2018 (5) TMI 1271 - HC - Income Tax

Addition u/s 69 - unexplained investment in the property - difference in purchase consideration as per the banakhat and the final Conveyance Deed found during the course of search - Held that - Only component principally missing was the furniture and fixtures which the owners were themselves allowed to sale which fetched a sum of ₹ 90 lakhs. There still remained a shortfall of ₹ 2.20 crores which had to be explained by the assessee. His only explanation was, after executing the agreement to sale, the property was revalued and assessee realized that the building was not suitable for running a hotel and furniture was too old. Though no breakup of valuation of the property was given in the agreement to sale, in the affidavit dated 26.05.2006, such breakup was given. Pre and post agreement to sale in which the valuation of building and furniture was drastically reduced, the Assessing Officer and higher authorities correctly noted that the valuation of ₹ 80 lakhs for the land defies logic where merely 6 years earlier the Government Approved Valuer valued the land at ₹ 1.17 crores. It is not as if the fact that such omitted land was new tenure land, was not noticed by the purchasers. In the banakhat itself, there is a reference to this parcel of land. The assessee s oral assertion that the valuation report of the year 2000 was not accurate and that the valuation was inflated only in order to obtain higher loan from the bank, cannot be accepted for the mere asking. There was no material in support of such assertion. Secondly, this would also cast serious aspersions on the Government Approved Valuer. Once agreement to sale was executed for price of ₹ 4.25 crores, it is difficult to comprehend why the sellers would agree to execute the sale deed at half the agreed consideration. No material was brought on record to show the reason for the sellers to act in such fashion, against their own interests. Disputes are purely factual in nature. No question of law arises - Decided against assessee.

Summary

Issues:
1. Addition under section 69 of the Income Tax Act for alleged unexplained investment in property.
2. Reliance on banakhat document by the Income Tax Appellate Tribunal.
3. Perversity in the order of the Income Tax Appellate Tribunal.

Analysis:

Issue 1: Addition under section 69 of the Income Tax Act
The appeal challenged the addition of &8377; 1,10,00,000 under section 69 of the Income Tax Act based on the alleged unexplained investment in the property. The documents found during the search operation included a banakhat, a sale deed, and an affidavit explaining the reduction in sale consideration. The Assessing Officer questioned the drastic reduction in the sale price from the banakhat to the sale deed. The assessee contended that certain factors led to the reduction, such as the non-purchase of a land block, sale of furniture and fixtures, and the unsuitability of the building for a hotel. However, the authorities found the explanations insufficient and added the unaccounted investment based on valuation discrepancies and lack of evidence supporting the reduction.

Issue 2: Reliance on banakhat document
The Income Tax Appellate Tribunal heavily relied on the banakhat document despite the subsequent reduction in the purchase consideration and the execution of a new sale deed at a lower price. The Tribunal considered the banakhat as evidence of the original agreement, leading to the addition under section 69. The assessee argued that the subsequent events justified the reduction, but the authorities found the explanations unconvincing, especially regarding the valuation of the property and the significant difference in the sale price from the original agreement.

Issue 3: Perversity in the Tribunal's order
The appellant contended that the Tribunal's order was perverse as it allegedly failed to appreciate the facts and evidence provided, including a valuation report from the Stamp Duty Value Organization. However, the High Court held that the disputes were primarily factual, and no legal question arose from the case. The court found the explanations regarding the valuation discrepancies and the reduction in sale price lacking in substance, leading to the dismissal of the Tax Appeal.

In conclusion, the High Court dismissed the appeal, emphasizing the factual nature of the disputes and the inadequacy of the explanations provided by the assessee regarding the unexplained investment in the property.