TaxTMI 
TaxTMI 
TaxTMI 
2015 (1) TMI 609
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.... Rs. 40,32,000/- on which stamp duty had been charged by the sub-registrar, GDA, Ghaziabad. The assessee was asked by AO, to clarify vide order sheet entry dated 20.12.2007 as to why in terms of provisions of section 50C(1) of the Income Tax Act, 1961 (herein after 'the Act'), the circle rate may not be adopted for computing the capital gain on sale of above property. 5. Not satisfied with the reply of the assessee company, the AO enhanced the long term capital gain and worked out the same as under:- Sale price or Circle rate whichever is higher 40320000 Brokerage paid 432000 Less 39888000 6. Cost of acquisition of land (indexed Year of acquisition/ improvement Cost Cost of inflation index 1994-95 9365739 259 17357354 1995-96 1156063 281 1974770 1996-97 675625 305 1063278 1997-98 199500 351 272821 Index Cost of acquisition 20668223 Long term capital gain 19219777 7. Before the ld CIT(A), it was submitted that assessee sold the land vide registered agreement dated 27th May 2004, for consideration of Rs. 2,62,08,000/- and on the said date the circle rate was Rs. 13,000/- per sq meter. However, on the date of registration of sale....
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.... instead of circle-rate on the date of sale. He relied on the decision of Vishakapatnam Bench in the following case:- i) M/s. Lahiri Promoters Vs. ACIT, ITA No.12/Vizag/2009, dated 22.06.2010 335-346 ii) Koduru Satya Srinivas & Anr. V ACIT, ITA No.556 and 557/Vizag/2008, dated 02.07.2010 347-357 iii) Molle Rami Reddy Vs. ITO, ITA No. 311/Vizag/2010, dated 10.12.2010 358-367 9. It was alternatively submitted that the consideration adopted of Rs. 4.03 crores is more than the actual consideration of Rs. 2.62 crores, therefore AO erred in not referring the valuation of land to the Valuation Officer. In support reliance was place on the case of Ajmal Fragnancer and Fashion Pvt. Ltd. 34SOT57 and Trishla Jain Vs. ITO 11 OTR (Tribunal) 579. On the other hand, the ld DR, placed reliance on the orders of the authorities below and submitted that the addition is based on the plain reading of the statute. 10. Having considered the submission, material on record and case laws, we find in the instant case, the appellant entered into an agreement to sale dated 27th May 2004 for sale of land at Kaushambi, Ghaziabad. The agreement to sell was duly regist....
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....e any Assessing Officer that the value adopted or assessed 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 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-For the purposes of this section, 'Valuation Officer shall have the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957). (3) Subject to the provisions cont....
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....as been accepted by the parties where they executed the agreement to sale. Furthermore on facts of a case, the Hon'ble Apex court held that registration of the transfer in accordance with the agreement to sale cannot be termed as the "date of transfer" as envisaged by Section 50C of the Act (Sanjeev lal & Anr. Vs. CIT & Anr. (2014) 365 ITR 389(SC)), wherein, it was held as under:- "In normal circumstances by executing an agreement to sell in respect of an immoveable property, a right in personam is created in favour of the transferee/vendee. When such a right is created in favour of the vendee, the vendor is restrained from selling the said property to someone else because the vendee, in whose favour the right in personam is created, has a legitimate right to enforce specific performance of the agreement, if the vendor, for some reason is not executing the sale deed. Thus, by virtue of the agreement to sell some right is given by the vendor to the vendee. The question is whether the entire property can be said to have been sold at the time when an agreement to sell is entered into. In normal circumstances, the aforestated question has to be answered in the negative. However, looki....
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....he consideration as agreed between the parties as per the sale agreement. If we apply the provisions of section 50C literally, the tax authorities are right in adopting the value assessed by the stamp authority for the purposes of computation of capital gains. However, Ld AR has heavily placed reliance on the decision of Hon'ble Supreme Court in the case of K.P. Verghese Vs. ITO, referred supra, with regard to the proper interpretation of section 50C in the facts and circumstances of the case. 10. The Hon'ble Supreme Court in the case of Shri K.P. Varghese vs. ITO (supra) has observed that while interpreting a provision, strictly literal reading of Section should not be adopted if it leads to manifestly unreasonable and absurd consequences. However attempt should be made to discover the intent of the legislature from the language used by it. The Hon'ble Apex Court rendered the said decision in the context of then existing Sec 52(2) of the Act, which provided that where a capital asset is transferred and if in the opinion of the ITO, the fair market value of that asset exceeds the full value of the consideration declared by the assessee by an amount of not less than 15%....
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....ision. The task of interpretation of a statutory enactment is not a mechanical task. It is more than a mere reading of mathematical formulae because few words possess the precision of mathematical symbols. It is an attempt to discover the intent of the legislature from the language used by it and it must always be remembered that language is at best an imperfect instrument for the expression of human thought and, as pointed out by Lord Denning, it would be idle to expect every statutory provision to be "drafted with divine prescience and perfect clarity". We can do no better than repeat the famous words of judge teamed heared Hand when he said: .. it is true that the words used, even in their literal sense, are the primary and ordinarily the most reliable source of interpreting the meaning of any writing: be it a statute, a contract or anything else. But it is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary: but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning". We must not adopt a strictly literal interpretatio....
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....d bonafide and, in fact, in fulfilment of a contractual obligation, the assessee, who has sold the property, should be liable to pay tax on capital gains which have not accrued or arisen to him? It would indeed be most harsh and inequitable to tax the assessee on income, which has neither arisen to him nor is received by him, merely because he has carried out the contractual obligation undertaken by him. It is difficult to conceive of any rational reason why the legislature should have thought it fit to impose liability to tax on an assessee who is bound by law to carry out his contractual obligation to sell the property at the agreed price and honestly carried out such a contractual obligation. It would indeed be strange if obedience to the law should attract the levy of tax on income, which has neither arisen to the assessee nor has been received by him. If we may take another illustration, let us consider a case where A sells his property to B with a stipulation that after some time which may be a couple of years or more, he shall re-sell property to A for the same price. Could it be contended in such a case that when B transfers the property to A for the same price at which he ....
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.... the objectives and purpose of enactment. However, as pointed out by Ld AR the purpose of introduction of Sec 50C was not mentioned by the Finance Minister at the time of moving amendment. It was also not explained in the Notes on clauses and Explanatory Memorandum attached to the relevant Finance Bill. However, the Hon'ble Madras High Court in the case of K.R. Palani Swamy and others Supra, while upholding the constitutional validity of Sec 50C, had an occasion to spell out the objective of introducing Sec 50c. The relevant observations are extracted below: 17. Let us consider the legislative competence of the Parliament in inserting the provision s.50C of the IT Act. It is obvious from the reading of the above provision and rather it is not disputed that the same is inserted to prevent large scale under valuation of the real value of the property in the sale deed so as to defraud Revenue, the Government legitimately entitled to by pumping in black money. The impugned provision has been incorporated to check such evasion of tax by undervaluing the real properties. .................................................... Tax could be evaded by breaking the law or could be avoide....
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....table to tax the assessee on Income, which has neither arisen to him nor is received by him, merely because he has carried out the contractual obligation undertaken by him. It is difficult to conceive of any rational reason why the legislature should have thought it fit to impose liability to tax on an assessee who is bound by law to carry out his contractual obligation to sell the property at the agreed price and honestly carried out such a contractual obligation. It would indeed be strange if obedience to the law should attract the levy of tax on income, which has neither arisen to the assessee nor has been received by him." 11.2 The Hon'ble Apex court in the case of K.P.Verghese, supra has held that the provisions of section 52(2), that was existing at the relevant point of time was not applicable to a honest and bona' fide transaction where the consideration received by the assessee was correctly declared or disclosed by him and there was no concealment or suppression of the consideration. The Hon'ble Supreme Court, after considering the speech of the Finance Minister, has understood that the object of introduction of section 52(2) was to curtail those transactions....
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....has filed a certificate obtained from the Joint Sub Registrar, Visakhapatnam, regarding market value of the impugned property as on the date of the sale agreements. The said certificate was not produced before the tax authorities. We have already held that the provisions of section 50C should be applied to the impugned sale transactions as on the date on which sale agreements were entered into. Since the applicability of section 50C as on the date of sale agreements is required to be examined by the AO, we set aside the issue to the file of the AO with a direction to compute the capital gains on sale of impugned properties after applying the provisions of section 50C as on the date of sale agreements. Accordingly, the order of Ld CIT(A) is reversed. 15. The ratio of the above decision, has also been followed in the case of Kodura Satya Srinivas ITA No.556/559 dated 02.07.2010 and Mook Rani Reddy 311/Visaka) dated 10.12.2010. No contrary decision has been brought to our notice. 16. Having regard to the above, factual and judicial position we delete the addition. As a result the ground is allowed. 17. Ground No. 3 to 3.3 relates to disallowance of Rs. 33,12,722/- of prior period e....
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....pense been allowed in the previous year, the assessee would have paid lesser tax. On this ground also, we do not find it to be a fit case to interfere with the order of the Tribunal. This appeal is accordingly dismissed." 19. From the perusal of the aforesaid judgement, it is noted that the Hon'ble High Court has held that though expenditure incurred is reported as prior period expenditure, yet expenditure is allowable in the instant year. It is seen that the expenditure claimed represent bills settled during the course of business during the year under consideration. It is otherwise too well settled law that a contractual liability is allowable in the year of crystallisation of liability [refer 82 ITR 363 (SC)]. Having regard to the aforesaid factual and judicial positions, we delete the disallowance made and sustained by the authorities below and allow the ground raised by the assessee. 20. Ground No.4 to 4.3 relates to disallowance u/s 14A of the Act. 21. The AO made the disallowance in the instant case by observing as under:- "7. The assessee has earned dividend income of Rs. 1,20,85,365/-. As per section 14A no deduction can be allowed for expenses incurred in relation to....
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.... section 154, for any assessment year beginning on or before the 1st day of April, 2001. 24. The Hon'ble High Court of Delhi, in the case of Maxopp Investment Ltd. Vs. CIT reported in 347 ITR 272 (Del) has held as under:- "Para 30. Sub-section (2) of section 14A of the said Act provides the manner in which the Assessing Officer is to determine the amount of expenditure incurred in relation to income which does not form part of the total income. However, if we examine the provision carefully, we would find that the Assessing Officer is required to determine the amount of such expenditure only if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under the said Act. In other words, the requirement of the Assessing Officer embarking upon a determination of the amount of expenditure incurred in relation to exempt income would be triggered only if the Assessing Officer returns a finding that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Therefore, t....
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....ssing Officer shall determine the amount of expenditure incurred in relation to income which does not form part of the total income " in accordance with such method as may be prescribed". Of course, the determination can only be undertaken if the Assessing Officer is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. This part of section 14A (2) which explicitly requires the fulfilment of a condition precedent is also implicit in section 14A (2) which explicitly requires the fulfilment of a condition precedent is also implicit in section 14A(1) {as it now stands} as also in its initial avatar as section 14A. It is only the prescription with regard to the method of determining such expenditure which is new and which will operate prospectively. In other words, section 14A, even prior to the introduction of sub-sections (2) & (3) would require the assessing officer to first reject the claim of the assessee with regard to the extent of such expenditure and such rejection must be for disclosed cogent reasons. It is then that the question of determination of such expenditure by the assessing officer would arise. The requirement of adopting a s....
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....o determine the amount of expenditure incurred in relation to income which does not form part of the total income under the said Act. He is required to do so on the basis of a reasonable and acceptable method of apportionment. 25. Applying the aforesaid ratio, and the exercise that is required to be adhered to by the AO is clearly spelt out in para 42 above. In the light of the aforesaid order of the Hon'ble High Court, we remit this issue back to the file of the AO, to decide the matter afresh as outlined above in para 42 of the order extracted above in Maxopp (supra) case. 26. Ground No.5 relates to addition of Rs. 11 lakhs out of loan written off in the instant year. 27. The facts in brief are that during the year, the assessee credited the profit and loss account with a sum of Rs. 5,12,70,887/- (Page 111 of the PB) representing the amount written back on account of remission of liability of loan as a result of One Time Settlement (OTS) with ICICI Bank. However, the same was reduced in the computation of income by the assessee on the ground such income is not taxable as the amount is of capital nature. The AO however rejected the claim by observing as under:- "The remission ....
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.... AO for verification of the utilization of loan. Having considered the factual position and material on record, we find force in the alternative prayer made by the ld DR that there is no finding in the order as to utilization of the loan. We therefore, restore this issue back to the file of the Assessing Officer for his fresh adjudication with a direction to the assessee to furnish all the details and particulars of loan, and the purpose for which the loan taken from Bank was utilized. All these informations are within the control and specific knowledge of the assessee and, therefore, it would be the duty of the assessee to prove and establish that the amount of loan taken from the Bank was utilized for the purpose of acquiring capital assets in case the assessee wants to have the benefit of decision of Hon'ble Delhi High Court in the case of CIT vs. Tosha International Ltd. (2009) 176 Taxman 187 (Delhi) as well as the decision of Hon'ble Bombay High Court in the case of Mahindra & Mahindra Ltd. Vs. CIT (2003) 261 ITR 501. If on an enquiry and verification, it transpires that the assessee has utilised the loan for the purpose of its business activity or trading activity, the amount....