Income Tax Appellate Tribunal - Delhi
Mani Capital Ltd., New Delhi vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'E
'E' : NEW DELHI
BEFORE SHRI G.D.AGRAWAL,
G.D.AGRAWAL, VICE PRESIDENT AND
SHRI RAJPAL YADAV,
YADAV, JUDICIAL MEMBER
ITA Nos
Nos.1436/Del/2013, 1437/Del/2013 & 1438/Del/2013
Assessment Years
Years : 2006-
2006-07, 2007-
2007-08 & 2008-
2008-09
Deputy Commissioner of Vs. M/s Mani Capital Limited,
Income Tax, 14, Ratan Mahal,
Central Circle-
Circle-8, 15/197, Civil Lines,
Room No.356, ARA Centre, Kanpur.
E-2, Jhandewalan, PAN : AAACD4969L.
New Delhi.
(Appellant) (Respondent)
Appellant by : Shri Keyur Patel, Sr.DR.
Respondent by : Shri O.P. Sapra, Advocate and
Shri Ashutosh, CA.
ORDER
PER G.D.AGRAWAL, G.D.AGRAWAL, VP :
These appeals by the Revenue are directed against the order of learned CIT(A)-II, Kanpur dated 19th November, 2012 for the AY 2006- 07, 2007-08 & 2008-09.
2. Ground Nos.1 & 2 of the Revenue's appeal for AY 2006-07, ground No.1 of the Revenue's appeal for AY 2007-08 and ground No.2 of the Revenue's appeal for AY 2008-09 are common, i.e., with regard to deletion of disallowance of interest made by the Assessing Officer on account of interest free advance given by the assessee. Since common grounds are raised in all the three years, we reproduce herein below the grounds raised in AY 2006-07 only. The same read as under:-
2 ITA-1436 to 1438/D/2013 "1. That the Commissioner of Income Tax (Appeals) erred in law and on facts of the case in deleting the addition of Rs.4,79,773/- made by the Assessing Officer on account of disallowance of interest.
2. That the Commissioner of Income Tax (Appeals) erred in law and on facts of the case in deleting the addition of Rs.5,83,673/- made by the Assessing Officer on account of disallowance of interest.
3. That the Commissioner of Income Tax (Appeals) erred in law and on facts of the case in directing the Assessing Officer not to apply the Rule 8D of the Income Tax Rules, 1962 but to work out the disallowance u/s 14A of the Act, if any, having regard to the proximity of expenses to earn the income which does not form part of total income.
4. (a) The order of the CIT(A) is erroneous and not tenable in law and on facts.
(b) The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal."
3. We have heard the arguments of both the sides and perused the relevant material placed before us. The Assessing Officer made the disallowance of interest of `4,79,773/- on the ground that advance of `51,60,000/- to eleven persons was continuing since long and no interest whatsoever was being charged on these loans. He, therefore, disallowed the interest of `4,79,773/- computing the same at 12% on the advance of `51,60,000/-. He further found that the assessee has given the advance of `1,31,69,046/- to ten persons without charging interest. With regard to these advances, it was claimed by the assessee that the advances were for purchase of property/shares in the other company and, therefore, these advances were for the purpose of business and no interest was chargeable on these advances. The Assessing Officer did not accept the assessee's 3 ITA-1436 to 1438/D/2013 contention and made the disallowance of interest amounting to `5,83,673/-. Learned CIT(A) deleted both the additions and his finding with regard to deletion of addition of `4,79,773/- is as under:-
"I have considered the assessment order, submissions of the learned AR and the material placed on record. It is observed that the advances of Rs.51,60,000/- under consideration have been given in earlier years and no disallowance was made for interest in respect of these advances in earlier years; the assessee has explained the business purpose of advances; the AO has not brought any material on record to prove nexus of money borrowed with these advances and the own funds with the assessee are Rs.10.39 crores in comparison to these advances of Rs.0.52 crore only. In view of these facts and the principles laid down in the case laws cited by the learned AR, i.e. SA Builders Ltd. (SC) supra, Reliance Utilities Ltd. (Bom) supra and Hotel Savera Ltd. (Mad), I am of the opinion that the disallowance of interest of Rs.4,79,773/- is not justified. Accordingly, the disallowance is deleted and this ground of appeal is allowed."
4. Similarly, he deleted the disallowance of `5,83,673/- with the following observations:-
"I have considered the assessment order, submissions of the learned AR and the material placed on record. The detailed chart showing the nature and purpose of advances and debtors as submitted before the AO is placed on record along with the copies of agreements, allotment letters etc in respect of most of advances. I find that the advances and debtors relate to the business of the assessee who is engaged in the business of finance, real estate, share trading etc. The AO has not brought any material on record to prove nexus of money borrowed with these advances. The own funds with the assessee are Rs.10.39 crores in comparison to these advances of Rs.1.29 crore only. In view of these facts and the principles laid down in the case laws cited by the learned AR, i.e. SA Builders Ltd. (SC) supra, Reliance Utilities Ltd. (Bom) supra and Hotel Savera Ltd (Mad) supra, I am of the 4 ITA-1436 to 1438/D/2013 opinion that the disallowance of interest of Rs.5,83,673/- is not justified. Accordingly, the disallowance is deleted."
5. After considering the facts of the case and the arguments of both the sides, we do not find any infirmity in the order of learned CIT(A). With regard to advance of `1.31 crores, the CIT(A) has recorded the finding that these advances were for the purpose of business because the assessee is in the business of real estate, share trading etc. and these advances were given for the purpose of purchase of property or as share application money. He also observed that the own funds available with the assessee are `10.39 crores while such advances are only `1.31 crores. With regard to the advance of `51,60,000/-, again, the CIT(A) has recorded the finding that these advances were given in the earlier years and no interest was disallowed in those years. There is no nexus of the borrowed money with these advances and the own funds available with the assessee are `10.39 crores. The above factual finding recorded by the CIT(A) has not been controverted before us. That there is an interest free fund available with the assessee of more than `10 crores and total advance given by the assessee is less than `2 crores and the substantial part of which is for the purpose of business. No nexus has been pointed out by the Revenue between the borrowing and interest free advance. Moreover, the interest free advance is coming from preceding years and no disallowance was made in the preceding years in which the advance was given. Considering the totality of these facts, we do not find any infirmity in the order of learned CIT(A). Accordingly, his order is upheld and ground Nos.1 & 2 of the Revenue's appeal for AY 2006-07, ground No.1 of the Revenue's appeal for AY 2007-08 and ground No.2 of the Revenue's appeal for AY 2008-09 are rejected.
6. Ground No.3 of the Revenue's appeal for AY 2006-07, ground No.2 of the Revenue's appeal for AY 2007-08 and ground No.1 of the 5 ITA-1436 to 1438/D/2013 Revenue's appeal for AY 2008-09 are with regard to disallowance under Section 14A of the Act.
7. We have heard the arguments of both the sides and perused the material placed before us. The facts of the case are that the Assessing Officer computed the disallowance under Section 14A as per Rule 8D for AY 2006-07, 2007-08 and 2008-09. For AY 2006-07 and 2007-08, the CIT(A) held that Rule 8D is not applicable. However, he directed the Assessing Officer to work out the disallowance under Section 14A, if any, having regard to proximity of the expenses to earn the income which did not part form of the total income. After considering the arguments of both the sides and the facts of the case, we find that the direction of the CIT(A) is in conformity with the decision of Hon'ble Jurisdictional High Court in the case of Maxopp Investment Ltd. Vs. CIT
- [2012] 347 ITR 272 (Delhi). Respectfully following the same, we do not find any infirmity in the direction of learned CIT(A). The same is sustained and ground No.3 of the Revenue's appeal for AY 2006-07 and ground No.2 of the Revenue's appeal for AY 2007-08 are rejected.
8. So far as AY 2008-09 is concerned, we find that the CIT(A) in principle has upheld the disallowance under Rule 8D but he directed the Assessing Officer to verify the expenditure incurred for earning of exempt income and compute the disallowance under Rule 8D. Perhaps his direction is only to verify the working of disallowance under Rule 8D and whether the disallowance is correctly worked out as per Rule 8D. We, therefore, do not find any infirmity in the above direction of the CIT(A). The same is also sustained and ground No.1 of the Revenue's appeal for AY 2008-09 is rejected.
9. The only ground now left is ground No.3 of the Revenue's appeal for AY 2008-09 which reads as under:-
6 ITA-1436 to 1438/D/2013 "That the Commissioner of Income Tax (Appeals) erred in law and on facts of the case in deleting the addition of Rs.2,32,930/- made by the Assessing Officer u/s 50C of the Income Tax Act, 1961."
10. The facts of the case are that during the accounting year relevant to the assessment year under consideration, the assessee sold the following assets:-
(i) The flat situated at First Floor of Rupali Building, 17/1, Madan Mohan Malviya Marg, Lucknow sold at Rs.8,00,000/- on 22.01.2008.
(ii) Room No.205, Chintels House, 16 Station Road, Lucknow -
sold for Rs.30,90,500/- on 08.12.2008.
11. That the stamp duty valuation of both the properties was more than the actual sale consideration. Accordingly, the Assessing Officer made the addition under Section 50C being the difference in the value for the stamp duty and the actual sale consideration. The flat-wise detail is as under:-
Detail of Property Actual sale Value for stamp Difference in value consideration duty st Flat at 1 Floor Rs.8,00,000/- Rs.24,53,220/- Rs.16,53,220/-
Rupali Building
17/1 MM Marg
Lucknow
Room No.205 Rs.30,90,500/- Rs.33,23,430/- Rs.2,32,930/-
Chintels House 16
Station Road,
Lucknow
7 ITA-1436 to 1438/D/2013
12. Learned CIT(A) partly allowed the appeal of the assessee with the following direction:-
"It is clear that in this case the sale consideration is less than the value adopted for the stamp duty purpose and the assessee company has disputed the stamp duty valuation before the AO. In case of the property at Madan Mohan Malviya Marg, the AO referred the matter to DVO but has not considered it as the same was not received till date of last hearing. However, the assessee company has placed on record the DVO's report dated 30.12.2010. The valuation as per DVO report is Rs.11,15,000/- as against the valuation for stamp duty at Rs.24,53,220/-. In terms of Section 50C, the AO is bound to refer the matter to DVO and to adopt the value as per DVO report or adopted by stamp duty authority, whichever is lower. It is not justified to adopt the stamp duty valuation in such situation. I, therefore, direct the AO to take into consideration the DVO Report dated 30.12.2010 after his verification and compute the capital gain accordingly.
In case of another property at Chintels House, the assessee company disputed the stamp duty valuation but the AO has failed to make the reference to DVO. In view of the case laws cited by the AR, I am of the view that the AO has no choice but to accept the actual sale consideration as market value of property. Moreover, the difference is below 15%. Under this circumstances, the addition of Rs.2,32,930/- on consideration of stamp value is not justified. Accordingly, the addition of Rs.2,32,930/- is deleted."
13. Against the order of learned CIT(A), the Revenue is in appeal while the assessee is neither in appeal nor in cross-objection against the addition partly sustained by the CIT(A).
14. From the above finding of the CIT(A), it is evident now that the issue of computation of capital gain in respect of first flat at MM Marg is settled because, in this case, the matter was referred to the DVO. The CIT(A) directed the Assessing Officer to compute the capital gain 8 ITA-1436 to 1438/D/2013 as per DVO's report and that finding is accepted by both the parties. However, the Revenue is aggrieved with regard to deletion of the addition of `2,32,930/- which was with regard to second flat, i.e., flat at Chintels House. From a perusal of the assessment order, it is not clear whether the assessee objected to the valuation made for stamp duty purposes of both the flats or one flat. If assessee objected to the valuation of one flat only, i.e., flat at MM Marg, then the addition with regard to computation of capital gain of the second flat cannot be deleted on the ground that the same was not referred to the DVO. Sub-section (2) of Section 50C reads as under:-
"(2) Without prejudice to the provisions of sub-section (1), where--
(a) the assessee claims before any Assessing Officer that the value adopted or assessed [or assessable] by the stamp valuation authority under sub-section (1) exceeds the fair market value of the property as on the date of transfer;
(b) the value so adopted or assessed [or assessable] by the stamp valuation authority under sub-section (1) has not been disputed in any appeal or revision or no reference has been made before any other authority, court or the High Court, the Assessing Officer may refer the valuation of the capital asset to a Valuation Officer and where any such reference is made, the provisions of sub-sections (2), (3), (4), (5) and (6) of section 16A, clause (i) of sub-section (1) and sub-
sections (6) and (7) of section 23A, sub-section (5) of section 24, section 34AA, section 35 and section 37 of the Wealth-tax Act, 1957 (27 of 1957), shall, with necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the Assessing Officer under sub-section (1) of section 16A of that Act.
[Explanation 1].--For the purposes of this section, "Valuation Officer" shall have the same meaning as in 9 ITA-1436 to 1438/D/2013 clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957).
[Explanation 2.--For the purposes of this section, the expression "assessable" means the price which the stamp valuation authority would have, notwithstanding anything to the contrary contained in any other law for the time being in force, adopted or assessed, if it were referred to such authority for the purposes of the payment of stamp duty.]."
15. From the above, it is evident that where the assessee objects to the value assessed for stamp duty purposes, then the Assessing Officer is to refer the valuation of capital asset to the Valuation Officer. Now, on the facts as recorded in the assessment order or in the order of the CIT(A), it is not clear that the assessee objected to the stamp duty valuation of both the flats or one flat only. If he objected to the valuation of both the flats, then why the matter was referred to the DVO only for one flat. If the matter was referred to the DVO for both the flats, then what about the valuation of the second flat. All these questions arise because in the order of the Assessing Officer, there is no mention of the valuation report of even first flat. The same was produced by the assessee before the CIT(A). In view of the above, we deem it proper to set aside the issue with regard to addition of `2,32,930/- to the capital gain of second flat, i.e., flat at Chintels House to the Assessing Officer and we direct him to verify the record and if the assessee has objected to the valuation made, then to refer the matter to the DVO, if already not referred, and then work out the capital gain as per sub-section (3) of Section 50C i.e., taking the lower of the value between the value assessed for stamp duty valuation or the value determined by the DVO. Accordingly, ground No.3 of the Revenue's appeal for AY 2008-09 is deemed to be allowed for statistical purposes.
10 ITA-1436 to 1438/D/2013
16. In the result, the Revenue's appeals in ITA Nos.1436/Del/2013 & 1437/Del/2013 are dismissed whereas Revenue's appeal in ITA No.1438/Del/2013 is deemed to be partly allowed for statistical purposes.
Decision pronounced in the open Court on 28th February, 2014.
Sd/- Sd/-
(RAJPAL YADAV)
YADAV) (G.D.AGRAWAL)
JUDICIAL MEMBER VICE PRESIDENT
Dated : 28.02.2014
VK.
Copy forwarded to: -
1. Appellant : Deputy Commissioner of Income Tax, Central Circle-
Circle-8, Room No.356, ARA Centre, E-2, Jhandewalan, New Delhi.
2. Respondent : M/s Mani Capital Limited, 14, Ratan Mahal, 15/197, 15/197, Civil Lines, Kanpur.
3. CIT
4. CIT(A)
5. DR, ITAT Assistant Registrar