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Income Tax Appellate Tribunal, SURAT BENCH, SURAT
Before: SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM
आदेश / O R D E R PER DR. A. L. SAINI, AM: Captioned appeal filed by the assessee, pertaining to Assessment Year (AY) 2014-15, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals), [in short “the ld. CIT(A)”], National Faceless Appeal Centre (in short ‘NFAC’), Delhi, dated 12.11.2022. 2. The grounds of appeal
raised by the assessee are as follows: “1. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the action of Assessing Officer in making addition of Rs.53,97,017/- on account of unexplained credit u/s 68.
2. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the action of Assessing Officer in making addition of Rs.1,20,442/- on account of disallowed expenditure u/s. 40A(3).
3. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in enhancing the addition without issuing any Show Cause Notice as required by law.
4. It is therefore prayed that addition made by assessing officer and confirmed by CIT (A) may please be deleted.
Diya Fabrics 5. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.” 3. Now, we shall take these grounds of appeal, one by one.
4. Ground no.1 raised by the assessee relates to addition of Rs.53,97,017/- on account of unexplained credit under section 68 of the Act.
The facts of the case which can be stated quite shortly are as follows: The assessee before us is a partnership firm. During the assessment proceedings, the assessing officer, on perusal of the Balance Sheet and part of the return of income filed by the assessee, noticed that assessee had shown sundry creditors to the tune of Rs.2,15,88,066/-. During the course of assessment proceeding, no evidence has been filed or produced by the assessee to prove the genuineness of such trade creditors. Therefore, vide show cause notice of assessing officer dated 07.11.2016, the assessee was specifically asked to furnish documentary evidence in respect of aforesaid creditors. In response, assessee submitted copy of Income Tax Return and audit report. However, Assessing Officer rejected the contention of the assessee and observed that in the absence of any details, the genuineness of the alleged creditors cannot be verified. Therefore, Assessing Officer made an addition of Rs.53,97,017/- [being 25% of total creditors of Rs.2,15,88,066/-] to the total income of the assessee treating the same as unexplained cash credit under section 68 of the I.T. Act.
Aggrieved by the order of Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A), who has confirmed the addition made by the Assessing Officer. During the appellate proceedings, the assessee has submitted additional evidences, which were sent by ld CIT(A) to the assessing officer to verify them and submit the remand report to ld CIT(A). However, the assessing officer has not made any reply to the remand report sought. Therefore, the ld CIT(A) adjudicated the issue by using his co-terminus power. During the appellate proceedings, the assessee furnished five confirmations of the following persons: (i) M/s. Somnath Textiles Private Ltd, Surat
Diya Fabrics (ii) M/s. Sai Baba Engineering, Surat (iii) M/s. Namaskar Exim, Surat (iv) M/s. Gopal Creation, Surat & (v) M/s. Gautam Paper Udyog, Surat, PAN-AABPU3678H. The ld Counsel submitted that during the appellate proceedings, the assessee also uploaded the return of income of the above five persons, however ld CIT(A) did not consider them. During the appellate proceedings the assessee has uploaded written submissions on 07.03.2022, 08.03.2022 and 01.11.2022, before the ld CIT(A) to explain the transactions. After duly considering the same, the ld CIT(A) held that the assessee has not proved the genuineness and credit worthiness of the transactions mentioned in the copy of five confirmations filed during appellate proceedings, therefore ld CIT(A) confirmed the addition made by the assessing officer.
Aggrieved by the order of Ld. CIT(A), the assessee is in further appeal before us.
8. Shri Mehul Shah, Ld. Counsel for the assessee submitted that assessee has furnished the confirmations before the Assessing Officer containing name, address and PAN number of the following persons: (i) Gautam paper Udhyog (vide paper book page nos. 22 to 23) (ii) Namashkar Exim (Sumeet garg – HUF) (vide paper book page no.24) (iii) Gopal Creation (vide paper book page no.25) (iv) Sai Baba Engineering (vide paper book page no.26) (v) Somnath Textile Pvt. Ltd. (vide paper book page no.27)
The copy of Income Tax Returns was also furnished by the assessee in respect of above creditors during appellate proceedings. The Ld. Counsel contended that if the Assessing Officer wants to make further enquiry, he could have issued notice under section 133(6) of the Act to the concerned persons to verify the genuineness of the transactions and identity, however, the Assessing Officer has failed to do so.
Diya Fabrics 9. The Ld. Counsel also pointed out during the assessment proceedings, the Assessing Officer made the addition in respect of the sundry creditors under section 68 of the Act, as unexplained cash credit, which is wrong. During the assessment proceedings, the assessing officer has discussed and analyzed the sundry creditors which are linked with purchases and concluded that sundry creditors are in the form of cash credit. The Ld. Counsel pointed out that the creditors were duly recorded in the books of accounts and assessee filed the confirmations containing the PAN number and address, and since these creditors belong to the purchases made by the assessee and the assessing officer did not consider the purchases as bogus, then how can the creditors alone should be bogus without treating the purchases as bogus. The purchases made by the assessee, were not considered bogus by the Assessing Officer, therefore Assessing Officer should not have made addition under section 68 of the Act in respect of creditors under the head cash credit. Therefore, addition made by Assessing Officer is on wrong footing.
10. The Ld. Counsel also submitted that it is not a typographical error in the assessment order that section 68 has been written by Assessing Officer in hurry. The Assessing Officer has discussed the aforesaid sundry creditors carefully in the context of section 68 of the Act as unexplained cash credit, and then made addition, which is not justified and for that Ld. Counsel relied on the judgment of Hon'ble Allahabad High Court in the case of CIT vs Pancham Dass Jain (2006) (156 Taxman 507), wherein it was held that Assessing Officer made addition under section 68 of the Act, however, Tribunal has recorded a categorical finding of fact based on appreciation on material and evidence on record that the said amounts represented purchases made by assessee on credit. Therefore, it was held that provision of section 68 would not be attracted in such cases and accordingly deleted the addition. The findings of the Hon'ble Allahabad High Court are reproduced below: “6. We have heard Sri Shambhoo Chopra, learned standing counsel for the revenue. 7. He submitted that as the respondent-assessee was unable to produce the alleged creditors the provisions of section 68 of the Act was squarely attracted Diya Fabrics in the present case and the assessing authority has rightly added the two amounts at the hands of the respondent-assessee. According to him section 68 of the Act also covers up the case of purchases made on credit.
The submission is misconceived. The Tribunal has recorded a categorical finding of fact based on appreciation of materials and evidence on record that the Assessing Officer had accepted the purchases, sales as also the trading result disclosed by the respondent-assessee. It had recorded a finding that the aforesaid two amounts represented the purchases made by the assessee on credit and, therefore, the provisions of section 68 of the Act could not be attracted in the present case. We fully agree with the view taken by the Tribunal on this issue, inasmuch as, on the basis of the findings recorded by it that these two amounts represented purchases made by the respondent-assessee on credit and the purchases and sales having been accepted by the department, the question of addition of the aforesaid two amounts under section 68 of the Act did not arise inasmuch as the provisions of section 68 of the Act would not be attracted on the purchases made on credit.
9. We, accordingly, answer the question referred to us in affirmative, i.e., in favour of the assessee and against the revenue. There will be no order as to costs.”
On the other hand, Learned Departmental Representative (ld. DR) for the Revenue submitted that although during the appellate proceeding, the assessee submitted additional evidences, which were remitted back to the file of the Assessing Officer for remand report However, the Assessing Officer did not submit his remand report to the Ld. CIT(A), therefore Ld. CIT(A) by using co- terminus power has adjudicated the issue. Therefore, matter may be remitted back to the file of the ld CIT(A) for fresh adjudication as Ld. CIT(A) should not have adjudicated the issue by using co-terminus power. Besides, Ld. DR submitted that the assessee has not been able to explain the genuineness and creditworthiness of the sundry creditors and therefore the Assessing Officer has rightly made the addition.
Per contra, the Ld. Counsel submitted that since the assessee has submitted additional evidences and which was remitted back to the file of the Assessing Officer for taking remand report, however Assessing Officer has not submitted any remand report, therefore it is not a mistake on the part of the assessee. The assessee has produced relevant materials and evidences during the appellate proceedings, therefore his matter should be adjudicated. The assessee has produced the relevant documents and evidences during the appellate
Diya Fabrics proceedings which is remitted back to the file of the Assessing Officer for remand report, in these circumstances, the assessee should not be blamed at all. In the situation, where AO does not assist the Ld. CIT(A) by submitting remand report then ld CIT(A) by using the co-terminus power has to adjudicate the issue, hence there is not default on the part of the assessee and the assessee should not be punished just because the AO does not send the remand report and does not cooperate the ld CIT(A).
We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. CIT(A) and other material brought on record. We note that during the assessment proceedings, the assessee submitted confirmation of these four parties containing PAN, address etc. if the Assessing Officer wanted to make further enquiry, he could have issued the notices under section 133(6) of the Act to the concerned parties, however the Assessing Officer has failed to do so, in the remand proceedings.
Before Ld. CIT(A), the assessee has submitted additional evidences and the explanations. The Ld. CIT(A) has remitted the additional evidences to the assessing officer for his examination and to send the remand report thereon. However, the Assessing Officer failed to send remand report, therefore Ld. CIT(A) has adjudicated the issue by exercising his co-terminus power. We note that section 68 of the Act does not cover up the cases of purchases made on credit from the creditors. We note that finding recorded by the assessing officer in his order is wrong inasmuch as, these creditors represented purchases made by the assessee on credit and the purchases and sales having been accepted by the department, the question of addition of the amounts which are linked with purchases, does not arise under section 68 of the Act. We note that Assessing Officer has made the addition under section 68 of the Act in respect of the sundry creditors after making a detailed analysis, and on appeal by assessee, ld CIT(A) confirmed the action of the assessing officer. Therefore, the conclusion Diya Fabrics reached by the Assessing Officer by treating the sundry creditors (which are linked with purchases) is bad in law and for that reliance can be placed on the judgment of Co-ordinate Bench of ITAT, Ahmedabad in the case of DCIT vs Rasikbhai Ramjibhai Raval, in dated 13.12.2017, wherein it was held as follows: “8. We have given a thoughtful consideration to the orders of the authorities below. It is true that the assessee did not file all the details of expenditure during the course of assessment proceedings. It is equally true that all the necessary details were furnished before the CIT(A) who had called for a remand report from the Assessing Officer. Once the details have been furnished and transmitted to the Assessing Officer, and the same were examined by the CIT(A), we do not find any reason to interfere with the findings of the CIT(A). Ground no.1 is accordingly dismissed.
9. We find that the additions were made in respect of the following cash creditors: S.No. Name, Address & P.A. No. (if available) Amount Whether Maximum of Amount taken or squared amount repayment accepted up or outstanding not (1) Arvindbhai Kantidas Parmar 300,000 Yes 348,000 648,000 Address: N.A., Pan No.:N.A. (2) Chaturbhai M. Raval: Address: Nil No 30,497/- Nil N.A., PAN No.:N.A. (3) Gujarat Laxmi M.K.S.M. Ltd. Nil Yes 500,000 500,000 Address: N.A., PAN No.:N.A. (4) Kanubhai R. Parmar Address: 200,145 Yes 60,000 260,145 N.A., PAN No.:N.A. (5) K.G. Parmar Nil No 40,000 Nil Address: N.A., PAN No.:N.A. (6) Madhuben Arvindbhai Parmar 522,000 Yes 78,000 600,000 Address: N.A., PAN No.:N.A. (7) M.C. Desai Arts & Com. College 500,000 No 500,000 Nil Address: N.A., PAN No.:N.A. (8) Rambhai M. Raval Nil No 202,884 Nil Address: N.A., PAN No.:N.A. (9) Satiskumar S. Chavda Nil No 59,000 Nil Address: N.A., PAN No.:N.A. (10) Vishal Developers Nil No 64,000 Nil Address: N.A., PAN No.:N.A. (11) Zinabhai M. Raval Nil No 231,588 Nil Address: N.A., PAN No.:N.A. (12) Falguniben Parmar Nil No 200,000 Nil Address: N.A., PAN No.:N.A. (13) Ramaben A. Vaghela Nil No 1,965,524 758,004
10. We have also carefully gone through the copy of ledger account of all the aforementioned creditors. We find that inadvertently the tax auditor has treated the aforementioned persons under the head “unsecured loan” whereas, in fact, all the above persons are “trade creditors” and with whom the assessee has done some contract business including supply of labourers on contractual payments. We find that tax has been deducted at source as per the provisions of law.
Diya Fabrics 11.on given facts, we do not find this to be a fit case for the additions under section 68 of the Act. The second ground of the Revenue is dismissed.”
On the identical and same issue, our view is fortified by the judgment of Co-ordinate Bench of ITAT, Visakhapatnam in the case of DCIT vs M/s. Vijay Agro Produces Ltd., in dated 29.07.2016, wherein it was held as follows: “17. It is pertinent to discuss the case laws relied upon by the assessee. The assessee relied upon the decision of Hon’ble High Court of Allahabad in the case of Panchamdas Jain (2006) 156 Taxman 507. The Hon’ble Allahabad High Court, under similar circumstances held that additions cannot be made towards trade creditor’s u/s 68 of the Act as unexplained credits, when purchases are accepted as genuine. The relevant portion of the order is reproduced hereunder; “The Tribunal has recorded a categorical finding of fact based on appreciation of materials and evidence on record that the AO had accepted the purchases, sales as also the trading result disclosed by the assessee. It had recorded a finding that the two amounts represented the purchases made by the assessee on credit and, therefore, the provisions of s. 68 could not be attracted in the present case. The view taken by the Tribunal on this issue is sustainable inasmuch as, on the basis of the findings recorded by it that these two amounts represented purchases made by the assessee on credit and the purchases and sales having been accepted by the Department, the question of addition of the said two amounts under s. 68 did not arise inasmuch as the provisions of s. 68 would not be attracted on the purchases made on credit.”
18. The assessee relied upon the decision of the coordinate bench of ITAT, Visakhapatnam in the case of Surya Earth Moving Vs. ITO Ward-4, Rajahmundry in ITA No.316/Vizag/2009 dated 25.10.10. The coordinate bench of this Tribunal, under similar circumstances held that amount represents purchase on credit, provisions of section 68 of the Act cannot be applied. The relevant portion of the order is reproduced hereunder: “We have heard the rival submissions and carefully perused the record. The main objection of the assessee is that the trade credits cannot be added as unexplained credits under section 68 of the Act. In this regard, the Learned Authorised Representatives has relied upon the decision of this bench in the case of Sai Concrete Pavers Pvt. Ltd., referred (supra). In that case, the outstanding creditors for expenses were disallowed by the Assessing Officer. The Learned CIT(A) deleted the addition by placing reliance upon the decision of Hon’ble Allahabad High Court in the case of CIT V Panchamdas Jain (205 CTR 444), wherein it was held that the provisions of section 68 are not attracted to the amounts representing purchases made on credit, when the assessing officer has accepted the purchases as genuine. The bench also noticed that the outstanding amount had been paid in the subsequent period. Hence the bench did not find any infirmity in the decision of the Learned CIT(A).”
19. The assessee relied upon the decision of ITAT, Allahabad in the case of JCIT Vs. Mathura Das Ashok Kumar (2006) 101 TTJ 810. The coordinate
Diya Fabrics bench of this Tribunal, under similar circumstances held that additions cannot be made u/s 68 of the Act towards trade creditors. The relevant portion of the order is extracted as under: “All the purchases made by the assessee wherever the same have been made from the Karigars are supported by the 'Purjas' issued by it. Such 'Purjas' were found to be duly entered in 'Jama Jakar Bahi', which is a part of records kept by the assessee regularly to record its purchases from Karigars. In the financial records also, entries of the purchases of sarees have duly been made on the basis of primary records. The purchases recorded in this manner have been accepted in toto without any kind of controversy whatsoever. After the purchases of sarees supported by the 'Purjas' have been accepted, any further verification about the Karigars in whose favour such Purjas' have been issued is really not necessary; the reason being that it is the Karigar who come to the saree dealers and offers his stock for being dealt with by the same dealers. The dealers also have no occasion to feel concerned about the names and addresses of such Karigars as purchases from them are made on "credit and that too after due approval of the same through inspection and otherwise. In other words, it is only the verification of sarees that are brought for sale by the Karigars at the shop of the saree dealers which is relevant and not the Karigar themselves. It is for this reason that even the CBDT felt that after the sales (made out of purchases from Karigars) are found to be verifiable, it is not necessary that there should be an insistence for producing the Karigars. The instructions like this, although may not be capable of being treated as having binding effect, nonetheless they lay down necessary guidelines for completion of assessment in a particular line of trade. This logic is applicable with all its force in the present case. Necessity to have the addresses of the Karigars may arise only for the purposes of making enquiries from the Karigars, so far as the assessment of the same dealers is concerned. If such a verification is not required to be made, in view of the regular system of accounting followed by the assessee as per the practice prevalent in this trade, one fails to understand as to why non- furnishing of addresses should be made an issue by the AO for making addition and that too on selective basis. Further, 15 Purjas value of which has been treated as bogus liability, do contain full particulars of the Karigars. Annex. A itself has got a column "Names and Addresses of the Karigars" and against all the 15 'Purjas', necessary information in this respect has been given. Naturally, in the records of the assessee, only such names and addresses would be found recorded, as told to it by the Karigar themselves. Beyond this, the assessee is not concerned to ascertain correct or full addresses of the Karigars as the purchases have been made on credit. It is for the Karigars concerned or his nominee and/or transferee of the 'Purja' to collect his payment from the office of the saree dealer. Not that the same dealer itself has to approach the Karigars for making payments to them. It has, therefore, to be held that even if the address is incomplete or even in an extreme situation, where the Karigar is not found at the address available with the assessee (as written in the Purja), no adverse inference can be drawn in the assessment of the same dealer or any of the aspects of the purchases. This is more so in a case like this where the purchases and sales have been duly accepted. This leads to a conclusion that Purjas themselves as also contents thereof have got great evidentiary value. If payment against the 'Purja' is recorded in the books of account, then the liability in relation to such 'Purja' has to be treated as genuine unless of course Diya Fabrics some material is brought on record that the assessee has actually made payment against the same which is not recorded. In the present case, no such material having been brought on record, it could not be said that the liability is bogus. Even at the cost of repetition, it is stated that bogus liability presupposes two things, firstly, there is a liability incurred and secondly such liability has been discharged without being recorded in the books of account. As no such material is available on record, the liability in question cannot be said to be bogus so as to attract any addition on this score. It also appears that the AO has treated the liability to be of ‘cash credit' in nature and that is why he felt anxious to have the identities of the creditors established. In this respect, first of all, credits 'in the sundry creditors (Udhar Khareed) Khata' are referable to the purchases of sarees made on credit basis. As the purchases have been held to be genuine and accepted as such, the credits that remained outstanding in such account cannot be treated to have remained unexplained. The balance appearing in this account, which included the disputed addition also is the sum total of purchases that remained unpaid at the end of the year. As the genuineness of such purchases has not been disputed, rather the same has been accepted, the credits stand fully explained and no adverse inference is called for either on facts or in law. Thus, on a consideration of totality of facts and circumstances of the case, as have been discussed above, the liability aggregating Rs.1,05,800 as has been shown against 15 Purjas/Karigars could not be treated as bogus liability. The CIT(A) has rightly deleted the addition and no interference in the same is called for.”
20. Considering the facts and circumstances of this case and also following case laws cited above, we are of the view that no additions can be made u/s 68 of the Act, towards trade creditors when genuineness of the purchases are not doubted. In the present case on hand, the A.O. has not doubted the genuineness of the purchases. The A.O. made additions toward trade creditors for the simple reason that the creditors have not confirmed the transactions with the assessee. Therefore, we are of the view that the A.O. was not correct in making additions towards trade creditor’s u/s 68 of the Act for non furnishing confirmation of balances by the creditors. The CIT(A) after considering relevant details filed by the assessee rightly deleted the additions. We do not see any reason to interfere with the order based by the CIT(A). Hence, we inclined to uphold the CIT(A) order and reject the ground raised
by the revenue.
21. In the result, the appeal filed by the revenue is dismissed.”
16. Based on the facts circumstances of the case we note that additions cannot be made towards trade creditors u/s 68 of the Act as unexplained credits, when purchases are accepted as genuine. Thus, we note that no additions can be made u/s 68 of the Act, towards trade creditors when genuineness of the purchases are not doubted. In the assessee`s case on hand, the A.O. has not doubted the genuineness of the purchases. We note that in assessee`s case the creditors have confirmed the transactions with the assessee. The confirmation of Diya Fabrics all creditors and their income tax returns containing PAN number and their addresses were there before the ld CIT(A). Therefore, we are of the view that the A.O. was not correct in making additions towards trade creditors u/s 68 of the Act, hence we delete the addition.
We note that Assessing Officer has disallowed sundry creditors on estimated basis, at the rate of 25% of the sundry creditors of Rs.2,15,88,066/-, without rejecting the books of accounts of the assessee. As per assessing officer, an individual creditor is true up to 75% level and untrue up to 25% level, which is unheard practice because a purchase bill issued by creditor cannot be bogus for 25% and true for 75% level, particularly when books of accounts are not rejected and purchases made from the said creditor has not been treated as bogus. We note that Ld. CIT(A) has decided the issue on merit based on the evidences submitted by assessee and the material on record and therefore order passed by ld CIT(A) cannot be treated as an ex parte order, hence matter cannot be remitted back to the file of the ld CIT(A) (for second inning) for fresh adjudication, as contended by ld DR for the Revenue. Hence, considering these facts and circumstances, we delete the addition.
In the result, ground No.1 raised by the assessee is allowed.
Ground No.2 raised by the assessee relates to enhancement of assessment by Rs.1,20,442/- on account of expenditure under section 40A(3) of the Act.
At the outset, Ld. Counsel submitted that the addition under section 40A(3) of the Act to the tune of Rs.1,20,442/- was not made by the Assessing Officer. However, the Ld. CIT(A) has enhanced the assessment and made a fresh addition during the appellate proceedings without giving notice to the assessee for enhancement of assessment, therefore addition so made by the Ld. CIT(A) of Rs.1,20,442/- under section 40A(3) of the Act for making enhanced addition, is not sustainable in the eye of law.
Diya Fabrics 21. On the other hand, Ld. DR for the Revenue submitted that Ld. CIT(A) has co-terminus power as that of the Assessing Officer and therefore has right to enhance the assessment.
After giving our thoughtful consideration to the submission of the parties and perusing the judicial decisions relied upon by the Ld. Counsel, we find that the issue involved in the second ground of appeal
of assessee, is no longer res integra. The question as to whether the ld CIT(A) can enhance the assessment without giving notice to the assessee, was considered by various judicial forums across India, wherein it was held that ld CIT(A) cannot enhance the assessment without giving notice to the assessee. For this, the reliance can be placed on the judgement of the Co-ordinate Bench of ITAT, Ahmedabad in the case of Sureshchandra Parekh vs ITO, in dated 09.02.2017, wherein it was held as follows: “6. So far as the question of enhancement by the learned CIT(A) is concerned, we find that it is undisputed position that the assessee was not put to notice with respect to the enhancement. A co-ordinate bench of this Tribunal in the case of M/s. Monga Metal Pvt. Ltd. vs. ACIT - ITA No.326/LKW/2013 - order dated 07.08.2013 - has held that such an action of the Assessing Officer i.e. of proposing enhancement without putting the assessee to specifically notice in this regard is unsustainable in law. While doing so, the co-ordinate bench, inter alia, observe d as follows :- “4. Having heard the rival submissions and from a careful perusal of record, we find that undisputedly the income assessed by the Assessing Officer was further enhanced by Rs.2,05,987 by the ld. CIT(A) by making disallowance of revenue expenditures claimed by the assessee on the ground that no business activity was undertaken by the assessee during the impugned assessment year. The ld. CIT(A) has not mentioned anywhere in his order with regard to the notice of enhancement ever served upon the assessee. Provisions of section 251(2) of the Act categorically says that the Commissioner (Appeals) shall not enhance an assessment or a penalty or reduce the amount of refund unless the appellant has had a reasonable opportunity of showing cause against such enhancement or reduction. Therefore, it is incumbent upon the ld. CIT(A) for affording a reasonable opportunity of showing cause against enhancement to the assessee. If he fails to afford an opportunity to the assessee, enhancement made by him is not sustainable in the eyes of law. In the light of these facts, enhancement made by the ld. CIT(A) is not sustainable as it was done without issuing a show cause against enhancement to the assessee. We, therefore, find no merit in the additions. Accordingly, we delete the same.
7. As regards the question as to whether the provisions of section 50C can be invoked in respect of the lease hold property, this issue is no longer res integra.
Diya Fabrics There are several decisions of this Tribunal including the case of DCIT vs. Tejinder Singh (supra), Atul G. Puranik vs. ITO [132 ITD 499 (Mum Trib)] in support of the proposition. Hon’ble Delhi High Court in the case of CIT vs. Shri Kishan Das – of 2014, judgement dated 10.02.2014, has approved this school of thought and inter alia observed as follows :- “3. It is contended on behalf of the Revenue that the Tribunal fell into error because Section 50C does not make any distinction between properties of one kind and the other and that so long as the state authorities prescribed a different rate than the one involved in the transaction, such prescribed rate would be deemed the rate for the application for Section 50C. Contending that the distinction made in the present case between the fresh leasehold rights and the consideration payable and the residual rights was unjustified, it was argued that such difference is artificial and unsound. Learned counsel relied upon the decision of the Tribunal in Arif Akhatar Hussain v. ITO ITA/543/Mum/2010 to submit that even leasehold rights such as the present one, which comprehended entitlements in respect of land, building and other interest would fall within Section 50C and the presumption to be drawn as a consequence. The decision in Shavo Norgren (P) Ltd. v. DCIT, Circle 3(3) ITA 8101/Mum//2011 by the Mumbai Bench was also relied upon to say that the development rights would be apprehended within Section 50C. The Tribunal in this case relied upon the decisions of the Lucknow Bench in Carlton Hotel (P) Ltd. v. ACIT 2010 (35) SOT 26 (Luck); Mumbai Bench in Atul. G. Puranik v. ITO, 12(1)(1) and that of the Calcutta Bench in Dy. CIT v. Tejender Singh 19 Taxman.Com 4 In all these, the various Benches of the Tribunal appear to have strictly construed the letter of Section 50C to say that the conveyance has to be complete in respect of all entitlements to the property. In the present case, the Tribunal has upheld the valuation of the assessee. We notice that apart from the three Benches, decisions of which have been relied on, the Tribunal also considered the distinction made between Section 50C and 54D(1) which specifically provides that capital gains from, transfer by way of compulsory acquisition under any law of capital asset being land, building or any right in the land or building...................... ?. Section 50C, on the other hand, talks of, transfer by assessee of a capital asset being land or building or both. The contrast in language, given that Section 50C is a specific provision, which seeks to enact a presumption is significant. The valuation of the concerned State agency or the government that the cost of the land is, in the circumstances, higher, is determinative. We notice that in the present case, there has been no such valuation. That apart, the Tribunal adopted an approach which, with respect, appears to be correct, in that it took note of the proportionate transfer of leasehold rights for 54 years. If the Revenue’s contentions were to be conceded, then in the given facts of case, if the leasehold rights for residual period of 3 or 4 years were to be valued at par with the cost of acquisition of the full tenure of the lease of 90 years, absurd and anomalous results would ensue.”
8. In view of the above discussion, both the grievances of the assessee indeed deserve to be upheld. Neither the learned CIT(A) was justified in confirming the action of the Assessing Officer in treating the stamp duty valuation as consideration for transfer for the purpose of computing capital gain, nor was he justified in proposing enhancement of income regarding reduction in the cost of acquisition without putting assessee to notice in this respect. We, therefore, Diya Fabrics uphold the plea of the assessee. In this view of the matter and the addition having been deleted on merit, grievance of the Assessing Officer is rendered academic and does not call for any adjudication. The direction with which the matter was set aside to the file of the Assessing Officer anyway stands deleted.
The only other point raised in Revenue’s appeal is with respect to grant of partial relief on the basis of deeming provision of section 50C of the Act but the entire addition having been deleted, the partial relief is rendered academic. The appeal filed by the Revenue is thus dismissed as infructuous.
In the result, while appeal of the assessee is allowed, appeal of the Revenue is dismissed.”
Therefore, respectfully following the binding judgment of the Co-ordinate Bench in the case of Sureshchandra Parekh (supra), we allow ground no.2 raised by the assessee.
In the combined result, appeal filed by the assessee is allowed
Order pronounced on 30/03/2023 by placing the result on the Notice Board.