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2016 (4) TMI 754 - ITAT DELHI

2016 (4) TMI 754 - ITAT DELHI - TMI - Disallowance on account of interest - Held that:- If the money is utilised in a way that makes commercial sense and helps in running the business of the assessee more efficiently, then it can be said that the interest paid in respect of the borrowed money has been incurred for the purposes of commercial expediency. Moreover, the Ld. AR has demonstrated that as per the Balance sheet, the assessee had a capital of ₹ 2.73 crores and the profit for the yea .....

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/- on account of interest. - Decided in favour of assessee

Disallowance on account of 1/5th of the telephone expenses - Held that:- Looking into the quantum of disallowance as well as a specific prayer of the assessee that the quantum of disallowance may be fixed at 1/10th, we feel that it would serve the interest of justice if the disallowance is restricted to 1/10th of the total telephone expenses. - Decided in favour of assessee

Value of sales consideration for the pur .....

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use in a judicious manner. Section 50C is a deeming provision and ostensibly involves creation of an additional tax liability on the assessee and, therefore, notwithstanding the presence of the expression ‘may’ in section 50C (2)(a), the AO in this case ought to have referred the matter to the valuation officer for ascertaining the value of the capital asset in question. The order of the Commissioner (Appeals) was thus held to be set aside and the AO was directed to adopt the course mentioned in .....

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- ITA No. 4626/Del/2011 - Dated:- 23-2-2016 - SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SH. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER For The Appellant by: Shri Gurjeet Singh, CA For The Respondent by: Shri O.P.Meena, Sr. DR ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER The present appeal is preferred by the assessee against the order passed by the Ld. CIT(A), Karnal wherein though his impugned order dated 17.08.2011, he has confirmed the following additions:- i) ₹ 54,477/- pertaining t .....

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ere numerous debits in the form of cash and cheques in this account but there was no trade dealing/business transaction with the said concern. The Assessing Officer also noted that there was an opening debit balance of ₹ 1.00 lakh in the name of Panipat College of Textile Tech. Pvt. Ltd., with whom again there was no business dealing. The assessee had claimed expenses of ₹ 11,42,875/- in respect of bank interest, however, no interest had been charged by the assessee from these two co .....

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on record to prove that the capital of the Proprietor was available for making the said interest free loan. Here also the assessee, as per the Ld. CIT (A), could not substantiate his claim that the interest free advance was for the purposes of the business of the assessee. Supporting his ground of appeal relating to the disallowance of interest, the Ld. AR submitted that as far as the loan to Panipat College of Textile Tech. Pvt. Ltd. was concerned, it was an investment in the shares of the comp .....

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hat surplus funds were available with the assessee for making the interest free advance of ₹ 4.50 lacs to M/s Victory Enterprises. He also relied on the decision of the Hon'ble Apex Court in the case of Munjal Sales Corporation vs CIT 298 ITR 298 (S.C.). 4. Learned Departmental Representative, on the other hand, strongly supported the Assessing Officer s order and that of the Ld. CIT (A). After going through the relevant records and hearing the rival contentions on this issue, it is se .....

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it is seen that although the assessee has made a submission before the Ld. CIT (A) but he has not specifically adjudicated the issue at hand. The assessee being a manufacturer and an exporter of home furnishings has invested ₹ 1.00 lac in a college being set up by the textile exporters to give Bachelor Degree in Textile Engineering. If one applies the principles of law enunciated by the Hon'ble Apex Court in the case of S.A. Builders Ltd. vs CIT 288 ITR 1(S.C.) it will be seen that th .....

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that as per the Balance sheet, the assessee had a capital of ₹ 2.73 crores and the profit for the year was ₹ 16.94 lacs. These figures, in our opinion, were sufficient to meet the investment requirements as well as the amount given as advance to M/s Victory Enterprises. These facts were before the Ld. CIT (A) also but he has not specifically dealt with them in the impugned order. Therefore, on an overall view of the facts of the case and the judicial pronouncements referred to above .....

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r the Ld. CIT (A) to justify his contention. However, looking into the quantum of disallowance as well as a specific prayer of the assessee that the quantum of disallowance may be fixed at 1/10th, we feel that it would serve the interest of justice if the disallowance is restricted to 1/10th of the total telephone expenses. Hence, this ground of the assessee s appeal is also allowed. 6. The third ground of the assessee s appeal pertains to addition of ₹ 20,32,177/-. It is seen that the ass .....

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; 39,52,177/-. The assessee was, therefore, asked to show cause as to why the sale value of the property should not be taken at ₹ 39,52,177/- as per section 50C of the Act against ₹ 19,20,000/- taken by him. The reply of the assessee was considered by the AO but the same was not found tenable for the reasons discussed in paras 3.1 to 3.8 of the assessment order, which are reproduced below:- 3.1 The reply of the assessee as detailed above has been considered. The assessee took his tim .....

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see along with the reply filed a photocopy of a so claimed Ikranama" between the assessee and the purchasers. Though there are three purchasers but the so claimed Ikramama is signed by only one person and not by all the purchasers. Further there is no name & address of the witness on the so claimed Ikramama . Generally in all such Ikramama of the property deals there is always an advance amount with the clause that if the purchaser fails to make the full payment and to get the deal regi .....

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er has no authenticity. In view of the above it is evident that the so claimed Ikramama is concocted and an after thought of the assessee. Even otherwise for the purpose of sale consideration the date of execution of the sale deed is relevant and not the date of Ikramama. As such the contention of the assessee that the deal of the property was started on 18th Jan. 2007 is not acceptable specially when there is no mention in the sale deed about the so claimed Ikramama dated 18.01.2007. 7. Based o .....

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to Sh. Pawan Kumar, Ashish kumar & Girish Kumar. The Sale consideration was received by Cheque No. 959006 dated. 18.08.2007, Ch. No. 235157 dated 20.08.2007, and Ch. No. 891885 dated 20.08.2007 each amounting to ₹ 6,40,000/-. He submitted that the deal of Property was started on 18th January, 2007. However, it was concluded in the month of August, 2007. It is further mentioned that Circle Rate of Land in the relevant area was increased from ₹ 1700 to ₹ 6000 w.e.f. 01.04.200 .....

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further submitted that it is to be appreciated that a steep hike in Circle rate i.e. ₹ 1700 as on 31.03.2007 & ₹ 6000 as on April 2007 cannot be a basis for increasing the Sale Consideration. He also drew our attention to the written submissions made before the AO and the Ld. CIT (A). These submissions are being reproduced herein under for a ready reference: 1. The addition suggested is erroneous since section 50-C must have direct nexus, additionally it must emerge from the pro .....

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pital asset and which does not have within itself the ambit for valuation of the valuation officer for purpose of stamp duty. 3. Pertinently the provision of section 50-C is only 'a measure' for computation of the tax which cannot determine and regulate by relating back to the charging section 45' reverse ways and by falling reverse ways with the scope of computation of tax chargeable u/s 4 and 5 of the Act. Even the said suggestion to have been rendered presupposes the levy factuall .....

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; and has to be read in totality. 5. The section is merely substituting the "valuation of the stamp valuation authority" within the words of the Act "total income" resulting altering the subject matter of the Income Tax Act itself where in the chargeability rates and heads impacted too are unspecified for the year concerned. More so the chargeability is of the Net of the Income Tax whereby tangent to it the whole amount is being deemed accrued/arising which renders erroneous .....

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t connote the consideration received and hence the chargeability is misconceived. 9. U/s 50C (2) Explanation 2 the word contained are "Assessable………Notwithstanding anything to the contrary contained in any other law……The word notwithstanding r.w. any other law renders support to the Main Provisions of the Act and doesn't control the provision. The provision does not explain /considers the anomaly within the Law such that to render a reliance blindly on .....

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r valuation. 9. Ld. DR, on the other hand, supported the orders of the authorities below. 10. Before proceeding to adjudicate the issue at hand, it will be worthwhile to recapitulate the legislative intent behind the introduction of section 50C and also go through the provisions of section 50C. Section 50C was introduced in the Income-tax Act, 1961 by the Finance Act, 2002 with effect from 1-4- 2003 for substituting valuation done for Stamp Valuation purposes as full value of consideration in pl .....

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of land or building or both is less than the value adopted or assessed by the Stamp Valuation Authorities for the purpose of payment of stamp duty in respect of transfer, then value so adopted or assessed by them shall be deemed to be the full value of consideration; (3) It is also provided that where the assessee claims that the value adopted or assessed for stamp duty purposes is more than the fair market value of the property as on the date of transfer and he has not disputed this value befor .....

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he Valuation Officer is more than the value adopted or assessed for stamp duty purposes the Assessing Officer shall adopt such fair market value determined by the Stamp Valuation Authorities as full value of consideration and he shall not adopt the valuation done by the Valuation Officer as full value consideration; (4) The insertion of Section 50C is made effective from 1-4-2003 and, accordingly, would be applicable for the assessment year 2003-04 and the subsequent years. Earlier there used to .....

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bove the sale consideration had passed hands between the transferee and the transferor, Section 52(2) could not be invoked. It became almost a herculean task for the Assessing Officer to collect evidence to show the exchange of additional money for consideration was other than apparent sale consideration. Accordingly, it was considered to insert a deeming provision by way of Section 50C for substituting apparent sale consideration by valuation done by SVA subject to certain conditions. SECTION 5 .....

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dopted or assessed or assessed or assessable shall, for the purposes of Section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer. (2) Without prejudice to the provisions of subsection (1), where - a) the assessee claims before any Assessing Officer that the value adopted or assessed or assessed or assessable by the stamp valuation authority under sub-section (1) exceeds the fair market value of the property as on the date of transfer; b) t .....

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7) of Section 23A, subsection (5) of Section 24, Section 34AA, Section 35 and Section 37 of the Wealth-tax Act, 1957 (27 of 1957), shall, with necessary modifications apply in relation to such reference as they apply in relation to a reference made by the Assessing Officer under subsection (1) of Section 16Aof that Act. Explanation1. - For the purposes of this section Valuation Officer shall have the same meaning as in clause (r) of Section 2 of the Wealth-tax Act, 1957 (27 of 1957). Explanation .....

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n authority referred to in sub-section (1), the value so adopted or assessed by such authority shall be taken as the full value of the consideration received or accruing as a result of the transfer. 11. On a perusal of the provisions of section 50C, the basic ingredients of the provisions emerge as under: -There should be a transfer of capital asset, being land or building or both; -There should be a transfer of such capital asset by way of registration with the Stamp Duty Authorities; -Stamp du .....

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deration shown by the transferor in the sale deed then such higher valuation will be considered as full value of consideration and, accordingly, such full value of consideration being valuation done by the Stamp Valuation Authorities will be substituted for apparent consideration; -The capital gains under Section 48 shall be computed accordingly on the basis of such higher full value of consideration and not on the basis of apparent consideration shown in the sale deed; -If the assessee, being t .....

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ermined by the Valuation Officer with the valuation done by the Stamp Valuation Authorities under the Stamp Duty Act and with the apparent sale consideration shown by the assessee in the sale deed; -Where valuation done by the Valuation Officer is more than the valuation done by the Stamp Valuation Authorities (SVA) then valuation done by the SVA would be taken as full value of consideration and capital gains will be calculated accordingly; -If valuation done by the Valuation Officer is less tha .....

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l value of consideration and capital gains be calculated accordingly, i.e. as shown by the assessee; -With effectfrom1.10.2009, applicable for the assessment year 2010-11 the Finance Act, 2009 (No.2) has enabled the assessing officer to find out Stamp Duty Value assessable by the SVA in cases where agreements to sale were executed, consideration changed hands and possession of the property was handed over to the buyer but without getting the transfer registered with the SVA. In such situation th .....

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eement on the ground that the same is signed by only one person whereas the land has been finally sold to three parties. The Assessing Officer s objection is also on the issue that the agreement does not mention any advance amount at the time of the signing of the agreement. Yet another objection is that the sale deed executed in July 2001 does not make any reference to the agreement. Thus, as per the Assessing Officer, and as confirmed by the Ld. CIT (A), the agreement was bogus and an aftertho .....

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seen that as per section 50C(2)(b) of the Act, if the assessee, being transferor, claims before the Assessing Officer that the fair market value of the property under transfer is less than the valuation done by the Stamp Valuation Authorities, then the Assessing Officer may refer the property to the Valuation Officer for determining the Fair Market Value as on the date of transfer. The conditions for making reference u/s 55A of the Act are that (1) valuation done by the Stamp Valuation Authority .....

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er:- (j) u/s 50C(2) the rights of the assessee an duty of revenue are prescribed wherein the provision commences as without prejudice to the…..where…. meaning thereby the provision is an isolated code wherein the matter can be referred to the Valuation Officer where the value adopted/assessed, undisputed which presently is being prayed to be invoked before determining the conditions and considering the logistics relatable to the place and timing of the property under valuation. 13. .....

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make reference to Valuation Officer as per provisions of section 50C where the assessee contended that valuation as done by Stamp Valuation Authority was not acceptable to him. Similarly, it was held by Lucknow B Bench of the ITAT in Mohd. Shoaib vs DCIT 29 DTR 306 that clauses (a) and (b) of sub-section (2) of section 50C are in continuation to each other and therefore, conditions laid down in both the clauses are required to be satisfied together. The Assessing Officer has to refer the valuati .....

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view was taken by the G Bench of ITAT Delhi in the case of Sarwan Kumar vs ITO in I.T.A. No. 4379/Del/2009. On going through all these judicial precedents we find that it is now an established proposition of law that where an assessee had claimed before the AO that value of land and building assessed by stamp valuation authority exceeded fair market value of property, then in terms of section 50C (2) (a) the AO ought to have referred the matter to valuation officer instead of straightaway deemi .....

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fair market value, the AO ought to have referred the matter to the valuation officer to ascertain the valuation. The Tribunal has held as under :- Section 50C prescribes for adoption of full value of consideration in certain cases. It is provided that where the consideration received or accrued as a result of the transfer of a capital asset being land or building or both is less than the value adopted by an authority of the State Government for the purposes of payment of stamp duty in respect of .....

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r sub-section (1) exceeds the fair market value of the property as on the date of transfer, then the Assessing Officer may refer valuation of the capital asset to the Valuation Officer. In instant case, factually it is evident that the assessee had claimed in the return of income itself that the value adopted by the stamp valuation authority exceeded the fair market value as on the date of transfer as provided in section 50C(2)(a). Under these circumstances, the Assessing Officer ought to have r .....

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creation of an additional tax liability on the assessee and, therefore, notwithstanding the presence of the expression may in section 50C (2)(a), the Assessing Officer in this case ought to have referred the matter to the Valuation Officer for ascertaining the value of the capital asset in question. Therefore, the order of the Commissioner (Appeals) is to be set aside and the Assessing Officer is to be directed to adopt the course mentioned in section 50C(2)(a) and thereafter, proceed to determ .....

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