2006 (5) TMI 305 - AT - Income Tax

Tribunal directs AO to recompute capital gain, limits addition under section 69, upholds deletion under section 40A(3).

The tribunal partially allowed the revenue's appeal, directing the AO to recompute the capital gain after providing the assessee with an opportunity to ... Capital gains, Business disallowance, Unexplained investments Issues Involved:1. Deletion of addition of Rs. 39,550 as short-term capital gain.2. Deletion of addition of Rs. 2,98,000 under section 69 of the Income-tax Act, 1961.3. Deletion of addition of Rs. 2,95,000 under section 40A(3) of the Income-tax Act, 1961.4. Admission of additional evidence in contravention of rule 46A of the Income-tax Rules, 1962.Issue-wise Detailed Analysis:1. Deletion of Addition of Rs. 39,550 as Short-term Capital Gain:The first issue concerns the deletion of an addition of Rs. 39,550 made on account of short-term capital gain. The assessee sold a plot of land and received Rs. 77,000 in cash. The Assessing Officer (AO) found that the plot was purchased for Rs. 37,500 and held for less than 36 months. The assessee contended that he was not the legal owner but only a power of attorney holder, hence capital gains should not be charged in his hands. The AO, based on statements from the buyer's husband and brother, concluded that the plot was sold at Rs. 310 per sq. yard, thus computing a capital gain of Rs. 39,550. The CIT(A) deleted the addition, observing that the assessee was not the legal owner as full consideration was not paid, and any capital gain should be taxed in the hands of the legal owner. The tribunal found that the sale agreement and power of attorney were registered in the assessee's name, and possession was given, thus constituting a transfer under section 2(47). However, the tribunal restored the matter to the AO for recomputation of capital gain after giving the assessee an opportunity to cross-examine the witnesses and verify the rate used for stamp duty purposes.2. Deletion of Addition of Rs. 2,98,000 under Section 69 of the Income-tax Act, 1961:The second issue pertains to the deletion of an addition of Rs. 2,98,000 under section 69. The AO found that certain payments made to Om Traders did not appear in the assessee's books, treating them as unexplained payments. The CIT(A) deleted the addition, stating that section 69 places the burden on the assessing authority to establish the investment, which was not done. The CIT(A) noted that the payments were recorded on different dates in the assessee's books and only the peak credit of Rs. 52,500 was unexplained. The tribunal agreed with the CIT(A), limiting the addition under section 69 to Rs. 52,500, as the department did not controvert this finding.3. Deletion of Addition of Rs. 2,95,000 under Section 40A(3) of the Income-tax Act, 1961:The third issue involves the deletion of an addition of Rs. 2,95,000 under section 40A(3). The AO made the addition for cash payments exceeding Rs. 10,000 to Om Traders. The assessee explained that cash payments were required as per the purchase terms, fitting the exception under rule 6DD(j). The CIT(A) forwarded the agreement to the AO for comments and found the case covered by the exception. The tribunal observed that the CIT(A) followed due process under rule 46A, and the AO had the opportunity to examine the evidence. The tribunal cited various judgments and a CBDT circular, emphasizing that the genuineness of cash payments was not doubted, and both parties were income-tax assessees. Thus, no disallowance under section 40A(3) was warranted.4. Admission of Additional Evidence in Contravention of Rule 46A of the Income-tax Rules, 1962:The last issue relates to the admission of additional evidence (agreement dated 20-5-1984) by the CIT(A) allegedly in contravention of rule 46A. The tribunal found that the CIT(A) had sent the agreement to the AO for comments before relying on it, thus complying with rule 46A. The AO was given an opportunity to examine the evidence, and there was no violation of rule 46A.Conclusion:The tribunal allowed the revenue's appeal in part, directing the AO to recompute the capital gain after giving the assessee an opportunity to cross-examine witnesses and verify the stamp duty rate. The tribunal limited the addition under section 69 to Rs. 52,500 and upheld the deletion of the addition under section 40A(3), finding the case covered by the exception under rule 6DD(j). The tribunal also found no violation of rule 46A in the admission of additional evidence.