2025 (5) TMI 862 - AT - Income Tax

Addition on-money paid from undisclosed sources for purchase of flat at Chitragupt Nagar Jaipur based on agreement for purchases of said flat - HELD THAT - Based on the facts it is not clearly established that the assessee while vacating the possession of the property occupied gives the money for purchase of flat is against the common sense and therefore the ld. AO has made the addition without bringing correct facts on record and therefore we do not see any merit to sustain the addition and therefore we direct the ld. AO to delete that addition. Based on these observations ground no. 1 raised by the assessee is allowed. Addition of advances given - Identity genuineness and creditworthiness of the concerned person was not proved - HELD THAT - Advance of loan given by the assessee cannot be termed as unexplained money as per the above definition but can be termed as unexplained money. Therefore the invocation of the section while making the addition was wrong. Not only that it is not the case of section 69 of the Act as the source of advance has been noted down along with the noting of the advance made at page no. 61 of the seized diary and internal page 7 of the paper book. The amount was advanced out of the money received from Mausi sa has been accepted by the ld. AO as not pertaining to the appellant-assessee vide Table 1 Sr. no. 16 and page no. 19 of the assessment order. As per cash flow statement there was a receipt of Rs. 2 lac on 14.12.2012 from Mausi sa and out this amount Rs. 1 lac was advanced to Shri Bhanu Pratap and Rs. 50, 000/- to Shri Ram Chandra Saini. Considering the discussion on facts we see no reason to sustain the addition and therefore we direct the ld. AO to delete the addition. Based on this observation ground no. 2 raised by the assessee is allowed. Investment in land through a sale agreement made which includes cash payment as an unexplained investment u/s 69 - HELD THAT - As payment was made by the assessee merely based on the statement made by the assessee. But the ld. AR of the assessee submit that once the source of that money is explained the addition is not warranted. To support that contention the assessee also filed the affidavit too. Thus the bench noted that the correct income should be taxed in the hands of the assessee and thus the Bench is of the view that lis between the parties has to be decided on merits so that nobody s rights could be scuttled down without providing opportunity of being heard to the assessee. Considering that peculiar aspect of the matter we deem it fit to remand the matter to the file of the ld. AO who will consider the factual aspect of the matter as raised by the assessee after due verification of the facts and charge the correct income in the hands of the assessee after affording due opportunity to the assessee. However the assessee will not seek any adjournment on frivolous ground and remain cooperative during proceedings before the ld. AO. Undisclosed interest income - HELD THAT - AO has estimated the income as undisclosed interest income for an amount without any basis and cogent supporting material available on record and seized and therefore in the search assessment without placing anything on record from the seized material that the assessee has earned any interest the same cannot be added. Considering that aspect of the matte we direct the ld. AO to delete that addition.

Summary

The core legal questions considered by the Tribunal in these consolidated appeals pertain to the following issues:

1. Whether the addition of Rs. 40,00,000/- as unexplained investment under section 69 of the Income Tax Act, 1961 ("the Act") on account of alleged on-money paid for purchase of a residential flat is justified, considering the seized sale agreement and the subsequent registered sale deed reflecting a lower consideration.

2. Whether the addition of amounts on account of alleged unexplained loans and advances recorded in seized diaries (Annexure AS Exhibits 2 and 3) under section 69A of the Act is sustainable, particularly when the assessee claims to have acted merely as a middleman and has furnished affidavits and partial details of the parties involved.

3. Whether the applicability of section 115BBE of the Act, which prescribes a special tax rate on unexplained income, is appropriate on the additions confirmed under sections 69 and 69A.

4. Ancillary issues relating to the evidentiary value of statements recorded under section 132(4) and section 131 of the Act during search and seizure proceedings, including the validity and effect of subsequent retractions by the assessee.

Issue-wise Detailed Analysis

1. Addition of Rs. 40,00,000/- as unexplained investment in purchase of flat (Section 69)

Legal Framework and Precedents: Section 69 of the Act empowers the Assessing Officer (AO) to treat unexplained investments as income if the assessee fails to satisfactorily explain the source of such investment. The evidentiary value of statements recorded under section 132(4) during search operations has been upheld in various judgments, including the Hon'ble Rajasthan High Court in CIT v. Hotel Meriya and Pr. CIT v. Shri Roshan Lal Sancheti, which emphasize that such statements cannot be discarded summarily, especially if retractions are belated and unsupported by credible evidence.

Court's Interpretation and Reasoning: The AO relied on a seized sale agreement dated 03.11.2012, wherein the seller acknowledged receipt of Rs. 40,00,000/- in cash from the assessee and his co-tenant brother for the purchase of a flat. However, the subsequently registered sale deed dated 11.10.2013 reflected a consideration of Rs. 21,25,000/- only, paid partly by cheque and partly in cash. The assessee contended that the agreement was a notional document executed for bank loan purposes and to settle a civil suit regarding tenancy rights, and that no actual cash payment of Rs. 40,00,000/- was made.

The AO rejected the assessee's explanation on grounds that bank loans are granted based on creditworthiness (which the assessee, a government employee, could establish through salary documents), and no documentary evidence was furnished to negate the cash payment stated in the agreement. The statement of the seller recorded under section 131 corroborated the cash payment. The AO thus treated the Rs. 40,00,000/- as unexplained investment under section 69.

The CIT(A) upheld the AO's addition, emphasizing the evidentiary value of the statement under section 132(4) and the corroboration by the seller's statement. The CIT(A) also rejected the assessee's claim that the cash payment was shared with his co-tenant brother, noting the absence of contemporaneous evidence and the registration of the property solely in the assessee's name.

Key Evidence and Findings: The seized sale agreement, the registered sale deed, the statement of the assessee under oath during search, and the statement of the seller under section 131 were critical pieces of evidence. The absence of documentary proof negating the cash payment and the failure to produce the seller for cross-examination were noted.

Application of Law to Facts: The Tribunal observed that the agreement was not registered and was executed in the context of a settlement of a tenancy dispute and a pending civil suit. The Tribunal found it improbable that the tenants would pay such a large sum as purchase consideration to vacate the property, especially as the registered sale deed was executed at the government's stamp duty rates (DLC rates). The Tribunal also noted that the AO did not examine the legal heirs of the previous owner to ascertain the flow of funds. The Tribunal concluded that the addition was based on surmises and conjectures without cogent material and therefore directed deletion of the addition.

Treatment of Competing Arguments: The assessee's contention that the agreement was symbolic and that the cash payment was not made was accepted by the Tribunal, given the context of the tenancy dispute and the lack of conclusive evidence to the contrary. The Tribunal also criticized the AO's failure to provide the assessee with copies of statements of key witnesses and the absence of opportunity for cross-examination, which violated principles of natural justice.

Conclusion: The addition of Rs. 40,00,000/- as unexplained investment under section 69 was deleted by the Tribunal for lack of sufficient evidence and on account of the peculiar factual matrix.

2. Addition of amounts on account of unexplained loans and advances (Section 69A)

Legal Framework and Precedents: Section 69A applies to unexplained money or valuables found in the possession of the assessee and not recorded in books of account. The onus lies on the assessee to prove the identity, genuineness, and creditworthiness of the parties involved in such transactions. Relevant precedents include the judgments in Commissioner of Income-tax v. MAC Public Charitable Trust and Durai Murugan Kathir Anand v. Additional Commissioner of Income-tax, which emphasize the need for credible evidence to rebut presumption of unexplained income.

Court's Interpretation and Reasoning: During search, diaries were seized containing notations of cash and cheque loans advanced and received by the assessee, along with interest details. The AO categorized transactions into two tables: (i) transactions not related to the assessee, where the assessee furnished PANs, affidavits, and identity proofs, and (ii) transactions related to the assessee, where such details were not furnished. Additions were made only for the latter category on the ground that the assessee failed to prove the identity and genuineness of concerned persons.

The assessee claimed to be a middleman arranging loans between his relations and colleagues, furnishing affidavits and some PAN details. The AO accepted the transactions in the first table but rejected the second table transactions due to lack of proof. The CIT(A) upheld the AO's additions, applying the principle that the onus was on the assessee to discharge the burden of proof.

Key Evidence and Findings: The seized diaries (Annexure AS Exhibits 2 and 3), affidavits filed by the assessee, PAN verification on the ITBA portal, and statements recorded under section 131 were the primary evidence. The affidavits of some parties denying receipt of loans or interest were also considered.

Application of Law to Facts: The Tribunal analyzed each disputed transaction, noting that for many entries the assessee had satisfactorily explained the source and flow of funds, supported by cash flow statements and affidavits. For instance, advances to certain persons were out of amounts received from others whose transactions were accepted as unrelated to the assessee. The Tribunal found that additions made to such explained transactions were unwarranted.

However, for transactions where the assessee failed to furnish requisite details or produce parties, the additions were sustained. The Tribunal also deleted additions relating to interest income on the same grounds.

Treatment of Competing Arguments: The assessee's contention of acting as a mere conduit was accepted in part, with the Tribunal directing deletion of additions where adequate proof was furnished. The AO's reliance on the absence of PAN and identity details was upheld for other transactions. The Tribunal also rejected the assessee's argument that additions under section 69A were inapplicable to loans advanced by him, clarifying that unexplained money includes such advances if not satisfactorily explained.

Conclusion: Additions on account of unexplained loans and advances were partly deleted where the assessee discharged the onus of proof and partly sustained where the onus was not discharged.

3. Applicability of Section 115BBE of the Act

Legal Framework: Section 115BBE imposes a special tax rate of 30% on income declared or assessed under sections 68, 69, 69A, etc., relating to unexplained income or investments.

Court's Interpretation and Reasoning: The AO and CIT(A) applied section 115BBE to the additions confirmed under sections 69 and 69A. The assessee challenged this applicability, arguing that no unexplained income existed as additions were unwarranted.

Application of Law to Facts: Since the Tribunal deleted the additions in several instances, the applicability of section 115BBE on those amounts became academic. For additions sustained, the special tax rate under section 115BBE was upheld.

Conclusion: The challenge to section 115BBE was dismissed as consequential to the findings on additions.

4. Evidentiary Value of Statements Recorded under Section 132(4) and Section 131, and Validity of Retractions

Legal Framework and Precedents: Statements recorded under section 132(4) during search and seizure are admissible evidence and have significant evidentiary value. Retractions of such statements must be made promptly, supported by sworn affidavits and evidence of coercion or duress, failing which the statements stand as reliable evidence. Key judgments include CIT v. Hotel Meriya, Pr. CIT v. Shri Roshan Lal Sancheti, and Kantilal C. Shah v. ACIT.

Court's Interpretation and Reasoning: The AO relied heavily on the assessee's statement under section 132(4) admitting cash payments and purchase transactions. The assessee later retracted, claiming coercion and afterthoughts. The Tribunal noted that the retraction was belated (after several months), unsupported by credible evidence, and no complaint was lodged with higher authorities at the earliest opportunity.

The Tribunal emphasized that such retractions without supporting evidence are not admissible to discard earlier statements. The assessee failed to discharge the burden of proving coercion or incorrectness of the statements.

Application of Law to Facts: The Tribunal upheld the evidentiary value of the statements recorded during search and rejected the assessee's retractions as self-serving and belated. The statements were used as a basis for additions where corroborated by other evidence.

Treatment of Competing Arguments: The assessee's reliance on affidavits and claims of coercion were rejected due to lack of supporting evidence and delay in retraction. The Tribunal also noted procedural lapses by the AO in not providing copies of statements of witnesses and denying cross-examination opportunities, which affected the weight of evidence in some respects.

Conclusion: Statements under section 132(4) and 131 hold high evidentiary value unless convincingly disproved; retractions must be timely and supported by evidence to be considered.

5. Other Issues

The Tribunal also dealt with issues relating to charging of interest under section 234B, delay in filing appeals, and procedural aspects, all of which were addressed in accordance with law and found either to be consequential or not requiring separate adjudication.

Significant Holdings

"Section 132(4) statements have great evidentiary value and cannot be discarded summarily by observing that the assessee has retracted the same unless such retraction is made promptly and supported by convincing evidence."

"The onus to prove the identity, genuineness and creditworthiness of parties involved in unexplained money transactions under section 69A lies on the assessee, and failure to discharge the same justifies addition."

"An addition under section 69 of the Income Tax Act can only be made if the source of investment is not satisfactorily explained; the AO is not obliged to treat every unexplained investment as income, and the facts of each case must be considered."

"Where the assessee acts merely as a middleman in loan transactions, the entire amount of loans cannot be taxed as income of the assessee; at most, brokerage or commission income can be taxed."

"Additions based solely on seized documents indicating purchase of property without corroborative evidence of on-money payment are not sustainable."

"Natural justice requires that statements of witnesses relied upon in assessment proceedings must be made available to the assessee and opportunity given for cross-examination; failure to do so vitiates the proceedings."

"Where the assessee satisfactorily explains the source and genuineness of transactions recorded in seized diaries, additions on such accounts are liable to be deleted."

"Section 115BBE applies to unexplained income assessed under sections 68, 69, 69A, etc., and is consequential to confirmation of additions under those sections."

Final Determinations

- The addition of Rs. 40,00,000/- as unexplained investment under section 69 for purchase of flat was deleted due to lack of conclusive evidence and the peculiar factual matrix involving tenancy dispute and settlement.

- Additions under section 69A for unexplained loans and advances were partly deleted where the assessee discharged the onus of proof and partly sustained where the onus was not discharged.

- The applicability of section 115BBE was upheld on sustained additions and rendered academic on deleted additions.

- The evidentiary value of statements recorded under section 132(4) and 131 was affirmed, with retractions rejected due to delay and lack of evidence.

- Procedural lapses by the AO in not providing copies of witness statements and denying cross-examination were noted as violations of natural justice.