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P a g e | 10 Elenjickamalil V. Thomas v. DCIT-22(3), Mumbai 4.8 The third issue on which penalty was levied by the AO u/s 271(1)(c) was with regard to additions made to the income of the assessee in quantum on account of capital gains on sale of depreciable assets. The assessee has claimed to have sold factory premises at Nerul for a total consideration of Rs.1,16,00,000/- . The said factory premises was claimed to be depreciable asset existing in one of his proprietary concern , M/s Vicky Electrical Corporation . The assessee reported short term capital gains of Rs.33,14,640/- on sale of said factory premises. The assessee did not offer said short term capital gains to tax and claimed that it has acquired three shops for Rs. 53,00,000/- and the block of asset did not cease to exist and hence it was claimed that there is no liability to pay tax. The closing WDV as on 31.03.2009 was shown at Rs. 19,85,359/- . The assessee claimed that it acquired three shops from its proprietary concern M/s E.V.Homes in the project E.V.Regency for which it made payments and it was claimed that these shops were not acquired through a book entry. The assessee explained that he was under a bonafide belief that the investment is made in the same block of assets and the said new additions by way of three shops will be added to block of asset and qualified for depreciation. The AO rejected the contention of the assessee and made additions to the income of the assessee by treating said transaction as sham transaction of acquiring three shops from his own proprietary concern . The assessee has also claimed that it made additions of Rs. 48,22,390/- to the factory premises by undertaking substantial structural repairs and modifications before its sale , which was also rejected by the AO. The matter went in appeal upto Tribunal in quantum so far as claim of additions to the tune of Rs. 48,22,390/- to the factory premises towards major structural repairs and modifications is concerned before its sale and the Tribunal was pleased to accept the contentions of the assessee that it has spent on improvement of the said factory premises at Nerul by way of major structural repairs and modifications, wherein the Tribunal allowed the benefit of such improvement subject to limited verification by the AO of the quantification of the amount spent on such improvement to factory premises at Nerul before its sale, in ITA no. 199/Mum/2013 vide orders dated 18.05.2016 for AY 2009-10 , by holding as under:

P a g e | 11 Elenjickamalil V. Thomas v. DCIT-22(3), Mumbai "10. We have considered the rival contentions and also perused the material available on record. We have observed that the assessee was the owner of the land and factory building at 32-A, Sector-1, Shirwane, Nerul, Navi Mumbai-400 706 with the leasehold rights in plot of size of 511.50 square meters , while the constructed area of the factory building was 255 sq. meters. The assessee has stated to have entered into an MOU dated 3rd September, 2007(stamp paper purchase date 17-08-2007 as the same is referred by this date in the orders of the authorities below) for the sale of the said land and factory building at Nerul for a total consideration of Rs. 1.16 crores. The said MOU dated 03-09-2007 (stamp paper purchase dated 17-08-2007) is placed by the assessee at page 85-86 of paper book filed with the Tribunal. As per clause 2 of the MOU dated 03-09-2007, the assessee was required to make the said building in a fit and proper usable conditions as the building structure required repairs and modification to suit the requirement of the buyer. The architect certificate dated 10-09-2007 is also placed by the assessee in the paper book page 89 filed with the Tribunal, which detailed in this architect certificate dated 10-09-2007 the extensive repair and modification work required in the factory building to avoid the building from collapsing. The architect has also certified that the beams and columns have developed cracks and water is seeping into the interiors of the building. The architect has also certified that the reinforcements are damaged severely. This architect certificate dated 10-09-2007 and the MOU dated 03-09-2007 are certified by the assessee in the paper book certificate that these documents were duly placed before the learned AO and the learned CIT(A) during the course of relevant proceedings before these authorities. The assessee has incurred these expenses for the extensive structural repairs and modifications in the factory building apart from repairs to the compound wall and leveling of plot, for which the assessee submitted the details/documents including invoices regarding the material cost and labour charges etc. incurred for these extensive structural repairs and modifications towards the factory building apart from repairs to the compound wall and leveling of plot, in terms of the MOU dated 03-

09-2007. The payments for this work carried on by the assessee, have been stated to be made through banking channel by account payee cheque's and even the taxes were also stated to be deducted at source on these payments as covered by provisions of Chapter XVII-B of the Act. We have observed that the authorities below have made the addition merely on the basis of surmises and conjectures on suspicion by terming the invoices of material and labour submitted by the assessee as bogus and accommodation entries. No cogent incriminating material has been brought on record by the authorities below to prove that assessee has made bogus purchases except inspector report which is not sufficient to fasten the liability to tax on the assessee. The inspector report has merely submitted that two of the vendors from whom steel was bought by the assessee namely Payal Enterprsies and Bhumi Enterprises were found not existing at the addresses given in their invoices. The inspector report is placed at page 112 of paper book. We have seen from the invoices placed in the paper book that both these vendors namely Payal Enterprsies and Bhumi Enterprises are registered with VAT authorities and they have also charged Maharashtra VAT on the invoices issued to the assessee . Revenue has made no further enquiries with the VAT department or with the bankers of these two vendors as the payment were all made through account payee cheques. No further enquiry was conducted by the Revenue to bring on record cogent incriminating material to disprove and demolish the contentions of the assessee. The assessee in all dealt with fifteen parties as per details vide page 90 of paper book filed by the assessee with the Tribunal. Only enquiries were made through inspector with respect to four parties out of these fifteen parties , of which two were found non-existent at the given addresses. The enquiries with respect to the rest of the eleven suppliers were not even made by issuing notices u/s 133(6) of the Act. These material and labour suppliers, fifteen in number were not summoned u/s 131 of the Act, nor their statement were recorded. The information was not called by the Revenue from the buyer of the land and factory building by issuing summons/notices u/s 131/133(6) of the Act to verify the authenticity of the claim of the assesseee having undertaken extensive structural repairs and modification work to the factory building prior to its sale, nor the statement of the buyer of the afore-stated property was recorded. No technical expert such as DVO was appointed by the Revenue to enquire about the extensive structural repairs and modification claimed to be carried on by the P a g e | 12 Elenjickamalil V. Thomas v. DCIT-22(3), Mumbai assessee to disprove and demolish the contentions of the assessee . No enquiry was even made with the office of the municipal authorities to ascertain the status of construction and structural repairs and modification of the factory building , if any carried on by the assessee in the impugned assessment year to disprove the contentions of the assessee. The case of the Revenue is based on the non-existence of two parties at the given addresses vide inspector report, which is not sufficient enough to come to the conclusion that the entire theory of extensive structural repair and modification of the factory building as brought out by the assessee is a farce , in-fact the reliance by the Revenue on the inspector report without conducting further probe to conclusively disprove and demolish the contentions of the assessee, has led the revenue conclusions fall into the realm of conjectures and surmises on suspicion which is not permissible. Suspicion howsoever strong cannot take the place of the proof is a settled proposition of law. Thus, in nut-shell, no proper and adequate enquiry has been conducted by the Revenue to rebut , disprove and demolish the contentions of the assessee as no cogent incriminating material has been brought on record by the Revenue against the assessee. The ground which has been taken by the ld. CIT(A) to reject the contention of the assessee such as MOU dated 3rd September, 2007 is entered on one hundred rupee stamp paper and it does not talk about any schedule of payment and only says that the entire balance payment will be made within a period of six months from the date of signing of the MOU are irrelevant de-hors fastening of the liability to tax on the assessee . Similarly to contend that the said MOU did not find mention in the deed of assignment dated 20-01-2009 and is merely an after-thought is based on surmises and conjectures on suspicion , while the MOU did talk of payment of Rs. 3 lacs vide cheque dated 15-10- 2007 which find mention in the deed of assignment dated 20-01-2009 . To contend that the MOU dated 03-09-2007 has preceded the permissions received by the assessee from CIDCO on 31/10/2008 is again of no-use to the Revenue as it is very probable that the tax- payer will first enter into a binding agreement with a serious buyer of the property who has also advanced some amount of money and then approach the CIDCO for seeking permission to sell the property. No cogent incriminating material has been brought on record by the authorities below to demolish the MOU dated 03-09- 2007 as an after-thought but rather the same is based on conjectures and surmises based on suspicion which is not permissible under the Act. The CIT(A) again enter into realm of conjectures and surmises based on suspicion by contending that the material and labour charges must have been used in building business of the other proprietary concern of the assessee namely E. V. Homes , while the invoices speak voluminously of the name of the concern of the assessee M/s Vicky Electrical Corporation as the vendee in the said invoices , which concern of the assessee namely, M/s Vicky Electrical Corporation owned the land and factory building and these invoices also reflected the address of the 32-A, Sector-1, Shirwane, Nerul of the said land and factory building for dispatch of material and rendering of labour services. The payments for these invoices are stated to be made by account payee cheques and tax was also deducted at source on these invoices where-ever applicable as per provisions of Chapter XVII-B of the Act. These cogent material brought on record by the assessee backed with the chain of events starting from signing of MOU dated 03-09-2007 and ending with deed of assignment dated 20-01-2009 , which comprised agreement to sell land and factory building for Rs.1.16 crores vide MOU dated 03-09-2007 with conditions agreed by the assessee to make the factory building fit and usable as the building required extensive structural repairing and modification to suit the buyers requirement, architect certificate dated 10-09-2007 pointing out deficiencies in the factory building structure to avoid the collapsing of building, invoices for material and labour expenses incurred by the assessee towards extensive repairs and modification to the factory building during the period April - November 2008 , payments of these invoices by account payee cheque's, deduction of tax at source on these payments where-ever applicable under Chapter XVII-B of the Act, permission vide approval dated 31-10-2008 from the CIDCO to sell the said land and building, receipt of payment from the same buyer starting from 15-10-2007 and ending on 01-01-2009 in all aggregating to Rs.1.16 crores as agreed in the MOU dated 03-09-2007 and finally execution of deed of assignment in favour of the same buyer vide deed dated 20-01-2009, which completes full chain of event of the transaction for sale of land and factory building for which necessary structural repairs and modifications were done by the P a g e | 13 Elenjickamalil V. Thomas v. DCIT-22(3), Mumbai assessee as contended, on the touch stone of preponderance of probabilities which cannot be simply brushed aside or demolished by the Revenue based on conjectures and surmises on suspicion , except through cogent incriminating material which revenue has failed to bring on record in the instant case. In our considered view, the assessee has duly discharged his burden cast under the Act and now it was for the Revenue to have brought on record cogent incriminating material and evidences to rebut and demolish the contentions of the assessee conclusively on the touchstone of preponderance of probabilities which the revenue could not do except by bringing on record inspector report that two of the parties are not existing on the addresses given on the invoices which is not sufficient enough to fasten the liability on the assessee as it does not prove that these purchases were bogus and are accommodation entries as set out above by Revenue . Even for the sake of argument it is assumed that the assessee has not obtained the approval from CIDCO for doing this major and extensive structural repair and modification work to the factory Building, this technical breach will not in itself disentitle the assessee from claiming the same under the Act as cost of improvement and more-so it is a case of major and extensive structural repair and modification to the existing factory building and not a case of construction of altogether new factory building. Hence, in our considered view, the additions of Rs. 48,22,390/- by disallowing the same as cost of improvement to the factory building cannot be sustained and we order deletion of the addition made by the A.O. and as sustained by the CIT(A). However, from the perusal of the invoices submitted by the assessee in the paper book filed with the Tribunal which are placed at paper book page 92-111, we have observed that the same totaled to Rs 38,18,517/-( excluding one invoice which is placed twice at page 100 and101 being Ritesh Transport of Rs.92,192/- bearing number 385 dated 31/05/2008) ) against the expenses of Rs.48,22,390/- claimed by the assessee, to that extent , we are directing the AO to undertake limited verification before allowing the claim of the assessee after satisfying that complete invoices of Rs.48,22,390/-backed with account payee cheque payments as claimed by the assessee are on record with the Revenue duly reconciled to protect the interest of Revenue. We direct accordingly. "