2022 (9) TMI 1440 - AT - Income Tax

Addition of on money receipt for computation of long term capital gain - reliance on rough loose paper of diary containing scattered jotting of expenses seized from the premises of the appellant during the course of search u/s 132(4) - presumption u/s 292C - HELD THAT - As rough noting/jotting in the diary appears to be pertains to some petty expenses under the head 434 Ex which stands for Expense being incurred on renovation of house no.434 New Jawahar Nagar by the assessee during the month of October 2009 and these do not pertain to the year under consideration. Actual transaction relating to the said property have duly been reflected by the appellant in the ITR s along with consequent Capital Gains arising there from being duly been offered for taxes. Nothing has been brought on record either by the AO or the CIT(A) to establish that purchaser has made any payment over and above the disclosed amount by way of corroborative documentary evidence either from the witnesses end or purchaser end that assessee has received any on money. In our view such an addition being made purely on the basis of inferences drawn from diary rough noting without any nexus or support of the authentic documentary evidences such as registered deed/ or agreement to sale were being brought on record to prove that assessee has received On money cannot be sustained. Thus without substantiating the content of the noting in the diary the value adopted by way of decoding by the authorities below based on assumption presumption and guess work is illegal and against the law. Since the diary jottings have not been corroborated from any relevant material documentary evidence and hence the jottings in the diary by no stretch of imagination can be accepted as an evidence or conclusive proof of on money transaction by the assessee for the purpose of presumption u/s 292C of the Act against the assessee. Addition was being made on the basis of uncorroborated rough noting of paper/diary. CIT(A) has deciphered the figures on the paper by decoding in the form of Indian style and international style at his whim and caprice based on presumption and conjectures without bringing any corroborative material evidence in support for such assumption of the decoded figures is not justified. Accordingly the addition on account of on money receipt for computation of long term capital gain is deleted. Decided in favour of assessee. Disallowance on account of the cost of improvement expense claimed by the assessee - Respectfully following Coordinate Amritsar Bench decision on the identical facts in the case of Krishna Kumar Mittal 2019 (3) TMI 1757 - ITAT AMRITSAR we hold that in the absence of incriminating material disallowance made on account of the cost of improvement expense is deleted.

Summary

Issues Involved:
1. Legality of the assessment order under Section 153A/143(3) of the Income Tax Act.
2. Addition of long-term capital gain based on rough paper.
3. Disallowance of cost of improvement.

Issue-wise Detailed Analysis:

1. Legality of the Assessment Order under Section 153A/143(3):
The appellant challenged the assessment order framed under Section 153A/143(3) of the Income Tax Act, claiming it was "bad in law and against the facts and circumstances of the case." The appellant argued that the assessment was not sustainable on various legal and factual grounds. However, the tribunal did not specifically address this issue in its judgment, focusing instead on the substantive issues of the addition of long-term capital gain and disallowance of cost of improvement.

2. Addition of Long-term Capital Gain Based on Rough Paper:
The tribunal examined the addition of Rs. 74,57,194/- (and Rs. 60,07,194/- in the related appeal) made by the Assessing Officer (AO) based on rough notings in a seized diary. The AO interpreted these notings as evidence of "on-money" transactions related to the sale of property. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this addition, interpreting the figures in the diary as coded forms of the actual sale consideration.

The tribunal found that the AO and CIT(A) failed to substantiate the addition with corroborative documentary evidence. The tribunal noted that the sale deed registered with the Sub-Registrar clearly showed the sale consideration as Rs. 1,10,00,000/-, and there was no evidence to suggest any payment over and above this amount. The tribunal emphasized that the rough notings in the diary, without any supporting evidence, could not be used to presume "on-money" transactions under Section 292C of the Act. The tribunal cited several judicial precedents, including "Central Bureau of Investigation vs. V. C. Shukla" and "CIT v/s Sh. Praveen Juneja," which held that loose sheets of paper or uncorroborated documents could not be used as conclusive evidence for making additions.

3. Disallowance of Cost of Improvement:
The AO disallowed the cost of improvement claimed by the appellant and restricted it to Rs. 12,77,786/-. The appellant argued that this disallowance was made without any logical reasoning and was based on presumptions. The tribunal noted that no incriminating material was found during the search related to the cost of improvement. The tribunal held that in the absence of any incriminating material, the disallowance made by the AO was not permissible in law. The tribunal cited the case of "Krishna Kumar Mittal Vs. DCIT" to support its decision that no addition could be made in the absence of incriminating material.

Conclusion:
The tribunal concluded that the addition of Rs. 74,57,194/- on account of "on-money" receipt for computation of long-term capital gain and the disallowance of Rs. 12,77,786/- on account of cost of improvement were not sustainable. The tribunal deleted both additions, holding that they were based on presumptions and conjectures without any corroborative documentary evidence. The tribunal's observations and findings in I.T.A. No. 683/Asr/2019 were applied mutatis mutandis to I.T.A. No. 682/Asr/2019. The appeals were disposed of accordingly.