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Income Tax Appellate Tribunal, [ DELHI BENCH “G”: NEW DELHI ]
Before: SHRI AMIT SHUKLA & DR. B.R.R. KUMAR
1. The present appeal has been filed by the assessee against the order of ld. CIT(Appeals)-25, New Delhi dated 28.09.2017 for Assessment Year 2012-13.I n the memo of appeal following grounds have been raised by the assessee:-
“1. That the Ld. CIT(A) ought to have quashed/annulled the impugned reassessment order passed u/s 143(3)/148 of I.T. Act as 2 reassessment proceedings initiated u/s 147/148 of I.T. Act were illegal inter alia because: i. AO has not applied his mind so as to come to an independent satisfaction that he had reason to believe that income has escaped assessment as Reasons have been recorded on borrowed satisfaction without making any independent enquiries. ii. Requisite sanction as required from the competent authority .u/s 151 of I.T. Act is missing. iii. The reasons recorded indicate that the AO has acted on mere surmises and suspicion for making fishing and roving enquires. The requirement of law is “reason to believe” and not “reason to suspect”. iv. There is no nexus between the reasons recorded and escapement of income. v. Reasons do not indicate any failure on the part of the Assessee to disclose fully and truly all material facts necessary for assessment. 2. That the Ld. CIT(A) after having reproduced the ground raised by the Appellant against the issue of notice u/s 147/148 has failed to deal with or give any justification or basis against such specific legal ground which was supported by binding judgments of various Courts including Jurisdictional Delhi High Court and hence the appellate order as passed by the Ld. CIT(A) deserves to be cancelled.
3. That the Ld. CIT(A) has erred on facts and under the law in confirming the disallowance of Rs.92,45,788/- as made by the AO on account of indexed cost of improvement of immovable property as claimed by the Appellant while declaring long term capital gains from sale of such immovable property.
4. That after taking note of application under Rule 46A of I.T. Rules as filed for admittance of fresh/additional evidences, the Ld. CIT(A) has neither called for a remand report on the same from the 3 AO nor has specifically rejected the admittance of such additional evidences and therefore, non-consideration of such additional evidences by the Ld. CIT(A), vitiates the appellate order as passed by him.
5. That the assertions as made by way of Affidavits as filed before the AO and the Ld. CIT(A) including in the fresh evidences as filed before the Ld. CIT(A) for supporting the cost of improvement as made to the immovable property of the Appellant have neither been controverted nor disproved as both the AO and the Ld. CIT(A) failed to cross-examine the Deponent(s)/Govt. approved registered valuer/Buyer as the case may be and from this angle, the appellate order as passed by the Ld. CIT(A) deserves to be cancelled/quashed.
6. That the Ld. CIT(A) had no jurisdiction to make enhancement by way of further addition of Rs.88,73,318/- without giving a proper and valid show cause notice/reasonable opportunity of being heard to the Appellant for making such enhancement as provided u/s 251(2) of I.T. Act and consequently, the enhanced addition of Rs.88,73,318/- as made being wholly illegal, deserves to be 7. That without prejudice to above, the further enhancement/addition of Rs.88,73,318/- as directed to be made by the Ld. CIT(A) is wholly unjust, arbitrary and untenable both on facts and under the law without bringing any conclusive evidence on record to support such addition. At any rate, without prejudice, the further enhancement/addition of Rs.88,73,318/- as made is very excessive.
That the Appellant reserves its right to add, amend/modify the grounds of appeal. “
The facts in brief are that the assessee is an Individual, who had filed the return of income at Rs.7,14,644/- on 3.12.2013. The return was duly processed under Section 143(1) of the Income Tax Act, 1961 (the Act) on 21.01.2014. Thereafter assessee’s case was reopened under Section 147 of the Act based on certain
4 information received from ADIT (Investigation) Unit VI(2), New Delhi, and accordingly notice under Section 148 was issued on 26.03.2014, which was duly served on the assessee on 28.03.2014. The reasons recorded for reopening were as under:-
“Reasons for the belief that the income has escaped assessment in case of Sh. Shanti Prakash Chawia for the assessment year 2012-13 In this case, information along with relevant documents was received by this office from the ADIT (Inv), Unit-VI (2), New Deli vide his letter bearing F.No.ADIT (Inv.)/U-VI(2)/2013-14/527 dated 20.03.2014 therein stating that as per Dissemination Note, Sh. Shanti Prakash Chawla having Savings A/c. No.0497040100001200 with the Jammu & Kashmir Bank Ltd., Unit- 1, Parnevot Plaza, Court Road, Saharanpur, U.P. has transferred Rs.38 lakhs and Rs.70 lakhs on 10.03.2012 into the A/c No.0497040100001205 of Mrs. Silky Chawla. On making enquiries by the ADIT (Inv.) regarding the nature and source of funds of Rs.1.08 crores, it was explained by the assessee that the same is out of the sale proceeds of residential land situated at village Bhupatwala Kalan, Pargana Jawalapur, Haridwar, which has been sold for a consideration of Rs.1,08,23,671/-and on which the assessee has declared capital gain in the return of income filed for A.Y. 2012-13. On perusal of assessee’s computation of capital gain, the ADIV (Inv.),Unit-VI(2) notices that the assessee has claimed cost of improvement (with indexation) of Rs.92 lakhs but original bills for the same could not be produced being pertaining to F.Y. 2001-02, 2002-03 and 2003-04 (beyond 6 years). Further, on perusal of page
5 3 of Sale deed dated 27.02.2012, it is noticed that the built up area of this property was stated to be constructed before 40 years as a result of which cost of construction is taken @ Rs.4,008/- per sq. mtrs. by the Stamp authority instead of the normal rate of Rs.6,000/- per sq. mtrs. Therefore, the ADIT (Inv.), Unit – VI (2) concluded that no construction expenses have been incurred by the assessee on this property in F.Y. 2001-02, 2002-03 and 2003-04. In connection with the above observations of the ADIT (Inv.), Unit-VI (2), New Delhi and on examining the documents forwarded by him, it is found that the observations made by him are correct. Further, on verification of the details available on ITD system, it is noticed that the assessee for A.Y. 2012-13 has filed his e-return of income with this Ward on 03.12.2013 (as against the due date of 31.07.2012) therein declaring total income of Rs.7,14,844/- and the assessee’s case for the year under consideration has not been selected for scrutiny assessment. In view of the report of ADIV (Inv.), Unit – VI (1), New Delhi and verification of the documents enclosed therewith, I have reasons to believe that income chargeable to tax amounting to Rs.92,45,782/- has escaped assessment. Therefore, it is a fit case for initiation of proceedings u/s. 147 of I. Tax Act. Notice u/s 148 of I. Tax Act is being issued. Dated : 26.03.2014. Sd/- 26.3.2014 (Pawan Kumar Vashist ) Income Tax Officer, Ward-39 (3), New Delhi. “
6 3. The Assessing Officer after calling for the documents in respect of the issue raised in the reasons recorded noted that the assessee had sold an immovable property at Rs.1,08,23,671/- on 28.02.2012. In the computation of capital gain the assessee had claimed cost of improvement to Rs.92,45,782/-. Though the Assessing Officer on the perusal of the sale deed had accepted the value of the sale price of the immovable property, however, doubted the cost of improvement claimed by the assessee on the round that, assessee has failed to furnish any evidence. In response to the show cause notice assessee has filed an affidavit of the assessee which has been reproduced in the impugned assessment order. It was stated that assessee had purchased the property at Rs.1,08,00,000/- on 26.09.2001 and the total land area of the property was 2048.5 sq. mtrs. and out of which only 92.93 sq. mts. was built at the time of purchase. Later assessee built covered area of 544.4 sq. mtrs and aaccordingly, the assessee had incurred various expenditures for the improvement cost. However, assessee could not produce the relevant bills and vouchers for the improvements carried out from the financial years 2001 to 2004 and he stated that he changed his residence two times in past 10 years and the bills and vouchers were misplaced and more than 10 years have lapsed. It was claimed that, the total cost incurred for the improvement was incurred Rs.52,25,000/- in different years and otherwise also constructed area was more at the time of sale in comparison to the time of purchase. However, the Assessing Officer in absence of any evidence disallowed the cost of improvement claimed as cost of indexation and added back to the income of the assessee in the computation of long- term capital gain. Accordingly, an addition of Rs.92,45,782/- was made.
Before the CIT (Appeals) the assessee filed an application under Rule 46A along with following fresh documentary evidence and support of the cost / indexed of improvement, which are as under:- (a) Fresh Affidavit dated 12.10.2016 of the Assessee for clarifying further facts. (b) Duplicate copy of Regd. Govt. Valuer’s report dated 27.02.2012 of Er. Pankaj Gupta as issued prior to the sale of property made on 28.02.2012 where the Valuer has given details of cost of reconstruction made during the year 201 to 2004 aggregating to about Rs.41,40,000 for constructing two floors having covered area of 544.4 sq. mtrs. (c) Affidavit dated 12.10.2016 of Shri Manish Kumar S/o Shri Surender Kumar, previously engaged by the Assessee as manager-cum-supervisor at the site of reconstruction of the property during the period from 2001 to 2004 in which besides providing construction related cost, a photograph of construction site as taken during later stage of reconstruction work was also annexed.
The ld. CIT (Appeals) however, did not call for any remand report and instead of requiring the assessee to justify registered Govt. Valuer’s report, asked the assessee to produce the buyer, Swami Shashvatan and, as a witness. In response the assessee had filed a confirmation certificate dated 18.09.2017 of the buyer and the buyer expressed his inability to travel from his Ashram from Haridwar to Delhi on account of ill health condition. However, in his confirmation certificate he has confirmed that at the time of 8 purchase of the property the assessee had built up covered area on two floors comprising of 9 rooms, 2 stores, 6 toilets, 6 bathrooms and covered verandah and total constructed area was 544.40 sq. mtrs., which he stated was wrongly reflected in the sale deed dated 27.12.2012 at 92.93 sq. mtrs. as the same was typed from previous sale deed dated 26.09.2001. He also confirmed that he has paid purchase price of the said property at Rs.1,08,00,000/-, which was the fair market value at that time. The ld. CIT (Appeals) not only confirmed the cost of improvement as made by the Assessing Officer due to lack of evidence, but also made the enhancement observing that, on the one hand assessee has concealed the construction to evade stamp duty and on the other the true sale consideration was also concealed. Ld. CIT (A) was of the opinion that, since the assessee has not made could not produce any evidence that the construction was carried out between the financial year 2001-02 to 2003-04, therefore, he held that it should be safely presumed that newly construction was made in 2011-12 and, therefore, undisclosed investment has to be brought to tax under Section 69 of the Act. He made an enhancement income at Rs.88,73,318/- to the assessed income. The main reasoning was that first of all the assessee has purposely concealed the covered area in the sale deed at 92.93 sq. mtrs., whereas it has been claimed to be 544.40 sq. mtrs. Therefore, actual transaction has not been correctly recorded in the sale deed. The contents in his enhancement are inter-discussed at page Nos. 29 & 30 of the appellate order. In response the assessee has filed his written submissions which too are at page Nos. 31 to 32. However, the ld. CIT (Appeals) has made the enhancement after observing and holding as under:-
9 “8.27 It was also claimed by the Appellant in the Written Submissions dated 27.09.17 that there was no basis for alleging that any construction was concealed by the Appellant because the Appellant himself had declared an aggregate amount of Rs.52,25,000/- towards cost of improvement as incurred by him over the three year period from FY 2001-02 to FY 2003-04 for demolishing the old building structure and rebuilding a new building structure comprising of two floors and having a covered area of 544.40 sq. mtr. However, it is seen that there was no evidence at all that any such Construction was done in the period from FY 2001-02 to FY 2003-04 and neither any Bills/Vouchers and or Documents or any other evidence or material could be produced by the Appellant, nor there is any other evidence to show that any such Construction was done in those years. In fact, the Appellant has not even been able to show the source for any such expenditure towards Construction in those years and has made vague claims stating that the investment of Rs.52,25,000/- was made out of past savings, contributions made by family members, close relatives and friends and has also claimed that he had used the money received by him after the death of his parents. However, the Appellant has failed to specify as to what were the past savings, when were these disclosed to Tax, who were the claimed family members, close relatives and friends who are claimed to have had made contributions, what were these contributions, what was the mode of the contributions, whether by Cash or by Cheque etc., what was the money received by him after the death of his parents, what was the mode in which such money was received, whether such money was disclosed to Tax etc. It is clear that the Appellant is making self serving claims which are totally without any basis.
8.28 It is seen that the Appellant in Para 9 of the Affidavit dated 12.10.16 has claimed that at the time of sale of the Property on 27.02.12, he i.e. Sh. Shanti Prakash Chawla was requested by the Buyer Swami Shashvatanand s/o Shri Ramgopal to mention in the Sale Deed the covered area of 92.93 sq. mtr comprising of 3 rooms, toilet, bathroom and kitchen on single floor as was mentioned in the Purchase De6d dated 26.09.01 instead of the actual ‘newly rebuilt’ (as per the Appellant) covered area of 544.40 sq.mtr. on two
10 floors comprising of 9 rooms, 2 stores, 6 toilets, 6 bathrooms, covered verandah etc., as the Buyer was interested in minimizing the Stamp Duty charges payable by him at the time of registration of such Property by showing the built up property to be the same i.e. about 40 years old even though it was ‘newly rebuilt’ (as per the Appellant), and that the Appellant agreed to such request of the Buyer. From such claims, made through the Affidavit dated 12.10.16, filed in the appellate proceedings, it is clear that the covered area of 544.40 sq. mtr. on 2 Floors was not that made about a decade earlier i.e. FY 2001-02 to FY 2003-04, but was stated to be ‘newly ! rebuilt’. Thus, the claims of the Appellant are contradictory and hence cannot be admitted and have to be rejected.
8.29 The Appellant could not give any justification as to why it should not be concluded that on one hand, the Construction was concealed and on the other hand, the Consideration was also concealed in the Sale Deed dated 28.02.12. The Appellant also could not give any justification as to why it should not be concluded that the Consideration of Rs.88,73,318/- was received out of Books and was an Undisclosed receipt not recorded in the Sale Deed. Flence, an Enhancement of Rs.88,73,318/- is to be made to the assessed Income.
8.30 Though it was not argued so, but even if it is argued that if the Construction of 544.40 sq. mtr. was not done in FY 2001-02 to FY 2003-04, there would be some expenditure in the Construction of 544.40 sq. mtr., but it is seen that the Appellant has not come with clean hands and though it is clear that the Construction was not made in FY 2001-02 to FY 2003-04, the Appellant has not specified when the Construction was made and what was the investment. In the absence of any details/documents, if it is concluded that the such ‘newly rebuilt’ Construction was made in FY 11-12 (i.e. the previous year relevant to the year under consideration), then the undisclosed investment on the same will have to be brought to Tax u/s 69 of the Income Tax Act, 1961.
8.31 In view of the above discussion, the disallowance of the 11 claimed Indexed Cost of Improvement amounting to Rs.92,45,782/- cannot be accepted and is hereby rejected. Ground No. 2 of the appeal is rejected. An Enhancement of Rs.88,73,318/-, as proposed vide the Order Sheet Entry dated 20.09.17 shall be made to the assessed income. “
On the issue of re-opening, he held that assessee was unable to show any defect in acquiring jurisdiction or on reasos recorded therefore, it is valid.
Before us the ld. Counsel for the assessee on the validity of re-opening submitted that reasons recorded are purely based on investigation report without any proper application of mind by the Assessing Officer or conducting any own independent enquiries. In support he relied upon the following decisions:-
CIT Vs. (1) Atul Jain (2) Smt. Anita Jain Jurisdictional Delhi High Court. 299 ITR 383;
2. Bawa Abhai Singh Vs. DCIT Jurisdictional Delhi High Court. 253 ITR 82;
SFIL Stockbroking Co. Vs. ITO Jurisdictional Delhi High Court. 325 ITR 285.
8. On merits, he submitted that here in this case the property was purchased in financial year 2001-02 and at the time of purchase it had a very small covered area of 92.93 sq. mtrs. and it was an old property of more than 30 years. Thereafter the assessee had done huge construction work and ultimately the covered/construction area was 12 544.40 sq. mtrs. which consisted of two floors comprising of 9 rooms, 2 stores, 6 toilets, 6 bathrooms and covered verandah, etc. Due to passage of time of almost 8 to 10 years, relevant bills and vouchers could not be produced and the same were misplaced. However, the fact of the matter is that assessee had constructed huge area and in that he has incurred huge cost over the years which cannot be denied. The ld. Assessing Officer has simply made the addition and has disallowed the claim of cost of improvement on the ground that evidences are not filed. In the absence of such documentary evidences the assessee has tried to corroborate its claim by filing the Registered Govt. Valuer’s Report issued prior to the sale of property, details of cost of reconstruction during the year 2001 to 2004 aggregating to Rs.41,40,000/- for constructing two floors in the total land area of 2048.5 sq. mtrs. and constructed area of 544.40 sq. mts. At the time of purchase it was only area of 92.93 sq. mts. was built. The assessee has also filed an affidavit of Manager-cum-supervisor of the assessee who had carried out the reconstruction of the property during that period including the photographs of construction site as taken during the latest test of construction. Even the buyer has confirmed that there was a covered area of 544.40 sq. mtrs., consisting of two floors / storeys. Simply because there was a mistake in the total covered area mentioned in the sale deed shown at 92.93 sq. mtrs., it does not mean that assessee has not carried out any improvement or reconstruction work. In fact, this could have been verified by spot enquiry. In so far as enhancement done by the ld. CIT (Appeals) he submitted that, first of all the case was re-opened under Section 148 of the Act only on particular issue of examining the cost of improvement and the ld. CIT (Appeals) could not have travelled beyond the scope on reasons recorded of disallowance of indexed cost. He could not altogether look
13 into new source of income apart from Rs.88,73,318/- leading to double addition because, firstly, he has confirmed the disallowance of cost of improvement of the same property which was claimed to be carried out from the years 2001-02 to 2003-04; and at the same time, he added cost of reconstruction on the ground that same must have been done in the financial year 2011-12 and accordingly has taxed the amount under Section 69 of the Act as undisclosed investment.
On the other hand, the ld. DR submitted that here in this case the sale deed which is a statutory document, in the sense that the valuation of the payment of stamp duty has been done as per the actual plot area and covered area. Thus, there was concealment of fact in the sale deed itself. Therefore, it cannot be presumed that assessee has undertaken any improvement or reconstruction of the property. Apart from that there is no iota of evidence that the assessee has carried out any improvement during the financial year 2001-02 to 2003-04. On the issue of enhancement relied upon by the order of CIT (Appeals), he submitted that, since there was inconsistency in the stand of the assessee and confirmation certificate of the buyer cannot lead to any inference that the assessee has constructed any property, therefore, observation of Ld. CIT (A) is sustainable. Otherwise, if the assessee had carried out any construction activity then source of investment has not been disclosed which has been rightly added under Section 69 of the Act.
We have heard the rival submissions and also perused the relevant material placed on record. In so far as validity of re-opening is concerned, from a bare perusal of the reasons recorded it is seen that there was a specific information along with relevant documents which came in possession of AO, from the office of ADIT (Investigation).
14 Thereafter the Assessing Officer observed that the capital gain which was also examined by the ADIT (Inv.) the assessee has failed to substantiate the cost of improvement of Rs.92,00,000/- in the absence of any original bills. In the light of specific information and examination by the ADIT which was forwarded to the Assessing Officer, he himself has examined those documents including the computation of income and found that there was failure to file any specific information by the assessee regarding the construction expenses. Thus, the Assessing Officer had reasons to believe that income chargeable to tax has escaped assessment, because the cost of improvement could not be substantiated by the assessee. Thus, the reasons recorded by the Assessing Officer are sufficient for assuming jurisdiction for re-opening the case under Section 148 of the Act. The ground raised by the assessee for challenging the validity of re-opening on this score is dismissed.
Now coming to the issue of disallowance of cost of improvement, it is an undisputed fact that, personally the assessee could not produce any bills and vouchers for carrying out improvement work for re-construction in the said property. It is also undisputed that the assessee had purchased the property in the financial year 2001-02 which was 30 years old for an amount of Rs.4,42,000/-. The total area of the property was 2049 sq. mtrs., out of which only 92.93 sq. mtrs. was built up area. The said property was sold on 28.02.2012 for a consideration of Rs.1,08,23,671/-. The cost of improvement has been denied on the ground that, firstly, assessee could not produce the bills and vouchers for the claim of carried out re-construction work; and secondly, in the sale deed dated 28.02.2012, the covered area has been mentioned at 92.93 sq. mtrs. Before the Assessing Officer the 15 assessee could only file affidavit of the assessee explaining the year wise cost of improvement aggregating to Rs.52,75,000/- based on which the indexed cost of improvement was claimed at Rs.92,45,782/- Before the CIT (Appeals) the assessee had filed another affidavit along with copy of Registered Valuer’s Report dated 27.02.2012, issued prior to the sale of property made on 28.02.2012, wherein the valuer had given the details of cost of construction made during the years 2001- 02 to 2004-05 for sums aggregating Rs.41,40,000/- for constructing of two floors having covered area of 544.40 sq. mtrs. First of all, this issue called for an inquiry by the AO and he could have carried out spot enquiry or Ld. CIT (A) could have asked the AO to examine the Govt. Valuer as to whether there was any constructed or covered area of 544.40 sq. mtrs. as claimed by the buyer and also by the assessee, that assessee had constructed two floors with as many as 9 rooms, 2 stores, 6 toilets, 6 bathrooms and covered verandah etc. The Govt. Valuer’s Report simply could not have been brushed aside particularly in the case where assessee could not produce bills and vouchers for the reasons cited by him as it was more than 8 to 10 years old and these could not be placed due to frequent change in the residence of the assessee. The buyer has also filed a confirmation certificate, who has also stated that at the time of purchase by him the property consisting of huge constructed area of 544.40 sq. mtrs. All these documents definitely substantiate the theory of the assessee. However, the ascertainment of this fact required proper examination and inquiry before turning down the claim of the assessee in the given circumstances. The best course would have been spot inquiry which could have proved whether the constructed covered area was 544.40 sq. mtrs. or 92.93 sq. Mtrs as mentioned in the sale deed. Wrong mention of constructed area may be an offence under the Stamp Duty
16 or Registration Act, but for the purpose of computation of capital gain and cost of improvement assessee can substantiate by adducing any evidence or by an inquiry by the AO. If the assessee had constructed that much of area which has been certified by the Registered Valuer’s Report, this would be a good piece of evidence at least for examining the same. Thus, in the interest of justice, we remit this issue back to the file of the Assessing Officer with a direction to examine the evidences as filed before CIT (A) and Assessing Officer if he deems fit, may carry out inquiry to verify the claim of the assessee and determine the cost of improvement as claimed by the assessee. Accordingly, this issue is remanded back to the Assessing Officer.
In so far as enhancement by the CIT (Appeals), we are unable to appreciate his reasoning, because, firstly he stated that cost of improvement carried out by the assessee in the financial years 2001- 02 to 2003-04 is un-tenable as the assessee could not produce bills and vouchers; and, on the other hand, he held that, if assessee had constructed covered area, then the same should be presumed to have been carried out in the financial year 2011-12 which should be added under Section 69 of the Act. Both the reasoning cannot be sustained. The only issue for case was reopened u/s 147 and reasons were recorded was that, cost of improvement claimed by the assessee was correct or not. However, Ld. CIT (Appeals) is now trying to bring an altogether new source of income to tax on presumption that assessee might have made investment out of the books undisclosed sources for construction of property, which is beyond the scope of re-opening as the Ld. CIT (Appeals) in the appellate proceedings cannot enhance scope of reasons recorded. On this ground also the enhancement made by the ld. CIT (Appeals) cannot be sustained and the same is directed to be deleted.
In the result, the appeal of the assessee is partly allowed, for statistical purposes.
Order pronounced in the open court on : 11/01/2022.