ITO 20(3)(4), MUMBAI vs. SUBHASH NADKARNI, MUMBAI

PER PAWAN SINGH, JUDICIAL MEMBER; 1. This appeal by revenue is directed against the order of ld. Commissioner of Income-tax (Appeals)-32 [hereinafter referred as ld CIT (A)], Mumbai dated 22.01.2016 for Assessment Year 2000-01. The revenue has raised the following grounds of appeal:

Mum 2016-Shri Subhash S. Nadkarni

(2) "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in ignoring the facts that both statements of Shri Kiran Shah recorded on 10.10.2005 and 28.11.2011 confirm that besides the payments of Rs.49,50,000/- in cheque to Nadkarnis, M/s Motta Construction paid total consideration of Rs.1,04,50,000/- and it is corroborated by seized paper book marked as A-27." (3) "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in computing the capital gains arising on transfer of capital assets acquired by the assessee under inheritance, by taking indexed cost of acquisition with reference to the year in which the assessee's ancestors first held that assets as against the year in which the assessee first held the asset." (4) The appellant prays that the order of the CIT(A) on the above grounds be reversed and that of the Assessing officer be restored.

However, from perusal of orders of the authorities it is revealed that ld CIT(A) deleted the addition of undisclosed LTCG of Rs. 52,25,000/-.

Thus, in our view the Ground No.1 & 2 relates to deleting the addition of undisclosed LTCG. The ld. DR for the revenue supported the order of the assessing officer. The ld. DR submits that search action was carried on Vijay Group in October 2005, during the search action certain loose paper was seized. Pursuant to search statement of Kiran H.Shah Director of Motta Construction was recorded on 10.10.2005 under section 132(4).

In the statement Kiran Shah disclosed the assessee and his nephew were the landlord of Plot No. 248, Telang Road, Matunga, Mumbai. The house constructed on the said plot was known as Nadkarni House , was assigned by assessee and his nephew to Motta Construction Pvt Ltd for rehabilitation for a consideration of Rs. 49,50,000/- ( 50% to each) paid by way of cheque and in addition to that they were was also paid in cash of Rs.1,04,50,000/-( 50% to each). The ld CIT (A) discarded the categorical statement of Kiran H Shah and its evidentiary. The said statement was recorded on oath by the investigating team. In support of his submissions the ld DR for the revenue relied on the decision of Madras High Court in B. Kishore Vs ITO [2014] 52 taxmann.com 449( Madras). The ld DR further submits that the decision in B. Kishore has been approved by Hon’ble Supreme Court as the Special Leave Petition 4 Mum 2016-Shri Subhash S. Nadkarni filed by the assessee was dismissed on 02.07.2015 reported vide B.

Kishore Vs DCIT [2015] 62 taxmann.com 215(SC) 4. On the other hand the ld. AR of the assessee supported the order of the ld CIT(A). The ld. AR for the assessee further submits that the statement of Kiran H Shah has no evidentiary value. The said Kiran H Shah was third party. His statement is unworthy of credit. During the assessment the assessing officer not gave the opportunity of cross examination of said Kiran Shah despite the direction of the Tribunal. The ld CIT(A) during the appellate stage remanded the matter to provide cross examination. The said Kiran H Shah was cross examined in remand proceedings; during his cross examination he made contradictory statement as recorded by assessing officer. The statement recorded by the investigation team during the search action was not corroborated by any documentary evidences. The ld. CIT (A) appreciated the evidentiary value of his statement and his cross examination and gave his findings.

The assessee has brought the sufficient material before assessing officer as well as CIT(A) to discard the statement of Kiran Shah. It was further submitted that in the statement recorded on 28.11.2011 the said Kiran Shah stated that he has paid only Rs. 47,00,000/- to the assessee and his nephew and balance consideration of Rs. 57,50,000/- was paid by allotting two flats. The statement of said Kiran Shah is not creditworthy.

The said flats were given by Kiran Shah, in lieu of surrender of tenancy 5 Mum 2016-Shri Subhash S. Nadkarni right by Sujata S Nadkarani and by Sukant Subash Nadkarni in respect of two flats on third floor. These facts are duly recorded in the agreement registered on 15.01.2000 with sub-registrar as well as in the deed of assignment dated 23.12.1999.

The statement of Kiran H Shah was recorded on 28.11.2011. In the statement Kiran Shah confirmed that besides the payments in cheque of Rs. 49,50,000/-, he has also paid in cash of Rs. 47,50,000/- to assessee and his nephew ( Rs. 23,50,000/- each) and also stated he has make total cash payment of Rs.1,04,50,000/- to Nadkarnis (assessee’s and his family/nephew). He had paid cash of Rs. 47.00 lakhs and balance payments were given two extra flats in Leela Baugh Building. The assessing officer further noted that the assessee was called to cross examine Kiran Shah on 28.11.2011, but the assessee sought adjournment. The assessing officer also recorded the statement of assessee on 22.12.2011. In the statement under section 131 the assessee Mum 2016-Shri Subhash S. Nadkarni denied to have received any cash payment. With regard to the flats given to his son and wife of his brother, the assessee contended that they were tenant in the building, which fact is recorded in the deed of assignment dated 23.12.2000, therefore, they were allotted separate flat no. 403 and 404 in lieu of surrender of tenancy vide agreement dated 15.01.2000.

The assessing officer not accepted the statement of the assessee holding that the assessee has not furnished any documentary evidences in support of his contentions. The assessing officer concluded that cash payment to landlord is normal trade practice in such type of construction. The assessing officer retreated the additions as made during the original assessment proceedings.

Before the ld CIT(A) the assessee urged that the assessee asked for cross-examination of Kiran H. Shah before relying his statement, which was not given by the Assessing Officer. The Tribunal in its order dated 28.01.2011 directed to provide opportunity of hearing, despite the direction of Tribunal the opportunity for cross-examination of Kiran H.

Shah was not provided to the assessee. On the submission of assessee, the ld. CIT(A) directed the Assessing Officer to provide opportunity of 8 Mum 2016-Shri Subhash S. Nadkarni cross-examination of Kiran H. Shah. The Assessing Officer in remand proceeding provided the opportunity of cross-examination on 17.09.2013. The statement of Kiran H. Shah was recorded on 14.10.2005 and 28.11.2011 was also provided to the assessee. After recording cross- examination of Kiran H. Shah, the Assessing Officer furnished its remand report dated 29.09.2013. In the remand report, the Assessing Officer furnished the copy of cross-examination recorded on 17.09.2013 and reiterated his contention for making addition for treatment of undisclosed LTCG. The copy of remand report was provided to the assessee. The assessee filed his detailed reply dated 19.12.2013 and also furnished the copy of documents on which the assessee is relying before us, which we have recorded in para-5 (supra). After furnishing remand report by Assessing Officer and the reply of assessee, the ld. AR of the assessee made detailed submission on the similar line as submitted before us. The ld. CIT(A) after considering the statement of Kiran H.

Shah recorded on 14.10.2005, 28.11.2011 and on 17.09.2013 and considering the lose paper seized during the course of search on Vijay Group of Motta Construction Pvt. Ltd. passed the following order:

"16.2 From the undisputed facts extracted by me above, it is clear that a total of 4 flats were given to the Nadkarni family. One flat each to the appellant, Sukant, Sushil & Sujata Nadkarni. These flats have been allotted on the strength of an agreement dated 15/0112000. In that agreement, the appellant and Sushhil Nadkarni are the assignors while Sukant and Sujata are tenants. In the same deed, Motta Constructions has not only settled the assignors but also settled the 9 Mum 2016-Shri Subhash S. Nadkarni tenants. It is also clear that the money consideration was paid only to the appellant and Sushil Nadkarni vide assignment deed dated 23/12/1999. Even though there are two agreements one for monetary consideration and the other for consideration in kind, the transaction is only one and pertains to the redevelopment of Nadkarni house. With a view to verify whether the appellant or his family members have been allotted any more flats and also to verify whether ALL tenants including those not belonging to the family have been allotted flats, I requested the appellant to produce the list of members of the new society. Accordingly, the appellant has furnished a certificate of Leela Baugh Co-operative Housing Society dated 9th December, 2015 wherein the appellant, Sushil S. Nadkarni, Sukant Subhash Nadkarni and Mrs. Sujata Suhas Nadkarni are allotted flats in lieu of their tenancy rights. Thus, these four flats are only given to the members of Nadkarni family. It is also seen that Motta Construction Pvt. Ltd. has also given alternate accommodation to other four tenants whose names are listed in the Deed of Assignment dated 23rd December, 1999. It is thus clear that Motta Constructions has given a total of Rs 49,50,000 in cheque to the appellant and Sushil over and above which one flat each and nothing more has been given to the appellant and his 3 family members.

16.3 If for a moment it is to be believed that Mr. Kiran Shah was referring to the two flats given to Sukant & Sujata, it is seen that stamp duty authority determined the market value of the said flat at Rs.4,12,000 each (agreements dated 15/0112000). Thus the aggregate consideration of the said two flats works out to Rs.8,24,000 which does not match with the consideration of Rs.57 ,50,000 referred to by Mr. Kiran H. Shah as paid in terms of two extra flats. Thus, the statement of Mr. Kiran H. Shah recorded on 28th November, 2011 and the statement in cross examination is not substantiated with corroborative evidence. In fact the evidence produced by the appellant successfully rebuts the statement of Mr Kiran Shah insofar as the payment of Rs 57,50,000 is concerned. At this stage, the facts indicate that originally in 2005, Mr. Kiran Shah claimed to have paid Rs 1,04,50,000 entirely in cash. Then subsequently he changed his statement to state that he has paid Rs. 47,00,000 in cash and Rs 57,50,000 in kind being two flats to the Nadkarnis. As discussed above, there is no evidence to substantiate this claim of having paid Rs 57,50,000 through two flats simply because whichever flats were allotted to the Nadkarni family were originally 10 Mum 2016-Shri Subhash S. Nadkarni contracted agreements at the time of redevelopment. Thus the evidentiary value of the statement of Mr Kiran Shah in absence of any other evidence is in serious doubt.

16.4 In respect of the alleged extra flats given to the Nadkarnis, the dates also do not tally. In his statements in 2011 and his cross in 2013, Kiran Shah has stated that Rs 57,50,000 has been paid in kind to the Nadkarnis on 23/12/1999. These would presumably be two extra flats. However the 4 flats given to 4 members of the Nadkarni family have been registered in Jan 2000 and that too at consideration of approximately Rs 4 lakhs each. Even if the value of these 4 flats is totalled, the same is far lower than Rs 57,50,000. It is not clear therefore which flats is Mr Kiran Shah referring to in his statements in 2011 & 2013. Neither has he specified those so called flats, nor has the AO queried him further in the matter. The AO seems to have taken the statement of Mr Kiran Shah at face value and made addition in the hands of the appellant.

16.5 It is settled law, that a statement without corroborative evidence would be on a weak footing. In respect of payment of Rs.47,00,000 in cash, in the cross examination Mr. Kiran H. Shah made a general statement to the effect that he had paid it to the appellant and his nephew at their residence in the presence of Mr. Sukant Subhash Nadkarni and Mrs. Sujata Suhas Nadkarni. At this juncture also Mr. Kiran H. Shah has not been able to substantiate his statement by any circumstantial evidence. I, therefore, have no reason to accept the statement of Mr. Kiran H. Shah recorded on 28th November, 2011 and his statement in cross examination as correct and truthful, more so when the said statements contradicts his earlier statement and is not corroborated and substantiated by any documentary evidence or circumstantial evidence. As against the same, market value determined by the stamp duty authority of the said two flats allotted to Mr. Sukant Subhash Nadkarni and Mrs. Sujata Suhas Nadkarni proves that the said statement allotting two flats in lieu of the sum of Rs.57,50,000 is incorrect. Thus, the credentials of said statement of Mr. Kiran H. Shah are doubtful. I, therefore, cannot subscribe to the view of the AO that cash or any more flats have been given to the appellant and/or other members of his family. I therefore direct the AO to adopt the sale consideration for capital gains as directed by me Mum 2016-Shri Subhash S. Nadkarni in para 15 above. The additions made by the AO towards the appellants share of cash and extra flat received is deleted. Grounds 1(1) to (6) are allowed."

is squarely covered by the decision of Hon’ble Bombay High Court in Manjula J. Shah (supra). We have noted that the ld. CIT(A) by following the decision of Hon’ble Bombay High Court has directed the Assessing Officer to grant indexation from 01.04.1981 as claimed by the assessee. Therefore, we do not find any infirmity in the order passed by ld. CIT(A), which we affirm. In the result, ground no.3 of the appeal is dismissed.

12. In the result, appeal of the revenue is dismissed.

Order pronounced in the open court on 29/03/2019.