STEVEN ANGELO PINTO ,MUMBAI vs. ITO INT TAX 3(3)(2), MUMBAI

Being aggrieved, the assessee filed objections before the DRP, who vide order dt. 25-11-2024 has dismissed the objections so raised by the assessee and thereafter the AO has passed the final assessment order u/s. 143(3) r.w.s. 144C(13) of the Act, dt. 16-12-2024 and against the said order, the assessee is in appeal before us.

During the course of hearing, the Ld.AR submitted that the assessee is a super senior individual. He, along with his wife, intended to secure a personal residence for peaceful retirement. Accordingly, entered into an agreement for the purchase of an immovable property (a flat) on 1st July 2011 with Mr. Zarir Bativala. The total consideration was fixed at Rs. 4.75 crores. It is submitted that the assessee has paid Rs. 4.5 crores to Mr. Bativala entirely through banking channels. Due to delays and breaches by the builder, Mr. Bativala, the project has not fructified till date, causing significant financial and emotional strain to the assessee. Mr. Bativala has in fact acknowledged his lapses and has undertaken to return the consideration of Rs. 4.5 crores (and has actually repaid Rs. 20 lakhs till date). It is also submitted that the assessee has always been most diligent in his Income Tax Return filings as well as timely payments of all due taxes (advanced taxes & Self-assessment Tax, as the case may be) by/before the mandated due dates as per the Income Tax Act.

It was submitted that while the assessee was desperately trying to recover his dues from the non-performing builder (Mr. Bativala), one Mr. Salim Abbas Karimi, who also appears to be a real estate developer - approached the assessee trying to obtain a distress sale of the assessee's rights in the property. The agreement dated 1st July 2011 had recorded the consideration already paid at Rs. 4.5 crores. Mr. Karimi sought to take advantage of the assessee's distressed circumstances, and sought to pressurise the assessee to sell his rights for only Rs. 4 crores. In order to ward off such an offer and to get a better price, the assessee stated in a whatsapp message to Mr. Karimi that in fact he had paid Rs. 5 crores (as opposed to the Rs. 4.5 crores actually and duly paid). During the search one Mr. Karimi, the said whatsapp message was discovered.

It was further submitted that solely on the basis of the whatsapp message, ignoring the circumstances in which the message was sent, the AO has made addition of Rs. 50 lakhs in the assessee's hands. This act of AO clearly shows the misunderstanding of the whatsapp chat. It was further submitted that the whatsapp message dated 30-08-2021 which is the sole basis of the addition is sent to Mr. Karimi. The Ld.AR also submitted that it may be noted that Mr. Karimi is not the party to transaction in question and it is not even the Revenue’s case that any amount is paid to Mr. Karimi. The whatsapp message was merely a negotiation tactic intended to put off Mr. Karimi. The background of the chat has already been explained in the preceding paragraph. The Ld.AR further submitted that the assessee was desperately trying to recover his dues from the non-performing developer. Το achieve a fair exit price and to put off Mr. Karimi, who was forcing a distress sale at a reduced price of 24 crores, the assessee stated that he had paid 25 crores (24.50 crores actual investment plus 250 lakhs for notional holding costs and interest). This was a bargaining and not an admission of any unaccounted transaction or cash payment. The DRP's assertion that this was "not borne out by facts and seems to just be an afterthought is incorrect, as the context of negotiations and the actual banking transactions support the assessee's explanation. In fact, the assessee's conduct is entirely in keeping with human probabilities and the Ld.DRP and Ld.AO have lost sight of the distress and trauma faced by the assessee in which background this communication was being made. It was also submitted that the actual party to the transaction (Mr. Bativala) has responded to notice u/s. 133(6) of the Act and confirmed the stand of the assessee.

It was further submitted that the AO in the present case has issued notice/summons u/s. 133(6) of the Act to Mr. Bativala, the actual party. Mr. Bativala has consistently and unequivocally denied receiving any cash payment. This denial was made both in response to the notice/summons issued u/s. 133(6) of the Act through Mr. Bativala's reply dated 18-03- 2024 and also separately in multiple independent correspondences, including email chats. There is no evidentiary trail, no withdrawal from the assessee's bank accounts, and no matching asset trail to support any such cash outflow. There is no material on record to suggest any adverse action in the hands of Mr. Bativala. It was submitted that the orders of the AO and DRP do not at all deal with or take into account Mr. Bativala's categorical statements, which are thus unchallenged.

As far as inapplicability of section 69A of the Act, the Ld.AR submitted that unrelated to the assessee; alleged Search Action was conducted on one, Mr Karimi has neither resulted in any cash, bullion or jewellery related to the assessee nor is the Department's case that there is/has been any recovery qua the assessee. It was submitted that there is no evidence of any cash transaction through books, accounts, or any third-party corroboration to support any cash payment. Section 69A which is relied on by the AO to make the addition is completely inapplicable. The section applies only when "the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account". There is no such finding whatsoever in the present case, and no money, bullion, jewellery or other article or this is at all found to be owned by the assessee.

Without prejudice to the above submissions, it was submitted by the Ld.AR that the property-in-question was proposed to be acquired in FY. 2011-12, and all payments related to the transaction fall in that financial year. Merely because there is a whatsapp communication in the previous year relevant to AY. 2022-23, that cannot be a reason to make any addition in AY. 2022-23. Even on the Department's own case, no payment or expenditure or investment is made in FY. 2021-22 relevant to AY. 2022- 23; and hence, in any case, there is no basis to make any addition in AY 2022-23.

It was further submitted that the AO’s assertion that no response was received from the assessee during the investigation is demonstrably false.

Per contra, the Ld.DR is heard, who has relied on the order passed by the AO. Further our reference was drawn to the findings of the DRP which are contained at paragraph No. 5.3.3. to 5.3.6 of its order, which read as under:

We have heard the rival contentions and perused the material available on record. The Assessing officer has invoked the provisions of Section 69A of the Act while bringing to tax a sum of Rs 50,00,000/- in the hands of the assessee. The said provisions provide that where in any financial year, the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or other valuable article is not recorded in the books of account, if any maintained by him for any source of income and the assessee offers no explanation about the nature and source of acquisition of money, bullion, jewellery or other valuable article or the explanation offered by him is not in the opinion of the AO satisfactory, then the money and the value of bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year. Therefore, for the purposes of invocation of section 69A of the Act in the instant case, what is essential to determine is that during the financial year the assessee is found to be the owner of money and such money is not recorded in the books of Accounts, if any maintained by the assessee and only where the money so owned by the assessee and not recorded in the Books of Account, if any by the assessee, the explanation of the assessee has to be called and, thereafter, the reasonability of the explanation has to be examined and tested by the AO. The initial onus is therefore clearly on the AO to record a finding as to whether the assessee is found to be the owner of the money during the financial year relevant to the impugned assessment year and depending upon whether the assessee is maintaining books of accounts, such money is recorded in the books of accounts or not.

In the instant case, we find that there is no physical cash which has been found and the ownership of which, can be attributed to the assessee. There is no transaction related to deposits which has been found in the bank account of the assessee. There is also no documentary evidence which has been found during the course of search in case of Salim Abbas Karimi and others which demonstrates that the assessee is the owner of any money. What has been found during the course of search is a whatsapp message sent by the assessee to Mr. Karimi on 30/08/2021. The assessee has explained the context of sending that message to Mr. Karimi, a real estate developer, who wanted to acquire the property in respect of which the assessee had entered into an agreement dt. 1st July, 2011 with Mr. Zarir Bativala, the original developer/builder. The assessee has categorically stated that he has entered into an agreement for purchase of a flat on 1st July, 2011 with Mr. Zarir Bativala for a consideration of Rs. 4.75 crores and has paid a sum of Rs. 4.5 crores through the banking channels. Subsequently, due to delays and breaches by the builder, the assessee has entered into two MOUs to recover the said amount and even in those two MOUs, there is no mention of any cash payments made by the assessee to Mr. Zarir Bativala, the builder with whom the assessee has entered into an agreement for purchase of a flat. The assessee has further explained the context of sending the message to Mr Karimi stating that as he was trying to pressurize the assessee to sell the flat given the distress circumstances, he quoted a higher figure of Rs 5 crores, being 4.5 crores as per agreement and Rs 50 lacs off books. The assessee has placed on record the copy of the agreement dt. 1st July, 2011 for purchase of a flat at Bengaluru as well as subsequent MOUs dt. 1st December, 2020 and 20th April, 2023 and e-mail communication dt. 17- 04-2023/21-04-2023, wherein Mr. Zarir Bativala has confirmed that there were no cash transactions involved in purchase of the flat as per the agreement dt. 1st July, 2011. In fact, the AO has also issued a notice u/s. 133(6) of the Act to Mr. Zarir Bativala and he has confirmed the same to the AO vide his communication dt. 18-03-2024 that he has not received any cash payment from the assessee. None of these documents placed on record have been rebutted by the AO.

Further, we find that the AO has merely referred to the report of the Investigation Wing and has held that since the whatsapp message was sent on 30-08-2021 which falls during the financial year relevant to the impugned assessment year, the amount is liable to tax for the year under consideration. We find that even in the report of the Investigation Wing, there is a reference to the whatsapp message only and no other finding has been recorded either in terms of physical cash, deposits in the bank account or any other documentation which has been found and reported by the Investigation Wing and the AO was advised to identify the financial year in which transaction has taken place and identify the complete details of the immoveable property, the buyers and sellers involved in the deal and take action as per section 69A after necessary verification. The AO on his part thereafter has sought explanation from the assessee and has also sought information u/s 133(6) from the developer/seller and both the buyer and seller have denied any cash transaction involved in the transaction of immoveable property which happened in financial year 2011-12 and not during the financial year relevant to impugned assessment year. Therefore, merely the fact that whatapp message has been found as sent by the assessee on 30/08/2021 wherein there is mention of Rs 50 lacs off books, the same is not sufficient enough to discharge the initial onus cast on the AO to record a finding that the assessee is the owner of Rs 50 lacs and source thereof has remained unexplained and thus, the same can be brought to tax.

In our understanding, the findings of the AO are totally bereft of the legal provisions as what is important to determine is firstly, there has to be either physical cash/deposits to be found or material documentation which clearly demonstrate that the assessee is the owner of said money and has paid a sum of Rs. 50 lakhs in cash to Mr. Zarir Bativala. In the present case as we noted earlier, there is no iota of any evidence/documentation which demonstrate the assessee entered into any cash transaction in respect of purchase of immoveable property from Mr. Zarir Bativala. In fact there is a clear denial by Mr. Zarir Bativala and in spite of such denial, the AO without brining any further evidence on record has gone ahead and brought the amount to tax. The AO has not disputed the fact that the transaction happened towards purchase of property on 1st July, 2011. Even on that account, there is no basis for invocation of provisions of section 69A in the impugned assessment year 2022-23.

In light of the entirety of the facts and circumstances of the case, we are of the considered opinion that without bringing on record any material evidences to demonstrate that assessee is the owner of the amount of Rs. 50 lakhs, merely basis on whatsapp communication between the assessee and a third party, who is not a party to the original transaction, which was entered into way back in the year 2011, there is no basis to bring the amount to tax in the hands of the assessee. In the result, the addition so made is directed to be deleted.

In the result, the appeal filed by the assessee is allowed.