2015 (8) TMI 44 - AT - Income Tax

Unexplained cash credit u/s 68 - addition representing share application money - Held that - Solely on the basis of denial by some commission agents it cannot be concluded that share applicants were not having any agricultural income. More so, when AO has made enquiries with the concerned share applicants and has not found any adverse material to dispute the share applicant s claim of having agricultural land holding or the fact that they are engaged in agricultural activity. The only thing the statement of commission agents prove, accepting them to be correct, share applicant s claim that they have not gone to any mandy or commission agents for selling their produce and the produce were purchased by some persons from the place of cultivation itself appears to be genuine. AO also enquired about only Tomato sales whereas the share applicants have paddy cultivation also. Thus, AO having failed to bring any material on record to disprove share applicant s claim of having agricultural land holding or engaged in agricultural activity, no doubt can be entertained with regard to their creditworthiness. In the aforesaid facts and circumstances, the addition being not based on proper evidence, we are not able to sustain the same - Decided in favour of assessee. Addition on the profit on sale of land - Held that - As could be seen, at the assessment stage, assessee has claimed that apart from the payment made to original owners, assessee has also paid to various other persons towards surrender of their right over the property. As it appears, AO has not disputed the aforesaid claim of assessee. The only reason, he treated the surplus as profit of assessee is, the land in question is stock-in trade and not investment. That being the case, we are unable to understand on what basis, ld. CIT(A) concluded that assessee has failed to produce any evidence with regard to payment made to various persons. As rightly submitted by ld. AR, whether it is an investment or stock-in-trade, payment made by assessee has to be taken into account for arriving at the cost incurred. Therefore, in either case, there cannot be any surplus to be treated as income of assessee. Since the aforesaid aspect has not been considered either by AO or by ld. CIT(A) in proper perspective, we are inclined to remit the issue back to the file of AO for deciding afresh after due opportunity of being heard to assessee.- Decided in favour of assessee for statistical purposes. Unexplained investment in land - Held that - AO has made the addition by stating that assessee has failed to explain the two amounts. Before ld. CIT(A) also assessee has not made proper representation. Therefore, considering the nature of dispute and claim of assessee, we are inclined to remit the matter back to the file of AO allowing assessee one more opportunity to explain the amounts in question. Accordingly, the matter is remitted to AO for deciding afresh after due opportunity of being heard to assessee. - Decided in favour of assessee for statistical purposes.

Issues Involved:
1. Addition of Rs. 25 lakhs as unexplained cash credit under Section 68 of the Income Tax Act.
2. Addition of Rs. 20,64,529 as profit on the sale of land.
3. Addition of Rs. 97,000 as unexplained investment in land.
4. Addition of Rs. 55,80,000 as share application money.

Issue-wise Detailed Analysis:

1. Addition of Rs. 25 Lakhs as Unexplained Cash Credit Under Section 68:

The assessee, a company engaged in real estate, declared 'nil' income for AY 2006-07. During assessment, the AO noticed Rs. 33 lakhs introduced as share application money, out of which Rs. 25 lakhs were contributed by various persons. The AO found discrepancies in the confirmation letters and the agricultural income claimed by the contributors. A survey under Section 133A revealed that commission agents denied purchasing agricultural produce from these contributors. The AO treated the Rs. 25 lakhs as unexplained cash credit due to lack of satisfactory evidence on the creditworthiness of the contributors and added it to the income of the assessee. The CIT(A) upheld this addition, noting the failure to prove the genuineness of the transactions and the creditworthiness of the contributors.

The Tribunal, however, found that the AO's reliance on the commission agents' statements was insufficient to disprove the agricultural income claims of the contributors. The Tribunal noted that the AO failed to provide adverse material against the contributors' claims of agricultural landholding and activities. Consequently, the Tribunal directed the AO to delete the addition.

2. Addition of Rs. 20,64,529 as Profit on Sale of Land:

The AO found a sale deed indicating the sale of land for Rs. 23,62,500, which was not disclosed by the assessee. The land was purchased for Rs. 2,97,971, and the AO treated the surplus as business income, rejecting the assessee's claim of additional payments to secure land rights. The CIT(A) upheld the addition, citing lack of evidence for the additional payments.

The Tribunal noted that the AO did not dispute the genuineness of the payments but treated the surplus as business income because the land was stock-in-trade. The Tribunal remitted the issue back to the AO for reconsideration, instructing to account for the payments made by the assessee.

3. Addition of Rs. 97,000 as Unexplained Investment in Land:

During assessment, the AO found agreements indicating unrecorded investments and added Rs. 97,000 as unexplained investment under Section 69. The CIT(A) confirmed the addition.

The Tribunal allowed the assessee another opportunity to explain the amounts, remitting the matter back to the AO for fresh consideration.

4. Addition of Rs. 55,80,000 as Share Application Money:

For AY 2003-04, the AO added Rs. 55,80,000 as share application money, similar to the issue in AY 2006-07. Following its earlier decision, the Tribunal deleted the addition.

Conclusion:

The Tribunal partly allowed the appeal for AY 2006-07 by deleting the addition of Rs. 25 lakhs and remitting the issues of Rs. 20,64,529 and Rs. 97,000 back to the AO. The appeal for AY 2003-04 was fully allowed by deleting the addition of Rs. 55,80,000.

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