SHRI MANOB ADITYA, L/R OF LATE BIMAN KR. ADITYA,KOLKATA vs. ITO, WARD - 50(4), KOLKATA, KOLKATA

This appeal by the assessee is against the order of Commissioner of Income Tax (Appeals)-XXXVI, Kolkata dated 28.01.2010. Assessment was framed by ITO Ward-50(4), Kolkata u/s 143(3) r.w.s 145(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 29.12.2008 for assessment year 2006-07.

In this appeal various grounds have been raised by the assessee out of which ground No. 1 was not pressed and, therefore, the same is dismissed as not pressed. Ground No.5 is of general nature and does not require separate adjudication.

For that the learned Commissioner of Income-tax (Appeals) was not justified in confirming the addition of Rs.18,79,155 to total income in the impugned assessment order as an estimated income of sale proceed of a godown, without application of his mind to the facts of the case ad arguments placed before him.

For that the learned Commissioner of Income-tax (Appeals) erred in law in sustaining the addition of Rs.46,00,000 (forty-six lakhs) without taking into consideration of the facts that the learned Assessing Officer made an addition of Rs.46,00,000 as investment in the non-existent partnership business partly upon irrelevant and partly upon relevant material.”

The facts in brief are that the assessment in the instant case has been framed by AO on the legal representatives of the assessee. The assessee was engaged in the business of building construction and rental of the properties. The return for the year under consideration was filed by the legal representative declaring total income of ₹1,87,053/- on 31.03.2007. Thereafter the case was taken up for scrutiny and accordingly notice u/s. 143(2) was issued on 11.07.2007. There was also survey conducted on 28.07.2006 u/s 133 of the Act on the business premises of assessee. The statement of deceased assessee was also recorded and certain documents were impounded u/s 133 of the Act.

Aggrieved, assessee preferred an appeal before Ld. CIT(A) whereas assessee submitted that AO did not produce any corroborative evidence to prove that the flats were sold at a price more than the price disclosed by assessee in his returned income and all the sale proceeds are duly supported by agreement. However, Ld. CIT(A) disregarded the claim of assessee and upheld the action of AO by observing as under:- “In fact, during the assessment proceedings, Sh Manob Aditya, Legal heir of the assessee did not deny or dispute the figure of Rs.950/- per sq.ft. and of Rs.850/- per sq.ft. as mentioned in the said agreement. What he only claimed was that the said rate was loaded with 10% to 15% on account of brokerage which was to be deducted from the sale price. However, he could not adduce any evidence of any such brokerage paid. Further, the claim of 10% to 15% of Sh Manob Aditya v. ITO Wd-50(4) Kol. Page 4 brokerage in case of real estate transactions is apparently unreasonable and abnormal as claimed of such brokerage unrealistically excessive. It is again a matter of common knowledge that in the real estate business the rate of brokerage generally ranges in between 1% to 3% of the sale price. The legal heir of the assessee has not been able to put forward any reason or explanation to justify the claim of such high percentage of brokerage. It is a settled principle that apparent shall be treated as real unless and until proved otherwise. Further, the onus is upon the assessee to prima-facie prove his claim and not for the department to disprove his claim. In the instant case, the assessee (the legal heir) has failed to establish his claim with the help of any reasonable and cogent evidence. In the light of the above discussion, in my opinion, the claim of the assessee can only be termed as fanciful and devoid of any merit. Therefore, in the light of the above discussion, the addition of Rs.11,99,525/- made by the AO is confirmed and these grounds of appeal are dismissed.”

Before us Ld. AR filed paper book containing written submissions, which is running pages from 1 to 88. The ld. AR drew our attention on page 24 of the paper book where the details of the parties to whom the flats were sold was placed. Ld AR further submitted the rate of each flat was ranging from @ 60.73 per sq. ft. to ₹ 1538 per sq. ft. The allegation of AO that the flats were sold for ₹ 850/- per sq. ft. and ₹ 950/- per sq. ft. is baseless. Ld. AR stated that above rate were mentioned in the advertisement for the sale of flats but in actuality the rate of flats were sold at different rate. In this regard it was pleaded that the lists of parties along with the addresses with the area and rate per sq. ft was furnished to the lower authorities but none of them has verified the same by issuing a notice u/s. 133(6) of the Act. The AO has just applied the average rate on his premise and conjuncture. He prayed for the deletion of aforesaid amount. On the other hand, Ld. DR submitted that AO has made the addition on the basis of conveyance deed which was impounded during the survey proceedings u/s 133 of the Act. He also submitted that the commission expenses were observed by AO at a higher rate. Ld. DR vehemently relied on the order of Authorities Below.

During the course of assessment proceedings, AO observed from the impounded documents BKA/08 at page 339 that the conveyance agreement was signed with a person, Shri Shiv Parakash Mohta which clearly shows that the godown measuring 534.33 sq.ft for @ ₹3500/- per sq.ft. was sold by assessee. The sale price of the godown was adjusted with the amount of loan, value of building materials supplied by Shri Shiv Parakash Mohta in addition to the cash settlement for the difference amount. However, the sale amount was not shown by assessee in his returned income. Accordingly, AO sought clarification from assessee. In compliance to notice, assessee submitted that the agreement was duly executed with Shri Mohta but sale was not completed and accordingly conveyance deed was not registered. Therefore, the sale amount was not shown in the books of account of assessee. However, AO disregarded the claim and added the said sum of ₹18,70,155/- to the total income of assessee.

Aggrieved, assessee preferred an appeal before Ld. CIT(A) who conformed the action of AO by observing as under:- “The AO has clearly mentioned this fact in the assessment order that the said deed is a signed one. The narration in the said agreement clearly states that the vendor delivered the possession of the said property to the purchaser on the signing of that deed and the purchaser was being paid his dues on that date through adjustments mentioned in that document. In the light of the facts stated above the addition made by the AO is justified, therefore, the addition of Rs.18,70,155/- is confirmed.”

Before us Ld. AR drew our attention on pages 44 to 53 of the paper book and submitted that sale was not completed and it was just agreement for said godown. The Sh Manob Aditya v. ITO Wd-50(4) Kol. Page 7 assessee further submitted that assessee did not recover full consideration against the sale of said godown and no possession was delivered by assessee due to non-payment of full consideration. The ld. AR also submitted that as per the accounting convention of the assessee, the sale is recognized in the books of the assessee once the registry of the property is done. The ld. AR also submitted the letter from Mr. Shiv Prakash Mohta to justify the property in the question was not delivered. On the other hand, Ld. DR submitted that agreement to sale under IT Act is treated as sale of property therefore, it should have been shown in the books of account of assessee. Ld DR vehemently supported the order of Authorities Below.

We have heard the rival contentions and perused the materials available on record. From the facts of the case, we find that the AO made the addition of ₹18,70,155/- on account of undisclosed income of the sale of godown to Shri Shiv Prakash Mohta of a space measuring 534.33 sq.ft which was also confirmed by the Ld. CIT(A). The addition was confirmed by the lower authorities by observing that the agreement was executed and the godown duly handed over to buyer. It was also observed that significant amount for sale of godown was adjusted to the loan amount and building material supplied by Shri Mohta. However before us the ld. AR submitted that the possession of the godown was not handed over to the buyer. In support of his claim he has filed a confirmation letter from the buyer which is placed on record. We also find that the same fact was also submitted by the assessee before the AO with regard to the handing over the possession of the godown. But the AO has not considered the same and made the addition on the basis of the agreements. In our considered view the AO should have confirmed the transaction by issuing a notice under section 133(6) of the Act before making any addition. It is also important to note that the transaction was settled between the assessee and the party by way of adjusting the major amount with the building material supplied. It is undisputed that in the instant case the assessment was framed on the legal heir of the deceased assessee. So it would have been bit difficult to collect the required information for the assessment purpose from the legal heir. Therefore it was imperative to collect the requisite information from the third party source which the AO failed to do so.

Next issue No.4 raised by assessee in this appeal is that Ld. CIT(A) erred in confirming the action of AO by sustaining the disallowance of ₹ 46 lakh on account of investment in the partnership firm.

During the course of assessment proceedings, AO observed from the impounded documents BKA/3 consisting of partnership Deed for the business under the name and style of “Presidency Polyclinic and Diagnostics” which was executed on 22.02.2006 and was duly registered with appropriate authority. The AO observed from point 10 of the Partnership Deed that assessee has made an investment of ₹46 lakh. Accordingly, AO sought clarification from the legal representative of assessee by issuing show cause notice. In compliance thereto (legal representative) submitted that the partnership deed was form with a view to take loan from bank and said amount of investment was shown in the deed of partnership as per advice of concerned bank. This investment was required by assessee in the form of contribution of the total project cost. The assessee further submitted that there was no investment of any kind made in the deed of partnership for the purpose of aforesaid business. However, AO disregarded the claim of assessee by observing that list of inventory was made at the time of survey. As per the inventory list marked BKA/7 has shown lot of machines which were available with the assessee. A patient register was also Sh Manob Aditya v. ITO Wd-50(4) Kol. Page 10 found impounded at the time of survey marked as BKA-3 at pages 50 to 60 of the paper book. The AO also observed that there was a certain correspondence between the Municipal Corporation and assessee with regard to certain medical services. In view of the above, AO opined that there was a business of polyclinic of assessee and accordingly an investment of₹46 lakh has been made which was disallowed and added to the total income of assessee as unexplained investment u/s. 69 of the Act.

Aggrieved, assessee preferred an appeal before Ld. CIT(A) where as assessee submitted that investment of ₹ 46 lakh was superficial figure and his father (deceased assessee) had no source of fund for making investment in the aforesaid proposed business and other partner of the said firm has submitted sworn affidavit and declared that only a sum of ₹ 2.5 lakh was spent for the purpose of medical equipment. At the time of survey no statement u/s. 133A(3)(iii) of the Act was recorded at the time of survey and there is no other evidence which shows that investment had been made in the firm for Rs.46 lakhs. The assessee further submitted that the above figure was shown in the deed of partnership just for the sole purpose of sanctioning loan from bank. A project report was prepared for ₹ 46 lakh for the purpose of sanctioning loan only. However, Ld. CIT(A) disregarded the claim of assessee and upheld the action of AO by observing as under:- “ I have carefully considered the assessment order and the submission of the R I find the claim of the AR to be unacceptable. There is evidence found in the form of duly executed partnership deed duly registered with the sub-registrar at Dum Dum, 24-Parganas (North). The partnership deed clearly spells out in para 10 of the said deed that the assessee, Late Sh Biman Kumar Aditya, had already invested Rs.46 lakhs in the proposed business. It is a settled principle that the apparent is real unless proved otherwise. The Legal heir of the assessee or the AR have not been able to bring anything on record to prove that contents of the said partnership deed were not true and correct. In the absence of any such evidence, such document found during the course of survey has to be taken on its face value and is to be considered as correct and true. The onus to prove that the contents of the said document were not true, lies upon the legal heir of the assessee which he has not been able to discharge. In the light of the above discussion, I do not find any force in the claim of legal heir of the assessee that no investment of Rs.46,00,000/- had been made by the assessee in the business of that firm. Therefore, the addition of Rs.46,00,000/ made by the AO is confirmed.”

Before us Ld AR submitted that assessee partnership firm was made to run the pathology lab under the name & style of M/s Presidency Polyclinic and Diagnostics at the premises of assessee as per the agreement with North East Diagnostics who was acting as the licensee. This licensee at its own cost was to make investment in the machineries equipments and furniture required for running the said business of pathology lab. The inventory found at the time of survey for the machines are actually belonging to M/s North Diagnostics Centre. The assessee in those equipments have invested only up to ₹ 2.25 lakhs and assessee in support of its claim has submitted the copy of agreement with North East Diagnostic. The Ld. AR also submitted the certificate of registration in the name of North East Diagnostics at the premises of assessee and the correspondence with the Municipal Corporation was made with regard to registration of pathology lab. Ld. AR further submitted that the explanation given to AO was not after-thought because the agreement was made between assessee and North East Diagnostic on 05.04.2005. Finally Ld. AR prayed for deletion of the addition made by Authorities Below.

We have heard rival contentions and perused the materials available on record. We find that AO in the instant case has made the addition of ₹46 lakh on the basis of partnership deed and the equipments found at the premises of assessee at the time of survey. The AO also found the patient register at the time of survey and some correspondences with the Municipal Corporation subsequently. The Ld. CIT(A) confirmed the addition. We find that the equipments were found by the survey team and this fact is not in dispute, however what was the value of the equipments have not been determined by lower authorities. In our view, before making the addition it was the duty of Assessing Officer to determine the value of machineries on scientific basis. The valuation of those machineries should have been made on the basis of purchase invoice or by the registered valuer. The argument made by Ld. AR that equipments Sh Manob Aditya v. ITO Wd-50(4) Kol. Page 12 were supplied by the North East Diagnostic Centre and in support of his claim. He has submitted the agreement between assessee and the North East Diagnostic Centre. Further, Ld. DR has not brought anything contrary to the argument of the ld. AR placed before us. Considering the facts and circumstances in totality, we find that the addition was predominantly was based on the impounded deed of partnership. However we find that no source of investment in the deed of partnership has been brought on record by the AO. In our considered view a document can be the mere basis of addition in the instant case. The ld. AR has suitably clarified the source of equipment by producing the copy of the agreement with the North East Diagnostic Centre. Accordingly we reverse the order of Authorities Below and ground raised by assessee is allowed. AO is directed accordingly.