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2015 (4) TMI 665 - AT - Income TaxApplicability of Section 50C of the Income Tax Act, 1961 on depreciable assets - Dis-allowance under section 14A - Adhoc disallowance of vehicle expenses & miscellaneous expenses - Adhoc disallowance to cover the leakage of revenue - Held that - We have carefully considered the rival submissions. On this aspect, we find that the said plea has been raised by the assessee before us, and it was not raised before the lower authorities. We deem it fit and proper to remand this aspect back to the file of the Assessing Officer, who shall examine the same in accordance with law. Needless to say, the Assessing Officer shall allow the assessee an opportunity of being heard before passing an order afresh on this aspect. Thus, on this aspect assessee partly succeeds for statistical purposes. The Grounds of Appeal Nos.2.1 to 2.3 raised by the assessee relate to a disallowance of ₹ 75,000/- sustained by the CIT(A) in terms of section 14A of the Act.On this aspect, it was a common ground between the parties that the similar disallowance retained by the CIT(A) in assessment year 2004-05 was not challenged by the Department before the Tribunal and therefore the said decision had become final. The Ld. Representative also pointed out that even assessee had not challenged the decision of the CIT(A) before the Tribunal for assessment year 2004-05 in sustaining the disallowance of ₹ 75,000/-.In view of the aforesaid factual matrix, we deem it fit and proper to affirm the order of the CIT(A) on this aspect and accordingly the Grounds of Appeal No.2.1 to 2.3 of the assessee and the cross-Ground raised by the Revenue in its appeal are dismissed. The CIT(A) has deleted a sum of ₹ 2,96,000/- and retained a disallowance of ₹ 3,00,000/- on an ad-hoc basis. In coming to such conclusion, the CIT(A) followed the order of his predecessor in the assessee s own case for the assessment year 2004-05. At the time of hearing before us, it was submitted by the Ld. Representative that in assessment years 2003-04 and 2004-05, the Tribunal in assessee s own case vide ITA Nos.1005/PN/2007 and 88/PN/2008 respectively dated 30.06.2011 has setaside the issue back to the file of the Assessing Officer for fresh verification. Following the aforesaid precedent, which is not disputed by the Ld. Departmental Representative, on this aspect we restore the matter back to the file of the Assessing Officer to decide it afresh. By way of Ground of Appeal No.4, assessee has challenged the order of the CIT(A) in confirming an ad-hoc disallowance of ₹ 10,57,860/- made out of miscellaneous expenses. At the time of hearing, the Ld. Representative for the assessee pointed out that similar issue came before the Tribunal in assessee s own case for assessment years 2003-04 and 2004-05 wherein the Tribunal vide its order dated 30.06.2011 (supra) has set-aside the matter back to the file of the Assessing Officer for fresh verification. Following the aforesaid precedent, which continues to hold the field and has not been disputed by the Ld. Departmental Representative, we set-aside the impugned order of the CIT(A) and restore the matter back to the file of the Assessing Officer who shall decide the issue afresh. In Ground of Appeal No.5, issue raised by the assessee is with regard to a sum of ₹ 98,816/- which represented cost of club services disallowed by the lower authorities. On this aspect also, it was a common point between the parties that the said issue is covered by the decision of the Tribunal in the assessee s own case for assessment year 2003-04 vide order dated 30.06.2011 (supra). The Tribunal vide para 14 of its order dated 30.06.2011 (supra) has allowed the claim of the assessee. Following the aforesaid precedent, we set-aside the order of the CIT(A) and direct the Assessing Officer to delete the addition of ₹ 98,816/- made out of cost of club services. Thus, on this aspect assessee succeeds. In the last Ground of Appeal, assessee has challenged the action of the CIT(A) in confirming an ad-hoc disallowance of ₹ 3,17,240/- being 0.2% of staff welfare expenses, sales promotion, advertisement expenses and traveling expenses to cover the leakage of revenue.It is quite evident that the disallowance in question is made in an ad-hoc manner and is based on mere surmises and conjectures. We therefore setaside the order of the CIT(A) and direct the Assessing Officer to delete the addition of ₹ 3,17,240/-. Thus, on this aspect assessee succeeds.
Issues Involved:
1. Addition of Rs. 1,56,03,500/- under Section 50C of the Income Tax Act, 1961. 2. Disallowance of Rs. 75,000/- under Section 14A of the Income Tax Act, 1961. 3. Ad-hoc disallowance of Rs. 3,00,000/- out of vehicle expenses. 4. Ad-hoc disallowance of Rs. 10,57,860/- out of miscellaneous expenses. 5. Disallowance of Rs. 98,816/- for cost of club services under Section 37(1) of the Income Tax Act, 1961. 6. Ad-hoc disallowance of Rs. 3,17,240/- to cover the leakage of revenue. Detailed Analysis: 1. Addition of Rs. 1,56,03,500/- under Section 50C: The assessee sold depreciable assets (two office units) for Rs. 3,50,00,000/-, but the Stamp Valuation Authority valued it at Rs. 5,06,03,500/-. The Assessing Officer (AO) applied Section 50C and referred the valuation to the Departmental Valuation Officer (DVO), who valued it at Rs. 6,56,24,654/-. The AO adopted the Stamp Valuation Authority's value, which was affirmed by the CIT(A). The assessee argued that Section 50C does not apply to depreciable assets, but this was overruled based on the Special Bench decision in ITO vs. United Marine Academy. The assessee also contended that the valuation should be based on the date of the Memorandum of Understanding (MOU) rather than the registration date. This argument was remanded back to the AO for fresh examination. 2. Disallowance of Rs. 75,000/- under Section 14A: The AO disallowed Rs. 20,41,929/- as estimated expenditure for earning exempt income. The CIT(A) reduced this to Rs. 75,000/- based on past assessments. Both the assessee and Revenue appealed, but it was noted that similar disallowance in the previous year was not contested further. The Tribunal affirmed the CIT(A)'s decision, dismissing both appeals. 3. Ad-hoc disallowance of Rs. 3,00,000/- out of vehicle expenses: The AO disallowed Rs. 5,96,000/- out of total vehicle expenses of Rs. 1.19 crores on an ad-hoc basis, which the CIT(A) reduced to Rs. 3,00,000/-. The Tribunal noted that similar issues in previous years were remanded for fresh verification and followed the same precedent, remanding the matter back to the AO. 4. Ad-hoc disallowance of Rs. 10,57,860/- out of miscellaneous expenses: The AO disallowed 1% of miscellaneous expenses totaling Rs. 10,57,86,072/- on an ad-hoc basis, sustained by the CIT(A). The Tribunal followed its earlier decision in similar matters, remanding the issue back to the AO for fresh verification. 5. Disallowance of Rs. 98,816/- for cost of club services under Section 37(1): The lower authorities disallowed Rs. 98,816/- for club services. The Tribunal noted that this issue was previously decided in favor of the assessee for earlier years and directed the AO to delete the addition. 6. Ad-hoc disallowance of Rs. 3,17,240/- to cover the leakage of revenue: The AO made an ad-hoc disallowance of Rs. 3,17,240/- from various expenses. The Tribunal found this disallowance to be based on mere surmises and conjectures and directed the AO to delete the addition. Conclusion: The appeal of the assessee is partly allowed, and the appeal of the Revenue is dismissed. The Tribunal remanded certain issues back to the AO for fresh examination and verification, while it directed the deletion of other ad-hoc disallowances.
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