2025 (5) TMI 329 - AT - Income Tax

Addition u/s 69B - assessee has failed to establish the linkage of the cash deposited with the transaction of sale of property of the company - HELD THAT - In order to substantiate the receipt of payment in cash purportedly for the sale of the immovable property belonging to the company in which the assessee is the Managing Director the assessee furnished the confirmation from the purchasers. As evident from the record that the lower authorities did not find the confirmation to be sufficient evidence to substantiate the claim of the assessee. CIT(A) enlisted the list of information/documents which could substantiate the receipt of cash deposited in assessee s bank account. There is neither any mention of any notice being issued to the assessee to furnish these documents nor any opportunity having been granted to the assessee to furnish the details as mentioned. We further find that the lower authorities have disputed the identity of the persons from whom the assessee has received the amount of INR 25 lakh in cash. As evident from the record that neither the assessee was directed to produce the said persons nor was any summon issued to them for necessary examination. Thus restore this issue to the file of the jurisdictional AO for de novo adjudication with a direction to the assessee to furnish the documents/information as mentioned in the impugned order. Ground decided in favour of the assessee for statistical purposes. Rejection of the claim of exemption u/s 10(1) - addition on account of profit from the sale of an undivided share of land - We find that the land admeasuring 41.47 acres of land in RSY No. 312/8 and 312/6 at Nedumassery village was sold vide two sale deeds executed during the financial year 2014-15 and 2015-16. We find that while considering a similar issue in assessee s own case in ITO v/s Babu Chandrathil George 2024 (5) TMI 693 - ITAT COCHIN as held burden to provide the primary information is on the assessee which though the AO has the right to verify and be satisfied with. Where not he shall state his reasons for the same i.e. for not agreeing with that advanced by the assessee forward both the set of coordinates along with reasons to KSREC seeking it s opinion in the matter and shall decide on the basis of it s report unless of course the AO effectively rebuts it with an expert opinion duly confronting the assessee therewith. As afore-noted the matter warrants and in fact admits of a precise measurement and the scope for an opinion in the matter is extremely limited. The AO s right to take a different view which though cannot inasmuch as he is to abide by law be excluded is to for it to be judicially sustainable be reasoned and supported by credible evidence. Thus we restore this issue to the file of the jurisdictional AO to comply with the directions as rendered by the coordinate bench in the decision cited supra. Appeal by the assessee is allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

(a) Whether the addition of INR 25 lakh made under section 69B of the Income Tax Act, 1961 ("the Act") on account of unexplained cash deposits received as advance for sale of immovable property is justified, given the assessee's claim of authorization and submission of confirmations from purported purchasers;

(b) Whether the claim of exemption under section 10(1) of the Act in respect of agricultural income arising from the sale of 41.47 acres of land and the treatment of profit from sale of an undivided share of land as business income is sustainable, considering the assessee's business profile and prior transactions in real estate;

(c) The procedural and evidentiary adequacy in the assessment and appellate proceedings concerning the above issues, including the sufficiency of opportunity and directions to the assessee to substantiate the claims.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Addition of INR 25 lakh under section 69B of the Act for unexplained cash deposits as advance for sale of immovable property

Relevant legal framework and precedents: Section 69B of the Act empowers the Assessing Officer (AO) to assess unexplained money, investments, or deposits if the assessee fails to satisfactorily explain the source of such amounts. The burden lies on the assessee to establish the identity and creditworthiness of the person from whom cash is received, and to link such receipt to a legitimate transaction.

Court's interpretation and reasoning: The AO disallowed the claim of the assessee that the INR 25 lakh deposited in his bank account was an advance received on behalf of the company for sale of immovable property, on the ground that the company resolution did not authorize the assessee to accept money or deposit it in his personal account. Further, the AO found the confirmation from the payers unreliable due to lack of identification and creditworthiness evidence.

The learned Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's findings, emphasizing the absence of critical details such as full names, addresses, PAN numbers, income tax returns, and registered sale agreements evidencing the cash payments. The CIT(A) also noted the absence of property records linking the cash deposits to the sale transaction, thereby reinforcing the addition under section 69B.

Key evidence and findings: The assessee submitted a company board resolution authorizing him to find buyers and execute sale deeds, and confirmations from six persons regarding receipt of cash advances. However, the confirmations lacked essential particulars, and no documentary evidence was furnished to establish the identity or creditworthiness of these persons. The AO and CIT(A) found these submissions insufficient.

Application of law to facts: The Tribunal observed that while the lower authorities questioned the identity of the persons and the genuineness of the cash receipt, no notice was issued to the assessee to produce the persons or to furnish the missing documents. The assessee was not given an opportunity to substantiate the claim with the required details, nor were summons issued to the alleged payers for examination.

Treatment of competing arguments: The Departmental Representative relied on the AO and CIT(A) findings to sustain the addition. The assessee did not appear for hearing. The Tribunal noted the procedural lacunae in the lower authorities' approach, particularly the failure to provide the assessee an opportunity to produce evidence or summon the persons whose confirmations were submitted.

Conclusions: The Tribunal set aside the addition under section 69B and remanded the matter to the AO for de novo adjudication. The AO was directed to allow the assessee to furnish the requisite documents, including details of the persons who advanced the cash, and to summon such persons if necessary. This approach was taken to ensure a fair and complete inquiry before making any addition.

Issue (b): Rejection of exemption under section 10(1) of the Act and addition of profit from sale of undivided share of land as business income

Relevant legal framework and precedents: Section 10(1) exempts agricultural income from tax. However, the nature of the transaction and the assessee's business profile are relevant to determine whether income from sale of land qualifies as agricultural income or business income. Precedents emphasize the need to distinguish between capital asset transactions and stock-in-trade dealings.

Court's interpretation and reasoning: The AO found that the assessee was engaged in the business of dealing in lands and real estate, supported by numerous transactions over several years and directorships/partnerships in real estate entities. Accordingly, the AO treated the income from sale of 41.47 acres of land and the profit from sale of undivided share of land as business income, rejecting the claim of agricultural income exemption.

The CIT(A) upheld the AO's findings. The Tribunal referred to a coordinate bench decision in the assessee's own case for the subsequent assessment year, which remanded a similar issue for detailed inquiry involving precise measurement and verification by the Kerala State Real Estate Regulatory Authority (KSREC). The coordinate bench emphasized the limited scope for opinion and the necessity for credible evidence and reasoned findings.

Key evidence and findings: The sale deeds for the land were executed in the preceding years, and the AO relied on the assessee's extensive history of land dealings and real estate business affiliations. The coordinate bench's directions included obtaining expert reports on land coordinates and municipal limits to ascertain the nature of the land and the transaction.

Application of law to facts: Given the factual matrix and prior findings, the Tribunal found it appropriate to restore the issue to the AO with directions to comply with the coordinate bench's detailed procedural directions for a precise and evidence-based determination.

Treatment of competing arguments: The Departmental Representative supported the AO's and CIT(A)'s treatment of the income as business income. The assessee's claim of agricultural income exemption was not accepted on record. The Tribunal did not rule on the merits but deferred to the coordinate bench's approach for a thorough investigation.

Conclusions: The Tribunal set aside the impugned order on this issue and remanded it to the AO for fresh adjudication in accordance with the coordinate bench's directions, thereby allowing the grounds raised by the assessee for statistical purposes.

3. SIGNIFICANT HOLDINGS

The Tribunal's crucial legal reasoning and principles established include:

On unexplained cash deposits under section 69B:

"...in the absence of these documents the assessee has failed to establish the linkage of the cash deposited with the transaction of sale of property of the company. However, we find that there is neither any mention of any notice being issued to the assessee to furnish these documents nor any opportunity having been granted to the assessee to furnish the details as mentioned. We further find that the lower authorities have disputed the identity of the persons from whom the assessee has received the amount of INR 25 lakh in cash. However, it is evident from the record that neither the assessee was directed to produce the said persons nor was any summon issued to them for necessary examination. Accordingly... we deem it appropriate to restore this issue to the file of the jurisdictional AO for de novo adjudication with a direction to the assessee to furnish the documents/information..."

On treatment of income from sale of land:

"...the coordinate bench of the Tribunal issued the following directions: The AO shall, after hearing the assessee in the matter, forward the coordinates of the said land... to KSREC, which shall report thereto... The burden to provide the primary information is on the assessee... The AO's right to take a different view... is to, for it to be judicially sustainable, be reasoned and supported by credible evidence."

Final determinations:

(i) The addition of INR 25 lakh under section 69B was set aside and remanded for fresh adjudication with directions to afford the assessee an opportunity to substantiate the receipt of cash advances.

(ii) The rejection of exemption under section 10(1) and addition of profit from sale of undivided share of land as business income was set aside and remanded for fresh inquiry in line with the coordinate bench's detailed directions.

(iii) Both issues were allowed for statistical purposes, emphasizing procedural fairness and evidentiary rigor in tax assessments involving complex transactions.