2015 (1) TMI 468 - AT - Income Tax

Unexplained investment in purchase of plot - Held that - Since enquires were not properly done by Revenue either of assessee contentions that the property is in FTL, so as to make it unfit for construction nor the entries in the slip are corroborated/correlated with any other evidence or enquiry, the matter should be referred to A.O. for making fresh enquiries so as to decide the issue. If assessee contention that the property is in FTL is verified, there may be genuine reason for reduction of price. This aspect requires examination. In order to do the needful, we set aside the issue to the file of A.O. to make necessary enquiries as observed above. Assessee should be given due opportunity to substantiate the contentions. With these observations, the grounds are considered allowed for statistical purposes. Disallowance of interest paid u/s.40a(ia) ₹ 21,11,274 - Held that - After comparing the proposed and enacted provision which is intended from the replacement of the words in the proposed and enacted provision from the words amount credited or paid to payable it is held that it has to be concluded that provisions of Section 40(a)(ia) are applicable only to the amounts of expenditure which are payable as on the date 31st March of every year and it cannot be invoked to disallow expenditure which has been actually paid during the previous year, without deduction of TDS. Decided the issue in favour of assessee. A.O. is directed to delete the addition.

Summary

Issues Involved:
1. Addition of Rs. 2,21,50,000 as unexplained investments.
2. Disallowance of interest paid under Section 40(a)(ia) of Rs. 21,11,274.
3. Addition of Rs. 68,89,250 as unexplained investment in purchase of land.
4. Addition of Rs. 24,12,341 as unexplained investment in construction of a house.

Issue-wise Detailed Analysis:

1. Addition of Rs. 2,21,50,000 as Unexplained Investments:
During the survey, documents indicated an agreement for the purchase of land for Rs. 2,95,50,000, with Rs. 74 lakhs paid and Rs. 2,21,50,000 remaining. The AO treated the latter as unexplained investment. The assessee claimed the final price was Rs. 60,56,000 due to the land being in a Full Tank Level (FTL) zone, and provided a sale deed and an affidavit from the vendor confirming this. The CIT(A) upheld the AO's addition, citing corroborative evidence from the agreement and impounded documents. However, the ITAT found discrepancies in the AO's and CIT(A)'s findings, noting the need for further verification of the FTL claim and the actual payments. The issue was remanded to the AO for fresh examination.

2. Disallowance of Interest Paid under Section 40(a)(ia):
The AO disallowed Rs. 21,11,274 paid as interest to M/s. India Bulls due to non-deduction of TDS. The assessee argued that the interest was part of EMIs and that M/s. India Bulls had already accounted for the income. The CIT(A) upheld the AO's disallowance, but the ITAT reversed this, citing the principle that if the payee has accounted for the income and paid taxes, further disallowance is not justified. The ITAT also referenced the Special Bench decision in Merilyn Shipping and Transports, which supports the assessee's view that Section 40(a)(ia) applies only to amounts payable at year-end.

3. Addition of Rs. 68,89,250 as Unexplained Investment in Purchase of Land:
The AO added Rs. 68,89,250 based on unsigned agreements indicating a higher purchase price. The assessee contended the land was in an FTL zone, leading to a lower final price of Rs. 62,62,500. The CIT(A) accepted the assessee's explanation, noting the lack of corroborative evidence for the AO's higher valuation and the affidavits from vendors confirming the lower price. The ITAT upheld the CIT(A)'s decision, emphasizing the need for concrete evidence to support the AO's claims.

4. Addition of Rs. 24,12,341 as Unexplained Investment in Construction of a House:
The AO added Rs. 24,12,341 as unexplained investment in a property at Kavuri Hills, based on impounded documents. The assessee provided bank statements and books of account to explain the sources. The CIT(A) directed the AO to verify these documents and accept the explanation if substantiated. The ITAT criticized the AO for not properly examining the evidence during remand and upheld the CIT(A)'s directive for verification, noting that subsequent verification by the AO confirmed the investments as explained.

Conclusion:
The ITAT's judgment emphasizes the importance of thorough verification and corroboration of evidence by tax authorities. It highlights the need for clear, concrete evidence before making additions for unexplained investments and disallowances. The remand for fresh examination in some cases underscores the necessity for detailed scrutiny and proper consideration of all relevant facts and documents.