2015 (8) TMI 8 - AT - Income Tax

Disallowance of freehold charges - CIT(A) deleted the addition - Held that - AO has not brought out any fact to support this allegation that the assessee made payment of freehold charges over and above the payment which was actually recorded in the books of accounts and the AO has also not brought out any fact or material to support this fact that the property in question was converted from leasehold to freehold during the year under consideration on the payment of freehold charges made by the assessee out of her books of accounts. Hence, we are unable o see any valid reason to interfere with the impugned order and hence, ground of the revenue being devoid of merits is dismissed. - Decided against revenue. Disallowance of payment of sinking fund and maintenance security - CIT(A) deleted the addition - Held that - We are unable to see any detail, evidence or incriminating material found during the course of search and seizure operation or brought out by the AO during reassessment proceedings u/s 153C of the Act, to support this allegation that the assessee actually paid alleged amount either by cheque or in cash towards sinking fund and maintenance security to M/s Suncity Projects Pvt. Ltd. or any other entity or concern. The AO had also not brought out any fact on assessment records that the maintenance agreement was executed between the assessee and the developer i.e. M/s Suncity Projects during the FY 2009-10 pertaining to AY 2010-11 under consideration and the assessee made said payments towards sinking fund and maintenance charges during relevant financial period either by cheque or in cash over and above the expenses booked and reflected in her books of accounts and this payment was actually made by the assessee from income earned from unaccounted sources.It is also pertinent to note that the AO has not brought out any evidence or incriminating material to show that the assessee has actually made payment of sinking fund and maintenance security over and above the expenses reflected and recorded in her books of accounts and the assessee has made said payments from her unaccounted sources.- Decided against revenue. Disallowance of commission - CIT(A) deleted the addition - Held that - The presumption and inference taken by the CIT(A) u/s 292C of the Act against the present assessee is not valid as before taking such presumption, the CIT(A) was under obligation to hold that the document in question actually and factually does not belong to the person searched and the same belongs to the other person viz. present assessee. As we have already noted that the person searched never stated that the document in question Annexure A-1 belongs to the present assessee. Further, neither the AO of the person searched nor the AO of the other person has validly held that the document in question does not belong to person searched and actually or factually belongs to the present assessee. In this situation, presumption taken by the CIT(A) u/s 292C of the Act against the assessee is not valid and sustainable. We further hold that the directions given to the AO by the CIT(A) in operative para 12.4 of the impugned order are also not in accordance with provisions of the Act and law. We may further point out that in the case of person searched, who was alleged to be a broker in the deal being recipient of alleged commission, the CIT(A) herself has deleted the addition on account of receipt of unaccounted commission, hence, addition and consequent deduction in this regard in the case of alleged payer, i.e. the present assessee on the basis of invalid presumption cannot be held as sustainable. Therefore, observations, directions and conclusion of the CIT(A) in para 12.4 of the impugned order are demolished. Decided in favour of assessee. Initiation of proceedings u/s 153C questioned - Held that - In view of contents of the satisfaction note as reproduced hereinabove, we clearly note that the same has been recorded in the capacity of the AO of the person searched meaning thereby Shri Lalit Modi and we are unable to see any satisfaction note on record by the AO of the other person viz. the assessee of the instant appeal i.e. Smt. Vinita Chaurasia. On a specific query from the Bench, ld. DR could not assist us to see whether any satisfaction note was recorded by the AO of the present assessee (other person). Under these facts and circumstances, it can safely be held that no valid satisfaction was recorded by the AO of the other person so as to fulfil the requirement of second step of valid assumption of jurisdiction u/s 153C of the Act which is sine qua non for validly assumed jurisdiction u/s 153A of the Act. Hence, initiation of proceedings u/s 153C of the Act and all subsequent proceedings deserve to be quashed - Decided in favour of assessee. Addition on the issue of pending rent - CIT(A) has enhanced the assessment on this issue by the said amounts in respective AY 2010-11 and also in earlier AY 2009-10 but AO had not made any addition - Held that - as per general human probability and mental level of a man of ordinary prudence, it cannot be accepted that while a property is being sold at approximately 25% higher rate as compared to circle rate and registered sale deed is executed for the consideration of ₹ 16,42,68,832 then how come said seller may be agreed to transfer an amount of pending rent of ₹ 8,91,15,757 to the purchaser under an undisclosed arrangement. That too for the period prior to actual and legal transfer of property. In this situation and under aforesaid discussion, we are of the considered opinion that in absence of any other incriminating material, evidence or document, the enhancement of income by the CIT(A) on stand alone basis of contents of document in question Annexure A-1 cannot be held to be sustainable. The CIT(A) has not made any required and appropriate inquiry in this regard and in absence of the same the enhancement of income for the year under consideration and also in the previous AY 2009-10 cannot be held as valid, sustainable and in accordance with law. - Decided in favour of assessee. Enhancement on account of excess payment - second part of contents of the document in question wherein PDC cheque of ₹ 16,42,68,522 has been mentioned and on the right side recd amount of ₹ 17,02,25,465 has been mentioned and in the last column on the right, amount of ₹ 59,56,943 has been mentioned - Held that - Addition made by the AO on account of unexplained investment and enhancement by the CIT(A) on account of refunded excess payment on the basis of stand alone document in question Annexure A-1 is not sustainable in absence of other supportive evidence or material. Hence, without further investigation or enquiry from other related entities, addition made by the AO and enhanced by the CIT(A) cannot be held as valid and legally sustainable and we are unable to accept and uphold the same. - Decided in favour of assessee. Addition on account of brokerage - CIT(A) deleted the addition - Held that - we are inclined to accept the contention of the assessee that the revenue has not brought any evidence on record or any such document in support of payment of brokerage or commission on the basis of which the fact of brokerage or commission or legally due or paid to the assessee can be sustained or established. The AO has not brought out any allegation, evidence, document or opinion on record during the assessment proceedings or appellate proceedings to support this fact that the deal was actually materialised through the present assessee and, therefore, the presumption made by the AO only on the basis of document in question Annexure A-1 does not seem to be well-founded that the assessee had actually received commission or brokerage from the deal or transaction or sale of property between Mrs. Vineeta Chaurasia and Suncity project. The findings and conclusion of the CIT(A) are based on the legal principles and verification of the fact and we are unable to see any infirmity, perversity or any other valid reason to interfere with the same and hence, we uphold the same - Decided against revenue. Capital gain arising out of sale of jewellery - Held that - AO made addition on the basis of surmises and conjectures by adopting a hyper technical approach and ignoring the huge amount of surrender of ₹ 62 crore and the letter of the assessee dated 10.8.2009 explaining the statement made during the course of search wherein the factum regarding jewellery was duly elaborated by the assessee. On this issue, we are unable to see any mistake or any other valid reason to interfere with the impugned order on the issue of capital gain on sale of salary and we hold that the AO made addition without any basis on the imaginary facts ignoring the sustainable explanation of the assessee and the CIT(A) rightly deleted the same. - Decided against revenue. Disallowance u/s 14A - Held that - DR has not disputed this fact that there was no exempt income for the assessee during the financial year under consideration i.e. AY 2009-10 relevant to AY 2010-11 and in the light of ratio of the judgment of Jurisdictional High Court of Delhi in the case of CIT vs Holcim India P. Ltd. (2014 (9) TMI 434 - DELHI HIGH COURT ), no disallowance u/s 14A of the Act can be invoked for making disallowance. The issue is squarely covered in favour of the assessee by the said decision of Hon ble High Court of Delhi. - Decided in favour of assessee.

Summary

Issues Involved:

1. Deletion of addition on account of disallowance of freehold charges.
2. Deletion of addition on account of disallowance of payment of sinking fund.
3. Deletion of addition on account of disallowance of maintenance security.
4. Deletion of addition on account of disallowance of commission.
5. Validity of initiation of proceedings under section 153C.
6. Addition of unexplained investment.
7. Enhancement of assessment by CIT(A).
8. Addition on account of brokerage.
9. Addition on account of undisclosed income on sale of jewelry.
10. Disallowance under section 14A.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Disallowance of Freehold Charges:

The tribunal noted that the Assessing Officer (AO) presumed the payment of freehold charges based on a document (Annexure A1). The property remained leasehold, and no evidence was presented to show that the assessee made the payment. The CIT(A) deleted the addition, stating that the payment was contingent upon converting the property from leasehold to freehold, which did not happen. The tribunal upheld this deletion, finding no valid reason to interfere with the CIT(A)'s order.

2. Deletion of Addition on Account of Disallowance of Payment of Sinking Fund:

The AO added the payment of sinking funds, claiming it was made from unaccounted money. The CIT(A) noted that the payment was contingent upon executing a maintenance agreement, which was not done during the relevant financial year. The tribunal agreed with the CIT(A), stating that the AO did not provide any evidence of the payment. Therefore, the deletion of the addition was upheld.

3. Deletion of Addition on Account of Disallowance of Maintenance Security:

Similar to the sinking fund issue, the AO added the payment of maintenance security, alleging it was made from unaccounted sources. The CIT(A) deleted the addition, noting that the maintenance agreement was not executed during the relevant period. The tribunal upheld this deletion, finding no evidence to support the AO's claim.

4. Deletion of Addition on Account of Disallowance of Commission:

The AO added a commission payment based on Annexure A1, found at the premises of a property dealer involved in the transaction. The CIT(A) held that while the AO was right in adding the amount as cash receipt, it should also be deducted as brokerage paid. The tribunal found that the AO did not provide any evidence of the payment and upheld the deletion, noting that the presumption under section 132(4A) was not applicable.

5. Validity of Initiation of Proceedings under Section 153C:

The tribunal examined whether the initiation of proceedings under section 153C was valid. It noted that the AO of the person searched did not record satisfaction that the seized document did not belong to the searched person but to the assessee. The tribunal found that the satisfaction note did not meet the legal requirement, as it did not establish that the document did not belong to the searched person. Therefore, the initiation of proceedings under section 153C was quashed.

6. Addition of Unexplained Investment:

The AO added an unexplained investment based on Annexure A1, claiming the assessee made over and above payments for property purchase. The CIT(A) upheld the addition but enhanced the assessment by the amount of excess payment. The tribunal found that the AO did not provide any corroborative evidence to support the addition and held that the addition was not sustainable.

7. Enhancement of Assessment by CIT(A):

The CIT(A) enhanced the assessment based on the contents of Annexure A1, adding amounts for pending rent and excess payment. The tribunal found that the CIT(A) did not make any inquiry to substantiate the enhancement and held that it was not sustainable.

8. Addition on Account of Brokerage:

The AO added brokerage income based on Annexure A1, claiming the assessee earned commission from a property deal. The CIT(A) deleted the addition, noting that the assessee provided a confirmation from the purchaser that no commission was paid. The tribunal upheld the deletion, finding no evidence to support the AO's claim.

9. Addition on Account of Undisclosed Income on Sale of Jewelry:

The AO added income from the sale of jewelry, alleging it was not accounted for. The CIT(A) deleted the addition, noting that the income was covered in the surrendered amount during the search. The tribunal upheld the deletion, finding no basis for the AO's estimation of capital gains.

10. Disallowance under Section 14A:

The AO disallowed expenses under section 14A, claiming they were attributable to exempt income. The CIT(A) deleted the disallowance, noting that the assessee did not earn any exempt income during the relevant period. The tribunal upheld the deletion, citing the jurisdictional High Court's decision that section 14A cannot be invoked when no exempt income is earned.

Conclusion:

The tribunal dismissed the revenue's appeals and allowed the assessee's appeal, directing the AO to delete the additions on account of unexplained investment, expenditure, and receipt of pending rent for AY 2010-11. The tribunal also upheld the deletion of additions on account of brokerage, undisclosed income on sale of jewelry, and disallowance under section 14A.