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2021 (3) TMI 517 - AT - Income TaxValidity of assessment - proceedings and consequential Asstt. is barred by limitation for not serving the statutory notice u/s. 143 (2) within the time allowed as per proviso to Sec. 143 (2) - HELD THAT - The said notice contains; signature of the assessee; date mentioned is 30.9.2011; time 2 pm; and telephone number 01147059177. Apparently, there is some overwriting in the date, but it cannot be established that the date has been interpolated to 30.9.2011 from 1.11.2011 unless some forensic report is obtained from expert. In the notice, the date of receiving is clearly mentioned below the signature of the assessee which is 30.09.2011, though there is overwriting. But to allege that it was done by AO or any staff and to establish it as matter a fact that any interpolation or mischief has been done is difficult to accept. If the assessee is making any charge of interpolation then he should have then asked for forensic examination. Under these circumstances, the benefit of doubt cannot be given to the assessee. Accordingly, we hold that notice was served on to the assessee on 30.9.2011. Accordingly ground No. 1 is dismissed. Addition u/s 68 - difference between the purchase consideration and circle rate as unexplained investment/credit - HELD THAT - It is an undisputed fact that the purchase consideration as per the registered sale deed is ₹ 41,80,000/- and for the purpose of stamp duty valuation the circle rate of the property was at ₹ 1,30,77,000/-. First of all, provision of section 50C as was prevalent at the time of registration of sale deed i.e., 11.1.2009, it was applicable only in the case of the seller and not in the hands of the purchaser; and that to be it was for calculating the capital gain in the hands of the seller. The deeming fiction for taxing such transaction in the hands of the purchaser came w.e.f. 1.10.2009 u/s 56(2)(vii) (b), wherein it has been provided that if any property has been received for a consideration which is less than the stamp duty valuation the same valuation is to be treated as income in the hands of purchaser or receiver. Without any evidence on material on record to show that the assessee had paid over and above the sale consideration price, it cannot be deemed or presumed that assessee must have paid the price over and above the purchase consideration. In any case, section 68 would not be applicable in the present case, since no sum has been found to be credited in the books of accounts of the assessee. These additions can be made only under the deeming provision u/s 50C or u/s 56 (2) (vii) (b), which we have already held that it is not applicable in the case of the assessee. Accordingly, there is no ground to sustain the addition. Hence, same is directed to be deleted. Accepting or non accepting the real estate business and treating the transaction of purchase and sale of Indirapuram property as short term capital gain - HELD THAT - Neither in the original return of income nor in the initial stage there was any claim nor any mention that assessee had purchased the property which has been declared or shown as stock-in-trade. The said claim was only made during the course of assessment proceedings after getting the fresh audit and the audited balance sheet and computation of income of real estate business was filed before the AO. Neither the intention nor the conduct of the assessee reflects that the assessee was doing or intended to do any real estate business nor it has been demonstrated that in the subsequent years the assessee has been carrying out any real estate business. The assessee might have incurred expenditure on the improvement of the property before the sale but that does not mean it is some kind of business expenditure related to the property business. At the most it could be treated as an improvement after the acquisition of the capital asset for which benefit of indexation can be given while computing the capital gain. Accordingly, we confirm the finding of the AO and Ld. CIT (A) that the purchase and sale of property has to be treated as short term capital gain. Benefit of improvement has not been given - This issue has not been discussed by the AO. Therefore, AO needs to verify and examine the cost of improvement. Accordingly, we hold that sale of Indirapuram property is to be taxed under the head short term capital gain and not under the head business income. Claim of loss of forfeiture of advance given for purchase of property of Panipat - HELD THAT - In order to prove that the amount was received and still with them they have also filed their bank statements. In so far as the personal presence by both the ladies, they have specifically communicated to the AO to give further time due to their preoccupation. This cannot be the ground for disbelieving the entire transaction of forfeiture. If the confirmation of cancellation of agreement and forfeiture of the said amount stood confirmed, then certainly there is a loss incurred to the assessee. Said loss cannot be said to be a business loss as we have already held above that assessee was not into the business of dealing in property. But certainly this loss is on account of capital loss, because the money was advanced for purchase of a capital asset and as per the agreement, the assessee got a vested right on the said property after the payment of advance. Further, there was a stipulation that if the entire amount is not paid then the advance amount would be forfeited. Right to acquire property is a capital asset and when the said right got extinguished due to cancellation of agreement and amount got forfeited, and then certainly it is a capital loss. In such a case, short term capital loss is to be set off against short term capital gain within the same year in terms of section 70(2) of the Act and accordingly, we direct the AO to allow the loss from short term capital gain as directed above. Net profit by presuming the net profit at 10.60% on sale - HELD THAT - AO on presumptive basis has applied a net profit rate of 10.60% on the declared sales as was there in assessment year 2009-10. First of all, neither there any discrepancy has been found nor there is any material that the assessee has sold the stock at a higher price. Apart from that, the net profit earned for the entire year when the business is full- fledged run, cannot be applied when the business has been closed down and the existing stock has been disposed of at whatever best available price. Hence, under these circumstances such an estimation of net profit is not warranted and the same is directed to be deleted.
Issues Involved:
1. Validity of the statutory notice under Section 143(2) of the I.T. Act. 2. Adoption of circle rate as the purchase cost of the Indirapuram property and the addition of ?88,97,000 under Section 68. 3. Rejection of the assessee’s claim of being in the real estate business and treating the Indirapuram property as a capital asset, resulting in the calculation of Short Term Capital Gain (STCG). 4. Disallowance of the loss of ?70 lacs due to forfeiture of advance given for the Panipat property. 5. Alternative claim for the loss of ?70 lacs to be treated as short-term capital loss. 6. Presumption of net profits of M/s. Goodluck Tyres. Detailed Analysis: 1. Validity of the Statutory Notice Under Section 143(2): The assessee contended that the notice dated 30.09.2011 was actually served on 01.10.2011, beyond the statutory time limit. The Ld. CIT (A) observed that the notice was received by the appellant, as evidenced by the signatures, date, and telephone number written in close proximity, indicating they were written by the same person. The Ld. CIT (A) also noted that no objection was raised during the assessment proceedings, deeming the objection an afterthought. The Tribunal upheld the validity of the notice, stating that the benefit of doubt could not be given to the assessee without forensic evidence proving manipulation. 2. Adoption of Circle Rate and Addition Under Section 68: The AO added ?88,97,000 under Section 68, citing a discrepancy between the purchase price declared by the assessee (?41,80,000) and the circle rate (?1,30,77,000). The Tribunal noted that Section 50C, applicable at the time, only pertained to sellers and not purchasers, and Section 68 could not be invoked as no sum was found credited in the books of accounts. The Tribunal directed the deletion of the addition of ?88,97,333. 3. Real Estate Business Claim and STCG Calculation: The assessee claimed to have commenced a real estate business, purchasing and selling the Indirapuram property within the same year. The AO and Ld. CIT (A) rejected this claim, treating the transaction as a capital asset sale, resulting in an STCG calculation of ?80,04,500. The Tribunal upheld this view, noting the lack of evidence of ongoing real estate business in subsequent years and the absence of the property being declared as stock-in-trade initially. The Tribunal confirmed the treatment of the transaction as STCG but directed the AO to verify and consider any cost of improvement claimed by the assessee. 4. Disallowance of ?70 Lacs Loss on Panipat Property: The assessee claimed a loss of ?70 lacs due to the forfeiture of advance payments for a Panipat property. The AO disallowed this, citing the lack of evidence of forfeiture in the confirmations from the sellers. The Tribunal found that the sellers' confirmations and bank statements supported the advance payments and forfeiture. However, it held that the loss was a capital loss, not a business loss, as the assessee was not in the property business. The Tribunal directed the AO to allow the loss as a short-term capital loss to be set off against the STCG. 5. Alternative Claim for ?70 Lacs as Short-Term Capital Loss: The Tribunal accepted the alternative claim, allowing the ?70 lacs loss as a short-term capital loss to be set off against the STCG. 6. Presumption of Net Profits of M/s. Goodluck Tyres: The AO presumed a net profit of ?54,291 by applying a 10.60% net profit rate on sales of ?5,12,180, based on the previous year's rate. The Tribunal found no discrepancy or evidence of higher sales prices and noted that the business was closed, with the stock sold at cost. The Tribunal directed the deletion of the net profit estimation. Conclusion: The Tribunal partly allowed the appeal, directing the deletion of the addition under Section 68, confirming the treatment of the property transaction as STCG while allowing verification of improvement costs, and allowing the ?70 lacs loss as a short-term capital loss. The presumption of net profits for M/s. Goodluck Tyres was also deleted.
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