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Income Tax Appellate Tribunal, HYDERABAD ‘A’ BENCH : Hyderabad
Before: Smt. P. Madhavi Devi & Shri A. Mohan Alankamony
O R D E R Per Smt. P. Madhavi Devi, J.M. This is assessee’s appeal for A.Y. 2013-14 against the order of Pr.CIT-6, Hyderabad dated 28.03.2018 passed u/s 263 of the Income Tax Act, 1961.
./2018 A.Y.: 2013-14 Sh. Yerram Venkata Subba Reddy This case was heard through Video Conference on 15.09.2020.
The grounds of appeal
raised by the assessee are as under:- “1. The Order of revision passed u/s.263 by the Pr.CIT- 6, Hyderabad, in so far as it is prejudicial to the interests of the appellant, is against law, weight of evidence and probabilities of the case.
2. (a) The learned Pr.CIT grossly erred in holding that the original assessment order passes ss] s.143 (3) dated 24.03.2016 is erroneous and prejudicial to the interests of the revenue. (b) The learned Pr.CIT failed to appreciate that the impugned assessment order dated 24.03.2016 was completed after adequate enquires by the AO and that the AO was fully satisfied on each of the four issues with replies filed or explained and consequently the impugned assessment order is neither erroneous nor prejudicial to the interests of the revenue.
3. (a) The learned Pr.CIT failed to appreciate that investment held by the appellant were converted into stock-in-trade during the FY 2011-12 relevant to AY 2012-13, which was accepted in the scrutiny assessment for AY 2011-12 dated 22.02.2015 and consequently loss on sale of shares incurred in the subsequent year was properly assessed after adequate enquires (as evidenced by assesses letter dated 29.02.2016 & 14.03.2016) in the impugned assessment. (b) Consequently the directions of the Pr.CIT to conduct de novo enquiry deserves to be cancelled .
4. (a) The learned Pr.CIT grossly erred in setting aside the issue relating to set off of unabsorbed depreciation ./2018 A.Y.: 2013-14 Sh. Yerram Venkata Subba Reddy because she failed to appreciate that the AO, after due and adequate enquires, concluded that the appellant's claim was validly allowable in terms of the provisions of Sec.32(1) & (2) read with Sec.43(6). Consequently the direction of the Pr.CIT setting aside this issue for fresh adjudication is bad in law and liable to be cancelled.
5. The learned Pr.CIT grossly erred in setting aside the issue relating to application of Sec.50C on an assumed fair market value, as she failed to appreciate that there would be still long term loss of Rs.54.19 lakh due to indexed cost of acquisition and consequently the result of such computation would be only prejudicial to the interest of the revenue in the negative sense, i.e there would still be LTCL of Rs.54.19 lakh. Consequently there is no prejudice to the interests of the revenue.
6. The learned Pr.CIT erred in directing to withdraw the loss allowed on sale of car because she failed to appreciate that there was no block of assets available to reduce the brought forward WDV. Consequently this direction also has to be cancelled.
7. For the above grounds and such other grounds that may be urged at the time of hearing, the appellant prays that the appeal be allowed.
8. The appellant craves leave to add to, amend or modify the above grounds of appeal either before or at the time of hearing of the appeal, if it is considered necessary.”
2.1. Brief facts of the case are that the assessee is an individual and proprietor of M/s Sri Swarna Green Power and M/s Swarna Properties. He filed his return of income for the A.Y. 2013-14 on 30.09.2013 admitting the total income of Rs.5,40,28,650/- and agricultural income of 3 ./2018 A.Y.: 2013-14 Sh. Yerram Venkata Subba Reddy Rs.62,780/-. Initially, the return was processed u/s 143(1) of the Act. Subsequently, the case was selected for scrutiny under CASS and during the assessment proceedings u/s 143(3) of the Act, the assessee was asked to furnish certain information. The relevant information was furnished by the assessee. After going through the same, the A.O. observed that the assessee had entered into a Development Agreement-cum-GPA on 07.04.2012 with M/s Pranit Projects (P) Ltd., to construct villas on the land admeasuring 1.00 acre located at Tellapur Village, Ramachandrapuram Mandal, Medak District and that the assessee’s share was 40% of net plotted area, while the balance 60% of the net area would be the developer’s share. It was observed that though the development agreement was entered into in the F.Y. 2012-13 relevant to the A.Y. 2013-14, no capital gain has been offered by the assessee in the relevant A.Y. Accordingly, a show-cause notice was issued to the assessee, in response to which, the assessee agreed to offer the long term capital gains of Rs.81,70,729/- to tax. The AO, accordingly, brought it to tax. The AO made a further disallowance of Rs.2,842/- on account of interest on TDS. Thus, the total assessed income was at Rs.6,22,02,131/-.
2.2. Subsequently, the Pr.CIT perused the assessment record and observed that the case was selected for scrutiny under CASS to verify the sources for introduction of capital ./2018 A.Y.: 2013-14 Sh. Yerram Venkata Subba Reddy in the year and the large increase in unsecured loans, but the A.O. has completed the assessment u/s 143(3) of the Act, by bringing to tax only the capital gains chargeable on the Development Agreement entered into by the assessee with M/s. Pranit Projects (P) Limited and also disallowing the interest on TDS. She further observed that the following points were not considered by the A.O. "(i) A perusal of profit and loss account revealed that the assessee has claimed an amount of Rs. 8,95,97,600/- as ‘loss on sale of shares'. This loss should be treated as ‘loss from capital gains', as the assessee is in the business of ‘generation of energy' and not ‘trading of shares'. (ii) Unabsorbed depreciation of Rs. 5,47,59,555/- claimed by the assessee was allowed, even though the assessee was having taxable income for the asst. years 2011-12 and 2012-13. (iii) Assessee has sold land during the financial year for a consideration of Rs.3,56,25,000/- on which capital gains of Rs. 2,15,93,863/- was offered. However, a perusal of sale deed revealed that the market value of the land was Rs. 3,99,30,000/-. Therefore, the difference amount between the market value of the land and the sale consideration has to be brought to tax as per the provisions of section 50C of the Act. (iv) Short term capital loss of Rs. 8,14,503/ - was claimed on sale of vehicle in the current year, which was set off against the business income, even though the said block of assets was not exhausted.”
2.3. Therefore, the Pr.CIT observed that the Assessing Officer has completed the assessment without application of mind and without proper appreciation of facts. 5 ./2018 A.Y.: 2013-14 Sh. Yerram Venkata Subba Reddy Accordingly, she held that the Assessment Order is erroneous and prejudicial to the interest of the Revenue and accordingly invoked the provisions of Section 263 of the Act. The Pr.CIT accordingly issued a notice u/s 264 of the Act to the assessee on 24.11.2017. In reply to the same, the assessee filed his written submissions contending that the AO has verified all the aspects of the issues mentioned in the show cause notice, and therefore, the assessment order is neither erroneous nor prejudicial to the interest of the revenue.
The Pr.CIT considered the assessee’s submissions on all the issues. With regard to the issue of loss on sale of shares amounting to Rs.8,95,97,600/-, the Pr.CIT observed that the assessee is engaged in the business of generation of energy and is a proprietor of two firms viz., M/s Swarna Green Power and M/s Swarna Properties. She observed that the assessee had invested a sum of Rs.10.45 crores in M/s Shree Swarna Sai Energy Limited and has sold one crore shares at Rs.98,00,000/- to M/s Silpa Mega Projects, consequent to which business loss of Rs.8,95,97,600/- was claimed. She observed that in the balance sheet for the F.Y. 2011-12, and during the F.Y. 2011-12, assessee has converted these investments into inventory. Since the assessee has converted the investments into inventory, the Pr.CIT was of the opinion that the provisions of section 45(2) are attracted and that the assessee has to offer loss ./2018 A.Y.: 2013-14 Sh. Yerram Venkata Subba Reddy or gain in respect of these transactions during the relevant A.Y. She observed that the loss on sale of shares has been wrongly allowed as business loss by the AO, instead of treating it as capital loss.
Before the Pr.CIT, the assessee submitted that the assessee had invested in the equity shares of many companies over the years and till the F.Y. 2010-11, the same were shown as investments and that during the F.Y. 2011-12, the assessee had converted these shares into stock-in-trade at book value and accordingly, the same were shown under current assets in the audited balance sheet of the assessee on 31.03.2012. Since the shares were converted into stock-in-trade at book value, no capital gains/loss was recorded in the books of the assessee. It was further submitted that the assessee had sold the shares worth Rs.9,93,97,600/- to Shilpa Mega Projects Pvt.Ltd. for Rs.98,00,000/- and thereby incurred a business loss of Rs.8,98,97,600/-.
4.1. To justify the claim of loss, it was submitted that because the assessee was into the business of generation of hydro power, it was awarded a mini hydel project at Rajolibanda on Thungabhadra River in Raichur District, Karnataka and due to various reasons, the company had to stop the construction work for many years and due to such ./2018 A.Y.: 2013-14 Sh. Yerram Venkata Subba Reddy delay the project cost had increased and consequently the project had become unviable. It was submitted that during the year under consideration, the company M/s Shilpa Mega Projects Private Limited had shown interest in taking over the project and got the valuation of the assets done based on which, the assessee had sold one crore shares worth Rs.9,93,97,600/- as recorded in its books at Rs.98,00,000/- resulting in a business loss of Rs.8,98,97,600/-. The assessee submitted that all these facts were considered by the AO before accepting the returned business loss and therefore, the Assessment Order was not erroneous or prejudicial to the interest of Revenue. It was further submitted that the assessee was freshly allotted shares at the face value of Rs.10/- after the original shares were converted into stock-in-trade at cost during the F.Y. 2011-12, and thus, it is after the conversion of shares into stock-in-trade that the additional shares at face value were allotted to the assessee which were considered as stock-in-trade from the date of allotment itself and therefore, the provisions of Sec.45(2) would be applicable only to the shares which were held as investment and subsequently converted to stock-in-trade and the loss arising out of such conversion only would be ‘capital loss’. The assessee, therefore, sought to claim the ‘capital loss’, as this aspect had come to the notice of the assessee only in the course of replying to show cause notice u/s 264 of the Act. ./2018 A.Y.: 2013-14 Sh. Yerram Venkata Subba Reddy 4.2. The Pr.CIT, however, was not convinced with assessee’s contentions. She held that both the provisions of section 45(2) and Sec.2(47)(iv) are applicable and as the capital assets have been converted into stock-in-trade, the loss arising therefrom is ‘capital loss’ and it cannot be allowed as business loss. Since, the AO had allowed the business loss, she held the assessment order to be both erroneous and prejudicial to the interest of Revenue.
4.3. Before us, the Ld.Counsel for the assessee, while reiterating the submissions made before the Pr.CIT during the revision proceedings u/s 263 of the Act, submitted that the assessee has claimed loss on sale of shares of Shree Swarna Sai Energy Limited which were held as investments by the assessee prior to F.Y. 2011-12. It was submitted that these shares were converted into stock-in-trade at cost/ face value for F.Y. 2011-12 on 03.03.2012 and thereafter, some more additional shares, at face value, were acquired, while some more shares were also allotted to the assessee and all of these were treated as stock-in- trade during the F.Y. 2012-13 relevant to A.Y. 2013-14. He submitted that the AO, during assessment proceedings u/s 143(3) of the Act, has required the assessee to explain the loss on account of sale of shares and the assessee, in his reply to the AO, clearly stated the reasons for the loss. Therefore, according to him, the assessment order is not 9 ./2018 A.Y.: 2013-14 Sh. Yerram Venkata Subba Reddy erroneous and cannot be revised u/s 263 of the Act. He submitted that for invoking the provisions of S.263 both the conditions i.e. the assessment order being erroneous and prejudicial to the interest of revenue have to be satisfied. He submitted that even where the assessment order is prejudicial to the interest of revenue, if it is not erroneous, then such an order cannot be revised u/s 263 of the Act. He submitted that even otherwise, the capital loss arising out of sale of shares is only to the extent of the shares which were converted into stock-in-trade at book value and not the shares which were acquired subsequent to such conversion of shares which have all along been treated as stock-in-trade only. Thus he prayed that the order u/s 263 of the Act to the extent of claim of loss on sale of shares be set aside.
4.4. The Ld.DR, on the other hand, submitted that though the AO had required the assessee to explain the loss on sale of shares, the assessee had not given any details, and, therefore, it cannot be said that the AO has examined the issue before granting relief. Therefore, according to him, the assessment order is erroneous as well as prejudicial to the interest of revenue. He also explained the revenue impact of allowing the business loss i.e. the long term capital gain is taxable @ 20% whereas business income is taxable @ 30% and by allowing the ./2018 A.Y.: 2013-14 Sh. Yerram Venkata Subba Reddy business loss, the business income is reduced. Therefore, he prayed that the order of Pr.CIT u/s 263 be upheld.
Having regard to the rival contentions and material placed on record, we find that during the assessment proceedings u/s 143(3) of the Act, vide notice u/s 142(1) of the Act dated 18.2.2016, and point no.(ix), the AO had required the assessee to furnish the details of loss on sale of shares. The assessee vide letter dated 29.2.2016 had explained that the loss is on account of sale of shares and vide letter dated 14.3.2016, the circumstances under which such loss was incurred was explained. It appears that the AO has allowed the business loss claimed by the assessee only after considering the reply of the assessee. It has also been held in a number of cases that the AO may not record anything in the assessment order if he was inclined to allow the claim of assessee. Therefore, non-mentioning of the reasons for allowing the claim, will not make the assessment order erroneous. To hold the assessment order to be erroneous it has to be stablished that the AO had not applied his mind to the facts of the case or that he has not applied the correct law or has not appreciated the facts correctly. Thus, the assessment order cannot be held to be prejudicial to the interests of the revenue on this issue. The ground of appeal
No. 3(a) and 3(b) are allowed. ./2018 A.Y.: 2013
14. Sh. Yerram Venkata Subba Reddy 5.1. As regards set-off of unabsorbed depreciation of Rs.5,47,59,555/- from the income of the relevant A.Y., the Pr.CIT perused the computation statement of total income and observed that in the assessments completed for the A.Y. 2011-12, the brought forward unabsorbed depreciation of Rs.8,33,93,020/- was allowed to be set off and the taxable income was arrived at Rs.3,26,980/- and also that for the A.Y. 2012-13, the taxable income was determined at Rs.6,26,990/-. Therefore, she was of the opinion that the unabsorbed depreciation claimed by the assessee and allowed by the AO needs to be withdrawn. In response to the show-cause letter issued by the Pr.CIT, the assessee submitted that the firm M/s Swarna Properties was originally formed as partnership firm by a partnership deed dated 07.09.1995 with five partners and that one more partner was inducted w.e.f. 1.6.1996 therefore, total number of partners became 6 and that the partnership was “AT WILL”. And w.e.f. 01.04.2012, Sri YV Subba Reddy, the assessee herein, has taken over the business of the firm as proprietor, since all the other five partners have retired and had agreed to receive only their capital account balances as on that date and also making it clear that there would not be any distribution of capital assets belonging to the firm. It was submitted that the conversion of firm into a proprietary concern is legally valid because the duration of the firm was AT WILL, and since the assessee continued the business of the firm as a successor-in-business in his individual capacity, the 12 ./2018 A.Y.: 2013-14 Sh. Yerram Venkata Subba Reddy unabsorbed business loss or unabsorbed depreciation of the erstwhile firm is to be allowed to be carried forward in his individual assessment for the A.Y. 2013-14 in terms of the provisions of Sec.170 of the Act. It was also submitted that this claim is not hit by any of the restrictive provisions contained in any of the explanations to Section 43(6) of the Act.
5.2. The Pr.CIT, however, has held that the loss of the erstwhile firm is not allowable against the income of the individual who succeeded to the business of erstwhile firm. She observed that as per the provisions of section 10(2A) of the Act, the share of profit of a partner in a firm is exempt from tax and so also conversely, the share of loss of a partner is exempt from tax. She observed that there is no provision in the I.T.Act, 1961 for allowing the carry forward loss of a dissolved firm in the hands of an individual and therefore, the assesssee’s claim of setting off of unabsorbed depreciation of the dissolved firm is not allowable. Since the AO has allowed the assessee’s claim in the assessment without verifying the facts, she held the assessment order not only to be erroneous but also prejudicial to the interest of the revenue.
5.3. The Ld.Counsel for the assessee reiterated the submissions made by the assessee before the Pr.CIT, and ./2018 A.Y.: 2013-14 Sh. Yerram Venkata Subba Reddy submitted that the Pr.CIT has misconstrued that the assessee has set off the carried forward business loss from the income of the individual. He submitted that what has been claimed is the unabsorbed depreciation carried forward from earlier years and, therefore, the Pr.CIT’s order on this issue is not sustainable. He relied upon the following decisions in support of his contentions that unabsorbed depreciation can be set off from the assessee’s individual income. (i) Hon’ble Madras High Court N.Krishnammal vs. CIT reported in 147 ITR 431. (ii) Hon’ble Supreme Court in CIT vs. A.Dharma Reddy reported in (1969) 73 ITR 751 (iii) Hon’ble High Court of Allahabad CIT vs. Globe Engineers 90 ITR 188 5.4. The Ld.DR, on the other hand supported the order of Pr.CIT and submitted that under Sec.78(1), only the firm is entitled to the set off of business loss and if there is a change in the constitution of the firm, the set off is not to be allowed.
5.5. Having considered the rival contentions and the material on record, we find that it is the unabsorbed depreciation of the partnership firm, the business of which has been taken over by the assessee in his individual capacity, which has been set off by the assessee ./2018 A.Y.: 2013-14 Sh. Yerram Venkata Subba Reddy from his income as an individual. The Ld.Counsel for the assessee has relied upon the provisions of sec.170 to argue that the assessee is a successor to the business and, therefore, the unabsorbed depreciation of the business carried forward from the earlier years should be allowed to be set off against the income of the assessee for relevant A.Y. 5.6. We have gone through the partnership deed which is placed at pages 58 to 68 of the paper book and we find that as per Clause 4 of the partnership deed, the duration of the partnership firm was “AT WILL”. We have also gone through the “Deed of Retirement and Dissolution and Conversion into Proprietary Concern.” The title of this document itself mentions about the retirement and dissolution of the firm and conversion of the business into proprietary concern. The Ld.Counsel for the assessee has argued that there was no prohibition in conversion of a partnership firm into a proprietary concern and we also agree with this proposition. However, the consequences on retirement of all the partners except one of a partnership firm is that the partnership firm gets dissolved because, for a partnership to exist, there has to be more than one partner. On retirement of all the partners except one, the partnership firm gets dissolved and if the sole partner carries on the business it becomes a proprietary concern. In effect, the business has changed hands. In such ./2018 A.Y.: 2013-14 Sh. Yerram Venkata Subba Reddy circumstances, the provision of Sec.170 would apply. For the sake of clarity and ready reference, Sec.170 is reproduced hereunder:
“Succession to business otherwise than on death.
(1) Where a person carrying on any business or profession (such person hereinafter in this section being referred to as the predecessor) has been succeeded therein by any other person (hereinafter in this section referred to as the successor) who continues to carryon that business or profession, (a) the predecessor shall be assessed in respect of the income of the previous year in which the Succession took place up to the date of succession; (b) the successor shall be assessed in respect of the income of the previous year after the date of Succession. (2) Notwithstanding anything contained in sub-section (1), when the predecessor cannot be found, the assessment of the income of the previous year in which the Succession took place up to the date of Succession and of the previous year preceding that year shall be made on the successor in like manner and to the same extent as it would have been made on the predecessor, and all the provisions of this Act shall, so far as may be, apply accordingly. (3) When any sum payable under this section in respect of the income of such business or profession for the previous year in which the succession took place up to the date of succession or for the previous year preceding that year, assessed on the predecessor, cannot be recovered from him, the Assessing Officer shall record a finding to that effect and the sum payable by the predecessor shall thereafter be payable by and recoverable from the successor, and the successor shall be entitled to recover from the predecessor any sum so paid. (4) Where any business or profession carried on by a Hindu undivided family is succeeded to, and simultaneously with the succession or after the succession there has been a partition of the joint family property between the members or groups of members, the tax due in respect of the income of the business or profession succeeded to, up to the date of succession, shall be assessed and recovered in the manner provided in section 171, but without prejudice to the provisions of this section. Explanation.-For the purposes of this section, "income" includes any gain accruing from the transfer, in any manner whatsoever, of the business or profession as a result of the succession.”
./2018 A.Y.: 2013-14 Sh. Yerram Venkata Subba Reddy 5.7. As per above Section, in case of succession, the predecessor shall be assessed in respect of the income till the date of succession, while the successor shall be assessed in respect of income after the date of succession. Sub-section (2), thereof provides that where the predecessor cannot be found, then the entire income shall be assessed in the hands of the successor only.
5.8. Sec.78 of the Income Tax Act restricts or prohibits the carry forward or set off of losses in case of change in the constitution of a firm. In the case before us, due to dissolution of the partnership firm, it is no longer in existence and hence not available for assessment. In such cases, what are the income/loss which is not allowable for a set off? However, we find that section 78 does not deal with the unabsorbed depreciation. For the sake of ready reference, Sec.78 is reproduced hereunder. “Sec.78 (1) Where a change has occurred in the constitution of a firm, nothing in this Chapter shall entitle the firm to have carried forward and set off so much of the loss proportionate to the share of a retired or deceased partner as exceeds his share of profits, if any, in the firm in respect of the previous year.”
5.9. We find that S.32 deals with the depreciation while Sub-Section (2) thereof deals with unabsorbed depreciation being carried forward to the subsequent A.Ys where it cannot be set off against profits and gains ./2018 A.Y.: 2013-14 Sh. Yerram Venkata Subba Reddy chargeable to current P.Y. We find that in this section there is no reference whatsoever to change in the constitution of the assessee. The Ld.Counsel for the assessee had submitted that since the business has been taken over by the assessee along with its assets and liabilities, the unabsorbed depreciation can be set off against his income for the relevant A.Y. Even u/s 170 of the Act where there is a succession to business, when the predecessor cannot be found, the assessment of the income of the P.Y. in which the succession took place upto the date of succession and of the P.Y. preceding that year shall be made on the successor in like manner and to the same extent as it would have been made on the predecessor and all the provisions of the Act as may be in so far shall apply accordingly. (i) The Hon’ble Supreme Court in the case of A.Dharma Reddy (cited supra) has held that where a partnership was dissolved, but the assessee either individually or along with some other partners continue to carry on the same business, the assessee was entitled to set off his share of unabsorbed loss from the firm against his business income from the A.Y. in question. (ii) The Hon’ble Madras High Court in the case of N. Krishnammal vs. CIT (cited supra) with similar facts as in the case before us, has held as under. “A reading of section 32(2) would indicate that if full effect for depreciation provided under section 32(1) cannot be given ./2018 A.Y.: 2013-14 Sh. Yerram Venkata Subba Reddy owing to there being no profits or no profits chargeable for the previous year or profits being less than the allowance, then the allowance or part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of allowance for depreciation for the following year and deemed to be part of that allowance. Thus, the allowance for depreciation is allowed to be carried forward for set off against future years' profits. It is because of this that the unabsorbed depreciation allowance was carried forward in the assessments of the firm and in the partners' assessment full effect of the proportionate carried forward unabsorbed depreciation will have to be given. Therefore, as per section 32(2) read with section 72(2), the unabsorbed depreciation which has been carried forward in the firm's assessment has to be given effect to fully in the individual assessment of the partners. Since tax is chargeable under section 28 on the aggregate of the profits of all the businesses carried on by the assessee, if the profits of a particular business are insufficient to absorb the depreciation allowance permitted by section 32, the allowance like any other business loss can be set off under sections 70 and 71. If some part of the depreciation allowance remained unabsorbed, it can be carried forward under section 32(2) to the following year and set off against the year's profits and so on for succeeding years. The carried forward depreciation allowance is deemed to be part of that year's allowance and stands on exactly the same footing as the current depreciation in the assessment year. Therefore, the assessee's claim for set off of her share of the unabsorbed depreciation of the firm for the earlier two years had to be allowed in the assessment year in question.”
5.10. In view of the Section 32(2) of the Act, the unabsorbed depreciation becomes the depreciation of the current year of the business and the same is eligible for set off against the individual income of the assessee u/s 170 of the Act as he is the successor to the business. ./2018 A.Y.: 2013-14 Sh. Yerram Venkata Subba Reddy Therefore, ground no.4 of appeal of the assessee is allowed.
The next issue considered by the Pr.CIT u/s 263 of the Act is the application of provisions of S.50 C of the Act, to the transaction of sale of land for Rs.3,56,25,000/- on which capital gain of Rs.2,55,96,000/- was offered by the assessee.
6.1. The brief facts are that the assessee had sold a piece of land for Rs.3,56,25,000/- whereas the SRO value of the land was Rs.3,99,13,000/-. Since there is a difference of Rs.43,05,000/- in the SRO value of land and sale consideration received by the assessee, the Pr.CIT observed that this difference is to be brought to tax u/s 50C of the Act. Since the AO has not considered this issue, the CIT held that the assessment order is erroneous and prejudicial to the interest of revenue.
6.2. The Ld.Counsel for the assessee submitted that the difference between the sale consideration and the market value of the property was very much before the AO and since such difference was around 10%, AO has not referred the valuation to the DVO and has not applied the provisions of Sec.50C of the Act. In support of his contentions that where the difference is between 10% and 20 ./2018 A.Y.: 2013-14 Sh. Yerram Venkata Subba Reddy 15%, the provisions of Sec.50C should not be applied. The Ld.Counsel for the assessee placed reliance upon the following decisions of the Tribunal. (i) Suresh C Mehta vs. ITO Mumbai reported in (2013) 35 taxmann.com 230 (Mum) (ii) Buttepatil Properties vs. ITO in ITA 682/Pun/2018 dated 8.2.2019.
6.3. The Ld.DR, on the other hand, supported the orders of Pr.CIT and submitted that there is no such provision in the Income Tax Act to give any weightage to the difference between the sale consideration received by the assessee and the SRO value of the property. Therefore, he submitted that these two decisions cannot be treated as precedents on the issue.
Having regard to rival contentions and material placed on record, we find that: the AO has not looked into this issue at all and therefore, the assessment order is clearly erroneous and prejudicial to the interest of revenue on this issue. As regards the decisions relied upon by the assessee, we find that in the case of Buttepatil Properties cited (supra) the Tribunal has referred to the provisions of Sec.43CA and Sec.50C of the Act to hold that where the difference between the stamp duty valuation adopted by the Valuation Officer u/s 50C(2) and the actual consideration received is less than 10% then such ./2018 A.Y.: 2013-14 Sh. Yerram Venkata Subba Reddy difference shall not be considered for the purpose of Sec.50C of the Act.
7.1. In the case of Suresh C Mehta, the Coordinate Bench of the Tribunal had relied upon the decision of Hon’ble Patna High Court reported in 308 ITR 71 (Patna) in the case of Bimla Singh vs. CIT and the Punjab & Haryana High Court decision in the case of Prem Narain & Co., reported in 287 ITR 56 (P&H) to hold that if the difference assessed by the Valuation Officer and value received by assessee is not more than 15%, the same should be ignored because generally while valuing the property it is only estimation and some guess work is done for estimating the value of the property.
7.2. However, we find that in these cases the assessees therein had raised objections before the AO u/s 50C(2) and the AO had referred the valuation of the property to a Valuation Officer and the difference between the value of the property so arrived at by the Valuation Officer and the consideration received was less than 15% or 10% as the case may be.
7.3. But, in the case before us, it is the difference between the sale consideration received by the assessee and the SRO value. Sec.50C as it prevailed at that point 22 ./2018 A.Y.: 2013-14 Sh. Yerram Venkata Subba Reddy of time, does not make any discount in respect of difference between the SRO value and the sale consideration received by the assessee. Therefore, in our view, these two decisions are not applicable to the case on hand, and the order of CIT on the application of Sec.50C is confirmed.
The next issue considered by the Pr.CIT is the short term capital loss claimed by the assessee against the sale of vehicle, which has been allowed by the AO. The Pr.CIT had observed that it is arising out of sale of a car BMW and that the sale consideration received by the assessee should have been reduced from the block of assets and that the loss cannot be claimed from the income of the assessee. The Ld.Counsel for the assessee submitted that the assessee has treated the car as a separate asset and it is not part of any block of assets and therefore loss on sale of such car has been claimed as short term capital loss which can be set off against the long term capital gains. However, he fairly admitted that the loss should have been debited to P&L account but in computation of income the assessee had claimed it as short term capital loss. He also pointed out that he has not set off the loss from the Long Term capital gains. 8.1. Ld.DR, however, supported the orders of the Pr.CIT and submitted that the car should have been treated as part of block of assets and the sale consideration received 23 ./2018 A.Y.: 2013-14 Sh. Yerram Venkata Subba Reddy on sale of car should have been reduced from the written down value of the block of assets. He submitted that the provisions of Sec.50 are applicable to this case and since the assessee has committed an error in the computation and the AO has not looked into it, the assessment order is erroneous and prejudicial to the interest of Revenue. 8.2. Having regard to rival contentions particularly the contention of the assessee that there is a mistake in the computation of income by the assessee in relation to the loss on sale of car, we deem it fit and proper to direct the AO to reconsider the issue in accordance with law. Needless to mention the assessee shall be given a fair opportunity of hearing.