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TMI Blog2021 (3) TMI 517X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee 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 assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operty as Capital Asset and consequently calculating Short Term Capital Gain (STCG) at ₹ 80,04,500/- (1,31,00,000 - 50,95,500). 4. That under the facts and circumstances, both the lower authorities erred in law as well as on merits in not allowing the loss of ₹ 70 lacs suffered on account of forfeiture of advance given against Panipat property and also erred in not treating it as business loss. 5. That without prejudice to G.N. 4, alternatively, the loss of ₹ 70 lacs should have been allowed as short term capital loss eligible for setting off against any short term capital gain (STCG). 6. That under the facts and circumstances, both the lower authorities erred in law and on merits in presuming the net profits of M/s. Goodluck Tyres at ₹ 54,291/- by presuming the N.P. at 10.60% on sales of ₹ 5,12,180/-. 2. The facts, in brief, in the grounds of appeal raised are that assessee is an individual and proprietor of M/s Tyre Shed which is engaged in the business of trading of tyres, tubes and flaps. During the year under consideration, the assessee has declared total sales at ₹ 13,90,69,368/- and net profit was declared at ₹ 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce under any provision of this Act, which is required to be served upon him, has been duly served upon him in time in accordance with the provisions of this Act and such assessee shall be precluded from taking any objection in any proceeding or inquiry under this Act that the notice was (a) not served upon him; or (b) not served upon him in time; or (c) served upon him in an improper manner. Where the assessee has raised objection regarding issue of notice before the completion of such assessment or reassessment, the provisions contained u/s 292BB will not be applied. Since no objection has been raised by the appellant during assessment proceedings therefore provisions of Section 292BB are applicable. THUS on the basis of above facts the service of notice is held to be valid and within time and the ground of appeal is dismissed. 3. Before us, Ld. Counsel Shri Raj Kumar Gupta submitted that the notice dated 30.9.2011 was physically served on the assessee on 1.10.2011 and another notice was received by post on 4.10.2011 which is not in dispute. During the assessment proceedings itself the assessee vide letter dated 6.8.2012 informed the AO that the notice was served on 1.10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no. put by assessee himself There was no reason for the assessee to do overwriting on the date of service while there existed a strong reason for the A.O. for overwriting, for showing the service in time Even in the complete order sheet taken through RTI there is no mention of any service of notice on 30.09.11 Had the service being there on 30.09.11, there was no reason for the assessee to put the time of receipt of notice as 2 PM Had the service took place on 30.09.11 by hand, there was no reason for sending the notice by speed post it was reed, on 04.10.11 at 2:42 PM, which must has been sent after 30.09.11 since speed post is served within 24 hours During appeal proceedings, the assessee duly filed his affidavit Dtd.03.01.15 mentioning all these facts During appeal proceedings, CIT(A) personally called the assessee and took his signatures and the dates and his writing of similar words and figures to match it with the notice and found that there was no similarity CIT(A) also called for asstt. records and did not find anything therein which may show the undisputed service on or before 30.09.11 Remand report of A.O. wrongly mentioned that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ief are that as per AIR details, it was found that assessee has purchased property bearing Hall No.3 4 Ground floor, under Block No. A B, Gaur Gravity, Gaur Green city, Plot No. 8, Vaibhav Khand, Indrapuram, Ghaziabad. Information was also sought by the AO u/s 133(6) from the Sub Registrar, Ghaziabad, wherein it was intimated that the sale consideration of the said property was ₹ 41,80,000/- and the value as per Stamp Valuation Authority was ₹ 1,30,77,000/. The assessee s contention was that assessee has purchased the property at sum of ₹ 41,80,000/- on which stamp duty paid was 9,15,500/- and, therefore, the total cost to the assessee was ₹ 50,95,500/-. However, the stamp duty was paid on the circle rate at ₹ 1,30,77,000/- as per the sale deed dated 11.8.2009. The AO further noted that assessee has not shown the purchase of the property in his return of income and in response to the show cause notice the assessee gave the explanation that during the previous year assessee had endeavoured into a new business of real estate by purchasing the properties, developing the same into a profitable venture and sell the same. In such venture, the assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejected the assessee s revised claim of doing the property business and net loss claim in such property business. After detailed reasoning, AO held that there was a short term capital gain on the sale of property, because the assessee has shown purchase at ₹ 50,95,500/- and sold the property at ₹ 1,31,00,000/- and therefore, the difference of ₹ 80,04,500/- is a short term capital gain and not business income. Since he had already made the addition of ₹ 88,97,000/- on account of addition u/s 68 being a difference amount in purchase and sale consideration, therefore, he did not added separately the short term capital gain of ₹ 88,04,500/- as it relate to the same transaction. 9. AO again disallowed the loss of ₹ 70,00,000/- claimed on the forfeited advance given for purchase of property at Panipat on the ground that the agreement with these two ladies was made on ₹ 100 stamp paper, because, neither the date was mentioned on which these stamp papers were purchased nor the date on which these two agreements were executed were made available. He had also sent notices u/s 133(6) from both the ladies. In response the two ladies have confirmed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as bayana 2. Original copy of agreement with Sh. Joginder Pal as he was the buyer. 3. No formal cancelation deed was executed. It was treated as canceled as on 31.03.2010, as it was written in the Agreement itself. The bayana amount of ₹ 35 lacs was forfeited, as Sh. Joginder Pal did not make further payments, and did not appear for getting land registered in his name on the due date. 4. The said property is still, in our possession as it is owned by us. Copy of the ownership documents are filed. 5. Copy of lTR of A. Y. 2010 -2011 2011 - 2012 are filed 6. As the summons dtd. 30.09.2014 for 09.10.2014 have been received on 08.10.2014 and there are already some pre - engagements, therefore, appearance cannot be made on 09.10.2014. We had filed letter earlier and now we are sending details as required by your goodself. 12. In sums and substance the Ld. CIT(A) after considering the entire facts has disallowed the adjustment of loss of ₹ 70,00,000/- and the claim of business loss in the following manner :- The property transaction entered into by the appellant during the year in respect of Indrapuram property and Panipat property were not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neral Develop Syndicate (1995) 216 ITR 469 (Raj), it was held that if the payment is made for the purpose of acquiring a capital asset, the amount lost upon forfeiture will not be considered as revenue loss though the amount may not have the same consequence or character in the hands of the recipient or beneficiary. Thus even in that case the amount of difference between the purchase and sale price of the Indrapuram Property would be taxable income in the hands of the appellant. The Assessing Officer has further made an addition of ₹ 88,97,000/- under section 68, without prejudice to the above addition by invoking section 68 in respect of cash payment made in purchase of Indrapuram property on the basis of Circle Rate applicable for the area. The perusal of the facts of the case show that the appellant has himself shown a rise of 300% in the value of the property from a purchase price of ₹ 41,80,000/-. to a sale price of Rs. ₹ 1,31,00,000/- within the same year. In any market in any area under any conditions this is impossible. Though the provisions of Section 50C are not applicable in case of a purchaser however keeping in view the specific facts of the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - Indirapuram property was purchased on 11.08.09 for ₹ 50,95,500/-, expenditure of ₹ 7,63,000/- incurred on alterations and constructions and thereafter sold on 27.01.10 for ₹ 1,31,000/- vide registered sale deed. - One more real estate business transaction also took place in this year for which G. No.4 5 have been taken separately. - The A.O., however noted that no tax audit report was furnished in respect of this business and no P L was filed alongwith the return. - The ITR was filed on 29.09.10, however after filing the ITR, the counsel was informed of this independent business activity started in this year. - On advice of counsel, the A/c of real estate business were audited vide audit report Dtd.30.09.10 and audit report, audited financial A/c and computation of income were filed to the A.O. during asstt. However, since the net result of this business was Rs.(-)1695/-, therefore it was not creating any tax liability, hence as per the advice of counsel, no revised return was filed. - During asstt., audited bal. sheet, audited report and computation of income of real estate business were filed to the A.O. - The A.O. has also a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the improvement of the property before the sale of ₹ 7,63,000/-, 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. 17. However, as pointed out by the Ld. Counsel the benefit of improvement of ₹ 7,63,000/- 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. However, the computation of short term capital gain would be done by the AO after taking in to consideration any cost of improvement if the assessee provides the details. 18. Lastly, coming to the claim of loss of ₹ 70,00,000/- of forfeiture of advance given for purchase of property of Panipat, we find that there is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 20. However, the 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 of ₹ 70,00,000/- from short term capital gain as directed above. 21. Accordingly ..... 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