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Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED&
PER Ms. MADHUMITA ROY - JM:
The instant appeal filed by the Revenue is directed against the order dated 26.02.2016 passed by the Commissioner of Income Tax (Appeals)-1, Ahmedabad arising out of the order dated 30.03.2015 passed by the ITO, Ward– 1(1)(2), Ahmedabad under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred as to “the Act”) for A.Y. 2012-13 with the following grounds: “1. The ld.CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 97,716/- made u/s 40(a)(ia) on interest payment to NBFC without deduction of TDS.
ITA No.1088/Ahd/2016 ITO vs. M/s. Bajaj Herbals Pvt. Ltd. Asst.Year –2012-13 - 2 - 2. The ld.CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 211723/- on motor car depreciation, interest and disallowance of Rs. 39,663/- on other expenses. 3. The ld.CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 37,73,063/- made u/s 40(a)(ia) on ocean freight payment without deduction of TDS. 4. The ld.CIT(A) has erred in law and on facts in directing the A.O to rework Capital Gain and Business Profit on sale of land ignoring the fact that the plot has been revalued at Rs. 6,60,66,000/- on form 3CD of audit report.”
Ground No. 1:- 2. The assessee a manufacturer and exporter of cosmetic item filed its return of income on 29.09.2012 declaring income at Rs. NIL which was processed under Section 143(1) of the Act followed by the service of notice under Section 142(1) of the Act alongwith detail questionnaire on 25.08.2014.
During the course of assessment proceeding upon perusal of the Profit and Loss Account of the assessee company it revealed that the assessee company had incurred interest expenses of Rs. 2,15,75,500/- including interest of Rs. 97,716/- paid to one Magma Fin Corp Ltd. the Non Banking Financial Corporation (NBFCs). It was also noticed that TDS was not deducted on the interest paid to such company though in terms of the provision of Section 194A(1) of the Act the assessee was under the obligation to deduct tax either at the time of crediting their account or at the time of payment of said interest. The assessee contended before the Ld. AO that the assessee has not deducted any tax at source (TDS) under Section 194A from payment of interest to any of the parties. The said companies are Non-Banking Finance Companies and, therefore, the question of
ITA No.1088/Ahd/2016 ITO vs. M/s. Bajaj Herbals Pvt. Ltd. Asst.Year –2012-13 - 3 - deduction of tax at source under Section 194A(3) does not arise as the stand taken by the assessee.
It was further the case of the assessee that payee has accounted for these payments in his books of accounts, financial statements and the same was offered to tax in his return of income for A.Y. 2012-13. Under these circumstances by virtue of amendment by way of insertion of second Proviso to Section 40(a)(ia) of the Act w.e.f. 01.04.2013 the provision of the Section 40(a)(ia) of the Act would not attract to the payments made by the assessee as the main contention raised by the assessee before the Ld. AO. However, the same was not found acceptable since the amount of interest credited in these parties account is more than 10,000/-; the contention of the assessee was found factually incorrect and invoking the provision of Section 40(a)(ia) of the Act, the interest expenses amounting to Rs. 97,716/- on which TDS has not been deducted was disallowed by the Ld. AO which was, in turn, deleted by the Ld. CIT(A). Hence, the instant appeal before us.
At the time of hearing of the instant appeal the Ld. Senior Counsel appearing for the assessee submitted before us that the Ld. CIT(A) has been pleased to direct the Ld. AO to verify this aspect of the matter that the recipient has accounted for the underline sum in his books of accounts and the same has been offered to tax and in the event it is found that payee has also offered such underline sum as income than the disallowance made under Section 40(a)(ia) would not survive.
ITA No.1088/Ahd/2016 ITO vs. M/s. Bajaj Herbals Pvt. Ltd. Asst.Year –2012-13 - 4 - 6. On this aspect the Ld. Senior Counsel appearing for the assessee relied upon the judgment passed in the matter of CIT vs. Ansal Land Mark Township (P) Ltd. reported in, 377 ITR 635 (Delhi) passed by the Hon’ble Delhi High Court. It was further contended by the Ld. Senior Counsel that insertion of second proviso to Section 40(a)(ia) of the Act is declarative and curative in nature and has retrospective from 01.04.2005 and in that event since the recipients have already paid tax on such sum, no disallowance under Section 40(a)(ia) of the Act is permissible in the hands of the payer. He has further relied upon the judgment passed in the matter of Janak Bhupatrai Parekh (HUF) vs. ITO in ITA No. 2891/Ahd/2011 for A.Y. 2007- 08 wherein the stand taken by the assessee has been confirmed. The relevant portion whereof is as follows:
“3. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. We have noted that as held by the Hon’ble Delhi High Court in the case of CIT vs. Ansal Landmark Township (P) Ltd, 377 ITR 635 (Delhi) the second proviso to section 40(ia) even though it is stated to be effective from 01.04.2013 is to be taken as retrospective in effect and, therefore, as long as recipients of the income have discharged their tax liability, disallowance under section 40a(ia) cannot be made. As we note this legal proposition, we are alive to this fact that the authorities below have not addressed themselves to this aspect of the matter. In view of this legal and factual position, we deem it fit and proper to remit the matter to the file of Assessing Officer for the factual verification as embedded in the above legal proposition on the fact of this case. In the event of recipients of referral commission having duly discharged their tax liabilities, obviously there cannot be any occasion for disallowance under section 40(a)(ia) of the Act. In any other case, the matter is to be examined on merits and the arguments that the assessee seeks to advance regarding non application of section 194D on fact of this case may also to be examined by the Assessing Officer. Our dealing with the arguments of the assessee in respect of non application of section 194D will be somewhat academic at this stage. We, therefore, refrain from making any observation on merits and remit the matter to the file of Assessing Officer with our directions as above.”
On the other hand, the Ld. DR relied upon the order passed by the Ld. AO.
ITA No.1088/Ahd/2016 ITO vs. M/s. Bajaj Herbals Pvt. Ltd. Asst.Year –2012-13 - 5 -
We have heard the respective parties, we have also perused the relevant materials available on record.
We find that while deciding the matter in favour of the assessee the Ld. CIT(A) observed as follows:
“3.3. I have carefully considered the penalty order and submission filed by appellant. The appellant company had incurred interest expense of Rs. 97,716/-paid to Magam Fin Corp. Ltd. NBFC. It was noticed that TDS was not deducted on the interest paid to these persons, though as per the provision of section 194A (1) of the Act the assessee was under obligation to deduct tax either at the time of credit. The A.O. has held that assessee is factually incorrect and the section 194A(3) of the Act does not apply in the case of the assessee, Hence, the case of the assessee is clearly covered under the provisions of section 40(a)(ia) of the I.T.Act, 1961. Therefore, interest expenses amounting to Rs. 97,716/- on which TDS has not been deducted is disallowed u/s 40(a)(ia) of the IT Act and added to the total income. On the other hand the appellant ahs submitted that payee has accounted for these payments in his books of accounts, financial statements and the same have been offered for tax in his Return of Income for the period A.Y. 2011-12. The appellant has also filed herewith Accountant certificate u/s 201 of the Income Tax Act 1961, form 26A – Rule 30ACB, with Annexure A duly certified. We are of the opinion that as held in case of G. Shankar Vs. ACIT (ITAT Bangalore), that adequate opportunity to file Form No. 26A may be given, from which it can be verified that the payment made by the assessee is reflected in the accounts of NBFC and tax if any, payable on income is paid/not liable to tax. 3.4 So far argument of appellant that recipient company has duly offered above amount as income and certificate of said company certifying the above facts were submitted, it is observed that Hon’ble Delhi High court in its recent decision in the case of ANSAL LAND MARK TOWNSHIP (P) LTD v/s CIT (tax appeal no 160/2015) vide its order dated 26/08/2015 has held that second proviso to Section 40(a)(ia) of the Act is retrospective in nature. Even Hon’ble Ahmedabad Hon’ble ITAT in the case of Forhberg Reallty Pvt. Limited (ITA No. 2066/Ahd/2014) vide its order dated 12/12/2014 has directed A.O. to decide the issue as per decision of Hon’ble Agra ITAT referred in decision of Hon’ble Delhi High court herein abve. Considering the above decisions, it is held that disallowance u/s 40(a)(ia) cannot be made if recipient has offered payment made by assessee as income in their hands. The Assessing Officer is directed to verify above facts and if it is found that payee has already offered above amount as income in their return of income, disallowance u/s 40(a)(ia) made by Assessing Officer for Rs. 97,716/- would not survive. However, the A.O. is free to take action in the case of the appellant u/s 201(1A)(i) of the Act for the payment of interest for the period from the date on which such tax was deductible on
ITA No.1088/Ahd/2016 ITO vs. M/s. Bajaj Herbals Pvt. Ltd. Asst.Year –2012-13 - 6 - the above amount to the date of furnishing of the return of income by the Deductee. Thus, this ground of appeal is allowed subject to verification by Assessing Officer.”
It appears that the Ld. CIT(A) found that the recipient has accounted for the underline sum in his books of accounts and the same has been offered to tax for the period of A.Y. 2011-12. The certificate of the accountant under Section 201 of the Act alongwith annexure duly certified has been taken into consideration by him. It was further considered by him that second Proviso 2 Section 40(a)(ia) of the Act is retrospective in nature relying upon the order passed by the Hon’ble ITAT Agra Bench in the case of Rajiv Kumar Agarwal vs. ACIT reported in, 45 taxmann.com 555 (Agra Trib.) confirmed by the Hon’ble Delhi High Court on the ratio that disallowance under Section 40(a)(ia) cannot be made if the recipient has offered payment made by the assessee as income in their hands, the Ld. CIT(A) directed the Ld. AO to verify the aspect of the matter and in the event if it is found that payee has offered above amount as income in the return of income disallowed made under Section 40(a)(ia) of the Act by the Ld. AO for Rs.97,716/- could not survive which is according to us is just and proper, without any ambiguity so as to warrant interference. Hence, Revenue’s this ground of appeal is found to be devoid of any merit and, thus, dismissed.
Ground No. 2:- 11. Disallowance of Rs. 2,11,723/- on motor car depreciation, interest and disallowance of Rs. 39,663/- on other expenses is the issue before us.
We have heard the respective parties, we have also perused the relevant materials available on record.
ITA No.1088/Ahd/2016 ITO vs. M/s. Bajaj Herbals Pvt. Ltd. Asst.Year –2012-13 - 7 - 13. It appears from the records that the Ld. AO disallowed the following expenses incurred to “Toyota Corolla Altis” on the premise that the said car was registered in the name of the “Director” of the company:
Depreciation : Rs. 1,37,395/- Interest : Rs. 55,398/- Insurance : Rs. 18,930/- Sub-total Rs. 2,11,723/- Care expenses (1/4th of total) :Rs. 39,663/-
Fact reveals that the car was purchased in the earlier years and there was no addition on cars during the year under consideration as it is evident from the Tax Audit Report and Annuals Report annexed to the Paper Book filed before us. The Ld. CIT(A) following the decision passed by his predecessor for A.Y. 2010-11 decided the matter as follows:
“As regards the A.O’s observation that the appellant failed to establish that the vehicles were used by the company, it is seen that there are various judicial pronouncements to the effect that use means kept ready for use and not actually use. In this case the appellant has demonstrated that vehicles were used for the purpose of f business. In view of the facts and on the basis of the various decisions in favour of the appellant (supra), and following the decision of my predecessor in earlier year on the identical issue, the A.O is directed to delete the same disallowance on the depreciation of Rs.2,11,723/-. The ground of the appellant is allowed. Regarding the expenses of Rs.39,663/- claimed on the running of the vehicle, the appellant has submitted that as the cars were used wholly and exclusively for the purpose of business, no part of expenses was required to be disallowed. The company is artificial person and there cannot be any personal expenses or non business expenses in the hands of the company. The appellant was not able to demonstrate that the whole expenses on running of the vehicle were made for the purpose of business. The partial use of cars by the directors for personal purpose cannot be ruled out. In view of the above, sum of Rs.25,000/- of expenses claimed on the running of the vehicle, disallowed by the A.O. is being confirmed. The ground of appeal is partly allowed.”
ITA No.1088/Ahd/2016 ITO vs. M/s. Bajaj Herbals Pvt. Ltd. Asst.Year –2012-13 - 8 - 14. Further that it is the case of the assessee that the car is reflected as an asset in the balance sheet of the company and the said car loan also appears as liability in the balance sheet of the said assessee company. The company has passed necessary resolution for registration in the said car in the name of the “Director”. In that view of the matter the company has dominance over the car and the same is used wholly and exclusively for business purposes of the assessee. Reliance were placed in the matter of CIT vs. Aravalli Finlease, reported in, 341 ITR 282 (Guj.) where it has been held that if cars are brought by a company in the name of the “Director”, “Company” is eligible for claiming depreciation on the same. The fact that the assessee has demonstrated the vehicles were used for the purpose of business and, therefore, taking into consideration various decisions on this aspect and also following the decision passed by the predecessor in the earlier year on the identical issue the Ld. CIT(A) was pleased to pass a reasoned order by allowing the depreciation of Rs. 2,11,723/- by deleting the addition made by the Ld. AO. So far as the expenses of the Rs. 39,663/- claimed on the running of the vehicle is concerned, we find that the Ld. CIT(A) was not satisfied so as to the claim made by the assessee by demonstrating that the whole expenses on running of the vehicle were made for business purposes. Taking into consideration the partial use of cars by the Directors for personal purposes sum of Rs. 25,000/- of expenses claimed on the running of the vehicle as disallowed by the Ld. AO has been confirmed by the Ld. CIT(A) which appears to be proper so as to warrant interference. We, thus, confirm the same. Thus, the ground of appeal preferred by the Revenue is partly allowed.
ITA No.1088/Ahd/2016 ITO vs. M/s. Bajaj Herbals Pvt. Ltd. Asst.Year –2012-13 - 9 - Ground No. 3:- 15. Deletion of addition of Rs. 37,73,063/- made under Section 40(a)(ia) on ocean freight payment without deducting tax at source is the subject matter before us.
We have heard the respective parties, we have also perused the relevant materials available on record.
The CIT(A) deleted such impugned disallowance following his predecessor for the A.Y. 2010-11. The assessee’s case is this that during the course of assessment proceeding upon perusal of the Profit & Loss Account it was found that the assessee had debited the Rs. 37,73,063/- on account of Freight Expenses in its Profit & Loss Account, such payment was made without deducting TDS. According to the Ld. AO the case made out by the assessee that the Freight Expenses pertain to payments made to agent of foreign shipping companies and, therefore, Section 194C(6) is applicable was not found acceptable by the Ld. AO. Finally relying on Section 40(a)(ia) of the Act owing to non-compliance of the provision of Section 194C the said amount of expenses of Rs. 37,73,063/- was added to the total income of the assessee by the Ld. AO which was, in turn, deleted by the Ld. CIT(A). Hence, the instant appeal before us.
The case before us as made out by the assessee is this that while exporting its goods the assessee books the container of various “foreign shipping companies” through their offices in India / clearing and forwarding agents (D&F agents) who deal with the office of such shipping companies. Further that upon receipt of bill for “freight and other related charges” of
ITA No.1088/Ahd/2016 ITO vs. M/s. Bajaj Herbals Pvt. Ltd. Asst.Year –2012-13 - 10 - shipping companies the assessee pays to the C&F agents who, in turn, made payment to the concern shipping companies. The assessee has duly deducted tax at source on “terminal handling charges, documentation charges, etc.” paid to these agents which is an admitted position neither disputed by Revenue. However, payment to agents in respect of invoices raised by non-resident shipping company in foreign currency by such agents i.e. the freight expenses is nothing but reimbursement of actual expenses and, therefore, no tax is deducted at source on the same. The payment in question is being made to the shipping agents of non-resident shipping companies. On this aspect the assessee relied upon the Circular No. 723 dated 19.09.95 which is also available at Page 87 of the Paper Book filed before us. Since the agent acts on behalf of the non-resident ship-owner, he steps into the shoes of the principal i.e. the ship-owner and, therefore, provisions of Section 172 would be applicable in the case in hand and not Section 194C and 195 of the Act. According to the assessee the agent in question shall be governed by the provision of Section 172 and not under the provision of Section 194C or 195 disallowance made there is not sustainable.
Apart from that the following were the submission made by the appellant before us:
“Shortfall in TDS does not warrant disallowance u/s 40(a)(ia): • In any case, it is not a case of ‘non-deduction’ of tax at source. Rather, it is a case of “short deduction” of tax at source. • The bills raised by the concerned agents comprise of “freight expenses” as well as “terminal handling charges, documentation charges, etc.”. Assessee has deducted tax at source on “terminal handling charges, documentation charges, etc.” but not on “freight expenses.”
ITA No.1088/Ahd/2016 ITO vs. M/s. Bajaj Herbals Pvt. Ltd. Asst.Year –2012-13 - 11 - • Hence, at the most, it can be treated as a case of shortfall in TDS and not a case of non-deduction of tax at source at all. • It is a settled law that if there is shortfall due to any difference of opinion as to taxability of any item or nature of payments, then the assessee can, at the most, be declared to be an assessee in default u/s 201 but that cannot be a ground for disallowance u/s 40(a)(ia). Reliance is placed on: � CIT vs. S.K. Tekriwal – 361 ITR 432 (Cal); � Khandwala Integrated Financial Services Pvt. Ltd. vs. JCIT – ITA No. 634 & 532/Ahd/2011; � CIT vs. Prayas Engineering Ltd. – Tax Appeal No. 1237 of 2014 (Gujarat); Payments to “C&F agents” do not fall within the purview of S. 194C: • In any case, payments made to “C&F agents” do not fall within the ambit of provisions of S. 194C payments for “work” as defined vide Explanation III of S.194C, as applicable during the year under consideration. Hence, no tax is to be deducted at source on payments to C&F agents and accordingly, no disallowance is called for u/s 40(a)(ia). Reliance is placed on “ACIT vs. P. P. Overseas – ITA 733/Mum/2010”; TDS is not required on “Reimbursements to C&F agents”: • In any case, “freight” is in the nature of reimbursement since the concerned “agent” is supposed to pay such sum to the concerned “non-resident shipping company”. The said fact is evident from the bills raised by the agents (Pgs. 35-68 of P/B) wherein the amount of “freight” is separately shown in foreign currency and thereafter, the same in converted into INR at the prevalent exchange rate. • It is a settled law that reimbursement of expenses to C&F agents does not constitute income in the hands of the concerned C&F agents and hence, tax is not required to be deducted at source on the component of “reimbursement” to C&F agents. Reliance is placed on the following judicial pronouncements in support of the said contention:” � CIT vs. Gujarat Narmada Valley Fertilizers Co. Ltd. – Tax Appeal No. 315 of 2013; � Shir Kashyap Anilbhai Shah - ITA 2266/Ahd/2013; � Smt. Madhu Mehta- 181 TTJ 768 (Mum.); � Eimco Elecon (India) Ltd. vs. Addl. CIT 58 SOT 14; Alternatively, if C&F agents have declared the underlying sum as their income and paid tax thereon, disallowance u/s 40(a)(ia) is unwarranted: • Alternatively, insertion of second proviso to S.40(a)(ia) is declarative and curative in nature and has retrospective effect from01.04.05 and hence, if recipients of concerned amounts have already paid tax on such sum, no disallowance u/s 40(a)(ia) is called for in payer’s hands. Reliance is placed on “Janak Bhupatrai Parekh HUF vs. ITO – ITA No. 2891/Ahd/2011” (Annexure
ITA No.1088/Ahd/2016 ITO vs. M/s. Bajaj Herbals Pvt. Ltd. Asst.Year –2012-13 - 12 - “A”) wherein Hon’ble the ITAT has followed “CIT vs. Ansal Land Mark Township Pvt. Ltd. – 377 ITR 635 (Del)” wherein Hon’ble the Delhi High Court has affirmed the view taken in “Rajiv Kumar Agarwal vs. ACIT – 45 taxmann.com 555 (Agra Trib)”. • Hence, if the concerned C&F agents have declared the underlying sum as their income and paid tax thereon, disallowance u/s 40(a)(ia) is unwarranted.”
Thus, the basic question is the TDS whether is required on reimbursement to C&F Agent or not. Since such reimbursement of expenses to C & F Agent does not constitute income in their hands tax is not required to be deducted at source on the special component of “reimbursement” to C&F agents.
We find that while deciding the matter in favour of the assessee the Ld. CIT(A) observed as follows:
“The appellant has submitted that on similar facts in the assessee's case for A.Y. 2010-11 Ld. CIT (A)-l decided the issue in its favour. The relevant para are as under: (B) Ground no. 2 is against the disallowance of freight expenses of Rs. 3414124/- u/s 40(a)(ia) of the Act. The A.O. in the impugned order considered payment of Rs. 3414124/- to eight parties in respect of freight and forwarding expenses (already discussed para 4A above) and rejected appellants explanation that due TDS was deducted as per the provisions as evidenced by photo copies of invoices raised by these parties (submitted by appellant and verified by A.O.) on the amounts attributable to servicing and handling charges and not for reimbursement. The A.O. also rejected appellant's contention about non application of TDS for the freight expenses to nonresident shipping agencies agent. The appellant in appeal reiterated its contention with copies of such invoices and emphasizing the fact that circular no. 723 dt. 19/09/1995 is applicable for such nonresident shipping agencies and its agent since taxable u/s. 172 of the Act and no provision of section 195/194C of the Act is applicable. The appellant further relied on Hon'ble Gujarat High Court order dt. 25/06/2013 in the case of CIT-SII Vs. Gujarat Narmada Valley Fertilizers company Ltd.(tax appeal no. 315 of 2013) and Hon'ble ITAT Ahmedabad order in the case of M/s. Om Satya Exim Pvt. LTd. Vs. ITO ward-1(4), Surat (ITA no. 1335/Ahd/2010 order dt. 13/05/2011). From the verification of such bills it has been gathered that bills are raised to appellant with composite amount reflecting freight expenses in foreign currency i.e. US dollar converted into rupees of that date with other charges like terminal
ITA No.1088/Ahd/2016 ITO vs. M/s. Bajaj Herbals Pvt. Ltd. Asst.Year –2012-13 - 13 -
handling, documentation etc. in Indian rupees. The appellant's contention that payment in foreign currency by these parties to the nonresident shipping company is on account of they are being agent and permitted by RBI guide line found to be justified in view of Board circular no. 723 dt. 19/09/1995 and ratio of various case laws relied on by appellant. The appellant deducted TDS out of the terminal handling charges, documentation charges etc. being paid to these parties treating them as contractual payment while payment, for nonresident shipping company in foreign currency by these parties is treated as reimbursement of actual expenses. Hon'ble ITAT Ahmedabad in the case of Dy. CIT Bharuch Vs. Hasmukh J. Patel (2011) 10 taxmann.com 229(Ahd) (also relied by appellant) in the similar facts held that all such parties acted as agent of nonresident shipping companies and such f- payment in foreign currency to such nonresident shipping company duly permitted by RBI Guide line has to be dealt with special provision as provided u/s. 172 of the Act hence deduction of TDS is not required u/s. 194C of the Act. The appellant's A.R. during the course of appeal proceedings further submitted that out of the composite bill of each such party including freight charges, terminal handling charges, documentation charges, container repo charges etc., the appellant deducted TDS except that from freight charges, therefore, if considered for a composite bill then the deficiency is of incorrect deduction of tax rather than no deduction of tax and appellant cannot be held as in default u/s. 201(1) of the Act. I am inclined with appellant that out of the total composite bill if TDS is deducted from terminal handling charges, documentation charges, container repo charges etc. as per prescribed rate u/s. 194C of the Act, then the issue becomes about inadequacy/improper deduction of TDS for total amount of composite bill. In this situation the appellant cannot be held in default u/s. 201 (1) of the Act and provisions of section 40(a)(ia) of the Act will not be applicable. It is therefore, considering the facts and judicial preposition, the A.O. is directed to allow such expenses and delete the addition so made of Rs. 3414124/-. The appellant gets relief accordingly. This ground is allowed". After going through the facts of the case, it is seen that the facts during the year is identical to the previous year. Respectfully following the order of the my predecessor CIT(A), the ground of the appellant is allowed. The A.O. is directed to allow the above. The ground of the appellant is allowed.”
It appears that the similar issue for A.Y. 2010-11 in respect of the assessee’s own case has been decided in favour of the assessee which was also confirmed by the Hon’ble Tribunal. When the self-same issue has also decided in favour of the assessee by the Revenue and confirmed by the Hon’ble Tribunal we do not find any reason to deviate from the stand taken by the Hon’ble ITAT in allowing the same in favour of the assessee.
ITA No.1088/Ahd/2016 ITO vs. M/s. Bajaj Herbals Pvt. Ltd. Asst.Year –2012-13 - 14 - Hence, we confirmed the order passed by the Ld. CIT(A). Revenue’s this ground of appeal found to be devoid of any merit and, thus, dismissed.
Ground No.4:- 22. This ground relates to capital gain and business profit on the sale of land of the assessee company.
The relevant fact is this that the assessee purchased a plot of land for a consideration of Rs. 17,91,370/- during the Financial Year ended 31.03.2006. During the financial year ended on 31.03.2011 the said plot of land was revalued at Rs. 6,60,66,000/-. It was further converted into trading assets on 01.04.2011. On 21.10.2011 such land was sold for consideration of Rs. 4,72,00,000/-. A show-cause was issued to the assessee on 17.03.2015 requesting him to explain as to why capital gain should not be worked out and added to the total income as the assessee has not offered the same in its statement of total income declared. The assessee was further requested to take the value of conversion of stock in trade as the sales price and the cost shown as on 31.03.2006 should not be taken after applying indexation. The reply filed by the assessee on this aspect was not found fit and long term capital gain has been worked out at Rs. 6,32,36,573/- by the Ld. AO and the same was added to the total income of the assessee which was deleted by the Ld. CIT(A) with a further direction upon the Ld. AO to work out the capital gain and business profit on the sale of land for the relevant period afresh considering the market value of the land on the relevant date of conversion as the full value of the consideration received or accruing as result of such transfer by the appellant. According to the Ld. CIT(A) the Jantri value of the land as on the date of the relevant date would
ITA No.1088/Ahd/2016 ITO vs. M/s. Bajaj Herbals Pvt. Ltd. Asst.Year –2012-13 - 15 - be the fair market value in terms of the Section 45(2) of the Act. The Jantri value claimed for F.Y. 2010-11by the assessee has been directed to be considered by the Ld. AO while working out the capital gain and business profit on the sale of land of the assessee for the relevant period. Being aggrieved by the said order passed by the Ld. CIT(A), the Revenue is before us.
We have heard the rival submissions made by the respective parties, we have also perused the relevant materials available on record.
The case of the assessee is this since the land was acquired long back for a consideration of Rs. 17,91,370/- the “book value” of such land was increased by 6,42,74,630/- (Rs. 6,60,66,000 i.e. revalued amount – Rs. 17,91,370 acquired value). The above facts is evident from Annual Accounts of F.Y. 2010-11 i.e. A.Y. 2011-12. As regards, the determination of the capital gain by the Ld. AO is concerned the assessee joints issue in adopting the value as per revaluation of Rs. 6,60,66,000/- as the full value of consideration instead of fair market value as worked out by the assessee. According to the assessee the said amount of Rs. 6,60,66,000/- is not the fair market value rather it is the value as per the revaluation merely for the purpose of reflecting inflated “Net worth” of the company for availing more finance from banks. Further that merely because the assessee made books of accounts based on the revaluation of land cannot be the ground to adopt such revalued amount as full amount of consideration especially when the purpose of revaluation was to inflate value of assets to avail better finance from bank. Reliance was placed by the assessee in the case of CIT vs.
ITA No.1088/Ahd/2016 ITO vs. M/s. Bajaj Herbals Pvt. Ltd. Asst.Year –2012-13 - 16 - Riddhi Steel and Tubes Pvt. Ltd. reported in, (2013) 40 taxmann.com 177 (Gujarat).
Therefore, the crux of the assessee’s case is this that the sum of Rs. 6,60,66,000/- represents “notional value” and not the “real value”. In terms of the settle principle of law only the real value is to be considered for determination of tax. The assessee further asserts that the fair market value of such land as on 01.04.2011 was of Rs. 2,08,21,080/- being the “prevailing jantri rates” which is appearing at Page 22 of the Assessment Order. Since the Jantri rates is available no further revaluation is required.
It is the case of the assessee that as per Section 50C of the Act even for determining full value of consideration on sale of land prevailing Jantri value rate is to be adopted as full value of consideration if the consideration is less than the prevailing Jantri rate. The assessee objected the order passed by the Ld. AO by not adopting the fair market value as proposed by the assessee rather such value must assessed by a registered valuer.
The Revenue’s case is this that the Ld. CIT(A) proceeded on a wrong notion in holding that the market value of the land on the relevant date would be deemed to be the full value of consideration received and accruing as a result of such transfer by the appellant. It further objected on the observation made by the Ld. CIT(A) that when the AO has not brought on record any evidence with regard to fair market value under consideration then the Jantri value of the land as on the relevant date would the fair market value in terms of the provision of Section 45(2) of the Act. In fact, the working of capital gain represents on the basis of the value of assets so
ITA No.1088/Ahd/2016 ITO vs. M/s. Bajaj Herbals Pvt. Ltd. Asst.Year –2012-13 - 17 - converted on 01.04.2011 at Rs. 6,60,66,000/- is the main contention of Revenue. However, we do not find any document from either side as to whether any reference from the DVO on the valuation of the land in question on the date of conversion on 01.04.2011 has been sought for. Neither the Ld. AO took any step to refer the matter to the DVO for the purpose of estimation of the value of the assets as on the date of conversion on 01.04.2011 which is the main dispute in calculating the capital gain out of the sale of land of the assessee. Keeping in view the controversies revolve on the valuation of the property as on the date of conversion which is shown as Rs. 6,60,66,000/- by the assessee in its books of accounts but Rs. 2,08,21,080/- as claimed to have been the market value as on 01.04.2011 and as per assessee rightly has been directed to be considered for calculation of capital gain and as per the CIT(A) the said amount of Rs. 2,08,21,080/- being the Jantri value of the property on the relevant date on 01.04.2011 as adopted by the assessee would be the fair market value in terms of Section 45(2) of the Act it would be the fitness of things to remit the issue to the file of the Ld. AO for referring the matter to the DVO asking for a report on the valuation of the property as on 01.04.2011 and to pass orders on the basis of such report be furnished by the Ld. DVO. We pass orders accordingly. However, we further direct that the Ld. AO to refer the matter to the DVO within a month from the date of communication of this order and the DVO would in turn submit the report to the Ld. AO within three months thereafter and the AO to pass final order of assessment within four months thereafter upon giving an opportunity of being heard to the assessee. We make it clear that the assessee would also cooperate with the Ld. AO in deciding the matter as per our direction without asking any
ITA No.1088/Ahd/2016 ITO vs. M/s. Bajaj Herbals Pvt. Ltd. Asst.Year –2012-13 - 18 -
unnecessary adjournment. Hence, this ground of appeal is allowed for statistical purposes.
In the result, the appeal preferred by the Revenue is, thus, allowed for statistical purposes. This Order pronounced in Open Court on 30/11/2021
Sd/- Sd/- (WASEEM AHMED) (Ms. MADHUMITA ROY) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 30/11/2021 TRUE COPY TANMAY, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)- 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad
Date of dictation 26.11.2021 & 01.12.2021 2. Date on which the typed draft is placed before the Dictating Member 27.11.2021 & 01.12.2021 3. Other Member………………… 4. Date on which the approved draft comes to the Sr.P.S./P.S .12.2021 5. Date on which the fair order is placed before the Dictating Member for pronouncement .12.2021 6. Date on which the fair order comes back to the Sr.P.S./P.S 01 .12.2021 7. Date on which the file goes to the Bench Clerk 01.12.2021 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order……………………………………