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Income Tax Appellate Tribunal, DELHI BENCH “E”: NEW DELHI
Before: SHRI KULDIP SINGH & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M. 1. This is appeal filed revenue against the order of the ld CIT(A)-XXIX, New Delhi dated 17.10.2012 for the Assessment Year 2008-09. 2. The revenue has raised the following grounds of appeal:- “1. Whether on the facts and circumstances of the case, the CIT(A) has erred in accepting cost of construction of property its claim of facts given even the assessee claim was found to be fraudulent upon enquiry by AO.
2. Whether on the facts and circumstances of the case, the CIT(A) has erred in accepting the additional evidence in the form of the valuation report of the property without establishing the admissibility thereof as per Rule 46A(2) merely on the grounds that the AO had not contested the admission.
3. Whether on the facts and circumstances of the case, the CIT(A) has erred in accepting the additional evidence in form of the valuation report of the property without establishing the veracity as per Rule 46A(4) r.w.s.251(1).
4. Whether on the facts and circumstances of the case, the CIT(A) has erred in deleting the addition made on account of cash credit when the Page 2 of 9 AO had established the lack of credit worthiness of lender and non- genuineness of the transaction.
5. Whether on the facts and circumstances of the case, the CIT(A) has erred in deleting the addition made on account of cash credit ignoring evidence marshaled by AO had established the deposit of cash and the advancement of loan entries immediately thereafter stating that the AO did not ask for clarification without discharging his onus for establishing the veracity as per Rule 46A(4) r.w.s. 251(1).”
6. Whether on the facts and circumstances, of the case the order of the CIT(A) is perverse and liable to be quashed.”
3. The brief facts of the case is that the assessee is an individual who filed its return of income on 15.04.2009 showing income of Rs. 926166/-. Assessment u/s 143(3) was made on 31.12.2010 at an income of Rs. 76168626/-. The appeal was preferred by the ld CIT(A), who allowed the appeal of the assessee in toto. Therefore, the revenue is in appeal before us.
Despite notice, none appeared on behalf of the assessee and therefore the appeal is decided based on the material available on record and the appeal is decided on merits.
Ground No. 1,2 and 3 are on the issue of capital gain and admission of additional evidence by ld CIT(A) in violation of Rule 46A.
Ground No. 1 of the appeal is against the order of the ld CIT(A) in accepting the cost of construction of the property on sale of which the assessee has shown capital gain. During the year, the assessee has sold its property at DLF Phase-II, Gulmohar Marg, Gurgaon . The assessee has claimed cost of construction on improvement of that property of Rs. 18994137/- and shown capital gain of Rs. 856669/-. During the course of assessment, the Assessing could not provide information of the cost of improvement incurred and further wrongly submitted that said work was done by one contractor who ultimately denied. Therefore the claim of the assessee was rejected and long-term capital gain was enhanced by Rs. 18994137/-. On appeal before the ld CIT(A) the addition was deleted as the ld CIT(A) and was of the opinion that even though the cost of construction paid to that contractor is denied the fact that the house has been sold and there has to be a construction cost which should be allowed to be assessee as deduction. Before him, assessee also furnished a valuation report regarding the cost of construction of the house as additional evidence, which was admitted , which according to him , substantiates the claim of the appellant.
Page 3 of 9 Therefore, ld CIT(A) deleted this addition. Aggrieved, the revenue is in appeal before us.
The ld DR contested that according to section 48 of the Income Tax Act actual cost is allowable as for working capital gain. The ld CIT(A) has allowed the cost of improvement to the assessee in absence of any evidence but based on valuation report of cost of construction submitted by the assessee, which is merely an opinion. He therefore submitted that order of the ld CIT(A) is not in accordance with the provisions of section 48 of the Act. On the issue of admission of additional evidence, he submitted that ld CIT(A) has not given reasons for admission of additional evidence.
We have carefully considered the contentions raised as well as the orders of the lower authority. Firstly, on the issue of the additional evidence the ld IT(A) has admitted the additional evidence in the form of valuation report regarding cost of construction and certain other documents, which were not available before the AO by obtaining remand report from the Assessing Officer and obtaining rejoinder of the assessee. The ld Assessing Officer has not objected the admission of additional evidence in remand report and therefore same were admitted as these documents according to him were vital for deciding the issue. The full facts are mentioned at Para 3.1 of the order of the ld CIT(A) which could not be controverted by the ld DR. In view of this, we dismiss ground No. 2 and 3 of the appeal of the revenue on admission of additional evidence.
Coming to the ground No. 1 of the appeal of the revenue according to section 48 the income chargeable under the head capital gain is required to be computed by deducting from the full value of consideration received a. Expenditure incurred wholly and exclusively in connection with such transfer and b. The cost of acquisition of the asset and the cost of any improvement thereto.
Therefore, according to Clause (b) what is required to be deducted from the actual sale consideration is the cost of acquisition and the cost of any improvement of the asset. Therefore, what is granted as deduction is actual cost and not its estimates unless provided by the law. The ld CIT(A) has decided this issue in para No. 5.2.2 of his order as under:-
Page 4 of 9 “5.2.2 The computation of long term capital gain is governed by provisions of section 45 read with section 48 of the Act. It is undisputed fact that what is sold by the appellant is residential house and not just plot of land. Therefore, cost of acquisition / cost of improvement of both land and residential house have to be taken into account and to be reduced from sale consideration. The AO did not consider cost of acquisition of the house because the contractor to whom payments were claimed to be made, could not confirm the payments. During appeal hearing, the appellant submitted that the house was got constructed under self supervision and no contractor was involved. It was explained that M/s Ahluwalia Contracts (India) Ltd, was involved in construction of building of school during the same time when said house was being constructed. Therefore, by mistake, it was submitted before AO that payment for construction of the house was made to M/s Ahluwalia Contracts (India) Ltd. The AO has not given the finding as to what is cost of construction of the house irrespective of the fact who has constructed it. Even if the appellant is not in a position to satisfactorily explain the source of funds for construction of the house, that is not material material for the purpose of computation of capita] gains. That issue should have been dealt with under(section 69 and other relevant provisions of the Act. It is a fact that a house has been sold and therefore there has to be some cost of construction. The appellant has submitted that entire expenditure for construction was done by cheque withdrawals from NRI [bank account. The appellant has also furnished a valuation report regarding cost of construction f the house which substantiates the appellant's claim. In remand report, the AO has simply iterated what has been said in the assessment order. As per provisions of the section 48, cost of construction of the house has to be reduced from sale consideration and cost of construction of a house can never be nil. The AO has denied the claim of cost of construction only on the basis that the appellant could not prove the said claim. The action of the AO is not in accordance with revisions of section 48 and therefore, the AO is directed to delete this addition. The ground of appeal is accordingly allowed.”
11. According to us, the Ld. CIT (A) has granted deduction without ascertaining the actual cost of expenditure incurred by the assessee. Merely saying that the entire expenditure for construction was incurred by cheque withdrawals from NRI bank account without examining the evidence of cost incurred and only on the basis of valuation report regarding the estimated cost of construction of the house , deduction cannot be allowed . Further valuation report merely an opinion cannot be the basis for granting deduction of actual cost and actual cost of improvement from the sale consideration for working capital gain. The ld. AO has never raised the question of the source of the funds but has only asked about the actual cost of improvement i.e. the construction cost of the building. Further it is also Page 5 of 9 not in doubt that whatever is sold by the assessee is a three-storey building with basement for which the land was acquired in 1983 and 1994, construction was completed in September 2002 and occupation certificate obtained in February 2003. Therefore, it cannot be said that the assessee has not incurred any cost of construction for construction of a three-storey building. Further, also it cannot also be substituted by the estimated cost of construction based on some valuation report as facts cannot be replaced by opinion. In view of this, we do not approve the finding of the Ld. CIT (A). As finding is given by the Ld. CIT appeal that entire expenditure for construction was done by cheque withdrawals from non-resident bank account of the assessee the whole issue of granting the cost of improvement as deduction to the assessee is set aside to the file of the Ld. CIT(A) with a direction to grant deduction of actual cost of construction by making verification of the various payments made for the construction of the property from that bank account. Needless to say that proper opportunity of hearing may be granted to the assessee to substantiate the amount of expenditure incurred by issue of cheques from his non-resident bank account and also opportunity to ld AO . In the result ground No. 1 of the appeal of the revenue is allowed with above direction.
Ground No. 4 and 5 of the appeal of the revenue is pertaining to the deletion of the addition made by the Ld. assessing officer under section 68 of the income tax act with respect to the parties. On appeal before the Ld. CIT (A) the above addition was deleted holding as under:- “6.2 Finding: 6.2.1 I have carefully considered various submissions made by the appellant, material brought on record and assessment order. The AO has made additions u/s 68 in respect of credits appearing in names of three entities. The appellant has at the very outset, objected that since he is not maintaining any books of accounts, provisions of section 68 are not applicable in the case as credits are not appearing in books being maintained by him. This argument of the appellant does not hold much force as since the credits under dispute are appearing in bank pass book of the appellant, these could be dealt with u/s 69 and consequential effect would have been the same as that u/s 68. Therefore, even if it assumed that the AO has proceeded under wrong section and correct section applicable in facts of the case was 69 of the Act, the assessment made does not get vitiated. The appellant has further argued that credits received from M/s Starex Import Export Pvt Ltd & M/s Starex Education Society represent repayment of loans and Page 6 of 9 advances already made to them and therefore provisions of section 68 are not applicable to such credits. This argument of the appellant is also without any force as sec. 68 refers to 'any sum credited'. That sum can be either a loan received or repayment of loan already given. 6.2.2 It is undisputed that the appellant has submitted confirmation from all the parties. The nature of transaction was also explained to AO. As required by the AO, copy of return and copy of bank account of all the three entities were duly filed. Various judicial decisions have laid down that following three things have to be established to prove genuiness of a credit: Identity of creditor Financial capacity of creditor Genuiness of transaction The appellant had furnished requisite evidence to satisfy the above mentioned requirements. Therefore, the appellant has discharged the onus placed on him and burden of evidence shifted to AO. According to appellant, the AO did not raise any further query, rather he asked the appellant to explain the source of cash deposited in bank account of creditors on various dates just before the dates when credits were given to the appellant. This amounts to asking for explanation regarding source of source which is not permitted under the law on the issue. 6.2.3 The appellant has made detailed submissions on merits in respect of credits received from each entity. The appellant has submitted that since all the three entities are income tax assessees and they have confirmed the transaction, the appellant can not be held liable for any deposit of cash in their respective bank accounts. It has been contended that the AO did not ask for any clarification regarding the cash deposits. Further, the AO could not have treated all the credits as income of the appellant just because there were a few cash deposits in bank a/c of the creditors on certain dates just before date of credits. I find force in argument of the appellant that since all the creditors are income tax assessees and they have filed confirmation letters, the AO could not have asked the appellant to explain the source of cash deposited in bank a/c of creditors when it is in exclusive knowledge of the creditors only. Even if AO happens to take a view that source of cash deposits in bank a/c of creditors is not satisfactorily explained, suitable action under the Act to that effect can be taken in hands of those creditors. The AO has not given any reason why such cash deposits in bank a/c of three entities should be treated as income of the appellant u/s 68 of the Act. The appellant has discharged the onus placed on him by the law. The appellant is not obliged to explain the source of source and in any case source of cash deposits is in exclusive knowledge of the creditors. Even in remand report, the AO has simply reiterated what has been said in the assessment order. In view of the Page 7 of 9 discussion supra, I hold that addition made by the AO u/s 68 is not warranted and hence to be deleted. The AO may take suitable action, if permissible under provisions of Act in respect of three creditors in whose bank a/c, there were cash deposits noticed by the AO. The ground of appeal is accordingly allowed.”
13. Aggrieved by the order of the Ld. CIT (A) revenue is in appeal before us. The Ld. departmental representative reiterated findings given by the Ld. assessing officer. He further referred to the submission made by the assessee at page No. 10 of the assessment order wherein with respect to Mrs. Poonam Singh the assessee himself as agreed that a sum of Rs. 25 Lacs which could not be explained to the satisfaction of the Ld. assessing officer could have been added. Therefore Ld. departmental representative submitted that Ld. CIT (A ) has erred in deleting the addition. With respect to the other two parties he relied upon the order of the Ld. assessing officer..
14. We have carefully considered the contentions raised in the orders of the lower authority. During the year the assessee has received a sum of Rs. 2.68 crores from time to time on different dates from his wife Smt. Poonam Singh who is also a non-resident Indian. She does not have any taxable income in India for the year however she deposited this sum from her bank account. out of the sum of Rs. 2.68 crores a sum of Rs. 1.96 crore is transferred from her fixed deposit account with Indian overseas bank in her bank account and subsequently to the account of her husband( assessee) . Further a sum of Rs. 42.43 Lacs was also received by her on maturity of the fixed deposit with ICICI bank which was transferred to another bank account and then to the bank account of her husband. In support of this the assessee submitted the copies of the bank account as well as the copies of the fixed deposit receipt as a source of money deposited by her with her husband. Before the Ld. assessing officer assessee submitted the confirmation of Smt. Poonam Singh along with passbook and income tax return for assessment year 2005 – 06. The Ld. CIT (A) has accepted the whole of the amount of Rs. 2.68 crores, source of which according to him, are duly explained by the assessee before him completely ignoring the fact that the sum of Rs. 25 Lacs was deposited in her bank account in cash and source of which was not explained by the assessee before the assessing officer. Even in submission before him the assessee also accepted that that Page 8 of 9 the most the amount of Rs. 25 Lacs, which is cash, deposited in the bank account of Smt. Poonam Singh may be added to the income of the assessee. We also appreciate the fact that assessee is a non-resident Indian and does not have any source of income in India, therefore source of cash in her hands is required to be substantiated. Further as she is not filing return of income for the impugned assessment year 2008 – 09 and assessee also has submitted the income tax return for the assessment year 2005 – 2006 which was last filed by her, and in absence of any explanation given by the assessee about the source of cash of Rs. 25 Lacs in the hands of a non- resident Indian we do not agree with the order of the Ld. CIT (A) in deleting the whole addition of Rs. 2.68 crores on account of money received from his wife. Furthermore the Ld. CIT (A) also has given a wrong finding that she is an income tax assessee, in fact she has filed her last return of income for assessment year 2005 – 06 and not for assessment year 2008 – 09 which is the impugned assessment year. In the result, we agree with the finding of the Ld. CIT appeal in deleting the addition of on account of loan from Mrs. Poonam Singh wife of the assessee except the sum of Rs. 25 Lacs which is deposited in cash by her in her bank account for which the assessee has not given any source of income in cash in her hand in India. Therefore we set aside the issue of examination of the sources of this Rs 25 Lakhs which is deposited by her in bank account for onward lending to her husband as he has not given any finding on this sum despite written submission made by assessee before him about the same.
15. Further with respect to the unsecured loan from Mrs. Starex educational society and M/s direction importers and exporters private limited , it was noted by the Ld. CIT appeal that these 2 parties have in fact not even the loan to the assessee but has taken loan from the assessee and therefore the provisions of section 68 do not apply to transactions with these 2 parties. The Ld. departmental representative also could not point out any error in the fact that these are the parties to whom the assessee has given loan. In view of this with respect to starex import and export private limited and starex educational society, we confirm the finding of the Ld. CIT (A) in deleting the addition under section 68 of the income tax act.
16. In view of this ground No. 4 of the appeal of the revenue with respect to the three parties is partly allowed as above.