2025 (5) TMI 1792 - AT - Income Tax

Addition as unexplained advance - addition on account of advance cash received as per incriminating seized document found and seized which represent an Ekrarnama or Agreement between the assessee and Shri Vinod Tyagi executed on judicial stamp paper valued Rs. 100/- having the contents that an advance has been received out of agreed consideration by the assessee from Shri Vinod Tyagi for sale of his residential property confirmed from the statement on oath of the assessee HELD THAT - As undisputed fact that a sum of Rs. 50, 00, 000/- has been received from Sh. Vinod Tyagi against booking of 3 flats and the amount has been received vide cheque against which receipt has been issued to Mr. Vinod Tyagi which establishes that the said agreement was found in the premises of M/s KDP Infrastructure Pvt. Ltd. which establishes that money received towards purchase of flats of M/s KDP Infrastructure Pvt. Ltd. AO did not consider the amount having come from Mr. Vinod Tyagi however the said search clearly revealed that no money other than Rs. 50, 00, 000/- by the aforesaid cheque was received which appropriately explained the proper source of amount of Rs. 50, 00, 000/-. Even otherwise it is noticed that CIT(A) in his order directed the AO to initiate appropriate action in the case of Shri Vinod Tyagi to tax Rs. 50, 00, 000/- for AY 2012-13 as unexplained advance made to assessee. Source of Rs. 50, 00, 000/- has been fully explained hence addition of Rs. 50, 00, 000/- made in the hands of the assessee deserve to be deleted. Accordingly we set aside the orders of the authorities below and delete the addition of Rs. 50, 00, 000/-. Resultantly the issue on the merit of the case is decided in favour of the assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

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

(a) Whether the addition of Rs. 50,00,000/- made by the Assessing Officer (AO) as unexplained advance is justified on the facts and lawRs.

(b) Whether the assessment proceedings initiated under section 153A/143(3) of the Income Tax Act, 1961, without obtaining mandatory approval under section 153D, are valid or void ab initioRs.

(c) Whether the approval under section 153D issued by the Principal Commissioner of Income Tax was mechanical, without application of mind, and hence invalidRs.

(d) Whether the approval under section 153D was a consolidated approval contrary to the statutory provisions and CBDT guidelines, thereby vitiating the assessment proceedingsRs.

(e) Whether the addition under section 153A was sustainable when the incriminating document ('Ekrarname') on which the addition was based was found at the premises of a third party (M/s KDP Infrastructure Pvt. Ltd.), implying that the assessment should have been made under section 153C instead of 153ARs.

(f) Whether the mode of payment of Rs. 50,00,000/- was cash or cheque and the implications thereof on the addition made by the AO and sustained by the Commissioner of Income Tax (Appeals) [CIT(A)]Rs.

(g) Whether the presumption under sections 132(4A) read with 292C of the Act applies, and if so, its effect on the addition of unexplained advanceRs.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Justification of Addition of Rs. 50,00,000/- as Unexplained Advance

Relevant Legal Framework and Precedents: The addition of unexplained cash or advances is governed by the provisions of the Income Tax Act, particularly under sections dealing with search and seizure (sections 132, 153A) and the principles of unexplained income or unexplained credits. The burden lies on the assessee to explain the source of the amount. Precedents emphasize that if the source is satisfactorily explained, no addition can be made.

Court's Interpretation and Reasoning: The AO made the addition on the basis of the seized document ('Ekrarname' or agreement) dated 28.07.2011, which recorded receipt of Rs. 50,00,000/- as advance payment for sale of residential property. The AO treated this advance as unexplained because the co-party, Shri Vinod Tyagi, denied the transaction and the mode of payment was not specified in the agreement. The CIT(A) sustained the addition, reasoning that the mode of payment was "obviously cash" since no cheque or DD details were mentioned, and disbelieved the assessee's explanation that the amount was paid by cheque for booking flats in a project developed by KDP Infrastructure Pvt. Ltd.

Key Evidence and Findings: The assessee admitted receipt of Rs. 50,00,000/-. Shri Vinod Tyagi, in his sworn statement, denied the agreement but admitted payment of Rs. 50 lacs by cheque no. 00012 dated 04.07.2011 towards booking flats in the "Grand Savana" project of KDP Infrastructure Pvt. Ltd. The seized agreement was found at the premises of KDP Infrastructure Pvt. Ltd., not the assessee. Receipt was issued for the cheque payment, establishing the source and mode of payment.

Application of Law to Facts: The Tribunal noted that the AO ignored the fact that the Rs. 50 lacs was paid by cheque and receipt was issued, which fully explains the source of the amount. The absence of cheque details in the agreement does not conclusively prove cash payment. The denial by Shri Vinod Tyagi of the agreement's authenticity was not sufficient to treat the advance as unexplained when documentary evidence established payment by cheque.

Treatment of Competing Arguments: The AO and CIT(A) relied on the seized agreement and denial by Vinod Tyagi to treat the amount as unexplained cash advance. The assessee's argument, supported by the cheque payment and receipt, was that the amount was advance for purchase of flats and not unexplained income. The Tribunal favored the assessee's explanation as more credible and supported by evidence.

Conclusions: The Tribunal concluded that the source of Rs. 50,00,000/- was fully explained and the addition made by the AO and sustained by CIT(A) was unwarranted. The addition was deleted.

Issues (b), (c), and (d): Validity of Assessment Proceedings under Sections 153A/143(3) Without Approval under Section 153D

Relevant Legal Framework and Precedents: Section 153D mandates prior approval from the Principal Commissioner or Commissioner before making an assessment under section 153A, especially in cases involving search and seizure. The Supreme Court decisions cited (CIT vs. Varas International, National Thermal Power Co. Ltd. vs. CIT) and the Special Bench decision in DHL Operators emphasize the mandatory nature of this approval and the requirement that it must not be mechanical but involve application of mind.

Court's Interpretation and Reasoning: The assessee sought to raise grounds challenging the validity of the assessment orders for lack of proper approval under section 153D, alleging that the approval was mechanical, without application of mind, and was a consolidated approval contrary to statutory provisions and CBDT Circular No. 03 of 2008.

Key Evidence and Findings: The Tribunal admitted these additional legal grounds but refrained from adjudicating them on merits since the appeal was decided in favor of the assessee on the substantive issue of addition.

Application of Law to Facts: The Tribunal acknowledged the legal importance of these grounds but found it unnecessary to decide them given the favorable outcome on the main issue.

Treatment of Competing Arguments: No detailed arguments on these grounds were adjudicated due to the ex-parte nature of the hearing and the ultimate decision on merits.

Conclusions: The Tribunal did not rule on these grounds but admitted them for consideration.

Issue (e): Applicability of Section 153A vs. Section 153C for Assessment

Relevant Legal Framework: Section 153A applies to assessments of the searched person, while section 153C applies to assessments of other persons in whose possession undisclosed income or assets are found during search of a third party.

Court's Interpretation and Reasoning: The assessee contended that since the incriminating document was found at KDP Infrastructure Pvt. Ltd., the assessment should be under section 153C and not 153A. However, the Tribunal did not explicitly decide this issue as the appeal was decided on merits of the addition.

Key Evidence and Findings: The document was found at KDP Infrastructure premises, and the amount was paid by cheque to KDP Infrastructure. The assessee admitted receipt of the advance.

Application of Law to Facts: The Tribunal's deletion of the addition on merits rendered this issue less significant.

Treatment of Competing Arguments: The Tribunal did not delve into this issue in detail.

Conclusions: No specific ruling was given on this issue.

Issue (f): Mode of Payment of Rs. 50,00,000/- (Cash or Cheque)

Relevant Legal Framework: Mode of payment is crucial in determining whether an amount is unexplained cash or legitimate banking transaction. Documentary evidence such as cheque numbers and receipts are important.

Court's Interpretation and Reasoning: The CIT(A) inferred cash payment due to absence of cheque details in the agreement. The Tribunal rejected this inference, relying on the cheque payment evidence and receipt issued by KDP Infrastructure Pvt. Ltd.

Key Evidence and Findings: Cheque no. 00012 dated 04.07.2011 for Rs. 50 lacs was paid by Shri Vinod Tyagi, and receipt was issued. No evidence of cash payment was found during search.

Application of Law to Facts: The Tribunal held that absence of cheque details in agreement does not conclusively prove cash payment, especially when cheque and receipt evidence exists.

Treatment of Competing Arguments: The Tribunal favored the assessee's evidence over the CIT(A)'s presumption.

Conclusions: The mode of payment was by cheque, not cash, negating the addition.

Issue (g): Applicability of Presumption under Sections 132(4A) read with 292C

Relevant Legal Framework: Section 132(4A) and section 292C create presumptions in search cases regarding undisclosed money or property. However, these presumptions are rebuttable.

Court's Interpretation and Reasoning: The assessee argued that these presumptions apply and that the amount received as advance cannot be treated as income. The Tribunal did not explicitly analyze these presumptions but implicitly accepted the assessee's explanation and evidence rebutting any presumption of undisclosed income.

Key Evidence and Findings: Documentary evidence of cheque payment and receipt rebutted the presumption of unexplained cash advance.

Application of Law to Facts: The Tribunal's deletion of addition indicates acceptance that the presumption was rebutted.

Treatment of Competing Arguments: The Tribunal favored the assessee's explanation over the presumption.

Conclusions: The presumption did not survive on facts; addition was deleted.

3. SIGNIFICANT HOLDINGS

"We are of the considered view that source of Rs. 50,00,000/- has been fully explained, hence, addition of Rs. 50,00,000/- made in the hands of the assessee deserve to be deleted."

"The amount has been received vide cheque no. 00012 dated 04.07.2021 against which receipt has been issued to Mr. Vinod Tyagi, which establishes that the said agreement was found in the premises of M/s KDP Infrastructure Pvt. Ltd., which establishes that money received towards purchase of flats of M/s KDP Infrastructure Pvt. Ltd."

"The explanation by the assessee that Rs. 50,00,000/- was received on booking amount for purchase of 3 BHK flat in the property 'Grand Savana' development by KDP Developers P Ltd. cannot be disbelieved merely because the agreement does not mention the cheque no. and the properties booked at 'Grand Savana'."

Core principles established include:

• An addition for unexplained advance cannot be sustained if the source and mode of payment are satisfactorily explained by documentary evidence, even if the co-party denies the transaction.
• Absence of cheque details in an agreement seized during search does not conclusively prove cash payment.
• Presumptions under sections 132(4A) and 292C are rebuttable and can be negated by credible evidence.
• Additional legal grounds challenging procedural aspects of assessment under sections 153A and 153D may be admitted but need not be adjudicated if the appeal is decided on merits in favor of the assessee.

Final determinations:

• The addition of Rs. 50,00,000/- as unexplained advance is deleted.
• The appeal of the assessee is allowed.
• The Tribunal refrained from deciding on additional legal grounds related to procedural compliance under sections 153A and 153D.