Inflated value of furniture as part of property sale price rightly taxed as unexplained cash credit – ITAT

Inflated value of furniture as part of property sale price to save stamp duty rightly taxed as unexplained cash credit u/s 68 of the Income Tax Act – ITAT

ABCAUS Case Law Citation:
ABCAUS 2402 (2018) 07 ITAT

The instant appeal has been filed by the assessee against the Order of the CIT(A) challenging the addition made on account of unexplained cash credit under section 68 of the Income tax Act, 1961 (the Act).

During the year under consideration, the assessee sold a house property and purchased a residential house. The assessee claimed the entire amount of LTCG was exempt u/s 54 of the Act.

The AO found that the sale consideration of the property sold included an amount of Rs. 10 lacs towards sale of furniture available in the house at the time of sale of property. The assessee had executed an agreement for sale of furniture.

To ascertain the genuineness of the sale consideration of furniture, the AO conducted necessary enquiries and summons were issued to the purchasers with whom agreement of sale of furniture had been executed. Summons was also issued to the person from whose accounts the payments were made for the alleged sale of furniture.

All the said three persons admitted that exchange of some furniture was involved though the cost involved was around Rs. 3 to 3.5 lakhs only. These persons also admitted that main purpose of agreement was to reduce the stamp duty involved in the transaction.

Considering these facts, The AO determined the transaction of sale of furniture at Rs. 3 lakhs and accordingly, sale consideration of long term capital gains was determined by adding the rest of the amount i.e. Rs. 7 lakhs which was treated as unexplained cash credit under section 68 of the Act, 1961.

The assessee challenged the addition before the CIT(A) and defended the agreement as genuine. It was also contended that even if the contention of the AO was accepted, the assessee was entitled for long term capital gain on Rs. 7 lakhs also as the assessee had invested total amount.

On the applicability of section 68, the assessee also contended that since he had proved the identity, creditworthiness and genuineness of the transaction, no addition under section 68 was to be made. Another contention of the assessee was that Rs. 10,00,000/- was received against sale of personal effects under section 2(14)(ii) which were not liable to tax.

The CIT(A) noted that long term capital gain had already been determined and benefit under section 54 had already been given to the assessee, therefore, no further benefit could be given. It was also noted that value of the house hold articles was Rs. 3 lakhs only, therefore Rs. 7 lakhs shall have to be added as income from other sources, therefore, the appeal of assessee was dismissed.

The Tribunal observed the parties summoned admitted before AO that exchange of some furniture was involved but the cost involved was substantially less and the main purpose of the agreement was to reduce the stamp duty involved.

It was observed that the above facts had not been disputed during the course of assessment proceedings through any evidence or material on record. It was also noted here that the purchasers had not given any sale consideration to the assessee but some other person had made the payment on their behalf which itself caste a doubt on the explanation of assessee.

It was further observed that the list of items for sale of furniture etc., given in the agreement to sale even did not mention the number of items which supported the findings of the A.O. that the value of old furniture etc., would not have exceeded the amount of Rs. 3 lakhs. No evidence had been produced by the assessee to explain that value of the items under sale were more than Rs. 3 lakhs.

The ITAT opined that the totality of the facts and circumstances of the case clearly proved that the furniture etc., sold by assessee was for Rs. 3 lakhs only, against which, assessee had received cheque of Rs. 10 lakhs. Therefore, the authorities below were justified in considering the addition of Rs. 7 lakhs in the hands of the assessee. Since the agreement to sale was executed to inflate the value of the furniture so as to evade the stamp duty and also to evade proper payment of long term capital gains, therefore, authorities below rightly rejected the explanation of assessee.

The contention that since it was a sale of personal effects, therefore, no addition could be made, was rejected by the Tribunal because the personal effects would not be included in the capital asset under section 2(14)(ii) of the Act.

The Tribunal confirmed the addition and dismissed the appeal of the assessee.

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