ASHFORD REALTY,MUMBAI vs. DCIT 15(1), MUMBAI

The only issue in this appeal of assessee is against the order of the CIT(A) in confirming the levy of penalty by the AO u/s. 271(1) ( c) of the Act on estimated income on sale of scrap of building and consequent estimated expenses of demolition. For this, the assessee has raised the following two grounds:- “2. The learned CIT(A) erred in confirming the allegation of the Assessing Officer that proceeds of scrap of Rs.5,60,000/- had been recovered by Your Appellant and the cost of demolition of Rs.3,50,000/- would also have been borne by him.

We have heard the rival contentions and gone through the facts and circumstances of the case. Brief facts of the case are that the assessee is a builder and developer. During the year under consideration, the assessee has purchased a land at Vile Parle from Lyka Labs Limited and other three joint vendors vide purchase agreement dated 8th June, 2005. At the time of purchase of said land it had old structures, constructed using technique of load bending and not having much of RCC work. Thereafter, the assessee appointed an architect for preparing drawings and plans and the same was approved by the BMC and IOD was given in the month of May 2006. After obtaining IOD, the assessee was to demolish old standing structure. The assessee on 11-05-2006 paid a sum of Rs.75,000/- to one Saurabh, a Labour Contractor for removing of debris and movement of vehicles on this site. According to the AO, the assessee has demolished the old standing structure and sold the scrap after employing labour for demolition. In view of these facts, the AO estimated the sale of debris and cost of expenses for demolition at Rs.5.60 lacs and Rs. 3.50 lacs for value of debris and expenditure on labour for demolition of the structure respectively. Accordingly, the AO added Rs.9.10 lacs to the returned income of the assessee by observing as under:- “However, since the Architect Certificate has been produced and according to which Rs.5,60,000/- may be the value of Debris and expenditure of Rs.3.00 lacs for removal of the same has been estimated and no labour expenditure for Demolition has been given. Therefore, considering the totality of the facts of the case including expenditure u/s. 69C. I make an addition of Rs.9.10 lacs including receipt of Debris as per working given by assessee. Penalty proceedings u/s. 271(1) ( c) of the income Tax Act, 1961 is initiated for furnishing inaccurate particulars of income and concealing the particulars of income.” No further appeal was preferred by the assessee against this addition.

The AO started penalty proceedings for not declaring the above expenditure incurred for demolition of structure and receipts on account of sale of scrap and levied the same u/s. 271(1) ( c) of the Act. Aggrieved, the assessee preferred appeal before the CIT(A), who also confirmed the action of the AO in levying the penalty u/s. 271(1) ( c) of the Act. Now, the assessee is in second appeal before the tribunal.

Before us, the ld. counsel for the assessee argued that the responsibility of demolition of old structures was always of seller of the building i.e. Lyka Labs Limited and demolition was also done by the seller only after receiving/obtaining of IOD in May 2006 in accordance with the BMC rules. It was contended that the property was acquired on 8-6-2005, but lot of time was taken by BMC to give permission for demolition and that also after passing of plans for the new building. The ld. counsel for the assessee also stated that the entire demolition was done by the seller, Lyka Labs Limited and assessee was nothing to do with the same. On the other hand, the ld. Sr.DR relied on the orders of the lower authorities.

We find from the above arguments and case records that there is nothing on record, which establishes that the assessee has carried out demolition work of old structure by employing any contractor or labours. There is no evidence on record that the assessee has received any amount, which was estimated by the AO. We find that the AO has neither examined nor gone into the records of Lyka Labs Limited, from whom the assessee has purchase the said property. Even otherwise, we are convinced with the arguments of the ld. counsel of the assessee that this is merely an estimation and sale of scrap is only Rs. 5,60,000/- and approximate expenditure for demolition of the same is Rs.3,50,000/-. Practically there is no income and if it at all, at the best the income can be estimated at Rs.2,10,000/- out of the same.

We further find from the facts of the case that neither the AO nor CIT(A) has established that the assessee has concealed the income. In our view, the Assessing Officer just on the basis of conjectures and surmises estimated the income on account of expenditure incurred on demolition of building and consequent receipts on account of sale scrap. This is merely an estimate without any basis. The assessee’s explanations seems to be true that the previous owner, Lyka Labs Limited has demolished the building after obtaining permission from BMC, which has taken lot of time and that was done after transfer of said property in assessee’s name. In view of these facts, we are of the view that as per rule of evidence there is distinction between set of facts “not proved” and facts disproved and facts proved. Benefit of the principle that mere non- satisfactory nature of explanation furnished cannot amount to proof of falsity of explanation furnished can apply in case the fact-finding authority reaches to a stage where it can only conclude that the fact alleged is ‘not proved’ which would result that except rejection of the explanation furnished by the assessee, there is no material to sustain the plea of concealment. In this case also the explanation of the assessee was not disproved and seems to be reasonable. Hence, we are of the view that the penalty u/s. 271(1) ( c) of the Act cannot be sustained. Accordingly, the appeal of the assessee is allowed.

In the result, the appeal of the assessee is allowed as stated above. Order pronounced in the open court on 08 .07.2016