IN INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F , MUMBAI Before Shri Amit Shukla, Judicial Member, and Shri Ashwani Taneja, Accountant Member ITA No.5330/Mum/2009 Assessment Year: 2005-06 & ITA No.5331/Mum/2009 Assessment Year: 2005-06 Voltas Ltd. ITO WD 7(3)(4) Voltas House-A, Aayakar Bhavan, Dr. Babasheb Ambedkar Vs. Rd, Chincpokli, Mumbai-40020 Mumbai-400033 (Appellant) (Respondent ) P.A. No.AAACV2809D ITA No.5320/Mum/2009 Assessment Year: 2005-06 ITO WD 7(3)(4) Voltas Ltd. Aayakar Bhavan, Voltas House-A, Dr. Babasheb Ambedkar Rd, Vs. Mumbai-40020 Chincpokli, Mumbai-400033 (Appellant) (Respondent ) P.A. No.AAACV2809D Appellant by Shri Dinesh Vyas (AR) Revenue by Shri Asghar Zain (DR) Date of Hearing: 28/07/2016 Date of Order: 16/09/2016 2 Voltas Ltd. ORDER Per Bench: These appeals pertain to same assessee involving identical issues and therefore these were heard together and being disposed of by this common order for sake of convenience. 2. During course of hearing, arguments were made by Shri Dinesh Vyas, Authorised Representatives (AR) on behalf of Assessee and by Shri Asghar Zain, Departmental Representative (DR) on behalf of Revenue. We first take up assessee s appeal in ITA No.5330/Mum/2009 for A.Y. 2005-06 filed against order of Ld. CIT(A) dated 10.07.2009 passed against assessment order u/s 143(3) dated 31.12.2007 on following grounds: GROUND NO 1: LONG TERM CAPITAL GAIN ON SALE OF LAND 1.1. learned Commissioner of Income-tax (Appeals) [hereinafter referred to as CIT(A)] erred in upholding actions of Assessing officer [hereinafter referred to as AO] of computing long term capital gains on transfer of Development Rights in respect of 2 plots of land at Panchpakdi, Thane, based on Stamp Duty value, as per his assessment order u/s 143(3) dated 31.12.2007 and subsequently, by Rectification order u/s 154 dated 8.5.2008, computing long term capital gains based on values assigned by District Valuation Officer [hereinafter referred to as DVO] in his report No. DVO/MUM/TOC/487/2007-08/685 dated 27.3.2008, as against Appellant Company's claim to consider actual amount of consideration received. CIT(A) further erred in upholding actions of 3 Voltas Ltd. AO in considering Fair Market Value (FMV) as on 1.4.198 1 as ascertained by DVO in respect of aforesaid plots of land. 1.2. AO had erred in considering values of 2 plots of land at Thane based on Stamp Duty value, as per Section SOC of Income tax Act, 1961, instead of actual consideration received by Appellant Company. As Stamp Duty value was objected by Appellant Company, AO referred matter to DVO and in absence of valuation report from DVO, proceeded with completing assessment based on Stamp Duty value but stated in his order, that same would be rectified, to give effect to valuation as per DVO. 1.3. DVO had not considered all relevant factors and impediments attached to 2 plots of land in question and made his own assumptions for determining FMV of land. fact that actual consideration received by Appellant Company, on 'as-is-where-is' basis was not considered. AO subsequently passed Rectification order u/s 154 based on values assigned by DVO and ignored facts submitted by Appellant Company. 1.4. CIT(A) ought to have considered and relied on registered Valuer's reports submitted by Appellant Company for computing Long Term Capital Gains on transfer of Development Rights of 2 plots of land at Thane. Appellant Company therefore prays that relevant facts and circumstances be duly considered and AO be suitably directed in matter. (Refer page 11 to 14, para 7.1 of Assessment order and page 6 to 9, para 4.1 to 4.13 of CIT(A) order) GROUND NO 2: SHORT TERM CAPITAL GAIN ON SALE OF RESIDENTIAL FLAT 2.1 learned CIT(A) erred in upholding AO's action of computing short term capital gains based on Stamp Duty value instead of actual consideration received by Appellant Company on sale of residential flat at Joyti Darshan Building, Mumbai. 2.2 CIT(A) failed to appreciate that building 'Joyti Darshan' was 40 year old building and not 4 Voltas Ltd. well maintained. condition of flat was bad due to heavy water leakage during monsoon season and there was continuous leakage due to water tank being just above flat. CIT(A) also failed to appreciate that flat was sold by Appellant Company on 'as-is-where-is' basis and sale consideration received was fair and reasonable, in given circumstances. Appellant Company prays that relevant facts and circumstances be duly considered and AO be directed in matter, accordingly. (Refer page 14 to 16, para 7.2 of Assessment Order and page 9, para 5.1 and 5.2 of CIT(A) order) GROUND NO 3: DISALLOWANCE U/S 14A 3.1. CIT(A) failed to appreciate that Appellant Company had not borrowed any amount for making investment in shares/units and all investments were made out of internal accruals and no interest cost or administrative expenses was incurred for earning dividend income. AO had made disallowance u/s 14A, by notionally attributing interest expense and administrative overhead expenses, on prorata basis as expenses attributable towards earning dividend income which is exempt from tax u/s 10(33) of Income-tax Act. 3.2. CIT (A) has directed AO to retook into Appellant Company's claim or alternatively, compute disallowance u/s 14A as per Rule 8D of Income tax Rules, 1962. 3.3. Appellant Company prays that AO be directed to delete disallowance under section 14A, as Appellant Company has not incurred any interest cost or administrative cost for earning exempt dividend income. 3. During course of hearing Ld. Counsel of assessee submitted supplementary grounds to original grounds and these are reproduced as under: Supplementary Grounds to Ground No.1 - Long Term Capital Gains on sale of Land: 5 Voltas Ltd. 1.5.Since report of District Valuation Officer (DVO) had not been received by Assessing Officer (AO) within period of limitation, original power of AO to make valuation had revived and as he did not exercise that power while passing Assessment Order, addition made by him for computing Capital Gains in relation to transfer of land, is bad in law, illegal and without jurisdiction. It is therefore prayed that said addition in relation to Capital Gains on transfer of land be deleted. 1.6 Since report of DVO had not been received by AO within period of limitation and passing of assessment order, valuation proceeding before DVO had become invalid and bad in law and consequently, AO could not thereafter rely upon Report of DVO for purpose of making Assessment. It is therefore prayed that addition made in relation to Capital Gains on transfer of land be deleted. 1.7. reference to DVO made by AO is bad in law and illegal in absence of any recording of his opinion on basis of material on record that it is necessary to make such reference. Since very initiation of reference is invalid, addition made in relation to Capital Gains on transfer of land is bad in law and illegal and therefore same should be deleted. 1.8. Without prejudice, valuation report made by DVO is bad in law and illegal since it is not passed in terms of section 55A (as it stood before its amendment by Finance Act 2012) and within its statutory limits and jurisdiction and therefore, it should be totally ignored. DVO had no jurisdiction to ascertain valuation of land as on 1/4/1981 and therefore, his order is totally vitiated. Therefore, it is prayed that addition made in relation to Capital Gains on transfer of land be deleted. 1.9 CIT(A) abdicated his duty and jurisdiction by not adjudicating upon correctness of Valuation Report of DVO. Since order of CIT(A) does not legally justify addition made by AO, it is prayed that same should be deleted. 1.10 Since both AO and CIT(A) have passed their respective orders in violation of principles of natural 6 Voltas Ltd. justice and specific statutory provisions, addition made and sustained in orders respectively, ought to be deleted without giving them any further opportunity of passing fresh order (as held by coordinate Bench of Hon'ble Tribunal in Tata C h e m i c al s L im i te d v s . D C IT , O r d e r d ate d 3 0 / 6 / 2 0 11 in IT No.31 27/Mum/10. Supplementary Grounds to Ground No. 2 - Short Term Capital Gains on Sale of Residential Flat. 2.3 Since Appellant claimed before Assessing Officer (AO) that value adopted by Stamp Valuation Authority exceeded fair market value of property, it was obligatory on part of AO to refer under section 50C(2)(a), valuation of Flat to District Valuation Officer (DVO) and as he failed to do so, he had no authority to adopt stamp dutyvaluation and consequently addition made in relation to Capital Gains on transfer of Flat is bad in law and illegal and must be deleted. 2.4 CIT(A) abdicated his duty and jurisdiction by not adjudicating upon correctness of Valuation Report of DVO. Since order of CIT(A) does not legally justify addition made by AO, it is prayed that same should be deleted. 2.5. Since both AO and CIT(A) have passed their respective orders in violation of principles of natural justice and specific statutory provisions, addition made and sustained in orders respectively, ought to be deleted without giving them any further opportunity of passing fresh order (as held by coordinate Bench of Hon'b!e Tribunal in Tata C h e m i c al s L i m i te d v s . D C T , O r d e r d te d 3 0 / 6 / 2 0 1 1 in IT No.3127/M/10). 3.1. During course of hearing, it was submitted by Ld. Counsel that supplementary grounds are primary grounds, therefore, they should be taken first; accordingly we shall first take up supplementary grounds: Supplementary Ground No. 1.5 to 1.10:- In these grounds, assessee has challenged validity of actions of lower 7 Voltas Ltd. authorities with respect to addition made on basis of report of departmental valuer i.e. DVO. 3.2. Brief background of issues involved in these grounds is that assessee disclosed long term capital gains on sale of development rights with regard to plot of land located at Panchpakdi, Thane, on basis of Development Agreement dated 8th June 2004 entered into by assessee with M/s Sheth Developers Private Ltd. During course of assessment proceedings, AO asked assessee that why not sales consideration should be substituted with value adopted by stamp valuation authority in view of section 50C of Act. In response, assessee objected to value adopted by stamp valuation authority and also objected to very invoking of section 50C of Act upon impugned transaction of sale of development rights. AO referred matter to district valuation officer for valuation of sales consideration as well as cost of acquisition of property. But, Valuation Report of DVO was not received by AO till conclusion of assessment proceedings and therefore AO adopted value of stamp valuation authority and substituted it with actual sales consideration shown by assessee and computed long term capital gains on sale of Development Rights of land accordingly. 3.3. Being aggrieved, assessee filed appeal before Ld. CIT(A) wherein exhaustive submissions were filed and addition made by AO was challenged on many grounds. But, Ld. CIT(A) did not find any force in any of 8 Voltas Ltd. submissions made by assessee and it was held by him that provisions of section 50C were rightly invoked and AO had rightly adopted figures of valuation determined by DVO by suitable amending his assessment order u/s 154 after receipt of report of DVO. Thus grievance of assessee against AO s action in applying provisions of section 50C as well as action of DVO in issuing impugned valuation report was rejected by Ld CIT(A). 3.4. Being aggrieved, assessee filed appeal before Tribunal. 3.5. During course of hearing before us numerous arguments have been made challenging various actions of lower authorities on many grounds. It was contended by Ld. Counsel that since report of DVO was not received by AO before framing of assessment order therefore, power to make valuation reverts back to AO. Under these circumstances, AO was bound to make valuation applying his own mind independently. Thus, under these circumstances, AO could not have adopted any other value as assessed by any other authority. Reliance in this regard was placed on Judgment of Hon ble Calcutta High Court in case of Shahdara (Delhi) Saharanpur Light Railway Co. Ltd. vs CIT 208 ITR 882. It was further contended by Ld. Counsel that in case valuation report is not received before assessment is completed then reference u/s 55A becomes invalid because purpose for which valuation report could be utilized, namely, for completion of assessment in conformity with valuation 9 Voltas Ltd. report, was not longer existent, since assessment was completed in meantime. Under these circumstances, AO was not permitted to subsequently refer to valuation report for substituting amount of sales consideration in hands of assessee. reliance was placed in this regard on judgment of Hon ble Calcutta High Court in case of Reliance Jute and Industries Ltd. v. ITO 150 ITR 643 and Bhalanath Majumdar v. ITO 221 ITR 608. It was also submitted that no reference can be made u/s 55A for purpose of determination of sales consideration on ground that expression full value of consideration cannot be construed as having reference to market value of assets transferred but only means full value of consideration actually received by transferor. In this regard reliance was placed on judgment of Hon ble Delhi High Court in case of CIT Vs. Smt Nilofer I Singh 309 ITR 233 and also upon Dev Kuamr Jain vs. ITO & Anr., 309 ITR 240 (Del). It was also submitted that in section 55A, power to make reference for valuation for ascertaining cost of acquisition as on 01.04.1981 is not available. Reliance in this regard has been placed on judgment of Hon ble Bombay High Court in case of CIT v. Puja Prints 360 ITR 697 (Bom) & Amiya Bala Paul 262 ITR 407(SC). 3.6. Lastly, it was submitted without prejudice to above submissions that in any case transaction of sale of Development Rights is not covered u/s 50C. In support of this argument, Ld. Counsel drew our attention on other allied provisions of Act such as section 269A of Act. Ld 10 Voltas Ltd. Counsel vehemently argued that on this ground itself addition made by AO becomes illegal and deserves to be deleted. 3.7. Per contra, Ld. DR relied upon orders of lower authorities and submitted that AO has substituted amount of sales consideration on basis of report of DVO. Since, valuation shown by DVO is more than consideration shown by assessee, therefore, as per section 50C higher value should be adopted. 3.8. We have gone through submissions of assessee. We shall first deal with last argument of assessee which is directly on scope of section 50C. perusal of section 50C shows that section 50C shall be applicable where consideration received as result of transfer by assessee of capital asset, being land or building or both, is less than value adopted or assessed or assessable by any authority of State Government . Thus, it is noted that term capital asset mentioned in section specifically refers and confines its meaning to land or building or both . Thus, scope of section 50C is restricted by legislature itself to these two types of capital assets only. 3.9. Turning back to facts of case before us, capital asset transferred by assessee was Development Rights in land and not Land itself. If we go through few other similar provisions of Act, we find that legislature has used this expression consciously and carefully and keeping in view its need and objective of legislating section 50C. For example, in section 269A, expression immovable property has been defined as under: 11 Voltas Ltd. Immovable property means- (i) any land or any building or part of building, and includes, where any land or any building or part of building is transferred together with any machinery, plant, furniture, fittings or other thing which machinery, plant furniture, fittings or other things also. Explanation- for purposes of this [sub-clause], land building part of building, machinery, plant, furniture, fittings and other things include any rights therein; (ii) any rights of nature referred to in clause (b) of sub- section (1) of section 269AB .. 3.10. Similarly, in section 269 UA also identical definition has been given. In these cases, rights in land & building have been specifically included as per requirement of these sections. In other words, term land & building and rights therein have been clearly understood and treated as independent from each other. Thus, perusal of definitions given in these sections when compared with section 50C shows that legislature was conscious about proper expression to be used as per its intention, scope, object and purpose of section 50C, wherein it has been expressly mentioned that capital asset should be land or building or both . It has not been mentioned that any type of rights shall also be included in definition of capital assets to be transferred by assessee. 3.11. provisions of section 50C are deeming provisions. It is settled law and well accepted rule of interpretation that deeming provisions are to be construed strictly. Thus, while 12 Voltas Ltd. interpreting deeming provisions neither any words can be added nor deleted from language used expressly. We should apply Rule of Strict Interpretation as well as Rule of Literal Construction while understanding meaning and scope of deeming provisions. In our opinion, under given facts and circumstances, Ld. Counsel has rightly contended that since impugned capital asset transferred by assessee upon which long term capital gain has been computed by AO is on account of transfer of Development Rights in land of assessee. land itself has not been transferred by assessee. Thus, in our opinion provisions of section 50C have been wrongly applied upon impugned transaction. Thus, we reverse action of lower authorities in applying provisions of section 50C and in substituting any value other than amount of actual sales consideration received by assessee. It is also noted by us that for assessment year under consideration there is no other provisions on statute which permit AO to substitute any other value with full amount of consideration actually received by assessee, while computing income under head of capital gains. Under these circumstances, ground No.1.2 of main grounds of assessee is allowed. Since we have allowed grounds of assessee on preliminary objection itself and therefore we are not dealing with other arguments at this stage as these have been become academic in nature. Thus, supplementary ground nos. 1.5 to 1.10 and original ground nos.1.1 to 1.4 are partly allowed with our directions as given above. 13 Voltas Ltd. 4. Grounds No.2.1 & 2.2 of original grounds and 2.3, 2.4 & 2.5 of supplementary grounds deal with grievance of assessee with respect to action of lower authorities in computing short term capital gain on valuation done by Stamp Valuation Authority on sale of residential flat at Jyoti Darshan Building, Mumbai. It is noted that during course of assessment proceedings AO suggested to apply value adopted by Stamp Valuation Authority as deemed value of consideration for impugned flat. But, assessee objected for same on many grounds and submissions of assessee have also been partly reproduced by AO in its assessment order. 4.1. Under these circumstances, as per provisions of section 50C, before substituting amount of sales consideration shown by assessee, AO was duty bound to refer matter to valuation officer and also comply with procedure as has been further described in section 50C. It is brought to our notice that AO failed in its duty to do so. Similarly, Ld. CIT(A) has also upheld action of AO without giving any proper reasoning. Under these circumstances, we find it appropriate to send these grounds back to file of AO. assessee shall be free to raise all legal and factual issues and to submit requisite details and documentary evidences. In case AO is keen to invoke provisions of section 50C, then he must first refer matter to valuation officer. valuation officer shall also give adequate opportunity of hearing to assessee before giving its report. 14 Voltas Ltd. AO shall provide copy of valuation report to assessee to seek its reply and shall give adequate opportunity of hearing to assessee and after considering entire material held on record on objective basis, this issue shall be decided afresh. These grounds may be treated as allowed for statistical purposes. 5. Ground No.3: In this ground, assessee has challenged action of AO in making disallowance u/s 14A. 5.1. It is noted from perusal of order of Ld. CIT(A) that Ld. CIT(A) has directed AO to follow order of Tribunal in assessee s own case for A.Y. 2003-04. It is requested during course of hearing that direction given by Ld. CIT(A) should be reinforced. Accordingly, we direct AO to follow directions given by Ld. CIT(A) and follow order of Tribunal for A.Y.2003-04 after giving adequate opportunity of hearing to assessee. This ground may be treated as allowed for statistical purposes. 6. Ground No.4: In this ground assessee has challenged action of Ld. CIT(A) in upholding AO s contention that amendment in clause (ii) of explanation 1 of second proviso to sub-section (2) of section 115JB inserted by Finance Act of 2006 w.e.f. 01.04.2007 was clarificatory in nature and thus he upheld action of AO in applying amendment in impugned assessment year. 6.1. With assistance of parties before us, it is noted by us that amended provisions read as follows: amount of income to which any of provisions of section 10(other than provisions contained in clause 15 Voltas Ltd. (38) thereof or section 11 or section 12 apply, if any such amount is credited to profit and loss account. 6.2. It was unanimously stated by both parties before us that said amendment may create additional tax liability in hands of assessee. It is noted by us that it has nowhere been mentioned that this amendment is clarificatory in nature. amendment seeks to bring out change in substantive law. Under these circumstances, we find that force of this amendment cannot be applied retrospectively in impugned assessment year i.e. A.Y. 2005-06. Thus, we direct AO to recompute amount of book profits and tax payable u/s 115JB without considering aforesaid amendment. Thus ground may be treated as allowed. 6.3. As result appeal of assessee is partly allowed. Now we shall take up assessee s appeal in ITA No.5331/Mum/09. assessee has filed appeal on following grounds: GROUND NO 1: LONG TERM CAPITAL GAIN ON SALE OF LAND learned Commissioner of Income-tax (Appeals) [hereinafter referred to as CIT(A)] erred in upholding actions of Assessing officer [hereinafter referred to as AO] of computing long term capital gains on transfer of Development Rights in respect of 2 plots of land at Thane, based on values assigned by District Valuation Officer [hereinafter referred to as DVO] AO passed rectification order u/s 54 dated 8.5.2008 whereby substituted Stamp duty value earlier considered by him at time of assessment, without values assigned by DVO. CIT(A) further erred in upholding actions of AO in considering Fair Market Value (FMV) as on 16 Voltas Ltd. 1.4.1981 as ascertained by DVO in respect of aforesaid plots of land. 1.2. CIT(A) ought to have appreciated that 2 plots of land certain negative factors and impediments and should have considered actual facts and circumstances and consideration received by Appellant company for transfer of 2 plots of land on as is where is basis. CIT(A) ought to have also considered relied on registered valuer s reports submitted by Appellant Company. DVO had not considered all relevant factors and impediments attached to 2 plots of land in question and made his own assumptions for determining FMV of land. AO passed Rectification order u/s 154 based on values assigned by DVO and ignored facts submitted by Appellant Company. 7. During course of hearing it was submitted by Ld. Counsel of assessee that in case relief is provided in identical grounds of ITA No.5330/Mum/09, then this appeal may be treated as infructuous. 7.1. Since we have allowed relief in identical grounds of ITA No.5330, therefore this appeal is treated as infructuous and dismissed as such. Now we shall take up appeal filed Department in ITA No. 5320/Mum/09. revenue filed appeal on following grounds: On facts and in circumstances of case and in law, CIT(A) erred in directing AO to allo w tr ade guar tee provision of Rs. 5 28 . 36 l ac s m ad e f o r e x p e nse s to b e in c u r r e d during warranty period as business expenditure ignoring fact that decision of Hon'hle ITAT on identical issue for earlier years has not 17 Voltas Ltd. been accepted by department and is being contested in further appeal. On facts and in circumstances of case d in l w, th e C IT ( ) e r re d in d e le tin g th e addition amounting to Rs.12 lacs made by AO on account of Wealth tax in computing book profit u/s. 115JB. appellant prays that order of CIT(A) on above grounds be set aside and that of A.O. restored. appellant craves leave to amend or alter any ground or add new ground that may be necessary. 8. Ground No.1: In this ground, revenue has agitated action of Ld. CIT(A) for directing AO to allow trade guarantee provision of Rs.528.36 lakhs made for expenses to be incurred during warranty period as business expenditure. It is noted that this issue has been decided by Ld. CIT(A) by relying upon order of Tribunal in assessee s own case of earlier years. During course of hearing it was fairly submitted by Ld. DR that this issue stands covered with order of Tribunal of earlier years. We have gone through facts recorded by Ld. CIT(A) and find that Ld. CIT(A) has analysed facts properly and followed order of Tribunal of earlier years. No distinction in facts or legal position has been brought before us. We do not find any need or justification to interfere in findings of Ld. CIT(A) and therefore, order of Ld. CIT(A) was upheld and ground raised by revenue is dismissed. 9. Ground No.2: In this ground revenue has contended action of Ld. CIT(A) in deleting addition amounting to Rs.12 lakhs made by AO on account of wealth tax in computing book profit u/s 115JB. 18 Voltas Ltd. 9.1. It is noted that Ld. CIT(A) allowed claim of assessee following order of Tribunal dated 14.01.2009 for A.Y. 2002-03 & 2003-04. 9.2. During course of hearing it was fairly submitted by Ld. DR that this issue is also covered in favour of assessee. It was further submitted that there is no change in facts or legal position. Thus, in our view, no interference is called for in order of Ld. CIT(A) and therefore, same is upheld. Grounds raised by revenue are dismissed. 9.3. As result, appeal of revenue is dismissed. 10. In result, these appeals filed by Assessee are allowed and appeal filed by revenue is dismissed. Order pronounced in open court on 16th September, 2016. Sd/- Sd/- (Amit Shukla ) (Ashwani Taneja) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated : 16/09/2016 Copy of Order forwarded to : 1. Appellant 2. Respondent. 3. CIT, Mumbai. 4. CIT(A)-Mumbai 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, //True Copy// (Dy./Asstt. Registrar) ITAT, Mumbai Voltas Ltd. v. ITO, WD-7(3)(4), Mumbai