ITO, OOTY vs. GURUENSEY ESTATES, THE NILGIRIS

आदेश /O R D E R

PER N.R.S. GANESAN, JUDICIAL MEMBER:

This appeal of the Revenue is directed against the order of

the Commissioner of Income Tax (Appeals) – 3, Coimbatore, dated

15.12.2015 and pertains to assessment year 2012-13.

submitted that one of the partners of the assessee-firm brought in

2 I.T.A. No.719/Mds/16

three acres of agricultural land as stock-in-trade. In fact, the partner brought the land at the cost of `2 Crores per acre. The Assessing Officer estimated the value of the land at `1.70 Crores per acre and

found that the assessee had incurred an expenditure of `30 lakhs

per acre. Accordingly, for three acres of land, the excess expenditure incurred by the assessee-firm was `90,00,000/-. This

was disallowed by the Assessing Officer under Section 40A(2)(a) of the Income-tax Act, 1961 (in short 'the Act'). The Ld. D.R. pointed

out that when the assessee made the payment to one of the partners, the payment made over and above the market rate has to be construed as in violation of Section 40A(2)(a) of the Act.

Therefore, according to the Ld. D.R., the Assessing Officer has rightly found that `90,00,000/- was paid over and above the fair

market value of the land, hence, the same was disallowed under Section 40A(2)(a) of the Act.

assessee, submitted that the assessee-firm has not incurred any expenditure at all for the purpose of disallowance under Section 40A(2)(a) of the Act. According to the Ld. Sr. counsel, The

partnership firm was, in fact, constituted on 10.12.1999. One of the

3 I.T.A. No.719/Mds/16

partners M/s Coonoor Investments Ltd. brought in common stock of

the firm to the extent of 3.50 acres of land as its share capital. The

firm was reconstituted on 10.12.2003. One of the partners M/s Sua

Finance and Investments Ltd. contributed 3.50 acres of land

towards capital of the firm. The Ld. Sr. counsel further submitted

that the total area of the land brought into the firm as capital was 7

acres of land and opening stock of the land as on the beginning of

the financial year, i.e. 01.04.2011 was 3.93 acres of land and the same was valued at `1,57,27,098/-. During the year under

consideration, M/s Sua Finance and Investments Ltd. has brought in

3 acres of land as additional capital contribution which was valued at `6 Crores. In other words, the 3 acres of land brought in as

additional capital contribution was valued at `2 Crores per acre.

The value of the land brought in by M/s Sua Finance and

Investments Ltd. was credited in the partner’s account. According

to the Ld. Sr. counsel, the assessee has not claimed any

expenditure at all in the computation of income. The value of the

land brought in by one of the partners was credited in the partner’s

capital account.

4 I.T.A. No.719/Mds/16

of the assessee submitted that this Section may be applicable when

the assessee incurs an expenditure in respect of which the payment

has been or is to be made to any person. In this case, no payment

was made at any point of time. The assessee was also not required

to make any payment towards the cost of the land. What was

brought in by the partner is the capital contribution to assessee-firm

for carrying out the business. Therefore, according to the Ld. Sr.

counsel, the provisions of Section 40A(2)(a) of the Act is not

applicable at all. Moreover, the payment is not with regard to value

of goods, services or facilities. In this case, the landed property

cannot be construed as goods, service or facility. Therefore,

according to the Ld. Sr. counsel, the provisions of Section 40A(2)(a)

of the Act is not applicable at all.

perused the relevant material available on record. The assessee-

firm was, in fact, originally constituted on 10.12.1999 and it was

reconstituted on 10.12.2003. During the year under consideration,

one of the partners, namely, M/s Sua Finance and Investments

Limited brought in 3 acres of land as additional capital contribution.

5 I.T.A. No.719/Mds/16

A supplementary partnership deed was also executed on

20.10.2011. The additional capital contribution by way of 3 acres of

land brought in by M/s Sua Finance and Investments Limited was valued at `2 Crores per acre and the same was credited in the

partner’s capital account. Therefore, it is obvious that what was

brought into the firm was land by way of capital contribution by one

of the partners and there is no expenditure incurred by the

assessee. It is a capital for the purpose of carrying on the business

of partnership firm. Therefore, as rightly submitted by the Ld. Sr.

counsel of the assessee, the provisions of Section 40A(2)(a) of the

Act may not be applicable in respect of the capital brought in by one

of the partners.

valued the same at `1.70 Crores. The difference between the

valuation made by the assessee/ partners and the Assessing Officer is `30 lakhs per acre. This Tribunal is of the considered opinion that

when the fair market value of a land was estimated, no valuer could

estimate the fair market value at a particular figure. The valuation is

always bound to differ between one individual to another. This

6 I.T.A. No.719/Mds/16

Tribunal is of the considered opinion that when the Assessing Officer valued the land at `1.70 Crores per acre and the assessee has valued the same at `2 Crores per acre, the difference is only `30 lakhs. This difference in valuation of fair market value cannot be considered for disallowance under Section 40A(2)(a) of the Act. This Tribunal is of the considered opinion that it is nobody’s case that the assessee has paid any money for taking the landed property in the books of account of the assessee-firm. In fact, it was brought in by one of the partners and the same was credited in the books of the assessee as additional capital contribution by the partner. Therefore, the provisions of Section 40A(2)(a) of the Act may not be applicable to the facts of the case. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.

7 I.T.A. No.719/Mds/16

आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त (अपील)/CIT(A)-3, Coimbatore 4. Principal CIT-2, Coimbatore 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF.