Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, BANGALORE ‘A’ BENCH, BANGALORE
Before: SHRI ABRAHAM P GEORGE & SHRI GEORGE GEORGE, K
6. For the above and other grounds that may be urged at the time of hearing of this appeal, your assessee humbly prays that the appeal may be allowed and justice rendered and the assessee may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs”.
Out of the above ground no.1 & 6 are general and ground no.5 is consequential, needing no adjudication.
3. In support of ground no.2 & 2.1 learned counsel for the assessee submitted that disallowance of 20% of the claim of expenditure was made for the reason that the claim was not fully supported by vouchers. As per the ld. AR, the AO erroneously presumed that personal elements were involved in such expenditure. As per the ld. AR the expenditure were of such nature in which there could no personal element. However, the ld.CIT(A), as per the ld. AR failed to appreciate this and had confirmed the order of the AO.
Per contra, ld. DR supported the order of the authorities below.
We have perused the material and perused the material on record. The expenditure on which disallowance of 20% was made is reproduced hereunder;
a. Labour and Salary Rs.1,60,800 b. Postage and forwarding expenses Rs. 3,210 c. Repais and maintenance Rs. 29,050 d. Water charges Rs. 7,100 e. Vehicle maintenance Rs. 3,410 f. Miscellaneous Rs. 3,450 Rs.2,07,020 Though, the AO does say that the expenditure was not fully supported, he has not pointed out even a single specific instance. His conclusion that there were some personal elements in the claim of expenditure is also not supported by any specific findings. We find the disallowance to have been made purely on surmises. Such disallowance stands deleted. Ground no.2 & 2.1 are allowed.
In support of ground no.3 & 3.1 the ld. Counsel submitted that assessee had declared capital gains on sale of a plot bearing no.265S, in Hebbal Industrial Area, Kasaba Hobli, Mysore District. As per the ld. AR, the assessee had correctly computed the capital gains as under;
“ a. Sale consideration Rs.24,00,000 less a commission Rs. 48,000 b. Indexed cost of acquisition 788200*632/223 Rs.22,33,822 Capital Gains Rs. 1,18,178 Submission of the ld. AR was that the AO disbelieved the cost of construction comprised in the sum of Rs.7,88,200/-. As per the ld. AR, the AO simply went by the sale deed and re-computed the capital gains as under;
Sale consideration Rs.24,00,000 Less: Indexed cost of acquisition a. Rs.28,544*632/223 (paid in 1993) Rs. 80,898 b. Rs.22,37 (18307+740+3190) paid in 2009 (difference of Rs.46,851-28,544+stamp duty + regn.) Rs. 22,237
Long term capital gain Rs.22,96,867 Submission of the ld. AR was that the plot was acquired by the assessee from KIADB on 26-10-1990 for establishing printing press. As per the ld. AR, the construction of the factory shed was based on plan which was submitted and approved by Dy. Development Officer, KIADB, Zonal Office, Mysore on 25-06- 1993. The ld. AR stated that a Chartered Engineer had certified the existence of building and fixed the value of the building at Rs.2,71,000/- based on his visit to the premises on 06-12-1996. The ld. AR also relied on copies of communication to electricity and power connection in support. The ld. AR also pointed out that the premises were let out for three years and the rental income was offered to tax in the return filed. Strong reliance was also placed on valuation report dated 04-01-2010 of a bank valuer named Shri Yogish Rao,D.V. As per the ld. AR the bank had provided a loan to the purchaser based on such valuation report. Thus, according to the ld. AR, the AO was not justified in coming to the conclusion that there was no building in the plot and the assessee had merely sold the land as such. As per the ld. AR undue reliance was placed on the registered sale deed and he could not fathom why the sale deed did not refer to the building. The ld.AR also pointed out that assessee was a member of a HUF which was filing return. Just because the cost of construction was shown in the balance sheet of HUF, as per the ld. AR, claim of the assessee for reducing the cost of construction for computing the capital gains ought not have been rejected. The ld. AR of the assessee pointed out that all these arguments were taken before the ld. CIT(A), but the ld. CIT(A) except for giving small relief for the cost of shed, as per the balance sheet of HUF did not accept any of the other arguments. According to the ld. AR the lower authorities fell in error when the actual cost of construction was not considered while computing the capital gains.
Per contra, ld. DR strongly supported the orders of the authorities below.
We have perused the orders and considered the material on record. It is not disputed by the assessee that the sale deed of the plot which resulted in the capital gains did not mention anything regarding any building therein.
However, the purchase deed of the plot entered by the assessee with M/s KIADB on 16-12-2009 does mention that there was a lease-cum-sale agreement dated 09-02-1993 between KIADB and the assessee. Relevant part of the sale deed is re-produced hereunder;
“Deed of sale executed at Mysore this 16tyh day of December month two thousand nine by The Karnataka Industrial Areas Development Board, having its office at K>R>S>Road, Metagally Post, Mysore-16 represented by Sri G.H..Chikkaiah, ‘Assistant Secretary’ hereinafter called the vendor which term wherever it occurs in these presents shall mean and include its successors in interest and assigns to and in favour of M/s Prajwal Enterprises, Plot No.265S, Hebbal Industrial Area, Mysore represented by Sri U.G.Uthappa, Proprietor hereinafter called the Purchaser which term wherever it occurs in these presents shall mean include his/her/is/their heirs, executors, administrators, legal representatives, successors and assigns. Whereas by an lease-cum-sale agreement dated 9th day of February month one thousand nine hundred & ninety three made between the vender of the one part and the purchaser of the other part, the vendor agreed to sell to his, purchaser upon the performance and observance by the purchaser of the obligations and conditions contained in the said agreement and the purchaser agreed to purchase, all that piece of land and premises known as plot nos. 265S of Hebbal Industrial Area, situated in sy.no.344 of Hebbal village Kasaba Hobli,
Mysore Taluk, Mysore District containing by admesurements 967.00 sq.mtr, or thereabouts and morefully described in the Schedule hereunder written and delineated on the plan annexed hereto and thereon surrounded by a red colour boundary line together with the buildings and erections standing and being thereon and together with all rights, easements, privileges, advantages and appurtenances whatsoever pertaining to the said property except and reserving unto the vendor all mines and minerals in and under the said land or any part thereof”.
No doubt, the cost of the property mentioned in the purchase deed is only Rs.46,851/-and relevant para is re-produced hereunder;
“Now this deed of sale witnesseth that in consideration of the sum of Rs.46,851/- (Rs. Forty six thousand eight hundred & fifty one only) paid in the aforesaid manner by the purchaser to the vendor, the vendor do hereby acknowledge, admit and release the purchaser there from and the vendor do hereby convey, transfer and assign unto the purchaser, by way of absolute sale, all that piece and parcel of land together with the superstructures thereon constructed by the purchaser in plot nos.265S in Hebbal Industrial Area, situated in sy.o.344 of Hebbal village, Kasaba Hobli, Mysore Taluk, Mysore District measuring about 967.00 sq.mtrs. and more particularly described in the schedule hereto, together with trees, hedges, water, water courses, and all the easements, privileges, advantages and appurtenances whatsoever pertaining to the said property and all the estate right title and interest of the vendor in and upon the same or any part thereof to have and to hold the same unto the purchaser absolutely and forever and the purchaser shall and may at all times hereafter peaceably and quietly possesses and enjoy the schedule mentioned property without any lawful eviction, interruption, claim or demand whatsoever from or by the vendor or any one claiming from under or in trust for the vendor”.
It appears from the above that there were superstructures in the plot and consideration of Rs.46,851/- is also mentioned therein. As per the assessee there was a shed constructed in the land and cost thereof should be as per the valuation report. The ld. AO has mentioned that the return of income filed by the assessee for the assessment year 2009-10 had shown an amount of Rs.45,000/- as the cost of the shed in the balance sheet filed alongwith such return. As against this, the cost considered by the assessee for working out the capital gains was Rs.7,88,200/-. The AO had sought explanation how the cost increased from 45,000/- to Rs.7,88,200/- viz. a difference of Rs.7,43,200/-since the cost of the property as per the purchase deed was Rs.46,851/-. The ld.AO came to a conclusion that the amount reflected in the balance sheet was not the cost of the shed, but cost of the property, when the assessee purchased it from KIADB. This was the reason why the AO came to a conclusion that there was no expenditure incurred by the assessee for the construction of the shed. As against this, the assessee is relying on the valuation report dated 04-01-2010 of Shri Yogis Rao, D.V in which it is mentioned that the cost of construction was Rs.2,55,000/-. As per the assessee this valuation report was obtained by the purchaser for raising a loan. Even if we accept the contention of the assessee that there was indeed a building in the plot, it is a fact that the balance sheet of the assessee did not reflect the cost of the building. On the other hand, it is an admitted position, that the HUF of which the assessee is the Karta had filed its return showing the cost of the shed in its balance sheet. The said HUF was also assessed to tax. When all these are seen together, in our opinion, it is clear that the building was owned by HUF, whereas the land was owned by the assessee. In such a situation, for computing the capital gains the assessee could not have deducted the cost of construction, since the construction did not belong to the assessee.
Nevertheless, we find that the ld., CIT(A) in all fairness, had directed the AO to give the benefit of the cost of shed, as shown by the HUF in its balance sheet, while computing the capital gains of the assesee. As already mentioned by us, we cannot accept the pleading of the assessee that the building belonged to him, but not to HUF. In the circumstances, we do not find any reason to interfere with the order of the ld.CIT(A) hence, ground no.3 & 3.1 of the assessee stands dismissed.
Vide ground no.4 & 4.1 the assessee is aggrieved that the agricultural income to the extent of Rs.3,89,000/- was not accepted, but was considered under the head” Income from other sources”. Actual addition sustained by the ld.CIT(A) is Rs.3,89,000/- and not Rs.2,89,000/-.
The ld. AR submitted that the assessee had declared agricultural income of Rs.4,85,000/- from 8 acres of land. As per the ld. AR the assessee was having Coffee plantation. Further, as per the ld. AR, the AO went by the yield set out in the NABARD website, and reached an erroneous conclusion that 8 acres of Coffee plantation would yield only Rs.96,000/-.
As per the ld. AR this resulted in an unfair addition of Rs.3,89,000/-.
According to him, ld. CIT(A) had confirmed this without appreciating assessee’s arguments. Submission of the ld. AR was that none of the lower authorities had disputed the presence of Coffee cultivation in the 8 acres of agricultural property owned by the assessee. There was not even any inspection done by the lower authorities. Thus, according to him, the addition was not warranted.
Per contra, ld. DR supported the orders of the authorities below.
We have heard the rival submissions and perused the material on available record. It might be true that that assessee was having 8 acres of agricultural land wherein Coffee was cultivated. However, mere ownership of agricultural property would not transform itself into income. The claim of assessee was that it had earned an agricultural income of Rs.4,85,000/- from 8 acres of Coffee plantation. Assessee was not able to produce any evidence except for a certificate from the Revenue Inspector, Srimangala Hobli which gave details of crops grown. Assessee did not show anything to prove the sale of agricultural produce or receipts there from. In such situation, we cannot fault the ld. AO for following the NABARD guidelines.
As per such guidelines income from a Coffee plantation would be in the range of Rs.1000/- to 26,000/- from the 5th year to 9th year. The AO had taken an average of Rs.12,000/- and estimated the agricultural income at Rs.96,000/-. The average of Rs.26.000/-and Rs.1,000/- would be Rs.13,500/- and not Rs.12,000/-. Accordingly, income from 8 acres can be fairly estimated at Rs.1,08,000/- therefore, we direct the addition to be restricted to Rs.3,77,000/-. Part relief is given to the assessee. Ground no.4 & 4.1 of the assessee is treated as partly allowed.
To summarise the result, appeal of the assessee is partly allowed.
Order pronounced in the open Court on the 7TH April, 2016.