Income Tax Appellate Tribunal - Chandigarh
Sh. Surinder Singh Saini, Chandigarh vs Dcit, Chandigarh on 17 April, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH, CHANDIGARH
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER
AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER
ITA No.104/Chd/2015
(Assessment Year : 2009-10)
Sh.Surinder Singh Saini, Vs. The D.C.I.T.,
Prop. M/s Surindra Builders, Central Circle -1,
Chandigarh. Chandigarh.
PAN: AFCPS8196L
(Appellant) (Respondent)
Appellant by : Shri Atul Goyal
Respondent by : Shri Sushil Kumar, CIT DR
Date of hearing : 06.02.2017
Date of Pronouncement : 17.04.2017
O R D E R
PER ANNAPURNA GUPTA, A.M. :
Thi s appeal has been fi l ed by the assessee agai nst the order of CI T( Appeal s) -3, Gurgaon dated 26.11.2014 rel ati ng to assessment year 2009-10.
2. The assessee has rai sed the fol l o wi ng grounds:
"1. That the order passed u/s 250(6) of the Income Tax Act, 1961 by the Worthy C1T(A) is bad in law and against the facts of the case and thus against the provisions of the Act.
2. That the Worthy C1T(A), Gurgaon erred on facts & in law in upholding the addition of Rs.4060000/- made by the Ld. Assessing Officer on assumption and estimation basis despite recording the finding "Even though a perusal of the cash book does not show any other use of such withdrawals being made" & thus the order be set aside.2
3. That the assessee craves leave to add/alter any of the grounds of appeal on or before the date of hearing."
3. The onl y i ssue for adjudi cati on i n the present appeal pertai ns t o addi ti on of Rs. 40,60,000/- on account of i nvestment made from une xpl ai ned sources u/s 69B of the I ncome Ta x Act, 1961 ( i n short 'the Act') .
4. Bri ef facts rel evant to the case ar e that the search u/s 132( 1) of the Act was conducted on Mehta & Zender group of cases on 18.02.2011. The assessee was al so one of the persons covered under search. The asse ssee, Shri Suri nder Si ngh, is runni ng a propri etar y concern doi ng contractor busi ness i n the name and st yl e of M/s Suri ndra Bui l ders and i s al so runni ng a s chool by the na me of M/ s Guru Teg Bah ad ur School , Anan dpur Sahi b. A ccordi ngl y, noti ce u/s 153A of the Act was i ssued to the as sessee, i n response of whi ch return decl ari ng i ncome of Rs.1,54,26,840/- was fi l ed by the assessee. Thi s was assessed at Rs.1,94,86,840/- after maki ng addi ti on of Rs.40,60,000/- on account of i nvestment made from une xpl ai ned sources u/s 69B of the Act. The fac ts and the background rel ati ng to the addi tion made was that duri ng the course of search, documents were sei zed from the resi dence of the assessee whi ch was an agreement to sel l a Dental Col l ege M/s Satguru Foundati on , si tuated at VPO Udhya Karan, Di stt Muktsar, dated 31.07.2008, through i ts presi dent Dr. Zora Si ngh, resi dent of 1224, Sector 8C, Chandi garh for a total consi derati on of Rs.21 crore s. As per 3 the agreement the assessee had made a pa yment of Rs.3 crores as bi ana out of whi ch Rs.1.60 crores was stated to have been pai d i n cash. On bei ng asked to expl ai n the source of the pa yment made, the assessee stated that the sai d pa yment i s dul y refl ected i n hi s Bal ance Sheet for the i mpugned year and further submi tted that the same is sourced from cash wi thdra wn from bank, detai l of whi ch was al so submi tted. The assessee further submi tted that the agreement for purchase of the Dental Col l ege was l ater on cancel l ed on 26.6.2009, detai l s of whi ch were al so submi tted. To veri f y pl ea of the assessee, the AO i ssued summons to the sel l er, Dr.Zora Si ngh, and hi s statement was recorded on oath, in which he categori cal l y deni ed recei vi ng any pa yment i n cash and admi tted to receipt of Rs.1.40 crores onl y by wa y of cheque on account of the sai d agreement. The Assessi ng Offi cer thereafter hel d that even though benefi t of doubt can be gi ven to the assess ee that he made the stated cash pa yment to Dr.Zora Si ngh and the l atter was conce al i ng recei pt of Rs.1.60 crores, h owever, the Assessi ng Offi cer hel d that the assessee was not abl e to concl usi vel y prove the source of the cash pa yment made of Rs.1.60 crores to Dr.Zora Si ngh and as per the books of account of M/s Suri ndra Bui l ders found at the ti me of search, the same sho wed the entr y of Rs.1.60 cror es i n the suspense account. The Assessi ng Offi cer di d not bel i eve the e xpl anati on of the assessee of the cash pai d as being from wi thdra wal s from Vi ja ya Bank and stated that though the cash book di d n ot sho w any oth er use of such wi thdra wal s 4 bei ng made, yet the same coul d not be bel i eved si nce the wi thdra wal s were made i n smal l amounts on di fferent dates precedi ng the dates on whi ch the pa yments were made to Dr.Zora Si ngh. He, therefore, treated the cash pa yment made duri ng the i mpugned year for the l and deal amounti ng to Rs.40,60,000/- as i nvestment from une xpl ai n ed sources and added back the same to the income of the assessee. The Assessi ng Offi cer al so re jected the books of the assessee under secti on 145( 3) of the Act but consi deri ng the past hi stor y of the as sessee accepted the net profi t rat e returned by the assessee and made no addi ti on on acc ount of the same.
5. The matter was carri ed before the CI T ( Appeal s), where the assessee rei terated hi s submi ssi ons. The l earned CI T ( Appeal s) uphel d the addi ti on made concurri ng wi th the fi ndi ngs of the Assessi ng Offi cer. The rel evant f indi ngs of the l earned CI T ( Appeal s) at para 6 of hi s order are as fol l o w:
"6. 1 have considered the assessee's submissions as well as the impugned order. It is not in dispute that an agreement to sell dated 31.7.2008 with Satguru Foundation through its president Dr.Zora Singh was found at the residence of the assessee. As per the agreement, total consideration of Rs.21 crores was for the land situated at VPO Udhya Karan of 6 acres and building constructed thereon. The assessee had made a payment of Rs.3 crores as biana out of which Rs.1.60 crores was in cash.
During the assessment proceedings, the assessee explained that the entire biana was made to Satguru Foundation through its President Dr Zora Singh and provided details of the payments. It was also stated that the agreement to sell was cancelled on 26.06.2009. It is further seen from the impugned order that the AO recorded the statement of Dr Zora Singh, who admitted to receipt of cheque for Rs.1.40 crores only while denying receipt of any consideration in cash. He also denied having affixed his signature on 5 the seized agreement to sell and the receipts, contending that his signatures were forged. The statement of Dr Zora was confronted to the assessee who sought an opportunity to cross examine Shri Zora Singh.
The AO finally concluded that, to quote It is non conclusive to the extent that even though benefit of doubt can be given to the assessee that he made the stated cash payment to Sh. Zora Singh and the latter was concealing the receipt of Rs. 1.60 crore because there were certain agreement seized to which Sh. Zora Singh could not satisfactorily disown and did not give any reasonable explanation. However, assessee was also not able to conclusively prove that all the payments made to Sh. Zora Singh of Rs. 1,60,00,000/- was from explained sources and as per the books of accounts of M/s Surindera Builders since the books of accounts found at the time of search showed the entry of Rs. 1.60 crore in the suspense account.
Besides this the explanation given by the assessee of the above cash to be from withdrawals from Vijay Bank, Chandigarh on different dates ranging from 17.04.2007 to 25.10.2008 cannot be entirely believed. Even though a perusal of the cash book does not show any other use of such withdrawals being made. However, the fact remains that the agreement took place in July, 2008. The assessee could not give any satisfactorily explanation as to why the withdrawals were made in small amount on different dates as back as April 2008.........
Now the assessee has not sought to refute the findings of the AO during the appellate proceedings. The books of accounts, no doubt have been rejected by the AO but for the year under consideration no net profit addition has been made as the rate of 8.33% declared was not interfered with. I find that the AO was not convinced that the amount of Rs.40,60,000/- withdrawn in the months of April and May 2008 were towards the purchase of the land/building.
The agreement to sell is dated 31.7.2008, so it defies logic why cash was withdrawn in lumpsum at intervals as many times as 12 and as early as April 2008 for the earnest money payment. In fact during the month of June 2008, assessee has made 11 such lumpsum withdrawals. In month of July, there was another 8 such withdrawals. This modus indulged in by the assessee to explain his case does not appear to be prudent for any business man. Though the AO has made an observation that on a perusal of the per cash book the withdrawals did not appear to have been utilised for any other use, the fact of the matter is that the books were rejected as incomplete and unreliable. It is a fact that assessee is carrying on various contractual works and have also made investment at SCO 112-113, Sec-8C, Chandigarh and SCO 18, Ladowal Jalander, besides the 6 school at Vill Jhanjiri, Tehsil Kharar during AY 2005-06 to AY 2011- 12 as intimated by him. Thus, in the absence of any convincing clarification with supporting documents on the part of the assessee, I am strongly inclined to uphold the addition made by the AO of Rs.40,60,000/-."
6. Duri ng the course of heari ng before us, the assessee made t wo fol d argum ents agai nst th e addi tion made. Fi rstl y, the assessee argued that si nce the books of account were re jected and net profi t rate appl i ed, no addi ti on on account of une xpl ai ned i nvestment coul d have been made. Secondl y the Ld . Counsel for th e assessee stated that the a dvance pai d i n a ny case was dul y expl ai ned by the cash withdra wn from the bank account of the assessee and the Assessi ng Offi ce r had gi ven a fi n di ng that the cash book di d not sho w a ny other use of the cash wi thdra wal s made. The Ld. coun sel for the asses see stated that havi ng found so, the Assessi ng Offi cer coul d not have re jected assessee's e xpl anati on t hat the cash wi t hdra wn was used for the purpose of gi vi ng advance for the purchase of l and and made t he addi ti on mere l y on the basi s o f surmi ses and conjectures that there was no reason for the assessee to have wi thdra wn cash i n advance for a future deal . The Ld.Counsel for t he assessee rel i e d upon the deci s i on of the Del hi Hi gh Court i n the case of CI T Vs. Di nesh Jai n HUF reported i n 352 I TR 629 i n thi s regard. Ld. Counsel for the assessee al so poi nted out that the enti re i nvestment made i n the sai d col l ege was out of e xpl ai ned sources as the enti re amount of Rs.3 crores was dul y refl ected i n t he Balance Sheet of the ass essee. Ld.Counsel dre w our atten ti on to the Bal ance Sheet of the assessee for the i mpugned y ear pl aced 7 at paper book page no.17 refl ecti ng the advance paid to M/s Satguru Foundati on amounti ng to Rs. 3 Crores.
7. The l earned D.R ., on the other hand rel i ed upon the order of the CI T ( Appeal s) .
8. We have heard t he arguments of both the parti es, perused the or ders of the au thori ti es bel o w and gone through the documents pl aced before us. The undi sputed facts i n thi s case are that the ass essee had made pa yment of Rs.3 crores as advance for purchase of Dental Col l ege through i ts presi dent Dr.Zora Si n gh. Out of the aforesai d advance of Rs.3 crores, Rs.1.60 crores were pai d i n cash. Thi s fact has be en admi tted to by the assessee and i s not di sputed. The o nl y i ssue i s rel ati ng to the e xpl anati on of the source of the i mpugned cash advanced of Rs.1.60 crores, of whi ch an amount of Rs.40,60,000/- pertai ns to the i mpugned year, and i n the absence of whi ch addi ti on u/s 69B of the I ncome Ta x Act,1961 h as been made.
9. We fi nd meri t i n the arguments of the Ld.Counsel for the assessee. Secti on 69B cal ls for addi ti ons to be made of i nvestments not ful l y di scl osed i n the books of accounts of the assessee. Th e sai d secti on states as under:
"Amount of investments, etc., not fully disclosed in books o f account.
69B. Where in an y f in anc i al ye ar the assessee h as mad e inves tme n ts or is f ound to be the o wn er o f an y bul l ion, je we l l ery or o ther v al u abl e ar ticl e and the Assess ing Of f icer f inds th at the amo un t ex pended on mak ing such inv es tmen ts or in acqu ir ing such b ul l ion, je we l l er y or o ther v al u abl e ar ticl e exceeds the amoun t recor ded in th is beh alf 8 in the books of accoun t main taine d by the assesse e f or an y source o f inco me, and th e assessee of f ers no ex pl an ation abou t such exce ss amoun t or th e ex pl an ation of f ered by h i m is no t, in the o p in ion of the Assess ing Of f icer, satisf ac tor y, the excess amo un t may be dee med to be th e inco me of the assessee f or such f in anc i al ye ar. "
10. In the present case the i mpugned amount is refl ected i n the b al ance sheet of t he assessee as p oi nted out to us. Ld DR ha s not controverted the same. Ther efore, for thi s reason al one the addi ti on made shoul d be del eted.
11. Further, i n any case, we fi nd that the assessee had e xpl ai ned the source of cash pa yment made by way of cash wi thdra wal s from i ts bank account i n Vi ja ya Bank. Detai l s of the sa me were pl aced before the l o wer authori ti es and are al so reproduced i n the order of the CI T (Appeal s) at pages 3 to 10. The sai d detai l adequatel y e xpl ai n the avai l abi l i t y of cash on the date o n whi ch cash pa yment was made to Dr.Zora Si ngh. Thi s fact stated by the ass essee and demonstrated before the l o wer authori ti es, has not been controverted at any stage ei ther by the Assessi ng Offi cer or by the CI T ( Appe al s) or even by t he l earned D.R. before us. No i nfi rmi t y i n t he aforesai d deta i l s has been poi n ted out by any of the authori ti es. Therefore, i t can be safely stated that the assesse e had demonstra ted the avai l abi l i t y of cash wi th hi m as bei ng from wi thdra wal s from hi s bank account for the purpose of pa yment as advance pa yme nt of the Dental Col l ege purchase. Furthe r as poi nted out by the Ld. counsel for the assessee al so, w e fi nd that the Assessi ng Offi cer had gi ven a categori cal fi ndi ng that no other use of 9 the cash wi thdra wn was evi dent from the cash book. In such ci rcumstances, there i s no reason to di sbel i eve the e xpl anati on of th e assessee regar di ng the source of the cash pai d as advance for the purpose of Dental Col l ege amounti ng to Rs.1.60 crores as bei ng from the cash wi thdra wals from the bank account of the assessee. The onl y reason, poi nted out by the Ld.DR, for di sbel i eving the e xpl anation of the assessee was that the wi thdrawal s were made in small amounts on di fferent dates as ea rl y as i n Apri l , 2008 whi l e the agreement took pl ace i n Jul y, 2008. For thes e reasons, the e xpl anati on of the assessee was not bel i eved since i t coul d not be i magi ned as to why the assessee woul d retai n cash wi thdra wn for a l ong peri od for maki ng pa yment i n future for a future deal . We fi nd no meri t i n thi s argument of the Revenue. The fact remai ns that the cash withdra wal s from the bank account e xpl ai n the avai l abi l i t y of cash pa yment of adva nce. No other u se of the cash w i thdra wal s has ei ther been brought on record by the Assessing Offi cer and i n fact, the Assessi ng Offi cer has admi tted th at no other use was evi dent from the cash book al so. The reason for re jecti ng the e xpl anati on of t he assessee i s, therefore, merel y based on suspi ci on whi ch cannot be the basi s for maki ng any additi on, total l y i gnori ng the facts before us. The rel i ance pl aced by the Ld.Couns el for the asses see i n the case of CI T vs Di nesh Jai n HUF (2013) 352 I TR 629( Del hi ) i s apt wherei n the Hon'bl e Hi gh Co urt has hel d tha t addi ti on u/s 69B cannot be made on the basi s of assumpti ons. The rel evant fi ndi ngs of the Hon'bl e Hi gh Court are as under: 10
"11.Section 69B does not permit an inference to be drawn from the circumstances surrounding the transaction that the purchaser of the property must have paid more than what was actually recorded in his books of account for the simple reason that such an inference could be very subjective and could involve the dangerous consequence of a notional or fictional income being brought to tax contrary to the strict provisions of Article 265 of the Constitution of India and Entry 82 in List I of the seventh schedule thereto which deals with "Taxes on income other than agricultural income". This was one of the major considerations that weighed with the Supreme Court in K.P. Varghese (supra) in which case the provisions of sub-section (2) of section 52 fell for interpretation. It was observed that Parliament cannot choose to tax as income an item which in no rational sense can be regarded as a citizen's income or even receipt. Section 52(2) (which now stands omitted) applied to the transferor of property for a consideration that was lesser than the fair market value by 15 percent or more; in such a case, the Assessing Officer was conferred the power to adopt the fair market value of the property as the sale price and compute the capital gains accordingly. The Supreme Court held that it was the burden of the Assessing Officer to prove that there was understatement of consideration and once that burden was discharged it was not required of him to prove the precise extent of understatement and he could adopt the difference between the stated consideration and the fair market value of the property as the understatement. The sub-section was held to provide for a "statutory best judgment" once actual understatement was proved; it obviated the need to prove the exact amount of understatement. Additional reasons for the result were (a) that the marginal note to the section referred to "cases of understatement"; (b) the speech of the Finance Minister while introducing the provision; and (c) the absurd or irrational results that would flow from a literal interpretation of the sub-section, which could not have been intended by the legislature.
12. While the omitted section 52(2) applied to the transferor of the property, section 69B applies to the transferee - the purchaser - of the property. It refers to the money "expended" by the assessee, but not recorded in his books of account, which is a clear reference to undisclosed income being used in the investment. Applying the logic and reasoning in K.P. Varghese (supra) it seems to us that even for the purposes of Section 69B it is the burden of the Assessing Officer to first prove that there was understatement of the consideration (investment) in the books of account. Once that undervaluation is established as a matter of fact, the Assessing Officer, in the absence of any satisfactory explanation from the assessee as to the source of the undisclosed portion of the investment, can proceed to adopt some dependable or reliable yardstick with which to measure the extent of understatement of the investment. One such yardstick can be the fair market value of the property determined in accordance with the Wealth Tax Act. We however clarify that this Court is not concluding that such yardstick is determinative; in view of the findings arrived at by us that the Assessing Officer did not gather foundational facts to point to undervaluation the adoption of the norms under the Wealth Tax Act is not commented upon by us.
13. The error committed by the income-tax authorities in the present case is to jump the first step in the process of applying section 69B -
that of proving understatement of the investment - and apply the measure of understatement. If anything, the language employed in section 69B is in stricter terms than the erstwhile section 52(2). It does not even authorise the adoption of any yardstick to measure the precise extent of understatement. There can therefore be no compromise in the application of the section. It would seem to require the Assessing Officer even to show the exact extent of understatement of the investment; it does not even give the Assessing Officer the 11 option of applying any reasonable yardstick to measure the precise extent of understatement of the investment once the fact of understatement is proved. It appears to us that the Assessing Officer is not only required to prove understatement of the purchase price, but also to show the precise extent of the understatement. There is no authority given by the section to adopt some reasonable yardstick to measure the extent of understatement. But since it may not be possible in all cases to prove the precise or exact amount of undisclosed investment, it is perhaps reasonable to permit the Assessing Officer to rely on some acceptable basis of ascertaining the market value of the property to assess the undisclosed investment. Whether the basis adopted by the Assessing Officer is an acceptable one or not may depend on the facts and circumstances of the particular case. That question may however arise only when actual understatement is first proved by the Assessing Officer. It is only to this extent that the rigour of the burden placed on the Assessing Officer may be relaxed in cases where there is evidence to show understatement of the investment, but evidence to show the precise extent thereof is lacking.
14. In Lalchand Bhagat Ambica Ram Vs. Commissioner of Income Tax, Bihar and Orissa (1959) 37 ITR 288, the Supreme Court disapproved the practice of making additions in the assessments on mere suspicion and surmise or by taking note of the notorious practices prevailing in trade circles. At page 299 of the report, it was observed as follows :
"Adverting to the various probabilities which weighed with the Income- tax Officer we may observe that the notoriety for smuggling food grains and other commodities to Bengal by country boats acquired by Sahibgunj and the notoriety achieved by Dhulian as a great receiving centre for such commodities were merely a background of suspicion and the appellant could not be tarred with the same brush as every arhatdar and grain merchant who might have been indulging in smuggling operations, without an iota of evidence in that behalf. "
This takes care of the argument of Mr. Sabharwal that judicial notice can be taken of the practice prevailing in the property market of not disclosing the full consideration for transfer of properties.
15. Since the entire case has proceeded on the assumption that there was understatement of the investment, without a finding that the assessee invested more than what was recorded in the books of account, we are unable to approve of the decision of the income-tax authorities. Section 69B was wrongly invoked. The order of the Tribunal is approved; the substantial question of law is answered in the negative, in favour of the assessee and against the CIT."
12. I n vi e w of the s ame, we hol d th at the source of cash i nvested by wa y of advance for purchase of Dental Col l ege stands e xpl ai ned and ad di ti on made on account of the same for the i mpugned year under secti on 69B of the Act amounti ng to Rs.40,60,000/- i s, therefore, di rected to be del eted. Si nce we have del eted the addi ti on made, agreei ng wi th the arguments made on meri t by the Ld. counsel for the 12 assessee, we fi nd no reason to deal wi th other arguments of the Ld. counsel for the assess ee as it becom es merel y academi c i n nature.
13. I n vi e w of the above, grounds of appeal rai sed by the assessee i s al l o wed.
14. I n the resul t, the appeal of the assessee stands al l o wed.
Order pronounced in the open court.
Sd/- Sd/-
(BHAVNESH SAINI) (ANNAPURNA GUPTA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 17 t h April, 2017
*Rati*
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A)
4. The CIT
5. The DR
Assistant Registrar,
ITAT, Chandigarh