2015 (5) TMI 677 - AT - Income Tax

Unexplained investment in the purchase of land - copy of agreement was seized from the sister concern of the assessee which shows the rate of land was at ₹ 6,50,000 per bigha instead ₹ 1,25,000 per bigha declared, in the registration deed - CIT deleted the addition - Held that - The Assessing Officer has relied upon the copy of the agreement to sell seized during the course of search operation, which has admittedly been cancelled by the parties by marking cross on the same. It is also admitted fact that the said agreement in question did not have any proper identification of the land proposed to be sold. No specific property is mentioned in the said agreement for the purpose of sale. No evidence has been brought on record if the said agreement to sell was acted upon by the concerned parties. The seller to the agreement to sell or the witnesses to the agreement to sell have not been examined either by the search party or the Assessing Officer. No evidence has been found during the course of search to prove if any over and above consideration have been paid in respect of any property purchased by the assessee. Since the agreement in question is cancelled document and did not relate to the assessee directly or indirectly, therefore, the Assessing Officer has merely inferred that the assessee might have paid some more consideration over and above what is stated in the registered documents. It was merely the suspicion of the Assessing Officer to make addition against the assessee. However, it is well settled law that suspicion, whatsoever may be strong, cannot take place of legal proof. In the absence of any adverse material against the assessee, we do not find any justification to interfere in the order of CIT(Appeals) in deleting the addition. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition on account of unexplained investment under Section 69B of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Deletion of Addition on Account of Unexplained Investment under Section 69B of the Income-tax Act, 1961.

Ground of Appeal:
The Revenue contended that the Commissioner of Income-tax (Appeals) erred in deleting the addition of Rs. 23,62,500 made on account of unexplained investment by the assessee in the purchase of land. The Revenue argued that a seized copy of an agreement from the sister concern of the assessee indicated a higher rate of land purchase at Rs. 6,50,000 per bigha instead of Rs. 1,25,000 per bigha as declared in the registration deed.

Assessing Officer's Findings:
The Assessing Officer (AO) observed that as per the seized documents, the agreement showed a higher purchase rate of Rs. 6,50,000 per bigha. The AO concluded that the assessee had paid Rs. 23,62,500 more than the declared amount, leading to an addition under Section 69B.

Assessee's Arguments:
The assessee argued that the seized documents (pages 34 and 35 of annexure A-9) did not belong to them and were not confronted during the search or post-search inquiries. The assessee maintained that the actual amount paid for the land was as per the registration deed and no adverse material was found during the search. They also highlighted that the agreement was a canceled document with no mention of the assessee's name or any of its directors.

Commissioner of Income-tax (Appeals) Findings:
The Commissioner of Income-tax (Appeals) found that:
- The seized agreement was canceled and did not specify the property to be sold.
- The assessee was neither the buyer nor the seller in the agreement.
- No evidence was found during the search indicating any unaccounted payment.
- The AO applied the higher purchase rate only to a part of the land while accepting the declared rate for the rest.
- The addition was based on suspicion rather than credible evidence.

The Commissioner of Income-tax (Appeals) relied on the Supreme Court decision in K.P. Varghese v. ITO and other relevant judgments, which held that the sale consideration in the registered deed should be accepted unless there is credible evidence to the contrary.

Tribunal's Decision:
The Tribunal upheld the decision of the Commissioner of Income-tax (Appeals), noting:
- The seized agreement was canceled and lacked specific property identification.
- The assessee was not a party to the agreement, and no adverse material was found during the search.
- The AO's addition was based on suspicion without any legal proof.
- The Tribunal emphasized that suspicion, no matter how strong, cannot replace legal proof.

The Tribunal dismissed the Revenue's appeal, affirming that the addition under Section 69B was unjustified in the absence of credible evidence.

Conclusion:
The appeal filed by the Revenue was dismissed, and the deletion of the addition of Rs. 23,62,500 on account of unexplained investment was upheld. The Tribunal found no merit in the Departmental appeal, reiterating the principle that legal proof is essential to substantiate any addition under Section 69B.