THE DCIT, CIRCLE-9,, SURAT vs. M/S. I.P. PATEL & CO.,, SURAT

The solitary substantial ground of appeal taken by Ilaben K. Patel and Shantaben P Patel are interconnected with ground No.3 in the case of Babubhai Ramanlal Patel. Therefore we heard all these appeals together and deemed it appropriate to disposed of them by this common order. The grievance of the assessee’s relates to determination of long term capital gain on sale of a plot. All these three assessee’s are challenging the additions of Rs. 6,98,630/-, 1,74,650/- & 13,97,290/- in their respective heads i.e Ilaben K. Patel, Babubhai Ramanlal Patel & Shantaben P Patel under the head long term capital gain.

Brief facts of the case are that assessee’s were co-owners of a property which was sold for Rs. 5,10,00000/-. Smt. Ilaben K. Patel was having 1/32 shares in the property. While computing the capital gain they have adopted the cost of acquisition as on 01.04.1981 at Rs. 800 per sq. meter. The Ld. Assessing Officer made reference to the DVO for valuation of the property as on 01.04.1981. The valuation officer has determined the value of the property at Rs. 36,54,000/- as against Rs. 67,98,400/- adopted by the assessee’s. In other words the assessee’s have worked out the cost of acquisition as on 01.04.1981 @ 800 per sq. meter whereas valuation officer worked out the value @ Rs. 430/- per sq. meter. The Assessing Officer after taking into consideration the cost of acquisition at the value of 430 per sq. meter worked out the capital

Appeal to the Ld. CIT(A) did not bring any relief to the assessee.

Before me Ld. Counsel for the assessee contended that issue in dispute is squarely covered in favour of the appellant by the decision of Hon’ble Gujarat High Court rendered in the case of CIT vs. Gauranginiben S. Shodhan Indl. reported in 367 ITR page 238. He pointed out that Assessing Officer had no power to refer the matter to the DVO as per section 55A of the Act, as the value shown by the appellants was not less than fair market value which is a basic condition for referring the matter to the DVO. He further pointed out that in the case of other co-shares namely Late Shri Ramanbhai Kakubhai Patel this proposition was accepted by the CIT(A) whose order is placed on page No. 71 of the paper book.

Ld. D.R on the other hand relied upon the order of Revenue authorities.

We have duly considered the rival contentions and gone through the record carefully. The dispute before me is, whether Assessing Officer could make a reference to the DVO for determining the fair market value of the assets as on 01.04.1981. According to the Ld. Counsel for the assessee a reference under sub-clause A of section 55A could be made, if value shown by the assessee as on 01.04.1981 is less than the fair market value. In other words assessee has shown the value at Rs. 67,98,400/- which is higher than the market value otherwise determined by the DVO after the reference. He adopted value at Rs. 36,44,000/-.

In light of the above, if facts of the present appeals are examined then it would reveal value shown by the appellants of the property as on 01.04.1981 is considered then it was not less than fair market value and reference cannot be made. As far as the amendment carried out in section 55A is concerned, it is with effect from 01.07.2012 i.e. by finance Act 2012 the transaction taken place in F.Y. 2010-11 relevant to assessment year 2011-12 and the amended provision would not be applicable on this transaction.

Respectfully following the decision of Hon’ble Gujarat High Court. I allow these grounds of appeal in the case of all the three appellants and delete the additions made under the head long term capital gain.

In the case of Babubhai Ramanlal Patel there is one more ground of appeal whereby assessee has challenged disallowance of interest expense of Rs. 2,02,376/-. The brief facts of the case are that on scrutiny of the account it reveals to the Assessing Officer that assessee has borrowed loan @ 12% and he has given loans @ 6% to the persons covered under section 40A(2)(b). Ld. Assessing Officer has made an analysis and disallowed interest expenditure by a sum of Rs. 2,02,376/-.

Appeal to the CIT(A) did not bring any relief to the assessee.

Before us it was contended that assessee is in the business. It has used the borrowed fund for the purpose of the business when funds were lying ideal and not required for the purpose of the business then in order to reduce burden of interest expenditure, he has given these funds on a lower rate of interest.

I have duly considered the rival contention and gone through the record carefully. Section 40A(2)(b) of the Income tax Act contemplates that if an assessee incurred expenditure for availing the services or purchase of a goods from the persons mentioned in sub-clause-(b) and make them payments over and above the market price then the expenditure incurred over and above the market price would be disallowed. The assessee has given interest bearing loan funds to the HUF where he is the Karta. Therefore section 40A(2)(b) has rightly been applied by the Assessing Officer and he has rightly made the disallowance. This ground of appeal is rejected.

In the result appeal of Ilaben K. Patel, Govindbhai Patel L/H of Shantaben P. Patel are allowed, whereas appeal of Babubhai Ramanlal Patel is partly allowed.