2019 (11) TMI 580 - AT - Income Tax

Addition of net of understatement of sale consideration as well as understatement of expenditure from the collaboration agreement - HELD THAT - Addition has been made by the ld AO on the basis of mere presumptions. The market value of the flat determined by the ld AO was without any evidence. The cost of construction is also determined by him at ₹ 1500/ sq ft without any evidence. He has not supported his order with any evidence of incurring expenditure by the assessee. He did not also take the expert opinion of departmental valuer if he had any doubt about the actual cost of construction incurred by the assessee. AO has also not made any enquiry with the buyers of those flats about the price paid by them. Further, the ld AO also did not submit what kind of enquiry he has made with real estate dealers of that area. He also did not deal with what kind of enquiry the inspector deputed has conducted. Obviously the inspector deputed could not have given the value of the flat sold as he has not an expert. The ld CIT(A) has considered all these facts and deleted the addition in absence of any material with respect to unaccounted expenditure or any on money received by the assessee on sale of flats. Further, the assessee supported the cost of construction with the registered valuers report. Therefore, there is no infirmity in the order of the ld CIT(A). The judicial precedent relied upon are on different facts. It merely said that inspector of the Income Tax is not qualified to estimate the cost of immovable property. There is no quarrel on this issue. Thus, we do not find any infirmity in the order of the ld CIT(A) in deleting the above addition

Summary

Issues Involved:
1. Addition on account of unexplained expenditure under Section 69C of the Income Tax Act, 1961.
2. Addition on account of understatement of sale consideration of a flat.

Detailed Analysis:

1. Addition on account of unexplained expenditure under Section 69C:
The Assessing Officer (AO) added ?80,85,062/- to the assessee's income, alleging unexplained expenditure under Section 69C. The AO based this addition on the assumption that the construction cost was understated. The AO calculated the total construction cost at ?1,15,12,875/- using a rate of ?1500 per sq. ft., which was significantly higher than the cost declared by the assessee (?34,27,813/-). The AO did not provide concrete evidence or expert valuation to support his calculation.

The Commissioner of Income Tax (Appeals) [CIT(A)] deleted this addition, stating that the AO did not bring any material evidence to establish that the assessee incurred excess expenditure. The CIT(A) emphasized that Section 69C requires concrete evidence of actual expenditure by the assessee, which the AO failed to provide. The CIT(A) also noted that the assessee maintained regular books of accounts, which were not rejected under Section 145 of the Act. The CIT(A) relied on various judicial precedents to support the deletion of the addition.

2. Addition on account of understatement of sale consideration of a flat:
The AO added ?1,25,00,000/- to the assessee's income, alleging that the sale consideration of a flat was understated. The AO estimated the market value of the flat at ?1,65,00,000/- based on inquiries from real estate dealers and an inspector's report, contrasting with the sale price of ?40,00,000/- declared by the assessee. The AO did not provide specific evidence or details of the inquiries conducted.

The CIT(A) deleted this addition, stating that the AO did not bring any material evidence to substantiate the claim that the assessee received more sale consideration than declared. The CIT(A) noted that the assessee provided sale instances of nearby properties and a registered valuer's report to support the declared sale price. The CIT(A) emphasized that mere substitution of the market price without evidence cannot form the basis for addition.

Appellate Tribunal's Decision:
The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s decision to delete both additions. The ITAT noted that the AO's additions were based on mere presumptions and lacked concrete evidence. The ITAT emphasized that the AO did not obtain an expert opinion or conduct detailed inquiries to substantiate the alleged excess expenditure or understatement of sale consideration. The ITAT found no infirmity in the CIT(A)'s order and dismissed the revenue's appeal.

Conclusion:
The ITAT dismissed the revenue's appeal, affirming the CIT(A)'s decision to delete the additions of ?2,05,85,062/- on account of unexplained expenditure under Section 69C and understatement of sale consideration. The ITAT highlighted the lack of concrete evidence and reliance on mere presumptions by the AO, supporting the assessee's declared figures with appropriate documentation and valuation reports.