SMT. K.S. SEETHAMMA,BANGALORE vs. CIT, BANGALORE

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ITA 530/BANG/2014Status: DisposedITAT Bangalore05 March 2015AY 2009-105 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal held that the CIT was justified in exercising jurisdiction under Section 263 as the AO had accepted the assessee's explanation without adequate investigation. However, the Tribunal found that the CIT erred in directing the addition of Rs.36.55 lakhs without further inquiry. The Tribunal noted that an affidavit from Mr. Krishnamurthy supported the assessee's claim, and guideline valuations were also provided. The Tribunal reasoned that before concluding unexplained investment, the CIT should have examined Mr. Krishnamurthy, investigated the property valuation, and ascertained the reasons for the title defect in the first sale and the subsequent compromise. Since these inquiries were not made, the addition was not sustainable. Therefore, the Tribunal modified the CIT's order, directing that the addition of Rs.36.55 lakhs be deleted. The assessment order on this issue was set aside and remanded to the AO for fresh consideration after affording the assessee an opportunity of being heard.

What were the facts?

The assessee, Smt. K.S. Seethamma, filed her return of income for AY 2009-10 declaring Rs.1,92,134. The Assessing Officer (AO) noticed a property purchase by the assessee for Rs.36.55 lakhs and sought an explanation for the source of funds. The assessee explained that this property was conveyed to her as a compromise because a prior sale of another property (Sy. No. 23 at Gullobanahalli Village) by Mr. Krishnamurthy to her had a title defect, rendering it void. The assessee stated no actual payment was made for the second property, despite the sale deed reciting Rs.36,55,000. The AO accepted this explanation. The Commissioner of Income-tax (CIT) initiated proceedings under Section 263, finding the AO's order erroneous and prejudicial to revenue, and directed an addition of Rs.36.55 lakhs as unexplained investment.

What were the issues?

1. Whether the CIT was justified in exercising his revisional jurisdiction under Section 263 of the Income Tax Act, 1961, on the grounds that the assessment order was erroneous and prejudicial to the interests of revenue? 2. Whether the CIT erred in directing the AO to make an addition of Rs.36.55 lakhs as unexplained investment without further inquiry? Assessee's Contentions: The assessee argued that the second property was conveyed in lieu of the void first sale, and no actual consideration was paid. An affidavit from Mr. Krishnamurthy supported this. The assessee also submitted guideline valuations showing the value of the Gullobanahalli property was higher than the initial sale consideration. The assessee contended that the CIT should not have made an addition without proper investigation. Revenue's Contentions: The revenue, through the CIT, argued that the AO accepted the assessee's explanation based solely on an affidavit, which contradicted the sale deed. The CIT also noted the disparity in valuation between the first sale (Rs.2,85,000) and the second property's stated consideration (Rs.36,55,000), suggesting an exchange should have occurred if the assessee's claim was valid. The CIT concluded the assessee failed to explain the source of funds.

Which sections of the Income-tax Act were involved?

Section 263,Section 143(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “A” BENCH : BANGALORE

Before: SHRIN.V. VASUDEVAN & SHRI JASON P. BOAZ

For Appellant: Shri P. Dinesh, Advocate

Per N.V. Vasudevan, Judicial Member

1.

This appeal by the assessee is against the order dated 20.2.2014 of the Commissioner of Income-tax, Bangalore-IV, Bangalore relating to assessment year 2009-10.

2.

The assessee is an individual. The Return of income for AY 09-10 was filed by her declaring taxable income of Rs.1,92,134. The ITS data reflected a transaction of purchase of immovable property by the assessee for a sale consideration of Rs.36.55 lakhs bearing New Khata No.589/25/19/23 in Sy. No.23 at Gullobanahalli Village, Devanahalli Town Municipality. The Sub-Registrar, Devanahalli, Bangalore confirmed that the property was registered in the name of assessee. In these circumstances, the AO called upon the assessee by a notice dated 28.10.2011 to establish the source of funds out of which the property was purchased.

3.

The assessee sent a reply to the AO explaining that he had purchased the property at New Khata No.23/2A, Site No.15, Gollahalli Village, Uttarahalli Hobli, Bangalore under a registered sale deed dated 4.9.2002 from one Mr. Krishnamurthy. It later transpired that Mr. Krishnamurthy did not have proper title over the property and therefore the sale in favour of the assessee would be null and void. After negotiation, Mr. Krishnamurthy agreed to convey another property viz. New Khata No.589/25/19/23 in Sy. No.23 at Gullobanahalli Village, Devanahalli Town Municipality. This is the property referred to by the AO in his show cause notice dated 28.10.2011. The assessee pointed out that though the sale deed dated 5.12.2008 mentions that a sum of Rs.36,55,000 was paid by the assessee to Mr. Krishnamurthy, no such payment was in fact made, as the property was conveyed to the assessee in view of the fact that the sale of property at Gollahalli Village turned out to be null and void. The assessee thus explained that no consideration whatsoever was paid as recited in the second sale agreement dated 5.12.2008. The affidavit of Mr. Krishnamurthy affirming the above facts was also filed before the AO.

4.

The AO passed an order of assessment u/s. 143(3) of the act accepting the aforesaid claim of the assessee.

5.

The CIT in exercise of his powers u/s. 263 of the Act was of the view that the assessment order was erroneous and prejudicial to the interests of revenue, inasmuch as the AO has merely taken cognizance of an affidavit filed by Mr. Krishnamurthy which was contrary to the recital in the sale deed dated 5.12.2008. The CIT also found that the first sale deed dated 4.9.2002 by which property at Gollahalli Village was transferred only for a consideration of Rs.2,85,000 and therefore the valuation did not justify selling the Gullobanahalli property for a sum of Rs.36,55,000. According to the CIT, there ought to have been an exchange that ought to have taken place if the contention of the assessee has to be accepted. The CIT therefore concluded that assessee has failed to explain the source of funds for making investment in purchase of the property under sale deed dated 5.12.2008 at Gullobanahalli village. He accordingly directed the AO to revise the order of assessment by making an addition of Rs.36.55 lakhs as unexplained investment.

6.

Aggrieved by the order of CIT, the assessee is in appeal before the Tribunal.

7.

We have heard the submissions of the ld. counsel for the assessee and the ld. DR. In our view, the exercise of jurisdiction u/s. 263 of the Act was called for as the AO had accepted the explanation offered by the assessee without making any further investigation, which he ought to have made. We are, however, of the view that the CIT ought to have set aside the order of AO and remanded the issue for fresh consideration and ought not to have directed the AO to revise the order of assessment by making an addition of Rs.36.55 lakhs as unexplained investment. Admittedly, the affidavit of Mr. Krishnamurthy was filed which supported the plea put forth by the assessee before the AO. In the proceedings before the CIT, the assessee also filed guideline valuation to show that the value of property at Gollahalli village was much more than the property which the assessee ultimately got at Gullobanahalli village. In these circumstances, before coming to the conclusion that there was unexplained investment, it was incumbent on the part of the CIT to have examined Mr. Krishnamurthy and the aspect of valuation of the property ought to have been gone into.

Further, it was also necessary to see as to how the first sale dated 49.9.2002 of Gollahalli village property had improper title and consequently as a measure of compromise Krishnamurthy sold the Gullobanahalli village property. Without making such enquiries, it is not possible to make an addition on account of unexplained investment.

8.

We therefore modify the order of CIT and hold that the direction of the CIT to make an addition of Rs.36.55 lakhs as unexplained investment be deleted. Instead, the order of the AO on this issue is set aside and remanded to the AO for fresh consideration after affording opportunity of being heard to the assessee.

9.

In the result, the appeal of the assessee is treated as allowed for statistical purposes.

Pronounced in the open court on this 5th day of March, 2015.

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