Alfa Laval [I] Ltd, Pune vs Assessee

Alfa Laval (India) Ltd., Bombay Pune Road, Dapodi, Pune - 411 012. PAN : AAACA5899A .... Appellant

Vs.

Addl. Commissioner of Income Tax, Range- 8, Pune. .... Respondent

ITA No.2442/PN/2012 (Assessment Year : 2005-06)

Asstt. Commissioner of Income Tax, Circle- 8, Pune. .... Appellant

Vs.

M/s Alfa Laval (India) Ltd., Mumbai-Pune Road, Dapodi, Pune - 411 012. PAN : AAACA5899A .... Respondent

Assessee by : Mr. Sunil Pathak Department by : Mr. B. C. Malakar Date of hearing : 19-01-2015 Date of pronouncement : 18-03-2015

ORDER

PER G. S. PANNU, AM

The captioned are cross-appeals, each by the assessee and the

Revenue, pertaining to the assessment year 2005-06, which were heard

together and are being disposed-off by way of a consolidated order for the

sake of convenience and brevity.

2. The captioned cross-appeals are directed against the order of the

Commissioner of Income Tax (Appeals)-V, Pune dated 17.09.2012 which, in 2 ITA No.2300/PN/2012 ITA No.2442/PN/2012

turn, has arisen from an order dated 30.12.2008 passed by the Assessing

Officer u/s 143(3) of the Income Tax Act, 1961 (in short "the Act").

3. In the appeal of the assessee, Grounds of Appeal raised read as

under :-

"1.1 The learned CIT(A) erred in confirming an addition of Rs.1,56,03,500/- by applying the provisions of Section 50C of the Income Tax Act, 1961 without appreciating that the appellant company had sold a depreciable asset wherein the capital gains is computed u/s. 50 and as the provisions of section 50C were not applicable to depreciable assets, the addition of Rs.1,56,03,500/- made by applying the provisions of section 50C is not justified at all. 1.2 Without prejudice to ground no 1.1, the assessee submits that the learned CIT(A) erred in confirming the addition made of Rs.1,56,03,500/- without appreciating that the fair market value of the asset sold was less than the stamp duty valuation and hence, there was no reason to make any addition u/s. 50C.

1.3 The learned CIT(A) failed to appreciate that -

• The sale consideration received by the Appellant Company was the fair market value of the property as on the date of transfer and that no cash transaction was involved and the fair market value determined by the DVO was not correct.

• The building in which the office was located was constructed much prior to year 1954.

• The condition of the office at the time the Appellant Company sold the said office was not good, especially the basement part which used to have a lot of water clogging during monsoon. The description of the present condition provided by the learned DVO of the basement is due to the refurbishment and renovation work carried out by the subsequent buyers.

2.1 The learned CIT(A) erred in confirming an ad hoc disallowance to the extent of Rs.75,000/- u/s. 14A of the Income Tax Act, 1961. 2.2 He erred in not appreciating that the investments (on which the dividend was received) were made out of owned funds of the company and that no portion of salary paid to staff and other expenses were incurred in relation to exempt dividend.

2.3 He erred in not following the decision of Mumbai High Court in the case of CIT v General Insurance Corporation of India (No.1) (2002) 254 ITR 203 (Mum.).

3. The learned CIT(A) erred in confirming an adhoc disallowance of vehicle expenses to the extent of Rs.3,00,000/- out of total vehicle expenses of Rs.1,19,22,863/- on the ground that the same are not incurred wholly and exclusively for the purposes of business.

4. The learned CIT(A) erred in confirming an adhoc disallowance of Rs.10,57,860/- out of Miscellaneous Expenses on the ground that expenditure to above extent is incurred for non business purposes without appreciating 3 ITA No.2300/PN/2012 ITA No.2442/PN/2012

that the said expenditure was incurred wholly and exclusively for the purpose of the business of the assessee company.

5. The learned CIT(A) erred in confirming disallowance of cost of club services of Rs.98,816/- u/s. 37(1) of the Income Tax Act, 1961.

6. The learned CIT(A) erred in confirming an adhoc disallowance of Rs.3,17,240/- (being 0.2% of Workman & Staff Welfare Expenses, Sales Promotion Expenses, Advertisement Expenses and Travelling Expenses in all aggregating to Rs.15,86,19,829/-) to cover the leakage of revenue."

4. In so far as the Ground of Appeal Nos.1.1 to 1.3 is concerned, it relates

to an addition of Rs.1,56,03,500/- made by the Assessing Officer by applying

section 50C of the Act.

5. In brief, the relevant facts are that assessee was owning two office units

in Mustafa Building, Phirozshah Mehta Road, Fort, Mumbai, which were sold

during the year under consideration for a total consideration of

Rs.3,50,00,000/- in terms of a Deed of Apartment registered on 23.12.2004.

The Assessing Officer noted that the value adopted by the Stamp Valuation

Authority for the purposes of payment of stamp duty in respect of the deed

executed on 23.12.2004 was Rs.5,06,03,500/-, which was more than the

actual consideration received by the assessee. Therefore, he show-caused

the assessee as to why the value so considered by the Stamp Valuation

Authority be not considered as full value of consideration for the purposes of

computing capital gain on sale of the property on the strength of the provisions

of section 50C of the Act. Assessee submitted before the Assessing Officer

that the said building was an old building constructed in 1954 and the

tenements were not in good condition and therefore the valuation adopted by

the Stamp Valuation Authority for the purposes of payment of stamp duty was

in excess of the Fair Market Value of the Property. The Assessing Officer,

having regard to the provisions of sub-section (2) of section 50C of the Act

referred the valuation of the property to the Departmental Valuation Officer

(DVO), who has determined the Fair Market Value of the property at

Rs.6,56,24,654/-. Ostensibly, the Fair Market Value determined by the DVO 4 ITA No.2300/PN/2012 ITA No.2442/PN/2012

was higher than the value adopted by the Stamp Valuation Authority and

therefore in terms of sub-section (3) of section 50C of the Act, the value

adopted by the Stamp Valuation Authority for the purposes of payment of

stamp duty is to be taken as the full value of the consideration received or

accruing as a result of transfer for the purposes of computing capital gains. As

a consequence, the CIT(A) has also affirmed the action of the Assessing

Officer in adopting of Rs.5,06,06,500/- as the full value of consideration for the

purposes of computing capital gain on the transfer of the impugned property in

terms of section 50C of the Act.

6. Against the aforesaid, plea of the Ld. Representative for the assessee

is that what the assessee had sold was a depreciable asset wherein capital

gains is computed in terms of section 50 of the Act and therefore, in such

situations, the deeming provisions contained in section 50C of the Act were

not applicable. Though the Ld. Representative has raised the aforesaid

argument but he fairly conceded that this aspect of the matter has been

adjudicated by the Special Bench of the Tribunal in the case of ITO vs. United

Marine Academy (2011) 130 ITD 113 (Mum) (SB) against the stand of the

assessee. Thus, following the decision of the Special Bench of the Tribunal in

the case of United Marine Academy (supra), the said aspect is decided

against the assessee.

7. Alternatively, it has also been pointed out that the adoption of

Rs.5,06,03,500/- as the full value of the consideration is not justified because it

corresponded to the date on which the Deed of Apartment is registered i.e. on

23.12.2004 whereas the assessee had entered into a Memorandum of

Understanding (MOU) for sale of the property on 20.04.2004 itself, wherein the

consideration of Rs.3,50,00,000/- was also finalized. In this context, reference

has been made to the copy of the MOU dated 20.04.2004 filed in the Paper

Book at pages 1 to 10. The Ld. Representative pointed out that at the time of 5 ITA No.2300/PN/2012 ITA No.2442/PN/2012

entering of the MOU on 20.04.2004 not only the final consideration was

agreed upon but advance was also received which has been duly noted in the

final Deed of Apartment executed on 23.12.2004. He, therefore, submitted

that if at all the provisions of section 50C are to be applied and the value

assessable by the Stamp Valuation Authority for the purposes of stamp duty is

to be adopted as the consideration for the purposes of computing capital gain,

it should be done with reference to the value as on 20.04.2004.

8. On the other hand, the Ld. Departmental Representative appearing for

the Revenue contended that the value adopted for the purposes of payment of

stamp duty as on the date of transfer should be adopted for the purposes of

section 50C of the Act, which in the present case is 23.12.2004.

9. We have carefully considered the rival submissions. On this aspect, we

find that the said plea has been raised by the assessee before us, and it was

not raised before the lower authorities. We deem it fit and proper to remand

this aspect back to the file of the Assessing Officer, who shall examine the

same in accordance with law. Needless to say, the Assessing Officer shall

allow the assessee an opportunity of being heard before passing an order

afresh on this aspect. Thus, on this aspect assessee partly succeeds for

statistical purposes.

10. The Grounds of Appeal Nos.2.1 to 2.3 raised by the assessee relate to

a disallowance of Rs.75,000/- sustained by the CIT(A) in terms of section 14A

of the Act. On this aspect, the facts are that in the course of assessment

proceedings, Assessing Officer noted that assessee had earned certain

incomes by way of dividend from mutual funds, etc. which was exempt from

tax. He, therefore, invoked section 14A of the Act and disallowed 10% of the

total exempt income, i.e. Rs.20,41,929/- as an estimated expenditure incurred

for earning such exempt income. Accordingly, the Assessing Officer 6 ITA No.2300/PN/2012 ITA No.2442/PN/2012

disallowed a sum of Rs.20,41,929/- on this aspect. The CIT(A) noted that in

the past year's, in assessee's own case only an ad-hoc disallowance of

Rs.75,000/- was retained on this count and following the precedent, the CIT(A)

retained the disallowance u/s 14A of the Act to the extent of Rs.75,000/- and

deleted the balance. Assessee is in appeal challenging the sustenance of

addition to the extent of 75,000/- whereas the Revenue in its cross-appeal has

assailed the action of the CIT(A) in allowing part relief to the assessee. Since

the two cross-Grounds involve same issue, they are being taken-up together.

11. On this aspect, it was a common ground between the parties that the

similar disallowance retained by the CIT(A) in assessment year 2004-05 was

not challenged by the Department before the Tribunal and therefore the said

decision had become final. The Ld. Representative also pointed out that even

assessee had not challenged the decision of the CIT(A) before the Tribunal for

assessment year 2004-05 in sustaining the disallowance of Rs.75,000/-. It

was therefore submitted by the rival parties that the matter be decided in the

light of the aforesaid precedent.

12. In view of the aforesaid factual matrix, we deem it fit and proper to

affirm the order of the CIT(A) on this aspect and accordingly the Grounds of

Appeal No.2.1 to 2.3 of the assessee and the cross-Ground raised by the

Revenue in its appeal are dismissed.

13. Ground of Appeal No.3 raised by the assessee is with regard to an ad-

hoc disallowance of Rs.3,00,000/- sustained by the CIT(A) out of the vehicle

expenses. In this context, brief facts are that in the year under consideration,

assessee had incurred of total expenditure on vehicles at Rs.1.19 crores out of

which the Assessing Officer made an ad-hoc disallowance of Rs.5,96,000/- on

the ground that the expenses were not incurred wholly or exclusively for the

purposes of business. The CIT(A) has deleted a sum of Rs.2,96,000/- and 7 ITA No.2300/PN/2012 ITA No.2442/PN/2012

retained a disallowance of Rs.3,00,000/- on an ad-hoc basis. In coming to

such conclusion, the CIT(A) followed the order of his predecessor in the

assessee's own case for the assessment year 2004-05. At the time of hearing

before us, it was submitted by the Ld. Representative that in assessment

years 2003-04 and 2004-05, the Tribunal in assessee's own case vide ITA

Nos.1005/PN/2007 and 88/PN/2008 respectively dated 30.06.2011 has set-

aside the issue back to the file of the Assessing Officer for fresh verification.

Following the aforesaid precedent, which is not disputed by the Ld.

Departmental Representative, on this aspect we restore the matter back to the

file of the Assessing Officer to decide it afresh in the light of the direction of the

Tribunal contained in order dated 30.06.2011 (supra). Thus, on this aspect,

assessee succeeds for statistical purposes.

14. By way of Ground of Appeal No.4, assessee has challenged the order

of the CIT(A) in confirming an ad-hoc disallowance of Rs.10,57,860/- made out

of miscellaneous expenses. In this context, relevant facts are that during the

assessment proceedings, assessee was found to have incurred various

expenses like sales promotion expenses, conference expenses,

advertisement expenses, etc. which was grouped under the head

"miscellaneous expenses". The total of such expenditure was a sum of

Rs.10,57,86,072/- and the Assessing Officer on an ad-hoc basis disallowed

1% of the same on the ground that it was not incurred wholly and exclusively

for the purposes of business. The disallowance so made came to

Rs.10,57,860/-. The CIT(A) has also sustained the disallowance, against

which assessee is in appeal before us.

15. At the time of hearing, the Ld. Representative for the assessee pointed

out that similar issue came before the Tribunal in assessee's own case for

assessment years 2003-04 and 2004-05 wherein the Tribunal vide its order

dated 30.06.2011 (supra) has set-aside the matter back to the file of the 8 ITA No.2300/PN/2012 ITA No.2442/PN/2012

Assessing Officer for fresh verification. Following the aforesaid precedent,

which continues to hold the field and has not been disputed by the Ld.

Departmental Representative, we set-aside the impugned order of the CIT(A)

and restore the matter back to the file of the Assessing Officer who shall

decide the issue afresh in the light of the directions of the Tribunal contained in

order dated 30.06.2011 (supra). Thus, on this aspect, assessee succeeds for

statistical purposes.

16. In Ground of Appeal No.5, issue raised by the assessee is with regard

to a sum of Rs.98,816/- which represented cost of club services disallowed by

the lower authorities. On this aspect also, it was a common point between the

parties that the said issue is covered by the decision of the Tribunal in the

assessee's own case for assessment year 2003-04 vide order dated

30.06.2011 (supra). The Tribunal vide para 14 of its order dated 30.06.2011

(supra) has allowed the claim of the assessee. Following the aforesaid

precedent, we set-aside the order of the CIT(A) and direct the Assessing

Officer to delete the addition of Rs.98,816/- made out of cost of club services.

Thus, on this aspect assessee succeeds.

17. In the last Ground of Appeal, assessee has challenged the action of the

CIT(A) in confirming an ad-hoc disallowance of Rs.3,17,240/- being 0.2% of

staff welfare expenses, sales promotion, advertisement expenses and

traveling expenses to cover the leakage of revenue.

18. It is quite evident that the disallowance in question is made in an ad-hoc

manner and is based on mere surmises and conjectures. We therefore set-

aside the order of the CIT(A) and direct the Assessing Officer to delete the

addition of Rs.3,17,240/-. Thus, on this aspect assessee succeeds. 9 ITA No.2300/PN/2012 ITA No.2442/PN/2012

19. In the result, whereas the appeal of the assessee is partly allowed that

of the Revenue is dismissed.

Order pronounced on 18 th March, 2015.

Sd/- Sd/- (SUSHMA CHOWLA) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER

Pune, Dated: 18 th March, 2015. Sujeet

Copy of the order is forwarded to: - 1) The Assessee; 2) The Department; 3) The CIT(A)-V, Pune; 4) The CIT-V, Pune; 5) The DR "B" Bench, I.T.A.T., Pune; 6) Guard File. By Order //True Copy// Assistant Registrar I.T.A.T., Pune