2025 (1) TMI 1230 - AT - Income Tax

Unexplained investment - on-money payments for property purchase was justified - HELD THAT - It is a common practice in real estate transaction that consideration for purchase of property whether it is cash or cheque has been fully paid either before the registration of the property or at the time of registration of the property. Therefore going by the said logic in our considered view cash payment as alleged by the AO made for purchase of property should be considered in light of sale deed registered for purchase of property. If we go by the said dates the alleged cash payment towards purchase of property assessed by the AO as unexplained investment does not fall under the A.Y.2020-21.This fact has been confirmed by subsequent affidavit filed by Shri MSN Reddy who has thoroughly explained the transaction on the basis of evidence and admitted additional income in the name of appellant company for the A.Y.2019-20. Therefore we are of the considered view that the cash payment if any made for purchase of property cannot be assessed for the A.Y.2020-21. Thus we direct the AO to delete the addition as unexplained investment for the A.Y.2020-21. Valid satisfaction note recorded by the AO for assessment or jurisdiction u/s 153C - Although both the parties have argued the issue extensively in light of certain judicial precedents but the issue become merely academic in nature because the additions made by the AO towards unexplained investment for purchase of the property has been deleted on substantial ground and therefore legal ground taken by the appellant challenging the jurisdiction of the AO becomes infructuous. Thus the ground of appeal taken by the appellant challenging the jurisdiction of the AO in light of judicial precedents including the decision of Sinhgad Technical Education Society 2017 (8) TMI 1298 - SUPREME COURT has been dismissed as infructuous.

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

Whether the assumption of jurisdiction and issuance of notice under Section 153C by the Assessing Officer (AO) for the Assessment Year (A.Y.) 2020-21 was legally valid.
Whether the addition of Rs. 4,65,40,000/- as unexplained investment under Section 69 of the Income Tax Act, 1961, towards alleged on-money payments for property purchase was justified.
Whether the seized documents and statements recorded during the search operation provided sufficient evidence to substantiate the claim of on-money payments.
Whether the legal and procedural requirements for assuming jurisdiction under Section 153C were fulfilled.

ISSUE-WISE DETAILED ANALYSIS

1. Jurisdiction under Section 153C

Legal Framework and Precedents: Section 153C of the Income Tax Act allows the AO to assess income if incriminating material belonging to a third party is found during a search. The Finance Act, 2017, amended this section to specify assessment for six preceding years. The Supreme Court's decision in CIT Vs. Sinhgad Technical Education Society was considered regarding the legal position before the amendment.
Court's Interpretation and Reasoning: The Tribunal noted that the AO had recorded satisfaction and issued notices for the relevant assessment years in compliance with the amended Section 153C. The Tribunal agreed with the AO's interpretation that the incriminating material pertained to the appellant and had a bearing on its income for A.Y. 2020-21.
Application of Law to Facts: The Tribunal found that the AO had validly assumed jurisdiction under Section 153C, as the satisfaction note and seized material indicated undisclosed income linked to the appellant.
Conclusion: The Tribunal upheld the AO's jurisdiction under Section 153C, dismissing the appellant's challenge on this ground.

2. Addition of Rs. 4,65,40,000/- as Unexplained Investment

Relevant Legal Framework: Section 69 of the Income Tax Act allows for the addition of unexplained investments to the income of an assessee. The burden of proof lies on the assessee to explain the source of such investments.
Court's Interpretation and Reasoning: The Tribunal examined the seized documents and statements from Shri D.Venugopal Reddy and Shri MSN Reddy. It found inconsistencies in the dates of alleged cash payments and noted that the documents did not specify payment dates or recipients.
Key Evidence and Findings: The Tribunal highlighted the absence of specific dates in the seized documents and the contradictory statements regarding the timing of cash payments. It considered the registration dates of properties and the affidavit filed by Shri MSN Reddy admitting additional income for A.Y. 2019-20.
Application of Law to Facts: The Tribunal concluded that the alleged cash payments did not pertain to A.Y. 2020-21, as the properties were registered in the financial year 2018-19, relevant to A.Y. 2019-20.
Conclusion: The Tribunal directed the AO to delete the addition of Rs. 4,65,40,000/- for A.Y. 2020-21, as the evidence did not support the claim of unexplained investment for that year.

SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: The Tribunal noted, "the cash payment as alleged by the Assessing Officer made for purchase of property should be considered in light of sale deed registered for purchase of property."
Core Principles Established: The Tribunal emphasized the importance of corroborative evidence and clear documentation to substantiate claims of undisclosed income and unexplained investments.
Final Determinations on Each Issue: The Tribunal upheld the AO's jurisdiction under Section 153C but directed the deletion of the addition of Rs. 4,65,40,000/- as unexplained investment for A.Y. 2020-21, finding insufficient evidence linking the payment to that assessment year.