ITO,WARD-9(1), KOLKATA, KOLKATA vs. M/S MID LAND PROJECTS LTD., KOLKATA

SHRI M.BALAGANESH, AM

This appeal of the revenue arises out of the order of the Learned CIT(A), VIII, Kolkata in Appeal No. 111/CIT(A)-VIII/Kol/10-11 dated 16-02-2012 against the order of assessment framed for the Asst Year 2008-09 u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the ‘Act’).

2.1. The brief facts of this issue is that the assessee is a company carrying on business, inter alia, as developers of land and building. The assessee also earns income from letting out its immovable properties which is incidental to the business of development of land and building. During the year under appeal, the assessee earned

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rental income, dividend income, interest income, profit from partnership firm and capital gains on sale of flat. The assessee stated that there were two office units : Unit No. 407A measuring about 284 Sq.ft and the adjoining Unit No. 407B measuring about 850 Sq.ft – both aggregating to 1134 Sq.ft and that the entire Unit No. 407 was sold during the year under appeal. It was also pleaded that Unit No. 407A was held as Capital Asset and Unit No. 407B was held as Stock in Trade in the books right since the beginning. The Hon’ble Calcutta High Court approved the order of amalgamation of various companies with the assessee company with effect from 1.4.2000. Accordingly, the assessee herein became amalgamated company and the other transferor companies became amalgamating company. One such transferor company is M/s Nice View Properties Private Limited whose assets got vested with the assessee due to amalgamation. The Pursuant to the amalgamation, the assessee carried over all the assets lying in the balance sheet of M/s Nice View Properties Private Limited in its books of accounts as on 1.4.2000 at book values. In the Audited Balance Sheet of M/s Nice View Properties Private Limited as on 31.3.2000, the following assets were reflected:- ( in Rs.) Office premises at WDV 8,56,122.60 Cash in hand and at Bank 1,149.46 Income Tax deducted at source 5,00,676.00

Loans, Advances and Deposits

Loans including interest 4,55,453.00 Security deposit against rent 3,00,000.00 Closing stock of commercial flats 10,48,320.00 -------------------- 18,03,773.00

Miscellaneous Expenditure to the extent not written off or Adjusted 2,394.00

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Hence from the above balance sheet of M/s Nice View Properties Private Limited as on 31.3.2000, there is an item comprising closing stock of commercial flats amounting to Rs. 10,48,320/- held as stock in trade in its balance sheet. The assessee, pursuant to amalgamation, brought forward the same as Stock in Trade in its books. This admittedly represent the value of Unit No. 407B which was subjected to sale during the asst year under appeal along with other asset. Hence the dispute before us is on the taxability of the ‘head of income’ and the ‘amount to be taxed thereon’ on sale of the said immovable properties. The Learned AO substituted the value determined by the stamp valuation authority for Unit No. 407B as full value of consideration and worked out capital gains. The assessee stated that the provisions of section 50C per se would not be applicable to Unit No. 407B as the same were held only as stock in trade and provisions of section 50C is applicable only for capital assets and not for stock in trade for the asst year under appeal. This addition was deleted by the Learned CIT(A) on first appeal. Aggrieved, the revenue is in appeal before us on the following ground:- “1. On the facts and in the circumstances of the case, the ld.CIT(A)-VIII erred in law in deleting the addition of capital gain of Rs.42,05,664/-.”

2.2. We have heard the rival submissions and perused the materials available on record including the paper book filed by the Learned AR. We find that the Learned AO failed to appreciate, despite being pointed out by reference to financial statements and Amalgamation order of Hon’ble High Court , Calcutta, that the sold out immovable properties comprised two units : Unit No. 407A measuring about 284 sq.ft held as capital asset at book value of Rs. 8,56,122.60 as on 1.4.2000 and Unit No. 407B measuring about 850 Sq.ft held as Stock in Trade at book value of Rs. 10,48,320/- as on 1.4.2000 right since the beginning. As a matter of fact, these book values were the book values of M/s Nice View Properties Private Limited as on 31.3.2000 which, on amalgamation under order of Hon’ble High Court, Calcutta, were taken over by the assessee company as on 1.4.2000. The assessee had also enclosed

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the financial statements of M/s Nice View Properties Private Limited for the financial year ended 31.3.2000 to prove the authenticity of its claims and also that of the assessee company for the financial year ended 31.3.2001. We find that since the beginning , Unit No. 407A is being held as Capital Asset and Unit No. 407B is being held as Stock in Trade by the assessee. Hence the objection raised by the Learned AR about the applicability of provisions of section 50C of the Act on asset held as stock in trade (Unit No. 407B) is appreciated and justified. We find that the Learned AO had simply disregarded the stand of the assessee by observing that a single unit (i.e Unit No. 407) cannot be divided as capital asset and stock in trade as shown by the assessee. We find that this observation is totally contrary to the order of amalgamation approved by the Hon’ble Calcutta High Court , wherein the manner of treatment of assets by M/s Nice View Properties Private Limited were simply carried over by the assessee at book values pursuant to amalgamation with effect from 1.4.2000. It is not in dispute that M/s Nice View Properties Private Limited had held 284 Sq. ft amounting to Rs. 8,56,122/- (book value) as on 31.3.2000 as Fixed Assets comprising of Unit No. 407A. The same treatment was followed by assessee in its books of accounts post amalgamation period. Hence the gains arising on transfer of the same would only result in capital gains. It is also not in dispute that M/s Nice View Properties Private Limited had held 850 Sq. ft amounting to Rs. 10,48,320/- as closing stock of commercial flats as Stock in Trade as on 31.3.2000 comprising of Unit No. 407B. The same treatment was followed by assessee in its books of accounts post amalgamation period. Hence the gains arising on transfer of the same would only result in business income. The same treatment was followed by assessee in its books of accounts post amalgamation period. It is well settled that prior to introduction of provisions of section 43CA in the Statute Book by the Finance Act 2013 w.e.f. 1.4.2014, the provisions of section 50C of the Act could not be made applicable for assets held as stock in trade. The case relied on by the Learned AR in this regard on the decision of the Hon’ble Madras High Court in the case of CIT vs Thiruvengadam Investments Pvt Ltd reported in (2010) 320 ITR 345 (Mad) is very well placed. We also find from the balance sheet of the assessee for the financial year 2007-08, that the assessee had duly reflected the value of Unit No. 407B at Rs. 10,48,320/- as stock in trade as on 1.4.2000. Hence there is no question of treating the

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same as capital asset and invoking section 50C for the purpose of computing capital gains on sale of the same.

In view of the aforesaid facts and findings, we hold that the Learned CIT(A) is right in restricting the capital gains at Rs. 3,56,354/- as against Rs. 45,62,018/- made by the Learned AO. Accordingly, the ground no. 1 raised by the revenue is dismissed.

3.1. The brief facts of this issue is that the assessee claimed that Rs. 11,44,634/- was spent for development of the property that were subjected to sale during the asst year under appeal. The Learned AO deputed his Inspector to verify the persons who performed the work. In the assessment order, the Learned AO had observed that the Inspector collected the profit and loss account and IT return details from the concerned parties except one, Anup Kr.Sukla. The Learned AO further observed from the IT returns of those parties that they had done work only for the assessee and they had not done any work before for any other persons and they had disclosed the amount received from assessee as income from other sources. The Learned AO issued summons u/s 131 of the Act to those parties and found that even the Inspector could not serve the same on the parties. Consequently the assessee was directed to produce the parties together with their bank statements for the last three years to prove that they had performed the work for the assessee. Since nobody appeared before the Learned AO, he disallowed the entire development expenses of Rs. 11,44,634/- in the assessment while computing capital gains in respect of sale of Unit No. 407 by the assessee. On first appeal, the Learned CIT(A) observed as under:-

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“ After careful consideration of the submissions of the appellant, perusing the facts of the issue and the materials on records and the impugned assessment order, I observe that the A. O. records that all the concerned parties except Anup Kumar Shukla independently confirmed having developed the properties in question but nevertheless, the A. O. disregarded their confirmation merely on the ground that during the year they worked only for the appellant and that they had shown the receipts from the appellant under the head, "Income from Other sources". On this point, I agree with the submissions of the A/R that these are irrelevant considerations for making disallowances.

As regards the case of Anup Kumar Shukla, I observe that the A.O. disallowed the expenses because Sri Anup Kumar Shukla could not be contacted when the Inspector visited his place and that no confirmation was given by said Anup Kumar Shukla in support of development works done by him for the appellant.

The A/R of the appellant submitted that non-availability of Anup Kumar Shukla at one particular point of time when the Inspector visited his place cannot be the sole ground for making disallowance because no person is always available at his place of work and secondly, it is not the case of the Inspector that there was no such person at the place. The identity of Anup Kumar Shukla cannot be questioned because the appellant had not only paid development charges to him but also deducted tax at source by quoting his PAN in the TDS certificate copy whereof was produced.

The A/R of the appellant also submitted that the inference of in- genuine expenses arrived at by the A.O. on the ground that Rs.8,40,000/- was outstanding as on 31.03.2008 is fallacious because it is normal in usual course of business.

In the face of the above discussion, I am of the view that the A. O. was not justified in disallowing development expenses of Rs.11,44,634/- Therefore, the addition of Rs.11,44,634/- made by the A. O. is deleted.”

Aggrieved, the revenue is in appeal before us on the following ground:- “2. On the facts and in the circumstances of the case, the ld. CIT(A)-VIII erred in law in deleting the addition of Bogus construction exp of Rs.11,44,634/-. “

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3.2. The Learned DR relied on the order of the Learned AO. In response to this, the Learned AR vehemently relied on the order of the Learned CIT(A).

3.3. We have heard the rival submissions and perused the materials available on record. We find that the Learned CIT(A) had given categorical finding with regard to the fact that all the parties had duly shown the development receipts received from assessee in their returns which were also subjected to TDS , wherever applicable. We find that the revenue had not brought any evidence on record to prove that the development work on the property was never carried out by the assessee through these parties. It only alleged that the parties had not done any development work in the past and had done only for the assessee during the asst year under appeal. This observation of the Learned AO had been found to be irrelevant consideration by the Learned CITA which has not been controverted by the Learned DR before us. With regard to the non-availability of Mr.Anup Kumar Shukla at the time at which Inspector visited his premises, we find that the Learned CIT(A) had observed that no person could be expected to always remain available at his place of work and secondly it is not the case of the Inspector that there was no such person at the place. This aspect also has not been controverted by the Learned DR before us.

In view of the aforesaid facts and findings, we hold that the assessee had duly bifurcated the development expenses of Rs. 11,44,634/- towards Unit No. 407A (capital asset) at Rs. 2,86,664/- which is to be granted deduction while computing capital gains and balance sum of Rs. 8,57,970/- towards Unit No. 407B (stock in trade) which is to be granted deduction while computing business income. Accordingly, the ground no. 2 raised by the revenue is dismissed.

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4.1. The brief facts of this issue is that the assessee was in receipt of monies from Smt.Gendi Devi Bindawala amounting to Rs. 1,30,000/- and Mr.Raghav Bhartia amounting to Rs. 1,10,000/-. The Learned AO observed that the assessee failed to prove the creditworthiness of these parties and genuineness of the transactions and accordingly brought them to tax as unexplained cash credit u/s 68 of the Act. On first appeal, the assessee submitted that the assessee along with its Director Sri Anurag Bindawala appeared before the Learned AO on 30.11.2010 togethe with the written submissions and documentary evidences including balance sheets of Smt.Gendi Devi Bindawala and Mr Raghav Bhartia and copies of their respective IT return acknowledgements to establish that the said amounts were earnest monies against immovable properties and not cash loans, but the Learned AO informed them that the order had already been passed and hence no further evidence would be taken. Accordingly the same documents were filed as additional evidences in terms of Rule 46A of IT Rules before the Learned CIT(A). The Learned CIT(A) without calling for the remand report from the Learned AO on this issue , proceeded to grant relief based on the additional evidences submitted by the assessee. Aggrieved, the revenue is in appeal before us on the following ground:- “3. On the facts and in the circumstances of the case, the ld. CIT(A)-VIII erred in law in deleting the addition u/s. 68 of the I.T Act 1961 to the tune of Rs.2,40,000/-.”

4.2. We have heard the rival submissions. The Learned DR prayed that the additional evidences admitted by the Learned CIT(A) were never submitted before the Learned AO and hence prayed for set aside of this issue to the file of the Learned AO, for which the Learned AR fairly agreed. Hence we deem it fit and appropriate, in the interest of justice and fairplay, to set aside this issue to the file of the Learned AO, to decide this issue afresh, in accordance with law, in the light of evidences and documents submitted by the assessee before him. Needless to mention, that the assessee be given reasonable opportunity of being heard. The assessee is directed to

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fully cooperate with the Learned AO in furnishing the necessary evidences and documents before the Learned AO for early disposal of the set aside proceedings. Accordingly, the ground no. 3 raised by the revenue is allowed for statistical purposes.

5.1. The brief facts of this issue is that the assessee claimed the following as business expenditure :- Office Rent Rs.51,240/- Travelling Expenses Rs.1,04,918/- Printing & Stationery Rs. 21,194/- Professional Tax Rs. 2,500/- Internal Audit Fees Rs. 562/- Trade Licence Rs. 900/- Medical Expenses Rs.1,22,952/- Service Charges Rs. 48,000/- Staff Welfare Rs. 2,247/- Repairs (office) Rs. 73,955/- Prof & Consult. fees Rs.46,500/- Telephone Exp. Rs.32,686/- Total: Rs.5,07,654/-

These expenses were disallowed by the Learned AO on the ground that no business was carried on by the assessee. On first appeal, the assessee admitted for disallowance of Rs. 73,955/- incurred towards repairs as the same was allowed to it under the head ‘income from house property’ at a flat rate of 30% of net annual value. The Learned CIT(A) observed that the balance expenses of Rs. 4,33,699/- ( 507654-73955) are very much incurred for the purpose of business of the assessee company and also observed that it is not the prerogative of the Learned AO to decide what is necessary business expenditure and also held that there is no specific finding given by the Learned AO as to whether the said expenditure are personal in nature or are not exclusively incurred for the purpose of business. Accordingly, the Learned CIT(A) deleted the

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disallowance of Rs. 4,33,699/-. Aggrieved, the revenue is in appeal before us on the following ground:- “4. On the facts and in the circumstances of the case, the ld.CIT(A)-VIII erred in law in deleting the addition of Rs.4,33,699 as non-business expenses.”

5.2. The Learned DR argued that the assessee has got income from house property, income from capital gains and other sources and does not have any income from business. Hence the disallowance of expenses has been rightly made by the Learned AO. In response to this, the Learned AR vehemently relied on the order of the Learned CIT(A).

5.3. We have heard the rival submissions. We find that we have held in the previous ground no.1, that the sale of Unit No. 407B which was held as stock in trade should be treated as income from business and had also given relief to the assessee in ground no. 2 with regard to grant of deduction towards development expenses against the sale consideration of stock in trade. Hence it is not in dispute that the assessee is indeed engaged in business activities. It is not in dispute that the aforementioned expenditure are not business expenditure. We hold that these expenditures are regularly incurred for the purpose of business of the assessee in its normal course. Hence we do not find any infirmity in the order of the Learned CIT(A). Accordingly, the ground no. 4 raised by the revenue is dismissed.

6.1 The brief facts of this issue is that the assessee earned dividend income of Rs. 4,639/- and did not offer any amount for disallowance u/s 14A of the Act. The Learned AO invoked Rule 8D(2)(iii) of the IT Rules and calculated the disallowance

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u/s 14A of the Act at Rs. 74,315/-. On first appeal, the Learned CITA reduced the same to Rs. 45,188/- by reducing the average value of investments in commercial flats as not eligible for disallowance under Rule 8D(2)(iii) of the Rules. Aggrieved, the revenue is in appeal before us on the following ground:- “5. On the facts and in the circumstances of the case, the ld.CIT(A)-VIII erred in law in deleting the addition u/s. 14A of Rs.29,127 as non-business expenses.”

6.2. The Learned DR vehemently relied on the order of the Learned AO. In response to this, the Learned AR vehemently relied on the order of the Learned CIT(A).

6.3 We have heard the rival submissions. We find that the invoking the provisions of Rule 8D(2)(iii) of the IT Rules, being 0.5% of average value of investments, for the purpose of making disallowance u/s 14A of the Act, is not in dispute , in the instant case. What is in dispute is only with regard to the calculation of the figure of average value of investments. We find that the total value of investments included investment in commercial flats amounting to Rs. 58,25,442/- wherein, the resultant income would definitely not fall under the ambit of exempt income. The legislature never wanted to consider the entire investments for making disallowance u/s 14A. It only contemplated expenditure incurred for earning any income which do not form part of total income. Admittedly, the income that would arise out of investment in commercial flats would only result in taxable income and therefore outside the scope of primary intention of section 14A of the Act. Hence we hold that the Learned CIT(A) had rightly reduced the same while computing 0.5% of average value of investments. We do not find any infirmity in the order of the Learned CIT(A) in this regard. Accordingly, the ground no. 5 raised by the revenue is dismissed.

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Sd/- Sd/- (N.V.Vasudevan, Judicial Member ) (M. Balaganesh, Accountant Member) Date:

Date 6-4 -2016

Copy of the order forwarded to:-

1.. The Appellant/department: The I.T.O W 9(1), P-7 Chowringhee Sq., Aaykar Bhawan, 5th Fl., Room No.14, Kol-69. The Respondent/assessee: M/s. Mid Land Projects Ltd 6 Hans Pukur 1st Lane, Kol-7. 2 3 /The CIT, 4.The CIT(A)

**PRADIP SPS

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