2024 (6) TMI 1218 - AT - Income Tax

Additions made u/s 56(2)(ix) - forfeiture of advance - Additions towards advance received by the appellants as forfeiture of advance in the course of negotiation for transfer of capital asset and same is forfeited for failed negotiation and thus opined that advance received by the appellant is taxable u/s. 56(2)(ix) - HELD THAT - If you go by the arguments of assessee he claims that the negotiation was never failed and it is still alive and they are ready to transfer the properties in favour of the buyer. At the same time from the arguments from both the parties in light of statement recorded from Smt. V.K. Sasikala we find that she has denied having entered into any kind of MoU and also payment of advance in cash. The facts are totally contradictory. We further came to know that the department has completed assessments of alleged buyer Smt. V.K. Sasikala and also made additions towards advance claimed to have paid by her as per MoU for purchase of property as unexplained money. The Assessing Officer has also made additions in the hands of the appellants towards additions as forfeiture of money. There is no concept of deemed forfeiture of advance as per sub clause (ix) of section 56(2) of the Act because if you go by said provisions it is very clear that sum can be assessed u/s. 56(2)(ix) of the Act in a case where any sum of money received as advance or otherwise in the course of negotiation for transfer of a capital asset if (a) such sum of forfeited and (b) the negotiations do no result in transfer of said capital asset. If you go by the arguments of the Ld. Counsel for the assesse s two conditions prescribed u/s. 56(2)(ix) of the Act are not satisfied. Further they claimed that even now they are ready to transfer of property in favour of the buyer. From the above it is undoubtedly clear that these appeals needs to be decided along with other connected appeals pending in the case of Smt. V.K. Sasikala and her associates at the first appellate authority level itself. Therefore we are of the considered view that these appeals cannot be independently decided because the issues involved in these appeals are inextricably linked to additions made by the department in the hands of the Smt. V.K. Sasikala the alleged buyer of the property and their associates. Thus we set aside the orders of the ld. CIT(A) in all these cases and restore the issues to the file of the first appellate authority and direct the first appellate authority to decide these appeals along with other connected appeals pending before the first appellate authority in the group cases of Smt. V.K. Sasikala and others and decide the issues afresh in accordance with law - These appeals are set aside for denovo consideration by the ld. CIT(A) in accordance with law.

Issues Involved:
1. Validity of additions made under Section 56(2)(ix) of the Income-tax Act, 1961.
2. Alleged MoU and advance payments in specified bank notes during demonetization.
3. Contradictory statements regarding the MoU and advance payments.
4. Protective additions made in the hands of companies.
5. Unexplained money and other related additions.

Issue-wise Detailed Analysis:

1. Validity of Additions under Section 56(2)(ix):
The core issue revolves around the additions made by the Assessing Officer (AO) under Section 56(2)(ix) of the Income-tax Act, 1961, treating the advance money received by M/s. Bonjour Bonheur Pvt Ltd and M/s. Senthil Paper and Boards Pvt Ltd as income from other sources due to forfeiture of advance money. The AO concluded that the negotiations for the sale of shares and assets did not result in a legal transfer, thus categorizing the advance as forfeited. However, the appellants contended that the negotiations were not failed and they were still willing to execute the sale deeds, arguing that the conditions under Section 56(2)(ix) were not satisfied.

2. Alleged MoU and Advance Payments During Demonetization:
During a search and seizure operation on 09.11.2017, incriminating documents, including MoUs and share certificates, were found. These documents suggested agreements for the sale of assets by M/s. Bonjour Bonheur Pvt Ltd and M/s. Senthil Paper and Boards Pvt Ltd, with significant advances paid in specified bank notes during the demonetization period. Statements from various parties, including Mr. S. Senthil, Advocate, confirmed these transactions. However, Smt. V.K. Sasikala, alleged to be the buyer, denied any such agreements or payments, leading to contradictory claims.

3. Contradictory Statements Regarding the MoU and Advance Payments:
The AO relied on statements from the appellants, their directors, and Mr. S. Senthil, Advocate, to conclude that Smt. V.K. Sasikala was the buyer. However, Smt. V.K. Sasikala denied any involvement in the MoUs or payments. This contradiction is crucial, as the appellants argued that negotiations were ongoing, and they were ready to transfer the properties if the documents were returned. The tribunal noted that these contradictory facts necessitated a thorough examination, suggesting that the appeals be heard together with related cases involving Smt. V.K. Sasikala.

4. Protective Additions Made in the Hands of Companies:
The AO made protective additions in the hands of M/s. Senthil Paper and Boards Pvt Ltd, treating the advance money as forfeited. However, the CIT(A) deleted these protective additions, reasoning that once substantive additions were made in the hands of the directors, protective additions in the company's hands were unnecessary. The tribunal supported this view, emphasizing the need to resolve the contradictions in statements before making any conclusive additions.

5. Unexplained Money and Other Related Additions:
The AO also made various other additions, including unexplained money under Section 69A of the Act, in the hands of the directors, linked to the transactions of advance received for the sale of assets. In the case of M/s. Pondicherry Sri Lakshmi Jewellery, the AO added Rs. 92.78 crores under Section 68, considering the deposit of Rs. 97.5 crores into the firm's bank account. The CIT(A) confirmed these additions, but the tribunal noted that these issues were interconnected with the main issue of advance payments and MoUs, necessitating a combined hearing.

Conclusion:
The tribunal set aside the orders of the CIT(A) and directed that the appeals be decided afresh, along with related appeals involving Smt. V.K. Sasikala and her associates. The tribunal emphasized the need for a comprehensive examination of the contradictory statements and facts, providing reasonable opportunities for hearing and cross-examination to ascertain the correct facts. All issues were kept open for fresh adjudication, ensuring a thorough and fair resolution in accordance with the law.

Final Order:
The appeals filed by the assessees and the revenue for the assessment years 2013-14 to 2018-19 were allowed for statistical purposes, and the cross objections filed by M/s. Senthil Papers & Boards Pvt Ltd for the assessment year 2017-18 were dismissed as infructuous. The order was pronounced on 28th February 2024 at Chennai.

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