2022 (11) TMI 522 - AT - Income Tax

Capital gain computation - Addition u/s.50C - sale of land on the ground that there is difference between the stamp duly valuation and the sale consideration shown in the agreement - HELD THAT - When assessee has come up with a categorical plea that he has recorded the actual value of the land in question paid by the assessee the AO was required to refer the matter to the DVO before making any addition in the differential amount. Intention of the legislature in incorporating section 50C of the Act in the statute is to stop any miscarriage of justice. So we are of the considered view that reference to the DVO is must to arrive at the logical conclusion. So we remit this issue back to the AO to decide afresh after calling the report from the DVO qua the market value of the property in question. So ground No.1 2 of A.Y. 2011-12 2012-13 are decided in favour of the assessee for statistical purposes. Compensation paid to the taparies (the taparies are the people who have illegally encroached upon the land of the assessee meant for mining purposes) - CIT(A) confirmed the disallowance by observing that when the assessee has bought the land in question from the government of Rajasthan, it is the duty of the government to give the assessee clear and peaceful possession of this land and moreover assessee has been claiming this deduction on account of compensation paid to the taparies year on year and it does not fit into the scheme of a business ordinarily run by a prudent businessman to allow the encroachment of his land every year and then to claim the compensation - HELD THAT - Every businessman s endeavor is to run the business without any litigation etc. and they have brought on record the complete list and compensation amount paid to the said taparies and the entire payment has been made through banking channel and in these circumstances the Ld. CIT(A) is not allowed to decide the issue merely on the basis of conjuncture and surmises without controverting the evidence brought on record by the assessee. So following the earlier order decided by the Tribunal we hereby set aside the findings returned by Ld. CIT(A) and direct the AO to delete the disallowance made/confirmed in this case on account of compensation paid to taparies. Commission on sales ranging from 5.25% to 35.48% - AO has restricted to 5% of the sales and thereby disallowed an amount - HELD THAT - Bare perusal of the findings returned by Ld. CIT(A) goes to prove that assessee has failed to discharge the onus that how and why there is a huge difference in the payment of commission paid on sale to different persons ranging from 5.25% to 35.48%. Because when all the commission agents engaged by the assessee to sell its land are located in the same area it is beyond human probability as to why there is a huge difference in the payment of commission to the different persons for the land situated in the same area. Assessee has not brought on record any such facts. Moreover, it is undisputed fact on record that for the subsequent years the assessee has itself accepted 5% commission on sales by not filing any appeal. So in these circumstances, we do not find any illegality and perversity in the impugned findings returned by AO as well as Ld. CIT(A). - Decided in favour of the assessee. Personal/Business use of vehicles - assessee claimed insurance, depreciation, interest and car expenses in the profit loss account on the vehicles registered in the name of Chairman Managing Director (CMD) - assessee submitted that though the cars are registered in the name of CMD but the same are used for business purposes and payment has been made from the books of assessee company and part of its fixed assets - HELD THAT - We are of the considered view that when vehicles in question though registered in the name of CMD but are part of its fixed assets and entire payment has been made through books of accounts which have not been disputed by the AO and keeping in view the rule of consistency as in the earlier years and in the subsequent years adhoc disallowance has been made at 10% of the total expenses on vehicles by considering the personal use of vehicles, the AO is directed to disallow 10% of the expenses claimed by the assessee. The impugned order passed by the Ld. CIT(A) on this ground is accordingly modified. Foreign travel expenses incurred on the foreign trade stated for the purpose of meeting foreign parties - Allowable business expenditure - HELD THAT - When assessee has been exporting its product to various countries and all the expenses have been incurred through books of accounts which have not been disputed the same has to be treated to have been incurred for business purposes except the expenses stated to have been incurred for visiting Bangkok, to which country assessee has neither any export of its product nor any type of import from Bangkok. So in these circumstances, we are of the considered view that the Ld. CIT(A) has rightly disallowed small portion of expenses claimed by the assessee towards element of personal views. So we find no reason to interfere into the adhoc disallowance made by the Ld. CIT(A) in the impugned order. Addition on account of interest income earned by the assessee company from Jaiput Vidyut Vitran Nigam Ltd. (JVVNL) as shown in the form 26AS - case of the assessee that the interest in question has been earned from security deposit kept with JVVNL which has been duly offered to tax in the subsequent years and TDS has also been claimed - HELD THAT - When interest income has been duly offered to tax in the subsequent years and TDS has also been claimed in the next years there is no reason to disallow the same. Moreover, the assessee has been paying income tax at the same rate. Identical issue has been dealt with by the Hon ble Delhi High Court in case of CIT vs. M/s. Vishnu Industrial Gases P. Ltd. 2008 (5) TMI 636 - DELHI HIGH COURT and has been decided in favour of the assessee. Disallowance of raising and mining expenses - AO found that in some of the expenses complete details of addressees are not available on self made vouchers and in the absence of supporting evidence regarding such type of self made vouchers held that the entire amount of expenses is not incurred wholly and exclusively for the purpose of business and made adhoc disallowances - HELD THAT - As we are of the considered view that when expenses incurred by the assessee have otherwise not been specifically disputed and books of accounts have been admitted as correct and all the payments have been made through banking channel, the Revenue Department cannot proceed at its whims and fancies by making disallowance for one year and allowing the same expenses in other years. Revenue Department is required to follow the rule of consistency. In these circumstances, we are of the considered view that no ground for making disallowance is made out, hence disallowance confirmed by the Ld. CIT(A) is ordered to be deleted.

Summary

Issues Involved:
1. Addition under Section 50C of the Income Tax Act.
2. Disallowance of compensation paid to encroachers (Taparies).
3. Disallowance of commission paid on sales.
4. Disallowance of vehicle expenses.
5. Disallowance of foreign travel expenses.
6. Addition of undisclosed receipts as per Form 26AS.
7. Disallowance of raising and mining expenses.

Detailed Analysis:

1. Addition under Section 50C of the Income Tax Act:
The AO noticed a difference between the sale value shown in the registered documents and the stamp duty value, leading to an addition under Section 50C. The CIT(A) upheld this addition. The assessee argued that the AO should have referred the matter to the Department Valuation Officer (DVO) as per Section 50C. The Tribunal agreed with the assessee, stating that the AO must refer the matter to the DVO to avoid any miscarriage of justice. The issue was remitted back to the AO for fresh consideration after obtaining the DVO's report.

2. Disallowance of Compensation Paid to Encroachers (Taparies):
The AO disallowed the compensation paid to encroachers, which was upheld by the CIT(A), who argued that it was the government's duty to provide clear land. The assessee contended that this issue had been favorably decided in earlier years and subsequent years by the Tribunal and the Revenue. The Tribunal noted the principle of consistency and the necessity for business to avoid litigation, directing the AO to delete the disallowance.

3. Disallowance of Commission Paid on Sales:
The AO restricted the commission on sales to 5%, disallowing amounts exceeding this rate. The CIT(A) upheld this, citing a lack of uniform policy and justification for varying commission rates. The Tribunal found no illegality in the AO's and CIT(A)'s findings, noting that the assessee had accepted a 5% commission rate in subsequent years without appeal.

4. Disallowance of Vehicle Expenses:
The AO disallowed a portion of vehicle expenses, assuming personal use. The CIT(A) restricted this disallowance to 25% on an ad hoc basis. The assessee argued that vehicles were part of the company's fixed assets and used exclusively for business. The Tribunal, considering the rule of consistency from earlier years, directed the AO to limit the disallowance to 10% of the total expenses.

5. Disallowance of Foreign Travel Expenses:
The AO disallowed a portion of foreign travel expenses, suspecting personal use. The CIT(A) upheld this disallowance. The Tribunal noted that the assessee had business dealings in all countries visited except Bangkok. The Tribunal upheld the CIT(A)'s small disallowance for personal visits, particularly to Bangkok, where no business activity was recorded.

6. Addition of Undisclosed Receipts as per Form 26AS:
The AO added interest income from JVVNL shown in Form 26AS, which the CIT(A) upheld. The assessee argued that this interest was offered to tax in subsequent years. The Tribunal, referencing a Delhi High Court decision, ordered the deletion of the addition, noting that the interest had been duly taxed in subsequent years and the TDS claimed.

7. Disallowance of Raising and Mining Expenses:
The AO made ad hoc disallowances of raising and mining expenses due to incomplete details on self-made vouchers. The CIT(A) reduced the disallowance but upheld it partially. The Tribunal noted that the expenses were not specifically disputed, payments were made through banking channels, and similar expenses were allowed in subsequent years. The Tribunal ordered the deletion of the disallowance, emphasizing the need for consistency.

Conclusion:
The appeals were partly allowed for statistical purposes, with specific directions for the AO to reconsider certain issues in light of the Tribunal's findings and consistent past practices. The Tribunal emphasized the importance of consistency and the necessity for the Revenue to follow established precedents in similar cases.