ITAT Upholds CIT(A) Decision on Deletion of Income Tax Addition for Unexplained Investment

ITO Vs Jakshibhai Dahyabhai Bharvad (ITAT Ahmedabad)

Introduction: In the case of ITO vs Jakshibhai Dahyabhai Bharvad, the Income Tax Appellate Tribunal (ITAT) Ahmedabad upheld the Commissioner of Income-Tax (Appeals), Gandhinagar’s order concerning the deletion of income tax addition due to unexplained investment in properties. The case was for the Assessment Year 2012-13, and it revolved around the issue of unexplained source of investment and short-term capital gains. This article aims to dissect the key aspects of the judgment and its implications.

The Background: The Revenue filed an appeal against the CIT(A) order, which allowed some relief to the assessee on account of unexplained investment and short-term capital gain. The assessment was framed under section 147 of the Income Tax Act, 1961, and the CIT(A) had provided relief on two counts, totaling around Rs. 1.66 Crores.

Issues Raised by the Revenue: The primary issues raised by the Revenue pertained to the deletion of the addition of Rs.49,25,127/- made on account of unexplained investment for the purchase of immovable property, and Rs.1,17,27,587/- made on account of Short Term Capital Gain.

CIT(A)’s Observations and Actions: The CIT(A) scrutinized the available evidence and noted that some of the additions made by the Assessing Officer (AO) lacked proper documentation and basis. Therefore, he adjusted the amount based on evidences presented, thereby reducing the assessee’s tax liability.

The Unexplained Investments: CIT(A) ruled that the unexplained investment in one of the lands was without any basis. This decision led to a reduction of Rs. 49,25,127/- in the tax liability of the assessee. The addition was restricted to Rs.1,95,52,180/-.

Short Term Capital Gains: On this issue, CIT(A) found that the short-term capital gain assessed by the AO was inflated. As a result, the short-term capital gain was revised to Rs. 2,73,44,720/-, granting a relief of Rs.1,17,27,587/- to the assessee.

ITAT Ahmedabad’s Ruling

The tribunal reviewed the case and upheld the CIT(A)’s order. It validated the adjustments made on the unexplained investments and short-term capital gains, emphasizing that the AO had failed to provide adequate evidence against the assessee.

Implications of the Ruling: The decision has significant implications for future cases where the Revenue challenges the CIT(A)’s decisions. It reinforces the importance of proper documentation and valid reasoning for income tax additions.

Conclusion: The ITAT Ahmedabad’s ruling in the case of ITO vs Jakshibhai Dahyabhai Bharvad underlines the importance of well-founded assessments and thorough judicial scrutiny. It also underscores the necessity for the Revenue to produce proper documents and evidence when questioning the decisions made by the CIT(A). This case serves as a vital reference for understanding the dynamics of income tax additions concerning unexplained investments and short-term capital gains.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

The present appeal has been filed by the Revenue against order passed by the Ld.Commissioner of Income-Tax(A), Gandhinagar, Ahmedabad (hereinafter referred to as “ld.CIT” dated 24.09.2019 under section 250(6) of the Income Tax Act, 1961 (“the Act” for short) pertaining to Assessment Year 2012-13.

2. None appeared on behalf of the assessee-respondent despite service of notice. We find from the order-sheet that the assessee has not put his presence throughout the hearing since the institution of the appeal in 2019 and therefore, we proceed to dispose of the appeal of the Revenue ex-parte assessee-respondent after hearing the ld.DR and considering the material available on record.

3. As transpires from the order of the authorities below, assessment in the case of the assessee for the impugned year was framed under section 147 of the Act and addition made to his income on account of unexplained source of investment in land amounting to Rs.2,44,77,373/- and on account of short term capital gain earned on sale of this land amounting to Rs.3,90,72,307/-resulting in addition of Rs.6,35,49,680/- being made to the income of the assessment. The impugned assessment was framed ex parte under section 147 of the Act.

4. The assessee went in appeal before the ld.CIT(A), where he explained reasons for not appearing in the assessment proceedings, and further he filed evidence revealing the amount of investment made in the properties and also tried to explain the source of the same. The ld.CIT(A) forwarded all evidences to the AO for his comment, and after receiving counter comments of the assessee on the report of the AO, he proceeded to decide the issue in hand. He noted that the assessee had furnished all evidences for purchase of properties and taking note the value mentioned therein, he computed unexplained investment made by the assessee for the same. He noted, one of the properties alleged by the AO to have invested by the assessee, was without any basis and accordingly, he deleted the addition made on account of the same, and in the result, the addition made by the AO on account of unexplained investment of Rs.2,44,77,373/- was restricted by the ld.CIT(A) to Rs.1,95,52,180/-; thus giving a relief of Rs.49,25,127/-, based on the purchase price so found by the ld.CIT(A) of the impugned properties, he took the same for determining short term capital gain earned by the assessee from the sale of properties, and arrived accordingly at short term capital gain of Rs.2,73,44,720/- as opposed to Rs.3,90,72,307/- assessed by the AO, thus, resulting in relief of Rs.1,17,27,587/- to the assessee on account of addition made to his income of short term capital gain.

5. Aggrieved by this relief granted by the ld.CIT(A) on the two additions of unexplained investment and short term capital gain, the Revenue has come in appeal before us raising the following grounds:

“A. Assessment u/s.144 rws 147 of the Act was finalized on 26.12.2016 assessing income at Rs. 6,35,49,680/-.

B. The A.O. made an addition of Rs.2,44,77,373/- on account of unexplained investments by invoking the provisions of section 69 of the Act. The CIT(A) gave relief of Rs.49,25,127/-.

C. The A.O. made an addition on account of re-worked short term capital gains on sale of land of Rs.3,90,72,307/-. The CIT(A) Gandhinagar gave relief of Rs.1,17,27,587/-.

D. The Ld. Commissioner of Income-Tax (appeals) has erred in law and on facts in deleting the addition of Rs.49,25,127/- out of total addition of Rs.2,44,77,373/- made on account of unexplained investment for purchase of immovable property.

E. The Ld. Commissioner of Income-Tax (appeals) has erred in law and on facts deleting the addition of Rs.1,17,27,587/- out of total addition of Rs.3,90,72,307/- made on account of Short Term Capital Gain.”

6. Ground D & E, we have noted are the only relevant grounds raised by the Revenue which need to be adjudicated. The other grounds, A-C merely narrate the facts of the case and raise no grievance. Ground A-C, therefore, are not being dealt with by us.

7. We have gone through the order of the ld.CIT(A) and the AO and heard the ld.DR.

The properties in relation to which the AO had computed unexplained investments were as under:

i) Land at Survey No.198/3

ii) Land at Sruvey No.199/1

iii) Land at Survey No.199/3

iv) Land at Survey No.201/1

v) Land at Survey No.201/2.

8. The AO had arrived at the figure of investment made by the assessee in the said property at Rs.2,44,77,373/-. His basis being that with respect to the land at survey No.198/3, 201/1, he had information from the Sub-Registrar, Gandhinagar regarding the cost at which they were purchased along with stamp duty and registration fees paid for the same. With regard to land at Survey No.199/1 and 199/3, he had no such information, but noting that they were adjacent to survey no.198/3, he estimated cost of land for Survey No.199/1 and 199/3 on the basis of cost of land No.198/3.

With respect to the land at survey no.1/2, the AO in his order mentions that he had information that the land was purchased for a consideration of Rs.1 crore, and further expenditure on account of stamp duty of Rs.12,46,500/- and registration fee of Rs.1,00,200/-was incurred on the same.

Thus, total value of the investment made in the aforesaid five pieces of land was arrived at Rs.2,44,77,373/- as under:

9. The ld.CIT(A)’s order reveals that the assessee submitted purchase deeds relating to first four pieces of properties. With respect to the land at Survey No.1/2, the assessee contended that he had never purchased any such land and ld.CIT(A) noting that even the AO had given no basis and information on the basis of which he treated the land as purchased for Rs.1,13,46,700/-, and further noting that even in the reasons recorded by the AO for reopening only the four pieces of land were mentioned, and it did not reflect investment of Rs.1.13 crores, therefore, he held that this addition of Rs.1,13,46,700/- was wrongly made by the AO. Taking cost of four lands purchased by the assessee from the documents submitted by him, and noting that these land had been converted into non-agricultural land after paying premium of Rs.53,54,100/-, he computed actual investment made by the assessee in the lands at Rs.1,95,52,180/- as under:

10. His finding, noting the purchase cost of all piece of land from the registered sale deed, and thereafter arriving at the cost of investment of Rs.1.95 crores, is at para 5.3 to 5.5 of the order. Further, his finding in relation to the land at Survey No.1/2 whose value the AO taken at Rs.1.13 crores, and which the ld.CIT(A) deleted, noting that there was no information with the AO regarding this land, is at para 5.6 of the order.

11. Before us, the grievance of the Revenue is, with respect to substituting the purchase cost of land taken by the AO with respect to four piece of land with that shown by the assessee adding to it NA premium paid by the assessee and further deleting the addition made by the AO on account of one piece of land i.e. survey no.1/2 of Rs.1.13 crores.

With respect to factual finding of the ld.CIT(A) relating to the cost of purchase of 4 pieces of land, gathered from the registered sale deed of the said land, furnished by the assessee to the ld.CIT(A), we find they were verified by the AO in remand proceedings.He had no adverse comments to make with respect to the same, and even before us, the ld.DR was unable controvert the factual finding of the ld.CIT(A) in this behalf. There remains, therefore, we hold, no grievance of the Revenue with respect to the cost of four pieces of land taken at the consideration mentioned in the sale deeds by the Ld.CIT(A).

12. With respect to the NA premium of Rs.53,54,100/- added to the cost of investment, the ld.CIT(A), we have noted, has given a finding that, even the sale deed of these land mentioned conversion of agriculture land to non-NA land the assessee having claimed to incur cost of Rs.53,54,100/- towards the same, he added the same to the cost of investment.

The ld.DR was unable to convert this finding of the ld.CIT(A). Therefore, with regard to cost of purchase of four pieces of land taken by the ld.CIT(A) at Rs.1,95,52,180/-, the ld.DR being unable to controvert the factual finding of the ld.CIT(A), we see no reason to interfere in the order of the ld.CIT(A).

13. With respect to the deletion of addition, on account of one piece of land i.e. survey no.1/2, the ld.CIT(A) has noted that there was no information with the AO with respect to the said piece of land; that even in the reasons recorded by the AO for reopening the case of the assessee, this land was not mentioned as investment made by the assessee, and even the assessee had claimed to have made no investment in this piece of land.

The ld.DR was unable to demonstrate before us by way of documents or evidence, as to the basis with the AO for treating the assessee to have invested inthis piece of land i.e. survey no.1/2. In view of the same, we see no reason to interfere in the order of the ld.CIT(A) deleting the addition made on account of unexplained investment in the impugned land to the tune of Rs.1.13 crores.

14. In view of the above, we uphold order of the ld.CIT(A) treating unexplained investment made by the assessee in the land relating to only 4 piece of land to the tune of Rs.1,95,52,180/- as opposed to the addition made by the AO in relation to five piece of land to the tune of Rs.2,44,77,073/-.

The ground no. D raised by the Revenue, is thus, rejected.

15. Coming to the next grievance of the Revenue, the same emanates from the issue of cost of investment, treated as unexplained, in the 4 piece of lands dealt with by us above. The assessee was found to have sold the 4 pieces of land during the impugned year for a consideration of Rs.5,22,51,000/-. Since the AO had worked out the cost of acquisition of these four pieces of land at Rs.1,31,30,673/-, he arrived at a figure of short term capital gain of Rs.3,90,72,307/-. The CIT(A) however found the cost of acquisition of the said lands to be Rs.1,95,52,180/- and accordingly short term capital gain was reduced to Rs.2,73,44,720/-. It is, this reduction in short term capital gain earned by the assessee, on account of enhanced amount of investment found to have been made in the four pieces of land, by the Ld.CIT(A), which is in challenge before us.

16. Since, we have held in ground no.1 above that the ld.CIT(A) has rightly computed the cost of investment made by the assessee in four pieces of land at Rs.1,95,52,180/-, as a corollary the short term capital gain computed calls for no interference at our end.

In view of the same, we see no reason to interfere in the order of the ld.CIT(A) reducing the quantum of short term capital gain earned by the assessee to Rs.2,73,44,720/- from Rs.3,90,72,307/-computed by the AO.

Ground No.E of the Revenue is dismissed.

17. In the result, the appeal of the Revenue is dismissed.