2020 (10) TMI 706 - AT - Income Tax

Tribunal upholds AO's findings on unexplained investment, confirms capital gain calculation

ITO, Ward-5 (5), Amritsar Versus Sh. Surjit Singh And Dy. CIT, Central Circle, Jammu And M/s Horizon Pvt. Ltd.

The Tribunal upheld the AO's findings, reversing the CIT(A)'s deletions. It found substantial evidence supporting the unexplained investment in land ... Unexplained investment OR STCG - Investment in land from undisclosed sources made in purchase of land from various persons/farmers - Suspected short term capital gain from sale of property - search u/s 132 - transfer of the land to the company under POA u/s 2(47) - HELD THAT:- It cannot be said that the unsigned MOU has no weight in the eyes of law when the purchaser and seller has taken congnizance of this MOU in their further transaction. Further, the other documents i.e. 'Account of Sh.Surjit Singh and Schedule of payment', are the documents of unaccounted transactions made between assessee and the company, which prepared only for remembering purpose and due to that reason, these documents had not been signed by any other party. The contention of the assessee that these unsigned documents have no weigh in the eyes of law is not acceptable in view of this factual position. CIT(A) wrongly held that the AO has not brought any evidence on record to show that the assessee had purchased the land from various persons/ farmers on agreements/ikrarnamas or power of attorney in his name and later transferred the same to M/s Horizon Buildcon Pvt Ltd., on power of attorney of the original owners', ignoring the detailed discussion of the same in the assessment order. On going through the assessment order and the submissions of the assessee and the Revenue, we are of the opinion that the AO has rightly held that documents in question were not signed by any of the party, but the authenticity of these documents cannot be denied in view of the fact that the things have been happened further according to the said MOU and according to other documents found at the business premises of M/s Horizon Builcon (P) Ltd. The tax authorities are entitled to look into the surrounding circumstances are discussed hereinafter. Moreover, the question is that what was the need to prepare these documents by the company when no transactions have been made with the assessee. Hence, these documents also established that the assessee has taken land from various farmers/persons on agreement to sell/biyana or POA and then transferred the same land to the company as POA. We found strong substance on the submissions of ld. DR that there was a transfer in the name of the assessee as per Section 2(47) and Section 47 of the Act. In this particular case, the assessee received payment from M/s Horizon Buildcon Pvt. Ltd. which are evident from the records seized by the revenue authorities during the course of search and seizure and the statements of accounts were also found, which is also discernible from the assessment order as well as the documents considered by the AO during the course of assessment. However, the CIT(A) has ignored the legal position which were applicable in the present case in hand. Accordingly as per above discussions the Capital Gain calculated by the Assessing Officer is also correct. Accordingly, we dismiss the impugned order passed by the CIT(A) and allow the appeal of Revenue Issues Involved:1. Unexplained investment in land purchase.2. Receipt of payment from M/s Horizon Buildcon Pvt. Ltd.3. Validity and evidentiary value of unsigned MOU and other documents.4. Short-term capital gain on land transactions.5. Procedural compliance with Section 2(47) and Section 47 of the Income Tax Act.Issue-wise Detailed Analysis:1. Unexplained Investment in Land Purchase:The AO reopened the case under section 148 based on information that the assessee made a significant investment in land purchase. The AO alleged that the assessee purchased land from various persons on agreements or power of attorney and later transferred it to M/s Horizon Buildcon Pvt. Ltd. The AO found several agreements (ikrarnamas) and a Memorandum of Understanding (MOU) indicating these transactions. The AO concluded that the assessee made an unexplained investment of Rs. 10,83,75,750/- in land purchase. The CIT(A) deleted the addition, stating that the AO did not bring sufficient evidence to prove the transactions. However, the Tribunal found that the AO had substantial evidence, including documents found during the search, and upheld the AO's addition.2. Receipt of Payment from M/s Horizon Buildcon Pvt. Ltd.:The AO noted that the assessee received payments from M/s Horizon Buildcon Pvt. Ltd., as evidenced by documents found during the search. The assessee claimed these were advances for obtaining CLU (Change of Land Use) and not related to land sale. The AO rejected this claim, stating that the payments were part of the land transaction as per the MOU. The Tribunal agreed with the AO, noting that the documents showed payments made according to the MOU, and the assessee's explanation was not credible.3. Validity and Evidentiary Value of Unsigned MOU and Other Documents:The AO relied on an unsigned MOU and other documents found during the search to establish the land transactions. The assessee argued that the unsigned MOU had no legal value. The Tribunal held that the unsigned MOU and other documents, including payment schedules and agreements, were credible evidence of the transactions. The Tribunal noted that the documents were acted upon by the parties, and the transactions occurred as per the MOU, making them reliable evidence despite being unsigned.4. Short-term Capital Gain on Land Transactions:The AO added Rs. 85,90,000/- as short-term capital gain from the sale of land, which the assessee did not report. The AO found that the assessee sold land to M/s Horizon Buildcon Pvt. Ltd. at a higher price than the purchase cost. The CIT(A) deleted the addition, stating that since the assessee did not purchase or sell the land in his name, there was no capital gain. The Tribunal disagreed, stating that the transactions were genuine, and the capital gain was correctly calculated by the AO based on the evidence.5. Procedural Compliance with Section 2(47) and Section 47 of the Income Tax Act:The AO and the Tribunal considered the provisions of Section 2(47) and Section 47, which pertain to the transfer of property. The Tribunal noted that the transactions enabled the enjoyment of the property by the assessee, fulfilling the criteria for transfer under the Act. The Tribunal also referenced the Supreme Court's decision in Balbir Singh Maini, which emphasized the de facto transfer of immovable property.Conclusion:The Tribunal upheld the AO's findings and additions, reversing the CIT(A)'s deletions. The Tribunal found that the AO had substantial evidence to prove the transactions and the unexplained investment. The Tribunal also confirmed the short-term capital gain calculation and the procedural compliance with the relevant sections of the Income Tax Act. The appeals of the Revenue were allowed, and the order of the CIT(A) was set aside.