2022 (12) TMI 934 - AT - Income Tax

Addition was based on a statement u/s 132(4) - Capital gain computation - cost of construction at Rs.2200/- per sq.ft - assessee argued addition cannot be made solely on the basis of 132(4) statement without bringing any corroborative material - HELD THAT - As held in various decisions that though the admission u/s 132(4) is an extremely important piece of evidence, but it cannot be said to be conclusive and it is open to the person who made it to show it that the impugned statement has been incorrectly made and the person making the statement should be given proper opportunity to show that it does not show the correct state of facts. In the instant case, we find the assessee during the course of his statement recorded during the course of search u/s 132(4) in reply to question No.12 had stated that the approximate cost of construction is Rs.2500/-. Further, during the course of P.O operation dated 22.01.2018, the M.D of the assessee had categorically stated that the cost of construction as per the agreement entered between Shri M. Satchidananda Rao with the Developer M/s. Namishree Infratech Project was Rs.1600/-. During the course of assessment proceedings; the assessee had furnished a confirmation letter from the developer M/s. Namishree Infratech Project vide letter dated 21.10.2019 that the estimated cost of construction was likely to be Rs.1600/- for the total project. AO had completely disregarded the same although he is also the Assessing Officer of the Developer. In the instant case, we find the addition was based solely on the basis of the statement of the Director of the assessee company at the time of search in the statement recorded u/s 132(4) but not backed by any other tangible or cogent evidence. Addition cannot be made solely on the basis of statement recorded u/s 132(4) without any corroborative evidence to substantiate the same especially when the assessee has retracted from his earlier statement by producing cogent evidence which has not been rebutted by the Assessing Officer in any manner - Appeal filed by the Revenue is dismissed.

Summary

Issues Involved:
1. Whether the cost of construction should be taken at Rs. 2200/- per sq. ft. or Rs. 1600/- per sq. ft. for calculating capital gains.
2. The validity of the addition made by the Assessing Officer based on the statement recorded under Section 132(4) of the Income Tax Act without corroborative evidence.
3. The acceptance of the assessee's computation of capital gains and the cost of land foregone.

Detailed Analysis:

1. Cost of Construction for Calculating Capital Gains:
The Assessing Officer (AO) noted that during a search and seizure operation, the director of the assessee company stated that the cost of construction was Rs. 2500/- per sq. ft., which was later revised to Rs. 2200/- per sq. ft. The assessee, however, filed a return of income under Section 153A, computing the capital gain by taking the cost of construction at Rs. 1600/- per sq. ft. The AO did not accept this and made an addition based on the initial statement.

2. Validity of Addition Based on Section 132(4) Statement:
The CIT (A) deleted the addition made by the AO, stating that the AO relied solely on the statement given under Section 132(4) without any corroborative evidence. The CIT (A) noted that the AO did not bring any incriminating material on record to prove the cost per sq. ft. was Rs. 2200/-. The CIT (A) emphasized that additions based on statements under Section 132(4) without substantiating evidence do not stand the test of addition, citing various judicial decisions.

3. Acceptance of Assessee's Computation of Capital Gains and Cost of Land Foregone:
The CIT (A) accepted the assessee's computation of capital gains, which considered the cost of construction at Rs. 1600/- per sq. ft., based on a confirmation letter from the developer M/s Namishree Infratech. The CIT (A) also considered the construction agreement entered by the developer with other landowners, which mentioned the construction cost as Rs. 1600/- per sq. ft. The CIT (A) found that the AO disregarded this evidence without any justification.

Tribunal's Decision:
The Tribunal upheld the CIT (A)'s decision, agreeing that the addition made by the AO was based solely on the statement recorded under Section 132(4) without any corroborative evidence. The Tribunal noted that the CBDT instructions and various judicial decisions emphasize that confessions during search and seizure operations, if not based on credible evidence, are often retracted and do not serve any useful purpose. The Tribunal found that the assessee provided cogent evidence, including a confirmation letter from the developer, which the AO did not rebut. Therefore, the Tribunal dismissed the appeal filed by the Revenue.

Conclusion:
The Tribunal concluded that the addition made by the AO based on the statement recorded under Section 132(4) without corroborative evidence was not justified. The cost of construction for calculating capital gains should be taken at Rs. 1600/- per sq. ft., as supported by the confirmation letter from the developer and the construction agreement with other landowners. The appeal filed by the Revenue was dismissed.