TMI Blog2015 (1) TMI 609X X X X Extracts X X X X X X X X Extracts X X X X ..... s required to be examined by the AO, we set aside the issue to the file of the AO with a direction to compute the capital gains on sale of impugned properties after applying the provisions of section 50C as on the date of sale agreements. Accordingly, the order of Ld CIT(A) is reversed. - Decided in favour of assessee for statistical purposes. Disallowance of prior period expenses - Held that:- Though expenditure incurred is reported as prior period expenditure, yet expenditure is allowable in the instant year. It is seen that the expenditure claimed represent bills settled during the course of business during the year under consideration. It is otherwise too well settled law that a contractual liability is allowable in the year of crystallisation of liability [Kedarnath Jute Manufacturing Company Limited Versus CIT (Central), Calcutta - 1971 (8) TMI 10 - SUPREME Court]. Having regard to the aforesaid factual and judicial positions, we delete the disallowance made and sustained by the authorities below and allow the ground raised by the assessee. Decided in favour of assessee. Disallowance u/s 14A - Section 14A to be worked for the period prior to the introduction of Rule 8D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.2004. The sale price on which capital gain has been worked out was taken at ₹ 2,57,76,000/- (Rs.2,62,08,000 less brokerage of ₹ 4,32,000/-). As per the sale deed of the said plot filed during the assessment proceedings, it is seen that the circle rate of the said plot was ₹ 40,32,000/- on which stamp duty had been charged by the sub-registrar, GDA, Ghaziabad. The assessee was asked by AO, to clarify vide order sheet entry dated 20.12.2007 as to why in terms of provisions of section 50C(1) of the Income Tax Act, 1961 (herein after the Act ), the circle rate may not be adopted for computing the capital gain on sale of above property. 5. Not satisfied with the reply of the assessee company, the AO enhanced the long term capital gain and worked out the same as under:- Sale price or Circle rate whichever is higher 40320000 Brokerage paid 432000 Less 39888000 6. Cost of acquisition of land (indexed Year of acquisition/ improvement Cost Cost of inflation index ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de the statutory provision as are applicable on the date of transfer ; which in the instant case had been 16.09.04. Section 50C has been introduced to cover those cases where the consideration received or accruing as a result of transfer is less than the value adopted by the stamp duty authority in respect of such transfer and therefore, the case of the appellant is covered by ambit of these provisions. In view of the above, I hold that full value of consideration is the value of ₹ 4,03,20,000/-; being the value adopted by the stamp duty authority as on the date of transfer which is 16.09.2004 and that the same shall be aodpt4ed for the purpose of computing capital gain u/s 48. 8. Before us, the ld counsel for the assessee, submitted that the circle-rate as on the date of agreement to sale is to be taken instead of circle-rate on the date of sale. He relied on the decision of Vishakapatnam Bench in the following case:- i) M/s. Lahiri Promoters Vs. ACIT, ITA No.12/Vizag/2009, dated 22.06.2010 335-346 ii) Koduru Satya Srinivas Anr. V ACIT, ITA No.556 and 557/V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. Pursuant thereto, sale-deed was executed on 16th September 2004, copy of which is also placed on the PB. In the above scenario, it was noticed by the AO, that the circle-rate on the agreement was ₹ 13,000/- per sq meter, whereas the circle-rate on the date of execution of sale-deed was ₹ 20,000/- per sq meter. He therefore held that the circle-rate on the execution of sale-deed is to be applied for computing capital gain u/s 50C of the Act. He therefore computed the capital gain in preference to the computation of assessee as under:- Sl. No. Particulars Amount (Rs.) As per assessee Amount (Rs.) As per AO 1. Sale Value 2,62,08,000 4,03,20,000 2. Less: Brokerage 4,32,00 4,32,000 3. 2,57,76,000 3,98,88,000 4. Less Indexed Cost 2,06,68,223 2,06,68,223 5. Long term capital gain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The aforesaid section provides that where consideration received or accruing as a result of the transfer by an assessee, of a capital asset being a land or building or both is less than the value adopted or assessed by stamp-value authority, the value so adopted by the stamp value authority shall be deemed to be full value of consideration u/s 48 of the Act. It is thus manifest that the value adopted by the stamp-valuation authority is deemed as the consideration for computation of capital gain. However, such valuation adopted by the stamp-valuation authority should be in respect of the transfer by the assessee, of the capital assets. Now, in the instant case, undisputedly on the execution of the sale-deed circle, rate was ₹ 20,000/- per sq meter and therefore, the value adopted for the purpose of stamp-duty was ₹ 4,03,20,000/- which was deemed as full value of consideration by the AO. The assessee on the other hand contends that circle-rate on the date of agreement registered with registrar of Ghaziabad was for ₹ 13,000/- per sq meter, which works out to be the actual sale-consideration of ₹ 2,62,08,000/- and therefore the said figure should be adopted ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he word transfer is as under: 2(47) transfer , in relation to a capital asset, includes,-.... (ii) the extinguishment of any rights therein; or Now in the light of definition of transfer as defined under Section 2(47) of the Act, it is clear that when any right in respect of any capital asset is extinguished and that right is transferred to someone, it would amount to transfer of a capital asset. 14. Moreover, in an identical matter Vishapatanam Bench of ITAT in the case of Lahiri Promoters Vs. ACIT in ITA No.12/VI/Vizag /2009 held as under:- 8. We have heard the rival contentions and carefully perused the record. The issue agitated before us revolves around section 50C of the Act. For the sake of convenience, we extract the section 50C(1) below: 50C (1) Where the consideration received or accruing as a result of the transfer by an assessee of, a capital asset, being land or building or both, is less than the value adopted or assessed by any authority of a State Government (hereafter in this section referred to as the stamp valuation authority ) for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue by 15%. However, the Hon'ble Supreme Court held that a fair and reasonable construction of Sec 52(2) would be to read into it a condition that it would apply only where the consideration for the transfer is under- stated and hence it would have no application in the case of a bonaflde transaction where the full value of the consideration for the transfer is correctly declared by the assessee. For the sake of convenience, we 'extract below the relevant observations of the Hon'ble Apex Court on the rule of interpretation and the logical conclusion: 5. Now, on these provisions the question arises as to what is the true interpretation of s.52, sub-s.(2). The argument of the Revenue was, and this argument found favour with the majority judges of the Full Bench, that on a plain and natural construction of the language of s.52, sub-s.(2), the only condition for attracting the applicability of that provision was that the fair market value of the capital asset transferred by the assessee as on the date of the transfer exceeded the full value of the consideration declarered by the assessee in respect of the transfer by an amount of not less than 15% of the value so declare ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) appears, because, as pointed out by Judge Learned Hand in the most felicitous language: ...the meaning of a sentence may be more than that of the separate words, as a melody is more than the notes, and no degree of particularity can ever obviate recourse to the setting in which all appear, and which all collectively create. Keeping these observations in mind we may now approach the construction of s.52, sub-s. (2). 6. The primary objection against the literal construction of s.52, sub s.(2), is that it leads to manifestly unreasonable and absurd consequences. It is true that the consequences of a suggested construction cannot alter the meaning of a statutory provision but it can certainly help to fix its meaning. It is a well recognized rule of construction that a statutory provision must be so construed, if possible, that absurdity and mischief may be avoided. There are many situations where the construction suggested on behalf of the Revenue would lead to a wholly unreasonable result which could never have been intended by the legislature. Take, for example, a case where A agrees to sell his property to B for a certain price and before the sale is completed pursuant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lated where it would be absurd and unreasonable to apply s.52; sub-s (2), according to its strict literal construction. We must, therefore, eschew literalness in the interpretation of s.52, sub-s (2), and try to arrive at an interpretation which avoids this absurdity and mischief and makes the provision rational and sensible, unless of course, our hands are tied and we cannot find any escape from the tyranny of the literal interpretation. It is now a well-settled rule of construction that where the plain literal interpretation of a statutory provision produces a manifestly absurd and unjust result which could never have been intended by the legislature, the Court may modify the language used by the legislature or even do some violence to it, so as to achieve the obvious intention of the legislature and produce a rational construction; Vide Luke vs. IRC (1963) AC 557 : (964) 54 ITR 692(HL). The Court may also in such a case read into the statutory provision a condition which, though not expressed, is implicit as constituting the basic assumption underlying the statutory provision. We think that, having regard to this well recognized rule of interpretation, a fair and reasonable co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of tax or duty which the Government is entitled to, which, in our opinion, is akin to the Objective of introduction of section 52, which was existing earlier. 11. In the case of KP.Varghese, supra the Hon'ble Apex Court contemplated a situation, by way of an example, where the completion of sale took place after a couple of years after the date of agreement. In this connection it is pertinent to extract the relevant observations of the Hon'ble Supreme Court, at the cost of repetition, as the said example contemplated by the Hon'ble Apex Court is squarely applicable to the facts of the present case. There are many situations where the construction suggested on behalf of the Revenue would lead to a wholly unreasonable result which could never have been intended by the legislature. Take, for example, a case where A agrees to sell his property to B for a certain price and before the sale is completed pursuant to the agreement-and it is quite well known that sometimes the completion of the sale may take place even a couple of years after the date of the agreement-the market price shoots up with the result that the market price prevailing on the date of sale ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amy and others, Supra has stated that the provision of Sec 50C was inserted in the income-tax act to prevent large scale under valuation of real value of property in the sale deed, so as to defraud revenue which the government is legitimately entitled to, by pumping in black money. Thus we can see that the purpose of introduction of section 52(2) earlier and section 50C w.e.f. 01.04.2003 are for the purpose of achieving similar objectives. 11.3 In the instant case also, the assessee herein has fulfilled a contractual obligation on 30-6-2005, which the assessee is bound by law to carry out as per the sale agreement entered in March, 2003. Now the next question that requires to be addressed is whether there was any under' statement of actual consideration at the time when the sale agreements were entered into. The assessee has placed a copy of the certificate dated 16.04.2010 issued by the Jt. Sub Registrar, Visakhapatnam by way of additional evidence. According to the said certificate, the market value of the impugned property located at Allipuram Ward was ₹ 5000/- as on 26.3.2003. According to the ld AR, the sale value agreed to by the parties, as per the sale agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and held as under:- On perusal of the statement of such expenses debited and claimed during the year under consideration but relating to earlier years, it noted that the said expenditure relates to the Fiber Division and Chemical Division. The expenses have been debited under various head such as legal fee, telephone expenses, interest, maintenance charges, travelling, consumption of HSD, Sales promotion, commission, rent, transport charges etc. None of these heads of expenses are unusual and therefore, in normal course of recording of expenditure under mercantile system of accounting, the appellant was required to claim the expenditure in the relevant year in which the liability accrued upon the appellant, even if payment for the same was not made. In case of any doubt about the quantum of expenditure, the mercantile system of accounting requires the claim by way of provisions, which are usually considered usually considered allowable so long as these are not contingent in nature. The appellant has not brought out of any evidence before the undersigned to explain how the liability on account of the expenditure claimed is crystallized and allowable in this year when the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of ₹ 4.63 lakhs, therefore AO was directed to verify the facts and figures and also if the assessee has applied the provisions of section 14A and Rule 8D correctly or not. He further directed to AO as under:- The AO is directed to compute the disallowance amount under Rule 8D(2) and substitute it against the amount disallowed in the assessment order at ₹ 2 lacs. In case there is difference of opinion between the AO and the appellant on any item or manner of inclusion of that item under various components of Rule 8D, reasons for adoption of particular manner shall be given in the order giving effect to this order. 23. We find that the issue is no longer Res-integra, to the extent that Section 14A of the Act cannot be invoked unless satisfaction has been recorded by the AO, in terms of section 14A (2) of the Act, which provides as under:- Expenditure incurred in relation to income not includible in total income. 14A. For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. (2) T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the claim of the assessee in respect of such expenditure. Sub-section (3) is nothing but an offshoot of sub-section (2) of section 14A. Sub-section (3) applies to cases where the assessee claims that no expenditure has been incurred in relation to income which does not form part of the total income under the said Act. In other words, sub-section (2) deals with cases where the-assessee specifies a positive amount of expenditure in relation to income which does not form part of the total income under the said Act and sub-section (3) applies to cases where the assessee asserts that no expenditure had been incurred-in relation to exempt income. In both cases, the Assessing Officer, if satisfied with the correctness of the claim of the assessee in respect of such expenditure or no expenditure, as the case may be, cannot embark upon a determination of the amount of expenditure in accordance with any prescribed method, as mentioned in sub-section (2) of section 14A of the said Act. It is only if the Assessing Officer is not satisfied with the correctness of the claim of the assessee, in both cases, that the Assessing Officer gets jurisdiction to determine the amount of expenditure incurre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that sub-sections (2) (3) of section 14A and Rule 8D would operate prospectively (and, not retrospectively) does not mean that the assessing officer is not to satisfy himself with the correctness of the claim of the assessee with regard to such expenditure. If he is satisfied that the assessee has correctly reflected the amount of such expenditure, he has to do nothing further. On the other hand, if he is satisfied on an objective analysis and for cogent reasons that the amount of such expenditure as claimed by the assessee is not correct, he is required to determine the amount of such expenditure on the basis of a reasonable and acceptable method of apportionment. It would be appropriate to recall the words of the Supreme Court in Walfort (supra) to the following effect :- The theory of apportionment of expenditure between taxable and non-taxable has, in principle, been now widened under section 14A. So, even for the pre-Rule8D period, whenever the issue of section 14A arises before an Assessing Officer, he has, first of all, to ascertain the correctness of the claim of the assesee in respect of the expenditure incurred in relation to income which does not form part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to tax as income from other sources u/s 59. Addition of ₹ 51270887/- is therefore made to taxable income of the assessee. 28. The ld CIT(A) held as under:- 8.3.1 The first question can be seen in the light of the working given by the appellant company during the course of appellate proceedings, which is reproduced hereunder: Loan account No. Principal amount FITL (funded interest term loan Total M006113001 5.67 1.58 7.24 M006116001 1.15 - 1.15 M006117001 1.03 - 1.03 M06119002 2.13 - 2.13 AG19903010328 0.62 - 0.62 TOTAL 10.60 1.58 12.17 OTS 5.58 WRITTEN BACK IN THE BOOKS OF ACCOUNTS AS PER DETAILS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was utilized. All these informations are within the control and specific knowledge of the assessee and, therefore, it would be the duty of the assessee to prove and establish that the amount of loan taken from the Bank was utilized for the purpose of acquiring capital assets in case the assessee wants to have the benefit of decision of Hon ble Delhi High Court in the case of CIT vs. Tosha International Ltd. (2009) 176 Taxman 187 (Delhi) as well as the decision of Hon ble Bombay High Court in the case of Mahindra Mahindra Ltd. Vs. CIT (2003) 261 ITR 501. If on an enquiry and verification, it transpires that the assessee has utilised the loan for the purpose of its business activity or trading activity, the amount of loan to the extent it has been waived by the bank shall be deemed to be the assesee s income chargeable to tax as per the decision of Hon ble Bombay High Court in the case of Solid Containers Ltd. Vs. DCIT (2009) 308 ITR 417 where the principle laid down by the Hon ble Supreme Court in the case of CIT vs. T.V. Sundaram Iyengar Sons Ltd. 222 ITR 344, has been applied and followed. We clarify that amount of loan utilized for capital assets shall be non-taxable, but the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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