VIJETA TRADING PVT. LTD.,MUMBAI vs. CIT(A), NFAC, DELHI

“(i) Sale of property at Office No.J-1, 4th Floor, Tex centre, Chandivali, Saiknaka, Andheri (E), Mumbai - 400 072. (ii Sale of property at Office No.J-2, -4th Floor, Tex centre, Chandivali, Saiknaka, Andhcri (E), Mumbai - 400 072. (iit} Sale of property at Office No.J-3, 4th Floor, Tex centre, Chandivali, Saiknuka, Andheri (Ej, Mumbai - 'IDO 072. Description Date of LTCG purchase J/l wing 20.05.20O5 41,35,457 J/2 wing 09-12.2004 59,34,111 J/3 wing 12.10.1999 (76,20,820)

4 6. Aggrieved with the order of Ld.AO, assessee preferred appeal before the Ld. CIT(A) but the same was also dismissed. Consequently, the assessee went in appeal to the ITAT and the second appellate authority set aside the matter and also directed the AO to refer the matter to the DVO for valuation.

6.1 Consequently, the DVO passed the valuation order under section 55A of IT Act and vide order dated 17/05/2019, estimated the fair market value of the properties as under:

Sr. No. Particulars FMV - (Rs.l

2. Office No.J-2 1,16,00,000

3. Office No.J-3 1,11,66,000 TOTAL 3,13,95,000 6.2 Thereafter the AO after seeking the objections from the assessee, worked out the undisclosed capital gains as under:

Undisclosed Units Actual Purchase Indexed Cost FMV as per Index Capital Gains purchase of DVO's price acquisition order dtd.

17.05.2019 41,14543 86,29,000 45,14,457 1 J1 24,00,150 497 5 480 51,65,889 1,16,00,000 64,34,111 J2 29,10,360 389 16,62,386 1,11,66,000 95,03,6 14, J3 7,59,000 2,04,52,182 6.3 Ultimately, the order of assessment under section 143(3), read with section 254 of the Act was passed on 23/09/2019. 6.4 Against the said order, appeal was filed before Ld. CIT(A) which was dismissed and against that order of dismissal, the assessee has preferred the present appeal before us on the grounds mentioned here in below:

“1. The order of the Ld. CIT(A] is bad in law and on facts

2. On the facts and circumstances of the case and in law, the Ld. CIT(A] has erred in not considering the appellant claim and erroneously upheld the addition made by the Ld. AO towards Capital Gain Rs. 2,04,52,182 on the Properties merely on the ground of registration.

2.1 The Ld. CIT (A) & Ld. AO failed to consider the fact that after Registration of Sale Agreement, due to Various Issues the transaction was not completed and as a result of which Right/Possession was not handed over.

6 2.2 The Ld. CIT (A) & Ld. AO further failed to appreciate the fact that since the Right/Possession wasn't transfer, accordingly the said Properties were duly reported under the heading "Fixed Assets" in the Financials for the year under consideration.

3. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in approving/confirming Ld. AO's action of considering DVO without appreciating the facts that the Amount reported by the appellant was higher than the ready-reckoner value.

3.1 Further during the Assessment proceedings, the Ld. AO dint recorded and establish any adequate justification for accepting the Higher Value reported by DVO vis a vis amount considered by the appellant.

4. On the facts and circumstances of the case and in law, Ld. CIT(A) has erred in approving / confirming Ld. AO's action of disallowing Business Expenses of Rs. 7,93,996 without appreciating the fact that these Expenses are incurred during the Normal Course of Business.

5. On the facts and circumstances of the case and in law, Ld. C1T(A) has erred in 7 approving/confirming Ld. AO's action of considering Unsecured Business Loan of Rs. 7,50,000/- as Unexplained merely on the ground that Notice U/s. 133(6) went unserved/unattended.”

“8.1 I have perused the assessment order, the submissions of the appellant and the material on record.

8.2 As per the facts already enumerated in para 3 above, the A.O in the order u/s 143(3) .dated 14.03.2016 had made an addition on account of 8 undisclosed capital gains of Rs 1,90,57,182/- on account of the sale of 3 immovable properties, J1, J2 and J3. The A.O made the additions on account of the fact that the same was not disclosed in the return of income. With regard to J1 and J2, the A.O computed the LTCG as per the sale/purchase agreements at Rs 41,35,457 and Rs 59,34,111/- respectively. With regard to property J-3, the A.O did not allow the cost of improvement as per the assessee's calculation of Rs 35,67,524/- due to want of evidence, and hence computed the undisclosed capital gains on J-3 at Rs 89,87,614/-.

8.3 In its submissions, the appellant has disputed the original addition of Rs 1,95,57,182 by stating that it had entered into an agreement to sell with regard to the offices and the agreement was executed. However subsequently there was a dispute between the buyer and the company and could not be resolved and hence the director did not disclose the sale in the ITR filed. - 8.4 The contentions of the appellant cannot be accepted since they are not backed by any evidence. Nothing has been submitted by the 9 appellant in these proceedings to support its claim that the sale was cancelled. The fact of the matter is that the sale agreements were made and were registered and hence it has to be presumed that the sales took place as per the same. In case they would have been cancelled there would have been a proper cancellation agreement between the buyer and the company but no such document has been produced. The submission of the appellant does not merit acceptance without even a shred of evidence to prove its veracity. Similarly, with regard to Office J-3, the appellant neither submitted any evidence with regard to the cost of improvement of Rs 35,67,524/-before the A.O, and in these proceedings has remained completely silent on this issue and hence the action of the A.O in not accepting this claim is upheld. Consequently, and in conclusion it can be said that the entire addition of Rs 1,90,57,182/- made by the A.O on account of the undisclosed capital gains on sale of offices J-1, J-2 and J-3 is upheld. The Ground of Appeal is Not Allowed.”

10. After have gone through the orders passed by Ld. CIT(A), we noticed that the assessee had not filed any supportive evidences to prove its claim that the sales were cancelled.

10 Whereas on the contrary, as per recordthe sale agreements were made and registered and therefore the presumption is attached with the ‘registered’ documents that the sales took place as per the same. In order to disprove that presumption nothing has been placed on record by the assessee to controvert the same. Therefore in our view the Ld. CIT(A) has rightly rejected this ground raised by the assessee and even before us no new documentary evidences have been filed to controvert, the findings recorded by the Ld. CIT(A). Therefore we have no other option except to uphold the findings of Ld. CIT(A) and dismissed the ground raised by the assessee.

9.1 Against the order dated 14.03.2016 the assessee filed an appeal before the CIT(A) who dismissed the appeal. The assessee filed an appeal to the Tribunal and the Hon'ble ITAT vide order dated 24.09.2018, set aside this issue to the file of the A.O with the direction 11 to refer the matter to the DVO for valuation. The DVO in the valuation order u/s 55A of the Act vide order dated 17.05.2019 estimated the f.m.v of the properties higher than the value adopted by the A.O in the order u/s 143(3) dated 14.03,2016 by a total amount of Rs 13,95,000/-. 9.2 In its submissions, the appellant has contended that the valuation of the DVO was based on some wrong assumption and inference and since the sale agreement entered into was in dispute, so the value adopted by the DVO was not justified. 9.3 The contention of the appellant cannot be accepted. As stated in para 8 above the appellant has not given any evidence of the dispute between the buyers and the company. Furthermore, the appellant has not given any concrete evidence to show how the report of the DVA was inaccurate and how the valuation was not justified. The assertions of the appellant are meaningless without any specific evidence and documentation. Hence the enhancement of Rs 13,95,000/- made of the basis of the DVO's report is upheld. Accordingly, taking both the orders together the addition of Rs 2,04,52,182/- on account of undisclosed capital gains on account of the sale of the 3 office premises is confirmed. The Ground of Appeal is Not Allowed.

12 13. After having gone through the orders of Ld. CIT(A), we found that nothing has been placed on record by the assessee to disprove the report of the DVO. No concrete evidence was placed on record to show as to how the report is in accurate. Therefore in the absence of any documentary evidence, the Ld. CIT(A) was having no other option except to uphold the report of DVO. Even before us nothing has been placed on record. Therefore we found no reason to interfere into the orders passed by Ld. CIT(A) and thus uphold the same and dismiss this ground raised by the assessee.

10.1. In the order u/s 143(3) dated 14.03.2016, the A.O. has disallowed the expenses on Depreciation on Office Equipment Rs 461167, Electricity Charges Rs 54981 and Repairs and Maintenance Rs 277848, totaling Rs 793996. The reasoning of the A.O was that in the unlike the earlier years, in the instant year the assessee had neither declared any rental income nor any business income and hence the expenses in the 13 P&L account were unreasonable as there was no business activity. The A.O allowed the expenses on account of audit fees, bank charges, roc fees and water charges but disallowed the expenses on account of depreciation, electricity charges and repairs and maintenance. 10.2 From the submissions the appellant has stated that these expenses were incurred in relation to the office premises which were in dispute and not handed over to the buyer and were being used by the appellant itself. However, no evidence or details of any dispute have been submitted in the instant proceedings. For want of any evidence to substantiate the claim of the appellant, the disallowance of Rs 7,93,996/- is confirmed and the Ground of Appeal is Not Allowed.

16. After having gone through the facts of the present case as per orders passed by the revenue authorities, we found that no evidences or details have been furnished by the assessee to substantiate this claim raised before the revenue authorities is, therefore in the absence of any evidence Ld. CIT(A) has rightly upheld and confirmed by the orders passed by A.O. Even before us nothing has been placed on record to controvert or rebut the finding so recorded by Ld CIT(A). Therefore we have no other option except to uphold the said 14 findings recorded by Ld. CIT(A) and dismissed this ground raised by the assessee.

17. Ground No. 5 raised by the assessee relates to challenging the order of Ld. CIT(A) in confirming the action and considering unsecured business loan as unexplained

18. In this regard we noticed that Ld. CIT(A) has dealt with this ground in para no. 11 of its order and the operative portion of the order is contained in para number 11.1 to 11.5 and the same is reproduced here in below:

“11.1 The A.O has stated in the order that on the basis of the details filed by the assessee notice u/s 133(6) was issued on 21.01.2016 but was returned unserved by the postal authorities. Hence the assessee was asked to produce the party during the assessment proceedings for verification but failed to do so. Accordingly, since the identity of the party had not been proved, the A.O made the addition. The appellant has stated in the submissions that the loan was taken by cheque and properly accounted for in the books. That the PAN and other details were submitted to the A.O during the proceedings.

11.2 As per the provisions of section 68 of the Act, the Burden of proof is on the assessee who 15 is required to offer an explanation to the satisfaction of the Assessing Officer so as not to attract the mischief of section 68 of the Act. This aspect has been deliberated upon by the Hon'ble Supreme Court in numerous decisions. Relevant portion from following case laws are extracted below: i. Sreelekha Banerjee v CIT (1963) 49 1TR 112 (SC)

It seems to us that the correct approach to questions of this kind is this. If there is an entry in the account books of the assessee which shows the receipt of a sum or conversion of high denomination notes tendered for conversion by the assessee himself, it is necessary for the assessee to establish, if asked, what the source of that money is and to prove that it does not bear the nature of income. The Department is not at this stage required to prove anything. It can ask the assessee to bring any books of account or other documents or evidence pertinent to the explanation if one is furnished, and examine the evidence and the explanation. If the explanation shows that the receipt was not of an income nature, the Department Gannet act unreasonably 16 and reject that explanation to hold that it was income. If, however, the explanation is unconvincing and one which deserves to be rejected, the Department can reject it and draw the inference that the amount represents income either from the sources already disclosed by the assessee or from some undisclosed source. The Department does not-then proceed on no evidence, because the fact that there was receipt of money, is itself evidence against the assessee. There is thus prima facie evidence,, against the assessee which he fails to rebut, and being unrebutted, that evidence can be used against him by holding that it was a receipt of an income nature. The very words an undisclosed source" show that the disclosure must come from the assessee and not from the Department". ii. Kale Khan Mohammad Hanif v CIT[1963] 50 ITR 1 (SC)

It is well established that the onus of proving the source of a sum of money found to have been received by the assessee is on him. If he disputes liability for tax, it is for him to show either that the receipt was not income or that if it was, it was exempt from taxation under the 17 provisions of the Act. In the absence of such proof, the Income-tax Officer is entitled to treat it as taxable income

(iii) Roshan Di Hatti v CIT [1977] 107 ITR 938 (SC)

"Now, the law is well settled that the onus of proving the source of a sum of money found to have been received by an assessee is on him. If he disputes the liability for tax, it is for him to show either that the receipt was not income or that if it was, it was exempt from taxation under the provisions of the Act. In the absence of such proof, the revenue is entitled to treat it as taxable income.

To put it differently, where the nature and source of a receipt whether it be of money or of other property, cannot be satisfactorily explained by the assessee, it is open to the revenue to hold that it is the income of the assessee and no further burden lies on the revenue to show that that income is from any particular source." iii. Sumati Dayal v. CIT [1995] 80 Taxman 89 (SC)

18 "But, in view of Section 68 of the Act, where any sum is found credited in the books of the assessee for any previous year the same may be charged to income tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such case there is, prima facie, evidence against the assessee, viz., the receipt of money, and if he fails to rebut, the said evidence being unrebutted, can be used against him by holding that it was a receipt of an income nature. While considering the explanation of the assessee the Department cannot, however, act unreasonably." iv. CIT v. P. Mohanakala [2007] 161 Taxman 169 (SC)

"The expression "the assessees offer no explanation means where the assessees offer no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessees. It is true the opinion of the Assessing Officer for not accepting the explanation offered by the assessees as not satisfactory is required to be based on proper 19 appreciation of material and other attending circumstances available on record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion 11.3 From a careful perusal of the above decisions, it is established that primary onus to prove the source of the money and necessary evidences to support credit entries u/s 68 of the Act is on the assessee . The Hon'ble Supreme Court has further held that explanation offered by the assessee should be carefully examined by the AO to ascertain whether all the ingredients of the onus are proved by the assessee or not. Essentially, the explanation of the assessee is required to be tested on the touchstone of Genuineness, both of the parties as well as the transaction. Thus it is for the assessee to produce the materials, evidence and an explanation that is comprehensive and accurate.

11.4 Furthermore, it needs to be pointed out that only because payments have been made by cheque through proper banking channels does not necessarily prove the genuineness of the 20 transaction. According to the legal principles as laid down in the plethora of judicial decisions mere production invoice numbers or bills or PAN or details of cheque and bank statements only indicate and reflect proper paper work or documentation but genuineness, creditworthiness and identity are deeper and obtrusive.

The Guwahati High Court in Nemi Chand Kothari v. CIT [2004] 136 Taxman 213/[2003] 264 ITR 254 held that merely because a transaction takes place by cheque is not sufficient to discharge the burden. The assessee has to prove the identity of the creditors and genuineness of the transaction.:

It cannot be said that a transaction, which takes place by way of cheque, is invariably sacrosanct. Once the assessee has proved the identity of his creditors, the genuineness of the transactions which he had with his creditors, and the creditworthiness of his creditors vis-a-vis the transactions which he had with the creditors, his burden stands discharged and the burden then shifts to the revenue to show that though covered by cheques, the amounts in question, actually 21 belonged to, or was owned by the assessee himself The Hon'ble ITAT, Delhi in the case of Pee Aar Securities Ltd. vs. DCIT, Circle-14(1), New Delhi [(2018) 96 taxmann.com 602 (Delhi - Trib.)] has held as under:

"It is also a settled legal position that the onus of the assessee, of explaining nature and source of credit, does not get discharged merely by filing confirmatory letters, or demonstrating that the transactions are done through the banking channels or even by filing the income tax assessment particulars. In the case of CIT v. United Commercial and Industrial Co (P.) Ltd [1991] 187 ITR 596/56 1 Taxman 304 (Cal), Hon'ble Calcutta High Court has held that "it was necessary for the assessee to prove prima facie the identity of creditors, the capacity of such creditors and lastly the genuineness of transactions". Similarly, in the case of CIT v. Precision Finance (P.) Ltd [1994] 208 ITR 465/[1995} 82 Taxman 31 (Cal), it was observed that "it is for the assessee to prove the identity of creditors, their creditworthiness and genuineness of transactions". There is thus no 22 escape from proving genuineness of a transaction."

In the case of PCIT vs. NRA Iron & Steel (P) Ltd. [(2019) 103 taxmann.com 48 (SC)] the Hon'ble Supreme Court has held that "merely because assessee company had filed all primary evidence, it could not be said that onus on assessee to establish credit worthiness of investor companies stood discharged"

The following observation of Hon'ble ITAT of Ahmadabad Bench in the case of Nakoda Fashion Pvt. Ltd. in ITA No. 1716/Ahd./2012 dated 18.08.2016 is also relevant, wherein it has been held as under:-

"79. From going through all the above judgments and decision, we find that along with evidences, surrounding circumstances, human probability and intentional acts are also to be taken note off while accepting the identity, creditworthiness and genuineness of the cash creditors which in this case is the share applicants. In the case before us we observe that assesses is trying to assert again and again upon the PAN, IT returns, bank statement and confirmations of the impugned 5 parties but has 23 nowhere tried to clarify or disclose the fact which has embedded in the financial statement of these 5 parties which speaks in itself that they are paper companies. Further if it has been genuine transaction and assessee company is asked to produce the new share holders who have been allotted a substantial portion of equity shares, he would have easily called upon the investors. The investors could have come along with all the financial documents and could have clarified about his intention to make investment in the equity shares of the company because every investor wants to earn income from investment in the form of dividend as well as expects appreciation in the valuation of shares with the growth of business. If this has been the situation, then there would have been no doubt on the genuineness of the transactions.

If the assessee has adduced evidences to establish the prima facie, the aforesaid onus shifts to the Department. However, mere furnishing of particulars or the mere fact of payment by account payee cheque or the mere submission of confirmation letter by the share applicant is by itself, not enough to shift the onus to the Department although these facts 24 may, along with other facts be relevant in establishing the genuineness of the transaction. As held by Hon. Supreme Court in the case of CIT vs. N. Tarika Properties Investment (2014) 51 taxmann.com 387(SC) that "PAN cannot be treated as sufficient disclosure of identity of the person. PANs are allowed on the basis of application without actual de facto clarification of identity or ascertainment of activities, nature of business activity and are just as to facilitate the Revenue to keep track of transactions and thus PAN cannot be blindly and without consideration of surrounding circumstances treated as sufficient disclosing the identity of individual".

11.5 Looking to the present case it is seen that the A.O made the addition of the basis of the fact that the notice u/s 133(6} issued to the party was returned unserved and that the assessee did not produce the party before the A.O as requested by him. Thus it is seen that on the basis of the details provided by the assessee, the A.O had carried out independent enquiries by issuing notice u/s 133(6) of the Act and since they did not yield any result, the onus was on the assessee to produce the party before the A.O.

25 The contention of the appellant that the PAN had been submitted and the payment was by cheque and so the genuineness and identity of the party stood proved cannot be accepted. As per the judicial decisions referred to earlier, furnishing of PAN or the fact that the loan was received by cheque does not discharge the onus of the assessee. It may prove the genuineness of the documentation but does not prove the genuineness of the transaction or the creditworthiness of the party. Accordingly, it is held that the appellant has failed to discharge the onus cast upon it by the provisions of section 68 of the Act. The addition is confirmed and the Ground of Appeal is Not Allowed.”

19. After having gone through the facts of the present case as well as orders passed by the revenue authority’s and after hearing Ld. DR we found that the Ld.AO made the additions on the basis of the facts that the notice under section 133,

(6) issued to the parties were returned unserved on even the assessee did not produce the parties before the Ld.AO. The assessee has failed to discharge the burden, cast upon him to produce the parties before the AO and miserably failed to prove the genuineness of the transaction or the credit worthiness of the parties. Even before us nothing has been placed on record to controvert or rebut the lawful findings so 26 recorded by Ld. CIT(A) Therefore we found no reasons to interfere into or to deviate from the findings so recorded by Ld. CIT(A) Therefore we dismiss this ground raised by the assessee.