2015 (5) TMI 854 - HC - Income Tax

Suppression of income - sale price shown in the sale deed of the private respondent at ₹ 800/- per square feet is deliberately undervalued - Tribunal deleted the addition - Held that - Considering appellant submition that the statement of the agreement-holder clearly discloses that the agreement was made on behalf of the respondent company. The agreement also discloses a payment of advance amount of ₹ 4-crore, which, according to the agreement-holder, was paid by the respondent company. The respondent company issued cheques towards advance payment to the vendor and virtually purchased the property. Therefore there appears to be no reasonable nexus and substantial evidence available to show that the agreement made by Mr Modi with the erstwhile owner was in fact for the benefit of the company and that the Tribunal did not appreciate the evidence in proper perspective, thus erred in allowing the appeal. - Decided against revenue. The respondent company has shown the sale price in the account books at ₹ 9-crore odd. The department has not found any contra material to controvert the entries in the account books of the respondent company.Tribunal was justified and correct in law in holding that even if the addition was justified, it should had been made under Section 69B of the Income Tax Act, 1961 and not under section 69 of the Income Tax Act, 1961. Department has failed to discharge the burden under Section 69B of the Income Tax Act, 1961 of proving that the assessee made additional investment. - Decided against revenue. Tribunal was justified and correct in law in holding that the provision of Section 114(g) of the Indian Evidence Act, 1872 is attracted in the case - Decided against revenue.

Summary

Issues involved:
1) Undervaluation of property in sale deed
2) Allegations of income suppression and tax avoidance
3) Appeal against assessment order
4) Tribunal's decision to delete addition made by Assessing Officer
5) Justification of addition under Section 69B of Income Tax Act
6) Burden of proof on Department under Section 69B
7) Application of Section 114(g) of Indian Evidence Act

Analysis:

Issue 1: Undervaluation of property in sale deed
The respondent company purchased a hotel for Rs. 10.40 crore, but an agreement between a broker and the previous owner indicated a higher price of Rs. 3,500 per square feet, suggesting deliberate undervaluation. The department alleged suppression of income amounting to Rs. 35.10 crore.

Issue 2: Allegations of income suppression and tax avoidance
The assessing officer found the respondent guilty of income suppression based on the broker's statement and agreement, leading to a reassessment under the Income Tax Act. The respondent appealed to the Commissioner of Income Tax, who upheld the order, prompting an appeal to the Income Tax Appellate Tribunal.

Issue 3: Appeal against assessment order
The Tribunal allowed the respondent's appeal, leading to the department's appeal to the High Court. The Court framed substantial questions of law, including the nexus between the agreement and the respondent company, the application of relevant sections of the Income Tax Act, and the burden of proof on the Department.

Issue 4: Tribunal's decision to delete addition made by Assessing Officer
The appellant argued that the Tribunal erred in deleting the addition, emphasizing the agreement's connection to the respondent company. However, the respondent contended that the agreement predates the company's incorporation, questioning its validity.

Issue 5: Justification of addition under Section 69B of Income Tax Act
The Tribunal justified deleting the addition by stating that even if justified, it should have been made under Section 69B, not Section 69, of the Income Tax Act, emphasizing the lack of evidence linking the respondent to additional investment.

Issue 6: Burden of proof on Department under Section 69B
The respondent's account books showed a higher sale price, which the department failed to counter with contrary evidence, leading to a favorable ruling on the burden of proof.

Issue 7: Application of Section 114(g) of Indian Evidence Act
The Tribunal's decision was supported by the non-production of a statement from the vendor company, justifying the application of Section 114(g) of the Indian Evidence Act.

In conclusion, the High Court dismissed the appeal, upholding the Tribunal's decision based on the lack of substantial evidence connecting the respondent to the alleged income suppression and tax avoidance. The Court found no perversity in the Tribunal's findings and ruled in favor of the respondent on key legal issues.