2023 (11) TMI 740 - AT - Income Tax

Additions u/s 69B - Unexplained cash payments towards purchase of land - As argued assessee was never allowed to cross examine the seller of the land or Shri JM(who is maintaining the records and claimed to be arbitrator of the deal and was searched) though request during the assessment proceeding was made - AO tried to correlate the impugned Agreement for Sale with the excel sheets recovered from the digital data impounded from the premises of Shri JM whereas the Ld. AO finalized the assessment of Shri Mori accepting that transaction as per excel sheet not material transaction and no addition was made though proposed by the ADIT - HELD THAT - AO was of the opinion that as the cheque payment in the account has been treated as genuine, then, cash deposit appears in the same file should earned same treatment. But the persons name figured in the agreement in question never admitted of making payment in cash. Moreso, the agreement for sale doesn t correspond to the market value of the land as such. Time and again, we have said that no independent materials are in the possession of the Revenue so as to prove that cash payment made for the land in question. The material found from Shri Mori was neither prepared by him nor known to him as the same was sent by Raghuvir Buildcon Pvt. Ltd. for their personal use via Shri Mori; no counter statement to this effect has been forthcoming from any of the parties during search or post search. Non-filing of the complaint against false allegation/charge in regard to cash exchanged hands with mutual consent of both the parties by the assessee as alleged by the Ld. AO is of no consequences in the absence of any provision under the Act of filing any complaint against the reopening of assessment based on belief of escapement of income. We find that this particular aspect of the matter has duly been taken care of by the Ld. CIT(A). Such an allegation made by the Ld. AO as said to be premature and not sustainable at all is found to be proper. When the assessee was never a party to the deal as per the alleged agreement for sale dated 05.05.2011 neither there any mentioning of the assessee having paid cash on-money in any of the impounded materials, particularly, when the assessee entered into deal after the alleged agreement to sale, the question of interest payable for delayed payment by her doesn t and cannot arise as the very basis of alleged original agreement to sale dated 05.05.2011 is not binding on her. Relevant to mention that the husband of the assessee became the director of the company much after the agreement for sale, only in the month of January 2014. Apart from that the Ld. AO neither referred the matter to the Ld. AO for ascertaining the valuation of the land before making addition. We find that the entire aspect of the matter has already discussed by us hereinabove were duly taking into consideration in its proper perspective by the Ld. CIT(A) and deleted the addition made by the Ld. AO, which in our considered opinion is just and proper so as to warrant interference. With the above observation, the Revenue s appeal is, therefore, found to be devoid of any merit and thus dismissed. Reopening of assessment on the basis of recording of reasons on admittedly incorrect facts is, in our considered opinion, does not have legs to stand. The same is found to be not maintainable and void ab initio. Thus, the entire proceeding is quashed. Undisclosed capital gain - Reopening being made on incorrect fact recorded by the Ld. AO to this effect that the assessee is a seller and has escaped assessment of capital gain is found to be absolutely wrong. The very basis, if, found to be incorrect the further proceeding cannot be said to be justified standing on wrong footing and thus, liable to quashed. In that view of the matter, we are inclined to accept the case made out by the assessee in holding the entire proceeding is bad as the same was originally based upon the wrong recording of fact by the ITO while reopening the assessment. Thus, proceeding is thus void ab initio and therefore quashed. The Assessee s appeal is allowed. On money payment - CIT(A) in deleting addition as the assessees were never a party to the deal as per the disputed Agreement for Sale dated 05.05.2011 and the husbands of these assessees became the Directors of the company much after the disputed date of Agreement for Sale. If that be so, the assessees cannot be said to be the party to on money payment as alleged by Revenue, particularly, when there was no mentioning of paying cash on money in those impounded materials. Apart from that, the assessee entered into the deal as subsequent to the Memorandum of Agreement, the interest on delayed payment as alleged to have been made by these assessees cannot be accepted as the same is not attributable to them. The original Agreement to Sale is not binding on them. Neither District Valuation Officer was referred in respect of valuation of the land by the Ld. AO. Under these premises, the deletion of addition made by the Ld. CIT(A) is found to be logical.

Issues Involved:
1. Reopening of assessment under Section 147 of the Income Tax Act.
2. Addition based on alleged unexplained investment and on-money payment.
3. Validity of evidence and documents used for making additions.
4. Rights of the assessee to cross-examine witnesses and the principle of natural justice.

Summary:

1. Reopening of Assessment under Section 147:
The reopening of assessment was challenged by various assessees on grounds of factual inaccuracies in the reasons recorded for reopening. For instance, in ITA No. 23/Rjt/2021, the assessee argued that the reasons recorded were factually incorrect as he was neither a seller nor a Director at the time of the disputed transaction. The Tribunal found that reopening based on incorrect facts does not stand, and thus, the entire proceeding was quashed.

2. Addition Based on Alleged Unexplained Investment and On-Money Payment:
The Revenue made additions on the basis of unexplained cash payments towards the purchase of land, alleging on-money payments. In ITA No. 22/Rjt/2021, the Tribunal noted that the primary document (agreement for sale) did not bear the signatures of the assessee or her husband, and the land was in a high flood and green zone, which justified the lower purchase price. The Tribunal upheld the CIT(A)'s deletion of the addition, finding no evidence of on-money payment.

3. Validity of Evidence and Documents Used for Making Additions:
The Tribunal scrutinized the evidence, such as excel sheets and valuation reports, which were impounded from third parties. In ITA No. 22/Rjt/2021, it was observed that the excel sheets did not conclusively prove cash payments, and the valuation reports did not account for the land's restrictions. The Tribunal emphasized that loose sheets and unsigned documents found with third parties cannot be used as conclusive evidence against the assessee without corroborative material.

4. Rights of the Assessee to Cross-Examine Witnesses and the Principle of Natural Justice:
The Tribunal highlighted the importance of allowing assessees to cross-examine witnesses. In several cases, including ITA No. 22/Rjt/2021, the Tribunal noted that the assessees were not allowed to cross-examine the sellers or Shri Jawahar Mori, whose statements were used against them. The Tribunal held that such denial violated the principles of natural justice, and thus, the additions made were not sustainable.

Conclusion:
The Tribunal dismissed all the appeals filed by the Revenue and allowed the appeal filed by the assessee, emphasizing the need for concrete evidence and adherence to the principles of natural justice in making additions and reopening assessments.

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