2023 (11) TMI 1047 - AT - Income Tax

Unexplained investment u/s. 69B - evidence gathered during the course of search and post-search investigation coupled with statements recorded from Directors of the seller company shows that the appellant company had paid additional consideration on or before the registration of the property - HELD THAT - As observations of the AO in light of date of sale deed executed by the parties and subsequent statement of Director of vendor company cannot proceed on the premises of justifying the Revenue s attempt in asking for source for the additional consideration paid. It is common in many cases that property has been registered by accepting part consideration and remaining consideration has been paid in installments, after the date of registration and it all depending upon the arrangements between the parties and other issues like disputes, if any on the properties. It is an exceptional case whereby dispute relating to the subject property is resolved only after registration of the documents including the payment of additional consideration. Therefore, from the combined reading of all the answers given in the sworn statement of the Director of the appellant company, it is abundantly clear that said additional consideration has been paid and being accounted in the assessment year 2013-14. Shortfall for the source for payment of additional consideration is already offered for taxation in the assessment year 2013-14, in the hands, Director of the appellant company. Therefore, in our considered view, the reasons given by the Assessing Officer to allege that the arguments of the appellant with regard to substantiate payment to the vendor company, in light of affidavit and confirmation letter from the Director of the vendor company is an afterthought is devoid of merits and thus, rejected. AO has made additions solely on the basis of statement of Directors of the seller company, but fact remains that said statement cannot be relied upon for the simple reason of non-furnishing of the full version before passing of the re-assessment order. There is no iota of any evidence with regard to details of payments, even though he had admitted that additional consideration of Rs. 12 crores has been received for sale of property. The offer of the additional consideration received by the seller in the income tax returns filed for the assessment year 2008-09, by virtue of provisions governing computation of capital gains would not alter the recognition of payments by the appellant during the assessment year 2013-14 in the hands of appellant company, especially when amounts were paid to resolve dispute, which was pending after the execution of sale deed and also stated on oath in the statement which should be considered as sacrosanct. Reporting of additional consideration by the seller either as capital gains or as other income because of the search conducted in the month of March 2012 in the assessment year 2008-09, so as to justify and to link the additional consideration to the sale deed executed for several reasons to come out from the rigors of the Income Tax Act. Presumption of disputed sum being paid during the assessment year under consideration is wholly unjustified especially in view of the settlement of dispute in the subsequent assessment years. Assessing Officer should not have read the statement recorder in isolation and combined reading of the statement and facts emerging there from would establish the fact that the transactions is completed only in the assessment year 2013-14 and the appellant has established the source for balance consideration - CIT(A), without appreciating relevant facts simply sustained additions made by the AO. Thus, we set aside the order passed by the ld. CIT(A) and direct the Assessing Officer to delete additions made towards additional consideration paid for purchase of property as unexplained investment u/s. 69B of the Act. Decided in favour of assessee.

Issues Involved:

1. Sustaining the addition under Section 69B of the Income Tax Act.
2. Applicability of Section 69B.
3. Consideration of payments made to remove encumbrances.
4. Presumption of applicability of Section 69B.
5. Proof of transaction and presumption of applicability.
6. Cross-verification by the revenue.
7. Addition based on suspicion and surmises.
8. Encumbrances cleared in subsequent assessment years.
9. Violation of principles of natural justice.
10. Assumption of jurisdiction under Section 147.
11. Reopening of assessment based on misreading of search results.
12. Acceptance of payment of balance purchase consideration.
13. Effective opportunity before passing the impugned order.

Summary:

1. Sustaining the Addition under Section 69B of the Income Tax Act:
The assessee challenged the CIT(A)'s decision to sustain the addition of Rs. 6.15 crores as unexplained investment under Section 69B. The CIT(A) upheld the addition on the grounds that the assessee failed to provide satisfactory evidence to prove that the payment was made to clear encumbrances on the property.

2. Applicability of Section 69B:
The CIT(A) failed to appreciate that the provisions of the Act had no application to the present case, thereby negating the findings in the impugned order.

3. Consideration of Payments Made to Remove Encumbrances:
The assessee argued that a sum of Rs. 4.85 crores was paid to the seller to remove encumbrances on the property during the period 01.04.2012 to 27.05.2012, negating the presumption of applicability of Section 69B.

4. Presumption of Applicability of Section 69B:
The CIT(A) failed to appreciate that the presumption of applicability of Section 69B was wrong, erroneous, and not sustainable both on facts and in law.

5. Proof of Transaction and Presumption of Applicability:
The assessee provided copies of ledger accounts, court orders, and settlement memos to prove the transaction of Rs. 6.15 crores, arguing that the presumption of applicability of Section 69B was incorrect.

6. Cross-Verification by the Revenue:
The CIT(A) failed to appreciate that the cross-verification carried out by the revenue had no legal sanctity and overlooked the sequence of events provided by the assessee.

7. Addition Based on Suspicion and Surmises:
The CIT(A) failed to appreciate that the addition was based on mere suspicion and surmises without considering the facts provided by the assessee.

8. Encumbrances Cleared in Subsequent Assessment Years:
The CIT(A) failed to appreciate that the encumbrances were cleared in subsequent assessment years, making the rejection of the claim of payment of the disputed component unjustified.

9. Violation of Principles of Natural Justice:
The CIT(A) failed to provide the sworn statement of the Director of Premier Roller Flour Ltd to the assessee before making the disputed addition, violating principles of natural justice.

10. Assumption of Jurisdiction under Section 147:
The CIT(A) failed to appreciate that the assumption of jurisdiction under Section 147 was without sanction of law, making the reassessment order bad in law.

11. Reopening of Assessment Based on Misreading of Search Results:
The CIT(A) failed to appreciate that the reopening of the assessment based on misreading of search results was bad in law and that the reassessment completed based on suspicion should fall to the ground.

12. Acceptance of Payment of Balance Purchase Consideration:
The CIT(A) failed to appreciate that the rejection of the stand of the appellant in making the payment of the disputed component during 01.04.2012 to 27.05.2012 was incorrect, especially in the absence of direct evidence.

13. Effective Opportunity Before Passing the Impugned Order:
The CIT(A) failed to provide an effective opportunity before passing the impugned order, violating principles of natural justice.

Conclusion:
The Tribunal set aside the order of the CIT(A) and directed the Assessing Officer to delete the additions made towards additional consideration paid for the purchase of property amounting to Rs. 6.15 crores as unexplained investment under Section 69B of the Act. The appeal filed by the assessee was allowed.

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