2011 (2) TMI 258 - HC - Income Tax

Addition of Rs. 884750 - undisclosed investment in the property - Learned counsel for the respondent-assessee submitted before us that the Tribunal rightly deleted the addition made by the AO since no addition could be made under Section 69 of the Act merely on presumption basis - In any case, even if the Department has accepted the transaction entered into by those deeds of assignment, that is a different matter and not relevant to the present controversy - When we read the purported letter dated 25th February, 1992, it would lead one to outrightly disbelieve the version of the assessee as there could not have been any occasion for R. Balajee to write such a letter on the very next day to the assessee Accordingly the appeal is disposed of

Issues Involved:
1. Legitimacy of the addition of Rs. 8,84,750/- as undisclosed investment.
2. Interpretation of Section 132(4A) of the Income Tax Act, 1961.
3. Validity of the letter dated 25th February 1992.
4. Relevance of subsequent property sale and other transactions.

Issue-wise Detailed Analysis:

1. Legitimacy of the Addition of Rs. 8,84,750/- as Undisclosed Investment:
The Assessing Officer (AO) added Rs. 8,84,750/- to the assessee's income as "undisclosed investment in the property" based on a fax message dated 24th February 1992, which indicated a higher purchase price for the property than what was declared in the books. The AO was not convinced by the assessee's explanation that the fax message was erroneous and relied on a letter dated 25th February 1992, which purportedly corrected the error. The Commissioner of Income Tax (Appellate) [CIT(A)] confirmed the AO's addition, disbelieving the letter dated 25th February 1992 as an afterthought. The Tribunal, however, deleted the addition, stating that no addition could be made under Section 69 of the Act merely on a presumption basis without concrete evidence.

2. Interpretation of Section 132(4A) of the Income Tax Act, 1961:
The Tribunal's decision to delete the addition was based on its interpretation that the AO had not examined the person who sent the fax message, Mr. R. Balajee, and thus, the letter dated 25th February 1992 could not be dismissed outright. However, the High Court found that the Tribunal misinterpreted Section 132(4A), which allows for a presumption that the contents of the documents found during a search are true unless rebutted by the assessee. The High Court ruled that the AO and CIT(A) were correct in their assessment that the letter dated 25th February 1992 was an afterthought and not sufficient to rebut the presumption raised by the fax message.

3. Validity of the Letter Dated 25th February 1992:
The High Court scrutinized the fax message and the subsequent letter. The fax message detailed the property transaction and was deemed credible by the AO and CIT(A). The letter dated 25th February 1992, which purported to correct the fax message, was considered an afterthought and a created document. The High Court noted that the letter was produced much later and seemed tailored to mitigate the implications of the fax message. The court emphasized that the assessee did not make any effort to examine Mr. R. Balajee to substantiate the claims made in the letter.

4. Relevance of Subsequent Property Sale and Other Transactions:
The assessee argued that the property was later sold for Rs. 15,26,150/- during the assessment year 1994-95, which was accepted by the Department, and cited similar transactions by his wife. The High Court found that these subsequent transactions were not relevant to the present case. The court noted that the properties mentioned in the deeds of assignment were different from the property in question and that the prices on different floors of the same building could vary significantly. The court also dismissed the relevance of the wife's property transaction, stating it was based on a different set of facts.

Conclusion:
The High Court concluded that the Tribunal erred in law by misinterpreting Section 132(4A) and not giving due consideration to the presumption that the contents of the seized documents are true. The court upheld the addition of Rs. 8,84,750/- as undisclosed investment and ruled in favor of the Department, dismissing the Tribunal's decision to delete the addition. The appeal was disposed of accordingly.

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