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TMI Blog2022 (7) TMI 1049X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and contended by the ld. CIT(A). Thus, when the assessee has separately adjusted that excess interest while working out the closing inventory and this fact categorically confirmed in the findings of the ld. CIT(A) in his order, we do not find any merit for sustaining the addition merely the assessee has not given effect in the interest account. As rightly argued by the ld. AR of the assessee that if it is to be done so by the assessee then in that case it will result in double addition of that figure one in the interest account and another in inventory holding. The contention of the assessee that the excess interest is adjusted while working out the closing inventory is confirmed by the ld. CIT(A) and is not disputed before us by ther revenue. The ld. AR of the assessee also cited the Annexure C (Page 47 48 of assessee paper book ) of the Tax Audit report annexure carried out as per provision of section 44AB of the act, where in the tax auditor has also confirmed this treatment that the excess interest claim has been corresponding reduction in cost of construction. This has not been challenged or discussed by the lower authorities. Merely the said adjustment not done in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both the parties have placed their written as well as oral arguments during this online hearing process. 3. The grounds raised by the assessee in ITA No. 104/JPR/2020 are as under:- 1. Under the facts and circumstances of the case the learned CIT(A) erred in sustaining the addition of Rs. 1,60,18,918/- u/s 40(b) of the Income Tax Act, 1961 on account of interest payment to partners without considering the reply of the assessee that the assessee has debited only 12% interest in cost calculated for the purpose of computing profits of the concern. 2. Under the facts and circumstances of the case the learned CIT(A) erred in confirming the addition of Rs. 10,72,932/- u/s 43CA of the Income Tax Act, 1961 without considering the reply of the assessee and without referring to the DVO. (3) Under the facts and circumstances of the case the learned CIT(A) erred in sustaining the addition of Rs. 1,18,807/- u/s 37 of the Income Tax Act 1961 by disallowing various expenditure on account of interest payment on statutory liabilities. 4. Under the facts and circumstances of the case the learned CIT(A) erred in confirming the addition of Rs. 3,25,000/- on account of VAT com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emphasis supplied ] (xiii) On examining the Schedule-17 regarding total expenditure claimed, it is seen that the e above expenditure includes financial expenditure amounting to Rs. 8,29,39,802/-. The above financial expenditure includes interest paid to partners at Rs. 5,16,95,795/- as appearing in Schedule-20 of the above accounts. In other words, while claiming the expenditure, the appellant has considered full amount of interest payment to the partners at Rs. 5,16,95,795/- without giving any consideration on account of excess interest payment. Had the working of interest at 12% rate been considered, then the above figure would have been Rs. 3,56,76,877/-in profit and loss account. of Rs. 5,16,95,795/-. Thus, excess interest has been claimed in (xiv) The appellant's contention that the excess interest has been considered while working out the stock is also examined. It is seen that in the profit and loss account, the difference in stock in trade has been taken at Rs. 11,30,27,413/- as per Schedule-18 of the accounts. In the Schedule-18, the closing stock has been taken at Rs. 42,41,06,440/-. The above figure is coming from the working of closing stock computed as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove specific query. Thus, it cannot be said that the proper opportunity was not provided to the appellant. The proviso of section 50C(2) of the Act comes into play only when the assessee claims before the AO that the value adopted or assessed by the stamp valuation authority exceeds the fair market value of the property. However, in the case of the appellant, no such claim was made before the AO. The provision of section 43CA of the Act specifically deals with the situation where in calculating profit from business on account of sale of land/building, the value adopted by the stamp valuation authority is considered as full value of sale consideration. In the case of the appellant, the value adopted by the stamp valuation authority was Rs. 91,11,432/-, while the appellant has taken value at Rs. 80,38,500/- in its computation of income. Thus, the AO was justified in making addition of Rs. 10,72,932/- as per provisions of section 43CA of the Act. Hence, the addition made by the AO is upheld and the ground is dismissed. 6. During the course of hearing the ld. AR appearing on behalf of the assessee has placed their written submission which is extracted in below in respect of the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the partner Amount of Interest paid @12% on Capital Amount of Interest paid @18% on current A/c Total interest paid Suresh Kumar sawalka 1562770 17876649 19439419 Vinod Kumar sawalka 1488176 18414360 19902536 Vimla Sawalka 466262 7030257 7496519 Urmila Sawalka 15041 3932905 3947946 Umang Sawalka 106792 802583 909375 Total 3639041 48056754 51695795 Calculation Sheet of Interest in respect of each partner on day to day bases is available on paper book page number cited supra. (iv) During the course of assessment proceedings the learned assessing officer noticed that claim of interest in excess of 12% was not allowable with reference to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount of Rs. 36,39,041/- resulting in disallowance of Rs. 1,60,18,918/-. (51695795- 35676877). The above facts stand corroborated by the final accounts duly audited, copy of which is available on paper book page number cited supra. (viii) Thus the excess claim of interest by 6% i.e. restricting the payment to 12% as against 18% on current account which amounted to Rs. 1,07,18,918/- has been indirectly disallowed by reducing the cost of construction by the same amount. By reducing the cost of construction the assesse stands to increase its profits in the same ratio in the books of accounts so maintained. Considering the aforesaid position when the assessee suo-moto has disallowed the interest by reducing the cost of construction, there was no case with the learned Assessing Officer for disallowing interest and making addition of Rs. 2,73,79,654/- (correctly works out to Rs. 1,60,18,918/-. (ix) It is further submitted the interest in excess of @12% on current account comes to Rs. 16,018,918/- and the assesse has reduced the cost of construction by this amount. This means reducing of the value of stock to same extent. It directly results in profits in the hand of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r an apparent consideration of Rs. 80,38,500/- whereas the registration authority for the purposes of stamp duty adopted the value at Rs. 91,11,432/- and thus as pe`r the Learned Assessing Officer there was under statement of Rs. 10,73,932/- and as such the same has been added with reference to the provisions of section 43CA. The action of the Learned Assessing Officer is not in accordance with law. The learned Assessing Officer has made the addition Straight way without affording any opportunity to the assesse on this issue. Thus the action of the learned Assessing Officer is against the principles of equity and justice. No addition could have been made without providing adequate opportunity to the assesse. The following case laws are quoted in support: - (i) Gargi Din Jwala Prasad v. CIT [1974] 96 ITR 97 (All.). Principles of natural justice are applicable - The principles of natural justice are applicable to assessment proceedings. The elementary principle of natural justice is that the assessee should have knowledge of the material which is going to be used against him so that he may be able to meet it (ii) Tin Box Co. v. CIT [2001] 116 Taxman 491 (SC). Wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion received or accruing as a result of the transfer by an assessee of an asset (other than a capital asset), being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of computing profits and gains from transfer of such asset, be deemed to be the full value of the consideration received or accruing as a result of such transfer: 56a [Provided that where the value adopted or assessed or assessable by the authority for the purpose of payment of stamp duty does not exceed one hundred and five per cent of the consideration received or accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer shall, for the purposes of computing profits and gains from transfer of such asset, be deemed to be the full value of the consideration.] (2) The provisions of sub-section (2) and sub-section (3) of section 50C shall, so far as may be, apply in relation to determination of the value adopted or assessed or assessable under sub-sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration.] (2) Without prejudice to the provisions of sub-section (1), where- (a) the assessee claims before any Assessing Officer that the value adopted or assessed or assessable by the stamp valuation authority under sub-section (1) exceeds the fair market value of the property as on the date of transfer; (b) the value so adopted or assessed or assessable by the stamp valuation authority under sub-section (1) has not been disputed in any appeal or revision or no reference has been made before any other authority, court or the High Court, the Assessing Officer may refer the valuation of the capital asset to a Valuation Officer and where any such reference is made, the provisions of sub-sections (2), (3), (4), (5) and (6) of section 16A, clause (i) of subsection (1) and sub-sections (6) and (7) of section 23A, sub-section (5) of section 24, section 34AA, section 35 and section 37 of the Wealth-tax Act, 1957 (27 of 1957), shall, with necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the Assessing Officer under sub-section (1) of section 16A of that Act. Explanation 1.-For the purposes of this sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bent upon the Learned Assessing Officer to have referred the matter to the valuation cell. This having been not done the statutory procedure stands violated and hence the addition deserves to be deleted. The following case laws are quoted: - (i) Sunil Kumar Agarwal vs. CIT (2014) 112 DTR 164 (Cal) For the aforesaid reasons, we are of the opinion that the valuation by the departmental valuation officer, contemplated under Section 50C, is required to avoid miscarriage of justice. The legislature did not intend that the capital gain should be fixed merely on the basis of the valuation to be made by the District Sub Registrar for the purpose of stamp duty. The legislature has taken care to provide adequate machinery to give a fair treatment to the citizen/taxpayer. There is no reason why the machinery provided by the legislature should not be used and the benefit thereof should be refused. Even in a case where no such prayer is made by the learned advocate representing the assessee, who may not have been properly instructed in law, the assessing officer, discharging a quasi judicial function, has the bounden duty to act fairly and to give a fair treatment by giving him an opt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ER OF GIFT TAX vs. R. JAWAHAR (HIGH COURT OF MADRAS) 217 ITR 0059 Valuation for stamp duty purposes by the Sub-registrar of the Properties cannot be the guiding factor for determining the value of gifted immovable property. .. Tribunal holding that difference between returned value of gift and the value of the Sub-Registrar's is not a deemed gift-Finding of Tribunal based on an earlier judgment and also on the fact that consideration received by assessee was fair and reasonable-No referable question arises. (iv) COMMISSIONER OF GIFT-TAX vs. R. DAMODARAN (HIGH COURT OF MADRAS) (2001) 247 ITR 0698 Valuation for stamp duty purposes by the Sub-registrar of the Properties cannot be the guiding factor for determining the value of gifted immovable property .. The re-opening of the assessment was therefore invalid. The Learned CIT(A) has rejected the grounds of appeal of the assessee by mentioning that the assesses has not raised any objection for the same during the assessment proceedings. In this regard we would like to submit that during the assessment proceedings the Learned AO has not provided any opportunity to the assessee or issued any show cause notice pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) on page 22 to 24 and drawn our attention that on the one hand CIT(A) agrees that the assessee has adjusted the cost and on the other hand he confirmed the addition of the AO which is nothing but the double disallowance. He has also argued that revenue has not challenged the findings of the ld. CIT(A) and thus, the same is in accordance with the contentions of the assessee and the addition sustained has no basis and required to be delted. 7. Per Contra, the ld. DR has argued that as regards the excess claim of interest @ 6 % he relied on the findings given in the orders of the lower authorities. As regards the addition made u/s. 43CA the ld. DR submitted that the assessee was given an opportunity during the assessment proceeding and show cause notice was issued to the assessee and he has chosen to remain silent at that point of time and now once the assessment is completed the assessee cannot take a plea that they have not been given an opportunity of being heard in the matter. Thus, he has submitted that the contentions of the ld. AR are not tenable on this ground and he has heavily relied upon the orders of the lower authorities on this issue too. 8. We have heard th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orking, the total cost incurred was worked out at Rs. 85,40,63,769/- which was further reduced by an amount of Rs. 1,60,18,918/- on account of excess interest paid to the partners. In other words, while working out the closing stock position, the appellant has reduced the excess interest paid to the partners and worked out the closing stock correctly but this has not impacted the excess expenditure claimed in the profit and loss account under the head 'expenditure on construction'. Para (xv) page 24 of ld. CIT(A) order (xv) From the above discussion, it can be seen that in profit and loss account, the appellant has taken the closing stock correctly, however, effect of excess interest expenses has not been given in total expenditure claimed in profit and loss account. . Thus, it is clearly that the contention of the assessee that the excess interest is adjusted while working out the closing inventory is confirmed by the ld. CIT(A) and is not disputed before us by ther revenue. The ld. AR of the assessee also cited the Annexure C (Page 47 48 of assessee paper book ) of the Tax Audit report annexure carried out as per provision of section 44AB of the act, where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r authority, court or the High Court, the Assessing Officer may refer the valuation of the capital asset to a Valuation Officer and where any such reference is made, the provisions of sub-sections (2), (3), (4), (5) and (6) of section 16A, clause (i) of sub-section (1) and sub-sections (6) and (7) of section 23A, sub-section (5) of section 24, section 34AA, section 35 and section 37 of the Wealth-tax Act, 1957 (27 of 1957), shall, with necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the Assessing Officer under sub-section (1) of section 16A of that Act. Explanation 1.-For the purposes of this section, Valuation Officer shall have the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957). Explanation 2.-For the purposes of this section, the expression assessable means the price which the stamp valuation authority would have, notwithstanding anything to the contrary contained in any other law for the time being in force, adopted or assessed, if it were referred to such authority for the purposes of the payment of stamp duty. Thus, it is clear from the above provision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from business on account of sale of land/building, the value adopted by the stamp valuation authority is considered as full value of sale consideration. In the case of the appellant, the value adopted by the stamp valuation authority was Rs. 91,11,432/-, while the appellant has taken value at Rs. 80,38,500/- in its computation of income. Thus, the AO was justified in making addition of Rs. 10,72,932/- as per provisions of section 43CA of the Act. Hence, the addition made by the AO is upheld and the ground is dismissed. The ld. AR of the assessee reiterated the submissions raised before the lower authorities and has not countered the finding that this issue has never been raised before the assessing officer and assessee has given their reply on this very specific issue without contending the valuation as per their letter dated 19.12.2018 filed before the AO. In the absence of any cogent evidence placed before us we do not find any reasons to depart on the findings of the orders of the lower authorities and thus, this ground no. 2 of the assessee is dismissed. In the result the appeal of the assessee is partly allowed. Order pronounced in the open Court on 12/07/2022. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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