2023 (10) TMI 462 - AT - Income Tax

Unexplained investment by way of unsecured loan - deemed income u/s. 69 - HELD THAT - No improvement in his case was made by the assessee-appellant, while the Revenue relied on the orders by the Revenue authorities, tabulating, date-wise, the cash deposits in the bank account and the corresponding bank transfers to the company (Manko), which are for the period (01.04.2013 to 11.10.2013) and (01.04.2013 to 04.01.2014) respectively. The OD account, never really utilized, had been, as rightly inferred by the Assessing Officer (AO), deployed as a ruse, a cover-up so to speak, the source of bank transfers to and, thus, investment in Manko by the assessee being the unexplained cash deposits in his bank (OD) account. Why, rather, we wonder did the AO, then, not make addition for the same, i.e., for Rs. 97.64 lakhs instead, which would obviate the need for a separate addition for Rs. 70.50 lakhs toward investment in the company or, making it, regard it as on protective basis, while that for Rs. 97.64 lakhs would be on substantive basis. Even allowing credit for Rs. 21.40 lakhs, withdrawn cash from the OD account, i.e., assuming it being recycled, which would though have to be shown so, would reduce the addition qua unexplained cash deposit to Rs. 76.24 lakhs. Be that it as may, we confirm the impugned addition. Unexplained investment in immovable property (IP) - Apart from a bald statement as to the investment in property being made out of cash withdrawals from the bank account of self and wife, not produced at any stage, the assessee has not brought any material on record to substantiate his case. In fact, as found the bank accounts were used for channelizing unaccounted money, so that nothing turns on their having been not produced, perhaps also explaining their non-furnishing. We, accordingly, finding no infirmity in the impugned order, confirm the addition sustained. Gain on sale of shares - LTCG OR STCG - sale of 42,500 shares in Manko (including 500 held in the name of his wife), constituting 50% of the 85,000 shares therein; the balance 50% being held, similarly, by Sh. Ittoop and his wife, Lissy Ittoop - manner of discharge of the sale consideration determine the said consideration - difference between the transfer consideration of a property, moveable or immovable, i.e., with reference to its fair market value (FMV) as on the date of transfer, as income from other sources of the recipient of the property - HELD THAT -No long term capital gain arises to the assessee inasmuch as the entire shareholding of 42,000 shares sold during the year stands acquired during the year, with there being nothing on record to exhibit acquisition of 500 shares earlier. The assessee is liable to be assessed u/s. 56(2)(vii)(c) of the Act at Rs. 337.50 lakhs, the fmv of 42000 shares in Manko acquired by him during the relevant year, less the cost shown to have been incurred on their acquisition, representing thus the price differential between the two. No short term capital gain would arise to the assessee on the sale of 42,000 shares during the year for Rs. 337.50 lakhs in view of the same, the sale value agreed upon between the parties, at around the same time, in a transaction between unrelated parties, being, under the circumstances, also their deemed cost u/s. 49(4). Inasmuch as we have found the assessee s unsecured loan account being used as a conduit for receipt of sale consideration, he shall, on account of double tax, be allowed a reduction of Rs. 70.50 lakhs separately assessed u/s. 69 of the Act, i.e., while assessing income u/s. 45 or, as the case may be, section 56(2)(vii)(c) of the Act; OR alternatively, no separate addition for Rs. 70.50 lacs u/s. 69 is called for. The assessee shall also explain the apparent difference of Rs. 5 lacs in his loan account with Manko, which shall, where unexplained, deemed as income u/s. 69. However, if the said funds stand transferred during the year thereto, the assessee shall be entitled to like deduction as for Rs. 70.50 lacs. Thus an appellate authority has the jurisdiction as well as the duty to correct all errors in the proceedings under appeal, and to issue, if necessary, appropriate directions to the authority against whose decision the appeal is preferred to dispose of the whole or any part of the matter afresh, unless forbidden by the statute from doing so.

Summary

Issues Involved:

1. Addition of Rs. 70,50,000 towards unexplained investment by way of unsecured loan in Manko.
2. Addition of Rs. 51,72,056 towards unexplained investment in immovable property.
3. Capital gain on sale of shares in Manko.

Summary:

Issue 1: Addition of Rs. 70,50,000 towards unexplained investment by way of unsecured loan in Manko

The Tribunal addressed the addition of Rs. 70,50,000 towards unexplained investment by way of an unsecured loan in Manko. The assessee explained the source as an overdraft (OD) account with Catholic Syrian Bank, Chalakkudy, but the OD account revealed cash deposits of Rs. 97.64 lakhs during the year with no explained source. The Tribunal confirmed the addition, noting that the OD account was used as a conduit for routing unaccounted cash. The Tribunal questioned why the Assessing Officer (AO) did not make an addition for the entire Rs. 97.64 lakhs instead of Rs. 70.50 lakhs, suggesting that the latter could be treated as a protective addition while the former on a substantive basis. The Tribunal decided to confirm the impugned addition for Rs. 70.50 lakhs.

Issue 2: Addition of Rs. 51,72,056 towards unexplained investment in immovable property

The Tribunal examined the addition of Rs. 51,72,056 towards unexplained investment in immovable property, which was partly sustained by the first appellate authority at Rs. 35,72,056. The assessee claimed that Rs. 16,00,000 was paid out of Rs. 50 lakhs received as consideration on the sale of shares in Manko. The Tribunal found no material evidence to substantiate the assessee's claim of investment out of cash withdrawals from the bank account of self and wife. The Tribunal confirmed the addition sustained by the first appellate authority, finding no infirmity in the impugned order.

Issue 3: Capital gain on sale of shares in Manko

The Tribunal addressed the capital gain on the sale of 42,500 shares in Manko. The Revenue contended that the consideration for the sale of shares was Rs. 675 lakhs based on an agreement dated 20.02.2014, while the assessee claimed it to be Rs. 100 lakhs. The Tribunal noted discrepancies in the number of shares sold and the sale consideration. The Tribunal found that the sale consideration was Rs. 675 lakhs, and the entire amount was paid, either directly or indirectly, to the sellers. The Tribunal emphasized that the law deems the charge to tax on capital gain on accrual, and the application or utilization of income is irrelevant. The Tribunal concluded that the sale consideration of Rs. 675 lakhs should be considered for capital gain computation, and the difference between the fair market value and the acquisition cost should be taxed as income from other sources under section 56(2)(vii)(c) of the Act.

Decision:

The Tribunal decided to partly allow both the assessee's and the Revenue's appeals and partly allowed them for statistical purposes. The Tribunal emphasized the correct legal position and the need to correct all errors in the proceedings under appeal. The order was pronounced on October 09, 2023, under Rule 34 of The Income Tax (Appellate Tribunal) Rules, 1963.