ITO, Ward-8(1), Hyderabad V. Smt. Kasa Latha, Hyderabad

ITA 779/HYD/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6506 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 19-04-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 29-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M SITARAM
• Assessee Lawyers: M MADHUSUDAN
• Keywords: Unexplained investment; Capital asset; Additional evidence; Cost of acquisition; Fair market value; Corroborative evidences

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 779/HYD/2014 ASSESSMENT YEAR: 2007-08 INCOME-TAX OFFICER, WARD 8(1), HYDERABAD. VS. SMT. KASA LATHA, HYDERABAD PAN ACNPL 6077F (APPELLANT) (RESPONDENT) REVENUE BY : SHRI M. SITARAM ASSESSEE BY : SHRI M. MADHUSUDAN DATE OF HEARING 19-04-2016 DATE OF PRONOUNCEMENT 31-05-2016 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS), VIJAYA WADA, DATED 31/01/2014 FOR AY 2007-08. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE, AN INDIVIDUAL, FILED HER RETURN OF INCOME ON 11/07/200 8 FOR AY 2007-08 DECLARING TOTAL INCOME OF RS. 2,50,330/-, WHICH INC LUDED INCOME FROM LONG TERM CAPITAL GAIN OF RS. 1,82,803/-. THE CAS E WAS SELECTED FOR SCRUTINY UNDER CASS. THE AO DETERMINED THE TAXABLE INCOME AT RS. 39,30,900/- BY MAKING DISALLOWANCE OF COST OF ACQUI SITION OF PROPORTIONATE LAND AREA SOLD DURING THE YEAR AND CO ST OF IMPROVEMENT INCURRED TO THE PROPORTIONATE SALE OF FLATS. 2.1 DURING THE FY 2004-05, THE ASSESSEE HAD ENTERED INTO MEMORANDUM OF UNDERSTANDING WITH M/S SAI VAMSI CONS TRUCTION, 2 ITA NO. 779 /HYD/2014 SMT. KASA LATHA HYDERABAD ON 05/02/2005 FOR THE DEVELOPMENT OF PROP ERTIES OWNED BY HER I.E. PLOT NO. 125, H. NO. 8-3-167/D/125 ADMEAS URING 338 SQ.YDS. AS PER THE AGREEMENT, BOTH THE PARTIES WILL CONSTRU CT RESIDENTIAL FLATS BY CONTRIBUTING EQUAL EXPENDITURE/INVESTMENT. ASSES SEE HAS GOT PROPERTY AT PLOT NO. 124 THROUGH WILL DATED 14/12/1 989 FROM HER FATHER LATE KASA SATYANARAYANA MURTHY VIDE REGISTERED WILL NO. 249/111/89, THE PROPERTY WAS ORIGINALLY PURCHASED BY HER FATHER ON 07/12/1974 FOR A CONSIDERATION OF RS. 1,521/-. ON THE SAID LAND, ASSESSEES MOTHER CONSTRUCTED A HOUSE AFTER TAKING PERMISSION FROM MU NICIPALITY ON 22/10/1990 AND THE CONSTRUCTION WAS COMPLETED IN TH E YEAR 1993. HER MOTHER ALSO DIED ON 24/07/2000. THE SAID PROPERTY WAS INHERITED BY THE ASSESSEE ON 11/10/2002. LATER, ASSESSEE TOOK A LOAN OF RS. 5 LAKHS TO CARRY OUT ADDITIONAL CONSTRUCTIONS AND REP AIRING OF THE EXISTING STRUCTURES SO AS TO ENHANCE THE LIFE OF TH E BUILDING. THE ASSESSEE HAS DEMOLISHED THE ABOVE PROPERTY BEFORE E NTERING INTO MEMORANDUM OF UNDERSTANDING WITH M/S SAI VAMSI CONS TRUCTIONS, HYDERABAD. AS PER THE MOU, ASSESSEE HAS CONSTRUCTED HER SHARE OF FIVE FLATS EACH MEASURING 2020 SQ.FT. OF FLATS INCL UDING COMMON AREA. THE SAID FLATS WERE IDENTIFIED AS 101, 201, 301, 40 1 AND 501. DURING THE CURRENT AY 2007-08, ASSESSEE HAS SOLD AND REGIS TERED TWO FLATS OUT OF HER SHARE AT THE STAGE OF SEMI FINISHED I.E. FLAT NOS. 101 AND 401IN VISISTA ADMEASURING 2020 SQ.FT. EACH AND CA R PARKING ALONG WITH UNDIVIDED SHARE OF LAND OF 60 SQ.YDS. OF EACH FLAT AS PER THE SALE DEED SUBMITTED BEFORE THE AO. 2.2 ASSESSEE HAS FILED RETURN OF INCOME CLAIMING RS . 3,60,000/- AS COST OF ACQUISITION IN FY 2000-01, WHICH IS INDEXED AT RS. 4,60,197/-. AO DISALLOWED TO THE EXTENT OF RS. 3,68,070/- BY OB SERVING THAT AT THE TIME OF CONSTRUCTION, ASSESSEE HAD ONLY VACANT LAND FOR CONSTRUCTION. AS PER THE SECTION 55(2) OF THE IT ACT, ASSESSEE MU ST HAVE ADOPTED FAIR MARKET VALUE (FMV) AS ON 01/04/1981 IN RESPECT OF CAPITAL ASSET, WHICH IS TRANSFERRED BY HER FATHER UNDER WILL, THE SAID PROPERTY WAS ACQUIRED BEFORE 01/04/1981. AS PER THE PROVISIONS O F SECTION 49(1), 3 ITA NO. 779 /HYD/2014 SMT. KASA LATHA THE COST OF THE PREVIOUS OWNER IS DEEMED TO BE THE COST OF ACQUISITION TO THE ASSESSEE. ASSESSEE SHOULD HAVE ADOPTED SRO V ALUE AS ON 01/04/1981. SINCE ASSESSEE HAS NOT ADOPTED THIS VAL UATION, AO ADOPTED ADHOC VALUE OF RS. 50,000/- TO THE ENTIRE C OST OF LAND AS ON 01/04/1981 IN THE INTEREST OF REVENUE. AO HAS ESTIM ATED RS. 17,751/- AS THE COST OF LAND WHICH PERTAINS TO THE TWO FLATS . 2.3. THE ASSESSING OFFICER HAS ALSO FOUND FROM THE COMPUTATION OF CAPITAL GAINS THAT THE APPELLANT HAS INCURRED EXPEN DITURE OF RS.25,25,000/- FOR THE CONSTRUCTION OF FLATS BEARIN G NOS.101 AND 401 SOLD DURING THE YEAR. WHEN THE AO HAS ASKED ABOUT T HE SOURCES OF THE IMPROVEMENTS CLAIMED BY THE APPELLANT, IT WAS S UBMITTED THAT THE SAME WERE BORNE OUT THE SALE PROCEEDS OF FLAT NOS.1 01 AND 401. THE ASSESSING OFFICER OBSERVED THAT THE APPELLANT HAS E XPLAINED THE SOURCES TO THE EXTENT OF RS.30 LAKHS FOR THE YEAR U NDER CONSIDERATION. HOWEVER, THE APPELLANT HAS NOT EXPLAINED THE SOURCE S FOR INVESTMENT IN THE CONSTRUCTION OF ALL THE FLATS AS THE SAME AR E ALSO UNDERTAKEN DURING THE YEAR. THE ASSESSING OFFICER HAS THEREFOR E HELD THAT AS THE APPELLANT COULD NOT EXPLAIN THE SUFFICIENT SOURCES AND DETAILS ALONG WITH SUPPORTING EVIDENCE FOR THE INVESTMENT IN THE SHAPE OF CONSTRUCTION OF RESIDENTIAL FLATS, THE TOTAL EXPEND ITURE/IMPROVEMENTS HAVE BEEN ARRIVED BY THE ASSESSING OFFICER AT RS.25 ,25,000/- FOR 2 FLATS AND RS.37,87,500/- FOR 3 FLATS. ACCORDINGLY, THE ASSESSING OFFICER DETERMINED THE TOTAL INVESTMENT IN CONSTRUCTION OF 5 FLATS BY THE APPELLANT AT RS.63,12,500/-. HOWEVER, AS THE APPELL ANT HAS EXPLAINED THE SOURCES TO, THE EXTENT OF RS.30 LAKHS, THE ASSE SSING OFFICER HAS BROUGHT TO TAX THE REMAINING AMOUNT OF INVESTMENT O F RS.33,12,500/- AS UNEXPLAINED U/S.69 OF THE ACT. 3. AGGRIEVED WITH THE ABOVE ORDER, THE ASSESSEE PRE FERRED AN APPEAL BEFORE THE CIT(A). 4 ITA NO. 779 /HYD/2014 SMT. KASA LATHA 4. BEFORE THE CIT(A), THE ASSESSEE FILED ADDITIONAL EVIDENCES IN SUPPORT OF HER CLAIM AND FILED WRITTEN SUBMISSIONS, WHICH WERE EXTRACTED BY THE CIT(A) FROM PAGES 3 TO 5 OF HIS OR DER. THE ADDITIONAL EVIDENCES ALONG WITH THE WRITTEN SUBMISSIONS WERE S ENT TO THE AO BY THE CIT(A) CALLING FOR A REPORT ON THE SAME AFTER M AKING NECESSARY ENQUIRIES/VERIFICATION. THE AO SUBMITTED HIS REMAND REPORT, WHICH WAS EXTRACTED BY THE CIT(A) AT PAGES 5 TO 7 OF HIS ORDE R. 5. THE CIT(A) AFTER CONSIDERING THE ADDITIONAL EVID ENCES, WRITTEN SUBMISSIONS OF THE ASSESSEE AND REMAND REPORT OF TH E AO DELETED THE ADDITIONS MADE BY THE AO BY OBSERVING AS UNDER: 7.1. THE FIRST ISSUE PERTAINS TO THE COST OF ACQUIS ITION DETERMINED FOR THE PURPOSES OF COMPUTING CAPITAL GAINS ON SALE OF PROPORTIONATE UNDIVIDED SHARE OF LAND ALONG WITH FL AT NOS.1 01 AND 401. THE ASSESSING OFFICER OBSERVED THAT THE AP PELLANT COULD NOT SUBMIT THE BASIS OF TAKING THE LAND COST IN THE F.Y.2000-01 AND BY APPLYING THE PROVISIONS OF SECTION 55(2) OF THE ACT, TAKEN THE COST OF ACQUISITION BEING THE FAIR MARKET VALUE AS ON 01.04.1981. ON THE OTHER HAND, THE APPELLANT CONTEN DS THAT A BUILDING WAS CONSTRUCTED ON THE SAID LAND AND THE E XPENSES INCURRED TOWARDS THE SAID BUILDING SHOULD ALSO BE T AKEN INTO ACCOUNT FOR ARRIVING COST OF ACQUISITION. ON A PERU SAL OF THE DETAILS FILED BY THE APPELLANT, IT IS FOUND THAT TH ERE WAS A BUILDING IN' EXISTENCE ON THE SAID LAND AS IS EVIDENCED FROM THE PERMISSIONS TAKEN BY THE APPELLANT'S MOTHER FROM TH E MUNICIPAL. AUTHORITIES FOR CONSTRUCTION OF HOUSE, TAKING LOAN FROM M/S.CAN FIN HOMES LTD., COPIES OF INVITATION CARD REGARDING GRUHA PRAVESHAM, PHOTOS OF THE HOUSE, LOAN TAKEN BY THE A PPELLANT FROM ORIENTAL BANK OF COMMERCE FOR ADDITIONAL CONST RUCTION ETC. THESE EVIDENCES PRODUCED BY THE APPELLANT CANNOT BE RULED OUT THAT THERE IS NO BUILDING CONSTRUCTED ON THE SO CAL LED PLOT OF LAND. THE ASSESSING OFFICER FURTHER IN THE REMAND REPORT HAS ALSO ACCEPTED THE CONTENTIONS OF THE APPELLANT PRIMA FAC IE. HENCE, I AM OF THE OPINION THAT THE ASSESSING OFFICER IS NOT JUSTIFIED IN STATING THAT THE OPEN PLOT REMAINED AS OPEN PLOT WH ILE CONSTRUCTION ACTIVITY OF THE FLATS WAS TAKEN PLACE IN VIEW OF THE FACT THAT WHEN CONSTRUCTION OF THE NEW FLATS HAS TO BE TAKEN, THE PREVIOUS STRUCTURE ON THE SAID PLOT OF LAND HAS TO BE DEMOLISHED ANYWAY FOR OBTAINING PERMISSIONS TO CONSTRUCT NEW F LATS. IN VIEW OF THE ABOVE, THE. ASSESSING OFFICER IS DIRECTED TO TAKE INTO ACCOUNT THE COST OF ACQUISITION ARRIVED BY THE APPE LLANT AT RS. 4,60,197/- FOR THE PURPOSES OF COMPUTATION OF CAPI TAL GAINS. 5 ITA NO. 779 /HYD/2014 SMT. KASA LATHA 7.2. THE OTHER ISSUE PERTAINS TO THE ADDITION MADE U/S.69 OF THE ACT OF RS.33,12,500/-. THE ASSESSING OFFICER OBSER VED THAT THE APPELLANT COULD NOT EXPLAIN THE SUFFICIENT SOURCES AND DETAILS WITH SUPPORTING EVIDENCE FOR THE INVESTMENT IN THE, SHAP E OF CONSTRUCTION OF RESIDENTIAL FLATS. THE APPELLANT CO NTENDED THAT APPELLANT HAS NOT CONSTRUCTED ALL THE FLATS IN THE YEAR UNDER CONSIDERATION BUT ONLY 2 FLATS WERE COMPLETED AND T HE REMAINING 3 FLATS WERE UNDER CONSTRUCTION. THE APPELLANT FURT HER CONTENDED THAT OUT OF THE 3 FLATS, 2 FLATS WERE SOLD IN THE N EXT YEAR I.E, ASST. YEAR 2008-09 AND ONE FLAT WAS RETAINED BY THE APPEL LANT HERSELF. ON A PERUSAL OF THE MATERIAL ON RECORD, COPIES OF B ANK STATEMENTS AND FACTS OF THE CASE, THE CONTENTIONS P UT FORTH BY THE APPELLANT ARE ACCEPTABLE IN VIEW OF THE FACT THAT T HE APPELLANT HAS NOT SOLD ALL THE FLATS DURING THE YEAR UNDER CONSID ERATION ONLY AND TO THAT EFFECT SALE DEEDS WERE EXECUTED IN THE NEXT YEAR. IT IS ALSO OBSERVED THAT APPELLANT HAS FILED RETURN OF IN COME FOR THE ASST. YEAR 2008-09 DECLARING CAPITAL GAINS ON THE R EMAINING SALE OF FLATS , WHICH WERE CONSTRUCTION DURING THE ASST. YEAR 2007-08. THEREFORE, AS PER THE ASSESSMENT ORDER, THE IMPROVE MENT/ EXPENDITURE FOR CONSTRUCTION OF 3 FLATS OF RS.37,87 ,500/- ADDITION MADE BY THE A.O. AS UNEXPLAINED INVESTMENT U/S.69 O F THE ACT PERTAINS TO SUBSEQUENT ASST. YEAR I.E. 2008-09 FOR WHICH THE APPELLANT HAS FILED RETURN OF INCOME ALSO. THE ADDI TION MADE ON ACCOUNT OF UNEXPLAINED INVESTMENT MADE BY THE A.O. OF RS.25,25,000/- WERE COVERED BY THE EXPLAINED SOURCE S OF RS.32 LAKHS AS SALE CONSIDERATION OF THE TWO FLATS AS MEN TIONED BY THE A.O. IN THE ASSESSMENT ORDER. THEREFORE, THE ADDITI ON MADE U/S.69 OF THE ACT IN THE YEAR UNDER CONSIDERATION I S HEREBY DELETED. 6. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENU E IS IN APPEAL BEFORE BY RAISING THE FOLLOWING GROUNDS OF APPEAL: I. THE LD. CIT(A) ORDER IS ERRONEOUS AND BAD IN LAW . II. THE LD.CIT(A) ERRED IN ALLOWING THE RELIEF WITH OUT VERIFYING THE SOURCES FOR INVESTMENT IN THE CONSTRUCTION. III. THE LD. CIT(A) ERRED IN TREATING THE ADVANCE A MOUNT RECEIVED FOR FLATS WERE INVESTED BUT IN THE SALE DEED REGIST ERED IN THE F. Y 2006-07 NOWHERE MENTIONED AS ADVANCES GIVEN. IV. THE LD.CIT(A) ERRED IN CONSIDERING THE FACT THA T 90% OF CONSTRUCTION WORK WAS COMPLETED AS ON 31.3.2007 AS PER THE BUILDER STATEMENT, AND SOURCES FOR INVESTMENT WERE CONSIDERED 6 ITA NO. 779 /HYD/2014 SMT. KASA LATHA AS STATED BY THE ASSESSEE I.E., ADVANCE RECEIVED FR OM FLAT PURCHASER WITHOUT ANY BASIS AND PROOF. V. ANY OTHER GROUND AT THE TIME OF HEARING. 7. LD. DR SUBMITTED THAT THE ASSESSEE HAD COMPLETED THE CONSTRUCTION OF THE FLATS IN THE CURRENT AY ITSELF AS THE AO HAD CROSS VERIFIED THE CONSTRUCTION ACTIVITIES WITH THE JOINT DEVELOPER, WHO GAVE THE STATEMENT THAT 90% OF THE CONSTRUCTION ACTIVITI ES WERE ALREADY COMPLETED. AS THE ASSESSEE HAD CONFIRMED THAT THE C ONSTRUCTION COST OF EACH FLAT IS RS. 12,62,500/-, AO HAD CORRECTLY C ALCULATED THE UNDISCLOSED INVESTMENT OF RS. 33,12,500/-. HE ALSO SUBMITTED THAT THE SOURCE FOR THE ABOVE INVESTMENTS WERE NOT PROPERLY EXPLAINED BEFORE THE AO. LD. CIT(A) HAD GIVEN THE RELIEF TO THE ASSE SSEE MERELY BASED ON SUBMISSION RATHER THAN ON ANY EVIDENCE OR FINDIN GS. 8. LD. AR RELIED ON THE ORDER OF CIT(A). 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL FACTS ON RECORD. SINCE REVENUE HAD RAISED GROUNDS ONLY RELATING TO THE UNDISCLOSED INCOME, WE ARE INCLINED TO ADJUDICATE ONLY TO THE GROUNDS OF APPEAL RAISED. THE MAIN ISSUE IS, THE ASSESSEE HAD BUILT THE FIVE FLATS, TWO FLATS WERE SOLD DURING TH E CURRENT AY, TWO FLATS WERE SOLD IN THE SUBSEQUENT AY AND RETAINED ONE FLA T FOR SELF OCCUPATION. AO, BASED ON THE STATEMENT OF JOINT DEV ELOPER, TREATED THE WHOLE BUILDING AS COMPLETE AND READY FOR SALE W HEREAS THE ASSESSEE CONTROVERTED AND SUBMITTED THAT ONLY TWO F LATS WERE COMPLETED AND SOLD. THE BALANCE FLATS WERE NOT COMP LETED, ONLY THE SUPER STRUCTURE OF THE BUILDING WAS COMPLETED WITH THE INTERIOR WORK LIKE FLOORING OF TILES, KITCHEN AND PLASTERING ETC. WERE NOT COMPLETED. AO HAS RELIED ONLY ON THE STATEMENT OF THE JOINT DE VELOPER AND HAS NOT BROUGHT ANYTHING ON RECORD TO PROVE THAT THE BUILDI NG WAS COMPLETED IN AY 2007-08 ITSELF. HENCE, WE HAVE NO OPTION BUT TO RELY ON THE SUBMISSIONS OF THE ASSESSEE. 7 ITA NO. 779 /HYD/2014 SMT. KASA LATHA 10. THE NEXT ISSUE IS TO DETERMINE THE SOURCES OF F UNDS TO THE ABOVE INVESTMENT IN THE BUILDING FOR CONSTRUCTION O F THE FLATS UP TO THE END OF THE FINANCIAL YEAR 31/03/2007. 11. AFTER CONSIDERING THE REMAND REPORT OF AO, SUBS EQUENT SUBMISSIONS OF THE ASSESSEE TO REMAND REPORT AND FI NANCIAL REPORT SUBMITTED BY THE ASSESSEE, WE FIND THAT THE ASSESSE E HAS MADE INVESTMENT IN THE BUILDING TO THE EXTENT OF COST IN VOLVED. COMPLETED TWO FLATS 25,25,000 COMPLETED 50% OF THE THREE FLATS (APPROX.) (ONLY SUPER STRUCTURE) 18,94,000 44,19,000 THE SOURCE FOR THE ABOVE INVESTMENT WAS: A) ADVANCE RECEIVED FROM VEENA SHYAM DURING THE FY 2005-06 12,00,000 B) SALE PROCEEDS DURING THE YEAR 32,00,000 C) ADVANCE RECEIVED FROM CUSTOMERS (AS PER BALANCE SHEET AS ON 31/03/2007) 15,00,000 D) ADVANCE RETURNED TO VEENA SHYAM DURING THE FY 2006-07 (14,50,000) 44,50,000 FROM THE ABOVE, WE CONCLUDE THAT THE ASSESSEE HAD S UFFICIENT FUNDS TO FINANCE THE INVESTMENT IN THE BUILDING. THERE MA Y BE MISMATCH ON THE MICRO LEVEL BUT AT THE OUTSET, IT IS ESTABLISHE D THAT THE ASSESSEE HAD SUFFICIENT FUNDS TO MAKE THE INVESTMENT. 12. BASED ON THE ABOVE FACTS AND CIRCUMSTANCES, WE ARE INCLINED TO DISMISS THE GROUNDS RAISED BY THE REVENUE. 8 ITA NO. 779 /HYD/2014 SMT. KASA LATHA 13. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. PRONOUNCED IN THE OPEN COURT ON 31 ST MAY, 2016. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAHM AN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 31 ST MAY, 2016 KV COPY TO:- 1) ITO, WARD 8(1), 8 TH FLOOR, D BLOCK, IT TOWERS, AC GUARDS, HYDERABAD. 2) SMT. KASA LATHA, PLOT NO. 89, H.NO. 8-3-167/D/1, SK VILLA, PHASE 1, KALYAN NAGAR, HYDERABAD 3 CIT(A), VIJAYAWADA 4) CIT-II, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.