2018 (7) TMI 1398 - AT - Income Tax

Reopening of assessment - Unexplained capital - Held that - On a prima facie reading of such sale deeds, it is apparent that the sale deeds have been executed and registered with the stamp authorities on 12.01.2007 and therefore, any escapement of capital gains on such sale transaction shall fall in financial year 2006-07 relevant to Assessment Year 2007-08 and not Assessment Year 2006-07. We are, therefore, of the view that as far as the first ground for reopening the assessment proceedings is concerned, there is lack of nexus between the material and the formation of prima facie belief that the income has escaped taxation for the impugned assessment year. Addition on unexplained deposits in the bank account of the assessee - Held that - As gone through the contention regarding issuance of notice under section 148 to an assessee and not to any person and the fact that in the instant case, the appellant is not an assessee. If we look at the definition of assessee as defined in section 2(7), it talks about a person by whom any tax or any other sum of money is payable under the Act and includes every person in respect of whom any proceedings under this Act has been taken for the assessment of his income. In our view, the appellant clearly falls in the definition of an assessee as so defined and the contention so raised is clearly devoid of any merits and is hereby rejected. In the result, the additional ground of appeal is hereby dismissed and the assumption of jurisdiction by the AO u/s 147 of the Act is held to be valid. Addition on account of unexplained deposits - Held that - The assessee s explanation in this regard is that there were advances received towards the sale of land totalling to ₹ 18,00,000 which were deposited in his bank account and the said sale transactions were subsequently cancelled and the said amount was refunded. In support, the assessee has submitted the affidavits of these persons, namely Sitaram, Ramprasad, Hanuman, Gopal and Bajrang Lal along with source of cash available with these persons. The Revenue has not disputed the receipt and refund of money to these persons. Further, where there is no further enquiry conducted by the AO calling for these persons and examining the contents of these affidavits, it cannot be held that these affidavits were false or doesn t represent the correct state of affairs. In light of the same, we find that the assessee has provided the necessary explanation regarding the source of these deposits. Hence, the addition so made is hereby deleted. The ground no.1 taken by the assessee is allowed. Action of the AO in invoking provisions of section 50C and adopting sale consideration of ₹ 23,41,244/- instead of actual sale consideration of ₹ 18,46,095/- - as submitted that the value adopted by the Sub-Registrar for stamp duty purposes is not final value which has to be taken for tax purposes - Held that - CIT(A) has returned a finding that from the perusal of material available on record, it is found that during the course of assessment proceedings, the assessee neither objected to the value determined by the sub-registrar nor had requested the AO for making reference to valuation officer. We have also gone through the material available on record and we donot find any such claim made by the assessee before the AO. Though there is no prescribed form or manner for making the claim, the trigger point for referring the matter to Valuation Officer is whether the assessee has made any such claim or objection raised before the AO and unless the same is made, the AO cannot invoke the provisions of section 50C(2) suo-moto. The AO has thus acted within four corners of law where he has brought to tax deemed sales consideration as per stamp duty authority under section 50C instead of actual sale consideration as so claimed by the assessee. In the result, ground no. 3(a) read with 3 (b) is dismissed. Treating the land sold as capital assets instead of agricultural land - only grievance of the assessee is that he has not been granted a right to cross-examine the Tehsildar who has given the report about the exact location of the land - Held that - Tehsildar is a Government official and where he has given a report and a copy of such report is made available to the assessee, the assessee has got all rights to examine such report and he can challenges the contents thereof. Where the assessee is ceased of such a report and doesn t point out any defect in such a report, he cannot say that his rights have been violated as he has not got a right to cross-examine the Tehsildar. Further, we agree with the findings of the ld CIT(A) that certificate of Gram Panchayat cannot take precedence over the report of the Tehsildar who is the appropriate land revenue authority to assess the nature and location of the land. In the result, we donot find any infirmity in the order of the ld CIT(A) Reopening of assessment - for A.Y 2007-08 - Held that - If we look at the definition of assessee as defined in section 2(7), it talks about a person by whom any tax or any other sum of money is payable under the Act and includes every person in respect of whom any proceedings under this Act has been taken for the assessment of his income. In our view, the appellant clearly falls in the definition of an assessee as so defined and the contention so raised is clearly devoid of any merits and is hereby rejected. Regarding contention of the ld AR that no sanction was taken by the AO from the appropriate authority u/s 151 before issuance of notice under section 148, during the course of hearing, the assessment records were called for and it was noted that the approval u/s 151 is duly placed on record. Hence, the said contention has been duly addressed and doesn t support the case of the assessee. In the result, the ground of appeal is hereby dismissed and the assumption of jurisdiction by the AO u/s 147 of the Act is held to be valid. Addition account of unexplained deposits - Held that - No infirmity in the order of the ld. CIT(A) as the assessee has failed to explain the source of such deposits in his bank account and which has rightly been brought to tax by the AO. In the ground no. 2 of the assessee s appeal is hereby dismissed. Long Term Capital Gain - sale of land - whether the ld CIT(A) was justified in bringing to tax long term capital gains, on sale of land by the assessee to his two daughter-in-laws, by way of enhancement of income in terms of provisions of section 251(1)(a) - Held that - In light of the legal propositions so laid down by the Hon ble Supreme Court and other High Courts referred supra, the powers of the ld CIT(A) are circumscribed by the assessment order in the matters arising thereof or a matter arising out of the proceedings. As held by the Courts, even though, the ld CIT(A) has suo motu power to consider the questions arising thereof but there is no provision to go beyond the matter arising out of the proceedings before the Assessing officer, more particularly as separate provisions for such eventuality are provided in the Act. In light of the same, the enhancement so done by the ld CIT(A) whereby the impunged sale transactions are brought to tax in the year under consideration are beyond the scope of her powers envisaged under section 251(1)(a) and the same thus cannot be accepted. However, the AO shall be free to take action as per law. Addition On account of unexplained deposits where AO observed that the assessee has failed to produce necessary explanation of the source of such deposits - Held that - As gone the rival contentions and the material available on record and do not find any infirmity in the order of the ld. CIT(A) except for an amount of ₹ 20,462 which was a wrong credit and later on rectified by the bank itself. In the result, the ground taken by the assessee is partly allowed.

Summary

Issues Involved:
1. Reopening of assessment under Section 147 of the Income Tax Act.
2. Addition on account of unexplained deposits.
3. Addition of Long Term Capital Gain and application of Section 50C.
4. Treatment of agricultural land as capital assets.
5. Enhancement of income by the Commissioner of Income Tax (Appeals) [CIT(A)].

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 147:
The assessee challenged the reopening of the assessment under Section 147. The Tribunal admitted this as a legal ground and examined the reasons recorded by the Assessing Officer (AO) before issuing the notice under Section 148. The Tribunal found that the AO had recorded reasons based on unexplained deposits and sale transactions. For the year 2006-07, the Tribunal noted that the AO had incorrectly assumed the sale transaction pertained to that year, whereas it actually pertained to 2007-08. However, the Tribunal upheld the reopening for unexplained deposits, considering it a valid ground. For the year 2007-08, the Tribunal found that the AO had made a clerical error in the figure of escaped income, which was curable under Section 292B. The Tribunal also confirmed that the appellant fell within the definition of "assessee" as per Section 2(7) and that the necessary sanction under Section 151 was obtained.

2. Addition on Account of Unexplained Deposits:
For the year 2006-07, the AO made an addition of ?12,93,175 due to unexplained deposits. The assessee provided affidavits from individuals claiming to have given advances for land purchase, which were later refunded. The Tribunal noted that the Revenue did not dispute these affidavits and found the explanation satisfactory, thus deleting the addition. For the year 2007-08, the AO added ?3,80,000 as unexplained deposits, which the Tribunal upheld due to the assessee's failure to provide a plausible explanation. For the year 2008-09, the AO added ?18,15,462 for unexplained deposits. The Tribunal upheld the addition except for ?20,462, which was a bank error.

3. Addition of Long Term Capital Gain and Application of Section 50C:
The AO applied Section 50C to adopt the sale consideration at a higher value than declared by the assessee. The Tribunal found that the assessee did not object to the stamp duty valuation during the assessment proceedings and upheld the AO's action. For the year 2007-08, the Tribunal dismissed the assessee's contention that the AO should have referred the matter to the Valuation Officer, as no such claim was made during the assessment.

4. Treatment of Agricultural Land as Capital Assets:
The assessee argued that the land sold was agricultural and not a capital asset. The Tribunal upheld the CIT(A)'s finding based on the Tehsildar's report, which stated that the land was within 8 km of municipal limits, thus falling within the definition of a capital asset under Section 2(14). The Tribunal rejected the assessee's reliance on the Gram Panchayat certificate and found no merit in the argument regarding the lack of cross-examination of the Tehsildar.

5. Enhancement of Income by CIT(A):
The CIT(A) enhanced the income for the year 2007-08 by adding long-term capital gains from a sale transaction initially considered in the assessment for 2006-07. The Tribunal found that the CIT(A) overstepped her jurisdiction by introducing a new source of income not considered by the AO. The Tribunal held that the CIT(A)'s powers are limited to matters arising out of the assessment proceedings and cannot extend to new sources of income. Consequently, the enhancement was deemed beyond the scope of her powers and was not upheld.

Conclusion:
The Tribunal provided a detailed analysis of each issue, upholding the reopening of assessments for unexplained deposits, confirming additions where the assessee failed to provide satisfactory explanations, and validating the application of Section 50C. However, the Tribunal restricted the CIT(A)'s power to enhance income by introducing new sources of income not considered by the AO.