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Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE
Before: SHRI D.KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM
आदेश आदेश / ORDER आदेश आदेश
PER D. KARUNAKARA RAO, AM :
There are 3 appeals under consideration. There are cross
appeals for the A.Y. 2009-10 and they are ITA Nos. 732/PUN/2013 and
904/PUN/2013. These appeals are filed by the Assessee and the
Revenue against the order of CIT(A)-II, Nashik dated 26-02-2013.
Further, there is another appeal filed by the assessee vide ITA
No.447/PUN/2015 for the same assessment year and the same has
genesis in the rectification order passed u/s.154 of the I.T. Act.
Brief facts of the case are that the assessee is a partner in M/s.
Bafna Builders and Land Developers, Jalgaon. Assessee is engaged in
the business of trading activity in Gold and bullion & ornaments,
diamond and diamond ornaments. Assessee filed the return of income
declaring total income of Rs.30,11,75,820/-. Assessment was
completed u/s.143(3) of the Act determining the assessed income at
Rs.36,07,76,280/-. Number of additions were made by the AO and the
details in summary are given in page 17 of the assessment order.
Aggrieved with the said additions, assessee filed an appeal before
the CIT(A)-II, Nashik. At the end of the First Appellate Proceedings,
CIT(A) partly allowed the appeal of the assessee. Subsequently, the
CIT(A) also found apparent mistake in his order and therefore, he
invoked the provisions of section 154 of the Act and rectified his order
vide rectification order dated 13-01-2015 after following due process of
law and after giving opportunity to the assessee. Aggrieved with the
relief granted by the CIT(A), the Revenue is in appeal before us vide ITA
No.904/PUN/2013. Further, aggrieved with the additions confirmed by
the CIT(A) the Assessee is in appeal vide ITA No.732/PUN/2013.
3 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna
Further, aggrieved with the decision of the CIT(A) in assuming
jurisdiction u/s.154 of the Act, the assessee filed another appeal ITA
No.447/PUN/2015 requesting for cancelling the said rectification
order. We shall now take up the appeal-wise adjudication in the
following paragraph.
ITA No.904/PUN/2013 (By Revenue – A.Y.2009-10) ITA No.732/PUN/2013 (By Assessee – A.Y.2009-10) ITA No.447/PUN/2015 (By Assessee – A.Y. 2009-10)
In connection with the cross appeals in general and the
assessee’s appeal in particular, Ld. Counsel for the assessee filed a
chart giving the details of the grounds raised originally in the appeal as
well as the additional grounds raised during the course of the
proceedings before the Tribunal. The issues, the issue-wise arguments
of the parties and the decision of the Tribunal on each of them, are
given in the following paragraphs.
The first issue raised by the assessee relates to the “disallowance
of interest of Rs.49,23,531/-”. It has two segments namely (1) the
disallowance of interest of Rs.8,10,106/- relating to the diversion of
funds for non-business purposes; and (2) the disallowance of an
amount of Rs.41,13,425/- u/s.36(1)(iii) of the Act.
The facts relating to the disallowance include that the assessee
debited interest expenditure as well as credited the interest income
earned by her. The AO disallowed the interest expenditure of
Rs.49,23,531/- and added to the income returned by the assessee. In
this regard, the Assessee’s argument includes that the said interest
constitutes an allowable expenditure u/s.37 of the Act. AO held that
the claim of the assessee is not allowable as the same constitute
diversion of funds for non-business purposes. Further, in connection
with the claim of other part of interest, AO invoked the provisions of
4 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna
section 36(1)(iii) of the Act for denying the claim of the assessee. It is
the argument of the Ld. Counsel for the assessee that the lower
authorities erred in relying on the provisions of section 36(1)(iii) for
denying the claim as the advances received are for business purposes
and therefore, the interest claimed if any is allowable u/s.37 of the Act.
Ld. Counsel for the assessee filed the written submissions mentioning
the following :
“…The AO has made the addition on the ground of diversion of funds for non business purpose and u/s.36(1)(iii) of the I.T. Act, 1961. The appellant had filed her explanation before Ld.CIT(A) vide page Nos. 55 to 69 of paper book which has been quietly ignored by the Ld.CIT(A) who has drawn erroneous conclusions of his own. Basically all the advances were for business considerations, i.e. advances were given during the course of carrying on the business on which no interest was charged. The Ld. AO made the disallowance on account of diversion of funds for non business purposes and also u/s. 36(1)(iii) of the I.T. Act, 1961 and Ld.CIT(A) made the disallowance only u/s.36(1)(iii) which is incorrect and if at all the disallowance was to be made it should have been made u/s.37. The appellant most respectfully submits that the matter cannot be restored to the lower authorities to ascertain the applicability of provisions of section 37 of the I.T. Act, 1961 and reliance is placed on three high court decisions submitted in the case of Bafna Builders and Developers which is simultaneously heard.”
From the above, it is the submission of the assessee’s counsel
that the issue may be restored to the file of the AO and the same will be
in tune with the decision of the Tribunal in the case of M/s. Bafna
Builders and Land Developers - ITA Nos. 706/PUN/2013 and ITA
No.162/PUN/2015 & ITA No.902/PUN/2013 order dated 30-10-2017
where Ground No.3 was already remanded to the file of the AO for fresh
adjudication as per the discussion given in Para 17 of the said order of
the Tribunal (supra). In the remand proceedings, AO was directed to
grant reasonable opportunity to the assessee.
Ld. DR for the Revenue relied heavily on the orders of the AO and
the CIT(A).
5 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna
After hearing both the sides, we are of the view that this ground
should revisit to the file of the AO. Therefore, Ground No.1 in its
entirety, is remanded to the file of the AO for fresh adjudication.
Accordingly, Ground No.1 is allowed for statistical purposes.
The second issue raised vide Ground No.2 relates to
“disallowance of interest of 17,41,441/- u/s.14A r.w. Rule 8D of the
I.T. Rules”. On this issue also, Ld. Counsel for the assessee submitted
in the written submissions that this issue also needs to revisit to the
file of the AO submitting the following arguments :
“1. The Ld.CIT(A) has failed to properly analyse the facts in proper perspective and his conclusions drawn on page no.47 & 48 of the impugned order are erroneous and hence deserve to be rejected. 2. Both the lower authorities have failed to appreciate that the appellant had surplus funds of her own and therefore a presumption arises that the investments were made out of own funds. The appellant therefore requests that the issue may please be restored to the file of the Ld. AO in the light of the developed legal position in this respect with a direction that the disallowance should not exceed the exempt income.”
Ld. DR for the Revenue relied heavily on the orders of the AO and
the CIT(A).
Before us, Ld. Counsel for the assessee submitted that the
assessee has excess funds which were invested in the shares which
yielded dividend income and the interest claimed by the assessee is
nothing to do with the investments made by him in the exempt income
yielding investments. For examining the claim of the assessee as well
as applying the correct law on this issue, Ld. Counsel desires that the
matter should be restored to the file of the AO.
On hearing both the parties and also in tune with our finding on
an identical issue raised in Ground No.3 of the appeal adjudicated by
us in the case of M/s.Bafna Builders and Land Developers, we are of
6 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna
the opinion that this should also re-visit to the file of the AO with
identical directions. Accordingly, Ground No.2 raised by the assessee
is allowed for statistical purposes.
Ground No.3 relates to the addition of Rs.63,75,000/- made
u/s.69B of the Act. Background facts of this issue include that
Chhoriya Group was searched u/s.132 of the Act. Search resulted in
seizure of a document involving Shri Ratanlal C. Bafna for the A.Y.
2009-10. According to the said document, the assessee purchased
Shirdi plots amounting to Rs.1,13,75,000/-. However, on verification
of the records, it was noticed that an amount of Rs.50 lakhs only was
reflected in the books of the assessee. Considering the fact there was
settlement of loan between Chhoriya group and Shri Ratanlal C. Bafna.
The differential amount of Rs.63,75,000/- was added in her hands and
her husband hands u/s.69B of the Act. In this regard, assessee
furnished the following arguments/objections to the decision of the
lower authorities :
“1. The transaction was a distress sale entered into by the appellant after the search and seizure action on the said group. 2. Mr. Ratanlal C. Bafna in his case has challenged the addition. 3. The addition has been made on presumptions and surmises without giving an opportunity to the appellant to cross examine the author of the document from Chhoriya group. 4. There is no evidence with the department that the appellant has paid the amount to her husband. 5. Once the amount is added in the hands of the husband of the appellant the same amount cannot be added in the hands of the appellant as then it would be a case of double addition.”
Further, Ld. AR submitted before us, making addition of the
same amount in the cases of the assessee as well as her husband, is
unsustainable in law. Further, referring to the violation of principles of
natural justice, Ld. AR submitted that the said seized paper was never
7 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna
supplied to the assessee and the opportunity was also not granted by
the AO before any addition is made. Furnishing a copy to her husband
during the course of his assessment proceedings does not cure the
legal defect. It is the prayer of the Ld. Counsel before us that this issue
should also revisit to the file of the AO for proper adjudication following the principles of natural justice.
On hearing both the parties, where the Ld. DR for the Revenue
relied heavily on the orders of the AO and the CIT(A), we find prima-
facie, mistake in taxing the same amount both in the assessee’s case
and her husband’s case. Further, supplying the copy of the document
to the assessee is her legitimate right before any addition is made in
her hands relying on the said document. Therefore, AO is directed to
supply the same and also cross examination if any before making any
addition in her case and in the remand proceedings. Accordingly, as
requested, the issue is restored to the file of the AO for fresh
adjudication. AO is directed to grant reasonable opportunity of being
to the assessee in accordance with law. Accordingly, Ground No.3
raised by the assessee is allowed for statistical purposes.
Ground No.4 by the assessee relates to the addition of
Rs.1,67,54,510/-. Background facts of this issue includes that
assessee is a co-owner of a property which was given to M/s. Bafna
Builders and Land Developers. As per the AO, Assessee has 1/5th
share in the said property along with other 4 members. Value of the
property as per the stamp duty purposes is around Rs.13.38 crores
(rounded off). However, as per records, her share of sale consideration
of the property is around Rs.1 crore in equal proportion. This property
was referred to the valuation during the remand proceedings. However,
there was delay in receipt of the said DVO’s report by the AO and the
8 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna
assessment was completed considering the assessee’s share of
consideration at Rs.2,67,54,510/- out of Rs.13.38 crores. After
reducing the accounted portion of Rs.1 crore, the AO proceeded to
make addition of the balance amount of Rs.1,67,54,510/- u/s.50C of
the Act (Rs.2,67,54,510 – Rs.1,00,00,000/-).
During the First Appellate proceedings, the CIT(A) received the
said valuation report of the DVO and found the DVO’s value is much
less than the said figure of Rs.13.38 crores. Considering the objections
raised by the assessee before the CIT(A), the matter was once again
referred to the DVO. As per the valuation submitted by the DVO, the
property value was conclusively determined at Rs.6,72,51,553/-
against the Sub Registrar’s price of Rs.13.38 crores. Ld.CIT(A)
considered the DVO’s final report which reiterated the figure of
Rs.6,72,51,553/- and, as per the discussion given in Para No.7.2.2 of
his order, the CIT(A) deleted the entire addition made by the AO in the
assessment. The said para is relevant and the relevant lines are
extracted as under :
“7.2.2. . . . . . . . .In view of the legal position and decisions of the various courts, AO was not justified in taking the value ascertained by stamp duty valuation officer as FMV of the property. AO was required to adopt the DVO’s valuation as FMV. However, since it was not available at the time of finalization of the assessment proceedings on 21-12-2011, AO should have taken the necessary remedial action post assessment order. The AO seems to be under a mistaken belief that the DVO’s valuation is not binding on the AO. In my considered opinion this view is totally in disregard to the provisions of sec.50C that the AO has supplied in the case of the appellant. In view of the above addition of Rs.1,67,54,510/- is not legally sustainable and hence deleted, I find that on similar facts in the case of Shri Rahul Bafna, the matter has been decided in favour of the appellant vide me appeal order No.Nsk/CIT(A)- II/390/11/12, dt.31-12-2012.”
Subsequently, the CIT(A) amended his order and conclusions are
given in Para 7.2.2 of his order. CIT(A) invoked the provisions of section
154 of the Act and rectified his order vide his order dated 13-01-2015
restricting the addition to Rs.34,50,311/- only against the original
9 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna
addition of Rs.1,67,54,510/- (supra). In this order, the CIT(A)
considered the DVO’s figure of Rs.6,72,51,553/- and distributed the
same among the 5 co-owners of the property and determined the share
of each co-owner at Rs.1,34,50,311/-, after giving credit to the
accounted consideration of Rs.1 crore, the balance to be taxed u/s.50C
of the Act, is determined at Rs.34,50,311/- (Rs.6,72,51,553/5 =
Rs.134,50,311/- - Rs.1,34,50,311 – Rs. 1 Crore = Rs.34,50,311/-)
Aggrieved with the said addition of Rs.34,50,311/- after
rectification as well as aggrieved with the original addition of
Rs.1,67,54,510/-, in toto, the assessee has raised the said Ground
No.4 as well as 3 other grounds vide ITA No.447/PUN/2015 (relating to
proceedings u/s.154 of the Act.
In this appeal assessee raised the objections against rectification
done by the CIT(A) and demanded cancellation of the same. However,
during the assessment proceedings before us, Ld. Counsel for the
assessee fairly submitted that these issues gets covered by the
adjudication of the Tribunal if any in the present appeal vide Ground
Nos. 4 to 6 raised in the main appeal of the assessee. Accordingly, the
said appeal No.447/PUN/2015 is dismissed.
We shall deal with all these grounds in a composite manner in
the next paragraph along with cross appeals.
In this regard, relating to addition u/s.50C of the Act r.w.s. 154
of the Act, Ld. Counsel for the assessee filed the following written
submissions :
“1. Though the development agreement was registered on 02-04-2008, in fact the possession of the property was given on 01-08-2007. Refer page Nos. 46 & 47 of paper book filed. During the course of assessment proceedings the appellant filed a reply dt. 20-12-2011 as to why the impugned addition be not made and the said reply has been reproduced by the learned AO. in his impugned
10 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna
assessment order. But the learned AO mechanically made the addition. However both the lower authorities have held that the value of the property as on 02-04-2008 had to be considered for making addition u/s.50C of the I.T. Act, 1961 and accordingly the addition has been made. 2. The plans were submitted to Nashik Municipal Corporation on 28-12-2007.
All the works regarding development of lands were immediately started after 01-08-2007.
The stamp duty of Rs.3,94,500.00 was paid on 28-12-2007. But the document could not be executed due to some difficulties.
The document was finally executed on 02-04-2008 when additional stamp duty of Rs.9,37,300.00 was paid as the stamp duty valuation rates shot up. The DVO has also taken note of this fact in his report.
The Hon.Andhra Pradesh High Court at Hyderabad in ITA No.501 of 2013 in the case of CIT vs Shri S.Venkat Reddy has held that transfer is complete under IT. Act 1961, as soon as the possession of the property is given and the registration of the document is a mere formality and has held that market value as on the date of possession is to be taken [Copy of decision along with decision of Hon. ITAT filed herewith] Therefore the value of the properties on 1-08-2007 be considered.
The appellant submits that there is a calculation mistake committed by the learned C.I.T.[A] while directing in his order passed u/s 154 of the IT. Act to take 1/5 value of the property i.e. 1/5 of Rs.6,72,51,553.00 which includes Rs.1,07,41,941.00 being the valuation of separate properties of Mr.Rahul Bafna Thus the valuation of the property held jointly by the appellant with three others works out to Rs.5,65,09,612.00 and the valuation of 1/4 share of the appellant works out to Rs.1,41,27,403.00. Therefore if at all any addition is to be made it would be of Rs.41,27,403.00.
Further, bringing our attention to various additional grounds (No.
1 & 2) raised before us, Ld. Counsel for the assessee submitted that
these grounds also have nexus to Ground No.4 discussed above. While
additional Ground No.1 deals with applicability of provisions of section
45(3) of the Act qua the section 50C of the Act, the additional Ground
No.2 deals with the nature of the property if the same constitutes stock
in trade, in which case the provisions of section 50C has no application
in the relevant assessment year.
Before us, Ld. Counsel for the assessee argued that provisions of
section 45(3) of the Act overrides the provisions of section 50C of the
Act and they are not mutually exclusive. Fairly mentioning that whole
11 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna
of these issues needs to revisit to the file of the AO for comprehensive
adjudication of the various aspects of the issues raised in grounds as
well as in the additional grounds, Ld. Counsel submitted that
provisions of section 50C of the Act have no application to this
property, which has become the stock-in-trade of the firm to the extent
the partner transferred her share of property in which assessee is a
partner. Further, Ld. AR also identified certain bonafide mistakes
occurred in the rectification order passed by the CIT(A) u/s.154 of the
Act and submitted that addition, if any, should be restricted to only
Rs.43,27,403/- and not Rs.34,50,311/-. In this regard, Ld. AR
brought our attention to the written submission in Item No.7 extracted
in Para 21 above.
Per Contra, Ld. DR for the Revenue relied heavily on the orders of
the AO and the CIT(A) and submitted that lower authorities have
rightly applied the provisions of section 50C of the Act as the asset
transferred by the partner does not constitute stock in trade in the
hands of the assessee or the firm. Referring to the arguments of the
Ld. Counsel for the assessee that the provisions of section 45(3) of the
Act overrides the provisions of section 50C of the Act, Ld. DR relied on
the decision of the Lucknow Bench of the Tribunal in the case of
Carlton Hotel Pvt. Ltd. Vs. ACIT in order dated 14-11-2008.
On hearing both the sides, we find the issues raised in Ground
No.4/Additional Ground Nos. 4, 5 & 6 requires fresh consideration and
comprehensive adjudication by the lower authorities. We find the
DVO’s report was not available when the assessment was originally
finalized vide AOs’ order dated 21-12-2011. AO relied heavily on the
Sub Registrar Office price of the property rather than the Fair Market
Value as determined by the DVO. CIT(A) deleted the entire penalty on
12 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna
technical grounds as per the discussion given in Para 7.2.2 of his
order. However, he rectified his order and adopted an expert’s figure of
Rs.6,72,51,553/-. The said amount was divided equally among the 5
co-owners before confirming the amount of Rs.34,50,311/- in the
assessee’s hands. Assessee’s counsel has not only questioned his
computation and the division of property qua Mr.Rahul Bafna another
co-owner of the other properties. It is the counsel’s argument that the
fair market value of Rs.6,72,51,533/- is required to be adjusted to
arrive at a figure of Rs.5,65,09,612/- after excluding the figure of
Rs.1,07,41,941/- (the value of the property sold by Mr. Rahul Bafna).
AO needs to verify these calculations and the ownership of the
properties. In that case adjusted figure of Rs.5,65,09,612/- is required
to be adjusted among 4 co-owners only. In that case, assessee’ share
comes to Rs.1,41,27,403/-. After giving credit to the accounted sum of
Rs.1 crore in the books of account, the balance required to be added is
Rs.43,27,403/- and not the lesser amount of Rs.34,50,311/-, as
adopted by the CIT(A) in his order. To that extent of Rs. 6,77,092/-,
(Rs.41,27,403 – Rs.34,50,311), there is loss to the Revenue. Further,
we find the decision of the Andhra Pradesh High Court in the case of
CIT Vs. S. Venkat Reddy vide ITA No.501/2013 was not considered
which is relevant for the proposition that date of possession of property
prevails over the date of registration of property for the purpose of
determination of the market value. As per the Ld. Counsel for the
assessee, the date for determining the value of the property required to
be considered is 01-08-2007. Considering the large number of issues
and the arguments raised by the Ld. Counsel for the assessee, we are
of the view that there is a need for bringing out the facts relating to the
ownership of the property, requirement of exclusion of
Rs.1,07,41,941/- of Mr. Rahul Bafna, the date of registration of
13 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna
property vs. the date of possession of the property qua the applicability
of judgment of Hon’ble Andhra Pradesh High Court (supra), whether
the property transferred by the partner to the firm constitutes stock in
trade or otherwise etc.
On hearing both the parties on this issue, in the remand
proceedings, we direct the AO to examine all the above referred aspects
of the issue and decide the requirement of making addition in the
hands of the assessee u/s.50C of the Act. AO shall grant reasonable
opportunity of being heard to the assessee in connection with the set
principles of natural justice. Accordingly, Ground No. 4 and the
additional grounds raised in his chart (Ground Nos. 5 and 6) are
admitted and allowed for statistical purposes.
Ground 3 raised by the assessee at issue No.7 of his chart was
not pressed. Accordingly, the said ground is dismissed as ‘not
pressed’.
Additional ground No.4 raised at issue No.8 of his chart deals
with direction given by the CIT(A) to the AO to take follow up action, if
any, in accordance with the provisions of section 28(iv) of the Act.
CIT(A) noticed that the assessee purchased commercial property from
her firm at the rate of sale price/sq.ft., which is lesser than the market
rate. According to CIT(A), the difference in the said rate constitutes a
taxable benefit u/s.28(iv) of the Act. Therefore, the CIT(A) gave the said
direction to the AO.
In this regard, relevant facts are that the assessee purchased
commercial property/shops from M/s. Bafna Builders and Land
Developers, the firm in which the assessee is a partner. This issue was
discussed at length in connection with Ground No.1 of the Revenue’s
14 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna
appeal for the A.Y. 2009-10 vide ITA No.902/PUN/2013. It is the
allegation of the Revenue that the firm conferred benefit to the extent of
Rs.2,44,62,169/-. AO invoked the provisions of section 28(iv) of the
Act on the firm. CIT(A), in the case of the firm, deleted the addition
holding that there is sustainable reasons for the firm for selling the
property at lower sale price to Ms. Taradevi Ratanlal Bafna, the present
assessee. Some of the reasons include the payment of advance of Rs.5
crores to the firm by Ms. Taradevi Ratanlal Bafna well before the
commencement of the construction apart from many other reasons. In
any case, the provisions of section 28(iv) of the Act applies on the
recipients benefitted and not the firm-giver. Accordingly, the CIT(A)
deleted the addition and the Revenue was in appeal on this relief. This
issue was dealt by the Tribunal in Para Nos. 20 to 24 of the said
Tribunal’s order in the case of the M/s. Bafna Builders and Land
Developers (supra). The Tribunal confirmed the said decision of the
CIT(A) holding that
“24…… Therefore, the provisions of section 28(iv) is not relevant to this issue. The said provisions are relevant, when the benefit is accrued to the assessee and not in a case like the present one where the assessee is a seller and the discount is allowed to the partner of the firm. Accordingly, we are of the view that the decision of CIT(A) is plausible view taken by him and it does not require any interference. Accordingly, ground No.1 and 2 raised by the Revenue are dismissed.”
Therefore, the issue of applicability of section 28(iv) of the Act is
required to be analysed at length in the case of the present assessee,
the beneficiary of the benefit.
Before us, Ld. Counsel for the assessee submitted that the
provisions of section 28(iv) are not applicable to the assessee who
happened to purchase part of the constructed area which constituted
stock in trade. He also made various arguments in support of the said
claim. In the chart submitted by Ld. Counsel for the assessee he
15 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna
submitted that the said purchase transacstion constitutes the
transaction of withdrawal of the stock in trade at cost price and the
same outside the scope and ambit of provisions of section 28(iv) of the
Act.
Per Contra, Ld. DR filed the written submissions which read as
under :
“4. In our case, the AO has taxed it under section 28(iv) i.e. perquisite or benefit accrued to assessee in exercise of doing business. Here, the assessee got shops at concessional rate as she is a 60% partner of the firm. So it is clearly a benefit as per section 28(iv). The AO has spelt out in the detail the benefit accrued to assessee by comparing the sale of shops to other unrelated parties.
During the course of hearing, the Ld. AR also took the plea that assessee had given Rs 5 crores as advance to the firm. However, it was not clear for what purpose the advance was given. As it is clear from the books of accounts of assessee, there are many layers of transactions between the assessee and the firm. For want of clarity, the advance of Rs. 5 crores to firm cannot be linked with the transaction of shops at concessional price. Benefit accrued to the assessee stands undisputed.”
We heard both the sides on the issue of applicability of section
28(iv) of the Act. We find this issue requires remanding to the file of AO
for fresh consideration both on facts as well as the law. AO is directed
to pass a speaking order on the issue if the benefits are actually flown
to the assessee. If the answer is ‘Yes’, they fall within the scope of
section 28(iv) of the Act. AO shall also adjudicate each and every
argument raised before him on this issue by the counsel by passing a
speaking order accepting or rejecting the arguments of the assessee.
Further, on the issue of giving direction by the CIT(A), we find the
requirement of going into the background facts of the said direction.
For this, we perused the relevant text of the direction from the order of
the CIT(A). On perusal of the same, we find the said direction is
absolutely superfluous and unwarranted as mentioned in Para
16 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna
No.6.5.5 at page 44 of the order of CIT(A) and the relevant lines
containing the direction is extracted here asunder :
“6.5.5 . . . . . . . . . . . The AO is however directed to take the follow up action if any, in this regard in the year when sale deed is registered in favour of Smt. Taradevi Bafna.”
The above direction of the CIT(A) has a background and the same
is evident in the preceding lines of the said Para No.6.5.5. We
discussed the relevant facts in the preceding paragraphs of this order.
We have also considered the written submissions filed by the Ld.
Counsel for the assessee vide letter dated 13-11-2017 (Para No.4). To
brief the same, this is a case where the assessee purchased commercial
premises for a lesser consideration qua the fair market value of the
same. Originally, the AO taxed the differential cost u/s.28(iv) of the Act
in the hands of the firm who sold the commercial premises to the
assessee. The assessee has 60% shareholder in the said firm by name
M/s. Bafna Builders and Land Developers. It is the finding of the
CIT(A) that the assessee got the benefit to the tune of Rs.2,44,62,169/-.
It is the finding of the Tribunal as well as the CIT(A) that the said
amount is not taxable in the hands of the firm.
In the background of these facts, the CIT(A) have given the above
direction, which in our view is consequential comment of the CIT(A)
Even if the said direction is absent in the said paragraph, the
authorities below would anyway initiate the consequential proceedings.
From that point of view, we are of the view that the direction given by
the CIT(A) does not warrant any amendment. Therefore, the argument
of the assessee’s counsel extracted above in this regard are relevant
when consequential effect if any, is to be given in the course of the
proceedings before the AO. Therefore, we are of the opinion that the
impugned direction per se is consequential. Therefore, the Additional
17 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna
Ground No.4 of the appeal raised by the assessee is admitted and
dismissed.
In the result, ITA No.447/PUN/2015 filed by the assessee is
dismissed and ITA No.732/PUN/2013 filed by the assessee is partly
allowed for statistical purposes.
ITA No.904/PUN/2013 A.Y. 2009 - 10
Grounds raised by the Revenue are as under :
“1. On the facts and circumstances of the case and in law, the Ld.CIT(A)-II, Nashik erred in granting the relief of Rs.7,87,262/- as against addition made of Rs.10,87,262/- on account of vehicle expenses and deleted the addition of Rs.1,00,000/- on account of shop expenses. These additions is made by Assessing Officer after taking into consideration the factual position. 2. On the facts and circumstances of the case, the Ld.CIT(A)-II, Nashik erred in deleting the addition made by AO on account of boxes of Rs.15,00,000/-. The additions is made by Assessing Officer after taking into consideration that boxes/bag have clear cut nexus with sales. 3. On the facts and circumstances of the case, the Ld.CIT(A)-II, Nashik erred in deleting the addition made by AO on account of Kavi Samelan expenses of Rs.2,15,675/-. The additions is made by Assessing Officer after taking into consideration that organization of such function is a personal pride and to show the status in society and not for business purpose. 4. On the facts and circumstances of the case, the Ld.CIT(A)-II, Nashik erred in deleting addition on account of business profit u/s.28(iv) of Rs.2,44,62,169/-. The additions is made by Assessing Officer after taking consideration that firm has sold two shops to its partner for the price less than market price. 5. On the facts and circumstances of the case, the Ld.CIT(A)-II, Nashik erred in deleting addition of Rs.2,55,550/- made by the AO u/s.40A(2)(b). The additions is made by Assessing Officer for increase in salary & bonus as compared to last year. 6. On the facts and circumstances of the case the Ld.CIT(A)-II, Nashik erred in granting the relief of Rs.10,41,440/- on account of disallowance u/s.14A r.w.r 8D. The additions is made by Assessing Officer after considering the diverted borrowed funds and given interest free advances. 7. On the facts and circumstances of the case the Ld.CIT(A)-II, Nashik erred in deleting of Rs.1,67,54,510/- made by AO u/s.50C of Act. The additions is made by Assessing Officer after taking out the base of Stamp duty valuation in view of provisions of section 50C of the I.T. Act, 1961.”
18 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna
Ground No.1 raised by the revenue relates to granting relief of
Rs.7,87,262/- against addition of Rs.10,87,262/- on account of vehicle
expenses. This ground raises the issue on deletion of addition of Rs.1
lakh shop expenses.
Relevant facts are discussed in Para 5 of the assessment order.
Assessee owns 11 cars. 6 cars out of them are shown as fixed assets in
the year under consideration. Considering absence of maintenance of
log books of each vehicle and also considering the fact that the vehicles
are held in the name of Smt. Taradevi Bafna, the AO rejected the claim
of the assessee. AO commented by stating that these luxury vehicles
are utilized by the assessee and the family members for purposes more
than the business use. In the absence of details, the AO held as under:
“5. . . . . . The cost of vehicles and variety of vehicles shown by the assessee clearly shows that these are luxury vehicles and therefore its use by the assessee and by her family members are more than the business use. However, in absence of details for business and personal purposes, the actual use cannot be worked out vehicle wise. Therefore, considering the totality of facts and circumstances of the case, I disallow 50% of expenses including Driver’s salary and depreciation for personal use and allow 50% for business use.”
AO worked out 50% disallowance at Rs.9,95,788/-. Further, AO
also disallowed another amount of Rs.91,474/- debited to the profit
and loss account.
CIT(A) granted relief to the tune of Rs.7,87,262/- as per the
discussion given in Para Para No.6.2.2 of his order holding that the
disallowance is on the higher side. Relevant discussion is extracted
here as under :
“6.2.2 . . . . . AO has made 50% disallowance of Rs.19,91,576/- claimed by the appellant on vehicle expenses, Drivers’ salary and depreciation. In my considered view 50% disallowance is on a very higher side. The same is restricted to Rs.3,00,000/- roughly 15% of the total expenses.”
19 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna
Considering the above reasoning given by the CIT(A), we are of
the view that the order of the CIT(A) is fair and reasonable and it does
not call for any interference. Accordingly, relevant part of Ground No.1
by the Revenue is dismissed.
So far as the disallowance of Rs.1 lakh on account of shop
expenses, we find the CIT(A) vide discussion given in Para No.6.2.2 held
as under:
“6.2.2. . . . . .As regards disallowances on account of personal use and shop expenses, there is no dispute that tea/coffee/cold drinks are frequently served to the customers in a jewellery show room. I don’t think that the appellant would claim bogus expenses on tea/coffee/cold drinks. I therefore, delete the addition of Rs.1 lac made by the AO in this regard.”
Therefore, the finding given by the CIT(A) deleting the addition of
Rs.1 lakh made by the AO is fair and reasonable and does not call for
any interference. Accordingly, this part of Ground No.1 by the Revenue
is also dismissed.
Ground No.2 raised by the Revenue relates to the addition of
Rs.15 lakhs on account of boxes, i.e. the packing material. Relevant
discussion is given in Para Nos. 6.3 and 6.3.1 of the CIT(A)’s order.
Assessee debited the said expenses on account of consumption of
boxes, i.e. packing material given to the customers on extra sales of
gold items in Jalgaon Branch. Assessee made claim of expenses on
account of purchase of packing material amounting to Rs.21,75,879/-
and Rs.5,88,189/- for Aurangabad and Jalgaon Branches respectively
on this account of packing material. AO disallowed Rs.15 lakhs out of
the same on adhoc basis-cum-estimations. On these facts, CIT(A) held
that exercise of disallowance is purely out of surmises and doubt. The
addition made by the AO does not have any corroborative evidence.
Relevant lines from the order of CIT(A) is extracted here asunder :
20 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna
“6.3.1. . . . . . .Carry bags are given liberally for publicity and I am of the considered view that the appellant with this social and economic standing will not indulge in inflating the expenses through bogus boxes account. Unless some corroborative evidence is brought on record showing that the appellant has made bogus payment on account of any expense claimed by her in the P&L a/c, no addition, simply on assumption or theoretical/classroom exercise, can be made. Any addition merely on the basis of theoretical exercise will not stand to the test of the legal scrutiny. In view of the above, I am of the considered opinion that the addition of Rs.15 lac made by the AO without any corroborative evidence is not justified. The same is deleted.”
From the above, it is a fact that AO could neither bring any
corroborative evidence that the assessee has made bogus payments nor
prove the expenses to be untrue. Therefore, we uphold the decision of
the CIT(A) on this issue.
Ground No.3 raised by the revenue relates to the disallowance of
Rs.2,15,673/- on account of Kavi Sammelan Expenses. Relevant facts
include that the AO disallowed the said claim of expenses holding the
same as non business expenditure. Assessee holds that the
expenditure incurred on Hasya Kavi Sammelan constitutes an
advertisement for her business. Considering the fact that the assessee
failed to establish the nexus, the AO disallowed the said expenditure,
In the First Appellate proceedings, the CIT(A) appreciated the
assessee’s claim that the same constitutes advertisement expenditure.
Further, he elaborated the fact that the said functions are held to be
payment and not in the residential premises of the assessee and
therefore advertisement value of the said expenditure was appreciated
and the addition was deleted by the CIT(A). Relevant lines from the
order of CIT(A) are extracted here asunder :
“6.4.1. . . . .The fact however, remains that the function was organized basically for the purpose of advertisement of her business. It was a public function and not something which was confined to four wall of her residence. In view of the above, I am of the considered opinion that the expenditure on Hasya Kavi Sammelan was in the nature of business expenditure and AO was not justified in disallowing the same. The addition of Rs.2,15,675/- is deleted.”
21 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna
The above view of the CIT(A) is one plausible view. Therefore the
order of CIT(A) holding the expenses as income expenses and
consequently deleting the expenses incurred by the assessee on Haysa
Kavi Sammelan does not warrant any interference from our side.
Accordingly, Ground No.3 raised by the Revenue is dismissed.
Ground No.4 by the Revenue relates to relief granted by the
CIT(A) in connection with the arguments revolving around the
applicability of provisions of section 28(iv) qua addition of
Rs.2,44,62,169/-. This amount constitutes taxable as a benefit in the
hands of the assessee. This issue was dealt while dealing with Ground
No.4 and the related Additional Ground No.4 of the appeal of the
assessee. Accordingly, Ground No.4 raised by the Revenue is also
remanded to the file of AO for fresh adjudication as per the direction
given by us in the said appeal of the assessee. Accordingly, Ground
No.4 raised by the revenue is allowed for statistical purposes.
Ground No.5 relates to the deletion of addition of Rs.2,55,550/-
u/s.40A(2)(b) of the Act. This amount was claimed as payment of
salary and bonus to the employees. The same constitutes an extra
amount paid in this year qua the last year’s claim.
On hearing both the sides, we find the AO is duty bound to prove
the salary and bonus paid to the employees as unreasonable. CIT(A)
has rightly held that the addition made the AO is only on estimate
basis and without discharging the onus. In this view of the matter, the
decision of the CIT(A) needs to be approved and in favour of the
assessee. Accordingly Ground No.5 raised by the revenue is dismissed.
22 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna
Ground No.6 by the Revenue relates to relief of Rs.10,44,440/-
on account of disallowance u/s.14A r.w. Rule 8D of the Act. This
ground is connected to Ground No.2 of the assessee’s appeal in ITA
No.732/PUN/2013. We have remanded this issue to the file of AO for
fresh adjudication. Consequently, this issue being common in law
should also be re-examined by the AO after considering the assessee’s
claim as well as settled legal propositions on the issue that the
disallowance is uncalled for when assessee has excess interest free
funds. AO is directed to apply relevant binding judgments on the issue
after granting reasonable opportunity of being heard to the assessee.
Accordingly, Ground No.6 raised by the revenue is allowed for
statistical purposes.
Ground No.7 by the revenue pertains to deletion of addition of
Rs.1,67,54,510/- involving the provisions of section 50C of the Act.
Infact, this issue shares with the facts relating to Ground No.4 of the
assessee’s appeal and also the issues raised by the assessee in the
appeal ITA No.447/PUN/2015 in connection with the rectification order
passed u/s.154 of the Act.
As per the discussion given in Para Nos.21 to 26 of this order
above, we are of the opinion that this ground by the revenue should
also be remanded to the file of AO with identical directions given in
Para No.26 and others. Accordingly, Ground No.7 by the revenue is
allowed for statistical purposes.
In the result, appeal of the revenue is partly allowed for statistical
purposes.
23 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna
To sum up, ITA No.447/PUN/2015 filed by the assessee is
dismissed and the cross appeals filed by the assessee and the revenue
are partly allowed for statistical purposes.
Order pronounced in the open court on this 09th day of January,
2018.
Sd/- Sd/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) �याियक �याियक सद�य �याियक �याियक सद�य सद�य /JUDICIAL MEMBER सद�य लेखा लेखा लेखा सद�य लेखा सद�य सद�य / ACCOUNTANT MEMBER सद�य पुणे Pune; �दनांक Dated : 09th January, 2018. सतीश आदेश आदेश क� �ितिलिप अ�ेिषत आदेश आदेश क� �ितिलिप अ�ेिषत क� �ितिलिप अ�ेिषत/Copy of the Order forwarded to : क� �ितिलिप अ�ेिषत
अपीलाथ� / The Appellant 2. ��यथ� / The Respondent The CIT(A)-2, Nashik 3. 4. CIT-2, Nashik िवभागीय %ितिनिध, आयकर अपीलीय अिधकरण, “A Bench” 5. Pune; गाड� फाईल / Guard file. 6. आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER,स आदेशानुसार
स�यािपत �ित //True Copy// Senior Private Secretary //True Copy// आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune