PREMKUMAR KHURANA,MUMBAI vs. ASST CIT CEN CIR 3(2), MUMBAI

The present appeal filed by the assessee is directed against the order passed by the CIT(A)-39, Mumbai, dated 22.03.2017, which in turn arises from the order passed by the A.O under Sec.143(3) of the Income Tax Act, 1961 (for short „I.T. Act‟), dated 30.03.2015 for A.Y. 2012-13. The assessee assailing the order of the CIT(A) has raised before us the following grounds of appeal : “1. The learned CIT (Appeals) has erred in law and on the facts of the case in sustaining 50% of the agricultural income as unexplained income of the assessee u/s. 68 of the Income Tax Act.

Aggrieved, the assessee carried the matter in appeal before the CIT(A). The CIT(A) after deliberating on the contentions advanced by the assessee restricted the addition of the unexplained agriculture income to an amount of Rs.2.5 lacs. However, the contention advanced by the assessee that the A.O had erred in assessing under Sec. 23(1)(a) the deemed lettable value of the factory situated at Plot No. 82/2, Wazirpur Industrial Area, New Delhi, did not find favour with the CIT(A). In fact, the CIT(A) was not persuaded to accept the claim of the assessee that he had sold the aforementioned property to S/sh. Umesh Tiwari & Yogesh Tiwari and in lieu thereof had received an advance of Rs. 6 lac from them which was shown as a deposit in P a g e | Shri Prem Kumar Khurana Vs. Asst. Commissioner of Income Tax CC 3(2) his „balance sheet‟ for the year under consideration. At the same time, the CIT(A) observed that as the A.O had wrongly worked out the deduction under Sec. 24 at Rs.7,00,000/-, restricted the same to the correct figure of Rs.6,30,000/-.

The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. It was submitted by the ld. Authorized Representative (for short „A.R‟) that the assessee during the year under consideration owned agricultural land at Murbad, Maharashtra, on which agricultural operations were being carried out through labourers. It was submitted by the ld. A.R that consistently from A.Y 2001-02 till A.Y 2011-12 the agriculture income of the assessee was accepted in the course of regular assessments framed u/s 143(3), subject to a disallowance of 25% of the amount of such income as was shown by him in his return of income for the said respective years. In order to fortify his aforesaid contention the ld. A.R drew our attention to a „Chart‟ reproduced in the order of the CIT(A) which substantiated the aforesaid factual position. In sum and substance, it was the contention of the ld. A.R that now when the agriculture income of the assessee was consistently being accepted by the A.O in the course of the regular assessments framed under Sec. 143(3) in the preceding years, therefore, it was incorrect on his part to have characterised the entire agriculture income of Rs. 5,00,000/- disclosed by the assessee during the year as an unexplained cash credit. It was further submitted by the ld. A.R that the CIT(A) had erred in restricting the addition to the extent of 50% of the total agriculture income. In fact, it was averred by the ld. A.R averred that as consistently 25% of the agriculture income shown by the assessee was being disallowed, therefore, on the same footing the disallowance of the agriculture income of the assessee for the year under P a g e | Shri Prem Kumar Khurana Vs. Asst. Commissioner of Income Tax CC 3(2) consideration may also be confined on an estimate basis to 25% of such income. Insofar the estimation of the ALV of the factory at Plot No. A-82/2, Wazirpur Industrial Area, New Delhi u/s 23(1)(a) at Rs. 21 lac by the lower authorities was concerned, it was submitted by the ld. A.R that as the said property was sold by the assessee to S/sh. Umesh Tiwari & Yogesh Tiwari way back in July, 1994, against which an advance of Rs.6,00,000/- was received during the period 1994-95 to 1997-1998, therefore, there remained no occasion for assessing the ALV of the said property in the hands of the assessee. It was submitted by the ld. A.R that the ALV of the property that had already been sold by the assessee could not have been brought to tax in the hands of the assessee merely because the „registered deed‟ was not executed by the assessee in favour of the aforementioned purchasers i.e S/sh. Umesh Tiwari & Yogesh Tiwari. In order to fortify his aforesaid contention the ld. A.R relied on the judgment of the Hon‟ble Supreme Court in the case of CIT Vs. Podar Cement Pvt. ltd. And Ors. (1997) 226 ITR 625 (SC). Alternatively, it was submitted by the ld. A.R that as the A.O had not adopted any basis for working out the ALV of the property under consideration at Rs.21 lacs, therefore, the same could not be accepted.

Per contra, the ld. Departmental Representative (for short „D.R‟) relied on the orders of the lower authorities. On a query raised by the bench that in the absence of any change in facts what had prompted the A.O to adopt an inconsistent approach and decline to accept the agriculture income of the assessee during the year under consideration, however, failed to come forth with a reply as regards the same. In fact, the ld. D.R. in all fairness accepted that the addition in respect of the agriculture income be restricted to the extent of 25% of the total agriculture income of Rs.5,00,000/- reflected by the assessee P a g e | Shri Prem Kumar Khurana Vs. Asst. Commissioner of Income Tax CC 3(2) in his return of income for the year under consideration. Insofar the estimation u/s 23(1)(a) of the ALV of the factory at Plot No. A-82/2, Wazirpur Industrial Area, New Delhi at Rs. 21,00,000/- by the lower authorities was concerned, the ld. D.R relied on the orders of the lower authorities.

We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. Admittedly, the assessee since A.Y. 2001-02 till A.Y 2011-12 had regularly been reflecting agriculture income in his returns of income which were consistently accepted by the A.O subject to a disallowance of 25% of such income in each of the said respective years. In sum and substance, agriculture income to the extent of 75% of that shown by the assessee in his return of income since A.Y. 2001- 02 had been accepted by the A.O while framing the assessment under Sec.143(3). Interestingly, in the immediately preceding year i.e A.Y. 2011-12 the assessee had shown an agriculture income of Rs.6,00,000/-, which as per the past practice was accepted by the A.O to the extent of 75% i.e Rs. 4,50,000/-. In the backdrop of the aforesaid facts, we are unable to comprehend that now when the factual situation in respect of the land holding of the assessee and all other connected issues remained the same, then what had prompted the A.O to have concluded by taking an inconsistent view that the assessee had not earned any agriculture income during the year under consideration. On a similar footing, we find that the CIT(A) also without assigning any cogent reason had most whimsically restricted the disallowance to the extent of 50% of the total agriculture income shown by the assessee in his return of income. We are unable to persuade ourselves to subscribe to the view taken by the CIT(A), who we find had without any cogent basis upheld the characterisation of P a g e | Shri Prem Kumar Khurana Vs. Asst. Commissioner of Income Tax CC 3(2) 50% of the agriculture income of the assessee as an unexplained cash credit. In our considered view, now when the department had consistently for the last 11 years confined the disallowance of the agriculture income at 25% of that shown by the assessee in his returns of income for the said respective years, therefore, in the absence of any change in the facts during the year under consideration there was no reason for the CIT(A) to have raised the disallowance to the extent of 50% of the agriculture income. In terms of our aforesaid observations, we set aside the order of the CIT(A) in context of the issue under consideration and direct the A.O to restrict the disallowance of the agriculture income to the extent of Rs.1,25,000/- i.e 25% of the total agriculture income of Rs. 5,00,000/- shown by the assessee in his return of income for the year under consideration.

We shall now advert to the issue pertaining to addition u/s 23(1)(a) of Rs.21,00,000/- by the A.O as the deemed ALV of the factory owned by the assessee at Plot No. A-82/2, Wazirpur Industrial Area, Delhi. It is the case of the assessee that way back in the year 1994-95 he had sold the aforesaid property to S/sh. Umesh Tiwari & Yogesh Tiwari and had delivered its possession to them. It was submitted by the assessee before the lower authorities that in lieu of the aforesaid sale transaction he had received an amount of Rs.6,00,000/- during the period spread over 1994-95 to 1997-98, which was shown as a „deposit‟ in his „balance sheet‟ for the year under consideration. Insofar the fact that no „sale deed‟ for the property was executed in favour of the buyers viz. S/sh. Umesh Tiwari & Yogesh Tiwari, it was the claim of the assessee that merely for the reason that the title of the property has not been legally conveyed to the aforementioned persons would P a g e | Shri Prem Kumar Khurana Vs. Asst. Commissioner of Income Tax CC 3(2) not justify assessing of the deemed ALV of the said property in his hands.

We have given a thoughtful consideration to the issue before us and are unable to persuade ourselves to subscribe to the contention advanced by the ld. A.R as regards the assessing of the deemed ALV of the abovementioned property in the hands of the assessee. In fact, the assessee except for raising a contention that the property under consideration had been transferred by him to S/sh. Umesh Tiwari & Yogesh Tiwari, has however failed to place on record any documentary evidence which would irrefutably prove to the hilt that the said property was not owned by him during the year under consideration. On a specific query by the bench that if the property under consideration had been sold to the aforementioned persons then as to whether the capital gain tax arising on such sale transaction had been paid by the assessee, it was submitted by the ld. A.R that such tax liability stands deferred till the date of execution of the „sale deed‟ of the property under consideration. In the backdrop of the aforesaid facts, it can safely be concluded that the property under consideration during the year was owned by the assessee. As per Sec. 22 of the I.T Act the „annual value‟ of a property consisting of any building or land appurtenant thereto of which the assessee is the owner, is chargeable to income tax under the head „Income From House Property‟. In our considered view, now when the aforementioned property is proved to be owned by the assessee, therefore, no infirmity emerges from the orders of the lower authorities who have rightly observed that the ALV of the said property was liable to be assessed in the hands of the assessee under Sec. 23 of the I.T Act. Insofar the judgment of the Hon‟ble Supreme Court in the case of the CIT Vs. Podar Cement Pvt. Ltd. and Ors. (1997) 227 ITR 625 (SC) as had been relied upon by the P a g e | Shri Prem Kumar Khurana Vs. Asst. Commissioner of Income Tax CC 3(2) ld. A.R is concerned, we find that the same rather assists the view taken by the revenue. In the aforementioned case the Hon‟ble Supreme Court had concluded that in the context of Sec. 22 “owner” is a person who is entitled to receive income in his own right, and a mere fact that a registered sale deed has not been executed in his favour would not exclude the applicability of the said statutory provision. We are of the considered view that in the case before us as the assessee has failed to prove as to how the aforementioned persons viz. S/sh. Umesh Tiwari & Yogesh Tiwari had been entitled to receive income in respect of the aforementioned property in their own rights, therefore, the ALV of the said property would be liable to be assessed in the hands of the assessee i.e the owner of the said property. Be that as it may, in our considered view the lower authorities have rightly concluded that the ALV of the property under consideration was liable to be assessed in the hands of the assessee under Sec. 23 of the I.T Act. However, at the same time we are unable subscribe to the whimsical adoption of the ALV of the aforementioned property at Rs. 21,00,000/- by the lower authorities. In fact, the only reason for adopting the aforesaid ALV of the property by the lower authorities is that the same was not unreasonable considering the location and the area of the factory building. Apart there from, the CIT(A) had observed that the assessee had also failed to place on record any details regarding the FMV of the property or any similar property situated in the same locality. We are of the considered view that the lower authorities had erred in whimsically adopting the ALV of the property under consideration at an amount of Rs.21,00,000/-, without giving any reasoning or basis for taking the said value. In our considered view Sec. 23 of the I.T Act specifically lays down the manner for determining the „Annual Value‟ of a property. As the lower authorities had bypassed the aforesaid statutory requirement of working the ALV