VIJAY M PAI,,CHENNAI vs. DCIT, CC - 1 (4),, CHENNAI

The appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals)-18, Chennai dated 22.08.2019 relevant to the assessment year 2010-11. In the grounds of appeal, the assessee has raised following grounds: 1) Your petitioner submits that the Assessing Officer and Commissioner of Income Tax(Appeals) erred in addition to capital gains of Rs.5,68,75,000/- and addition of expenses related to sale is Rs.4,00,00,000/-. 2) Your petitioner submits that at the time of cross examinations, there exists no such receipt at all as no monies were received by your petitioner. Your petitioner is being subjected to the assessment purely on the basis of Mrs. Pramila wealth tax and income tax returns which she has filed after a search in her premises earlier.

Facts are, in brief, that a search under section 132 of the Income Tax Act, 1961 [“Act” in short] was conducted at the residential premises of the assessee at New No. 16 (Old No. 7), Vellaiyan Street, Kotturpuram, Chennai 600 085 on 14.12.2010. During the course of search, unaccounted cash of ₹.10 lakhs has been seized. Subsequent to the search, Shri Vijay M Pai file has been centralized to Central Circle I(4) vide Commissioner of Income Tax, Chennai IV, Chennai Notification No. 11/2010-11 dated 28.03.2011. Notice under section 153A of the Act dated 24.07.2012 was issued to the assessee to file the return of income for the assessment year 2010-11. The assessee filed the return of income in response to the notice issued under section 153A of the Act only on 25.10.2012 admitting income of ₹.1,64,49,440/-. Subsequently, the Assessing Officer has issued notice under section 143(2) of the Act and in response to the notice, the assessee has filed details. After examining the details and discussions with the assessee’s AR, the Assessing Officer has completed the assessment by recomputing the long term capital gains. The particulars given by the assessee are as under: Particulars Amounts in Rupees Sale consideration 10,56,25,000 Less: Selling Expenses 4,00,00,000 Net Sale Consideration 6,56,25,000 Less: Indexed cost of Purchase cost ₹.35880735 4,56,27,011 acquisition Date 11.04.2005 (₹.3,58,80,735 x 632/497 Less: Indexed cost of ₹.6,74,754 x 632/497 8,58,037 improvement FY 2005-06 Less: Indexed cost of ₹.47,63,304 x 632/582 51,72,523 improvement FY 2008-09 Long term capital gain tax 1,39,67,429

After considering the above particulars, the Assessing Officer has asked the assessee that as to why the cash received from Smt. Pramila for the sale of property at Arunachalam Road, Kotturpuram, Chennai to the extent of ₹.5,68,75,000/- should not be treated as his undisclosed income. In reply to the questionnaire, the assessee filed a letter dated 17.01.2013 and submitted that the property has been sold by the assessee to Mrs. P. Pramila, wife of Mr. P.B. Anandam for ₹.10,56,25,000/- and the same is evidenced by registering the property before the Sub-Registrar, Adyar. The assessee has further submitted that as stated to have paid an additional sum of ₹.5,68,75,000/- to Mrs. Pramila, the assessee asked the Assessing Officer to produce any evidence or records implicating the assessee by Mrs. P. Pramila for inspection by him and his AR. and also look for cross examination. The assessee also submitted before the Assessing Officer that as per the sale deed registered as document No. 672/2009, the sale consideration received was of ₹.10,56,25,000/- except admission made by the assessee and in respect of payment of on-money of ₹.5,68,75,000/-, the assessee has submitted that he has not received anything else other than the sale consideration. The Assessing Officer has intimated the assessee vide letter dated 28.01.2013 to appear on 08.02.2013 for verification of documents and cross examination of the purchaser. The assessee Sri Vijay M Pai, the purchase Smt. Pramila and Shri P. Ranjit son of Pramila Anandam appeared on 08.02.2013 and the assessee has cross examined the purchaser Smt. Pramila and the proceedings of cross examination has been recorded by the Assessing Officer.

The Assessing Officer has noted that from the evidence available viz., the signed receipts given by the assessee for the receipt of on- money by cash, the letter filed by the purchaser Smt. P. Pramila, her Income and Wealth tax returns, tx payment for the on-money payments to the assessee shows that the assessee has received ₹.5,68,75,000/- over and above the registered sale consideration. The assessee has not admitted the on-money payment of ₹.5,68,75,000/- as capital gain and accordingly, the assessment was completed.

On appeal, the ld. CIT(A) has observed that the purchaser had admitted receipt of cash over and above the recorded sale consideration. The ld. CIT(A) has noted that Mr. Ranjit, son of the purchaser presented at the time of cross examination the assessee quizzed him to show evidence and Mr. Ranjit referred to the evidences and to the fact that four cheques for ₹.4,18,75,000/- had been earlier handed over to the assessee and were collected back on payment of equivalent sum of cash to the assessee. The assessee did not rebut these averments and did not wish to cross-examine the purchaser. The assessee has recalled his stand over and above the recorded portion. It is pertinent to note that the purchaser Mrs. Pramila has stated that in respect to whom payment was made. She clearly states that an office staff of her husband paid money to a staff of Mr. Vijay Pai just before registration. By considering the above facts, the ld. CIT(A) was of the opinion that the assessee has received on-money and accordingly, confirmed the order of the Assessing Officer.

On being aggrieved, the assessee is in appeal before the Tribunal. The ld. Counsel for the assessee has submitted that the purchaser Smt. Pramila, subsequent to the search conducted in her premise, she filed the return of income and wealth tax return, wherein, she has intimated the amount of ₹.5,68,75,000/- has been paid to the assessee. He further submitted that the assessee has entered into a registered sale deed for the sale consideration of ₹.10,56,25,000/- and except that, no other amount has been received by him. It was further submission that it is not the case of the purchaser that the payment was made to the assessee by her. The case of the purchaser is that payment was made through an office staff of her husband and paid to a staff of the assessee just before registration. It was further submission that on the basis of the income tax and wealth tax returns filed by the purchaser subsequent to the search in the case of the purchaser cannot be considered as evidence and addition cannot be made.

On the other hand, the ld. DR strongly supported the orders passed by the authorities below and also submitted that during the course of assessment proceedings, the Assessing Officer referred to signed receipt given by the assessee for receipt of on-money of ₹.5,68,75,000/- by cash and also referred by letter filed by the purchaser as well as income tax and wealth tax returns require the assessee to explain as to why the said amount should not be included in the sale consideration assess as capital gains. He also relied on the observations of the ld. CIT(A) in para 7.5.

We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. The assessee has sold his property to Smt. P. Pramila through registered sale deed document No. 672/2009 for a sale consideration of ₹.10,56,25,000/-. A search under section 132 of the Act was conducted in the premises of the assessee. However, no material was found relating to on-money receipt. In the case of the purchaser Smt. Pramila also, search was conducted and it appears to the Assessing Officer that there are some material found in respect of payment of on-money to the assessee and Mrs. Pramila filed income tax & wealth tax returns accepting payment of amount of ₹.5,68,75,000/-, as additional income in the hands of the Purchaser Smt. Pramila. Subsequently, the Assessing Officer has asked the assessee as to why the said amount should not be added in his hands. The assessee has submitted that he has not received any amount except sale consideration received by him and requested to produce any evidence or record implicating him towards receipt of on-money. From the assessment order, there is no material show that the assessee has received on-money. The Assessing Officer has allowed cross examining the purchaser and her son Mr. Ranjit. When the purchaser’s son Mr. Ranjit was cross examined and he has admitted that he has given 4 cheques for ₹.4,18,75,000/- and after paying cash he got back the cheques. On the contrary, during the cross examination, the purchaser has stated that the office staff of her husband handed over the money to the person shown by Mr. Vijay M Pai, the assessee at his office and outside the Registrar Office before registration of the property. It is not clear, who is the person i.e., office staff of purchaser’s husband, no name of the person was given as well as who was the person to whom payment was made outside the Registrar Office. Therefore, on the basis of the statement, addition cannot be made.

In this case, the Assessing Officer should have cross examined or put to cross examination the person who has carried the money from the purchaser and to whom the money was handed over to a person shown by Mr. Vijay M Pai. Instead of that, the Assessing officer allowed the assessee to cross examine the purchaser and her son, who has given the statement that the cash was paid and four cheques are received. Thus, in totality, proper cross examination was not carried out.

In the sworn statement recorded, the son of the purchaser has stated that there is no written agreement towards purchase of the property and it was only an oral agreement. The purchaser’s son has stated that the total consideration agreed to purchase was ₹.16.25 crores and ₹.10.05 crores was paid while registration and the balance amount of ₹.5.75 crores also paid which includes registration charges. In reply to question No. 7, he has submitted that ₹.1.5 crores paid prior to registration. When he was asked to whom the payment of on-money was made, he has submitted that it was paid through his office clerk Mr. Srinivasa Rao to hand over the same to Shri Vijay M Pai. When he was asked where and when Mr. Srinivasa Rao handed over the amount, he has stated that ₹.1.5 crores was paid on 18.04.2009 and ₹.4.18 crores was paid on 27.04.2009 through Mr. G. Srinivasa Rao. Both the amounts were handed over by Mr. Srinivasa Rao to a person shown by Mr. Vijay M Pai at his office and outside the Registrar Office. From the above, it is not clear that from where the payment was exactly made.

During the course of cross examination, the assessee has asked Mr. Ranjit to show the evidence of payment of ₹.5,68,75,000/-. Mr. Ranjit has stated to Mr. Vijay M Pai that the evidence for cash payment of ₹.25 lakhs and ₹.1.25 crores was with the Income Tax Department and for ₹.4,18,75,000/- is submitted to the Department. He also stated to have given 4 cheques for ₹.4,18,75,000/- and after paying cash, he got back the cheques. No such details were shown to the assessee for the purpose of cross examination. Therefore, the assessee further not cross examined Mr. Ranjit.

From the above, the Assessing Officer was not able to establish that the assessee received the on-money payment except statement given by Mrs. Pramila and her son and moreover, there was no documentary evidence to prove that the assessee has received on- money. When there is registered sale agreement, in which, the sale consideration was clearly mentioned that the purchaser has paid an amount of ₹.10,56,25,000/-. It is a clear evidence that the assessee has received the sale consideration what is mentioned in the sale deed. If at all the assessee has received other than the sale consideration, the Assessing Officer has to show necessary documentary evidence. In this case, no documentary evidence was brought on record by the Assessing Officer. Apart from that, the payment was neither directly paid by the purchaser nor received by the assessee. The on-money payment is stated to have made through servant of the purchaser and also received by the servant of the assessee. The Assessing Officer, ignoring to examine relevant persons, who are material evidence in this case, proceeded to make addition in the hands of the assessee. The only documentary evidence available with the Assessing Officer is that after conducting search, the purchaser has accepted in her sworn statement in respect of on-money payment. Therefore, the Assessing Officer has made addition in the hands of the purchaser Smt. Pramila. Simply because the purchaser has admitted on-money payment is not sufficient. Particularly, in this case, a search was conducted and no incriminating material has been found in respect of on-money receipt. Therefore, in our opinion, addition cannot be made in the hands of the assessee. In view of the above, we set aside the order of the ld. CIT(A) on this issue and the ground raised by the assessee is allowed.

By reiterating the submissions as made before the ld. CIT(A), the ld. Counsel for the assessee has prayed for deleting the addition made towards disallowance of sale expenses claimed by the assessee.

On the other hand, the ld. DR strongly supported the orders of authorities below.

We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. Against the disallowance of sale expenses of ₹.4 crores, before the ld. CIT(A), the assessee has contended that ₹.4 crores was paid to M/s. S.M. Apparels Pvt. Ltd. as a comprise amount as compensation for seeking them to release the assessee from an existing contract and that the original documents filed alone are to be considered and that the transactions are all in tandem to the terms of the contract. It was further contended before the ld. CIT(A) that the Assessing Officer had given a detailed explanation on a casual perusal of evidences or on surmises. The assessee further submitted before the ld. CIT(A) that the Assessing Officer had not pinpointed any defects in the transactions or in the payments made. After considering the submissions of the assessee and the case law relied upon, the ld. CIT(A) has observed as under: “12. I have bestowed my personal thoughts to the issue. Certain important discrepancies have been clearly brought on record by the AO on examining the documents produced by the appellant. Perusal of the impugned sale agreement entered by the appellant with M/s. S.M. Apparels indicates that assessee as vendor and his wife Smt. Sujatha V Pai, as Director of M/s. S.M. Apparels P. Ltd., as purchaser, had signed the agreement that the agreement is not a registered agreement; and that no witnesses have been cited in the said agreement. The AO has brought out on record that the appellant had not received any money from the intended and purported buyer M/s. S.M. Apparels P. Ltd. but by way of adjustment against the balance standing in the credit of the firm M/s. S.M. Fashions. The AO has referred to the cancellation agreement wherein cheque bearing no. 387915 dated 31.03.2009 being the amount received by the appellant, was in fact credited to the appellant’s bank account only on 4.5.2009 i.e., only after the eventual sale of the said property Smt. P. Pramila that was registered on 27.04.2009 This act clearly shows that the impugned agreement, the purported receipt of money from M/. S.M. Apparels and the cancellation of agreement is nothing but a self-serving and an after thought attempt. Otherwise, how else could it be explained that the cheque received as per the agreement dated 11.4.2009 from M/s. S.M. Apparels was credited to the appellant’s account on 4.5.2009, when the appellant in the meanwhile has actually transferred the property in favour of the third party namely Mrs. Priamila on 27.4.2009. Even if conceded without admitting that the appellant had received the impugned cheque, the normal course expected of a prudent person would be that he would return the cheque to the giver in view of the cancellation of the agreement and in view of the eventual sale of the property to that party rather than depositing the cheque in his account after transferring the property in favour of the third party. Further, the AO’s observation that when the appellant who had availed overdraft facilities incurring interest expenditure chose to keep a cheque for a sizable sum of ₹. 1 crore as idle defies an logic. The appellant has not met this point satisfactorily. 12.1 The AO has further observed that the copy of the agreement and the copy of the cancellation produced initially by the appellant did not bear the signature of any witness but has pinpointed the inconsistency inasmuch as in the original agreements produced on 8.2.2013, a witness by name C.M. Pai has signed without the date. 12.2 The whole sequence of events attendant with the inconsistencies/ defects pointed out by the AO in the appellant’s claim indicates that the appellant has made an untenable claim under the guise of compensation to be paid to a related party. The substance needs to be credence to over the form of the transaction. The Hon’ble Apex Court in the case of Mcdowell & Co. 154 ITR 148 (SC)(1985) has actually come down heavily on the practice of attempts made by the tax payers in evading taxes by resorting to dubious methods. I am of the view that the appellant has resorted to subterfuge so as to evade payment of due taxes. 12.3 The judgement relied on by the appellant is distinguishable as in the case of the appellant, the AO has highlighted material defects/discrepancies in the whole scheme of the appellant.

In the appellant’s case, I am of the view that the claim of selling expenses is not all to be allowed as it is a ploy to evade taxes by indulging in a colourable device of creating and cancelling an non-existent agreement to the related party. Accordingly, in the light of the above remarks/discussion, I am of the view that no interference is called for in the decision of the AO. Hence the appellant’s grounds connected to the issue are dismissed.”

By passing a detailed order, the ld. CIT(A) has observed that the whole sequence of events attendant with the inconsistencies/ defects pointed out by the Assessing Officer in the assessee’s claim indicates whereby, the assessee has made an untenable claim under the guise of compensation to be paid to a related party. Under the above facts and circumstances, we find no reason to interfere with the order passed by the ld. CIT(A) and accordingly, the ground raised by the assessee is dismissed.

In the result, the appeal filed by the assessee is partly allowed. Order pronounced on 21st September, 2022 at Chennai.