Income Tax Appellate Tribunal - Amritsar
Salwinder Singh Aulakh,, Amritsar. vs Assessee on 7 May, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH; AMRITSAR.
BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER
AND SH. B.P.JAIN, ACCOUNTANT MEMBER
I.T.A. No. 480(Asr)/2011
Assessment year:2005-06
PAN:AAWTA2648A
Sh. Salwinder Singh Prop. Vs. The Asstt. Commr. of Income Tax,
M/s. Aulakh Overseas, Circle-V,
V.Nangali, Amritsar. Amritsar.
(Appellant) (Respondent)
I.T.A. No.520(Asr)/2011
Assessment year : 2005-06
The Income Tax Officer, Vs. Sh. Salwinder Singh Aulakh,
Ward 5(4), Amritsar. Ward 5(4), Amritsar.
(Appellant) (Respondent)
Assessee By: Sh. Padam Bahl, CA
Department By: Sh. Tarsem Lal, DR
Date of hearing :07/05/2012
Date of pronouncement:09/05/2012
ORDER
PER BENCH:
These cross appeals - one by the assessee and another by the Revenue arise from the order of the Ld.CIT(A), Amritsar, dated 21.07.2011 for the assessment year 2005-06.2 ITA No.520 & 480(Asr)/2011
2. The assessee has raised following grounds of appeal:
"1. That worthy CIT(A), Amritsar has grossly erred in confirming the addition of Rs.23,63,520/- on account of "Long Term Capital Gain" on sale of his residential house by taking the cost of acquisition at Rs.7,57,600/- as on 01.04.1981 on the basis of Valuation Report of the Valuation Officer and indexed cost at Rs.36,36,480/-.
2. That both the ITO Ward 5(4) and worthy CIT(A) have grossly erred in ignoring the Valuation Report of the Regd. Valauer filed by the assessee and in ignoring the objections filed by the assessee.
3. That worthy CIT(A) has grossly erred in not appreciating that the Income Tax Officer Ward 5(4) Amritsar grossly erred in making a reference to the Valuation Officer for valuing the FMV of residential house as on 01.04.1981 u/s 55A of the Income-tax Act, 1961.
4. That both ITO Ward 5(4) Amritsar and worthy CIT(A), Amritsar have failed to appreciate that the reference to the valuation office u/s 55A of the Income-tax Act,1961 is illegal as it could be made only in cases where assessing officer is of the view that FMV of the property is more than the value declared by the assessee and not where it was lower than the value declared by the assessee."
3. The Revenue has raised following grounds of appeal:
"1. That the Ld. CIT(A) was not justified in law and on facts in allowing relief to the assessee on account of "loss of stock due to theft" only doe to assesse's plea that the assessee had booked the "Loss of Stock due to theft" on the date on which he became aware of the loss and on the date on which he actually quantified the loss.
2. That the Ld. CIT(A) has not appreciate the factual position that the loss due to theft pertained to the erstwhile firm's period in which the assessee was one of the partners.
3. That the ld. CIT(A) has erred in law by not appreciating the legal position that where the firm has ceased to exist the loss suffered by the firm cannot be claimed by the partners.3 ITA No.520 & 480(Asr)/2011
4. That the appellant craves leave to add, alter or amend any ground of appeal."
4. At the outset, the ld. counsel for the assessee, Mr. Padam Bahl, CA, raised preliminary objection with respect to the tax effect being less than Rs.3,00,000/- in the department appeal in ITA No.520(Asr)/2011, in view of Instruction No.3 of 2011 dated 09.02.2011 of CBDT, reported in 332 ITR (Statute) 1 and requested that the appeal of the Department should not be admitted.
5. The Ld. DR, on the other hand, objected to the same since the tax due on the additions of Rs.11,23,787/- was Rs.3,11,136/- on which the assessee had claimed a rebate u/s 88B of the Act at Rs.20,000/- and rebate u/s 88 at Rs.20,000/-, which should not be a subject matter for computing tax effect.
6. We have heard the rival contentions and perused the facts of the case. The calculations submitted by the ld. counsel for the assessee, Mr. Padam Bahl, CA, clearly shows the tax due on the additions of Rs.11,23787/- is Rs.3,11,136/-. As regards the rebates u/s 80B and section 88, they have already been taken into consideration while filing the return of income and this is not the additional rebate which can be allowed on the disputed amount. Therefore, tax effect as per facts available on record is more than Rs.3,00,000/- and therefore, the said Instruction No.3 of 2011 dated 4 ITA No.520 & 480(Asr)/2011 09.02.2011 of CBDT cannot be made applicable to the Revenue's appeal. Therefore, the appeal of the Revenue is admitted.
7. As regards facts on merits are that the AO has allowed loss to the extent of Rs.32,000/- as per FIR lodged for the theft of cement weighing 12.50 qtls having taken place on 12.10.2004 at 1 PM i.e. after the time and date of death of one of the partner of erstwhile firm i.e. Smt. Kashmir Kaur which took place on 11.10.2004 at 8 PM . The Ld. CIT(A) allowed the claim of the assessee. The assessee argued that the expenditure/loss has to be allowed in the year in which the liability gets crystalised. The theft was detected on 12.10.2004 and was written off in the books of account on 12.10.2004. The assesse has filed copy of the FIR and the AO has recorded statement of loss assessor and surveyor on 30.11.2007 and on the same date the assessee's statement was also recorded by the AO. According to AO as per Police inquiry report, the theft had continued for one month before detection on 12.10.2004 and the loss assessor confirmed the period of two weeks. But the AO allowed the loss of 12.50 qtls of Rs.32,000/- pertaining to the period when the proprietorship concern took over by the assessee w.e.f. 12.10.2004 as per FIR lodged. The assessee's submissions were to take into consideration the subsequent statements of the thieves that they had been stealing the assesse's goods for the last one month as recorded at 5 ITA No.520 & 480(Asr)/2011 page 6 of the Police Inquiry Report in sentence No.5 Jimmi No.4 (Police Inquiry Report). The assessee booked the loss in the stock register and in the books on 12.10.2004 after physical verification on the detection of the same and when he became aware of the loss only on 12.10.2004 and therefore, the same is allowable in the period under consideration, in the proprietorship concern on 12.10.2004 when the present assessee became the proprietor of the concern on 12.10.2004 only after demise of the partner of the erstwhile firm on 12.10.2004 mentioned hereinabove since the loss has been crystalised on 12.10.2004. Therefore, it has to be allowed only for the period starting from 12.10.2004 for which the assessee is the proprietor. The Ld. counsel appearing before the Ld. CIT(A) relied upon the decisions of the various courts of law in this regard. The Ld. CIT(A) accepting the submissions of the assessee and facts available on record allowed the claim of the assessee.
8. The Ld. DR, on the other hand, argued that the loss pertained to the erstwhile firm and if the loss is not carried forward by the predecessor firm then the said loss cannot be allowed to the successor concern. In the present case, the erstwhile firm did not claim the carry forward of the loss and therefore, to avail of the loss in the successor concern of which assessee is the proprietor, the same cannot be allowed. The Ld. DR accordingly relied 6 ITA No.520 & 480(Asr)/2011 upon the decision of the Hon'ble Allahabad High Court in the case of CIT vs. Smt. Saroj Agarwal reported in 83 ITR 875 and the decision of the Hon'ble Karnataka High Court in the case of Hindustan Aeronautics Ltd. vs. CIT reported in 149 ITR 795.
9. The Ld. counsel for the assessee relied upon the order of the Ld. CIT(A).
10. We have heard the rival contentions and perused the facts of the case. There is no dispute to the fact that the partnership firm was continued up to 11.10.2004, when Smt. Kashmir Kaur one of the partner died at 8PM on 11.10.2004 till that time nothing was known to the firm whether there is any loss or theft. It was only on 12.10.2004 i.e. after death of Smt. Kashmir Kaur, when the present assessee became the proprietor of the erstwhile concern, the assessee came to know of the theft, when the Police caught a truck carrying 12.50 qtls of goods. When thieves were caught, the thieves admitted of doing theft for the last one month. The assessor and surveyor of the Insurance Company also submitted the report of theft for the last two weeks. The question arises whether the theft had been taking place during the period of the erstwhile firm which, in fact, got crystalised during the period, the assessee became proprietor i.e. during the period of the proprietorship concern then the said loss is a loss of the erstwhile firm or the 7 ITA No.520 & 480(Asr)/2011 proprietorship concern of the assessee. According to us and in our view the erstwhile firm never knew the fact of theft and it is undisputed that the proprietorship concern came to know of the theft and at the same moment when it came to know, the loss got crystalised and the present assessee accordingly booked the loss. There was no possibility of booking the said loss in the erstwhile firm and therefore, the action of the assessee in booking the loss in the present proprietorship concern is correct and we find no infirmity in the order of the ld. CIT(A) in allowing the claim of the assessee in view of the decisions of various courts of law relied upon and referred in the order of the ld. CIT(A) i.e.
i) CIT vs. Smt. Pukhraj Wati Bubber (2008) 296 ITR 290 (P&H)
ii) CIT vs. Sarya Sugar Mills (P.) Ltd. 70 ITR109 (All.)
iii) Hopkin & Williams (Travancore) Ltd. Vs. CIT 64 ITR 76 (Ker)
iv) 125 ITR 519 P&H) 10.1. The arguments made by the Ld. DR have been considered. Since there was no loss crystalised in the predecessor firm, therefore, there is no question of claim or carry forward of loss by erstwhile firm. Therefore, the cases relied upon by the Ld. DR are not applicable in the present circumstances and facts of the case.
8 ITA No.520 & 480(Asr)/201110.2. In view of the above discussions and facts and circumstances of the case, all the grounds of the Revenue in ITA No.520(Asr)/2011 are dismissed.
11. Now, we take up the appeal of the assessee in ITA No.480(Asr)/2011. The brief facts of the case are that during the assessment proceedings, it was found that the assesse has shown long term capital loss at Rs.2,19,360/-. The assessee has filed a valuation report of the property as on 1.4.1981 showing FMV at Rs.12,95,700/-. According to the Valuation Officer, the valuation was found to be excessive. A reference was made to the DVO who after giving opportunity to the assessee and considering the assessee's objection estimated the value of the property as on 1.4.1981 at Rs.7,56,600/-. A copy of the valuation report was supplied to the assessee for objection and the objections raised by the assessee were referred to the departmental valuer, who has brushed aside all objections on the ground that standard plinth area rates applied by him is included in the rates. A copy of the valuation report was also furnished to the counsel and in response thereto, the assessee reiterated its earlier objections raised vide letter dated 29.11.2007. After considering the submissions of the assessee, the A.O. had made an addition of Rs.21,43,160/- under the head long term capital gain. On appeal, the learned CIT(A) confirmed the action of the Assessing Officer. 9 ITA No.520 & 480(Asr)/2011
12. The Ld. counsel for the assessee, Mr. Padam Bahl argued that the provisions of section 55A(a) of the Act are applicable only if the AO is of the opinion that if the value so claimed is less than the fair market value (in short 'FMV'). In the present case, the assessee had claimed FMV at RS.12,95,700/- as at 01.04.1981 as against Rs.7,56,600/- valued by the DVO. Therefore, the provisions of section 55A(a) are not applicable in the present case. As regards section 55A(b), the same is applicable only if the AO is of the opinion that FMV exceeds the value of the assessee as claimed by the assessee by more than such percentage of the value of the asset as claimed by the assessee more than such percentage of the value of the asset as so claimed or by more than such amount as may be prescribed in this behalf or having regard to the nature of the asset and other relevant circumstances, it is necessary so to do.. In this regard, the Ld. counsel for the assessee, Mr. Padam Bahl invited our attention to the judgment of Hon'ble Gujarat High Court in the case of Hiaben Jayanti Lal Shah vs. ITO 310 ITR 31 (Guj.), where it has been clearly held that for the cases to be covered under section 55A(b), the AO has to record an opinion that FMV of the asset exceeds the value of the asset as claimed by the assessee by more that such percentage or more than such amount as may be prescribed or having regarding to the nature of the asset or other relevant circumstances, it is 10 ITA No.520 & 480(Asr)/2011 necessary to make such a reference. In the present case, the ld. counsel for the assesse, Mr. Padam Bahl argued that the AO has not recorded any of reason, therefore, section 55A(b) of the Act, cannot be made applicable in the present facts and circumstances of the case and reference to the DVO is bad in law. Moreover, reference made by the AO was under section 142A of the Act, whereas the matter relates to Chapter IV with regard to computation of income from capital gains, as is evident from the letter of the ITO available at PB 8 & 9.
13. On the other hand, the ld. DR, Sh. Tarsem Lal, relied upon the orders of the authorities below.
14. We have heard the rival contentions and perused the facts of the case. The arguments of the ld. counsel for the assessee, appears to be convincing for the reasons that the assessee had submitted valuation by the Registered Valuer and claimed FMV at Rs.12,95,700/-. There is nothing on record which could show that the AO is of the opinion that the value so claimed is less than its FMV. Therefore provision of section 55A(a) cannot be made applicable. As regards the provision of section 55A(b) of the Act, the AO is required to form an opinion and record reasons in view of the decision of the Hon'ble Gujarat High Court in the case of Hiaben Jayanti Shah vs. ITO reported in (2009) 310 ITR31, which in the present case has not been done 11 ITA No.520 & 480(Asr)/2011 by the AO. Moreover, it is also not disputed that the AO has required the Valuation Officer to value the capital assets u/s 142A of the Act. It shows non-application of mind by the AO. In the present facts and circumstances of the case, the reference made by the AO to the Valuation Officer is bad in law and valuation so made cannot be a subject matter for computation of income from capital gains. Therefore, the AO is directed to accept the claim of the assessee. Accordingly, the order of the CIT(A) is reversed. Thus, all the grounds of the assessee are allowed.
15. In the result, the appeal of the Revenue in ITA No.520(Asr)/2011 is dismissed and the appeal of the assessee in ITA No.480(Asr)/2011 is allowed.
Order pronounced in the open court on 9th May, 2012.
Sd/- Sd/-
(H.S. SIDHU) (B.P. JAIN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 9th May, 2012
/SKR/
Copy of the order is forwarded to :
1. The Assessee:Sh. Salwinder Singh, Pro.M/s. Aulakh Overseas, Asr
2. The ACIT, Cir.v/ITO 5(4), Asr
3. The CIT(A),
4. The CIT,
5. The SR DR, ITAT, Amritsar True copy 12 ITA No.520 & 480(Asr)/2011 By Order (Assistant Registrar) Income Tax Appellate Tribunal Amritsar Bench : Amritsar.