2005 (6) TMI 505 - AT - Income Tax

Issues Involved:
1. Confirmation of addition of Rs. 39,95,000 on account of receipt of a residential flat by the appellant on surrender of tenancy right.
2. Taxability of the value of the flat received if tenancy was not genuine.
3. Disallowance of Rs. 1,00,000 being commission paid.
4. Deletion of addition of Rs. 5,50,000 and disallowance on loss on sale of import raw-material of LDPE.

Issue-wise Detailed Analysis:

1. Confirmation of Addition of Rs. 39,95,000 on Account of Receipt of a Residential Flat by the Appellant on Surrender of Tenancy Right:
The assessee received a flat valued at Rs. 40,00,000 from its sister concern, M/s. Ajay Builders, in lieu of surrendering alleged tenancy rights. The Assessing Officer (AO) added Rs. 39,95,000 to the assessee's income after statutory deduction under section 10(3) of the Income-tax Act, 1961. The assessee contended the tenancy was genuine, supported by rent receipts and consent terms in legal suits. However, the AO noted discrepancies, including the non-production of the landlord, absence of independent evidence like utility bills, and identical typewritten rent receipts, questioning the genuineness of the tenancy. The Commissioner of Income-tax (Appeals) [CIT(A)] upheld the AO's decision, finding the evidence unreliable. The Tribunal agreed, emphasizing the assessee's failure to provide credible evidence and the striking similarities in rent receipts, thereby confirming the addition.

2. Taxability of the Value of the Flat Received if Tenancy Was Not Genuine:
The assessee argued that even if the tenancy was not genuine, the flat received should not be treated as income. The Tribunal admitted this legal ground for adjudication. The AO taxed the flat's value as a casual or non-recurring receipt under section 10(3), relying on CIT v. Gulab Chand. The Tribunal noted that section 10(3) exempts casual and non-recurring receipts up to Rs. 5,000, but the flat's value exceeded this limit. The Tribunal distinguished the case from CIT v. D.P. Sandhu Brothers Chembur (P.) Ltd., where capital gains with no cost of acquisition were not taxable as casual receipts. Here, the flat was received without transferring any asset, making section 45 inapplicable. The Tribunal concluded the flat's value was taxable as a casual and non-recurring receipt under section 56 read with section 10(3).

3. Disallowance of Rs. 1,00,000 Being Commission Paid:
The assessee did not press this ground seriously during the hearing. The CIT(A) had disallowed the commission payment, and the Tribunal agreed with the CIT(A)'s decision, finding no reason to interfere. Thus, the disallowance of Rs. 1,00,000 was confirmed.

4. Deletion of Addition of Rs. 5,50,000 and Disallowance on Loss on Sale of Import Raw-Material of LDPE:
The Department appealed against the CIT(A)'s deletion of the addition and disallowance related to the loss on sale of imported raw material (LDPE). The Department argued that the assessee's sister concern had earned a gross profit margin of about 5% in similar trades, and the AO's estimation of a 5% gross profit was reasonable. The Tribunal reviewed the CIT(A)'s order and previous Tribunal decisions, finding that the CIT(A) had correctly appreciated the factual and legal aspects. The Tribunal found no infirmity in the CIT(A)'s order and confirmed the deletion of the addition and disallowance.

Conclusion:
Both the cross-appeals filed by the assessee and the Department were dismissed. The Tribunal upheld the additions and disallowances made by the AO and confirmed by the CIT(A), emphasizing the assessee's failure to provide credible evidence and the correctness of the CIT(A)'s appreciation of the factual and legal aspects.

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