2019 (11) TMI 204 - AT - Income Tax

Addition being income allegedly earned by the appellant form the deal of transfer of shares which had been terminated by the parties - HELD THAT - CIT (A) extensively thrashed the facts of the case in paras 4.5 to 4.8 of the impugned order in the light of the statements of Mahesh Mehta and Kusum Mehta recorded during the search seizure proceedings and reached the conclusion that agreement dated 21.04.2009 is not a legally enforceable document for lack of certainty of the purchaser party. When we examine both the agreements dated 22.08.2008 and 21.04.2009 in the light of the statement recorded by Mahesh Mehta during the course of search u/s 132 (4) to which presumption is attached and has not been retracted spontaneously and no material whatsoever has been brought on record by the assessee if the said statement was made under coercion or under any undue influence, agreement dated 21.04.2009 does not inspire confidence to believe the same. When we examine facts and circumstances of the case, particularly statement of Kunjan Arora recorded during search investigation, it further leads to the conclusion that the agreement to sell in question dated 22.08.2008 owned by RRFSL was executed for a sale consideration of ₹ 25,00,01,100/- as Kunjan Arora has specifically replied that He has paid a total sum of ₹ 9.66 crores over a period from December 2007 till date and had issued post-dated cheques of ₹ 8.84 crores which have not been encashed till date. Furthermore, a sum of ₹ 1,100/- was paid in cash as initial deal signing amount thus paid a total payment of ₹ 18,50,01,100/-. So, the question is answered accordingly that Agreement dated 22.08.2008 is not a dumb document. CIT (A) on facts primarily based on undisputed facts cannot be unsettled merely on the contention of the assessee that the draft agreement dated 22.02.2008 is merely a dumb document because the same has been categorically admitted by assessees in their statements as well as Kunjam Arora recorded during search proceedings, though retracted subsequently. But retraction cannot be relied upon on the ground that it was not spontaneous rather made in the well-orchestrated manner by preparing second agreement dated 21.04.2009 to camouflage the actual transaction. Even Mahesh Mehta during recording of his statement u/s 132 (4) recorded on 01.07.2009 has not disclosed the existence of agreement dated 21.04.2009. Had there been any such agreement in question, Mahesh Mehta would have relied upon the same in support of his case. So, it is a document prepared anti-dated to evade the taxes. Moreover, terms and conditions of the agreement dated 21.04.2009 are against the settled convention followed in such transactions. Moreover, the second agreement was given in the post-search proceedings. CIT (A) has rightly reached the conclusion that since the assessees have not become owner of the shares of RRFSL, profit of ₹ 4,08,00,000/- cannot be treated as their capital gain but it is certainly income from their business or from their sources as broker of the transaction as till today it is not brought on record if on the basis of legal notice issued to assessee for refund of that amount, any legal proceedings have been initiated or any order has been passed by the Civil Court and accordingly, made addition of ₹ 2,04,00,000/- made each in the name of Mahesh Mehta and Kusum Mehta, the assessees, is sustainable. Addition based on sale deed for transfer of HSIIDC plot - It is settled principle of law that addition cannot be made on the basis of sole statement recorded u/s 132(4) of the Act. Moreover when the transaction of sale of plot has been frustrated by the original owner and the buyer by bye-passing the assessees, there is no question of making addition of ₹ 9,20,00,000/- each. Furthermore, when ample evidence is there on record and has been scanned by the ld. CIT (A) that both the assessees have refunded the entire amount received in the deal except an amount of ₹ 4,08,00,000/-, this addition is not sustainable. So the ld. CIT (A) has rightly deleted the addition of ₹ 9,20,00,000/- each made in the hands of Mahesh Mehta and Kusum Mehta. AO has also made addition in case of Mahesh Mehta on account of undisclosed sales of Katha manufactured from Khair wood, a forest product - It is the case of the assessee, Mahesh Mehta that the stock in question was old stock of liquid Katha and due to suspension of production work in the factory due to some legal problem, the stock in question got spoiled/damaged in the factory because of flood on account of heavy rains. The stock in question has been physically verified by the officials of the Forest Department and declared the same actually destroyed and given the report that stock in question is as good as of nil value . Report of the Forest Department declaring the stock in question as spoiled/destroyed with nil value and correspondence with the Forest Department is available. On the basis of report that 549 quintals liquid Katha was unfit for sale, it was ordered to be destroyed and the ld. CIT (A) after verifying the opening and closing stock extracted in para 4.3 of the impugned order rightly reached the conclusion that this addition is not sustainable in the eyes of law and the report given by the Forest Department tallies with stock register maintained with the assessee. So, we are of the considered view that the ld. CIT (A) has rightly deleted the addition of ₹ 1,48,51,840/- made by AO on account of undisclosed sales of katha.So, the amount of ₹ 4,08,00,000/- has been rightly treated as income of the assessee in the year of receipt i.e. AY 2009-10 and not in the AY 2014-15 as contended by the ld. AR for th

Summary

Issues Involved:
1. Confirmation of addition of ?2,04,00,000/- as income from the terminated deal of transfer of shares.
2. Deletion of addition of ?9,20,00,000/- (correct amount ?7,16,00,000/-) as income from undisclosed sources.
3. Deletion of addition of ?1,48,51,840/- as income from undisclosed sales.

Issue-wise Detailed Analysis:

1. Confirmation of Addition of ?2,04,00,000/-:

The appellants, Mahesh Mehta and Kusum Mehta, disputed the confirmation of an addition of ?2,04,00,000/- each as income allegedly earned from a terminated deal of transfer of shares of M/s. Raj Refuellers & Fire Safety Equipments Pvt. Ltd. (RRFSL). The Assessing Officer (AO) based this on a draft agreement dated 22.02.2008 found during a search and seizure operation, which indicated a sale consideration of ?25,00,00,000/- for property Plot No.115, Udyog Vihar, Gurgaon. The AO observed that ?18,50,01,100/- was received by the sellers, Mahesh Mehta and Kusum Mehta, but the deal was not completed due to objections from HSIIDC. The AO treated the remaining amount as income from undisclosed sources. The CIT (A) confirmed the addition of ?2,04,00,000/- each, considering the profit from the transaction, despite the appellants' claim that the draft agreement was never acted upon. The Tribunal upheld the CIT (A)'s decision, stating that the draft agreement was not a dumb document and the profit was rightly assessed.

2. Deletion of Addition of ?9,20,00,000/- (Correct Amount ?7,16,00,000/-):

The Revenue challenged the deletion of an addition of ?9,20,00,000/- (correct amount ?7,16,00,000/-) each in the hands of Mahesh Mehta and Kusum Mehta. The AO made this addition based on the statement of Mahesh Mehta recorded under section 132(4) of the Income-tax Act, which indicated receipt of ?18,40,00,000/- from the sale of shares. The CIT (A) deleted this addition, noting that the transaction was not completed through the appellants, as the shares were transferred directly from the original owners, the Gargs, to the Aroras. The CIT (A) found that the appellants received only ?9,26,00,000/- and paid ?5,18,00,000/- to the Gargs, resulting in a profit of ?4,08,00,000/-. The Tribunal upheld the CIT (A)'s findings, stating that the addition was based on presumption without concrete evidence and that the appellants had refunded the amount except ?4,08,00,000/-.

3. Deletion of Addition of ?1,48,51,840/-:

The AO added ?1,48,51,840/- as income from undisclosed sales of Katha, a forest product, alleging that the stock was not recorded in the books. The appellant, Mahesh Mehta, claimed that the stock was spoiled due to heavy rains and was ordered to be destroyed by the Forest Department. The CIT (A) deleted the addition, verifying the stock details and the Forest Department's report, which confirmed the stock's destruction. The Tribunal upheld the CIT (A)'s decision, noting that the stock was physically verified and declared of nil value by the Forest Department, and the addition was not legally sustainable.

Conclusion:

The Tribunal dismissed the appeals filed by Mahesh Mehta and Kusum Mehta, as well as the Revenue's appeals, finding no illegality or perversity in the CIT (A)'s findings. The Tribunal confirmed the addition of ?2,04,00,000/- each as income from the terminated deal of transfer of shares, upheld the deletion of the addition of ?9,20,00,000/- (correct amount ?7,16,00,000/-) each as income from undisclosed sources, and upheld the deletion of the addition of ?1,48,51,840/- as income from undisclosed sales.