Case Law Details
Royal Calcutta Turf Club Vs. DCIT (ITAT Kolkata)
Reference by the assessing officer to the DVO under section 55A for valuation of fair market value of the property as on 1-4-1981 is not valid for the reason that the assessing officer was of the view that fair market value declared by the assessee as per 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 1-4-1981. Since determination of the fair market value as on 1-4-1981 was based on the report of the DVO, the same is held invalid. Consequently, estimation of the fair market value of the properly as on 1-4-1981 as made by the assessee is directed to be accepted.
FULL TEXT OF THE ITAT JUDGMENT
ITA No. 231/Kol/2013 is an appeal by the assessee while ITA No. 204/Kol/2013 is appeal by the Revenue. Both the appeals are directed against the order dt. 28-1-2011 of Commissioner (Appeals)-XXXVI, Kolkata relating, to assessment year 2008-09.
ITA No. 231/Kol/2013 (Assessee’s appeal) :–
2. Ground Nos. 1 to 3 raised by the assessee read as follows :–
“ 1. For that in view of the facts and circumstances of the case the learned Commissioner (Appeals) was wholly wrong and unjustified in confirming the arbitrary dis allowance of the project development expense of Rs. 1,39,07,8801-(total expense claimed Rs. 1,73,84,853 on account of repair and maintenance of the club less 1/5th portion of it amortized, i.e., Rs. 34,76,973 debited in profit & 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 learned Commissioner (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 circumstances of the case, the learned Commissioner (Appeals) was wholly wrong and unjustified in also holding the amortized 1/5th portion of the said project development expenses of Rs. 34,76,973 (l/5th of Rs. 1,73,84,853) as capital loss and reversing, on the same alleged ground as in ground No. 1 above, the assessing officer’s decision in allowing deduction of the said sum of Rs. 34,76,973, even though this was not at all an issue in the grounds of appeal filed by the appellant- AOP.
The action of the learned Commissioner (Appeals), in reversing the assessing officer’s decision to allow the said deduction, was wholly unwarranted, uncalled for, without jurisdiction and bad in law.
3. For that in view of the facts and circumstances of the case, the learned Commissioner (Appeals) was wholly wrong and unjustified in reversing the assessing officer’s decision to allow the aforesaid deduction of the 1/5th amortized portion of expenses of Rs. 34,76,973 and thereby reducing the business loss vis-a-vis enhancing the assessed total income by a sum of Rs. 34,76,973 without issuing a prior notice under section 251(2) of the Act and without allowing a reasonable opportunity of hearing to the appellant statutorily required under the Act before making such enhancement of income.
The action of the learned Commissioner (Appeals) was wholly unwarranted, uncalled for, without jurisdiction and bad in law.”
3. The assessee is an AOP founded as a club to promote the activity of horse racing and to provide club facilities to its members. In the course of assessment proceedings for assessment year 2008-09, the assessing officer noticed that a sum of Rs. 1,73,84,853 was claimed as deduction by the assessee while computing income under the head “Profits and gains of business or profession”. The aforesaid sum was incurred by the assessee towards renovation of club premises at 11, Russel Street, Kolkata. The assessing officer found that in the books of account, the assessee had claimed only 1/5th of the expenses namely a sum of Rs. 34,76,973. The explanation of the assessee with regard to the aforesaid expenses was that in the club property at 11, Russel Street, Kolkata certain development expenses were incurred for a project called city club project. The city club project had to be abandoned as there was an agreement dt. 24-11-2007 whereby the club-cum-hospitality facility on the same premises at 11, Russel Street, Kolkata was to be constructed by Edenic Prop Build (P) Ltd., subsidiary of Emaar MGF Land Ltd. The development carried out by incurring expenses for developing 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 assessment year 2008-09. In the books of accounts the assessee amortized the expenditure incurred on developing city club project over a period of 5 years. The assessee submitted that when it comes to determination of income, the entries in books of account are irrelevant and the enure 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 the period of five years in the books of account and therefore the assessee is entitled to claim only a sum of Rs. 34,76,973 in lieu of the claim for deduction of a sum of Rs. 1,73,84,853 as made in the return of income. The difference between the sum of Rs. 1,73,84,853 and Rs. 34,76,973 was added to the total income of the assessee.
5. On appeal by the assessee, the Commissioner (Appeals) held that the entire loss in question was capital loss and cannot be allowed as a deduction while computing the income of the assessee from business. The Commissioner (Appeals) has power to enhance the income assessed by the assessing officer under section 251 of the Income Tax Act, 1961 (Act). He is however required to give notice of his intention to enhance the assessment prior to exercising his powers of enhancement under section 251(2) of the Act. In exercise of such power of enhancement he disallowed the claim of the assessee of the entire sum of Rs. 1,73,84,853 as against the action of the assessing officer in disallowing only the difference between the sum of Rs. 1,73,84,853 and Rs. 34,76,973. The following were the relevant observations of Commissioner (Appeals) :–
“3.1 Ground No. 2 : Appellant has claimed Rs. 1,73,84,853 as project development expenses in the computation of income and 1/5th amortized value at Rs. 34,76,973 in profit & loss account. As the project became non-viable and has to be abandoned, appellant written off in the accounts and claimed as revenue expenditure. The assessing officer allowed only Rs. 34,76,973 i.e., 1/5th of such expenses while appellant claimed full value of expenses of Rs. 1,73,84,853 to be allowed. However, appellant is not entitled for amortized expenses of Rs. 34,76,973 and full expenses of Rs. 1,73,84,853 as deduction as this is a capital loss to the appellant and is not allowable business expenditure, appellant was developing a project and creating fixed asset for which expenses were being incurred when project was abandoned in between, expenses written off are capital loss. Hence, appellants claim to allow Rs. 1,73,84,853 as revenue expenses is dismissed and’ also 1/5th amortized expenses of Rs. 34,76,973 as allowed by assessing officer is also dismissed.”
6. Aggrieved by the order of Commissioner (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 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 (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 capitalized. The learned counsel for the assessee pointed out that the only basis of dis allowance by the assessing officer was that the expenditure was to be allowed at 1/5th over a period of 5 years as per the entries in the books of account. The Commissioner (Appeals) disallowed the entire expenditure as a capital loss. At this stage it is not open to the learned Departmental Representative to argue that the details of the loss are not given and whether any capital asset was created by incurring of the aforesaid expenses.
8. We have given a careful consideration to the rival submissions. As rightly submitted by the learned counsel for the assessee, the issue before the Tribunal is (a) whether the expenditure in question is a revenue expenditure or a loss incidental to the business as claimed by the assessee or capital loss as held by the Commissioner (Appeals) and (b) whether the entire expenditure has to be allowed as a deduction or on the basis of entries in the books of account only 1/5th of the expenditure has to be allowed as deduction. The fact that the expenditure in question arose out of an abandoned project has not been disputed by the assessing officer and therefore the above two questions alone are required to be adjudicated.
9. It is seen from a reading of the order of the Commissioner (Appeals) that in coming to the conclusion that the loss is a capital loss, he has not given any reason whatsoever. As the facts of the case go to show that construction of the city club project was incidental to the objects of the assessee club. The activity of the construction of the city club project was an income earning activity of the assessee. It is because of the subsequent agreement for development of club-cum-hospitality services instead of city club project, the development carried out had to be abandoned and removed. The subsequent activity of developing club-cum-hospitality facility was also incidental and ancillary to the objects of the club and was revenue-earning activity. In such circumstances we are of the view that deduction claimed ought not have been considered as capital loss as was done by Commissioner (Appeals). On the issue whether the entire expenditure can be claimed as deduction or only 1/5th of the expenditure can be claimed based on the treatment of the expenditure in the books of account of the assessee, the law is well settled that entries in the books of account claiming only 1/5th of the expenditure, cannot stand in the way of the assessee claiming legitimate business loss or revenue expenditure 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 Ltd. v. CIT (2015) 277 CTR (Cal) 49, 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 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. Anjanl 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 Rs. 1,73,84,853 expended on abandoned project development should be allowed as deduction. We hold and direct accordingly and allow grounds Nos. 1 to 2 raised by the assessee. As far as ground No. 3 which challenges the action of the Commissioner (Appeals) in enhancing the assessment without notice to the assessee as is contemplated under section 251(2) of the Act is concerned, we are of the view that in the light of the conclusion drawn in grounds Nos. 1 and 2 no adjudication is required on ground No. 3, though we agree with the submissions of the learned counsel for the assessee that there was no reasonable opportunity of hearing afforded to the assessee before enhancement as contemplated under section 251(2) of the Income Tax Act, 1961 (Act).
10. Ground Nos. 4 to 8 and additional grounds of appeal raised by the assessee read as follows :–
“4. For that in view of the facts and circumstances of the case, the learned Commissioner (Appeals) was wholly wrong and unjustified in confirming the arbitrary assessment of the long-term capital gain (in short L.T.C.G) on transfer of a landed property at Kolkata at an abnormal figure of Rs. 10,48,23,234 purely on an hypothetical estimate without any basis by rejecting/ignoring the report of the registered & approved valuer appointed by the appellant (in short A.V.R) and the appellant’s computation of L.T.C.G at Rs. 50,36,693 legally and validly made on the basis of A.V.R.
5. For that in view of the facts and circumstances of the case, the learned Commissioner (Appeals) was wholly wrong and unjustified in confirming the action of the assessing officer in making, without any reason, a reference to the Departmental Valuation Officer (in short D.V.O) under section 55A of the Act for determining/ascertaining the fair market value of the property as on 1-4-1981 completely ignoring or otherwise overlooking the fact (a) that the value of the property as on 1-4-1981 determined by the appellant’s valuer was more than the value as on 1-4-1981 adopted by the assessing officer on his own hypothetical estimate and (b) further that sections 50C and 55A of the Act, for making such reference by the assessing officer, are not applicable in this case. The actions of both the assessing officer and learned Commissioner (Appeals) were wholly unwarranted, uncalled for, without jurisdiction and bad in law.
6. For that in view of the facts and circumstances of the case, the learned Commissioner (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 1-4-1981 at Rs. 20,46,600 in absence of the Departmental Valuation Report (i.e., D.V.R) and assessing the L.T.C.G at Rs. 10,48,23,234 on estimate completely rejecting/ignoring, without assigning any reason, the appellant’s computation of L.T.C.G legally and validly based on the A.V.R.
The actions of both the assessing officer and the learned Commissioner (Appeals) were wholly unwarranted, uncalled for, without jurisdiction and bad in law.
7. For that in view of the facts and circumstances and without prejudice to grounds No. 5, and 6, the learned Commissioner (Appeals) erred in relying on the report of the Departmental Valuation Officer (DVO) wherein the FMV of the impugned property was determined at Rs. 20,46,600 based on alleged sale instances and such action of the learned Commissioner (Appeals) is without appreciating the facts that such sale instances were not at all comparable and hence the reliance so placed by the learned Commissioner (Appeals) on the report of the DVO is without appreciating the facts and wholly illegal and as such the action of the learned Commissioner (Appeals) in confirming the action of the assessing officer is completely bad, illegal and liable to be quashed/cancelled.
8. For that in view of the facts and circumstances and without prejudice to ground Nos. 5 and 6, the learned Commissioner (Appeals) did not adjudicate on the ground raised by the appellant that the reference for the valuation of property as on 1-4-1981 to the DVO is illegal and the reference so made by the assessing officer and reliance so placed by the learned Commissioner (Appeals) on such report of the DVO is completely illegal and void ab initio and hence the action of the learned Commissioner (Appeals) in such respect in relying on such report is completely bad and illegal and it may kindly be held accordingly.”
Additional ground :–
“For that further and in any event and without prejudice to ground Nos. 4 to 8, the purported valuation was made by the DVO in gross violation of the principles of natural justice and is a nullity inasmuch as the notice date 29-3-2011 inviting objections to the proposed valuation and granting hearing at 11.30 A.M. on 8-4-2011 was received by the appellant in the afternoon on 8-4-2011 and the DVO finalized his estimate on 13-4-2011 (received by the appellant on 20-4-2011) without hearing the appellant or considering the objections filed on 19-4-2011.”
11. The aforesaid grounds of appeal are in relation to computation of long-term capital gain earned by the assessee during the previous year. The assessee sold a property at Calcutta for a sum of Rs. 11,61,00,000. It is not in dispute that there was a long-term capital gain (LTCG) arising on such sale. Under section 48 of the Act, capital gain is computed by reducing from the full value of consideration received on transfer, the cost of acquisition of the property 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 1-4-1981, the assessee has the option to adopt the fair market value of the asset as on 1-4-1981. The dispute raised in ground 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 1-4-1981. It is not in dispute that the property in question was acquired prior to 1-4-1981 and the assessee was entitled to adopt the FMV as on 1-4-1981 while computing LTCG. The assessee filed report of a registered valuer, who in his report adopted the FMV as on 1-4-1981 of the property at Rs. 2,01,56,680 and after indexation the cost of acquisition was determined at Rs. 11,10,63,307. After detecting the cost of acquisition as determined above and after reducing the same from the full value of consideration received on transfer of a sum of Rs. 11,61,00,000, the assessee declared LTCG of Rs. 50,36,693.
12. Under section 55A of the Act, the assessing officer has power to a make a reference to the valuation officer regarding valuation of a capital asset for the purpose of ascertaining fair market value of a capital asset. Section 55A of the Act reads thus :–
“55A : With a view of ascertaining the fair market value of a capital asset for the purposes of this chapter, the assessing officer may refer the valuation of capital asset to a Valuation Officer–
(a) In a case where the value of the asset as claimed by the assesses is in accordance with the estimate made by a registered valuer, if the assessing officer is of the opinion that the value so claimed is less than its fair market value,
(b) In any other case, if the assessing officer is of the opinion–
(i) That the fair market value of the asset exceeds the value of the asset as claimed by the assesses by more than such amount as may be prescribed in this behalf, or
(ii) That having regard to the nature of the asset and other relevant circumstances, it is necessary so to do.”
13. The assessing officer made a reference to the DVO under section 55A of the Act for determination of FMV as on 1-4-1981. The time-limit for passing an order of assessment for the relevant assessment year was getting barred. The DVO did not furnish his report to the assessing officer. In the circumstances, the assessing officer computed LTCG as follows, ignoring the FMV as on 1-4-1981 given by the assessee in the registered valuer’s report :–
“6.2 At the time of scrutiny assessment, in compliance to above requisition, the Authorized Representative of the assessee has furnished one valuation report done by Shri Nirmal Kanti Chakraborty, chartered engineer, architect, dt. 12-3-2008.
6.3 On thorough scrutiny of said valuation report it is found that land rate is determined at Rs. 4,41,000 per Cottah and the total valuation of 45.48 cottahs stands as Rs. 2,00,50,680 (Rs. 4,41,000 x 45.48). With this valuation after adding Rs. 1,00,000 for boundary wall & gate, total value of land assessed is Rs. 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 31-12-2010, 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 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 Revenue and attempting to plug revenue loss, land value is taken as Rs. 45,000 per Cottah as on 1-1-1981, for which the total land value comes to Rs. 20,46,60 as on 1-1-1981, after indexing cost of the land stands as Rs. 1,12,76,766 (20,46,600 x 551/100). As such indexed cost of land value is taken as Rs. 1,12,76,766 in lieu of Rs. 11,10,63,307.”
14. Before Commissioner (Appeals), the report of the DVO was made available and in his report, he adopted the FMV as on 1-4-1981 at Rs. 20,46,600. The grievance of the assessee was that the DVO did not give proper opportunity to the assessee before giving his report and the grievance in this regard is projected in the additional grounds of appeal raised before the Tribunal.
15. First and foremost objection of the assessees before learned Commissioner (Appeals) was that reference to the DVO under section 55A was invalid. Under clause (a) of section 55A of the Act, the assessing officer is entitled to make the reference to the Valuation Officer in a case where the value of the asset as claimed by the assessee in accordance with the estimate made by the registered valuer, if the assessing officer is of the opinion that the value so claimed is less than the fair market value. In any other case, as provided under clause (b) of section 55A of the Act, the assessing officer has to record an opinion that (i) the fair market value of the asset exceeds the value of the asset as claimed by the assessee by more than such percentage or by more than such an amount as may be prescribed; or (ii) having regard to the nature of the asset and other relevant circumstances, it is necessary to make such a reference. The assessee had claimed the valuation as on 1-4-1981 at a sum of Rs. Rs. 2,01,56,680 before indexation based on the report of a registered valuer. Therefore, the assessing officer was required to form an opinion that the value so claimed is less than the fair market value. The reference by the assessing officer was on the ground the FMV as on 1-4-1981 is more than the FMV as on 1-4-1981. Therefore, clause (a) of section 55A of the Act cannot be made applicable. Clause (b) of section 55A of the Act 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. The assessees thus submitted that on the facts of the present case, clause (b) of section 55A of the Act also cannot be invoked. Therefore, there should be no question of having recourse to sub-clause (ii) of clause (b) of section 55A of the Act. The appellant has relied on Hiaben Jayantikd Shah v. ITO & Anr. (2009) 310 ITR 31 (Guj), CIT v. Daulal Mohta (HUF), IT Appeal No. 1031 of 2008 (Bombay High Court) date 22-9-2008. 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 (Appeals) however did not agree with the view of the assessee and he adopted the value as given by the DVO and computed LTCG. The following were the relevant observations of the Commissioner (Appeals) :–
“The submission of the Authorized Representative and assessment order were duly considered. The value of property was determined by the appellant through registered valuer as on 1-4-1981 at Rs. 2.01 crores and by the assessing officer through DVO at Rs. 20,60,244. In the assessment order value of this property as on 1-4-1981 was determined at Rs. 20,46,600 based on sale instances. As assessing officer while finalizing assessment could not get the report from DVO, he based on sales instances completed assessment by taking value on 1-4-1981 at Rs. 20,46,600. Report of DVO was received on 13-4-2011. Copy of the DVO report was given to the Authorized Representative during appellate proceeding.
It is pertinent to mention here that a sharp difference was found in the valuation done by registered valuer at Rs. 2.01 crores and valuation done by DVO at Rs. 20,60,244. For this appellant has no reply. Practically, this difference can’t be so wide. It is not important whether the assessing officer. can refer to DVO or not, but it is important to determine correct value on 1-4-1981. Appellant has declared high value of property at 1-4-1981 to claim high cost after indexation and pay lesser tax. This device is adopted basically to evade long-term capital gain tax.
Hence, for the purpose of capital gain value of property is taken at Rs. 20,60,244 as determined by DVO as on 1-4-1981 instead of Rs. 2,05,56,680 as taken by appellant based on sales instances. This ground of appeal is therefore dismissed.”
17. Aggrieved by the order of the Commissioner (Appeals), the assessee has raised ground Nos. 4 to 8 and additional ground before the Tribunal.
18. The learned counsel for the assessee submitted before us that what is applicable in the present case is clause (a) of section 55A(2) of the Act. Hence, to make a reference under section 55A of the Act, assessing officer has to form an opinion that the FMV as on 1-4-1981 claimed in the registered valuer’s report is less than the fair market value. On the other hand, the opinion of the assessing officer here is that the value shown was very high, or in other words, 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. Umedbhal International (P) Ltd. (2011) 330 ITR 506 (Cal), in a similar situation, where there was a substitution of the cost as on 1-4-1981, by value based by DVO 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 value shown by the assessee was less than fair market value. The Hon’ble Calcutta High Court followed the said decision in the case of CIT v. Smt Mtna 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 (HUE) v. CIT (2016) 386 ITR 10 (Cal), the Hon’ble Calcutta High Court took a view, in a case where FMV as on 1-4-1981 was supported by a registered valuer’s report held that the reference was valid and fell within the ambit of section 55A(2)(b)(ii) of the Act. The following were the relevant observations of the Court :–
“7. The principal contention before the learned Tribunal was that the assessing officer could not have made a reference for evaluation of the property under section 55A(a) as the fair market value estimated by the registered valuer engaged by the assessee is higher than the actual fair market value. This contention is inherently incorrect. Policy of law is to take the fair market value as on 1-4-1981 as the basis for the purpose of indexation. If the assessee has shown more than the fair market value he obviously, is interested in increasing the index cost for the purpose of avoiding to pay capital gains. Therefore, the practice adopted by him cannot be permitted. Even assuming that there is a case in which the assessee has offered more than the market value, it is not the policy of law to recover more than what is actually due from the assessee. In either case, the contention of the assessee is wrong and not acceptable. In the case before us, the assessee, however, was inspired by sinister motive of avoiding to pay capital gain and that was the reason why he inflated the fair market value on 1-4-1981. The reference made by the assessing officer was competent. The learned Tribunal was correct in holding that the clause (b)(ii) of section 55A carries a broader spectrum which certainly empowers the assessing officer to make reference to the DVO wherein in his opinion the fair market value estimated by the assessee is not proper and since in the present case the reference has been made by the assessing officer under section 55A(b)(ii) of the Act, in our considered opinion such action of assessing officer was well within the parameters of the spirit of the section which empowers the assessing officer to make a reference to DVO i.e., ‘in any other circumstances which he thinks that it is necessary to refer the matter to the DVO’ and, therefore, in the present case, the action of assessing officer in making reference to DVO while not accepting the valuation shown by the assessee on the basis of the registered valuer’s report was well permissible under the law.”
In a decision rendered by the Tribunal, Kolkata Bench, in the case of ITO v. Sudip Roy, ITA No. 2864/Kol/2013 order date 19-10-2016,(which is authored by the Hon’ble A.M. of the present Bench) this Tribunal followed the view of the Calcutta High Court in the case of Nirmol Kumar Ravirtdrakumar 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 favor of the assessee accepting the view canvassed by the assessee before Commissioner (Appeals) but the later judgment by a Division Bench has taken a contrary view. He brought to our notice that in the latter judgment, the Court did not consider it’s earlier two judgements on the same issue. It was submitted by him that in a situation where there are conflicting decision of 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 incuriam. In this regard he drew our attention to a decision of the Hon’ble Supreme Court in the case of Sundeep Kumar Bajha v. State of Maharashtra & Am. (2014) 16 SCC 623, wherein the Hon’ble Supreme Court took the view (at p. 642 (Para 19)) that a decision or judgment can also be per incuriam if it is not possible to reconcile its ratio with that of a previously pronounced judgment of a co-equal or Larger Bench and when High Courts encounter two or more mutually irreconcilable decisions of the Supreme Court cited at the Bar, the inviolable recourse is to apply the earliest view as the succeeding ones would fall in the category of per incuriam. The following were the relevant observations of the Hon’ble Supreme Court :–
“19. It cannot be over- emphasized that the discipline demanded by a precedent or the disqualification or diminution of a decision on the application of the per incuriam rule is of great importance, since without it, certainty of law, consistency of rulings and comity of Courts would become a costly casualty. A decision or judgment can be per incuriam any provision in a statute, rule or regulation, which was not brought to the notice of the Court. A decision or judgment can also be per incuriam if it is not possible to reconcile its ratio with that of a previously pronounced judgment of a co-equal or Larger Bench; or if the decision of a High Court is not in consonance with the views of this Court. It must immediately be clarified that the per incuriam rule is strictly and correctly applicable to the ratio decidendi and not to obiter dicta. It is often encountered in High Courts that two or more mutually irreconcilable decisions of the Supreme Court are cited at the Bar. We think that the inviolable recourse is to apply the earliest view as the succeeding ones would fall in the category of per incuriam.”
20. It was submitted by the learned counsel or the assessee that the earlier view of the two Division Benches should be followed in preference to the later view of the Division Bench as in the later decision, the two earlier decisions were neither noticed nor referred to. Our attention was also drawn to the view of the other High Courts on the issue of validity of reference under section 55A(2)(a) of the Act when the FMV as on 1-4-1981 adopted by an assessee in support of his computation of LTCG is supported by a registered valuer’s report. The Hon’ble Bombay High Court in the case of Daulal Mohata, HUF (supra) dealt with following substantial question of law :–
“(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 DVO for determination of the fair market value of the property ?”
In para Nos. 4 and 5 of its judgment Hon’ble High Court held as follows :–
“4. The Tribunal in its order date 23-7-2004 has categorically observed thus:–
The first issue that arises for our consideration is whether the reference made by the assessing officer to the DVO under section 55A is bad in law under the facts and circumstances of the case. This issue, in our considered opinion is covered in favor of the assessee and against the Revenue by the judgment in the case of Ms. Rubab M. Kazerani v. Jt. Commissioner (2005) 97 TTJ (Mumba)(TM) 698. Further, the assessee also covered by the Third Member (sic) decision of the Pune Bench of the Tribunal, the case of the Smt. Krishnabai Tingre v. ITO (2006) 103 TTJ (Pune) 216, wherein it has been held that reference to DVO can only be made in cases where the value of capital asset shown by the assessee is less than its fair market value of land as on 1-4-1981 shown by the assessee on the basis of approved valuer’s report being more than its fair market value, reference under section 35A was not valid. Respectfully following the propositions laid down in these two cases by the Co-ordinate Benches we uphold the contention of the assessee and hold that the reference made by the assessing officer to the DVO under section 55A in the peculiar facts and circumstances of the case is bad in law. Thus, on the sole ground appeal of the assessee has to be allowed.
Before passing, we have to mention that the assessee has submitted the arguments. As on the basis of the legal aspects itself we have decided the issue in favor of the assessee, we refrain from undertaking this academic exercise of disposing of this case on merits.’
5. In view thereof there is no merit in the appeal. Appeal stands dismissed.”
21. The Hon’ble Gujarat High Court in the case of Hiaben Jayantilal Shah (supra) has held on this issue as follows :–
“Under clause (a) of section 55A, the assessing officer is entitled to make the reference to the Valuation Officer in a case where the value of the asset as claimed by the assessee is in accordance with the estimate made by the registered valuer, or if the assessing officer is of the opinion that the value so claimed is less than the fair market value. In any other case, as provided under clause (b) of section 55A, the assessing officer has to record an opinion that (i) the fair market value of the asset exceeds the value of the asset as claimed by the assessee by more than such percentage or by more than such an amount as may be prescribed; or (ii) having regard to the nature of the asset and other relevant circumstances, it is necessary to make such a reference. As can be seen from the communication dated nil from DVO to the petitioner insofar as the fair market value of the property as on 1-4-1981 is concerned, the petitioner had claimed the same at a sum of Rs. 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 DVO is shown at Rs. 3,97,000, which is less than the fair market value shown by the assessee as on 1-4-1981. 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 Ravichandra 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 consideration to the rival submissions. The Hon’ble Calcutta High Court in the earlier decisions rendered in the cases of Umedbhai International (P) Ltd. (supra) and Smt Mina Deogun (supra) has taken the view that where FMV as on 1-4-1981 in support of computation of LTCG as made by the assessee is supported by a report of a registered valuer, then to make a reference under section 55A of the Act, assessing officer has to form an opinion that the FMV as on 1-4-1981 claimed in the registered valuer’s report is less than the fair market value. On the other hand, if the opinion of the assessing officer is that the value shown was very high or in other words, more than the fair market value, then no valid reference can be made under section 55A(2)(a) of the Act. However in the later decision rendered in the case of Nirmal Kumar Ravichandra Kumar HUF (supra), the Hon’ble Calcutta High Court has taken the view that Tribunal was correct in holding that the clause (b) (ii) of section 55A carries a broader spectrum which certainly empowers the assessing officer to make reference to the DVO wherein in his opinion the fair market value estimated by the assessee is not proper and since in the present case the reference has been made by the assessing officer under section 55A(b)(ii) of the Act, in our considered opinion such action of assessing officer was well within the parameters of the spirit of the section which empowers the assessing officer to make a reference to DVO, i.e., “in any other circumstances which he thinks that it is necessary to refer the matter to the DVO” and, therefore, in the present case, the action of assessing officer in making reference to DVO while not accepting the valuation shown by the assessee on the basis of the registered valuer’s report was well permissible under the law. It is thus clear that on same facts, the Hon’ble Calcutta High Court has taken irreconcilable view. The earlier view has not been referred to or considered in the later view and all the judgments have been rendered by Judges of equal strength. In the given circumstances, we are of the view that the ratio laid down by the Hon’ble Supreme Court in the case of Sundeep Kumar Bajha (supra) 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 DVO by the assessing officer has to be regarded as invalid. We therefore hold that reference by the assessing officer to the DVO under section 55A for valuation of fair market value of the property as on 1-4-1981 is not valid for the reason that the assessing officer was of the view that fair market value declared by the assessee as per 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 1-4-1981. Since determination of the fair market value as on 1-4-1981 was based on the report of the DVO, the same is held invalid. Consequently, estimation of the fair market value of the properly as on 1-4-1981 as made by the assessee is directed to be accepted. Ground Nos. 4, 5 and 8 are allowed. Ground Nos. 6 and 7 and the additional ground of appeal raised by the assessee do not call for any adjudication in view of the decision that the reference to the DVO is invalid and hence the LTCG computed by the assessee has to be accepted. We hold and direct accordingly.
ITA No. 204/Kol/2013 (Revenue’s Appeal)
24. Grounds of appeal raised by the Revenue read as follows :–
“1. Learned Commissioner (Appeals) has erred in law as well as on facts in allowing the relief to the tune of Rs. 1,51,65,191.
2. Learned Commissioner (Appeals) has erred in law as well as on facts in appreciating that the amount ‘payable’ occurring in the said claim under section 40(a)(ia) has to be read along with the context.
3. Learned Commissioner (Appeals) has erred in law as well as in not appreciating that a tax statute cannot be influenced by assessee’s swiftness to clear off his dues to a sundry creditor other than State dues.
4. Learned Commissioner (Appeals) has erred in law as well as in not noting that meanwhile Hon’ble Andhra Pradesh High Court has been pleased by Revenue’s contention to suspend the operation of the decision of learned Tribunal, Special Bench, Vishakapatnam Bench, 477NIZ/2008.
5. The appellant craves leave to add/delete or change any ground of appeal.”
25. The facts with regard to grounds raised by the Revenue are, as we have already seen that the assessee is founded as club to promote activities of horse racing, besides providing club facilities to its members. The assessee telecasts live horse races conducted in different race courses across the country. The members of the assessee watch such live telecast and indulge in betting in connection with the horse race that are telecast live. It is called Inter State Betting Operation (ISBO). Whatever receipt is derived by the assessee from ISBO, is shared with the race club/course that actually conducts the race. By watching the live telecast of the race taking place in other race course, a person can indulge in betting in assessee’s premises where such horse races are telecast live. The 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 horse is also passed on and the prize 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 Rs. 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 Commissioner (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, the sums payable to the other clubs had already been paid and nothing remained payable. The assessee relying on the decision of the Special Bench of Tribunal, Visakhapatnam, in the case of Merilyn Shipping & Transports v. Addl. CIT (2012) 146 TTJ (Visakha)(SB) 1 and contended that the dis allowance under section 40(a)(ia) of the Act can be made only in respect of sums which remained “payable” and not in respect of sums which had already been paid without deduction of tax at source. In the decision rendered by the Special Bench in the case of Merilyn Shipping (supra), it was held that dis allowance under section 40(a)(ia) of the Act can be made only in respect of a sum on which TDS ought to have been made but was not made and remained payable and that in the case where the amounts were already paid by the assessee as on the last date of the previous year, no dis allowance can be made under section 40(a)(ia) of the Act. The Commissioner (Appeals) following the decision of the Hon’ble Special Bench in the case of Merilyn Shipping (supra) deleted the addition made by the assessing officer.
28. Aggrieved by the order of Commissioner (Appeals), the Revenue has preferred the present appeal before the Tribunal.
29. We have heard the submissions of the learned counsel for the assessee and the learned Departmental Representative. At the time of hearing it was brought to our notice by the parties that the Hon’ble Calcutta High Court in the case of CIT v. Crescent Exports Syndicate (2013) 262 CTR (Cal) 525 had taken a view that dis allowance under section 40(a) (ia) of the Act can be made even in a case when the sum on which tax was deductible and not deducted was paid. The Hon’ble Calcutta High Court had overruled the decision of the Special Bench Tribunal in the case of Merilyn Shipping (supra). The view expressed by the Hon’ble Calcutta High Court in the case of Crescent Export Syndicate (supra) has now been approved by the Hon’ble Supreme Court in the case of Palam Gas Services v. CIT in CA No. 5512 of 2017, judgment date 4-5-2017 (reported at (2017) 295 CTR (SC) 1–Ed.), wherein the Hon’ble Supreme Court held that the provisions of section 40(a) (ia) of the Act are applicable even when the amounts which are claimed as expenditure on which TDS has not been deducted have 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 (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 Commissioner (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 1-4-2013, whereby a second proviso was inserted which provided that if the payees have filed their returns of income showing the receipts from the assessee in their returns of income then it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in section 40(a)(ia) of the Act.
31. It was argued by the learned counsel for the assessee that the assessing officer and first appellate authorities are vested with statutory powers under section 133(6) or 131 and/or other provisions and they could have made inquiries with the parties or their respective assessing officer.
32. It was pointed out by him that Tribunal, Kolkata in the case of Romakrishna Vedanta Math v. ITO (2013) 55 SOT 417 (Kolkata) has taken a view that once assessee furnishes lawfully maintained information about recipients, assessing officer should first ascertain related facts about payment of taxes directly from recipients before invoking section 201(1). It was submitted that the above decision of Tribunal, Kolkata, in the above-mentioned case will also apply for the purposes of section 40(a) (ia) of the Act. Further reliance was also placed on the decision of the Tribunal, Kolkata, in the case of Vas Electronics v. Asst. CIT, in ITA No. 662/Kol/2013, date 24-11-2015, wherein following the decision of the Hon’ble Delhi High Court in the case of CIT v. Ansal Landmark Township (P) Ltd. (2015) 377 ITR 635 (Del), the assessing officer was directed to verify whether the recipients have included the receipts paid by the assessee in their respective returns of income and also paid taxes on the same.
33. It was therefore, submitted that the dis allowance under section 40(a)(ia) of the Act to the extent sustained by the Commissioner (Appeals) should be set aside and remanded to the assessing officer to verify whether the recipients have included the receipts paid by the assessee in their respective returns of income and also paid taxes on the same. To the extent the recipients from the assessee have so included the sum in their returns of income and filed the same, no dis allowance under section 40(a)(ia) of the Act should be made by the assessing officer. In case the recipient parties 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 (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 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) 287 CTR (Ker) 101.
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 it fit and proper to set aside the order of Commissioner (Appeals) on this issue and remand the issue for fresh consideration on two aspects pleaded by the learned counsel for the assessee before us. As per the second proviso to section 40(a)(ia) of the Act read with proviso to section 201(1) of the Act inserted by Finance Act, 2012, with effect from 1-4-2013 and 1-7-2012, respectively, if it is established that the person to whom the payments made are disallowed under section 40(a) (ia) of the Act has furnished return of income under section 139 of the Act and has also taken into account the sum received from the assessee in computing in such return of income and if he had paid tax on the income declared by him on such income and furnished the certificate to the above effect to the accountant in Form No. 26A, then the assessee cannot be deemed to be an assessee in default under section 201(1) of the Act and no dis allowance under section 40(a)(ia) of the Act should be made. The Hon’ble Delhi High Court in the case of CIT v. Ansal Land Mark Township (P) Ltd. (supra) has held that the aforesaid amendments to the proviso to sections 201(1) and 40(a)(ia) of the Act have to be held to be applicable with retrospective effect and were applicable right from the time when section 40(a)(ia) of the Act was enacted. The decision rendered by the Hon’ble kerala High Court in the case of Thomas George Muthoot (supra) has taken a view contrary to that of the Delhi High Court in the case of Ansal Landmark Township (supra). In the given circumstances, rule of judicial precedent demands that the view favorable to the assessee must be adopted. The Hon’ble Supreme Court of India in the case of CIT v. Vegetable Products Ltd. (1973) 88 ITR 192 (SC), has held that where two views are possible, the view in favor of the assessee has to be preferred. We, therefore adopt the view taken by the Hon’ble Delhi High Court in the case of Ansal Landmark Town sip (supra) which is favorable to the assessee. Accordingly the appeal of the Revenue is treated as allowed for statistical purposes.
36. In the result, the appeal by the Revenue is treated as allowed for statistical purposes.
37. In the result, appeal by the assessee is allowed and the appeal by the Revenue is treated as allowed for statistical purposes.
