2025 (9) TMI 343 - AT - Income Tax

Addition under s.68 deleted and full s.54F relief granted for joint-named property where assessee paid entire consideration

ITAT MUMBAI - AT upheld the CIT(A) and allowed the appeal. The addition under s.68 for consideration credited on sale of shares was deleted: AO improperly ... Addition u/s 68 - consideration credited to the account of the Assessee on sale of equity shares of JBCPL - addition made as Assessee had failed to furnish the relevant documents/details during the assessment proceedings - HELD THAT:- AO was not justified in brushing aside the Letter of Offer filed by the Assessee during the assessment proceedings and completely ignoring the information contained therein. Accordingly, we reject the contention of the Revenue that the AO was curtailed from making any independent enquiry/investigation on account of lack of basic information/documents regarding the transaction under consideration. We concur with the CIT(A) that the Assessee had discharged the initial onus cast upon the Assessee under Section 68 of the Act regarding the genuineness of the transaction by placing before the Assessing Officer the Letter of Offer and the approval given by CCI. As regards the doubts harbored by the Assessing Officer regarding the source of funds are concerned, we find that the same are allayed by the Confirmation Letter, dated 31/08/2023, filed before the CIT(A). Assessee had discharged the initial onus cast upon the Assessee in terms of Section 68 to prove genuineness of the transaction of sale of shares of JBCPL by the Assessee to Tau Investment and creditworthiness of the Tau Investment. Revenue has failed to point out any infirmity in the documents furnished by the Assessee. No independent inquiry was conducted by the Assessing Officer to gather material to challenge the veracity of documents furnished by the Assessee. AO did not even have the benefit of considering the Confirmation Letter and/or the Audited Financial Statements for the year ended 31/12/2020 as the same were filed before the CIT(A). There nothing on record to either support the observations/findings of the AO or to controvert the findings of the CIT(A). Decided in favour of assessee. Claim of deduction u/s 54F - Residential Property purchased in the name of the Assessee and his wife - HELD THAT:- Bare perusal of Section 45 of TPA shows that the said section comes into play when immovable property is transferred for a consideration to two or more persons. Section 45 of TPA, inter alia, provides that in a case where consideration is paid out of separate funds, in absence of a contract to the contrary, the transferees are entitled to interest in the property in proportion of the consideration which they respectively advanced. In the case the aforesaid principle is applied to the facts of the present case, the Assessee would be entitled to 100% interest in the Residential Property having paid entire purchase consideration of INR 10 Crore. During the course of hearing, in response to a query from the Bench, the Learned Senior Counsel, under instruction, stated that no benefit whatsoever has been derived/claimed by the wife of the Assessee by claiming to be co-owner or co-purchaser of the Residential Property under the provisions of the Act and no such benefit shall be derived even in future as well, and that the Assessee was willing to give an undertaking to the effect. As in the case of Ravindra Kumar Arora [2011 (9) TMI 343 - DELHI HIGH COURT] had, by adopting liberal interpretation, extended the benefit of Section 54F of the Act to an assessee where the new residential property was purchased by such assessee jointly with his wife taking note of the fact that entire sale consideration was paid by the assessee. We note that the CIT(A) had deleted the disallowance made by the Assessing Officer by following the aforesaid judgment of the Hon’ble Delhi High Court. No infirmity in the order passed by the CIT(A) deleting the disallowance (being 50% of deduction claimed by the Assessee under Section 54F of the Act). Concurring with the view taken by the CIT(A) that the Assessee would be entitled to claim deduction under Section 54F of the Act as claimed by the Assessee. ISSUES PRESENTED AND CONSIDERED 1. Whether the addition of the entire sale consideration of shares as unexplained cash credit under Section 68 read with Section 115BBE could be sustained where the assessee placed SPA, Letter of Offer (filed with SEBI), CCI approval and later confirmation letter and audited accounts of the purchaser establishing the flow of funds and affiliation with a reputed fund. 2. Whether the Assessing Officer was justified in disregarding the Letter of Offer and other documents available on record and in concluding that the assessee failed to discharge the initial onus under Section 68 by not procuring independent documents from the purchaser. 3. Whether doubts about source of funds (including redacted bank statements) justified treating sale consideration as unexplained cash credit where subsequent confirmation and audited financials filed before the appellate authority corroborated the source and manner of remittance. 4. Whether the assessee was entitled to full deduction under Section 54F where the new residential property was purchased in joint names but the entire purchase consideration was paid by the assessee. ISSUE-WISE DETAILED ANALYSIS - Addition under Section 68 / creditworthiness and source of funds Legal framework: Section 68 casts initial onus on the assessee to explain nature and source of unexplained credit; once initial onus discharged, burden shifts to Revenue to show insufficiency or falsity. Regulatory filings (Letter of Offer under Takeover Code), approvals by SEBI/CCI, SPA, bank remittance particulars, audited accounts and confirmations are relevant evidence to show identity, genuineness and creditworthiness of purchaser and source of funds. Precedent Treatment: The Court/Tribunal treated regulatory disclosure documents vetted under the Takeover Code and approvals by CCI/SEBI as material of probative value. No precedent was overruled; appellate reliance upon such public/regulatory documents was accepted as legitimate corroboration of genuineness and funding. Interpretation and reasoning: The Tribunal held that (a) identity of purchaser was not in dispute; (b) Letter of Offer contained constitution documents, CA certificates of financial capacity, audited financials (redacted where non-relevant), escrow confirmation and SPA - all prepared under statutory/regulatory regime and publicly disseminated, thereby carrying significant evidentiary weight; (c) absence of unredacted bank details at assessment stage did not render all other contemporaneous documentary material meaningless; (d) Assessing Officer's failure to seek direct verification from the purchaser despite contact details being provided and availability of Letter of Offer meant the AO unduly ignored available sources of verification; (e) confirmation letter and audited accounts filed before appellate authority corroborated the flow of funds and explained the source, thereby discharging the assessee's initial onus under Section 68. Ratio vs. Obiter: Ratio - where an assessee furnishes SPA, regulatory Letter of Offer vetted by SEBI, CCI approval and later furnishes purchaser's confirmation and audited accounts corroborating remittances, the initial onus under Section 68 is discharged and addition as unexplained cash credit cannot be sustained absent independent contradictory material by Revenue. Obiter - observations on general concerns about funds routed through tax havens and administrative comments about FTTR references are contextual and not binding ratio. Conclusions: The Tribunal upheld the deletion of the Section 68 addition - the assessee discharged the initial onus through documentary evidence (Letter of Offer, SPA, CCI approval) and subsequent confirmation/audited accounts corroborating bank remittances. Revenue failed to produce independent material to challenge veracity; AO's failure to utilize available regulatory documents or to requisition directly from purchaser undermined the assessment addition. Grounds challenging deletion of Section 68 addition are dismissed. ISSUE-WISE DETAILED ANALYSIS - Treatment of redacted bank statements and timing of proof Legal framework: Evidence showing source and route of funds may include bank statements, audited accounts and confirmations; timing of filing of such documents (assessment stage v. appellate stage) is relevant but appellate authority may consider additional documents if directed by higher court or allowed in appeal; once credible corroborative evidence is placed before appropriate authority, it may cure earlier lacunae unless rebutted. Precedent Treatment: The Tribunal applied established principle that documentary evidence vetted by statutory authority and corroborated by purchaser's confirmation and audited statements can satisfy the assessee's initial onus; late filing before appellate authority permitted where court direction required adjudication on full material. Interpretation and reasoning: The Tribunal accepted that while initial bank statement was redacted, the Letter of Offer and escrow/CA certificates plus subsequent confirmation and audited accounts collectively explained funding. The Hon'ble High Court's direction to permit filing and consideration of additional documents bound the appellate authority to consider them; the Tribunal found such consideration permissible and determinative in resolving source-related doubts. Ratio vs. Obiter: Ratio - redacted or incomplete documents at assessment stage do not automatically justify an addition if later corroborative and credible evidence (including purchaser confirmation and audited accounts) becomes available and there is no independent material to rebut them. Obiter - procedural comments on FTTR/reference to third-party verification emphasize administrative caution but are not binding on facts. Conclusions: The purchaser's confirmation and audited accounts, when read with SPA and Letter of Offer, sufficiently explained the source and manner of remittance; the AO's reliance on redaction without attempting available verification was inadequate; therefore source-related objections do not sustain the addition. ISSUE-WISE DETAILED ANALYSIS - Deduction under Section 54F where property purchased jointly but consideration paid by assessee Legal framework: Section 54F allows deduction for reinvestment in residential property; entitlement depends on ownership and source of funds. Transfer of immovable property and rights inter se governed by Section 45 of the Transfer of Property Act, 1882 - where consideration is paid out of separate funds, transferees are entitled to interests in proportion to the consideration advanced; absent evidence, equal shares are presumed. Precedent Treatment: Appellate reliance on judicial precedent adopting a liberal interpretation to allow deduction where assessee alone paid entire consideration though property registered jointly (authority cited and followed by Tribunal). The Tribunal followed such precedent rather than distinguish it. Interpretation and reasoning: The Tribunal examined the sale deed (joint names without stated shares), bank evidence showing entire payment by assessee, tax deposit/challans under Section 194IA and assessee's conduct indicating sole funding. Applying Section 45 TPA, where consideration paid from separate fund (the assessee's), in absence of contrary contract the assessee is entitled to interest proportionate to consideration advanced (here 100%). The Tribunal also accepted an undertaking offered by assessee that no benefit would be derived by co-owner. Ratio vs. Obiter: Ratio - where entire purchase consideration for the new residential property is paid by the assessee though registered jointly, the assessee is entitled to claim deduction under Section 54F as the interest in property corresponds to the consideration advanced; precedent permitting liberal interpretation is applicable. Obiter - hypothetical consequences if co-owner claims benefit in future are not adjudicated. Conclusions: The CIT(A)'s acceptance of full Section 54F deduction was upheld; the disallowance of 50% by AO was reversed. Ground challenging Section 54F allowance is dismissed. FINAL CONCLUSION (as to issues considered) The Tribunal dismissed Revenue's appeal on all contested grounds: (i) Section 68 addition was rightly deleted as the assessee discharged initial onus by producing SPA, Letter of Offer, CCI approval and purchaser's confirmation/audited accounts which were not successfully controverted; (ii) concerns over redacted bank statements and procedural lacunae at assessment stage were cured by corroborative materials before appellate authority; (iii) full deduction under Section 54F was allowable where the assessee alone paid the purchase consideration though property was registered jointly. Observations on administrative practices (FTTR/use of third-party requisition) are contextual and do not form part of the binding ratio on these facts.