2023 (12) TMI 269 - AT - Income Tax

Unexplained property - Sale proceeds of the land belonging to the assessee s wife and brother claimed to be credited to the assessee s bank account - Clubbing of income u/s 64 - HELD THAT - The land purchased in wife s name can, in the conspectus of the case, be reasonably regarded as the assessee s property, in any case, money realized on it s sale as available to the assessee for his purposes. It is customary in Indian society to acquire property in wife s name with a view to securing her, both in terms of an asset and a source of income. Wife has no independent source of income, for her to acquire the said land. Even otherwise, it is apparent that the assessee is managing all the funds belonging to him and his wife, with there being transfers between their bank accounts with MEUCB. The assessee s explanation, to that extent, must therefore be regarded as acceptable. Credit in respect of sale of her agricultural land would be available to the assessee even if she is an assessee under the Kerala Agricultural Income Tax Act, 1950, returning/reporting agricultural income thereunder inasmuch as the assessee, having access to those funds, could certainly have used them for his purposes, so that the source can be regarded as satisfactorily explained. As a corollary, all the income arising to the assessee s wife would stand to be assessed in his hands, statutorily mandated u/s. 64 of the Act. This shall obtain even where Mercy Kurian is an assessee under the 1950 Act. Agreement with assessee s brother, there is firstly nothing to show that the same was produced and relied upon before the Revenue authorities, whose orders bear no reference thereto. Why, Sh. Markose could not answer as to why and how this agreement was entered into 10 months before the actual purchase, with there being nothing to show that the purchase agreement had been entered into, or advance therefor made, at the relevant time. In fact, the copy on record not reflecting the back-side of the first page, the same, called for by the Bench to ascertain the said date, was not produced. The agreement states of it being in view of the Kerala Land Ceiling Act. The argument is not supported by any material, even if a sworn affidavit by the assessee s brother qua his total land holding, for us to take the same with any seriousness. In fact, being against public policy, the same cannot be regarded as a valid agreement in law. The sale proceeds on land sale have expectedly, and contrary to what stands stated, gone to the respective bank accounts of the sellers, being sba/cs 5308 and 5309 (with MEUCB), i.e., of the assessee s brother and wife respectively. There is further no transfer of funds between the bank account of the assessee (sb 5026) and his brother, Sunny Kutty, even as the former bears credit for the sale of his 8.74 acres of land. Management of an estate/business, assuming so, would not, by itself amount to ownership of the property/sale proceeds. The assessee s case qua his brother s land is without merit and, in any case, unproved. Its rejection by the Revenue is, accordingly, upheld. The assessee gets part-relief. AO has, in computing the addition, factored the impact of the bank balances (opening and closing) of the assessee s brother s and wife s bank accounts included in the CFS. The addition sustained, accordingly, shall not be for Rs. 26,53,500, but adjusted for the balances in the brother s bank account/s. For agricultural income, being on cardamom , the same admittedly including that in respect of 17.68 acres of cardamom plantation held by the assessee s wife and brother, the AO, having excluded the sale proceeds of their lands in reckoning the source of funds with the assessee, has, per contra, excluded the income qua their lands in the CFS, which sums thus become the assessee s taxable receipt. We have found the assessee s claim admissible qua his wife. Agricultural income to that extent would accordingly be accepted, though would stand to be included in the assessee s income for rate purposes. This sums our decision in principle. In the absence of any credible material to exhibit and prove the agricultural income, we consider it appropriate that the income, for each year, be adopted on the basis of the estimate of agricultural income on cardamom as provided by the State Agricultural Board or University or that adopted by the bank while processing and advancing agricultural loans for cardamom plantation. That is, and, further, for the category (A, B, or C) of the land/s owned by the assessee at Anaviratty and Chakkupallom villages in Idduki District. Income shall correspond with the harvest period; the Anaviratty village land having been sold on 02.12.2010. Of course, where the assessee is also an assessee under the State Agricultural Income Tax, the income assessed under the said Act or, in its absence, returned there-under, shall be adopted for the purpose of assessment of agricultural income arising to the assessee and his wife, subject, of course, to the extent reported. The excess, if any, and that ascribed to brother, shall be taxed as unexplained money. We decide accordingly. Sale of agricultural land, that is, to the extent of 1.74 acres of land (out of 8.74 acres cardamom plantation), sold separately to one, Nikhil John - CIT(A) has, in computing the % age of total consideration ascribed to land, being in fact at 63%, wrongly worked it at 37%, which is in fact for building. The same would not, however, in any manner, impact the final conclusion, which is based on, firstly, the assessee s case being wholly unproved and, two, of land, forming the major proportion of the total consideration, fetching over twice its regular price. Building, a depreciable asset, its valuation at 37% of the total consideration, as pointed out by the AO, is significant. Adjusting it for the land value, being over twice the normal, i.e., reckoned w.r.t. the normative land rate, the same would be, over 55%, reinforcing the inference drawn of the land sold being, as described in the sale document, appurtenant thereto. Investment in land at Meenachil Village, Pala - HELD THAT - The basis of the addition is the Agreement dated 14.6.2011, found and seized during the search on 25.9.2014. Besides attracting the statutory presumption as to the truthfulness of its contents u/s. 292C of the Act, the same is admitted as true by Shri Devasia vide his deposition u/s.132(4) dated 25.9.2014. The same, an unregistered document, executed on stamp papers of Rs. 100, has in fact been acted upon; being also attended by advance payment of Rs. 50 lakhs, mentioned therein, followed by registered sale deeds in favour of the three buyers between December, 2011 and February, 2012, for an aggregate of Rs. 93.25 lakhs. The investment is in fact admitted, and the issue before us is the valuation of assessee s share, claimed, without any material, even if indirect or corroborative, of the assessee s share being, in value, lower than per the average rate. The agreement, reproduced in the assessment order, speaks of a gross consideration for the entire 177.44 cents of land sold by 20 persons. That apart, the other two buyers have also claimed their investment as per the average rate. Under the circumstances, we find no infirmity in bringing the shortfall in investment to tax. Income @ 35% stated to arise on sale of latex, arises on application of r. 7A of the Income Tax Rules, 1962 - The said rule is applicable only for manufacture of rubber, and not for sale of latex, the whole of which is to be regarded as agricultural income. The assessee, relying for the purpose on sale bills, has, however, not produced the same at any stage; rather, taking a different stand before the ld. CIT(A). The assessee s claim is allowed subject to production of the sale bills for the relevant year. The assessee is also at liberty to exhibit before the AO, i.e., while giving appeal-effect to this order, that agricultural income of Rs. 10.19 lacs includes the impugned income of Rs. 2.91 lacs, i.e., as stated before the ld. CIT(A), inasmuch as he has not adjudicated thereon. The onus though would be on the assessee. On the flip side, that would though mean that the assessee has no explanation for the source of Rs. 2.91 lacs found credited separately in his bank account. Also, we observe, non-deduction of the corresponding expenditure, which would need to be explained or, as the case may be, estimated. Income from other sources - received by way of sale of scrap of fixed assets, viz., furniture, machinery, etc. belonging to a firm, Greenland Rubbers, brought to tax u/s 56(1) - CIT(A), in appeal, directed the reduction of the said amount from the relevant block/s of assets where depreciation has been claimed thereon. It is this condition that is the cause of the assessee s grievance. The ld. CIT(A) has, as apparent, agreed with the assessee in principle, i.e., of it being a capital receipt. The rider that the depreciation should have been claimed and allowed is not necessary. This is as the reduction is to be only from the written down value (WDV) of the relevant block/s of assets, which would, in case of claim of depreciation, have the effect of reducing its WDV. Only the excess realised over the WDV is assessable as a short-term capital gain u/s. 50 of the Act. The assessee has nowhere stated the WDV of the relevant block/s of assets. The impugned receipt is thus taxable where and to the extent it exceeds the same. The onus to exhibit the WDV of the relevant block/s of assets is on the assessee. We decide accordingly. Assessment u/s 153A - addition having its basis in the incriminating material found and seized in search as being maintainable section 153A proceedings - the appellants are maintaining several bank accounts and, at the same time, not maintaining any accounts for any of their incomes/receipts. On investment in immovable property/s being found in search, corroborated by statements on oath u/s. 132(4) of the Act, CFS for different years were submitted in explanation. All the additions arise on account thereof. The investment in Pala property is during fy 2011- 12, relevant to AY 2012-13. The same, therefore, where not satisfactorily explained, is to be assessed only for that year. The assessee/s, however, in a bid to explain the same, has built-up cash from an earlier period. Where and to that extent, therefore, the receipts are shown to arise during the earlier period, their taxability under the Act has to be with reference to the provisions applicable for that year, i.e., to the extent found taxable, and taxed for that year. The incriminating material found for a period could result in assessment of income for more than one year. However, where and to the extent the Revenue does not admit a receipt, the same has to be excluded from the cash flow for that year, and only the closing balance so arrived at carried forward to the following year, determining the short-fall, if any, for the year for which the investment/s has been found to be made. Where the closing, or for that matter, cash balance during the year, is negative, no addition shall arise for that year in the absence of any incriminating material for that year, and the cash balance carried forward to the following year would be nil. This negative balance can be taxed only in regular assessments or s. 147 assessment for that year. The AO shall, nevertheless, verify and determine the CFS, prepared date-wise, considering all the bank accounts, duly verified, for each of the years under reference, including the intervening years,carrying forward the closing cash as determined, where positive, or, as the case may be, at nil. Payment of income tax, inasmuch as the same is already in the know of the Revenue, where apparently not explained on the basis of the disclosed income, can also lead to s. 153A assessment, though, in absence of any other material, limited to the assessment, in whole or in part, for the said sum only. Decision - The assessments are, accordingly, setting aside the impugned orders in part, set aside to the file of the AO to re-work the additions, if any, for the years subject to s.153A assessment. He shall, in this, be guided by our adjudication herein. The assessee/s shall furnish all the information and workings as required by the AO and, further, within a reasonable time, i.e., participate and cooperate in the proceedings. Even otherwise incumbent, this becomes mandatorily so in view of the directions by the Hon'ble High Court, so that the proceedings are completed in a time bound manner

Summary

Issues Involved:

1. Validity of assessments under section 153A read with section 143(3) of the Income Tax Act, 1961.
2. Inclusion of investments and income sources in the cash flow statement.
3. Treatment of agricultural income and sale of agricultural land.
4. Unexplained investments and income from various sources.
5. Application of Rule 7A of the Income Tax Rules, 1962.

Summary:

I. Shri C.T. Kurian

A. AY 2011-12

1. Pending Assessment and Incriminating Material: The return of income was filed on 31.5.2013 and processed u/s.143(1) on 10.06.2013. Notice u/s. 143(2) was issued on 30.09.2014, making the assessment pending and subject to abatement. Incriminating material found during the search revealed unexplained investments in immovable properties.

2. Explanation of Investments: The assessee provided a cash flow statement showing sources and application of funds, including sales of land and agricultural income. The AO and CIT(A) found the explanation unsubstantiated, particularly in relation to investments in the names of the assessee's wife and brother.

3. Findings and Deficiencies: The cash flow statement was not prepared on a date-wise basis, and included bank accounts, making it difficult to verify cash availability. The opening cash balance of Rs. 33.25 lakhs was also questioned.

4. Additions Made: The AO made several additions, including Rs. 53,01,266 for sale proceeds of land in the names of the assessee's wife and brother, and Rs. 16,22,978 for agricultural income. The CIT(A) upheld these additions, finding the assessee's explanations lacking in substantiation.

B. AY 2012-13

1. Investment in Land: The AO added Rs. 24,79,880 for unexplained investment in land at Meenachil Village, Pala, based on an agreement found during the search. The assessee's share was determined on a prorate basis, which the assessee disputed without providing contrary evidence.

2. Agricultural Income: The AO added Rs. 73,96,704 for agricultural income on cardamom plantation, which the assessee claimed based on stock registers and sale bills. The AO found the explanation lacking, as the assessee did not maintain accounts or provide necessary infrastructure details.

C. AY 2014-15

1. Cash Balance: The AO added Rs. 28,34,765 for shortfall in cash balance, excluding certain amounts shown as received from the assessee's brother-in-law and wife. The CIT(A) accepted part of the assessee's explanation.

2. Agricultural Income: The AO added Rs. 10,18,925 for agricultural income on cardamom, arising from opening stock. The CIT(A) confirmed this addition.

3. Sale of Latex: The AO added Rs. 1,01,900, applying Rule 7A of the Income Tax Rules, 1962. The assessee's claim was allowed subject to production of sale bills.

II. Shri. V.D. Devasia

1. Common Issues: The facts and circumstances of the case were similar to those of Shri C.T. Kurian, with common additions for sale of cardamom plantation, agricultural income, and shortage of funds.

2. Sale of Scrap: The AO added Rs. 3,20,000 for sale of scrap from Greenland Rubbers. The CIT(A) directed reduction from the relevant block of assets, which the assessee contested.

III. Common for Both Assessees

1. Section 153A Proceedings: The Tribunal emphasized that only additions based on incriminating material found during the search are maintainable under section 153A proceedings. The AO was directed to re-work the additions based on the Tribunal's adjudication.

IV. Decision

The assessments were set aside in part and remanded to the AO for re-working the additions. The appeals by the assessees were partly allowed and partly allowed for statistical purposes.

Order pronounced in the open court on September 29, 2023, under Rule 34 of The Income Tax (Appellate Tribunal) Rules, 1963.