Commissioner Of Income Tax vs Rajesh Bahadur And Ors. (Aop)
2007 Latest Caselaw 1004 Del

JUDGMENT

V.B. Gupta, J.

Page 1333

1. Present appeal has been filed by the Revenue challenging the order dated 20th October, 2004 passed by the Income Tax Appellate Tribunal, Delhi Bench, 'E' (in short as 'Tribunal') in ITA No. 9621/D/90 & 142/Del/91 for the assessment year 1988-89.

2. The assessed is an Association of Person (in short AOP) consisting of children and grand children of Late Shri Shiv Raj Bahadur and his wife who owned property bearing No. 9, Raj Narain Road, Civil Lines, Delhi. By an agreement dated 1st June, 1981, his children joined together to form the AOP with the common object of re-developing the property and to build flats on the plot.

3. The market value of the property was Rs. 30 lacs and after getting necessary permission, the AOP proceeded to construct 24 flats. The members of the AOP were credited with their share in the property which was valued at Rs. 30 lacs and these amounts were shown in the balance sheet prepared by the AOP for the year ending 31st March, 1982, (assessment year 1982-83). A return of income was filed by AOP for this assessment year showing the "nil income

4. In respect of year ending 31st March, 1988, which is the year under appeal, the assessed submitted return of income showing a loss of Rs. 16,49,310/- in which interest payment of Rs. 15,86,219/- was claimed as deduction. The interest so claimed related to the amounts given to the AOP by its member. The Assessing Officer while completing the assessment noticed that the interest has been worked out for the period 30th June, 1980 to 31st March, 1988. It was represented by the assessed before the Assessing Officer that the interest liability can be worked out only at the end of the joint venture and, therefore, assessed did not calculate the interest from year to year and did not show any interest income in the earlier years since it was charged for the first time. The assessed had deducted tax from the interest liability and deposited the same with the Government and, therefore claimed that interest should be allowed as deduction.

5. The Assessing Officer rejected the claim of the assessed holding that the interest accrues from year to year and, therefore, the assessed ought to have claimed the same from year to year since beginning and ought to have deducted the tax from the interest on year to year basis. Further, there is no provision for allowing the interest and the interest claimed is an afterthought.

6. Aggrieved against the order, the assessed preferred an appeal before the Commissioner of Income Tax (Appeals) who partly allowed the appeal of the assessed.

7. Thereafter the assessed as well as the Revenue filed cross-appeals before the Tribunal and vide the impugned order Tribunal partly allowed the appeal of the assessed and dismissed the appeal filed by the Revenue.

Page 1334

8. The first issue raised by the Revenue in this case is as to whether the Tribunal was right in allowing the interest payable by the assessed for the period 30th June, 1980 to 31st March, 1988 in the previous year relevant to the assessment year 1988-89.

9. The main objection raised by the Assessing Officer is that the interest claimed represents interest for more than one year and hence cannot be allowed.

10. This objection is not sustainable because it is only when the entire project has been completed then the question of Profit or Loss could be ascertained and this fact has also been notified by the assessed to the Assessing Officer by way of a note in the Profit & Loss A/c for the year ending 30th June, 1981. The Profit & Loss A/c has been filed along with the return of income filed for that year in March, 1985 and the objection of the Assessing Authority that the claim is an after thought, cannot be accepted because of the same note given in the Profit & Loss A/c. Further, it is nobody's case that assessed did not borrow any money from its members. Thus, the Assessing Officer in our opinion was not justified in disallowing the assessed claims for deduction of the interest and we do not find any reason to disagree with the finding given by the Tribunal on this issue.

11. The second issue is with regard to the deletion of the addition of Rs. 30 lacs made by the Assessing Officer on account of value of land adopted by the assessed in the Profit & Loss A/c at market value instead of cost price. The assessed has claimed deduction in respect of this amount being the market value of the property which was converted into its stocks in trade in June, 1981. The Assessing Officer had taken the view that the assessed should have taken only the cost price as the value of the opening stock, since the closing stock had been valued at cost and there is no provision in the Act for valuing the stock at market price and as such he rejected the claim of the assessed.

12. It is well-settled that when the capital assets are converted into stock in trade, the assessed is entitled to adopt the market value of the asset as on the date of conversion and this principle has been approved by the Apex Court in Commissioner of Income Tax v. Bai Shirinbai K. Kooka . In this case the assessed who held by way of investment several shares in companies commenced a business in shares converted the shares into stock-in-trade of the business, and subsequently sold these shares at a profit. It was held;

That the assessed's assessable profits on the sale of the shares was a difference between the sale price of the shares and the market price of the shares prevailing on the date when the shares were converted into stock-in-trade of the business in shares, and not the difference between the sale price and the price at which the shares were originally purchased by the assessed.

13. In view of the decision of the Apex Court, we agree with the reasoning given by the Tribunal that there is no question of valuing the closing stock Page 1335 as on 31st March, 1988 because there is no closing stock left on that date and thus the claim made by the assessed is fully justified and allowable.

14. The third issue raised by the Revenue is regarding deletion of Rs. 2 lacs made by the Tribunal in respect of car parking space. The money received as deposit for use of car parking space cannot be treated as the assessed's income because, the land does not belong to the assessed, as the same has been transferred to the Municipal Corporation of Delhi as per their letter dated 27th December, 1980.

15. Lastly, regarding addition of Rs. 4.57 lacs made by the Assessing Officer on account of diversion of income in respect of sale of a flat to Rajesh Bahadur, member of APO, as per record, at the time of commencing of the construction, it was agreed between the assessed and Rajesh Bahadur that the flat would be sold to him at Rs. 6 lacs.

16. The market value of the property cannot be substituted in place of actual price redized. Merely because the market price was more than the actual price, it cannot be said that the assessed earned the profits. The addition made by the Assessing Officer in this regard has no basis. The flat has been actually been sold to the member only for Rs. 6 lacs as already committed at the time when the construction commenced and therefore the addition of Rs. 4.57 lacs was rightly deleted by the Tribunal.

17. Under these circumstances, we hold that no fault can be found with the view taken by the Tribunal. Thus, the order of Tribunal does not give rise to a question of law, much less a substantial question of law, to fall within the limited purview of Section 260-A of the Act, which is confined to entertaining only such appeal against the order which involves a substantial question of law.

18. Accordingly, the appeal is hereby dismissed.