CIT(A) should adopt market rates in valuers directory/stamp duty reckoner in absence of sale instances in same area

PFIZER LTD. V. DCIT [2015] 56 taxmann.com 260 (Mumbai - Tribunal)

Where no sale instances were available of same area, Fair Market Value of land could be determined by relying upon rate mentioned in Indian Valuers Directory and Reference Book and Stamp Duty Ready Reckoner and by adopting annual rate of appreciation method

Facts

• The assessee-company sold its factory land. The assessee reported fair market value (FMV) of land as on 1-4-1981 at Rs. 14.12 crore on the basis of report of a registered valuer and, accordingly, it computed the capital gains;
• As no instances of sale of similar property in same area were available, registered valuer determined the value of property by presuming the value it would fetch if residential flats were constructed and sold on that land in 1981, utilising the maximum Floors Space Index (FSI);
• The Assessing Officer (AO) referred matter to Departmental Valuation Officer (DVO) who determined the value of land, taking into account rate of land in undeveloped industrial area as on 1-4-1981 as per Indian Valuers Dictionary and Reference Book (IVDRB), at Rs. 1.7 crore;
• The Commissioner (Appeals)rejected the valuation made by registered valueras he determined the value of land on the basis of some imaginary situations. He also did not agree with the DVO’s valuation as land was situated in a developed industrial area;
• The CIT(A) taking into account the rate quoted in IVDRB and Stamp Duty Ready Reckoner and by adopting annual rate of appreciation method worked out FMV at Rs. 2.78 crore;
• Aggrieved by the order of CIT(A), assessee filed the instant appeal before the Tribunal.

The Tribunal held in favour of revenue as under:

• It is true that for valuation purposes some kind of assumption has to be taken especially if valuation is to be done in the year 2001 for the year 1981. But, assumption should have some basis. In the instant case, the very base adopted by the valuer was totally improper as concept of FSI was not prevalent in the year 1981;
• The value determined by DVO was also improper as land was situated in developed industrial area and not in under-developed industrial area;
• CIT(A) determined the value of property by referring to IVDRB and stamp duty Ready Reckoner and by adopting annual rate of appreciation method. So, the method adopted by him was a better 'guess work' than the guess work done by the registered valuer. His estimation was also very near to the valuation made by the DVO;
• Therefore, FMV adopted by the CIT(A) was more reasonable as compared to the FMV quoted by the registered valuer.

Section 11 relief available to Indian Medical Association if it was endorsing health products to promote public health

ADIT V. INDIAN MEDICAL ASSOCIATION - (2015) 56 taxmann.com 271 (Delhi - Tribunal)

Where assessee, Indian Medical Association, engaged in promoting public health, endorsed products of various companies due to their health and nutritional benefits, said activity could not be regarded as violative of provisions of section 2(15) and, thus, assessee's claim for exemption of income was to be allowed.

Facts:

• The assessee-society was formed to promote public health and medical education in India.
• The Assessing Officer (AO) noticed that assessee had received endorsement money for making endorsement of products of various corporate entities. Thus, he took the view that assessee society failed to comply with requirements of section 2(15) and rejected its exemption claim.
• The CIT (A) opined that assessee had been able to demonstrate that it was engaged in promotion and advancement of the public health. Hence, its activities fell within the meaning of section 2(15).
• The Aggrieved-revenue filed the instant appeal before Tribunal.

The Tribunal held in favour of assessee as under :

• It was not the case of revenue that endorsement of healthy nutrition wasn't medically/scientifically incorrect. The assessee as per the mandate of its objects had endorsed products due to their health and nutritional benefits.
• Therefore, activities of assessee to promote public health by endorsing products of various companies due to their health and nutritional benefits could not be said as violative of provisions of section 2(15).
• Accordingly, assessee's claim for exemption of income was to be allowed.

Parking charges collected on vacant land were taxable even if developer was following project completion method

SUDHIR G. BORGAONKAR V. ACIT -(2015) 56 taxmann.com 188 (Bombay High Court)

Where assessee-developer was following project completion method for payment of taxes, parking charges collected by him on vacant land had nothing to do with the completion of his project; he was obliged to pay on parking charges in year of receipt of parking charges.

Facts:

• The assessee, being a builder and developer was following project completion method for purposes of paying taxes.
• He had generated income in assessment year 2000-01 on account of parking charges collected on the vacant land. Since assessee had not filed his return of income of AY 2000-01, a notice under section 148 was issued and income received from parking charges was assessed to tax.
• On appeal, the CIT (A) set-aside the order of AO on the ground that the amount earned by assessee by exploiting vacant land was an amount relatable to costs of the project and therefore, was taxable in subsequent years. Further the Tribunal set aside the order of the CIT(A).
• Consequently, AO charged interest u/s 234A and 234B in respect of default in payment of advance tax for the assessment year 2000-01. CIT (A) and Tribunal upheld AO action of AO. The aggrieved-assessee filed the instant appeal before High Court.

The High Court held in favour of revenue as under :

• The non-filing of return of income by assessee was on the ground that the income earned on parking charges would have to be returned when the project would be completed. This was not accepted as the amount received on account of parking charges was not a part of any project. Thus parking charges was brought to tax in Assessment Year 2000-01.
• It had been held by the Tribunal that the amount received on parking charges had nothing to do with the appellant's project and was assessable to tax in Assessment Year 2000-01. This has been accepted by the assessee. Thus, the assessee was obliged to pay advance tax and non-payment of the same would carry with it the further burden on interest under Section 234B of the Act.
• Therefore, the AO was right in charging interest in respect of default in payment of advance tax for the assessment year 2000-01.

There is no requirement to issue a notice u/s 143(2) before making an assessment u/s 153A

Sumanlata Bansal vs. ACIT (ITAT Mumbai)

The Third Member had to consider whether the issue of a notice u/s 143(2) was mandatory for the completion of an assessment u/s 153A and whether the non-issue of such a notice rendered the s. 153A assessment null and void. HELD by the Third Member:

• There is no specific provision in the Act requiring the assessment made under section 153A to be after issue of notice under section 143(2) of the Act. Learned counsel for the assessee places heavy reliance on the judgment of the Hon‟ble Supreme Court in Hotel Blue Moon v. DCIT 321 ITR 362 (SC) wherein it was held that the where an assessment has to be completed under section 143(3) read with section 158BC, notice under section 143 (2) must be issued and omission to do so cannot be a procedural irregularity and the same is not curable. It is to be noted that the above said judgment was in the context of Section 158BC. Clause (b) of Section 158BC expressly provides that “the AO shall proceed to determine the undisclosed income of the block period in the manner laid down in section 158BB and the provisions of Section 142, sub sections (2) and (3) of Section 143, Section 144 and Section 145 shall, so far as may be, apply. This is not the position under section 153A. The law laid down in Hotel Blue Moon, is thus not applicable to the facts of the present case. 
• It is also to be noted that Section 153A provides for the procedure for assessment in case of search or requisition. Sub section (1) starts with non-obstante clause stating that it was “notwithstanding” anything contained in sections 147, 148 and 149, etc. Clause (a) thereof provides for issuance of notice to the person searched under Section 132 or where documents etc are requisitioned under Section 132(A), to furnish a return of income. This clause nowhere prescribes for issuance of notice under Section 143(2). Learned counsel for the assessee/ appellant sought to contend that the words, “so far as may be applicable” made it mandatory for issuance of notice under Section 143(2) since the return filed in response to notice under Section 153A was to be treated as one under Section 139. The words “so far as may be” in clause (a) of sub section (1) of Section 153A could not be interpreted that the issue of notice under Section 143(2) was mandatory in case of assessment under Section 153A. The use of the words “so far as may be” cannot be stretched to the extent of mandatory issue of notice under Section 143(2). As is noted, a specific notice was required to be issued under Clause (a) of sub-section (1) of Section 153A calling upon the persons searched or requisitioned to file return. That being so, no further notice under Section 143(2) could be contemplated for assessment under Section 153A (Ashok Chaddha vs Income Tax Officer 337 ITR 399 (Del) followed, ACIT v. Geno Pharmaceuticals Ltd. (2013) 214 Taxman 83 (Bom.)(Mag.)(HC) distinguished)

Even investment in name of partners would provide section 54EC relief to partnership firm

CHAKRABARTY MEDICAL CENTRE V. TRO [2015] 56 taxmann.com 76 (Pune - Tribunal)

Facts:

• Partners of assessee-firm introduced land and building as their capital contribution to firm.
• The firm carried out its operation from such land and building after its formation. Subsequently, firm sold said land and building and earned capital gain.
• Sale consideration of property was credited directly to bank account of partners of firm and bonds specified under Section 54EC were also purchased in names of those partners.

The issues that arose before the Tribunal were as under:-

• Whether capital asset introduced by partners could be said to be the property of the firm and, thus, capital gain arising on sale of such building was taxable in hands of firm?
• Whether a firm could claim exemption under section 54EC where specified bonds were purchased in name of partners?

On the first issue the Tribunal held that:

By relying upon the judgment of Allahabad High court in the case of K. D. Pandey v. CWT [1977] 108 ITR 214, it was held that where partners of firm introduced land and building as their capital contribution to firm, said land and building would become property of firm and, therefore, capital gain arising on sale of said property was taxable in hands of firm.

On the second issue the Tribunal held that:

• Partnership is not a legal entity in strict sense and in all the movable and immovable assets which are held by the partnership, there is an interest of every partner, though not specifically defined in terms of their shares.
• It was not disputed that the sale consideration was directly credited to the Bank accounts of the partners and firm was immediately dissolved subsequently. Therefore, whatever amount was invested by the partners in specified bonds in their individual names was, in fact, from the funds of the firm.
• Hence, benefit of section 54EC could not be denied to the assessee-firm,even though the bonds were purchased in the name of partners.

Gross

The total amount before anything is deducted. Many important accounting statistics use this method, such as gross earnings and gross profit

No Transfer Pricing addition for variation between actual price and ALP of fixed asset but depreciation to be re-computed on ALP

HONDA MOTORCYCLE & SCOOTERS INDIA (P.) LTD. V. ACIT - (2015) 56 taxmann.com 237 (Delhi - Tribunal)

The international transaction of purchase of fixed assets is required to be benchmarked as per the most appropriate method. An increase in the value of the fixed assets after application of ALP, being a capital transaction in itself, will not give rise to anyaddition towards transfer pricing adjustment, but the depreciation on such assets, being a revenue offshoot of the capital transaction, will be requiredto be recomputed on such revised value.

Facts:

• Assessee had made international transaction of purchase of fixed asset from its AE.

• TPO made addition on the value of international transaction of the purchase of fixed assets. The counsel of assessee contended that the TPO was not justified in proposing the transfer pricing adjusting w.r.t. the value of purchase of fixed assets. It was argued that only the depreciation element of such adjusted value of the international transaction of purchase of fixed assets would call for adjustment to the operating profits.

• Aggrieved-assessee filed the instant appeal

The Tribunal held in favour of assessee as under:

• Section 92 is not a charging provision, but it is a procedural provision for recomputing the income arising from an international transaction having regard to its ALP. Before applying the mandate of this provision, it is of utmost importance that there should be some existing income chargeable to tax, which is sought to be recomputed having regard to its ALP.

• If there is an international transaction which in itself gives rise to income that is chargeable to tax, then its ALP shall constitute a basis for making of addition on account of difference between the assigned value and ALP of such international transaction as per the relevant provisions. But if there is an international transaction in the capital field, which does not otherwise give rise to any income in itself, then even though its ALP may be computed in consonance with the provisions, but no adjustment can be made for the difference between the declared value and the ALP of such international transaction.

• It does not mean that the computation of the ALP of such an international transaction in the capital field is just a ritual and should not be embarked upon. In fact, such a computation is necessary because of the impact of such a transaction of capital nature on the transactions of its revenue offshoots.

• In the instant case, the international transaction of purchase of fixed assets was required to be benchmarked as per the most appropriate method. The application of the ALP, if required, would give rise to the re-computation of the revised value of the purchase of fixed assets. Such an increase in the value of the fixed assets, being a capital transaction in itself, would not give rise to anyaddition towards transfer pricing adjustment, but depreciation on such assets would be required to be recomputed on such revised value.

• Therefore, addition made by TPO due to the determination of the ALP of purchase of fixed assets was required to be set-aside and AO was directed to compute depreciation on such fixed assets on adjusted value.