TMI Blog2023 (9) TMI 747X X X X Extracts X X X X X X X X Extracts X X X X ..... ever, the AO has candidly admitted in the Assessment Order that there is no material on record to suggest unaccounted money/on money was paid prior to taking possession of the impugned property. There is only an assumption and no material / evidence for making the addition. Therefore, concur with the views AM and accordingly hold that the impugned addition under section 56(2)(vii) of the Act, is liable to be deleted. Hence, answer to the above question framed in the negative and in favour of the assessee. Thus the matter may be placed before the regular Bench for an appropriate order, in accordance with law. Decided in favour of assessee. - Shri Kuldip Singh, Hon'ble Judicial Member And Shri S. Rifaur Rahman, Hon'ble Accountant Member For the Assessee : Shri Venugopal C. Nair For the Department : Dr. Shri Ujjwalkumar Chavhan ORDER PER S. RIFAUR RAHMAN (AM) Order giving effect to the order passed by the Third Member. 1. On account of difference of opinion arising between the Members in respect of the above said appeal, following question was referred to Hon'ble Third Member for his decision: - On facts and circumstances of the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts relevant to the controversy in their respective orders, I would briefly recapitulate the same for the sake of completeness and ready reference. The assessee, an individual, by virtue of an agreement for sale dated 26.08.2015, had purchased office premises Nos.101, 102, 103 and 104 at Siddharth Nagar Chaitanya CHS Society Ltd., for a total sale consideration of Rs. 2,17,00,000/-. However, the possession of the same was taken by the assessee by making payment of Rs. 1,00,000/- and thereafter got the same registered with a Sub-Registrar concerned by making payment of stamp duty on the total sale consideration of Rs. 2,17,00,000/-. During the course of assessment proceedings, assessee was called upon to explain why the balance outstanding amount of Rs. 2,16,00,000/- ought not to be added under the provisions contained under section 56(2)(vii)(b) of the Act. The assessee raised objections to the proposed addition under section 56(2)(vii)(b) of the Act. However, the objections of the assessee were rejected and the assessment was completed by making an addition of Rs. 2,16,00,000/- under section 56(2)(vii)(b) of the Act. The AO was of the view that the sale agreement was not a commerc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned Judicial Member dismissed the cross-objection filed by the assessee (therefore, there is no difference of view between the learned Accountant Member and learned Judicial Member with regard to the issue of assessment of deemed rental income on house property). 6. When the matter was heard by me, I had asked for certain clarifications which are detailed below: i. Whether sale deed has been executed and registered for the units purchased subsequent to settlement of balance outstanding amount? If yes, copy of sale deed needed. ii. Relationship of assessee and/or her husband with the builder (M/s. Neminath Mumbai Shelter) to be established in clear terms and percentages with documentary evidence. iii. Reasons/clarifications from builder for not enforcing the clause of penal interest for delay in payment of consideration. iv. Rationale and legal basis for renting out one of the units before having obtained possession of the same. 7. To the above questions raised by me, assessee had given the following clarifications: 1. Formal Sale deed has not been executed and registered for the units purchased under the agreement for sale subsequent to settlement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oking the aforesaid section. 11. The matter of dispute rests on the conduct of the parties. It is alleged that the assessee had obtained possession of the property prior to the date of agreement of sale and merely on payment of a token amount of Rs. 1,00,000. This was possible due to the pre-existing business connection between the assessee and the developer, as claimed by the assessee. While the learned Accountant Member approves of such relationship, the learned Judicial Member questions the very existence of the same in the absence of any evidence. On the basis of the clarification obtained by me, it is clear that seller M/s. Neminath Mumbai Shelter is constituted as a AOP. The joint venture agreement for executing development projects is enclosed showing that Mumbai Shelter Housing Development Pvt. Ltd., and Neminath Construction are members of this AOP. The deed of AOP shows the profit sharing ratio between members. As regards Mumbai Shelter Housing Development Pvt. Ltd., the share holding pattern as on 31.03.2016 (also enclosed) clearly shows that assessee and her husband hold 9% shares each. 12. Keeping aside the aspect of business connection with the developer, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial on record, may not be sound. In other words, section 56(2)(vii)(b)(ii) of the Act, being a deeming provision, it is not legally permissible to expand the scope of the said section by stating that there is round tripping of money. Ideally, AO ought to have examined the applicability of section 69 of the Act, provided there was material on record to suggest there was some payment not recorded in the books of account of the assessee (unaccounted money). However, the AO has candidly admitted in the Assessment Order that there is no material on record to suggest unaccounted money/on money was paid prior to taking possession of the impugned property. There is only an assumption and no material / evidence for making the addition. Therefore, I concur with the views of the learned Accountant Member and accordingly hold that the impugned addition under section 56(2)(vii) of the Act, is liable to be deleted. Hence, I answer to the above question framed in the negative and in favour of the assessee. 16. In light of the above discussion, the matter may be placed before the regular Bench for an appropriate order, in accordance with law. Pronounced in the open court on the date mentione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to verify. We have explained that the builder gave possession on payment of Rs. 1 Lac due to M/s Neminath Mumbai Shelter is a Joint Venture between Mr Neminath Jain and Mumbai Shelter Our clients and her spouse are Shareholders Directors of Mumbai Shelter Housing Development Joint Venture still in existence, and Mumbai Shelter Housing Development Pvt Ltd has yet to receive its share of profit, which is likely to be in excess of amount due from our clients, as business arrangement, she sought and received possession. Hence, actual investment by way of outflow of fund is only Rs 1 Lacs. If any material- documents/statements having evidentiary value showing payments made in excess of 1 lac have come to your possession, kindly confront us with that material before considering addition u/s. 69 of an investment that has not been actually made Meanwhile as a matter of abundant caution, we have made an application for direction u/s. 144A, to Additional CIT 24(1). Hence kindly hold the assessment proceedings in abeyance till our application is disposed off on merits. 5. Based on the submissions made by the assessee u/s. 144A of the Act, Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase of the property. Without payment of full consideration, the seller would not sell the property, therefore it is understood that the remaining consideration of Rs 2.16.00.000 was paid as cash to the seller before transferring the property to the assessee. Therefore the assessing officer is directed to assess the balance payable amount of Rs. 2,16,00,000/ as income from other source us 56(2)(vii)(b)(ii) of the IT Act 1961. 6. Following the direction of Jt.CIT a show cause notice was issued to the assessee. In response Ld. AR of the assessee vide letter dated 24.12.2018 submitted as under: - On behalf of our client Mrs Gitika Sane, we reply to your notice requiring her to show why difference between total consideration and amount paid should not be added back as u/s 56(2)(vii)(b)(ii). At the out-set we state that our invoking section 56(2)(vii)(b) is totally misplaced as effect of this section is that if consideration as per agreement at less that consideration for stamp duty purposes the difference would be taxable in the hands of the buyer. This section certainly do not state that difference between consideration payable as per agreement the consideration actua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... information on following matters on which you have raised query. 1. Detailed working on rent received from two official units let out: 1. Rent from Shop No. 1-Charkop Shree Manesha CHS Ltd, Charkop, Kandivali West - 400 067: Rs. 13091 per month. 2. Rent from Office at Siddharth Nagar Chaitanya CHS Ltd, Goregaon West-400104 - Rs. 6,00,000 per month. 1. Reason for not taxing deemed rent on unit No. 101A, 102, 03 104 as deemed rent on your perception that only office nit no 102 is given on rent- We draw your attention to stamp duty payment receipt which is duly stamped by office of sub-registrar wherein Premises No. 101A, 102, 103 104 has been entered indicating stamp duty is paid for letting out all these units. Since they were all combined to one when it was given in rental, only 102 was written in the agreement. 7. Subsequently Jt.CIT vide letter dated 26.12.2018 gave a further direction u/s. 144A of the Act which is reproduced below: -. Direction u/s. 144 of the IT Act, 1961. 5) In the normal circumstances, the transfer was completed only when the entire consideration was paid for the property and the possession was given to the buyer only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... From the above facts, it is understood that in the normal prudent commercial transaction, the possession of the property would not be handed over without payment of entire consideration whereas in this case the property was handed over to the assessee and rented out before the date of payment of small sum Rs. 1,00,000/ Therefore, this is not the prudent commercial transaction and the remaining consideration of Rs 2,16,00,000/- was paid as cash from the unaccounted income of the assessee. Though there is no direct evidence for payment of cash from the surrounding circumstances and human probabilities. It is understood that the remaining consideration of Rs. 1,00,000/- was paid as cash. The above principle was upheld by the Honourable Supreme Court in the case of Durga Prasad More vs CIT (82 ITR 540]. 8) The assessee claimed that the joint venture still in existence and her husband yet to receive the share of profit and the balance payable will be adjusted against the share of profit receivable. The assessee failed to appreciate the fact that the assessee and his husband are separate legal entity. There is connection between the property was given to the assessee at throw away ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty was given to the assessee at throw away prices and share of profit yet to be received by the assessee's husband. It is not a normal transaction and the husband of the assessee having substantial interest in the seller entity M/s. Neminath Mumbai Shelter, which transferred the assets to the assessee at the throw away price of ₹.1,00,000/- which is lesser than the market value of the property. 9. Further, Assessing Officer observed that the possession of the four offices in the hands of the assessee are vacant and she has rented out only one of the unit i.e., 102 for agreed rent of ₹.60,000/- per month and it is declared as income under the head income from house property . However, rent received of the other office units have not offered by her. Therefore, he estimated the income under section 23(1)(a) of the Act and estimated the income from rent of the other three offices @60,000/- per month and gave a deduction u/s. 24 of the Act @30% and brought to tax ₹.15,12,000 as deemed income of the assessee. 10. Aggrieved assessee preferred an appeal before the Ld.CIT(A) and before him assessee filed following submissions: Ground 1: Addition U/s 56(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioned in our registered agreement is 2117 crores and on which stamp duty is also paid. Since there is no cash system of accounting in determining consideration for transfer of property the consideration of 2.17 Crores has accrued and on which stamp duty is paid. Hence holding that consideration is only what has been actually paid and which being lesser than the amount for stamp duty purposes to invoke sec 56 (2)(vii)(b)(ii) is heavily misplaced. In fact I have made balance payment subsequently enclosed evidence. Ground 2: Addition of Rs. 15,12,000/- as deemed rent, overlooking the impugned units as per were not vacant and the rent from renting out them had been offered for taxation in ROI The submission made to AO on this point is Reason for not taxing deemed rent on unit no 101, 102, 103 104 as deemed rent on your perception that only office unit no 102 is given on rent - We draw your attention to stamp duty payment receipt which is duly stamped by office of sub- registrar wherein Premises No 101A, 102,103 104 has been entered Indicating stamp: duty is paid for letting out all these units. Since they were all combined to one when it was given on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctional Bombay High court for determining the deemed rent. (Emphasis supplied) 11. After considering the submissions of the assessee Ld.CIT(A) deleted the additions with the following observations: 5.1.1 The Ld. AO discussed the related addition of Rs. 2,16,00,000 in Para 13 14 of the impugned order dated 29 12.2018. The discussion is as under: From the above facts of the case, it is clear that the transaction which was entered by the assessee is the colorable device by way of purchasing the property lowers than the market value of the property and evade the payment of tax by way of understating the source for purchase of the property. Without payment of full consideration, the seller would not sell the property, therefore it is understood that the remaining consideration of Rs 2,16,00,000 was paid as cash to the seller before transferring the property to the assessee. In view of the above, the assesse has paid Rs 1,00,000/- to M/s Neminath Mumbai Shelters through accounted sources and the remaining consideration of Rs. 2,16,00,000/- is paid as cash through unaccounted sources. Therefore, an amount of Rs 2,16,00,000/- is treated as income of the assesse u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eciate the fact that it is mentioned in Page No. 4 of Para No. 4(M) of the agreement that the balance Consideration of Rs. 2.16,00,000/- is to be paid on or before date of handing over possession of property to the assessee. In this transaction the possession was handed over to the assessee without payment of Rs 2.16,00,000/- Hence, this transaction is not the prudent commercial transaction whereas this particular transaction is the colourable device to evade the payment of taxes by the way of make the payment of remaining sale consideration of Rs. 2,16,00,000/-through unaccounted cash. It is learnt through the assessment records that the assessee rented out the property much before the date of payment of Rs. 1,00,000/- The assessee paid Rs. 1,00,000/- on 20.07.2015 whereas the property was rented out from 05.06.2015 through leave and licence agreement registered on 10.07.2015. From the above facts, it is understood that in the normal prudent commercial transaction, the possession of the property would not be handed over without payment of entire consideration whereas in this case the property was handed over to the assessee and rented out much before the date of payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same is reproduced as follows For a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupess, the stamp duty value of such property as exceeds such consideration. From the above facts of the case it is clear that the transaction which was entered by the assessee is the colorable device by way of purchasing the property lower than the market value of the property and evade the payment of tax by way of understating the source for purchase of the property. Without payment of full consideration, the seller would not sell the property, therefore it is understood that the remaining consideration of Rs 2, 16, 00, 000/- was paid as cash to the seller before transferring the property to the assessee. 14. In view of the above the assesse has paid Rs. 100,000 to M/s Neminath Mumbai Shelters through accounted sources and the remaining consideration of Rs 2 16.00.000/- is paid as cash through unaccounted sources. Therefore, an amount of Rs 2,16,00,000 is treated as income of the assesse under head income from other sources The same is added back to the total income of the assesse. 5.1.2 In this regard, following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... what had been actually paid and which having been found to be lesser than the amount for stamp duty and his invoking Sec 56 (2)(vii)(b)(i) was heavily misplaced It was also lastly submitted that the appellant lady had made balance payment subsequently as per enclosed evidence. 5.1.4 In light of the above discussion and after duly considering all the facts and circumstances and applicable law related to impugned addition of Rs 2,16 00,000 it is noted that the Ld. Ao could not appreciate the related facts of the case. The Ld A/R of the appellant lady also got uploaded a copy of a letter dated 15 11 2016 written by the appellant to one Neminath Mumbai Shelter in which the fact was mentioned that the said concern had agreed to distribute share of profit of the joint venture, to which Mumbai Shelter Housing Development Pvt Ltd was entitled to The appellant had planned to take a loan of this profit from Mumbai Shelter Housing Development Pvt. Ltd and meet her obligation. It was further mentioned in the said letter that since the said concern (Neminath Mumbai Shelter) could not distribute the profit. Mumbai Shelter Housing Development Pvt. Ltd had a liquidity crunch and hence could n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A)/ NFAC, Delhi on the above ground be reversed and that of the Assessing Officer be restored. 5. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary. 15. At the time of hearing, Ld.DR brought to our notice facts in this case and he supported the findings of the Assessing Officer that assessee has paid ₹.1,00,000/- only and acquired the property of ₹.2,17,00,000/-. It is not a prudent and commercial transactions and he objected to the submissions of the assessee that the joint venture is still in progress and husband of the assessee will receive the share of profit to compensate the purchase consideration. Accordingly, he supported the disallowance made by the Assessing Officer u/s. 56(2)(vii)(b)(ii) of the Act. 16. On the other hand, Ld.AR brought to our notice the findings of the Ld.CIT(A) in Page No. 5 to 8 of the appellate order and Further, Ld.AR of the assessee brought to our notice subsequent payments made by the assessee and filed the various receipts in support of the claim that assessee has actually paid the payment subsequently by making the payment through RTGS dated 15.02.2019, 16.02.2019, 18.02.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the assessee that the whole property consists of four office premises are rented out or only one office premise. In appeal, Ld.CIT(A) has partly allowed the grounds raised by the assessee by considering one office premises as self-occupied and confirmed the other two office premises for the purpose of deemed rent and adopted the same rent of ₹.60,000/- per month mentioned in the rental agreement. The information submitted by the assessee merely relying on the basis of e-stamp payment receipt is insufficient and the finding of the Ld.CIT(A) is proper considering the facts on record. Therefore, we are inclined to dismiss the cross appeal filed by the assessee. 19. In the result, appeal filed by the Revenue as well as cross objection filed by the assessee are dismissed. Order pronounced in the open court on 01st March, 2023 ORDER 16-03-2023 PER : KULDIP SINGH, JUDICIAL MEMBER: I have perused the proposed order passed by Hon ble Accountant Member, Shri S. Rifaur Rahman who has dismissed the captioned appeals filed by the appellant, Income Tax Officer, Mumbai (hereinafter referred to as the Revenue ). However, being not agreed with the proposed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal, perused the orders passed by the Ld. Lower Revenue Authorities and documents available on record in the light of the facts and circumstances of the case and law applicable thereto. 6. Undisputedly by virtue of the agreement of sale dated 26.08.2015 the assessee had purchased office premises in question for a sale consideration of Rs. 2,17,00,000/- by only making payment of Rs. 1,00,000/-. It is also not in dispute that the agreement for sale (supra) was got registered with the sub-registrar by making payment of stamp duty on the total sale consideration of Rs. 2,17,00,000/-. It is also not in dispute that till the passing of the assessment order dated 29.12.2018 balance sale consideration of Rs. 2,16,00,000/- has not been paid. It is also not in dispute that as per para 4 of the agreement to sale (supra) possession of the property in question was to be delivered to the assessee only after making payment of balance sale consideration of Rs. 2,16,00,000/-, however, even prior to the agreement to sale dated 26.08.2015 the assessee was given possession which she has rented out vide leave licence agreement dated 10.07.2015. It is also not in dispute that by virtue of the leave ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight of above discussion made from Para no. 5.1 to 5.1.5 of this appeal order, the appellant gets relief for which she is found to be entitled. Ld. AO is directed to delete the impugned addition of Rs. 2,16,00,000 and Ground No. 1 is allowed. 9. Hon ble Accountant Member upheld the impugned order passed by the Ld. CIT(A) by holding that It may look not prudent commercial transactions. However, we observe that the assessee and family members are the owners of the company through which the assessee has acquired certain properties and the assessee s husband is having substantial interest in the above said company and for the sake of convenience the assessee has registered by acquiring the property this way. As evidences were submitted before us that assessee has made the settlement subsequently proves that the transaction is genuine. 10. Bare perusal of the impugned order passed by the Ld. CIT(A) goes to prove that he has passed a cryptic order without addressing the legal and factual issue that the entire sale transaction was a colourable devise in order to hoodwink the tax authority to evade the taxes on the remaining amount of Rs. 2.16 crore which has never been proved to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was never complied with by the parties to the sale. All of sudden during the first appellate proceedings the assessee has come up with new defence that she has made the payment of balance sale consideration of Rs. 2,16,00,000/- to M/s. Neminath Mumbai Shelter (seller) and brought on record receipts issued by the seller which have never been examined or discussed by the AO, the Ld. CIT(A) nor examined by Hon ble Accountant Member but just a vague reference thereof has been given in the proposed order. (iv) that in case balance payment was to be made by the assessee, it was to be made in accordance with the terms and conditions agreed to in the agreement to sale. For ready perusal relevant terms and conditions of the agreement sale are extracted as under: 4) The purchaser hereby agrees to purchase from the Developer the Shop/Office on FIRST No. No. 101A, 102, 103 104 (pt) __-------__on FIRST Floor and parking space No._-- on Ground Floor hereinafter called the said building under construction by the developer as per the plans and specification seen and approved by him/her/them for Rs. 2,17,00,000/= /(Rupees Two Grove Seventeen Lacs only) which consideration amount shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other person as they deem fit, at such price as the developer may determine and the purchaser/.s shall not be entitled to question such sale or to claim any amount from the developer. 8) Without prejudice to the Developers other rights under this Agreement and/or in law, the purchaser/s shall be liable to and shall at the option of the Developers, pay to the developer interest at the rate of 24% (Twenty four Percent) per annum on all amounts that may be due and payable by the purchaser's under this Agreement, if any such amount remains unpaid for seven days more after becoming due. 9) Possession of the said Shop/office shall be delivered to the Purchaser/s after the said shop/office are ready for use and occupation provided all the amounts dues and payable by the purchaser/s under this Agreement are paid to the Developers. The purchaser/s shall take possession of the said shop/office within seven days of the developer giving written notice to the purchaser's intimating that the said flats/s is ready for use and occupation. (v) that perusal of para 4 of the agreement to sale shows that on the date of agreement for sale Rs. 1,00,000/- was paid by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... moved before the Tribunal. So the same cannot be read into evidence. (xi) that in the given circumstances, substance and intention of the party as reflected in the agreement for sale in question is relevant to decide the issue in question than the form of the same. As discussed in the preceding paras substance of the agreement itself proves that the remaining sale consideration of Rs. 2,16,00,000/- was paid in cash by the assessee at the time of taking possession of the property in question as per recital made in para 4 of the agreement to sale (supra) but prepared a colourable devise i.e. agreement for sale to camouflage real transaction in order to hoodwink the tax authorities to avoid payment of taxes. (xii) that in the given circumstances the AO has rightly invoked the provisions contained under section 56(2)(vii)(b) of the Act by making addition of Rs. 2,16,00,000/- to the income of the assessee. 12. In view of what has been discussed above I am unable agree with Hon ble Accountant Member that the transaction in question is a genuine transaction, so the impugned order passed by the Ld. CIT(A) is not sustainable in the eyes of law, hence set aside and assessment order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected to recalculate and give appropriate relief related to the impugned addition of Rs. 15,12,000 when he gives effect to this appeal order. The Ld. A/R of the appellant lady is also requested to co-operate the Ld. AO in making the appropriate addition in light of the recalculation of the deemed rental income. Ground No. 2 is, therefore, partly allowed. 16. In view of matter I am of the considered view that when the assessee has never taken defence before the AO that out of 4 units one was self occupied but merely on the basis of bald submissions without any evidence made by the assessee, the Ld. CIT(A) upheld the deemed rent of two units only. When it is nowhere comes on record before the AO that out of 4 units one unit is a self occupied rather the assessee has taken a categoric stand that by virtue of the leave licence agreement (supra) all the 4 units have been rented out at the rent of Rs. 60,000/- per month, it is beyond comprehension as to how the Ld. CIT(A) has given the relief qua one unit alleged to be self occupied by the assessee. In these circumstances, the order passed by the Ld. CIT(A) is not sustainable in the eyes of law, hence set aside and the order of AO i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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