D.C.I.T, CIR-8, KOLKATA, KOLKATA vs. M/S RAAGINI SAREES PVT. LTD., KOLKATA

This appeal by revenue and cross objection by assessee are arising out of order of CIT(A)-VIII, Kolkata vide Appeal No. 15/CIT(A)-VIII/Kol/10-11 dated 26.03.2013. Assessment was framed by DCIT, Circle-8, Kolkata u/s. 144 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for Assessment Year 2007-08 vide his order dated Nil.

The first issue in this appeal of revenue is against the order of CIT(A) deleting the addition made by AO on rental income.

Briefly stated facts relating to this issue are that the AO during the course of assessment proceedings noticed that the assessee has a flat situated at Basanta Bose Road from which no rental income was disclosed. According to AO, the assessee should have disclosed rental income under the deeming provision of section 23 of the Act and accordingly, he estimated the rent at Rs.3,60,000/- from this flat. Similarly, the assessee owns property at Raichak. According to AO, it was vacant and unutilized. Accordingly, he invoked the provision of C.O. No. 116/Kol/2013 Raagini Sarees Pvt. Ltd. AY 2007-08 section 23 of the Act for this property also and assessed deemed rent at Rs. 6 lacs. Aggrieved, assessee preferred appeal before CIT(A) and claimed that these two properties are utilized by assessee for the purpose of business. It was contended by the assessee that these two properties are used for storing of sarees and also used for carrying out embroidery and modification work done by staff. This fact was referred to AO by CIT(A) for remand report. But the AO in the remand report stated that no register is maintained for movement of goods and accordingly, he reiterated position as in the assessment order. But the CIT(A) considering the facts and circumstances of the case deleted the notional house rental income by observing as under: “I have gone through the submission of thed appellant, the observation of the AO in the assessment order & remand report, the counter comments of the appellant and perused the facts of the case. In my opinion the status of the petitioner is Private Limited Company and it has engaged in the business of trading of sarees to the retail customers as well as whole sellers which is evidenced as such on the basis of argument made and documentary evidences produced before me. Hence, the claim of the appellant that the properties in question used for business purpose and as guest house cannot be brushed aside unless contrary evidences are brought on record to show that the properties were lying vacant or not used for the purpose of business. Nothing has been brought on record by the AO in this regard. Therefore, the addition of Rs.2,52,000.00 and 4,20,000.00 made by way of notional House Rent Income in respect of the flat/property situated at Basanta Bose Road/Raichak is therefore deleted as the basis of such income was a presumption and has no locus standi.” Aggrieved, revenue preferred appeal before Tribunal.

We have heard rival submissions and gone through facts and circumstances of the case. We find that the assessee is engaged in the business of trading of sarees to the retail customers as well as wholesale. It is also doing embroidery work and modification work on sarees for which it requires places. The assessee used these premises for its own business purposes, which was not considered by the AO properly. Even during remand proceeding, AO has not verified the premises and just reiterated what was the finding in the assessment order. We find that the flat was used by assessee for storing of sarees as a store house and Raichak property was used by the company for carrying out embroidery and modification work by its own staff and also for company’s customers and visitors who were coming from outstation for business purposes. We find that the CIT(A) on this basis deleted the addition. Now before us, Ld. CIT, DR could not controvert the finding of CIT(A) and hence, this issue is confirmed. This issue of revenue’s appeal is dismissed.

The next issue in this appeal of revenue is against the order of CIT(A) deleting the disallowance of bad debt written off.

We find that now before us Ld. Sr. DR could not controvert the findings of CIT(A) and even the AO in his remand report has not pointed out any factual discrepancy as submitted in written submissions. We find that the CIT(A) has given categorical finding that the assessee has taken legal step for recovery of the dues but could not recover due to change of circumstances of business place and thus directed the bad debts to be allowed. We find no infirmity in the order of CIT(A) and the same is hereby confirmed. This issue of revenue’s appeal is dismissed.

The next issue in this appeal of revenue is against the order of CIT(A) deleting the addition made by AO on account of short term capital gains. 9. We have heard rival submissions and gone through facts and circumstances of the case. We find that the AO made addition of short term capital gain of Rs. 20 lacs for the reason that the assessee did not give any detail of the property. Aggrieved, assessee preferred appeal before CIT(A), who based on remand report of the AO observed that the property transaction was on the basis of family settlement and it is not a sale. The CIT(A) deleted the addition by observing as under: “I have carefully gone through the materials brought on record and submission of the appellant, perused the facts of the case. I have also considered the observation of the AO in the assessment order and in the remand report. I am of the view that since on the basis of registered sale deeds and on the basis of money receipt in respect of sale consideration money of Rs. 53,57,000/- paid by the C.O. No. 116/Kol/2013 Raagini Sarees Pvt. Ltd. AY 2007-08 purchasers on transfer, the short term capital gain of Rs. 40,03,439/- has been worked out as per the computation made & furnished by the AR of the appellant, the same appears to be in order. The Computation of Short Term Capital Gain as furnished is as follows (U/S 50/50A) :- Consideration received on sale of shop and other assets of Victoria Plaza Rs.53,57,000.00 Less: Written down value as on 01.04.2006 under I.T. Act, 1961 Rs.13,53,561.00 Short Term Capital Gain Rs.40,03,439.00 I also agree with the contention of the A/R that as per the provisions of Section 50/50A of Income Tax Act in the case of sale of Depreciable Assets, the consideration money received by the appellant should be reduced by the written down value as appeared on 0l.04.2006 under Income Tax Act,196l. Since, undisputedly it is the Short Term Capital Gain that is to be worked out from the sale value received for tax purpose, in my opinion, the market valuation of said depreciable assets will not be of any use to derive at the net income (short term capital gain) on such transfer as the full value of the sale consideration received and shown by the appellant on the basis of the value mentioned in the Registered Deeds. Moreover, it is seen that in the assessment order the arbitrary enhancement of Rs.20,00,000/- made in the sale value consideration by the AO without bringing any material evidences on record to show that the sale consideration on such transfer received by the appellant was mare than what has been mentioned in the Registered Deeds and hence such an enhancement/addition without any basis cannot be sustained. Therefore, the addition of Rs.20,00,000/- in the assessment order passed U/S 144 dt. 30.10.2009 is held to be made on assumption and without any basis and thus has no practical importance and mere reiteration of the same logic behind the enhancement of sale consideration by the AO in the remand report dt. 04.01.2013 is also found to be immaterial and meaningless at this point as the appellant has produced supporting documents in the form of copies of Registered Sale Deeds to justify/explain the exact amount of receipt of full sale value consideration of the property transferred and also explained the mode of receipt of such sum. Under this circumstances and considering the totality of the facts, the impugned addition of Rs. 20,00,000/- made on assumption and estimation by the AO in respect of sale value consideration is hereby directed to be deleted and thus, the appellant gets a relief of Rs. 20,00,000/- under the head of computation of 'Short Term Capital Gain'.”

Cross Objection of assessee is supportive in nature and hence, the same is dismissed.

In the result, appeal of revenue is dismissed and the Cross Objection of assessee is also dismissed. Order pronounced in the open court on 29.04.2016 Sd/- Sd/- (M. Balaganesh) (Mahavir Singh) Accountant Member Judicial Member Dated : 29th April, 2016 Jd. (Sr. P.S.)