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2014 (7) TMI 867 - AT - Income TaxGenuineness of sales consideration of land sold Price lesser than circle rate as per section 50C Held that - The assessee has specifically objected to the adoption of stamp duty valuation rate - mere fact that the assessee has not challenged the stamp duty valuation cannot be put against the assessee Relying upon CIT v. Chandra Narain Chaudhuri 2013 (9) TMI 646 - ALLAHABAD HIGH COURT - once the assessee claims that the actual market value of the land or building is less than stamp duty valuation adopted by the authorities, it is incumbent upon the AO to refer the valuation of land or building to the departmental valuation officer - the AO has not done so - matter is remitted back to the AO for fresh adjudication Decided in favour of Assessee. Rebate of interest paid on security FDR - Whether or not income paid on interest against the fixed deposits can be said to have been incurred wholly and exclusively for the purpose of earning interest income from fixed deposits - Held that - In order to protect the interest earnings from fixed deposits and to meet her financial needs, when an assessee raises a loan against the fixed deposits, so as to keep the source of earning intact, the expenditure so incurred in wholly and exclusively to earn the fixed deposit interest income - assessee could have gone for premature encashment of bank deposits, and thus ended the source of income itself, as well, but instead of doing so, she resorted to borrowings against the fixed deposit and thus preserved the source of earning - expenditure incurred is an expenditure incurred wholly and exclusively for earning from interest on fixed deposits - in the case of a business assessee, and in a situation in which the borrowings against fixed deposits were resorted to for use in business, consideration for end use of funds so borrowed would be relevant because the interest deduction is claimed as a business deduction u/s 36(1)(iii) - the interest on borrowings against the fixed deposits could be said to protect the interest income from fixed deposit interest and incurred wholly and exclusively for the purposes of earning income Decided in favour of Assessee.
Issues Involved:
1. Applicability of Section 50C on the sale consideration of land. 2. Disallowance of rebate of interest paid to the bank on the security of Fixed Deposit Receipts (FDR). Issue-Wise Detailed Analysis: 1. Applicability of Section 50C on the Sale Consideration of Land: The assessee had sold a piece of land for Rs. 1,64,000, but the stamp duty valuation of this land was Rs. 2,58,000. The Assessing Officer (AO) adopted the stamp duty valuation for computing long-term capital gain, rejecting the assessee's contention that the actual sale consideration was fair market value due to various factors such as the land being in an underdeveloped area, unauthorized possession, and the presence of pits. The CIT(A) upheld the AO's decision, noting that the assessee did not provide evidence to show that the market value was less than the circle rate. The Tribunal found that the assessee specifically objected to the adoption of the stamp duty valuation rate and cited the Hon'ble jurisdictional High Court's judgment in CIT v. Chandra Narain Chaudhuri, which stated that the absence of an objection before the Stamp Valuation Authority is not relevant. The Tribunal also referred to the Hon'ble Calcutta High Court's judgment in Sunil Kumar Agarwal CIT, which emphasized the need for a valuation by the departmental valuation officer (DVO) to avoid miscarriage of justice. Given the legal position, the Tribunal held that once the assessee claims that the actual market value is less than the stamp duty valuation, it is incumbent upon the AO to refer the valuation to the DVO. Since this was not done, the Tribunal remitted the matter to the AO for a fresh adjudication after making a reference to the DVO, directing the AO to complete the assessment based on the DVO's valuation and provide a reasonable opportunity of hearing to the assessee. 2. Disallowance of Rebate of Interest Paid to the Bank on Security of FDR: The assessee had made a fixed deposit of Rs. 1,00,00,000 with ICICI Bank and earned interest of Rs. 11,77,574. The assessee claimed a deduction of Rs. 4,36,705 for interest paid on a loan of Rs. 75,00,000 taken against the FDR, arguing that the loan was taken to avoid premature encashment of the FDR, which would have resulted in a net loss. The AO rejected this claim, stating that the interest paid was not laid out or expended wholly and exclusively for the purpose of earning income from FDRs, as required under Section 57(iii) of the Act. The CIT(A) upheld the AO's decision. The Tribunal examined the factual matrix and legal position, noting that Section 57(iii) allows deduction of any expenditure incurred wholly and exclusively for the purpose of earning income. The Tribunal referred to judicial precedents, including the Hon'ble Supreme Court's observations in Sassoon J David & Co. (P) Ltd. v. CIT, which clarified that expenditure incurred voluntarily and without necessity can still be deductible if it is for promoting business or earning income. The Tribunal concluded that the interest paid on the loan against the FDR was incurred to protect the interest earnings from the FDR and keep the source of income intact. The Tribunal held that the expenditure was incurred wholly and exclusively for earning interest income from the FDR, regardless of the personal purpose for which the loan was taken. Therefore, the Tribunal directed the AO to delete the disallowance of Rs. 4,36,705. Conclusion: The appeal was allowed in favor of the assessee, with the Tribunal remitting the matter regarding the applicability of Section 50C to the AO for fresh adjudication and directing the AO to delete the disallowance of interest paid on the loan against the FDR.
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