2007 (5) TMI 106 - HC - Income Tax

Revenue contended (i)Deduction in respect to the interest liability not allowed (ii)Valuation made at cost price (iii) Deposit for car parking is the assessee income (iv) Undisclosed income in respect to sale of flat at lower price than market price by assessee - Held that all revenue contention was not correct and set aside

Summary

Issues:
1. Allowance of interest payable by the Assessee for a specific period.
2. Deletion of addition of Rs.30 lacs on account of land value adopted by the Assessee.
3. Deletion of Rs.2 lacs in respect of car parking space.
4. Addition of Rs.4.57 lacs on account of diversion of income in the sale of a flat.

Analysis:

Issue 1:
The first issue raised was whether the Tribunal was correct in allowing the interest payable by the Assessee for the period from 30th June, 1980 to 31st March, 1988. The Assessing Officer argued that the interest claimed represented interest for more than one year and therefore should not be allowed. However, the Tribunal disagreed, stating that the interest liability could only be ascertained once the project was completed. The Tribunal noted that the Assessee had informed the Assessing Officer about this in the Profit and Loss Account for the year ending 30th June, 1981. The Tribunal found that the Assessing Officer was unjustified in disallowing the interest deduction, as it was clear that the Assessee had borrowed money from its members, and thus the interest should be allowed as a deduction.

Issue 2:
The second issue pertained to the deletion of the addition of Rs.30 lacs made by the Assessing Officer on account of the land value adopted by the Assessee in the Profit and Loss Account at market value instead of cost price. The Assessing Officer contended that only the cost price should have been considered, not the market value. However, the Tribunal relied on established principles that when capital assets are converted into stock in trade, the market value of the asset at the time of conversion can be adopted. Citing a relevant case law, the Tribunal agreed with the Assessee's approach of valuing the property at market value, especially since there was no closing stock left by the relevant date.

Issue 3:
The third issue concerned the deletion of Rs.2 lacs by the Tribunal in relation to car parking space. The Tribunal ruled that the money received as a deposit for car parking space should not be considered as the Assessee's income since the land did not belong to the Assessee anymore, having been transferred to the Municipal Corporation. Therefore, the deletion of this amount was justified.

Issue 4:
The final issue was about the addition of Rs.4.57 lacs by the Assessing Officer regarding the diversion of income in the sale of a flat to a member of the APO. The Tribunal found that the actual price realized for the flat was Rs.6 lacs, as agreed at the commencement of construction. The Tribunal held that the market value could not be substituted for the actual price realized, and since the flat was sold at the committed price, the addition made by the Assessing Officer had no basis. Thus, the Tribunal rightly deleted the addition.

In conclusion, the High Court dismissed the appeal, affirming the Tribunal's decisions on all issues, stating that no substantial question of law arose from the Tribunal's order.