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Income Tax Appellate Tribunal, DELHI BENCHES : F : NEW DELHI
Before: SHRI N.K. SAINI, AM & SMT. BEENA A. PILLAI, JM
ORDER PER BEENA A. PILLAI, JM: The present appeal arises from the order passed by the CIT(A)- XVII, New Delhi on 14.12.2012 in relation to the assessment year 2007-08, on the following grounds of appeal:-
“1. That the Ld. CIT (A) has erred in law while confirming the addition made by Ld AO of Rs. 43,75,000/- applying provisions of Section 50C of the Income Tax Act, 1961, even though being convinced that Section 50C is not applicable on the land or building or both, forming part of the stock in trade, and as such the addition of Rs. 43,75,000/- is bad in law and may please be deleted.
2. That the Ld CIT (A) has erred in law while confirming the addition made by the Ld AO of share application money received to the extent Rs. 93,50,000/-, without taking into consideration the facts and evidences brought on record, and therefore the addition so confirmed by the Ld CIT (A) of Rs. 93,50,000/- is bad in law and may please be deleted.
3. That the Ld. CIT(A) has erred in law while sustaining the disallowance of Rs. 2,23,692/- made by the Ld AO, being excessive interest paid on unsecured loans to related parties above the presumptive rate of 12%, without considering the business exigency involved and as such the addition of Rs. 2,23,692/- is bad in law and may please be deleted.
4. That the Ld. CIT(A) has erred in law while sustaining the disallowance made by Ld AO of travelling expenses of Rs. 2,61,103/- made @ 40%, up to the 20% on account of personal element involved, ignoring the fact that assessee had duly complied with the provisions of Fringe Benefit Tax and paid due FBT thereon, and as such the addition sustained to the extent of 20% is bad in law and may please be deleted.
5. That we crave to add, alter, delete, modify or withdraw any of the above grounds at the time of hearing.
The facts in brief are that the assessee filed its return of income for the relevant year on 29.10.2007 declaring nil income.
The return was processed u/s 143 (1) of the Act and later on was selected for scrutiny. The ld. AO, during the course of assessment proceedings, observed that the assessee is in the business of construction during the year under consideration. The assessee had shown sale of Rs.82,95,000/-, declaring a loss of Rs.8,16,461/- as compared to the sales in the previous year. The AO also observed that the assessee has received share application money to an extent of Rs.93,50,000/- from certain parties from whom the relevant details/evidences in respect of the share applicants were not filed.
Further, the ld. AO observed that the assessee had paid an interest of Rs.2,23,692/- on loans taken from certain parties at 12%. The ld. AO also observed that the assessee has debited an amount of Rs.2,61,103/- on account of travelling expenses. Various details were called for in respect of the above issues and the assessment was completed by the AO by making the following additions:-
(i) Excess consideration of properties Rs.43,75,000/- (land) u/s 50C(1) of the IT Act.
Unverified Share Application (ii) Rs.93,50,000/- Money/Share Premium. (iii) Excess Interest paid Rs.2,23,692/- (iv) Disallowance of 40% of Travelling Rs.1,04,441/- Expenses
Aggrieved by the order of the ld.AO, the assessee preferred an appeal before ld.CIT(A). The ld.CIT(A) confirmed all the additions, except the disallowance of travelling expenses, which was reduced to 20% by the ld.CIT(A) on the ground that the assessee has paid FBT on the same. Aggrieved by the order of the ld.CIT(A), the assessee is in appeal before us now. Ground No.1
The ld. AR argued that the assessee has sold properties amounting to Rs.82,95,000/- to nine persons. Copy of the sale deeds were submitted before the ld.CIT(A) and the submissions made by the assessee have been reproduced by the ld.CIT(A) in his order from pages 3 to 8. It has been submitted that the buyers have paid stamp duty on the amounts exceeding the sale consideration received by the assessee. The ld. AR submitted that the buyers had booked the plot with the assessee in the earlier years. As per the policy of the company, the property had to be sold at the agreed rate and the amount had to be same as per the booking price. The ld. AR submitted that the buyers had been paying total consideration in installments and had got the properties registered in the subsequent years when the entire money was paid by them.
The ld. AR further submitted that by the time the document was registered and stamp duty was paid, the circle rate of the property had been enhanced by the Government for the purposes of stamp duty. The ld. AR submitted that there is a difference in the stamp duty because the property was booked when the circle rate was lower and the property was registered with the Registrar of Stamps when the circle rate went high. The difference was likely to arise as the prices went up in this year in which the documents were registered.
The ld. AR further submitted that these plots were held by the assessee as stock-in-trade of the business. The ld. AR further submitted that section 50C(1) is applicable on capita asset not held as stock-in-trade. For the sake of convenience, the provision of section 50C(1) of the Act is reproduced hereunder:- 5
“Section 50C(1) – Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government (hereafter in this section referred to as the ‘stamp valuation authority’) for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer.” 4.1 On the contrary, the ld. DR supported the order of the authorities below.
4.2 We have perused the provisions of section 50C(1). It is very clear from the section itself that the provisions of section 50C(1) is attracted only in a case of a capital asset and not in the case where the asset is held as stock-in-trade. From the facts in the present case, and the paper book filed, it is very clear that all the properties sold by the assessee during the relevant year under consideration formed part of stock. Therefore, we are of the considered opinion that the provisions of section 50C are not applicable to the present facts of the case. In view of the above discussions, Ground No.1 of the assessee stands allowed.
Ground No.2
The ld AR submitted that during the year under consideration, the assessee company received a total share application money/premium amounting to Rs.1,70,50,000/- from nine parties.
The assessee during the assessment proceedings had filed details of share application money and statement of share capital before the AO. The ld. AR also submitted that the assessee had submitted PANs with addresses thereon, copy of the income-tax return, bank statements and affidavits, confirming the receipt of the share application money from all the parties before the ld. AO.
It appears from the order of the ld.CIT(A) that the AO had issued summons u/s 133(6) of the Income-tax Act to confirm the genuineness of the share application money received by the assessee. In response to the same, the ld. AO had received the necessary details from six parties. In respect of Shri Charanjeet Kaur, Shri Manjeet Singh Sandhu and Smt. Suneet Sandhu the ld. AO did not receive any response. However, it was informed by the father of Shri Manjeet Singh Sandhu that all the three persons have left India and have not come back till date. He also filed details like bank statements, which shown the credit worthiness of all the three parties and genuineness of the payments made by them to the assessee.
At this juncture, the ld. AR submits that this issue can be sent back to the ld. AO for verification from the bank in respect of the monies held by the parties.
The ld. DR does not object the submissions made by the ld. AR. We accordingly set aside this issue to the file of the ld. AO for verification of the details to be filed by the assessee.
Accordingly, this ground of the assessee stands statistically allowed.
Ground No.3
This ground is directed by the assessee against an addition of Rs.2,23,692/- on account of excessive interest paid by the assessee.
The ld. AR submitted that the assessee had debited an amount of Rs.36,74,969/- on account of interest paid on unsecured loans from various parties/persons. The ld. AR submitted that the assessee had filed details like confirmations obtained from the receipt of interest u/s 133(6) of the Act with the details of the parties to whom the interest has been paid at 15%. The ld. AR submitted that the rate of interest paid to the parties by the assessee is apparently at a higher rate, particularly, because the unsecured loans have been obtained under commercial expediency.
The ld. AO held the interest paid by the assessee to these parties to be excessive and has restricted the interest at 12% and has, accordingly, made the disallowance.
The ld. AR submitted that the assessee has obtained loan due to business exigency which every prudent businessman does and raised interest bearing loan at higher rate of interest for the purposes of business. The ld. AR submitted that it is the circumstance which required the assessee to obtain the loan at a higher rate of interest. The ld. AR has relied upon the decision of CIT vs. Rockman Cycle Industries Pvt. Ltd., reported in (2011) 15 Taxmann.com 306 (P&H) (FB).
On the contrary, the ld. DR supported the findings of the authorities below.
We find force in the submissions made by the ld. AR. It is not the case of the Revenue that the assessee has not paid the interest at the said rate to the lender. It is also not the case that the borrowed funds have not been utilized by the assessee for the purposes of business. If a wrong or unwise decision has been taken by the assessee, it cannot be said that the decision is dubious or the assessee in such transaction has adopted method to evade the payment of tax. It is also not the case of the Revenue that the assessee has paid any dividend from such borrowed funds. In the instant case, there is no such evidence that has been brought on record by the ld. AO of any such method or practice adopted by the assessee.
We are, therefore, inclined to allow this ground of appeal.
Ground No.4.
This ground is directed against the ad hoc disallowance at 20% of Rs.1,04,441/-, which has been claimed as travelling expenses by the assessee. The ld. AR submitted that during the assessment proceedings, the ld. AO had made an ad hoc disallowance of 40% on the travelling expenses which was restricted by the ld.CIT(A) to 20%. It has been submitted by the ld. AR that the assessee has paid fringe benefit tax @ 5% on such expenses and, therefore, no further disallowance is warranted.
The ld. DR supports the order of the Assessing Officer.
In the present case it is noticed that neither the Assessing Officer nor the ld. CIT(A) has given any cogent reason while confirming/sustaining the disallowance out of travelling expenses.
On the contrary the assessee paid the fringe benefit tax and incurring of expenses is not in dispute.
In the result, the appeal filed by the assessee stands partly allowed for statistical purposes.
The order pronounced in the open court on 19.02.2016.