2025 (2) TMI 979 - AT - Income Tax

ITAT deletes on-money addition after assessee proves legitimate payment sources and DRP exceeds Section 144C jurisdiction

The ITAT Delhi ruled in favor of the assessee on two issues. First, the AO's addition of alleged on-money payment was deleted as the assessee had ... Addition on account of alleged payment of on-money by assessee for purchase of residential unit - AO while alleging payment of on money by the assessee to the builder has taken the difference of actual payment made by the assessee to the builder and the registered value of the property - HELD THAT:- Holding such difference as on money is bizarre. The assessee has made payment for purchase of property from declared and proved sources. All the payments to the builders have been made either from loan account or through banking channel from foreign remittances. The assessee in order to substantiate source of payment has placed on record bank statement and loan disbursement details. Hence, to make addition of difference between actual payment and registered value as on money is unwarranted and without any basis, when the entire amount is paid from declared sources through banking channels. The Revenue has not substantiated assessee’s any undisclosed source of income in India for payment of alleged on money. Decided in favour of assessee. Addition on the basis of directions of the DRP - HELD THAT:- As per Sub-section (13), once the DRP issues directions, the AO shall in conformity with the directions, complete the assessment without providing any further opportunity of being heard to the assessee within one month from the end of the month in which such directions are received. The scheme of section 144C does not provide option to the DRP to issue directions to the AO to make further enquiries or verification after DRP directions. Section 144C(7) empowers the DRP to conduct enquiries and verifications on the documents furnished by the assessee during DRP proceedings. DRP cannot cause the AO to verify documents placed before the DRP before passing the Final Assessment Order. DRP has gone beyond its jurisdiction in giving such directions to the AO, hence, addition made by the AO in Final Assessment Order is without jurisdiction. Ergo, addition is directed to be deleted - Decided in favour of assessee. The appeal before the Appellate Tribunal concerned an assessment order passed under the Income Tax Act, 1961 for the assessment year 2016-17. The primary issue revolved around the addition of Rs. 9,06,000 as alleged on-money payment by the assessee for the purchase of a residential unit. Another issue was the addition of Rs. 5,20,000 based on directions from the Dispute Resolution Panel (DRP).The appellant, a non-resident, contended that the alleged on-money payment was unfounded as the entire consideration for the property purchase was funded through remittances from Singapore and a loan from HDFC Bank. The appellant argued that the on-money allegation was baseless as all payments were made through declared sources via banking channels.The Department, represented by the CIT-DR and Sr. DR, defended the assessment order and DRP directions. They argued that the appellant failed to provide details regarding the alleged on-money payment despite directions from the DRP. The Department contended that the additions were justified based on the AO's findings and the DRP's directions.The Tribunal analyzed the arguments and evidence presented by both parties. Regarding the addition of Rs. 9,06,000, the Tribunal found merit in the appellant's contention that the on-money allegation was unjustified. The Tribunal noted that all payments were traceable to declared sources and there was no evidence of undisclosed income in India. Consequently, the Tribunal directed the deletion of the Rs. 9,06,000 addition.In addressing the addition of Rs. 5,20,000 based on DRP directions, the Tribunal held that the DRP had exceeded its jurisdiction by directing further verification by the AO after issuing directions. As per the relevant provisions of the Income Tax Act, the DRP's role was limited to issuing directions based on objections raised by the assessee. Therefore, the Tribunal directed the deletion of the Rs. 5,20,000 addition.The Tribunal dismissed the appellant's challenge to the validity of the notice issued under section 148 of the Act as it was not pressed by the appellant. Additionally, general grounds of appeal were not separately adjudicated. The Tribunal also dismissed the challenge to penalty proceedings under section 271(1)(c) as premature.In conclusion, the Tribunal partly allowed the appeal, directing the deletion of both the Rs. 9,06,000 and Rs. 5,20,000 additions. The order was pronounced in open court on February 21, 2025.