2022 (3) TMI 619 - AT - Income Tax

Addition on protective basis u/s 69 - money paid for purchase of lands - Difference of amount as per sale agreement and registered deed - On receipt of information from Investigation Wing, Guntur, AO found that Shri G.Punna Rao has shown receipts from consideration on account of sale of agricultural land to the assessee for more than the amount mentioned in registered deeds, whereas the books of accounts of the assessee depicts only the registered value - assessee has contended that the agricultural lands were purchased from Shri G.Kalyan Babu for the purpose of construction of spinning mill, but not entered into any agreement with Shri G.Kalyan Babu before purchase of the property - HELD THAT - Revenue made substantive and protective assessments in the hands of Shri Punna Rao and the assessee company. But there is no evidence to show that the said Shri Punna Rao is the owner of the property. As per the agreements of sale as well as the sale deeds, one Shri Kalyan babu, is the owner of the lands and he has entered into an unregistered agreement of sale in favour of Shi Masthan Rao, but he executed registered sale deeds in favour of the assessee company. Assessee company never entered into any agreements of sale with Shri Kalyan Babu. There are no recitals in the agreements of sale that the assessee company has purchased the land. Therefore, one thing is clear that there is no seller and buyer relationship between Shri Punna Rao and the assessee company. Thus, the contention of the revenue has no legs to stand. Some portion of payments were made through cheques which were issued by the assessee company and the said cheques photostat copy was affixed on the agreement of sale as acknowledgement - Unregistered agreement for purchase of the property cannot be material to rely on, when the registered sale deed has been produced and the same shows that the property was purchased at particular price. According to us, the agreement of sale loses it s character, the moment, the registered sale deed is executed. The property has been purchased at a higher price than that of amount mentioned in the purchase deed, the burden to prove is heavily placed on the AO to establish the said fact. After considering the above said facts, we are of the considered view that the AO as well as Ld.CIT(A) have done guess work while coming to conclusion that the price of the property is more than mentioned in the sale deed. In the present case on hand, as discussed above, there is no seller, buyer relationship between Shri G.Punna Rao and the assessee company. Therefore, the protective assessment which was made in the hands of the assessee company is not sustainable. In this case, except the oral statement of Shri G.Punna Rao, there is no other piece of evidence to establish that the amount of sale consideration was paid by way of cash to Shri Punna Rao by the assessee company. Therefore, we allow the ground No.2 raised by the assessee.

Summary

Issues Involved:
1. Sustaining an addition of ?1,79,00,000/- made by the AO on a protective basis under Section 69 of the Income Tax Act, 1961.
2. Validity of the protective assessment made by the AO based on unregistered agreements of sale.
3. Examination of the relationship between the assessee company and the seller regarding the alleged on-money transaction.
4. The tax effect involved in the revenue's appeal being below ?50 lakhs and its maintainability.

Issue-wise Detailed Analysis:

1. Sustaining an Addition of ?1,79,00,000/-:
The primary grievance of the assessee was that the CIT(A) erred in sustaining an addition of ?1,79,00,000/- made by the AO on a protective basis under Section 69 of the Income Tax Act, 1961, towards alleged on-money paid for the purchase of lands. The AO had received information from the DDIT (Inv.), Guntur, suggesting that the assessee had purchased agricultural lands for more than the consideration mentioned in the registered sale deeds. The AO, based on this information and the statements provided by Shri G.Punna Rao, concluded that the assessee had paid an additional ?2,88,26,250/- over the registered value. The CIT(A), after considering the arguments, partly allowed the appeal, reducing the unexplained income to ?1,79,00,000/-.

2. Validity of Protective Assessment Based on Unregistered Agreements:
The AO's assessment relied heavily on unregistered agreements of sale and statements made by individuals involved. The assessee contended that the company had not entered into any agreements with Shri G.Punna Rao or his son and had not paid any on-money. The AO's reliance on photostat copies of unregistered agreements and the inability to verify signatures beyond reasonable doubt raised questions about the validity of the protective assessment. The Tribunal noted that the AO and CIT(A) had done guesswork and lacked concrete evidence to support the claims of on-money transactions.

3. Examination of Relationship Between Assessee Company and Seller:
The Tribunal examined the relationship between the assessee company and the alleged sellers. It was found that there was no direct seller-buyer relationship between Shri G.Punna Rao and the assessee company. The agreements of sale were between Shri Kalyan Babu (son of Shri Punna Rao) and Shri Masthan Rao (supervisor of the assessee company), but the registered sale deeds were executed in the name of the assessee company. The Tribunal observed that without clear evidence of authorization or involvement of the assessee company in these agreements, the protective assessment was not sustainable.

4. Tax Effect and Maintainability of Revenue's Appeal:
The revenue's appeal was dismissed on the grounds that the tax effect involved was below ?50 lakhs, as per the latest CBDT circular No.17/2019 dated 08.08.2019. The Tribunal noted that the appeal filed by the revenue was not maintainable due to the low tax effect, and the Ld. D.R. did not raise any objections to this dismissal.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, dismissing the protective assessment made by the AO. The appeal filed by the revenue was dismissed due to the low tax effect, and the cross objections filed by the assessee were deemed infructuous. The Tribunal concluded that the AO and CIT(A) had relied on insufficient and unverified evidence, and there was no valid basis for the addition made under Section 69 of the Income Tax Act, 1961.