2022 (9) TMI 1087 - AT - Income Tax

Undisclosed income - receipt of on-money by cash - cash received for the sale of property - case of the purchaser is that payment was made through an office staff of her husband and paid to a staff of the assessee just before registration - HELD THAT - Assessing Officer was not able to establish that the assessee received the on-money payment except statement given by Mrs. Pramila and her son and moreover, there was no documentary evidence to prove that the assessee has received on-money. It is a clear evidence that the assessee has received the sale consideration what is mentioned in the sale deed. If at all the assessee has received other than the sale consideration, the Assessing Officer has to show necessary documentary evidence. In this case, no documentary evidence was brought on record by the Assessing Officer. Apart from that, the payment was neither directly paid by the purchaser nor received by the assessee. The on-money payment is stated to have made through servant of the purchaser and also received by the servant of the assessee. AO ignoring to examine relevant persons, who are material evidence in this case, proceeded to make addition in the hands of the assessee. The only documentary evidence available with the AO is that after conducting search, the purchaser has accepted in her sworn statement in respect of on-money payment. AO has made addition in the hands of the purchaser Smt. Pramila. Simply because the purchaser has admitted on-money payment is not sufficient. Particularly, in this case, a search was conducted and no incriminating material has been found in respect of on-money receipt. Therefore addition cannot be made in the hands of the assessee. In view of the above, we set aside the order of the ld. CIT(A) on this issue and the ground raised by the assessee is allowed. Disallowance of selling expenses - assessee has contended that amount was paid as a comprise amount as compensation for seeking them to release the assessee from an existing contract and that the original documents filed alone are to be considered and that the transactions are all in tandem to the terms of the contract - HELD THAT - CIT(A) has observed that the whole sequence of events attendant with the inconsistencies/ defects pointed out by the Assessing Officer in the assessee s claim indicates whereby, the assessee has made an untenable claim under the guise of compensation to be paid to a related party. Under the above facts and circumstances, we find no reason to interfere with the order passed by the ld. CIT(A) and accordingly, the ground raised by the assessee is dismissed.

Summary

Issues Involved:
1. Addition to capital gains of Rs. 5,68,75,000/-.
2. Disallowance of selling expenses of Rs. 4,00,00,000/-.

Issue-wise Detailed Analysis:

1. Addition to Capital Gains of Rs. 5,68,75,000/-:

The assessee contested the addition of Rs. 5,68,75,000/- to his capital gains, claiming no such receipt was made. The Assessing Officer (AO) based this addition on the purchaser's (Mrs. Pramila) wealth tax and income tax returns, which indicated an additional payment. The assessee denied receiving any amount over the recorded consideration of Rs. 10,56,25,000/-, which was duly offered as income.

During the search at the assessee's premises, no material evidence of on-money receipt was found. However, evidence from the purchaser's side suggested additional payments. The AO allowed cross-examination of the purchaser and her son, who confirmed the additional payments. Despite these statements, the Tribunal found no direct evidence implicating the assessee, noting discrepancies in the statements regarding who received the money and when. The AO failed to cross-examine the relevant persons who allegedly handled the cash transactions.

The Tribunal concluded that without concrete documentary evidence, the addition could not be justified. The purchaser's admission alone was insufficient, especially since no incriminating material was found during the search at the assessee's premises. Thus, the Tribunal set aside the order of the CIT(A) and allowed the assessee's appeal on this issue.

2. Disallowance of Selling Expenses of Rs. 4,00,00,000/-:

The assessee claimed Rs. 4,00,00,000/- as selling expenses, purportedly paid to M/s. S.M. Apparels Pvt. Ltd. as compensation for releasing him from an existing contract. The AO disallowed this claim, citing discrepancies in the agreements and the timing of transactions. The original sale agreement and its subsequent cancellation were scrutinized, revealing inconsistencies such as the absence of witnesses in the initial documents and the timing of cheque deposits.

The CIT(A) upheld the AO's decision, noting that the agreements appeared self-serving and afterthoughts. The Tribunal agreed, highlighting the lack of credible evidence supporting the compensation claim. The Tribunal found the assessee's claim to be an attempt to evade taxes through a colourable device, referencing the Supreme Court's stance in McDowell & Co. on tax evasion through dubious methods.

Given the material defects and inconsistencies pointed out by the AO, the Tribunal found no reason to interfere with the CIT(A)'s decision. Consequently, the assessee's appeal on this issue was dismissed.

Conclusion:

The appeal filed by the assessee was partly allowed, with the Tribunal setting aside the addition to capital gains but upholding the disallowance of selling expenses. The judgment emphasized the need for concrete evidence in tax assessments and cautioned against dubious methods to evade taxes.