O.Muralidharan, CHENNAI V. ITO, CHENNAI

ITA 787/CHNY/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8062 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 13-04-2015
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: V S JAYAKUMAR
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Opportunity of being heard; Cost of acquisition; Fair market value; Valuation report; Revised return; Revenue expenditure
• Section: 143(3); 50C; 148

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI , ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NO. 787/MDS/2015 / ASSESSMENT YEAR :20 1 0 - 11 SHRI O. MURALIDHARAN, 26/14, RANGANATHAN STREET, GANESH NAGAR, VELACHERY, CHENNAI 600 0 4 2 . [PAN: A A BPM0808R ] VS. THE INCOME TAX OFFICER , BUSINESS WARD I V ( 2 ) , CHENNAI 600 034. ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI V.S. JAYAKUMAR , ADVOCATE / RESPONDENT BY : SHRI A. V. SREEKANTH , J CIT / DATE OF HEARING : 0 5 . 0 1 .201 6 / DATE OF P RONOUNCEMENT : 29 . 0 1 .201 6 / 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) 14 CHENNAI DATED 10.03.2015 FOR THE ASSESSMENT YEAR 2010 - 11. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL, FILED HIS RETURN OF INCOME ADMITTING TOTAL INCOME AT .3,02,660/ - . IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS FOUND THAT THE ASSESSEE HAS SOLD AN I.T.A. NO . 787 /M/ 15 2 IMMOVABLE PROPERTY DURING THE FINANCIAL YEAR 2009 - 10 RELEVANT TO THE ASSESSMENT YEAR 2010 - 11 FOR WHICH NO CAPITAL GAIN INCOME WAS OFFERED TO TAX BY THE ASSESSEE. THE CASE OF THE ASSESSEE WAS REOPENED UNDER SECTION 148 OF THE INCOME TAX ACT, 19 61 [ ACT FOR SHORT] AS HE BELIEVED THAT THERE IS AN ESCAPEMENT OF INCOME. IN RESPONSE TO THE NOTICE UNDER SECTION 148 OF THE ACT, THE ASSESSEE HAS REPLIED THAT THE REVISED RETURN FILED BY THE ASSESSEE COULD BE TREATED AS RETURN FILED IN RESPONSE TO THE NO TICE ISSUED UNDER SECTION 148 OF THE ACT. ANOTHER LETTER WAS ISSUED TO THE ASSESSEE ON 06.03.2013 CALLING FOR CERTAIN DETAILS. THERE WAS NO RESPONSE FROM ASSESSEE. AGAIN ON 17.04.2013, ANOTHER OPPORTUNITY WAS GIVEN TO THE ASSESSEE TO PRODUCE THE DETAILS CA LLED FOR AND FOR THAT ALSO THERE WAS NO RESPONSE. FURTHER LETTER DATED 29.04.2014 WAS SENT TO THE ASSESSEE GIVING A FINAL OPPORTUNITY TO APPEAR AND TO PRODUCE THE DETAILS CALLED FOR. THE AR OF THE ASSESSEE APPEARED AND SUBMITTED THAT AFTER DEDUCTING THE CO ST OF ACQUISITION AND IMPROVEMENT OF THE SAID PROPERTY, THERE WAS ONLY A SHORT TERM CAPITAL LOSS WHICH COULD NOT BE SET OFF UNDER ANY OTHER HEADS OF INCOME AND HENCE IT IS CARRIED FORWARD TO THE NEXT YEAR. SINCE THE FAIR MARKET VALUE OF THE PROPERTY IS .1 ,44,71,000/ - AND THE SALE CONSIDERATION SHOWN BY THE ASSESSEE IS AT .70,00,000/ - , THE ASSESSEE WAS ASKED TO CLARIFY AS TO WHY SECTION 50C OF THE ACT SHOULD NOT BE INVOKED. THE ASSESSEE WAS ALSO ASKED TO PRODUCE EVIDENCE IN RESPECT OF THE CLAIM OF COST OF ACQUISITION OF THE PROPERTY/IMPROVEMENT. SINCE THE FAIR MARKET VALUE IS LESS THAN THAT OF THE I.T.A. NO . 787 /M/ 15 3 SALE CONSIDERATION RECEIVED BY THE ASSESSEE, THE ASSESSEE HAS REQUESTED TO REFER THE CASE FOR REVALUATION OF PROPERTY. ACCORDINGLY, THE CASE WAS REFERRED TO VALUA TION CELL TO ASCERTAIN THE VALUE OF THE PROPERTY AS ON THE DATE OF SALE OF PROPERTY. AS PER THE VALUATION REPORT AS ON THE DATE OF SALE ON 09.09.2009, THE PROPERTY WAS VALUED AT .95,05,000/ - AND THE SAME WAS TAKEN AS A CONSIDERATION RECEIVED BY THE ASSESSEE FOR ASSESSMENT. ACCORDINGLY, THE ASSESSING OFFICER COMPLETED THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT AFTER MAKING VARIOUS ADDITIONS. 3. THE ASSESSEE CARRIED THE MATT ER IN APPEAL AND CHALLENGED VARIOUS ADDITIONS MADE BY THE ASSESSING OFFICER. AFTER CONSIDERING THE FACTS OF THE CASE AND SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) DISMISSED THE APPEAL FILED BY THE ASSESSEE. 4. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFO RE THE TRIBUNAL. 5. BEFORE US, THE FIRST GROUND RAISED BY THE ASSESSEE IS WITH REGARD TO DETERMINATION OF FAIR MARKET VALUE. THE MAIN CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE IS THAT THE ASSESSEE WAS NOT GIVEN AN OPPORTUNITY TO FILE THE OBJECTION, IF ANY WITH REGARD TO FIXING THE FAIR MARKET VALUE AT .95,05,000/ - AGAINST THE GUIDE LINE VALUE OF THE PROPERTY AT .1,44,71,000/ - , WHEN THE ACTUAL SALE CONSIDERATION RECEIVED BY THE ASSESSEE WAS .70,00,000/ - . FURTHER, THE LD. COUNSEL FOR THE ASSESSEE H AS ALSO ARGUED THAT THE SUITABLE DISCOUNT TO THE CPWD RATE IN DETERMINING THE FAIR MARKET VALUE WAS NOT I.T.A. NO . 787 /M/ 15 4 GIVEN. IT IS A FACT THAT THE ASSESSING OFFICER FOLLOWED THE CONDITIONS LAID DOWN IN THE STATUTE AND OBTAINED THE FAIR MARKET VALUE FROM THE VALUATION CE LL AND DETERMINED THE VALUE AT .95,05,000/ - , BUT THE ASSESSMENT ORDER DOES NOT SPEAK WHETHER ANY OPPORTUNITY WAS GIVEN TO THE ASSESSEE BEFORE DETERMINING THE FAIR MARKET VALUE AS VALUED BY THE VALUATION CELL, ASSESSEE WAS NOT GIVEN AN OPPORTUNITY OF BEING HEARD TO VALUATION REPORT DETE RMINING THE VALUE OF THE PROPERTY. 6. THE COORDINATE BENCH OF THE TRIBUNAL, WHILE DECIDING THE APPEAL IN I.T.A. NO.1851 & 1852/MDS/2012, ETC. IN THE CASE OF SHRI M. SELVARAJ V. ITO & OTHERS DATED 14.12.2012 GRANTED 10% DEDUCTION ON THE CPWD RATE FOR DET ERMINING THE FAIR MARKET VALUE. TO TAKE CONSISTENT VIEW, WE DIRECT THE ASSESSING OFFICER TO ALLOW 10% DEDUCTION ON THE FAIR MARKET VALUE DETERMIN ED BY THE VALUATION CELL AND CAPITAL GAINS MAY BE WORKED OUT A CCORDINGLY . THUS , THE GROUND RAISED BY THE ASSESS EE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . 7. WITH REGARD TO THE ADDITION OF . 80,000/ - TOWARDS BROKERAGE AND COMMISSION, THE AUTHORITIES BELOW HAVE OBSERVED THAT THE SELF MADE CASH VOUCHERS PRODUCED CANNOT BE ACCEPTED. THE AUTHORITIES HAVE NOT APPL IED THEIR MIND WHILE DECIDING THIS GROUND. IT IS NOT POSSIBLE TO GET EVEN A HOUSE ON RENTAL BASIS WITHOUT PAYING BROKERAGE AND FOR THE PURPOSE OF SELLING A PROPERTY WITHOUT PAYING BROKERAGE IT IS VERY DIFFICULT TO SELL THE PROPERTY AS I.T.A. NO . 787 /M/ 15 5 PER THE REQUIREMENT O F THE ASSESSEE. THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT IT CANNOT BE RULED OUT THAT THERE WOULD NOT BE ANY EXPENSES AT THE TIME OF SALE OF PROPERTY TOWARDS BROKERAGE. THE CLAIM OF THE ASSESSEE IS MUCH LESS ER THAN 1% OF THE VALUE OF THE PROPERTY EV EN AFTER ALLOWING 10% DEDUCTION OVER THE FAIR MARKET VALUE DETERMINED BY THE CPWD. ACCORDINGLY, WE DELETE THE ADDITION MADE ON THIS ACCOUNT. THUS, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 8. WITH REGARD TO ADDITION OF .10,50,000/ - TOWARDS IMPROVEM ENT AND DEVELOPMENT OF PROPERTY, THE EXPENDITURE CLAIMED TO HAVE BEEN INCURRED WAS DISALLOWED IN TOTO ON THE GROUND THAT THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCE. THE ASSESSING OFFICER VIDE LETTER DATED 10.12.2013 ASKED THE ASSESSEE TO FURNISH EVIDENCE FOR EXPENSES STATED TO HAVE INCURRED WITH REGARD TO TRANSFER EXPENSES, COST OF IMPROVEMENT AND INTEREST PAID ON LOANS. HOWEVER, WITH REGARD TO COST OF IMPROVEMENT OF THE PROPERTY, THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCE. WITHOUT MAKING ANY IMPROVEMENT, THE ASSESSEE WOULD NOT HAVE FETCHED THE SALE CONSIDERATION MORE THAN DOUBLE THE VALUE OF ORIGINAL ACQUISITION OF THE PROPERTY FROM THE PREVIOUS OWNER AND IT CANNOT BE RULED OUT THAT THE ASSESSEE WOULD NOT HAVE INCURRED ANY EXPENSES TOWARDS IMPROVEMENT OF T HE PROPERTY BEFORE IT WAS SOLD. MOREOVER, BEFORE US, THE ASSESSEE HAS FILED COPIES OF THE CASH MEMO, ETC. [PB 64 TO 96]. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO EXAMINE THE EVIDENCES I.T.A. NO . 787 /M/ 15 6 FILED IN THE FORM OF CASH MEMO, ETC. AND DECIDE THE ISSUE AFRESH AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 9. WITH REGARD TO INTEREST OF .20,41,229/ - PAID TO VARIOUS BANKS AND INSTITUTIONS, THE ASSESSING OFFICER HAS OBSERV ED AS UNDER: (I) FIRST OF ALL, THE LOAN TAKEN ALL ARE PERSONA L LOAN. MOST OF THE PERSONAL LOAN TAKEN ARE AFTER THE MONTH OF FEBRUARY, 2007 I.E., AFTER ACQUIRING THE CAPITAL ASSET IN QUESTION FOR WHICH THE ENTIRE PAYMENT WAS ALREADY BEEN MADE BY THE ASSESSE E TO THE SELLER. (II) BEING ASSESSEE IS DOING MANUFACTURING BUSINESS, THE LOAN BORROWED WERE ALL RELATED TO BUSINESS AND HE HAS ALREADY CLAIMED THE INTEREST PAID FOR BORROWALS OF LOAN IN HIS RETURN OF INCOME UNDER THE HEAD BUSINESS, AND THE LOAN AMOUNT W AS REFLECTED IN HIS EARLIER RETURNS OF INCOME AS SECURED LOAN FROM BANK & OTHERS, IT IS CLEARLY SHOWS THAT THE LOAN TAKEN IS CERTAINLY NOT FOR THE PURPOSE OF ACQUIRING THE CAPITAL ASSET BUT FOR THE PURPOSE OF BUSINESS ONLY. 10. BEFORE THE LD. CIT(A), T HE ASSESSEE HAS SUBMITTED THE DETAILS OF LOANS TAKEN FROM STANDARD CHARTERED BANK, ICICI BANK, DEUTSCHE BANK, CITI BANK AND DEVELOPMENT CREDIT BANK, ETC. FROM THE CONTENTS OF THESE DOCUMENTS, THE LD. CIT(A) HAS FOUND THAT IN ALL THE CASES, THE LOANS ARE TA KEN AS PERSONAL LOAN OR AS BUSINESS LOAN AND ALL THESE LOANS ARE TAKEN AFTER FEBRUARY, 2007, I.E., AFTER ACQUISITION OF THE CAPITAL ASSET IN QUESTION FOR WHICH THE ENTIRE AMOUNT WAS ALREADY PAID BY THE ASSESSEE TO THE SELLER. THE LD. CIT(A) HAS ALSO OBSERV ED THAT THE ASSESSEE IS IN THE MANUFACTURING BUSINESS AND SOME OF THE LOANS WERE RELATED TO HIS BUSINESS ACTIVITY AND THE INTEREST PAID FOR I.T.A. NO . 787 /M/ 15 7 SUCH LOANS ARE ALREADY CLAIMED UNDER THE HEAD BUSINESS IN HIS RETURN. THEREFORE, THE LD. CIT(A) HAS HELD THAT THESE LOANS ARE EITHER PERSONAL LOAN OR FOR HIS BUSINESS ACTIVITIES AND REJECTED THE CLAIM OF THE ASSESSEE. 11. WE HAVE HEARD BOTH SIDES PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. ON PERUSAL OF THE DETAILS OF INTERE ST PAID TO BANKS [ AS PER PB 97], WE FIND THAT ON VARIOUS OCCASION, THE ASSESSEE HAS OBTAINED LOAN FROM VARIOUS BANKS BETWEEN 01.10.2006 AND 2 9 . 0 1.2007 I.E., PRIOR TO ACQUISITION OF PROPERTY . THEREFORE, IT CANNOT BE SAID THAT PRIOR TO ACQUISITION OF PROPERT Y I.E., FEBRUARY, 2007 , THE ASSESSEE HAS NOT AVAILED THE LOANS AND THE ASSESSEE WOULD NOT HAVE USED THE LOAN AMOUNT FOR ACQUISITION OF THE PROPERTY. T HEREFORE, WE ARE OF THE OPINION THAT THE INTEREST SO PAID ON THE LOANS ACQUIRED PRIOR TO ACQUISITION OF PR OPERTY IS REQUIRED TO BE CAPITALIZED . ON SIMILAR FACTS AND CIRCUMSTANCES, THE MUMBAI BENCHES OF THE TRIBUNAL IN THE CASE OF ITO V. PRINCE MULTIPLAST PVT. LTD. IN I.T.A. NO. 2002/MUM/2013 [A.Y. 2007 - 08] DATED 04.03.2015, HAS OBSERVED AS UNDER: 3. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THIS CASE THE ASSESSEE NEVER CLAIMED THE INTEREST INCURRED ON LOAN WHICH WAS USED FOR THE PURPOSE OF PURCHASE OF SHARES AS REVENUE EXPENDITURE, BUT IT WAS CAPITALIZED AS PART OF THE IN VESTMENT IN SHARES. THE CONTENTION OF THE AO WAS THAT IT CANNOT BE ADDED TO THE COST OF THE INVESTMENT SO AS TO INCREASE THE VALUE OF THE CAPITAL ASSET. 3.1 IN THE PRESENT CASE, THERE IS NO DISPUTE THAT THE ASSESSEE HAS BORROWED FUNDS FOR THE PURPOSE OF INVESTMENT IN SHARES AND THEREAFTER THE ASSESSEE HAS INCURRED INTEREST ON IT AND THE ASSESSEE ADDED THAT INTEREST TO THE COST OF INVESTMENT. IN OUR OPINION, THE INTEREST IS TO BE CONSIDERED AS PART OF THE COST OF INVESTMENT TILL DATE OF ACQUISITION AND IN TEREST PAID BY THE ASSESSEE I.T.A. NO . 787 /M/ 15 8 COMMENCING FROM THE DATE OF ACQUISITION OF SHARES TILL THE DATE OF SALE WOULD NOT FORM PART OF THE COST OF ACQUISITION. 12. IN VIEW OF THE RATIO LAID DOWN BY THE MUMBAI BENCHES OF THE TRIBUNAL (SUPRA) , WE ARE OF THE OPINION T HAT THE ASSESSEE SHOULD BE ALLOWED THE INTEREST PAID TO LOANS AVAILED BY THE ASSESSEE FOR THE PURPOSE OF ACQUISITION OF PROPERTY AS PART OF THE COST OF INVESTMENT PRIOR THE DATE OF ACQUISITION OF THE PROPERTY AFTER VERIFICATION AS TO WHETHER THE LOANS AVAI LED BY THE ASSESSEE PRIOR TO ACQUISITION OF THE PROPERTY IS FOR THE PURPOSE OF ACQUISITION OF THE PROPERTY. MOREOVER, IF THE ASSESSEE CLAIMED THE INTEREST AMOUNT FOR THE LOANS AVAILE D, PRIOR TO THE ACQUISITION OF THE PROPERTY UNDER THE HEAD BUSINESS IN H IS RETURN, THAN THE ASSESSEE SHOULD NOT BE ALLOWED TO CLAIM DOUBLE DEDUCTION. IN VIEW OF THE ABOVE, WE SET ASIDE THE ORDER PASSED B Y THE LD. CIT(A) ON THIS ISSUE AND REMIT THE MATTER BACK TO THE ASSESSING OFFICER TO VERIFY AND DECIDE THE ISSUE AFRESH IN AC CORDANCE WITH LAW AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. 1 3 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 29 TH JANUARY , 201 6 AT CHENNAI. SD/ - SD/ - ( CHANDRA POOJAR I ) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 29 . 0 1 .201 6 VM/ - I.T.A. NO . 787 /M/ 15 9 / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.