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November 5, 2022

Mere book entries cannot change ownership of the property

by CA Shivam Jaiswal in Income Tax, Legal Court Judgement

Mere book entries cannot change ownership of the property

Facts and Issues of the Case

The assesse raised the following grounds of appeal :

1. The learned Commissioner of Income-tax, appeals has erred in confirming the addition of the sum of rs.10,39,763/- (Rupees ten lac thirty nine thousand seven hundred sixty three only), on account of cash deposits in savings bank account considered the same as unexplained cash credit u/s. 68 of the Income Tax Act, 1961 of the appellant.

2. The Learned Commissioner of Income-tax (Appeals), has also erred in confirming @ 50% of the additions of ₹45,13,124/- (rupees forty five lac thirteen thousand one hundred twenty four only) made by the assessing officer, on account of long term capital gains on sale of immovable property at Kharghar, Navi Mumbai.

The facts of the case are that the assessee claimed to have engaged in the business of ticketing, Visas and tours. For the year under consideration, the assessee filed return of income on 31/03/2015 declaring total income of ₹12,12,440/-. In the return of income filed, the assessee has shown rental income under the head ‘Income from house property’, Income from share of profit and remuneration’ from three partnership firms including M/s Alliance International Tours and Travels, business income and interest income. The return of income filed by the assessee was selected for scrutiny assessment under Computer Assisted Selection of Scrutiny (CASS) any statutory notices under the Income-tax Act, 1961 were issued and complied with. The assessment under section 143(3) of the Act was completed on 23/03/2016 after making two additions. Firstly, the addition of ₹10,39,763/- was made for cash credits appearing in books of accounts which were deposited in saving bank accounts and held by the Assessing Officer as unexplained cash credit in terms of section 68 of the Act. Secondly, the addition of ₹45,13,124/- was made for capital gain on sale of the property not reported by the assesse in the return of income. Aggrieved with the order of the Ld. Assessing Officer, the assessee filed appeal before the Ld. CIT(A), however the Ld. CIT(A) also upheld the additions. Hence, the assessee is before the Income- tax Appellate Tribunal (in short ‘the Tribunal’) by way of raising grounds as reproduced above.

In ground No. 1, the assessee has challenged addition of ₹10,39,763/- on account of cash deposits in saving bank account held as unexplained cash credit under section 68 of the Act.

Before us, the Ld. counsel of the assessee claimed that cash was received from ‘walk-in client’ for booking of their tickets by the assessee for ‘Haj’ and ‘Umrah’ travel and referred to the list of name of passengers, placed on page 27 to 28 of the paperbook volume I. The said list contain ticket No., Name of the passenger, the sector of travel for which ticket was booked, fare amount. An amount of ₹17,980/- has been claim to have been received from each passenger and total amount of ₹10,39,800/- to have been received from these ‘walk-in clients’.

Observation by the court

The court  have heard rival submission of the parties on the issue in dispute and perused dispute before us is the relevant material on record. The issue in whether assessee has discharged his onus of establishing nature and source of the cash credit of ₹10,39,763/-. The list of passengers from whom the assessee has claimed to have received cash have not been referred either by the Assessing Officer or by the Ld. CIT(A). In the list of passengers and proforma invoice issued by the assessee, it is claimed that those tickets were booked from the airlines namely AIR India and Jetairways (International). Therefore,  the truth in the claim of the assesse that same were booked by him in individual capacity and cash was received from those passengers, can be verified from the respective airlines and if that fact is found to be correct, the Assessing Officer may consider the claim of the assessee if same is in accordance with law. Therefore, in the facts and circumstances of the case and the interest of substantial justice, we feel it appropriate to restore this issue back to the file of the Ld. Assessing Officer for verification of the claim of cash deposits by the assessee. The assessee shall file all the necessary evidence in support of its claim including certificate from the airlines regarding booking of tickets by the assessee in individual capacity (not by the partnership firm) in the name of the passengers and also produce those passengers, if called for by the Assessing Officer for verification. The Assessing Officer is at liberty to carry out inquiries as deemed fit in the facts and circumstances of the case for adjudication of issue-in-dispute. It is needless to mention that the assessee shall be afforded adequate opportunity of being heard. The ground No. 1 of the appeal of the assessee is accordingly allowed for statistical purposes.

In ground No. 2 of the appeal, the assessee has challenged 50% of the addition of ₹45,13,124/- on account of long-term capital gain on sale of immovable property, which has been upheld by the Ld. CIT(A).

The Assessing Officer from the AIR information observed the fact of sale of residential flat No. 402, situated at Paratik Pura, Khargar, Navi Mumbai for a total sale consideration of ₹ 73 lakh whereas the value of the said property as per the stamp duty authority was of ₹82,71,000/-. According to the Assessing Officer sale and consequent capital gain was not appearing in the return of income filed by the property had been assessee. The assessee explained that said purchased by the partnership firm namely “Alliance International Tour and Travels” in the name of ‘Mr. Ayaz Hassanali Naseer’ and ‘Mr Asad Naimudin Moulvi’ (i.e. the assessee), both being partners in said firm. It was submitted further that purchase of the said flat was shown in the books of accounts of the firm under the head of building (Residence) as an asset of the firm under the block of building (residence). The sale of the said premises is also shown under the block of building in the books of accounts, which is reflected in the financial statements for the year ending 31/03/2014. It was contended that said residential flat has been shown under the head block of building and the depreciation was claimed in the past, therefore, there was no tax liability under the head ‘income from capital gains’ in the case of the assessee. The assessee filed a confirmation letter from ‘Alliance International Tours and Travels’ along with balance-sheet of the said partnership firm. Further, the assessee also submitted that section 50C of the Act is also not applicable as the said property was purchased and accounted in the books of accounts of the partnership firm. The Ld. Assessing Officer after perusal of the purchase and sale agreement found that assessee is co-owner in the said residential property with ‘Sh Ayaz Hasanali Naseer’ and name of partnership firm was nowhere mentioned in the said agreement(s) and for avoiding the capital gain tax, the assessee has reflected the said property in the fixed assets of the M/s Alliance International Tour and Travels. Further, the Assessing Officer held that provision of section 50C are clearly applicable in the case of the assessee as a stamp duty valuation is more than the sale consideration shown in the sale agreement. Accordingly, after reducing indexed cost of acquisition out of the valuation as per the stamp duty, the Assessing Officer computed capital gain of ₹45,13,124/- in para 5.2 of the assessment order and thus made addition of ₹45,13,124/-. Before the Ld. CIT(A) also the assesse reiterated same submission and submitted evidence containing entry in the books of accounts of M/s. Alliance International Tour and Travels and confirmation letter from said firm. The Ld. CIT(A) observed that in the agreement to sale, seller parties were appearing as ‘Sh Ayaz Hassanali Naseer’ and ‘the assessee’ only and there was no reference of firm M/s Alliance International Tour and Travels. The Ld. CIT(A) held that documentation prepared by the assessee was post facto and an attempt to circumvent section 50C of the Act. However, he sustained the addition to the extent of the 50%, as assessee being co-owner in the property.

Before us also which were made the assessee has reiterated before the lower authorities the submission and no fresh evidence to support the contention are filed. On perusal of the purchase and sale agreement of the property, we find that name of ‘Sh Ayaz Hasanali Naseer’ and ‘the assessee’ are appearing as a seller party in their individual capacity and not in the capacity of partner of the partnership firm M/s Alliance International Tour and Travels.

Therefore, by way of making entries in the books assessee cannot claim that said property was of accounts the owned by said partnership firm. By way of making entering in the books of accounts of the partnership firm, the assessee cannot change ownership and character of the transaction of purchase and sale entered into in individual capacity. The arguments of the assesse are accordingly rejected. The court  do not find any error in the order of the Ld. CIT(A) on the issue in dispute and accordingly, the court  uphold the same.

Conclusion

In the result, the appeal of the assessee is partly allowed for statistical purposes.

Asad-Naeemuddin-Moulvi-Vs-ITO-ITAT-Mumbai-

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