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2015 (7) TMI 48 - ITAT LUCKNOW

2015 (7) TMI 48 - ITAT LUCKNOW - TMI - Capital gain accrued to the assessee on transfer of land - Land initially held as capital asset into stock-in-trade and later on flats constructed thereon under project development agreement were sold to different buyers - Held that:- As per project development agreement, the possession was given for construction/development of project with certain conditions stipulated in the agreement. Whatever amount was received, it was simply interest free advance to m .....

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of the Act. Therefore, capital gain would only be chargeable in the years in which stock-in-trade would be sold. Therefore, we find ourselves in agreement with the order of the ld. CIT(A) who has rightly dealt with the issue. Accordingly we confirm the same.

Cost of land as on 1.4.1981 adopted by the Assessing Officer for computing the capital gain accrued to the assessee on account of conversion of capital asset into stock-in-trade - Held that:- The fair market value determined by t .....

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1981, but he did not do so. He adopted the circle rate as fair market value of land as on 1.4.1981 ignoring the registered valuer’s report submitted by the assessee and computed the long term capital gain. The approach adopted by the Assessing Officer does not appear to be correct. Since the market value of the land as on 1.4.1981 was not determined correctly either by the assessee or the Assessing Officer, this issue requires a fresh adjudication by the Assessing Officer. Accordingly, we set as .....

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r statistical purposes.

Disallowance made under section 14A - Held that:- Undisputedly, in the instant case, the Assessing Officer has not recorded any objective satisfaction with regard to the correctness of the accounts relating to dividend income of the assessee. He straightaway computed the disallowance as per provisions of section 14A of the Act read with per ruled 8D of the rules. Therefore, we are of the view that invocation of provisions of section 14A of the Act without recor .....

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awal, Advocate ORDER PER SUNIL KUMAR YADAV: These appeals are preferred by the Revenue against the respective orders of the ld. CIT(A). The assessees have also filed cross objections in support of the orders of the ld. CIT(A). 1. Since these appeals and cross objections were heard together, these are being disposed of through this consolidated order. We, however, prefer to adjudicate them one after the other. I.T.A. No. 61/LKW/2012 & C.O. No.18/LKW/2012: 2. The Revenue has assailed the order .....

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ransfer of the land had also been settled being a certain area of constructed property. As such capital gains has already arisen during the year order consideration, since section 2(47) defines 'transfer' as including 'exchange'. In the present case the assessee has exchanged unbuilt land for built up area. 3. Through the cross objection, the assessee has supported the order of the ld. CIT(A) by raising the following grounds:- 1. Because the First Appellate authority had decided .....

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2) of the Income Tax Act 1961. 4. Because in the subsequent assessment years orders passed u/s 143(3) of the Income Tax Act 1961 - A.Y. 2007-08 and A.Y. 2008-09 and A.Y. 2009-10, assessing authorities -the Appellant, had accepted the project development agreement being entered into for construction of metro city and not for transfer of land to Developers and had lawfully applied the provisions of section 45(2) of the Act on the transfer of land - stock in trade. Hence the appeal is infructuous a .....

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is a frivolous one and an illegal attempt to reframe the assessment order. 4. The sole controversy involved in this appeal is with regard to the assessment year in which capital gain accrued to the assessee on transfer of land initially held as capital asset into stock-in-trade and later on flats constructed thereon under project development agreement were sold to different buyers. 5. The facts in brief borne out from the record are that the assessee has entered into a project development agree .....

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value of the land as on 1.4.1981 was worked out at ₹ 1,94,36,28,541.50 (indexed cost) on the basis of valuation reports dated 19.3.2001, 25.3.2001 and 13.6.2002 of the Government Approved Valuer, Shri. B.M. Gupta. The difference being ₹ 68,42,57,966.30 was claimed as long term capital loss. The Assessing Officer examined the transactions of transfer of land into stock-in-trade with reference to provisions of section 2(47) of the Income-tax Act, 1961 (hereinafter called in short the A .....

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rm capital gains as above. 6. The assessee preferred an appeal before the ld. CIT(A) with the submission that out of the advance of ₹ 1.98 crores received by the assessee during the period 19.5.2003 to 31.7.2005, an amount of ₹ 1.87 crores has been refunded on 2.6.2007 and only an amount of ₹ 11 lakhs is available with the company as security deposit. It was contended on behalf of the assessee that there was no transfer within the provisions of section 2(47) of the Act and prov .....

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hat any conversion of capital asset into stock-in-trade shall be regarded as a transfer. This transfer arises in the year in which such conversion takes place and accordingly capital gain would normally arise in that very year. However, section 45(2) of the Act postpones the assessment of such capital gains to the year in which the stock-in-trade is actually sold or otherwise transferred by the assessee. It was further contended that this stock-intrade was sold in financial year 2007-08 relevant .....

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order for assessment year 2008-09. Copy of the project development agreement executed on 20.6.2003 was also produced before the Assessing Officer. It was further contended before the ld. CIT(A) that the entire land belonging to the assesseecompany being lease hold property and hence cannot assign or part with the possession of the demised premises without the consent of the lessor because lease rights will be expiring on 31.3.2032 and this has been clearly mentioned in clauses 2 and 3 of the pro .....

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hargeable to tax in the year in which it is sold and not in the year under consideration. Accordingly the capital gain computed by the Assessing Officer was deleted. It was also held by the ld. CIT(A) that as a corollary, the long term capital loss shown by the assessee at ₹ 68,42,57,966.30 shall also not arise in the year under consideration. The relevant observations of the ld. CIT(A) are extracted hereunder for the sake of reference:- 6(1) I have examined the facts and circumstances of .....

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g of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 1 (4 of 1882); or (vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, .....

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the capital gains will be chargeable in accordance with provisions of section 45(2) of the Act. 6(2) As per the project development agreement the appellantcompany is in possession of leased land bearing khasra numbers 50(P) to 54(P), 81(P) and 82(P) all situated in Poora Imam Bux, Nishatganj, Lucknow. The total area of land is 61299.69 square meters out of which 3125 square meters is in illegal encroachment and after leaving an area of 7739.3 square meters for roads etc., area of 50435.39 square .....

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ided by the appellant-company and the builder, M/S Arif Industries limited was obliged to commit to construction thereon. A refundable advance was also provided to the appellant-company by the builder as a security. The appellant-company gave possession of land to the builder for the purpose of executing the construction work and not in pursuance of any agreement to sale. 6(3) The entire land belonging to the assessee-company being lease hold property, and therefore the appellant-company cannot .....

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assessee handed over the possession of the property for construction of project by the developer. The assessee did not receive any consideration for handing over the possession of the property to the developer but as per the agreement the assessee got the right to get the built-up area. From the development agreement, the possession was handed over for carrying out the construction work by the developer and there is no other document except the development agreement which transfers the title of .....

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ension in executing the documents between the parties other than what was stated or can be inferred reasonably from the documents itself. A regard must be given to the words used in the documents. The nature the transaction between the parties by way of development agreement cannot be said to be a sale of immovable property which is stock-intrade or otherwise transfer as provided in the Transfer of Property Act. In the present case, the business profit arises to the assessee on the sale of the s .....

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licable. By assessee's own action, the asset had assumed the characteristic of stock-in-trade. As per the inclusive definition of the term "transfer" given in section 2(47) of the Act, sale is one of the several modes of transfer. Conversion of capital asset into or its treatment as stock-in-trade of the business carried on by the assessee is another mode of transfer as per the said definition. Section 45(2) of the Act acts as an exception to section 45(1) of the Act. Section 45(2) .....

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of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset. 6(5) Section 45(2) of the Act provides that capital gain arising on account of conversion of capital asset into or its treatment as stockin- trade shall be chargeable to tax in the previous year in which such stock-in-trade sold or otherwise transferred. The Assessing Officer treated the transaction of handing over the possession of the .....

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erefore, the provision of Section 45(2) of the Act supersedes all the other provisions. Under this Sub-section (2) of Section 45 of the Act, it is clear that capital gain shall be charged in the previous year in which such stock-in-trade which is known to be so only after conversion, is sold or otherwise transferred. In the instant case, the role of section 2(47) of the Act is relevant only when conversion took place. Thereafter, it has no role to play to all, because it is meant for capital ass .....

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gain on conversion will arise in the same year in which business profit arises to the assessee on sale of such asset. The asset cannot have dual characteristic at the same point of time in the hands of the same person. This is not contemplated by any of the provisions of the Act. By assessee's own action, the asset had assumed the characteristic of stock-in-trade. Hence, when business profit on sale of such stock-in-trade accrues to the assessee, tax on capital gain also will be levied in t .....

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ct. In fact, in the instant case, the role of section 2(47) of the Act was relevant only in the year 2003-04 for the limited purpose because Section 2(47) of the Act provides that any conversion of capital assets into stock-in-trade shall be regarded as a transfer. This transfer arises in the year in which such conversion takes place and, accordingly, capital gain would normally arise in that very year. However, section 45(2) of the Act postpones the assessment of such capital gains to the year .....

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hall be deemed to be the full value of consideration received or accruing as a result of the transfer. Thus capital gain gets computed by taxability is postponed to the year of sale of such converted capital asset i.e., stock-in - trade. The provisions of section 45(2) of the Act have been given effect by the Assessing Officer in the assessment proceedings for the assessment year 2008-2009 when in the order dated 30.12.2010 passed under section 143(3) of the Act, the capital gains arising on tra .....

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the circular lays down that - Section 2(47) of the Income-tax Act provides that any conversion of capital assets into stock-in-trade shall be regarded as a transfer. This transfer arises in the year in which such conversion takes place and, accordingly, capital gain would normally arise in that very year. However, section 45(2) of the Act postpones the assessment of such capital gains to the year in which the stock-in-trade is actually sold or otherwise transferred by the assessee. 6(9) In view .....

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to be deleted giving consequential relief to the assessee. As a corollary, the long term capital loss shown by the assessee at ₹ 68,42,57,966.30 shall also not arise in the year under consideration. The loss or gain whatsoever as per section 45(2) of the Act will be relevant in the year in which the land converted to stock in trade is sold and not in the year under consideration. The grounds of appeal are allowed. 8. Aggrieved, the Revenue has preferred an appeal before the Tribunal and p .....

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Therefore, the transfer of capital asset in the impugned assessment year i.e. assessment year 2004-05 attract the provisions of section 2(47)(v) of the Act. 9. The ld. counsel for the assessee, besides placing reliance upon the order of the ld. CIT(A), has invited our attention to the project development agreement dated 20.6.2003 with the submission that the assessee has entered into an agreement with M/s Arif Industries Ltd. to develop a major part of the land into a township as per terms of l .....

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itle cleared and make it marketable title free from all encumbrances, attachments, etc. and as per clause 6, the assessee shall get the said land converted into freehold as per the Government policy at their cost and expenses within a reasonable time required by the authorities subject to clause 17 and any unexplained delay in getting the land converted into freehold may result in suppressing the sales in turn affecting the timely completion of the project which shall be attributable to the asse .....

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ill be carried out by the first party i.e. the assessee at their cost and expenses. It was also clarified that the assessee will get the same simultaneously constructed and completed for the purpose of obtaining completion certificate from the competent authority. The ld. counsel for the assessee has also invited our attention to clause 15 of the project development agreement, according to which the first party i.e. the assessee would get 1/3rd portion in each of the residential towers (floor-wi .....

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undable amount to the first party through cheque. Through supplementary agreement dated 20.6.2003, the assessee has also received ₹ 40 lakhs on different dates. The object of giving advance to the assessee was to meet the expenses to be incurred at different places and also for getting the said land converted into freehold and depositing various charges and fee as per clause 9 to the concerned authorities. He has invited our attention to clause 18 of project development agreement, accordin .....

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cond party shall commence the construction of the building as soon as the revised plans are sanctioned by the LDA. The first party has also agreed to get the balance part of the said land vacated at the cost and expenses within one year or so from the date of this agreement and simultaneously handover the possession to the second party. In case of delay in getting the said land vacated by the first party and for handing of over the possession of the same to the second party, the resultant delay .....

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not be computed in the impugned assessment year i.e. 2004-05. It can only be assessed in the year in which constructed portion of the project/flat was sold to different buyers and the assessee has already offered capital gain in those assessment years 2008-09. Copy of the assessment order is placed on record. The business profit on sale of stock-in-trade was also offered to tax in the same assessment year i.e. 2008-09 in consonance with provisions of section 45(2) of the Act. He has also invited .....

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, I.T.A. No. 852/Mum/2009 and 1534/Mum/2010. 12. Having carefully examined the orders of the lower authorities in the light of the project development agreement, other documents placed on record and the rival submissions, we find that undisputedly the assessee has transferred its capital asset in the form of land to the stock-in-trade and there is no quarrel on this aspect. The assessee has entered into a project development agreement with M/s Arif Industries Ltd. for construction of commercial .....

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t development agreement. During the course of construction activities, the assessee was also required to get the religious building constructed at its own cost and expenses. It is also an undisputed fact that the land in question was obtained on lease and the remaining term of lease was about 28 years and 9 months expiring on 31.3.2032. It was the responsibility of the assessee to get the said land converted into freehold as per Government policies at their own cast and expenses within a reasona .....

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ementary agreement, the entire amount of advance of ₹ 300 lakhs is to be refunded at different stages specified in clause 18 of the project development agreement. Therefore, it is clear from the different clauses of the agreement that whatever amount was received by the assessee from M/s Arif Industries Ltd., it was simply interest free advance to meet certain expenses to be incurred in getting the land converted into freehold and also for construction of building for the religious purpose .....

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agreement as under:- CLAUSE No.2,6,12,15 to 18 and 27 OF THE PROJECT DEVELOPMENT AGREEMENT 2. THAT the subject matter of this agreement is the Nazul lease hold land with a remaining term of about 28 years and 9 months expiring on 31.03.2032 bearing Khasra Nos.50 (P), 51 (P), 52 (P), 53 (P), 54(P), 81(P) and 82(P) all situated adjacent to Chakkar Ka Purwa facing Baba Ka Purwa, Poora Imam Bux, Lucknow having a nett area of 50435.39 Sq. Mtrs. herein referred to as THE SAID LAND. 6. THAT THE FIRST P .....

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ks. Community facility, educational school and value added facilities clubs, restaurants, cafeteria, Swimming pool, health club as per the sanctioned or revised sanctioned plans at their cost and expenses. The construction and development of the buildings ear marked for religious purposes will be carried out by THE FIRST PARTY at their cost and expenses, but THE FIRST PARTY will get the same simultaneously constructed and completed for the purpose of obtaining completion certificate from the Com .....

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r the already sanctioned plans or as per revised approved plans, THE SECOND PARTY, in lieu of their development/construction cost, shall be entitled to as under and on the pattern as appearing in the Agreement. 1. FIRST PARTY - 1/3rd portion (one third portion) in each of the Residential Towers (Floor wise), commercial shopping, garages, parking stilts, open parkings, value added facilities, educational school building, clubs, swimming pool etc. 2. SECOND PARTY - 2/3rd portion (two third portion .....

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religious purposes would exclusively belong to THE FIRST PARTY and the construction, development, disposal and management of this part would be the exclusive liability of THE FIRST PARTY and THE SECOND PARTY would have no say or portion in the same. 17. THAT THE SECOND PARTY has given a sum of ₹ 11.00 Lacs (Rupees Eleven Lacs) as interest free refundable amount to THE FIRST PARTY through Cheque No. 605062 dated 25.03.2003 drawn on ICICI Bank Limited, Lucknow along with the offer dated 25. .....

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06.2003 and would always be read together. I8. THAT THE FIRST PARTY agrees to return/repay such amounts advanced by THE SECOND PARTY as under: a) On handing over l/3rd built up area 25% of the total amount in First phase by THE SECOND deposited including amounts PARTY to THE FIRST PARTY if any through Supplementary Agreement b) On handing over 1/3rd built up 50% of the total amount deposited area of the Second Phase by THE including amounts if any through SECOND PARTY to THE Supplementary Agreem .....

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h buildings thereon as some staff members of THE FIRST PARTY are living in the same. A major part of THE SAID LAND is absolutely vacant and is in complete possession of THE FIRST PARTY. THE FIRST PARTY has handed over the possession of the vacant part of THE SAID LAND to THE SECOND PARTY at the time of signing of this Agreement for project development' work. THE SECOND PARTY shall. commence the construction of the Building as soon as the revised plans are sanctioned by the Lucknow Developmen .....

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be solely attributable to THE FIRST PARTY, It is further agreed by and between the party that THE FIRST PARTY will remove the rubble of the existing structures and also the trees. The rubble and the trees will exclusively belong to THE FIRST PARTY including any valuable article if found beneath the earth and THE SECOND PARTY shall have no claim over the same. CLAUSE NO. 1 & 2 OF THE SUPPLEMENTARY PROJECT DEVELOPMENT AGREEMENT AND WHEREAS THE FIRST PARTY and THE SECOND PARTY have mutually ag .....

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eby agree and quantify the amount required to be advanced by THE SECOND PARTY to THE FIRST PARTY as ₹ 300 Lacs (Rupees Three Hundred Lacs) in totality paid and to be paid as under: a) Cheque No 605062 dated 25/03/03 Prawn on ICICI Bank Ltd enclosed with offer dated 15703/03 Rs. 11.00 Lacs b) Cheque No. 570885 dated 20.06.2003 drawn on Punjab National Bank, Hazratganj, Lucknow at the time of signing of this agreement Rs. 40.00 Lacs c) Within 30 days of receiving demand note for freehold Rs. .....

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VELOPMENT AGREEMENT dated 20.06.2003. 13. The Assessing Officer has invoked the provisions of section 2(47)(v) of the Act and treated this handing over of the possession of vacant land to the second party i.e. M/s Arif Industries Ltd. for the purpose of construction of residential/commercial towers as a transfer of capital asset and computed the capital gain in the hands of the assessee; whereas the provisions of section 2(47)(v) of the Act can only be invoked where absolute possession of capita .....

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reditors and a sum of ₹ 51 lakhs was credited to its account. Therefore, from any angle there is no transfer of asset as per provisions of section 2(47) of the Act. 14. We have also carefully perused the judgments referred to by the assessee. 15. In the case of Chaturbhuj Dwarkadas Kapadia vs. CIT (supra), their Lordships of the Hon'ble Bombay High Court has held in order to attract section 53A for the following conditions need to be fulfilled. There should be a contract for considerat .....

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ovable property by a written contract, the terms of which constitute the transfer and can be ascertained with reasonable certainty and the transferee as part performance of the contract has taken the possession of the property and has performed or willing to perform his part of contract, then even the said contract though required to be registered has not been registered and the transfer has not been completed in the manner prescribed therefore by law, the transferor is barred from enforcing aga .....

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s. 2(47) of the IT Act, 1961 and the same is not applicable in other cases which do not fall under s. 2(47) of the IT Act, 1961. In that case, facts are almost similar to the present case and the Tribunal has held that where the assessee has converted its land into stock-in-trade and thereafter a development agreement was entered into by the assessee with the developer, whereby the assessee provided his land measuring 44,000 sq. ft. to the developer for construction of residential apartments and .....

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and into stock-in-trade by the assessee for business of real estate development and capital gain arising from the transfer of land by way of such conversion was chargeable to tax in the previous year relevant to the assessment year 2005-06 when the constructed portion is sold as per the provisions of section 45(2) of the Act. 18. Again in the case of DCIT vs. Crest Hotels Ltd. (supra), similar view was expressed by the Tribunal by holding that capital gain on conversion of capital asset into sto .....

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tic at the same point of time in the hands of the same person. 19. Turning to the facts of the case, we find that as per project development agreement, the possession was given for construction/development of project with certain conditions stipulated in the agreement. Whatever amount was received, it was simply interest free advance to meet certain expenses to be borne by the assessee in order to discharge certain responsibilities conferred upon it through the agreement. The said advance would .....

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issue. Accordingly we confirm the same. 20. Since we have confirmed the order of the ld. CIT(A), the cross objection of the assessee has become infructuous and we accordingly dismiss the same. I.T.A. No. 62/LKW/2012 & C.O. No.19/LKW/2012: 21. In the Revenue s appeal, the Revenue has assailed the order of the ld. CIT(A), inter alia, on the following grounds:- 1. The CIT(A) has erred in law and on facts of the case in failing to appreciate that the AO has correctly adopted the cost price of t .....

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1.4.81. This is not an accepted method of valuation and is variance with the circle rate fixed by DM and also of the comparable sale instances of that year; 3. The CIT(A) has also erred in law and also on facts of the case in failing to appreciate that the land of the assessee is leasehold land and that the lease is about to expire. The correct valuation as on 01.04.81 would therefore have been even lower than the circle rate fixed by the DM; 4. The CIT(A) has failed to appreciate that the facts .....

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of the I.T. Act, 1961. Such items of income and expenditure have been clearly identified and are a part of the record. The decision of the CIT(A) on this issue is clearly incorrect. 22. In support of the order of the ld. CIT(A), the assessee has filed the cross objection. 23. The dispute raised through various grounds in the Revenue s appeal is with regard to the cost of land as on 1.4.1981 adopted by the Assessing Officer for computing the capital gain accrued to the assessee on account of con .....

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at ₹ 95/- per sq. mtr. on the basis of the report of the Government approved Registered Valuer to determine the fair market value as per provisions of section 55(2)(i) of the Act. The assessee has calculated the capital gain as per provisions of section 45(2) of the Act by adopting the fair market value as per said valuation report. The Valuation Report of the Government approved valuer filed by the assessee is based on the land sold through public auction in 1985 which is very close to th .....

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e the ld. CIT(A) with the submission that the assessee has taken the deemed cost of land as on 1.4.1981 at ₹ 95/- per sq. ft. on the basis of the report of the Government approved Registered Valuer. With respect to the valuation report of the valuer, it was contended that the valuation report is based on the lawfully recognized comparable sale method and the assessee has calculated the capital gain as per provisions of section 45(2) of the Act by adopting the fair market value as per said .....

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he registered valuer for no apparent reason. In case the Assessing Officer was not satisfied with report of the registered valuer, a reference could have been made to the Valuation Officer under section 55A of the Act. The ld. CIT(A) has also observed that the said valuation report of the registered valuer relied upon by the assessee has been accepted in the assessment proceedings for assessment years 2004-05 and 2007-08 while framing the assessment under section 143(3) of the Act. The relevant .....

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adjacent land auctioned in 1985 as is evident from page 2 of the valuation report. The value of land at the date of conversion of the land to stock in trade as on 01.04.2003 was taken as 285 per square feet being 3 times of the rate as on 01.04.1981. The value of land so arrived was proportionately apportioned to the flats sold during the year under consideration and thereby the assessee worked out the capital loss on sale of land at ₹ 44,85,016/-. The Assessing Officer on the other hand a .....

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adopted for the purpose of arriving at the value of impugned land as on the relevant dates. 4(5) Section 55(2)(b)(i) of the Act prescribes that in case where the capital asset became the property of the assessee before 01.04.1981, the cost of acquisition for the purpose of section 48 and section 49 of the Act means cost of acquisition of the property to the assessee or the fair market value of the asset as on 01.04.1981 at the option of the assessee. In the impugned case the assessee chose to e .....

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made under this Act ; It is evident that circle rate fixed by the District Authorities is not a prescribed method for valuation of fair market value of an asset under the section 2(22B) of the Act. Although section 50C of the Act prescribes for substitution of value fixed by stamp valuation authority for the purpose of stamp duty i.e. the circle rate as deemed consideration of sale of a capital asset in case the sale consideration shown is less than such value, the above provision is strictly no .....

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refore having ascertained that the cost of acquisition of the impugned land sold by the assessee in the form of proportionate value apportioned to constructed flats is to be valued at fair market value i.e. the price that the asset would ordinarily fetch on sale in the open market, the issue is ascertainment of that price. In this connection a reference may be made to the decision of Hon'ble Apex Court in the case of Special Land Acquisition Officer, Davangere V.P. Veerabhadrappa and Others .....

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raised at what it would probably bring the owner allowed a reasonable opportunity for negotiations. But the courts have invoked a mythical willing buyer to justify a valuation higher than any attainable sale price. According to the Privy Council, "market value" of the land within the meaning of s. 23 of the Act is the price the property may fetch in the open market, if sold by a willing render unaffected by the special needs of a particular purpose. The owner is entitled to the value o .....

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l goods. The value of the any such article at any particular time can really be ascertained by the price being obtained for similar articles in the market. In the case of land, its value can also be measured by a consideration of the prices that have been obtained in the past for lands of the similar quality and in similar positions, and that is what must be meant in general by the "market value" in s. 23. The function of the court in awarding compensation under the Act is to ascertain .....

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or immediately prospective profits or the rent of a number of years' purchase should not be resorted to if there is evidence of comparable sales or other evidence for computation of the market value. It can be resorted to only when no other method is available. It is axiomatic that the best evidence to prove what a willing purchaser would pay for the land under acquisition would be the evidence of sales of comparable properties, proximate in time to date of the acquisition, similarly situat .....

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of valuation by capitalization. In valuing land or an interest in land for purpose of land acquisition proceedings, the rule as to number of years' purchase is not a theoretical or legal rule but depends upon economic factors such as the prevailing rate of interest in the money investments. The return which an investor will expect from an investment will depend upon the characteristic of income as compared to that of idle security. The main features are : (1) security of the income; (2) flu .....

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by the application of a multiplier to the net annual income or profit should only be adopted when there is no evidence of comparable sales of similar lands in or about the neighborhood at the relevant time, i.e., on the date of the notification under s. 4(1) of the Act. In certain circumstances, however, the court has no other alternative but to fall back on the capitalized value. "It is evident, therefore, from the foregoing definitions as well as from numerous other definitions which may .....

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ther elements which combine to give of property a market value." Hon'ble Allahabad High Court also considered the issue in the case of Commissioner Of Income-tax V. Jumramal Son. (1985) 154 ITR 689 (All) and laid down that Rates of auction sales of properties in neighborhood should be considered while ascertaining the market value of an asset on a particular date. 4(7) The aforesaid decisions give credence to the view that the fair market value of a property could be taken as the rate o .....

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the rate was taken at 98.5 per square feet. This rate was therefore reduced to ₹ 95/- per square feet as on 01.04.1981. The rate was increased by a multiple of 3 for arriving at the rate of 285 per square feet as on 01.04.2003. I find that the multiple is itself reasonable as the circle rate of 15 per square feet as on 01.04.1981 was revised to 325.27 per square feet as mentioned by the AO in the computations. The rate adopted by the registered valuer has reference to the rates that corre .....

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on Officer under section 55A of the Act which lays down as under - Reference to Valuation Officer. 55A. With a view to ascertaining the fair market value of a capital asset for the purposes of this Chapter, the Assessing Officer may refer the valuation of capital asset to a Valuation Officer- (a)in a case where the value of the asset as claimed by the assessee is in accordance with the estimate made by a registered valuer, if the Assessing Officer is of opinion that the value so claimed is less .....

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ence to the Valuation Officer under section 55A(b)(ii) of the Act on recording an opinion that having regard to the nature of the asset and other relevant circumstances, it is necessary to make such a reference. In the instant case, the assessee had claimed the fair market value of property as per the Government approved registered valuer's report. Therefore, under sub clause (ii) of clause (b) of section 55A of the Act, the Assessing Officer was required to form an opinion as mentioned and .....

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ut any basis and without taking the opinion of the departmental valuation officer on the fair market value of the property under the powers granted under the provisions of the Act. 4(9) In view of the discussion above, I am of the opinion that the Assessing Officer is not justified in taking the fair market value of the impugned land for the purpose of computing the capital gains as circle rate. The circle rate is not a necessary parameter in arriving at the fair market value and on the other ha .....

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the property in question, the rate for the purpose of valuing the property requires to be,, taken as that ascertained by the registered valuer. The addition of ₹ 84,27,065/- made by b the AO by working out the capital gains on the basis of circle rate for cost of acquisition is directed to be deleted. The ground of appeal is allowed. 26. Aggrieved, the Revenue has preferred an appeal before the Tribunal and placed heavy reliance upon the order of the Assessing Officer. 27. In opugnation, t .....

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the deemed value of the land as on 1.4.1981 on the basis of the valuation report prepared relying upon the land sold through public auction in the year 1985 which is very close to the land of the assessee. It was further contended that the Assessing Officer is not an expert in determining the value of the land. If he has any doubt with regard to the valuation adopted by the assessee as on 1.4.1981, he could have made a reference to the DVO for the determination of the value of the land, but he .....

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ion in the year 1985 which is very close to the land of the assessee. We also find force in the contentions that if the Assessing Officer has any doubt with regard to the valuation adopted by the assessee as on 1.4.1981, he could have made reference to the DVO either in those years in which the land was converted into stock-in-trade or in those years when the capital gain is to be worked out, but the Assessing Officer has not made any effort to make reference to the DVO. On perusal of the Valuat .....

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auction in the year 1985. Therefore, we are of the view that the fair market value determined by the registered valuer is not correct. On the other hand, the Assessing Officer has adopted the circle rate as on 1.4.1981 without looking to the fact that the assessee has filed the registered valuer s report to determine the fair market value of the land as on 1.4.1981. We find force in the contention of the assessee that the Assessing Officer is not expert in the field of determining the value of .....

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Officer, this issue requires a fresh adjudication by the Assessing Officer. Accordingly, we set aside the order of the ld. CIT(A) in this regard and restore the matter to the file of the Assessing Officer with a direction to readjudicate the issue afresh after determining the fair market value of the land as on 1.4.1981. Since the assessee has filed the registered valuer s report and disputed the circle rate, the Assessing Officer may make reference to the DVO in order to determine the fair mar .....

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wance was challenged before the ld. CIT(A) with the submission that the said disallowance is not called for as the assessee has not booked any expenditure on account of relevant investment. It was also contended before the ld. CIT(A) that before invoking the provisions of section 14A of the Act, the Assessing Officer has to record an objective satisfaction that the accounts prepared by the assessee with respect to the provisions of section 14A of the Act are incorrect. The ld. CIT(A) has examine .....

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the facts and circumstances of the case. I have considered the findings of the Assessing Officer and the submissions made by the appellant in writing and before me during the course of the appellate proceedings. Section 14A of the Act reads as under: 14A (1) 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….. E .....

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oes not form part of total income under chapter III of the Act is not allowable as deduction in computing the income forming part of total income under chapter IV of the Act. The Assessing Officer has neither identified any income shown by the assessee which does not form part of the total income nor has identified any expenditure which has been made merely b application of Rule 8D(2)(iii) as the assessee has shown income from dividends amounting to ₹ 2,08,13,952/-. 5(5) The appellant has .....

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rchase of shares no disallowance is warranted under section 14A of the Act. In the case of CIT Vs. Hero Cycles Ltd. (2010) 323 ITR 518 (P&H) Hon'ble Court held that if there is no nexus between the expenditure incurred and the income generated and merely because the assessee had incurred interest expenditure on funds borrowed for the main business, it would not ipso-facto invite disallowance of under section 14A, unless there was evidence to show that such interest bearing funds have bee .....

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come and not assumed expenditure or deemed expenditure. The aforesaid judgment of Bombay High Court has been affirmed by the Hon'ble Supreme Court in the case of CIT Vs. Walfort Share & Stock Brokers (P) Ltd. reported in (2010) 326 ITR 1, wherein their Lordships after analyzing the scope and purpose of section 14A of the Act held that there has to be proximate cause for disallowance which is its relationships with the tax exempt income. 5(6) I find that in the case of the appellant the A .....

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9,150/- made by the AO by taking recourse to the provisions of section 14A of the Act as the said expenditure is business expenditure incurred during the normal course of business activities. Provisions of section 14A of the Act do not contemplate disallowance of business expenditure incurred during the normal course of business activities and such expenditure has no nexus with dividend income of the appellant. In the result the addition of ₹ 13,99,150/- made by the Assessing Officer is de .....

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under section 14A of the Act read with rule 8D(2)(iii) of the rules without recording any satisfaction with regard to the incorrectness of the accounts of the assessee with respect to the dividend income and the expenditure incurred in relation thereof. He has also invited our attention to the order of the Tribunal in the case of U.P. Electronics Corporation Ltd. vs. DCIT(TDS), Lucknow in I.T.A. No. 538/LKW/2012, in which the issue of recording of objective satisfaction while invoking the provi .....

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ever expenditures are booked, it was general business expenditures and no part of the same can be disallowed only for the reason that the assessee earned dividend income which does not form part of the total income of the assessee. 32. Having carefully examined the orders of the lower authorities in the light of the rival submissions, we find that the Assessing Officer has made disallowance under section 14A of the Act read with rule 8D(2)(iii) of the rules straightaway without recording any obj .....

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on 14A of the Act. For computing the disallowance under rule 8D of the rules a procedure has been provided which takes care of every situation. If no expenditure is booked on account of payment of interest on investment, disallowance can be made while computing the same as per rule 8D(2)(iii) of the rules. 33. But we find force in the second limb of argument of the assessee that the Assessing Officer has straightaway computed the disallowance under section 14A of the Act read with rule 8D(2) of .....

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ssing Officer is required to record objective satisfaction with regard to the incorrectness of the expenditure or accounts relating to investment on which dividend income was earned. If satisfaction is not recorded, no disallowance under section 14A of the Act can be made. The relevant observations of the Tribunal are extracted hereunder for the sake of reference:- 9. Having carefully examined the orders of the lower authorities in the light of the rival submissions, we find that out of total in .....

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Act. In support of his contention, the ld. counsel for the assessee has invited our attention to the judgment of the Hon'ble Bombay High Court in the case of Godrej And Boyce Mfg. Co. Ltd. vs. Dy. CIT & Another [2010] 328 ITR 81 (Bom.) and the orders of the Tribunal in the cases of M/s JM Financial Limited vs. Addl. CIT (supra) and Kalyani Steels Ltd. vs. Addl. CIT (supra). 10. In the case of M/s JM Financial Limited vs. Addl. CIT (supra), the Tribunal has examined the issue of recordin .....

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h regard to the investment in subsidiary companies, the Tribunal has also held that in the absence of any finding that any expenditure has been incurred for earning exempted income, the disallowance made by the Assessing Officer is not justified. The relevant observations of the Tribunal in the case of M/s JM Financial Limited vs. Addl. CIT (supra) are extracted hereunder for the sake of reference:- 7. Having considered the rival submissions as well as relevant material on record, we note that s .....

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isallowance of expenditure for earning tax free dividend income of ₹ 18,17,68,458/- the assessee disallowed on its own ₹ 16.50 lakhs u/s 14A. Despite being asked by the AO to furnish the disallowance under rule 8D, the assessee did not furnish the details. The provisions of rule 8D inserted by the IT (Fifth Amendment) Rules 2008 with effect from 24.3.2008 are applicable for A.Y. 2008-09 and onwards. Therefore, the revenue authorities are bound to follow the mandatory provisions for c .....

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wn. In this view of the matter and in absence of any distinguishable feature brought to our notice by the learned Counsel for the assessee against the order of the CIT(A), we do not find any infirmity in the same. Accordingly the same is upheld and the ground raised by the assessee is dismissed. 8. As it is clear from the finding of Tribunal that the assessee failed to furnish the details of disallowance under section 14A and, therefore, the disallowance made by the AO was found by the Tribunal .....

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these investments are strategic in nature in the subsidiary companies on long term basis and, therefore, no direct or indirect expenditure is incurred. We find that the department has not disputed this fact that out of the total investment about 98% of the investment are in subsidiary companies of the assessee and, therefore, the purpose of investment is not for earning the dividend income but having control and business purpose and consideration. Therefore, prima facie the assessee has made ou .....

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d the principles as laid down by the Hon ble Supreme Court in the case of WalfortShare and Stock Brokers P. Ltd. [2010] (326 ITR 1,) in para 31 as under:- (a) The mandate of section 14A is to prevent claims for deduction of expenditure in relation to income which does not form part of the total income. (b) Section 14A(1) is enacted to ensure that only expenses incurred in respect of earning taxable income are allowed; (c) The principle of apportionment of expenses is widened by section 14A to in .....

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under the provisions of the Act has to be disallowed under section 14A Income which does not form part of the total income is broadly adverted to as exempt income as an abbreviated appellation. 9. After considering these principles as emerged from the decision of Hon ble Supreme Court in the case of Walfort Share and Stock Brokers P. Ltd. (supra), Hon ble Jurisdictional High Court has held in para 32 and 33 as under:- 32. Sub-section (2) and (3) to section 14A were inserted by an amendment brou .....

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expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act : Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing .....

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ance with such method as may be prescribed. The method, having regard to the meaning of the expression "prescribed" in section 2(33), must be prescribed by rules made under the Act. What merits emphasis is that the jurisdiction of the Assessing Officer to determine the expenditure incurred in relation to such income which does not form part of the total income, in accordance with the prescribed method, arises if the Assessing Officer is not satisfied with the correctness of the claim o .....

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n relation to income which does not form part of the total income is correct. The Assessing Officer must, in the first instance, determine whether the claim of the assessee in that regard is correct and the determination must be made having regard to the accounts of the assessee. The satisfaction of the Assessing Officer must-be arrived at on an objective basis. It is only when the Assessing Officer is not satisfied with the claim of the assessee, that the Legislature directs him to follow the m .....

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ourse to the prescribed method is mandated by law. Sub-section (3) of section 14A provides for the application of sub-section (2) also to a situation where the assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under the Act. Under the proviso, it has been stipulated that nothing in the section will empower the Assessing Officer, for an assessment year beginning on or before April 1,2001, either to reassess under sectio .....

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red. In the case of Garware Wall Ropes Limited Vs. Addl. CIT (supra), the Tribunal while deciding an identical issue has held in para 2.4 as under:- We have considered the rival submission and carefully perused the relevant records. So far as the issue regarding disallowance u/s 14A in the case where no dividend has been received, the same is covered against the assessee by the order of Tribunal in assessee s own case for the assessment year 2008-09, wherein the Tribunal has followed the decisio .....

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s of any un-related party. Therefore, the primary object of investment is holding controlling stake in the group concern and not earning any income out of investment. Further the investment were made long back and not in the year under consideration. Therefore, in view of the fact that the investment are in the group concern we do not find any reason to believe that the assessee would have incurred any administrative expenses in holding these investments. The Assessing Officer has not brought on .....

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e object of section 14A is not allowing to reduce tax payable on the non exempt income by deducting the expenditure incurred to earn the exempt income. In the case in hand it is not the case of the revenue that the assessee has incurred any direct expenditure or any interest expenditure for earning the exempt income or keeping the investment in question. If there is expenditure directly or indirectly incurred in relation to exempt income the same cannot be claimed against the income which is tax .....

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pt income, therefore, it was incumbent on the AO to find out as to whether the assessee has incurred any expenditure in relation to income which does not form part of the total income and if so to quantify the expenditure of disallowance. The AO has not brought on record any fact or material to show that any expenditure has been incurred on the activity which has resulted into both taxable and non taxable income. Therefore, in our view when the assessee has prima facie brought out a case that no .....

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elhi High Court vide decision dated 15.01.2013 in para 6.3 as under:- '6.3 We have carefully considered the submissions and perused the records. We find that Ld. Commissioner of Income Tax (Appeals) has given a finding that only interest of ₹ 2,96,731/- was paid on funds utilized for making investments on which exempted income was receivable. Further, Ld. Commissioner of Income Tax (Appeals) has observed that in respect of investment of ₹ 6,07,775,000/- made in subsidiary compani .....

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rest attributable to the investments made by the appellant in the PSVs can be disallowed u/s 14A LW. Rule 8D because it cannot be termed as expense/interest incurred for earning exempted income. Under the circumstances, Ld. Commissioner of Income Tax (Appeals) is correct in holding that disallowance of a further sum ₹ 40,556/- calculated@2%ofthedividend earned is sufficient. Under the circumstances, we do not find any infirmity in the order of the Ld. Commissioner of Income Tax (Appeals), .....

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is not justified, accordingly the same is deleted. 12. The issue of recording objective satisfaction by the Assessing Officer, before proceeding to determine the amount of expenditure incurred in relation to such income which does not form part of the total income under the Income-tax Act, was also examined by the Pune Bench of the Tribunal in the case of Kalyani Steels Ltd. vs. Addl. CIT (supra) and the Pune Bench, following the judgment of the Hon'ble Bombay High Court in the case of Godr .....

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n 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 the Act. Sub-section (2) of section 14A of the Act prescribes that the Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income in accordance with such method as may be prescribed, such prescribed method being contained in rule 8D of the Rules. However, the aforesaid empow .....

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ute the disallowance u/s 14A of the Act is neither automatic and nor is triggered merely because assessee has earned an exempt income. The invoking of rule 8D of the Rules is permissible only when the Assessing Officer records the satisfaction in regard to the incorrectness of the claim of the assessee, having regard to the accounts of the assessee. In other words, section 14A(2) of the Act envisaged a condition precedent for invoking rule 8D of the Rules and computing disallowance thereof only .....

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form method for determining the amount of expenditure incurred in relation to income which does not form part of the total income only in a situation where the Assessing Officer, having regard to the accounts of the assessee is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. It, therefore, merits emphasis that sub-section (2) of section 14A does not authorize or empower the Assessing Officer to apply the prescribed method irrespective of the nature .....

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g of income which does not form part of the total income under the Act is found to be incorrect. In such a situation a method had to be devised for apportioning the expenditure incurred by the assessee between what is incurred in relation to the earning of taxable income and that which is incurred in relation to the earning of non-taxable income. As a matter of fact, the memorandum explaining the provisions of the Finance Bill, 2006, and the Central Board of Direct Taxes circular dated December .....

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the assessee. Sub-section (3) clarifies that the application of the method would be attracted even to a situation where the assessee has claimed that no expenditure at all was incurred in relation to the earning of non-taxable income. 71. Parliament has provided an adequate safeguard to the invocation of the power to determine the expenditure incurred in relation to the earning of non-taxable income by adoption of the prescribed method. The invocation of the power is made conditional on the obj .....

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decision by the Assessing Officer has to be arrived at in good faith on relevant considerations. The Assessing Officer must furnish to the assessee a reasonable opportunity to show cause on the correctness of the claim made by him. In the event that the Assessing Officer is not satisfied with the correctness of the claim made by the assessee, he must record reasons for his conclusion. These safeguards which are implicit in the requirements of fairness and fair procedure under article 14 must be .....

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to the correctness or otherwise of the claim made by the assessee must be based on reasons and on relevant considerations. Ostensibly, the invoking of rule 8D of the Rules in order to compute the disallowance u/s 14A of the Act is to be understood as being conditional on the objective satisfaction of the Assessing Officer with regard to the incorrectness of the claim of the assessee, having regard to the accounts of the assessee. At this stage, we may also touch-upon a similar view expressed by .....

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ssessing Officer records a finding that he was not satisfied with the correctness of the claim of the assessee in respect of such expenditure. According to the Hon ble Delhi High Court, sub-section (2) of section 14A of the Act 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 Act and sub-section (3) applies to cases where the assessee asserts that no expenditure has been incurred in relatio .....

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e Act and thus the same does not form part of the total income under the Act. In the computation of income, assessee having regard to section 14A of the Act, determined the amount of expenditure incurred in relation to such income at ₹ 5,00,000/-. The Assessing Officer has not found it acceptable and has instead determined the amount of expenditure in relation to such income by applying rule 8D of the Rules. Ostensibly, the action of the Assessing Officer cannot be upheld unless he has com .....

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ncorrect, having regard to the accounts of the assessee. The only point made by the Assessing Officer is to the effect that the said disallowance was not acceptable . In-fact, we find that the assessee made detailed submissions to the Assessing Officer, which have been reproduced by the CIT(A) in para 3.2.1 of his order. As per the assessee, the determination of disallowance u/s 14A of the Act of ₹ 5,00,000/- was based on the employee costs and other costs involved in carrying out this act .....

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brushed aside by making a bland statement that the disallowance is not acceptable . Therefore, in our view, in the present case, the Assessing Officer has not recorded any objective satisfaction in regard to the correctness of the claim of the assessee, which is mandatorily required in terms of section 14A(2) of the Act and therefore his action of invoking rule 8D of the Rules to compute the impugned disallowance is untenable. Accordingly, the orders of the authorities below are set-aside on th .....

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contention of the assessee is not acceptable. Therefore, in the light of the aforesaid orders of the Tribunal and other judicial pronouncements, we are of the view that the Assessing Officer has not recorded any objective satisfaction with regard to the correctness of the claim of the assessee. 14. In the case of DCIT vs. M/s Jindal Photo Limited in I.T.A. No. 814/Del/2011, the Delhi Bench of the Tribunal has also expressed similar view, in which it has been held that satisfaction of the Assessi .....

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ing in view the totality of the facts and circumstances of the case, we are of the considered opinion that invocation of rule 8D without recording objective satisfaction by the Assessing Officer is not proper and we accordingly set aside the order of the ld. CIT(A) on this issue and delete the addition made in this regard. 34. Undisputedly, in the instant case, the Assessing Officer has not recorded any objective satisfaction with regard to the correctness of the accounts relating to dividend in .....

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