2009 (3) TMI 614 - AT - Income Tax

Best judgment assessment - Survey - Addition - unaccounted income/unexplained investment - It was pointed out that the past assessment has been completed without scrutiny, therefore, the assessee had no occasion in the past - there is no estoppel in law - the purchase of land was an individual affair of the members and therefore the issue of investment in the subjected land was considered in their respective hands, pointed out the learned Authorised Representative - there was no written agreement amongst the purchasers to form an AOP to purchase the lottery ticket for winning a prize - they made their intentions clear immediately after the result and demanded payment of their individual shares which was accepted and payments were made by deducting the income-tax at source from their respective shares of prize money - The purchasers of the lottery ticket did not form an AOP and the income from lottery was not liable to be assessed in the hands of such an association all the four persons, never intended to carry out a regular business of real estate, i.e. the purchase, sales and construction of apartments etc - It was only a spontaneous later development that keeping in view of the need of liquidity, they proceeded to construct some shops and offices - It was at the best a case of co-ownership and not more than that - In the case of Saroj Kumar Mazumdar vs. CIT, the Hon ble Supreme Court held that in the absence of any evidence to support the inference that the isolated transaction constituted an adventure in the nature of trade, it should be regarded as on capital account - Appeal is allowed Regarding unaccounted income - the difference between declared consideration and stamp valuation of Rs. 4,82,355 - assessee in the present case is purchaser and not the seller in which case provisions of s. 50C are applicable for the purpose of computation of capital gain under s. 48 of the Act - it appears that the AO and the learned CIT(A) have not appreciated the material facts that all the purchasers are income-tax assesses being in the services of the State Government for last several years and in some cases the spouse is also in services, it should not have been difficult for them to have invested Rs. 5 lacs, when individual share, if assumed, comes below Rs. 1.25 lacs each - Appel is allowed

Summary

Issues Involved:
1. Validity of order under s. 144, dt. 10th Dec., 2007
2. Status of the entity as an Association of Persons (AOP)
3. Adequacy of opportunity provided before framing the assessment under s. 144
4. Addition of Rs. 10,70,775 on account of unaccounted income/unexplained investment
5. Charging of interest under ss. 234A, 234B, and 234C

Detailed Analysis:

Issue 1: Validity of order under s. 144, dt. 10th Dec., 2007
- This issue was deemed general in nature and did not require independent adjudication.

Issue 2: Status of the entity as an Association of Persons (AOP)
- Facts and Allegations: A survey conducted on 1st Feb., 2006, revealed that four individuals had purchased a plot of land and constructed a building named "Sangam Tower". The AO alleged that these individuals formed an AOP, which had invested Rs. 35 lacs in the construction.
- Arguments by Assessee: The assessee argued that the land was purchased and the construction was carried out in their individual capacities. They contended that there was no AOP, as the individuals did not join hands voluntarily for a common purpose of producing income. They cited various case laws, including Meera & Company vs. CIT and G. Murugesan & Bros. vs. CIT, to support their claim.
- Arguments by Department: The Department argued that the assessment was rightly framed under s. 144, citing joint bank operations, joint purchase of property, and statements by one of the members as evidence of an AOP.
- Tribunal's Findings: The Tribunal referred to several case laws, including CIT vs. Smt. Saraswati Bai & Ors. and CIT vs. Shivsagar Estates (AOP), and concluded that the individuals did not intend to carry out a regular business of real estate. The Tribunal found that the individuals applied for construction permissions in their individual capacities and had separate investments and returns. The Tribunal held that there was no AOP and allowed the ground in favor of the assessee.

Issue 3: Adequacy of opportunity provided before framing the assessment under s. 144
- This ground was dismissed as not pressed by the assessee.

Issue 4: Addition of Rs. 10,70,775 on account of unaccounted income/unexplained investment
- Facts: The AO added Rs. 10,70,775 based on the difference between the declared consideration and the stamp duty valuation of the land, and due to the unsatisfactory explanation of the source of the investment.
- Arguments by Assessee: The assessee argued that the stamp duty valuation could not be the sole basis for addition under s. 69. They cited several case laws, including Krishna Kumar Rawat vs. Union of India, to support their claim. They also argued that the source of the investment should be examined in the hands of the respective individuals.
- Arguments by Department: The Department argued that the AO was justified in adopting the value determined by the sub-Registrar under s. 50C.
- Tribunal's Findings: The Tribunal held that s. 50C applies to sellers for capital gains computation, not to purchasers. The Tribunal found that the AO did not consider the individual financial capabilities of the purchasers, who were income-tax assessees and government employees. The Tribunal deleted the addition of Rs. 10,70,775.

Issue 5: Charging of interest under ss. 234A, 234B, and 234C
- The judgment did not provide specific details on this issue, implying that it was not a significant point of contention or was resolved in favor of the assessee due to the resolution of the primary issues.

Conclusion:
The Tribunal allowed the appeal, concluding that the individuals did not form an AOP and that the addition of Rs. 10,70,775 was not justified. The assessment under s. 144 was also deemed invalid due to procedural inadequacies.