2008 (2) TMI 14 - HC - Income Tax

High Court dismisses Revenue's appeal against ITAT order, rejecting unexplained expenditure addition under Income Tax Act.

The High Court dismissed the appeal filed by the Revenue against the order of the Income Tax Appellate Tribunal, which had rejected the addition of Rs. 50 ... Unexplained expenditure u/s 69 – Appellant had to pay Rs. 25 lakhs in terms of an MOU singed by the appellant to purchase a land but in search proceedings denied that the payment was made. Owner of land denied the receipt– AO can not make presumption without any evidence – addition can not be made Issues:1. Validity of the order passed by the Income Tax Appellate Tribunal.2. Addition of unexplained expenditure under Section 69 of the Income Tax Act.3. Rebuttal of presumption under Section 132(4A) of the Act.4. Corroborative evidence for money transfer in the case.5. Independent transactions and their impact on the case.Analysis:1. The High Court addressed the appeal filed by the Revenue against the order of the Income Tax Appellate Tribunal. The Tribunal had rejected the addition of Rs. 50 lakhs in the hands of the Assessee as unexplained expenditure under Section 69 of the Income Tax Act, 1961. Both the Commissioner of Income Tax (Appeals) and the Tribunal found insufficient evidence to support the addition.2. The Assessing Officer had added the amount under Section 69 based on two MOUs found during a search at the Assessee's residence. However, Ravi Talwar and Madhu Talwar, the other parties involved, denied receiving any money as mentioned in the MOUs. The Tribunal held that there was no independent corroboration of the payment, leading to the rejection of the addition.3. The Tribunal considered the presumption under Section 132(4A) of the Act regarding the correctness of the MOUs. While the provision allows for a presumption, it is rebuttable. The Assessee successfully rebutted the presumption by denying the money transfer, which was supported by the denials of Ravi Talwar and Madhu Talwar.4. The court emphasized the lack of corroborative evidence for the alleged money transfer between the parties. Despite the existence of MOUs stating the payment terms, the Assessee and the other parties denied the transaction. Without any material on record to support the transfer of money, the addition under Section 69 was deemed unjustified.5. The Assessing Officer attempted to rely on other transactions between the parties to draw an inference regarding the money transfer mentioned in the MOUs. However, the Tribunal correctly distinguished these independent transactions from the subject MOUs. The court clarified that issues with other transactions did not impact the assessment of the specific MOUs in question.In conclusion, the High Court dismissed the appeal, stating that no substantial question of law arose from the case. The judgment highlighted the importance of corroborative evidence, the rebuttal of presumptions under the Act, and the need for a clear connection between transactions under assessment.