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Income Tax Appellate Tribunal, JAIPUR BENCH ’SMC’, JAIPUR
Before: SHRI SHRI VIJAY PAL RAOvk;dj vihy la-@ITA Nos. 915 & 916/JP/2018
That the learned Assessing Officer was not justified in initiating proceedings 2. u/s 147 and initiation of proceedings and assessment order passed is illegal and unjustified.
That the learned CIT(Appeals) has erred in holding that no weightage can be 3. given to the affidavits submitted before the Assessing Officer as the deponents failed to support their statements stated in these affidavits and further holding that the Assessing Officer was justified in not giving any weightage to these affidavits as these were issued to help the appellant. The said finding is illegal and unjustified and the learned CIT(Appeals) has erred in confirming the action of the Assessing Officer in this case.
4. That the learned CIT(Appeals) has erred in holding that in respect of plot No.177, Indira Colony, Bani Park, Jaipur construction was done some time in the year 1993 whereas the appellant purchased the property on 16.5.1996 and no construction was made by the appellant as claimed by it. The said finding is illegal and unjustified.
That the learned CIT(Appeals) has erred in holding that the Assessing Officer 5. was justified in not allowing the cost of construction while computing long term capital gains. The said action is illegal and unjustified.
That the assessee in this case has duly proved from the registered sale deed in respect of plot No.177, Indira Colony, Bani Park, Jaipur that when the said property was purchased it was a plot of land and the construction was done by the assessee. The action of the Assessing Officer and the learned CIT(Appeals) in not allowing the cost of construction is illegal and unjustified.
7. That the learned Assessing Officer has erred in working out the capital gains in respect of property situated at plot No.177, Indira Colony, Bani Park, Jaipur without allowing the benefit of cost of construction/improvement and the action of the learned CIT(Appeals) in confirming the working of capital gains by the Assessing Officer is illegal and unjustified.
8. That the learned CIT(Appeals) has erred in holding that plot No.E-29-B, Bani Park, Jaipur was not purchased as a plot of land but as a house property. The said finding is illegal and unjustified.
9. That the learned CIT(Appeals) has erred in holding that no construction was got done by the appellant as claimed by it in respect of plot No.E-29- B, Bani Park, Jaipur and confirming the action of the Assessing Officer in not allowing the cost of construction while computing the long term capital gains thereof. The said action is illegal and unjustified.
That the learned Assessing Officer had erred in working out the capital gains 10. in respect of part of plot No.E-29-B, Bani Park, Jaipur at Rs.8,04,809/- without allowing the benefit of cost of construction /improvement in respect of the said property and the learned CIT(Appeals) has erred in confirming the working of the capital gains made by the Assessing Officer. The said action is illegal and unjustified.
11. That the learned Assessing Officer has erred in working out the total long term capital gains at Rs.14,34,864/- and the learned CIT(Appeals) has erred in confirming the said working. The working of capital gain is illegal, unjustified and excessive.
12. That the learned CIT(Appeals) has erred in confirming the charging of interest u/s 234B of the IT Act. The said action is illegal and unjustified.”
Ground Nos. 1 & 2 are regarding validity of initiation of proceedings under section 147/148 of the IT Act.
The assessee is an Individual and filed his return of income on 30th July, 2006 2. declaring total income of Rs. 1,10,200/-. Subsequently, the AO reopened the assessment by issuing notice under section 148 on 21st March, 2013 to assess the income on account of sale of properties by the assessee. The AO recorded the reasons and proposed to assess the long term capital gain to the extent of Rs. 17,60,846/- which he believed has escaped assessment. The reassessment was completed vide order dated 26.12.2013 whereby the AO has made an addition of Rs. 14,34,864/- being long term capital gain on sale of two properties. The assessee challenged the action of the AO before the ld. CIT (A) and also challenged the validity of reopening. The ld. CIT (A) rejected the objection of the assessee against the reopening of the assessment.
Before the Tribunal, the ld. A/R of the assessee has referred to the reasons recorded by the AO and submitted that the AO has referred to the information received from the DDIT Investigation, Jaipur wherein it has been mentioned that the assessee has sold two properties during the year under consideration. The AO has stated that there was long term capital gain of Rs. 17,60,846/- whereas the assessee has shown capital gain at Nil. The ld. A/R has thus contended that there was no justification for initiation of proceedings under section 147/148 when the AO has not applied his independent mind but the assessment was reopened on the borrowed satisfaction. The AO at the time of forming the belief that income on account of long term capital gain has escaped assessment has not even considered the benefit of indexation as well as the cost of construction/improvement. He has further contended that proceedings were conducted by DDIT Investigation Jaipur and summons under section 131 were issued to the assessee prior to the reopening of the assessment. Since the assessee was ill at that point of time, therefore, his son Shri Amit Yadav has appeared and has filed the complete details with regard to the computation of long term capital loss in respect of two properties in question.
His son in the statement has stated that the construction of properties situated at 177, Indira Colony, Bani Park, Jaipur was done in the year 1998-99 and construction of the second property at E-29B, Bani Park Jaipur was also done in the year 1998-99 and 1999-2000. The AO has not considered all these facts at the time of recording the reasons and forming the belief that income on account of long term capital gain in respect of sale of these two properties has escaped assessment. When there was no capital gain but it was a capital loss, then there is no question of any income assessable to tax has escaped assessment. He has relied upon the decision of Hon’ble Bombay High Court in case of Akshar Builders & Developers vs. ACIT, 411 ITR 602 (Bom) and submitted that the notice issued under section 148 without application of mind by the AO is not valid. The ld. A/R has also relied upon the decision of Hon’ble Delhi High Court in case of Pr.CIT vs. Meenakshi Overseas Pvt. Ltd., 395 ITR 677 (Del.) and submitted that the Hon’ble High Court has held that mere reproduction of Investigation Report in the reasons recorded and absence of link between tangible material and formation of belief is not valid for initiation of reassessment proceedings. Thus the ld. A/R has submitted that the reopening is not valid and liable to be quashed.
On the other hand, the ld. D/R has submitted that the AO has recorded all the relevant facts while recording the reasons to form the belief that income in the shape of long term capital gain has escaped assessment. He has relied upon the order of the ld. CIT (A) on this issue.
I have considered the rival submissions as well as the relevant material on record. The AO has reopened the assessment by recording the reasons as under :-
Thus in the first part of the reasons recorded by the AO is the information received from DDIT Investigation Jaipur vide letter dated 20th March, 2013 which is factual aspect. It is pertinent to note that prior to transmitting this information by the DDIT Investigation Jaipur, an enquiry was conducted in respect of the transaction of sale of these two properties being 177, Indira Colony, Bani Park Jaipur and E-29B, Bani Park, Jaipur. Thus the DDIT Investigation Jaipur while communicating the information to the AO examined all the relevant facts in respect of the transaction of transfer of these properties by the assessee during the year under consideration.
The second part of the reasons recorded is the information which was available with the AO regarding the return of income filed by the assessee on 30th July, 2006 and shown only income from business & profession. The AO specifically mentioned that long term capital gain has been shown at Nil. It is pertinent to note that the assessee has even not given the details of the transaction of sale of these two properties and computation of capital gain arising from the said transfer. Therefore, in the absence of computation of capital gain at Nil or Loss in the return of income and the information forwarded by the Investigation Wing regarding the sale of properties deemed full value consideration under section 50C, indexation cost of acquisition and long term capital gain on each of the transactions constituted a tangible material for the AO to form the belief that income assessable to tax in the long term capital gain has escaped assessment. At the time of formation of belief that income assessable to tax has escaped assessment, the AO is not required to go into the nitty-gritty of the computation of the capital gain by considering each and every minor details of indexation cost as the same is subject matter of assessment and not the essential part of formation of belief. The ld. CIT (A) has considered this issue of validity of reopening in para 3.1.2 as under :-
“3.1.2 Determination:
(i) The brief facts of the case are that on the basis of the information received from DDIT(Inv.)-I that the appellant has sold two properties in the year under consideration on which it earned long term capital gains of Rs. 17,60,846/- whereas in its return of income, it had shown capital gains at NIL, the AO had reasons to believe that income to the extent of Rs.17,60,846/- had escaped assessment and accordingly proceedings u/s 147 of the Act were initiated.
(ii) During the appellate proceedings, it was submitted by the appellant that there was no justification for initiation of proceedings u/s 147/148 of the Act as there had been no escapement of income for working out the long term capital gains as the AO had taken only the cost of acquisition of property and the AO had not taken into account the cost of construction done on the said properties after purchase of these two properties and it has also filed details of cost of construction/improvement before the AO. It was the contention of the appellant that the AO has relied solely on the information received from the Investigation Wing without deciding the correctness of the information and the AO cannot reopen the assessment on the basis of borrowed satisfaction.
(iii) I have duly considered the submissions of the appellant, assessment order and the material placed on record. It is an undisputed fact that in the original return of income, the appellant has not given any details about the sale of two immovable properties under consideration. It has claimed cost of construction/improvement in respect of the two properties under consideration but failed to produce any evidence in support thereof. Further, it was submitted that if cost of improvement is taken into account, then there was actually a long term capital loss. Since the appellant failed to prove the cost of construction/improvement in the enquiries made by the investigation wing, in my considered opinion, the AO, prima facie, had reason to believe that income had escaped assessment. It may be mentioned that the Courts cannot look into the sufficiency of the reasons recorded by the AO for reopening the assessment u/s 147 of the Act. Reliance is placed on the decision of Hon' ble Apex Court in the case of Raymond Woollen Mills Ltd. Vs ITO [1999] 236 ITR 34 (SC), wherein it was held by their lordship that:
"In this case, we do not have to give a final decision as to whether there is suppression of material facts by the assessee or not. We have only to see whether there was prima facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage. We are of the view that the court cannot strike down the reopening of the case in the facts of this case. It will be open to the assessee to prove that the assumption of facts made in the notice was erroneous. The assessee may also prove that no new facts came to the knowledge of the Income-tax Officer after completion of the assessment proceeding. We are not expressing any opinion on the merits of the case. The questions of fact and law are left open to be investigated and decided by the assessing authority. The appellant will be entitled to take all the points before the assessing authority. The appeals are dismissed."
(iv) Further, in the case of ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. [2007] 291 ITR 500 (SC), it was held by the Hon' ble Apex Court that if the AO, for whatever reason, has reason to believe that income has escaped assessment, it confers jurisdiction to re-open the assessment. It is a fact that no assessment was made earlier u/s 143(3)/144 of the Act in the case of the appellant, therefore, the ratio in the case of ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (Supra) applies squarely to the facts of the instant case under consideration.
(v) It may be mentioned that in a very recent decision dated 05.08.2016, the Hon'ble High Court of Gujarat in the case of Peass Industrial Engineers (P.) Ltd. Vs DCIT [2016] 72 taxmann.com 302 (Gujarat) considered the similar issue and held as under:
"Based upon the material/information received from the Competent Authority, Kolkata, the Assessing Officer has issued notice under section 148 for reopening of assessment, as from the material, the Assessing Officer found that there is a reasonable belief that income of the assessee has escaped assessment and, therefore, it is justified to reopen the assessment. [Para 7]
At the initial stage what is required is reason to believe, but not established fact of escapement of income. Therefore, at this stage only question whether there was relevant material to form a reasonable belief is to be seen. In the background of facts, there is a specific information received about 'K' and it has been prima facie found that the assessee is also the beneficiary of the said 'K'. At this stage of the proceeding, the factum of said aspect whether the assessee is beneficiary or not is not to be finally adjudicated upon by the Assessing Officer. Therefore, the Court is not in a position to dwell into it, but only has to examine whether there is a reasonable belief arrived at or not. From the basis of aforesaid circumstance prevailing on record, it appears that the Assessing Officer is justified prima facie in arriving at conclusion to reopen the assessment. A liberty is always available to the assessee to justify or to deal with the same, but this is not the stage where the process of reopening based upon aforesaid material is to be intercepted. [Para 9]
• In view of the aforesaid, the Assessing Officer was justified in issuing notice under section 148 and the reasons were sufficient enough to permit him to exercise jurisdiction to reopen the assessment. Even the order rejecting the objections also appears to the Court cogent enough as supported by valid reasons. [Para 11] (vi) In the case of HVK International (P.) Ltd. Vs DCIT [2016] 72 taxmann.com 208 (Gujarat), the Hon'ble High Court of Gujarat upheld the reopening u/s 148 of the Act on the basis of the report of the investigation wing. The head notes are reproduced as under:
"Where even though Assessing Officer relied on report of investigation wing that labour contractors were paid sizable amount of labour charges without such labour work having been done, he having applied his mind to materials on record and formed his own belief that income chargeable to tax had escaped assessment, notice for reopening assessment was justified"
(vii) Therefore, in view of the above discussion, it is held that the AO was justified in reopening the case of the appellant for the year under consideration u/s 147 of the Act and was having reason to believe that income had escaped assessment. Hence, this ground of appeal is hereby rejected.”
Thus the ld. CIT (A) has dealt with all the objections raised by the assessee against the initiation of proceedings under section 147/148. When the assessee has not declared any long term capital gain in the original return of income and prima facie there was a reason to believe that the transfer of the properties in question has resulted long term capital gain then the initiation of proceedings under section 147/148 cannot be challenged on the ground that at the time of recording the reasons the AO has not considered correct indexation cost on account of construction and improvement. Since these are matters of further verification and investigation based on the details and evidence to be filed by the assessee and not the matter which can be ascertained from the record available with the AO at the time of recording the reasons, hence in view of the above facts and circumstances of the case, I do not find any error or illegality in the order of ld. CIT (A) qua this issue.
Ground Nos. 3 to 7 are regarding disallowance of indexation cost of construction of the properties sold by the assessee.
6. The ld. A/R of the assessee has submitted that the assessee purchased the property bearing no. 177, Indira Colony, Bani Park, Jaipur vide two sale deeds dated 15.07.1996 and 22.08.1997. When the plot was purchased by the assessee no construction was existing on the plot which is clearly apparent from the copy of the site plan attached with the registered sale deed. After purchasing the said plot, the assessee has sub-divided the plot and got constructions done of two floors on the said land. The assessee sold ½ portion of the property in the year 1998 being first and second floors and the ground floor of the said portion was thereafter sold vide sale deed dated 19th January, 2000. These two transactions were duly declared in the return of income for the assessment years 1999-2000 and 2000-01. The Northern portion of the said property was sold vide sale deed dated 14.06.2005 to Shri Laxman Dass T Wadhwani for a total consideration of Rs. 8,11,000/-. He has referred to the sale deed and submitted that it is clearly mentioned that this portion was sold having covered area of 85.24 sq. mtrs. On the ground floor as well as covered area of 85.24 sq. mtrs. on first floor, total constructed area of 167.17 sq. mtrs. The sale deed duly mentioned about the constructed area and the site plan attached with the registered sale deed also shows the same. The ld. A/R has thus contended that the assessee purchased the vacant plot of land and sold the constructed property vide sale deed dated 14.06.2005. Therefore, the capital gain if any, on sale of this property ought to have been computed after giving the benefit of indexed cost of construction. During the assessment proceedings, the assessee filed an affidavit of Shri Govind Ram Choudhary, who has done the construction on the plot in the year 1998-99 and received a sum of Rs. 4,25,000/-. The AO also examined Shri Govind Ram Choudhary on 22.11.2013 wherein he has confirmed the construction work done on the plot of the assessee and charged @ Rs. 450/- per sq. ft. He has also explained the type of construction and the said rate is inclusive of material. Each and every details of the construction cost was explained by Shri Govind Ram Choudhary. The AO has not accepted the claim of indexed cost of construction. Thus the ld. A/R has submitted that the assessee produced all relevant documentary evidence in support of the claim that the assessee purchased a vacant piece of land and thereafter constructed on the same land before the property was sold. Therefore, the disallowance of claim is not justified.
On the other hand, the ld. D/R has submitted that the construction on the plot of land was pre-existing and nothing was produced to show that new construction was done by the assessee. The assessee has just made a claim of indexed cost of construction to avoid the tax on the capital gain on transfer of this property. The claim of the assessee is not substantiated with a verifiable evidence whereas the facts recorded in the sale deed itself clearly established that the construction is old one and carried out 12 years back from the date of sale which means that the construction was done even prior to the acquisition of property in the year 1996. The ld. D/R has referred to the orders of the authorities below and submitted that the ld. CIT (A) has clearly mentioned that at page 12 of the sale deed dated 14.06.2005 construction of 917 sq. ft. each on ground floor and first floor was 12 years old meaning thereby the construction was done sometime in the year 1993 whereas the assessee purchased the property in 1996 only. In rebuttal, the ld. A/R of the assessee has submitted that the age of the construction as mentioned in the Sale Deed is only for the purpose of stamp duty valuation and, therefore, the same cannot be accepted as the actual time of construction of the property.
I have considered the rival submissions as well as the relevant material on record. The dispute is regarding cost of construction in respect of the property bearing no. 177, Indira Colony, Bani Park, Jaipur. The assessee purchased the said property vide Sale Deed dated 15th July, 1996. On perusal of the said Sale Deed, it is noted that only a plot of land was sold by the owner to the assessee, along with the sale deed a site plan was also attached. The site plan of the plot clearly exhibit that it was only a plain and vacant plot of land without having any construction.
Thus nothing has come out from the sale deed dated 15.07.1996 as well as site plan to infer that there was a construction on the plot of land in question at the time of acquisition by the assessee. There is no dispute that at the time of sale of this plot it was constructed upto 1st floor which is also clear from the site plan attached with the sale deed dated 14th June, 2005. The AO has denied the claim of the assessee on the ground that this construction was pre-existing when the assessee purchased this property. Further in order to verify the claim, the AO examined one Shri Govind Ram Choudhary, whose affidavit was filed by the assessee regarding construction work done. In his statement Shri Govind Ram Choudhary has confirmed the construction done by him and charged @ Rs. 450/- per sq. ft. He has also explained that this rate was inclusive of construction material and a sum of Rs. 1,30,000/- was deducted towards cost of construction material provided by the assessee and the balance amount of Rs. 3,20,000/- was received him. The AO did not accept the said statement of Shri Govind Ram Choudhary and pointed out that he has not done any construction work except the alleged one. Therefore, he was not considered a reliable witness by the AO. The ld. CIT (A) has also confirmed the disallowance of cost of construction by referring the sale deed dated 14th June, 2005 wherein the construction was stated to be 12 years old. When in the sale deed dated 15.7.1996 along with the site plan there is no mention of any construction and the assessee purchased only a vacant plot of land and at the time of sale the property was sold as a constructed property upto 1st floor, then a mere mention of the age of the construction in the sale deed which is contrary to the other facts as per the sale deed dated 15.07.1996 and site plan attached to the said sale deed would not lead toa definite conclusion. Hence the claim of the assessee cannot be denied on the basis of said statement in the sale deed dated 14.06.2005 which is contrary to the facts recorded in the other documents. It is pertinent to note that when the site plan is attached to the sale deed giving the description of the property, then the said site plan should be given more weightage than some incorrect facts mentioned in the sale deed about the age of the construction. What is material fact is the no construction at the time of purchase of the property as per the site plan and sale deed and there was a construction upto 1st floor at the time of sale of the property.
Therefore, by considering these two facts, the construction got done by the assessee cannot be disputed. Accordingly, the denial of the claim of the assessee is not justified as it is contrary to the facts emerged from the records which are the registered sale deed and site plan attached to the sale deed. Hence the claim of indexed cost of construction of the assessee is to be allowed. Since the AO has denied the claim without considering the cost of construction, therefore, the matter is set aside to the record of the AO to allow the benefit of indexed cost of construction while computing the capital gain from sale of this property.
As regards the cost of construction in respect of part of the property bearing No.E-29B, Bani Park, Jaipur, the ld. A/R has submitted that when the assessee purchased the property there was no construction on this part of the land.
Thereafter, the construction was carried out on the said plot of land in the financial year 1998-99 and 1999-2000 at approximate cost of Rs. 6,50,000/- and total constructed area was 2110 sq. ft. Subsequently part of the said plot having constructed area of 1265 sq. ft was sold by the assessee on 28.01.2006 and balance portion of this plot of land along with constructed area was sold in the next financial year for a consideration of Rs. 8.00 lacs. The assessee filed details of long term capital loss of Rs. 74,066/- after considering the cost of acquisition and indexed cost of construction. The AO worked out the capital gain by reducing only indexed cost on acquisition of land and not given indexed cost of construction. The ld. A/R has submitted that the assessee has filed an affidavit of Shri Bal Chand Kumawat who has carried out the construction work. The AO examined him and recorded the statement. He has given all the description of the construction as well as the payment received @ Rs. 500/- per sq. ft which included labour and cost of material.
Therefore, the assessee established the fact that there was a construction carried out by the assessee on the plot of land in the year 1998-99 but the AO has denied the claim on the reasoning as in respect of the other property.
On the other hand, the ld. D/R has relied upon the orders of the authorities below and submitted that the sale deed dated 28.01.2006 was executed by the assessee as a Power of Attorney holder of one Miss Prachi who purchased this property on 19.06.1993. The assessee purchased this property not as a vacant plot of land but as a house property. The sale deed dated 28.01.2006 clearly states that the constructed portion was more than 17 years old meaning thereby the property was not constructed by the assessee in the years 1998-99 and 1999-2000 as claimed. Therefore, the claim of the assessee is not found to be correct.
I have considered the rival submissions as well as the relevant material on record. As per the Agreement dated 24.11.1997, the property was stated to be a constructed house, therefore, when the said property was constructed one as stated in the agreement dated 24.11.1997, then the claim of the assessee to have constructed the property in the years 1998-99 and 1999-2000 cannot be accepted without verification of the fact whether at the time of sale the constructed part was a new one or old one. It is apparent from the site plan annexed to the sale deed whereby the assessee has sold the property was duly constructed. However, in the absence of any other material except one averment in the agreement, this fact is required to be verified whether the assessee has carried out this construction subsequent to the acquisition. This fact can be verified through an expert. The AO has not conducted any enquiry about the timings of the construction of the property.
Since the construction was very much in existence at the time of sale, but whether this construction was new construction done by the assessee or it was an old construction pre-existing has to be decided on the basis of some enquiry and verification. Accordingly, this issue is set aside to the record of the AO for conducting a proper enquiry to verify the timing of the construction and then decide the issue afresh.
For the assessment year 2007-08, the assessee has raised the following grounds :-
“ 1. That the learned CIT (Appeals) has erred in holding that the Assessing Officer was justified in reopening the case of the appellant for the year under consideration u/s 147 of the IT Act and was having reason to believe that income has escaped assessment. The said finding is illegal and unjustified.
That the learned Assessing Officer was not justified in initiating proceedings u/s 147 and initiation of proceedings and assessment order passed is illegal and unjustified.
3. That the learned CIT (Appeals) has erred in holding that no construction was got done by the assessee in respect of property No.E-29B, Bani Park, Jaipur as claimed by it. The said finding is illegal and unjustified.
4. That the learned CIT (Appeals) has erred in holding that the Assessing Officer was justified in not allowing the cost of construction while computing long term capital gains. The said action is illegal and unjustified.
5. That the learned Assessing Officer had erred in working out the capital gains in respect of part of plot No.E-29B, Bani Park, Jaipur at Rs. 4,08,006/- without allowing the benefit of cost of construction/improvement in respect of the said property and the learned CIT (Appeals) has erred in confirming the working of the capital gains made by the Assessing Officer. The said action is illegal and unjustified.
6. That the learned CIT (Appeals) has erred in confirming the charging of interest u/s 234B of the IT Act. The said action is illegal and unjustified.”
Ground Nos. 1 & 2 are regarding validity of initiation of proceedings under section 147/148 of the IT Act.
This issue is common as raised by the assessee in ground nos. 1 & 2 for the assessment year 2006-07. In view of the finding on this issue, ground nos. 1 & 2 of the appeal for the assessment year 2007-08 stand dismissed.
Ground Nos.3 to 5 are regarding disallowance of cost of construction in respect of the property bearing no. E-29-B, Bani Park, Jaipur.
This issue is common to the issue raised by the assessee in respect of this property for the assessment year 2006-07 in ground nos. 8 & 9. Since this issue is common and based on identical facts, therefore, in view of the finding on the ground nos. 8 & 9 for the assessment year 2006-07, this issue is set aside to the record of the AO for verification and re-adjudication on the same terms.
In the result, both the appeals of the assessee are partly allowed for statistical purposes.
Order is pronounced in the open court on 01/11/2019.