2018 (11) TMI 996 - AT - Income Tax

Addition u/s 68 - unaccounted money through this transaction or accommodated either M/s Pranav sports or Ahuja s to bring a unaccounted money to circulation through this transaction - Held that - The total amount received by the assessee under these 2 transactions, namely, the forfeiture of the advance amount and the sale consideration received from Ahujas is exactly the same as the value of the property that was originally agreed by the parties. This situation justifies the stand taken by the revenue. We are unable to agree with the revenue that this amount of ₹ 2.5 crores has to be taxed in the hands of the assessee or her husband. There is no denial of the fact that out of this ₹ 2.5 crores assessee got ₹ 1.25 crores and her husband got the balance of ₹ 1.25 crores. At no point of time the revenue thought it fit to look into the inconsistency that having accepted the same transaction in the hands of the husband, they re disputing it in the case of the wife. If we accept the contention of the assessee, it would lead to the inference that either M/s Pranav sports are Ahuja s that have brought the unaccounted money into circulation. In any event it cannot be said that the assessee had no clue about it. The conclusions drawn by the authorities below, however, are basing on the material that was collected behind the back of the assessee and it is not the case of the Revenue that copies thereof was furnished to the assessee and the assessee was given an opportunity of being heard. There appears violation of principle of natural justice - matter requires verification at the end of the AO after providing the copies of the material which they want to make a basis for their conclusions to the assessee and the assessee is at liberty put forth all have contentions, and, therefore, it is a fit case to set aside the impugned order and to remand the matter to the file of the Assessing Officer to furnish the material that was collected by them and intended to be the basis for any conclusions to be reached to the assessee and to pass orders after affording a reasonable opportunity to the assessee to put forth her case effectively. Appeals allowed for statistical purposes.

Issues Involved:
1. Applicability of Section 68 of the Income Tax Act.
2. Verification of the genuineness, creditworthiness, and identity of M/s Pranav Sports Academy Pvt. Ltd.
3. Alleged violation of the principles of natural justice.
4. Appropriate treatment of the forfeited advance amount under the Income Tax Act.

Detailed Analysis:

1. Applicability of Section 68 of the Income Tax Act:

The assessee contended that Section 68 of the Act, which deals with unexplained cash credits, had no application in this case because the income was derived from salary and house property, not from business, and no books of account were maintained. The tribunal agreed, noting that Section 68 applies to sums found credited in the books of the assessee maintained for the previous year, which was not applicable here. The tribunal also noted that Section 69, which deals with unexplained investments, was not applicable as the necessary ingredients for its applicability were missing. The tribunal found strength in the argument that Section 51, which deals with advance money received and retained upon the failure of negotiations for the transfer of a capital asset, was the appropriate provision, and the assessee had complied with it.

2. Verification of the genuineness, creditworthiness, and identity of M/s Pranav Sports Academy Pvt. Ltd.:

The Principal Commissioner of Income-tax (PCIT) had directed the Assessing Officer (A.O.) to verify the genuineness, creditworthiness, and identity of M/s Pranav Sports Academy Pvt. Ltd., which had allegedly paid the forfeited advance amount. The A.O. conducted an inquiry and concluded that M/s Pranav Sports Academy was a bogus company based on a report from an Income-tax Inspector. The tribunal noted that the A.O. did not confront the assessee with the evidence collected, including the financials of M/s Pranav Sports Academy and the Inspector's report, thereby violating the principles of natural justice.

3. Alleged violation of the principles of natural justice:

The assessee argued that the A.O. violated the principles of natural justice by relying on evidence collected behind the assessee's back without providing an opportunity to respond. The tribunal agreed, emphasizing that the material gathered should have been shared with the assessee to allow for a fair opportunity to explain. The tribunal found that the A.O.'s conclusions were based on material not disclosed to the assessee, leading to a violation of natural justice.

4. Appropriate treatment of the forfeited advance amount under the Income Tax Act:

The tribunal observed that the assessee had declared the entire sale consideration, including the forfeited advance amount, in the computation of income. The Revenue's concern was that the assessee might have routed unaccounted money through this transaction. The tribunal found that the entire transaction, including the forfeiture of the advance and the subsequent sale at a lower price, raised suspicions. However, it noted that the Revenue had inconsistently accepted the transaction in the hands of the assessee's husband while disputing it for the assessee. The tribunal concluded that the matter required further verification by the A.O. after providing the assessee with the material collected and allowing an opportunity to respond.

Conclusion:

The tribunal set aside the impugned order and remanded the matter to the A.O. for further verification, directing the A.O. to furnish the material collected to the assessee and provide a reasonable opportunity for the assessee to present her case. Both appeals were allowed for statistical purposes. The decision was pronounced on November 13, 2018.

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