ACIT NON CORPORATE CIRCLE 20(1), CHENNAI vs. PVP CINEMAS P. LTD., CHENNAI

PER G.MANJUNATHA, AM:

This appeal filed by the Revenue is directed against

order passed by the learned Commissioner of Income Tax

(Appeals)-14, Chennai, dated 30.10.2017 and pertains to

assessment year 2009-10.

“1. The order of the learned CIT(A) is contrary to facts and circumstances of the case.

2.1 The learned CIT(A) erred in not upholding the addition of Rs.1,98,57,543/- in spite of the fact that the building standing on the land at the time of purchase having been demolished by the assessee before sale of the impugned land.

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2.2 The Ld. CIT(A) erred in directing the assessing officer to allow the cost of acquisition and cost of indexation to the building which was never part of land sale affected by the assessee.

3.1 The CIT(A) erred in deleting the disallowance of Rs.1,52,19,882/- while computing the short term capital gains without verifying the genuineness of the bills submitted before him more so when such bills were not produced before the assessing officer during the course of assessment proceedings.

3.2 The CIT(A) erred in deciding the matter of disallowance of Rs.1,52,19,882/- without giving opportunities to the assessing officer by remanding the matter under Rule 46A of IT Rules,1962.

3.3 The CIT(A) erred in invoking the sub-rule (4) of Rule 46A of IT Rules,1962 when no independent enquiry or production of any document was sought by CIT(A) and on the contrary documents furnished by the assessee on his own including Xerox copy of the bills were accepted without any verification or remand.

3.4 The CIT(A) erred in accepting the claim of the assessee that M/s AGS properties and Development (India) Pvt. Ltd. is wound up without verifying the same by remanding the matter to the assessing officer.

engaged in the business of builders and property developers,

filed its return of income for the assessment year 2009-10 on

29.07.2009 declaring total loss of Rs.5,30,71,503/-. The

assessment for the impugned assessment year has been

completed u/s.143(3) of the Income Tax Act, 1961, on

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21.12.2011 and determined total income at Rs.5,26,48,260/- by

making various additions, including additions towards

computation of long term capital gain and short term capital

gain for sale of property. The assessee carried the matter in

appeal before first appellate authority and the learned CIT(A)

vide his order dated 28.03.2013 has dismissed appeal filed by

the assessee and sustained additions made by the Assessing

Officer towards long term capital gain and short term capital

gain. The assessee carried the matter in further appeal before

the Tribunal and the Tribunal vide its order dated 06.08.2014 in

ITA No.1009/Mds/2013 set aside the issue to the file of the

Assessing Officer with a direction to redo the assessment, after

considering relevant materials/evidence/bills & vouchers that

would be produced before the Assessing Officer and decide

the issue afresh in accordance with law. Consequent to the

directions of the Tribunal, the Assessing Officer called upon the

assessee to file necessary evidences to justify cost of

acquisition claimed against computation of long term capital

gain from transfer of land as well as computation of short term

capital gain from transfer of building. In response, the assessee

vide its letter dated 14.03.2016 submitted certain information,

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however, sought more time to file further evidences. The

Assessing Officer, after considering relevant materials

concluded the assessment and assessed long term capital

gain derived from transfer of property at Rs.4,81,58,512/- and

reiterated his findings in respect of deduction towards indexed

cost of acquisition. The Assessing Officer has also computed

short term capital gain at Rs.21,30,495/- by disallowing certain

expenditure claimed by the assessee, including payment made

to M/s. Bharath Polymers & M/s. Devi Designers & Decorations

on the ground that the assessee could not produce necessary

bills & vouchers in support of expenses.

preferred an appeal before the learned CIT(A). Before the

learned CIT(A), the assessee agitated additions made by the

Assessing Officer towards long term capital gain derived from

sale of land and short term capital gain computation from

transfer of building. The assessee has filed certain additional

evidences in the form of photocopies of bills in respect of

payment made to M/s. Bharath Polymers & M/s. Devi Designers

& Decorations along with value of document and letter of intent

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/ contract awarded by the assessee. The learned CIT(A), after

considering relevant facts and also taken note of additional

evidences filed by the assessee, deleted additions made

towards computation of long term capital gain derived from

transfer of land as well as short term capital gain computed

from sale of building by holding that as per provisions of section

48 of the Income Tax Act, 1961, cost of acquisition of property

should also be included in the cost of acquisition of entire

assets, including movable assets, if any. The learned CIT(A)

also deleted additions towards short term capital gain by

considering additional evidences filed by the assessee,

including photocopies of bills submitted by M/s.Bharath

Polymers & M/s. Devi Designers & Decorations on the ground

that even though, the assessee failed to file original bills due to

various reasons, but on verification of photocopies of bills

submitted by the assessee with corroborative evidences which

proves the fact that the assessee has incurred certain expenses

for construction of building and thus, same needs to be allowed

while computing capital gain from transfer of property.

Aggrieved by the learned CIT(A) order, the revenue is in appeal

before us.

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no.2.1 to 2.2 of the revenue appeal is additions made

towards computation of long term capital gain derived from

sale of land by reducing indexed cost of acquisition of the

property. The facts with regard to impugned dispute are that

M/s. AGS Properties Development (India) P.Ltd. is wholly

owned subsidiary of M/s. Telephoto Entertainments P.Ltd.

M/s.Telephoto Entertainments P.Ltd is subsidiary of M/s. SSI

Ltd. M/s. SSI Ltd. amalgamated with M/s. PVP ventures P.Ltd.,

by an order of the Hon'ble Madras High Court dated

25.04.2018. Consequent to amalgamation, M/s. PVP group

took over management of M/s.SSI Ltd. along with its

subsidiaries. During the financial year 2005-06, AGS Properties

Development (India) P. Ltd., purchased a theatre from Royal

talkies for consideration of Rs.4 crores and same has been

divided into cost of land at Rs.2.61 crores and cost of building,

plant & fittings at Rs.1.39 crores. The assessee has

redeveloped the theatre, because it was more than four

decades old and for this purpose, has obtained financial

assistance from Union Bank of India. The assessee could not

complete the project due to various reasons and thus, decided

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to sell the property through public auction. The public auction

was conducted on 19.11.2008 and property has been sold for a

consideration of Rs.22.22 crores. The sale consideration has

been apportioned between land and building as per which

consideration for transfer of land has been fixed at Rs.8.17

crores and consideration for transfer of building along with

machineries etc. was fixed at Rs.14.05 crores. The assessee

has computed long term capital gain from transfer of land,

because holding period of land was more than three years and

while computing long term capital gain, the assessee has

claimed deduction towards indexed cost of acquisition at

Rs.5,31,65,173/-, which includes consideration paid by the

assessee for land as well as building. The Assessing Officer

has recomputed indexed cost of acquisition by taking into

account cost of land which was paid by the assessee at

Rs.2.61 crores plus applicable stamp duty. The Assessing

Officer had ignored cost of building on the ground that

assessee has demolished existing old building and has

constructed new building. Therefore, the A.O. was of the

opinion that cost of existing old building cannot be considered

as cost of acquisition. It was the explanation of the assessee

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before the Assessing Officer that it has paid total consideration

of Rs.4 crores for acquiring property, which includes cost of

land as well as building, plant and fittings and thus, as per

provisions of section 48 of the Income Tax Act, 1961, cost of

acquisition includes total amount paid for acquisition of

property, including movable asset, if any, and thus, total loss

needs to be allowed as deduction.

available on record and gone through orders of the authorities

below. There is no dispute with regard to fact that the assessee

has acquired property, from Royal Talkies for consideration of

Rs.4 crores, which includes cost of land, cost of building,

machinery and fittings. The assessee claimed that it has

redeveloped building and renovated without removing existing

structure, including plant and machinery. Therefore, the learned

AR for the assessee has argued that while computing long

term capital gain derived from sale of land cost incurred by the

assessee, including cost of machinery and fittings also needs

to be allowed.

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reasons given by the Assessing Officer in light of arguments

advanced by the learned AR for the assessee and we ourselves

do not subscribe to the reasons given by the Assessing Officer

for simple reason that when the Assessing Officer is not

disputing fact that the assessee has paid Rs.4 crores

consideration for acquiring property, then the Assessing Officer

ought to have allowed deduction towards cost of acquisition,

including cost of building, machinery and fittings, because

when the consideration was paid for fittings & machinery and

same was integral part of building, then the Assessing Officer

cannot simply ignore amount paid for acquiring assets attached

to the building. It was not the case of the Assessing Officer

that the assessee has claimed depreciation on machinery and

fittings, including building. It is also not the case of the

Assessing Officer that the assessee has demolished existing

building and dismantled plant & fittings. Unless the Assessing

Officer proves that the assessee has demolished existing

building and dismantled machinery & fittings and realized

amount from sale of said dismantled assets or written off as

scrap, then he cannot deny cost incurred by the assessee to

10 ITA No. 1058/Chny/2018

acquire those assets. In our considered view, the Assessing

Officer has completely erred in not considering cost incurred by

the assessee to acquire asset while computing capital gain

derived from sale of property. The learned CIT(A), after

considering relevant facts has rightly deleted additions made by

the Assessing Officer. Hence, we are inclined to uphold findings

of the learned CIT(A) and reject ground taken by the revenue.

ground no. 3.1 to 3.4 of the revenue appeal is disallowance of

amount paid to M/s. Bharath Polymers & M/s. Devi Designers

& Decorations amounting to Rs.1,52,19,882/- for construction

of building. The Assessing Officer has disallowed payment

made to M/s. Bharath Polymers on 24.11.2007 and 09.10.2007

amounting to Rs.2,64,071/- and Rs.1,94,471/- on the ground

that the assessee could not produce original bills in support of

various expenditure incurred for construction of building. It was

explanation of the assessee that original bills could not be

traced, because building was developed by previous company

before amalgamation and thus, it could not locate documents

and hence, obtained photocopies of bills from the supplier and

produced before the Assessing Officer .The Assessing Officer

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did not satisfy with the explanation furnished by the assessee

and according to him, the assessee could not explain payment

made to the above party with necessary evidences.

available on record and gone through orders of the authorities

below. Admittedly, the assessee produced photocopies of bills

issued by M/s. Bharath Polymers for supply for certain materials

for construction of building, when it could not trace original bills

issued by supplier. The learned CIT(A) has considered

photocopies of the bills and allowed deduction to the assessee

on the ground that if you consider photocopies of bills along

with circumstantial evidences, including construction of building,

it was undoubtedly proved that the assessee has incurred

expenditure for construction of building. Further, the assessee

had also filed other evidences, including tender quote and letter

of intent / work order to prove that it has placed orders for

purchase of certain materials. From the above, what is clear is

that it was not the case of the Assessing Officer that no

evidence has been filed by the assessee to justify payment

made to above party. But, the Assessing Officer has denied

12 ITA No. 1058/Chny/2018

deduction only for the reason that the assessee could not

produce original bills. We do not agree with the reasoning given

by the Assessing Officer for the simple reason that when the

assessee has explained reasons for not furnishing original bills

and further, filed photocopies of bills along with corroborative

evidence to prove incurrence of expenditure for construction of

building, the Assessing Officer ought to have allowed

deduction towards payment made to above party. The

Assessing Officer without appreciating facts has simply disallowed payment made by the assessee towards

construction of building without assigning proper reasons. The

learned CIT(A), after considering relevant facts has rightly

deleted additions made by the Assessing Officer. Hence, we

are inclined to uphold findings of the learned CIT(A) and reject

grounds taken by the revenue.

Decorations. The assessee had given contract for construction

of theatre, including interior works to M/s. Devi Designers &

Decorations for an amount of Rs.2.30 crores. The supplier has been issued work order as per letter of intent to carry out work

for an amount of Rs.2.30 crores. The supplier has completed

13 ITA No. 1058/Chny/2018

work and submitted bill for an amount of Rs.1,63,49,002/-. The

assessee has certified the bill submitted by the supplier for final

amount of Rs.1,47,61,340/- and made payment. The Assessing

Officer disallowed payment made to M/s. Devi Designers &

Decorations only on the ground that the assessee could not

produce original bills submitted by the supplier, otherwise, the

Assessing Officer never disputed fact that supplier has carried

out construction work. In fact, the assessee has furnished

photocopies of bill submitted by the supplier along with tender

documents and letter of intent, which undoubtedly proves fact

that the supplier has carried out work of construction of building

and the assessee has made payment. The Assessing Officer

without appreciating above facts has simply disallowed

payment made to above party only on the ground of non-

furnishing of original bills, even though the assessee has filed

photocopies of bills submitted by the supplier. In our considered

view, reasons given by the Assessing Officer to disallow

amount paid to above party is incorrect and without any basis. If

at all, the Assessing Officer was having any doubt on payment

made by the assessee, then A.O. should have summoned the

supplier to verify fact of payment made by the assessee. The

14 ITA No. 1058/Chny/2018

Assessing Officer without carrying out proper enquiry, has

simply rejected contention of the assessee only on the ground

that original bill was not furnished by the assessee. In our

considered view, whether the bill submitted by the assessee is

in original or duplicate, as long as other corroborative evidences

supports claim of the assessee, then the Assessing Officer

ought to have allowed deduction towards amount paid for

construction of building. The learned CIT(A), after considering

relevant facts has rightly directed the Assessing Officer to allow

deduction towards amount paid to M/s. Devi Designers &

Decorations. Hence, we are inclined to uphold findings of the

learned CIT(A) and reject grounds taken by the revenue.

Order pronounced in the open court on 16th March, 2022

Sd/- Sd/- (वी. दुगा� राव) (जी. मंजुनाथ) (V.Durga Rao) (G.Manjunatha) $या�यक सद&य /Judicial Member लेखा सद&य / Accountant Member

चे$नई/Chennai, )दनांक/Dated 16th March, 2022 DS आदेश क� ��त+ल,प अ-े,षत/Copy to: 1. Appellant 2. Respondent 3. आयकर आयु.त (अपील)/CIT(A) 4. आयकर आयु.त/CIT 5. ,वभागीय ��त�न2ध/DR 6. गाड� फाईल/GF.p