2014 (9) TMI 260 - AT - Income Tax

Amount mentioned in seized diary, part of consideration or not - Assessment u/s 153C - Whether the amount represented, as per the entry in the seized diary, by a pronote, forms part of the consideration for the sale of the property Held that - The pronote itself was not found or seized by the search party - the entry with regard to the amount represented by the pronote finds place among other entries made with regard to the amounts of payments, forming part of the consideration, and the same which have been made duly assigning the serial numbers like Ist, IInd, etc. - on a comparison of the payments so recorded with the payment recorded with the registered sale deed, it is found that the payments to the tune of ₹ 65 lakhs were matching, and the only amount not accepted is the amount of ₹ 25 lakhs represented by the entry pronote pages of the diary cannot be termed as a sheet of paper and the entries in question cannot be said to be abstract ones without any significance - once all the entries in the relevant page of the diary could be linked up to the sale transaction, only with regard to the pronote, correctness of the entry cannot be challenged - A pronote, being a valuable document, must have been preserved till the realization of money in respect thereof - Mention of the amount represented by the pronote in the relevant page of the seized diary indicates the factum of the same forming part of the consideration - The fact that the pronote was not found at the time of search makes it clear that the amount represented by it must have been received by the assessee, because only upon realization of money, a pronote is either returned to the promissor or destroyed relying upon CIT V/s. Sonal Constructions and Anr. 2012 (11) TMI 11 - DELHI HIGH COURT - the action of the Revenue authorities in treating the amount represented by the pronote as well, as part of the consideration on the sale of the property is upheld Decided against assessee. Claim of exemption u/s 54 denied assessee purchased only plot of land and not residential property No evidence for making evidence on construction of residential house - Held that - Revenue authorities have denied the claim for exemption, going by the schedule of property and map appended to sale deed through which the assessee purchased the property - Merely because it is titled as provisional receipt , its evidentiary value cannot be mitigated, because it is issued by a statutory authority, viz. a local body, and contains details like door no. and assessee s name, date and amount of tax collected, etc. - All the details are capable of being verified from the records of the local civic body, and as such, one cannot create such a evidence just to make believe the version of the assessee - in the absence of any material to the contrary brought on record by the Revenue, the contention of the assessee is accepted that the property purchased by her was not merely a plot of land, but with some residential structure thereon in a semi-finished condition. The version of the assessee of having invested an amount for the completion of residential structure on the plot purchased, was disbelieved on the ground of the smallness of the investment claimed - the assessee purchased the plot of land with a structure existing thereon in semi-finished condition, it cannot be said that the amount claimed to have been spent by the assessee for competing the structure, so as to make it habitable one, is too small - since the plot purchased was claimed to be containing two houses, one constructed by the assessee in 2002 and the other being found under construction at the time of search, which was claimed by the assessee to have been taken up by her husband the order of the CIT(A) is set aside and the AO is directed to accept the claim of the assessee for exemption u/s 54F of the Act Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of Rs. 25,00,000 based on a pro-note entry in a seized diary.
2. Denial of exemption under Section 54 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Addition of Rs. 25,00,000 based on a pro-note entry in a seized diary:

The assessee contested the addition of Rs. 25,00,000 made by the Assessing Officer (AO) based on an entry in a seized diary during search operations. The AO concluded that the total sale consideration for the property was Rs. 1,65,00,000, contrary to the assessee's claim of Rs. 65,00,000. The AO noted that the seized diary indicated a sale consideration of Rs. 1,65,00,000, including a Rs. 25,00,000 pro-note. The assessee acknowledged the diary entries except for the Rs. 25,00,000 pro-note, claiming it was not received. The AO opined that the pro-note indicated a promise to pay, implying the amount was received later. The CIT(A) upheld the AO's decision, noting that the diary entries were corroborated by the registered sale deed and the assessee's admission of Rs. 1,40,00,000 as sale consideration. The Tribunal agreed with the CIT(A), citing the Delhi High Court's ruling in CIT V/s. Sonal Constructions and Anr., which allows additions based on seized documents even without corroboration if their probative value is high. The Tribunal concluded that the Rs. 25,00,000 pro-note formed part of the sale consideration, as its absence during the search suggested it was realized and destroyed. Thus, the total sale consideration was upheld at Rs. 1,65,00,000.

2. Denial of exemption under Section 54 of the Income Tax Act:

The AO denied the assessee's claim for exemption under Section 54, arguing that the property purchased was a vacant plot, not a residential house, and no investment was made in constructing a house within the stipulated time. The assessee contended that the property purchased included a semi-finished structure, which was completed with an additional investment of Rs. 1,74,795. The assessee provided a property tax receipt as evidence of the residential structure's existence. The CIT(A) upheld the AO's decision, but the Tribunal disagreed. The Tribunal noted that the property tax receipt issued by a statutory authority indicated a residential structure, and the small investment claimed for completing the structure was reasonable given it was semi-finished. The Tribunal accepted the assessee's version, directing the AO to grant the exemption under Section 54, subject to other conditions being met.

Conclusion:

The appeal was partly allowed. The Tribunal upheld the addition of Rs. 25,00,000 based on the pro-note entry, concluding the total sale consideration was Rs. 1,65,00,000. However, it overturned the denial of exemption under Section 54, directing the AO to accept the exemption claim, acknowledging the property included a semi-finished residential structure.