2013 (8) TMI 630 - AT - Income Tax

Cost of acquisition of land for computation of Capital Gains Determination of FMV as on 1.4.1981 - CIT (Appeals) directed the Assessing Officer to adopt the value of land at Ambattur Industrial Estate at Rs. 50 per sq.ft. as on 1.4.1981 for the purpose of computing capital gains - Issue in appeal has been decided by the coordinate Bench of this Tribunal in favour of the assessee for the immediately preceding assessment year i.e. 2008-09 in ITA No.803/Mds/2012 dated 9.8.2012 - Assessee had claimed fair market value of the land situated at Ambattur Industrial Estate at Rs.108/- sq.ft. as on 1.4.1981 but the Assessing Officer adopted the value at Rs.5/- per sq.ft. The Commissioner of Income Tax (Appeals) directed the Assessing Officer to adopt the value at Rs. 50/- per sq.ft. and this valuation of Rs. 50/- per sq.ft was held to be reasonable by the co-ordinate Bench of this Tribunal in the assessee s own case for the earlier assessment year Held that - Value adopted by the assessee company is supported by the reports furnished by two independent valuers. Moreover, the value adopted by the Assessing Officer is too low, when compared to the guideline value of the land at Rs. 536/- per sq. ft. as on 1.4.2007. It is after considering all these aspects that the Commissioner of Income-tax(Appeals) has adopted the fair market value at Rs. 50/- per sq. ft - Value adopted by the Commissioner of Income-tax (Appeals) is reasonable. Exclusion of interest on bank loan and term loans for the purpose of determining disallowance under Rule 8D(2)(ii) read with section 14A of the Act Held that - Commissioner of Income Tax (Appeals) excluded the interest on bank loan and term loans from the calculation of disallowance under Rule 8D(2)(ii) as the assessee has utilized the bank loan and term loan for the purpose of purchase of machineries and for expansion of projects and these loans were specifically sanctioned for specific project and such loans were also used for the purpose for which they were sanctioned. In the circumstances, Commissioner of Income Tax (Appeals) has rightly excluded such interest from the purview of computation of disallowance under Rule 8D(2)(ii) Decided against the Revenue. Writing off of advances to its subsidiary companies on the ground that the assessee failed to substantiate that the advances have been made in the course of normal business Held that - The facts and circumstances of the case show that the assessee has extended loans and advances to its subsidiaries to support the business and on account of commercial expediency. The subsidiaries could not repay the loans or advances for the reason that they have incurred huge financial losses and have gone sick. The Assessing Officer has not disputed the fact that subsidiary companies are under liquidation proceedings and therefore loans are not recoverable. It is understandable that assessee was constrained to write off the advances as the same were not recoverable on account of losses suffered by the subsidiaries and in some of the cases on account of liquidation proceedings Also, in the instant case, it is an admitted fact that the loans advanced to the subsidiary companies were utilized by them for their business requirements and have not been utilized for the personal benefits of the individuals/directors Decided against the Revenue.

Summary

Issues Involved:
1. Adoption of the value of land at Ambattur Industrial Estate for computing capital gains.
2. Exclusion of interest on bank loan and term loans for determining disallowance under Rule 8D(2)(ii) read with section 14A of the Act.
3. Deletion of disallowance of advances made to subsidiary companies written off.

Issue-wise Detailed Analysis:

1. Adoption of the value of land at Ambattur Industrial Estate for computing capital gains:

The Revenue challenged the Commissioner of Income Tax (Appeals)'s decision to direct the Assessing Officer to adopt the value of land at Ambattur Industrial Estate at Rs. 50 per sq.ft. as on 1.4.1981 for computing capital gains. The assessee had initially claimed a fair market value of Rs. 108 per sq.ft., supported by independent valuers' reports, while the Assessing Officer adopted Rs. 5 per sq.ft. based on the market value from the Additional Sub-Registrar's office. The Commissioner of Income Tax (Appeals) found Rs. 50 per sq.ft. reasonable, a decision upheld by the Tribunal in the previous assessment year 2008-09. The Tribunal, in this case, followed the same reasoning, noting that the value adopted by the Commissioner of Income Tax (Appeals) was reasonable and upheld the order for the assessment year 2009-10.

2. Exclusion of interest on bank loan and term loans for determining disallowance under Rule 8D(2)(ii) read with section 14A of the Act:

The Revenue contended that the Commissioner of Income Tax (Appeals) erred in excluding interest on bank and term loans from the computation of disallowance under Rule 8D(2)(ii). The assessee argued that these loans were not used for investments generating tax-free income, supported by the Calcutta Bench's decision in ACIT Vs. Champion Commercial Company Ltd. The Tribunal noted that the Commissioner of Income Tax (Appeals) had correctly excluded interest on bank and term loans used for purchasing machinery and project expansion, as these loans were specifically sanctioned and utilized for their intended purposes. The Tribunal also cited the Calcutta Bench's decision, which supported excluding such interest from the disallowance computation. Therefore, the Tribunal upheld the Commissioner of Income Tax (Appeals)'s order on this issue.

3. Deletion of disallowance of advances made to subsidiary companies written off:

The Revenue argued against the Commissioner of Income Tax (Appeals)'s deletion of the disallowance of advances written off to subsidiary companies. The assessee pointed out that the Tribunal had previously decided in their favor for the assessment year 2004-05 on similar facts. The Assessing Officer had disallowed the write-off due to the lack of substantiation that the advances were made in the normal course of business. However, the Commissioner of Income Tax (Appeals) followed the previous decision, noting the advances were made for commercial expediency and were not recoverable due to the subsidiaries' financial losses and liquidation proceedings. The Tribunal upheld this view, citing the Supreme Court's decision in S.A. Builders, which supported the deduction of interest on loans advanced to subsidiaries for business purposes. Consequently, the Tribunal upheld the Commissioner of Income Tax (Appeals)'s order on this issue.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the Commissioner of Income Tax (Appeals)'s orders on all issues. The decision was pronounced in the open court on July 16, 2013, in Chennai.