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Facts
The assessees purchased a property for ₹3,94,65,600, paid via cheque. During a search in the vendor's premises, cash was found, and the vendor admitted receiving cash as part of the sale consideration. The Assessing Officer treated the assessee's share of this alleged cash payment as unexplained investment. Separately, unexplained jewellery and cash were added to the assessee's income.
Held
The Tribunal held that the addition for unexplained investment in property was not sustainable as it relied on uncorroborated oral statements against a registered sale deed, and proper procedure under Section 153C was not followed. The additions for unexplained jewellery and cash were also deleted as the assessee provided reasonable explanations and evidence.
Key Issues
Whether the addition on account of unexplained investment in property based on vendor's statement is valid when sale deed is through banking channels. Whether additions for unexplained jewellery and cash are justified based on the evidence and explanations provided by the assessee.
Sections Cited
69, 132(4A), 292C, 153C, 143(3), 153D, 132(4), 69A, 142(1), 145(3)
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Income Tax Appellate Tribunal, ‘A’ BENCH, BANGALORE
Before: SHRI NARENDER KUMAR CHODHRY & SHRI WASEEM AHMED
PER WASEEM AHMED, ACCOUNTANT MEMBER:
These appeals are by the assessees directed against the order of the learned Commissioner of Income Tax (Appeals) dated 13.11.2024 for the assessment year 2018-19.
The assessee along with his son purchased a property at Koramangala, Bangalore, under a registered sale deed dated 04.10.2017. The consideration mentioned in the document was ₹3,94,65,600. The entire amount was paid by cheque through banking channels. On 14.11.2017, a search was carried out in the case of M/s Simplex TMC Pvt. Ltd., the vendor of the said property. During the search, cash of ₹3.72 crore was found in a locker of the company. In the course of the search proceedings, the Managing Director of the company, Shri Kapil Shah, made a statement that apart from the cheque payment recorded in the deed, he had also received cash of ₹4.25 crore from the assessee and his son as part of the property sale consideration. The company’s accountant, Shri Salim Khan, also gave a statement that he was present when the cash was allegedly handed over at the residence of Shri Kapil Shah.
Relying on these statements, the Assessing Officer concluded that the assessee and his son had together paid a sum of ₹4.25 crore in cash against the purchase of the property which was not accounted. Since the property was jointly purchased, the share of the assessee was taken at 50 percent, i.e. ₹2,12,67,500. The Assessing Officer treated this amount as unexplained investment under section 69 of the Act and added the same to the income of the assessee.
In appeal, the learned CIT(A) confirmed the action of the Assessing Officer. The ld. CIT(A) observed that the admission of Shri Kapil Shah, the supporting statement of the accountant, and the fact that the locker was opened and operated just a day before the registration of the property gave credence to the allegation of cash payment. The ld. CIT(A) further noted that M/s Simplex TMC Pvt. Ltd. itself had admitted in its own assessment that cash had been received as part of the sale consideration and had offered the same as capital gains. According to the ld. CIT(A), this corroborated the case of the Assessing .
Officer. The denial by the assessee was found to be weak and unconvincing. The addition was therefore confirmed.
Being aggrieved by the order of the learned CIT-A, the assessee is in appeal before us.
Before us, the learned Authorised Representative submitted that the entire transaction was through banking channels and fully reflected in the registered sale deed. It was argued that the sale deed, being a registered document, has high evidentiary value and cannot be brushed aside on the basis of uncorroborated oral statements. The ld. AR pointed out that there was no evidence of any cash withdrawal or possession of such a huge amount of cash by the assessee. No material was found in the search of the assessee. The cash was found in the premises of the vendor, and therefore the presumption under section 132(4A) and section 292C applied only against the vendor. The assessee could not be saddled with the burden of explaining cash not found in his possession.
6.1 The ld. AR also submitted that the Assessing Officer never confronted the assessee with the statement of Shri Kapil Shah at the time of assessment. No opportunity of cross-examination was given. This was a clear violation of principles of natural justice. The assessee only came to know of the allegation when the assessment order was passed. The ld. AR placed reliance on the judgment of the Hon’ble Supreme Court in Suraj Mall Mohta & Co. vs. Visvanatha Sastri, to say that no statement or material adverse to the assessee can be used without giving a chance of rebuttal.
6.2 It was further argued that the assessment has been framed under section 143(3) read with section 153D. Since the material used was found in the premises of a third party, i.e. the vendor company, the proper provision for initiating the proceedings was under section 153C of the Act. However, no notice under section 153C was issued. Therefore, the addition itself is without jurisdiction. Reliance was placed on CBDT Circular No. 24 of 2015 dated 31.12.2015 which requires that proceedings against a person other than the searched person must be under section 153C of the Act.
6.4 The ld. AR also referred to the decision of the Hon’ble Supreme Court in K.P. Varghese vs. ITO reported in 131 ITR 597 and Dhakeswari Cotton Mills reported in 26 ITR 775 to stress that the burden of proving understatement of consideration is on the Revenue and cannot be discharged by mere suspicion. According to him, the Revenue has failed to bring any clinching evidence of cash payment.
On the other hand, the learned Departmental Representative supported the orders of the lower authorities. He submitted that the vendor himself admitted receipt of cash and the admission was supported by the accountant’s statement. The operation of the locker close to the date of registration was also a strong circumstance. He contended that statements recorded under section 132(4) have evidentiary value and can be relied upon for making additions. The fact that the vendor company offered the cash as part of its own capital gains also supported the case of the department. He therefore prayed for upholding the addition.
We have considered the rival submissions of both the parties and examined the materials available on record. We find that the addition rests entirely on the statement of the vendor and his employee. The registered sale deed, which is a public document, clearly records the consideration at ₹3.94 crore and shows that it was paid by cheque. The law is well settled that a registered deed has strong evidentiary value and oral statements contrary to the deed carry little weight. The Revenue has not brought any material to show that the assessee had the means or had withdrawn such large amounts in cash. No document, no diary, and no corroborative material was found in the search of the assessee.
8.1 The cash was found in the locker of the vendor company, not in the assessee’s possession. The presumption under section 292C attaches to the person in whose possession the asset is found. In this case it attaches to M/s Simplex TMC Pvt. Ltd. and not to the assessee. The fact that the locker was opened before the registration date only shows that the vendor kept cash, but it does not prove that the cash came from the assessee. There is a gap of 40 days between the registration of the property and the search when the cash was found. This disconnect itself weakens the case of the department.
8.2 We also note that the assessee was never allowed to cross- examine Shri Kapil Shah. It is a settled law that any adverse statement cannot be used without offering cross-examination. This goes to the root of the matter and makes the reliance on the statement legally untenable. In our considered view, the addition is based only on suspicion and third-party statements. Suspicion, however strong, cannot take the place . of proof. The Hon’ble Supreme Court has held in K.P. Varghese and Dhakeswari Cotton Mills that the Revenue must prove concealment by clear and clinching evidence. In the present case, no such evidence has been brought. Considering the above, we hold that the addition of ₹2,12,67,500 made by the Assessing Officer and confirmed by the CIT(A) cannot be sustained. The same is directed to be deleted. Hence, the ground of appeal of the assessee is allowed.
9. The second issue raised by the assessee is that the learned CIT-A erred in confirming the addition of ₹ 1,96,35,919.00 on account of unexplained jewelry under section 69 A of the Act.
The Assessing Officer noted that jewellery worth ₹2,12,40,874 was found during search at the residence and lockers of family members. The assessee explained that jewellery belonged to ladies of the family, came from family partition of 1984, marriage gifts received in 1994, 1999 and 2003, and purchases made in 2007. The AO rejected the explanation, holding that the partition deed was not registered, marriage gifts were not supported with donor details, and purchase bills were not corroborated with bank statements. The AO gave partial credit of 1200 gms as per CBDT Instruction No. 1916 and treated the balance of ₹1,96,35,919 as unexplained investment u/s 69A of the Act and added the same to the total income of the assessee.
On appeal, the ld. CIT(A) confirmed the action of the AO. He held that the notarized partition deed could not be relied on, that the claim of marriage gifts was vague and unsubstantiated, and that the 2007 purchase bills lacked proof of payments. He further held that CBDT .
Instruction No.1916 applied only for seizure during search and not for assessment. As the assessee had not proved the source of the jewellery, the addition was sustained.
Being aggrieved by the order of learned CIT-A, the assessee is in appeal before us.
The ld. AR before us filed the synopsis of the arguments supported by various materials including the purchase bills, notice issued under section 142(1) of the Act, the replies made by the assessee in the statement recorded, copies of the capital account and the balance sheet and income tax returns of the HUF and the individuals etc. It was submitted that jewellery was in the names of Smt. Chandrakala Banthia and Smt. Ragini Banthia, and the presumption under sections 132(4A) and 292C favours them. The jewellery consisted of ladies’ ornaments and naturally belonged to the ladies. The family partition of 1984 was evidenced by a notarized deed, and registration is not required for movable property. The jewellery was disclosed in the returns of Chandulal Banthia HUF and Amit Banthia HUF. Marriage gifts are customary and should not be doubted in absence of contrary evidence. Purchase bills of 2007 are genuine, and the AO did not disprove them. The AO also failed to grant proper relief under CBDT Instruction No.1916. The addition, therefore, should be deleted.
On the other hand, the Departmental Representative supported the orders of AO and CIT(A). He submitted that the partition deed was not registered and hence unreliable, marriage gifts were vague without details, purchase bills of 2007 lacked proof of payment, and non-filing of . wealth tax returns indicated that jewellery was not disclosed. Hence, the addition u/s 69A of the Act was justified.
We have carefully considered the rival submissions of both the parties and examined the record. Jewellery worth ₹2.12 crore was found, but the question is whether the ownership and source have been explained. The jewellery was in the possession of Smt. Chandrakala Banthia and Smt. Ragini Banthia. Under section 132(4A) and 292C, articles found in possession are presumed to belong to the person in whose custody they are found. This presumption supports the assessee’s claim that jewellery belonged to the ladies of the family. The AO has not rebutted this presumption with cogent material. Both the ladies file their income tax returns in their individual capacity and this fact supports the argument of the assessee. The copies of the ITR of both the ladies are placed on record.
15.1 On partition, the assessee filed a notarized partition deed of 1984. Registration is not required for movable property like jewellery. Further, part of the jewellery was disclosed in the HUF returns, which were accepted. On marriage gifts, it is a matter of Indian custom that jewellery is received at marriages. No contrary evidence was produced by the Department, and in the absence of specific donor details alone, the argument cannot be fatal. On purchases of 2007, the assessee produced bills from jewellers, and the AO did not establish them as false or fabricated. Non-filing of wealth tax returns cannot by itself render jewellery unexplained. Considering all facts, the explanation of the assessee is reasonable and plausible. Suspicion cannot replace evidence. Therefore, the addition of ₹1,96,35,919 made u/s 69A is not justified . and stands deleted. Hence, the ground of appeal of the assessee is allowed.
16. The next issue raised by the assessee is that the learned CIT-A erred in confirming the addition of ₹ 50,31,290.00 under section 69 of the Act on account of unexplained money.
As a result of search at the residence of the assessee and his family members on 14.11.2017, cash of Rs. 50,31,290 was found. The assessee stated that the cash belonged to all family members and also included business cash of his proprietary concern, M/s Calcutta Industrial Products (CIP). The Assessing Officer treated the entire cash as unexplained.
The Assessing Officer noted that no personal cash books were maintained at the time search. However, the assessee during the assessment proceedings furnished an explanation supported by letters from family members showing individual balances of the cash available with them as on the date of search. The Assessing Officer held that these letters were afterthoughts. He also examined the tally backup of M/s CIP. The books were updated only up to 30.06.2017 and showed a closing balance of Rs. 36,81,674.19. The assessee claimed that the cash balance on the date of search was Rs. 34,52,493.63. The Assessing Officer held that the explanation was not reliable. He treated the entire amount of Rs. 50,31,290 as unexplained money under section 69A of the Act.
The matter went before the Commissioner of Income Tax (Appeals). The ld. CIT(A) observed that the assessee was relying on two different sets of figures. On one hand, he adopted the opening balance as per tally records. On the other hand, he wanted to rely on a monthly summary of cash balance. The ld. CIT(A) rejected this approach. However, the CIT(A) directed the Assessing Officer to verify the cash balances of family members from their income tax returns. If the balances were offered in their returns, relief was to be granted. Accordingly, the ld. CIT(A) confirmed the balance of Rs. 34,50,000 in the hands of the assessee as unexplained cash of M/s CIP.
Being aggrieved by the order of learned CIT-A, the assessee is in appeal before us.
Before us, the learned Authorised Representative argued that the cash was fully explained. The cash of family members was supported by their statements and later confirmed in their returns. The business cash of M/s CIP was recorded in the books. The fact that books were not updated to the date of search does not mean they are false. Once updated, the balances matched the physical cash. The AO did not reject the books under section 145(3) of the Act. Hence, the cash should be treated as explained.
On the other hand, the learned Departmental Representative supported the orders of the lower authorities. He submitted that the assessee failed to prove the source of cash at the time of search. The letters were filed only later. The tally backup was not maintained properly. The claim of security for keeping business cash at home was . not a normal practice. He argued that the order of the CIT(A) should be upheld.
We have considered the rival submissions of both the parties and perused the materials available on record. The total cash found was Rs. 50,31,290.00 only. The assessee has given a detailed breakup among family members and his business concern. The AO has not disputed that family members had independent sources of income. The ld. CIT(A) has also directed the AO to verify the returns of family members and grant relief. Hence, the family balances cannot be treated as unexplained.
23.1 Regarding the cash of M/s CIP, we notice that the tally records showed Rs. 36,81,674.19 as on 30.06.2017. The assessee’s claim was Rs. 34,52,493.63 as on 14.11.2017. The difference is minor and arises only because the books were not updated till the date of search. The books were later updated and matched with the physical cash. The AO has not rejected the books of account under section 145 of the Act. Once books are accepted, the cash balance shown in them cannot be disregarded.
23.2 It is a settled law that books of account are reliable evidence unless proved false. The assessee has explained the source of cash from known funds of business and family. The explanation is supported by records and subsequent returns. The rejection of the explanation by the AO is not justified.
23.3 Accordingly, we hold that the cash of Rs. 34,50,000 found during the search is explained. No addition can be sustained. The addition . made by the AO and confirmed by the ld. CIT(A) is deleted. Hence, the ground of appeal of the assessee is hereby allowed.
In the result, the appeal of the assessee is allowed.
The sole issue raised by the assessee is that the learned CIT-A erred in confirming the addition of Rs.2,12,67,500 on account of unexplained investment in the property under section 69A of the Act.
At the outset, we note that the identical issue was raised by Shri Chandulal Banthia in which has been decided by us favouring assessee vide paragraph number 8 t o 8.2 of this order. At the time of hearing, both the Ld. AR and the learned DR agreed whatever will be the findings in the case of Shri Chandulal Banthia will also be applied in the case on hand. Since, the addition has been deleted in the hands of Shri Chandulal Banthia, accordingly respectfully following the same, we set aside the finding of the learned CIT-A and direct the AO to delete the addition made by him. Hence, the ground of appeal of the assessee is hereby allowed.
In the result, the appeal filed by the assessee is allowed.