RAMESH BABU SEGU,HYDERABAD vs. ACIT., CENTRAL CIRCLE -1(1), HYDERABAD.

Aggrieved with the order of the Ld. AO, the assessee filed an appeal before the Ld. CIT(A), who confirmed the additions challenged before him. Hence, the Ld. CIT(A) dismissed the appeal of the assessee.

Aggrieved with the order of the Ld. CIT(A), the assessee is in appeal before this Tribunal. The ground nos. 1(a) and 4(a) of the appeal of the assessee are general in nature and require no separate adjudication.

Per contra, the Learned Departmental Representative (“Ld. DR”) relied upon the orders of the lower authorities. She submitted that the two receipts seized from the premises of Polisetty Somasundaram contained the name of the assessee and the amounts mentioned therein, and therefore constituted corroborative evidence. She further submitted that the receipts contained three signatures and not two, as contended by the assessee, and accordingly prayed for confirmation of the addition.

In rejoinder, the Ld. AR invited our attention to para no.4.4 of the order of the Ld. AO, wherein the statement of Shri Yeluri Chandra Sekhar Rao is reproduced, and submitted that the so-called third signature appearing on the receipts matches with the signature of Shri Yeluri Chandra Sekhar Rao, thereby again establishing that no signature of the assessee appears on the receipts. Accordingly, the Ld. AR prayed before the Bench to delete the addition of Rs.39,18,000/-.

We have carefully considered the rival submissions and perused the material available on record. We observed that the addition of Rs.39,18,000/- in the hands of the assessee has been made primarily on the basis of (i) a cash book extracted from a seized pen drive and (ii) two receipts seized from the premises of Polisetty Somasundaram. In this regard, we have gone through the para nos. 37 to 46 of the order of the Visakhapatnam Bench of the Tribunal in Page 6 of Ramesh Babu Segu the case of Polisetty Somasundaram Vs. DCIT (supra), which is to the following effect:

Page 7 of 23 Page 8 of 23 Page 9 of 23 Page 10 of 23 Page 11 of 23 Page 12 of 23 Page 13 of 23 Page 14 of 23

On perusal of above, we find that the Tribunal has categorically denied evidentiary value to the seized pen drive and the cash book extracted therefrom due to the absence of a valid certificate under section 65B of the Indian Evidence Act and also quashed the assessment order of the Ld. AO made under section 153A of the Act. Therefore, in our considered view, once the seized pen drive has been held to be inadmissible in law, the same cannot be independently used as evidence in any case, including in the hands of a third party.

Further, as regards the contention of the Revenue that the two receipts constitute corroborative evidence, we have gone through the receipts Page 15 of Ramesh Babu Segu reproduced by the Ld. CIT(A) at page no.3 of its order, which is to the following effect:

We have also gone through the similar receipts reproduced by the Ld. AO in the case of Cheekati Ramaiah at para no.3 of that order, which is to the following effect:

On perusal of the above three receipts, we find that all the receipts bear the signatures of identical persons. Further, when the receipts bearing the identical signatures have been relied on two different cases of two different assessees, in our considered view the signatures on the receipts does not belong to the assessee. Further, the signature of third person appearing on the receipts as submitted by the Ld. DR and as demonstrated by the assessee, match with the signature of Sri Yeluri Chandra Sekhar Rao. Therefore, the said receipts although may be treated as corroborative evidence in the case of Polisetty Somasundaram but cannot be treated as corroborative evidence against the assessee. Further, we have also gone through the relevant statement of Shri Polisetty Shyam Sundar recorded under section 132(4) of the Act extracted at page no.4 of the order of Ld. AO which is to the following effect:

We have also gone through the relevant statement of Shri Yeluri Chandra Sekhar Rao extracted at page no.5 of the order of Ld. AO, which is to the following effect:

In addition to above facts, all the documents and material relied upon by the Revenue have been seized from the premises of a third party, do not bear the signature of the assessee, and are not supported by any independent corroborative evidence belonging to the assessee. In such circumstances, the addition made merely on the basis of such third-party material and contradictory statements cannot be sustained in the hands of the assessee. Therefore, we hold that the Revenue has failed to bring on record any independent corroborative evidence to justify the addition of Rs.39,18,000/- under section 69C of the Act. Hence, the Ld. AO is directed to delete the addition of Rs.39,18,000/-. Accordingly, ground nos.2(a) and 2(b) raised by the assessee are allowed.

Ground Nos. 3(a) to 3(c) raised by the assessee relates to the addition of Rs.1,41,54,990/- made by the Ld. AO on account of long-term capital gain arising from sale of an immovable property. In this regard, the Ld. AR submitted that during the year under consideration, the assessee sold an immovable property to Polisetty Somasundaram and related persons for a total sale Page 19 of Ramesh Babu Segu consideration of Rs.2,30,00,000/-. It was further submitted that the corresponding land was originally purchased by the assessee on 21.06.1993. For the purpose of computing long-term capital gain, the assessee adopted the fair market value (“FMV”) as on 01.04.2001. The assessee adopted the FMV of land at the rate of Rs.1,000 per square yard for 396 sq. yards of land, aggregating to Rs.3,96,000/-, and accordingly computed the indexed cost of acquisition of land at Rs.10,77,120/-. Similarly, the assessee adopted the FMV of the building constructed on the said land as on 01.04.2001 at the rate of Rs.831.18 per sq. ft. for 9,618 sq. ft. of constructed area, aggregating to Rs.79,94,400/-, and computed the indexed cost of construction at Rs.2,17,44,768/-. On this basis, the assessee computed long-term capital gain at Rs.1,78,112/-. However, the Ld. AO, relying upon a certificate issued by the Joint SRO, Nallapadu, adopted the FMV of land as on 01.04.2001 at Rs.760 per sq. yard and the FMV of the building at Rs.300 per sq. ft. Accordingly, the Ld. AO adopted the FMV of land at Rs.3,00,960/- and the FMV of the building at Rs.28,85,400/-, computed the indexed cost of land and building at Rs.86,66,898/-, and determined the long-term capital gain at Rs.1,43,33,102/-, resulting in an addition of Rs.1,41,54,990/-. The Ld. AR submitted that the FMV of land as well as the cost of construction of the building adopted by the Ld. AO is not correct. In this regard, the assessee filed additional evidence before the Tribunal along with a petition for admission, namely: a. A valuation report of a registered valuer certifying the FMV of the building as on 01.04.2001 at Rs.76,67,697/-; and Page 20 of Ramesh Babu Segu b. A certificate obtained under the Right to Information Act from the joint SRO, Nallapadu, certifying the FMV of land as on 01.04.2001 at Rs.1,520 per sq. yard.

Per contra, the Ld. DR objected to the admission of the additional evidence. She submitted that the assessee has failed to demonstrate any reasonable cause for not producing these evidences before the Ld. AO or the Ld. CIT(A), and therefore the additional evidence should not be admitted.

In rejoinder, the Ld. AR submitted that the FMV of land varies depending upon the location and locality, and only after obtaining information under RTI, the assessee came to know that the land value applicable to the assessee’s specific locality was higher than the rate adopted by the Ld. AO. Similarly, the cost of construction depends upon the quality and nature of construction, whereas the Ld. AO had mechanically adopted a standard rate without considering the specific features of the assessee’s building. Therefore, sufficient cause existed for not producing the additional evidence before the lower authorities.

We have carefully considered the rival submissions and perused the material placed on record. The issue before us relates to determination of the Page 21 of Ramesh Babu Segu FMV of land and cost of construction of the building as on 01.04.2001, which forms the basis for computation of long-term capital gain. The assessee has filed additional evidence in the form of a valuation report of a registered valuer for the building and an RTI-based certificate from the joint SRO, Nallapadu for the land value. We find merit in the contention of the Ld. AR that the FMV of land varies based on location, and the cost of construction depends upon the nature and quality of construction. We further find that the additional evidences filed by the assessee have a direct bearing on the computation of capital gains and go to the very root of the issue. We are also satisfied that the assessee has explained sufficient cause for not producing these evidences before the lower authorities, as the need to obtain RTI-based valuation and a registered valuer’s report arose only after the assessment order was passed adopting values which, according to the assessee, did not reflect the correct FMV applicable to the specific property. Therefore, in the interest of substantial justice, and considering that the additional evidence materially affects the tax liability, we deem it appropriate to admit the additional evidence. At the same time, since verification of such evidence is required, the matter needs to be restored to the file of the Ld. AO. Hence, we set aside the issue of computation of long-term capital gain arising from sale of the immovable property to the file of the Ld. AO, with a direction to re-adjudicate the issue afresh after examining the additional evidence filed by the assessee and after providing adequate opportunity of being heard to the assessee. Accordingly, ground nos. 3(a) to 3(c) raised by the assessee are allowed for statistical purposes.