2013 (1) TMI 479 - AT - Income Tax

Powers of CIT(A) in admitting additional evidence under Rule 46A(3) - Held that - Unable to support the contention of the revenue that the CIT(A) did not follow the procedure laid down in Rule 46A of the Rules in admitting the information even when the assessee has not requested for admission of additional evidence for deciding the issue involved; however, as regard the investment in purchase and construction of the residential building thereon, the Assessing Officer may take appropriate action because it falls in the A.Y.2007-08 - CIT(A)rightly relied on the judgment of Kanpur Coal Syndicate (1964 (4) TMI 18 - SUPREME COURT) and Jute Corporation of India (1990 (9) TMI 6 - SUPREME COURT). Excessive claim of indexed cost of construction - Addition made on account of alleged investment in construction of house - CIT(A) deleted the addition - Held that - It is not in dispute that AO asked the assessee to furnish documentary evidence and to explain the source of investment made in construction of house during AY 1996-97 to 2000-01. The assessee furnished the copies of the capital accounts related to the above. AO further observed that in the AY 2000-01, at the opening the assessee had a credit balance of Rs.2,89,185/-, which was a debit balance of Rs.2,06,250 at the end of the year i.e. on 31.3.2000 which is not feasible and acceptable and the AO made the disputed addition with the conclusion that the assessee excessively claimed the indexed cost of construction. In view of above, no hesitation to hold that the AO asked the assessee to produce the accounts pertaining to the expenditure made by the assessee related to a period more than three years prior to the previous year that, i.e. FY 1999-00. Therefore, CIT(A) rightly held that in view of above proviso (b)of Sec 142(1)(iii), the action of the AO was wrong and he rightly deleted the addition. Addition made on account of capital gain - assessee failed to produce any supporting evidence regarding construction of house and deposit of capital gain raised on sale of old house - CIT(A) deleted the addition - Held that - Deduction u/s 54F is not available for the purchase of plot until a residential house is constructed over it. The intention of the assessee is relevant for this purpose which needs proper examination at the end of AO. As already observed earlier that this issue has been directed to the AO by the CIT(A) for consideration in AY 2007-08. Since the residential house property was sold during AY 2005-06 and assessee is entitled for deduction of capital gain for construction of residential house upto next three years, i.e. AY 2008-09 (F.Y. 2007-08). The issue of deduction for residential house constructed on plot no. 634 Sector 14P has not been examined by the AO and CIT(A) had no opportunity to consider the same, thus this claim of the assessee requires de novo adjudication at the end of AO - in favour of revenue for statistical purposes.

Summary

Issues Involved:
1. Deletion of addition made on account of alleged investment in construction of house.
2. Deletion of addition made on account of capital gain.
3. Acceptance of additional evidence under Rule 46A(3) of the Income Tax Rules, 1962.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made on Account of Alleged Investment in Construction of House:
The Revenue contended that the Commissioner of Income Tax (Appeals) [CIT(A)] erroneously deleted the addition of Rs. 2,23,602/- made by the Assessing Officer (AO) regarding the indexed cost of construction claimed excessively by the assessee. The AO had asked the assessee to furnish evidence for the investment made in the construction of the house during AY 1996-97 to 2000-01. The assessee provided copies of capital accounts, but the AO found discrepancies and made the addition. The CIT(A) invoked proviso (b) to Section 142(1)(iii) of the Act, which prohibits the AO from requiring the production of accounts relating to a period more than three years prior to the previous year. Consequently, the CIT(A) deleted the addition, and the Tribunal upheld this decision, dismissing the Revenue's ground.

2. Deletion of Addition Made on Account of Capital Gain:
The Revenue argued that the CIT(A) wrongly deleted the addition of Rs. 12,53,500/- made by the AO on account of capital gain, asserting that the assessee failed to provide supporting evidence for the construction of house no. 634, Sector-14P, Hisar, and the deposit of capital gains from the sale of an old house. The CIT(A) directed the AO to consider this issue in AY 2007-08, as the investment in the purchase and construction of the residential building was relevant for that assessment year. The Tribunal noted that the assessee had purchased and sold properties within the stipulated time frames and directed the AO to re-examine the issue, considering the intention of the assessee and the relevant provisions of Section 54 and 54F of the Act. The Tribunal restored the issue to the AO for de novo adjudication, setting aside the CIT(A)'s findings.

3. Acceptance of Additional Evidence under Rule 46A(3):
The Revenue contended that the CIT(A) erred in law and fact by accepting additional evidence under Rule 46A(3) without a request from the assessee and allowing exemption under Section 54 of the Act. The Tribunal observed that the CIT(A) had considered the AO's version regarding the additional evidence and admitted it under Rule 46A(3) for deciding the issue. The Tribunal noted that the CIT(A) has the statutory power to admit additional evidence and relied on the judgments of the Hon'ble Supreme Court in the cases of Kanpur Coal Syndicate and Jute Corporation of India. Consequently, the Tribunal upheld the CIT(A)'s decision to admit the additional evidence, dismissing the Revenue's contention.

Conclusion:
The Tribunal partly allowed the Revenue's appeal for statistical purposes, upholding the CIT(A)'s decisions on the deletion of the addition made on account of the alleged investment in construction of house and the acceptance of additional evidence under Rule 46A(3). However, the Tribunal restored the issue of the deletion of the addition made on account of capital gain to the AO for re-examination and de novo adjudication.