M/S MALVIKA AGROTECH PVT. LTD.,DHAR vs. THE ITO-2(2), INDORE

Malvika Agrotech Pvt. Ltd ITA No.358/Ind/2016

आयकर अपील�य अ�धकरण, इंदौर �यायपीठ, इंदौर IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER

ITA No.358/Ind/2016 Assessment Year: 2009-10 M/s Malvika Agrotech ITO, 2(2), Pvt. Ltd, Indore Plot No.185, Sector-1, Pithampur, Dhar (Appellant) (Respondent ) PAN No.AACCM6451G Revenue by Shri P.K. Mitra, Sr. DR Assessee by Shri C.P. Rawka,CA Date of Hearing 10.09.2018 Date of 19.9.2018 Pronouncement

O R D E R PER MANISH BORAD, AM.

This appeal filed by the assessee pertaining to A.Y. 2009-10 is

directed against the order of Ld. Commissioner of Income

Tax(Appeals)-I, Indore, (in short ‘CIT(A)’), vide appeal No. IT-

29/2014-15 order dated 29.01.2016 which is arising out of the

order u/s 143(3) of the Income Tax Act 1961(hereinafter called as

the ‘Act’) framed on 29.03.2014 by ITO-2(2), Indore.

Malvika Agrotech Pvt. Ltd ITA No.358/Ind/2016 2. Briefly stated the facts as culled out from the records are that

the assessee is a Private Limited Company. Income of

Rs.25,48,889/- declared in the return of income filed on 30.9.2009.

Subsequently on the basis of AIR information revealing that the

assessee has sold immoveable properties worth Rs.55,96,000/- and

Rs.37,76,000/- on 24.10.2008 and 23.01.2009 respectively and

also made certain investment in mutual funds, the Ld.A.O in order

to examine these transactions, issued notice u/s 148 of the Act on

4.5.2012 duly served upon the assessee. Necessary details as

called for were filed. Apart from the additions for low gross profit as

well as addition u/s 68 of the Act, addition was also made for

Short Term Capital Gain computed after applying provision of

Section 50C of the act at Rs.78,04,301/-. It was contended by the

assessee before the assessing officer that no addition should be

made u/s 50C of the Act by way of applying the value adopted by

the Stamp Valuation Authority as the alleged industrial land was a

disputed land and was encroached by other persons. Due to this

reason the alleged property was sold at a value less than the fair

market value. But the Assessing Officer was not convinced with

this statement and he without referring to the Departmental

Valuation Officer for valuation of impugned land computed the 2

Malvika Agrotech Pvt. Ltd ITA No.358/Ind/2016 Short Term Capital Gain u/s 50C of the Act and made the addition.

Income was assessed at Rs.54,59,521/- in following manner;

Income shown as per computation of income Rs.38,64,60/- Add: Short Term capital gain u/s 50C as Rs.78,04,301/- discussed above Rs. 2,00,000/- Addition on a/c of low GP Rs. 20,09,500/- Addition on u/s 68 as discussed above Total income assessed Rs.1,38,78,807/- Less: Unabsorbed business loses of earlier years Rs.3319385/- Unabsorbed depreciation Rs. 84,18,886/- Of earlier years Rs.5099501/- Net taxable income Rs.54,59,521/-

succeeded.

issue relating to the addition for Short term Capital Gain on sale

of land at Rs.78,04,301/- raising following ground;

“That the Ld. CIT(A) erred in law and facts of the case and confirmed the addition made by the A.O on account of Short Term Capital Gain on sale of land at Rs.78,04,301/- without considering the full facts”

decision of I.T.A.T., Indore Bench in the case of Sadhana Sharma

I.T.A.No. 396/Ind/2016 dated. 26.7.18 submitted that both the

lower authorities erred in not referring the matter to the

Malvika Agrotech Pvt. Ltd ITA No.358/Ind/2016 Departmental Valuation Officer for the valuation of fair market price

of the industrial land even when the assessee raised the objection

before the lower authorities submitting that the alleged industrial

land was encroached by the persons and even after unsuccessfully

trying to take possession of the property by resorting to legal action

there was no option left with the assessee except to sale the

property.

Malvika Agrotech Pvt. Ltd ITA No.358/Ind/2016

“8. Ground Nos. 4 & 5:- By these grounds the appellant has challenged the addition of Rs. 7804301/ - being STCG added by invoking section 50C of the Income Tax Act, 1961. The detailed facts of the case as per the assessment order are reproduced at Para No.2 above and the detailed written submissions of the appellant are reproduced at Para No.3 above. 8.1 Briefly stated the facts are that for the year under consideration the AO noted that the appellant has sold immovable properties on 24/10/2008 and 23/01/2009 for Rs.987000/- & Rs.658000/-. As per the sale deed the value adopted by the Stamp Valuation Authority in respect of the above properties was Rs.5596000 / - and Rs.3776000 / - respectively. Appellant had not shown any capital gain on the above transaction. The AO therefore asked the appellant to show cause as to why the STCG as per provision of section 50C of the Income Tax Act, 1961 of Rs. 7804301/ - not be assessed for the year under consideration. Appellant contended that provision of section 50C were not applicable as the asset was a business asset being industrial land. Appellant also contended that the transaction was not entered in the books of accounts as representative of the company who participated in the auction of the said land did not inform the company and made the payment out of funds of Speed Automobile. Further after purchase it was noticed by him that the land was disputed and so the said land was sold to two different purchasers. As a result of this both the purchase and sale of the land was not communicated to the appellant company and hence necessary accounting effects was not made in the books of accounts. Appellant also filed various papers in support of the contention that the land in question

Malvika Agrotech Pvt. Ltd ITA No.358/Ind/2016 was diverted for industrial use and was thus used for business purposes and hence was not covered by provisions of section 5OC of the Income Tax Act, 1961. It was also argued that as the title was disputed the land was sold immediately at almost cost price. AO however, stated that the above arguments were not tenable as the registry/deed were under the' name and seal of the company and part of the land still continued in the name of the company. AO also noted that the appellant did not carry out any business activity on the said land, and sold the land very quickly and therefore it cannot be said that it was a business asset of the appellant or that there was distress sale. 8.2 From the material on record it is thus evident that the appellant has not shown any capital gains on the sale of the above two immovable properties. The contention of the appellant is that because of the non communication of the purchase and sale transaction by the representative accounting effect in the books of accounts were not made. This can hardly be considered as a valid reason for not showing the capital gains. It is an admitted position that the registered documents were in the name of the company and also part of the land still continued in the name of the company. Thus as per the legal provisions the ownership was of the appellant company. The contention that the land was business asset and hence provisions of section 5OC are not attracted is also not established. It is an admitted fact that the land in question is a capital asset and is not a part of the stock in trade of the appellant company and hence is covered by the provisions of section SOC. In the case of Inderlok Hotels(P) Ltd. Vs. ITO the ITAT Mumbai Bench I 32 SOT 419 (Mumbai) has held as under:- “As per the legislative history, section 5OC was inserted in the Act by 6

Malvika Agrotech Pvt. Ltd ITA No.358/Ind/2016 the Finance Act, 2002 with effect from 1-4-2003 and it is in the nature of special provision which is introduced in determining the full value of the consideration in case of transfer of land or building or both. The value determined or assessed by any authority of the State Government for purpose of payment of stamp duty in respect, of such registration of conveyance deed would be deemed to be full value of the consideration received or accruing as a result of such transfer. It becomes apparent that the said section specifically deals with the transfer of the 'capital asset', being land or building or both and it provides for replacing the value adopted or assessed for the purpose of stamp duty, under section 48 in place of value or sale consideration shown by the assessee. So far as section 5OC is concerned the language of the said section is so clear in respect of its intention that it is brought on the statute book by way of deeming provision in the nature of the Explanation to section 48. Moreover, it is abundantly clear from the explanation given in the CBDT Circular No. 8 of 2002, dated 27-8-2002 that the basic intention to insert section 5OC was for the purpose of determining full value of sale consideration for the purpose of computation of capital gains under section 48. There should not be any cloud of doubt that section 5OC has application only to the extent of determining sale consideration for computation. of capital gain under Chapter JV-E of the Act and it cannot be applied for determining the income under other heads. Therefore, when, admittedly, in the instant case the sale of the flats was treated as the business income and not as a capital gain, the provision of section 5OC was not applicable." Same view has been taken by the High Court of Madras in the case of CIT vs. Thiruvengadam Investment (P.) Ltd. 320 ITR 345. In the case of ITO vs. United Marine Academy following observation have been made. "The main issue for consideration in the instant case was as to whether in a case where capital gain arising from the transfer of 7

Malvika Agrotech Pvt. Ltd ITA No.358/Ind/2016 depreciable asset is computed as per the special provisions contained in section 50, the provisions of section 50C can be applied so as to adopt the value assessed for the purpose of payment of stamp duty to be the full value of the consideration received or accruing as a result of such transfer. [Para 11] There are two deeming fictions created in section 5O and section 5OC. The first deeming fiction modifies the term 'cost of acquisition' used in section 48 for the purpose of computing the capital gains arising from transfer of depreciable assets where as the deeminq fiction created In section 5OC modifies the term 'full value of the consideration received or accruing as a result of transfer of the capital asset used in section 48 for the purpose of computing the capital gains arising from the transfer of capital asset being land or building or both. The deeming fiction created in section 5OC thus operates in a specific field which is different from the field which section 50 is applicable. It was thus not a case where any supposition had been sought to be imposed on other supposition of law. There are two different fictions created into two different provisions and going by the legislative intentions to create the said fictions, the same operate in different fields. The harmonious interpretation. of the relevant provisions makes it clear that there is no exclusion of applicability of one fiction in a case where other fiction is applicable. As a matter of fact, there is no conflict between these two legal fictions which operate in different fields and their application in a given case simultaneously does not result in imposition of supposition on other supposition of law. The Assessing Officer thus was right in applying the provision of section 5OC to the transfer of depreciable capital assets covered by section 50 and in computing the capital gain arising from the said transfer by adopting the stamp duty valuation. [Para 20]" In the case of Assistant Commissioner of Income-tax, Co. Circle IV(3), Chennai vs. MIL Industries Ltd. 142 ITD 428 it has been held as under:- 8

Malvika Agrotech Pvt. Ltd ITA No.358/Ind/2016 "Whether whatever may be problems suffered by an assessee, in reality those reasons cannot be permitted to go beyond scope of section 5OC _ Held, yes _ Whether, therefore, misfortunes happened to assessee or difficulties faced by assessee or matter of distress sales, etc., cannot be a ground to modify valuation - Held, yes" Considering the above facts and the legal position it is seen that the appellant company has admitted that the land in question was not stock in trade and was a capital asset hence it was well covered by the provisions of section 5OC of the Income Tax Act, 1961. The appellant company has not disputed the value adopted by the Stamp Valuation Authority and has also not objected to the adoption of the same by the AO. In view of the above the computation of STCG at Rs.7804301/- made by the AO is upheld in appeal. These grounds of the appellant are therefore dismissed”.

9 _ ~

Malvika Agrotech Pvt. Ltd ITA No.358/Ind/2016 but assessee could not get its possession with clear title up to the date it was dispose off. The assessee has made a successful bid in a auction conducted by the Commercial Department which was attached against Commercial tax recovery against the defaulter owner of the property. The assessee got the title transferred by virtue of above auction. But to his surprise, he could not get the possession as the said property was under encroachment and dispute with other parties. The assessee unsuccessfully tried to take possession of the property by resorting to legal action against the encroacher who was holding adverse possession. When legal battle did not give fruitful results, the assessee had to made distress sale of the property. Your honour may appreciate that no property will fetch market value it carries dispute with it. In such circumstances, the Ld. Assessing Officer erred in assessing STCG by invoking Section. 50C”.

Malvika Agrotech Pvt. Ltd ITA No.358/Ind/2016

I.T.A.No.396/Ind/97(supra) wherein we have directed the Ld.CIT(A) for examining the additional evidences and also directed him to make due reference to the DVO for valuing the impugned land, observing as follows; “8. We have heard rival contentions and perused records placed before us. The assessee, apart from challenging the addition of Short Term Capital Gain confirmed by Ld. CIT(A) has also challenged the action of Ld.CIT(A) of rejecting the assessee’s application for admission of additional evidence. 9. We observe that in the instant appeal the issue relates to the adoption of market valuation as per stamp duty Valuation Authority by the Assessing Officer in view of the provisions of section 50C of the Act whereas the sale consideration shown in registered sale deed was less than the value adopted by the Assessing Officer. Due to this reason the addition of Short Term Capital gain of Rs.25,32,495/- has been confirmed by both the lower authorities. We find that the assessee did not raise any objection against the adoption of market value by Departmental Valuation Officer before the Assessing Officer to make references to Departmental Valuation Officer (In short DVO) nor he filed any valuation report from any other registered valuer. However when the assessee came up in appeal before Ld.CIT(A) the application for admission of additional evidence was filed in order to prove the poor location of the impugned land being near to “Nallah” which affects the market value of the land. The assessee has also submitted sale deeds of the lands in the immediate vicinity of the impugned land where the market price adopted by the stamp value authority are almost at par with the sale consideration shown by the assessee. These additional evidences were rejected by Ld.CIT(A) only for the reasons that the assessee could not give any possible reason for being failed to provide the same during the assessment proceedings. From the perusal of the judgment referred and relied by the Ld. Counsel for the assessee we

Malvika Agrotech Pvt. Ltd ITA No.358/Ind/2016

observe that the Hon’ble High Court of Bombay in the case of Rallies India Ltd v/s CIT (Appeals) adjudicating the issue as to “where the Assessing Officer fails to make enquiry u/s 55A by passing the assessment order, can the Commissioner of Appeals during the appellate proceedings before him can make such an enquiry by making reference to Departmental Valuation Officer either himself or direct the Assessing Officer to do so in terms of Section 250(4) of the Act” and Hon’ble Court holding in favour of the assessee taking support from the view taken by Hon’ble Apex court in the case of CIT Vs Kanpur Coals Syndicate (1964) 53 ITR 225 wherein the Hon’ble Apex Court held that “it is undisputed that the power of CIT (Appeals) is co terminus with that of Assessment Officer, in fact the CIT (Appeals) can do what the Assessing Officer can do”. 10. Similar view was also taken by the Hon'ble High of Gujarat in the case of CIT Vs Ahmedabad PrincipalCompanies (1994) 76 Taxmann.com 109(Gujarat) holding that “it was open to the Ato consider on merits contentions raised in an appeal, on an aspect which was never before ITO and with which the assessee never agreed”. 11. Coming to the facts of the instant appeal and examining them in the light of above judgments we find that the assessee failed to raise objection before the Assessing Authority about the adoption of stamp authority valuation but subsequently raised the issue before Ld. CIT(Appeals). Specific ground was also raised for admitting of additional evidence and objected the market value adopted by the Assessing Authority but Ld. CIT(A) casually brushed aside this application. We therefore in the given circumstances of the case and in the interest of justice and fair play are of the considered opinion that the Ld.CIT(A) ought to have admitted the additional evidence as it is well within his powers provided in Section 250 of the Act and should have made due references to the Departmental Valuation Officer for valuing the impugned land. We therefore accept the additional evidence and set aside all the issues raised in this appeal to the file of Ld.CIT(A) to 12

Malvika Agrotech Pvt. Ltd ITA No.358/Ind/2016 examine the additional evidence filed by the assessee and decide accordingly as per provisions of law. Needless to mention that reasonable opportunity should be provided to the assessee. 12. In the result the appeal of the assessee is allowed for statistical purposes”

The order pronounced in the open Court on 19.9.2018. Sd/- Sd/- ( KUL BHARAT) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER

Malvika Agrotech Pvt. Ltd ITA No.358/Ind/2016

�दनांक /Dated : 19th September, 2018 /Dev

Copy to: The Appellant/Respondent/CIT concerned/CIT(A) concerned/ DR, ITAT, Indore/Guard file. By order Private Secretary/DDO, Indore