2023 (1) TMI 1116 - AT - Income Tax

Unexplained investments - certain documents were seized from the residence of assessee as per panchnama under Exhibit B1 and agreement to purchase (isar chitthi) stated to have been drawn between the assessee and another person - HELD THAT - As during the course of assessment proceedings, there was a letter of confirmation issued by the Abdul Razzaq Haji Daud about the cancellation of agreement to purchase (issar chitthi) as well as non-receipt of Rs.1 lakh. It is to be noted that the contention of the assessee is that no amount was paid and the said agreement to purchase (issar chitthi) was only agreed to purchase said property in future. This aspect was not at all considered by the AO and the CIT(A) but both the authorities below went out to disbelieve the version of the assessee as an afterthought. Admittedly, the AO added an amount of Rs.1,60,000/- to the total income of the assessee on account of undisclosed investment which is evident from computation vide para 7 of the AO s order. CIT(A) also without verifying whether there is any investment as brought on by the AO in terms of alleged cash payments reflected in agreement to purchase (issar chitthi). Before us nothing was brought on record to show that the alleged cash payments towards purchase of property were resulted into any investment. Therefore, in the absence of any corresponding asset stated to have been materialized in terms of agreement to purchase (issar chitthi), the addition as confirmed by the CIT(A) is not justified. Thus, the order of CIT(A) is set aside and the grounds raised by the assessee are allowed.

Summary

Issues:
- Delay in filing appeal
- Addition made on account of unexplained investments

Analysis:
1. Delay in filing appeal:
The appeals were filed with a delay of 33 days. The tribunal, after perusing the affidavit and medical certificate provided by the assessee, condoned the delay. Despite the delay, no representation was made on behalf of the assessee, leading to the case being heard ex-parte.

2. Addition on account of unexplained investments:
The main issue revolved around the addition made by the Assessing Officer (AO) on account of unexplained investments. The assessee, engaged in the wholesale trading of sugar, was found to have made payments towards the purchase of an old house. The AO, after conducting assessment proceedings, added the amounts paid by the assessee to the total income, as the explanation provided was deemed unacceptable.

3. Assessment and Appeal Process:
The AO observed discrepancies in the explanation provided by the assessee regarding the payments made for the house purchase. The CIT(A) upheld the AO's decision, stating that the refusal to own the agreement to purchase was self-serving. However, the tribunal noted that the payments reflected in the agreement were not materialized into a final transaction, and the money must have been returned to the assessee, as corroborated by the affidavit submitted.

4. Judicial Analysis:
The tribunal found that the authorities below did not examine whether the alleged payments were returned to the assessee. The tribunal highlighted that no investment was shown to have materialized from the alleged cash payments, and the addition made by the CIT(A) was not justified. The tribunal set aside the CIT(A)'s order and allowed the grounds raised by the assessee, ultimately allowing the appeal.

5. Final Decision:
The tribunal allowed both appeals of the assessee for assessment years 2004-05 and 2005-06, as the issues and findings were deemed similar. The appeals were allowed based on the lack of justification for the addition made on account of unexplained investments, highlighting the absence of corresponding assets materialized from the alleged cash payments. The order in favor of the assessee was pronounced on 23rd November 2022.