Tribunal overturns revenue's capital gain calculation, deletes on-money addition due to lack of evidence.

The Tribunal allowed the appeal, setting aside the Revenue authorities' orders on the capital gain calculation and deleting the addition of Rs. 1,92,06,000/- for on-money, due to insufficient evidence and procedural lapses. The Tribunal directed the AO to recognize a long-term capital loss of Rs. 52,50,759/-, resulting in no tax effect even if the on-money amount was added.

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Issues Involved:
1. Determination of capital gain on transfer of land.
2. Addition of Rs. 1,92,06,000/- as on-money received by the assessee.

Detailed Analysis:

1. Determination of Capital Gain on Transfer of Land:

The assessee, an individual deriving salary income, filed a return declaring a total income of Rs. 11,18,670/-. The scrutiny revealed a long-term capital loss of Rs. 52,50,759/- from the sale of land at Survey Nos.165/1 and 165/2 in Village Dabhel, Nani Daman. The sale deed was executed on 21.10.2011, selling 8800 sq. meters at Rs. 1887.50 per sq. meter to M/s. Alkem Laboratories, with a sale consideration of Rs. 1,66,10,000/-. The assessee adopted a cost of acquisition of Rs. 316/- per sq. meter as of 1.4.1981. The AO, unsatisfied, issued a notice under section 133(6) to the Civil Registrar-cum-Sub-Registrar, who reported an average rate of Rs. 2/- per sq. meter. The AO calculated the long-term capital gain at Rs. 1,64,71,840/- and confronted the assessee, who objected, stating the Sub-Registrar’s rate pertained to agricultural land, not industrial land. The AO referred the matter to the Valuation Officer (DVO), who reported a value of Rs. 192/- per sq. meter. The AO then rectified the assessment under section 154, resulting in a capital gain computation of Rs. 35,46,640/-.

On appeal, the CIT(A) concurred with the AO’s adoption of the acquisition cost as of 1.4.1981, rejecting the assessee's reverse indexation method based on a 2012 order by the Deputy Secretary, Revenue Department. The CIT(A) upheld the DVO's report as the assessee did not challenge it under section 154 proceedings.

The Tribunal found that the AO’s reference to the DVO under section 55A was not competent for transactions executed before 1.7.2012, as per the Gujarat High Court rulings in CIT Vs. Gauranginiben S. Shodhan and CIT Vs. Manulaben M. Unadkat. Excluding the DVO’s report, the Tribunal accepted the assessee’s reverse indexation calculation, directing the AO to recognize a long-term capital loss of Rs. 52,50,759/-.

2. Addition of Rs. 1,92,06,000/- as On-Money:

During a survey at M/s. Alkem Laboratories, a loose paper indicating cash and cheque payments for the land sold by the assessee was found. The AO, interpreting this as on-money, confronted the assessee, who explained the Rs. 50 lakhs cash deposit in Goa State Co-op. Bank as proceeds from selling a bungalow in Goa. The AO rejected this explanation, noting the vendees lacked documentary evidence of payment sources and denied the assessee’s request to cross-examine the vendee.

The Tribunal noted that the loose paper alone, without corroborative evidence, was insufficient to prove on-money receipt. The AO failed to identify the author of the paper or provide the assessee with cross-examination opportunities, violating principles of natural justice as per the Supreme Court ruling in M/s. Andaman Timber Industries Vs. Comm. Of Central Excise. The Tribunal found the AO’s rejection of the vendees’ statements unjustified and the addition of Rs. 1,92,06,000/- unsustainable due to a lack of conclusive evidence. The Tribunal deleted the addition, noting that even if added, it would offset the long-term capital loss, resulting in no tax effect.

Conclusion:

The Tribunal allowed the appeal, setting aside the Revenue authorities' orders on the capital gain calculation and deleting the addition of Rs. 1,92,06,000/- for on-money, due to insufficient evidence and procedural lapses.

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