1998 (6) TMI 571 - AT - Income Tax

Summary

Issues Involved:
1. Addition of interest not charged from sister concerns.
2. Addition under the head "long-term capital gains" and the need for valuation reference.

Detailed Analysis:

1. Addition of Interest Not Charged from Sister Concerns:

The first issue pertains to the confirmation of an addition amounting to Rs. 2,74,430 due to interest not charged from sister concerns. The assessee had advanced loans to its sister concerns, and the Assessing Officer disallowed interest on borrowed funds to the extent of these interest-free advances. The CIT(A) agreed with the Assessing Officer but limited the addition to Rs. 2,74,430, which was the amount debited to the P&L account. The assessee argued that there were no unsecured loans at the year-end and that advances to sister concerns had decreased significantly. However, the Tribunal upheld the CIT(A)'s findings, noting that the advances were made in earlier years using borrowed funds. Thus, the addition of Rs. 2,74,430 was sustained, and the ground was rejected.

2. Addition under the Head "Long-Term Capital Gains":

The second issue involves an addition of Rs. 1,25,17,061 under the head "long-term capital gains." The assessee sold a property for Rs. 4,09,00,000 and offered long-term capital gains of Rs. 1,87,09,390. The fair market value as of 1st April 1981, returned by the assessee, was based on a valuation report valuing the property at Rs. 78,87,758. The Assessing Officer, however, valued it at Rs. 27,57,807, leading to a significant difference. The CIT(A) confirmed the Assessing Officer's valuation.

The assessee argued that the valuation should have been referred to the Department's Valuation Cell under section 55A of the Income-tax Act. An affidavit from the Chartered Accountant supported this plea. The Tribunal agreed that while a reference under section 55A was not mandatory, it was appropriate given the technical nature of property valuation and discrepancies in the values cited. The Tribunal noted that other properties in similar localities had been valued higher by the Department's Valuation Officer. Therefore, in the interest of justice, the Tribunal directed that the matter be referred to the Valuation Cell for determining the fair market value as of 1st April 1981.

Conclusion:

The Tribunal upheld the addition of Rs. 2,74,430 for interest not charged from sister concerns. However, it set aside the addition of Rs. 1,25,17,061 under "long-term capital gains" and directed a reference to the Valuation Cell to ascertain the fair market value as of 1st April 1981. The appeal was partly allowed.