2017 (7) TMI 910 - AT - Income Tax

Capital gain - CIT(A) accepting the cost of construction of the property on sale of which the assessee has shown capital gain - Held that - It is not in doubt that whatever is sold by the assessee is a three-storey building with basement for which the land was acquired in 1983 and 1994, construction was completed in September 2002 and occupation certificate obtained in February 2003. Therefore, it cannot be said that the assessee has not incurred any cost of construction for construction of a three-storey building. Further, also it cannot also be substituted by the estimated cost of construction based on some valuation report as facts cannot be replaced by opinion. In view of this, we do not approve the finding of the Ld. CIT (A). As finding is given by the Ld. CIT appeal that entire expenditure for construction was done by cheque withdrawals from non-resident bank account of the assessee the whole issue of granting the cost of improvement as deduction to the assessee is set aside to the file of the Ld. CIT(A) with a direction to grant deduction of actual cost of construction by making verification of the various payments made for the construction of the property from that bank account. Needless to say that proper opportunity of hearing may be granted to the assessee to substantiate the amount of expenditure incurred by issue of cheques from his non-resident bank account and also opportunity to ld AO Addition u/s 68 - Held that - We do not agree with the order of the Ld. CIT (A) in deleting the whole addition of ₹ 2.68 crores on account of money received from his wife. Furthermore the Ld. CIT (A) also has given a wrong finding that she is an income tax assessee, in fact she has filed her last return of income for assessment year 2005 06 and not for assessment year 2008 09 which is the impugned assessment year. In the result, we agree with the finding of the Ld. CIT appeal in deleting the addition of on account of loan from Mrs. Poonam Singh wife of the assessee except the sum of ₹ 25 Lacs which is deposited in cash by her in her bank account for which the assessee has not given any source of income in cash in her hand in India. Therefore we set aside the issue of examination of the sources of this ₹ 25 Lakhs which is deposited by her in bank account for onward lending to her husband as he has not given any finding on this sum despite written submission made by assessee before him about the same. Further with respect to the unsecured loan from Mrs. Starex educational society and M/s direction importers and exporters private limited, it was noted by the Ld. CIT appeal that these 2 parties have in fact not even the loan to the assessee but has taken loan from the assessee and therefore the provisions of section 68 do not apply to transactions with these 2 parties. The Ld. departmental representative also could not point out any error in the fact that these are the parties to whom the assessee has given loan. In view of this with respect to starex import and export private limited and starex educational society, we confirm the finding of the Ld. CIT (A) in deleting the addition under section 68 of the income tax act.

Summary

Issues Involved:
1. Acceptance of cost of construction of property and admission of additional evidence by CIT(A) in violation of Rule 46A.
2. Deletion of addition made on account of cash credit under Section 68 of the Income Tax Act.
3. Allegation that the order of the CIT(A) is perverse and liable to be quashed.

Issue-Wise Analysis:

1. Acceptance of Cost of Construction and Admission of Additional Evidence:
The revenue challenged the CIT(A) for accepting the cost of construction of the property and admitting additional evidence in the form of a valuation report without proper verification as per Rule 46A. The assessee had sold a property and claimed a cost of construction which was initially rejected by the AO due to lack of evidence. The CIT(A) accepted the valuation report and allowed the deduction, which the revenue contested, arguing that the CIT(A) did not follow Section 48 which requires actual cost rather than estimates. The Tribunal found that the CIT(A) admitted the additional evidence after obtaining a remand report from the AO, who did not object to the admission. However, the Tribunal held that the CIT(A) granted the deduction without verifying the actual cost incurred by the assessee and set aside the issue for re-examination by CIT(A) with proper verification of payments made from the non-resident bank account.

2. Deletion of Addition Made on Account of Cash Credit:
The revenue contested the deletion of additions made by the AO under Section 68 concerning credits appearing in the names of three entities. The CIT(A) deleted these additions, stating that the assessee had provided sufficient evidence to prove the identity, financial capacity, and genuineness of the transactions. The Tribunal upheld the CIT(A)'s decision regarding the loans from Starex Educational Society and Starex Import Export Pvt Ltd, as these were repayments and not fresh credits. However, for the sum of ?25 lakhs received from the assessee's wife, the Tribunal noted that the source of cash deposits was not satisfactorily explained and remanded this issue back to the CIT(A) for further examination.

3. Allegation that the Order of the CIT(A) is Perverse:
The revenue's ground that the CIT(A)'s order is perverse was addressed through the detailed examination of the issues above. The Tribunal found that the CIT(A) had admitted the additional evidence correctly as the AO did not object during the remand report. The Tribunal's decision to remand certain issues back to the CIT(A) for further verification indicates that while there were procedural lapses, the order was not entirely perverse.

Conclusion:
The Tribunal partly allowed the revenue's appeal. It upheld the CIT(A)'s decision on certain points but remanded the issue of the cost of construction and the unexplained ?25 lakhs back to the CIT(A) for further verification. The Tribunal emphasized the need for actual cost verification and proper examination of the sources of funds. The order was pronounced in the open court on 22/03/2017.