2017 (11) TMI 1200 - AT - Income Tax

Assessee's Appeal Allowed on Project Expenses & LTCG, Revenue's Appeal Statistically Allowed

The Tribunal allowed the assessee's appeal regarding the disallowance of project development expenses and the assessment of Long-Term Capital Gain (LTCG) ... Computation of long-term capital gain earned - Departmental Valuation Officer did not give proper opportunity to the assessee before giving his report and the grievance in this regard is projected in the additional grounds of appeal raised before the Tribunal - conflicting decisions on the issue - Held that:- As decided in the case of Sundeep Kumar Bafna v. State of Maharashtra [2015 (8) TMI 724 - SUPREME COURT] wherein the hon'ble Supreme Court took the view that a decision or judgment can also be per incuriam if it is not possible to reconcile its ratio with that of a previously pronounced judgment of a co- equal or larger Bench and when High Courts encounter two or more mutually irreconcilable decisions of the Supreme Court cited at the Bar, the inviolable recourse is to apply the earliest view as the succeeding ones would fall in the category of per incuriam. The reference made in the present case to the Departmental Valuation Officer by the Assessing Officer has to be regarded as invalid. We therefore hold that reference by the Assessing Officer to the Departmental Valuation Officer under section 55A for valuation of fair market value of the property as on April 1, 1981 is not valid for the reason that the Assessing Officer was of the view that the fair market value declared by the assessee as per the Government registered valuer's report was more than the fair market value whereas in law the Assessing Officer could make a reference only when he is of the opinion that the value so claimed is less than the fair market value as on April 1, 1981. Since determination of the fair market value as on 1st April, 1981 was based on the report of the Departmental Valuation Officer, the same is held invalid. Consequently, estimation of the fair market value of the property as on 1st April, 1981 as made by the assessee is directed to be accepted. Thus the reference to the Departmental Valuation Officer is invalid and hence the long-term capital gain computed by the assessee has to be accepted - Decided in favour of assessee. Retrospectivity of the second proviso to Section 40(a) (ia) - TDS u/s 194H - sum in question paid to the other clubs - disallowance can be made under section 40(a)(ia) for non deduction on TDS - Held that:- considered the submissions of the learned counsel for the assessee and the learned Departmental representative and are of the view that on both the aspects pleaded by the learned counsel for the assessee, the assessee did not have an opportunity of taking this plea before the Revenue authorities. In the interest of justice we deem it fit and proper to set aside the order of the Commissioner of Income-tax (Appeals) on this issue and remand the issue for fresh consideration on two aspects pleaded by the learned counsel for the assessee before us. As per the second proviso to section 40(a)(ia) of the Act read with the proviso to section 201(1) of the Act inserted by the Finance Act, 2012 with effect from April 1, 2013 and July 1, 2012 respectively, if it is established that the person to whom made the payments made are disallowed under section 40(a)(ia) of the Act has furnished return of income under section 139 of the Act and has also taken into account the sum received from the assessee in computing in such return of income and if he had paid tax on the income declared by him on such income and furnished the certificate to the above effect to the accountant in Form No. 26A, then the assessee cannot be deemed to be an assessee in default under section 201(1) of the Act and no disallowance under section 40(a)(ia) of the Act should be made. As where two views are possible, the view in favour of the assessee has to be preferred. We therefore adopt the view taken by the hon'ble Delhi High Court in the case of Ansal Land Mark Township (2015 (9) TMI 79 - DELHI HIGH COURT ) which is favourable to the assessee. Accordingly the appeal of the Revenue is treated as allowed for statistical purposes. Issues Involved:1. Disallowance of project development expenses.2. Assessment of long-term capital gain (LTCG) on transfer of property.3. Disallowance under section 40(a)(ia) for non-deduction of tax at source.Issue-Wise Detailed Analysis:1. Disallowance of Project Development Expenses:The assessee, an association of persons operating a club, claimed project development expenses of Rs. 1,73,84,853 for the renovation of club premises. The Assessing Officer (AO) allowed only 1/5th of these expenses (Rs. 34,76,973) based on the entries in the books of account, disallowing the rest as capital loss. The Commissioner of Income-tax (Appeals) [CIT(A)] held that the entire expense was a capital loss and not allowable as business expenditure. The Tribunal found that the project development expenses were related to an abandoned project, which should be considered a revenue expenditure. The Tribunal referred to precedents where expenses on abandoned projects were allowed as deductions and directed that the entire expenditure of Rs. 1,73,84,853 be allowed as a deduction. The Tribunal also noted that the CIT(A) did not issue a notice under section 251(2) before enhancing the assessment, which was procedurally incorrect.2. Assessment of Long-Term Capital Gain (LTCG) on Transfer of Property:The assessee sold a property for Rs. 11,61,00,000 and declared LTCG based on the fair market value as of April 1, 1981, determined by a registered valuer at Rs. 2,01,56,680. The AO referred the valuation to the Departmental Valuation Officer (DVO), who valued the property at Rs. 20,46,600. The Tribunal held that the reference to the DVO was invalid as per section 55A, which allows such a reference only if the AO believes the value claimed by the assessee is less than the fair market value. Since the AO believed the value was more, the reference was invalid. The Tribunal followed earlier decisions of the Calcutta High Court, which supported the assessee’s view, and directed that the fair market value as declared by the assessee be accepted.3. Disallowance under Section 40(a)(ia) for Non-Deduction of Tax at Source:The AO disallowed Rs. 1,51,65,191 under section 40(a)(ia) for non-deduction of tax at source on payments made to other clubs. The CIT(A) deleted the disallowance based on the Special Bench decision in Merilyn Shipping, which held that disallowance under section 40(a)(ia) applies only to amounts payable and not to amounts already paid. The Tribunal noted that the Calcutta High Court and the Supreme Court in Palam Gas Service had overruled this view, holding that section 40(a)(ia) applies to both payable and paid amounts. However, the Tribunal remanded the issue to the AO to verify if the payees had included the payments in their returns and paid taxes, in which case no disallowance should be made, following the Delhi High Court's decision in Ansal Land Mark Township.Conclusion:The Tribunal allowed the assessee's appeal regarding the disallowance of project development expenses and the LTCG assessment. The Revenue's appeal was allowed for statistical purposes, with the issue of disallowance under section 40(a)(ia) remanded to the AO for further verification.