ITAT sets aside additions under section 56(2)(ix) for advance forfeiture, remands matter for fresh consideration with connected appeals

ITAT Chennai set aside CIT(A) orders regarding additions under section 56(2)(ix) for forfeiture of advance received during property transfer negotiations. The tribunal found contradictory facts where the assessee claimed negotiations were ongoing while the alleged buyer denied entering any MoU or paying advance. Since the department made additions in both parties' hands for the same transaction and the buyer's appeals were pending before CIT(A), the tribunal ruled these appeals were inextricably linked and could not be decided independently. The matter was remanded to CIT(A) for fresh consideration alongside connected appeals.

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Issues Involved:
1. Validity of additions made under Section 56(2)(ix) of the Income-tax Act, 1961.
2. Alleged MoU and advance payments in specified bank notes during demonetization.
3. Contradictory statements regarding the MoU and advance payments.
4. Protective additions made in the hands of companies.
5. Unexplained money and other related additions.

Issue-wise Detailed Analysis:

1. Validity of Additions under Section 56(2)(ix):
The core issue revolves around the additions made by the Assessing Officer (AO) under Section 56(2)(ix) of the Income-tax Act, 1961, treating the advance money received by M/s. Bonjour Bonheur Pvt Ltd and M/s. Senthil Paper and Boards Pvt Ltd as income from other sources due to forfeiture of advance money. The AO concluded that the negotiations for the sale of shares and assets did not result in a legal transfer, thus categorizing the advance as forfeited. However, the appellants contended that the negotiations were not failed and they were still willing to execute the sale deeds, arguing that the conditions under Section 56(2)(ix) were not satisfied.

2. Alleged MoU and Advance Payments During Demonetization:
During a search and seizure operation on 09.11.2017, incriminating documents, including MoUs and share certificates, were found. These documents suggested agreements for the sale of assets by M/s. Bonjour Bonheur Pvt Ltd and M/s. Senthil Paper and Boards Pvt Ltd, with significant advances paid in specified bank notes during the demonetization period. Statements from various parties, including Mr. S. Senthil, Advocate, confirmed these transactions. However, Smt. V.K. Sasikala, alleged to be the buyer, denied any such agreements or payments, leading to contradictory claims.

3. Contradictory Statements Regarding the MoU and Advance Payments:
The AO relied on statements from the appellants, their directors, and Mr. S. Senthil, Advocate, to conclude that Smt. V.K. Sasikala was the buyer. However, Smt. V.K. Sasikala denied any involvement in the MoUs or payments. This contradiction is crucial, as the appellants argued that negotiations were ongoing, and they were ready to transfer the properties if the documents were returned. The tribunal noted that these contradictory facts necessitated a thorough examination, suggesting that the appeals be heard together with related cases involving Smt. V.K. Sasikala.

4. Protective Additions Made in the Hands of Companies:
The AO made protective additions in the hands of M/s. Senthil Paper and Boards Pvt Ltd, treating the advance money as forfeited. However, the CIT(A) deleted these protective additions, reasoning that once substantive additions were made in the hands of the directors, protective additions in the company's hands were unnecessary. The tribunal supported this view, emphasizing the need to resolve the contradictions in statements before making any conclusive additions.

5. Unexplained Money and Other Related Additions:
The AO also made various other additions, including unexplained money under Section 69A of the Act, in the hands of the directors, linked to the transactions of advance received for the sale of assets. In the case of M/s. Pondicherry Sri Lakshmi Jewellery, the AO added Rs. 92.78 crores under Section 68, considering the deposit of Rs. 97.5 crores into the firm's bank account. The CIT(A) confirmed these additions, but the tribunal noted that these issues were interconnected with the main issue of advance payments and MoUs, necessitating a combined hearing.

Conclusion:
The tribunal set aside the orders of the CIT(A) and directed that the appeals be decided afresh, along with related appeals involving Smt. V.K. Sasikala and her associates. The tribunal emphasized the need for a comprehensive examination of the contradictory statements and facts, providing reasonable opportunities for hearing and cross-examination to ascertain the correct facts. All issues were kept open for fresh adjudication, ensuring a thorough and fair resolution in accordance with the law.

Final Order:
The appeals filed by the assessees and the revenue for the assessment years 2013-14 to 2018-19 were allowed for statistical purposes, and the cross objections filed by M/s. Senthil Papers & Boards Pvt Ltd for the assessment year 2017-18 were dismissed as infructuous. The order was pronounced on 28th February 2024 at Chennai.

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