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Income Tax Appellate Tribunal, “SMC” Bench, Mumbai
Before: Shri B.R. Baskaran (AM)
The appeal filed by the assessee is directed against the order dated 29-01-2015 passed by Ld CIT(A)-21, Mumbai and it relates to the assessment year 2009-10. The assessee is aggrieved by the decision rendered by Ld CIT(A) on the following two issues:- (a) Addition of Rs.5,28,000/- made u/s 68 of the Act. (b) Enhancement of short term capital gain.
The assessee is a partner in a firm named M/s Electroplast Engineers. The AO noticed from the return of income that the assessee has received unsecured loan of Rs.2,80,000/- and Rs.2,48,000/- respectively from two persons named Smt. Snehalata Gupta and Shri Sushil Gupta. Though the assessee initially stated that he could not furnish confirmation letters, later he furnished
2 Shri Ramratan Saraf confirmation letters obtained from the above said creditors. Subsequently the AO asked the assessee to produce these two creditors, but the assessee expressed his inability to produce them and accordingly agreed for addition of the above said loans as cessation of liability u/s 41 of the Act.
3. The assessee challenged the above said addition by filing before Ld CIT(A), even though he had agreed for the addition. The Ld CIT(A) took the view that the addition could not be made u/s 41 of the Act, since the liabilities subsist and did not cease to exist. However, the Ld CIT(A) took the view that the additions could be made u/s 68 of the Act. The assessee submitted that the loans were taken by him in the earlier years and not during the year under consideration and hence the addition u/s 68 of the Act could be made in this year. The Ld CIT(A) agreed with the submissions of the assessee, but still confirmed the addition with the following observations:- “.... If assessee claims that this amount of Rs.5,28,000/- was not introduced in this year and appellant furnishes any such evidences, then Assessing officer can tax it in the year of introduction of such explained money in its books of accounts. Since, no such evidence has been produced there is no option but to confirm the finding of the Assessing Officer. Therefore, addition so made of Rs.5,28,000/- is sustained.”
4. The Ld A.R invited my attention to the ledger account copies of the creditors and submitted that these amounts were received in the earlier years. He also invited my attention to the copies of income tax returns filed by these creditors and submitted that the interest paid by the assessee has been duly offered by them in the respective years. On the contrary, the Ld D.R submitted that the assessee has agreed to the addition and hence he cannot go back on this issue.
I have heard the rival contentions on this issue. I notice from the assessment order that the assessee has agreed to the addition made by the AO
3 Shri Ramratan Saraf u/s 41(1) of the Act as cessation of liability. Since the Ld CIT(A) found that the liability did not cease to exist, he took the view that the addition could not have been made u/s 41(1) of the Act. However, the Ld CIT(A) took the view that the addition could be made u/s 68 of the Act. The Ld A.R submitted that the revenue has accepted the order passed by Ld CIT(A). Thus, the issue under consideration is whether the addition of creditors could be made u/s 68 of the Act. Thus, the acceptance given by the assessee to assess the creditors u/s 41(1) of the Act no longer exists after passing of order by Ld CIT(A).
With regard to the addition made u/s 68 of the Act, the contention of the assessee is that these loans have been taken in the earlier years and it is the submission of the Ld A.R that the relevant details were furnished before Ld CIT(A). There is no dispute between the parties that these loans cannot be assessed during the year under consideration u/s 68 of the Act, if they had been taken in the earlier years. I notice that the Ld CIT(A) has made the addition without considering the details furnished by the assessee. I notice that the AO also did not examine the relevant details. Accordingly, while upholding the contention of the assessee that the addition u/s 68 of the Act could not be made in the instant year, if they had been received in the earlier years, we set aside this issue for the limited purpose of ascertaining as to whether these loans were taken in the instant year or in the earlier years. If the loans have been taken in the earlier years, then no addition u/s 68 of the Act is called for during the year under consideration. With these observations, we set aside the order of Ld CIT(A) passed on this issue and restore the same to the file of the AO for the limited purpose of carrying out necessary verification with the direction to decide this issue in the light of principles discussed above.
The next issue relates to the assessment of short term capital gains. The assessee along with his wife had entered into an agreement dated 3.6.2008 with 4 Shri Ramratan Saraf a builder to purchase a flat for a consideration of Rs.38,08,000/-. In pursuance thereto, a sum of Rs.25,29,600/- was paid by assessee & his wife to the builder. Subsequently the assessee received an offer for transferring his right in the flat for a sum of Rs.42,16,000/- and the same was accepted by the assessee & his wife. The assessee computed short term capital gain at Rs.4,08,000/- (Rs.42,16,000/- less Rs.38,08,000/-).
In the assessment proceedings, the AO noticed that the stamp duty value on the date of sale of flat was Rs.43,94,796/- as against the sale value of Rs.42,16,000/- declared by the assessee. Hence the AO applied the provisions of sec. 50C of the Act and assessed the amount of Rs.1,78,796/-, being the difference between stamp duty valuation and actual sale consideration, u/s 50C of the Act. The assessee also agreed to the same. However, the assessee challenged this addition before Ld CIT(A) and the Ld CIT(A) deleted this addition. It is stated that the revenue has not challenged the decision rendered by Ld CIT(A) on this issue and hence the same has reached finality.
While computing the capital gain, the assessee had taken the cost of property at Rs.38,08,000/-. However, the AO took the view that the cost of property should be taken as Rs.25,29,600/- only, i.e., the amount actually paid by the assessee and his wife to the builder. Accordingly, the AO took the cost of flat at Rs.25,29,600/- and accordingly enhanced the amount of Short term capital gain. The Ld CIT(A) also confirmed the same.
The Ld A.R submitted that the assessee’s liability to pay the balance amount of consideration to the builder was subsisting and the same was adjusted against the sale consideration receivable from the buyer of the flat, i.e., the purchaser agreed to pay the balance amount of consideration directly to the seller on behalf of the assessee. In this regard, the Ld A.R invited my attention
5 Shri Ramratan Saraf to the recitals made in the sale agreement entered between the assessee and buyer. The clauses 2 and 3 of the sale agreement reads as under:- “2. THE VENDORS has paid to THE BUILDERS the sum of Rs.25,29,600/-..... WHEREAS THE VENDORS in turn will be reimbursed by the purchasers the amount which he has already remitted to the builders plus an additional amount of Rs.4,08,000/- as the original consideration amount payable to the builders is Rs.38,08,000/- where as this agreement for sale is for Rs.42,16,000/-....
THE PURCHASERS will pay to THE VENDORS an amount of Rs.29,37,600/-..... so that all right of purchase for property vide agreement dated 3rd June 2008 shall stand discharged & cleared forever.
THE PURCHASERS will pay to THE BUILDER directly the balance consideration amount of Rs.12,78,400/- (RUPEES TWELVE LACS SEVENTY EIGHT THOUSAND FOUR HUNDRED ONLY & in addition to that Rs.160000/- (RUPEES ONE LAC SIXTY THOUSAND ONLY) as development charges advance maintenance charges etc as mentioned in the agreement dated 3rd June, 2008 & against the vacant and peaceful possession of the said Flat....”
Accordingly, the Ld A.R submitted that the assessee and purchasers have agreed to adjust the amount due to him against the amount payable further to the builder. Accordingly the Ld A.R submitted that the same has resulted in constructive receipt from the purchaser and constructive payment to the builder. Accordingly he submitted that the tax authorities are not justified in adopting the purchase consideration at Rs.25,29,600/-. Alternative, the Ld A.R submitted that the tax authorities should have reduced the sale consideration by the amount so adjusted by the assessee & purchasers.
On the contrary, the ld D.R submitted that there is no scope for reduction of sale consideration, since the deemed sale consideration has been adopted u/s 50C of the Act. He submitted that the deeming provisions ignore the actual transactions and accordingly he submitted that the sale consideration cannot be reduced by the adjustments so made. He submitted that the assessee has 6 Shri Ramratan Saraf actually paid a sum of Rs.25,29,600/- as purchase cost and hence the same alone is allowable as deduction under the Act.
I heard the rival contentions on this year and perused the record. I notice from the recitals made in the sale agreement, which have been extracted in the earlier paragraphs, that the assessee and the purchaser have agreed to the manner of payment of sale consideration, i.e., the purchaser has agreed to make the balance amount of consideration directly to the builder. Hence, in my view, there is merit in the contentions of the assessee that there was constructive receipt of balance amount of sale consideration and constructive payment of the same to the builder. Accordingly, I am of the view that the purchase cost should be taken at Rs.38.08 lakhs by including the constructive payments. Accordingly, I set aside the order passed by Ld CIT(A) on this issue and direct the AO to adopt the purchase cost as Rs.38.08 lakhs as per the original agreement.
In the result, the appeal of the assessee is treated as allowed. Order has been pronounced in the Open Court on 27.6.2016.