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2018 (4) TMI 1549 - AT - Income TaxDetermination of long term capital gain on sale of a plot - addition in respective hands of co-owner of property - reference to the DVO for determining the fair market value of the assets as on 01.04.1981 - Held that - Hon ble Gujarat High Court has considered this aspect in the case of Gaurangiben S. Shodhan 2014 (2) TMI 78 - GUJARAT HIGH COURT held that the Assessing Officer has no power to make a reference if the value shown by assessee is not less than fair market value. As value shown by the appellants of the property as on 01.04.1981 is considered then it was not less than fair market value and reference cannot be made. As far as the amendment carried out in section 55A is concerned it is with effect from 01.07.2012 i.e. by finance Act 2012 the transaction taken place in F.Y. 2010-11 relevant to assessment year 2011-12 and the amended provision would not be applicable on this transaction. Addition u/s 40A - assessee has borrowed loan @ 12% and he has given loans @ 6% to the persons covered under section 40A(2)(b) - Held that - Section 40A(2)(b) contemplates that if an assessee incurred expenditure for availing the services or purchase of a goods from the persons mentioned in sub-clause-(b) and make them payments over and above the market price then the expenditure incurred over and above the market price would be disallowed. The assessee has given interest bearing loan funds to the HUF where he is the Karta. Therefore section 40A(2)(b) has rightly been applied by the Assessing Officer and he has rightly made the disallowance. This ground of appeal is rejected.
Issues Involved:
1. Determination of long-term capital gain on the sale of a plot. 2. Disallowance of interest expense under Section 40A(2)(b) of the Income Tax Act. Issue-Wise Detailed Analysis: 1. Determination of Long-Term Capital Gain on Sale of a Plot: The appeals were filed against the orders of the CIT(A) concerning the determination of long-term capital gain on the sale of a plot. The assessees, co-owners of a property sold for ?5,10,00,000, challenged the additions made under the head "long term capital gain" amounting to ?6,98,630, ?1,74,650, and ?13,97,290 respectively for Ilaben K. Patel, Babubhai Ramanlal Patel, and Shantaben P Patel. The crux of the dispute was the cost of acquisition as on 01.04.1981. The assessees adopted ?800 per sq. meter, while the Valuation Officer (DVO) determined it at ?430 per sq. meter. The Assessing Officer (AO) used the DVO's valuation, leading to higher capital gains. The CIT(A) upheld the AO's decision. However, the assessees argued that as per the Gujarat High Court's decision in CIT vs. Gauranginiben S. Shodhan Indl., the AO had no power to refer the matter to the DVO under Section 55A of the Act if the value shown by the assessee was not less than the fair market value. The High Court had ruled that a reference to the DVO could only be made if the value claimed by the assessee was less than the fair market value. The Tribunal agreed with the assessees, stating that the value shown as on 01.04.1981 was not less than the fair market value, and thus, the reference to the DVO was not justified. The amendment to Section 55A, effective from 01.07.2012, was not applicable to the transactions of the relevant assessment year 2011-12. Consequently, the Tribunal deleted the additions made under the head long-term capital gain for all three appellants. 2. Disallowance of Interest Expense under Section 40A(2)(b): In the case of Babubhai Ramanlal Patel, an additional ground of appeal was the disallowance of interest expense amounting to ?2,02,376. The AO observed that the assessee borrowed funds at 12% interest but lent them at 6% to persons covered under Section 40A(2)(b). The AO disallowed the interest expenditure to the extent of ?2,02,376. The CIT(A) upheld the AO's decision. The assessee contended that the borrowed funds were used for business purposes and lent at a lower rate to reduce interest burden when not required for business. The Tribunal examined the provisions of Section 40A(2)(b), which disallows expenditure incurred for services or goods purchased from specified persons if the payments exceed the market price. Since the assessee lent funds to the HUF where he is the Karta, the Tribunal concluded that Section 40A(2)(b) was rightly applied by the AO. Therefore, the disallowance of interest expenditure was upheld, and this ground of appeal was rejected. Conclusion: The appeals of Ilaben K. Patel and Govindbhai Patel (L/H of Shantaben P. Patel) were allowed, and the additions under long-term capital gain were deleted. The appeal of Babubhai Ramanlal Patel was partly allowed, with the disallowance of interest expense being upheld. Order Pronounced: The order was pronounced in the Court on 02/04/2018.
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