WITH GODOWN ON 08.11.1990 FOR A CONSIDERATION OF 1.65 LAKH WITH STAMP DUTY CHARGES 20,625/- WHICH COMES TO TOTAL COST 1,85,625/-. THEREAFTER ASSESSEE HAS INCURRED VARIO US EXPENSE SUCH AS FLOORING, CONSTRUCTION OF PARTITION, PAINTI NG ETC. IN DIFFERENT FINANCIAL YEARS, AS DETAILED BELOW:- FINANCIAL YEAR 1998-99 RS.2,74,071/- FINANCIAL YEAR 1999-00 RS.2,60,443/- FINANCIAL YEAR 2000-01 RS. 89,000/- TOTAL RS.6,23,514/- THE ASSESSEE CAPITALIZED IN ITS BOOKS OF ACCOUNT TH E AFORESAID EXPENSES BY MAKING ADDITIONS TO THE BLOCK OF BUILDINGS, THE ASS ESSEE CLAIMED DEPRECIATION ALLOWANCE ON THE AFORESAID AMOUNTS IN ITS BOOKS OF ACCOUNT. 4. IN THE INSTANT CASE, DIRECTOR OF ASSESSEE-COMPAN Y WAS THE OWNER OF THE LAND WITH GODOWN BUT ASSESSEE WAS THE OWNER OF THE EXPENSE INCURRED ON FLOORING ETC., AS DISCUSSED ABOVE. ITA NO.588/KOL/2011 A.Y.2007-08 DCIT CIR-1, KOL. V. M/S AJANTA FINE FOODS PVT . LTD. PAGE 3 THE DIRECTOR OF ASSESSEE-COMPANY HAS SOLD LAND WITH GODOWN ALONG WITH THE RENOVATION WORK CARRIED OUT BY ASSESSEE FOR A CONSI DERATION OF 1,05,08,013/-. THE SALE CONSIDERATION WAS WRITTEN AS A WHOLE IN TH E REGISTERED DEED OF CONVEYANCE WITHOUT BIFURCATION THE SALE VALUE ATTRI BUTABLE TO THE LAND AND ATTRIBUTABLE TO THE BUILDING. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO OBSERVED THAT THE SALE CONSIDERATION RECEIVED BY TH E DIRECTOR OF ASSESSEE- COMPANY HAS TWO COMPONENTS:- I) SALE PROCEEDS TOWARDS THE LAND II) SALE PROCEED TOWARDS THE BUILDING AS THE SALE PRICE WAS NOT DIFFERENTIATED BETWEEN TH E LAND AND BUILDING THEN AO HAS DIFFERENTIATED THE SAME BY ADOPTING THE SOME BA SIS WHICH HAVE BEEN DETAILED ON PAGE 6 OF THE ASSESSMENT ORDER. HOWEVER THE DETAILS OF THE BIFURCATION BETWEEN LAND AND BUILDING STAND AS UNDE R :- PARTICULARS INDEXED COST OF ACQUISITION/IMPROVEMENT AMOUNT LAND & GODOWN PURCHASED BY SHRI M.N MITRA ON 08.11.1990 FOR A TOTAL CONSIDERATION OF RS.1,85,625/- RS.1,85,625/- X 519 / 182 5,29,337/- (A) ADDITION TO BUILDING / GODOWN MADE BY ASSESSEE COMPANY IN DIFFERENT YEARS F.Y 1998- 99 ACTUAL COST RS.2,74,071/- RS.2,74,071/- X 519 / 351 4,05,250 F.Y 1999- 00 ACTUAL COST RS.2,60,443/- RS.2,60,443/- X 519 / 389 3,47,480/- FY 2000- 01 ACTUAL COST RS.89,000/- RS.89,000/- X 519 / 426 1,08,430/- TOTAL 8,61,160/- (B) A:B 1:1.62 MARKET VALUE OF THE PROPERTY DETERMINED BY THE STAM P VALUATION AUTHORITY WHICH IS CONSIDERED HERE FOR THE PURPOSE OF CAPITAL GAIN U/S. 50C OF THE IT ACT. 1,05,08,013/- SHARE OF ADDITION TO BUILDING IN THE MARKET VAL UE OF RS.1,05,08,013/- ON THE BASIS OF ABOVE RATIO (IT IS THE CONSIDERATIO N OF SALE ATTRIBUTABLE TO ASSESSEE COMPANY) 64,97,321/- AS PER THE WORKING OF AO A SUM OF 64,97,321/- OUT OF THE SALE PROCEEDS OF THE LAND & BUILDING WAS PERTAINING TO THE BUILDING EXPENSES INCURRED BY ASSESSEE ON WHICH THE ASSESSEE CLAIMED THE DEPRECIA TION ON THE BUILDING. THEREFORE, THERE WAS ARISING STCG WHICH WORKED OUT AS UNDER :- ITA NO.588/KOL/2011 A.Y.2007-08 DCIT CIR-1, KOL. V. M/S AJANTA FINE FOODS PVT . LTD. PAGE 4 SALE PRICE OF THE BUILDING OF RS.64,97,321/- LESS COST OF ACQUISITION OF RS. 2,89,849/- BALANCE STCG OF RS. 62,07,472/ - ACCORDINGLY, AO WORKED OUT STCG OF RS.62,07,472/- A ND ADDED TO THE TOTAL INCOME OF ASSESSEE. 5. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A) WHO HAS DELETED THE ADDITION BY OBSERVING AS UNDER:- 2.4 THE APPELLANT HAS SUBMITTED A COPY OF THE BALA NCE SHEET AND PROFIT & LOSS FOR THE YEAR ENDED 331.3.2007, CONVEYANCE DE ED FOR PURCHASE OF THE SAID GHUSURI PROPERTY BY THE APPELLANTS MANAGI NG DIRECTOR MR. M.N.MITRA AND THE SALE THEREOF BY HIM, WHICH HAVE B EEN DULY SCRUTINIZED. THE FACTS STATED ABOVE ARE FULLY SUPPO RTED BY THESE TWO DEEDS. IN THE SALE DEED BETWEEN SHRI M.N.MITRA AND THE PURCHASER M/S RAJENDRA TRADING CO., THE APPELLANTS NAME DOES NOT APPEAR AT ALL. THE SALE DEED CLEARLY STATES THAT IT IS MR. MITRA AND N OT THE APPELLANT WHO WAS THE OWNER OF THE SAID PROPERTY. THE SALE CONSID ERATION WAS AGREED AND PAID AT 40.00 LACS. THE MEMO OF SALE CONSIDERATION CLEARLY STATES THAT A SUM OF 27,60,00/- WAS PAID BY THE PURCHASER TO THE STATE B ANK OF INDIA, COMMERCIAL BRANCH ,NS.ROAD, HOWRAH BY FOU R DIFFERENT CHEQUES AND THE BALANCE AMOUNT WAS PAID BY THE SAID MR. MITRA. THE CONTENTION OF THE APPELLANT THAT SECTION 50C OF THE ACT AS MAINTAINED W.E.F. 01.010.2009 HAS BEEN WRONGLY APPLIED BY THE AO IS CORRECT. IT CANNOT BE DENIED THAT THE APPELLANT WAS NOT THE OWN ER OF ANY PORTION OF THE CAPITAL ASSET, BEING THE BUILDING AT PREMISES N O. 121, J.N.MUKHERJEE ROAD, GHUSURI, HOWRAH AND THEREFORE, THERE WAS NO Q UESTION OF THE APPELLANT TRANSFERRING THE SAME SO AS TO ATTRACT PR OVISION OF SECTION 2(47) AND SECTION 45 OF THE ACT. I THEREFORE, HOLD THAT THE AO WAS NOT JUSTIFIED IN HOLDING THAT THE APPELLANT EARNED CAPI TAL GAIN OF 62,07,472/- AND ADDING THE SAME TO THE INCOME OF THE APPELLANT. THE ADDITION IS THEREFORE DELETED. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) REVENUE IS IN APPEAL BEFORE US. 6. BEFORE US BOTH THE PARTIES RELIED ON THE ORDERS OF AUTHORITIES BELOW AS FAVOURABLE TO THEM. LD AR SUBMITTED PAPER BOOK WHI CH IS RUNNING PAGES FROM 1 TO 125 AND DECISION OF HON'BLE JURISDICTIONAL HI GH COURT WITH THE RECORD. LD AR SUBMITTED THAT ASSESSEE HAS INCURRED A SMALL AMO UNT OF MONEY IN CONNECTION WITH BUILDING AND ASSESSEE WAS NEVER OWN ER OF THAT LAND AND ITA NO.588/KOL/2011 A.Y.2007-08 DCIT CIR-1, KOL. V. M/S AJANTA FINE FOODS PVT . LTD. PAGE 5 BUILDING BUT WAS TREATED A DEEMED OWNER BY VIRTUE O F THE EXPLANATION 1 TO SECTION 32 FOR THE LIMITED PURPOSE OF CLAIMING DEPR ECIATION ON THE EXPENSE INCURRED BY ASSESSEE-COMPANY. THEREFORE THE QUESTIO N OF TAXING THE CAPITAL GAIN IN THE HANDS OF THE ASSESSEE DOES NOT ARISE. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE AFORESAID DISCUSSION, WE FIND THAT DIRECTOR OF ASSESSEE-COMPANY HAS PURCHASED A PIECE OF LAND FOR A CONSIDERATION WHICH WAS GIVEN ON RENT FREE BASIS TO THE ASSESSEE. THE A SSESSEE HAS INCURRED SEVERAL RENOVATION EXPENSES AND USED THAT PLACE AS FACTORY. WE FIND THAT IN THE PRESENT CASE, THE DIRECTOR OF ASSESSEE-COMPANY NEVER CHARGED ANY RENT FROM THE ASSESSEE IN THE YEAR UNDER CONSIDERATION. THE DIRECTOR SOLD LAND AND BUILDING AND ENTIRE CONSIDERATION WAS RETAINED BY D IRECTOR OF ASSESSEE- COMPANY HIMSELF. THE ASSESSEE WAS NEVER OWNER OF TH E SAID LAND AND BUILDING BUT WAS THE DEEMED OWNER BY VIRTUE OF EXPL ANATION 1 TO SEC 32 OF THE ACT FOR THE LIMITED PURPOSE OF CLAIMING DEPRECIATIO N UNDER THE ACT. AS A RESULT OF SALE THE AO APPORTIONED THE SALE PROCEED RECEIVE D BY DIRECTOR OF THE ASSESSEE-COMPANY BY ADOPTING SOME BASIS AND WORKED OUT SALE CONSIDERATION FOR RS.64,97,321/- FOR THE BUILDING. THE AO TREATED THE SALE PROCEED AS TOWARDS THE BUILDING OF WHICH THE ASSESS EE WAS DEEMED OWNER AND HE WORKED OUT STCG FOR RS.62,07,472/- (649732 289849/-). HOWEVER, SAME WAS DELETED BY LD CIT(A) ON THE GROUND THAT A SSESSEE WAS NOT THE OWNER OF THE LAND AND BUILDING. NOW ISSUE BEFORE US ARISE SO AS TO WHETHER THE SALE PROCEED RECEIVED BY DIRECTOR OF ASSESSEE-COMPA NY WAS ALSO FORMING PART OF THE SALE AGAINST THE BUILDING OCCUPIED BY ASSESS EE-COMPANY. FROM THE FACTS OF THE CASE, WE FIND THAT THE ASSESS EE, AFTER HAVING INCURRED RENOVATION EXPENSE ON THE LAND AND BUILDING BELONGI NG TO THE DIRECTOR OF ASSESSEE-COMPANY, MADE THE PLACE AS USABLE FOR THE PURPOSE OF ITS MANUFACTURING ACTIVITIES. THE ASSESSEE WAS TREATED AS DEEM OWNER FOR THE LIMITED PURPOSE OF CLAIMING OF DEPRECIATION. AS SUC H, ASSESSEE-COMPANY ITA NO.588/KOL/2011 A.Y.2007-08 DCIT CIR-1, KOL. V. M/S AJANTA FINE FOODS PVT . LTD. PAGE 6 NEVER BECAME THE OWNER OF THE LAND AND BUILDING. TH EREFORE IN OUR CONSIDERED VIEW SALE PROCEEDS RECEIVED BY DIRECTOR OF THE ASSE SSEE-COMPANY IS TAXABLE IN THE HANDS OF DIRECTOR AND NOT IN THE HANDS OF AS SESSEE-COMPANY. IN VIEW OF ABOVE, WE UPHOLD THE ORDER OF LD. CIT(A). REVENUES APPEAL IS DISMISSED. 8. NEXT ISSUE RAISED BY REVENUE IN GROUND NO. 2 & 3 IS THAT LD. CIT(A) ERRED IN NOT ADOPTING THE VALUE ASSESSED BY STAMP V ALUATION AUTHORITY AS SALE CONSIDERATION. FOR THIS, REVENUES GROUNDS REPRODUC ED BELOW:- 2. THAT ON THE ACTS AND IN THE CIRCUMSTANCES OF TH E ASSESSEE THE LD. CIT(A) HAS ERRED IN LAW BY HOLDING THAT PROVISIONS U/S. 50C IS NOT APPLICABLE IN THIS CASE AS IT HAS COME INTO FORCE W .E.F. 01.10.2009 WHEN THE PROVISION HAS BEEN INTRODUCED IN THE STATUTE BY THE FINANCE ACT, 2002 W.E.F. 01.04.2003 AND WHEN THE MARKET VALUE AD OPTED AND ASSESSED BY THE STAMP VALUATION AUTHORITY HAS BEEN TAKEN AS CONSIDERATION OF SALE OF CAPITAL ASSETS FOR THE PUR POSE OF DETERMINING ASSESSABLE CAPITAL GAIN. 3. THAT ON THE FATS AND IN THE CIRCUMSTANCES OF THE CASE AND ON GROUND NO.2 ABOVE, THE LD. CIT(A) HAS ERRED IN DIRECTING T O ACCEPT THE AGREED PRICE OF RS.51,00,000/- AS THE CONSIDERATION OF SAL E IN RESPECT OF CAPITAL ASSET BEING UNIT-2 WHEN THE STAMP VALUATION AUTHORI TY HAS ADOPTED AND ASSESSED THE MARKET VALUE OF THE PROPERTY AT RS.57, 36,000/- WHICH WAS CONSIDERED IN ASSESSMENT AS CONSIDERATION OF SALE F OR THE PURPOSE OF COMPUTING ASSESSABLE CAPITAL GAIN. 9. THE ASSESSEE DURING THE YEAR HAS SOLD ITS LAND A ND BUILDING OF ITS UNIT NO.2 IN BARASAT BY AN AGREEMENT DATED 26.12.2006 TO M/S SANTEX MILLS LTD. AS PER THE AGREEMENT, THE SALE PRICE WAS DETERMINED AT RS.51 LAKH. IT WAS TO BE EXECUTED ON OR BEFORE 31 ST JANUARY, 2007. HOWEVER, ON ACCOUNT OF CERTAIN DIFFICULTIES THE DEED OF SALE COULD NOT BE REGISTER ED ON THE APPOINTED DATE. HOWEVER, THE ASSESSEE HANDED OVER THE POSSESSION OF THE AFORESAID PROPERTY TO THE BUYER ON 28.03.2007. ACCORDINGLY, ASSESSEE R ECOGNIZED THE TRANSFER OF PROPERTY IN THE FY 2006-07 IN TERMS OF PROVISION OF SEC. 2(47) OF THE ACT. THUS THE ASSESSEE WORKED OUT THE CAPITAL GAINS BY TAKING THE SALE CONSIDERATION OF 51 LAKHS AND DECLARED THE INCOME IN THE FY 2006-07 CORRESPONDING TO AY 2007-08. HOWEVER THE PROPERTY WAS FINALLY REGISTERE D IN THE NAME OF THE BUYER ITA NO.588/KOL/2011 A.Y.2007-08 DCIT CIR-1, KOL. V. M/S AJANTA FINE FOODS PVT . LTD. PAGE 7 ON 09.04.2007 WHICH IS CORRESPONDING TO THE NEXT FY . THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS, OBSERVED THAT MAR KET VALUE AS DETERMINED BY STAMP VALUATION AUTHORITY AS PER THE REGISTERED CONVEYANCE DEED AT RS.57.86 LAKH. THE AO ACCORDINGLY, OPINED THAT SALE CONSIDERATION FOR THE PURPOSE OF WORKING OUT THE CAPITAL GAINS SHOULD BE THE VALUATION AS ASSESSED BY STAMP VALUATION AUTHORITY IN TERMS OF SEC. 50C O F THE ACT. THE AO HAS WORKED OUT THE CAPITAL GAINS BY TAKING SALE CONSIDE RATION OF RS.57.86 LAKH AND ADDED TO THE CAPITAL GAINS TO THE TOTAL INCOME OF A SSESSEE. 10. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A) WHEREAS ASSESSEE SUBMITTED THAT THE PROVISION OF SEC.50C OF THE ACT EMPOWERING TO THE AO TO CONSIDER AND SUBSTITUTING THE STAMP VALUA TION FOR THE SALE CONSIDERATION AS STATED IN THE CONVEYANCE DEED CAME INTO FORCE ON 01.10.2009 AND THEREFORE SAME IS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION. LD. CIT(A) AFTER CONSIDERING THE CON TENTION OF ASSESSEE HAS DELETED THE ADDITION MADE BY AO BY OBSERVING AS UND ER:- 4.3 I HAVE CAREFULLY CONSIDERED THE APPS SUBMISSI ON INCLUDING THE AGREEMENT FOR SALE, DEDUCTION OF CONVEYANCE, COPIES OF WHICH HAVE BEEN SUBMITTED ALONG WITH THE APPEAL. IT IS A FACT THAT THE APPELLANT SOLD ITS UNIT NO.2 COMPRISING OF LAND 7 BUILDING IN TERM S OF AGREEMENT DATED 26.12.2006 AND HANDED OVER THE POSSESSION THEREOF I N THE MONTH OF MARCH, 2007 AND RECEIVED NET CONSIDERATION OF 48,11,000/- ONLY AS AGAINST AGREED PRICE OF 51,00,000/-. THE AO HAS ACCORDINGLY ASSESSED THE INCOME UNDER THE HEAD CAPITAL GAIN IN THE FINAN CIAL YEAR 2006-07 AS THE TRANSFER OF CAPITAL ASSET HAS BEEN COMPLETED BY THE APPELLANT U/S 2(47) OF THE ACT IN THAT YEAR ITSELF. THE APPELLANT S SUBMISSION THAT THE PROVISION OF SECTION 50C OF THE ACT AMENDED BY THE FINANCE (2) ACT, 2009 HAVE COME INTO FORCE ONLY ON 01.10.2009 AND WE RE NOT AT ALL APPLICABLE FOR ANY TRANSFER OF CAPITAL ASSET, WHICH HAS TAKEN PLACE PRIOR TO THAT DATE,, IN THIS CASE, ON 28.3.2007 IS CORREC T. I, THEREFORE, DIRECT THE ASSESSING OFFICER TO DETERMINE LONG TERM AND SHORT TERM CAPITAL GAIN FOR THE ASSETS ARISING TO THE APPELLANT ON SALE OF ITS UNIT NO. ONLY WITH REFERENCE TO THE AGREED SALE PRICE OF 51,00,000/- AND DETERMINE CAPITAL GAINS AFTER ALLOWING THE INDEX COST OF LAND AND WRI TTEN DOWN VALUE OF THE BUILDING . ACCORDINGLY THE GROUNDS 4 & 5 ARE ALLOWE D PARTLY. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) REVENUE IS IN APPEAL BEFORE US. ITA NO.588/KOL/2011 A.Y.2007-08 DCIT CIR-1, KOL. V. M/S AJANTA FINE FOODS PVT . LTD. PAGE 8 11. THE LD. DR BEFORE US SUBMITTED THAT PROVISION W ITH REGARD TO SEC. 50C OF THE ACT HAS BEEN INTRODUCED IN THE STATUTE BY TH E FINANCE ACT 2002 W.E.F. 1- 4-2003. AS PER THE PROVISION OF SEC. 50C OF THE ACT THE MARKET VALUE AS ASSESSED BY STAMP VALUATION AUTHORITY HAS TO BE TAK EN AS SALE CONSIDERATION OF CAPITAL ASSETS FOR THE PURPOSE OF DETERMINING AS SESSABLE CAPITAL GAINS. HE, IN SUPPORT OF HIS CONTENTION, RELIED IN THE ORDER O F HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S BAGRI IMPEX PRIVATE LTD. VS. ACIT IN GA NO. 3302 OF 2012, WHEREIN IT WAS HELD THAT AMENDMENT MADE IN SE C. 50C OF THE ACT CAME INTO FORCE ON 1.10.2009 VIS--VIS TO MAKE THE PROVI SIONS EASE AND SIMPLE BUT THE INTENTION OF LEGISLATURE WAS VERY CLEAR THAT TH E VALUE FOR THE PURPOSE OF INCOME TAX SHALL BE SAME AS THE VALUE FOR STAMP DUT Y. BY ADOPTING DEVICES TO DEFEAT THE PROVISION AND THE ASSESSEE CANNOT BE HEA RD TO CONTEND THAT SEC. 50C OF THE ACT WOULD NOT BE APPLICABLE MERELY BECAU SE THE DEED OF CONVEYANCE HAS NOT AT THAT TIME BEING EXECUTED OR R EGISTERED AND LD DR VEHEMENTLY RELIED ON THE ORDER OF AO. IN REJOINDER LD. AR SUBMITTED THAT ORDER OF HON'BLE JURISDICTIONAL HIGH COURT (SUPRA) HAS BEEN STAYED BY THE HON'BLE SUPREME COUR T IN ITS SLP PETITION NO. 17138 OF 2012 DATED 24.03.2014 AND THE ORDER PASSED BY HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S BAGRI IMPEX PRIVATE LTD . (SUPRA) IS NO LONGER APPLICABLE TO THE INSTANT CASE. HE RELIED ON THE ORDER OF LD. CIT(A). 12. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET IT WAS OBSERVED THAT THIS IS SUE IS PENDING BEFORE HONBLE SUPREME COURT IN THE CASE OF BAGRI IMPEX PVT. LTD. IN CIVIL APPEAL NO. 17138/2013 AND SUBSEQUENTLY HON'BLE SUPREME COURT H AS STAYED THIS JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT VIDE ORDER 10-05-2013 BY FOLLOWING OBSERVATIONS:- INTERIM ORDER OF STAY GRANTED ON 10 TH MAY 2013, SHALL CONTINUE UNTIL FURTHER ORDERS . IN VIEW OF THE ABOVE, LD. COUNSEL FOR THE ASSESSEE FAIRLY STATED THAT LET HON'BLE SUPREME COURT DECIDE THE ISSUE AND BY THAT TIME THE MATTER CAN BE REMITTED ITA NO.588/KOL/2011 A.Y.2007-08 DCIT CIR-1, KOL. V. M/S AJANTA FINE FOODS PVT . LTD. PAGE 9 BACK TO THE FILE OF AO FOR FRESH ADJUDICATION IN TE RM OF THE DECISION OF HON'BLE SUPREME COURT. ON THIS, LD. CIT DR HAS NOT OBJECTED TO THE SAME. ACCORDINGLY, WE SET ASIDE THIS ISSUE TO THE FILE OF THE AO TO AWAIT THE DECISION OF HON'BLE SUPREME COURT AND DECIDE THE ISSUE ACCOR DINGLY. THIS ISSUE OF ASSESSEES APPEALS IS REMITTED BACK TO THE FILE OF AO AND ALLOWED FOR STATISTICAL PURPOSES. 13. NEXT ISSUE RAISED BY REVENUE IS THAT LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY AO FOR 7,19,336/- ON ACCOUNT OF DAMAGED OPENING STOCK. FOR THIS, REVENUE HAS RAISED THE FOLLOWING GROUND:- 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE LD. CIT(A) HAS ERRED IN DIRECTING TO ALLOW LOSS OF RS.7,19,336 /- CLAIMED BY THE ASSESSEE ON ACCOUNT OF DAMAGE / DESTRUCTION OF ENT IRE OPENING STOCK OF FINISHED GOODS WHEN HE HIMSELF OBSERVED THAT LOCAL SALE WAS MADE BY THE ASSESSEE OUT OF OPENING STOCK OF FINISHED GOODS WITHOUT APPRECIATING THE FACTS THAT THE CLAIM OF LOSS WAS DISALLOWED IN ASSESSMENT ON IDENTICAL FACTUAL OBSERVATION. 14. DURING THE YEAR, ASSESSEE HAS WRITTEN OFF ITS F INISHED GOODS AT RS.7,19,336/- BY DEBITING IN ITS PROFIT & LOSS A/C AS LOSS OF STOCK. ON QUERY RAISED BY AO IT WAS SUBMITTED THAT ASSESSEE IS A MA NUFACTURER AND EXPORTER OF FRUIT AND VEGETABLE PRODUCTS. THE RAW MATERIALS USE D FOR THE PURPOSE OF SUCH PRODUCTION ARE GREEN MANGO SLICES WHICH ARE HIGHLY PERISHABLE. IN THE EARLIER YEAR, ASSESSEE WAS MAINTAINING STOCK OF THE RAW MAT ERIALS AS IT WAS ABLE TO DO THE EXPORT BUSINESS BUT THE EXPORT BUSINESS HAS GRA DUALLY REDUCED AND THEREFORE THE STOCK WAS PILED UP WITH THE ASSESSEE. BESIDES, THIS THERE WAS A FIRE BROKE OUT IN OFFICE BUILDING WHICH HAS SEVEREL Y AFFECTED ASSESSEES BUSINESS. AS A RESULT, RAW MATERIALS WHICH WERE STO RED COULD NOT BE UTILIZED FOR THE PURPOSE OF PRODUCTION. THE ASSESSEE ALSO SUBMIT TED THAT DUE TO POOR EXPORT PERFORMANCE, THE CASH CREDIT ACCOUNT HAS BEC OME, NPA. THERE WAS A LOT OF PRESSURE FROM THE SIDE OF THE BANK AND ACCOR DINGLY ASSESSEE HAD DISPOSED OF ITS PROPERTY IN DISTRESS WITH THE POOR OVERALL PERFORMANCE. THE ASSESSEE COULD NOT MAKE THE EFFECTIVE UTILIZATION O F THE RAW MATERIALS AND AS A RESULT IT HAS BECOME UNFIT FOR HOME CONSUMPTION, FI NALLY, IT WAS DESTROYED. ITA NO.588/KOL/2011 A.Y.2007-08 DCIT CIR-1, KOL. V. M/S AJANTA FINE FOODS PVT . LTD. PAGE 10 HOWEVER, AO DURING THE COURSE OF ASSESSMENT PROCEED INGS OBSERVED THAT ASSESSEE HAS MADE SALE ON 03.04.2006 AND WHICH WAS OUT OF THE AVAILABLE STOCK OF FINISHED GOODS OF THE EARLIER YEAR. THEREF ORE, THE CONTENTION OF ASSESSEE WAS NOT ACCEPTED BY AO, ACCORDINGLY, DISAL LOWED THE SAME AND ADDED THE SUM OF RS. 7,19,336.00 TO THE TOTAL INCOM E OF ASSESSEE. 15. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A), WHEREAS ASSESSEE SUBMITTED THAT SOME LOCAL SALE WERE MADE I N THE MONTH OF APRIL, AUG, 2006 AND FEB. 07 OUT OF OLD STOCK AND WORKING PROGRESS WHICH WAS FOUND FIT FOR HUMAN CONSUMPTION AND IT WAS FOR JUST AN AM OUNT OF RS.24,501/-. THE ASSESSEE DESTROYED ALL THE STOCK OF FINISHED GOODS BECAME UNFIT FOR HUMAN CONSUMPTION. THEREFORE, IT WAS WRITTEN OFF IN ITS B OOKS OF ACCOUNT. ACCORDINGLY, LD CIT(A) OBSERVED THAT THE LOCAL SALE CLAIMED BY ASSESSEE IT WAS A MEAGER AMOUNT AND THE CLAIMED THAT IT WAS MADE OUT OF THE OPENING FINISHED GOODS APPEARS REASONABLE. ACCORDINGLY, LD CIT(A) DELETED THE ADDITION MADE BY AO. BEING AGGRIEVED BY THIS ORDER OF LD CIT(A) REVENUE IS IN APPEAL BEFORE US. 16. BEFORE US LD DR VEHEMENTLY RELIED ON THE ORDER OF AO WHEREAS LD AR RELIED ON THE ORDER OF LD CIT(A) 17. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE AFORESAID DISCUSSION, WE FIND THAT ASSESSEE HAS WRITTEN OFF ITS STOCK OF FINISHED GOODS ON THE GROU ND IT BECAME UNFIT FOR HUMAN CONSUMPTION AND FOR THIS REASON STOCK OF FINISHED G OODS WAS FOR AN AMOUNT OF 7,19,336/- WAS DESTROYED. HOWEVER THE AO FOUND THAT SOME SALE OUT OF THE OPENING STOCK OF FINISHED GOODS WAS MADE DURING THE RELEVANT YEAR. THEREFORE THE CLAIM OF ASSESSEE WAS DECLINED BY AO. HOWEVER, LD CIT(A) DELETED THE ADDITION MADE BY AO AS THE AMOUNT INVOLVED OF MEAGE R AMOUNT OF 24,501/- ONLY. WE FIND THAT ASSESSEE HAS WRITTEN OFF THE CLO SING STOCK OF FINISHED GOODS ITA NO.588/KOL/2011 A.Y.2007-08 DCIT CIR-1, KOL. V. M/S AJANTA FINE FOODS PVT . LTD. PAGE 11 BY DEBITING IN ITS PROFIT AND LOSS A/C. WE ALSO FIN D THAT BUSINESS OF ASSESSEE WAS OF FRUIT AND VEGETABLE AND RAW MATERIALS USED F OR THE BUSINESS WAS OF GREEN MANGO WHICH WAS HIGHLY PERISHABLE. THE BUSINE SS OF ASSESSEE WAS SEVERELY AFFECTED FOR THE REASON DISCUSSED ABOVE. F ROM THE FACTS WE ALSO FIND THAT ASSESSEE HAD TO SALE ITS PROPERTY UNDER DISTRE SS TO REPAY THE LOAN OF THE BANK. AS SUCH, WE FIND THAT THE BUSINESS OF ASSESSE E AS DECREASING ON YEAR- TO-YEAR BASIS. ACCORDINGLY, WE AGREE WITH THE CONTE NTION OF LD AR THAT THE OPENING STOCK OF FINISHED GOODS BECAME UNFIT FOR HU MAN CONSUMPTION AND SAME WAS DULY DEBITED IN THE PROFIT AND LOSS A/C OF ASSESSEE. LD DR HAS NOT BROUGHT ANYTHING CONTRARY TO THE FIND OF LD CIT(A) . HENCE, WE UPHOLD THE ORDER OF LD. CIT(A) AND THIS GROUND REVENUES APPEA L IS DISMISSED. 18. NEXT GROUND RAISED BY REVENUE IN GROUND NO.5 OF THIS APPEAL IS THAT LD CIT(A) ERRED IN DELETING THE ADDITION MADE BY AO FO R RS.3,75,123/- ON ACCOUNT OF DAMAGE/DESTRUCTION OF ENTIRE OPENING STOCK OF P ACKING MATERIAL. FOR THIS, REVENUE HAS REPRODUCED BELOW:- 5. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE LD. CIT(A) HAS ERRED IN DIRECTING TO ALLOW LOSS OF RS.3,75,123 /- CLAIMED BY THE ASSESSEE ON ACCOUNT OF DAMAGE / DESTRUCTION OF ENT IRE OPENING STOCK OF PACKING MATERIALS BY OBSERVING THAT THE EXPORT SALE HAVE BEEN MADE ONLY OF PURCHASE SPECIFICALLY MADE FOR EXPORT WITHO UT APPRECIATING THE FACT THAT NO SUCH FACT IS BROUGHT INTO RECORD AND W HEN ASSESSEE ITSELF ADMITTED THAT GREEN MANGO WAS PURCHASED AS RAW MATE RIAL. 19. DURING THE YEAR AS WRITTEN OFF PACKAGING MATERI ALS FOR RS.3,75,123/- BY DEBITING IN PROFIT AND LOSS A/C AS LOSS OF STOCK. O N QUESTION BY AO, ASSESSEE SUBMITTED THAT BUSINESS OF ASSESSEE CAME DOWN DRAST ICALLY AND AS SUCH THE STOCK OF CUPBOARD, CARTOON WHICH WERE USED FOR THE EXPORT SALES AND LOCAL SALES COULD NOT BE USED. BESIDES DUE TO LONG STORA GE THE PACKING MATERIALS BECAME SPOILED AND HAD TO BE THROWN OUT AS IT WAS H AVING LOW COMMERCIAL VALUE. HOWEVER, AO OBSERVED THAT DURING THE YEAR AS SESSEE MADE DOMESTIC SALES OF 24,501/- AND EXPORT SALE OF 16,87,665/- WITHOUT DEBITING ANY AMOUNT IN THE NAME OF PACKING MATERIALS. THE EXPORT S OF FINISHED GOODS WERE ITA NO.588/KOL/2011 A.Y.2007-08 DCIT CIR-1, KOL. V. M/S AJANTA FINE FOODS PVT . LTD. PAGE 12 NOT POSSIBLE WITHOUT USING PACKAGING MATERIALS. THE REFORE, CLAIM OF ASSESSEE FOR THE LOSS OF PACKING MATERIAL IS DISALLOWED AND ADDED TO THE TOTAL INCOME OF ASSESSEE. 20. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD CIT(A) WHEREAS ASSESSEE SUBMITTED THAT GOODS WERE EXPORTED AND PUR CHASED BY ASSESSEE FOR AN AMOUNT OF 13,72,500/- IN DULY PACKED CONDITION AND READY FOR EXPORT. THE ASSESSEE IN SUPPORT OF ITS CLAIM HAS SUBMITTED PURC HASE AND SALES ACCOUNT. THE ASSESSEE ALSO SUBMITTED THAT EXPORTED GOODS WER E PURCHASED IN COMPLETE PACKED CONDITION AND THE SAME WERE SUPPLIE D TO THE FOREIGNER BUYERS EVEN WITHOUT OPENING THE CONTAINERS. ACCORDI NGLY, LD CIT(A) DELETED ADDITION MADE BY AO. BEING AGGRIEVED BY THIS ORDER OF LD CIT(A) REVENUE IS IN APPEAL BEFORE US. 21. BOTH THE PARTIES RELIED ON THE ORDERS OF AUTHOR ITIES BELOW AS FAVORABLE TO THEM. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED THE MATERIALS AVAILABLE ON RECORD. FROM THE FACTS OF THE CASE, WE FIND THAT ASSESSEE HAS WRITTEN OFF PACKING MATERIALS BY DEBITING ITS PROFI T AND LOSS A/C FOR 3,75,123/- ON THE GROUND THAT THESE MATERIALS BECAME SPOIL DUE TO LONG STORAGE AND IT WAS NOT FOR ANY USE. THEREFORE, IT WAS WRITTEN OFF IN ITS BOOKS OF ACCOUNT. HOWEVER, AO OBSERVED THAT ASSESSEE DURING THE YEAR HAS MADE EXPORT SALE AND NO CORRESPONDING EXPENSES IN RELATION TO PACKIN G MATERIALS WERE WRITTEN OFF IN ITS BOOKS OF ACCOUNT. THEREFORE, AO APPREHEN DED THAT ASSESSEE HAS USED PACKAGING MATERIALS IN THE EXPORT OF GOODS AND ALSO WRITTEN OFF IN ITS BOOKS OF ACCOUNT AS UNUSABLE. HOWEVER, LD CIT(A) G RANTED RELIEF TO ASSESSEE BY HOLDING THAT THE GOODS EXPORTED BY ASSESSEE DURI NG THE YEAR WERE PURCHASED IN READYMADE PACKED CONDITION FOR THE EXP ORT PURPOSE. NOW THE QUESTION BEFORE US ARISES SO AS TO WHETHER PACKING MATERIALS WRITTEN OFF BY THE ASSESSEE WERE USED IN THE EXPORT BUSINESS OF ASSESS EE IN THE AFORESAID FACTS AND CIRCUMSTANCES. FROM THE FACTS OF THE CASE, WE F IND THAT ASSESSEE HAS ITA NO.588/KOL/2011 A.Y.2007-08 DCIT CIR-1, KOL. V. M/S AJANTA FINE FOODS PVT . LTD. PAGE 13 PURCHASED GOODS FOR THE PURPOSE OF EXPORT FROM MIDA & CO. AND SAME GOODS WERE EXPORTED/ SOLD TO HARIMA CHEMICIES. THERE WAS NO DEFECT OBSERVED IN ASSESSEES BOOKS OF ACCOUNT. ON THE CONTRARY, LD DR HAS ALSO NOT BROUGHT ANYTHI NG TO THE FINDING OF LD CIT(A). 22. FROM THE ABOVE, WE FIND THAT THE AO MADE THE AD DITION ON SURMISE AND CONJECTURE WITHOUT BRINGING ANY EVIDENCE ON RECORD. THE AR HAS SUBMITTED THE LEDGER COPIES OF THE PARTIES FOR THE PURCHASE AND S ALE OF GOODS WHICH IS PLACED ON PAGE 88 OF THE PAPER BOOK. IN THIS VIEW O F THE MATTER, WE UPHOLD THE ORDER OF LD CIT(A) AND GROUND RAISED BY REVENUE IS DISMISSED. 23. IN THE RESULT, REVENUES APPEAL IS PARTLY ALLOWED F OR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT 05/ 07/2016 SD/- SD/- ( !') ( !') (N.V.VASUDEVAN) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP $!% &- 05 / 07 /201 6 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-DCIT-CIRCLE-1, 7 TH FL, AAYAKAR BHAWAN, KOLKATA-69 2. /RESPONDENT-M/S AJANTA FINE FOODS PVT. LTD., 121/34 A, J.N.MUKHERJEE ROAD, HOWRAH-711 207 3. %.%/0 1 1 2 / CONCERNED CIT KOLKATA 4. 1 1 2- / CIT (A) KOLKATA 5. 567 /0, 1 /0 , / DR, ITAT, KOLKATA 6. 7:; <= / GUARD FILE. BY ORDER/ 1! , /TRUE COPY/ / % 1 /0 ,