Vijay Bhargava , Rewari vs Assessee

Shri Vijay Bhargava Vs. ACIT Partner of Everest Metals Circle Rewari, Jhajjar Road, Rewari. Haryana. PAN:AEMPB9025J (APPELLANT) (RESPONDENT)

Assessee by:-Sh. Ashwani Taneja, Adv. Revenue by:-Sh. J.P. Chandrakar, Sr. DR

ORDER

PER C. M. GARG, JM.

This appeal has been has been preferred by the assessee against the order

of CIT (Appeals) -Rohtak, vide dated 25.07.2011 in Appeal

No.239/RWR/2010-11 for Assessment Year 2008-09.

2. The main grounds raised by the assessee read as under:

"1. The lower authorities had erred in disallowing the expenditure of Rs.50,000 which the appellant had incurred in levelling the plot No. 17, Sector 3, Part I, New Mandi Township, Rewari in the financial year 1994-95 with the help of the drawings which the appellant had made as a partner from the books of M/s Everest Metals, Rewari.

2. (i) The lower authorities had erred in not appreciating that the appellant could not produce the account books in support of the said expenditure in the financial year 1994-95 after the period of about sixteen years when the assessment for 2008-2009 had been taken up in the month of May, 2010.

(ii) The lower authorities had erred in not appreciating that the appellant required to retain the account books for the period of six years preceding the relevant assessment year.

2 3. (i) The lower authorities had erred in not appreciating that the appellant had sold plot No.17, Sector-3, Part-I, New Mandi Township, Rewari for Rs. 29,50,000 vide Sale Deed dated 9.8.2007 as against the stamp value of Rs. 30 lakhs which was an estimate.

(ii) The lower authorities had erred in not considering the instructions of the central Board of direct Taxes contained in Circular No. 8/2002 dated 27.8.2002 to the effect that the Assessing officer may refer the valuation of the relevant asset to the Valuation Officer and if the fair market value determined by the Valuation Officer is less than the value adopted for stamp duty purpose, the Assessing Officer may take such fair market value to be the full value of the consideration

(iii) The Assessing Officer had ignored the said instructions of the Board nor did he make reference to the Valuation Officer and as such he erred in estimating the value of the sale value of the plot at Rs.30 lakhs and further erred in making the addition of Rs.50,000/- in the sale value of the plot of Rs.29,50,000/-.

(iv) The lower authorities had erred in not appreciating the judgment of the Supreme court of India in the case of Gautam (C.B.) Vs Union of India (1993) 199 ITR 530 (SC) wherein the Apex Court had recognized a tolerance limit for pre-emptive purchase of property under Chapter XXC at 15% for variation, though the law itself did not make any such provision.

(v) The lower authorities had erred in not appreciating that the variation in the value of the plot for the purpose of stamp duty was 1.6%, which was a fraction and was much less as against the tolerance limit held by the Supreme Court.

4. (i) The lower authorities had erred in not appreciating that the appellant had constructed one-roomed set and boundary wall by 31st July, 2008 at the cost of Rs. 19,83,000 (cost of. the plot Rs. 16,83,000 + cost of the construction of one roomed set and boundary wall at Rs. 3,00,000)

(ii) The lower authorities had erred in not appreciating that the appellant was eligible for exemption of Rs. 17,21,723 in respect of long term capital gain on account of the construction of the one roomed set and the boundary wall in time under section 54- F of the Act.

5. (i) The lower authorities had erred in relying wholly on the report of the Inspector dated 18.11.2010, which was apparently wrong and had contradictions therein.

(ii) The lower authorities had erred in not appreciating that the report of the inspector having been prepared at the back of the appellant, the same was required to be provided to the appellant under section (3) of section 142 of the Act for his explanation.

3 (iii) The lower authorities had erred in entirely relying on the said report in violation of principles of natural justice."

Assessee's Ground Nos. 1, 2, (i) and (ii)

4. Apropos ground no. 1 and 2 of the assessee the ld. counsel for the

assessee submitted that the lower authorities had erred in disallowing the

expenditure of Rs.50,000/- which the assessee had incurred in levelling plot no.

17, Sector-3, Part-1, New Mandi Township, Rewari in the financial year 1994-

95 with the help of the drawings which the appellant had made as a partner from

the books of M/s Everest Metals, Rewari.

5. The ld. counsel further contended that the lower authority has grossly

erred in ignoring and not appreciating the fact that the assessee could not

produce the books of accounts, in support of the said expenditure in the

financial year 1994-95. After the period about 16 years when the assessment for

A.Y. 2008-09 had been taken up in the month of May, 2010 and the assessee

was required to retain the books of accounts only for the period of six years

preceding the relevant assessment year as per provisions of the Income Tax Act

1961 (for short the Act).

6. Replying to the above the ld. DR supporting the assessment order as well

as the impugned order submitted that when no documentary evidence was

submitted before the authorities below in regard to the cost on improvement of 4

Rs.50,000/- then there was no alternate for the AO but to reject the claim of the

assessee which could not be substantiating by plausible explanation and

acceptable evidence.

7. Careful consideration of above submissions from the assessment order we

observe that the AO in Para 3.1.1 has noted that no document in response the

expenses were produced being very old and the assessee has purchased the said

property in 1994-95 for a consideration of Rs.63,500/- as per conveyance deed

and the same year invested Rs.50,000/- on its levelling etc., about 80% of the

cost of acquisition of the plot. The AO further held that the claimed expenditure

on levelling of plot seems to be unrealistic and therefore, he held that the only

intention of the assessee to reduce the liability of Long Term Capital gain and

the claim was disallowed with these observations.

8. The first appellate authority in Para 4.4 of the impugned order upheld the

disallowance by observing that no documentary evidence is available as the

records are quite old.

9. The ld. DR supporting the order of the authorities below has contended

that in absence of documentary evidence supporting the expenditure on

levelling of plot which is more than 80% of the cost of acquisition of the plot

immediately after the acquisition of said plot is not acceptable. The ld. DR

submitted that the assessee has also not submitted any copy of its Income Tax 5

Return, Capital and Drawing Account related to financial year 1994-95 to show

that the assessee had actually made substantial drawings to meet his house hold

demands as well as to spare Rs.50,000/- for levelling of plot. However the ld.

DR fairly accepted that the detailed documentary evidence to support the claim

of expenditure which incurred much before 15-16 years accepted to procure but

he vehemently contended that the ITR, Capital Account and Drawing Account

are some vital extracts pertaining to the financial activities which were not

submitted neither during the assessment proceedings nor during the first

appellate proceedings.

10. In view of above submission of both the sides, we are of the considered

opinion that the claim of the assessee for expenditure of Rs.50,000/- towards

levelling of plot cannot be rejected threshold and at the same time the same

cannot be accepted in absence of satisfactory explanation and documentary

evidence. At the best the assessee could have produced copies of capital and

drawing account to show that he had sufficient withdrawals to meet his house

hold cost as well as to spare Rs.50,000/- for incurring expenditure on levelling

of plot from the financial year 1994-95. The ITR of A.Y. 1995-96 is also

relevant to properly adjudicate to this issue.

11. Therefore, we are of the considered opinion that the issue of allowability

of expenditure of Rs.50,000/- on levelling of plot requires verification and 6

examination of the end of the AO therefore, we restored the same to the file of

the AO with a direction that the AO shall adjudicate the issue afresh after

affording due opportunity of being heard to the assessee and without being

influence by the earlier orders. Accordingly ground no. 1, 2(i) & (ii) of the

assessee are deemed to be allowed for statistical purposes.

Ground No. 3 (i) to (v)

12. Apropos above ground of appeal, we have heard argument of both the

sides and carefully perused the relevant material placed on record. The ld.

counsel for the assessee submitted that the Revenue Authority was not justified

in not appreciating that the assessee had sold plot for consideration of Rs.

29,50,000/- vide sale deed dated 9.8.2007 as against stamp value of Rs. 30 lac

which was estimated by the registration authority. The ld. counsel for the

assessee further contended that the lower authorities also erred not consideration

the instruction of the CBDT contained in Circular No. 8/2002 dated 27.8.2002

wherein it is provided that where the assessee claims the value adopted or

assessed for stamp duty purpose exceeds the fair market value of the property as

on the date of transfer, and he has not disputed the value so adopted or assessed

in any appeal or revision or reference before any authority or court, the

assessing officer may refer the valuation of returned asset to the DVO in

accordance with section 55A of the Act. If the fair market value determined by 7

the valuation officer is less than the value adopted for stamp duty purpose, the

AO may take such fair market value to be the full of the consideration.

13. The ld. counsel vehemently contended that the AO had ignored the said

instruction of the board and nor did make any reference to the Valuation Officer

and as such the AO erred in estimating the sale value of the plot at Rs.30 lac and

make addition of Rs.50,000/-.

14. The ld. counsel has also placed reliance on the decision of Hon'ble

Supreme Court in the case of Gautam (CB) vs. Union of India (1993) 199 ITR

530 (SC) wherein the apex court had recognized a tolerance limit for prempt

purchase of property under chapter (XXC) at 15% for verification though the

law itself did not make any such provision. The ld. counsel pointed out that the

Revenue Authority has also ignored these facts that the verification in the value

of the plot for the purpose of stamp duty was 1.6% only and was much less as

against the tolerance limit held by the Hon'ble Supreme Court in the case of

Gautam (Supra).

15. Replying to the above supporting the impugned order, the ld. DR pointed

out that the assessee had not invoked the provisions of Section 50C and in the

reply filed before the AO the assessee simply stated that the amount of

difference being negligible may be allowed. The ld. DR, therefore, submitted

that when the assessee is not invoking the provisions of section 50C then the 8

AO was right in adopting the sale consideration at Rs.30 lac without making

any reference to the Valuation Officer.

16. On careful consideration of above submissions, we are of the considered

opinion that the decision of Hon'ble Apex Court in the case of Gautam (Supra)

was rendered on 27.11.1992 and subsequent to that by Finance Act 2002

Special Provisions for full value of consideration in certain cases was inserted

as section 50C of the Act w.e.f. 1.4.2003 which is applicable to the present case

pertaining to A.Y. 2008-09.

17. Although the assessee has not specifically invoked provisions of section

50C of the Act but the assessee in its reply before the AO, disputed the adoption

of Rs.30lac as sale consideration of the plot for the purpose of calculation of

Long Term Capital Gain therefore, it is implied that the assessee has not

accepted the value adopted by the Estate Authorities for the purpose of payment

of Stamp Duty in respect of such transfer, therefore, when the assessee is

disputing the value of consideration then the AO's duty bound to refer the

matter to the Valuation Officer under provisions of section 50C (2) of the Act.

18. Therefore, we are of the consideration opinion that this issue also

required to adjudication at the end of the AO after calling report from the

Valuation Officer and affording due opportunity of being heard to the assessee.

Accordingly, ground no. 3 (i) to (v) are deemed to be allowed for statistical 9

purposes with a direction to the AO that the AO shall follow the provisions of

section 50C of the Act and, after affording due opportunity of hearing for the

assessee, shall adjudicate the isue afresh without being influenced from the

earlier orders on this ground of the assessee.

Ground No. 4(i), (ii) and 5 (i) to (iii)

19. Apropos above grounds, we have heard argument of both the sides and

carefully perused the material placed on record. The ld. counsel for the assessee

pointed out that the Revenue Authorities has grossly erred and were not justified

in not appreciating that after purchase of plot the assessee has constructed one

room set and boundary wall by 31st July, 2008 by incurring Rs.3 lac and total

cost of said property reached to Rs.19,83,000/- i.e. cost of plot Rs.16,83,000/-

and cost of construction Rs.3 lac. The ld. counsel also contended that the

authorities had grossly erred in not appreciating that the assessee was eligible

for exemption of Rs.17,21,723/- in respect of long term capital gain on account

of the construction of the one room set and the boundary wall well within

prescribed time u/s 54F of the Act.

20. The ld. counsel further drawn our attention and submitted that the AO as

well as the ld. CIT(A) had grossly erred in relying and accepting the report of

the Income Tax Inspector dated 18.11.2010 which was apparently wrong and

had fatal contradictions therein. The ld. counsel further pointed out that the 10

Inspector having been prepared the report at the back of the assessee and the

same was required to be provided to the assessee u/s 142(3) of the Act for his

comments and explanation and therefore, the action of the authorities below

relying on the said exparte report and accepting the same in toto without

confronting the same to the assessee was clear violation of principle of natural

justice.

21. Replying to the above, the ld. DR, supporting the action of the AO and

impugned order submitted that as per Inspector's report dated 18.11.2010 it was

found that no boundary wall had been constructed on the said plot except one

side wall which appeared to be constructed immediately before the inspection.

The ld. DR further drawn our attention towards report of the Inspector and

submitted that half of the plot i.e. front portion was under construction and half

portion of back side of the plot was lying vacant at the time of inspection and no

room was found constructed at any of the corner of the said plot as shown in the

copy of the valuation report submitted by the assessee during the assessment

proceedings.

22. The ld. DR strongly contended that while the assessee is not furnishing

acceptable explanation and facts during the assessment proceedings then the AO

was quite justified in calling the report from the Inspector and the Registrar

Rewari. The ld. DR also contended that the assessee wrongly claimed to have 11

purchased this plot for an amount of Rs. 1,25,000/- and as per conveyance deed

registered on 13.11.1997 the construction was of Rs.63,500/- which shown

therefore, the AO was right in allowing the induction at Rs.63,500/- from

financial year 1994-95.

23. The ld. DR alternatively contended that if it is found just and proper then

the Revenue has no objection if the issue of allowability of deduction u/s 54F is

restored to the file of the AO for fresh adjudication in the line of the outcome of

adjudication of the earlier two issues viz., allowability of the claim of levelling

expenses and adoptable value of sale consideration received by the assessee on

sale of said plot.

24. On careful consideration of above submissions, we are of the considered

view that that since by the earlier part of this order we have restored issue of

allowability of claim of 50C and expenditure said to be incurred towards

levelling of the plot immediately after acquisition in F.Y. 1994-95 and

adoptable value of sale consideration for the purpose of calculation of long term

capital gain and there is contradiction about the statement of the assessee as

well as report of the Inspector vide dated 18.11.2010 and therefore, we deem it

proper that assessee should be allowed an opportunity to explain this

contradiction and to support his claim of exemption u/s 54F of the Act. Hence,

we find it appropriate to also restore to this issue to the file of AO for fresh an 12

adjudication after affording due opportunity of being heard to the assessee and

taking into consideration the outcome of the earlier two issues which has

already been restored to the file of the AO . The AO shall re-adjudicate afresh

the issue of allowability of exemption u/s 54F of the Act without being

influenced by the earlier orders and our observations in this order. Accordingly,

ground nos. 4 & 5 of the assessee are also allowed in the terms as indicated

above, for the statistical purposes.

25. In the result, appeal of the assessee on all three counts/grounds is deemed

to be allowed for statistical purposes as indicated above.

Order pronounced in the open Court on 18 /02/2015.

Sd/- Sd/- (J. S. REDDY ) (C. M. GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated: 18th/02/2015 *AK VERMA*

Copy forwarded to:

1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT

ASSISTANT REGISTRAR