2025 (5) TMI 1175 - AT - Income Tax

Unexplained investment u/s 69 - data uploaded by the sub-registrar s office mistakenly included an extra digit reflecting the property value as Rs. 1, 36, 26, 000/- instead of Rs. 13, 25, 500/- - HELD THAT - While furnishing the AIR information the Sub Registrar Office had wrongly mentioned the immovable property value as Rs. 1, 36, 26, 000 instead of Rs. 13, 25, 500. In the interest of justice and equity we are of the view that this aspect of the matter needs to be examined by the AO. Accordingly we restore this issue to the files of the AO. The assessee is directed to furnish all the necessary evidences to prove the impugned property has been purchased by the assessee (the land and building value) for Rs. 13, 25, 500. Since we have restored the issue of main addition to the files of the AO the other subsidiary issues such as addition made on account of purchase of shares / mutual funds and credit card bills payments are also restored to the files of the AO. Appeal filed by the assessee is allowed for statistical purposes.

Summary

The core legal questions considered in this appeal pertain to the correctness of additions made by the Assessing Officer (AO) under the Income-tax Act, 1961, specifically:

1. Whether the addition of Rs. 1,36,26,000 as unexplained investment under section 69, based on the property value reported by the Sub-Registrar's office, was justified, given the assessee's claim that the actual property value was Rs. 13,25,500 and the higher figure was due to a clerical error.

2. Whether the treatment of purchases of mutual funds (Rs. 4,00,000), equity shares (Rs. 4,26,000), and credit card payments (Rs. 2,93,000) as unexplained expenditure under section 69C was appropriate, considering the assessee's contention that the actual purchase amount was Rs. 4,24,231 and that some transactions were merely switching between mutual fund schemes without fresh payments.

3. Whether the addition of Rs. 7,74,000 as unexplained expenditure on account of salary payments to employees was correct, when the assessee contended that this amount represented his own gross salary from employment with HDFC Bank.

4. The procedural correctness of completing assessment on best judgment basis under section 144 read with section 147 in light of the assessee's failure to file return or respond to notices.

Regarding the first issue concerning the property valuation and addition under section 69:

The relevant legal framework involves the provisions of section 69 of the Income-tax Act, which deals with unexplained investments. The AO relied on data uploaded by the Sub-Registrar's office, which showed the property value at Rs. 1,36,26,000, and accordingly made an addition on this basis. The assessee challenged this, submitting documentary evidence including the sale deed dated 05.05.2015, a housing loan sanction letter, and a rectification order issued by the District Registrar correcting the property value to Rs. 13,25,500, asserting that the Sub-Registrar's data had an extra digit by mistake.

The CIT(A) rejected the claim on the ground that the assessee had not furnished a letter from the Sub-Registrar's office confirming the correction, rendering the verification of the property and sale deed linkage inconclusive. The CIT(A) held that in absence of such verification, the addition was justified.

The Tribunal, upon reviewing the materials including the rectification order by the District Registrar and the sale deed, found prima facie merit in the assessee's contention that the Sub-Registrar's data was erroneous. The Tribunal emphasized the need for a fair and equitable adjudication and accordingly restored the matter to the AO for fresh examination. The assessee was directed to furnish all necessary evidence to substantiate the actual purchase price of the immovable property.

The Tribunal's reasoning reflects the principle that additions under section 69 must be based on verifiable and credible evidence, and that clerical or data entry errors should not result in disproportionate tax additions without proper inquiry. The Tribunal thus sought to balance the Revenue's interest in verifying unexplained investments with the assessee's right to fair treatment.

On the second issue regarding the additions under section 69C for purchases of mutual funds, equity shares, and credit card payments:

Section 69C pertains to unexplained expenditure not recorded in books of account. The AO treated the entire amounts as unexplained, disregarding the assessee's submissions that the actual purchase amounts were lower and that certain mutual fund transactions were switching transactions involving no fresh payments.

The CIT(A) upheld the AO's additions, apparently on the basis that the assessee failed to adequately explain or substantiate these transactions.

The Tribunal, however, restored this issue to the AO for fresh adjudication along with the property valuation issue. This indicates that the Tribunal found the matter required detailed scrutiny in light of the assessee's submissions and documentary evidence, including bank statements and transaction details. The Tribunal implicitly recognized that mere non-filing of return or initial non-response should not preclude a fair inquiry into the nature of these transactions.

Regarding the third issue of the Rs. 7,74,000 addition as salary payments:

The AO treated this amount as unexplained expenditure, possibly on the premise that the assessee had made salary payments to employees. The assessee clarified that this amount represented his own gross salary income from HDFC Bank, which was subject to tax deduction at source (TDS) and covered by tax returns of previous years. The assessee also contended that he ceased employment in October 2015 and relocated abroad, explaining non-filing of the return for the assessment year 2016-2017.

The CIT(A) upheld the addition without detailed reasoning recorded in the judgment excerpt, suggesting a possible failure to appreciate the nature of the amount as income rather than expenditure.

The Tribunal did not explicitly discuss this issue separately but restored all related additions to the AO for fresh adjudication, implying that this issue too requires reconsideration in light of the evidence and submissions.

On the procedural aspect of completing assessment on best judgment basis under sections 144 and 147:

The AO initiated reassessment proceedings under section 148 due to non-filing of return and issued notices under section 142(1). The assessee did not respond, leading to issuance of show cause notice under section 144 for best judgment assessment, which was completed at a total income of Rs. 1,55,19,000.

The Tribunal noted the assessee's explanation that the taxable salary income was subject to TDS and refund claimed, and that the assessee was unaware of proceedings until receipt of the ex parte order. The Tribunal condoned the delay in filing the appeal and emphasized the need for a fair hearing and consideration of evidence. The restoration of issues to the AO also reflects the Tribunal's approach to ensure procedural fairness and substantive justice.

The Tribunal's treatment of competing arguments reveals a balanced approach: while acknowledging the Revenue's mandate to tax unexplained income and investments, it also recognized the possibility of clerical errors and the assessee's right to substantiate claims with documentary evidence. The Tribunal did not accept the CIT(A)'s rejection of the property value correction merely on the absence of a letter from the Sub-Registrar's office, given the rectification order issued by the District Registrar and other supporting documents. Instead, it directed a thorough inquiry at the AO level.

In conclusion, the Tribunal allowed the appeal for statistical purposes by setting aside the impugned additions and restoring the matter to the AO for fresh adjudication on all issues, directing the assessee to produce necessary evidence. This approach preserves the Revenue's right to verify and tax unexplained income while safeguarding the assessee's right to a fair opportunity to prove his case.

Significant holdings and principles established include:

"While furnishing the AIR information, the Sub Registrar Office had wrongly mentioned the immovable property value as Rs. 1,36,26,000 instead of Rs. 13,25,500. In the interest of justice and equity, this aspect of the matter needs to be examined by the AO."

"The assessee is directed to furnish all the necessary evidences to prove the impugned property has been purchased by the assessee (the land and building value) for Rs. 13,25,500."

"Since we have restored the issue of main addition to the files of the AO, the other subsidiary issues such as addition made on account of purchase of shares / mutual funds and credit card bills payments are also restored to the files of the AO."

These holdings underscore the principle that additions under sections 69 and 69C must be based on verifiable facts and that clerical errors in official records must be corrected before making adverse tax assessments. They also affirm the necessity of procedural fairness and the opportunity for the assessee to substantiate claims before finalizing assessments on best judgment basis.