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Income Tax Appellate Tribunal, MUMBAI BENCH “F”, MUMBAI
Before: SHRI VIKAS AWASTHY & SHRI GAGAN GOYAL
आदेश आदेश/ORDER आदेश आदेश
PER VIKAS AWASTHY, JM:
This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [in short ‘the CIT(A)’] dated 19/05/2023, for the Assessment Year 2021-22. The assessee has filed Cross Objections in appeal by the Revenue.
The Revenue has assailed the order of CIT(A) on three counts:
(i) Deleting of addition made on account of compensation - Rs.15,12,500/-. (ii) Deleting of addition made on account of difference in agreement value and Stamp Duty vlue. (iii) Deleting of addition on account of alleged on-money - Rs.96,20,000/-/ 3. Smt. Rajeshwari Menon representing the Department submitted that assessee had received compensation of Rs.15,12,500/- during the period relevant to Assessment Year under appeal. The assessee offered to tax only Rs.3,78,000/- under the head ‘Income from House Property’, hence, the Assessing Officer made addition of the balance amount. The CIT(A) deleted the addition holding the amount of compensation as capital receipt. The ld. Departmental Representative pointed that the stand of assessee before CIT(A) was that the compensation is a capital receipt, hence, not taxable. The said plea of assessee is contrary to submissions made before the Assessing Officer. The assessee before Assessing Officer pleaded that he has offered to tax the rent accrued during the relelvant period. The same plea has been reiterated by the assessee in Cross Objections (ground No.1). The assessee has been taking contrary stand before the different authorities. The ld. Departmental Representative prayed for reversing the findings of CIT(A) on this issues.
In respect of ground No.2, the ld. Departmental Representative submitted that the assessee had purchased property i.e. Flat No.3802 in “Ruperal Ariana”, Mumbai vide Agreement dated 31/12/2020. The consideration for purchase of property was Rs.1,60,00,000/-, whereas the market rate of the said property was Rs.2,28,97,427/-. The Assessing Officer made addition of Rs.68,98,427/- i.e. the difference between the market rate and the value stated in the agreement. The ld. Departmental Representative pointed that CIT(A) has erred in holding that it was mandatory for the Assessing Officer to refer the valuation to the Department Valuation Officer(DVO). She submitted that the expression used in section 50C(2) of the Income Tax Act, 1961 [in short ‘the Act’] is that “the Assessing Officer may refer the valuation”. The Legislature has left the discretion on the Assessing Officer to refer the valuation of capital asset to Valuation Officer. The section does not mandate that on an application made by assessee, the Assessing Officer must refer valuation to the DVO. Thus, the ld. Departmental Representative prayed for upholding the assessment order.
In respect of ground No.3 of appeal, the ld. Departmental Representative submits that search action u/s. 132 of the Act was carried out on Ruparel Realty Group and its related entities. The said search also cover Parikshit Sharma, who was one of the employee of Siddhi Vinyak Infrastructure Co., a part of Ruparel Group. During the course of search at his premises, hand written pocket diaries were found and ceased. In one of such diaries transaction with date, name and corresponding amounts were recorded. In the statement recorded u/s. 132(4) of the Act Mr. Parikshit Sharma admitted that the entries in the diaries pertain to Ruparel Group of Companies and reflect on-money received from purchasers of flats. In one of the diaries, against Flat No.3802, on-money of Rs.50,00,000/- on 24/02/2021 and Rs.46,20,000/- on 25/02/2021 was recorded. The aforesaid flat i.e. flat No.3802 in Ruparel project was purchased by the assessee. Thus, the entry in the diary against the aforesaid flat reflected on-money paid for purchase of flat by the assessee. The Assessing Officer gave opportunity to the assessee for cross examination but the assessee failed to avail the opportunity. Parikshit Sharma accepted the receipt of on-money from various parties. The proximity of date of agreement for purchase of flat and the date recorded in the diary against on-money clearly establish the nexus of purchase of flat and payment of on-money. The CIT(A) without examining documents on record deleted the addition. The ld. Departmental Representative prayed for reversing the findings of CIT(A) and upholding the addition.
Per contra, Shri K.Gopal appearing on behalf of assessee vehemently defended the impugned order and prayed for dismissing appeal of the Revenue. The ld.Counsel for the assessee submits that assessee was a tenant in the building named ‘Wool Canvas’ situated at 80-82, Saisfee Jubilee Street, Bhendi Bazar, Mumbai. The said building was include in redevelopment plan. A Temporary Alternate Accommodation Agreement dated 16/05/2018 was entered between Saifee Burhani Upliftment Trust and assessee. As per the said agreement the assessee was entitled to receive compensation equivalent to 24 months rent @ Rs.30,000/- per month and thereafter, rent @ Rs.31,500/- per month till the time original accommodation is returned to the assessee after redevelopment. The said compensation is capital in nature, hence, not liable to be taxed. To support his submissions he placed reliance on the decision in the case of Delilah Raj Manzukhani vs. ITO in decided on 29/01/2021. He further submitted that to avoid litigation and to buy peace of mind the assessee offered to tax Rs.3,78,000/- i.e. the quantum of compensation equivalent to 12 months rent relevant to the Assessment Year under appeal. The Assessing Officer without appreciating the facts made addition of the entire amount i.e. Rs.15,12,000/-. In the First Appellate proceedings the CIT(A) examined the facts and placing reliance on the decision of Tribunal in the case of Delilah Raj Manzukhani vs. ITO (supra) deleted the entire addition holding it to be on capital account.
In respect of ground No.2, the ld.Counsel for the assessee submits that assessee had paid Rs.1,60,00,000/- as per the agreement for purchase of flat during the period relevant to assessment year under appeal. According to the Assessing Officer, the alleged market value for the purpose of registration of the said flat was Rs.2,28,97,427/-. The ld.Counsel for the assessee placed on record a Press Note from the Directorate of Economic and Statistics, Planning Department, Government of Maharashtra dated 05/03/2021. He pointed that the period in which the assessee had purchased the flat was effected by COVID 19 Pandemic . There was slump in the Real Estate market. Due to COVID 19 lockdown, there were very few transactions of registration of properties. In order to give boost to the Real Estate business, the State Government decided to reduce Stamp Duty by 3% for the transaction in Mumbai and Mumbai Sub-urban Districts during the period 01/09/2020 to 31/12/2020. The Stamp Duty was reduced by 2% for Mumbai and Mumbai Sub-urban from 01/01/2021 to 31/03/2021. The reduction in Stamp Duty rate clearly indicate that there was fall in transactions of sale and purchase of property and there was considerable fall in the market rate of Real Estate. Nevertheless, the assessee had requested the Assessing Officer to refer valuation to the DVO. The Assessing Officer did not acceded to the prayer of assessee and made addition of the difference between the market value and the actual value paid by the assessee. The addition made by the Assessing Officer was contrary to the provisions of the Act, hence, deleted by the CIT(A).
In respect of ground No.3, the ld.Counsel for the assessee submits that no on-money was paid by the assessee for purchase of Flat No.3802 at Ruperal Ariana, Mumbai. The entire consideration of Rs.1,60,00,000/- was paid by the assessee’s husband Shri Zulfikar Lokhandwala from his Bank account. The Assessing Officer has made addition on the basis of a statement recorded at the back of the assessee. The assessee had made a request to the Assessing Officer to provide copy of the statement and opportunity to cross examine Parikshit Sharma, on whose statement addition was made. The Assessing Officer did not provide effective opportunity to the assessee to cross examine Parikshit Sharma and made the addition. The CIT(A) after appreciating the facts on record and considering various decisions held that any information gathered from third party at the back of assessee cannot form basis of an addition and deleted the addition. To further buttress his arguments he placed reliance on the decision in the case of H.R. Mehta vs. ACIT, 72 taxmann.com 110 (Bom).
We have heard the submissions made by rival sides and have examined the orders of authorities below. The Department in appeal has assailed the findings of CIT(A) on three counts:
(i) Deleting the addition made in respect of compensation received by the assessee. The fact of assessee in occupation of building “Wool Canvas” as tenant is not disputed. The said building was part of cluster development. During the period of re-development of building, the assessee received compensation for displacement. From examination of documents on record we find that the compensation received by the assessee from Redeveloper of the building is in accordance with the Agreement for Temporary Alternate Accommodation (dated 16/05/2018) provided to the residents of building ‘Wool Canvas’. The said compensation was paid @ Rs.30,000/- per month for a period of 24 months during the period the building was under redevelopment i.e. demolition and reconstruction. For the period beyond 24 months, the assessee was eligible for compensation @ Rs.31,500/- per month. The CIT(A) held the compensation amount capital in nature, hence, not liable to be taxed. The CIT(A) in holding so placed reliance on the decision of Tribunal in the case of Delilah Raj Manzukhani vs. ITO (supra) and the Tribunal decision in the case of Ajay P. Kothari vs. ITO in ITA NO.2823/Mum/2022. No contrary material was placed on record by the Department to controvert the findings of the CIT(A). Thus, in the facts of the case and decisions referred above we find no infirmity in the order of CIT(A) on this issue. It is pertinent to mention here that the assessee apportioned the compensation and offered to tax compensation equivalent to 12 months i.e. Rs.3,78,000/-. The assessee has not sought any relief against the tax paid on the aforesaid amount in the Cross Objections. In fact, the corresponding ground raised by the assessee in the Cross Objections i.e. ground No.1 has not been pressed by ld.Counsel for the assessee . The ground No.1 of appeal by the Revenue is dismissed being devoid of any merit.
In ground No.2 of appeal, the Revenue has assailed the findings of CIT(A) in deleting addition of difference between agreement value and the market value. The assessee had purchased flat No.3802 at Ruparel Araina vide Registered Agreement dated 31/12/2020. The consideration price as per agreement is Rs.1,60,00,000/- as against market rate of Rs.2,28,97,427/-. The Assessing Officer made addition of the difference in the aforesaid two values i.e. Rs. 68,98,427/- u/s. 56(2)(x) of the Act. The assessee during the assessment proceedings vide letter dated 13/12/2022 gave detailed explanation for difference in the market value and the value in the purchase agreement and had also prayed for referring the valuation to the DVO. The Assessing Officer without considering the aforesaid prayer of the assessee proceeded to complete the assessment. Section 50C(2) of the Act provides for reference of valuation of the capital asset to the Valuation Officer, where the assessee disputes the fair market value. The assessee had purchased the flat during COVID 19 Pandemic period. During the said period ostensibly the market conditions were not in normal mode and were in lull. This fact has been recorded and admitted by the Assessing Officer. Therefore, there was every possibility that there could be difference in Ready reckoner rate and the actual rate prevailing in the market. Under such circumstances, the Assessing Officer ought to have referred the valuation to the DVO. At the same time we observe that the CIT(A) has taken an extreme view and deleted the addition accepting the value of property mentioned in the agreement. Taking into consideration entire facts, we deem it appropriate to restore this issue back to the Assessing Officer for denovo adjudication after seeking report from the DVO on value of property during the relevant period. Thus, ground No.2 of appeal is allowed for statistical purpose.
The third ground in appeal by the Revenue relates to alleged on-money paid by the assessee to Ruparel Realty Group for purchase of flat No.3802, at Ruparel Araina, Mumbai. A search action was carried out on Ruparel Realty Group and its related entities. As a part of search the residence of Parikshit Sharma one of the employee in Siddhi Vinayak Infrastructure Realty Co. , a part of Ruparel Realty Group was also covered. Some pockets diaries were found and seized from the residence of Parikshit Sharma. In the statement recorded u/s. 132(4) of the Act he admitted that the entries in the diaries pertaining to Ruparel Realty Group. The extract of his statement is placed on record at pages 89 to 92 of the paper book filed by the assessee. At pages 90 to 91 an excerpt of the table is given from the diary seized from the residence of Parikshit Sharma. A perusal of table excerpt reveals that against flat No.3802 two amounts have been mentioned i.e. Rs.50,00,000/- on 24/02/2021 and Rs.40,20,000/- on 25/02/2021. The said amount is stated to be on-money received from customers. The ld.Counsel for the assessee pointed that neither the seized material nor the opportunity of cross examination of Parikshit Sharma was allowed to the assessee. We find that the Assessing Officer in conclusion to para-3 has recorded that summons were issued u/s. 131 to Mr. Parikshit Sharma and video conferencing was scheduled on 19/12/2022 at 3.30 pm, however, the assessee and the witness did not attend the proceedings. The ld.Counsel for the assessee vehemently argued that no effective opportunity of cross examination was provided. The fact of providing video conferencing was merely an eyewash. The said proceedings were marred by technical glitches. The assessee was not able to connect, thus it was not an effective opportunity. No material is brought on record by the Department that an effective opportunity to corss examine Parikshit Sharma was allowed to the assessee. The addition has been made purely on the basis of statement of Parikshit Sharma and diary seized from his residence. It is a well settled principle of natural justice that the addition cannot be made on the basis of evidence collected at the back of the assessee, without affording opportunity of cross examination. The Hon’ble Apex Court in the case Andaman Timber Industries vs. CCE in Civil Appeal No.4228 of 2006 decided on 09/09/2015 held that failure to give the assessee right to cross examine the witness whose statements are relied to make addition is a breach of principle of natural justice. It is a serious flaw which renders the order a nullity. Similar view has been expressed by the Hon'ble Jurisdictional High Court in the case of H.R.Mehta vs. ACIT(supra). Thus, in view of our above observations coupled with reasons given by the CIT(A) for deleting the addition, we find no merit in ground No.3 of appeal.
In the result, appeal of the Revenue is partly allowed for statistical purpose.
C.O. NO.121/MUM/2023:
The assessee has filed Cross Objections raising three grounds. In respect of ground No.1, the ld.Counsel for the assessee stated at Bar that he is not pressing the same. In view of the statement made by ld.Counsel for the assessee, ground No.1 of the cross objections is dismissed as not pressed.
The ground No.2 of cross objections is corresponding to ground No.2 in appeal by the Revenue. Since, we have restored the issue back to the file of Assessing Officer we deem it appropriate to restore ground No.2 of cross objections to the Assessing Officer to be considered and decide along with ground No.2 in appeal by the Revenue. Hence, ground No.2 of cross objections is allowed for statistical purpose.
The ground No.3 of cross objections is in support of the findings of CIT(A) on the issue of on-money. Since we have dismissed the ground relating to on-money in Revenue’s appeal, ground No.3 of assessee’s cross objections has become infructuous.
In the result, cross objections filed by the assessee are partly allowed for statistical purpose.
To sum up, appeal of the Revenue and Cross Objections of assessee are partly allowed for statistical purpose.
Order pronounced in the open court on Tuesday the 26th day of March, 2024.