TaxTMI 
TaxTMI 
2015 (1) TMI 609
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.... during the assessment proceedings, it is seen that the circle rate of the said plot was 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....
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....of computing capital gain u/s 48." 8. Before us, the ld counsel for the assessee, submitted that the circle-rate as on the date of agreement to sale is to be taken 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....
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.... authority") for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer. (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 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, ....
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....he assessee. However subsequent to the said agreement to sell, there was change in the circle rate from 16th June 2014, whereby the valuation was enhanced from Rs. 13,000/- to Rs. 20,000/- per sq meter. This enhancement was beyond the control of the assessee (seller). It is also not the case of the revenue, that the buyer has given more than the consideration that has 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 vendo....
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.... no dispute that the assessee herein entered into a separate sale agreement with the two vendees respectively on 27.03.2003. The assessee has cited certain reasons for not executing the sale deed immediately which were not found to be false. Thereafter, the sale deeds were executed on 30.06.2005 by complying with the terms of the sale agreement. Hence the sale deed was executed for the 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 inten....
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....of the transfer would be to read into the statutory provision something which is not there; indeed, it would amount to re-writing the section. This argument was based on a strictly literal reading of s.52, sub-s.(2), but we do not think such a construction can be accepted. It ignores several vital considerations which must always be borne in mind when we are interpreting a statutory provision. 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....
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....han a year or two after the date of the agreement that the market price prevailing on the date of the sale is very much more than the price at which the property is sold under the agreement. Can it be contended with any degree of fairness and justice that in such cases, where there is clearly no under- statement of consideration in respect of the transfer and the transaction is perfectly honest and 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, wh....
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....hich incline us to accept this construction of s.52, sub-s(2). The Hon'ble Supreme Court also observed that while interpreting a section it would be legitimate to consider what was the mischief and defect, which was sought to be remedied by an enactment. In that connection the speech made by the Finance Minister while moving the amendment is extremely relevant as it throws a considerable light on 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 ....
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....degree of fairness and justice that in such cases, where there is clearly no under-statement of consideration in respect of the transfer and the transaction is perfectly honest and 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." 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 ....
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.... agreement, Since the process of sale has been initiated from the date of sale agreement, in our opinion, the character of the transaction vis-a-vis Income tax Act should be determined on the basis of the conditions that prevailed on the date the transaction was initially entered into. Accordingly, the applicability of the provisions of section 50C should be looked at only on the date of sale agreement. The assessee 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 ....
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....r the appellant that whether the return filed in the earlier assessment year showed profit or loss in so far as the assessee-company is concerned. Learned counsel for the appellant was not in a position to answer to this. Learned counsel for the respondent informed that even in the earlier year, the assessee had shown positive income and paid tax thereon. If that is the situation in any case, there is no loss of revenue. Had this expense 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 fact....
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.... (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act :] [Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under 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....
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.... it is clear that, in effect, the provisions of sub-sections (2) and (3) of Section 14A would be workable only with effect from the date of introduction of Rule 8D. This is so because prior to that date, there was no prescribed method and sub-sections (2) and (3) of Section 14A remained unworkable. How is Section 14A to be worked for the period prior to the introduction of Rule 8D? 41. Sub-section (2) of section 14A, as we have seen, stipulates that the Assessing 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 su....
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....on 14A is concerned. In such eventuality, the assessing officer cannot embark upon a determination of the amount of expenditure for the purposes of section 14A(1). In case, the assessing officer is not, on the basis of objective criteria and after giving the assessee a reasonable opportunity, satisfied with the correctness of the claim of the assessee, he shall have to reject the claim and state the reasons for doing so. Having done so, the assessing officer will have to 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....
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..... 1.58 crores; being converted into loan by the bank. In this view of the matter, the principal amount of loan written back got reduced by Rs. 11 lacs and should had been Rs. 5.01 Crores (5.12 crores - 0.11 crores). 29. Before us, the ld counsel for the assessee, submitted that the issue is covered in favour of the assessee in view of the judgements of the jurisdictional High Court in the case of 331 ITR 440 (del) and 325 ITR 87 (del). The ld DR, however has contended that the entire sum is a taxable income and is of revenue nature. In the alternative, he prayed that the matter may be restored to the file of 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, t....