2013 (8) TMI 704 - HC - Income Tax

Undisclosed income - Undervaluation registration of property - Whether the amount deposited in bank is part of sales consideration or undisclosed income liable to addition u/s 68 - Assessee himself made complaint about it - A.O. applied proceedings u/s 68 - Held that - assessee as an honest citizen not only made a complaint to the registering authority that the sale deed has been registered at a value much below the amount which he has actually received he deposited the entire amount in the bank and voluntarily filed return. There was no material whatsoever or any circumstance which could have suggested that this amount was received by him from any other source. The deposition of witness of the sale deed the Bank Manager and the evidence filed with regard to valuation of the property was more than sufficient to discharge the burden which the A.O. had unreasonably placed on the assessee. The A.O. in disbelieving the evidence has not given any reasons whatsoever to discard the statement of the witnesses deposit of the entire sale consideration in bank and the deposition of the Bank Manager. The assessee had not only deposited the entire amount in the bank but also informed the registering authority of the deficiency of the stamp in the sale deed - from the facts and circumstances on the record that in the present case the Income Tax Officer did not act in bonafide manner. The assessee led substantial evidence to establish that the amount treated to be undisclosed income by the A.O. was the sale consideration of sale of his agricultural land which he had deposited in the bank and had voluntarily filed return disclosing his income. Overwhelming evidence led by him was discarded without giving any reasons at all. The assessment was framed only on the ipse dixit of the A.O. which gives us reason to believe that he had exceeded his authority with some ill will or with ulterior motive - Decided against Revenue.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this income tax appeal under Section 260A of the Income Tax Act, 1961, arising from the order of the Income Tax Appellate Tribunal (ITAT), were as follows:

• Whether the ITAT was justified in deleting the addition of Rs. 77,80,000/- to the assessee's income on the basis that it was a prevalent practice in land transactions not to disclose full consideration, despite concrete findings of the lower authorities to the contrary.
• Whether the ITAT erred in ignoring the provisions of Section 68 of the Income Tax Act, which deals with unexplained cash credits, thereby curtailing the powers of the assessing authorities under this section.
• Whether the ITAT was justified in deleting the addition without appreciating that the assessee himself declared a sale consideration of Rs. 22,20,000/- in the registered deed, and that there was no evidence that the purchasers had paid the higher sum of Rs. 1,20,00,000/- claimed by the assessee.
• Whether the ITAT was justified in not testing the assessee's case under the anvil of Section 68.
• Whether the ITAT was justified in deleting the addition without appreciating that the assessee failed to discharge the onus to prove the source of the cash deposits in his bank account.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 3: Justification of ITAT in deleting the addition based on prevalent practice and absence of evidence regarding full consideration

Relevant legal framework and precedents: The assessment of undisclosed income under the Income Tax Act often involves examining whether the declared sale consideration in a registered deed reflects the true transaction value. It is a recognized fact in land transactions that parties sometimes understate consideration to evade stamp duty and tax liabilities. The evidentiary burden lies on the assessee to prove the source of deposits and the genuineness of transactions, but courts have acknowledged the practical realities of such prevalent practices.

Court's interpretation and reasoning: The ITAT accepted the assessee's explanation that the actual sale consideration was Rs. 1.20 crores, although only Rs. 22.20 lakhs was mentioned in the registered sale deed. It noted the statements of witnesses to the sale deed, including the purchasers and the bank manager, who confirmed that the higher amount was paid in cash and demand drafts at the time of registration. The ITAT observed that it is a prevalent practice in land transactions not to disclose the full sale consideration in the sale deed to evade tax and stamp duty. The Tribunal found that the lower authorities had arbitrarily disbelieved this explanation without adequate basis.

Key evidence and findings: The assessee produced documentary evidence including the khasra and khatauni records establishing ownership of the agricultural land, bank deposit slips showing cash deposits of Rs. 90 lakhs on the date of sale, statements of witnesses who attested the sale deed and confirmed receipt of the higher consideration, and a report from the Tehsildar confirming the agricultural nature and location of the land. The bank manager's testimony corroborated the timing and amount of the cash deposit.

Application of law to facts: The Court and the ITAT applied the principle that the assessee's explanation supported by credible evidence and consistent with prevalent commercial practices should be accepted unless disproved by positive evidence. The mere fact that the registered sale deed showed a lower consideration was insufficient to reject the assessee's claim, especially in absence of any contradictory evidence.

Treatment of competing arguments: The Assessing Officer (AO) and the Department argued that the assessee failed to prove the source of the cash deposits and that the purchasers denied paying the higher consideration. However, the ITAT found that the purchasers' statements were inconsistent and that the AO relied heavily on the stamp valuation authority's report without adjudicating the sale consideration. The AO's suspicion was based on the evasion of stamp duty complaint pending adjudication, which the Tribunal held was insufficient to treat the amount as undisclosed income.

Conclusions: The ITAT's deletion of the addition was justified as the preponderance of probability favored the assessee's explanation. The Court upheld this finding, noting it was a question of fact not warranting interference.

Issue 2 & 4: Whether the ITAT ignored Section 68 and curtailed authorities' powers

Relevant legal framework: Section 68 of the Income Tax Act empowers the Assessing Officer to treat unexplained cash credits as income if the assessee fails to satisfactorily explain the nature and source of such credits. The onus is on the assessee to prove the source of deposits.

Court's interpretation and reasoning: The Court noted that the ITAT did not ignore Section 68 but applied it in light of the evidence produced. The ITAT found that the assessee had discharged the onus by producing credible evidence and explanations supported by witnesses and documentary proof. The AO had failed to produce any positive evidence to contradict the assessee's explanation. The Court observed that the ITAT's approach was consistent with the legal principle that Section 68 cannot be invoked to make arbitrary additions without supporting evidence.

Key evidence and findings: The assessee's voluntary return filing, bank deposits, witness statements, and official reports collectively satisfied the evidentiary requirement under Section 68. The AO's reliance on the stamp valuation authority's complaint and the purchasers' denial without corroborative evidence was insufficient.

Application of law to facts: The Court emphasized that Section 68 requires a fair and reasonable assessment of evidence. Where the assessee provides a plausible and credible explanation supported by evidence, the addition cannot be sustained merely on suspicion or absence of direct proof.

Treatment of competing arguments: The Department's contention that the assessee failed to prove the source was rejected due to the substantial evidence presented. The Court criticized the AO's ipse dixit approach and lack of bonafide in disbelieving the evidence without reasons.

Conclusions: The ITAT's deletion of the addition was in accordance with the legal framework of Section 68 and did not curtail the powers of the authorities but rather prevented misuse of such powers.

Issue 5: Whether the assessee failed to discharge onus to prove source of cash deposits

Relevant legal framework: The burden of proof under the Income Tax Act lies on the assessee to explain the source of unexplained cash credits. However, once credible evidence is produced, the AO must accept it unless disproved by positive evidence.

Court's interpretation and reasoning: The Court found that the assessee had not only deposited the entire amount in the bank but also voluntarily filed the return disclosing the income. The assessee had informed the registering authority about the undervaluation in the sale deed, which demonstrated good faith. The Court held that the AO's rejection of the evidence without reasons was unjustified.

Key evidence and findings: Witness statements, bank manager's deposition, documentary proof of land ownership and valuation, and voluntary filing of return were sufficient to discharge the onus.

Application of law to facts: The Court applied the principle that the onus is discharged when credible evidence is presented. The AO's failure to provide contrary evidence meant the addition could not be sustained.

Treatment of competing arguments: The Department's reliance on the purchasers' denial and the stamp valuation authority's complaint was held insufficient to rebut the assessee's evidence.

Conclusions: The Court upheld the ITAT's deletion of the addition, confirming that the assessee had discharged the onus satisfactorily.

3. SIGNIFICANT HOLDINGS

The Court emphasized the following crucial legal reasoning and principles:

"It is a prevalent practice in the land transaction that real sale consideration is not shown in the sale deed. There was also sufficient reason for the purchasers to conceal actual sale consideration in the sale deed to evade tax and stamp duty since it is paid by the purchasers only."

"Ignoring the above documents, circumstantial evidence and the prevalent practice in the land transaction, we are of the view that the authorities below were not justified in doubting the explanation of the assessee for the source of deposit in question mainly on the basis that the registered sale deed signed by the assessee himself shows a sale value consideration of only Rs. 22,20,000/- and that there is no full proof evidence on record that the purchasers had given total consideration of Rs. 1,20,00,000/-."

"The assessment was framed only on the ipse dixit of the A.O., which gives us reason to believe that he had exceeded his authority with some ill will or with ulterior motive."

Core principles established include:

• The genuineness of a transaction and source of deposits under Section 68 must be assessed on the preponderance of probabilities and credible evidence, not merely on registered deed value.
• The prevalent commercial practice of under-reporting sale consideration in land transactions must be taken into account.
• The onus on the assessee to prove source of deposits is discharged when credible documentary and testimonial evidence is presented.
• Authorities cannot make additions based on suspicion or ipse dixit without positive evidence.
• Assessing Officers must act in bonafide manner and provide reasons when rejecting evidence.

Final determinations on each issue were that the ITAT's deletion of the addition of Rs. 77,80,000/- was justified, and the appeal by the Department was dismissed. The Court also directed an enquiry into the conduct of the Assessing Officer for acting without bonafide and exceeding authority.