2012 (9) TMI 164 - HC - Income Tax

Unexplained investment in the purchase Farms - ITAT deleted the additions - Held that - The additions have been made on the basis of statement of Sh. Rajinder Gupta, the brother of the assessee and the two brokers who had subsequently retracted from their earlier statements and there is nothing in the order of the Tribunal to show how it considered the statements made at the time of the search to be unreliable and what reasons prevailed upon them to hold that the retractions supported by sworn affidavits were genuine and should be upheld. It is also not clear as to what the Tribunal means when it says that no other material was placed on record by the Assessing Officer in support of the claim that the assessee had made undisclosed investment. The statements are good material on which the conclusions can be drawn - There is no evidence of any threat or coercion from the officers of the search party and the allegation of the deponents to the contrary remains unsupported. They did not choose to complain against any high handed behavior of the authorised officers. It is also not known as to what the Tribunal means when it says that neither the vendors of the properties have admitted to receiving any money over and above the stated consideration nor any extra ordinary cash was found in the course of the search - These are vital aspects which the Tribunal has omitted to take into consideration; on the contrary it took into consideration irrelevant material such as retractions, absence of any statements by the sellers of the properties that they received on-monies and the fact that there was no seizure of any extra ordinary cash during the search - the Tribunal erred in endorsing the order of the CIT (Appeals) deleting the addition of Rs.4,71,05,000/- made by the Assessing Officer for unexplained investment in KG Farms and Jyoti Farms - against assessee. Undisclosed capital gains on sale of land at Jaipur Highway - Held that - The capital gains can arise only if property is sold within the meaning of Section 2 (47) of the Act. The assessee is still holding a part of the land for which no consideration has been received. Therefore, there is no sale of the property which can be said to give rise to any capital gain. Even the original cheques form part of the seized documents which shows that the transfer did not take place. Therefore, there is no question of any undisclosed capital gains - in favour of assessee. Unexplained commission paid in cash to broker - Held that - As it was consequential to the addition made for unexplained investment in KG Farms, it need to be warranted - against assessee. Assessment of Mani Kakkar who sold KG Farms to Kedarnath Gupta - Held that - It is trite law that if the Assessing Officer does not have the jurisdiction to make an assessment, whatever decision he takes on the merits of the matter and all subsequent proceedings, including appellate proceedings, vis- -vis the merits of the matter are only an academic exercise or a nullity, not having any legal effect. It cannot be disputed that the recording of the satisfaction that the undisclosed income found in the course of the search belongs to another person is a pre-condition for validly assuming jurisdiction to make an assessment under Section 158BD. The CIT (Appeals) has held that since no satisfaction to this effect was recorded by the Assessing Officer making the assessment of Kedarnath Gupta, the Assessing Officer having jurisdiction over Mani Kakkar had not validly assumed jurisdiction to issue a notice under Section 158BD and to make an assessment on her - against revenue.

Issues Involved:
1. Unexplained investment in KG Farms and Jyoti Farms.
2. Undisclosed capital gains on sale of land at Jaipur Highway.
3. Unexplained commission paid to the broker in connection with the sale of KG Farms.
4. Validity of the assessment under Section 158BD of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Unexplained Investment in KG Farms and Jyoti Farms:
The Assessing Officer (AO) made additions based on statements from Rajinder Gupta, Suraj Bhan Sharma, and Dharam Pal Sharma, indicating that substantial cash payments were made for the purchase of KG Farms and Jyoti Farms. The statements detailed that KG Farms was purchased for Rs.2.49 crores and Jyoti Farms for Rs.2.60 crores, with significant portions paid in cash. The AO rejected the assessee's claim of lower declared amounts in registered documents, citing the split nature of sale deeds and the lack of credible valuation evidence.

The CIT (Appeals) deleted the additions, emphasizing the lack of corroborative evidence, the timing of assessment, and the absence of any extraordinary cash or assets found during the search. The Tribunal upheld the CIT (Appeals)'s decision, noting the retractions by the brokers and the absence of any material evidence to support the AO's claims.

However, the High Court found the Tribunal's conclusions perverse, emphasizing the detailed and corroborative nature of the initial statements made during the search. The Court noted that the retractions lacked credibility and were not supported by any complaints of coercion or threat. The Court held that the statements made during the search constituted good material evidence and the Tribunal erred in disregarding them.

2. Undisclosed Capital Gains on Sale of Land at Jaipur Highway:
The AO added Rs.19,35,769/- as undisclosed capital gains based on seized cheques and bank deposits. The assessee contended that part of the land sale did not materialize as the buyer, Azaad Coaches Pvt. Ltd., did not make the payments, and the titles were not transferred.

The CIT (Appeals) and the Tribunal found that the sale did not complete, and no capital gains could be charged without the transfer of property. The High Court upheld this finding, noting that the unpaid cheques indicated no receipt of consideration and the AO failed to conduct necessary inquiries with the buyer to substantiate the claim of capital gains.

3. Unexplained Commission Paid to the Broker:
The AO added Rs.2,30,000/- as unexplained commission paid in cash to broker Ravinder Sharma, based on his statement. The CIT (Appeals) deleted this addition, linking it to the deletion of the addition for unexplained investment in KG Farms. The Tribunal upheld this decision.

The High Court, following its decision on the first issue, held that the addition for unexplained commission should also be reconsidered in light of the findings on the unexplained investment.

4. Validity of Assessment under Section 158BD:
In the case of Mani Kakkar, the CIT (Appeals) found that the AO did not record the necessary satisfaction under Section 158BD, rendering the assessment invalid. The Tribunal did not independently address this issue but followed its decision in the case of Kedarnath Gupta.

The High Court noted that the Revenue did not challenge the CIT (Appeals)'s finding on the lack of jurisdiction in its appeal to the Tribunal. Consequently, the assessment under Section 158BD was held invalid, making the appeal on merits academic and infructuous.

Conclusion:
The High Court upheld the deletion of the addition for undisclosed capital gains on the sale of land at Jaipur Highway, but reversed the Tribunal's decision on the unexplained investment in KG Farms and Jyoti Farms, directing a reconsideration of the addition for unexplained commission. The assessment under Section 158BD in the case of Mani Kakkar was held invalid due to the lack of recorded satisfaction by the AO.

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