Briefly stated the facts of the case are that during course of the assessment proceedings for the year under consideration, the Assessing Officer observed that the assessee has received three residential flats at Hill Park from its sister concern M/s. British India Steam Navigation Co. (BISNCL) which was capitalized in the schedule of fixed assets at Rs. 79,03,460/-.
Admittedly, assessee has produced a register, which contained payments to various labourers. Admittedly, this register does not contain the addresses of the labourers nor it contains revenue stamp, nor is it signed by the Labour Department, no PF has also been deducted. Does all these wrongs in its entirety or individuality make the expenses incurred by the assessee deniable? Can this defect be held to be changing the mode of payment of the assessee from one mode to another? Here we would answer ‘no’.
The question then, would be; on facts what is discernible? As noticed above, every loan granted to a subsidiary company was preceded by the receipt of money by the assessee as loan from other entities. Undisputedly, even going by the assessee’s contention that the loans to subsidiary companies were from its internal resources; if such interest-free loans were not made, then at least to that extent the assessee need not have borrowed from other entities.
Apprehension of the assessees that they have been made liable to pay a portion of tax u/s 179 of the Act, is unwarranted and misconceived. As per the provisions of the Income-tax Act, no person can be made liable to pay any tax for himself or on behalf of any other entity for which he has been associated unless a specific order is passed in the matter. In the present case, no such order u/s 179 of the Act has been passed.
The Ld DR argued that the Assessing Officer had rightly disallowed the exemption u/s 10B of the Act as the assessee had not filed prescribed audit report and had got software developed from outside. He further argued that assessee had not filed certified copies of invoices.
The recent judgment of Bombay High Court in case of MCHI vs. State of Maharashtra has caused further hardship to genuine flat buyers. The Hon’ble Court has upheld the constitutional validity of the amendment made to definition of Sale. The Court has also upheld recent scheme of Maharashtra Govt. to levy VAT of 1% on agreement value of flat purchased or 5% of value of accretion made by the Developers over immovable property. The composition scheme of 1% is applicable in respect of agreement registered on or after 1st April 2010. However, set-off or deductions earlier claimed in respect of such agreements will have to be reversed.
Business of the taxpayer is banking and the business connection between the tenant and taxpayer has nothing to do with banking operation carried on by the taxpayer. Further, the Kerala High Court in Kottayam District Co-operative Bank Ltd. v. CIT [1991] 188 ITR 568 has also taken a similar view. Therefore, this Tribunal is of the considered opinion that the taxpayer is not eligible for deduction u/s 80P(2)(a)(i) in respect of rental income.
It is settled position of law that where any issue is debatable, it cannot be corrected u/s 154 of the Act. In this regard, the Hon’ble Apex Court in the case of T.S. Balaram ITO v. Volkart Bros. [1971] 82 ITR 50 is relevant wherein an action taken by Assessing Officer u/s 154 of the Act was found to be illegal.
Merely because the Assessing Officer invoked section 50C(2) and adopted guideline value to be the actual sale consideration and made addition in the assessee’s income automatically become a case attracting penalty under section 271(1 )(c) of the Act.
Learned counsel for the respondent submits that Assessing Officer on fact after having examined accounts and accompanying documents found that total funds available with the assessee on 31st March, 1999 was Rs. 1,44,82,000/- out of which an amount of Rs. 22.75 lakhs was given as loans as on 31st March, 1999 representing 15.70% of the funds available with the assessee.
