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TMI Blog2017 (11) TMI 1200X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer to the Departmental Valuation Officer under section 55A for valuation of fair market value of the property as on April 1, 1981 is not valid for the reason that the Assessing Officer was of the view that the fair market value declared by the assessee as per the Government registered valuer's report was more than the fair market value whereas in law the Assessing Officer could make a reference only when he is of the opinion that the value so claimed is less than the fair market value as on April 1, 1981. Since determination of the fair market value as on 1st April, 1981 was based on the report of the Departmental Valuation Officer, the same is held invalid. Consequently, estimation of the fair market value of the property as on 1st April, 1981 as made by the assessee is directed to be accepted. Thus the reference to the Departmental Valuation Officer is invalid and hence the long-term capital gain computed by the assessee has to be accepted - Decided in favour of assessee. Retrospectivity of the second proviso to Section 40(a) (ia) - TDS u/s 194H - sum in question paid to the other clubs - disallowance can be made under section 40(a)(ia) for non deduction on T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the assessment year 2008-09. I.T.A. No. 231/Kol/2013 (assessee's appeal) 2. Grounds Nos. 1 to 3 raised by the assessee read as follows : 1. For that in view of the facts and in the circumstances of the case the learned Commissioner of Income-tax (Appeals) was wholly wrong and unjustified in confirming the arbitrary disallowance of the project development expenses of ₹ 1,39,07,880 (total expenses claimed ₹ 1,73,84,853 on account of repair and maintenance of the club less 1/5th portion of it amortised i.e. ₹ 34,76,973 debited in the profit and loss account and allowed in the assessment) holding the entire expense as capital loss not allowable as business expenditure on the alleged ground that the project undertaken for development and creation of fixed assets was abandoned as non-viable. The decisions arrived at by the Assessing Officer and the learned Commissioner of Income-tax (Appeals) without properly considering and appreciating the facts were wholly unwarranted, uncalled for and bad in law. 2. For that in view of the facts and in the circumstances of the case the learned Commissioner of Income-tax (Appeals) was wholly wrong and unjus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated November 24, 2007 whereby the club-cum-hospitality facility on the same premises at 11, Russel Street, Kolkata was to be constructed by Edenic Prop Build Pvt. Ltd., subsidiary of Emaar MGF Land Ltd. The development carried out by incurring expenses for developing the city club project had to be demolished. The expenses incurred in developing the city club project at the premises at 11, Russel Street, Kolkata were therefore claimed as expenditure incurred on an abandoned project and was revenue expenditure and had to be allowed in full since the same was incurred in the previous year relevant to the assessment year 2008-09. In the books of account the assessee amortised the expenditure incurred on developing the city club project over a period of five years. The assessee submitted that when it comes to determination of income, the entries in books of account are irrelevant and the entire project development expenses was claimed as a loss incidental to the business of the assessee or revenue expenditure which should be allowed in full as deduction. 4. The Assessing Officer, however, was of the view that since the assessee has claimed the expenditure by spreading it over for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the order of the Commissioner of Income-tax (Appeals) the assessee has raised grounds Nos. 1 to 3 before the Tribunal. 7. We have heard the rival submissions. The learned counsel for the assessee reiterated the stand taken by the assessee in the grounds of appeal raised before the Tribunal, which we have set out in the earlier part of this order. He also placed reliance on certain decisions rendered by the hon'ble Calcutta High Court wherein it was held that the expenditure incurred on an abandoned project are allowable as deduction in computing income from business. The learned Departmental representative relied on the order of the Commissioner of Income-tax (Appeals) and submitted that the details of the expenses are not evident from the order of assessment and it is also not clear as to whether by incurring the development expenses in question any capital asset was created and as to whether the value of the said capital asset were capitalised. The learned counsel for the assessee pointed out that the only basis of disallowance by the Assessing Officer was that the expenditure was to be allowed at 1/5th over a period of five years as per the entries in the books of acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture as a deduction in full while computing income from business. On the question whether the loss on account of an abandoned project it is a capital loss or revenue loss, the law is well settled by a series of decisions of the hon'ble Calcutta High Court in the case of Binani Cement v. CIT [2016] 380 ITR 116 (Cal) ; [2015] 277 CTR 49 (Cal), after following its decision in the case of CIT v. Graphite India Ltd. [1996] 221 ITR 420 (Cal) held that an expenditure made for acquisition of new facility subsequently abandoned at work-in-progress stage was allowable, as expenses incurred wholly or exclusively for the purpose of the assessee's business. Similar view has been taken by the hon'ble Calcutta High Court in the case of CIT v. Britannia Industries Ltd. [2015] 376 ITR 299 (Cal) and the hon'ble Rajasthan High Court in the case of CIT v. Anjani Kumar Co. Ltd. [2003] 259 ITR 114 (Raj). Keeping in mind the facts of the present case and the ratio laid down in the aforesaid decisions, we are of the view that the entire expenditure of ₹ 1,73,84,853 expenditure on abandoned project development should be allowed as deduction. We hold and direct accordingly and allow g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in view of the facts and in the circumstances of the case the learned Commissioner of Income-tax (Appeals) was wholly wrong and unjustified in confirming the Assessing Officer's action in making a baseless estimation of the cost of acquisition of the landed property as on April 1, 1981 at ₹ 20,46,600 in the absence of the Departmental valuation report (i.e DVR) and assessing the long-term capital gain at ₹ 10,48,23,234 on estimate completely rejecting/ ignoring, without assigning any reason, the appellant's computation of long-term capital gain legally and validly based on the registered and approved valuer. The actions of both the Assessing Officer and the learned Commissioner of Income-tax (Appeals) were wholly unwarranted, uncalled for, without jurisdiction and bad in law. 7. For that in view of the facts and in the circumstances and without prejudice to grounds Nos. 5 and 6, the learned Commissioner of Income-tax (Appeals) erred in relying on the report of the Departmental Valuation Officer (DVO) wherein the fair market value of the impugned property was determined at ₹ 20,46,600 based on the alleged sale instances and such action of the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operty and the cost of improvement thereto and expenses incurred in connection with the transfer. As far as determination of cost of acquisition is concerned, section 55(2) of the Act lays down what cost of acquisition is for the purpose of section 48 of the Act. Section 55(2)(b)(i) of the Act provides that where capital asset became property of the assessee before April 1, 1981, the assessee has the option to adopt the fair market value of the asset as on April 1, 1981. The dispute raised in grounds Nos. 4 to 8 and the additional ground of appeal filed by the assessee before the Tribunal, is with regard to determination of the fair market value as on April 1, 1981. It is not in dispute that the property in question was acquired prior to April 1, 1981 and the assessee was entitled to adopt the fair market value as on April 1, 1981 while computing long-term capital gain. The assessee filed report of a registered valuer, who in his report adopted the fair market value as on April 1, 1981 of the property at ₹ 2,01,56,680 and after indexation the cost of acquisition was determined at ₹ 11,10,63,307. After detecting the cost of acquisition as determined above and after reduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,01,56,680. 6.4. Not convinced by the above valuation report, the matter is referred to Valuation Cell, Income-tax Department in due course. Though the necessary action has already been taken by the valuation cell, yet no compliance/valuation report is received till date. 6.5. Since the case is time barred on December 31, 2010, there is no other alternative but to complete the case after estimating the value of land sale on the basis of surrounding information gathered from the Department and outside of the Department. When the valuation report reaches this office necessary amendment will be suitably done as per law to revalue/reassess the capital gain. 6.6. In view of above discussion after considering all this, for the sake of interest of the Revenue and attempting to plug revenue loss, the land value is taken as ₹ 45,000 per cottah as on January 1, 1981, for which the total land value comes to ₹ 20,46,600 as on January 1, 1981. After indexing cost of the land stands as ₹ 1,12,76,766 (20,46,600 x 551/100). As such index cost of the land value is taken as ₹ 1,12,76,766 in lieu of ₹ 11,10,63,307. 14. Before the Commissioner of Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on Hiaben Jayantilal Shah v. ITO [2009] 310 ITR 31 (Guj), CIT v. Daulal Mohta (HUF) [2014] 360 ITR 680 (Bom) (I.T.A. No. 1031 of 2008 (Bombay High Court) dated September 22, 2008). It was further contended that a reference can be made under section 55A(b)(ii) by the Assessing Officer if he is of the opinion having regard to the nature of asset and other relevant circumstances that it is necessary to do so. It is obligatory on the part of the Assessing Officer to record such other relevant circumstances on the basis of which he forms such opinion in order to refer the matter to the valuation cell under said clause. It was contended that only in cases other than the case where there is no valuer's report given by the assessee, the Assessing Officer is empowered to make reference under section 55A(b) and not otherwise. 16. The Commissioner of Income-tax (Appeals) however did not agree with the view of the assessee and he adopted the value as given by the Departmental Valuation Officer and computed long-term capital gain. The following were the relevant observations of the Commissioner of Income- tax (Appeals) : The submission of the authorised representative and the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ords, more than the fair market value. This being the case, a reference under section 55A could not have been made. He placed reliance on the decision of the hon'ble Calcutta High Court in the case of CIT v. Umedbhai International P. Ltd. [2011] 330 ITR 506 (Cal), in a similar situation, where there was a substitution of the cost as on April 1, 1981, by value based by the Departmental Valuation Officer on a reference under section 55A of the Act, held that such a reference could not be made unless and until the Assessing Officer formed an opinion that the value shown by the assessee was less than the fair market value. The hon'ble Calcutta High Court followed the said decision in the case of CIT v. Smt. Mina Deogun [2015] 375 ITR 586 (Cal). However in a later decision rendered by the hon'ble Calcutta High Court in the case of Nirmal Kumar Ravindra Kumar (HUF) v. CIT [2016] 386 ITR 10 (Cal) the hon'ble Calcutta High Court took a view, in a case where the fair market value as on April 1, 1981 was supported by a registered valuer's report held that the reference was valid and fell within the ambit of section 55A(b)(ii) of the Act. The following were the relevant ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4/Kol/2013 order dated October 19, 2016), (which is authored by the hon'ble Accountant Member of the present Bench) this Tribunal followed the view of the Calcutta High Court in the case of Nirmal Kumar Ravindra Kumar-HUF (supra) for the reason that the latter decision has to be followed than the earlier decision of the hon'ble Calcutta High Court. 19. The learned counsel for the assessee submitted that out of the three decisions of the Calcutta High Court on the same issue, two earlier Division Bench judgments are in favour of the assessee accepting the view canvassed by the assessee before the Commissioner of Income-tax (Appeals) but the later judgment by a Division Bench has taken a contrary view. He brought to our notice that in the later judgment, the court did not consider its earlier two judgments on the same issue. It was submitted by him that in a situation where there are conflicting decision of the High Court on an issue which are irreconcilable and pronounced by judges of co-equal strength, then the earlier view has to be followed as the later decision has to be regarded as per incurium. In this regard he drew our attention to a decision of the hon'ble Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in the case of Daulal Mohta (HUF) (supra) dealt with following substantial question of law (page 681 in 360 ITR) : (B) Whether on the facts and in the circumstances of the case, the hon'ble Tribunal was right in law to observe that the Assessing Officer was not justified in making a reference under section 55A of the Act to the Departmental Valuation Officer for determination of the fair market value of the property ? In paragraphs Nos. 4 and 5 of its judgment the hon'ble High Court held as follows (pages 681-682 in 360 ITR) : The Tribunal in its order dated July 23, 2004 has categorically observed thus : 'The first issue that arises for our consideration is whether the reference made by the Assessing Officer to the Departmental Valuation Officer under section 55A is bad in law under the facts and circumstances of the case. This issue, in our considered opinion is covered in favour of the assessee and against the Revenue by the judgment in the case of Ms. Rubab M. Kazerani v. Joint CIT [2005] 97 TTJ (Mumbai) 698 (TM) ; [2004] 91 ITD 429 (Mumbai) (TM). Further the assessee also covered by the Third Member (sic) decision of the Pune Bench o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 6,25,000 as per registered valuer's report. Therefore, the Assessing Officer was required to form an opinion that the value so claimed is less than the fair market value. The estimated value proposed by the Departmental Valuation Officer is shown at ₹ 3,97,000, which is less than the fair market value shown by the assessee as on April 1, 1981. Therefore, clause (a) of section 55A cannot be made applicable. Clause (b) of section 55A can be invoked only in any other case, namely when the value of the asset claimed by the assessee is not supported by an estimate made by a registered valuer. In the facts of the present case, clause (b) of section 55A also cannot be invoked. Therefore there is no question of having recourse to sub-clause (ii) of clause (b) of section 55A of the Act. 22. The learned Departmental representative placed reliance on the later decision of the hon'ble Calcutta High Court referred to above in the case of Nirmal Kumar Ravindra Kumar (HUF) (supra) and submitted that if the interpretation adopted in the earlier decision is followed then that would result in policy of the law not being given effect. 23. We have given a very careful consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pra) would be applicable. As rightly contended by the learned counsel for the assessee, the ratio laid down in the said judgment will support the view that the earlier decisions have to be followed. In that view of the matter, we are of the view that the reference made in the present case to the Departmental Valuation Officer by the Assessing Officer has to be regarded as invalid. We therefore hold that reference by the Assessing Officer to the Departmental Valuation Officer under section 55A for valuation of fair market value of the property as on April 1, 1981 is not valid for the reason that the Assessing Officer was of the view that the fair market value declared by the assessee as per the Government registered valuer's report was more than the fair market value whereas in law the Assessing Officer could make a reference only when he is of the opinion that the value so claimed is less than the fair market value as on April 1, 1981. Since determination of the fair market value as on 1st April, 1981 was based on the report of the Departmental Valuation Officer, the same is held invalid. Consequently, estimation of the fair market value of the property as on 1st April, 1981 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee gives information regarding races, details about the horses taking part in the race, the trainer, the jockey etc. As soon as the race is over, the information about winning the horse is also passed on and the price money is distributed on the winning tickets. Out of the total bet money collected on the totalizer, a fixed sum is retained by the club. It is a plea of the assessee that the sum in question paid to the other clubs was not in the nature of a commission on which the assessee was obliged to deduct tax at source under section 194H of the Act. 26. The Assessing Officer was of the view that on the sum of ₹ 1,51,65,191 which was paid to the other clubs was in the nature of commission within the meaning of section 194H of the Act. Since the assessee had not deducted tax at source on the said payments the said sum was liable to be disallowed under section 40(a)(ia) of the Act and the sum disallowed was added to the total income of the assessee. 27. Before the Commissioner of Income-tax (Appeals) apart from reiterating the stand taken by the assessee before Assessing Officer the assessee also made a submission that as on the last date of the previous year, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed as an expenditure on which TDS has not been deducted has already been paid as on the last date of the relevant previous year. In our view following the decision of the hon'ble Calcutta High Court, we are of the view that the order of the Commissioner of Income-tax (Appeals) deleting the addition made by the Assessing Officer cannot be sustained. 30. The learned counsel for the assessee, however, made two prayers before us. Firstly, it was submitted that the Commissioner of Income-tax (Appeals) did not decide the question whether the amount paid to the other clubs would be in the nature of commission within the meaning of section 194H of the Act. Secondly, he made a prayer for a remand of the issue to the Assessing Officer with a direction to the Assessing Officer to verify if the payees have declared the receipt from the assessee in their return of income and if they have so declared then the addition under section 40(a)(ia) of the Act should be deleted by the Assessing Officer. The above submission was made in the context of the amendments to the provisions of section 40(a)(ia) of the Act by the Finance Act, 2012 with effect from April 1, 2013, whereby a second pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties are not co-operating in providing details, the Assessing Officer should be directed to call for the information under section 133(6) or 131 of the Act, for verification of the same. 34. The learned Departmental representative relied on the order of the Commissioner of Income-tax (Appeals) and submitted that the benefit of the second proviso should not be allowed to the assessee as the tax deducted at source has not been paid on or before the due date for filing the return of income under section 139(1) of the Act. According to him the amendment by insertion of the second proviso to section 40(a)(ia) of the Act cannot be construed to have retrospective effect. He placed reliance on the decision of the hon'ble Kerala High Court in the case of Thomas George Muthoot v. CIT [2016] 6 ITR-OL 229 (Ker) ; [2015] 63 taxmann.com 99 (Ker). 35. We have considered the submissions of the learned counsel for the assessee and the learned Departmental representative and are of the view that on both the aspects pleaded by the learned counsel for the assessee, the assessee did not have an opportunity of taking this plea before the Revenue authorities. In the interest of justice we deem ..... X X X X Extracts X X X X X X X X Extracts X X X X
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