2025 (6) TMI 1217 - AT - Income Tax

Revenue appeals dismissed as discount money deemed contractual arrangement, not on-money, lacking receipt evidence (22)(e)

DCIT, Central Circle, Ghaziabad. Versus Solitaire Realinfra Pvt. Ltd. And (Vice-Versa)

ITAT Delhi dismissed Revenue's appeals in multiple grounds. Court held discount money offered to buyers was contractual arrangement, not on-money, lacking ... Addition of discount money received as on-money - HELD THAT:-AO has extracted two allotment letters given to Ajay Gupta for sale of two properties and as per the allotment letter, the assessee has offered discount of 14.84% and so allotted the property by freezing the net price of Rs. 81.50 lakhs. With regard to other property S-1-001, the AO also treated the discount offered by the assessee as on-money. However, it is brought to our notice that the said property was sold by Pary Developers (P) Limited and its transaction is not related to the assessee. Coming to the discounts offered to the assessee in Villa No.C-12, we also observed that it is a contract between the buyer and the allottee, the price agreed between them are final price and how the final price is arrived is part of the contract and there is no material brought on record by the AO to show that the assessee has in fact received the discount money as on-money. Therefore, we are inclined to agree with the findings of the ld. CIT (A). Accordingly, ground no.1 raised by the Revenue is dismissed. Addition based on hard-disk was found and seized during search - Entire transfer referred by the AO relates to Solitairian Buildinfra (P) Ltd. and it is not related to the assessee. It is submitted that Solitairian Buildinfra (P) Ltd. has recorded the abvoesaid transaction in its books of account and also paid applicable service-tax on the abovesaid amount. Since the above transaction is not related to the assessee, therefore, we do not see any reason to disturb the findings of the ld. CIT(A). Accordingly, Ground No.2 raised by the Revenue is dismissed. Bogus purchases - AO has considered the transportation details of cement bags in the purchase ledger and found that such huge quantities cannot be delivered on the same vehicle - HELD THAT:- All the purchases were belonged to the sub-contractors, namely, Jyoti Buildtech Private Limited and none of the purchases were recorded by the assessee as their own purchases. All these invoices were routed through excise office and transport receipts were supported by delivery of such quantities in the place of sub-contractors. Since these purchases are not recorded in the books of account of the assessee, the allegation of bogus transaction is not proved. It is only a suspicion and presumption of the AO. Accordingly, ground no.3 raised by the Revenue is dismissed. Addition u/s 68 - unexplained loans - onus lies on the assessee to explain the nature and sources of any sum credited in its books of account which was not proved as per assessee - CIT(A) deleted addition - HELD THAT:- We observed that ld. CIT (A) has considered the documents submitted before him and clearly observed that the assessee has submitted the relevant information and also the AO has not alleged the relevant interest expenditure claimed by the assessee and accepted them. Further all these parties have already submitted the confirmations and also lenders are duly incorporated entities. Therefore, there is no room for any doubt of receipt of unsecured loan by the assessee. The assessee has proved the identity, creditworthiness and genuineness of the unsecured loans. Accordingly, we do not see any reason to disturb the findings of the ld. CIT (A) and ground no.4 is dismissed. Disallowance of penal charges - Since the assessee has not submitted any details, he proceeded to make ad hoc disallowance of 10% - HELD THAT:- Assessee has claimed expenditure duly audited in its books of account and if required the AO could have verified the details and there is no room for disallowance on ad hoc basis without bringing on record the actual basis of disallowance and relevant reasons by duly verification by giving further opportunity to the assessee. In the given case, the AO has merely disallowed the same by observing that assessee has not submitted any details and further this is an assessment concluded u/s 153 of the Act and no disallowance can be made without there being any incriminating material found during search. Addition of cash-in-hand found at the office premises during the course of search - HELD THAT:- We observed that the assessee has deposited the cash during demonetization period and the search was conducted on 03.11.2016. Therefore, the cash declared by the assessee in its books of account were redeposited within a week from the date of search. It demonstrates that cash held by the assessee at different sites are found to be genuine and assessee has collected cash held by it at different sites redeposited the same within seven days of search conducted at the premises of the assessee. Ground no.1 raised by the Revenue is dismissed. Addition u/s 69A on the basis of loose papers found during search - HELD THAT:- As the information contained in the chart clearly indicate that these transactions are relating to Pary Developers Pvt. Ltd.. Therefore, these transactions are not related to the assessee even though it is found during search at the possession of the assessee. It is being the information relating to other related party, the addition cannot be made in the hands of the assessee. In our view, ld. CIT (A) has rightly deleted the addition - ground no.3 raised by the Revenue is dismissed. Addition u/s 69A - assessee has sold the property on the basis of basic price plus the price mentioned as voucher, since the voucher price was not recorded in the books of account maintained by the assessee - HELD THAT:- Before us, assessee made a submission that the broker, Investor Clinic (IC) who has drawn up the above working sheet which indicates the price quoted by the assessee and the voucher case was deferred payment scheme launched by the assessee as early bird option. Assessee submitted that the units sold on the abovesaid scheme was subsequently got cancelled. No doubt, there is nothing concrete in the findings of the Assessing Officer in this regard. However, the information contained in the spread sheet discloses the fact that the deferred payment scheme was offered to the buyers and the brokers, the same are not properly extracted and accounted for in the books maintained by the assessee. In absence of proper documents, we are not inclined to pass on the benefit of doubt to the assessee, therefore, we are inclined to sustain the addition made by the AO in the hands of the assessee. Addition of on money receipt - assessee has received cash from the customers - CIT(A) deleted addition - HELD THAT:- When the matter was remanded back to the AO and in the remand report, AO merely observed that nothing new has been furnished by the assessee and the addition was made on the basis of seized documents and assessee could not offered any explanation. However, ld. CIT (A) considered the submissions made by the assessee in detail and found that all the cash receipts made by the assessee are already accounted for in their books of account which tallies with the gross receipts matching with the service-tax records and gross sale value of the project. Therefore, we do not see any reason to disturb the findings of the ld. CIT (A). Deemed dividend u/s 2(22)(e) - three group companies have lent unsecured loan to the assessee during the year under consideration - HELD THAT:- As there is no information available on record with regard to actual shareholding of the assessee with the abovesaid group concerns. It is fact on record to the extent of reserves held by these companies to the extent those companies lent unsecured loans to the shareholders attracts the provisions of section 2(22)(e) of the Act. The unsecured loans received by the assessee from the group companies who had reserves, to the extent of such reserves are considered as deemed dividend. We observed that ld. CIT (A) has held that provisions of section 2(22)(e) to the extent of reserves held by these companies. Therefore, to the extent of distributable profit, the ld. CIT (A) has sustained unserved loan as the deemed dividend. Therefore, we do not see any reason to disturb the same. Additions made on the basis of loose papers and seized documents - notings were made as W and BL - AO treated black part as cash portion received by the assessee as on-money and proceeded to make the addition - HELD THAT:- As when a property was not sold and no amount including the ‘W’ portion alleged as official amount for the transaction was ever received by the assessee with respect to the said property, the addition cannot be made. Accordingly, we delete the addition. 1. ISSUES PRESENTED and CONSIDEREDThe Tribunal considered the following core legal questions arising from appeals filed by the Revenue and the assessee for Assessment Years (AY) 2016-17 and 2017-18:Whether the Assessing Officer (AO) was justified in making additions on account of alleged 'on-money' received by the assessee through discounts on property sales, when the assessee denied ownership or receipt of such amounts.Whether cash receipts recorded in seized documents but not reflected in the assessee's books of accounts could be treated as unexplained cash income.Whether purchases of cement and other materials recorded in third-party accounts but found at the assessee's premises could be treated as bogus or inflated purchases to reduce taxable income.Whether unsecured loans taken by the assessee were genuine, and whether the assessee substantiated the identity, creditworthiness, and genuineness of the lenders, including application of provisions under section 2(22)(e) of the Income-tax Act relating to deemed dividends.Whether expenses claimed under 'Other Expenses' and 'Administrative Expenses' were verifiable and allowable, or liable to disallowance due to lack of substantiation.Whether the procedure and approval for assessments under section 153A of the Act were valid.Whether additions made on the basis of loose papers and seized documents without corroborating evidence were justified.Whether the AO and the Commissioner of Income-tax Appeals (CIT(A)) correctly interpreted and applied the law and facts in deleting or sustaining additions.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Additions on account of 'On-Money' from discounts on property salesLegal Framework and Precedents: The concept of 'on-money' refers to unaccounted cash received over and above the declared sale price, which is liable to tax under sections 68 or 69A of the Act. The burden lies on the assessee to prove that such amounts are not unaccounted income.Court's Interpretation and Reasoning: The AO made additions based on allotment letters and seized documents indicating substantial discounts on flats and villas, which were treated as on-money received in cash. The assessee contended that certain properties did not belong to it, and the discounts were part of contractual agreements or belonged to third parties. The CIT(A) deleted the additions, holding that the AO's conclusions were based on presumption without concrete evidence. The Tribunal concurred, noting that the AO failed to establish that the discounts were received as cash by the assessee, especially where properties belonged to third parties (e.g., M/s Pary Developers Pvt. Ltd.) or where the final price was a matter of contract.Key Evidence and Findings: Seized allotment letters, absence of agreements for sale or discount, no incriminating material found during search, and the assessee's books of accounts corroborating its claim.Application of Law to Facts: Without direct evidence linking the discounts to unaccounted cash receipts, the AO's addition was not sustainable. The Tribunal emphasized that contractual discounts are legitimate unless disproved.Treatment of Competing Arguments: The Revenue relied on seized documents and the AO's assessment, while the assessee produced explanations and pointed to third-party ownership. The Tribunal favored the latter for lack of incriminating evidence.Conclusion: Additions on account of alleged on-money from discounts were rightly deleted.Issue 2: Additions on account of cash receipts recorded in seized documents but denied by assesseeLegal Framework and Precedents: Section 68 of the Act imposes burden on the assessee to explain unexplained credits. Cash receipts not recorded in books but found in seized documents could be treated as income unless satisfactorily explained.Court's Interpretation and Reasoning: The AO made additions based on an excel sheet found on a seized hard disk showing cash receipts of Rs. 3 lakhs. The assessee explained that the transactions related to a group concern, Solitarian Buildinfra Pvt. Ltd., and the amounts were recorded in that company's books with service tax paid. CIT(A) deleted the addition, holding that the transaction did not relate to the assessee.Key Evidence and Findings: Excel sheet from seized hard disk, ledger copies, service tax payment records, and group company's books.Application of Law to Facts: Since the cash receipts pertained to a related but distinct entity, the addition could not be made in the assessee's hands.Treatment of Competing Arguments: Revenue argued the addition was justified by seized documents; assessee clarified the group structure and accounting. Tribunal accepted the latter.Conclusion: Addition was rightly deleted.Issue 3: Additions on account of inflated purchases of cementLegal Framework and Precedents: Expenditure claimed must be genuine and substantiated. Bogus purchases to reduce taxable income are disallowed.Court's Interpretation and Reasoning: AO alleged inflated purchases based on transport details showing impossible quantities delivered by a single truck. However, purchases were made by a subcontractor, Jyoti Buildtech Pvt. Ltd., and not recorded in assessee's books. CIT(A) deleted the addition, accepting invoices, transport receipts, and material receipt notes in subcontractor's name.Key Evidence and Findings: Purchase invoices, transport GRs, material receipt notes, subcontract agreement (oral or documentary), and ledger accounts.Application of Law to Facts: Since purchases were not claimed by the assessee but by the subcontractor, AO's addition was based on suspicion without proof of bogus transactions.Treatment of Competing Arguments: Revenue relied on transport anomalies; assessee demonstrated non-ownership of purchases. Tribunal sided with assessee.Conclusion: Addition was rightly deleted.Issue 4: Additions on account of unsecured loans and genuineness thereofLegal Framework and Precedents: Under section 68, unexplained credits including loans must be substantiated by proof of identity, genuineness, and creditworthiness of lenders. Section 2(22)(e) treats loans from substantial shareholders or related parties as deemed dividend to extent of company's reserves.Court's Interpretation and Reasoning: AO made additions for unsecured loans where assessee failed to submit confirmations or bank statements during assessment but submitted additional evidence during appeal. CIT(A) remanded for verification; AO did not contradict documents. CIT(A) accepted genuineness and creditworthiness, and allowed interest expenditure claimed. Regarding section 2(22)(e), CIT(A) upheld addition only to extent of distributable reserves of lending companies. Tribunal upheld CIT(A)'s findings.Key Evidence and Findings: Loan agreements, PAN details, bank statements, confirmations from lenders, audited financial statements of lenders, and remand reports.Application of Law to Facts: Where adequate evidence is furnished and not disproved, additions under section 68 are not sustainable. Section 2(22)(e) applies only to loans from companies with distributable reserves.Treatment of Competing Arguments: Revenue emphasized non-submission of evidence during assessment; assessee relied on additional evidence and judicial precedents. Tribunal found in favor of assessee except for deemed dividend to extent of reserves.Conclusion: Additions under section 68 deleted except deemed dividend addition under section 2(22)(e) to extent of reserves.Issue 5: Additions on account of unverifiable expensesLegal Framework and Precedents: Expenses must be supported by vouchers and books of account. Ad hoc disallowance without basis is impermissible.Court's Interpretation and Reasoning: AO disallowed penal interest and 10% of other expenses on ad hoc basis due to non-submission of details. CIT(A) deleted disallowance, holding that expenses were audited, books were not rejected, and AO failed to identify specific unverifiable expenses.Key Evidence and Findings: Audited books of account, absence of specific objections by AO.Application of Law to Facts: Ad hoc disallowances without specific findings are not sustainable.Treatment of Competing Arguments: Revenue urged sustainment; assessee relied on audit and absence of specific objections. Tribunal upheld CIT(A).Conclusion: Disallowance deleted.Issue 6: Validity of assessment procedure under section 153ACourt's Interpretation and Reasoning: Grounds challenging validity of assessment orders under section 153A as broken period and procedural lapses were not adjudicated as they were general in nature.Issue 7: Additions based on loose papers and seized documentsCourt's Interpretation and Reasoning: Additions based on loose papers indicating on-money or cash receipts were examined. Where papers related to third parties or properties not owned by assessee, additions were deleted. Where rough notings related to properties not sold or unsigned, additions were deleted. However, additions sustained where vouchers indicated unaccounted receipts not recorded in books, and no satisfactory explanation was offered.Key Evidence and Findings: Loose papers, seized excel sheets, ledger accounts, broker affidavits, and correspondence.Application of Law to Facts: Additions require concrete evidence and corroboration; mere suspicion or presumption is insufficient. However, absence of proper accounting and explanation can justify additions.Treatment of Competing Arguments: Revenue relied on seized documents; assessee explained deferred payment schemes, cancellations, and third-party transactions. Tribunal applied a balanced approach.Conclusion: Additions partly sustained and partly deleted based on evidence.3. SIGNIFICANT HOLDINGS'The AO made the addition on the basis of presumption and there is no evidence in support of such contention... no incriminating material was found or seized in the course of search.''The property was sold by Pary Developers (P) Ltd. and its transaction is not related to the assessee.''Since the purchases were not recorded in the books of account of the assessee, the allegation of bogus transaction is not proved. It is only a suspicion and presumption of the Assessing Officer.''The identity of the lenders was proved beyond doubt, the amount having been received through online fund transfer from the same company into the regular bank account of the appellant and was classified as a loan in its audited financial statements.''Ad hoc disallowance without any basis, material or evidence and without giving opportunity to the assessee is bad in law.''The cash declared by the assessee in its books of account were redeposited within a week from the date of search... demonstrates that cash held by the assessee at different sites are found to be genuine.''The addition made by the Assessing Officer is hereby confirmed' (in respect of addition based on loose paper indicating black money) but 'the addition cannot be made' where property was not sold and no amount was received.'The unsecured loans received by the assessee from the group companies who had reserves, to the extent of such reserves are considered as deemed dividend.''Receipts in cash and cheque have been verified with the books of accounts and this addition is based on conjectures and without verification... addition is hereby deleted.'Core principles established include:Burden of proof lies on the assessee to disprove unexplained credits or on-money.Presumption or suspicion without corroborative evidence is insufficient to sustain additions.Transactions involving third parties or group companies must be carefully distinguished before making additions.Ad hoc disallowances without specific reasons and opportunity to assessee are impermissible.Section 2(22)(e) applies only to loans from companies with distributable reserves to the extent of such reserves.Proper accounting and documentary evidence can rebut allegations of unaccounted income.Final determinations on each issue resulted in dismissal of Revenue's appeals for AYs 2016-17 and 2017-18, and partial allowance of assessee's appeal for AY 2017-18, reflecting a balanced approach based on evidence and legal principles.