SHANTI PRAKASH CHAWLA,NEW DELHI vs. ITO, WARD- 34(3), NEW DELHI

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.

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.

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. “

2. Bawa Abhai Singh Vs. DCIT Jurisdictional Delhi High Court. 253 ITR 82;

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.

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.

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.

Order pronounced in the open court on : 11/01/2022.