IN INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD BENCH Before: Shri D.K. Tyagi Judicial Member and Shri Anil Chaturvedi, Accountant Member ITA No. 2356/Ahd/2010 A.Y.:-2007-08 Shri Mukeshbhai Kalidas Asst. Director of Income Patel, 2A, Tirthnagar Tax (International Taxation) Society III, Sola Raod, Vs. Ahmedabad Ghatlodia, Ahmedabad (Respondent) (Appellant) PAN No. AAVPP9801P Revenue by : Sri Pradip Kr. Majumdar, Sr. D.R. Assessee by : Sri Urvashi Shodhan, A.R. Date of hearing : 14-02-2013 Date of pronouncement : 22- 02-2013 /ORDER PER : D.K TYAGI, JUDICIAL MEMBER:- This is assessee s appeal against order of Ld. CIT(A), Gandhinagar dated 21.05.2010. 2. assessee has taken following two effective grounds of appeal:- ITA No. 2356/Ahd/2010 A.Y. 2007-08 Page No 2 Mukesh Kalidas Patel vs. Asst. Director of Income tax 1 Learned CIT(A) Gandhinagar, Ahmedabad has erred in confirming addition of Rs. 5,70,000/- to amount of Long Term Capital Gains declared. 2. Learned CIT(A) Gandhinagar, Ahmedabad has erred in confirming disallowance of interest of Rs. 67,919/-. 3. Brief facts of case are that during assessment proceedings assessing officer observed that assessee has declared long term capital gain on sale of plot of land by taking sale consideration at Rs. 61,80,000/- as per conveyance deed dated 10.11.2006. assessing officer further found that on 13.11.2006, assessee has received another sum of Rs. 5,70,000/- from purchaser, which has also been attributed in assessee s record to sale of plot at Kalupur. When assessee was asked, assessee s explanation was that this is reimbursement of expenses incurred by assessee in leveling of land, constructing compound wall and does not form part of sale considerations. However, assessee did not have supporting evidence of such expenses being incurred long back. This explanation of assessee was not acceptable to assessing officer on ground that as per conveyance deed plot of land has been sold in present shape along with boundary wall at Rs. 61,80,000/- and there is no provision of reimbursement of expenses in said conveyance deed. Accordingly, he took sale value of plot at Rs. 67,50,000/- i.e. at Rs. 61,80,000/-+5,70,0000/-=67,50,000/- which amounted to addition of Rs. 5,70,000/- to capitals gain shown by assessee. 4. Before Ld.CIT(A), assessee made following submissions/contentions:- ITA No. 2356/Ahd/2010 A.Y. 2007-08 Page No 3 Mukesh Kalidas Patel vs. Asst. Director of Income tax In para three of assessment order, learned Assessing Officer has concluded that sale consideration towards plot of land sold during previous year is not Rs. 61,80,000/- as returned by assessee but Rs. 67,50000/- i.e. more by Rs. 5,70,000/- for which separate agreement was executed and thereby make addition of Rs. 5,70,000/- to income. It is respectfully clarified that one plot of land was acquired in 1992. Thereafter, your assessee had incurred expenses towards constructing of compound wall, leveling of plot, filling of land etc. All this additional work was carried out over passage of time from say 1992.93 to 2000.01. Compound wall was made somewhere in year 2000 etc. Thus all expenses were incurred at different point of time and in installments. Since mater is very old your assessee is not in possession of supporting evidences relating to expenses incurred. However fact that at time of sale of property, levalised plot of land and compound wall was in existence and said fact has been acknowledged by purchaser and even not denied by Ld. A.O. However, as it relates to reimbursement of expenses and not towards recovery of cost of original assets, separate agreement was executed and in main deed of sale, only consideration towards sale of plot of land was stated. In view of this, your assessee too under bonafide understanding while computing long term capital gain, sale consideration as per sale deed of Rs. 61,80,000/- was considered whereas amount of Rs. 5,70,000/- was received through separate agreements pertains to receipts towards reimbursement of expenses incurred, same was ignored. issue would not have arised, has computation of income was made as under:- I Cost of plot of land Rs. 6,50,072 Add: Cost of improvement (Upto Rs. 5,7000 Total cost Rs. 12,20,072 II. Indexed cost of Acquisition (Indexation of Rs. 16,95414 cost of land only and not that of expenses of improvement as precise period not available) Total Indexed cost of acquisition Rs. 22,65,414 ITA No. 2356/Ahd/2010 A.Y. 2007-08 Page No 4 Mukesh Kalidas Patel vs. Asst. Director of Income tax Sale consideration (61,80,000+5,70,000) Rs. 67,50,000 Long Term Capital Gain (which is exactly Rs. 44,84,586 same amount as computed by assessee) Copies of both deeds i.e. Deed of Sale for 61,80,000/- and agreement for Rs. 5,70,000/- separately executed are appended separately for your Honour s ready reference. Considering facts of case and evidences on record, addition made may kingly be deleted. 5. Ld. CIT(A) however dismissed this ground of assessee by observing as under:- 3.3 matter has been considered but I am afraid I cannot agree with Authorized Representative. plot of land along with boundary wall and its various characteristics is always sold in totality and not in terms of various activities which go to form present state it is in. In fact, any asset would be sold in its entirety and improvements carried thereon would get reflected in its value. improvements like leveling of land are not independent rights or assets which can be transacted. Although Authorized Representative has filed separate conveyance deed dated 10/11/2006 regarding so called reimbursement, it is clear that said conveyance deed does not made much of sense. Furthermore, in any case, it seems from assessment order that no such deed was filed before Assessing Officer. Therefore, it is clear that entire sum of Rs. 67,50,000/- is to be treated as consideration received for sale of land. 6. Before us, learned counsel for assessee reiterated submission made before Ld. CIT(A). On other hand, Ld. D.R. relied on orders of lower authorities. 7. After hearing both parties and perusing record, we find that there are two conveyance deeds singed between assessee and purchaser in respect of sale of plot at Kalupur both dated 10.11.2006. ITA No. 2356/Ahd/2010 A.Y. 2007-08 Page No 5 Mukesh Kalidas Patel vs. Asst. Director of Income tax According to assessee sale consideration of plot was only at Rs. 61,80,000/- as per first conveyance deed and sum of Rs. 5,70,000/- received by another conveyance deed was not in respect of sale considerations but which related to reimbursement of expenses only. assessing officer has however taken both amounts as sale value of plot at Kalupur and has calculated capital gains accordingly. This action of A.O. has been confirmed by Ld. CIT(A) after taking into consideration contention of assessee which we have already reproduced in para No. 4 of our order. While going through second conveyance deed, we find that in that deed there is mention of very vital facts that when purchaser took possession of plot from assessee it was found that area of plot was 38 sqaure yard more than in record of society. possibility of regularizing this discrepancy of area of plot in earlier conveyance deed and to obtain consent of assessee in respect of additional area of land, payment of Rs. 5,70,000/- was made to assessee cannot be ruled out since assessee has failed to give any evidence in support of his claim that this payment was reimbursement of expenses incurred by assessee for development of this plot. Therefore, lower authorities have rightly treated payment received by assessee in terms of both conveyance deeds as sale consideration/value of plot for calculating capital gain. This ground of assessee is therefore dismissed. 8. Ground No. 2 relates to disallowance of interest of Rs. 67,919/-. During assessment proceeding, assessing officer disallowed interest paid by assessee for overdraft facilities on ground that same has been utilized for advance free loan and advance to relatives and ITA No. 2356/Ahd/2010 A.Y. 2007-08 Page No 6 Mukesh Kalidas Patel vs. Asst. Director of Income tax friends. Before CIT(A), assessee placed reliance on following submissions:- learned Assessing Officer, vide para five of assessment order has disallowed interest of Rs. 67,919/- paid to bank towards interim overdrafts faculties on finding that said has not been expended wholly and exclusively for earning income from other sources. It is respectfully clarified that assessee has offered net income of Rs. 36,156, as under:- Income from other sources Sr. Particulars Amount Amount No. (i) Interest from Shah Corporation 55,500 (ii) Bank F.D.R. Interest 48,355 (iii) S.B. A/c Interest 220 1,04,075 Less: Interest paid to bank on 67,919 overdraft facilities Net Income 36,156 It is question of temporary mismatch. Own capital deployed in income earning asset and on purely temporary basis. Assessee has utilized facilities for giving temporary advances to known relatives and concerns, it is not obligatory to charge interest for each and every advances, ultimately made out of own fund. For few advances to close relative for small period interest was not charged whereas interest was charged for advances to Shah Corporation. However overall interest receipt is more by Rs. 36,156/- and interest paid on overdraft facility which is not utilized towards capital expenditure or personal expenditure disallowance made that of overdraft interest of Rs. 67,919/- deserves to be deleted. 9. action of assessing officer was confirmed by Ld. CIT(A) by observing as under:- matter has been considered and I am afraid I do not agree with Authorized Representative. It has been accepted that monies in question have been advanced to friends and relatives for which no ITA No. 2356/Ahd/2010 A.Y. 2007-08 Page No 7 Mukesh Kalidas Patel vs. Asst. Director of Income tax interest is chargeable. Therefore, it is inappropriate to set off this interest against interest from bank FDR or interest from Shah Corporation. If version of Authorized Representative, i.e. this is temporary arrangement, is correct, same could have been proved by showing movement of funds, which was not done. Therefore, in my view, addition made by Assessing Officer by treating it as having not been expended wholly and exclusively for purpose of earning interest income is correct and is, therefore, confirmed. 10. Learned counsel for assessee reiterated submission made before Ld. CIT(A) while ld. D.R. relied on order of lower authorities. 11. After hearing both parties and perusing record, we find that assessee has offered net income of Rs. 36,156/- as under:- Income from other sources Sr. Particulars Amount Amount No. (i) Interest from Shah Corporation 55,500 (ii) Bank F.D.R. Interest 48,355 (iii) S.B. A/c Interest 220 1,04,075 Less: Interest paid to bank on 67,919 overdraft facilities Net Income 36,156 In absence of any evidence to show that expenses of interest paid to bank on overdraft facilities of Rs. 67,919/- was incurred to earn interest from Shah Corporation or interest from bank netting of income under head income from another source cannot be done. Since in this case no such evidence had been placed on record by assessee at any stage, this netting has rightly been denied by lower authorities and therefore, disallowance ITA No. 2356/Ahd/2010 A.Y. 2007-08 Page No 8 Mukesh Kalidas Patel vs. Asst. Director of Income tax of Rs. 67,919/- made by assessing officer and sustained by Ld. CIT(A) is hereby confirmed. This ground is also dismissed. 12. In result, assessee s appeal is dismissed. Order pronounced in open court on date mentioned hereinabove at caption page Sd/- Sd/- (ANIL CHATURVEDI) (D.K. TYAGI) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 22 /02/2013 a.k. / Copy of Order Forwarded to:- 1. / Appellant 2. / Respondent 3. / Concerned CIT 4. - / CIT (A) 5. , , / DR, ITAT, Ahmedabad 6. [ / Guard file. By order/ , / , Shri Mukeshbhai Kalidas Patel v. Asst.DIT.-(Intl.Taxn.)