2022 (1) TMI 921 - AT - Income Tax

Reopening of assessment u/s 147 - escapement of income from the sale of 2 flats - addition u/s 56 of the Act on account undisclosed income derived from sale of immovable property - HELD THAT - AO based on the AIR/ITS information came to know that the assessee has sold 2 flats but there was no return filed by him. Accordingly, the proceedings were initiated under section 147 of the Act. Admittedly, the assessee has not filed the return of income for the year under consideration under the provisions of section 139 of the Act. Thus, in such a situation there remains no remedy with the Department except to initiate the proceedings under the provisions of section 147 of the Act on account of escapement of income. Accordingly, we confirm the initiation of the proceedings under section 147 of the Act and dismissed the ground of appeal of the assessee. Addition on account of sale of property and taxing the same as income from other sources without deducting the corresponding expenses - The assessee has produced copy of letter of delivery of title paper of flats, allotment letter, possession letter of flats and no due certificated and the confirmation from the builder. To our understanding, the onus was shifted from the assessee to the revenue to reject the confirmation filed by the assessee based on cogent reasons. The confirmation from the builder is one of the vital piece of evidence which cannot be denied on surmise and conjecture, particularly in the facts where such confirmation was also supported based on the allotment letter, title paper, possession letters and no due certificate. CIT (A) cannot reject these documents without assigning any cogent reasons. Accordingly we hold that, the assessee is entitled for deduction of ₹ 11 lakhs against the amount of sale consideration. Thus, the effective income which is liable to tax is only being the difference in the sale consideration and purchase price of the property. Thus we direct the AO to delete the amount of addition made by him except a sum which we hold that it represents the income of the assessee against the sale of flats.Hence the ground of appeal of the assessee is partly allowed.

Summary

Issues:
1. Validity of assessment under section 147 read with section 143(3) of the Income Tax Act, 1961.
2. Addition made on account of sale of property and taxation as income from other sources without deducting corresponding expenses.
3. Applicability of interest and penalty under sections 234A/B/C/D and 271(1)(c) of the Act.

Issue 1: Validity of Assessment under Section 147:
The appeal challenged the reopening of the assessment under section 147 of the Act due to income escapement from the sale of two flats. The Assessee did not file a return of income, leading to the initiation of proceedings under section 147. The Tribunal upheld the initiation of proceedings as there was no return filed, leaving the Department with no choice. The appeal on this ground was dismissed.

Issue 2: Addition on Sale of Property without Deducting Expenses:
The Assessee sold two flats but did not disclose the income in the tax return. The Assessing Officer (AO) added ?12,40,000 as income from other sources, disregarding the Assessee's claim of earning commission income only. The AO rejected the claim, treating the difference in sale consideration as income. The Commissioner of Income Tax (Appeals) affirmed this decision. However, the Tribunal found that the entire sale consideration could not be treated as income without deducting corresponding expenses. The Assessee claimed ?11 lakhs as the cost of acquisition, supported by documents. The Tribunal held that the Assessee is entitled to deduct ?11 lakhs against the sale consideration, resulting in taxable income of ?1,40,000. The Tribunal directed the AO to delete the addition except for ?1,40,000, partially allowing the appeal on this ground.

Issue 3: Applicability of Interest and Penalty:
The grounds related to interest and penalty under sections 234A/B/C/D and 271(1)(c) were deemed either consequential or premature, hence dismissed as infructuous. The appeal was partly allowed based on the above determinations.

In conclusion, the Tribunal addressed the validity of the assessment under section 147, the addition made on the sale of property without deducting expenses, and the applicability of interest and penalty. The Tribunal upheld the initiation of proceedings under section 147 due to non-filing of the income tax return. However, it allowed the Assessee to deduct expenses against the sale consideration, resulting in a reduced taxable income. The issues regarding interest and penalty were dismissed as either consequential or premature.