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Income Tax Appellate Tribunal - Ahmedabad

Mukeshbhai Kalidas Patel, Ahmedabad vs Assessee on 14 February, 2013

           IN THE INCOME TAX APPELLATE TRIBUNAL
                   AT AHMEDABAD "A" BENCH

           Before: Shri D.K. Tyagi Judicial Member and
             Shri Anil Chaturvedi, Accountant Member

                       ITA No. 2356/Ahd/2010
                          A.Y.:-2007-08


     Shri Mukeshbhai Kalidas               The Asst. Director of Income
     Patel, 2A, Tirthnagar                 Tax (International Taxation)
     Society III, Sola Raod,        Vs.    Ahmedabad
     Ghatlodia, Ahmedabad                  (Respondent)
     (Appellant)
     PAN No. AAVPP9801P


     Revenue by        : Sri Pradip Kr. Majumdar, Sr. D.R.
     Assessee by       : Sri Urvashi Shodhan, A.R.


     Date of hearing                : 14-02-2013
     Date of pronouncement          : 22- 02-2013


                            आदे श/ORDER

PER : D.K TYAGI, JUDICIAL MEMBER:-

This is the assessee's appeal against the order of Ld. CIT(A), Gandhinagar dated 21.05.2010.

2. The assessee has taken following two effective grounds of appeal:-

Mukesh Kalidas Patel vs. Asst. Director of Income tax "1 The Learned CIT(A) Gandhinagar, Ahmedabad has erred in confirming the addition of Rs. 5,70,000/- to the amount of Long Term Capital Gains declared.

2. The Learned CIT(A) Gandhinagar, Ahmedabad has erred in confirming the disallowance of interest of Rs. 67,919/-.

3. Brief facts of the case are that during the assessment proceedings the assessing officer observed that assessee has declared long term capital gain on the sale of a plot of land by taking the sale consideration at Rs.

61,80,000/- as per conveyance deed dated 10.11.2006. The assessing officer further found that on 13.11.2006, the assessee has received another sum of Rs. 5,70,000/- from the purchaser, which has also been attributed in assessee's record to the sale of plot at Kalupur. When assessee was asked, the assessee's explanation was that this is an reimbursement of the expenses incurred by the assessee in leveling of land, constructing compound wall and does not form part of the sale considerations. However, the assessee did not have supporting evidence of such expenses being incurred long back. This explanation of the assessee was not acceptable to the assessing officer on the ground that as per conveyance deed the plot of land has been sold in the present shape along with boundary wall at Rs. 61,80,000/- and there is no provision of reimbursement of expenses in the said conveyance deed. Accordingly, he took the sale value of plot at Rs. 67,50,000/- i.e. at Rs. 61,80,000/-+5,70,0000/-=67,50,000/- which amounted to an addition of Rs. 5,70,000/- to the capitals gain shown by the assessee.

4. Before Ld.CIT(A), the assessee made following submissions/contentions:-

Mukesh Kalidas Patel vs. Asst. Director of Income tax "In para three of the assessment order, the learned Assessing Officer has concluded that the sale consideration towards plot of land sold during the previous year is not Rs. 61,80,000/- as returned by the assessee but Rs. 67,50000/- i.e. more by Rs. 5,70,000/- for which separate agreement was executed and thereby make addition of Rs. 5,70,000/- to the income.

It is respectfully clarified that one plot of land was acquired in 1992. Thereafter, your assessee had incurred expenses towards constructing of compound wall, leveling of plot, filling of land etc. All this additional work was carried out over a passage of time from say 1992.93 to 2000.01. Compound wall was made somewhere in year 2000 etc. Thus all expenses were incurred at different point of time and in installments. Since the mater is very old your assessee is not in possession of supporting evidences relating to expenses incurred. However the fact that at the time of sale of property, levalised plot of land and compound wall was in existence and the said fact has been acknowledged by the purchaser and even not denied by the Ld. A.O. However, as it relates to reimbursement of expenses and not towards recovery of cost of original assets, a separate agreement was executed and in the main deed of sale, only the consideration towards the sale of plot of land was stated.

In view of this, your assessee too under bonafide understanding while computing long term capital gain, sale consideration as per the sale deed of Rs. 61,80,000/- was considered whereas the amount of Rs. 5,70,000/- was received through separate agreements pertains to receipts towards reimbursement of expenses incurred, same was ignored.

The issue would not have arised, has the computation of income was made as under:-

        I    Cost of plot of land                         Rs. 6,50,072
        Add: Cost of improvement (Upto                    Rs. 5,7000
        Total cost                                        Rs. 12,20,072
        II. Indexed cost of Acquisition (Indexation of    Rs. 16,95414
        cost of land only and not that of expenses of

improvement as precise period not available) Total Indexed cost of acquisition Rs. 22,65,414 ITA No. 2356/Ahd/2010 A.Y. 2007-08 Page No 4 Mukesh Kalidas Patel vs. Asst. Director of Income tax Sale consideration (61,80,000+5,70,000) Rs. 67,50,000 Long Term Capital Gain (which is exactly the Rs. 44,84,586 same amount as computed by assessee) Copies of both the deeds i.e. Deed of Sale for 61,80,000/- and agreement for Rs. 5,70,000/- separately executed are appended separately for your Honour's ready reference. Considering the facts of the case and evidences on record, addition made may kingly be deleted."

5. Ld. CIT(A) however dismissed this ground of the assessee by observing as under:-

"3.3 The matter has been considered but I am afraid I cannot agree with the Authorized Representative. A plot of land along with boundary wall and its various characteristics is always sold in totality and not in terms of various activities which go to form the present state it is in. In fact, any asset would be sold in its entirety and the improvements carried thereon would get reflected in its value. The improvements like leveling of land are not independent rights or assets which can be transacted. Although the Authorized Representative has filed a separate conveyance deed dated 10/11/2006 regarding the so called reimbursement, it is clear that the said conveyance deed does not made much of a sense. Furthermore, in any case, it seems from the assessment order that no such deed was filed before the Assessing Officer. Therefore, it is clear that the entire sum of Rs. 67,50,000/- is to be treated as consideration received for sale of land.

6. Before us, learned counsel for the assessee reiterated the submission made before the Ld. CIT(A). On the other hand, Ld. D.R. relied on the orders of the lower authorities.

7. After hearing both the parties and perusing the record, we find that there are two conveyance deeds singed between the assessee and the purchaser in respect of sale of plot at Kalupur both dated 10.11.2006.

Mukesh Kalidas Patel vs. Asst. Director of Income tax According to assessee the sale consideration of the plot was only at Rs. 61,80,000/- as per the first conveyance deed and the sum of Rs. 5,70,000/- received by another conveyance deed was not in respect of sale considerations but which related to reimbursement of expenses only. The assessing officer has however taken both the amounts as sale value of the plot at Kalupur and has calculated capital gains accordingly. This action of the A.O. has been confirmed by Ld. CIT(A) after taking into consideration the contention of the assessee which we have already reproduced in para No. 4 of our order. While going through the second conveyance deed, we find that in that deed there is mention of very vital facts that when purchaser took the possession of the plot from the assessee it was found that area of the plot was 38 sqaure yard more than in the record of the society. The possibility of regularizing this discrepancy of area of the plot in the earlier conveyance deed and to obtain the consent of the assessee in respect of additional area of the land, payment of Rs. 5,70,000/- was made to the assessee cannot be ruled out since assessee has failed to give any evidence in support of his claim that this payment was reimbursement of expenses incurred by assessee for the development of this plot. Therefore, the lower authorities have rightly treated the payment received by the assessee in terms of both the conveyance deeds as sale consideration/value of the plot for calculating capital gain. This ground of the assessee is therefore dismissed.

8. Ground No. 2 relates to disallowance of interest of Rs. 67,919/-. During the assessment proceeding, the assessing officer disallowed the interest paid by the assessee for overdraft facilities on the ground that the same has been utilized for advance free loan and advance to relatives and ITA No. 2356/Ahd/2010 A.Y. 2007-08 Page No 6 Mukesh Kalidas Patel vs. Asst. Director of Income tax friends. Before CIT(A), the assessee placed reliance on the following submissions:-

"The learned Assessing Officer, vide para five of the assessment order has disallowed interest of Rs. 67,919/- paid to bank towards interim overdrafts faculties on the finding that said has not been expended wholly and exclusively for earning income from other sources.

It is respectfully clarified that assessee has offered net income of Rs. 36,156, as under:-

Income from other sources Sr. Particulars Amount Amount No.

(i) Interest from Shah Corporation 55,500

(ii) Bank F.D.R. Interest 48,355

(iii) S.B. A/c Interest 220 1,04,075 Less: Interest paid to bank on 67,919 overdraft facilities Net Income 36,156 It is question of temporary mismatch. Own capital deployed in income earning asset and on purely temporary basis. Assessee has utilized facilities for giving temporary advances to known relatives and concerns, it is not obligatory to charge interest for each and every advances, ultimately made out of own fund. For few advances to close relative for small period interest was not charged whereas interest was charged for advances to Shah Corporation. However overall interest receipt is more by Rs. 36,156/- and interest paid on overdraft facility which is not utilized towards capital expenditure or personal expenditure disallowance made that of overdraft interest of Rs. 67,919/- deserves to be deleted."

9. The action of the assessing officer was confirmed by Ld. CIT(A) by observing as under:-

"The matter has been considered and I am afraid I do not agree with the Authorized Representative. It has been accepted that the monies in question have been advanced to friends and relatives for which no ITA No. 2356/Ahd/2010 A.Y. 2007-08 Page No 7 Mukesh Kalidas Patel vs. Asst. Director of Income tax interest is chargeable. Therefore, it is inappropriate to set off this interest against interest from bank FDR or interest from Shah Corporation. If the version of the Authorized Representative, i.e. this is a temporary arrangement, is correct, the same could have been proved by the showing the movement of funds, which was not done. Therefore, in my view, the addition made by the Assessing Officer by treating it as having not been expended wholly and exclusively for the purpose of earning the interest income is correct and is, therefore, confirmed."

10. Learned counsel for the assessee reiterated the submission made before the Ld. CIT(A) while ld. D.R. relied on the order of lower authorities.

11. After hearing both the parties and perusing the record, we find that assessee has offered net income of Rs. 36,156/- as under:-

Income from other sources Sr. Particulars Amount Amount No.

(i) Interest from Shah Corporation 55,500

(ii) Bank F.D.R. Interest 48,355

(iii) S.B. A/c Interest 220 1,04,075 Less: Interest paid to bank on 67,919 overdraft facilities Net Income 36,156 In the absence of any evidence to show that the expenses of interest paid to bank on overdraft facilities of Rs. 67,919/- was incurred to earn interest from Shah Corporation or interest from bank the netting of income under the head "income from another source" cannot be done. Since in this case no such evidence had been placed on record by the assessee at any stage, this netting has rightly been denied by the lower authorities and therefore, disallowance ITA No. 2356/Ahd/2010 A.Y. 2007-08 Page No 8 Mukesh Kalidas Patel vs. Asst. Director of Income tax of Rs. 67,919/- made by the assessing officer and sustained by the Ld. CIT(A) is hereby confirmed. This ground is also dismissed.

12. In the result, the assessee's appeal is dismissed.

Order pronounced in open court on the date mentioned hereinabove at caption page Sd/- Sd/-

(ANIL CHATURVEDI)                                            (D.K. TYAGI)
ACCOUNTANT MEMBER                                        JUDICIAL MEMBER
Ahmedabad : Dated 22 /02/2013
a.k.

आदे श कȧ ूितिलǒप अमेǒषत / Copy of Order Forwarded to:-

1. अपीलाथȸ / Appellant

2. ू×यथȸ / Respondent

3. संबंिधत आयकर आयुƠ / Concerned CIT

4. आयकर आयुƠ- अपील / CIT (A)

5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड[ फाइल / Guard file.

By order/आदे श से, उप/सहायक पंजीकार आयकर अपीलीय अिधकरण, अहमदाबाद