TMI Blog2010 (1) TMI 875X X X X Extracts X X X X X X X X Extracts X X X X ..... Income from other sources' and not under the head 'Capital gains', as claimed by the appellant - Held that:- AO should have an opportunity to give his finding in this regard, Matter remanded to AO. - ITA Nos. 3431 and 4342/Del/2007; - - - Dated:- 15-1-2010 - I.P. Bansal, Shamim Yahya, JJ. M.P. Rastogi and Pankaj Gupta, for the Assessee Namita Pandey, for the Revenue ORDER-By The Bench: These appeals are filed by the Revenue. They are directed against the two separate orders of the CIT(A) dt. 19th March, 2007 and 4th July, 2007 for asst. yrs. 2001-02 and 2002-03 respectively. Grounds of appeal read as under: Asst. yr. 2001-02 "1. In the facts and in the circumstances of the case, the learned CIT(A) has erred in law in holding to adopt the value of assets at Rs.89,10,245 as against of Rs.22,45,000 taken by the AO and consequently relief of deprecation of Rs.16,66,311 by ignoring the facts that the working of the cost of the assets done by the Addl. CIT was determined under s. 43(1)/144A of the IT Act. 2. In the facts and circumstances of the case, the learned CIT(A) has erred in law in allowing business expenditure of Rs.15,00,000 incurred by the assessee on maint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessment order are as under: 1. Purchase of centrally air conditioning unit with generator, OTIS elevator and fire fighting equipments from M/s Baba Buildwell, Delhi for a sum of Rs.75,00,000. 2. Assessee has paid commission for arranging and finalizing the hiring facility to M/s Shivaya Laminates at Rs.10,00,000. 3. M/s Light Carts (P) Ltd. at Rs.8,00,000. 4. He has further paid Rs.3,92,377.50 to Shri R.C. Lal. 5. Rs.1,50,000 to Shri C. Lal. 6. Rs.85,000 to M/s Classic Engg. 4. It has been mentioned in the Annex. 'J' annexed to the assessment order which is stated to be a communication received by the AO from Addl. CIT in respect of determining the actual cost of above-mentioned assets, that a group concern of the assessee, namely, M/s Civic Traders (P) Ltd. had purchased the land and building of the premises known as No.225, Okhla Industrial Estate, Phase-III, New Delhi - 110 020 for total consideration of Rs.1,91,18,472. The portion of the said building, namely, basement, mezzanine floor, first floor and second floor was given by the said M/s Civic Traders (P) Ltd. to M/s Minerva Holdings Ltd. at the rent of Rs.47,08,530 per annum. The ground floor is sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 51,69,583 7,12,317 1,91,18,472 M/s Civic Traders (P) Ltd. has given the premises No.225, Okhla Industrial Estate, Phase-III, New Delhi-Consisting of Basement Mezzanine floor First floor Second floor to M/s Minerva Holding Ltd. @ Rs.47,08,530 per annum (Ground floor is alleged to be with M/s Sharda Exports-A group concern) The aforesaid equipment installed allegedly by M/s Baba Buildwell at aforesaid premises i.e., 225, Okhla Industrial Estate, Phase-III, New Delhi. (Costing Rs.63,22,868) @ Rs.47,08,530 per annum Apparently, it is clear from the aforesaid facts that all the persons are of the same group i.e. Mr. J.K. Gupta/M/s Sharda Exports/M/s Civic Traders (P) Ltd. M/s Civil Traders (P) Ltd. has purchased a building at 225, Okhla Industrial Estate, Phase-III, New Delhi at a cost of Rs.1,91,18,472. Ground floor is with group concern M/s Sharda Exports. Other floors namely basement/mezzanine floor/first floor/second floor have been given on rent to M/s Minerva Holdings Ltd. @ Rs.47,08,530 per annum [Estimated proportionate cost of basement/mezzanine/first/second floor out of total building cost/i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brought to the notice of the AO by the CIT(A), AO referred to Expln. 3 to s. 43(1) and submitted that in this case the assets given on hire were purchased by assessee from M/s Baba Buildwell, Y-37, Okhla Industrial Area, Phase-II, New Delhi after their use. After making enquiries from various parties related to assets and hiring of assets, the matter was referred to the Addl. CIT, Range-I, Meerut vide letter dt. 22nd March, 2004. The learned Addl. CIT, Range-I, Meerut has furnished the working of actual cost of assets and the same has been taken for calculation of depreciation. 7. Assessee has countered this with the following interpretations of Expln. 3 to s. 43(1) as under: "From the provisions of the said Expln. 3, it is crystal clear that the AO is obliged to record a satisfaction that the assets were transferred for reducing the liability to pay income-tax and for this purpose an appellate authority cannot substitute its opinion to sustain the applicability of the said Expln. 3 only because the assets which are transferred were used by any other person before the date of acquisition. The duty cast upon the AO by the provision is to determine the actual cost and not to sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Departmental Representative that the AO has made out a clear case according to which the cost shown by the assessee was exorbitant. It was submitted that if certain facilities are installed in the premises of other person, their value could not be in excess of what is the value of originally installed assets. It was submitted that it was a clear case where the assessee with a view to reduce the tax liability has claimed higher cost and under Expln. 3 to s. 43(1), the AO is empowered to determine the cost with the previous approval of Jt. CIT/Addl. CIT. He submitted that the AO has duly determined/estimated the cost in accordance with the provision of Act in this regard. 10.1 Learned counsel of the assessee on the other hand submitted that AO has not recorded any satisfaction that assessee has resorted to inflate the cost of purchase in order to claim higher depreciation. Learned counsel claimed that de hors such satisfaction Expln. 3 to s. 43(1) cannot be invoked. The learned counsel further claimed that the said estimate itself was without any basis. He claimed that assessee had duly given its documents for purchase of its assets. He claimed that assessee cannot be held respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated to be used by the said M/s Minerva Holdings Ltd. for a consideration of Rs.47,08,530 per annum i.e., equivalent to the amount of rent paid by them to the group concern of the assessee. It is mentioned in the Annex. 'J' that from these facts it is clear that the assessees, M/s Sharda Exports and M/s Civic Traders (P) Ltd. are all of the same group and after working out the cost of the premises used by M/s Minerva Holdings Ltd. which is calculated at 4/5th of the total premises and cost is determined at Rs.1,52,94,777. It is observed in the 'Annex. J' that Minerva Holdings Ltd. is giving total rent which has been bifurcated into two parts equally being building rent and equipment rent and the said instrument is nothing but a colourable device to bifurcate the total payments receivable from M/s Minerva Holdings Ltd. in the manner which suits the group concern/persons of the group. In these circumstances, it is mentioned in the Annexure that equipment hire rent is to be arrived at in the hands of the assessee on protective basis and here the remarks of the Addl. CIT is that this is only the opinion of the undersigned and the AO is not bound by this opinion nor the same should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring the year which included a sum of Rs.7,70,000 paid to Bhagwati Glass Works (P) Ltd. (Bhagwati Glass) vide an agreement dt. 19th May, 1961 entered into between the assessee in that case and Bhagwati Glass according to the letter had undertaken to fabricate and instal suitable driers for drying Kankar which was the main raw material for the manufacture of cement and it was noted that was a primary labour contract as all the materials for fabrication of driers and accessories were to be supplied by the assessee. A sum of Rs.3,50,000 was to be paid for the job work, however, further agreements were entered into according to which the assessee paid a total sum of Rs.7,70,000 to Bhagwati Glass in order to cover the additional jobs and that amount was capitalized and included in the amount of Rs.16,46,617 on which the depreciation was claimed. It was noticed by the AO that 90 per cent of the share capital of Bhagwati Glass was held by Shri R. Dalmia and 75 per cent of the share capital of Dalmia Dadri Cement Ltd. was owned by Bharat Development (P) Ltd. and South Asia Industries (P) Ltd. which was controlled by Shri R. Daimia and in these circumstances, the AO came to the conclusion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a question of fact which has to be determined on the evidence of the material produced or available to the IT authorities. Any document or formal deed mentioning the consideration or the cost paid for the purchase of an asset by an assessee would be a piece of evidence, but, if circumstances exist showing that a fictitious price has been put on the asset or there is a plot or collusion between the vendor and the vendee and there has been inflation or/deflation of the value for ulterior purpose, it is open to the IT authorities to refuse to accept the price mentioned in the deed or alleged by the assessee and to ascertain what the actual cost was. Referring to these observations Hon'ble High Court held that the approach adopted by the Tribunal was unsustainable as the IT authorities could substitute their own figure of actual cost. Their Lordships also referred to the decision of Calcutta High Court in the case of CIT vs. Jogta Coal Co. Ltd. (1965) 55 ITR 89 (Cal) if the circumstances showed that an assessee had arranged to put a fictitious price on his assets in a contract or conveyance, it was open to the IT authorities to refuse to accept that price and go behind the contract or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to get the actual cost in the hands of previous owner i.e., M/s Baba Buildwell and those evidences were filed before the CIT(A) and these evidences are enclosed in the paper book. The air conditioner was purchased by M/s Baba Buildwell on 30th July, 1999 vide two bills of Bharat Store Ltd. Nos. 3084 and 3083 amounting to Rs.11,17,500 and Rs.4,57,750 respectively and the total cost in the hands of Baba Buildwell was an aggregate sum of Rs.15,75,250 on which depreciation of Rs.3,93,813 was claimed for the year ending on 31st March, 2000 and a value in that account was carried forward at Rs.11,81,437. Generator set was purchased by Baba Buildwell on 18th Aug., 1999 vide bill No.00594 for a total consideration of Rs.10,61,400 on which depreciation was claimed at Rs.2,65,350 leaving the closing balance at Rs.7,96,050. Fire fighting equipments are brought forward in the hands of Baba Buildwell at a value of Rs.1,03,050 as on 1st April, 1999 on which depreciation is claimed at Rs.10,305 as on 31st March, 2000 by leaving the closing balance at Rs.92,745. OTIS elevator was purchased on 8th April, 1999 for a consideration of Rs.5,52,046 on which depreciation was claimed at Rs.55,204.60 for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubt in the mind. It has well been observed in 'Annex. J' that the income shown to have been received by the assessee does not belong to him as it is a consolidated rent earned on that property which has been purchased by the group concern of the assessee. When a doubt is raised, it is the primary duty of the assessee to bring all the materials on record. Here, in the present case, there is a lack of material to show that such facilities earlier were also fetching so much rent. In the absence of any such material, it cannot be held that payment stated to be received by the assessee as consideration for using these assets from M/s Minerva Holdings (P) Ltd. was genuine one. In 'Annex. J' it has been clearly observed that this has to be assessed on protective basis. Thus, there was a doubt in the mind of the IT authorities that the income which does not belong to the assessee has been shown in the hands of the assessee. Here, not going into that controversy because the AO himself has chosen to determine only the value of its assets in view of Expln. 3 to s. 43, we will examine only the question that whether or not the AO was right in determining the actual cost or whether CIT(A) was ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no knowledge about the air conditioning, civil work, electrical work and management etc. M/s Meerut Agro Chemicals Ltd. has issued a debit note instead of a bill. AO also found it interesting that Shri Raj Kumar Kansal has not been able to give the details of the media through which he contacted Shri J.K. Gupta. The basis for fixing of supervision charges were not given. Shri H.C. Arora was said to be general manager of the assessee's Delhi branch and looking after the actual work has left and present address of Shri H.C. Arora was not given. No feedback (customer satisfaction record has been produced). On the basis of these observations, the AO referred to the decision of the Hon'ble apex Court in the case of Sumati Dayal vs. CIT (1995) 125 CTR (SC) 124 : (1995) 214 ITR 801 (SC); CIT vs. Durga Prasad More 1973 CTR (SC) 500 : (1971) 82 ITR 540 (SC) and McDowell and Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126 : (1985) 154 ITR 148 (SC) and accordingly disallowed the payment of Rs.15 lacs. 11.2 Upon assessee's appeal the CIT(A) elaborately referred to the statement and assessee's submission on AO's observations learned CIT(A) held as under: "The facts of the case and the submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sham. The disallowance has been made by AO on presumptions, without bringing in any concrete material on record and on the other hand, the assessee placed the material on record to the effect that the 'maintenance and supervision' work of Shri J.K. Gupta, was carried by Meerut Agro Chemical Industries Ltd. and under these circumstances, I direct the AO to allow this sum of Rs.15 lacs as a business expenditure incurred by the appellant on maintenance and supervision of hired assets at Okhla and to amend the assessment order accordingly." 11.3 Against this order the Revenue is in appeal before us. 11.4 We will adjudicate this issue after referring to related issue raised by the Revenue in ITA No.4342/Del/2007 for asst. yr. 2002-03 according to which learned CIT(A) has erred in allowing the business expenditure of Rs.20 lacs incurred by the assessee on maintenance and supervision of hired assets at Okhla. 11.5 On this issue the AO noted that assessee has debited Rs.20 lacs in P and L a/c as maintenance and supervision expenses. AO also noted that assessee received total hire charges of Rs.47,08,530 from hired assets and has incurred direct expenditure of Rs.20 lacs to earned thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses were related to local tours only. Therefore, the company has not spent a single penny for the purpose of the supervision work and thus it cannot be accepted that any supervision work was done by the company." 11.6 AO further referred the decisions of the Hon'ble apex Court in the case of Sumati Dayal vs. CIT (supra); CIT vs. Durga Prasad More (supra) and McDowell and Co. Ltd. vs. CTO (supra) and he disallowed the payment of Rs.20 lacs. 11.7 Learned CIT(A) discussed the issue brought up by the AO and referred to the details of examination carried out by the AO and concluded that "the facts of the case and the submissions of the appellant have been considered. The AO proceeded to treat this as a non-genuine business expenditure on various extraneous considerations, such as the absence of formal agreement to carry out the job, the supervision was not carried according to the terms settled, capacity of supervision was not there and the information received from the ITO-Ward 8(2), Delhi in the case of Shivaya Laminations (P) Ltd. is a different one. The disallowance has been made by AO on presumptions, without brining in any concrete material on record. On going through the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IDBI bonds, but has claimed tax benefit of TDS against above interest income. He held that interest is chargeable to tax in the previous year relevant year to asst. yr. 2001-02 under s. 199 of the IT Act. He further observed that it was pertinent to mention that the nature of deposits was cumulative and interest earned by the assessee on the securities should have been declared. Therefore, he added a sum of Rs.9,07,100 as total income under the head "income from other sources". 12.2 In this regard the AO has not accepted the assessee's explanation that assessee has brought these IDBI bonds through stock exchange and they were listed securities and the listed securities were covered under the capital gain and the difference of redemption and cost was accordingly offered. 12.3 The learned CIT(A) referred to the CBDT Circular No.2 of 2002 [(2002) 173 CTR (St) 217] as under: "4.2 In a case where the bond is acquired during the year by an intermediate purchase (a person who has acquired the bond by purchase during the term of the bond and not as original subscription) the difference between the market value as on the valuation date and the cost for which he acquired the bond, will ..... X X X X Extracts X X X X X X X X Extracts X X X X
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