Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, BANGALORE BENCH ‘C’, BANGALORE
Before: SHRI A.K.GARODIA, AM (SMC)
This is assessee’s appeal directed against the order of the ld.CIT(A), Bangalore-2 dated 30-09-2015 for the assessment year 2006- 07.
The grounds raised by the assessee are as under;
“1 The order of the CIT (A) in so far as they are against the appellant are opposed to law, equity, and weight of evidence, probabilities, facts and circumstances of the case.
2 The order of re-assessment is bad in law and void-ab-initio for want of requisite jurisdiction especially, the mandatory requirements to assume jurisdiction u/s 148 of the Act did not exist and have not been complied with and consequently, the re-assessment requires to be cancelled.
3 The learned CIT (A) is not justified in sustaining the addition of R.44,51,000/- made towards LTCG to the income reported y the appellant under the facts and in the facts and circumstances of the case.
Without prejudice to the right to seek waiver with the Hon'ble Chief Commissioner of Income Tax/Director General of Income Tax, the Appellant denies himself liable to be charged to interest under section 234B of the Act which under the facts and circumstances of the appellant’s case deserves to be cancelled.
For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs”.
Ground No. 1 is general and hence requires no adjudication. Regarding validity of re-opening as per ground no. 2, it was submitted by the ld. AR of the assessee that the reasons recorded by the AO for re-opening are available on pages 15-16 of the paper book. He further submitted that the agreement of sale in dispute is available on pages 23 to 28 of the paper book which was supplied by the AO to the assessee along with his order dated 18-0-2014 for disposing of the objections of the assessee against the re-opening.
He further submitted that a copy of final sale deed is available on pages 38 -45 of the paper book, as per which, the buyer is A. Prakash and the sale consideration is only Rs.8.00 Lakhs as against sale consideration as per the agreement to sell of Rs.52,51,000/-.
He submitted that this agreement of sale is available on pages 23-28 of the paper book but is not a real agreement and it was executed for the purpose of attracting buyers as advised by Shri S.Gangadhar and therefore, the same cannot form the basis for re-opening of the assessment.
4. The ld. DR of the revenue supported the order of the ld.
CIT(A).
5. I have considered the rival submissions. I find that the issue regarding validity of re-opening has been decided by the ld. CIT(A) as per para no.3.4 to 3.5 of his order and these paras are re- produced below for the sake of ready reference;
“3.4 I have carefully considered the appellant's submissions. As is clear from the assessment order, the AO was in possession of information that, in a search conducted in the case of Shri S.Gangadhar, there was an agreement for sale between the appellant vis-a-vis Shri S.Gangadhar and one Shri A.Prakash in which the sale consideration for which the appellant had agreed to sell the said property for Rs.51,51,000/-. The appellant's stand while filing the return of income was that he had ultimately sold the property for Rs.8,00,000/- only. Hence, the AO took recourse to action u/s 147 by issue of a notice u/s 148 of the Act. It is clear that the reopening of the assessment was not due to change of opinion on the part of the AO. The apex court in the case of ACIT vs Rajesh Jhavery Stock Brokers P. Ltd. reported in (2007) 291 ITR
500 after considering various decisions rendered by it in the past, construed the words 'reason to believe' in section 147 of the Act and held that, the AO has cause or justification to know or suppose that any income has escaped assessment, then it could be said that the AO had reason to believe that the income chargeable to tax has escaped assessment. The apex court further held that the expression 'reason to believe' in section 147 of the Act cannot be read to mean that the AO should have finally ascertained the fact by legal evidence or conclusion. The apex court further held that, at the stage of issue of notice u/s 148 of the Act, the only question to be considered is, whether there was relevant material on which a reasonable person could have formed a requisite belief and not whether the materials would conclusively :-:.e escapement of income. The relevant portions from the said judgment are reproduced below: "16. Section 147 authorises and permits the Assessing officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word ' reason ' in the phrase 'reason to believe' would mean cause or justification. If the Assessing officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an in built idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces in Central Provinces manganese ore Co. Ltd. v ITO (1991) 191 ITR 662, for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage , what is required is 'reason to believe', but not the established fact or escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is also because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction [see ITO v Selected Dalurband Coal Co. P. Ltd. (1996) 217 ITR 597 (SC); Raymond woollen Mills Ltd. v ITO [(1999) 236 34(sc)].
The scope and effect of section 147 as substituted with effect from April 1, 1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied: firstly, the Assessing Officer must have reason to believe that income, profits or gains chargeable to income-tax have escaped assessment, and, secondly, he must also have reason to believe that such escapement has occurred by reason of either omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing officer could have jurisdiction to issue notice under section 148 read with section 147(a). But under the substituted section 147 existence of only the first condition suffices. In other words, if the Assessing Officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is, however, to be noted that both the conditions must be fulfilled if the case falls within the ambit of the provision to section 147. The case at hand is covered by the main provision and not the proviso.
So long as the ingredients of section are fulfilled, the Assessing officer is free to initiate proceeding under section 147 and failure to take steps under section 143(3) will not render the Assessing officer powerless to initiate reassessment proceedings even when intimation under section 143(1) had been issued."
3.5 Applying the ratio laid down by the apex court in the aforesaid case, I hold that the AO was justified in taking recourse to action u/s 147 of the Act for reopening the assessment, which stood only at the stage of intimation having been sent u/s 143(1) of the Act when the AO did not have with him the benefit of information about the agreement for having sold the property for a consideration of Rs.52,51,000/- and not Rs.8,00,000/- as had been made out by the appellant while filing the return of income. Under such facts, it is clear that the Assessing Officer had prima facie belief that income had escaped assessment within the meaning of Sec.147 for notice u/s.148 to be issued. Moreover, it is on record that the reasons recorded have been communicated to the appellant and the objections raised by the appellant against action u/s.147 have been disposed of vide proceedings dated 18/3/2014 before making the assessment. Therefore, all procedures as laid down for initiating and proceeding with reopening of the case have been followed. The reopening having been made within time allowed under the Act, on specific reasons to believe, recorded by the A.O. and communicated to the appellant is in order and the assumption of jurisdiction u/s.147 read with section 143(3) is therefore upheld”.
5. From the above paras of the order of ld. CIT(A), it comes out that the AO had prima facie belief that income had escaped assessment and therefore, I find no infirmity in the order of the ld. CIT(A) on this issue.
Hence, ground no.2 of the assessee’s appeal is rejected.
Regarding ground no.3, it was submitted by the ld.AR of the assessee that the issue on merit has been decided by the ld.CIT(A) as per para 4.5 to 4.7 of his order. He further submitted that as per letter dated 24-03-2014, submitted by the assessee before the AO, copy available on page 32-34 of the paper book, it was submitted by the assessee before the AO that the sale agreement dated 04-02-2005 is totally unreliable and unworthy of placing credence and it was also submitted by the assessee in this letter that the assessee has executed an affidavit on 20-02-2013 and copy of the same was furnished to the AO also and its copy is available on pages 46-48 of the paper book. He pointed out that it is explained in the affidavit that the agreement for sale of Rs.52.51 lakhs has been executed on the advice of Mr. Gangadhar, who suggested that this agreement will help in getting a buyer for a good consideration and on his advice only, it was stated in the said agreement that the assessee had received an advance of Rs.12,51,000/- but in fact, no such advance was received. It is also explained in the affidavit that there was a road acquisition proposed, which would result in a large portion of the property being acquired for that purpose and since Mr.Gangadhar could not bring any buyer as suggested by him, the assessee had agreed to sell the property to Mr. A. Prakash for a sum of Rs.8.00 lakhs and therefore, no addition is justified.
The ld. DR of the revenue supported the orders of the authorities blow.
I have considered the rival submissions. First of all, I re-produce the relevant portion from the order of the ld. CIT(A) being para 4.4 to 4.8 of the order of the ld. CIT(A)..
“4.4 The relevant written submissions of the appellant in this regard are reproduced below:
4.3 It is submitted that the learned A.O. is not justified in holding that the claim of the appellant is an after-thought. It is worth mentioning here that the explanation of the appellant is entirely plausible and within the realms of probabilities. The fact that the sale agreement was entered into by the appellant with Sri Gangadhar and Sri A.Prakash has to be borne in mind. It is also to be borne in mind that Sri A.Prakash, who ultimately purchased the property, has not signed the seized sale agreement and he was not even present when the sale agreement was got up. Neither has Sri Gangadhar, who has signed the sale agreement become a party to the Sale Deed or has affixed his signature as a witness in the Sale Deed. In other-words, the Sale Agreement and Sale Deed are totally divorced with one another and cannot refer to the same transaction between the appellant and Sri A.Prakash.
4.4 The aforesaid submission of the appellant is all the more so when the date of execution of the sale deed and the contents of the seized sale agreement are considered. It is submitted that the appellant has executed the registered sale deed on 09/12/2005 i.e., more than 10 months after the seized sale agreement dated 04/02/2005. It is worth mentioning here that the seized sale agreement had provided for a time of 3 months to complete the sale transaction. Therefore, the seized sale agreement has no nexus or connection with the sale of the property by the appellant to Sri A.Prakash and therefore, the explanation of the appellant that the seized sale agreement is not reliable for computation of the capital gains on the sale of the property by the •••� appellant cannot be brushed aside as an after-thought.
4.5That apart, it is also relevant to mention here that the learned A.O. himself has observed in the assessment order that the market value of the property on the date of sale was Rs 14 68 500/ and the guidance value of the property for registration the property for registration was Rs. 14,96,000/- . In as much as the property of the appellant had various encumbrances and the sale made by the appellant was a distress sale, the appellant sold the property for Sum of Rs. 8,00,000/-. The sale consideration mentioned in the seized agreement to sell is Rs. 52,51,000/-, which is more than 3 1/2 times the market value of the property. Hence, the claim of the appellant that the seized sale agreement was merely got up on the advice of Sri Gangadhar to obtain higher price cannot be rejected on the mere ground that the same is an after-thought. The undisputed facts show that the sale consideration mentioned in the seized sale agreement does not correspond with the ground realities and hence, the same cannot be held to be reliable.
4.6 The next aspect of the matter is the observation of the learned A.O. that the appellant has not produced any further evidence in support of the plea that the seized sale agreement was not related to the sale of the property by the appellant and in any case, the same was not representing the real state of affairs, except the self declared Affidavit. It is submitted that the appellant has given evidence by way of making a statement on oath in the Affidavit filed before the learned A.O. After filing the Affidavit, the learned A.O. has not summoned the appellant to record a statement on the averments made in the Affidavit on oath to discredit the version of the appellant. in the case of MEHTA PARIKH AND CO. V. CIT reported in 30 ITR 181, the Hon'ble Supreme Court observed as under :-
'It has to be noted, however, that beyond these calculations of figures, no further scrutiny was made by the Income-tax Officer or the Appellate Commissioner of the entries in the cash book of the appellants. The cash book of the appellants was accepted and the entries therein were not challenged. No further documents or vouchers in relation to those entries were called for, nor was the presence of the deponents of the three affidavits considered necessary by either party. The appellants took it that the affidavits of these parties were enough and neither the Appellate Assistant Commissioner, nor the Income-tax Officer, who was present at the hearing of the appeal before the Appellate Assistant Commissioner, considered it necessary to call for them in order to cross- examine them with reference to the statements made by them in their affidavits. Under these circumstances it was open to the Revenue to challenge the correctness of the cash book entries or the statements made by those deponents in their affidavits.'
4.7 In light of the above position, it is submitted that the learned A.O. brush aside the evidence given by the appellant by way of the sworn affidavit. It is also relevant to mention here at this stage that, apart from the aforesaid evidence in the form of an Affidavit, the appellant had also pleaded before the A.O. to summon Sri Gangadhar and Sri A.Prakash to ascertain their version in respect of the transaction entered into by the appellant. The learned A.O. has chosen to remain silent and has not summoned the aforesaid 2 parties. Thus, the learned A.O. cannot hold that the appellant has not produced any further evidence when in-fact, the appellant has explained the circumstances that go to show that the seized sale agreement cannot be the basis for computation of capital gains and when the appellant has pleaded for examination of certain persons to support the version of the appellant. Hence, the rejection of the explanation of the appellant on the ground that no evidence is produced is opposed to law and facts of the appellant's case and consequently, the addition made by the learned A.O. is unjustified and the same deserves to be deleted."
4.5 I have carefully considered the appellant's submissions and perused the assessment order and other materials placed before me. The claim of the appellant that he ultimately sold the property for only Rs.8,e0,000I-, which is much below the consideration as per the agreement between the appellant and the buyer, which is much below the guidance value of Rs.14,96,000/- for purposes of registration with the Sub-Registrar. It is, indeed, strange that the appellant agreed to sell a property which was originally agreed to be sold for a consideration of as much as Rs.52,51,000/- as per the agreement between the appellant and the purchaser. In a metropolitan city like Bengaluru where the cost of land rules very high due to enormous demand for land for residential or other purposes, it is highly improbable that anyone would have reduced the sale value of the land to as much as Rs.8,08,000/- from the originally agreed sale consideration of Rs.52,51,000/- and even below the guidance value of Rs.14,96,000/-. The appellant's contention that the transaction was due to distress sale appears to be an offshoot of belated thought concoction as the difference between the date of original agreement and the sale deed is only 10 months. If the conditions for distress sale had developed during the interregnum, the appellant would have persisted with the sale consideration as envisaged in the original agreement in order to get over the cause of distress. The appellant's contention in this regard surpasses comprehension. In the circumstances, the action of the AO in taking the sale consideration at Rs.52,51,000/- for purposes of determining the long term capital gains, which is on the basis of the original agreement between the appellant and the purchaser and is not based on surmises and conjectures. 4.6 It is on record that the agreement to sell dated 4/2/2005 is between the appellant as seller and Shri S.Gangadhar as buyer wherein Shri A.Prakash is the purchaser. The ultimate sale has fructified within 10 months of the appellant agreeing to sell the same to the purchaser. No evidence or any reasons for the alleged distress sale have been furnished by the appellant either before the AO or before me during the course of appeal hearing. As per the said agreement to sell, a sum of Rs.12,51,000/- had already been received in cash by the appellant on the day of the agreement i.e. 4/2/2005. Under such circumstances, to turn back and say that the said agreement was not correct as made out in the Affidavit dated 20/2/2013, is not acceptable. The relevant paragraphs from the Affidavit are reproduced below:
3. That, on the advice of Mr. Gangadhar, I agreed to sign a sale agreement brought by him showing that the agreed consideration for the sale of the property was Rs.52,51,000/-
and that I had received an advance of Rs.12,51,000/- though, factually, there was no agreement to sell the property and no advance received at that time, 9. THAT, I reiterate that the sale agreement dated 04-022005 signed by me is not a real document but was only created on account of circumstances mentioned above and I have received the consideration only in terms of the registered sale deed executed in favour of Sri Prakash dated 9-12-2005."
4.7 An affidavit filed by the appellant on 20/2/2013 (after 8 years) is merely a self-serving document. The argument of the appellant that :-e 'agreement to sell' was signed only by Shri Gangadhar (and not the other purchaser, Shri A.Prakash) whereas in the final sale deed, only Shri A. Prakash is the purchaser and Shri Gangadhar is not mentioned as a party does not help the appellant. This is more so as one of the witnesses is common in the agreement to sell and the registered document. The appellant has admitted that he had signed the agreement to sell dated 4/2/2005 for a consideration of Rs.52,51,000/- (as per which a sum of Rs.12,51,000/- had already been received as advance in cash). Under such facts, where the buyer is the same and, in the absence of any evidence of a 'distress sale' the sale having been executed within a short span of time, the claim of the appellant cannot be accepted.
4.8 Even if the appellant's contention was to be accepted as per section 50C, the sale price would be Rs.14,68,500/and not Rs.8,00,000/- (as also admitted by the appellant) shown by the appellant. However, in this case, the sale price has to be taken at Rs.52,51,000/- as per the agreement to sell dated 4/2/2005, which the appellant had not declared and which was unearthed from the information collected by the Investigation department for the reasons detailed above. 9. From these paras, it is seen that it was submitted by the assessee before ld. CIT(A) also that apart from furnishing evidence in the form of affidavit, the assessee had also requested the AO to summon Shri A.Gangadhar and Shri A. Prakash to ascertain their version in respect of the transaction entered into by the assessee but the AO has not summoned them and under these facts, it cannot be said that the assessee has not produced any further evidence.
The ld. CIT(A) also noted in para 4.8 of his order that even if the assessee’s contention was to be accepted then also, as per sec.50C, the sale price would be Rs.14,68,500/- and not Rs.8.00 lakhs as also admitted by the assessee. But thereafter, he has proceeded to decide on this basis that in the present case, the sale price has to be taken at Rs.52,51,000/- as per agreement to sell dated 04-02-2005. I fail to understand as to how the affidavit of the assessee can be disregarded by the lower authorities by saying that it is a self serving document without summoning the relevant persons i.e. Mr. Gangadhar and Mr. A.Prakash.
This fact is also relevant that as per stamp duty value, the sale price is stated to be Rs.14,68,500/- as noted by the ld. CIT(A) in para-4.8 of his order and if that be so, then the sale agreement dated 04-02-20-05 showing a sale consideration of Rs.52.51 lakhs becomes doubtful, particularly, when there was proposed acquisition of land in that area would have resulted in acquisition of a large portion of the property for that purpose and the authorities below have not controverted this claim of the assessee regarding acquisition for road.
It is also important that as per the A.O., the agreement to sell dated 4.2.2005 for sale of this property to Shri S. Gangadhar and Shri A.
Prakash is correctly indicating the sale value of this land and he adopted that value for computing capital gain but if that agreement is real and valid then full effect thereof should have been given by the A.O. but he has not done so. As per that agreement, the assessee received an advance of Rs. 12.51 lacs and the same was to be forfeited if the full payment is not made in the prescribed time. The sale is to Shri A. Prakash alone and not to Shri S. Gangadhar and Shri A. Prakash and therefore if the A.O. considered that this agreement is real and valid, he should have given full effect to it by reducing the advance amount of Rs. 12.51 lacs from cost of acquisition because the same gets forfeited but the A.O. has not done so and he has allowed deduction on account of indexed cost acquisition without any such reduction. This shows that the A.O. also has not given full effect to this agreement. Considering all these facts, I feel it proper that in the facts of the present case, the stamp duty value of the property in question of Rs.14,68,500/- noted by the ld. CIT(A) in para 4.8 of his order and also by the A.O. in Para 7 of the assessment order should be adopted as the sale value of the property for computing the long term capital gains instead of Rs.52.51 lakhs as has been done by the AO. This ground is partly allowed.
Regarding ground no.4 in respect of charging of interest u/s 234B, I feel that this issue is consequential in nature and therefore, no separate adjudication is called for.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open Court on the date mentioned in captioned page.