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2025 (5) TMI 437 - AT - Income TaxAddition u/s 50C - difference between the declared sale consideration and the value assessable for the levy of stamp duty of the immovable property above mentioned without being referring the matter to the Ld. DVO - HELD THAT - Powers of the CIT(A) are co-terminus with the powers of the AO. Merely because the assessee could not make compliance before the AO and no such request was made before the AO it does not mean that the opportunity available to the assessee under the provisions of the Act should be denied. As per the provisions of Section 50C(2) of the Act if the assessee claims before the AO that the value adopted or assessed by the stamp valuation authority exceeded the fair market value of the property as on the date of transfer then the AO was required to refer the valuation of the capital asset to the Valuation Officer. Such request was made by the assessee before the AO in the course of remand proceeding. In view of these facts we are of the considered opinion that the matter is required to be set aside to the file of the AO with a direction to refer the matter to the Valuation Officer for determining the Fair Market Value of the property and thereafter re-work the disallowance under Section 50Con the basis of his report. The ground taken by the assessee is allowed for statistical purpose. Applying profit percentage on the cash deposits in the bank account - AR submitted that the profit percentage of 3% as applied by the Ld. CIT(A) was excessive and that it should be reduced to 2.5% - HELD THAT - AO had summited that the assessee did not produce the books of account related to his tour and travel business business. In view of this fact the income disclosed by the assessee at the rate of 2.5% of the turnover was found not reliable and therefore the Ld. CIT(A) had directed to consider the income at the rate of 3% of the cash deposits. Assessee had himself admitted that he was earning commission at the rate of 2 to 3% of the turnover and that no books of account were produced in support of profit arrived @ 2.5% of the turnover the income as estimated by the Ld. CIT(A) @ 3% of the cash deposits was reasonable. We do not find any reason to interfere with the order of the Ld. CIT(A) on this issue. Therefore the ground taken by the assessee is dismissed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal in these appeals are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 2: Valuation of Immovable Property and Application of Section 50C Relevant Legal Framework and Precedents: Section 50C of the Income Tax Act mandates that if the sale consideration declared in the sale deed for an immovable property is less than the value adopted or assessed by the stamp valuation authority, then the value adopted by the stamp authority shall be deemed to be the full value of consideration for computing capital gains. However, subsection (2) of Section 50C provides that if the assessee claims that the stamp duty value exceeds the fair market value (FMV) of the property as on the date of transfer, the AO is required to refer the valuation to the Valuation Officer (DVO) to determine the FMV. Court's Interpretation and Reasoning: The Tribunal noted that the assessee did not make any submission or request before the AO for referring the matter to the DVO during the original assessment proceedings. However, before the CIT(A), the assessee raised this contention and requested a reference to the DVO. The CIT(A) rejected this request on the ground that no such request was made before the AO. The Tribunal disagreed with this approach, holding that the powers of the CIT(A) are co-terminus with those of the AO. It emphasized that the assessee had furnished additional evidence before the CIT(A), which was forwarded to the AO for comments, effectively making the request known to the AO during remand proceedings. Key Evidence and Findings: The Tribunal observed that the stamp duty value was Rs. 1,82,04,081/- whereas the sale consideration declared was Rs. 91,00,000/-. The difference of Rs. 30,34,694/- (one-third share) was added as income under Section 50C. The assessee challenged this addition, claiming the stamp duty value was not reflective of FMV and requested a DVO valuation. Application of Law to Facts: The Tribunal found that since the assessee had made the request before the CIT(A) and additional evidence was filed, the CIT(A) should have exercised the power to refer the valuation to the DVO. The Tribunal held that merely because the request was not made before the AO initially, it should not result in denial of the assessee's opportunity to have the valuation independently determined. Treatment of Competing Arguments: The Revenue argued that since the request was not made before the AO, the CIT(A) was justified in rejecting it. The Tribunal rejected this, holding that the remand process and filing of additional evidence effectively brought the issue before the AO, and the CIT(A) had concurrent powers. Conclusions: The Tribunal set aside the matter to the file of the AO with a direction to refer the valuation of the property to the Valuation Officer to determine the FMV and thereafter recompute the addition under Section 50C based on the DVO's report. The ground was allowed for statistical purposes. Issue 3 & 4: Estimation of Income on Cash Deposits under Section 69A Relevant Legal Framework and Precedents: Section 69A of the Income Tax Act deals with unexplained money, investments, or expenditure. Where the assessee fails to satisfactorily account for cash deposits, the AO may treat such unexplained money as income. The AO may estimate income by applying a profit percentage to the unexplained cash deposits, especially in absence of books of accounts or reliable evidence. Court's Interpretation and Reasoning: The AO treated the entire cash deposit of Rs. 57,85,000/- for A.Y. 2011-12 as unexplained income. Subsequently, after a remand and reassessment pursuant to an order under Section 263, the AO applied a net profit rate of 3% to quantify income on additional cash deposits. The CIT(A) restricted the addition to 3% of the cash deposits. The assessee contended that the profit percentage should be 2.5%, as claimed in his books, but failed to produce books of account or reliable evidence to support this. Key Evidence and Findings: The assessee admitted earning commission at the rate of 2 to 3% of turnover but did not produce books of account related to the tour and travel business. The AO found the 2.5% profit rate claimed by the assessee unreliable. Application of Law to Facts: The Tribunal held that in absence of reliable evidence supporting the lower profit rate, the AO and CIT(A) were justified in applying a 3% profit rate on the unexplained cash deposits to estimate income. This was consistent with the profit margin admitted by the assessee and the need for a reasonable estimate in absence of books. Treatment of Competing Arguments: The assessee argued for a 2.5% rate based on his own claim, while the Revenue supported the 3% rate as reasonable and consistent with admissions. The Tribunal sided with the Revenue due to lack of documentary support from the assessee. Conclusions: The Tribunal upheld the application of 3% profit rate on cash deposits for income estimation under Section 69A and dismissed the ground taken by the assessee. Issue 5: Treatment of Entire Cash Deposits as Income versus Considering Withdrawals Relevant Legal Framework and Precedents: The principle in assessing unexplained cash deposits is to consider net unexplained money after accounting for withdrawals and legitimate payments, rather than gross deposits alone. Court's Interpretation and Reasoning: For A.Y. 2010-11, the AO treated entire cash deposits of Rs. 2,61,68,000/- as unexplained income under Section 69A, which was upheld by the CIT(A). The assessee argued that withdrawals and payments from the bank accounts should be considered to arrive at net addition, not the entire deposits. Key Evidence and Findings: The Tribunal noted that the facts regarding cash deposits and unexplained income were identical for A.Y. 2011-12, where the income was estimated applying a net profit rate of 3% on deposits. The Tribunal found no reason to treat the entire deposits as income in this year without applying a similar approach. Application of Law to Facts: The Tribunal directed the Revenue to compute income from cash deposits for A.Y. 2010-11 by applying the net profit rate of 3%, as done for A.Y. 2011-12, rather than treating entire deposits as income. This approach reflects a more reasonable estimation consistent with the facts and earlier findings. Treatment of Competing Arguments: The Revenue supported the addition of entire deposits as income, while the assessee sought a limited addition based on net profit percentage. The Tribunal favored the latter approach for consistency and fairness. Conclusions: The Tribunal partly allowed the appeal for A.Y. 2010-11, directing computation of income on cash deposits by applying a net profit rate of 3%, thereby reducing the addition from the entire deposits. Opportunity of Hearing Post Remand Report (Ground Not Pressed) The assessee's ground alleging denial of opportunity of hearing after remand report was not pressed at the hearing and was accordingly dismissed. 3. SIGNIFICANT HOLDINGS "Merely because the assessee could not make compliance before the Assessing Officer and no such request was made before the Assessing Officer, it does not mean that the opportunity available to the assessee under the provisions of the Act should be denied." "The powers of the Commissioner of Income Tax (Appeals) are co-terminus with the powers of the Assessing Officer." "In absence of reliable evidence supporting the lower profit rate claimed by the assessee, the income as estimated by the CIT(A) at 3% of the cash deposits is reasonable." "Considering the fact that the facts of cash deposits in the bank account for the A.Y. 2010-11 and 2011-12 are identical, the Revenue is directed to work out the income from cash deposits by applying net profit rate of 3%, as adopted by the Revenue itself in A.Y. 2011-12." The Tribunal ultimately allowed the appeal in part for the issue of valuation under Section 50C by directing a reference to the Valuation Officer for determination of FMV, upheld the application of 3% profit rate on unexplained cash deposits under Section 69A, and directed consistent treatment of cash deposits for both years by applying the 3% profit rate rather than treating entire deposits as income.
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