TMI Blog2020 (10) TMI 1190X X X X Extracts X X X X X X X X Extracts X X X X ..... bbished. Coming back to our earlier observation of the Builder having in fact, rather than confirming, refuted the assessee s stand as to the payment thereto being toward cost of improvement. To clarify matters, there was in fact no enquiry by the AO with the Builder. AO notes a complete variance in the stands of the two sides, the assessee and the builder, and yet chooses to ignore the same, stating (in the ON) the same to be rather a reason for re-examination in the case of the Builder. The same is incomprehensible as, firstly, it is his prime duty to consider the validity of the claims of the assessee wholly un-evidenced and, two, the avoidance of tax, if any, is, as would be apparent from the foregoing, in the assessee s case. Assessee has reported receipt of ₹ 45 lacs by cheque/s, as against ₹ 40 lacs stated by the Builder, toward cash component of the consideration on transfer of land. But, then, the same would stand to be confirmed with reference to the latters books and, where accounted, as it, being by cheque/s, would presumably be, does not result in/lead to any loss of revenue. As such, the AO seeking, on the contrary, a re-examination of the Buil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowed by transfer, provide 46 flats and 4 duplexes in the said residential complex to the assessee without any additional cost , i.e., besides an upfront payment of ₹ 50 lacs. Of the same, 12 flats and 4 duplexes were received by the assessee during the relevant previous year, and the balance flats during the following two years, i.e., at 19 and 15 for AYs. 2010-11 and 2011-12 respectively. The assessee returned a capital gain of ₹ 72 lacs in response to the notice u/s. 153A(1) r/w s. 153C, against which ₹ 30 lacs was claimed as cost of improvement u/s. 48 towards marble flooring (in bed rooms) and granite platforms in the kitchen. It is the allowance of this claim, alleged to be without proper enquiry by the Assessing Officer (AO) in assessment, which constitutes the principal objection by the Pr. CIT in exercise of his revisionary power u/s. 263 of the Act. The second objection by him is that the AO had not insisted on the production of sale deeds in respect of the seven (of the twelve received) flats sold by the assessee during the year, and examine the same toward verification of the stated sale values. He, accordingly, directed the AO to pass a suitable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd kitchen respectively, so that the claim becomes suspect. This is more so in the absence of any agreement or MOU between the parties toward the stated modification. In any case, it is only the difference, i.e., between the cost of the material which was initially agreed to be provided, and the material subsequently provided, i.e., at the assessee s instance, that would have to be allowed. As regards the sale deeds, there is nothing to evidence their production before the AO, much less their examination by him. 4. We have heard the parties and have perused the material on record. Status of Inquiry 4.1 Our first observation in the matter is a complete opaqueness as to what transpired during the assessment proceedings in respect of the assessee s claim for cost of improvement for ₹ 30 lacs. Notice u/s. 142(1) was issued on 16.3.2015 for 20.3.2015. The same, even as the captioned subject mentions only AY 2011-12, is for all the years inasmuch as the queries raised were common for all the years. Reply thereto, presumably furnished, has, very strangely, not been placed on record. There is, in fact, no query in respect of the cost of improvement in the said notice . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of the Builder and, besides, as apparent, a change in the profile of the labour work, the Builder might well have raised a charge in its respect, if not toward its margin as well. In any case, all this could not be, firstly, without specifics (and, further, agreed to between the parties) and, secondly, wholly undocumented , as is strangely the case. Even if, as it appears, a lump sum figure (of ₹ 30 lacs) was finally agreed upon, the same would only be on the basis of some underlying data or estimates, albeit informed wholly absent , as indeed is any evidence as to the same being agreed upon. Why, the modification itself cannot be carried out in the absence of these, basic details . The agreement itself is no mean task, involve as it does a number of imponderables and parameters, and which explains our stating of the lack, nay, a complete absence of any material evidencing the same, as strange. The marble and granite to be used instead, would have to be specified by the assessee. Given the wide variety available in the market, with further their rates subject to constant change, this specification is itself remarkable. Only one with a considerable knowledge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out the modification, where required to, furnish the necessary details, including evidence as to the cost incurred. This in fact was the assessee s argument before us, put forth by it s counsel, Sh. Purohit, in response to the Revenue s argument of the cost claimed being wholly unsubstantiated. The cost, he would aver, having been in fact incurred by the Builder, only it would be in possession of the relevant vouchers, so that the same could not be expected to be furnished by the assessee. In other words, no adverse inference could be, under the circumstances, drawn from the assessee s failure to furnish the said evidence. True, but then, what, in its stead, is the evidence/s led by the assessee? The basis of the assessee s claim is the agreement arrived at between him and the Builder, so that the same is the minimum that the assessee, given his stand, was expected to produce in evidencing his claim qua the cost of improvement. And which could, as indicated earlier, where deemed proper, as it ought to have been, cross verified by the Revenue, including the incurring of the additional cost and booking of the revenue there-against by the Builder. The absence of the agreement, vita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are inspected and, further, compared with others (so that the same would also require being inspected), finding a difference between the flooring (in the rooms) and quality of the granite used (in the kitchen) in one set of apartments vis-a-vis the other, that the report would be valid, and in satisfaction of the purpose it sets out to attain, i.e., verify the stated modification having been carried out in the residential units delivered to the assessee. Even here, the inspection being carried out in March, 2015, i.e., years later, by which time all the flats would have been, as indeed stated, sold by the assessee, it might well be that the modification observed had been carried out by the present owners (or if different from the person/s to whom the assessee sold the same, even the previous owners). As such, factors such as enquiry with the owners regarding the flooring, etc., and, equally, the nature and uniformity of the difference between the two sets of flats/duplexes, etc. would only complete the enquiry, establishing, completely missing , whether the stated modification was actually carried out and, if so, at the assessee s instance, justifying payment of additional sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dispute in the family of land owners, stay was by the court of law. Therefore t he balance of ₹ 10,00,000 [₹ 50 lacs less ₹ 40 lacs] as originally agreed upon by the firm and land owners, was not given. Instead (the) firm demanded compensation for stoppage of work . The land owners paid the compensation for delay of work by Chq. No. 008285 dated 16.07.2007 for ₹ 30,00,000/-. The compensation received was transferred to P L a/c as misc. income. Copy of ledger for payment made and received to Amar Singh Choudhary is attached. (emphasis, ours) The Builder, thus, claims to have: (a)withheld the payment of the outstanding amount of ₹ 10 lacs out of the cash component of the consideration, i.e., ₹ 50 lacs; and (b) received, instead, another sum of ₹ 30 lacs from the assessee (vide Cheque No.008285, dated 16.7.2007), by way of compensation for stoppage of work, stated to be on account of a dispute in the family of the land owners. Shri Purohit, on being required to explain this anomaly during hearing; there being inexplicably no whisper of any such dispute or compensation by the assessee, would submit that it is one man s word agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compensation demanded by the Builder, and settled, thus, at ₹ 40 lacs. Further, was there a dispute in the family of the land owners, as stated by the Builder, or is the same a figment of its imagination? Why, and on what basis does it state so? Did the matter travel to the court, with it granting stay, resulting in stoppage of work? If so, from when to when? Was any compensation demanded? When and how? Was it paid? When and how? Again, the Builder having admittedly received the sum of ₹ 30 lacs or, as the case may be, ₹ 40 lacs, so that there is no outstanding claim by any party against the other, why would the Builder not state the truth? Rather, substitution of material, i.e., as per the assessee s version, would enable it to set off the additional cost of material (as well as in fact of additional labour) against the additional receipt of ₹ 30 lacs, while the compensation toward stoppage of work, as stated by it, is net income, as indeed accounted for, liable, and indeed offered, to tax in whole. The AO notes a complete variance in the stands of the two sides, the assessee and the builder, and yet chooses to ignore the same, stating (in the ON) the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Co. Ltd. vs. CIT [2000] 243 ITR 83 (SC) Rampyari Devi Sarogi vs. CIT [1968] 67 ITR 84 (SC) CIT v . Deepak Kumar Garg [2007] 299 ITR 435 (MP) CIT v. Himachal Pradesh Financial Corp. [2010]186 Taxman 105 (HP) Swarup Vegetable Products v. CIT [1991] 187 ITR 412 (All) Gee Vee Enterprises vs. Addl. CIT [1975] 99 ITR 375 (Del) By the assessee CIT v. Ratlam Coal Ash Co . [1988] 171 ITR 141 (MP) CIT v. Krishna Capbox (P.) Ltd . [2015] 372 ITR 310 (All) (besides these two, copies of which are on record, others, as under, where also mentioned during hearing, even as their copies not on record, were neither referred to, nor could possibly be responded to by the other side: CIT v. V. Dhana Reddy Co . [2018] 407 ITR 96 (AP) ITO v. DG Projects Ltd . [2012] 343 ITR 329 (Del) CIT v. Hindustan Mktg. Adv. Co. Ltd . [2010] 46 DTR 109 (Del)) Surprisingly, even the decision by the Apex Court settling the law in the matter were not referred to during hearing or met by the other side. The Apex Court in Malabar Industrial Co. Ltd. (supra) enumerated a four-way test for an order being erroneous, i.e., wrong assumption of fact/s; incorrect ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry . It is because it is incumbent on the Income-tax Officer to further investigation the facts stated in the return when circumstances would make such an inquiry prudent that the word erroneous in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct . (emphasis, supplied) 5.2 A lot is often made, as indeed was before us, of an enquiry having been made, so that the notion of proper inquiry , a subjective matter, was vague, and not well-founded. The argument is misplaced. No inquiry, fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a 5.1 5.2), to a large extent, unnecessary, and its value would be largely in demonstrating the clear judicial view, and of the change in law being clarificatory, besides addressing the arguments raised before us. We may, though, close this discussion by reproducing from some of the decisions by the Hon ble jurisdictional High Court. In CIT v . Deepak Kumar Garg [2007] 299 ITR 435 (MP), it held as under: (pg. 437) The Assessing Officer accepted the version of the assessee without proper enquiry and a result a substantial amount of taxable income was not brought to tax. In such a case the assessment order would be erroneous and prejudicial to the interest of the Revenue because law enjoins upon the Assessing Officer to make the assessment order bringing all taxable income to tax . The enquiry held in a perfunctory manner could not be said to be a proper enquiry before passing the assessment order. This cannot be a ground to shut out the jurisdiction of the Commissioner of Income-tax that an adequate enquiry was conducted by the Assessing Officer. (emphasis, supplied) Similarly, in CIT v . Mahavar Traders [1996] 220 ITR 167 (MP), it was held: Held, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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