2025 (6) TMI 1292 - AT - Income Tax

Addition u/s 68 - unexplained cash credit - treatment of on money receipts - addition is based on a receipt issued by both these assessees duly acknowledging the amount as on 13.05.2008 - additions made based on seized documents and statements recorded under section 132(4) - HELD THAT - We wish to make it clear that although learned counsel has placed reliance on Bharat Engineering and Construction 1971 (9) TMI 14 - SUPREME COURT we make it clear that there would not be any dispute about the settled legal proposition that such unexplained cash credit addition could not be added in the first year of the business. The fact however remains that this assessee is having other group entities as well wherein the department has unearthed a closely knit web of transactions as discussed in the CIT(A) s lower appellate findings. We are of the considered view in this peculiar backdrop that their lordships decision does not apply in the given facts. This receipt admittedly forms the seized document only. Learned counsel s vehement contention before us is that the same does not contain any date. He could not dispute the clinching fact that the back side of the receipt quotes its date as 13.05.2008 only which not only carries presumption of correctness regarding date and time but also qua contents thereof as per section 292C of the Act. The assessee s stand that the impugned addition could be made in the yar of registration has to be rejected only in light of this factual backdrop. We further sought a specific clarification from both these assessees as to when they had received the impugned on-money . They replied through their learned counsel that no such amount had been received which again goes against section 292C of the Act. We thus accept the Revenue s foregoing stand in principle that the learned Assessing Officer had rightly made the impugned addition . Quantification of the impugned addition - We are of the considered view that once the impugned receipt dated 13.05.2008 states an amount of Rs. 4.25 crores only in the relevant previous year the very presumption provision under section 292C of the Act goes against the department as well that the same ought not to have been extrapolated to the extent of Rs. 1, 00, 00, 000/- aggregating to Rs. 5, 25, 00, 000/- (supra) Correctness of the CIT(A) s action herein restricting the impugned addition from Rs. 5.25 crores to Rs. 1, 09, 89, 285/- - He has admittedly gone by the Assessing Officer s remand report dated 07.07.2014 for the purpose of apportioning the on-money herein in paragraphs 10.10 to 10.13. We are of the considered view that once the impugned sum of Rs. 4.25 crores is strictly based on these twin assessees joint receipt dated 13.05.2008 no such course of action is permissible as per section 292C of the Act as the statutory presumptions stand unrebutted from the assessees side. We thus uphold the addition herein of Rs. 5.25 crores only to the extent of Rs. 4.25 crores in these twin assessee s respective hands; qua 50% each once they have failed to dispute their equal share going by the very analogy. Necessary computation shall follow as per law. Both these assessees sole substantive grievance to this effect fails.

Summary

The core legal questions considered by the Tribunal in this batch of appeals arising from search and seizure proceedings under the Income Tax Act, 1961, primarily revolve around the following issues:

1. Whether the assessment proceedings initiated under section 153A and assessment orders passed under sections 153A/143(3) are valid and within jurisdiction, particularly regarding time limitation and procedural compliance.

2. Legality and correctness of additions made under section 68 of the Act on account of unexplained share capital or unexplained cash credits, including the evidentiary requirements to establish identity, genuineness, and creditworthiness of share application money received.

3. The applicability of the principle of "real income" and the concept of telescoping of income in the context of additions made to the assessee's income, especially where overlapping or duplicate additions are alleged.

4. Whether the additions made based on seized documents and statements recorded under section 132(4) can be sustained in the absence of corroborative evidence or in the face of retractions by the assessee.

5. The treatment of "on money" (unaccounted cash consideration) in property sale transactions and the correct quantification and apportionment of such additions among co-owners or related parties.

6. Whether the Revenue's cross appeals challenging deletion of certain additions are maintainable and valid in light of prescribed minimum tax effect thresholds.

Issue-wise Detailed Analysis

1. Validity of Proceedings under Section 153A and Procedural Compliance

Though initially raised, the assessee Classic Lamps Industries Pvt. Ltd. did not press grounds challenging the jurisdiction and time bar of proceedings under section 153A/143(3). The Tribunal accordingly rejected these grounds without detailed discussion. The issue was thus not adjudicated on merits in this batch.

2. Legality of Additions under Section 68 on Account of Unexplained Share Capital

Legal Framework and Precedents: Section 68 casts the burden on the assessee to explain the nature and source of any unexplained cash credits or share application money appearing in its books. The assessee must establish (a) the identity of the shareholders, (b) genuineness of the transaction, and (c) creditworthiness of the shareholders. Jurisprudence from the Delhi High Court in CIT vs. Gangour Investment Ltd., CIT vs. Value Capital Services Pvt. Ltd., CIT vs. Goel Sons Golden Estate Pvt. Ltd., and CIT vs. Frostair Pvt. Ltd. was extensively relied upon to elucidate these principles.

Court's Interpretation and Reasoning: The Tribunal noted that the Assessing Officer (AO) made additions treating the entire share capital of Rs. 2.13 crores as unexplained credit based on seized ledger entries relating to one Mr. Shaleen Vajapai. However, out of 17 share applicants, 8 were directors/relatives assessed by the same AO and had filed confirmations and relevant documents. Another 7 entities had submitted confirmations, bank statements, balance sheets, and income tax particulars, and some had responded to summons under section 131. The AO failed to consider these evidences and relied solely on the seized ledger relating to Mr. Vajapai to discredit all share application money.

The Tribunal emphasized that the AO did not conduct adequate inquiries or record adverse findings against these entities. The appellate authority rightly held that the addition could not be sustained in respect of Rs. 1.13 crores received from these 15 entities. However, the addition of Rs. 1 crore relating to Mr. Vajapai and the company where he was director was upheld based on clear ledger notings and failure of the director to provide plausible explanations.

Application of Law to Facts: The Tribunal upheld the principle that the Revenue cannot make an addition under section 68 if the assessee furnishes sufficient documentary evidence establishing the identity, genuineness, and creditworthiness of the share applicants. The AO's reliance on suspicion without material evidence was rejected.

Treatment of Competing Arguments: The assessee argued that the addition was unsustainable as it had not commenced business, and the amounts were assessed in group entities. The Tribunal rejected this reliance on the Supreme Court decision in CIT vs. Bharat Engineering and Construction, noting the peculiar facts of a closely knit group and the search operation context.

Conclusion: The addition under section 68 was partly deleted to the extent of Rs. 1.13 crores but sustained for Rs. 1 crore relating to Mr. Vajapai.

3. Real Income and Telescoping of Income

The assessee contended that the concept of real income was ignored and that the additions were duplicate or overlapping. The Tribunal noted that this ground was not properly adjudicated by the lower authorities and remanded the issue to the AO for fresh consideration with three opportunities to the assessee to plead and prove relevant facts. This ground was accepted for statistical purposes, implying that the issue requires fresh adjudication in line with proper procedure.

4. Additions Based on Seized Documents and Statements under Section 132(4)

Legal Framework: Statements recorded under section 132(4) and documents seized during search operations enjoy statutory presumptions of correctness under sections 132(4) and 292C of the Act. However, these are rebuttable on cogent evidence.

Court's Reasoning: In the case of property sale transactions involving "on money" (unaccounted cash consideration), the Tribunal held that the seized receipt dated 13.05.2008 acknowledging Rs. 4.25 crores as "on money" was a valid basis for addition. The assessee's contention that the addition should be made only in the year of registration of sale deed was rejected, as the receipt's date was clearly established and carried statutory presumptions.

The Tribunal also noted that affidavits from purchasers denying cash consideration were self-serving and could not be relied upon, citing the Delhi High Court decision in CIT vs. Sonal Constructions and Urmila Lodhi.

Application of Law to Facts: The Tribunal accepted the Revenue's addition of Rs. 5.25 crores but reduced it to Rs. 4.25 crores based on the seized receipt. It further apportioned the addition between the assessee and the builder (HDPL) in the ratio of cheque payments received (181:169), directing the AO to bring the balance amount to tax in HDPL's hands.

Treatment of Competing Arguments: The assessee's retraction of the statement recorded under section 132(4) was held insufficient to rebut the statutory presumption, especially in the absence of corroborative evidence.

Conclusion: The addition on account of "on money" was upheld at Rs. 4.25 crores, apportioned equally between the assessee and Mrs. Veena Gupta, with the balance to be taxed in HDPL's hands.

5. Maintainability of Revenue's Cross Appeal

The Tribunal rejected the Revenue's cross appeal in respect of an amount below the minimum tax effect threshold of Rs. 60 lakhs prescribed by CBDT Circular No. 9/2024, dated 17.09.2024, holding that the appeal was not maintainable on this ground.

6. Deletion of Addition on Account of Unexplained Payment Receipt

The Revenue challenged the deletion of an addition of Rs. 50 lakhs representing repayment of loan from a related party. The Tribunal upheld the deletion, noting that the Revenue did not dispute the nature of the transaction as repayment of loan, thereby affirming the CIT(A)'s findings.

Significant Holdings

"Revenue can make addition under Section 68 of the Act only if the assessee is unable to explain the credits appearing in its books of accounts. In the said case the appellant has duly explained the said credit entries in the form of various documentary evidences. The said documentary evidence contained details, which set out not only the identity of the subscribers, but also gave information, with respect to their address, as well as, PAN, Assessment particulars etc. Based on these facts, the Hon'ble Delhi Court dismissed the appeal of revenue."

"Thus, the assessee is under a burden to explain the nature and source of the share application money received in a given case. For discharging this, the assessee has to establish: (a) the shareholder's identity; (b) genuineness of the transaction; and (c) the creditworthiness of shareholders. ... The reasons should be based on materials, and not the product of conclusions based on suspicion."

"It is not an inviolable rule applicable to all situations and to all cases that every seized document should be corroborated before any addition can be made based on it. ... It may not be practical to expect the purchasers of the property to depose against the seller since both of them are party to the same transaction in which on-money is allegedly involved."

"An admission is the best evidence that an opposite can rely upon and though not conclusive could be decisive of the matter, unless successfully withdrawn or proved erroneous."

"The statement under section 132(4) has a very high evidentiary value and it cannot be retracted without sound reasoning and corroborative evidence."

"The impugned receipt dated 13.05.2008 states an amount of Rs. 4.25 crores only in the relevant previous year, the very presumption provision under section 292C of the Act goes against the department as well that the same ought not to have been extrapolated to the extent of Rs. 1,00,00,000/- aggregating to Rs. 5,25,00,000/-."

Final Determinations

- The addition under section 68 on account of unexplained share capital was partly deleted to the extent of Rs. 1.13 crores and sustained for Rs. 1 crore relating to transactions involving Mr. Shaleen Vajapai.

- The issue of real income and telescoping of income was remanded for fresh adjudication by the AO with limited opportunities to the assessee.

- The addition of Rs. 5.25 crores on account of "on money" in property sale was reduced to Rs. 4.25 crores based on seized receipt, apportioned equally between the two joint owners, with the balance to be taxed in the builder's hands.

- The Revenue's cross appeal below the minimum tax effect threshold was dismissed.

- The deletion of addition relating to repayment of loan from related parties was upheld.

- Procedural and jurisdictional challenges to assessments under section 153A were not pressed and hence rejected.