TMI Blog2020 (8) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... saction itself is not a genuine transaction, then the question of applying the provisions of section 56(2)(vii) does not arise. Addition u/s 40A - disallowance of interest on account of diversion of interest bearing funds to the related party - HELD THAT:- Without going into the controversy of commercial transaction as well as the related party transaction, at the outset we note that the interest expenditure debited by the assessee in the Profit Loss account is towards the secured loans and, therefore, it is unlikely to use the secured loans other than the purposes for which the loan was taken. Further, as per the Balance Sheet, assessee is having ₹ 7.66 crores as interest free loans under the head Unsecured Loan from the Karta of the HUF and member of the HUF. Once the unsecured interest free loan amount is more than the alleged amount of advance given to these parties, then the disallowance of interest is not justified. Disallowance confirmed by the LD. CIT (A) on account of interest expenditure is deleted. - Decided in favour of assessee. - ITA No. 71/JP/2020, Cross Objection No. 01/JP/2020 (Arising out ITA No. 71/JP/2020) - - - Dated:- 30-7-2020 - Shri Vijay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of transfer of the land thereafter. The assessee has filed a report of the Sub Registrar showing the valuation of the land in question at ₹ 5,76,20,075/- as against the value adopted by the AO at ₹ 7,69,10,670/-. The assessee also raised an objection that since these lands are shown as stock-in-trade in the books of account of the assessee, the AO has not disputed the nature of the asset and treatment given by the assessee in the books of account being stock-in-trade, therefore the provisions of section 56(2)(vii) would not be applicable on this transaction which is classified as stock-in-trade. The LD. CIT (A) called for a remand report from the AO and after considering the remand report of the AO, has deleted the addition made by the AO, particularly on the ground that the land in question is not a capital asset as the assessee has purchased the land as stock-in-trade and, therefore, the provisions of section 56(2)(vii)(b) of the IT Act are not applicable. Aggrieved by the impugned order of LD. CIT (A), the revenue has filed the present appeal. 3. Before us, the ld. D/R has submitted that the AO has made the addition on account of difference in the purchase pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidered as stock-in-trade. The ld. A/R has submitted that the development expenditure is debited in the year in which it is incurred and not in the year of purchase itself. Therefore, he has submitted that non incurring development expenditure during the year would not change the nature of asset being stock-in-trade to a capital asset. He has further contended that all these facts were available before the AO and part of the assessment record, therefore, this is not a new fact brought on record by the assessee before the LD. CIT (A). Since the AO has not raised any query to the assessee regarding the nature of asset, therefore, there was no occasion for the assessee to raise this objection. The ld. A/R has further submitted that even otherwise this is a legal issue and goes to the root of the matter and the LD. CIT (A) has coterminous power of the AO to consider a legal ground taken before him. The legal ground raised before the LD. CIT (A) is inheritance of the assessee and, therefore, the LD. CIT (A) has rightly considered and accepted the legal ground raised by the assessee. In support of his contention, he has relied upon the Judgment of the Hon'ble Supreme Court in ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... summary of these properties show that these are group housing plots purchased by the assessee bearing nos. GH-6, GH-7, GH-9 and GH-10 in Shree Ram Vatika. The AO has given the details of these plots at page 3 of his order as under :- S.No. Address of the property Date of transaction Area of property Value adopted by the assessee 1 Plot No. GH-10, Shree Ram Vatika, Rampura Baas, Devliya, Sanganer, Jaipur. 26.03.2015 6008.24 sq. yd 1,21,07,700/- 2 Plot No. GH-7, Shree Ram Vatika, Rampura Baas, Devliya, Sanganer, Jaipur. 26.03.2015 6078.53 sq. yd 1,22,46,300/- 3 Plot No. GH-6, Shree Ram Vatika, Rampura Baas, Devliya, Sanganer, Jaipur. 26.03.2015 6100 sq. yd. 1,11,77,100/- 4 Plot No. GH-9, Shree Ram Vatika, Rampura Baas, Devliya, Sanganer, Jaipur. 26.03.2015 6019.66 sq. yd. 1,10,28 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hus as per the circular issued by the CBDT dated 01/2011 para 13.4, the provisions of section 56(2) of the IT Act, 1961 are not applicable on the business transactions made by him. In view of the above claim of the assessee it is submitted that the assessee had never taken this contention during the course of assessment proceedings that the property in question was purchased for business purpose and have to be treated as stock in trade. It is also pertinent to mention here that no such claim was even made to the CIT(A)-2 along with the letter dated 10.12.2018 of the assessee for admission of additional documents. Therefore it is an afterthought of the assessee to evade tax in disguise by making such demand. Thus the provision of section 56(2) of the IT Act, 1961 are squarely applicable to the property in question. Thus the AO has not disputed the legal proposition as clarified by the CBDT in Circular No.1 of 2011 but he has taken objection that this contention was not raised during the course of assessment proceedings which is hyper technical. Once the fact itself is emanating from the assessment record being books of account, then this being a legal plea can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration referred to therein, or a part thereof, has been paid by any mode other than cash on or before the date of the agreement for the transfer of such immovable property;] ( c ) any property, other than immovable property,- ( i ) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property; ( ii ) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration : Provided that where the stamp duty value of immovable property as referred to in sub-clause ( b ) is disputed by the assessee on grounds mentioned in sub-section (2) of section 50C, the Assessing Officer may refer the valuation of such property to a Valuation Officer, and the provisions of section 50C and subsection (15) of section 155 shall, as far as may be, apply in relation to the stamp duty value of such property for the purpose of sub-clause ( b ) as they apply for valuation of capital asset under those sections : Provided further that this clause shall no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p duty in respect of an immovable property;] Therefore, the term Property used in sub-clause (b) of clause (vii) of sub-section (2) of section 56 is the capital asset and that too specified property as per clause (d) of explanation. The term capital asset has been defined in section 2(14) of the IT Act and as per clause (a) of section 2(14) any stock-in-trade, consumable stores or raw material held for the purpose of business or profession is excluded from the definition of capital asset . Thus the stock-in-trade falls in the exclusion clause of the definition of capital asset provided under section 2(14) of the IT Act. This position has been clarified by the CBDT vide its Circular No. 1 of 2011 and the para 13.4 of the said circular reads as under :- 13.4 The provisions of section 56(2) (vii) were introduced as a counter evasion mechanism to prevent laundering of unaccounted income. The provisions were intended to extend the tax net to such transactions in kind. The intent is not to tax the transactions entered into in the normal course of business or trade, the profits of which are taxable under specific head of income. Therefore, the definition of property has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of the agreement may be taken for the purposes of this sub-clause: Provided further that the said proviso shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by any mode other than cash on or before the date of the agreement for the transfer of such immovable property; (c) any property, other than immovable property,- (i) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property; (ii) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration : Provided that where the stamp duty value of immovable property as referred to in sub-clause (b) is disputed by the assessee on grounds mentioned in sub-section (2) of section 50C, the Assessing Officer may refer the valuation of such pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a Hindu undivided family, any member thereof;] (f) stamp duty value means the value adopted or assessed or assessable by any authority of the Central Government or a State Government for the purpose of payment of stamp duty in respect of an immovable property; 17. The above provisions thus provide that where an individual receives in any previous year, from any person or persons on or after the 1st day of October, 2009 but before the 1st day of April, 2017, any immoveable property for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration shall be income chargeable to tax under the head Income from other sources . 18. In the instant case, the assessee has purchased two plots of land during the year under consideration. The sale consideration as per the respective sale deeds amounts to ₹ 5,50,000/- and the stamp duty value of such properties as determined by the Stamp duty authority amounts to ₹ 8,53,636/- and therefore, there is difference to the tune of ₹ 3,03,636/- between the sale consideration as per the sale d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mited purposes of examining whether the two plots of agricultural land so acquired falls in the definition of capital asset or not. Where it is so determined by the Assessing officer that the agricultural land so acquired doesn t falls in the definition of capital asset, difference in the DLC value and sales consideration cannot be brought to tax under the provisions of section 56(2)(vii)(b) of the Act and relief should be granted to the assessee. 21. In a scenario, where it is so determined by the Assessing officer that the agricultural land so acquired falls in the definition of capital asset, the provisions of section 56(2)(vii)(b) of the Act would be applicable. In this regard, the contention of the ld AR is that during the course of assessment proceedings, the assessee has objected to the DLC value adopted by the Assessing Officer and therefore before applying the DLC value, the matter should have been referred to the DVO for determination of fair market value. 22. We note that during the course of assessment proceedings, the assessee was issued a show cause as to why the difference of ₹ 3,03,596/- may not be added u/s 56(2)(vii) of the Act. In reply thereof, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upport the order of the AO and cannot improve the same. Further, if the transaction itself is not a genuine transaction, then the question of applying the provisions of section 56(2)(vii) does not arise. 6. In the Cross Objection, the assessee has raised the following grounds :- 1. On the facts and in the circumstances and in law the LD. CIT (A) erred in confirming the finding of the ld. AO that M/s. Tajraj Cold Storage Pvt. Ltd. is party covered under section 40(a)(2)(b) of the Act while this company is no way related with the assessee. 2. On the facts and in the circumstances and in law the LD. CIT (A) erred in partly confirming the action of the AO regarding disallowance of interest on the ground that the assessee diverted interest bearing funds to related parties in the shape of interest free advance more so when the advances were given for business purposes and in support to that the documentary evidence was also filed. 3. The appellant craves leave to add, alter, amend, any of the grounds of appeal at or before the time of hearing of appeal. 7. The only dispute in the Cross Objection of the assessee is regarding the disallowance of interest of ₹ 4,51,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r purchase of the land and, therefore, the interest bearing funds are not utilized for such purposes. He has further pointed out that the interest bearing loans are all term loans and the same cannot be used other than the purposes for which the loans were taken. Similarly, M/s. Taj Raj Cold Storage Pvt. Ltd. is not a related party and the advance of ₹ 33,00,000/- was given under the Agreement for purpose of land at Harchandpura. He has referred to the copy of the agreement at pages 75 to 77 in paper book and submitted that the advance was given for purchase of property which is part of the stock-in-trade and, therefore, this was given in the ordinary course of business of the assessee. The ld. A/R has referred to the details at page 20 of the impugned order of LD. CIT (A) and submitted that the LD. CIT (A) has accepted the fact of advance to M/s. Triveni Land Mark Pvt. Ltd. was given from 20th March 2015 to 29th March, 2015. Accordingly, the AO was directed to calculate the interest for the period during which these advances remained outstanding with these parties. However, considering the parties as covered under section 40A(2)(b) is factually incorrect as M/s. Taj Raj C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l High Court in the case of `CIT vs. Vijay Solvex Ltd. (supra) has considered this issue in para 15 to 17 as under :- 15. The Allahabad High Court in the case of CIT vs. Motor Sales Ltd. (2008) 304 ITR 123 (Allahabad) has held that it was finding of fact as found in the case that respondent-assessee had capital/reserve/surplus of ₹ 6.10 crores on which no interest was being paid and therefore interest free advances made by it are covered and ultimately held that there is no question of any disallowance of notional interest on loan taken by it. It was further held that the Tribunal had also recorded a finding that the assessee had not diverted any borrowed fund on which interest was paid for non-commercial purposes and therefore, there is no question of disallowance of interest out of the interest paid by the assessee. 16. In view of the authoritative pronouncement of the Hon'ble Apex Court and other judgments referred supra, in our view, the assessee admittedly had its own funds, as referred to earlier, and admittedly such funds/reserves being substantially higher than, even otherwise, the advances to the debtors, no notional interest or hypothetical interest c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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