IN INCOME TAX APPELLATE TRIBUNAL PUNE BENCH , PUNE BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM ITA No. 653/PN/2013 Assessment Year: 2009-10 Shri Sanjay L. Sonawane, Sonawane Bungalow, Kulkarni Colony, Sharanpur Road, Nashik Appellant PAN: RIPS9892B Vs. Asst. Commissioner of Income Tax, Circle-2, Nashik Respondent Appellant by : Shri Nikhil Pathak Respondent by : Shri Anil Kumar Chaware Date of Hearing : 21.09.2016 Date of Pronouncement: 30.09.2016 ORDER PER SUSHMA CHOWLA, JM: This appeal filed by assessee is against order of CIT(A)-II, Nashik, dated 30.01.2013 relating to assessment year 2009-10 against order passed under section 143(3) of Income Tax Act, 1961 (in short Act ). 2 ITA No.653/PN/2013 Shri Sanjay L Sonawane 2. assessee has raised following grounds of appeal :- 1). On facts and in law ld. CIT(A)-II, Nashik has erred in disallowing deduction claimed u/s.54F claimed by appellant Rs.28,41,002/-. 2) On facts and in law ld. CIT(A)-II, Nashik has erred in making addition of Rs.59,51,162/- to capital gain declared by appellant. 3) On facts and in law ld. CIT(A)-II, Nashik has erred in not allowing deduction on account of brokerage paid Rs.3,50,000/- while arriving at taxable capital gain. 4) On facts and in law ld. CIT(A), Nashik has erred in not allowing cost of acquisition duly indexed by appellant to extent of Rs.10,10,522/-. 5) On facts and in law ld. CIT(A), Nashik has erred in not allowing cost of improvement, duly indexed by appellant to extent of Rs.18,79,375/-. 6) On facts and in law ld. CIT(A), Nashik has erred in enhancing income of appellant on account of unexplained expenditure to extent of Rs.10,00,000/-. 3. issue arising in present appeal is in relation to computation of long term capital gains in hands of assessee. 4. Briefly, in facts of case, assessee for year under consideration had declared income of Rs.1,30,49,400/-. said income constituted of income from salary, house property, long term capital gains and other sources. case of assessee was picked up for scrutiny and it was observed that assessee had sold land at Agra Road, Nashik on 18.06.2008 for Rs.1,75,00,000/-. cost of acquisition was adopted by assessee at Rs.9,30,000/-. assessee claimed cost of selling i.e. commission paid of Rs.3,50,000/- and also claimed cost of improvement of Rs.15,50,000/-. Further, assessee claimed exemption under section 54(1) of Act at Rs.32,50,000/- for constructing residential house. assessee was asked to produce necessary evidences in respect of all its claims. first issue considered by Assessing Officer was with regard to cost of acquisition and improvement to property and thereafter, claim of expenditure of commission. All these issues 3 ITA No.653/PN/2013 Shri Sanjay L Sonawane were decided against assessee. Further, claim of assessee in respect of cost of improvement was rejected as assessee had claimed said improvement for period prior to its acquisition. Further, assessee had failed to produce necessary bills and vouchers in this regard and hence, claim of cost of improvement at Rs.18,79,275/- was rejected. cost of acquisition of land was considered only at Rs.1 lakh as against claim of assessee at Rs.9,30,000/-. assessee s claim of commission expenditure was rejected as no evidence to substantiate same was filed. Coming to claim of assessee of investment of Rs.32,50,000/- under section 54F of Act, Assessing Officer noted that land on which assessee had claimed that he had built residential house was in name of his mother Smt. Lilawati Laxman Sonawane. commencement and completion certificate issued by Nashik Municipal Corporation and approved construction plan was also in her name. assessee failed to produce bills and vouchers against cost of construction. assessee only produced copies of registers on which it was shown that all payments were made in cash, hence, claim of assessee under section 54F of Act was rejected. 5. CIT(A) upheld order of Assessing Officer in disallowing commission expenses as there was no actual deal of sale and sale was between family members. second claim of assessee of cost of acquisition of Rs.3 lakhs, stamp duty and registration expenses of Rs.1,60,000/- and fencing and other expenses of Rs.5,23,000/- totaling Rs.9,30,000/- was also upheld by CIT(A) in absence of any fresh evidence and expenses having been incurred prior to date of acquisition. claim of assessee against cost of improvement was also rejected in absence of any details of payment being made for vacation of land. next claim of assessee under section 54F of 4 ITA No.653/PN/2013 Shri Sanjay L Sonawane Act was also found to be not in order as assessee claimed expenditure on construction of plot of land which was in name of his mother. Further, even plan of construction was approved in her name. Further, CIT(A) has relied on ratio laid down by Pune Bench of Tribunal in ITO Vs. Shri Kantilal C. Kankaria in ITA No.461/PN/2011, relating to assessment year 2003 -04, order dated 25.07.2012. Since assessee had failed to fulfill conditions of section 54F of Act, same was rejected. 6. assessee is in appeal against order of CIT(A) in this regard. 7. Both learned Authorized Representatives put forward their contentions. 8. We have heard rival contentions and perused record. issue raised vide ground of appeal No.1 is against denial of deduction claimed under section 54F of Act at Rs.28,41,002/-. first aspect of issue is that assessee had sold land, on which long term capital gain was computed by Assessing Officer against which, some claims of assessee vis- -vis cost of acquisition, cost of improvement and brokerage paid were denied to assessee. We shall deal with these issues in paras hereinafter against respective grounds of appeal raised by assessee. second aspect of computation of income on long term capital gain in hands of assessee is its claim of deduction under section 54F of Act. 9. Under section 54F of Act, it is provided that where capital gain arises from transfer of any long term capital assets not being residential house and assessee, has within period of one year before or two years after date of transfer, purchases, or has within period of three years after that date constructed 5 ITA No.653/PN/2013 Shri Sanjay L Sonawane residential house, then assessee is entitled to claim benefit of said investment made in new asset against gains arising on sale of original asset. conditions for availing deduction are provided under section 54F of Act itself. basic condition to be fulfilled is that assessee has first transferred any long term capital asset not being residential house and assessee thereafter, within stipulated period purchases or constructs residential house i.e. new asset, then capital gains arising from sale of original asset is to be computed after considering cost of new asset vis- -vis net consideration received on sale of original asset. 10. Coming to facts of present case, admittedly, assessee had sold long term capital asset and on which capital gain had arisen in hands of assessee. Thereafter, assessee claims that it has made investment in construction of residential house. However, land on which house which assessee claims has been constructed by him is in name of his mother. building plans for construction of property on said land are approved in name of his mother and even completion certificate is in name of his mother. assessee has failed to establish its claim and where new asset purchased / constructed by assessee is not in his name, then in such circumstances, assessee is not entitled to claim benefit of deduction under section 54F of Act. Besides showing entries in some registers of cash payment, assessee has failed to discharge onus placed upon him to establish that new asset purchased / constructed is by him and in absence of same, assessee cannot claim benefit of section 54F of Act and same is rejected. grounds of appeal No.1 raised by assessee is thus, dismissed. 6 ITA No.653/PN/2013 Shri Sanjay L Sonawane 11. ground of appeal No.2 raised by assessee is general in nature and does not need any adjudication. 12. issue in ground of appeal No.3 raised by assessee is against disallowance of brokerage paid of Rs.3,50,000/-, which was not pressed by assessee and hence, same is dismissed as not pressed. 13. issue in ground of appeal No.4 is against claim of cost of acquisition of asset sold by assessee and ground of appeal No.5 is against cost of improvement claimed by assessee. assessee had claimed that cost of acquisition of plot was Rs.3 lakhs on basis of Deed of relinquishment of rights by other family members. Assessing Officer had noted that though consideration had been agreed at Rs.30,000/- per member for ten members at Rs.3 lakhs but actual payment was made at Rs.10,000/- per member and balance payment of Rs.20,000/- had not been made. Since assessee could not substantiate balance payment of Rs.2 lakhs, hence, Assessing Officer had allowed cost of acquisition at Rs.1 lakh. 14. Before CIT(A), claim of assessee was payment was payable, however, assessee failed to produce any evidence in this regard. Hence, order of Assessing Officer was upheld by CIT(A). 15. Even before us, assessee has failed to substantiate its claim of cost of acquisition at Rs.3 lakhs and in absence of same, we uphold order of Assessing Officer in adopting cost of acquisition of plot of land sold by assessee at Rs.1 lakh. 7 ITA No.653/PN/2013 Shri Sanjay L Sonawane 16. second claim of cost of acquisition was stamp duty and registration charges of Rs.1,07,000/-. claim of assessee was rejected as it was incurred in year prior to purchase of plot by assessee i.e. in year 1975. assessee had purchased plot of land on 20.04.2005. assessee claims that stamp duty and registration charges were paid in year 2004 in order to regularize plot of land. Assessing Officer had denied same. However, CIT(A) allowed claim of assessee to extent of Rs.1,07,000/- and after indexation at Rs.1,29,737/- and hence said claim is settled in favour of assessee. 17. third item of cost of acquisition was on account of fencing of plot amounting to Rs.5,23,000/-. Since assessee failed to substantiate its claim and also failed to explain mode of payment of same, Assessing Officer had disallowed said expenditure, against which assessee has furnished confirmation of one Shri Rajman Warma, fencing contractor. 18. CIT(A) noted facts of case that plots were never in physical possession with assessee and they were in dispute, against which assessee received Rs.1.75 crores on surrender of his rights in favour of M/s. Sun Infrastructures (P) Ltd. vide Cancellation Deed dated 18.06.2008. In view thereof, CIT(A) held that there was no question of incurring any expenditure on account of fencing of plots. confirmation filed by assessee was held to be concocted and not accepted. payment was made to person who was employee of assessee and in cash. assessee failed to produce any source of said payment. Since expenditure was stated to have been incurred in financial year 2004-05 when assessee did not have physical possession of property, claim of assessee was rejected by CIT(A). 8 ITA No.653/PN/2013 Shri Sanjay L Sonawane 19. assessee before us has failed to controvert finding of CIT(A), wherein it has been categorically held that plots were never in possession of assessee and assessee had received consideration on surrendering of his rights vide Cancellation Deed dated 18.06.2008. Once plots are not in his possession, there is no question of incurring said expenditure. Further, assessee has filed confirmation of one of his employee to whom payment was made in cash, for which assessee has failed to establish source. Accordingly, we uphold order of CIT(A) in disallowing cost of acquisition of Rs.5,23,000/-. 20. It may be pointed out herein itself that vide para 10.3, CIT(A) had clarified that out of disallowance made by Assessing Officer at Rs.10,10,522/- (indexed value), sum of Rs.1,29,737/- is allowed and balance disallowance works out to Rs.8,80,785/-. 21. assessee is in appeal before us against disallowance of Rs.10,10,522/- which is incorrect and balance disallowance is only Rs.8,80,785/- which is confirmed. ground of appeal No.4 raised by assessee is thus, dismissed. 22. Now, coming to next claim of assessee i.e. cost of improvement of Rs.15,50,000/-. claim of assessee before authorities below was that payment was made to encroachers for vacating land but assessee has failed to furnish any details of payment to encroachers for vacating land and no evidence in respect thereof was filed. CIT(A) further noted that where assessee has not in physical possession of land in question, authenticity of 9 ITA No.653/PN/2013 Shri Sanjay L Sonawane expenditure is not proved, hence, disallowance made by Assessing Officer of Rs.18,79,375/- (indexed value) was confirmed by CIT(A). 23. assessee before us has failed to substantiate its claim and in absence of same and where assessee has failed to file basic details of list of encroachers itself on surmise that payment has been made to sister concern, said expenditure cannot be allowed in hands of assessee. We uphold orders of authorities below in this regard and dismiss ground of appeal No.5 raised by assessee. 24. Now, coming to last issue raised vide ground of appeal No.6, which is against enhancement made by CIT(A) on account of unexplained expenditure to extent of Rs.10 lakhs. CIT(A) noted claim of assessee of incurring expenditure amounting to Rs.32,50,000/- on construction of residential property on land belonging to his mother Smt. Lilawati Laxman Sonawane. CIT(A) from details of cash and bank payments noted that prima facie, there was insufficient cash available with assessee to justify said expenses. Assessing Officer was asked to furnish report under section 250(4) of Act and assessee was summoned by Assessing Officer under section 131 of Act and was asked to produce evidence / documents. Assessing Officer during course of remand proceedings made certain enquiries vis- -vis source of investment of Rs.32,50,000/- and furnished its remand report, in reply to which assessee filed its objections. Thereafter, CIT(A) was of view that addition of Rs.10 lakhs on account of unexplained expenses in construction of bungalow is to be made in hands of assessee and income of assessee was enhanced by Rs.10 lakhs. 10 ITA No.653/PN/2013 Shri Sanjay L Sonawane 25. case of assessee before us is that CIT(A) has no power to make addition on account of new source of income. In this regard, learned Authorized Representative for assessee placed reliance on ratio laid down by Pune Bench of Tribunal in M/s. Vijay Builders Vs. ITO in ITA No. 863/PN/2013, relating to assessment year 2008-09, order dated 25.02.2015. 26. learned Departmental Representative for Revenue placed reliance on order of CIT(A) in this regard. 27. We have heard rival contentions and perused record. issue arising by way of ground of appeal No.6 is against enhancement made by CIT(A), wherein income of assessee was enhanced by Rs.10 lakhs. basis for enhancement was claim of assessee that it had sourced construction cost of residential property on land belonging to his mother. total cost of construction was claimed to be Rs.32,50,000/-. In first instance, assessee wanted that said investment made by it should be allowed as deduction under section 54F of Act, which was denied to assessee by authorities below and such denial has been confirmed by us in paras hereinabove. CIT(A) however, was of view that assessee does not have sufficient funds to meet said expenditure, in view of cash and bank position. In this regard, Assessing Officer was asked to furnish report and in remand report enquiries were made by Assessing Officer and on basis of said enquiries, CIT(A) was of view that addition of Rs.10 lakhs as unexplained investment is justified in hands of assessee. 28. assessee is in appeal against order of CIT(A) in this regard, since income has been enhanced in hands of assessee by new source of 11 ITA No.653/PN/2013 Shri Sanjay L Sonawane income. CIT(A) has wide powers of enhancement but said power of enhancement is restricted only to such income which was subject matter of consideration for purpose of assessment. Such was proposition laid down by Hon ble Supreme Court in CIT Vs. Shapoorji Pallonji Mistry reported in 44 ITR 891 (SC). 29. Hon ble Supreme Court further in CIT Vs. Raj Bahadur Hardutroy Motilal Chamaria reported in 66 ITR 443 (SC) had held that power of enhancement of AAC is restricted to subject matter of assessment or sources of income which have been considered expressly or by clear implication by ITO from point of view of taxability of assessee. Therefore, AAC had no jurisdiction to assessee source of income which had not been processed by ITO and which was not disclosed either in return filed by assessee or in assessment order. 30. Hon ble Delhi High Court thereafter in CIT Vs. Sardarilal and Company reported in 120 taxmann 295 (Delhi) has held that whenever question of taxability of income from new source of income is concerned which has not been considered by Assessing Officer, jurisdiction to deal with same in appropriate cases may be dealt with under section 147/148 of Act and section 263 of Act if requisite conditions are satisfied. It is inconceivable that in presence of such specific provisions similar power is available to first appellate authority. 31. Hon ble Delhi High Court in case of CIT Vs. Union Tyres reported in 107 taxmann 447 (Delhi) has also held similar view and held that it is not open to appellate commissioner to introduce in assessment new source of income and assessment has to be confined to those items of income which was subject 12 ITA No.653/PN/2013 Shri Sanjay L Sonawane matter of original assessment. relevant observations of Hon ble Delhi High Court at para Nos. 11 to 13 of order reads as under:- 11. question regarding powers of first appellate authority came up for consideration before Supreme Court recently in CIT v. Nirbheram Daluram [1977] 224 ITR 610/ 91 Taxman 181. Following their earlier decisions in Kanpur Coal Syndicate's case (supra) and Jute Corpn. of India Ltd.'s case (supra) though their Lordships reiterated that appellate powers conferred on Commissioner under section 251 could not be confined to matter which had been considered by ITO, as Commissioner is vested with all plenary powers which ITO may have while making assessment, but did not comment on issue whether these wide powers also include power to discover new source of income. Therefore, principle of law laid down in Shapoorji Pallonji Mistry's case (supra) and Rai Bahadur Hardutroy Motilal Chamaria's case (supra) still holds field. 12. Thus, principle emerging from aforenoted pronouncements of Supreme Court is, that first appellate authority is invested with very wide powers under section 251(1)(a) and once assessment order is brought before authority, his competence is not restricted to examining only those aspects of assessment about which assessee make grievance and ranges over whole assessment to correct Assessing Officer not only with regard to matter raised by assessee in appeal but also with regard to any other matter which has been considered by Assessing Officer and determined in course of assessment. However, there is solitary but significant limitation to power of revision, viz., that it is not open to Commissioner to introduce in assessment new source of income and assessment has to be confined to those items of income which were subject-matter of original assessment. 13. Applying above well-settled principles of law to facts of instant case, we are of view that Tribunal was justified in holding that in calling for remand report on aforenoted four points, Commissioner had exceeded his jurisdiction. While computing total business income of assessee, Assessing Officer had estimated sales at enhanced figure and had applied higher rate of gross profit. Thus, only matter dealt with by Assessing Officer in assessment order was estimation of profits and gain of business of assessee. None of aforenoted four points had any bearing on question of estimation of either sales or gross profit rate. From observations, extracted above', it is evident that Commissioner had his doubts about capacity of assessee to raise finances for purchase of goods and show huge turnover in very first year of his business. In other words, enquiry ordered by Commissioner was to satisfy himself about source of investment by assessee. It is axiomatic that failure to prove sources of investment will result in addition in hands of assessee under different provision of law and will not have much relevance in estimation of sales and gross profit rate adopted by Assessing Officer. In our. opinion, any addition on account of unexplained investment would constitute new source of income which was not subject-matter of assessment before Assessing Officer and, therefore, it was not open to first appellate authority to direct Assessing Officer to conduct enquiry on said four points. 14. For foregoing reasons, we answer question in affirmative, i.e., in favour of assessee and against revenue. No order as to costs. 13 ITA No.653/PN/2013 Shri Sanjay L Sonawane 32. Similar is proposition laid down by Pune Bench of Tribunal in M/s. Vijay Builders Vs. ITO (supra). 33. In view of same, we hold that there is no merit in enhancement made by CIT(A) of Rs.10 lakhs on account of new source of income and same is deleted. ground of appeal No.6 raised by assessee is thus, allowed. grounds of appeal raised by assessee are partly allowed. 34. In result, appeal of assessee is partly allowed. Order pronounced on this 30th day of September, 2016. Sd/- Sd/- (ANIL CHATURVEDI ) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Pune; Dated : 30th September, 2016. GCVSR Copy of Order is forwarded to : 1. Appellant; 2. Respondent; 3. CIT(A)-II, Nashik; 4. CIT-II, Nashik; 5. DR , ITAT, Pune; 6. Guard file. BY ORDER, //True Copy // Sr. Private Secretary ITAT, Pune Sanjay L. Sonawane v. Asst. Commissioner of Income Tax, Circle-2, Nashik