2023 (4) TMI 1276 - AT - Income Tax

Unaccounted interest payment - AO relied upon the statement of CFO recorded who confirmed that since the buyers are putting money into the project they have advantageous position of buy back clause mentioned in the agreement and the buy-back price was not determined as charging of interest @ 24% clause was available in the agreement, thus held that the prime intention of the lender in the above mentioned deal was to get the loan alongwith committed amount of interest, instead of plots - HELD THAT - All the lender parties were allotted the same area of plot as was quantified in the Amendatory Loan cum Purchase Agreement without any further charges. That infact, it is only such amendatory agreement which had been acted upon when the vendees had also taken both constructive and physical delivery of plots allotted to them. Thus, the lenders have exercised their option to acquire the plots of land instead of accepting the amount of interest originally agreed to be taken from the assessee. This fact itself shows that the original loan agreements, at this juncture, were effectively converted into an agreement to sell/purchase of plots, and hence accrual of any interest does not arise at all. It is a fact that as per the terms of the Amendatory Loan cum Purchase Agreement, on exercise of the option to purchase the residential plot, the loan agreements and Amendatory Loan cum Purchase Agreement shall be deemed to be an agreement to sell and purchase of the residential plots. Under the loan agreements, Amendatory Loan cum Purchase Agreement and Extension Agreements, PDCs were given to the lender/customer in respect of principal amount and interest amount. Since the lenders/customers never treated the agreement as loan agreement but always wanted to purchase the plot, as such, PDC s were never encashed. Had it been a case of loan instead of advance then obviously the allottees of the land, instead of taking the delivery of plots would have enchased the PDCs. The PDCs were given only as a security pending allotment so that the amounts are secured. An undisputed fact that ultimately the plots were allotted to these parties as per Amendatory Loan cum Purchase Agreement/extension agreements. The situation could have been different, had they not exercised the option to purchase the plots or the plots were not allotted to such lenders. Once the plots were ultimately allotted to such parties, the nature of the agreements changed from loan agreement to agreement to sell/purchase of the plots. It is also a fact on record that no evidence of payment of any such interest has been found, which itself proves that no such liability by way of interest has accrued to the assessee. Infact, neither in the assessment proceedings nor in the first appellate proceedings, any material has been brought on record to support the assumption that the assessee has incurred a liability by way of interest. There is no evidence, even, to suggest that the lenders have actually received any interest. Contention of the revenue that the assessee has paid the entire accrued interest till the date of allotment of the plots to the lenders, as agreed, but outside its books in cash is nothing but a figment imagination and based on mere suspicion and surmises. Academically, if the statement of the revenue, that the assessee has paid unaccounted interest to the lender parties is considered as correct, in the backdrop of the fact that the principal amount received is accounted by the assessee as well as by the loan parties, the payment of interest from the books would be advantageous to the assessee to reduce their taxable income and hence we are not in a considered situation to accept the presumption of the revenue. Agreements themselves show that the interest was not actually paid upto 27.08.2010 but accumulated and hence the question of payment of interest annually and disallowance of such interest by the revenue doesn t arise. And since the space was allotted by the assessee to these parties even the purported accumulated interest cannot be taxable in the A.Y. 2011-12. With regard to the allegation of the revenue that buy-back value is less than the principal plus interest proves that assessee has paid the unaccounted interest and is taxable u/s 69C of the Act is erroneous in the absence of any material found either from the premises of the assessee or from the premises of investors that assessee has paid any unaccounted interest, as there can be none, since the investors were allotted the plot of land as was stipulated in the Amendatory Loan cum Purchase Agreement and Extension Agreements. We decline to interfere with the order of ld. CIT(A) pertaining to the interest chargeable in case of SEH Realtors Pvt. Ltd. and unaccounted interest payment on account of Jaipur Project. With regard to NH8 Project, since the plots have been duly allotted as per the modified agreements and in the absence of any material found and seized/impounded suggesting interest payment in cash/unaccounted, we hold that no interest can be taxed on notional basis. Addition on account of Cash Receipts - AO held that the following seized documents show that the actual deal size was Rs. 150 crores out of which only Rs. 105 crores were recorded, and the deal entailed cash payments/receipts which were not recorded in the books of accounts - HELD THAT - As relying upon certain email communications between some persons related to the assessee company and other entities, AO has concluded that in addition to the amount recorded in the agreement towards consideration for sale of land in Sector 84 and 85 of Gurgaon, the assessee received money in cash, as, the information in the email suggests that the total consideration paid towards purchase of land by different entities was to the tune of Rs.150 crores and not the recorded amount of Rs.105 crores. It is observed from the materials on record, except the email communications, the Assessing Officer has no other corroborative evidence to conclusively prove that money in cash had actually changed hands. Except the email communications, no other documents have been seized, either from the assessee or from other entities to indicate that cash payment was actually made. Apart from relying upon the email communication, the Assessing Officer has not made proper inquiry to establish on record that cash payments were actually made to the assessee. As rightly observed by Commissioner (Appeals), the emails on which the AO placed reliance, essentially, do not patently show any agreement or discernible consent arrived at between the buyer and seller regarding the land to be purchased or the rate per sq. yards. The emails are in the nature of discussions and proposals to a planned purchase transaction. It has been factually found by Commissioner (Appeals) that the figures relating to the alleged total deal vary in different emails - Commissioner (Appeals) has also given a factual finding that no seized materials were found conclusively establishing that any amount in cash was actually paid or any such sum was adjusted against the final sale consideration. Revenue has failed to controvert any of the factual findings recorded by learned Commissioner (Appeals). Though, email relied upon by the Assessing Officer may give rise to suspicion that there may be cash payment in addition to the recorded sale consideration, however, such suspicion, howsoever strong, cannot take place of evidence. It is a fact on record that the Assessing Officer has not brought any evidence to establish that cash payments were actually made to the assessee. Addition u/s 69A - cash found from the office premises of appellant - HELD THAT - As evident, in course of assessment proceeding, not only the assessee had requested the Assessing Officer for issuing summons to the concerned persons to verify assessee s claim, but on the insistence of the AO the assessee could be able to produce 4 persons. As it appears, the Assessing Officer has not made any effort to ensure the attendance of the other 5 persons. AO has been conferred with adequate power under the statute to not only conduct necessary inquiry, but even enforce attendance of witness. In the facts of the present appeal, the AO has failed to exercise such statutory power. On the other hand, he has put the entire burden on the assessee to prove the source of cash seized. When the assessee has furnished explanation regarding the source of cash seized, the AO was duty-bound to make proper inquiry to take the issue to its logical end. Since, the departmental authorities have failed to undertake necessary inquiry to ascertain the veracity of assessee s claim regarding source of cash seized, the assessee cannot be faulted for not providing the required details and proving the source, identity of the persons from whom the amount has been received on account of advance bookings of the plots. The onus having been discharged by the assessee, it was for the revenue to disprove the contentions of the assessee. The assessee cannot be faulted for not issuing the summons u/s 131 by the Assessing Officer and to make further enquiries as deemed fit. Hence, the appeal of the assessee on this ground is liable to be allowed.

Summary

Issues Involved:
1. Unaccounted Interest Payment in NH8 Deal.
2. Unaccounted Interest Payment in Jaipur Deal.
3. Addition on Account of Cash Receipts.
4. Addition u/s 69A on Account of Cash Received on Booking of Plots.

Summary of Judgment:

1. Unaccounted Interest Payment in NH8 Deal:
The tribunal addressed the issue of unaccounted interest payment by M/s Vatika Ltd. to various entities. The AO concluded that the transactions were loan agreements camouflaged as sale-purchase agreements, leading to unaccounted interest payments. The CIT(A) partially upheld the AO's findings but differentiated the transactions with SEH Realtors Pvt. Ltd., treating them as loan-cum-purchase agreements. The tribunal found that the agreements were initially loan agreements but were later converted to purchase agreements, and no interest was actually paid. Thus, the tribunal deleted the addition made on account of unaccounted interest payments.

2. Unaccounted Interest Payment in Jaipur Deal:
The CIT(A) deleted the addition related to unaccounted interest payments in the Jaipur Deal, concluding that the transactions were genuine purchase agreements. The tribunal affirmed this decision, noting that the agreements and accounting treatment indicated purchase transactions rather than loans. The tribunal found no evidence supporting the AO's claim of unaccounted interest payments.

3. Addition on Account of Cash Receipts:
The AO added Rs. 45 crores to the income of M/s Vatika Ltd., alleging unaccounted cash receipts based on email communications. The CIT(A) deleted this addition, stating that the emails were proposals and not conclusive evidence of cash payments. The tribunal upheld the CIT(A)'s decision, emphasizing that suspicion cannot replace evidence and the AO failed to provide concrete proof of cash payments.

4. Addition u/s 69A on Account of Cash Received on Booking of Plots:
The AO added Rs. 3.10 crores u/s 69A, treating the cash found during the search as unexplained. The assessee claimed the amount was received as advance booking for plots. The CIT(A) confirmed the AO's addition. However, the tribunal found that the assessee provided sufficient evidence, including booking applications and confirmations from the parties. The tribunal held that the AO failed to conduct proper inquiries and deleted the addition.

Conclusion:
- The tribunal deleted the additions related to unaccounted interest payments in both NH8 and Jaipur deals.
- The tribunal upheld the deletion of the addition on account of alleged cash receipts.
- The tribunal deleted the addition made u/s 69A, accepting the assessee's explanation for the cash received on booking of plots.