Income Tax Appellate Tribunal - Delhi
Nipun Builders & Developers P. Ltd.,, ... vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH 'E' NEW DELHI)
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER
AND
SHRI T.S. KAPOOR, ACCOUNTANT MEMBER
I.T.A. No.3867/Del/2011
Assessment year : 2008-09
ACIT, M/s Nipun Builders & Developers
Circle-13 (1), Pvt. Ltd. 501-Niupun Tower, Plot No.15,
New Delhi. V. Commercial Complex Karkardooma,
Delhi.
(Appellant) (Respondent)
PAN /GIR/No.AABCN-7240-B
Appellant by : Mrs. A.S. Awasthi, Sr. DR.
Respondent by : Shri Satish Agarwal, C.A.
ORDER
PER TS KAPOOR, AM:
This is an appeal filed by the revenue against the order of Ld CIT(A) dated 31.3.2011. The grounds raised by the revenue are as under:-
1. That on the facts and circumstances of the case and in law the Ld CIT(A) erred in allowing the appeal of the assessee on the issue of addition of `.1,08,79,000/- made by the Assessing Officer on account of sale consideration of properties.
2. That on the facts and circumstances of the case and in law the Ld CIT(A) erred in deleting the addition of `.52,54,314/- made by the Assessing Officer on account of unaccounted/differences in inventory and thereby allowing the appeal of the assessee on the issue of difference in properties/stock sold.
3. That on the facts and circumstances of the case and in law the Ld CIT(A) erred in allowing the appeal of the assessee on the issue of disallowance
2 ITA No3867/Del/2011 of `.15,84,783/- made by the Assessing Officer on account of interest expenses.
2. The brief facts of the case are that the assessee is a builder and developer. The return of income was filed at a net loss of `.20,18,990/-. The case of the assessee was selected for scrutiny under CASS system. During assessment proceedings, the Assessing Officer observed that assessee had shown sales consideration of `.54,94,000/- in the P&L Account and from the perusal of agreements for sale of properties, he observed that the value of sale consideration declared by the assessee and value adopted for stamp duty purposes was different and therefore vide order sheet entry dated 10.12.2010 the assessee was show caused as to why circle rate be not adopted as the sale consideration along the lines of section 50C of the Income Tax Act, 1961. The assessee in its reply dated 16.12.2010 submitted that provisions of section 50C were not applicable to the assessee as the sales related to stock in trade and was not capital asset. The Assessing Officer held that application of provisions of section 50C were never intended and the only purpose for pposing the query was as to why sale has been made at much lesser prices than the value for stamps duty purposes. Therefore, the Assessing Officer on the basis of need and intention of introducing circle rates held as under:-
"Market value in relation to any property which is the subject matter of the instrument means the price which such property would have fetched if sold in the open market on the date of execution of such instrument or document or the consideration stated in the instrument whichever is higher. However, for payment of stamp duty market value is the value as worked out as per ready reckoner (as per circle rate relevant at the timer of execution of agreement).
As is evident from the details reproduced (supra) the whole purpose of valuation of property for stamp duty purposes is to gauge the proper market value of the property as on the date of sale of the same. Thus it
3 ITA No3867/Del/2011 becomes a reliable yard stick in to determine the fair market value of the property.
In the light of the above discussion, the sale consideration of the properties has been considered at `.1,64,18,000/- and hence the difference of `.1,08,79,00/- is being added to the income of the assessee."
3. Further The Assessing Officer observed that there was a difference between the areas of various properties sold as per sale deeds and as per opening and closing stock and such differences in various properties has been mentioned at page 6 of the assessment order. Therefore, on the basis of such differences he made a further addition of `.52,54,314/-.
4. The Assessing Officer further observed that during the year the assessee had claimed an interest expenditure of `.16,75,411/- and in this respect vide order sheet entry dated 6.12.2010 the assessee was show cause as to why the interest be not capitalized as the assessee had not carried out any construction activity of any project during the year. The assessee vide its letter replied as under:-
"During the year under assessment, the assessee company has capitalized interest of `.1,25,14,759/- (`.1,19,29,759/- paid to Vijaya Bank and `.5,85,000/- paid on unsecured loans) as the loan amount was directly used for purchase of property No.520/1-I.). purchased in the financial year 2006-07 and this property was still under construction during the year under consideration. No part of this property was sold during the year." The assessee company has also debited interest of `.16,75,411/- in P&L A/c as per following details:-
1. Vijaya Bank `.57,295/- amount used for running the present business.
4 ITA No3867/Del/2011
2. ICICI Bank `. 90,658/- paid on car loan,
3. HDFC Banbk `. 7938/- amount used for running of the business.
4. On unsecured Loans. `.15,19,250/- loan taken to run the business.
Thus in view of the above assessee company has itself capitalized `.1,25,14,759/- and debited only `.16,75, 411/- to P&L A/c. The interest capitalized was for the period prior to the project being ready for sale and was considered as part of the cost of the project. The above treatment is in consonance with guidelines laid down for distinction between capital revenue and revenue expenditure."
5. The Assessing Officer, however, did not accept the submission of assessee and made the addition of `.15,84,483/- being interest paid on unsecured loans by holding as under:-
"The submission of the assessee has been examined and can not be accepted because from the perusal of the P&L A/c it can be seen that during the year the assessee has incurred total expenditure of `.25,45,318/- excluding interest expenses for the running of the business . Out of the above an amount of `.4,54,498/- is towards depreciation which is non cash expenditure, an amount of `.63,056/- has been debited towards preliminary expenditure written off which is also non cash expenditure. Further an amount of `.26,100/- has been incurred towards donation therefore, the actual amount spent on day to day affairs or running the business is only `.20,01,664/-. The other expenditure debited to the P&L A/c are purchase of plot/expenses (`.4,62,78,338/-), building material (`.89,70,273/-), labour charges (`.11,47,59/-) and other development (`.1,31,29,092/-) which have been capitalized as work in progress by the assessee vide the details submitted for closing stock (letter dated 10.12.2010). Therefore, the 5 ITA No3867/Del/2011 assessee has practically utilized only `.20,01,664/- towards the running of the business of the company during the year under reference., The company has a surplus balance of `.18,16,318/- at the beginning of the year therefore the company had the funds available out of its own funds to carry on the business of the company. The assessee cannot also take the refuge of increase in unsecured loans which have gone up from `.,8,04,00,878/- to `.9,58,20,808/- i.e. by `.1,54,19,930/- but were not used by the assessee in its day to day business as evident from the fact that they were used for expenditure incurred on work in progress more so because the assessee already had a surplus of `.18,16,318/- and the total cash expenditure was only of `.20,01,664/-.
In the light of the above, the interest expenses of `.15,84,483/- paid on secured and unsecured loans purportedly for running the business are disallowed as they should have been capitalized . Accordingly, the same is added to the income of the assessee."
6. Dissatisfied with the order, the assessee filed appeal before Ld CIT(A) and submitted various submissions with respect to provisions of section 50C and in view of various case laws relied upon by him and argued that the provisions of section 50C were applicable only for capital asset. With respect to second addition of `.52,54,314/- it was submitted that assessee in reply to Assessing Officer's query had submitted complete details of opening and closing stock of inventory and due to a clerical over-sight incorrectly referred to floor-wise area as a saleable area of opening stock of various projects. It was further submitted that weight adjusted area mentioned was for allocation of cost of land to various floors of a particular project and which method of allocation had been consistently followed by the assessee. A reconciliation statement stating that there is no difference in land area was also filed before Ld CIT(A). With regard to third addition of `.15,84,483/- the Ld AR submitted that interest expenditure was incurred bona fide for meeting the business needs of the appellant company and company had already commenced its business and 6 ITA No3867/Del/2011 therefore the disallowance of interest by the Assessing Officer was unjustified. The Ld CIT(A) on the basis of various submissions and after going through the relevant material deleted the additions made by the Assessing Officer by holding as under:-
"I have considered the various submissions of the Ld AR of the appellant and the discussion in the assessment order. Section 50C is a deeming provision as per which:-
(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 Govt. (hereinafter 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."
Thus a plain reading of section 50C would reveal that it is applicable to the transfer of capital asset(and not in respect of properties held as business assets or stock in trade) for the purpose of computation of capital gains u/s 48. It is not a doubt that the properties transferred by the appellant during the year in respect of which the addition u/s 50C have been made by the Assessing Officer were its stock in trade and not capital assets. Therefore, in view of the provisions of sec. 50C as reproduced above and also taking into consideration judgments of Hon'ble Courts relied upon by the appellant I am of the view that when there is no ambiguity in the language of sec. 50C which is a deeming provision, it cannot be stretched to apply to cases of sale of business assets as has been done by the Assessing Officer. Even the judgment rendered by the Hon'ble Lucknow Bench of ITAT relied upon by the 7 ITA No3867/Del/2011 Assessing Officer cannot be applied to the facts of the appellant's case because in that particular case the assets transferred were capital assets, on sale of which capital gains had been declared whereas in the case of the appellant the properties transferred were it stock in trade. In the absence of any material brought on record by the Assessing Officer that the actual sales consideration received by it for the properties was more than that declared. The addition of `.1,08,79,000/- made to the income of the appellant on this account is accordingly deleted. This ground of appeal is allowed."
Xxxxxxxxxxx Xxxxxxxxxxx I have considered the submissions of the Ld AR of the appellant company and the facts of the case. The appellant had furnished reconciliation statement at the assessment and appellate stage as per which the difference in the areas of properties which were Part of stock in trade arose on account of the fact that the appellant has used weight adjusted factors for properties at different floors (100% for ground floor 60% each for basement, 1st and 2nd floors, 42% for 3rd floor etc.) for the purpose of allocation of land cost and consequent valuation of the properties by applying the rate per sq. ft. The appellant also stated that this method of valuation had been followed by it in the earlier years also on which no adverse view had been taken by that department. I am in agreement with the appellant that once a particular method of valuation of opening and closing stock had been adopted by it year after year (i.e. assigning of weight factors to properties on floors other than the ground floor) which had been accepted by the department, no addition on this account can be made to the income of the appellant during the year under appeal. As regards the property on 6th floor in Nipun Tower, it has been submitted that the same was sold 8 ITA No3867/Del/2011 for `.2,50,000/- during the year which value is included in the sale consideration and that copy of the sale deed was furnished before the Assessing Officer as well as before me. In the light of the above, the addition of `.2,30,000/- made by the Assessing Officer on account of account of this property, stating that it was neither sold nor reflected in the closing stock also deserves to be deleted. These grounds of appeal are allowed."
7. Aggrieved the revenue is in appeal before us.
8. At the outset the Ld DR in respect of ground No.1 has submitted that Assessing Officer had not made addition u/s 50C. He had just mentioned about the provisions of section 50C and on the basis of circle rates in respect of property sold by the assessee had observed that assessee had understated the sale consideration. Therefore, the addition was made not u/s 50C but for understatement of sale. The Ld CIT(A) without going into the merits of the case deleted the addition holding that the Assessing Officer had made addition u/s 50C which was not applicable to stock-in-trade. It was further argued that during assessment proceedings, the Assessing Officer had power to ask for detail and information in respect of items of income and expenditure and assessee was under obligation to submit as to why the sales were made below circle rates and instead the assessee submitted that section 50C was not applicable and did not reply on merits and similarly, the Ld CIT(A) deleted the disallowance on this basis only without discussing the merits.
9. With respect to ground No.2, the Ld DR referred to page 6 of the assessment order and invited our attention to differences in area of properties pointed out by the Assessing Officer and in view of this he argued that addition was rightly made.
9 ITA No3867/Del/2011
10. In respect of third addition, the Ld DR relied upon the order of the assessment order.
11. The Ld AR, on the other hand, argued that section 50C was applicable only for capital assets and assessee had sold the properties as stock-in-trade. He further invited our attention to newly inserted section 43CA by which the properties sold as stock in trade has also been covered the same way as section 50C applies to capital assets. In view of this, he argued that the introduction of new section clearly brings out the fact that section 50C was applicable to capital assets only.
12. With respect to ground No.2, the Ld AR explained that the assessee had by mistake submitted the details of saleable areas which was in fact floor area. He further took us to page 49 on which property-wise area constructed and area sold starting from assessment year 2004-05 were placed and in view of this he argued that Ld CIT(A) had rightly deleted the addition.
13. As regards ground No.3, the Ld AR submitted that appellant had already capitalized interest of `.1,25,,14,759/- being interest on loans directly used for purchase of property and which was still under construction during the year and interest of `.16,75,411/- on account of interest was paid on loans used for running the business and therefore the Ld CIT(A) had rightly deleted the addition.
14. We have duly considered the rival contentions and gone through the record carefully. According to the asessee, it is engaged in the business of Real Estate Development and on sale of stock, section 50C is not applicable. The Assessing Officer has confronted the assessee for showing reasons as to why sale consideration has been shown even lower than the sale value adopted for the purpose of registration of the sale deed. It was contended by the assessee that section 50C is not applicable. The Ld. 10 ITA No3867/Del/2011 Assessing Officer has observed that he is not applying section 50C for determining the true sale value of the property. He took section 50C just as a corroborative factor for guideline purposes. It inferes from the assessment order that addition was made by implied rejection of book results. The First Appellate Authority had not gone into this aspect on merit, rather decided the issue flowing from interpretation of section 50C. He recorded that section 50C is applicable only when capital gain is to be computed u/s 48 of the Income Tax Act. We do not have any hesitation with regard to this proposition that on sale of sock-in-trade section 50C is not applicable, but the real controversy is why assessee has shown the sales of stock at such a lower price. After analyzing the assessment order and the record , we are of the considered opinion that Assessing Officer ought to have examine this issue more minutely, rather simply making the addition of the difference between the sale consideration shown by the assessee vis-à-vis the value adopted for the purpose of registration. Therefore we set aside this issue to the file of Assessing Officer for fresh examination and readjudication.
15. As regards ground No.2, regarding difference in areas of various properties, we find that assessee had tried to explain the differences by giving break up of areas sold in various years as placed in paper book page 49 but it is not clear as to whether the areas mentioned in earlier year were actually declared in the P&L A/c of earlier years. Therefore, this ground of appeal is also remitted back to the office of Assessing Officer for re-adjudication who after going through the complete records of earlier years will arrive at the conclusion as to whether there was a real difference or not.
16. As regards ground No.3, we are of the opinion that the interest on loans was paid for business purposes and the Assessing Officer was not justified in 11 ITA No3867/Del/2011 making the addition and we do not find any infirmity in the order of Ld CIT(A) on this ground.
17. In view of the above, ground No.1 & 2 is allowed for statistical purposes whereas ground No.3 is dismissed.
18. In the result, the appeal filed by the revenue is partly allowed for statistical purposes.
19. Order pronounced in the open court on 28th day of June, 2013.
Sd/- Sd/- (RAJPAL YADAV) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER Dt. 28th .6.2013. HMS Copy forwarded to:- 1. The appellant 2. The respondent 3. The CIT 4. The CIT (A)-, New Delhi.
5. The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi. True copy.
By Order (ITAT, New Delhi).
Date of hearing 2.5.2013
Date of Dictation 26.6.2013
Date of Typing 27.6.2013
Date of order signed by
both the Members &
pronouncement.
12 ITA No3867/Del/2011
Date of order uploaded on net
& sent to the Bench concerned.