DHAS KISHOR RAMCHANDRA, AURANGABAD vs. DWARKAPRASAD BHIKULAL SONI, JALNA

The appellant reserve the right to alter, amend and add & modify any grounds of appeal

Addition u/s 50CA of the IT Act Rs.12,92,000/- 2. Addition u/s 56(2)(x) of the IT Act Rs.3,32,79,840/- 3. Addition on receipt of on-money on sale of Rs.20,00,000/- house 4. Addition on account of investment in Rs.23,10,817/- Bungalow u/s 69 5. Addition on account of cash transaction u/s Rs.1,00,000/- 69A 6. Addition on account of agricultural income Rs.1,49,910/- Total Rs.3,91,32,567/- 4. In first appeal, after considering the reply of the assessee Ld. CIT(A) partly allowed the appeal of the assessee. It is this order against which the Revenue is in appeal before this Tribunal.

Ld. AR appearing from the side of the assessee submitted before us that the order passed by Ld. CIT(A) is reasoned one and does not require any interference.

We have heard Ld. Counsels from both the sides and perused the material available on record in this regard. With regard to addition of Rs.12,92,000/- u/s 50CA and Rs.3,32,79,840/- u/s 56(2)(x) made by the Assessing Officer, we find that Ld. CIT(A) has deleted both the additions by observing as under :- “5.2 I have gone through the submission of the appellant along with supporting documents submitted during the appellate proceedings as well as during the assessment proceedings before the Ld. AO. The appellant has contested the determination of fair market value of the equity shares of Meta Rolls Ispat Private Ltd (MIPL). During the year under consideration, the appellant has transferred the equity shares of MIPL to Smt Radhika Birla. The appellant has submitted that while estimating the FMV of equity shares, various aspects need to be considered as per the valuation standards accepted under the Companies Act, valuation standards issued by the ICAI which are in line with international valuation standards, factors like- lack of discount on marketability, purpose of valuation and availability of willing buyers, realisability of immovable properties, margin of safety, WDV of depreciable assets as per the Income Tax Act etc. The Ld. AO has determined the fair market value (FMV) of the shares as per rule 11UA and rejected the contentions of the appellant as under. 5.2.1 On the basis of the submission made by the appellant the AO observed that one of the immovable properties which belongs to the appellant is situated at Survey No.79, 82, 83, and 86 of Yerur Village (adjacent to Tadali MIDC). The Ld. AO has not accepted the valuation determined by the appellant. The value determined by the appellant based on guideline rate is Rs. 7,44,67,966/- whereas the AO has derived the value at Rs.9,84,25,980/-, the net difference being Rs. 2,39,58,014/-. I have gone through the of valuation report submitted by the appellant along with the guideline rates of Industrial NA plot with open area, amenity area and parking area. The appellant has submitted the valuation as per stamp duty rules. It is seen that there are different rules for valuation of industrial NA plots based on criteria like open area, amenity area and parking area etc. Further, the appellant has submitted fair valuation of the land situated at Survey No. 79, 82, 83, and 86 of Yerur Village which is an undeveloped industrial NA land and the said land is a barren land. Further, the said land is not demarcated as usable land as per the NA order as per the Stamp Duty Authority Rules for valuation which need to be followed while assessing the fair value of the immovable property for levy of stamp duty purpose. On perusal of the valuation report it is seen that the Stamp Duty Authority Rules are followed by the valuer for assessing the value of Immovable property. Hence, the valuation done by the valuer of Land situated at Survey No. 79,82,83 and 86 Yerur Village (adjacent to Tadali MIDC) at Rs. 7,44,67,966/- is found to be reasonable since no uniform valuation rate is to be used for the entire land. Thus, impact of higher value of Rs. 10.20 per equity shares worked out by the Ld. AO is Rs. 2,39,58,014/- (i.e. difference between value worked out by the Ld. AO and the Appellant divided by / Rs. 2,34,67,670/- paid up capital * Rs. 10/- face value of equity shares.) 5.2.2 Secondly, the AO noted that in the valuation report submitted by the appellant, the value adopted for land situated at Survey No. 159/1,2 Kochi Bhadravati Chadrapur is Rs. 60,75,383/- whereas the AO has derived the value at Rs.74,29,514/-. Thus net difference is Rs. 13,54,131/-. On perusal of the valuation report of the appellant which is supported by valuation rules for stamp duty it is seen that the value arrived at Rs. 60,75,383/- is as per the IGR rate available on the website of Government of Maharashtra. Thus, the valuation adopted by the appellant is found to be reasonable. In view of this, impact of higher value of Re. 0.06 per equity shares worked out by the Ld. AO is Rs. 13,54,131/- i.e. difference between value worked out by Ld. AO and Appellant divided by / Rs. 2,34,67,670/- paid up capital * Rs. 10/- face value of equity shares. 5.2.3 Further, in the valuation report of the valuer Shri Vishal Holani, CA, he has deducted the provision for gratuity and considered as liability which is payable in near future as most of the employees of the appellant company have submitted that they have their continuous service of more than 5 years and eligible for the gratuity entitlement, thus provision for gratuity is a certain liability, and the shareholders/members of the company are bound to be paid the gratuity. Thus, it is accounted as per the accounting standards. It is to be noted that the gratuity is mandatorily to be paid to those employees who have completed their service as per the rules and regulations of receipt of gratuity and payment is required to be made to the employees once they are retired. Most of the employees have crossed the requisite limit of service and are eligible for gratuity. On perusal of the same, it is seen that such provision of gratuity is made based on some scientific approach and the same has been derived by analyzing past data. Therefore, liability of the gratuity needs to be considered at the time of valuation. Thus, impact of higher value of Rs. 0.62 per equity share worked out by the Ld. AO is Rs. 1,45,28,805/- (i.e. provision for gratuity divided by / Rs. 2,34,67,670/- paid up capital * Rs. 10/- face value of equity shares). 5.2.4 The appellant has made the submission as to why there is no scope for estimating the value of equity shares under rule 11UA of the Income Tax Rules. The factors like concept of safe harbor limit or tolerance band or discount for lack of market ability apply when the valuation is considered as per the valuation standards and adopted under the companies act. The concern raised by the appellant is considered and seems to be logical and a valid ground on account of uncertainty to arrive at fair market value (FMV), basis of fair valuation, as it depends on various factors viz. The willingness of the buyer, type of assets, generation of income from those assets, legally clear and freely traded in open market, availability of willing buyers etc. In the present case the Rajuri group members and promoters had decided to part of their shareholding pattern of the company viz. Rajuri Steels Private Ltd (now Rathi Steel and Metal Private Limited (RSMPL), Meta Rolls Ispat Private Limited (MIPL). The promoters of this company have decided to exchange the shares of these companies amongst promoters/members of the group only and not to transfer to any third person. Thus, the promoters/members, considering the various aspects to arrive at fair market value determined the equity shares as per weighted average method out of three methods viz.

From perusal of the above order of Ld. CIT(A), we find that Ld. CIT(A) has considered various factors such as different rules for valuation of Industrial NA plots based on criteria like open area, amenity area & parking area. Further, he has also given a Survey No.79, 82, 83 & 86 of Yerur village was an undeveloped industrial NA Land & the said land was a barren Land. Even as per the Stamp Duty Authority Rules, the said land is not demarcated as usable land. It was also found by Ld. CIT(A) that while preparing the valuation report Stamp Duty Authority Rules were followed for assessing the value of immovable property. Accordingly Ld. CIT(A) has accepted the valuation furnished by the valuer of the assessee of land situated at Yerur village. A perusal of the order shows that Ld. CIT(A) has passed a detailed and speaking order wherein he has also provided the reasons for allowing 15% discount in the value calculated as per Rule 11UA of the IT Rules. No contrary material has been brought on record by Ld. DR against the detailed reasonings of the Ld. CIT(A) on this issue. Therefore, in absence of any distinguishable feature brought on record we do not find any infirmity in the order passed by Ld. CIT(A) on this issue. Accordingly we confirm the same. Thus, the ground nos.1 to 6 raised by the Revenue are dismissed.

In ground no.7, the Revenue has challenged the deletion of addition of Rs.20,00,000/- made on account of receipt of on-money on sale of immovable property which was added on the basis of seized material. 9.1 In this regard, Ld. DR submitted before us that during the course of search proceedings, a copy of registry of property was seized and on the back side of page no.28 it was mentioned as- total sale value of Rs.1,06,00,000/- out of which Rs.86,00,000/- was received in cheque and Rs.20,00,000/- was received in cash. It was submitted that as per registered sale deed total consideration was shown at Rs.86,00,000/- only, therefore, remaining Rs.20,00,000/- received in cash were added by the Assessing Officer and Ld. CIT(A) committed error in deleting the same.

Ld. AR appearing from the side of the assessee reiterated the submission as made before Ld. CIT(A) and relied on the order passed by Ld. CIT(A).

We have heard Ld. Counsels from both the sides and perused the material available on record and the paper book furnished by the assessee. We find the Assessing Officer has made addition of Rs.20,00,000/- on the basis of some jotting on seized documents. We find that the assessee has sold property in Jalna whereas in the seized documents Viman Nagar has been mentioned, although no such description of the entries was written on the seized documents. Even the area of the property mentioned on the seized documents, does not match with the description of Jalna property, sold by the assessee. We find that Ld. CIT(A) has deleted the above addition by observing as under :- “6.2 I have considered the submission of the appellant and the facts of the case and the seized documents. It is observed that the seized documents do not contain anything to show that the appellant has received on money on sale of residential house of Jalna. The appellant has raised various points as stated above. From the seized documents, it is clear that the appellant has not received any on money on sale of residential house at Jalna, as the area of residential house at Jalna is different and property mentioned on seized documents is written as Vimannagar, the said area is in Pune and not in Jalna. Thus, addition made on probability and presumption on the basis of dumb documents is not sustainable. The AO has not been able to prove that the appellant has received on money on sale of residential house. Therefore, the impugned addition of Rs. 20,00,000/- is hereby, deleted. The Ground No. 6 of the appeal is therefore, ALLOWED.”

In ground no.8 and 9, the Revenue has challenged the deletion of addition of Rs.23,10,817/- made on account of unexplained investments in construction of bungalow. 13.1 In this regard, Ld. DR appearing from the side of the Revenue submitted before us that the assessee has constructed a bungalow along with his wife Mrs. Urmila Soni and the assessee has admitted to have invested Rs.48,74,977/- in the construction of the house wherein Rs.13,36,073/- was shown as payable/outstanding and Rs.14,56,392/- was claimed to be spent in cash but the Assessing Officer has not accepted the availability of cash of Rs.14,56,392/- and accepted the availability of cash at Rs.5,81,650/- only and therefore addition of Rs.23,10,817/- was made, which was justified and Ld. CIT(A) erred in deleting the above addition.

In this regard, Ld. AR appearing from the side of the assessee reiterated the submission of Ld. CIT(A) and relied on the order of Ld. CIT(A).

From perusal of the above order of Ld. CIT(A), we find that the addition was made by the Assessing Officer on the basis of estimation only. While making the addition the Assessing Officer has increased the household expenses without any concrete evidence and also reduced the agricultural income and further reduced commission income which was already disclosed by the assessee in his return of income and due tax was also paid. We do not find any valid reason with the Assessing Officer for which he has done the above exercise which resulted in so called shortage of cash with the assessee and consequently affecting the availability of cash with the assessee which ultimately resulted in addition of Rs.23,10,817/-. We find that Ld. CIT(A) has considered the fact that other family members are also earning members and they have also contributed towards household expenses. Further, Ld. CIT(A) has also found that a list of the expenditure outstanding as payable Assessing Officer. Ld. CIT(A) has also found that the list of expenditure incurred along with names of the parties and the amount of Rs.13,36,073/- outstanding to be paid on 31.03.2022 was also reflected in the statement of affairs submitted during the course of assessment proceedings. We therefore do not find any infirmity in the order of Ld. CIT(A) in deleting the addition made by the Assessing Officer. Ld. DR could not point out any error or perversity in the order of Ld. CIT(A) on this issue. Accordingly, the same is upheld and the ground nos.8 and 9 raised by the Revenue are dismissed.

In ground no.10, the Revenue has challenged the deletion of addition of Rs.1,00,000/- made on account of unexplained cash expenditure u/s 69C which was admitted in the statement recorded u/s 132(4) of the IT Act. 17.1 In this regard, Ld. DR appearing from the side of the Revenue submitted before us that during the search proceedings statement of assessee was recorded on oath u/s 132(4) of the IT Act and he himself has accepted that Rs.1,00,000/- was paid to Shri Sandeep for purchase of items for the house and Ld. CIT(A) erred in deleting the same.

Ld. AR appearing from the side of the asessee reiterated the submission as made before Ld. CIT(A) and relied on the order passed by Ld. CIT(A) in this regard and requested to confirm the same.

We have heard Ld. Counsel from both the sides and perused the material available on record including paper book furnished by the assessee. We find that Ld. CIT(A) deleted the addition of Rs.1,00,000/- by observing as under :- “8.2 I have considered the submission of the appellant and the facts of the case and supporting evidence submitted before me and before the Ld. AO. During the appellate proceedings, the appellant has stated that Shri Sandeep Lasurkar was doing aluminum and curtain work to whom an amount of Rs. 1,00,000/- was advanced which was duly recorded in the books of the appellant’s wife i.e. Smt. Urmila Soni and the source thereof is out of income and cash withdrawals from bank time to time. However, the cash summary of his wife for FY 2020-21 relevant to AY 2021-22 was also submitted to the Ld. AO. The same is submitted by the appellant, which is as under: xxxxxxxxx In view of the above summary, it is seen that the appellant’s wife has withdrawal total amounting of Rs. 3,00,000/- during the year. Out of Rs. 3,00,000/-, his wife has spent Rs. 1,43,330/- for construction of house given to Shri Sandeep Lasurkar. Thus, the addition of Rs. 1,00,000/- made by AO on account of unaccounted investment u/s 69A is not sustainable. The ground No. 9 of appeal is, therefore, allowed.”

In ground no.11, the Revenue has challenged the deletion of disallowance of Rs.1,49,910/- out of agricultural income disclosed by the assessee. 21.1 Ld. DR appearing from the side of the Revenue submitted before us that the assessee has disclosed Rs.2,49,910/- as agricultural income and in the absence of any documentary evidence with respect to the agricultural income, the Assessing Officer has disallowed Rs.1,49,910/- and added the same as income from other sources and Ld. CIT(A) erred in deleting the same in the absence of any supporting documents with regard to agricultural income.

Ld. AR appearing from the side of the assessee reiterated the submission as made before Ld. CIT(A) and relied on the order passed by him and requested to confirm the same.

We have heard Ld. Counsels from both the sides and perused the material available on record including paper book filed by the assessee. In this regard, we find that Ld. CIT(A) deleted the addition of Rs.1,49,910/- by observing as under :- “9.2 I have considered the submission of the appellant and the facts of the case. The appellant has declared agricultural income in ITR Rs. 2,49,910/- the Ld. AO has restricted the agricultural income to Rs. 1,00,000/- and made the addition of Rs. 1,49,910/-. I have gone through the submission of the appellant. The document of 7/12 has been produced by the appellant which shows that the appellant has sufficient land holding i.e. 4-hectare 6 R and further it is observed that the 7/12 extract has notings of the crops cultivated during the year. The agricultural land holding of the appellant is 4 hectare and net agricultural income per hectare is worked out to Rs. 61,555/- only a very negligible agricultural income. In the light of the documentary evidence of land holding and noting of crop cultivated on the agricultural land by the appellant and considering that the agriculture income is of Rs 1,49,910/- which is very meager, the contention of the appellant is acceptable. The Ground No. 10 is, therefore, allowed.”

We find that Ld. CIT(A) has deleted the addition of Rs.1,49,910/- pertaining to agricultural income after considering