Income Tax Appellate Tribunal - Panji
Dy. Cit, Circle-1, Jalgaon vs Smt. Taradevi Ratanlal Bafna,, Jalgaon on 9 January, 2018
आयकर अपीलीय अिधकरण, पुणे ायपीठ "ए
ए" पुणे म
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "A", PUNE
ी डी.
डी क णाकरा राव , लेखा सद य
एवं ी िवकास अव थी,
अव थी याियक सद य के सम
BEFORE SHRI D.KARUNAKARA RAO, AM
AND SHRI VIKAS AWASTHY, JM
आयकर अपील सं. / ITA No.732/PUN/2013
िनधा रण वष / Assessment Year : 2009-10
Smt. Taradevi Ratanlal Bafna,
Prop. of R.C. Bafna Jewellers,
91, Subhash Chowk,
Jalgaon - 425 001
PAN : AADPB9424E .... अपीलाथ /Appellant
Vs.
JCIT, Range-1, Jalgaon .... यथ / Respondent
आयकर अपील सं. / ITA No.904/PUN/2013
िनधा रण वष / Assessment Year : 2009-10
DCIT, Circle-1, Jalgaon
.... अपीलाथ /Appellant
Vs.
Smt. Taradevi Ratanlal Bafna,
Prop. of R.C. Bafna Jewellers,
91, Subhash Chowk,
Jalgaon - 425 001
PAN : AADPB9424E .... यथ / Respondent
आयकर अपील सं. / ITA No.447/PUN/2015
िनधा रण वष / Assessment Year : 2009-10
Smt. Taradevi Ratanlal Bafna,
Prop. of R.C. Bafna Jewellers,
91, Subhash Chowk,
Jalgaon - 425 001
PAN : AADPB9424E
.... अपीलाथ /Appellant
Vs.
JCIT, Range-1, Jalgaon/
CIT(A)-2, Nashik .... यथ / Respondent
Assessee by : Shri Sunil Ganoo
Revenue by : Shri Rajeev Kumar & Shri Mukesh Jha, CIT DRs
सुनवाई क तारीख
/ घोषणा क तारीख /
Date of Hearing : 10.11.2017 Date of Pronouncement: 09.01.2018
2
ITA Nos.732 & 904/PUN/2013 &
ITA No.447/PUN/2015
Smt. Taradevi Ratanlal Bafna
आदेश / ORDER
PER D. KARUNAKARA RAO, AM :
There are 3 appeals under consideration. There are cross appeals for the A.Y. 2009-10 and they are ITA Nos. 732/PUN/2013 and 904/PUN/2013. These appeals are filed by the Assessee and the Revenue against the order of CIT(A)-II, Nashik dated 26-02-2013. Further, there is another appeal filed by the assessee vide ITA No.447/PUN/2015 for the same assessment year and the same has genesis in the rectification order passed u/s.154 of the I.T. Act.
2. Brief facts of the case are that the assessee is a partner in M/s. Bafna Builders and Land Developers, Jalgaon. Assessee is engaged in the business of trading activity in Gold and bullion & ornaments, diamond and diamond ornaments. Assessee filed the return of income declaring total income of Rs.30,11,75,820/-. Assessment was completed u/s.143(3) of the Act determining the assessed income at Rs.36,07,76,280/-. Number of additions were made by the AO and the details in summary are given in page 17 of the assessment order.
3. Aggrieved with the said additions, assessee filed an appeal before the CIT(A)-II, Nashik. At the end of the First Appellate Proceedings, CIT(A) partly allowed the appeal of the assessee. Subsequently, the CIT(A) also found apparent mistake in his order and therefore, he invoked the provisions of section 154 of the Act and rectified his order vide rectification order dated 13-01-2015 after following due process of law and after giving opportunity to the assessee. Aggrieved with the relief granted by the CIT(A), the Revenue is in appeal before us vide ITA No.904/PUN/2013. Further, aggrieved with the additions confirmed by the CIT(A) the Assessee is in appeal vide ITA No.732/PUN/2013. 3
ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna Further, aggrieved with the decision of the CIT(A) in assuming jurisdiction u/s.154 of the Act, the assessee filed another appeal ITA No.447/PUN/2015 requesting for cancelling the said rectification order. We shall now take up the appeal-wise adjudication in the following paragraph.
ITA No.904/PUN/2013 (By Revenue - A.Y.2009-10) ITA No.732/PUN/2013 (By Assessee - A.Y.2009-10) ITA No.447/PUN/2015 (By Assessee - A.Y. 2009-10)
4. In connection with the cross appeals in general and the assessee's appeal in particular, Ld. Counsel for the assessee filed a chart giving the details of the grounds raised originally in the appeal as well as the additional grounds raised during the course of the proceedings before the Tribunal. The issues, the issue-wise arguments of the parties and the decision of the Tribunal on each of them, are given in the following paragraphs.
5. The first issue raised by the assessee relates to the "disallowance of interest of Rs.49,23,531/-". It has two segments namely (1) the disallowance of interest of Rs.8,10,106/- relating to the diversion of funds for non-business purposes; and (2) the disallowance of an amount of Rs.41,13,425/- u/s.36(1)(iii) of the Act.
6. The facts relating to the disallowance include that the assessee debited interest expenditure as well as credited the interest income earned by her. The AO disallowed the interest expenditure of Rs.49,23,531/- and added to the income returned by the assessee. In this regard, the Assessee's argument includes that the said interest constitutes an allowable expenditure u/s.37 of the Act. AO held that the claim of the assessee is not allowable as the same constitute diversion of funds for non-business purposes. Further, in connection with the claim of other part of interest, AO invoked the provisions of 4 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna section 36(1)(iii) of the Act for denying the claim of the assessee. It is the argument of the Ld. Counsel for the assessee that the lower authorities erred in relying on the provisions of section 36(1)(iii) for denying the claim as the advances received are for business purposes and therefore, the interest claimed if any is allowable u/s.37 of the Act. Ld. Counsel for the assessee filed the written submissions mentioning the following :
"...The AO has made the addition on the ground of diversion of funds for non business purpose and u/s.36(1)(iii) of the I.T. Act, 1961. The appellant had filed her explanation before Ld.CIT(A) vide page Nos. 55 to 69 of paper book which has been quietly ignored by the Ld.CIT(A) who has drawn erroneous conclusions of his own. Basically all the advances were for business considerations, i.e. advances were given during the course of carrying on the business on which no interest was charged.
The Ld. AO made the disallowance on account of diversion of funds for non business purposes and also u/s. 36(1)(iii) of the I.T. Act, 1961 and Ld.CIT(A) made the disallowance only u/s.36(1)(iii) which is incorrect and if at all the disallowance was to be made it should have been made u/s.37. The appellant most respectfully submits that the matter cannot be restored to the lower authorities to ascertain the applicability of provisions of section 37 of the I.T. Act, 1961 and reliance is placed on three high court decisions submitted in the case of Bafna Builders and Developers which is simultaneously heard."
7. From the above, it is the submission of the assessee's counsel that the issue may be restored to the file of the AO and the same will be in tune with the decision of the Tribunal in the case of M/s. Bafna Builders and Land Developers - ITA Nos. 706/PUN/2013 and ITA No.162/PUN/2015 & ITA No.902/PUN/2013 order dated 30-10-2017 where Ground No.3 was already remanded to the file of the AO for fresh adjudication as per the discussion given in Para 17 of the said order of the Tribunal (supra). In the remand proceedings, AO was directed to grant reasonable opportunity to the assessee.
8. Ld. DR for the Revenue relied heavily on the orders of the AO and the CIT(A).
5
ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna
9. After hearing both the sides, we are of the view that this ground should revisit to the file of the AO. Therefore, Ground No.1 in its entirety, is remanded to the file of the AO for fresh adjudication. Accordingly, Ground No.1 is allowed for statistical purposes.
10. The second issue raised vide Ground No.2 relates to "disallowance of interest of 17,41,441/- u/s.14A r.w. Rule 8D of the I.T. Rules". On this issue also, Ld. Counsel for the assessee submitted in the written submissions that this issue also needs to revisit to the file of the AO submitting the following arguments :
"1. The Ld.CIT(A) has failed to properly analyse the facts in proper perspective and his conclusions drawn on page no.47 & 48 of the impugned order are erroneous and hence deserve to be rejected.
2. Both the lower authorities have failed to appreciate that the appellant had surplus funds of her own and therefore a presumption arises that the investments were made out of own funds. The appellant therefore requests that the issue may please be restored to the file of the Ld. AO in the light of the developed legal position in this respect with a direction that the disallowance should not exceed the exempt income."
11. Ld. DR for the Revenue relied heavily on the orders of the AO and the CIT(A).
12. Before us, Ld. Counsel for the assessee submitted that the assessee has excess funds which were invested in the shares which yielded dividend income and the interest claimed by the assessee is nothing to do with the investments made by him in the exempt income yielding investments. For examining the claim of the assessee as well as applying the correct law on this issue, Ld. Counsel desires that the matter should be restored to the file of the AO.
13. On hearing both the parties and also in tune with our finding on an identical issue raised in Ground No.3 of the appeal adjudicated by us in the case of M/s.Bafna Builders and Land Developers, we are of 6 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna the opinion that this should also re-visit to the file of the AO with identical directions. Accordingly, Ground No.2 raised by the assessee is allowed for statistical purposes.
14. Ground No.3 relates to the addition of Rs.63,75,000/- made u/s.69B of the Act. Background facts of this issue include that Chhoriya Group was searched u/s.132 of the Act. Search resulted in seizure of a document involving Shri Ratanlal C. Bafna for the A.Y. 2009-10. According to the said document, the assessee purchased Shirdi plots amounting to Rs.1,13,75,000/-. However, on verification of the records, it was noticed that an amount of Rs.50 lakhs only was reflected in the books of the assessee. Considering the fact there was settlement of loan between Chhoriya group and Shri Ratanlal C. Bafna. The differential amount of Rs.63,75,000/- was added in her hands and her husband hands u/s.69B of the Act. In this regard, assessee furnished the following arguments/objections to the decision of the lower authorities :
"1. The transaction was a distress sale entered into by the appellant after the search and seizure action on the said group.
2. Mr. Ratanlal C. Bafna in his case has challenged the addition.
3. The addition has been made on presumptions and surmises without giving an opportunity to the appellant to cross examine the author of the document from Chhoriya group.
4. There is no evidence with the department that the appellant has paid the amount to her husband.
5. Once the amount is added in the hands of the husband of the appellant the same amount cannot be added in the hands of the appellant as then it would be a case of double addition."
15. Further, Ld. AR submitted before us, making addition of the same amount in the cases of the assessee as well as her husband, is unsustainable in law. Further, referring to the violation of principles of natural justice, Ld. AR submitted that the said seized paper was never 7 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna supplied to the assessee and the opportunity was also not granted by the AO before any addition is made. Furnishing a copy to her husband during the course of his assessment proceedings does not cure the legal defect. It is the prayer of the Ld. Counsel before us that this issue should also revisit to the file of the AO for proper adjudication following the principles of natural justice.
16. On hearing both the parties, where the Ld. DR for the Revenue relied heavily on the orders of the AO and the CIT(A), we find prima- facie, mistake in taxing the same amount both in the assessee's case and her husband's case. Further, supplying the copy of the document to the assessee is her legitimate right before any addition is made in her hands relying on the said document. Therefore, AO is directed to supply the same and also cross examination if any before making any addition in her case and in the remand proceedings. Accordingly, as requested, the issue is restored to the file of the AO for fresh adjudication. AO is directed to grant reasonable opportunity of being to the assessee in accordance with law. Accordingly, Ground No.3 raised by the assessee is allowed for statistical purposes.
17. Ground No.4 by the assessee relates to the addition of Rs.1,67,54,510/-. Background facts of this issue includes that assessee is a co-owner of a property which was given to M/s. Bafna Builders and Land Developers. As per the AO, Assessee has 1/5th share in the said property along with other 4 members. Value of the property as per the stamp duty purposes is around Rs.13.38 crores (rounded off). However, as per records, her share of sale consideration of the property is around Rs.1 crore in equal proportion. This property was referred to the valuation during the remand proceedings. However, there was delay in receipt of the said DVO's report by the AO and the 8 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna assessment was completed considering the assessee's share of consideration at Rs.2,67,54,510/- out of Rs.13.38 crores. After reducing the accounted portion of Rs.1 crore, the AO proceeded to make addition of the balance amount of Rs.1,67,54,510/- u/s.50C of the Act (Rs.2,67,54,510 - Rs.1,00,00,000/-).
18. During the First Appellate proceedings, the CIT(A) received the said valuation report of the DVO and found the DVO's value is much less than the said figure of Rs.13.38 crores. Considering the objections raised by the assessee before the CIT(A), the matter was once again referred to the DVO. As per the valuation submitted by the DVO, the property value was conclusively determined at Rs.6,72,51,553/- against the Sub Registrar's price of Rs.13.38 crores. Ld.CIT(A) considered the DVO's final report which reiterated the figure of Rs.6,72,51,553/- and, as per the discussion given in Para No.7.2.2 of his order, the CIT(A) deleted the entire addition made by the AO in the assessment. The said para is relevant and the relevant lines are extracted as under :
"7.2.2. . . . . . . . .In view of the legal position and decisions of the various courts, AO was not justified in taking the value ascertained by stamp duty valuation officer as FMV of the property. AO was required to adopt the DVO's valuation as FMV. However, since it was not available at the time of finalization of the assessment proceedings on 21-12-2011, AO should have taken the necessary remedial action post assessment order. The AO seems to be under a mistaken belief that the DVO's valuation is not binding on the AO. In my considered opinion this view is totally in disregard to the provisions of sec.50C that the AO has supplied in the case of the appellant. In view of the above addition of Rs.1,67,54,510/- is not legally sustainable and hence deleted, I find that on similar facts in the case of Shri Rahul Bafna, the matter has been decided in favour of the appellant vide me appeal order No.Nsk/CIT(A)- II/390/11/12, dt.31-12-2012."
19. Subsequently, the CIT(A) amended his order and conclusions are given in Para 7.2.2 of his order. CIT(A) invoked the provisions of section 154 of the Act and rectified his order vide his order dated 13-01-2015 restricting the addition to Rs.34,50,311/- only against the original 9 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna addition of Rs.1,67,54,510/- (supra). In this order, the CIT(A) considered the DVO's figure of Rs.6,72,51,553/- and distributed the same among the 5 co-owners of the property and determined the share of each co-owner at Rs.1,34,50,311/-, after giving credit to the accounted consideration of Rs.1 crore, the balance to be taxed u/s.50C of the Act, is determined at Rs.34,50,311/- (Rs.6,72,51,553/5 = Rs.134,50,311/- - Rs.1,34,50,311 - Rs. 1 Crore = Rs.34,50,311/-)
20. Aggrieved with the said addition of Rs.34,50,311/- after rectification as well as aggrieved with the original addition of Rs.1,67,54,510/-, in toto, the assessee has raised the said Ground No.4 as well as 3 other grounds vide ITA No.447/PUN/2015 (relating to proceedings u/s.154 of the Act.
In this appeal assessee raised the objections against rectification done by the CIT(A) and demanded cancellation of the same. However, during the assessment proceedings before us, Ld. Counsel for the assessee fairly submitted that these issues gets covered by the adjudication of the Tribunal if any in the present appeal vide Ground Nos. 4 to 6 raised in the main appeal of the assessee. Accordingly, the said appeal No.447/PUN/2015 is dismissed.
We shall deal with all these grounds in a composite manner in the next paragraph along with cross appeals.
21. In this regard, relating to addition u/s.50C of the Act r.w.s. 154 of the Act, Ld. Counsel for the assessee filed the following written submissions :
"1. Though the development agreement was registered on 02-04-2008, in fact the possession of the property was given on 01-08-2007. Refer page Nos. 46 & 47 of paper book filed. During the course of assessment proceedings the appellant filed a reply dt. 20-12-2011 as to why the impugned addition be not made and the said reply has been reproduced by the learned AO. in his impugned 10 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna assessment order. But the learned AO mechanically made the addition. However both the lower authorities have held that the value of the property as on 02-04-2008 had to be considered for making addition u/s.50C of the I.T. Act, 1961 and accordingly the addition has been made.
2. The plans were submitted to Nashik Municipal Corporation on 28-12-2007.
3. All the works regarding development of lands were immediately started after 01-08-2007.
4. The stamp duty of Rs.3,94,500.00 was paid on 28-12-2007. But the document could not be executed due to some difficulties.
5. The document was finally executed on 02-04-2008 when additional stamp duty of Rs.9,37,300.00 was paid as the stamp duty valuation rates shot up. The DVO has also taken note of this fact in his report.
6. The Hon.Andhra Pradesh High Court at Hyderabad in ITA No.501 of 2013 in the case of CIT vs Shri S.Venkat Reddy has held that transfer is complete under IT. Act 1961, as soon as the possession of the property is given and the registration of the document is a mere formality and has held that market value as on the date of possession is to be taken [Copy of decision along with decision of Hon. ITAT filed herewith] Therefore the value of the properties on 1-08-2007 be considered.
7. The appellant submits that there is a calculation mistake committed by the learned C.I.T.[A] while directing in his order passed u/s 154 of the IT. Act to take 1/5 value of the property i.e. 1/5 of Rs.6,72,51,553.00 which includes Rs.1,07,41,941.00 being the valuation of separate properties of Mr.Rahul Bafna Thus the valuation of the property held jointly by the appellant with three others works out to Rs.5,65,09,612.00 and the valuation of 1/4 share of the appellant works out to Rs.1,41,27,403.00. Therefore if at all any addition is to be made it would be of Rs.41,27,403.00.
22. Further, bringing our attention to various additional grounds (No. 1 & 2) raised before us, Ld. Counsel for the assessee submitted that these grounds also have nexus to Ground No.4 discussed above. While additional Ground No.1 deals with applicability of provisions of section 45(3) of the Act qua the section 50C of the Act, the additional Ground No.2 deals with the nature of the property if the same constitutes stock in trade, in which case the provisions of section 50C has no application in the relevant assessment year.
23. Before us, Ld. Counsel for the assessee argued that provisions of section 45(3) of the Act overrides the provisions of section 50C of the Act and they are not mutually exclusive. Fairly mentioning that whole 11 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna of these issues needs to revisit to the file of the AO for comprehensive adjudication of the various aspects of the issues raised in grounds as well as in the additional grounds, Ld. Counsel submitted that provisions of section 50C of the Act have no application to this property, which has become the stock-in-trade of the firm to the extent the partner transferred her share of property in which assessee is a partner. Further, Ld. AR also identified certain bonafide mistakes occurred in the rectification order passed by the CIT(A) u/s.154 of the Act and submitted that addition, if any, should be restricted to only Rs.43,27,403/- and not Rs.34,50,311/-. In this regard, Ld. AR brought our attention to the written submission in Item No.7 extracted in Para 21 above.
24. Per Contra, Ld. DR for the Revenue relied heavily on the orders of the AO and the CIT(A) and submitted that lower authorities have rightly applied the provisions of section 50C of the Act as the asset transferred by the partner does not constitute stock in trade in the hands of the assessee or the firm. Referring to the arguments of the Ld. Counsel for the assessee that the provisions of section 45(3) of the Act overrides the provisions of section 50C of the Act, Ld. DR relied on the decision of the Lucknow Bench of the Tribunal in the case of Carlton Hotel Pvt. Ltd. Vs. ACIT in order dated 14-11-2008.
25. On hearing both the sides, we find the issues raised in Ground No.4/Additional Ground Nos. 4, 5 & 6 requires fresh consideration and comprehensive adjudication by the lower authorities. We find the DVO's report was not available when the assessment was originally finalized vide AOs' order dated 21-12-2011. AO relied heavily on the Sub Registrar Office price of the property rather than the Fair Market Value as determined by the DVO. CIT(A) deleted the entire penalty on 12 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna technical grounds as per the discussion given in Para 7.2.2 of his order. However, he rectified his order and adopted an expert's figure of Rs.6,72,51,553/-. The said amount was divided equally among the 5 co-owners before confirming the amount of Rs.34,50,311/- in the assessee's hands. Assessee's counsel has not only questioned his computation and the division of property qua Mr.Rahul Bafna another co-owner of the other properties. It is the counsel's argument that the fair market value of Rs.6,72,51,533/- is required to be adjusted to arrive at a figure of Rs.5,65,09,612/- after excluding the figure of Rs.1,07,41,941/- (the value of the property sold by Mr. Rahul Bafna). AO needs to verify these calculations and the ownership of the properties. In that case adjusted figure of Rs.5,65,09,612/- is required to be adjusted among 4 co-owners only. In that case, assessee' share comes to Rs.1,41,27,403/-. After giving credit to the accounted sum of Rs.1 crore in the books of account, the balance required to be added is Rs.43,27,403/- and not the lesser amount of Rs.34,50,311/-, as adopted by the CIT(A) in his order. To that extent of Rs. 6,77,092/-, (Rs.41,27,403 - Rs.34,50,311), there is loss to the Revenue. Further, we find the decision of the Andhra Pradesh High Court in the case of CIT Vs. S. Venkat Reddy vide ITA No.501/2013 was not considered which is relevant for the proposition that date of possession of property prevails over the date of registration of property for the purpose of determination of the market value. As per the Ld. Counsel for the assessee, the date for determining the value of the property required to be considered is 01-08-2007. Considering the large number of issues and the arguments raised by the Ld. Counsel for the assessee, we are of the view that there is a need for bringing out the facts relating to the ownership of the property, requirement of exclusion of Rs.1,07,41,941/- of Mr. Rahul Bafna, the date of registration of 13 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna property vs. the date of possession of the property qua the applicability of judgment of Hon'ble Andhra Pradesh High Court (supra), whether the property transferred by the partner to the firm constitutes stock in trade or otherwise etc.
26. On hearing both the parties on this issue, in the remand proceedings, we direct the AO to examine all the above referred aspects of the issue and decide the requirement of making addition in the hands of the assessee u/s.50C of the Act. AO shall grant reasonable opportunity of being heard to the assessee in connection with the set principles of natural justice. Accordingly, Ground No. 4 and the additional grounds raised in his chart (Ground Nos. 5 and 6) are admitted and allowed for statistical purposes.
27. Ground 3 raised by the assessee at issue No.7 of his chart was not pressed. Accordingly, the said ground is dismissed as 'not pressed'.
28. Additional ground No.4 raised at issue No.8 of his chart deals with direction given by the CIT(A) to the AO to take follow up action, if any, in accordance with the provisions of section 28(iv) of the Act. CIT(A) noticed that the assessee purchased commercial property from her firm at the rate of sale price/sq.ft., which is lesser than the market rate. According to CIT(A), the difference in the said rate constitutes a taxable benefit u/s.28(iv) of the Act. Therefore, the CIT(A) gave the said direction to the AO.
29. In this regard, relevant facts are that the assessee purchased commercial property/shops from M/s. Bafna Builders and Land Developers, the firm in which the assessee is a partner. This issue was discussed at length in connection with Ground No.1 of the Revenue's 14 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna appeal for the A.Y. 2009-10 vide ITA No.902/PUN/2013. It is the allegation of the Revenue that the firm conferred benefit to the extent of Rs.2,44,62,169/-. AO invoked the provisions of section 28(iv) of the Act on the firm. CIT(A), in the case of the firm, deleted the addition holding that there is sustainable reasons for the firm for selling the property at lower sale price to Ms. Taradevi Ratanlal Bafna, the present assessee. Some of the reasons include the payment of advance of Rs.5 crores to the firm by Ms. Taradevi Ratanlal Bafna well before the commencement of the construction apart from many other reasons. In any case, the provisions of section 28(iv) of the Act applies on the recipients benefitted and not the firm-giver. Accordingly, the CIT(A) deleted the addition and the Revenue was in appeal on this relief. This issue was dealt by the Tribunal in Para Nos. 20 to 24 of the said Tribunal's order in the case of the M/s. Bafna Builders and Land Developers (supra). The Tribunal confirmed the said decision of the CIT(A) holding that "24...... Therefore, the provisions of section 28(iv) is not relevant to this issue. The said provisions are relevant, when the benefit is accrued to the assessee and not in a case like the present one where the assessee is a seller and the discount is allowed to the partner of the firm. Accordingly, we are of the view that the decision of CIT(A) is plausible view taken by him and it does not require any interference. Accordingly, ground No.1 and 2 raised by the Revenue are dismissed."
30. Therefore, the issue of applicability of section 28(iv) of the Act is required to be analysed at length in the case of the present assessee, the beneficiary of the benefit.
31. Before us, Ld. Counsel for the assessee submitted that the provisions of section 28(iv) are not applicable to the assessee who happened to purchase part of the constructed area which constituted stock in trade. He also made various arguments in support of the said claim. In the chart submitted by Ld. Counsel for the assessee he 15 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna submitted that the said purchase transacstion constitutes the transaction of withdrawal of the stock in trade at cost price and the same outside the scope and ambit of provisions of section 28(iv) of the Act.
32. Per Contra, Ld. DR filed the written submissions which read as under :
"4. In our case, the AO has taxed it under section 28(iv) i.e. perquisite or benefit accrued to assessee in exercise of doing business. Here, the assessee got shops at concessional rate as she is a 60% partner of the firm. So it is clearly a benefit as per section 28(iv). The AO has spelt out in the detail the benefit accrued to assessee by comparing the sale of shops to other unrelated parties.
5. During the course of hearing, the Ld. AR also took the plea that assessee had given Rs 5 crores as advance to the firm. However, it was not clear for what purpose the advance was given. As it is clear from the books of accounts of assessee, there are many layers of transactions between the assessee and the firm. For want of clarity, the advance of Rs. 5 crores to firm cannot be linked with the transaction of shops at concessional price. Benefit accrued to the assessee stands undisputed."
33. We heard both the sides on the issue of applicability of section 28(iv) of the Act. We find this issue requires remanding to the file of AO for fresh consideration both on facts as well as the law. AO is directed to pass a speaking order on the issue if the benefits are actually flown to the assessee. If the answer is 'Yes', they fall within the scope of section 28(iv) of the Act. AO shall also adjudicate each and every argument raised before him on this issue by the counsel by passing a speaking order accepting or rejecting the arguments of the assessee. Further, on the issue of giving direction by the CIT(A), we find the requirement of going into the background facts of the said direction. For this, we perused the relevant text of the direction from the order of the CIT(A). On perusal of the same, we find the said direction is absolutely superfluous and unwarranted as mentioned in Para 16 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna No.6.5.5 at page 44 of the order of CIT(A) and the relevant lines containing the direction is extracted here asunder :
"6.5.5 . . . . . . . . . . . The AO is however directed to take the follow up action if any, in this regard in the year when sale deed is registered in favour of Smt. Taradevi Bafna."
The above direction of the CIT(A) has a background and the same is evident in the preceding lines of the said Para No.6.5.5. We discussed the relevant facts in the preceding paragraphs of this order. We have also considered the written submissions filed by the Ld. Counsel for the assessee vide letter dated 13-11-2017 (Para No.4). To brief the same, this is a case where the assessee purchased commercial premises for a lesser consideration qua the fair market value of the same. Originally, the AO taxed the differential cost u/s.28(iv) of the Act in the hands of the firm who sold the commercial premises to the assessee. The assessee has 60% shareholder in the said firm by name M/s. Bafna Builders and Land Developers. It is the finding of the CIT(A) that the assessee got the benefit to the tune of Rs.2,44,62,169/-. It is the finding of the Tribunal as well as the CIT(A) that the said amount is not taxable in the hands of the firm.
In the background of these facts, the CIT(A) have given the above direction, which in our view is consequential comment of the CIT(A) Even if the said direction is absent in the said paragraph, the authorities below would anyway initiate the consequential proceedings. From that point of view, we are of the view that the direction given by the CIT(A) does not warrant any amendment. Therefore, the argument of the assessee's counsel extracted above in this regard are relevant when consequential effect if any, is to be given in the course of the proceedings before the AO. Therefore, we are of the opinion that the impugned direction per se is consequential. Therefore, the Additional 17 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna Ground No.4 of the appeal raised by the assessee is admitted and dismissed.
34. In the result, ITA No.447/PUN/2015 filed by the assessee is dismissed and ITA No.732/PUN/2013 filed by the assessee is partly allowed for statistical purposes.
ITA No.904/PUN/2013
A.Y. 2009 - 10
35. Grounds raised by the Revenue are as under :
"1. On the facts and circumstances of the case and in law, the Ld.CIT(A)-II, Nashik erred in granting the relief of Rs.7,87,262/- as against addition made of Rs.10,87,262/- on account of vehicle expenses and deleted the addition of Rs.1,00,000/- on account of shop expenses. These additions is made by Assessing Officer after taking into consideration the factual position.
2. On the facts and circumstances of the case, the Ld.CIT(A)-II, Nashik erred in deleting the addition made by AO on account of boxes of Rs.15,00,000/-. The additions is made by Assessing Officer after taking into consideration that boxes/bag have clear cut nexus with sales.
3. On the facts and circumstances of the case, the Ld.CIT(A)-II, Nashik erred in deleting the addition made by AO on account of Kavi Samelan expenses of Rs.2,15,675/-. The additions is made by Assessing Officer after taking into consideration that organization of such function is a personal pride and to show the status in society and not for business purpose.
4. On the facts and circumstances of the case, the Ld.CIT(A)-II, Nashik erred in deleting addition on account of business profit u/s.28(iv) of Rs.2,44,62,169/-. The additions is made by Assessing Officer after taking consideration that firm has sold two shops to its partner for the price less than market price.
5. On the facts and circumstances of the case, the Ld.CIT(A)-II, Nashik erred in deleting addition of Rs.2,55,550/- made by the AO u/s.40A(2)(b). The additions is made by Assessing Officer for increase in salary & bonus as compared to last year.
6. On the facts and circumstances of the case the Ld.CIT(A)-II, Nashik erred in granting the relief of Rs.10,41,440/- on account of disallowance u/s.14A r.w.r 8D. The additions is made by Assessing Officer after considering the diverted borrowed funds and given interest free advances.
7. On the facts and circumstances of the case the Ld.CIT(A)-II, Nashik erred in deleting of Rs.1,67,54,510/- made by AO u/s.50C of Act. The additions is made by Assessing Officer after taking out the base of Stamp duty valuation in view of provisions of section 50C of the I.T. Act, 1961."18
ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna
36. Ground No.1 raised by the revenue relates to granting relief of Rs.7,87,262/- against addition of Rs.10,87,262/- on account of vehicle expenses. This ground raises the issue on deletion of addition of Rs.1 lakh shop expenses.
37. Relevant facts are discussed in Para 5 of the assessment order. Assessee owns 11 cars. 6 cars out of them are shown as fixed assets in the year under consideration. Considering absence of maintenance of log books of each vehicle and also considering the fact that the vehicles are held in the name of Smt. Taradevi Bafna, the AO rejected the claim of the assessee. AO commented by stating that these luxury vehicles are utilized by the assessee and the family members for purposes more than the business use. In the absence of details, the AO held as under:
"5. . . . . . The cost of vehicles and variety of vehicles shown by the assessee clearly shows that these are luxury vehicles and therefore its use by the assessee and by her family members are more than the business use. However, in absence of details for business and personal purposes, the actual use cannot be worked out vehicle wise. Therefore, considering the totality of facts and circumstances of the case, I disallow 50% of expenses including Driver's salary and depreciation for personal use and allow 50% for business use."
AO worked out 50% disallowance at Rs.9,95,788/-. Further, AO also disallowed another amount of Rs.91,474/- debited to the profit and loss account.
38. CIT(A) granted relief to the tune of Rs.7,87,262/- as per the discussion given in Para Para No.6.2.2 of his order holding that the disallowance is on the higher side. Relevant discussion is extracted here as under :
"6.2.2 . . . . . AO has made 50% disallowance of Rs.19,91,576/- claimed by the appellant on vehicle expenses, Drivers' salary and depreciation. In my considered view 50% disallowance is on a very higher side. The same is restricted to Rs.3,00,000/- roughly 15% of the total expenses."19
ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna
39. Considering the above reasoning given by the CIT(A), we are of the view that the order of the CIT(A) is fair and reasonable and it does not call for any interference. Accordingly, relevant part of Ground No.1 by the Revenue is dismissed.
40. So far as the disallowance of Rs.1 lakh on account of shop expenses, we find the CIT(A) vide discussion given in Para No.6.2.2 held as under:
"6.2.2. . . . . .As regards disallowances on account of personal use and shop expenses, there is no dispute that tea/coffee/cold drinks are frequently served to the customers in a jewellery show room. I don't think that the appellant would claim bogus expenses on tea/coffee/cold drinks. I therefore, delete the addition of Rs.1 lac made by the AO in this regard."
41. Therefore, the finding given by the CIT(A) deleting the addition of Rs.1 lakh made by the AO is fair and reasonable and does not call for any interference. Accordingly, this part of Ground No.1 by the Revenue is also dismissed.
42. Ground No.2 raised by the Revenue relates to the addition of Rs.15 lakhs on account of boxes, i.e. the packing material. Relevant discussion is given in Para Nos. 6.3 and 6.3.1 of the CIT(A)'s order. Assessee debited the said expenses on account of consumption of boxes, i.e. packing material given to the customers on extra sales of gold items in Jalgaon Branch. Assessee made claim of expenses on account of purchase of packing material amounting to Rs.21,75,879/- and Rs.5,88,189/- for Aurangabad and Jalgaon Branches respectively on this account of packing material. AO disallowed Rs.15 lakhs out of the same on adhoc basis-cum-estimations. On these facts, CIT(A) held that exercise of disallowance is purely out of surmises and doubt. The addition made by the AO does not have any corroborative evidence. Relevant lines from the order of CIT(A) is extracted here asunder : 20
ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna "6.3.1. . . . . . .Carry bags are given liberally for publicity and I am of the considered view that the appellant with this social and economic standing will not indulge in inflating the expenses through bogus boxes account. Unless some corroborative evidence is brought on record showing that the appellant has made bogus payment on account of any expense claimed by her in the P&L a/c, no addition, simply on assumption or theoretical/classroom exercise, can be made. Any addition merely on the basis of theoretical exercise will not stand to the test of the legal scrutiny. In view of the above, I am of the considered opinion that the addition of Rs.15 lac made by the AO without any corroborative evidence is not justified. The same is deleted."
43. From the above, it is a fact that AO could neither bring any corroborative evidence that the assessee has made bogus payments nor prove the expenses to be untrue. Therefore, we uphold the decision of the CIT(A) on this issue.
44. Ground No.3 raised by the revenue relates to the disallowance of Rs.2,15,673/- on account of Kavi Sammelan Expenses. Relevant facts include that the AO disallowed the said claim of expenses holding the same as non business expenditure. Assessee holds that the expenditure incurred on Hasya Kavi Sammelan constitutes an advertisement for her business. Considering the fact that the assessee failed to establish the nexus, the AO disallowed the said expenditure, In the First Appellate proceedings, the CIT(A) appreciated the assessee's claim that the same constitutes advertisement expenditure. Further, he elaborated the fact that the said functions are held to be payment and not in the residential premises of the assessee and therefore advertisement value of the said expenditure was appreciated and the addition was deleted by the CIT(A). Relevant lines from the order of CIT(A) are extracted here asunder :
"6.4.1. . . . .The fact however, remains that the function was organized basically for the purpose of advertisement of her business. It was a public function and not something which was confined to four wall of her residence. In view of the above, I am of the considered opinion that the expenditure on Hasya Kavi Sammelan was in the nature of business expenditure and AO was not justified in disallowing the same. The addition of Rs.2,15,675/- is deleted."21
ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna
45. The above view of the CIT(A) is one plausible view. Therefore the order of CIT(A) holding the expenses as income expenses and consequently deleting the expenses incurred by the assessee on Haysa Kavi Sammelan does not warrant any interference from our side. Accordingly, Ground No.3 raised by the Revenue is dismissed.
46. Ground No.4 by the Revenue relates to relief granted by the CIT(A) in connection with the arguments revolving around the applicability of provisions of section 28(iv) qua addition of Rs.2,44,62,169/-. This amount constitutes taxable as a benefit in the hands of the assessee. This issue was dealt while dealing with Ground No.4 and the related Additional Ground No.4 of the appeal of the assessee. Accordingly, Ground No.4 raised by the Revenue is also remanded to the file of AO for fresh adjudication as per the direction given by us in the said appeal of the assessee. Accordingly, Ground No.4 raised by the revenue is allowed for statistical purposes.
47. Ground No.5 relates to the deletion of addition of Rs.2,55,550/- u/s.40A(2)(b) of the Act. This amount was claimed as payment of salary and bonus to the employees. The same constitutes an extra amount paid in this year qua the last year's claim.
48. On hearing both the sides, we find the AO is duty bound to prove the salary and bonus paid to the employees as unreasonable. CIT(A) has rightly held that the addition made the AO is only on estimate basis and without discharging the onus. In this view of the matter, the decision of the CIT(A) needs to be approved and in favour of the assessee. Accordingly Ground No.5 raised by the revenue is dismissed. 22
ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna
49. Ground No.6 by the Revenue relates to relief of Rs.10,44,440/- on account of disallowance u/s.14A r.w. Rule 8D of the Act. This ground is connected to Ground No.2 of the assessee's appeal in ITA No.732/PUN/2013. We have remanded this issue to the file of AO for fresh adjudication. Consequently, this issue being common in law should also be re-examined by the AO after considering the assessee's claim as well as settled legal propositions on the issue that the disallowance is uncalled for when assessee has excess interest free funds. AO is directed to apply relevant binding judgments on the issue after granting reasonable opportunity of being heard to the assessee. Accordingly, Ground No.6 raised by the revenue is allowed for statistical purposes.
50. Ground No.7 by the revenue pertains to deletion of addition of Rs.1,67,54,510/- involving the provisions of section 50C of the Act. Infact, this issue shares with the facts relating to Ground No.4 of the assessee's appeal and also the issues raised by the assessee in the appeal ITA No.447/PUN/2015 in connection with the rectification order passed u/s.154 of the Act.
51. As per the discussion given in Para Nos.21 to 26 of this order above, we are of the opinion that this ground by the revenue should also be remanded to the file of AO with identical directions given in Para No.26 and others. Accordingly, Ground No.7 by the revenue is allowed for statistical purposes.
52. In the result, appeal of the revenue is partly allowed for statistical purposes.
23
ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna
53. To sum up, ITA No.447/PUN/2015 filed by the assessee is dismissed and the cross appeals filed by the assessee and the revenue are partly allowed for statistical purposes.
Order pronounced in the open court on this 09th day of January, 2018.
Sd/- Sd/-
(VIKAS AWASTHY) (D. KARUNAKARA RAO)
याियक सद य /JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER
पुणे Pune; दनांक Dated : 09th January, 2018.
सतीश
आदेश क
ितिलिप अ ेिषत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. The CIT(A)-2, Nashik
4. CIT-2, Nashik
5. िवभागीय %ितिनिध, आयकर अपीलीय अिधकरण, "A Bench"
Pune;
6. गाड फाईल / Guard file.
आदेशानुसार/ BY ORDER,स
स यािपत ित //True Copy//
//True Copy// Senior Private Secretary
आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune