Income Tax Appellate Tribunal - Chandigarh
Hemant Popli, Shimla vs Assessee on 11 March, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH, CHANDIGARH
BEFORE SHRI H.L.KARWA, VICE PRESIDENT
AND MS. RANO JAIN, ACCOUNTANT MEMBER
ITA No.1163 Chd/2013
(Assessment Year : 2008-09 )
&
ITA No.1164 Chd/2013
(Assessment Year : 2010-11 )
Hemant Popli, Vs. The D.C.I.T.,
Hemant Lodge, Murray Central Circle-II,
Field Estate, Nav Baharm Chandigarh
Shimla.
PAN: AIAPP6983B
(Appellant) (Respondent)
Appellant by : Shri Vishal Mohan
Respondent by : Shri Manoj Mishra, DR
Date of hearing : 18.02.2016
Date of Pronouncement : 11.03.2016
O R D E R
PER H.L. KARWA, V.P. :
These two appeals filed by the same assessee are directed against the separate orders of learned Commissioner of Income Tax (Appeals)( Central), Gurgaon, both dated 25.11.2013, relating to assessment years 2008-09 and 2010-11 respectively.2
2. Both these appeals were heard together and are being disposed off by this common order for the sake of convenience.
3. Firstly, we will take up ITA No.1163/Chd/2013 relating to assessment year 2008-09.
ITA No.1163/Chd/2013 :
4. Ground No.1 of appeal raised by the assessee reads as under :
"1. That in the facts and circumstances of the case the Ld Commissioner of Income Tax ( Appeals) is not justified in upholding the disallowance of Rs. 64719/- on account the depreciation claimed by the assessee appeallant on building ."
5. Briefly stated, the facts of the case are that search & seizure operation under section 132(1) of the Income Tax Act, 1961 (in short 'the Act'), was conducted on 8.10.2010 in Popli Group of cases. The assessee filed his original return of income under section 139(1) of the Act, on 25.9.2008 declaring total income at Rs.16,42,204/-. After the search, a notice dated 15.2.2012 under section 153A(1) of the Act, was issued to the assessee requiring him to submit his return of income for six immediately preceding assessment years relating to previous year, in which search took place. In response to the said notice, the assessee submitted his return of income on 14.6.2012 declaring total income at Rs.16,42,204/-. Thereafter, statutory notices under section 143(2) and 142(1) of the 3 Act, were issued to the assessee. In the return of income, the assessee claimed depreciation on building. In this regard, the assessee had submitted that from financial years 2004-05 to 2010-11, he was engaged in the business of execution of work contracts. The Assessing Officer noticed that the assessee was also engaged in the business of construction and sale of immovable property. But in his return of income, the assessee has shown land and building as his fixed assets and claimed depreciation on the same. In the financial year relevant to assessment year under consideration, the assessee claimed depreciation at Rs.64,719/-. The Assessing Officer noted that no explanation was submitted by the assessee for claiming depreciation on building when the same was not used as fixed assets for business purpose. The Assessing Officer required the assessee to show cause as to why depreciation claimed on the building by him in his return of income, should not be disallowed. In response to the above show cause notice, the assessee submitted a detailed reply on 27.2.2013. The Assessing Officer rejected the explanation of the assessee, mainly on the ground that the assessee failed to substantiate his claim with documentary evidence in order to prove that the building on which the depreciation was claimed, was used for business activity. The Assessing Officer also observed that the assessee in the course of assessment proceedings for assessment year 2007-08 before the JCIT, Shimla Range, Shimla, has submitted that the said building on 4 which depreciation was claimed was a residential house. Therefore, the Assessing Officer took the view that the stand taken by the assessee on this issue was in complete contradiction to the stand taken by him earlier. Consequently, the Assessing Officer disallowed the depreciation of Rs.64,719/- and added back the same to the total income of the assessee.
6. On appeal, the learned CIT (Appeals) confirmed the order of the Assessing Officer, stating that the depreciation claimed by the assessee in assessment year 2006-07 was disallowed by the Assessing Officer and the order of the Assessing Officer has been confirmed by the CIT (Appeals). The learned CIT (Appeals) further observed that the assessee has not furnished any documentary evidence in support of his claim.
7. We have heard the rival submissions. It is observed that the assessee made similar claim in assessment year 2006-07 and the Assessing Officer held that the claim made by the assessee was wrong because the plea on which depreciation was claimed was a residential house. At the time of hearing of the appeal, Shri Vishal Mohan, learned counsel for the assessee could not controvert the above findings of the lower authorities. During the course of assessment proceedings for the year 2007-08, the assessee admitted in his letter dated 27.11.2009 that the building in question is a residential house and one floor of which was sold during the year and 5 the proceeds from the sale were invested in construction of other floors of the building. The Assessing Officer disallowed a sum of Rs.1,09,873/- on account of depreciation claimed on the building in question. There is no evidence on record to show that there was a change in the user of building. It is also clear that the assessee has accepted the order passed by the Income Tax Authorities for the assessment year 2007-08. Considering the entire facts and circumstances of the present case, we do not find any merit in this ground of appeal and accordingly, the same is dismissed.
8. Ground Nos.2 and 3 of appeal raised by the assessee read as under :
"2. That in the facts and circumstances of the case the Ld Commissioner of Income Tax (Appeals) in not justified in upholding the treating of income from the sale of property as income from business and profession . The fact of the matter is that the same should have been assessed as capital gains as returned by the assessee .
3. That in the facts and circumstances of the case the Ld Commissioner of Income Tax ( Appeals) is not justified in upholding the estimating the profit on sale of flats @ 30% of the sales value of Rs 9,00,000/- and thereby upholding an addition of Rs 2,70,000/-."
9. The Assessing Officer made the addition of Rs.2,70,000/- on account of profit on sale of immovable properties. The Assessing Officer noted that the transactions made in land and building, amount spent on construction have not been routed through the trading 6 and Profit & Loss Account. No profit was shown by the assessee on account of sale of property. No explanation was also tendered by the assessee in this regard. Since the transactions have not been routed through Profit & Loss Account, the trading account in respect of construction and sale of immovable property is cast below by the Assessing Officer and gross profit was taken @ 30%:-
F.Y. 2007-08 To By Opening Stock: Rs.16,14,307/- Sale: Rs.9,00,000/-
Construction: Rs.5,01,860/- Closing Stock: Rs.14,86,167/-
Gross Profit: Rs.2,70,000/-
Rs.23,86,167/- Rs.23,86,167/-
10. The Assessing Officer asked the assessee as to why the profit of Rs.2,70,000/- on sale of immovable property should not be treated as business income for the year under consideration. In response to the above query, the assessee submitted that he is a civil contractor and he had invested in properties and also purchased a building for construction of his office godown, which was subsequently sold by him. He further submitted that the entire investment in the properties have been routed through the books of account and have been shown as a fixed asset under the head 'income from business and profession'. But the same was assessable under the head 'income from capital gains'. The Assessing Officer did not 7 find any force in the above contention of the assessee.
The Assessing Officer concluded that in the case of the assessee he is a contractor and engaged in the business of civil construction. He further noted that apart from executing contract work, he is also engaged in construction of building and selling the same regularly. The Assessing Officer rejected the contention of the assessee that the construction and sale of building by him should not be treated as his business income. The Assessing Officer also rejected the other contention of the assessee regarding estimation of profit @ 30%. The Assessing Officer noted that the said estimation was based on the profit earned in similar kind of construction business. Therefore, the profit on sale of property has been worked out at Rs.2,70,000/- by the Assessing Officer and the same was treated as undisclosed income of the assessee. This amount of Rs.2,70,000/- was added to the total income of the assessee.
11. On appeal, the learned CIT (Appeals) upheld the addition for the reasons stated in para 6.1 of the impugned order and, hence the assessee is in appeal before the Tribunal.
12. We have heard the rival submissions and perused the materials available on record. Shri Vishal Mohan, learned counsel for the assessee vehemently argued that the discretion to determine the gross profit rate must necessarily be exercised on the basis of relevant 8 factors. According to him, the Assessing Officer has not considered the past history of the assessee, the nature of assessee's business, prevailing economic conditions vis-à- vis the assessee's business. He has also pointed out that the Assessing Officer should have considered the price of raw material, labour, rise in price index from time to time. According to the learned counsel for the assessee, the authorities below have not cited any comparable case while applying the GP rate of 30%, which is arbitrary and without any basis. The learned counsel for the assessee pointed out that the reputed builder of Shimla M/s Rajdeep Builders had returned a profit of 18.22%, which is evident from the copy of Balance Sheet of the said concern as on 31.3.2005. A copy of the same is available at page 40 of the Paper Book. The authorities below have conveniently ignored the case of M/s Rajdeep Builders of Shimla in whose case a profit of 18.22% for assessment year 2005-06 has been accepted. According to the learned counsel for the assessee, the said concern is also engaged in similar activities as those of the assessee. In the instant case, the Assessing Officer has not brought any comparable case on record and his estimation is too far way from the reality and is also without any basis. Recently, the Hon'ble Punjab & Haryana High Court in the case of Telelinks Vs. CIT (2015) 377 ITR 158 (P&H) after considering the decisions of the Hon'ble Supreme Court in the case of Dhakeswari Cotton Mills Ltd. Vs. CIT (1954) 26 ITR 775 (SC) and that of Privy Council in the case of 9 CIT Vs. Laxmi Narain Badridas (1937) 5 ITR 170 (PC), held as under :
"10. The discretion to determine a net profit rate must necessarily be exercised on the basis of relevant factors which we shall enumerate but before doing so, would clarify that these factors are neither exhaustive nor a final word on relevant factors that may be considered while determining the net profit rate. A few significant factors are the past tax history of the assessee, if available, assessment orders that may have been passed and accepted by the department, the nature of the assessees' business, an appraisal of the value of the contract, prevailing economic conditions vis-a-vis the assessee's business, the price of raw material, labour etc. the rise in price index as notified by the Central Government from time to time if applicable and if the Assessing Officer proceeds to rely upon assessments of other assessees engaged in similar business to do so only after determining points of similarity etc. At this stage, it would be appropriate to clarify that the word similar is not synonymous with the word 'identical'. Factors referred to above are merely illustrative and not exhaustive of the circumstances that may or may not be taken into consideration. At this stage, it would be appropriate to reproduce a few words from Dhakeswari Cotton Mills Ltd. Vs. CIT (1954) 26 ITR 775 (SC) so as to place our conclusions in their correct perspective:-
".....The Income Tax Officer is not barred by technical rules of evidence and pleadings, and he is entitled to act on material which may not be accepted as evidence in a Court of law, but in making the assessment under subs. (3) of s. 23 the ITO is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support the assessment under S. 23(3). In this case the Tribunal violated certain fundamental rules of justice in reaching its conclusions. Firstly, it did not disclose to the assessee what information had been supplied to it by the Departmental Representative. Next, it did not give any opportunity to the company to rebut the material furnished to it by him, and lastly, it declined to take all the material that the assessee wanted to produce in support of its case. The result is that the assessee had not had a fair hearing. The estimate of the gross rate of profit on sales, both by the ITO and the Tribunal, seems to be based on surmises, suspicions and conjectures. It is somewhat surprising that the Tribunal took from the representative of the Department a statement of gross profit rates of other cotton mills without showing that statement to the assessee and without giving him an opportunity to show that statement had no relevancy whatsoever to the case of the mill in question. It is not known whether the mills which had disclosed these rates were situate in Bengal or elsewhere, and whether these mills were similarly situated and circumstanced. Not only did the Tribunal not show the information given by the representative of the Department to the appellant, but it refused even to look at the trunk load of books and papers produced before it by assessee. The ITO and the Tribunal in estimating the 10 gross profit rate on sales did not act on any material but acted on pure guess and suspicion. The order of the Tribunal was set aside and the matter was remanded to it with directions that in arriving at its estimate of gross profits and sales it should give full opportunity to the assessee to place any relevant material on the point that it has before the Tribunal, whether it is found in the books of account or elsewhere and it should also disclose to the assessee the material on which the Tribunal is going to found its estimate and then afford him full opportunity to meet the substance of any private inquiries made by the ITO if it is intended to make the estimate on the foot of those enquiries. "
11. A relevant extract from CIT Central & United Provineer Vs. Laxmi Narain Badre Dass (1937) 5 ITR 170 the Privy Council (Page 180) reads as follows :-
".....The officer is to make an .assessment to the best of his judgment against a person who is in default as regards supplying information. He must not act dishonestly, or vindictively or capriciously because he must exercise judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment, and for this purpose he must, their Lordship thinks, be able to take into consideration local knowledge and repute in regard to the assessee's circumstances, and his own knowledge of previous returns by and assessments of the assessee, and all other matters which he thinks will assist him in arriving at a fair and proper estimate; though there must necessarily be guess work in the matter, it must be honest guess work. In that sense, too, the assessment must be to some extent arbitrary. Their Lordships think that the section places the officer in the position of a person whose decision as to amount is final and subject to no appeal, bust whose decision if it can be shown to have been arrived at without an honest exercise of judgment, may be revised or reviewed by the Commissioner under the powers conferred upon that official by section 33. "
12. It would also be necessary to refer to another judgment in State of Kerala Vs. C. Velukutty, 1966 ITR Vol. (LX) 239, wherein while dealing with the expression 'best of his judgment', it has been held that the discretion to determine net profit rate vests in the authorities but discretion shall not be arbitrary and should have a reasonable nexus to the available material and the circumstances of the case, followed by reasons that appear to be legal and valid. A reference may also be made to judgment of this Court in ITA No. 478 of 2006 titled as Aggarwal Engineering Co. Vs. Assistant Commissioner of Income Tax, decided on 06.12.2010. The second question of law is answered accordingly."
13. In the above case, there was a dispute regarding application of net profit rate. However, in this case, dispute is regarding the gross profit rate. In both the 11 cases, the question is regarding the estimation of profit and, therefore, the ratio laid down by the Hon'ble Punjab & Haryana High Court is squarely applicable to the facts of the present case. In the above decision, the Hon'ble High Court has clearly laid down that the discretion to determine a net profit rate must necessarily be exercised on the basis of relevant factors. The Hon'ble High Court further laid down that a few significant factors are the past tax history of the assessee, if available, assessment orders, the nature of the assessee's business, an appraisal of the value of the contract, prevailing economic conditions vis-à-vis the assessee's business, price of raw material, labour, etc., the rise in price index as notified by the Central Government from time to time, if applicable and if the Assessing Officer proceeds to rely upon assessments of other assesses engaged in similar business to do so only after determining points of similarity. In the instant case, the Assessing Officer has not considered any of the factors which are stated hereinabove. He has applied arbitrary rate of 30% without any basis. In our opinion, the rate of profit applied by the Assessing Officer is not based upon a rational analysis of facts. The authorities below have also not given any reason as to why the case cited by the assessee of a reputed builder of Shimla M/s Rajdeep Builders was not comparable with the case of the assessee. Thus, considering the entire facts and circumstances of present case, we are of the view that a profit rate of 21% will meet the ends of justice in this 12 case. It is relevant to observe here that the assessee failed to give his past tax history. The assessee has also not shown any profit on sale of immovable properties. It is evident from the record that the assessee is executing contract work and is also engaged in the construction of building and selling the same regularly. We may also observe there that the gross profit rate cannot be uniform in all the years and the profit rate depends on many factors. Therefore, the gross profit rate of 21% for the year under consideration should not be guiding factor in other years. Accordingly, we direct the Assessing Officer to apply a profit rate of 21% as against 30% applied by the revenue authorities. The Assessing Officer should give a relief to the assessee accordingly. Thus, ground Nos.2 and 3 of the appeal are allowed partly.
14. The ground Nos.4 of appeal raised by the assessee reads as under :
"4. That in the facts and circumstances of the case the Ld Commissioner of Income Tax (Appeals) is not justified in upholding the adding back a sum of 5,01,860/-made under section 69C of the Income Tax Act .1961 treating the same as unexplained expenditure ."
15. The Assessing Officer noted that the assessee had spent an amount of Rs.5,01,860/- on construction of immovable property during the year under consideration. According to the Assessing Officer, no documentary evidence regarding the source of such expenses incurred 13 on construction of building was furnished by the assessee. When the assessee was confronted, the assessee submitted that the aforesaid expenditure has been routed through books of account and reflected in the Balance Sheet for the year under consideration. The assessee further submitted that there was no question of treating the same as unexplained as the vouchers in respect of the same were seized by the Income Tax Authorities. The Assessing Officer did not accept the above explanation of the assessee and made the addition of Rs.5,01,860/- under section 69C of the Act.
16. On appeal, the learned CIT (Appeals) confirmed the addition and, hence the assessee is in appeal before the Tribunal.
17. We have heard the rival submissions. Section 69 of the Act provides that "where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation if any offered by him is not in the opinion of the Assessing Officer satisfactory, the amount covered by such expenditure or part thereof as the case may be deemed to be the income of the assessee for such financial year". The learned counsel for the assessee vehemently argued that the entire expenditure has been routed through the books of account of the assessee and the copy of the building account and copies of the cash book on various dates, on which the expenditure was 14 booked were placed on record as a proof of the source of expenditure in question. The Assessing Officer has accepted the books of account. It is true that the expenditure in question also appears in the Balance Sheet, relevant to assessment year under consideration and copy of which is available at page 29 of the assessee's Paper Book. In our opinion, the entire expenditure has been booked through the books of account and, therefore, there was no question arises for assessing the same under section 69C of the Act. It appears that the addition has been made just for the sake of making addition and the same is not sustainable in law. Accordingly, we delete the addition of Rs.5,01,860/- made under section 69C of the Act by the Assessing Officer and confirmed by the learned CIT (Appeals). Accordingly, we allow ground No.4 of the appeal.
18. The ground No.5 of the appeal raised by the assessee reads as under :
"5. That in the facts and circumstances of the case the Ld Commissioner of Income Tax ( Appeals) is not justified in upholding an addition of Rs 102102/- made under section 68 of the Income Tax Act, 1961 as un unexplained cash credit ."
19. The Assessing Officer made the addition of Rs.1,02,102/- under section 68 of the Act. The Assessing Officer noted that during the course of assessment proceedings, it was found that the assessee had made 15 deposits in bank account No.4500000100019347 with PNB, New Shimla to the extent of Rs.1,02,102/-, the source of which has not been explained. Consequently, the Assessing Officer made the addition under section 68 of the Act. On appeal, the learned CIT (Appeals) confirmed the order of the Assessing Officer.
20. After hearing the learned representatives of both the parties, we do not find any merit in this ground of appeal. The learned CIT (Appeals) while confirming the addition, has observed as under :
"8.1 I have considered the submission of the assessee and impugned assessment order. The AO has prepared a chart, at para 7, depicting the credit entries/deposits in the bank account of the assessee from AY 2005-06 to AY 2010- 11, which totals Rs.8,15,371/-. The amount involved for the instant year is Rs.1,02,102/-. It is seen that the AO resorted to section 68 as the sources of these credit entries as emanating from the contractual payments were not found acceptable in the absence of linking the debit and credit entries.
Before me it was contended that addition made on account of credits in the bank passbook did not come under the purview of section 68. This contention is not tenable as the bank passbooks are also accounts though maintained by third party, are endorsed by the assessee. The alternative plea of treating the credits as representing contract payments could have been acceptable perhaps if assessee had furnished the earnings from contracts for the year with necessary evidences. I am afraid one cannot blindly give the benefit of credit without any supporting material on record. Assessee has not even attempted to 16 explain the facts of the case. Thus, I am afraid the assessee fails on this ground too."
21. From the above, it is clear that the assessee failed to explain the nature and source of the deposits of Rs.1,02,102/- made by him in the bank account with PNB, Shimla. At this stage also, no explanation regarding the nature and source of deposits has been given. Under section 68 of the Act, the onus lies on the assessee to prove the genuineness of the transactions. In fact, the assessee has not given any satisfactory explanation and, therefore, we confirm the addition of Rs.1,02,102/- and reject ground No.5 of appeal.
22. The ground No.6 of appeal raised by the assessee is as under :
"6. That in the facts and circumstances of the case the Ld Commissioner of Income Tax ( Appeals) is not justified in upholding the addition of Rs 16,50,000/- as income from undisclosed sources ."
23. During the course of search, a document marked A-2 was found and seized. This document is an agreement to sell dated 11.5.2007 entered into between the assessee and Dr.K.S Larzoo for sale of plot No.138, Type-B, Lane-2, Sector 1, Below BCS, New Shimla. The total consideration of the plot was mentioned at Rs.25,50,000/-. During the course of assessment proceedings, the Assessing Officer asked the assessee to explain the nature of the document. In response of the said query, the assessee submitted that 17 a portion of the building B-38 was sold to Dr.Larzoo for a consideration of Rs.25,50,000/-. However, the deal did not materialize and the same was eventually sold unfinished for a consideration of Rs.9 lacs. In order to substantiate his claim the assessee submitted a copy of the registered sale deed before the Assessing Officer. The Assessing Officer observed that no documentary evidence was furnished by the assessee in support of his submission. He, therefore, issued a notice to the assessee to show cause as to why the difference of Rs.16,50,000/- (Rs.25,50,000/- - Rs.9,00,000/-) should not be treated as undisclosed sales proceeds in respect of plot No.138 referred to above. The assessee vide his reply dated 27.12.2013 submitted as under :
"That initially the property being a flat I building B-38 was agreed to be sold to Dr.K.S. Larzoo for a total consideration of Rs 25,50,000/ - the said flat was to be sold fully furnished with modern amenities. That eventually it was agreed interse the parties to amend the said agreement to the extent that the property shall be sold in a raw manner and so the said consideration was reduced to Rs 9 lacs the payment of which stands received by the assessee through account payee cheques which were duly deposited by him in Vijay Bank the copy of which has already been placed on record. As the consideration of Rs 9,00,000/- was only received and the same has been subjected for taxation no question of the same being treated as unexplained arises at all. Copy of the registry in respect of the same is being placed on record perusal and ready reference."18
24. The Assessing Officer did not accept the above explanation of the assessee stating that the contents of the conveyance deed dated 7.8.2007 are similar with the contents of agreement to sell dated 11.5.2007. Accordingly, the difference of Rs.16,50,000/- was added to the total income of the assessee.
25. On appeal, the learned CIT (Appeals) upheld the addition and the assessee is in appeal before the Tribunal.
26. We have considered the rival submissions. It is an admitted fact that an agreement to sell dated 11.5.2007 entered into between the assessee and Dr.K.S. Larzoo found and seized was seized during the course of search. The total consideration of the property as mentioned in the said agreement is Rs.25,50,000/-. However, in the sale deed, the consideration of the property is mentioned at Rs.9 lacs. Thus, there is a difference of Rs.16,50,000/-. As regards the difference of Rs.16,50,000/-, the assessee submitted a detailed reply on 27.2.2013, we have reproduced the same hereinabove. A copy of the agreement to sell dated 11.5.2007 is available at pages 45 to 48 of assessee's Paper Book. The relevant portion of the agreement reads as under :
AGREEMENT TO SELL This agreement to sell is made on this 11 th day of May , 2007 between Shri. Hemant Popli son of Shri Nand Lal Popli R/o Hemant Lodge Naubahar s, Shimla (herein after called 19 the first party/seller ) which expression shall include his legal heirs, executors, administrators, representatives and assigns).
And Sh.K.S.Larzoo s/O l.r.Larzoo r/o VPO Bonda Tehsil Rampur, Shimla hereinafter called the second/purchaser which expression shall and as contrary appears include his legal heirs, executors, administrators, legal representatives and assigns).
And whereas the first party /Seller is the absolute owner and allottee and in possession of Plot No, 138, Type B Lane-It Sec. I below BCS New Shimla(H.P) which is free from all encumbrances, i.e. sale, transfer, mortgage, gift, exchange, demand, charges, and litigations etc. till date.
And whereas the first party/seller being the absolute owner has constructed RCC frame structure along with Comprising of ground floor, parking floor, first floor, second floor, and attic along with other mandatory requirements as such as rain water harvesting structure as per the approved plan sanctioned by the Member Secretary SADA, Kasumpti, ShimIa-9 on the above said plot.
Contd...2 "Whereas the First party/seller/transferor has agreed to sell the ground floor of the said building, finished in all respect, as per the specifications attached in annexure-A with this agreement , signed by the parties of the above said flat built on plot no.38 Type-B, Lane-II, Sector-I, NEW Shimla,-9, H.P. ,plot area of about 118 sq.mts. having each slab area of about 825 sq, fts, and second party/purchaser is interested to purchase the said floor complete in al respect on the following terms and conditions.
1. That the first party/seller has agreed to sell and second party/purchaser has agreed to purchase the said property for a total consideration of Rs.2550000 only (Rupees twenty five lakhs fifty thousand only) .20
2. That this agreement to sell has been entered into by the second party/purchaser on the first party/seller holding on that he, the seller is the absolute owner of the plot allotted by HIMUDA and is in possession of the aforesaid property with a subsist ting right to make the transfer/sale in the name of the second party/purchaser and the above plot is not in any manner encumbered, mortgaged or charge with the payment of money.
3. That the first party/ seller shall hand over the vacant possession of the property peacefully to second party/purchaser on completion of the building but not later than 15th July, 2007.
4. That the second party/purchaser has on this 1 1 t h day of May2007.uponexecution of this agreement to sell has paid to the first party/seller a sum of Rs 2,50000 (Rs two lacs fifty thousand only) by way of Indian Bank cheque no.571773, dt. ll.05.2007, for Rs.50000, Indian Bank cheque no.571201, dt. l1.05.2007 for Rs 1,50,000 and Indian bank cheque no.57160l, dt. l1.05.2007 for Rs 50,000, as earnest money at the time of signing of agreement which shall be adjusted towards the total consideration of Rs 25,50000 (Rs twenty five lakh fifty thousand only).
5. That the first party/seller shall get the structure of the said building completed and apply for the completion certificate of the said property with thec ompetent authority. The penalty towards the 10% deviation shall be paid by the first party/seller. The first party shall provide the completion certificate along with NOC for water and electricity connections to the second party/purchaser.
6. That the first party shall bear the transfer charges 21 towards the said property, as levied by the HP Housing and Urban Development authority. However the second party shall bear the cost of the stamps and registration fee etc, for the registration of sale deed in his own name.
7. That till the time the final payment is made, the physical possession of the said property ,along with parking of one car shall remain with the first party/seller and the peaceful and vacant possession of the entire property shall be handed over to the Second party by the first party only at the time of making the Final Payment qua the said transaction.
8. That the second party/purchaser shall make the balance payment within a period of 65 days from the date of this agreement i.e. on or before 15th July 2007 and if the second party/purchaser fails to make the balance payment in stipulated period as specified above, the first party/seller has right to forfeit the earnest money. In case first / seller backs out from the deal second party/purchaser had right to get the property registered in his name through the court of law or specific performance of law.
9. That the First Party/ Seller has assured second party that the above property in question is free from all sort of liens encumbrances litigation dispute of every nature and any of these are found to be incorrect the First party will indemnify the second party against all loses claims and damages arising on this account.
10. That the First Party/ seller ere by under takes an agree to sign all relevant documents for the transfer of ownership of the said property in favor of the second party purchaser, here by agree to sell in all other authorities and all records.
11. That the second party/ Purchaser will get his own water, electricity connections and the First Party/ 22 Seller will provide NOC from the concerned authorities, along with completion certificate for the same.
12. That First party shall deposit all the previous and outstanding dues if any and get the permission to sell the said second floor from the H.P Housing and UDA Nigam Bihar, Shimla-2. The copy of the convenience deed as registered with sub registrar Shimla, Permission to sell from the H.P Housing and UDA and copy of possession letter or other relevant papers shall be delivered to the second party by the First party at least 7 days before the full and final payments.
13. That since the H.P Housing and Urban Development authority Shimla is also a party towards the transfer of the said property in name of the second party?
Purchaser, the first party / seller will provide full co operation till the said property is transferred and the sale deed is registered n the Name of the second party/ Purchaser.
14. That this agreement to sell is made with the free consent of the seller to the purchaser with any coercion and influence.
In Witness where of both the parties have singed this deed of agreement on the day, month and year herein above mentioned in the presence of witnesses.
WITNESSES
1. Seller/Transferor 2 Purchaser/Transferee.
27. From the above, it is clear that the transferor has agreed to sell the ground floor of the above building, finished in all respects as per the specifications attached 23 as per Annexure-A with this agreement, signed by both the parties. The Annexure-A to the agreement reads as under:
1. Marbal in f loor, basic rate @ Rs.50/- per sq.f t.
2. T iles of Orient or Kaz ar ia make upto heigh t o f 7 f t . i n t h e B a t h r o o ms .
3. Antiskit f loor tiles in the B a t h r o o ms of Orient or Kazaria make.
4. B i r l a P u t t y i n t h e wa l l s wi t h O B D .
5. G r a n i t e T o p i n t h e k i t c h e n wi t h u n d e r - s h e l f Cupboards.
6. M o d u l e r E l e c t r i c a l s wi t c h e s o f Anchor or A r o m a m a k e wi t h H a v e l l s wi r e .
7. D o o r wi n d o ws o f b u l l o c k wo o d w i t h p a n t o n outside and polish inside.
8. H i n d wa r e s a n i t a r y f i x t u r e s i n t h e B a t h r o o ms and CP f ittings of Benson make.
9. C o r n i s h e s mo u l d i n g s o f P O P i n t h e c e i l i n g .
10. A l u m i n i u m o x i d i z e d H a n d l e s a n d t o we r b o l t s .
11. Kitec GI pipes and sanitary pipes of Finolex make.
Sd/- Sd/-
(Assessee) (Dr.K.S.Larzoo)
28. The learned counsel for the assessee vehemently argued that as per the agreement to sell dated 11.5.2007, the flat had to be completely finished in all respects.
However, as the deal did not materialize, the matter was renegotiated and instead of finished flat, only structure was sold and renegotiated price of Rs.9 lacs was agreed 24 upon, as is evident from the copy of the conveyance deed and the relevant portion of which reads as under :
"And whereas the seller has agreed to sell and the purchaser has also agreed to purchase the entire ground floor RCC framed structure having an area 76 sq meters alongwith one car parking slot in the parking floor of the building built on the plot no. B-38 Type B measuring 118.3 sq meters...."
29. Further, para 10 of the sale deed reads as under:
"That the purchaser has right to construct the said floor according to the approved map and also have the right to make addition/ alteration inside the said property hereby sold without causing any damage to the basic structure of the building and the seller will not change the outlook of the said building."
30. From the above, it is clear that the property agreed to be sold and the property actually sold were not the same. According to the learned counsel for the assessee, the property agreed to be purchased and the property sold are entirely different in nature, which is the sole reason for decrease in the sale consideration amount. The copy of the sale deed is available at pages 49 to 59 of assessee's Paper Book. After perusing the agreement to sell and the sale deed, we are of the view that there is a merit in the submissions made by the learned counsel for the assessee. There is no material on record to controvert the above contention of the learned counsel for the assessee. The Revenue has also not proved that the assessee had received more than the sale consideration 25 mentioned in the sale deed and, therefore, on this score also, no addition can be made. Considering the facts and circumstances of the present case, we delete the addition of Rs.16,50,000/- made by the Assessing Officer and confirmed by the learned CIT (Appeals). The ground No.6 of the appeal is allowed.
31. The appeal of the assessee is allowed partly. ITA No.1164/Chd/2013 :
32. The ground Nos. 1 and 2 of appeal raised by the assessee read as under :
"1. That in the facts and circumstances of the case the Ld Commissioner of Income Tax(Appeals) in not justified in upholding the treating of income from the sale of property as income from business and profession . The fact of the matter is that the same should have been assessed as capital gains as returned by the assessee .
2. That in the facts and circumstances of the case the Ld Commissioner of Income Tax ( Appeals) is not justified in upholding the estimating the profit from sale of flats @30% of the sales value of Rs 39,70,000/- and thereby upholding an addition of Rs 11,91,000/-.
33. These two grounds are similar to ground Nos.2 and 3 raised by the assessee in ITA No.1163/Chd/2013 relating to assessment year 2008-09. We have discussed this issue at length and directed the Assessing Officer to apply profit rate on sales of immovable property @ 21% instead of 30% applied by the Assessing Officer. For the 26 detailed reasoning given in ITA No.1163/Chd/2013, we direct the Assessing Officer to give relief to the assessee accordingly. The ground Nos.1 and 2 are allowed partly.
34. The ground No.3 of appeal raised by the assessee reads as under :
"3. That in the facts and circumstances of the case the Ld Commissioner of Income Tax (Appeals) is not justified in upholding the adding back a sum of 7,50,400/-under section 69C of the Income Tax Act ,1961 treating the same as unexplained expenditure ."
35. This ground of appeal is similar to ground No.4 of the appeal raised in ITA No.1163/Chd/2013 relating to assessment year 2008-09. The facts are similar and, therefore, the findings given in ITA No.1163/Chd/2013 shall also apply to this ground of appeal with equal force. Consequently, this ground of appeal is allowed.
36. The ground No.4 of appeal raised by the assessee reads as under :
"4. That in the facts and circumstances of the case the Ld Commissioner of Income Tax ( Appeals) is not justified in upholding the addition of Rs 6,65,000/- as income from undisclosed sales proceeds on account of sales of flat to on Dr Harjinder Singh."
37. The Assessing Officer noted that two agreements to sell in respect of property, dated 6.6.2007 for Rs.24,65,000/- and dated 1.8.2009 for Rs.18 lacs between the assessee and Dr.Harjinder Singh were found during 27 the course of search. The explanation of the assessee was that the property was eventually sold at Rs.17,70,000/- and commission of Rs.30,000/- was also paid. The conveyance deed dated 16.10.2009 was filed before the Assessing Officer. The Assessing Officer was not convinced with the explanation of the assessee and, therefore, the difference of Rs.6,65,000/- (Rs.24,65,000/- - Rs.18,00,000/-) was treated as undisclosed sale proceeds for the year under consideration and the same was added to the total income of the assessee.
38. On appeal, the learned CIT (Appeals) confirmed the addition and, hence the assessee is in appeal before the Tribunal.
39. We have heard the rival submissions and perused the materials available on record. It is observed that the assessee has not given any plausible explanation regarding the difference of Rs.6,65,000/- in the agreement dated 6.6.2007 and the sale consideration has been shown at Rs.24,65,000/-. There is another document which is also an agreement to sell dated 1.8.2009, wherein sale consideration has been shown at Rs.18 lacs. Both these agreements have been entered into with the same person, namely Dr.Harjinder Singh for the same property. Shri Vishal Mohan, learned counsel for the assessee submitted that even for the sake of arguments, it is accepted that the addition is to be made, the same could only be made 28 to the extent of the profit and nothing more than that. In our opinion, there is merit in the alternate contention of learned counsel for the assessee that the entire difference cannot be added. Accordingly, we direct the Assessing Officer to apply the profit rate of 21% on the addition of Rs.6,65,000/- and give a relief to the assessee accordingly. This ground of appeal is partly allowed.
40. The ground No.5 of appeal raised by the assessee reads as under :
"5. That in the facts and circumstances of the case he Ld Commissioner of Income Tax ( Appeals) is not justified in upholding the addition of Rs 1271/- under section 68 of the Income Tax Act ,1961."
41. At the time of hearing of the appeal, the learned counsel for the assessee did not press for this ground of appeal and accordingly, we dismiss the same as not pressed.
42. The ground No.6 of appeal reads as under :
"6. That in the facts and circumstances of the case he Ld Commissioner of Income Tax (Appeals) is not justified in upholding the addition of Rs 126788/- under section 68 of the Income Tax Act, 1961 as un explained cash credit."
43. The Assessing Officer noted that the assessee had bank Account No.09250110004692 with UCO bank, Ram Bazar, Shimla in the name of his minor child 29 Sanchit. The break-up of credit entries in the said account is as under :
Financial year Total amount credited
2009-10 Rs.2,45,784/-
44. The Assessing Officer asked the assessee to
show cause as to why a sum of Rs.2,45,784/- should not be treated as unexplained cash credit under section 68 of the Act. In response to the said query, the assessee submitted reply on 27.2.20013, which reads as under :
" It is admitted that a sum of Rs 2,45,784/- was deposited in the savings bank account of Master Sanchit Popli bearing account No. 09250110004692. The source of the deposits made in the said account is being narrated as under-
Date Amount Narrations
04/08/2009 Rs.145784 The same represents the
depositing of the closure
proceeds of RD and the
copy of certificates issued
in respect of the same
is being placed on record
for your kind perusal.
29/12/2009 Rs.49000/- The same was deposited
out of the money withdrawn
on 19/12/2009 which was
not spent.
02/02/2010 Rs.30000/- The same was deposited out
of the money withdrawn on
19/12/2009 which was not
spent.
06/07/2010 Rs.3333/- Interest credited by the bank
30
05/01/2011 Rs.1969/- Interest credited by the bank
45. The Assessing Officer allowed a relief of
Rs.1,18,996/- and treated the balance amount of
Rs.1,26,788/- as unexplained cash credits under section 68 of the Act.
46. On appeal, learned CIT (Appeals) confirmed the addition.
47. We have heard the rival submissions. The learned counsel for the assessee invited our attention to copy of bank certificate dated 22.2.2013 which is placed at page 93 of assessee's Paper Book. The certificate reads as under :
TO WHOM IT MAY CONCERN It is certified that a ULY account No. 68/36 was opened on 5.6.2003 in the name of Master Sanchit U/g Minakshi Popli which was matured on 5.7.2006 with the total Amount of Rs.118996/- it is stated that Rs.118996 was put in the FDR bearing FDR No.09250300085045 in the name of Sanchit U/G minakshi popli which was paid on 4.8.2009.
And a sum of Rs.145784 was transferred to the account nho.09250110004692 of Sanchit U/G minakshi."
48. The above certificate has been issued by the UCO bank. The learned counsel for the assessee pointed out that the Assessing Officer has not disputed the bank 31 certificate dated 22.2.2013 which clearly revealed that a sum of Rs.1,45,784/- was transferred to Account No. 09250110004692 of Sanchit, U/G Minakshi. According to the learned counsel for the assessee, the amount of Rs.1,45,784/- represented the amount received on account of maturity of FDRs and as such, the same cannot be taxed as unexplained credits under section 68 of the Act. He further pointed out that ULY account No.68/36 was opened on 5.6.2003 in the name of Master Sanchit, which was matured on 5.7.2006 with the total amount of Rs.1,18,996/-. It is also stated that Rs.1,18,996/- was put in the FDR in the name of Sanchit U/G Minakshi Popli, which was paid on 4.8.2009. According to the learned counsel for the assessee, this amount was available for depositing in Account No. 09250110004692 with UCO bank, Ram Bazar, Shimla in the name of assessee's minor child Sanchit. There is no evidence on record to controvert the above contention of the learned counsel for the assessee. The amount received on the maturity of FDR was available for making deposits. This is not a case of the Revenue that the amount received on maturity of FDR was invested somewhere else. I n the absence of such evidence, there is no reason to disbelieve the version of the assessee. Accordingly, we delete the addition of Rs.1,26,788/- made by the Assessing Officer and confirmed by the learned CIT (Appeals). This ground of appeal stands allowed.
32
49. The appeal of the assessee is partly allowed.
50. In the result, both the appeals of the assessee in ITA No.1163/Chd/2013 and in ITA No.1164/Chd/2013 are allowed partly.
Order pronounced in the open court on this 11th day of March, 2016.
Sd/- Sd/-
(RANO JAIN) (H.L.KARWA)
ACCOUNTANT MEMBER VICE PRESIDENT
Dated : 11 t h March, 2016
*Rati*
Copy to: The Appellant/The Respondent/The CIT(A)/The CIT/The DR.
Assistant Registrar, ITAT, Chandigarh