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TMI Blog1993 (7) TMI 109X X X X Extracts X X X X X X X X Extracts X X X X ..... 1979, was set aside by the CIT (Appeals) and in the fresh assessment made by the ITO, the cost of construction is taken at Rs. 23,76,505 and this happens to be the third valuation report of the Departmental Valuer. It was explained at the time of hearing by the assessee's counsel, Shri N.K. Sud, that before CIT (Appeals) and at his instance, the Departmental Valuation Officer twice again examined the question of cost of construction and he by his report dated 11-8-1983 fixed the cost at Rs. 21,17,923. On this basis, the difference between the cost as in assessee's books and as per the Government Valuer comes down to Rs. 3,97,603. In this background, the Revenue's challenge against the deletion of addition of Rs. 6,56,186 is totally misplaced. According to the fifth valuation even the Government Valuer had adopted the cost at Rs. 21,17,923. The relief to the extent of difference between Rs. 6,56,185 and Rs. 3,97,603, in our view, in this factual background cannot be questioned by the Revenue. Again, when the whole issue has been decided by the ITO by obtaining the report of the Departmental Valuation Officer about the cost of construction of cinema building, we fail to see any point ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 wrongly. All this figure work has been duly verified from the records by the learned departmental representative. Finally, as is already noted by the CIT (Appeals) In para 13 of his order, there is another decision of the Tribunal in the case of Aan Aam Theatres, Amritsar, where it has been held that difference in the cost of construction, as per books of account and as per valuation of the D.V.O., could be Ignored upto 10%. Applying this yardstick, the difference between the two figures of cost of construction is much narrow. The cost as per assessee's books is Rs. 17.20 lacs and variation of 10% even on the basis of this figure will be of the order of Rs. 1.72 lacs. Proceeding on this basis, we find that the approach of the CIT (Appeals) is correct and fully justified. We may also clarify the issue about marble purchases referred to in ground No. 1C of the Revenue. It was pointed out by the assessee's counsel, Shri N.K. Sud, that at the time of second valuation by the Departmental Valuation Officer, he had accepted the assesee's stand that the value of marble purchased should be taken on the basis of assessee's books and not on the basis of Schedule of Rates. It was submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso observed that where the partners themselves raised loans on their policies and put it in their capital accounts, interest paid by the firm, whether to them or to the LIC, can be held as having been paid to the partners. The case was decided, as, according to the Tribunal, the facts of that case were different. Now in the instant case, no proper enquiry into facts has been made. This Bench in its latest decision in the case of Mongol Automobiles has held that the question of disallowance of interest under section 40(b) of the Income-tax Act will be governed by the form of transaction entered into. It is also observed that when an assessee chooses to obtain certain benefits by entering into a transaction in a particular manner, he should rightly face the consequences flowing from that mode of transaction. As the question has not been properly appreciated and relevant facts have not been found, we will set aside the findings of the CIT (Appeals) on this issue and restore it to his file for fresh disposal. He will also take into account the decisions of the Tribunal. 5. The last ground in the appeal of the Revenue is about the CIT (Appeals) treating the fittings, fixtures, electri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missioner of Income tax, Asstt. Range, Jalandhar." It is evident from the finding of the ITO that he had not discounted the claim of the assessee that payment of Interest was made through the partners to M/s. Udyog Finance & Chit Fund Pvt. Ltd. on the use of the borrowals, obtained through the agency of the partner. CIT (A)'s finding is contained in para 17 of the order, a part of which is also reproduced as under: "... The plea of the assessee is that the action of the ITO was contrary to the decision of the Income-tax Appellate Tribunal, Amritsar Bench, Amritsar reported at 1 ITD 767. The assessee-firm had raised loans from Udyog Finance & Chit Fund Pvt. Ltd. and paid interest amounting to Rs. 12,150 on the said loans. As the partners of the firm were members of the said company, the loans were advanced in their names. The interest was also paid by the assessee-firm to M/s. Udyog Finance & Chit Fund Pvt. Ltd. The ITO, however, took the view that the loans had been taken in the names of the partners and the interest paid to M/s. Udyog Finance & Chit Fund Pvt. Ltd. must also be treated as interest paid to the partners. The plea of the AR is that the decision taken by the ITO was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0. In my consideration the basic facts are that the assessee-firm had made payment of interest of Rs. 12,150 to Udyog Finance Chit Fund (P.) Ltd. for utilisation of funds borrowed through the auspicies of the partners. No doubt the borrowings were first credited to the partners' account and then debited to the account of the assessee. But that would not go to dislodge the assessee from the stand that the funds had been used by it and the firm, therefore, paid the amount of interest due on these borrowings in respect of which partners being borrowers prima facie, were chargeable. Therefore, I am not able to appreciate how the basic facts of this case were different from the basic facts of the case reported in Damodar Dass Jai Chand Aggarwal's case on which CIT had placed reliance. Therefore, the principle followed in the case should also govern the facts of the case in hand. 11. In my further consideration the controversy between the Deptt. and the assessee is now resolved by Explanation 3 added to clause (b) of section 40. This Explanation reads as under: Explanation 3: "Where an individual is a partner in a firm otherwise than as a partner in a representative capacity interest p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lanation stands on a different footing. The approach finds support from the Calcutta decision in the case of CIT v. Bejoy Kumar Almal [1977] 106 ITR 743. The approach is not open to the objection that the said Explanation as provided in the Taxation Amendment Act, 1984 shall form a part of the Income-tax Act, 1984 w.e.f. 1st April, 1985. The Taxation Laws Amendment Act is a statute operative after the assent of the President. After this has been notified in the Gazette, section 56 of the Indian Evidence Act requires the said Act to be judicially noticed. Therefore, one would be not transgressing the frontiers of sound judicial interpretation if the said Explanation clarifying the intention is judicially noticed in a pending proceeding even before 1-4-1975. 12. In my view on a proper appraisal of facts of the case and the said Explanation the controversy has to be resolved in favour of the assessee and hold the interest payment to partners for the benefit of Udyog Finance & Chit Fund Pvt. Ltd. as covered by the said Explanation. Accordingly, finding of the CIT (A) on this issue is upheld. 13. Appeal of the Revenue on this issue is dismissed. ORDER UNDER SECTION 255(4) OF THE IT A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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