SURESH KUMAR BACHIRAJU ,HYDERABAD vs. INCOME TAX OFFICERS ,WARD -11(5), HYDERABAD

As the facts of the case in both the appeals are identical, we are reproducing the facts in A.Y. 2012-13 for the sake of brevity.

The grounds raised by the assessee in ITA 496/Hyd/2021 read as under :

The brief facts of the case are that assessee is a real estate agent, filed his return of income on 07.12.2017 for A.Y. 2012-13 declaring total income at Rs.3,18,750/- under the head “Income from other sources’ and claiming short term capital loss of Rs.3,47,26,430/- towards the sale of immovable property dated 09.11.2011 in favour of M/s. Vignana Jyothi for a sale consideration of Rs.8,92,50,000/- out of which the share of assessee was Rs.7,14,00,000/-. The case was selected for scrutiny and the assessment was completed u/s 143(3) r.w.s. 147 of the Act on 26.12.2017 determining the income at Rs.1,03,18,750/-.

The learned Principal Commissioner of Income Tax (PCIT), upon examining the records, observed that assessee had furnished only self-made cash vouchers as evidence for commission paid in cash of Rs.31,13,000/- and cash expenditure of Rs.7,99,31,280/- claimed to be incurred for the improvement of property. Ld.PCIT opined that the same were allowed by the Assessing Officer without proper verification and that the bills / vouchers furnished by the assessee to be unreliable and self-made. He, therefore, issued a show cause notice u/s 263 of the Act to the assessee on 12.11.2018, proposing the revision of assessment. Despite receiving notices at various intervals, the assessee did not respond

Genuineness and sources of cost of improvement of Rs.7,99,31,280/-.

The appeals filed by the assessee are barred by limitation by 185 days. However, he has moved a condonation petition explaining reasons for the delay. We have heard both the parties on this preliminary issue. Considering the reasons mentioned in the petition, we condone the delay and admit the appeals for hearing.

Feeling aggrieved with the order passed by the ld.PCIT u/s 263 of the Act, assessee is now in appeal before us.

Before us, the ld. AR drew our attention to the original order passed by the AO, specifically highlighting Paras 3 and 4 of the order, which are as follows:

During the course of assessment proceedings, it was submitted that the assessee was dealing with disputed land and on sale of the said land, the total sale consideration involved was Rs.8,52,00,000/- only out of which his proportionate share was Rs.7,14,00,000/-. Further, the assessee claimed to have made certain expenditure towards commission, transfer expenses and improvement of property and claimed to have incurred “short term capital loss” to the tune of Rs.3,47,26,430/-.”

Ld.AR further brought our attention to the order sheet of the AO dated 21.12.2017, whereby the assessee was asked to produce the bills / vouchers and other details relating to the expenditure claimed towards the “Cost of construction”. The ld.AR submitted that following the above-said direction, the assessee submitted the bills/vouchers as evidence for the cost of construction. The learned AR had argued that after reviewing the vouchers/bills furnished by the assessee, the AO had allowed the expenditure which is the subject matter of the proceedings. Ld.AR further submitted that once the AO had considered the documents furnished by the assessee, then it would not be beneficial for the ld.PCIT to invoke jurisdiction under section 263 of the Act. The ld.AR requested the cancellation of the order passed by the ld.PCIT based on these reasons.

On the other hand, the ld. DR strongly relied upon the order passed by the ld.PCIT. Ld.DR submitted that the learned AO had neither posed a question to the assessee nor examined the genuineness of the commission incurred for the improvements of the property / construction expenses. The ld. AO failed to examine the genuineness of the transactions and the source of the cash payment by the assessee towards commission and construction.

The learned DR had submitted that in the present case, the assessee had purchased the property through General Power of Attorney (G.P.A.) on 21.12.2019 for a sum of Rss.44,02,150/-. According to the ld.DR, the assessee claimed to have incurred alleged expenses of Rs.7,99,31,280/- for property improvements, the total of purchase value and cost of improvement would be Rs.8,43,33,430/-. Furthermore, the assessee allegedly paid commission of Rs.31,13,000/- in cash, and also made payments of Rs.1,42,80,000/- to Shrimati P. Sarada and Rs.44,00,000/- to M/s. Sigma Constructions. If the above two amounts i.e. Rs.1,73,93,000/- and Rs.8,43,33,430/-, were added, sum would be Rs.10,17,26,430/-. This amount represents the cost of the land sold by the assessee.

In rebuttal, it was submitted by the ld.AR that the present case is not a case of lack of inquiry; rather, it is a case of inadequate inquiry.

We have heard the rival submissions and perused the material and record. Admittedly, in the present case, the assessee purchased the land on 28/01/2009 for a total consideration of Rs. 44,02,150/- and incurred a significant amount of Rs.7,99,31,280/- towards the cost of improvement / construction purposes. Besides that commission was also paid by the assessee. After taking into account, the purchase cost, improvement / construction cost, the commission paid, the net cost of the asst would come to Rs. 10,17,26,430/-. Admittedly, the assessee had sold this property for a consideration of Rs.8,92,50,000/- on 09/11/2011. In the return of income, the assessee had claimed deduction of the cost of improvement / construction and the commission paid in cash as deduction, which was allowed by the Assessing Officer.

It is the case of the assessee, that the AO has called for the bills/vouchers incurred for carrying out the construction on the property. However, we do not agree with the above said contention as the Assessing Officer has not examined the bills / vouchers of Suresh Kumar Bachiraju expenses incurred towards cost of improvement / construction. The ld.PCIT, in para 7 provided the details of the alleged expenditure incurred in cash as follows :

From the perusal of the above, it is abundantly clear that the alleged charges were incurred between September, 2009 to March, 2011. In our view, if the expenditures were incurred from September 2009 to March 2011, then it should have reflected in the balance sheet of the assessee. No such document was brought to our notice, furthermore, it was incumbent upon the AO to conduct test check of the vouchers/bills to determine their genuineness. None of the persons, who had issued the said bills were examined by the Assessing Officer. The Assessing Officer had also not examined whether the assessee was having the availability and capacity to incur expenditure of Rs.7,99,31,280/- in cash and whether incurring such huge expenditure was permissible within the four corners of law. No enquiry was made by the Assessing Officer for incurring the expenditure in cash towards the commission paid by the assessee for a sum of Rs.31,13,000/-. In our view, the Assessing Officer has passed order in cryptic and casual manner without conducting any enquiry of the above said subject.

In the result, the appeal of the assessee is dismissed.

Now we will deal with the other appeal of assessee i.e., ITA No.497/Hyd/2021.

This appeal has been filed against the order passed under Section 263 of the Income Tax Act, in which the ld.PCIT has cancelled the orders passed by the Assessing Officer, whereby the assessee had sought to drop the proceedings under Section 271(1)(c) of the Act.

We have heard both sides and perused the material on record. In our opinion, once the revision order passed by the AO has been cancelled and fresh directions have been issued by the ld.PCIT, the order dropping the proceedings under Section 271(1)(c) of the Act becomes invalid and it will be replaced by any fresh proceedings initiated by the AO under Section 271(1)(c) of the Act

In the result, the appeal of assessee in is dismissed.

To sum up, both the appeals of assessee are dismissed. A copy of the same may be placed in respective case files.