TaxTMI 
TaxTMI 
2017 (11) TMI 1200
X X X X Extracts X X X X
X X X X Extracts X X X X
....nfirming the arbitrary disallowance of the project development expenses of Rs. 1,39,07,880 (total expenses claimed Rs. 1,73,84,853 on account of repair and maintenance of the club less 1/5th portion of it amortised i.e. Rs. 34,76,973 debited in the profit and loss account and allowed in the assessment) holding the entire expense as capital loss not allowable as business expenditure on the alleged ground that the project undertaken for development and creation of fixed assets was abandoned as non-viable. The decisions arrived at by the Assessing Officer and the learned Commissioner of Income-tax (Appeals) without properly considering and appreciating the facts were wholly unwarranted, uncalled for and bad in law. 2. For that in view of the facts and in the circumstances of the case the learned Commissioner of Income-tax (Appeals) was wholly wrong and unjustified in also holding the amortised 1/5th portion of the said project development expenses of Rs. 34,76,973 (1/5th of Rs. 1,73,84,853) as capital loss and reversing, on the same alleged ground as in ground No. 1 above, the Assessing Officer's decision in allowing deduction of the said sum of Rs. 34,76,973, ev....
X X X X Extracts X X X X
X X X X Extracts X X X X
....red in developing the city club project at the premises at 11, Russel Street, Kolkata were therefore claimed as expenditure incurred on an abandoned project and was revenue expenditure and had to be allowed in full since the same was incurred in the previous year relevant to the assessment year 2008-09. In the books of account the assessee amortised the expenditure incurred on developing the city club project over a period of five years. The assessee submitted that when it comes to determination of income, the entries in books of account are irrelevant and the entire project development expenses was claimed as a loss incidental to the business of the assessee or revenue expenditure which should be allowed in full as deduction. 4. The Assessing Officer, however, was of the view that since the assessee has claimed the expenditure by spreading it over for the period of five years in the books of account and therefore the assessee is entitled to claim only a sum of Rs. 34,76,973 in lieu of the claim for deduction of a sum of Rs. 1,73,84,853 as made in the return of income. The difference between the sum of Rs. 1,73,84,853 and Rs. 34,76,973 was added to the total income of the assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... decisions rendered by the hon'ble Calcutta High Court wherein it was held that the expenditure incurred on an abandoned project are allowable as deduction in computing income from business. The learned Departmental representative relied on the order of the Commissioner of Income-tax (Appeals) and submitted that the details of the expenses are not evident from the order of assessment and it is also not clear as to whether by incurring the development expenses in question any capital asset was created and as to whether the value of the said capital asset were capitalised. The learned counsel for the assessee pointed out that the only basis of disallowance by the Assessing Officer was that the expenditure was to be allowed at 1/5th over a period of five years as per the entries in the books of account. The Commissioner of Income-tax (Appeals) disallowed the entire expenditure was a capital loss. At this stage it is not open to the learned Departmental representative to argue that the details of the loss are not given and whether any capital asset was created by incurring of the aforesaid expenses. 8. We have given a careful consideration to the rival submissions. As rightly su....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of CIT v. Graphite India Ltd. [1996] 221 ITR 420 (Cal) held that an expenditure made for acquisition of new facility subsequently abandoned at work-in-progress stage was allowable, as expenses incurred wholly or exclusively for the purpose of the assessee's business. Similar view has been taken by the hon'ble Calcutta High Court in the case of CIT v. Britannia Industries Ltd. [2015] 376 ITR 299 (Cal) and the hon'ble Rajasthan High Court in the case of CIT v. Anjani Kumar Co. Ltd. [2003] 259 ITR 114 (Raj). Keeping in mind the facts of the present case and the ratio laid down in the aforesaid decisions, we are of the view that the entire expenditure of Rs. 1,73,84,853 expenditure on abandoned project development should be allowed as deduction. We hold and direct accordingly and allow grounds Nos. 1 to 2 raised by the assessee. As far as ground No. 3 which challenges the action of the Commissioner of Income-tax (Appeals) in enhancing the assessment without notice to the assessee as is contemplated under section 251(2) of the Act is concerned, we are of the view that in the light of the conclusion drawn in grounds Nos. 1 and 2 no adjudication is required on ground No. 3, t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... long-term capital gain at Rs. 10,48,23,234 on estimate completely rejecting/ ignoring, without assigning any reason, the appellant's computation of long-term capital gain legally and validly based on the registered and approved valuer. The actions of both the Assessing Officer and the learned Commissioner of Income-tax (Appeals) were wholly unwarranted, uncalled for, without jurisdiction and bad in law. 7. For that in view of the facts and in the circumstances and without prejudice to grounds Nos. 5 and 6, the learned Commissioner of Income-tax (Appeals) erred in relying on the report of the Departmental Valuation Officer (DVO) wherein the fair market value of the impugned property was determined at Rs. 20,46,600 based on the alleged sale instances and such action of the learned Commissioner of Income-tax (Appeals) is without appreciating the facts that such sale instances were not at all comparable and hence the reliance so placed by the learned Commissioner of Income-tax (Appeals) on the report of the Departmental Valuation Officer is without appreciating the facts and wholly illegal and as such the action of the learned Commissioner of Income-tax (Appeals)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e assessee has the option to adopt the fair market value of the asset as on April 1, 1981. The dispute raised in grounds Nos. 4 to 8 and the additional ground of appeal filed by the assessee before the Tribunal, is with regard to determination of the fair market value as on April 1, 1981. It is not in dispute that the property in question was acquired prior to April 1, 1981 and the assessee was entitled to adopt the fair market value as on April 1, 1981 while computing long-term capital gain. The assessee filed report of a registered valuer, who in his report adopted the fair market value as on April 1, 1981 of the property at Rs. 2,01,56,680 and after indexation the cost of acquisition was determined at Rs. 11,10,63,307. After detecting the cost of acquisition as determined above and after reducing the same from the full value of consideration received on transfer of a sum of Rs. 11,61,00,000, the assessee declared long-term capital gain of Rs. 50,36,693. 12. Under section 55A of the Act, the Assessing Officer has power to a make a reference to the valuation officer regarding valuation of a capital asset for the purpose of ascertaining fair market value of a capital asset. Sect....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e but to complete the case after estimating the value of land sale on the basis of surrounding information gathered from the Department and outside of the Department. When the valuation report reaches this office necessary amendment will be suitably done as per law to revalue/reassess the capital gain. 6.6. In view of above discussion after considering all this, for the sake of interest of the Revenue and attempting to plug revenue loss, the land value is taken as Rs. 45,000 per cottah as on January 1, 1981, for which the total land value comes to Rs. 20,46,600 as on January 1, 1981. After indexing cost of the land stands as Rs. 1,12,76,766 (20,46,600 x 551/100). As such index cost of the land value is taken as Rs. 1,12,76,766 in lieu of Rs. 11,10,63,307." 14. Before the Commissioner of Income-tax (Appeals) the report of the Departmental Valuation Officer was made available and in his report, he adopted the fair market value as on April 1, 1981 at Rs. 20,46,600. The grievance of the assessee was that the 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cessary to do so. It is obligatory on the part of the Assessing Officer to record such other relevant circumstances on the basis of which he forms such opinion in order to refer the matter to the valuation cell under said clause. It was contended that only in cases other than the case where there is no valuer's report given by the assessee, the Assessing Officer is empowered to make reference under section 55A(b) and not otherwise. 16. The Commissioner of Income-tax (Appeals) however did not agree with the view of the assessee and he adopted the value as given by the Departmental Valuation Officer and computed long-term capital gain. The following were the relevant observations of the Commissioner of Income- tax (Appeals) : "The submission of the authorised representative and the assessment order were duly considered. The value of property was determined by the appellant through registered valuer as on April 1, 1981 at Rs. 2.01 crores and by the Assessing Officer through the Departmental Valuation Officer at Rs. 20,60,244. In the assessment order value of this property as on April 1, 1981 was determined at Rs. 20,46,600 based on sale instances. As the Asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n a reference under section 55A of the Act, held that such a reference could not be made unless and until the Assessing Officer formed an opinion that the value shown by the assessee was less than the fair market value. The hon'ble Calcutta High Court followed the said decision in the case of CIT v. Smt. Mina Deogun [2015] 375 ITR 586 (Cal). However in a later decision rendered by the hon'ble Calcutta High Court in the case of Nirmal Kumar Ravindra Kumar (HUF) v. CIT [2016] 386 ITR 10 (Cal) the hon'ble Calcutta High Court took a view, in a case where the fair market value as on April 1, 1981 was supported by a registered valuer's report held that the reference was valid and fell within the ambit of section 55A(b)(ii) of the Act. The following were the relevant observations of the court (pages 13-14 in 386 ITR) : "The principal contention before the learned Tribunal was that the Assessing Officer could not have made a reference for evaluation of the property under section 55A(a) as the fair market value estimated by the registered valuer engaged by the assessee is higher than the actual fair market value. This contention is inherently incorrect. Policy of la....
X X X X Extracts X X X X
X X X X Extracts X X X X
....itted that out of the three decisions of the Calcutta High Court on the same issue, two earlier Division Bench judgments are in favour of the assessee accepting the view canvassed by the assessee before the Commissioner of Income-tax (Appeals) but the later judgment by a Division Bench has taken a contrary view. He brought to our notice that in the later judgment, the court did not consider its earlier two judgments on the same issue. It was submitted by him that in a situation where there are conflicting decision of the High Court on an issue which are irreconcilable and pronounced by judges of co-equal strength, then the earlier view has to be followed as the later decision has to be regarded as per incurium. In this regard he drew our attention to a decision of the hon'ble Supreme Court in the case of Sundeep Kumar Bafna v. State of Maharashtra [2014] 16 SCC 623 wherein the hon'ble Supreme Court took the view (at page 642, paragraph 19) 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 irreconcila....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n of the fair market value of the property ?" In paragraphs Nos. 4 and 5 of its judgment the hon'ble High Court held as follows (pages 681-682 in 360 ITR) : "The Tribunal in its order dated July 23, 2004 has categorically observed thus : 'The first issue that arises for our consideration is whether the reference made by the Assessing Officer to the Departmental Valuation Officer under section 55A is bad in law under the facts and circumstances of the case. This issue, in our considered opinion is covered in favour of the assessee and against the Revenue by the judgment in the case of Ms. Rubab M. Kazerani v. Joint CIT [2005] 97 TTJ (Mumbai) 698 (TM) ; [2004] 91 ITD 429 (Mumbai) (TM). Further the assessee also covered by the Third Member (sic) decision of the Pune Bench of the Tribunal, the case of the Smt. Krishnabai Tingre v. ITO [2006] 103 TTJ (Pune) 216; [2006] 101 ITD 317 (Pune) wherein it has been held that reference to Departmental Valuation Officer can only be made in cases where the value of capital asset shown by the assessee is less than its fair market value of land as on April 1, 1981 shown by the assessee on the basis of approved valuer'....
X X X X Extracts X X X X
X X X X Extracts X X X X
....) of section 55A cannot be made applicable. Clause (b) of section 55A can be invoked only in any other case, namely when the value of the asset claimed by the assessee is not supported by an estimate made by a registered valuer. In the facts of the present case, clause (b) of section 55A also cannot be invoked. Therefore there is no question of having recourse to sub-clause (ii) of clause (b) of section 55A of the Act." 22. The learned Departmental representative placed reliance on the later decision of the hon'ble Calcutta High Court referred to above in the case of Nirmal Kumar Ravindra Kumar (HUF) (supra) and submitted that if the interpretation adopted in the earlier decision is followed then that would result in policy of the law not being given effect. 23. We have given a very careful consideration to the rival submissions. The hon'ble Calcutta High Court in the earlier decision rendered in the case of Umedbhai International (P) Ltd. (supra) and Smt. Mina Deogun (supra) has taken the view that where the fair market value as on April 1, 1981 in support of computation of long-term capital gain as made by the assessee is supported by a report of a registered valuer....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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. Ground Nos. 4, 5 and 8 are allowed. Grounds Nos. 6 and 7 and the additional ground of appeal raised by the assessee does not call for any adjudication in view of the decision that the reference to the Departmental Valuation Officer is invalid and hence the long-term capital gain computed by the assessee has to be accepted. We hold ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... a plea of the assessee that the sum in question paid to the other clubs was not in the nature of a commission on which the assessee was obliged to deduct tax at source under section 194H of the Act. 26. The Assessing Officer was of the view that on the sum of Rs. 1,51,65,191 which was paid to the other clubs was in the nature of commission within the meaning of section 194H of the Act. Since the assessee had not deducted tax at source on the said payments the said sum was liable to be disallowed under section 40(a)(ia) of the Act and the sum disallowed was added to the total income of the assessee. 27. Before the Commissioner of Income-tax (Appeals) apart from reiterating the stand taken by the assessee before Assessing Officer the assessee also made a submission that as on the last date of the previous year, the sums payable to the other clubs had already been paid and nothing remained payable. The assessee relying on the decision of the Special Bench of the Income-tax Appellate Tribunal, Visakhapatnam in the case of Merilyn Shipping and Transports v. Addl. CIT [2012] 16 ITR (Trib) 1 (Visakhapatnam) [SB] ; [2012] 136 ITD 23 (Visakhapatnam) [SB] and contended that the disall....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... learned counsel for the assessee, however, made two prayers before us. Firstly, it was submitted that the Commissioner of Income-tax (Appeals) did not decide the question whether the amount paid to the other clubs would be in the nature of commission within the meaning of section 194H of the Act. Secondly, he made a prayer for a remand of the issue to the Assessing Officer with a direction to the Assessing Officer to verify if the payees have declared the receipt from the assessee in their return of income and if they have so declared then the addition under section 40(a)(ia) of the Act should be deleted by the Assessing Officer. The above submission was made in the context of the amendments to the provisions of section 40(a)(ia) of the Act by the Finance Act, 2012 with effect from April 1, 2013, whereby a second proviso was inserted which provided that if the payees have filed their return of income showing the receipts from the assessee in their return of income then it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in section 40(a)(ia) of the Act. 31. It was argued by....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d to the assessee as the tax deducted at source has not been paid on or before the due date for filing the return of income under section 139(1) of the Act. According to him the amendment by insertion of the second proviso to section 40(a)(ia) of the Act cannot be construed to have retrospective effect. He placed reliance on the decision of the hon'ble Kerala High Court in the case of Thomas George Muthoot v. CIT [2016] 6 ITR-OL 229 (Ker) ; [2015] 63 taxmann.com 99 (Ker). 35. We have 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 effec....