2018 (1) TMI 318 - AT - Income Tax

Unexplained investment - addition made on the basis of statements of third parties and documents found from the possession of third parties unless copies are supplied and opportunity for cross examination is allowed to the assessee - Held that - In this case the persons who gave statements were interested persons as they were found in possession of unaccounted investment and by giving such statement they have explained such unaccounted investment and also claimed benefit u/s 54 of the Act on the amount so admitted. No incriminating document were found at the business premises of the assessee company or residence of the directors of the assessee. The assessee had not been provided any incriminating documents which could suggest that any on-money was paid. It is important to note that the Jain Brothers have explained their unaccounted investment by making such statement and also claimed benefit u/s 54 of the Act for such amount. In our considered view no addition can be sustained on the basis of such oral admission of interested party without providing opportunity of cross examination and not supported by independent evidence. The provisions of Transfer of Property Act also does not permit admission of oral evidence in contradiction to the written and registered documents. Hence, in these peculiar facts and circumstances of the case, the purchases consideration declared in respect of the Plot No. D-112A and D-112B, Power House Road, Bani Park, Jaipur admeasuring 500 sq. yards each at ₹ 1.00 crore (@ ₹ 20,000 x500 sq yard) each cannot be rejected. As regards the purchase of Plot (admeasuring 1000 Sq. Yards) No. D-112, Power House Road, Bani Park by the assessee from M/s. Rawat Construction Pvt.Ld, Jaipur for ₹ 1.14 crores, it is noted that the Plot No. D-112 as per registered sale deed was at ₹ 11,400/- per sq. yard. The AO noted that the market value of the plot should exactly be the same as of the above Plots No. D-112A & D-112B i.e. ₹ 7.00 crores. According to the AO, the size of the both the plots No. D-112A & D-112B (500 500 sq.yards) are similar to Plot No. D-112, Power House Road, Banipark, Jaipur. Hence, the AO took the value of the same at ₹ 70,000/-per sq. yard instead of ₹ 11,400/- per sq. yard as shown in the registered sale deed. In respect of purchase of Plot No D-112 from M/s. Rawat Construction Pvt Ltd. it is noted at page 24 of the ld. CIT(A) s order wherein the ld. CIT(A) admitted that no evidence suggesting on money payment with regard to property at Plot No.D-112 Purchased from M/s. Rawat Construction Pvt. Ltd has been found during the course of search operation conducted. It is also noted that no incriminating documents were found from the assessee and the authorities below have not examined the directors of the assessee company to this effect. It is noted that the assessee had purchased the plot admeasuring 1000 sq. yards for ₹ 1.14 crores which appears to be on lower side in comparison of purchase price of adjacent Plots No. D-112A and D-112-B, Power House Bani Park, Jaipur @ ₹ 20,000/- per sq. yard in the same year. In view of this , the cost of the same is to be estimated at ₹ 20,000/- per sq yard. Accordingly, the AO is directed to work out the addition as indicated above. Thus Ground No. 2 (a) & (c) of the assessee are partly allowed.

Summary

Issues Involved:
1. Legality of search proceedings under Section 132 and subsequent assessment under Section 153A.
2. Addition of ?10,63,66,700/- under Section 69 of the Income Tax Act, 1961 towards alleged "on money" payment for buying plots of land.

Issue-wise Detailed Analysis:

1. Legality of Search Proceedings and Assessment:
The assessee initially contested the legality of the search proceedings conducted under Section 132 and the subsequent assessment under Section 153A, claiming these were illegal, without basis, and beyond scope. However, during the hearing, the assessee's representative did not press this ground, and it was dismissed as not pressed.

2. Addition Under Section 69 for Alleged "On Money" Payment:

2(a) and 2(b). Addition Based on Statements of Third Parties:
The assessee challenged the addition of ?10,63,66,700/- made under Section 69, arguing that it was based merely on the statements of Shri Nirmal Kumar Jain and Shri Bimal Kumar Jain, without any opportunity for cross-examination. The statements were recorded during a search operation, where the Jain brothers admitted to receiving "on money" payments totaling ?5 crores for the sale of plots D-112A and D-112B. The assessee contended that these statements were self-serving and lacked corroborative evidence. The Tribunal emphasized that the statements of third parties are not binding on the assessee unless supported by independent evidence and cross-examination is allowed. The Tribunal noted that no incriminating documents were found at the assessee's premises, and the Jain brothers' statements were used to explain their own unaccounted investments, claiming benefits under Section 54.

2(c). Fair Market Value and Non-Referral to Department Valuation Officer (DVO):
The assessee also argued that the Assessing Officer (AO) erred in not referring the matter to the Department Valuation Officer (DVO) to determine the fair market value of the property. The AO had adopted a fair market value of ?70,000/- per sq. yard based on the sworn statements of the Jain brothers, without any supporting evidence or examination of the directors of M/s Rawat Construction Pvt. Ltd., from whom the assessee purchased Plot No. D-112. The Tribunal found that the AO's adoption of the fair market value was arbitrary and not supported by any incriminating documents or independent evidence. The Tribunal held that the cost of Plot No. D-112 should be estimated at ?20,000/- per sq. yard, similar to the adjacent plots D-112A and D-112B, and directed the AO to work out the addition accordingly.

Conclusion:
The Tribunal partly allowed the appeal, holding that the addition of ?10,63,66,700/- under Section 69 was not sustainable based on the oral statements of third parties without corroborative evidence and cross-examination. The Tribunal directed the AO to re-compute the addition based on a fair market value of ?20,000/- per sq. yard for Plot No. D-112.