2015 (4) TMI 260 - AT - Income Tax

Unaccounted gifts - Additional evidence entertained - addition to income deleted by CIT(A) - Held that - FAA has followed the procedure provided in sub-rules (1) and (2). We find that Dr.Shetty appeared before him and confirmed the gift made by him in favour of the assessee. It is not the case of the assessee that Dr. Shetty appeared before the Commissioner of Income-tax (Appeals) on the direction of the Commissioner of Income-tax (Appeals) while exercising the powers contemplated in sub-rule (4). He appeared along with the assessee as a witness for the assessee. The learned Commissioner of Income-tax (Appeals) in such situation ought to have directed the parties to appear before the Assessing Officer for cross-examination. If his statement was recorded by the Commissioner of Income-tax (Appeals) under sub-rule (4), then probably there could not be any violation. He appeared along with the assessee as a witness for the assessee, in such a situation, the requirement of sub-rule (3) remained unfulfilled. The learned Commissioner of Income-tax (Appeals) has committed an error in considering the evidence on the merits without giving an opportunity of hearing to the Assessing Officer. - Decided in favour of revenue. Advance received towards site sale - CIT(A) deleted the addition - Held that - On perusal of the statement of Shri H. B. Krishnappa suggest that he has responded to the query of the Assessing Officer and explained that he has advanced sum of ₹ 5 lakhs. The defects pointed out by the Assessing Officer based on circumstances are not directly flowing from the transaction. His grievance is why the assessee has not mentioned the name of the person in the books of account against the amount. To our mind, this is not a defect which is of such a nature which can falsify the claim of the transaction because the assessee has mentioned the amount as advance. Similarly the Assessing Officer has alleged that why the assessee failed to explain about this issue on August 9, 2010. This amount was taken before the closure of the assessment year 200304, the learned Assessing Officer wants an instant reply in the year 2010. Further the assessee has a right to analyse the details and then respond. It is not such a serious issue. Thus we are of the view that the learned first appellate authority has appreciated the facts and circumstances in right perspective on this issue and no interference is called for. - Decided against revenue. Gift from Shri Lalit Kumar Mehta - Held that - Since the learned Commissioner of Income-tax (Appeals) did not accept the contention of the assessee and found as a matter of fact that it was a professional charge from Shri Lalit Kumar Mehta, dismissed the appeal. We do not find any error in the order of the learned Commissioner of Income-tax (Appeals). - Decided against revenue. Unexplained credits - CIT(A) deleted the addition - Held that - The learned Assessing Officer has appreciated the controversy with a limited perspective of section 68 without applying his mind about the nature of the transaction and how it could have happened in a place like Mandya where a senior practicing doctor must have influenced all the local medical fraternity. The learned first appellate authority has appreciated that the assessee is a gynaecologist having a practical experience of more than 20 years. He is having his own hospital and the learned Assessing Officer had made irrelevant comments on the competence of such a senior person. We do not have any hesitation in concurring with the observation of the Commissioner of Income-tax (Appeals) because before doubting the version put forth by the assessee as well as the trust, the learned Assessing Officer ought to have collected some material or assigned some plausible reasons. He has simply raised the suspicion without any substance. The entity, who had given ₹ 30 lakhs to the assessee had stood with its stand. A sum of ₹ 12 lakhs was repaid by the assessee through account payee cheque on July 22, 2005, much prior to any investigation started in his case. The cheque was also cleared. For substantiating this claim the assessee has placed on record photocopy of the cheque as well as the bank statements.The remaining amount was not remitted by the assessee simply for the reason that there was lot of disputes going on with the trust and the trust has disclosed that a large number of cases have been initiated against it, therefore the college ultimately could not be started. The facts ought to have been appreciated keeping in view these circumstances. - Decided against revenue. Loan from Shri P. Ramesh - CIT(A) deleted the addition - whether is to be treated as unexplained credit under section 68 of the Income-tax Act or not? - Held that - The case of the assessee is that during investigation, Shri P. Ramesh was called by the Assistant Director of Income-tax and his statement was recorded. He was little confused as to why he had been called again by the Income-tax Officer. Before the Assistant Director of Income-tax, he had confirmed the transaction. Thus, his identity is not in dispute. The next ingredient is his creditworthiness. He paid the amount to the assessee through account payee cheque and his bank account was disclosed to the Assessing Officer. He is assessed to tax also. Particulars of his assessment were also given to the Assessing Officer. Thus his creditworthiness cannot be doubted because the money was given through account payee cheque and he is an Income-tax assessee. The genuineness of the transaction was also not doubtful because both parties have confirmed the transaction and it is through banking channel. The assessee has already repaid a sum of ₹ 15 lakhs just after one month of the receipt. The remaining ₹ 10 lakhs has been paid during the pendency of the appellate proceedings. In the findings of the learned first appellate authority extracted (supra), it is discernible that all these factors have been considered by the learned first appellate authority before deleting this addition. On due consideration of the record, we do not find any error in the order of the learned Commissioner of Income-tax (Appeals) - Decided against revenue. Computation of capital gain claim by the assessee on sale of J. C. Road property - whether a sum of ₹ 50 lakhs paid to M/s. Blue Cross is to be added towards the cost of acquisition? - Held that - Once the vendor has executed the specific power of attorney in favour of the assessee, which is running into five pages, the vendor has nowhere mentioned that it has to receive ₹ 50 lakhs from the assessee. The assessee and the vendor both acted as a vendor for Mr. Rajendra Kumar Jain,It is a very detailed document running into 24 pages and nowhere it has been mentioned that the Blue Cross Builders in the capacity of vendor would receive ₹ 50 lakhs apart from the consideration received from the assessee. The other important factor is what executionable cause is available to the vendor after executing the specific power of attorney as well as the sale deed to recover the amount of ₹ 50 lakhs from the assessee except bald assertion of the assessee to say that he would have to pay ₹ 50 lakhs to Blue Cross Builders, there is no corroborative material on the record. Therefore, the learned Commissioner of Income-tax (Appeals) has erred in holding that ₹ 50 lakhs be added in the cost of acquisition. - Decided in favour of revenue. Interest expenses of ₹ 7 lakhs incurred - whether has to be added towards the cost of acquisition while computing the capital gain? - According to the assessee he has received a sum of ₹ 30 lakhs from Dr. Y. S. Manjunath. ₹ 5 lakhs was received on March 29, 2005 and ₹ 25 lakhs on June 3, 2005. These amounts have been repaid on July 25, 2007 with an interest of ₹ 7 lakhs - Held that - The assessee had paid a sum of ₹ 2 crores through account payee cheque by May 31, 2005 meaning thereby the amount received on June 3, 2005 did not travel towards payment made for this property. The first cheque is dated May 5, 2005 and last May 31, 2005. Thereafter the assessee did not make payment and a dispute arose that led to cancellation of the agreement vide legal notice dated November 10, 2006. The new agreement was executed on January 2, 2007. The assessee had started making payments thereafter. He has returned this amount to Dr. Y. S. Manjunath on July 25, 2007. Therefore we do not find any nexus between this loan, vis-a- vis investment in the property. The findings of the CIT(Appeals) is set aside. This amount of ₹ 7 lakhs is not to be included in the cost of acquisition. - Decided in favour of revenue. Liquidated damages paid to Gurushree Properties as expenses towards earning the short-term capital gain on the sale of J. C. Road property - Liquidated damages paid to Gurushree Properties ₹ 10,00,000 as held by CIT(A) or ₹ 30 lakhs - Held that - There is no dispute about the transaction and the payment made by the assessee. The only dispute is the quantum. The Assessing Officer is giving credit of ₹ 20 lakhs, whereas the assessee claimed that he has paid ₹ 30 lakhs. To our mind, the Assessing Officer failed to collect the conclusive evidence suggesting that only ₹ 20 lakhs was paid. The sum of ₹ 10 lakhs was paid through account payee cheque and this aspect cannot be ignored. There cannot be any reason to the assessee to pay ₹ 10 lakhs to Gurushree Properties. Therefore, we do not find any error in the findings of the learned Commissioner of Income-tax (Appeals). - Decided against revenue. Capitalisation of interest - assessee had borrowed money from the banks and made investment in the properties - Held that - Assessing Officer has not pointed out any specific defect in the claim of the assessee. He has referred certain circumstances, but those circumstances also do not exhibit any specific details. They are in the shape of suspicion only. Contrary to his observation the learned Commissioner of Income-tax (Appeals) has observed that loan was taken when investment in J. C. Road property was in progress. The suspicion of the Assessing Officer is that the assessee must have used the money in purchase of some other property but he has not pin pointed out, whether that property was purchased or not. He also observed that money has not been borrowed with any specific purpose. It is difficult to bring demonstrative proof of this nature. The assessee had borrowed the money and used it. It is for the Assessing Officer to demonstrate that this borrowed money was used somewhere else and not for purchase of the property. While disallowing the claim of the assessee with regard to the interest paid to Shri Manjunath, we have observed that money paid by the assessee for purchase of the property was prior to the loan taken by him and that money was not used. Therefore, we did not allow addition of that amount in the cost of acquisition. But here no evidence is available to dispel the claim of the assessee. Therefore, we do not see any error in the findings of the CIT(Appeals). The assessee will be entitled to claim this expenditure as a part of cost of acquisition while computing the capital gain - Decided against revenue.

Summary

Issues Involved:
1. Admission of additional evidence in violation of Rule 46A.
2. Acceptance of gifts and advances as income.
3. Treatment of professional receipts and unexplained credits.
4. Computation of capital gains.

Issue-wise Detailed Analysis:

1. Admission of Additional Evidence in Violation of Rule 46A:

The Revenue contended that the Commissioner of Income-tax (Appeals) (CIT(A)) entertained additional evidence without following Rule 46A, which mandates specific conditions for admitting such evidence. The Tribunal noted that while the CIT(A) called for a remand report from the Assessing Officer (AO) and recorded reasons for admitting the evidence, the AO was not given an opportunity to cross-examine the witness or rebut the additional evidence. Thus, the Tribunal found a procedural lapse and remitted the issue back to the CIT(A) for re-adjudication with proper adherence to Rule 46A.

2. Acceptance of Gifts and Advances as Income:

Gift from Dr. Prabhakar Shetty:
The CIT(A) accepted the gift based on additional evidence, but the Tribunal found that the AO was not given a chance to cross-examine Dr. Shetty. The Tribunal remitted this issue back to the CIT(A) for reconsideration.

Gifts from Mr. Jayesh Kumar and Mr. Shankar Lal:
The CIT(A) confirmed the AO's addition of these gifts as income, and the Tribunal upheld this decision, finding no merit in the Revenue's contention that these should be treated as professional receipts.

Advance from Shri H. B. Krishnappa:
The CIT(A) deleted the addition of Rs. 5 lakhs received as an advance for a site sale, finding the transaction genuine based on the evidence and statements provided. The Tribunal upheld this deletion, noting that the AO's objections were not substantiated by the evidence.

3. Treatment of Professional Receipts and Unexplained Credits:

Assessment Year 2004-05:
The Tribunal found no additional evidence was produced in this year, making the Revenue's grounds on Rule 46A irrelevant. The CIT(A) confirmed the addition of Rs. 5 lakhs received as a gift from Shri Lalit Kumar Mehta as professional receipts, which the Tribunal upheld.

Assessment Year 2005-06:
The CIT(A) deleted the addition of Rs. 30 lakhs from Shivappa Nayaka Institute of Medical Sciences, finding the transaction genuine and supported by evidence. The Tribunal upheld this deletion, noting the AO's failure to provide substantial reasons for doubting the transaction.

Assessment Year 2006-07:
The CIT(A) deleted the addition of Rs. 25 lakhs received as a loan from Shri P. Ramesh, finding the transaction genuine and supported by evidence, including repayment details. The Tribunal upheld this deletion, noting the AO's failure to provide substantial reasons for doubting the transaction.

4. Computation of Capital Gains:

Assessment Year 2009-10:
The Tribunal addressed several sub-issues related to the computation of capital gains from the sale of J.C. Road property:

Rs. 50 lakhs to Blue Cross Builders:
The Tribunal found no evidence supporting the assessee's claim of an additional Rs. 50 lakhs payable to Blue Cross Builders and restored the AO's decision to disallow this amount.

Rs. 7 lakhs Interest to Dr. Manjunath:
The Tribunal found no direct nexus between the loan from Dr. Manjunath and the investment in the J.C. Road property, thus disallowing the addition of this interest to the cost of acquisition.

Rs. 30 lakhs Liquidated Damages to Gurushree Properties:
The Tribunal upheld the CIT(A)'s decision to allow the full Rs. 30 lakhs, noting the payment was made through account payee cheques and was substantiated by evidence.

Rs. 15.59 lakhs Capitalised Interest:
The Tribunal upheld the CIT(A)'s decision to allow the capitalisation of interest, finding no substantial evidence from the AO to doubt the nexus between the borrowed funds and the investment in the J.C. Road property.

Summary of Results:
1. I.T.A. No. 1008/Bang/2012 - Partly allowed for statistical purposes.
2. I.T.A. Nos. 1009 to 1011/Bang/2012 - Dismissed.
3. I.T.A. No. 1012/Bang/2012 - Partly allowed.