Income Tax Assessment cannot be made only on presumption and without any substantive material: ITAT

The Income Tax Appellate Tribunal (ITAT) in the matter of Baldev Raj Chhabra Vs. ITO ruled out that Income Tax Assessment cannot be made only on presumption and without any substantive material.

Brief facts relevant to the adjudication of this appeal are that the Assessee had entered into an agreement to sale (Ikrarnama) on dated 10.10.2006 with the owners of the land measuring 220 kanals, 6 marlas (27 acres 4 kanals, 6 marlas)situated at Village Salwan @Rs. 9.12 lakhs per acre and consequently paid an advance of Rs. 20 lakhs (Rs. 12 lakhs in cash and 4 cheques of Rs. 2 lakhs all dated 10.10.2006 of PNB Bank, Branch Karnal).

Subsequently, by virtue of the said agreement to sale (Ikrarnama) dated 10.10.2006, the Assessee had also entered into an agreement to sale (Ikrarnama) with Shri Dharam pal on dated 18.12.2006 for sale of the above stated land @ Rs. 10.60 lakhs per acre for which the Assessee had received an amount of Rs. 40 lakhs in cash as an advance.

Later on, the said land was sold by the original/registered owners by way of registered sale deed dated 30.01.2007 at the sale consideration of Rs. 5 lakhs per acre.

The Coram found out that, “that it is a well known fact that prices of real estate including land has been increasing day by day. Apparently the said land was actually sold at a price much higher to the collector’s rate enabling the appellant to make payment of the amount of sale to the sellers and to refund the amount of advance of Rs. 40 lakhs received from the Assessee. In view of the facts discussed above it is held that sale of land was carried out atthe rate Rs. 10.60 per acre and hence, Assessee earned an income of Rs. 40.70 lakhs from this transaction i.e. the amount taken by the AO and hence the addition made by the AO hereby confirmed.” Whereas the Assessee has claimed that he had entered into an agreement for purchase of said land on dated 10.10.2006 and by virtue of said Agreement to sell entered in to and Agreement to sell with Shri Dharampal on dated 18.12.2006. Since the agreement of sale of the said land could not be materialized, therefore the land was sold by the owners of the land to the 3rd Party as per sale deed dated 30.01.2007 which was got registered at the Collector’s rate i.e. Rs. 5 lakhs per acre. Assessee drew our attention to the collector’s decision dated 20.03.2007 (Pg 20-23 of Paper Book) wherein it has been held that registration of the said land was done @5 lakhs per acre only as per registered collector’s rate. However it appears that the Authorities below have not taken into consideration the said decision. The assesse also claimed that though the Assessee appeared before the AO on various occasions but still the AO passed the order partly as ex-pate u/s 144/143(3) of the Act and therefore the case may be remanded to the file of the AO.

We have given thoughtful consideration to the facts and circumstances of the case and find that both the authorities below have acted upon, only on the presumption and without any substantive material for making and sustaining the addition under consideration. In our considered view the presumption cannot be real adjudication of an issue. The very purpose of income tax proceedings is to correctly assess the tax liability of an Assessee in accordance with law but not under presumption as held in this case. Article 265 of the Constitution of India prescribes that no tax shall be levied or collected except by the authority of law. The Hon’ble Allahabad high Court in the case of Pt. Sheo Nath Prasad Sharma Vs. C.I.T., 66 ITR, p.647 (All.) reminded that the law empowers the Income-tax Officer to assess the income of an Assessee and determine the tax payable thereon in accordance with law.

The Authority ruled out that, “Hence on the aforesaid analyzations and considering the peculiar facts and circumstances of the case and specific prayer of the Assessee for remand of the case, we for the ends of justice, deem it appropriate to remit this case to the file of the AO for decision afresh, suffice to say while granting reasonable opportunity of being heard to the Assessee.”

The Judgment was made by Shri R.K. Panda and Shri N. K. Choudhry.

The Petitioner was respondent by Shri Girish Aneja and Respondent represented by Shri Govind Singhal.

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