SRI. PAUL VADAKKUMCHERRY,TRICHUR vs. THE DCIT, TRICHUR

Per George George K., JM

This appeal at the instance of the assessee is directed against CIT(A)’s order dated 25.01.2016. The relevant assessment year is 2008-2009.

“1. The Assessment Order passed u/s 143(3) r.w.s. 147 dated 25.03.2013 is opposed to law, facts and circumstances of the case.

ITA No.129/Coch/2016. 2 Sri.Paul Vadakkumcherry. 3. The Ld.Assessing Officer has disallowed the loss of Rs.5,353/- suffered from Sindhu Movies on the same lines as in the case of Ganga Movies.

For these and such other grounds that may be urged at the time of hearing, the hon. Tribunal may be pleased to allow the claim.”

2.1 No arguments were raised with regard to ground No.1 mentioned above, hence the same is dismissed.

2.2 The remaining grounds are adjudicated as under:-

Ground No.2 and 3

3.1 The assessee was running two Cinema Talkies at Mala by the name, Ganga Movies and Sindhu Movies. The assessee in the return of income had declared loss of Rs.1,25,750 and Rs.5,353 for Ganga Movies and Sindhu Movies, respectively. The Assessing Officer while completing the assessment had

ITA No.129/Coch/2016. 3 Sri.Paul Vadakkumcherry. taken `nil’ income and ignored the losses declared by the assessee. The relevant finding of the A.O. reads as follows:-

“c) With regard to the loss claimed from Ganga Movies of Rs.1,25,715/-, the assessee could not prove the adequacy of the receipts admitted from Canteen collection etc. with proper evidences and considering the same, the income is taken at Rs.NIL and the loss returned is ignored.

d) Net loss from Sindhu Movies claimed of Rs.5,353/- is not considered in the absence of full and complete details / evidences furnished and considering the same, the net income taken at Rs.Nil.”

3.2 The assessee being aggrieved, filed appeal to the first appellate authority. The CIT(A) confirmed the view taken by the Assessing Officer. The relevant finding of the CIT(A) reads as follows:-

“10. Ground No.2. Loss from Sindhu Movies and Ganga Movies have been considered at nil.

10.1 In view of the fact that the assessee failed to prove adequacy of proceeds admitted for canteen collection as well as full and complete evidence for the expenditure, the appeal on this ground is dismissed.”

3.3 Aggrieved by the order of the CIT(A), the assessee has raised the issue before the Tribunal. The learned AR submitted that the losses have been declared based on the receipts and the expenses and the same is evident from the profit and loss account and other connected statements which

ITA No.129/Coch/2016. 4 Sri.Paul Vadakkumcherry. are enclosed in the paper book filed by the assessee. It was submitted by the learned AR that the Assessing Officer has disallowed losses only on the ground that the receipt from canteen was on the lower side. This conclusion of the A.O. according to the learned AR is not correct. It was submitted that the total cinema collection is only Rs.85,967 and hence the collection of Rs.36,400 from canteen is quite reasonable.

3.4 The learned Departmental Representative, on the other hand, supported the orders of the Income-tax authorities.

3.5 We have heard the rival submissions and perused the material on record. The assessee has not been able to produce full and complete details / evidences with regard to the claim of loss of running of two Cinema Talkies. In the absence of evidences / details before the A.O. and the CIT(A), the losses claimed was taken as `NIL’ by the A.O. and the same was confirmed by the CIT(A). Even before the Tribunal, the learned AR did not produce any evidence to prove that the assessee had incurred losses by running two Cinema Talkies. Therefore, we confirm the order of the CIT(A). Hence ground No.2 and 3 are dismissed.

Ground Nos. 4 to 6

ITA No.129/Coch/2016. 5 Sri.Paul Vadakkumcherry.

4.1 Brief facts in relation to the above grounds are as follows:

4.2 The assessee’s sold 42 cents of land to M/s.Sion Developers and Builders in the relevant assessment year. There was a search u/s 132 of the I.T.Act in the case of M/s.Sion Developers and Builders and survey u/s 133A of the I.T.Act in the case of the assessee. It was found that the assessee was paid on-money for the sale of 42 cents of land. The total consideration paid to assessee was Rs.1.15 crore. Therefore, notice u/s 148 of the I.T.Act was issued to the assessee. Pursuant to the notice issued u/s 148 of the I.T.Act, the assessee disclosed capital gains at Rs.13,10,490. The assessee while computing the capital gains, had taken the purchase cost at Rs.69.30 lakh instead of Rs.8,17,500 disclosed in the sale deed.

4.3 In the course of reassessment proceedings, the assessee submitted that Rs.1,30,000 per Are was the guideline value fixed for the land acquired for the development of Nedumbassery Airport and the impugned land being nearby, the same rate should be adopted as cost of acquisition. However, the Assessing Officer held that there is no documentary evidence produced by the assessee to show that he has paid more value than the documented value. Therefore, it was concluded by the A.O. that only registered value disclosed in the sale document can be taken as the

ITA No.129/Coch/2016. 6 Sri.Paul Vadakkumcherry. purchase cost and accordingly the long term capital gains was computed.

4.4 Aggrieved by the assessment order, the assessee filed appeal before the first appellate authority. Before the first appellate authority, it was submitted that the actual purchase cost was Rs.69.30 lakh and the assessee also supported the same with an affidavit of the seller of the impugned property purchased way back in the year 2001. The assessee also relied on the judgment of the Hon’ble jurisdictional High Court in the case of CIT v. Smt.Chandra Balakrishnan [ITA No.56 of 2000 – order dated 16th January, 2008]. The CIT(A), however, rejected the contentions of the assessee and decided the issue against the assessee. The relevant finding of the CIT(A) reads as follows:-

“9.3. It is seen that as regards the actual sale consideration, the assessee did not show in his return of income filed originally u/s 139(1). Due to the suppression in actual sale consideration the working of the long term capital gain was on much lower side i.e. Rs. 8,52,600/- only. Only when the assessee firm, of the partners Shri. Simon Varghese and his wife, was covered u/s 133A and, certain papers were found establishing the actual sale consideration of Rs. 1,15,00,000/-, the assessee came out with an admission and, revised his return of income, working the capital gains at Rs.13,10,490/-. But, the appellant did not forgo the temptation to reduce the incidence of tax by claiming the higher amount of cost of acquisition, which is amazingly not supported with any documents and, is simply based on the argument that the cost of acquisition should be treated at the rate of Rs.1,30,000/- per are, which is the guide line value

ITA No.129/Coch/2016. 7 Sri.Paul Vadakkumcherry. fixed for the purpose of land acquisition in respect of purchase of lands for the Air Port at Nedumbassery village is to be taken into account here also, being land in the same area. 9.3. ii. During the course of appeal proceedings the appellant was asked to produce the evidence supporting their claim for the purchase of property and the cost incurred thereto. Actually, the land in two different survey Nos. 606/5/2 and 606/5/1, admeasuring 18.63 cents and 22.23, cents were purchased on 8.5.2001 and 16.5.2001 from Shri. P.A. Thomas, Sio Augusthy, T.B. Junction, Angamaly. The appellant has furnished Xerox copy of bank account showing the cash withdrawals of various dates, including even the dates much before the registration of the property, and put forward the claim that the cash withdrawals were made to the extent of Rs. 69,30,000/-, but without being supported any credible bills.

9.4. Now, the issue remains that what could be the purchase value of the land whether:

(i) It is the value shown in the registered document at Rs. 8,17,500/-, which has been considered by the A.O. or

(ii) Rs. 69,30,000/- based on the assumption that the rates pertain to the acquisition of land for Nedumbassery Air Port, as the assessee's land is situated nearby; it is seen that the value shown in the registered deed can only be considered as the correct value because the other values are based on assumptions, for which the assessee has failed to submit any confirmatory evidence. In a case, where the seller is stated to have given an affidavit;, without showing his part of capital gains and paying the taxes, under this belief that now the case lie beyond the period of reopening, they can come out with a statement of fact on affidavit that the actual amount for which the land was sold is of Rs.69,30,000/-. The law cannot be misused to justify

ITA No.129/Coch/2016. 8 Sri.Paul Vadakkumcherry. a transaction, which has not been shown under the due course of time by filing the requisite return of income. As such, the seller Shri P.A. Thomas has failed to discharge his onus for having returned the capital gains liability on sale of his land. The lapse of time, for reopening the case, cannot be an admissible evidence, merely at the strength of certain affidavit. In view of this, the evidence submitted by the appellant is treated as concocted and held as to be based on subjective arguments.

9.5. Further, the appellant has also relied upon a citation, the copy of which was not provided to the assessing officer i.e. in the case of Chandra Balakrishnan Vs. High Court of Kerala, where it has been held that:

"In fact the property was purchased by the respondent -assessee in1974 for Rs. 65,000/-. There is no basis for assuming that the actual sale price was declared by the assessee because assessee was found to be suppressing sale price when the property was later sold. It is quite possible that there was suppression of purchase price in the sale deed at the time of purchase of property by the respondent- assessee. Besides this, the more important aspect is that the property was found to be sold in November, 1994 for Rs. 32.5 lakhs.

It is hard to believe that the property the value of which was estimated by the Tribunal at Rs. 2 lakhs in 1981, was sold for Rs. 32.5 lakhs in the course of 13 years. It is common knowledge that the property price started increasing in a very unprecedented manner in the State only for the last 3 to 4 years. Price of immovable property, though has been steadily growing, the unprecedented level of increase is only a recent phenomenon".

ITA No.129/Coch/2016. 9 Sri.Paul Vadakkumcherry. 9.6. The Hon'ble High Court has held that there have been unprecedented level of increase in price of immovable property which is recent phenomenon, as this trend has started in the last three-four years. Before that, there was a steady growth in the land price. This appeal pertains to the period, where the land in reference was purchased by the assessee in 1974 for Rs. 65,000/-, and sold in 1994 for Rs. 32.5 lakhs. The Hon'ble High Court has observed that:

“It is hard to believe that the property the value of which was estimated by the Tribunal at Rs. 21akhs in 1981, was sold for Rs. 32.5lakhs in the course of 13 years. It is common knowledge that the property price started increasing in a very unprecedented manner in the State only for the last 3 to 4 years. Price of immovable property, though has been steadily growing, the unprecedented level of increase is only a recent phenomenon".

9.7 No doubt, the assessee has purchased the land in the year 1974, when the land price was growing steadily and, the process of unprecedented and phenomenal growth in price has started only around the period when the sales have been effected. Thus, fetching a huge price at unprecedented level while selling the property in 2008, as observed by the Hon'ble High Court, the cost price of the appellant at Rs. 8,70,000/- as on 1.4.1981, as per registered deed, appears to be correct. The price in 1981 cannot be astronomical as this period has been the period of steady growth in land price, as observed by the Hon'ble High Court. The appellant has enjoyed the increase at an unprecedented level in his investment value. The Hon'ble High Court has pronounced the judgment, which covers a limited set of time frame and, in the judgment itself, two distinct time frame have been noted and recognized i.e. one the period of steady growth in the price of land, and the other, the unprecedented level of increase as recent phenomenon i.e starting form 2004/2005, as

ITA No.129/Coch/2016. 10 Sri.Paul Vadakkumcherry. the decision has been given in the year January, 2008. Hence, it is held that the case law cited by the appellant is not only distinguishable but, also 'supports that while the purchase made by the assessee falls during the period of steady growth of land price, the sale falls in the period when there have been phenomenal rise at unprecedented level in the land price, where the appellant has surely stood to reap the dividend. Accordingly, the cost of purchase of land taken by the assessing officer is upheld and, appeal on this ground is dismissed.”

4.5 The assessee being aggrieved, has raised this issue before the Tribunal. The learned AR reiterated the submissions made before the Income-tax Authorities. The learned Departmental Representative, on the other hand, supported the orders of the assessment and the CIT(A).

4.6 We have heard the rival submissions and perused the material on record. It is an admitted fact that the assessee had received on-money on sale of 42 cents of land in the year 2007. Consequent to the information that the assessee had received on-money, notice u/s 148 of the I.T.Act was issued to the assessee. Pursuant to the notice issued u/s 148 of the I.T.Act, the assessee claims the purchase cost of the property purchased way back in 2001 should be adopted at Rs.69.30 lakh instead of Rs.8,17,500 disclosed in the sale document. The assessee submitted before the A.O. that the purchase cost should be adopted at Rs.69.30 lakh, since the guideline value fixed for the purchase of land in the nearby area for the development of Nedumpassery Air Port was Rs.1,30,000 per Are. This claim of the assessee before the Assessing Officer

ITA No.129/Coch/2016. 11 Sri.Paul Vadakkumcherry. was rejected for the reason that no documentary evidence was produced before him to prove that more amount was paid for the purchase of property other than the documented value disclosed in the sale deed. In the appeal proceedings, the assessee had produced bank statements, wherein it was evidenced certain cash withdrawals and sought to link the same with the purchase of property in the year 2001. The assessee had also produced a affidavit of the seller Shri P.A.Thomas wherein it is stated that he had received Rs.69.30 lakh. If the assessee claims that he had paid on-money for the purchase of property in 2001, the same ought to have been assessed u/s 69 of the I.T.Act. However, the said assessment for the assessment year 2002-2003 was already time barred. Probably, on the strength of the assessment being time barred, the assessee has produced the evidences in the form of an affidavit from the seller (The seller would have been liable for enhanced capital gains). The assessee has not been able to prove that the withdrawals from his bank account are utilized for the purchase of property in the year 2001. The judgment of the Hon’ble Kerala High Court (supra) relied on by the assessee is distinguishable on facts. In that case the Hon’ble Kerala High Court was considering whether the fair market value estimated as on 01.04.1981 was correct, since the property was purchased in the year 1974. In fixing the fair market value the Hon’ble High Court was of the view that the FMV fixed by the Tribunal as on 01.04.1981 was low and for the re-fixing of fair market value as on 01.04.1981, the Hon’ble High Court restored the issue to the Tribunal. From

ITA No.129/Coch/2016. 12 Sri.Paul Vadakkumcherry. the above judgment of the Hon’ble High Court, it is clear that it is an estimation of fair market value as on 01.04.1981 that was to be determined by the Tribunal. In the instant case, the documented value for the purchase of property in the year 2001 is on record and there is no question of estimation of purchase cost. The purchase cost which was disclosed in the sale document can be discarded provided the assessee produced proof that he had paid more than documented value. As mentioned earlier, the assessee has not been able to produce any evidence other than bank statement to prove that he has withdrawn money. The further question is whether these withdrawals from bank are for the purchase of property in the year 2001. The assessee has not been able to link the cash withdrawals from bank for purchase of property in the year 2001. Hence, we see no reason to interfere with the order of the CIT(A). It is ordered accordingly. Therefore, ground Nos. 4 to 6 are rejected.

Order pronounced on this 19th day of December, 2018.

Sd/- Sd/- (Chandra Poojari) (George George K.) ACCOUNTANT MEMBER JUDICIAL MEMBER

Cochin ; Dated : 19th December, 2018. Devdas*

ITA No.129/Coch/2016. 13 Sri.Paul Vadakkumcherry.

Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A)-II, Kochi. 4. The CIT, Kochi. 5. DR, ITAT, Cochin 6. Guard file. BY ORDER,

(Asstt. Registrar) ITAT, Cochin