ITO, OOTY vs. DRUMELLA ASSOCIATES, COONOOR

This appeal of the Revenue is directed against the order of the Commissioner of Income Tax (Appeals) – 3, Coimbatore, dated 27.10.2015 and pertains to assessment year 2012-13.

Shri A.V. Sreekanth, the Ld. Departmental Representative, submitted that the Assessing Officer made an addition of `3,46,05,000/- under Section 40A(2)(a) of the Income-tax Act, 1961 (in short 'the Act'). According to the Ld. D.R., the Assessing Officer found that additional contribution was made towards capital by some of the partners by bringing landed properties. The land was valued at `9.050 Crores. In fact, the land contributed in the form capital asset by the partners was 23.070 acres during the year under consideration. The average value of land per acre comes to `1.40 Crores. The assessee valued the land at `1.25 Crores per acre. The Assessing Officer found that the guideline value of the land was only `3.5 lakhs to `6 lakhs per acre. The Assessing Officer found that the expenditure incurred by the assessee in respect of the capital contribution by the partners are unreasonable and highly excessive. Therefore, according to the Ld. D.R., the Assessing Officer found that the excess value was `0.15 Crores per acre and the total excess value for 23.070 acres was `3,46,05,000/- and the same was added as excess payment under Section 40A(2)(a) of the Act.

On the contrary, Shri G. Sarangan, the Ld. Sr. counsel, submitted that some of the partners contributed to the capital of the partnership firm by way of landed properties. For the purpose of capital account, the value of the land was taken at `1.40 Crores per acre. According to the Ld. Sr. counsel, The assessee also submitted a valuation report from a Registered Valuer, who valued the property at `1.25 Crores per acre. The Assessing Officer, after taking the guideline value from Sub-Registrar, found that there was excess valuation. In other words, the Assessing Officer found that the difference between the valuation taken by the assessee-firm and the value assessed by the Registered Valuer as excess payment to the partners. In fact, according to the Ld. Sr. counsel, no payment was made. Section 40A(2) of the Act would come into operation in case there was a payment by the firm to any of the interested person. In this case, no such payment was made. Since no payment was made, according to the Ld. Sr. counsel, provisions of Section 40A(2) is not applicable at all. The Ld. Sr. counsel has also placed reliance on the decision of this Bench of the Tribunal in ITO v. Gurensey Estates in dated 17.06.2016 and submitted that on an identical set of facts, this Tribunal found that the difference in valuation of fair market value cannot be considered for disallowance under Section 40A(2)(a) of the Act.

We have considered the rival submissions on either side and perused the relevant material available on record. Admittedly, some of the partners contributed to the capital of the assessee-firm. The assessee-firm valued the land at `1.40 Crores per acre. The Registered Valuer appears to have valued the property at `1.25 Crores per acre. The guideline value of the property at relevant point of time appears to be `3.5 lakhs to `6 lakhs. The Assessing Officer by taking into consideration of the difference between the value of the land as estimated by the assessee-firm and as estimated by the Registered Valuer, found that there was excess expenditure of `0.15 Crores. This Tribunal is of the considered opinion that admittedly what was contributed by the partners is land to the capital account. The land was valued at `1.40 Crores per acre and no payment was made. The Assessing Officer simply taking the difference between the valuation made by the assessee- firm and the Registered Valuer, found that there was excess payment. It is not the case of the excess payment. It is a case of difference in valuation. When there was difference in valuation, this Tribunal is of the considered opinion that the provisions of Section 40A(2)(a) of the Act is not applicable at all. A similar view was taken by co-ordinate Bench of this Tribunal in Gurensey Estates (supra). In view of this, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.

In the result, the appeal filed by the Revenue is dismissed.