MAHMOOD HUSSAIN SYED,HYDERABAD vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-6(1), HYDERABAD

The additional ground raised by the assessee read as under : “1. The learned CIT(A)/A.O. erred in making an addition of Rs.2,03,87,170/- by applying the provisions of Section 50C when the property was referred to the Valuation Cell and the report was not received till the completion of the assessment proceedings.”

The brief facts of the case are that, the assessee is an individual, derives income from house property and real estate business, filed his return of income for AY 2014-15 on 13.09.2014, declaring a total

Aggrieved by the assessment order, the assessee preferred appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee challenged various additions made by the A.O., including the addition towards difference in capital account of the proprietor, addition under the head capital gains towards difference between sale consideration and fair market value of the property as on the 4 Mahmood Hussain Syed date of registration under Section 50C of the Act, and also addition under Section 56(2)(vii)(b) of the Act, towards purchase consideration paid for property and fair market value of the property as on the date of registration. The assessee had furnished various evidences and argued that, the difference in capital account of the proprietor has been reconciled and explained to the A.O. that the amount of loan received from wife of the assessee, namely, Ms. Saleha Shaheen has not been shown in the balance sheet, which resulted in increase in closing of the capital balance of the assessee and the same has been reconciled after filing relevant evidences. The assessee further claimed that, the property sold by the assessee does not have valid title, because of which the assessee sold the property for a consideration which is below the stamp duty value as on the date of registration and the same has been explained by filing relevant details. The A.O. referred the valuation of the property to the District Valuation Officer (DVO) and the DVO determined the valuation of the property at Rs. 1,47,93,000/- without considering the relevant objections filed by the assessee and also the valuation report obtained by the assessee from the registered valuer. The assessee had also contended that, he has purchased property and 5 Mahmood Hussain Syed paid entire sale consideration before 31.03.2013 and the amended provisions of Section 56(2)(vii)(b) of the Act, came into statute by the Finance Act, 2013 w.e.f. 2014-15 and thus, the provisions of Section 56(2)(vii)(b) of the Act, cannot be applied. The assessee further claimed that, he is into the business of real estate and the property purchased by the assessee has been treated as stock-in-trade and the provisions of Section 56(2)(vii)(b) of the Act, does not apply to stock-in-trade, because it only applies to immovable property being ‘capital asset’.

The Ld. CIT(A) after considering relevant submissions of the assessee and also taking note of reason given by the A.O. to make addition towards difference between capital account balance of the proprietor, sustained additions made by the A.O. by holding that, the assessee could not reconcile the difference with relevant evidences, although claims that it is due to incorrect accounting treatment given by the accountant in respect of rental income received by the assessee and his wife, Ms. Saleha Shaheen in a joint account. The Ld. CIT(A) also rejected the explanation of the assessee with regard to the additions made towards capital gain in terms of Section 50C of the Act, on the ground that, the A.O. has rightly

Aggrieved by the order of the Ld. CIT(A), the assessee is now in appeal before the Tribunal.

The first issue that came for our consideration from ground No.1 of assessee’s appeal is addition of Rs. 2,37,92,244/- under Section 69A of the Income-tax Act, 1961, as unexplained investment towards difference in capital account of the proprietor. The facts with regard to the impugned dispute are that, during the course of assessment

The learned counsel for the assessee, Shri Palivela Santosh Kranthi, C.A., referring to corrected balance sheet filed before the A.O., submitted that, the assessee has reconciled the difference in capital account and explained that, the rental income received by his wife, Ms. Saleha Shaheen credited into joint bank account was not considered as loan received from the wife, even though the entries into the bank account and corresponding investment made for purchase of property by using the above rental income has been accounted in the books of accounts of the assessee. At the time of preparing balance sheet, the accountant could not notice the discrepancy and the difference in rental income received on behalf of his wife, Ms. Saleha Shaheen has been adjusted in the capital account, and the same has been explained by filing revised balance sheet along with ITR filed by his wife. The A.O. and Ld. CIT(A),

The learned Senior A.R. for the Revenue, Ms. V. Koteshwaramma, on the other hand, supporting the order of the A.O. and Ld. CIT(A), submitted that, although the assessee claims to have reconciled the difference in capital account, but the A.O. and Ld. CIT(A) noted that, the assessee has not explained the credits into the capital account with relevant details. Further, the assessee has also failed to offer any explanation with regard to non-consideration of rental income of the wife while preparing financial statements. In the absence of a proper explanation, the A.O. has rightly assessed the difference in capital account, as unexplained investment. The Ld. CIT(A), after considering the relevant facts, has rightly sustained the additions made by the A.O. Therefore, she submitted that, the additions made by the A.O. should be upheld.

We have heard both parties, perused the material available on record and had gone through the orders of the authorities below. There is no dispute with regard to the fact that, if we consider the 10 Mahmood Hussain Syed opening balance of capital account, additions during the year towards various incomes and deletions during the year towards drawings and other expenditure, including tax payment, the closing balance works out to Rs. 19,83,40,014/-. But, in the capital account filed along with the return of income, the assessee had shown closing balance of capital account of Rs. 22,21,32,258/-, which resulted in difference in capital account of Rs. 2,37,92,244/-. The assessee explained the difference and claimed that, the rental income from a joint property held by the assessee and his wife, Ms. Saleha Shaheen has been credited to a joint bank account and the said bank account has been considered in the books of accounts of the assessee. However, while considering the rental income, the assessee has claimed 50% of rental income which was at Rs. 1,85,73,044/- and remaining 50% was considered in the hands of assessee’s wife, Ms. Saleha Shaheen, but the entire rental income including his wife’s share has been credited to a joint bank account which has been considered in the books of accounts of the assessee. Since the assessee has considered only 50% of rental income in the capital account and considered the entire credit of rental income, including the remaining 50% of assessee’s wife, there is a difference

The next issue that came up for our consideration from ground no. 2 of assessee’s appeal is addition under Section 50C of the Income-tax Act, 1961, of Rs. 97,76,424/-.

The learned counsel for the assessee submitted that, during the financial year relevant to the assessment year under consideration, the assessee has sold a property for a consideration of Rs. 25,00,000/- on 05.07.2013 and the stamp duty value of the property has been determined at Rs. 1,97,61,000/-. The assessee explained the reasons for the difference in sale consideration and stamp duty value to the A.O. and claimed that, the property sold by the assessee was not having a valid title, because of dispute in the ownership of the property and there are no proper approach roads. The assessee submitted that, the land ownership was claimed by the State Government of Telangana and however, the assessee had purchased the land from the previous seller without ascertaining the correct legal title and also constructed a building without any sanction plan from the municipal authorities. Later, the assessee came to know that the property in question is not having valid title, sold the property for a consideration of Rs. 25,00,000/- and received

The learned Senior A.R. for the Revenue, on the other hand, supporting the order of the Ld. CIT(A), submitted that, there is no dispute with regard to the fact that, there is a difference between the fair market value of the property as determined by the DVO, which 14 Mahmood Hussain Syed was at Rs. 1,41,93,000/-, and the sale consideration as per the registered sale deed, which was at Rs. 25,00,000/-. The arguments of the assessee that the property in question is unauthorized and does not have a valid legal title, is not supported by necessary evidence. The A.O., after considering the relevant facts and also taking into account the DVO report, has rightly adopted the fair market value at Rs. 1,41,93,000/- and computed long-term capital gain at Rs. 97,76,424/-. The Ld. CIT(A), after considering the relevant facts, has rightly sustained the additions made by the A.O. Therefore, she submitted that, the additions made by the A.O. should be upheld.

We have heard both parties, perused the material available on record and had gone through the orders of the authorities below. There is no dispute with regard to the fact that, there is a difference between sale consideration as per registered sale deed and fair market value of the property as on the date of registration. The A.O. applied provisions of Section 50C of the Act, and has determined the net sale consideration of Rs. 1,41,93,000/- by considering the value of the property determined by the DVO. The DVO has determined the fair market value of the property at Rs. 1,41,93,000/-. The 15 Mahmood Hussain Syed assessee claimed that, the DVO, while determining the fair market value of the property at Rs. 1,41,93,000/-, has not considered certain vital points, including dispute in title of the property and unauthorized construction of the building. The assessee further claimed that, he has obtained a valuation report from registered valuer for Income Tax Department and as per the valuation report, the fair market value of the property has been determined at Rs. 42,30,000/- on rental income method plus land and building method and while arriving at fair market value, the registered valuer has considered the vital points like dispute in title in the property and also unauthorized building construction without sanctioned plan. Therefore, the A.O. ought not to have adopted the higher value as per the DVO report.

We find that, the assessee has furnished certain evidences to prove that, the impugned property sold by the assessee does not have a valid title for which the assessee has furnished certain pending disputes. The assessee has also furnished a valuation report from registered valuer of the Income Tax Department where the valuer had considered the point of dispute in property and unauthorized construction in the building and claimed that, the 16 Mahmood Hussain Syed property in question does not have any value as determined by the stamp duty authorities. If we consider the valuation report submitted by the DVO and the valuation report of the registered valuer, we find that, the DVO has considered the cost of land as per stamp duty authorities and cost of building as per CPWD rate without considering the location of the property, dispute in title and unauthorized construction of the building without any sanctioned plan. However, the registered valuer of the Income Tax Department had considered all these points, including the dispute in title, location of the property and unauthorized construction of the building and claimed that, the valuation officer has not taken the actual land area, but gone by the plot area, as per sale deed and the purchaser will give the value as per actual land area and not as per sale deed. If actual plot area, as per the sale deed is less, the purchaser will give the value as per actual land area and not as per the sale deed. Since the actual land area is less than the sale deed area, this point, the DVO should have considered. The registered valuer further observed that, the DVO has not given source of land rate taken at Rs. 22,000/- per square yard against the Sub-