2022 (11) TMI 1211 - HC - Income Tax

Undisclosed income - on-money - retracted statement - Addition based on seized material documents - as in respect of the lands purchased in bits and pieces, the cost of acquisition of land under different heads has been described which includes cost of land, brokerage, legal expenses, etc. - HELD THAT - As assessment orders of the purchasers prima facie show that the purchasers had offered the income which they had earned by transferring the lands to the Company for formation of Golf Club and Villas and declared their capital gains and paid taxes. Though it is recorded by Assessing Officer that the order is passed without prejudice to the assessment proceedings of assessee herein, the orders are passed u/s143(3) which is a substantive assessment. Even if said orders are duly considered as 'without prejudice to the assessment proceedings' in respect of the assessee herein, we have noted that, there was no incriminating material seized, which could suggest that assessee had paid any 'on-money'. In substance AO has relied upon only two circumstances, firstly, the seized documents, which do not bear any signature, secondly, on the statement of the original owners, wherein the original owners have confirmed on oath the actual value of the land. One of the purchasers has stated on oath that a Police complaint was given against him and therefore, he had given statement before the Income Tax Authorities and subsequently retraced the same. In the circumstances, the assessment order passed based on seized material and the statements, which have been redressed, is perverse. We are of the considered view that AO had no material to hold that the assessee had paid any 'on-money'. Hence, order passed by the AO, CIT(A) and ITAT are not sustainable. Since the assessment order is not sustainable, it is needless to mention that the current proceedings are not tenable. Decided in favour of assessee.

Summary

Issues:
1. Undisclosed income determination
2. Ownership of land
3. Penalty confirmation under section 158BFA (2) of the Act

Issue 1: Undisclosed Income Determination
The case involved a dispute regarding the undisclosed income of the appellant, which was initially determined by the Assessing Officer and subsequently challenged through various levels of appeal. The appellant argued that the assessment order and subsequent decisions were based on unsigned documents and lacked concrete evidence of any undisclosed income. The Assessing Officer primarily relied on seized documents and statements from agriculturists to support the claim of 'on-money' payments made by the appellant. However, upon careful consideration, the court found that the seized documents did not bear the appellant's signature, except for one agreement where the appellant represented the purchasers of land. The court noted discrepancies in the Assessing Officer's calculations and concluded that there was insufficient evidence to support the claim of undisclosed income. Additionally, affidavits filed by the original landowners contradicted the Assessing Officer's findings, further weakening the case for undisclosed income.

Issue 2: Ownership of Land
Another key aspect of the case was the ownership of 103 acres of land, with the appellant being the GPA holder of the purchasers. The appellant contended that he was not directly involved with the purchasers and that the assessment order was based on flawed assumptions. The court examined the documents related to the land transactions and found discrepancies in the Assessing Officer's calculations regarding the alleged 'on-money' payments. The court highlighted that the Assessing Officer's reliance on seized materials and statements was not substantiated by concrete evidence linking the appellant to any undisclosed income. Ultimately, the court concluded that the Assessing Officer's determination of the appellant as the real owner of the land was not supported by valid evidence.

Issue 3: Penalty Confirmation under Section 158BFA (2) of the Act
The third issue pertained to the confirmation of penalty under section 158BFA (2) of the Act. The Assessing Officer had imposed a penalty, which was partially reduced by the CIT(A) but still contested by the appellant. The court's analysis of the case revealed that the penalty imposition was based on the same unsubstantiated grounds as the undisclosed income determination. Given the lack of concrete evidence supporting the undisclosed income claim, the court found the penalty confirmation to be unjustified. The court emphasized that the assessment order, penalty imposition, and subsequent decisions were not sustainable due to the absence of valid evidence linking the appellant to any undisclosed income or ownership of the land. Consequently, the court allowed the appeal, answered the questions of law in favor of the appellant, and ruled against the Revenue, with no costs imposed.

This detailed analysis of the judgment highlights the key legal issues, arguments presented by the parties, and the court's reasoning in arriving at its decision.