Income Tax Appellate Tribunal - Jaipur
Assistant Commissioner Of Income Tax vs Swami Complex (P) Ltd. And K.S. Apparels ... on 31 May, 2007
Equivalent citations: (2007)111TTJ(JP)531
ORDER
I.C. Sudhir, J.M.
1. In all these appeals, a common issue regarding addition under Section 69C (sic-69) of the Act on account of unexplained investment has been raised, hence all the appeals are being disposed of vide a consolidated order.
2. We have heard and considered the arguments advanced by the parties in view of orders of the lower authorities, material available on record and the decisions relied upon by the learned Authorised Representative.
3. The facts in brief are that during the year, the assessees had purchased plots from India Motors (P) Ltd. which, as per the AO was for the amount higher than the consideration declared in the sale deeds, as the Sub-Registrar, Property, had registered the properties on higher value and the DVO had also determined the value on higher figure.
4. The assessee, Swami Complex (P) Ltd., had purchased a plot of land admeasuring 842.22 sq. yards at a consideration of Rs. 45 lakhs on 19th May, 2000. The property was, however, registered at a value of Rs. 1,19,80,000 as per the valuation of DIG Stamps [Collector (Stamps)]. Reference was made to the DVO of estimating fair market value of the property as on date of sale as well as on 1st April, 1981 under Section 55A of the Act in the case of the seller, India Motors (P) Ltd. The total land sold by India Motors (P) Ltd. was of the area of 2,793 sq. yards and structure. Out of this land, the seller had sold plots of different areas and size to the assessees and others like Smt. Maya Moolani and Smt. Pushpa Moolani, etc. In cases of Smt. Maya Moolani and Smt. Pushpa Moolani, their plots were registered @ Rs. 20,000 per sq. yd. The buyer K.S. Apparels (P) Ltd. (one of the assessees) had also got its plot registered and on appeal, the value was determined at Rs. 11,000 per sq. yard by Board of Revenue (Rajasthan), Ajmer. Based on DVO's report, the fair market value of the land in the case of Swarni Complex (P) Ltd. was valued at Rs. 14,783 per sq. yard, which comes to Rs. 1,24,50,538 as against disclosed purchase consideration of Rs. 45 lakhs. Thus, the amount in difference worked out at Rs. 79,50,538 was added under Section 69 of the Act as undisclosed investment in the income of Swami Complex (P) Ltd. The addition was questioned by the assessee before the learned CIT(A) with the contentions that the addition has been made on the presumption that the assessee could have paid more than what has been mentioned in the registered sale deed without any basis or evidence. It was submitted that assessee was not having surplus money in his hands, as evident from books of account and the entire purchase price was paid out of borrowed money. The assessee had no other source of income and, therefore, he could not have paid any amount over and above what has been shown. The valuation of DVO was erroneous, for several reasons. Proper opportunity was not given to enable the assessee to offer its comments on DVO's report as the same was supplied to the assessee on 26th March, 2004, whereas assessment was finalized by 30th March, 2004. The valuation of DVO at Rs. 14,783 per sq. yd. was higher than the value taken by the Revenue Board at Rs. 11,000 per sq. yd. in the case of K.S. Apparels (P) Ltd. The DVO had not considered the disadvantages attached to the plot, which was of abnormal size with 46.6 feet width and 184 feet depth. The assessee to leave 4.5 feet open space on north side along with the length of 184 feet to get the plan sanctioned from municipality. It was also submitted that since the size of the plot of the assessee was odd, belting method of system should have been appropriate to apply to work out the value of the property as held by the Hon'ble Supreme Court in the case of Mathura Prasad Rajgharia v. State of West Bengal . The valuation by this method was worked out at Rs. 44,34,978. It was contended further that being a case of purchaser, Section 55A of the Act cannot be held applicable, as there is no concept of fair market value or full value for consideration in the case of a purchaser as it is in Section 45 r/w Section 55A of the Act. In the case of a purchaser, only tiling is to be seen is that if any proof or any submission is on record by which it can be said that the purchaser has paid excess amount than what has been declared in the sale deed. Section 69 of the Act will not be applicable in the case of the assessee as it is not a case of transaction not recorded because in the case of the assessee transaction has been recorded in the books of account. The AO has no power to enhance the purchase price unless he has any evidence to contradict the value shown by the assessee.
5. Similar arguments have been advanced in the cases of other assessees against the additions made on enhanced value of the properties in their hands. The material facts in cases of those assessees are as Shri Bal Mukand Parihar had purchased a piece of land admeasuring 802 sq. yards with structure thereon from India Motors (P) Ltd. for a consideration of Rs. 47 lakhs. Based on DVO's report in the case of India Motors (P) Ltd., the fair market value of the land in the case of Shri Bal Mukand Parihar was valued at Rs. 14,783 per sq. yard, which was worked out at Rs. 1,18,55,966. The amount in difference, i.e., Rs. 71,55,966 was added under Section 69 of the Act in the hands of Shri Bal Mukand Parihar as undisclosed investment. In this case also besides the other contentions, the contention about abnormal sizes of the plot was raised with the submission that it was of 50 feet width and 154 feet depth. The plot was not commercially viable. A big drainage about 20 feet wide was covering the entire length of 154 feet side of the plot. The drainage was full with dirty water and was being used for sewerage. There was no passage to go to the rear belt of the land. The assessee had to leave 7.5 feet open space on south side along with the length of 154 feet to get the plan sanctioned from municipality. As such, around 200 sq. yards of land could not be used for any construction purpose. These disadvantages were not considered by the DVO while estimating the value of the property. There was no parking place and parking had to be provided in the basement with additional expenditure. The registered valuer had valued the property at Rs. 40,57,320, whereas as per application of belting system of valuation, the value was worked out at Rs. 37,05,214.
6. Likewise, in the case of K.S. Apparels (P) Ltd., the company had purchased a piece of land admeasuring 430.50 sq. yards on 16th March, 2000 from India Motors (P) Ltd. for a consideration of Rs. 25 lakhs. The Sub-Registrar of properties valued that piece of land @ Rs.20,000 per sq. yard, which was reduced to Rs. 11,000 per sq. yard in appeal by the Revenue Board. The DVO in the case of seller valued the property at Rs. 14,783 per sq. yard and, accordingly, the value was estimated at Rs. 63,64,081. The difference of Rs. 38,64,081 was treated as undisclosed investment of the assessee under Section 69 of the Act. The Revenue Board has finally valued the property at Rs. 47,35,500, i.e., @ Rs. 11,000 per sq. yard. Similar contentions were raised against the addition before the learned CLT(A) in the case of present assessee as well. The learned CIT(A) in this case has, however, not given full relief. In the cases of other assessees, the learned CIT(A) has deleted the addition mainly on the basis that valuation for the purpose of payment of stamp duty cannot be made the basis for estimating the fair market value to verify the correctness of the consideration price declared in the sale deed. The Department has questioned first appellate orders deleting the additions in the cases of Swami Complex (P) Ltd. and Shri Bal Mukand Parihar, whereas the party is in cross-appeal in the case of K.S. Apparels (P) Ltd. In the case of K.S. Apparels (P) Ltd., the learned CIT(A) has directed to take the consideration at Rs. 47,35,500 as considered by the Revenue Board as against Rs. 25 lakhs shown by the assessee and Rs. 38,64,080 valued by the AO.
7. In support of the grounds on the issue in the appeals preferred by the Revenue, the learned Departmental Representative has placed reliance on the assessment orders, whereas relief given by the learned CIT(A) has been justified by the learned Authorised Representative.
8. The learned Authorised Representative, while reiterating the arguments advanced on behalf of the assessees before the learned CIT(A), submitted that DVO has taken average of two values, the one is of Pandit Deen Dayal Marg of Rs. 11,000 per sq. yard and another was of Kutchery Road of Rs. 20,000 per sq. yard on the basis of so-called DLC rates; the DLC rates are always more than the market value, since these are taken on the basis of the rates arrived at during the course of public auction; as per the decision of Hon'ble Supreme Court in the case of CWT v. P.N. Sikand 1977 CTR (SC) 253 : (1977) 107 FTR 922 (SC), the valuation of property should always be made after giving effect to all the disadvantages attached to it; the AO has failed to appreciate the application of belting method for estimating the valuation of odd size of plot of land, which has been recognized by the Hon'ble Supreme Court as well as by various High Courts. In this regard, the learned Authorised Representative referred page No. 733 "Acts of Gift and Wealth-tax" authored by Gulanikar (p. 13 of the written submissions) in the case of Bal Mukand Parihar. Page No. 105, i.e., relevant abstract "Theory and Practice of Valuation" authored by Roshan Namawati. Page No. 275, i.e. copy of relevant abstract from commentary of Chaturvedi and Pithisana on three taxes. The learned Authorised Representative has also placed reliance on the following decisions in this regard:
1. CIT v. Madho Properties ;
2. Mathura Prasad Rajgharia v. State of West Bengal (supra).
9. In all these appeals, the learned Authorised Representatives, besides other relevant documents, have also placed on record the copy of sale deeds showing the price in consideration on which the properties in question was agreed upon to be sold. The learned Authorised Representatives have also placed on record the layout plans of the properties to support their contentions that size of the properties was odd and due to big drainage etc., several disadvantages were attached to them. The learned Authorised Representative further submitted that the stamp value, of course, may be a factor in drawing an inference, however, can never be a sole basis to make addition under Section 69 of the Act and, in no case, stamp duty valuation can be treated to be the purchase price paid, for purpose of making addition of undisclosed income under the said provisions. Reliance has been placed on the following decisions:
1. Krishna Kumar Rawat v. Union of India ;
2. Hindustan Motors Ltd. v. Members, Appropriate Authority IT Department and Ors. ;
3. Dinesh Kumar Mittal v. ITO ;
4. Jt. CIT v. Smt. Veena Kapoor 32 Tax World 242 (Jp).
The learned Authorised Representatives have also referred the decision of Hon'ble Supreme Court in the case of K.P. Verghese v. ITO and Anr. with this submission that onus always lies upon the Revenue to establish that assessee really made payment of sale consideration more than disclosed in the document. In this regard, the decision of Hon'ble jurisdictional High Court in the case of CIT v. Raja Narendra (1995) 123 CTR (Raj) 459 : (1995) 210 ITR 250 (Raj) has also been referred. The learned Authorised Representatives submitted that recently amended law unders. 50C by the Finance Act, 2000 w.e.f. 1st April, 2003, i.e., asst. yr. 2003-04 has also made the position clear, though at a later date.
10. Considering the above submissions as well as the decisions relied upon by the learned Authorised Representatives, we are of the view that in absence of a positive evidence that the assessees had actually paid more than the consideration shown in the sale deeds for the purchase of their plots, the AO was not justified to value the properties on higher amount as per DVO's report in the case of seller and the value adopted by Sub-Registrar for the purpose of stamp duty. In this regard, we find support from the decisions of Hon'ble jurisdictional High Court in the cases of Krishna Kumar Rawat v. Union of India (supra), CIT v. Raja Narendra (supra) and the decisions of other Hon'ble High Courts besides, Hon'ble Supreme Court in the case of K.P. Verghese (supra), relied upon by the learned Authorised Representatives. The sale consideration of a property agreed upon by the parties depends upon several factors, like locality, size, availability, etc. of the properties, besides needs of the parties. It is always negotiable, hence the same cannot be equated with the general value fixed for the purpose of payment of stamp duty. The learned CIT(A) has, thus, rightly deleted the additions under Section 69C (sic-69) of the Act for undisclosed investment in the cases of Swami Complex (P) Ltd. and Shri Bal Mukand Parihar. The same are upheld. The grounds on the issue in these appeals (ITA Nos. 449 and 461/Jp/2005) are rejected. The learned CIT(A) was, however, not justified in sustaining some addition in this regard in the case of K.S. Apparels (P) Ltd. on the basis of the valuation estimated by Revenue Board, because admittedly, it was meant for the purpose of payment of stamp duty and the assessee had went in appeal before the Revenue Board against the valuation adopted by the Sub-Registrar for the purpose of payment of stamp duty which, as discussed above, undisputedly, cannot be the sole basis for valuation of the property in preference to the sale consideration declared in the sale deed. The addition sustained by the learned CIT(A) at Rs. 22,35,500 in the case of K.S. Apparels (P) Ltd. is, thus, directed to be deleted. The issue raised in the grounds of appeal preferred by the assessee in this regard is, thus, decided in favour of the assessee.
11. The Departmental appeal, i.e., ITA No. 421/Jp/2005 in the case of K.S. Apparels (P) Ltd., on the issue is, thus, rejected and the appeal preferred by K.S. Apparels (P) Ltd. vide ITA No. 471/Jp/2005 on the issue is, thus, allowed.
12. In the case Swami Complex (P) Ltd., one more issue regarding the addition under Section 68 made on account of unexplained cash credits by the AO has been raised and in the case of Shri Bal Mukand Parihar, the Revenue has also questioned the action of the learned CIT(A) in deleting the addition made on account of disallowance of interest on borrowed capital.
13. In the case of Swami Complex (P) Ltd., the Revenue has questioned first appellate order deleting the addition of Rs. 1,26,000 made under Section 68 of the Act on account of unexplained cash credit.
14. In support of this ground, the learned Departmental Representative submitted that the learned CTJ'(A) has ignored the facts and material brought on record as well as explicit proviso in this regard.
15. The learned Authorised Representatives, on the other hand, has justified the first appellate order with this submission that the AO was of the view that the creditworthiness of the squared up creditors was not proved.
16. During the year, the assessee has received cash credits of Rs. 1,26,000 from the following seven persons:
1. Shri Alpash Gandhi Rs. 19,000
2. Shri Neeraj Arya Rs. 19,000
3. Shri Hari Chandani Rs. 19,000
4. Shri Anand Ji Rs. 19,000
5. Smt. Anju Bohra Rs. 19,000
6. Shri Raj Kumar Bohra Rs. 19,000
7. Shri Sunil Kumar Bohra Rs. 12,000 ____________ Rs. 1,26,000 ____________ The assessee had submitted confirmations from all the seven persons before the AO with their complete addresses and submission that all the seven accounts were squared up during the year. The AO was of the view that the creditors could not prove the source of income and have merely confirmed the fact of deposits, therefore, their creditworthiness could not be established. The deposits were repaid in cash in major within a period of ten days. The AO further observed that the confirmations were on a simple paper. He, therefore, doubted the genuineness of the transactions and added the above cash credit amount of Rs. 1,26,000 in the income of the assessee. The addition was objected before the learned CIT(A) with the submissions that identity of the depositors were proved as the confirmation letters with complete addresses and PANs were furnished. It was submitted that there was extreme need of funds, hence these loans were arranged for a short period. The loans were purposely taken below Rs. 20,000 so as to avoid contravention of provisions of Section 269 SS of the Act. Had the loan been taken by account payee cheques, it would have taken some time in realization. The fact that repayment was made within a very short time also proves that the assessee was not in a position to afford time to get cheques cleared. It was submitted further that when the loans were taken, the assessee company had not commenced its business. Thus, there was no source of income with the assessee company. It was submitted further that in case AO had any doubt of genuineness of the credits, he could have issued notice under Section 131 of the Act to all the seven persons on the given addresses, but it was not done. It was submitted further that it is not a case of AO that the depositors were not in a position to deposit Rs. 19,000 each, as the accounts were squared up and entries may not be appearing in the books of account of the creditors.
17. Considering these material facts of the case, we are of the view that the learned CIT(A) has rightly deleted the addition of Rs. 1,26,000 made by the AO under Section 68 of the Act without bothering himself to verify the contents of confirmations by summoning the creditors whose complete addresses were furnished by the assessee before him, especially when some of the creditors were being assessed having PANs disclosed by the assessee. The first appellate order in this regard is, thus, upheld. The ground No. 1 of the appeal is rejected.
18. The appeal of the Department, i.e., ITA No. 449/Jp/2005 in the case of Swarni Complex (P) Ltd. is, thus, dismissed.
19. In the case of Shri Bal Mukand Parihar, the Revenue, vide ground No. 1 of the appeal, has questioned first appellate order deleting the addition of Rs. 2,80,340 made on account of disallowance of interest on borrowed capital.
20. In support of this ground, the learned Departmental Representative has placed reliance on the assessment order, whereas the first appellate order has been justified by the learned Authorised Representative.
21. After having gone through the orders of the lower authorities, we find that the AO disallowed Rs. 2,80,340 on account of interest claimed to have been paid on borrowed capital. During the year, the assessee had purchased a piece of land admeasuring 802 sq. yards with structure thereon from India Motors (P) Ltd. for a consideration of Rs. 47 lakhs. The assessee claimed to have paid interest of Rs. 2,80,340 on the loans raised for the purchase of the said land and claimed the expenditure as business expenditure. The AO denied the claim on the basis that the land and structure so purchased were not put to use and claim of depreciation, accordingly, was not allowed. On the same analogy, payment of interest on loans was also not considered as admissible. The disallowance was opposed before the learned CLT(A) by the assessee by pointing out the evidence in support of user of land and structure during the year for the business purpose already furnished before the AO. These evidences were photographs of the building showing the signboard of M/s India Tailors, a proprietary concern of the assessee, appearing on the front of the structure on the land purchased and confirmations from the persons, who claimed to have their shops nearby.
22. At the time of hearing of the appeal, certain information from Swami Complex (P) Ltd., wherein they have confirmed that they had supplied electricity to the tailoring shop run by the assessee was also submitted. A copy of challan made by the electricity board imposing penalty on Swami Complex (P) Ltd. for allowing Shri Bal Mukand Parihar of M/s India Tailors to take up unauthorized electricity connection was also filed. This penalty order was dt. 20th Dec, 2001. Under these facts and circumstances, we are of the view that the learned CIT(A) has rightly come to the conclusion that once it is accepted that the structure over the land was put to use in the year under consideration, the loans taken to purchase. the land along with structure can also be considered as funds used for business and, therefore, interest on the loans will become automatically allowable as business expenditure. The learned CIT(A) has, thus, rightly deleted the addition of Rs. 2,80,340 in question. The same is upheld. The ground No. 1 of the appeal is, thus, rejected.
23. The appeal preferred by the Department in the case of Shri Bal Mukand Parihar is, thus, dismissed.
24. The result is summed up as appeals (ITA Nos. 461 and 449/Jp/2005) preferred by the Department in the cases of Shri Bal Mukand Parihar and Swami Complex (P) Ltd. and appeal (ITA No. 421/Jp/2005) in the case of K.S. Apparels (P) Ltd. are dismissed and the appeal (ITA No. 471/Jp/2005) preferred by the assessee in the case of K.S. Apparels (P) Ltd. is allowed.