2016 (8) TMI 1282 - AT - Income Tax

Tribunal upholds CIT(A)'s decisions on unaccounted investment & interest disallowance.

Asstt. Commr. of Income Tax, Central Circle-1, Jalandhar Versus Sh. Kulwinder Singh, and M/s. Harman Builders Pvt. Ltd.

The Tribunal dismissed the Department's appeals, upholding the CIT(A)'s decisions to delete the additions on account of unaccounted and undisclosed ... Unaccounted and undisclosed investment u/s 69B - Assessment u/s 153A - addition considering the photocopy of agreement to sell as an evidence - Held that:- The agreement seized was only a photocopy of the original.It was seized not from the assessee, but from the third party.The seller refused to identity the agreement.The buyer refused to identify the agreement.The witnesses to the agreement refused to identify it.The AO did not make total addition on account of total value of the transactions in the cases of the other buyers or sellers, as mentioned in the agreement.The assessee was not a party to the agreement. The assessee was not witness to the agreement.The assessee was not related to either any party or any witness to the agreement. The assessee purchased his land directly from PISCO.The assessee purchased the land at the prevalent circular rate. The assessee paid due stamp duty on the transaction. The purchase deed of the assessee was registered with the Registrar at Jalandhar. In the assessee’s purchase deed, the rate mentioned was of ₹ 4 crore per acre = 2.50 lakhs per marla, as against that of ₹ 11.05 crore per acre, as mentioned in the agreement seized. Action on the basis of the agreement seized was warranted in the cases of the parties thereto, due to the presumption u/s 132(4A) of the Act, which presumption, noticeably, is rebuttable. No such action can be taken in the case of a party whose transaction was with regard to land contiguous or similarly situated to the land mentioned in the agreement seized. No action is called for in a case of transaction consequential to the transaction mentioned in the agreement seized.There is no evidence of unaccounted investment by the assessee. The AO himself clarified to the assessee that the sale consideration in the agreement seized was taken for the purpose of comparative rate only.The land purchased by the assessee was different from that mentioned in the agreement seized.It is the burden of the department to prove under-statement of sale consideration. This burden has not been discharged.There is no positive evidence against the assessee. Thus, the AO’s presumption did not materialize into conclusive evidence against the assessee.Such a presumption cannot be accorded the status of foolproof evidence against the assessee.Such a presumption cannot lead to a conclusion of under investment by the assessee, liable for addition. - Decided in favour of assessee Disallowance of interest under section 36(1)(iii) - Held that:- CIT(A) has observed that as available from the calculation chart given by the assessee, even the amount of capital of Sh. Kulwinder Singh brought into the business was taken to be a part of the calculation, treating this amount to be funds available free of interest; and that the capital is meant to earn profits and separate interest thereon to decide the issue of disallowance could not have been done. It was on this basis that the ld. CIT(A) held that no interest was payable to the assessee on this amount of ₹ 24,97,899/-. We do not find any error in the order of the ld. CIT(A). The assessee has not challenged the same. Finding no error therewith, the same is hereby upheld. Accordingly no.2 is upheld. Issues Involved:1. Deletion of addition on account of unaccounted and undisclosed investment under Section 69B of the Income Tax Act.2. Deletion of addition on account of disallowance of interest under Section 36(1)(iii) of the Income Tax Act.Detailed Analysis:1. Deletion of Addition on Account of Unaccounted and Undisclosed Investment under Section 69B of the Income Tax Act:The Department's appeal contested the deletion of an addition of Rs. 2,27,00,000/- made by the AO on account of unaccounted and undisclosed investment under Section 69B. The AO based the addition on a photocopy of an agreement to sell, which indicated higher payments than those declared by the assessee. The cheques mentioned in the agreement were found debited in the bank statement of the purchaser.The CIT(A) deleted the addition, noting that the agreement was not found from the assessee's premises, nor was the assessee a party to it. The statements of the seller and witnesses did not support the validity of the agreement. The CIT(A) emphasized that the presumption under Section 132(4A) is rebuttable and cannot be extended to every buyer of land in the same village. The AO's reliance on documents seized from a third party was insufficient to substantiate the addition.The Tribunal upheld the CIT(A)'s decision, emphasizing that:- The agreement was a photocopy, not seized from the assessee.- The seller, buyer, and witnesses did not identify the agreement.- The assessee purchased the land at the prevalent circular rate, paid due stamp duty, and registered the purchase deed.- No evidence of unaccounted investment by the assessee was found.- The burden of proving understatement of sale consideration was not discharged by the Department.The Tribunal cited various judicial pronouncements supporting the principle that mere suspicion or presumption cannot replace concrete evidence. The addition made by the AO was directed to be deleted.2. Deletion of Addition on Account of Disallowance of Interest under Section 36(1)(iii) of the Income Tax Act:The Department's appeal also contested the deletion of an addition of Rs. 14,02,104/- made by the AO on account of disallowance of interest under Section 36(1)(iii). The AO disallowed interest, claiming that the assessee had diverted interest-bearing funds to interest-free loans to relatives and sister concerns.The CIT(A) partly allowed the appeal, reducing the disallowance to Rs. 10,95,795/-. The CIT(A) observed that the assessee had sufficient interest-free funds to cover the interest-free advances. The CIT(A) also considered the interest payable on credit balances and excluded the capital introduced by the assessee from the calculation.The Tribunal upheld the CIT(A)'s decision, noting that:- The assessee had sufficient interest-free funds to cover the advances.- The calculation of interest payable and chargeable was appropriately considered.- The CIT(A) rightly excluded the capital introduced by the assessee from the interest calculation.The Tribunal found no error in the CIT(A)'s order and upheld the deletion of the addition on account of disallowance of interest.Conclusion:The Tribunal dismissed the Department's appeals, upholding the CIT(A)'s decisions to delete the additions on account of unaccounted and undisclosed investment under Section 69B and disallowance of interest under Section 36(1)(iii). The Tribunal emphasized the need for concrete evidence to substantiate additions and rejected the reliance on presumptions and documents seized from third parties.