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Facts
The assessee purchased a property for Rs. 32,80,000/-. The Assessing Officer (AO) treated this as an undisclosed capital gain based on AIR information without verification. The CIT(A) upheld this addition, changing the nature of the addition from capital gain to unexplained investment without proper procedure. The assessee claimed the funds were received from relinquishing rights in a tenanted property and from his brothers.
Held
The Tribunal held that the CIT(A) erred in upholding the addition and changing the head of income without following proper procedure, specifically by not issuing a show cause notice. The assessee provided evidence of the source of investment, which was not adequately verified by the lower authorities. The order of the CIT(A) was quashed.
Key Issues
Whether the CIT(A) correctly upheld the addition without proper verification and by changing the nature of the addition without following due procedure. Whether the assessee provided sufficient evidence for the source of investment and if exemption under Section 54F was admissible.
Sections Cited
143(2), 143(3), 69, 54F, 144, 250, 251(2)
AI-generated summary — verify with the full judgment below
(AY 2006-07) (physical hearing) Mr. Anil Bherumal Kalal ITO – 19(2)(1), Mumbai A-602, Pooja Enclave, S T Braz Road, Kautilya Bhavan, BKC, Vs. Behind Nanavati Hospital, Vile Parle Bandra (East), Mumbai – West, Mumbai-400056. 400051. PAN: AABPK 3216 B (Appellant) (Respondent) Assessee by : Shri Subhash Chhajed, AR Revenue by : Ms. Pradnya Gholap, Sr. DR Date of Hearing : 16.04.2025 Date of Pronouncement : 16.04.2025 Order Under section 254(1) of Income tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by assessee is directed against the order of ld. CIT(A) dated 30.12.2024 for A.Y. 2006-07. The assessee has raised the following grounds of appeal: “VALIDITY OF THE NOTICE UNDER SECTION 143(2) OF THE ACT AND THE ASSESSMENT THEREUNDER: 1.a) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) [CIT (A)] erred in upholding the assessment for the Assessment year 2006-07 framed by the learned Assessing Officer without complying with the relevant provisions of the law. b) It is respectfully submitted that no notice under Section 143(2) of the Act was served on the Appellant within the time limits prescribed under Section 143(2) of the Act. Accordingly, the learned Assessing Officer had no jurisdiction to proceed with scrutiny assessment under Section 143(3) of the Act. Thus, the assessment is bad in law and deserves to be quashed and struck down as null and void. In view of the above, the Appellant prays that the assessment be set aside as bad in law and struck down as null and void.
Mr. Anil Bherumal Kalal A.Y. 2006-07 ADDITION OF RS. 32.80.000/- 2. a) On the facts and circumstances of the case and in law, the Ld. ADDL/JCIT (Appeals), AGRA erred in upholding the addition of Rs. 32,80,000/- as unexplained investment u/s 69 of the I. T. Act 1961 whereas the same was added as Long-Term Capital Gain by the Ld. AO on sale of immovable property on the basis of AIR Information. b) On the facts and circumstances of the case and in law the Ld. ADDL/JCIT (Appeals), AGRA erred in treating the investment of Rs. 32,80,000/- as unexplained investment u/s 69 of the Act despite the fact that the same has been recorded in the books of accounts maintained by the Assessee. EXEMPTION U/S 54F 3. On the facts and circumstances of the case and in law the Ld. ADDL/JCIT (Appeals), AGRA ought to have appreciated that investment of Rs. 32,80,000/-in residential property is sourced out of the sum of Rs. 25,00,000/- received by the Appellant for relinquishing his share in tenancy rights in the property inherited from his father and therefore Assessee is eligible to claim exemption u/s 54F of the Act on the Long-Term Capital Gain of Rs. 25,00,000/-on relinquishment of tenancy rights. PRAYER FOR ADDITION/MODIFICATION OF 4. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.
2. On careful perusal of grounds of appeal, I find that assessee has raised multiple grounds of appeal however, the substantial relief claimed in the appeal relates to addition on account of unexplained investment of Rs. 32,80,000/-.
3. Rival submissions of both the parties have been heard and record perused. The ld. AR of the assessee submits that assessing officer passed assessment order under section 144 on 30.12.2008. While passing the assessment order, the assessing officer made addition of undisclosed capital gain of Rs. 32,80,000/-. The assessing officer while making addition solely relied upon Mr. Anil Bherumal Kalal A.Y. 2006-07 AIR information. No verification of fact was carried by assessing officer. Aggrieved by the addition in the assessment order, the assessee filed appeal before ld. CIT(A). Before ld. CIT(A), the assessee is specifically stated that assessing officer made addition on the basis of AIR information of assessee sold immovable property in joint name. Cost of the property was taken as Nil. The assessee submitted that addition by assessing officer was erroneous and arbitrary. The assessee explained that before ld. CIT(A) that assessee along with his father and three brothers were staying at Room No. 31, Unity Compound, Near Juhu Beach of Juhu Tara Road, Santacruz (W). In a tenanted property at monthly rent of Rs. 26,00,000/-. His father used to pay Rs. 25,00,000/- to his landlord Ms. Vhikha H Shroff, father of assessee right living behind assessee and his three brothers. The property where the assessee used to leave was acquired by DS Corporation (builder) and the builder paid Rs. 25,00,000/- each to assessee as well as to his three brothers for relinquishment of right in the property. Such payment was received by way of cheque for surrendering their right. The assessee purchased a flat and paid a consideration against purchase of property. The assessee also furnished copy of registered agreement executed on 02.03.2006. Copy of registered agreement was also furnished before ld. CIT(A). In the registered agreement, the purchase consideration of Rs. 32,80,000/- is clearly mentioned. The assessee while explaining the fact before ld. CIT(A) furnished of necessary evidence to prove the source of investment. The assessee also filed application Rule 46A of Income Tax Rules for admission of additional evidence to substantiate the source of investment. On the submission and Mr. Anil Bherumal Kalal A.Y. 2006-07 evidence furnished by assessee, the ld. CIT(A) called remand report from assessing officer. The assessing officer furnished his remand report, such fact is duly recorded in the order of ld. CIT(A) in para 4 of his order. The ld. CIT(A) without issuing any specific show cause notice or allowing an opportunity to the assessee change the nature of addition from long term capital gain to unexplained investment. The ld. CIT(A) asked a cryptic order holding that addition of Rs. 32,80,000/- is correct and justified as unexplained. Though, the assessing officer made addition of long term capital gain. The ld. CIT(A) also held that assessee failed to discharge his honest and investment or credit are liable to be taxed as an income in the absence of credible evidence and the amount of Rs. 32,80,000/- remand unexplained. The order of ld. CIT(A) is contrary to the procedure prescribed under section 250 and 251 of Income Tax Act. The order of ld. CIT(A) is liable to be quashed.
4. On the other hand, ld. Sr. DR for the Revenue supported the order of assessing officer. The ld. Sr. DR for the Revenue submits that the assessee was given ample opportunity during assessment, the assessee failed to fine such opportunity. The assessing officer has no option except to pass best judgment which is he ultimately passed assessment order under section 144. In absence of any reply, the addition was made on the basis of information available incite portal. Before ld. CIT(A) has raised plea of investment property. The assessee failed to explain such source of investment in property. Thus, the ld. CIT(A) in absence of proper explanation by assessee upheld the addition. The ld. Sr. DR, further, submits that certain facts are Mr. Anil Bherumal Kalal A.Y. 2006-07 missing in the record if any specific notice before changing the head of income was issued or not. Further, assessee failed to substantiate the source of investment in property though initially the assessee claimed that entire sale consideration received by assessee was reinvested and the assessing officer in his remand report categorically held that assessee has not claimed any exemption under section 54 or 54F while filing return of income. Therefore, matter may be restored back for considering the issue of investment and / or sale of property during the year as afresh and matter may be restored back to the file of ld. CIT(A) with the direction to seek remand report of assessing officer on such issue.
5. I have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. I find that assessing officer made addition of long term capital gain of Rs. 32,80,000/- on the basis of AIR information. The assessing officer made addition without verification of information whether such consideration was received or paid by assessee. I find that before ld. CIT(A), the assessee filed copy of registered agreement of sale for purchase of residential Flat No. 602, 6th Floor, A Wing, Pooja Enclave and agreed to pay Rs. 32,80,000/-, out of which Rs. 11,00,000/- was paid as earnest money. Possession of property was to be handed over by 31.12.2006 proved entire purchase price is paid. I find that assessee also provided details of source of investment in purchase of said flats. The assessee filed his affidavit and explained that Rs. 25,00,000/- was received by him by way of cheque no. 267195 dated 15.01.2006 drawn on Union Bank of India. Said cheque was issued by DS Corporation. The assessee also explained that Rs.
Mr. Anil Bherumal Kalal A.Y. 2006-07 5,00,000/- from his two brothers who were also received similar compensation from builder. On perusal of various screen shot of ITBA portal, I find that assessee furnished all such evidences during pendency of first appeal. No verification of fact was carried out by ld. CIT(A) about explanation of such source of investment. No adverse material was brought on record either by assessing officer or by ld. CIT(A). Glaring fact is that before changing the head of addition from long term capital gain to unexplained investment no specific show cause notice is issued by ld. CIT(A) which is mandatory under section 251(2) as the ld. CIT(A) admittedly enhanced the addition. Hence, the order passed by ld. CIT(A) is quashed/set aside. In the result, substantial ground of appeal raised by assessee is allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 16.04.2025