Calcutta H.C : In absence of books of account assessee’s claim for deduction could not be accepted

High Court Of Calcutta

CIT, Kol-xx, Kolkata VS. Kamal Kumar Bansal

Assessment Year : 2005-06

Section : 28(i), 45

Girish Chandra Gupta And Tarun Kumar Das, Jj.

ITAT No. 16 Of 2013

G.A. No. 182 Of 2013

April 3, 2013

ORDER

1. The Court : The only issue which arises in this appeal is whether the order upholding deletion, of addition of Rs.21,98,141/- made by the Assessing Officer, is perverse ? The facts and circumstances of the case, briefly stated, are as follows.

2. The assessee-respondent was a joint owner of premises No.106/A, S.N. Banerjee Road. He had, to be precise, 1/3rd interest therein. He entered into a joint venture agreement whereunder the land was taken over for the purpose of construction under the name and style of Tivoli Finvest Pvt. Ltd. The assessee-respondent in his Return for the Assessment Year 2005-06 had shown indexed cost of his share in the land at a sum of Rs. 16,49,606/-. He had also shown fair market value of his share in the land at a sum of Rs. 43,11,000/- and thus had arrived at a long term capital gain of a sum of Rs. 26,61,394/-. The contention of the assessee is that he received a sum of Rs.21,98,141/- from Tivoli Finvest Pvt. Ltd. In his computation he deducted Rs. 43,11,000/- on account of the fair market value and thus arrived at a loss of Rs. 21,79,077/-.

3. The case was selected for scrutiny assessment and notices were issued under sections 143(2) and 142(1) of the Income Tax Act, 1961, in pursuance whereof the assessee appeared. Subsequently, a notice under section 142(1) of the Income Tax Act was issued on 23rd November, 2007, but no one appeared. An assessment notice was served on 13th December, 2007 fixing the date of hearing on 19th December, 2007. Again no one appeared. In the circumstances, summons were issued under section 131 of the Income Tax Act. In spite thereof no one appeared. Finally a show cause notice was issued giving the last and final opportunity which also went unresponded. The Assessing Officer, in the circumstances, completed the assessment disallowing deduction of a sum of Rs.43,11,000/- on account of fair market value from the business income of the assessee. In the process there was an addition of a sum of Rs.21,98,141/-.

4. Aggrieved by the order of the Assessing Officer, the assessee preferred an appeal. The appellate authority without going into the matter allowed the appeal on the ground that an identical issue was decided by the learned CIT (Appeal)-XIX, Kolkata in the case of appellant’s wife, Smt. Sarojrani Bansal. Aggrieved by the order of the appellate authority, the Revenue approached the Tribunal. The Tribunal dismissed the appeal on the ground that the Revenue had not filed any appeal against the decision of CIT (Appeal) in the case of Sarojrani Bansal, and therefore, the views expressed by the Apex Court in the case of Union of India v. Kaumudini Narayan Dalal [2001] 249 ITR 219/117 Taxman 375 and in the case of Berger Paints India Ltd. v. CIT [2004] 266 ITR 99/135 Taxman 586 (SC) became applicable. On that basis the appeal was dismissed.

5. Mr. Sinha, learned Advocate appearing for the appellant submitted that the judgments cited by the learned Tribunal have no manner of application to the facts and circumstances of the case. The appellate authority allowed the appeal of the assessee without going into the facts and circumstances of the case; without application of mind and without any evidence on record. He drew our attention to the order of the appellate authority allowing the appeal of the assessee. From paragraph 3.3 of the judgment delivered by the appellate authority, it appears that the appellate authority had relied upon an earlier appellate judgment passed in the case of Smt. Sarojrani Bansal wherein the factual matrix was as follows:

“It is also apparent that the AO has not disputed the fact that the surplus of Rs.21,98,141/- received by the appellant being 1/3rd share from M/s. Tivoli Finvest was arrived without deducting the market value of the land. Once the AO was satisfied that the surplus of Rs.21,98,141/- was without debiting the cost of land, on which building was constructed, then as per the provisions of the Act, to arrive at the business profit or business loss, the cost of land has to be deducted as expenditure. In the appellant’s case, after doing so, the net result was business loss. The said loss cannot be disallowed merely for the reasons that the appellant has not produced the books, which as per agreement, were maintained by M/s. Tivoli Finvest.”

6. Mr. Sinha contented that in the case before us far from recording any satisfaction that the assessee had received a sum of Rs.21,98,141/- without debiting the cost of land, the Assessing Officer has, in fact, opined as follows as would appear from the show cause notice issued by him and incorporated in his assessment order.

“During the course of the proceedings this issue was raised before your AR and you were asked to explain regarding the claim of deduction of Rs.43,11,000/- for land transfer from investment from joint venture profit and you also asked to produce the document relating to joint venture account. At the time of hearing your AR filed copy of the agreement made on 15-02-99 between yourself, Sarojrani Bansal and Tivoli Finvest Pvt. Ltd.

Para-10 of page-4 in the said agreement it was stated “that the sale proceeds of various units in the multistory building shall be appointed between all the owners in proportion of their respective share, i.e., 1/3rd each on completion of the multistory building or at such time or times as the joint owners may decide from time to time and after adjustment of all debits and credits, available surplus of their shares shall be payable to owner I and owner II by owner III.”

On plain reading of the above stated para of the agreement it is crystal clear that you have received only net profit from the joint venture of Rs.21,98,141/- after deducting all expenditure from Tivoli Finvest Pvt. Ltd. (owner-III).”

7. Mr. Sinha contented that no elaborate reasoning is required to show that the factual matrix of the case was different than in the case of Smt. Sarojrani Bansal. The Assessing Officer in the case of Smt. Sarojrani Bansal had accepted the fact that the sum of Rs.21,98,141/- was received by the assessee without debiting the cost of the land, but in the case before us, the Assessing Officer did not accept the proposition and also assigned reasons, on the basis of documentary evidence, to indicate why it could not be said that the aforesaid sum of Rs.21,98,141/- was received without debiting the cost of the land. It was, as such, obligatory on the part of the assessee, if he wanted to dispute the view advanced by the Assessing Officer, to appear and to produce appropriate evidence to refute the prima facie view of the Assessing Officer. Mr. Sinha contented that it was a prima facie view because the Assessing Officer gave an opportunity to the assessee to appear and to make his submission and to produce documentary evidence so that any other view could be arrived at. The assessee did not avail himself of the opportunity, and therefore, the Assessing Officer was justified in making the aforesaid addition which was deleted by the CIT (Appeal) without any reason and merely on the basis of the appellate judgment in the case of Smt. Sarojrani Bansal which had no similarity whatsoever. It may be that in the case of Smt. Sarojrani Bansal, contented Mr. Sinha, the Assessing Officer was not vigilant or that he recorded his satisfaction erroneously. But that does not mean that another Assessing Officer in the case of another assessment of another assessee will be precluded from applying his mind. He, therefore, contented that the order passed by the CIT (Appeal) is otherwise than on the basis of any evidence and was also passed without application of mind and is therefore nothing but perverse. Mr. Sinha distinguished the judgments in the case of Kaumudini Narayan Dalal (supra) by saying that in the aforesaid judgment, Their Lordships did not approve a practice on the part of the Revenue to accept the judgment in the case of one assessee and to challenge the judgment in the case of another assessee without any just cause. Mr. Sinha contented that in the case before us the factual scenario is different which has already been demonstrated by him, and therefore, the difference in the factual matrix amounted to a just cause for the purpose of preferring an appeal both before the Tribunal and the High Court.

8. Mr. Bharadwaj, learned Advocate appearing for the respondent submitted that : (a) the Assessing Officer accepted the capital gain amounting to Rs.26,61,394/- offered for taxation by the assessee on the basis of difference between the fair market value and the indexed cost of the land. Once the aforesaid capital gain was accepted for taxation, it was obligatory on the part of the Assessing Officer to allow the deduction of the sum of Rs.43,11,000/- on account of fair market value as an expenditure of business under section 45(2) of the Income Tax Act; (b) he contented that the assessee had produced his personal books of account, but it was not within the power of the assessee to produce the books of account of the joint venture; and (c) the third and last submission advanced by Mr. Bharadwaj was, equals should not be treated as unequals in the sense that self-same figure in the case of Smt. Sarojrani Bansal was accepted but in the case of the assessee it was disputed.

9. We have considered the rival submissions advanced by the learned counsel appearing before us. To take the last submission first, it can be pointed out that the assessees, namely, the assessee before us and Smt. Sarojrani Bansal may, in fact, have occupied equal status initially, but the unequality arose from the fact that in the case of her assessment, the Assessing Officer did not realize the infirmity in her computation which was realized by the Assessing Officer in the case of the assessee before us and therefore they became unequals. The infirmity pointed out by the Assessing Officer in the case before us was not refuted by the assessee by any cogent evidence. Therefore, the assessee cannot claim equal treatment. The third submission advanced by Mr. Bharadwaj is therefore rejected.

10. The contention that the Assessing Officer after having accepted the sum of Rs.26,61,394/- for taxation on account of capital gain was obliged to allow the fair market value of the land assessed at Rs.43,11,000/- as an expenditure of the business has not impressed us.

The submission that the Assessing Officer was obliged to do so under section 45(2) of the Income Tax Act is altogether without any merit. Under Section 45(2) of the Act the fair market value of the asset on the day of conversion is deemed to have been received or accrued as a result of the transfer. Therefore, the same was offered for taxation. The further contention that the fair market value was not in fact realised from the joint venture was a question of fact, which could only have been established by producing the books of accounts of the joint venture which the assessee did not produce or cause to be produced. The submission that it was not possible or it was not within the power of the assessee to produce the books of account of the joint venture is equally without any merit. In the agreement quoted above constituents of the joint venture have been referred to as Owner-1, Owner-II and Owner-III. It is impossible to accept the submission that the constituents of the joint venture had no access to the books of accounts. In any event, the Assessing Officer under section 131 of the I.T. Act has all the powers regarding production of evidence etc. as are vested in a Court under the CPC. The assessee could have prayed before the Assessing Officer for issuance of summons for compelling production of books of accounts of the joint venture under Order XVI Rules 5, 6 and 10 of the Code of Civil Procedure. The fact that the assessee did not take steps to establish by producing or having the books of accounts of the joint venture produced to show that the sum of Rs.21,98,141/- was received without deducting market value of the land leads to the only inference under section 114(g) of the Evidence Act that the account books were not produced in spite of repeated opportunities because, if produced, they would not have supported the contention of the assessee that the sum of Rs.21,98,141/- was received without debiting the market value of the land.

11. We are as such of the opinion that the CIT (Appeal) had no evidence before him to hold that the sum of Rs.21,98,141/- was received by the assessee from the joint venture without deducting the cost of the land, and therefore, the CIT (Appeal) had no jurisdiction to set aside the order of the Assessing Officer. The Tribunal without going into the matter dismissed the appeal relying on the judgment of Kaumudini Narayan Dalal case (supra) which as correctly pointed out by Mr. Sinha had no manner of application to the facts and circumstances of the case. The question formulated above is thus answered in the affirmative.

12. The appeal is thus allowed.

[Citation : 359 ITR 406]