2018 (3) TMI 1200 - AT - Income Tax

Non-grant of opportunity by AO to the assessee during the assessment proceedings prior to invoking section 50C - Held that - The assessee s case we are afraid to say is wholly misconceived and the argument/s advanced before us misplaced. No violation of either the principle of natural justice i.e. audi alterm partem or of the procedure laid down by the law by the AO and which is precisely what the impugned order holds. Sec.50C is applicable in the circumstance defined in sec. 50C(1) i.e. where as in the present case there is transfer a of capital asset being land or building or both at a consideration lower than the stamp value i.e. the value of the capital asset transferred under the Stamp Act so that for the purposes of sec.48 stamp value shall be deemed to be the full value of the consideration received or arising as a result of the said transfer. It is for the assessee to exercise the right for seeking reference under and in terms of sec. 50C(2) and no presumption as to prejudice (i.e. the fair market value being lower that the stamp value) being caused in the absence of any such claim (per the return of income or during the assessment proceedings) would lie. No such claim stands preferred even in the appellate proceedings. The difference itself is nominal and which in fact would work both ways so that if anything the inference would be of the stamp value being reasonable. Irrespective of the quantum of difference (or in ratio) we may add being deemed consideration it would unless challenged hold. True valuation is the matter of estimation but the same is on scientific basis and besides has been accorded statutory recognition u/s. 50C(1) and further could be challenged (for its correctness) both under the Stamp Act as well as where not disputed there-under before the VO adhering to the principles of equity and fair procedure. The assessee s case is wholly without merit. Disallowance of the claim for expenditure toward earning commission income - Held that - The assessee s claim remains wholly unsubstantiated. In fact the basis of a claim for expenditure is to be of incurring it wholly and exclusively for the purposes to the assessee s business. Basing the claim for expenditure on the basis of income earned by the assessee is itself erroneous in-as-much as incurring expenditure does not automatically yield income much less in a defined sum so that the two variables are particularly in terms of quantum fairly independent. No basis for the claim or even specification of the expenditure stated to be incurred as well as the circumstances for incurring the same has been made. Under the circumstances taking a lenient view of the matter and noting that the assessee may have incurred expenditure on travel as claimed by the ld. AR before us we restrict the allowance of the expenditure to 18, 000 i.e. at the 1, 500/- per month and confirm the disallowance of the balance - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Addition under Section 50C of the Income Tax Act, 1961.
2. Disallowance of expenditure claimed for earning commission income.

Issue-wise Detailed Analysis:

1. Addition under Section 50C of the Income Tax Act, 1961:

The first issue pertains to the addition of ?1,00,000/- made by the Assessing Officer (AO) by invoking Section 50C, substituting the apparent consideration of ?11 lacs with ?12 lacs adopted for stamp duty purposes. The assessee contended that he was never confronted on this issue during the assessment, thus violating the principle of natural justice.

The Tribunal noted that Section 50C(1) applies when the consideration received for a capital asset (land or building) is less than the value adopted by the stamp valuation authority. In such cases, the stamp value is deemed to be the full value of the consideration for the purposes of Section 48, which deals with the computation of income chargeable under the head 'capital gains'. The assessee argued that the AO should have confronted him before invoking Section 50C, but the Tribunal found this argument misplaced. The Tribunal emphasized that it is the assessee's responsibility to apply Section 50C(1) or claim that the fair market value is lower than the stamp value, which the assessee failed to do.

The Tribunal also noted that the assessee did not raise any claim regarding the fair market value being lower than the stamp value during the assessment proceedings or in the return of income. The Tribunal concluded that there was no violation of natural justice or procedural law by the AO, and the assessee's case lacked merit. The Tribunal upheld the addition made under Section 50C.

2. Disallowance of Expenditure Claimed for Earning Commission Income:

The second issue involved the disallowance of ?42,582/- claimed as expenses incurred to earn commission income of ?85,165/-. The AO disallowed the claim due to the absence of adequate cash withdrawals by the assessee to substantiate the expenditure. The CIT(A) upheld the disallowance, noting that the expenditure was claimed on an ad hoc basis without proper specification or substantiation.

The Tribunal observed that the claim for expenditure must be substantiated with evidence showing that it was incurred wholly and exclusively for business purposes. The assessee failed to provide any basis or specifics for the claimed expenditure. However, taking a lenient view, the Tribunal allowed a partial allowance of ?18,000/- (?1,500/- per month) for possible travel expenses and confirmed the disallowance of the remaining amount.

Conclusion:

The Tribunal partly allowed the assessee's appeal, upholding the addition under Section 50C and partially allowing the claim for expenditure related to commission income. The order was pronounced in the open Court on March 21, 2018.