2019 (3) TMI 265 - HC - Income Tax

Undisclosed investment - search u/s 132 - addition on the assessee with respect to a sale agreement of a property in Menonpara at Palakkad - materialization of agreement - non disclosures in cash flow statement - HELD THAT - The amount having not figured in the cash flow statement, we are of the opinion that necessarily, an addition has to be made as an undisclosed investment; which if the transaction has not materialised would have been returned to the assessee and would have been invested elsewhere. No reason to accept the contention of the assessee that part of the agreement being exchange of a building at Akathethara, had actually taken place. If the exchange was part of the transaction of sale of the property at Menonpara, the assessee will have to explain why the further sale and conveyance did not take place. When the exchange is said to be an inextricable part of the agreement, the assessee cannot resile from that and take a different contention. In any event, we have already found that how the transaction concluded is not material since the existence of unaccounted cash in the hands of the assessee is established. The extracted portion of the specific answer to the question put by the Officer and recorded under Section 132(4) that the assessee agreed to having paid ₹ 50 lakhs in cash. It is also an admitted fact that there were two others, Babu and Hussain, involved in the property transaction; all of whom figured in the agreement also. Hence, going by the agreement recovered and the specific admission of the assessee that he had paid ₹ 50 lakhs in cash, the same has to be made an addition. In such circumstances, we modify the order of the Tribunal to the effect that the addition has to be confined to ₹ 50 lakhs and not ₹ 78 lakhs. - Decided partly in favour of assessee

Summary

Issues: Whether the addition of ?78 lakhs on the assessee-appellant concerning a sale agreement of a property in Menonpara at Palakkad can be sustained or not.

Analysis:
1. The primary issue in this case is whether the addition of ?78 lakhs on the assessee-appellant can be sustained. The question revolves around the facts of the case and whether the findings are considered perverse or not.

2. The case involves a search conducted under Section 132 of the Income Tax Act, 1961, which revealed an agreement for the purchase of a property at Menonpara for ?150 lakhs. The agreement also included the exchange of another property at Akathethara valued at ?72 lakhs. The balance of ?78 lakhs was allegedly received in cash by one of the individuals involved. The assessee provided a different version of the transaction, claiming to have paid various amounts in cash and property exchanges.

3. The Assessing Officer valued the property at Akathethara lower than claimed and made an addition of ?1,16,68,000 as undisclosed investment by the assessee. However, the first appellate authority and the Tribunal intervened, indicating that only ?78 lakhs was paid in cash as the balance after considering the property exchange.

4. The senior counsel for the assessee argued that the remaining amount was shared among all three members involved in the transaction, not solely by the assessee. It was also contended that since the agreement did not materialize, the addition should not be upheld.

5. The court emphasized that the materialization of the agreement is irrelevant for considering the addition made by the AO. The crucial point was whether the undisclosed amounts were reflected in the cash flow statement of the assessee. Since the amount was not accounted for, it was deemed an unexplained investment.

6. It was established that the assessee had admitted to paying ?50 lakhs in cash, and considering the agreement and specific admission, the court modified the addition to be confined to ?50 lakhs instead of ?78 lakhs. The Income Tax Appeal was partly allowed with no order as to costs.