[Opinion] Strange Order Passed by the Tribunal Regarding Burden of Proof

CA S. Krishnan – [2023] 155 taxmann.com 487 (Article)

1. Introductory Remarks

When the author was going through the Income-tax Tribunal website as has been his wont to update himself on the latest developments on the income-tax front vis-à-vis latest case law, he came across an interesting but a strange decision rendered by the ITAT Chennai Bench in the case of Dy. CIT v. A.P. Sridhar (HUF) [IT Appeal Nos. 2726 and 2735/Chny/2016, dated 23-2-2022] wherein the Tribunal seems to have shifted the burden of proof on the Revenue in respect of deposits in assessee’s bank account arising out of cash receipts over and above value of property registered in the sale deed, without appreciating the fact that the dice was loaded totally against the assessee. This case decided by the Tribunal has been discussed in the next paragraph.

A few decisions related to the subject have also been digested in subsequent paragraphs.

2. Analysis of the order of the Tribunal in the case of A.P. Sridhar (HUF)

The assessee, an HUF in this case, filed its return of income for the Assessment Year 2011-12 on 2nd December, 2012 declaring a certain income. The case was taken up for scrutiny and during the course of assessment proceedings, it was noticed that the assessee had declared long term capital gains from sale of its flat at Chennai, by stating that it had received total sale consideration of Rs 761.82 lakhs. The assessee had claimed indexed cost of acquisition as also indexed cost of improvement and declared net capital gain from transfer of property at Rs. 687.88 lakhs. Further, the assessee had claimed exemption under section 54 of the Income tax Act (the Act) at Rs. 253.96 lakhs being purchase of residential flat and also claimed exemption under section 54EC of the Act for Rs. 50 lakhs by way of investment in capital gain bonds. Thus, the income declared by the assessee under the head capital gains stood at Rs. 383.92 lakhs. The Assessing Officer called for various details during the assessment proceedings. It was contended on behalf of the assessee though the actual consideration as per registered deed was Rs. 250 lakhs, the actual amount received was Rs.761.82 lakhs and the balance of consideration received in cash was Rs.511.82 lakhs which was distributed to members of HUF. It was submitted by the assessee that this method was adopted to save money on stamp duty.

The Assessing Officer was not willing to accept the receipt of cash by the assessee as he was not convinced with the reply furnished by the assessee and he also found support from the statement recoded by DDIT (I & CI)-II, Chennai from the purchaser of the property wherein he had categorically denied payment of consideration in cash over and above what was specified in the Sale Deed

While completing the assessment, the Assessing Officer thus made certain disallowances with which we are not concerned in this article. But the main point is that the Assessing Officer while completing the assessment added the difference of amount of Rs. 511.82 lakhs alleged to have been received by the assessee by way of cash under the head income from other sources.

On first appeal by the assessee the Commissioner of Income-tax (Appeals) after considering the arguments put forth on behalf of the assessee and after appreciating the other circumstantial evidences including location of the property and the Fair Market Value as on the date of sale, observed that these pieces of evidence would clearly indicate that the claim of theassessee that it had sold the property for consideration of Rs. 761.82 lakhs, appeared to be correct. He thus directed the Assessing Officer to treat the amount stated to have been received by the assessee under the head capital gains as against the head of income adopted by the Assessing Officer i.e., income from other sources.

The Revenue filed an appeal before the Tribunal.

The Departmental Representative argued on the following lines.

(a) The documentary evidence including the copy of Sale Deed executed for sale of property clearly showed that, the purchaser had paid consideration of Rs.250 lakhs only.

(b) The purchaser of the property clearly denied having paid cash consideration for purchase of property in the sworn statement recorded under section 131 (of the Act) dated 20.01.2014 by the DDIT (I & CI)-II, Chennai, which clearly showed that the assessee has received sale consideration of Rs.250 lakhs only.

(c) The Commissioner of Income-tax (Appeals) erred in allowing the claim of the assessee that cash credits represented the sale consideration of the property received in cash and therefore, to be treated as sale consideration for long term capital gains in the hands of the HUF without appreciating the fact that the cash portion of consideration, was not deposited in the HUF’s bank account but instead the same was deposited in co-parcener’s bank account after a gap of six months and

(d) The same, thus, could not therefore be telescoped against the sale consideration.
It was argued on behalf of the assessee that the assessee had voluntarily offered sale consideration of Rs.761.82 lakhs and computed long term capital gains after claiming certain deductions and so it was wrong on the part of the Assessing Officer to allege that the cash consideration received for transfer of property was income from unexplained source, that too without any evidence to prove that the assessee was having income from undisclosed sources and that the Commissioner of Income-tax (Appeals) on appreciation of evidence had rightly deleted the addition.

The Tribunal listed out the facts of the case as well as submissions made on behalf of both sides and observed at para. 10 as under-

“The assessee neither carried out any business activity nor generated any other income from other sources. Therefore, in the absence of any business activity which generates undisclosed income, it cannot be alleged that the assessee has generated income from unexplained sources. No doubt, when assessee claims something, which is the duty of the assessee to justify its claim with necessary evidence. Unless assessee substantiated its claim with necessary evidences, then, the Assessing Officer can infer otherwise but such inference should be based on circumstantial evidences. In this case, the assessee claims that it has received sale consideration in cash amounting to Rs.511.82 lakhs from transfer of property which is although not supported by documentary evidences, but circumstantial evidences clearly show that there is every possibility of generating income from that source. Therefore, when the assessee has claimed that it has received sale consideration in cash for transfer of property, it is for the Assessing Officer to disprove the claim of the assessee with cogent reason and sufficient evidences. In this case, the Assessing Officer has simply gone on the basis of Sale Deed executed by the assessee and also statement of the buyer of the property. It is accepted but not admitted fact that there is a vast difference between guideline value of the property and market value of the property and the guideline value of the property not necessarily be Fair Market Value of the property.”

The Tribunal went on to observe that

“In the present case, consideration shown in the Sale Deed is more or less equivalent to guideline value of the property fixed by the Stamp Duty Authority as on the date of sale. Therefore, if you consider the arguments of the assessee in light of prevailing fact that there will be a difference between guideline value of the property and Fair Market Value of the property, then, the claim of the assessee that it has received cash consideration of Rs.511.82 lakhs cannot be doubted, more particularly if you consider the location of the property.”

The appeals preferred by the Revenue were dismissed.

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