2025 (9) TMI 1120 - AT - Income Tax

Assessment Officer unjustified treating purchase as unexplained investment under s.69; buyer confirmation and ledgers support adjustment

ITAT held the AO was not justified in treating the purchase as an unexplained investment under s.69. The assessee's contention that the registered sale ... Addition towards profit on sale of asset by application of the provisions of Sec 50C - HELD THAT:- AO was not justified in summarily concluding that the assessee company had made an unexplained investment u/s 69 for the purchase of the subject property. Insofar as the reference to the registered sale deed dated 16-04-2010, whereby 82.28 sq. yards of land was transferred by the assessee company to M/s VEC, we are of the view that though the same makes a reference to the fact that M/s VEC had paid the entire sale consideration of Rs. 16.29 lacs to the assessee company, but the claim of the assessee company that the same was in lieu of the adjustment of the amount outstanding by it towards M/s VEC could not have been summarily discarded. Aforesaid claim of the assessee company is supported by the confirmation letter dated 09-01-2018 of M/s. VEC (supra), wherein it had stated that it had not made any cash payment at the time of purchase of the subject property, vide registered purchase deed dated 16-04-2010. Also, the copy of the account of the assessee company in the books of account of M/s. VEC (supra) for the period from F.Y. 2010-11 to F.Y 2012-13 further supports the aforesaid claim as had been canvassed by the assessee company before us. Matter in all fairness requires to be restored to the file of the A.O. The A.O. is directed to carry out necessary verifications by examining the concerned persons of M/s. VEC (supra), and also carry out any such verifications as he may deem necessary ISSUES PRESENTED AND CONSIDERED 1. Whether the Assessing Officer was justified in applying Section 50C by adopting SRO/segment rates to substitute the actual sale consideration for computing capital gains on the sale of developed property, in place of the assessee's declared consideration. 2. Whether specific expenditure claims made by the assessee (Building UDA development/license charges and building conversion charges) should be allowed in computing capital gains, where the Assessing Officer declined those deductions without detailed reasons. 3. Whether the Assessing Officer was justified in making an addition under Section 69 as unexplained investment for the amount claimed to have been paid/received in respect of an earlier sale (82.28 sq. yards) that was later cancelled and reinstated to the assessee, when the assessee produced a cancellation deed and confirmation denying receipt/ payment. 4. Whether the matter requires remand to the Assessing Officer for fresh adjudication and verification of facts and documentary evidence. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Application of Section 50C and adoption of SRO/segment rates Legal framework: Section 50C permits adoption of stamp/valuation authority values (SRO/segment rates) for computation of capital gains where the consideration declared in the transfer is less than such value. Precedent treatment: The Tribunal noted that judicial pronouncements were pressed into service by parties; the Court did not overrule or distinguish any specific precedent in the order but considered the authorities as part of the material. Interpretation and reasoning: The Court observed that the assessee had not objected during assessment proceedings to the A.O.'s adoption of SRO values. On that basis the Court found no infirmity in the A.O.'s application of Section 50C which produced a substituted capital gain of Rs. 66,67,806. The Court therefore sustained the use of SRO rates for substituting sale consideration when unobjected to in the assessment proceedings. Ratio vs. Obiter: Ratio - Where the assessee does not raise specific objection to the adoption of SRO/segment rates in assessment proceedings, the A.O.'s application of Section 50C to substitute consideration by SRO rates is sustainable. Conclusion: The Court upheld the A.O.'s substitution of consideration under Section 50C subject to re-adjudication on allied deduction issues (see Issue 2). Issue 2 - Allowability of claimed deductions (license charges and conversion charges) against capital gains Legal framework: In computing capital gains, allowable costs and deductions properly attributable to the transaction must be considered; the assessing authority must give reasoned acceptance or rejection of claimed deductions and afford opportunity to the assessee to substantiate. Precedent treatment: The Court recorded that judicial pronouncements were considered by parties; no precedents were specifically adopted or overruled in the order. Interpretation and reasoning: The Court found merit in the assessee's contention that the A.O. had declined two specific claimed deductions - Building UDA development (licence charges) Rs. 3,66,471 and building conversion charges Rs. 1,95,130 - without cogent reason. Given the absence of reasoned rejection and the availability of opportunity to substantiate, the Court directed that these claims be re-adjudicated by the A.O. The assessee was to be afforded a reasonable opportunity, and to be allowed to produce fresh documentary evidence if any. Ratio vs. Obiter: Ratio - A.O. must state cogent reasons when disallowing specific deductions and must re-adjudicate claims where disallowance lacks justification, giving the assessee opportunity to substantiate. Conclusion: The matter was set aside to the A.O. specifically to re-adjudicate the two deductions; the A.O. to afford hearing and permit substantiation. Issue 3 - Addition under Section 69 for unexplained investment on reacquisition of previously sold land (82.28 sq. yards) Legal framework: Section 69 treats unexplained investments as income where the assessee cannot satisfactorily account for the source of investment funds for acquisition of assets; the A.O. must form an opinion after considering available evidence. Precedent treatment: Judicial pronouncements were considered by the parties and the Court, but the decision does not cite or apply any particular precedent to alter the statutory test under Section 69. Interpretation and reasoning: The A.O. recorded the sale deed of 16.04.2010 showing transfer to the purchaser for a stated consideration and later treated the reacquisition (via cancellation deed dated 15.04.2013) as unexplained investment of Rs. 20.57 lacs because the assessee could not produce evidence of source of funds. The assessee contended that the initial sale was an adjustment of an outstanding debt (no cash payment) and produced a cancellation deed, a confirmation letter dated 09-01-2018 from the transferor denying receipt of payment, and entries from the transferor's books showing no receipt. The Court held that the A.O. had summarily concluded unexplained investment without properly considering or verifying the cancellation deed and corroborative materials. The Court found the assessee's materials raised a plausible explanation that money had not been paid and therefore remand/verification was required. The Court directed the A.O. to carry out necessary verifications, including examining concerned persons of the transferor and any other verifications deemed necessary. Ratio vs. Obiter: Ratio - Before making an addition under Section 69 the A.O. must examine documentary evidence and carry out necessary verifications; a summary conclusion in the face of a cancellation deed and corroborative confirmations is not justified. The A.O. must verify with the transferor and relevant records before treating reacquisition as unexplained investment. Conclusion: The A.O.'s addition under Section 69 was set aside for fresh adjudication and directed verifications; the matter remitted for enquiry into the asserted non-payment and cancellation. Issue 4 - Requirement of remand for fresh adjudication and verification Legal framework: Principles of natural justice and proper adjudication require reasoned conclusions, opportunity to be heard, and verification of material facts when disputed. Precedent treatment: The Court noted that authorities were considered but did not rely on any single precedent to the exclusion of statutory principles. Interpretation and reasoning: The Court observed defects in the A.O.'s treatment of two discrete aspects (disallowance of specified deductions and unexplained investment addition) - namely lack of cogent reasons, failure to consider/corroborate material (cancellation deed and confirmation), and absence of necessary verifications. In fairness to both parties and in view of the documentary material placed before the Tribunal, the Court concluded that remand for fresh adjudication was necessary. Ratio vs. Obiter: Ratio - Where the A.O.'s conclusions are reached without adequate consideration of evidence or without necessary verification, the Tribunal may remit the matter for fresh adjudication, directing specific enquiries and affording the assessee opportunity to substantiate claims. Conclusion: The appeal was partly allowed for statistical purposes by setting aside the disputed findings and remitting the matter to the A.O. with directions to (i) re-adjudicate the two specified deductions after giving opportunity to the assessee, and (ii) verify the circumstances and documentation concerning the cancelled sale and alleged unexplained investment, including examination of persons and records of the transferor.