BHARGAV BHARATBHAI PANDYA,SURAT vs. INCOME TAX OFFICE, WARD 2(1)(3), SURAT

Brief facts of the case are that the assessee is an individual, filed his return of income for A.Y. 2018-19 on 27/08/2018 declaring income of Rs. 3,06,710/-. The case of assessee was selected for scrutiny under faceless regime. During the assessment, the Assessing Officer noted that the assessee has purchased immovable property with his mother Mrs. Nayana Bharat Pandya for a consideration of Rs. 1.33 crore. The Stamp Valuation Authority valued the property at Rs. 1.42 crore, thus, there was a difference of Rs. 8.27 lacs between the fair market value and the value shown by the assessee. The share of assessee and her mother is 27.78% and 72.22% respectively. The Assessing Officer was of the view that the provisions of Section 56(2)(x)(b) of the Income Tax Act, 1961 (in short, the Act) is applicable as the assessee has shown inadequate consideration for purchase of immovable property. The assessing officer worked out the deemed income of assessee at Rs. 2,29,880/-. The Assessing Officer was of the view that the difference is 6.17% which is more than 5% of tolerance range. The assessing officer recorded that he asked certain details, which were kept on record.

The Assessing Officer further noted that during the assessment, the Assessing Officer was asked to explain the source of investment for purchase of said property. The assessee disclosed that he has received a loan of Rs. 8.20 lacs from his wife Mrs. Apurva Kirtikumar Trivedi and Bhargav Bharatbhai Pandya Vs ITO utilized the same for investment for purchase of property. The assessee was again asked to furnish the documentary evidence to prove the genuineness of transaction and creditworthiness of lender. The assessee in show cause notice submitted that his wife is self-employed, though her income is lower than the basic exemption limit for filing return of income. The submission of assessee was not accepted by the Assessing Officer and proposed the addition under section 68 of Rs. 10.00 lacs.

The Assessing Officer further recorded that a draft assessment order was sent to the assessee for giving his comment/objection, however, no comment/reply of assessee was received by the Assessing Officer. The Assessing Officer made addition under Section 56(2)(x)(b) of the Act of Rs. 2,29,880/- and Rs. 10.00 lacs on account of unexplained cash credit under Section 68 of the Act.

Aggrieved by the additions made by the Assessing Officer in the assessment order, the assessee filed appeal before the ld. CIT(A)/NFAC. Before the ld. CIT(A), the assesse filed detailed written submission on both the additions. On the addition under Section 56(2)(x)(b) of the Act, the assessee stated that the difference in value declared by the assessee and the value determined by the Stamp Valuation Authority is less than 10% of tolerance range and relied upon the decision of Mumbai Tribunal in Smt. Cheryl Maria Fernandes Vs ITO order dated 15/01/2021 (2021) 123 taxmann.com 252 (Mumbai-Trib) and submitted that this fact was Bhargav Bharatbhai Pandya Vs ITO brought to the notice of Assessing Officer, however, the Assessing Officer has not considered such fact. On the addition of Rs. 10.00 lacs, the assessee stated that he has received loan from his wife. His wife is self-employed, having income less than the basic exemption limit for filing return of income. The Assessing Officer held that creditworthiness of wife of assessee is not proved. The assesse also furnished confirmation from Shri Deepak Kumar Ramesh Chandra, who has given loan to his wife as interest free loan.

The ld. CIT(A) after considering the contents of assessment order and the submission of assessee, confirmed both the additions. On the addition of Section 56(2)(x)(b) of the Act, the ld. CIT(A) after referring the decision of Hon'ble Apex Court in Shree Choudhary Transport company Vs ITO in Civil Appeal No. 7865 of 2009 dated 29/07/2020 held that amendment to Section 56(2)(x) brought by Finance Act, 2018 and 2020 with clear epigraphic words regarding the relevant dates “with effect from” and “applicable” from specific assessment years, cannot be considered having retrospective effect. The decision relied by the assessee is not to the issue of amendment to Section 56(2)(x) and thereby confirmed the addition. On the second addition of Rs. 10.00 lacs, the ld. CIT(A) held that the assessee has filed loan confirmation purportedly issued by Shri Deepak Kumar Ramesh Chandra that he has given such loan to his wife as interest free loan. The assessee was Bhargav Bharatbhai Pandya Vs ITO having sufficient time and opportunity during the course of assessment, no such evidence was filed, no application under Rule 46A was filed nor any reason is disclosed as to how the assessee was prevented from filing such confirmation from the Assessing Officer. The assessee has made contrary claim before the Assessing Officer that his wife was having past saving from self-employment and now claimed that source of loan was from third party being interest free loan. On such view, the ld. CIT(A) directed the assessing officer to treat the addition as unexplained investment under section 69A. Further aggrieved, the assessee has filed present appeal before the Tribunal.

I have heard the submissions of the learned Authorised Representative (ld. AR) of the assessee and the learned Senior Departmental Representative (ld. Sr. DR) for the revenue. Ground No. 1 of the appeal relates to addition under Section 56(2)(x)(b) of the Act. The ld. AR of the assessee submits that the difference between the value adopted by the Stamp Valuation Authority and the value shown by the assessee on the sale deed is less than 10%, more specifically, the difference was only 6.17%. The tolerance range of 10% was allowed by Finance Act, 2020 w.e.f. 20/01/2021. However, the divisions Bench of Mumbai Tribunal in Maria Fernandes Cheryl Vs ITO (IT) (2021) 123 taxmann.com 252 (Mum-Trib) by considering earlier decision of Hon'ble Delhi High Court in CIT Vs Ansal Landmark Township (P) Ltd. (2015) 61 Bhargav Bharatbhai Pandya Vs ITO taxmann.com 45/377 ITR 635 (Delhi) and Hon'ble Madras High Court in CIT Vs Vummudi Amarendran (2020) 120 taxmann.com 171 held that the amendment made in the scheme of Section 50C(1), by inserting third proviso thereto and by enhancing tolerance band for variations between stated sale consideration vis a vis stamp duty valuation from 5 percent to 10 percent are effective from the date on which Section 50C, itself was introduced. The ld. AR of the assessee submits that admittedly, the difference between the value shown on the sale deed and the value determined by the Stamp Valuation Authority is only 6.17%, therefore, ground No. 1 of the appeal is covered in favour of assessee.

So far as ground No. 2 of appeal is concerned, the ld AR for the assessee submits that the assessee has clearly stated before the Assessing Officer that the source of investment was from the loan taken from his wife. The identity of lender, itself is not in dispute. Similarly the genuineness of transaction is also not in dispute as the assessee has taken fund/loan from his wife for the purpose of acquiring/purchasing the residential flat. So far as the creditworthiness of lender is concerned, the assessee has filed copy of the pass books of her wife showing sufficient credit in her account on the date of lending money to the assessee. The Assessing Officer made addition without verification of fact. The assessee has completely discharged his onus in proving the identity, creditworthiness Bhargav Bharatbhai Pandya Vs ITO and genuineness of transaction. The Assessing Officer during the assessment, has not made any investigation nor any notice was issued to the wife of assessee to bring any adverse evidence. The Assessing Officer in show cause notice has mentioned that before giving loan to the assessee, there was a credit entry of Rs. 5.00 lacs on 25/09/2017 and Rs. 5.00 lacs on 03/10/2017, the Assessing Officer also objected that she was not filing return of income. Before the ld. CIT(A), the assessee filed one confirmation about source of source of fund with his wife and filed confirmation of one Shri Deepak Kumar Ramesh Chandra. The ld. CIT(A) instead of making any verification of fact or seeking any comment from the Assessing Officer on such confirmation, rejected the same by taking view that no such prayer for admission of additional evidence was filed. Moreover, the ld. CIT(A) changed the nature of addition without giving any show cause notice. The Assessing Officer made addition under Section 68 of the Act, the ld. CIT(A) without issuing any show cause notice, directed the Assessing Officer to make addition under Section 69A of the Act as unexplained investment. The ld. AR of the assessee submits that the change of nature of addition is not permissible in absence of any show cause notice when the assessee has fully discharged the onus under Section 68 of the Act.

On the other hand, the ld. Sr. DR for the revenue on the addition under Section 56(2)(x)(b) of the Act supported the orders of lower authorities.

In short rejoinder submission, the ld. AR of the assessee submits that though he has discharged the onus on the addition against Section 68 of the Act. The nature of addition was changed without any show cause notice even and without prejudice contention, if it is considered that the addition was made under Section 69, the assessee has clearly explained the source of investment in the flat from his own source as well as from the source managed in the form of loan from his wife. Thus, there is no question of even making addition under Section 69A of the Act.

I have considered the submissions of both the parties and have gone through the orders of the lower authorities carefully. Ground No.1 relates to addition under Section 56(2)(x)(b) of the Act. I find that the difference between the sale consideration shown by assessee and the value determined by the Stamp Valuation Authority is only 6.17% and the issue is now settled/covered by the decision of Division Bench of Mumbai Tribunal in Maria Fernandes Cheryl Vs ITO(IT) (supra) wherein the Division Bench has held that the amendment made in the scheme of Section 50C(1), by inserting third proviso thereto and by enhancing tolerance band for variations between stated sale consideration vis a vis Bhargav Bharatbhai Pandya Vs ITO stamp duty valuation from 5 percent to 10 percent are effective from the date on which Section 50C, itself was introduced i.e. 01/04/2003. I find that the Division Bench while giving such finding has considered the explanatory notes of Finance Act, 2020 with regard to increase of safe harbour limit of 5% under Section 43CA, 50C and 56 of the Act to 10%, thus, in our considered view, the ratio of this decision is squarely applicable on the facts of the present case, hence, I direct the Assessing Officer to delete the addition of Rs. 2,29,880/-. In the result, ground No. 1 of the appeal is allowed.

Now adverting to ground No.2 of appeal. The Assessing Officer made addition of Rs. 10.00 lacs by taking a view that the assessee has claimed loan of Rs. 10.00 lacs from his wife and that the she was not creditworthy and in her account, credit of Rs. 5.00 lacs each on 25/09/2017 and 3/10/2017 was made. The ld. CIT(A) converted the addition from Section 68 to Section 69 of the Act. I find that the assessee has discharged his primary onus in furnishing the details of loan and source thereof meaning thereby the identity of lender (wife) is not in dispute, the creditworthiness was proved by furnishing her bank statement showing sufficient balance on the date of transaction and transaction was through banking channel and genuineness of transaction was for the purchase of property thereby discharged his primary onus. Before the ld. CIT(A), the assessee tried to prove the Bhargav Bharatbhai Pandya Vs ITO source of source of loan by filing confirmation of Shri Deepak Kumar Ramesh Chandra, however, such confirmation was not accepted by taking a view that the assessee was having sufficient time during the assessment. The ld. CIT(A) converted the nature of addition from Section 68 to Section 69A of the Act. No show cause notice for converting such addition was issued, therefore, I do not find any justification for making addition under Section 69A of the Act. Even otherwise, the assessee has shown the source of expenditure which was from the loan taken from his wife, therefore, the Assessing Officer is directed to delete the addition. In the result, ground No. 2 of the appeal is allowed.

In the result, the appeal of the assessee is allowed. Order announced in open court on 22nd August, 2023.