ITO-41(4)(1), MUMBAI vs. FARHAT YUSUF SHAIKH, MUMBAI

In ground nos. 1 to 4, the Revenue has challenged deletion of addition made of Rs.1,29,00,000/- as unexplained cash credit u/s. 68 of the Act. Briefly the facts are, the assessee is a resident individual. For the assessment year under dispute, the assessee filed his return of income on 09.12.2016, declaring total income of Rs.10,43,620/-.

In course of assessment proceeding, the Assessing Officer (AO), while verifying the return of income and financial statements, noticed that as against the closing balance in the impugned assessment year has increased to Rs.5,91,00,000/-. Thus, the A.O. was of the view that in the assessment year under dispute, the assessee had availed fresh loan of Rs.1,25,00,000/-. He, therefore, called upon the assessee to explain the source of the loan availed of Rs.1,29,00,000/-. As alleged by the A.O., despite notice, the assessee neither appeared nor explained the source of loan availed. Therefore, in absence of any compliance from assessee’s side, the A.O. proceeded to complete the assessment ex parte to the best of his judgement by invoking provisions of section 144 of the Act. While doing so, he treated the amount of Rs.1,29,00,000/- as ‘unexplained cash credit’ in terms of section 68 of the Act and added back to the income of the assessee.

The assessee contested the aforesaid addition before first appellate authority.

In course of proceedings before the first appellate authority, the assessee explained that as a matter of fact, the assessee has not availed any fresh loan in the year under consideration. It was explained that the assessee had entered into an agreement with M/s. Housing Development and Infrastructure Ltd. (HDIL for short) for purchase of two immovable properties, being C-1401, Kanakia Paris, BKC and C-1402 Kanakia Paris, BKC for consideration of Rs.73,10,000/- and Rs.74,90,000/- respectively. Out of purchase consideration, the assessee had paid an amount of Rs.10 lacs in the A.Y. 2014-

It was explained by the assessee that though the total purchase consideration agreement to Rs.1,48,00,000/-, however, apart from the amount of Rs.10 lacs, balance amount was not paid as the project got held up due to financial irregularities of the various Government Agencies. The assessee explained that the purchase consideration of the properties, aggregating to Rs.1,48,00,000/- was shown on asset side of the balance sheet. Whereas, the increase of Rs.1,29,00,000/- in the liability side was on account of payment of Rs.10 lacs towards purchase of the properties and repayment of Rs.9 lacs to another individual. Thus, it was submitted by the assessee that the increase of Rs.1,29,00,000/- in unsecured loan actually does not represent any fresh loan taken by the assessee, but is a mere book entry on account of purchase consideration of the properties shown in the asset side of the balance sheet. In support of such contention, the assessee furnished certain evidences with first appellate authority. The submissions made and additional evidences furnished by the assessee were forwarded to the A.O. for enquiry and comment. After perusing the additional evidences and submissions of the assessee, the A.O., firstly, commented that additional evidences furnished by the assessee should not be admitted. Without prejudice, he also commented that the assessee having not explained the source of the fresh loan taken during the year, the addition made should be sustained.

After taking note of the facts and materials on record, submissions made by the assessee and the remand report of the A.O., the first appellate authority noted that the assessee had entered into agreement with HDIL for purchase of two immovable properties, which is very much evident from the balance sheet of A.Ys. 2014-15 and 2015-16. He further observed that the payment of Rs.10 lacs towards purchase of property in A.Y. 2014-15 is clearly discernible from the balance sheet of the assessment unsecured loan in the liability side of the balance sheet is on account of entries made in the asset side towards purchase of two immovable properties at BKC from HDIL. Thus, being convinced with the fact that in the year under consideration, the assessee has not availed any fresh loan, the first appellate authority deleted the addition made u/s. 68 of the Act.

We have considered rival submissions and perused the materials available on record. On perusal of the balance sheet of the assessee as on 31.03.2015 it is revealed that on the asset side, the assessee has shown the purchase consideration of two immovable properties at Kanakia Paris, BKC. There is a clear factual finding by first appellate authority that out of the said purchase consideration, the assessee has paid an amount of Rs.10 lacs which is also reflected in the books of the assessee. Thus, the facts on record reveal that no fresh loan aggregating to Rs.1.29 lacs was taken during the year under consideration. In fact, neither at the time of assessment proceeding nor during the remand proceeding, the A.O. has been able to identify any entry in the books of accounts reflecting any fresh loan availed by the assessee during the year under consideration. Even, the A.O. is absolutely silent on the aspect whether any amount either in cash or through cheque/draft has been received by the assessee from any person towards unsecured loan in the year under consideration. Further, the A.O. has not brought on record any material to controvert the claim of the assessee that the increase in unsecured loan is on account of book entries made both on the asset and the liability side of the balance sheet on account of purchase of immovable properties. Since, the position, we do not find any infirmity in the decision of first appellate authority in deleting the addition. Hence, these grounds are dismissed.

In ground nos. 5 to 7, the Revenue has challenged the deletion of addition made of Rs.3,20,44,500/- u/s. 69 of the Act on account of alleged unexplained investment in properties.

Briefly, the facts are, based on AIR information available on record, the A.O. found that in the year under consideration, the assessee had invested an amount of Rs.3,20,44,500/- in purchase of certain immovable properties. Therefore, he called upon the assessee to explain the source of such investment and in absence of acceptable explanation, why the investment should not be added u/s. 69 of the Act. Since, the assessee did not comply with the query made, the A.O. while completing the assessment u/s. 144 of the Act added back the amount of Rs.3,20,44,500/- as unexplained investment u/s. 69 of the Act. In course of proceedings before the first appellate authority, the assessee explained the reasons for which he could not participate in the proceedings before A.O. and furnished additional evidences contesting the addition.

Ater considering the facts and materials available on record and the submissions made by the assessee and the remand report furnished by the A.O., the first appellate authority found that though the assessee had entered into agreements of sale with HDIL for purchase of four immovable properties, however, the properties which were under construction were ultimately not completed, as HDIL committed serious financial fraud and ultimately closed down. The first appellate authority observed, though the agreements to sale were registered during the year, however, no payments were made during the year under consideration, except stamp duty and registration charges. He further found that ultimately the construction of the properties could not be completed and the assessee never got the properties. Thus, being convinced with the fact that the addition was made purely on the basis of AIR report, though actually no payment was made by the assessee, the first appellate authority deleted the addition.

We have considered rival submissions and perused the materials available on record. Undisputedly, assessment for the assessment year was completely ex parte to the best of judgment of A.O. u/s. 144 of the Act. Therefore, the assessee did not get any opportunity to meet the allegation of the A.O. regarding purchase of immovable properties during the assessment proceedings. However, facts and materials on record reveal that in course of first appellate proceeding, the assessee did produce additional evidences including agreement to sale with HDIL, regarding purchase of four immovable properties, receipts, issued by HDIL, acknowledging initial payment made (A.Y. 2015-16) ITO vs. Farhat Yusuf Shaikh by the assessee towards purchase of the property, bank statements, etc. On perusal of the agreement to sale with HDIL, which are reproduced in the order of the first appellate authority, it is discernible that the assessee entered into agreement to sale with HDIL for purchase of four immovable properties, details of which are as under: • Flat No. 1604 – consideration of Rs.1,41,74,134/- • Flat No. B-307 – consideration of Rs.67,99,320/- • Shop No. C-3 – consideration of Rs.47,85,000/- • Flat No. C-1007 – consideration of 56,00,068/-

Out of the sale consideration, the assessee had paid some negligible amounts before entering into an agreement to sale.

On perusal of agreement to sale, clearly reveals that the purchase consideration was to be paid phase-wise, depending upon the stage of construction. It is a fact on record that construction of the properties could not be completed as the developer, i.e., HDIL committed serious financial fraud and was subjected to enquiry by Government Agencies and ultimately, HDIL closed down its business. Therefore, the properties in dispute were never constructed nor the assessee paid any further amount over and above the token amount paid initially. This is so, because the phase wise payment was dependent upon various stages of construction of properties. It is further evident, the assessee had furnished confirmation/receipt from HDIL, acknowledging the initial payment during A.Y. 2014-15. The bank statements furnished by the assessee do not reflect any payment made to HDIL during the year under consideration. Thus, the contention of the assessee that the amount of Rs.3,20,44,500/- was never paid to HDIL during the year under consideration, is substantiated through supporting evidence. The initial payment made by the assessee in the assessment year 2014-15, any further payment was made towards the purchase of the properties. The payments to be made is based on various stages of the construction and the construction itself did not proceeded and ultimately the builder/developers closed down its business. There is no reason why the assessee would have made the payment. Thus, there being no material on record to establish that the assessee had made the payment of Rs.3,20,44,500/-, we do not find any reason to interfere with the decision of first appellate authority. However, as observed by the first appellate authority, the assessee did pay the stamp duty and registration charges while entering into the agreement to sale with HDIL. In fact, while deciding the issue, the first appellate authority has sustained addition to the extent of payment made by the assessee towards stamp duty and registration charges. However, while doing so, he has omitted to add an amount of Rs.30,000/- paid by the assessee towards registration charges of Flat No. B-307. Thus, the addition sustained by the first appellate authority has to be enhanced by an amount of Rs.30,000/-. Thus, ground nos.

In the result, the appeal is partly allowed.