SHRI. M.A. AZEEZ vs. THE COMMISSIONER OF INCOME TAX

Admittedly, a search was conducted under Section 132 of the Income Tax Act, 1961 (“Act” for short), including the residence of the assessee and certain others who were together involved in real-estate transactions. From the residence of one Babu, who is a member of the group, an agreement was recovered which showed it to be an agreement for purchase of a property at -3- Menonpara for a total consideration of Rs.150 lakhs. Sri.Babu in his deposition said that there was a building at Akathethara, which was also a part of the transaction and exchange of that property was fixed at a value of Rs.72 lakhs. The balance Rs.78 lakhs is said to have been received by cash by Sri.Babu from the assessee. The assessee also endorsed the agreement, but however had a different version with respect to the transaction. His version, which we find from the statement recorded under Section 132(4), is as follows:- “8. Explain your dealings with Mr.Babu? Ans.: I, along with Mr.C.H.Hussain, have made an agreement to purchase 18 acres of land in Menonpara, from Mr.Babu, at the rate of Rs.12,000/- per cent. We have paid Rs.1.5 crores to him in this regard. For this purpose, the 13 cent plot and building in Akathethara, which was in my name was given to Mr.Babu for Rs.50 lakhs. Apart from this, I had paid Rs.50 lakhs in cash (this includes Rs.25 lakhs payable to Mr.C.H.Hussain in -4- respect of Petrol pump). The remaining Rs.50 lakhs was paid by Mr.C.H.Hussain.”

The Assessing Officer (AO) valued the property at Akathethara at a far lesser price and also took into account the contributions made by Babu and Hussain, the last one; yet another member of the group. The AO made an addition of Rs.1,16,68,000/- being the undisclosed investment of the assessee-appellant.

The first appellate authority however interfered with the addition finding that the statements recorded indicate a property having value of Rs.72 lakhs was agreed to be exchanged as a part of the transaction. Only the balance was paid in cash, was the finding. This was upheld by the Tribunal.

Sri.T.M.Sredharan, learned Senior Counsel for the assessee would contend that there was nothing to show that the assessee had paid the -5- entire amounts. It is also submitted that the first appellate authority had clearly found that the exchange of other property had occurred and hence what remains was only Rs.78 lakhs, which was the share of all the three members and not the assessee alone. It is also contended that the agreement did not materialise at all and the property still is in the hands of the original owner.

Whether the agreement materialised or not, is not relevant for consideration of the addition made by the AO as confirmed by the first appellate authority. There is no appeal from the order of the first appellate authority and the Tribunal had confirmed the addition of Rs.78 lakhs. It is an admitted fact that such an agreement was entered into. Even admitting the fact that the total consideration excluded the value of the property sought to be exchanged, what -6- remained was Rs.78 lakhs. Whether the said amounts were disclosed in the cash flow statement of the assessee is the crucial point which has to be considered. Even if the agreement did not materialise in a sale and conveyance of the property, the fact that an amount had passed out from the assessee, indicates existence of the said sum, in cash, in the hands of the assessee and necessitates it to be reflected in the cash flow statement. If not so reflected then it is unaccounted and becomes unexplained investment. The amount having not figured in the cash flow statement, we are of the opinion that necessarily, an addition has to be made as an undisclosed investment; which if the transaction has not materialised would have been returned to the assessee and would have been invested elsewhere.

We also do not find any reason to accept the contention of the assessee that part of -7- the agreement being exchange of a building at Akathethara, had actually taken place. If the exchange was part of the transaction of sale of the property at Menonpara, the assessee will have to explain why the further sale and conveyance did not take place. When the exchange is said to be an inextricable part of the agreement, the assessee cannot resile from that and take a different contention. In any event, we have already found that how the transaction concluded is not material since the existence of unaccounted cash in the hands of the assessee is established.

We however notice from the extracted portion of the specific answer to the question put by the Officer and recorded under Section 132(4) that the assessee agreed to having paid Rs.50 lakhs in cash. It is also an admitted fact that there were two others, Babu and Hussain, involved -8- in the property transaction; all of whom figured in the agreement also. Hence, going by the agreement recovered and the specific admission of the assessee that he had paid Rs.50 lakhs in cash, the same has to be made an addition. In such circumstances, we modify the order of the Tribunal to the effect that the addition has to be confined to Rs.50 lakhs and not Rs.78 lakhs. The Income Tax Appeal would stand partly allowed. No order as to costs. K.VINOD CHANDRAN JUDGE ASHOK MENON JUDGE jg -9-