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2019 (10) TMI 980 - AT - Income TaxShort term capital gain - market value of land u/s.50C - HELD THAT - For the purpose of arriving out the market value of land u/s.50C, the AO asked the assessee to provide the break up of the capitalized amount including the cost of land and the assessee could not furnish any details. In the absence of such data from the revenue also, the AO could not arrive the cost of acquisition of the impugned land. Further, the AO found that the assessee has been claiming depreciation, all along, on the entire value of capitalization which included even the cost of land. AO held that there is no element of cost involved in respect of acquisition of the land and hence held that the cost of acquisition of land as Nil. Since the assessee has not given the bifurcation of assets and its value which were capitalized and also has claimed depreciation all along even on the value of acquired, we do not find any infirmity in the findings of the CIT(A) that the AO has rightly taken the value of land at Nil and treated the profit as short term capital gain and hence we dismiss corresponding grounds of the appeal of the assessee. Deduction u/s 80G - the fact remains that during the assessment proceedings itself, the assessee has produced donation receipts for ₹ 18,000/- ₹ 36,000/- paid to Amar Seva Sangam, which was eligible for deduction U/s.80G as per order dated 29.09.2003 of the CIT-II, Madurai and was valid upto 31.03.2006 and on such material it claimed deduction U/s.80G. AO refused to allow such claim as the assessee has not claimed this deduction in its return. Since the assessee has relied on the Hon ble SC decision in the case of Goetze India Ltd v CIT 2006 (3) TMI 75 - SUPREME COURT we direct the AO to reconsider this claim and allow the relief, if the claim is found meritorious on other respects, as if this claim was made in the original return itself. The corresponding grounds of the assessee on this issue are treated as allowed. Taxability of lease rent received from leasing out the machinery building shed under the head income from other sources instead of taxing it under the head business - disallowance of the expenditure incurred by the assessee as contended that its intention is to carry on business only - HELD THAT - Allowance of towards the employee cost and administrative expenses for the purpose of earning the lease rental income u/s 57(iii). In the absence of any material from the assessee to assail the findings recorded by both the lower authorities towards the quantum of employee cost and the administrative expenses as unreasonable, we uphold the lease rental income determined and dismiss the corresponding grounds of the assessee. Rejection of books of account by the AO by invoking the provisions of section 145 - sale of broken and from sale of bran, the by products arising from the processing of rice by its lessee from the leased mill, along with the receipt of processing charges and claimed huge expenditures and various heads - HELD THAT - There should be an opening and closing stock of byproducts such as broken rice/bran at the end of every year. Since the assessee failed to produce the quantitative details of the sale of broken rice / bran, also the quantitative details of closing stock of bran and broken rice on the ground that the purchases were made by the lessee company, therefore, the AO rejected the books of account maintained by the assessee and estimated the income of the assessee. From this, it is clear that the assessee has not produced the core details which are sine qua non for determining the correct income, in such situation, the AO is bound to estimate the income and therefore AO is correct in rejecting the books of account. However, the AO held that since the assesses sold away the by products of bran and broken rice and there is no requirement for the expenses towards travel, carriage inwards etc, he treated the entire sale proceeds as income of the assessee and completed the assessment. This is not correct. The reasonable expenditure required for earning the income has also to be estimated and has to be allowed. Neither the assessee nor the revenue could assist us in determining the fair and reasonable income from this source. Since there is no cost involved on the purchase and processing of broken and bran to the assessee, however, the cost of sale and distribution is required to be considered, therefore we consider that in this line of business an assessee may at best incur about at 30 % for these purposes and on such basis determine 30% of the admitted receipts would be the reasonable expenditure that could be required for earning the impugned receipts and therefore direct the AO to allow 30% of ₹ 68,09,001 at ₹ 20,42,700/- towards reasonable expenditure which could be required for earning the impugned income from sale of broken and bran and accordingly determine the income from this source at ₹ 47,66,301/- as against ₹ 68,09,001/-. Thus, we allow the assessee s corresponding grounds of appeal to this extent. Disallowance of processing charges - HELD THAT - Assessee filed an appeal before the Ld.CIT(A). It is clear from the order of the Ld.CIT(A) that the assessee has not furnished any details and established that its claim is in order. Therefore, the Ld.CIT(A) upheld the action of the Assessing Officer. Even before us, the assessee is not able to lay any material to dislodge the findings recorded by the lower authorities and that the decision taken by them is unreasonable. Therefore, the corresponding grounds of the assessee s appeal are dismissed. With regard to the estimated addition made towards sale of bran, it is clear from the order of the Assessing Officer that the assessee has been offering sale of broken rice and bran in all the years. The generation of bran and broken rice in the course of processing of rice is a material fact which cannot be denied. CIT(A) found from the audited accounts of PFPPL, that no sales of broken rice or bran has been shown. Therefore, the sale of bran has to be reflected in the books of the assessee. In the absence of full details, the Assessing Officer, based on the sale of bran for the previous year has added the amount of ₹ 8,51,750/- which in our opinion, is fair and reasonable. Since the AO on due examination rejected major expenditure claim of the assessee / restricted, as the case may be, under various heads during this assessment year, which we have upheld, supra, in view of that we consider that the estimated from this source is a net income. We hold that the corresponding grounds of the assessee are dismissed on this issue.
Issues Involved:
1. Treatment of profit on sale of land as short-term capital gain. 2. Disallowance of deduction under Section 80G. 3. Taxability of lease rent received from leasing out the machinery and building shed. 4. Rejection of books of account and disallowance of expenses incurred for sale of by-products. 5. Estimation of processing charges and disallowance of various expenditures. Detailed Analysis: 1. Treatment of Profit on Sale of Land as Short-Term Capital Gain: The assessee sold a rice mill as a composite sale and credited ?95,61,762 towards goodwill without obtaining any money. The AO treated the profit from the transfer as short-term capital gains due to depreciation claimed in earlier years. The assessee argued that the AO did not assign any value to the cost of land and adopted the entire market value as short-term capital gain. The CIT(A) upheld the AO's decision, stating that no bifurcation of the asset was provided, and depreciation had been claimed on the entire amount, making the value of land "Nil." The Tribunal found no infirmity in the CIT(A)'s findings and dismissed the corresponding grounds of the appeal. 2. Disallowance of Deduction Under Section 80G: The assessee produced donation receipts eligible for deduction under Section 80G during assessment proceedings. The AO refused the claim as it was not made in the return. The Tribunal directed the AO to reconsider the claim and allow the relief if found meritorious, treating the corresponding grounds of the assessee as allowed. 3. Taxability of Lease Rent Received from Leasing Out the Machinery and Building Shed: The assessee leased out its plant and machinery and claimed various expenditures against the lease income. The AO treated the lease rental as "Income from Other Sources," estimating the lease rental income at ?22,72,000. The CIT(A) upheld this decision, stating that the assessee had not carried out any business activity and was only letting out assets. The Tribunal found these findings justified and dismissed the corresponding grounds of the assessee's appeal. 4. Rejection of Books of Account and Disallowance of Expenses Incurred for Sale of By-Products: The AO rejected the books of account due to the absence of proper stock records and estimated the income from the sale of by-products. The assessee claimed various expenditures, which the AO disallowed, treating the entire sale proceeds as income. The CIT(A) upheld the AO's decision. The Tribunal directed the AO to allow 30% of the sale proceeds as reasonable expenditure, determining the income from this source at ?47,66,301. 5. Estimation of Processing Charges and Disallowance of Various Expenditures: For the assessment year 2007-08, the AO estimated processing charges based on previous year's rates and disallowed various expenditures claimed by the assessee. The CIT(A) deleted the addition towards processing charges but upheld other disallowances. The Tribunal upheld the CIT(A)'s decision on disallowances but directed the AO to allow reasonable expenditure for earning the processing charges, subject to relief for the assessee. Revenue's Appeal: The Revenue appealed against the deletion of medical expenses and addition towards processing charges. The Tribunal dismissed the Revenue's appeal on medical expenses but upheld the addition towards processing charges, allowing reasonable expenditure for earning the income. Conclusion: The assessee's appeals for the assessment years 2004-05 and 2006-07 were partly allowed, and the appeal for the assessment year 2007-08 was dismissed. The Revenue's appeal for the assessment year 2007-08 was partly allowed.
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