DCIT, CHENNAI vs. THIYAGARAJAN RAVINDRAN, CHENNAI

5. Without prejudice to the section under which addition is made in the assessment order, the ld. CIT(A) ought to have held that the profit is taxable as 'capital gains tax' even if the same is not taxable as unexplained investment u/s.69 as may be erroneously held by the AO in the assessment order and the Id. CIT(A) ought to have exercised his powers conferred u/s.251(1)(a) of the Act as in an assessment order under appeal, the powers of ld. CIT(A) are co-terminus with those of the AO and he can do what AO could do and can also direct the later to do what the later has failed to do so.

3.1 On perusal of submissions and seized materials of loose sheets no.166 and 167 i.e.ANN/SBG/LOOSE SHEET/RTM/S-3 at M/s.Revathi Thanga Maligai on 29.01.2019, the AO concluded the assessment u/s.153A of the Act dated 30.09.2021 by making an addition of Rs.32,72,00,000/- on account of increase in net worth and Rs.75,00,000/- on account of loan given as unexplained investment u/s.69 of the Act by holding as under : 6.1 INCREASE IN THE NET WORTH: AY 2018-19: (TR)During the search, loose sheets no 166 & 167 found and seized vide ANN/SBG/LOOSE SHEET/ RTM/ S-3 at M/s. Revathi Thanga Maligai on 29.01.2019. These are net worth statements of the assessee as on 31.03.2017 and 31.07.2018 containing net worth value at Rs 14,44,13,050/- and Rs. 47,16,59,047/- respectively. The increase in the net worth is Rs. 32,72,45,997. Assessee was asked to explain (i) the accretion in the net worth; (ii) asked to explain whether the increase is disclosed in the returns of income filed for AY 2018-19 and (iii) was the increase commensurate with income earned during AY 2018-19. The assessee at this stage has replied that ‘due to partition and settlement of properties from his mother, his networth increased and the same is shown at current market value of the property to obtain bank loan’. It was also found that verification of the increase in net worth of Rs.32,72,00,000 in the ITRs for AY 2017-18 and AY 2018-19, the assets reported varies from what the assessee submitted during post search period. The assessee explains that the difference is due to receipt of an immovable property valued at Rs. 25 cores from his mother Smt.R.Revathi and transfer of certain other immovable properties to other family members under family settlement. Another reason for the increase in the net worth is the value of the properties as on 31.03.2017 is book value whereas the value of properties in net worth statement as on 31.07.2018 is taken as market value. The assessee filed the copies of settlement deed and list containing description of properties which was received by the assessee and the properties which was transfer to the other family members. Hence it is claimed that the increase in the net worth between these statements is due to transfer in and out of properties to the assessee under family settlement and adopting market value for the properties. There is no new

:-4-: ITA. No.: 2054/Chny/2024 undisclosed assets in the net worth statement which requires assessment. The details are filed by the assessee and scrutinized.

6.2 The assessee explains that the net worth has increased due to receipt of properties on family settlement i.e., fixed assets. In the assets and liabilities statement of the assessee as on 31.03.2017, the value of fixed assets stands at Rs.4,78,90,116 out of the net worth of Rs.14,44,13,050. The break up of the fixed assets as per the balance sheet as on 31.03.2017 contains 13 properties. The fixed assets as on 31.07.2018 is Rs.54,27,60,697, which includes 6 properties.

6.3 Assessee was asked to file the properties which were received by the assessee and also those which were transferred out under the alleged family settlement.

The assessee was in receipt of 6 properties under 7 different documents and there were 7 properties which were transferred out under 7 documents. In numbers term, the original properties held by the assessee was 13 and received 6 properties, totalling 19. Out of this 19, assessee transferred out 7 properties and should have been left with 12 properties. However, in the net worth statement as on 31.07.2018, assessee holds only 6 properties out of the 12 he should have possessed. There is a discrepancy as far as number of properties that were settled in the family settlement.

6.4 The terms of family arrangement are not there in the documents submitted. The documents submitted are mere conveyance deeds wherein the transfer of immovable properties are made and no where in the documents the family settlement in its entirety is brought out. The assessee has not produced a complete details of family settlement, providing a complete picture of total number of properties held by the assessee and his brothers alogwith their father and mother, their market value, how the transfer of properties are settled showing proper distribution among them. These aspects bring out the fact that the alleged family settlement is not bonafide and transfer of properties were made to avoid incidental taxes payable on transfer.

6.5 Originally properties were purchased by the assessee along with his brothers and settled by them to their mother Smt. Revathy, thereafter mother settles the major property in favour of the assessee without stating how the assessee’s brothers were compensated. Hence, the alleged family settlement is not family settlement, but acquiring of properties by the assessee and gets immovable properties for the undisclosed value. As the market value of the properties are available, the same is taken to be the consideration paid to acquire the properties.

:-5-: ITA. No.: 2054/Chny/2024 6.6 The increase in the net worth relates to increase in the number of properties standing in the name of the assessee and the market value of the properties was also found during the search. There is a discrepancy in the assessee’s explanation as to the number of properties assessee has in his name consequent to the alleged family settlement. Also, the increase in the net worth is due to acquiring properties by the assessee under the name of family settlement. In view of the points brought out in the preceding paragraphs on the alleged family settlement which does not satisfy the basic requirements of family settlement, the increase in the net worth found during the search amounting to Rs. 32,72,00,000 is assessed as income of the assessee as unexplained investments u/s.69.

4. Aggrieved by the order of the AO the assessee preferred an appeal before the ld.CIT(A) – 18, Chennai. Before the ld.CIT(A) the assessee submitted that the AO has erred in concluding the assessment by making additions merely on the basis of 2 loose sheets of net worth statements of assets and liabilities prepared based on current market value of the immovable properties for obtaining bank loans. The assessee further submitted the details and explained the entire transactions of the settlement deeds and the net worth statement prepared as on 31.07.2018. After careful consideration of the submissions of the assessee, the ld.CIT(A) has deleted the additions made by the AO for the reason that the entire amount of Rs.32.72 crores is of notional in nature. Since the addition is merely based on the difference between the book value of net worth as on 31.03.2017 of Rs.14.44 crores and the net worth statement as on 31.07.2018 of Rs.47.16 crores as per the market value of the properties. The ld.CIT(A) while deleting the additions, passed an order dated 31.05.2024 by holding as under: 7.1 Addition u/s 69 towards unexplained investment: Rs.32,72,00,000/- 7.1.1 The AO noticed from the loose sheets No.166 and 167, found and :-6-: ITA. No.: 2054/Chny/2024 seized vide ANN/SBG/loose sheet/RTM/S-3 that the networth of the assessee was Rs.14,44,13,050 as on 31.3.2017 which increased to Rs.47,16,39,047 as on 31.7.2018 and the increase in net worth was Rs.32,72,45,997/-. The assessee was asked to explain the increase in the networth of the assessee. The assessee explained that the increase in net worth is on account of receipt of an immovable property valued at Rs.25 cr. from his mother Smt. Revathi and transfer of certain other immovable properties to other family members. The other reason for the increase in net worth was that value of properties as on 31.3.2017 was at book value whereas the value of properties as on 31.3.2018 was taken at market value. The assessee filed copies of settlement deeds and claimed that the increase in net worth is due to transfer-in and transfer-out of properties to the assessee under family settlement and adopting market value of the property. The AO held that the assessee did not produce complete details of property settlement and held that the alleged family settlement is not bonafide and transfer of properties were made to avoid paying incidental taxes on transfer. He held that originally the properties were purchased by the assessee and his brothers and settled by them to their mother Smt. Revathi and thereafter the mother settled the major property in favour of assessee without stating how the other brothers were compensated. The AO held that market value of properties were available and the same is to be taken as consideration paid to acquire the properties. He further held that there is a discrepancy in the explanation of the assessee as to the number of properties. Based on the above reasoning, the AO added an amount of Rs.32,72,00,000/- towards unexplained investment u/s 69. 7.1.2 During the appeal proceedings, the assessee explained that transfer of properties are within the family members, falling within the definition of relatives u/s 56(2)(x) [ in the written submission it was mentioned the section as 56(1)(vii) which is clarified during hearing and 56(2)(x) applies to this assessment year] and therefore, any amount or property received by the assessee is exempt from the purview of sec.56(2)(x). He submitted that in any case, sec.69B is not applicable as the AO has not pointed out any investment for which the assessee paid outside the books of account. He submitted that the increase in networth is on account of adoption of market value as against book value which cannot be treated as income of the assessee as no one can make income out of himself.

7.1.3 Net worth statements as on 31.03.2017 and 31.03.2018 (prepared on 25.07.2018 and 30/07/2018) found during search are as follows:

Net worth Statement as on 31.03.2017 Total Assets : 18,34,88,638 Less: Total Liabilities : 3,90,75,588 Net Worth : 14,44,13,050

:-7-: ITA. No.: 2054/Chny/2024 Net worth Statement as on 31.07.2018 Total Assets : 54,87,86,450 Less: Total Liabilities : 7,71,27,403 Net Worth : 47,16,59,047 The difference between networth as on 31.03.2017 and 31.03.2018 as appearing from the above sheets, i.e., 32.72 crores (47.16 crs (–) 14.44 crs) was made as addition by AO.

The fixed assets schedule as per financial statements for FY 2016-17 and FY 2017- 18 are as follows: FY 2016-17 ………………. ………………..

The fixed assets book value of Rs. 4,78,90,116/- appearing in networth statement as on 31.03.2017 (seized material) tallies with fixed assets schedule forming part of financial statements [except the Rs. 29,100/- (MH Property) which has been mistakenly taken twice in the Net worth statement]. FY 2017-18 ………………. ………………..

However, the book value as above in the financials as on 31.03.2018 would not tally with the Net worth statement as on 31.03.2018 as it was prepared on market value basis for the purpose of loan. Reconciliation between book value and net worth statement value is as follows:

………….. …………. ………….

This clearly shows that the AO has taken the market value as on 31.03.2018 as appearing in the Networth statement and compared it with the book value of the same assets as on 31.03.2017 as appearing in the networth statement as on 31.03.2017 which is on book value, for making addition, which is not proper.

:-8-: ITA. No.: 2054/Chny/2024 7.1.4 It is to be noted that the search was on 29.01.2019 whereas Return for AY 2018-19 was filed on 02-12-2018.

7.1.5 Sworn statement recorded from the assessee on this issue is as follows:

Q.No.10 As per the loose sheet seized vide ANN/SBC/Loose Sheets/RTM/6-3 (loose sheets 166 & 167) from Revathi Thanga Maaligai, it is seen that your net worth as on 31/03/2017 was at Rs.14.44 crores whereas the net worth as per 31.07.2018 rose to Rs.47.16 crores. Please explain the accretion of net worth and has the increase been disclosed in the return of income filed for the AY 2018-19 and is it commensurate to the Income earned during the AY 2018-19. Ans. Due to partition and settlement of properties from my mother, my networth has increased and is shown at current market value of the property. And this was done so to obtain bank loan. From the above it can be seen that even during the search itself , assessee has clearly stated that property’s value as on 31.03.2018 was shown at market value in the networth statement for the purpose of obtaining bank loan.

7.1.6 The salient features of the settlement deeds are that they are made out of natural love and affection as mentioned therein and there is no outgo of any amount from the assessee. In other words, the property under settlement received by the assessee is in the nature of gift as defined under the provisions of Transfer of Property Act, 1882. The market value of the property mentioned in the settlement deeds are for the purpose of arriving at the stamp duty value payable for the purpose of registration of the settlement deeds. The assessee has adopted the market value only in the networth statement as on 31.03.2018 for the purpose of loan and not in the book of accounts for FY 2017-18 in which the values are at historical cost only.

7.1.7 In this case, as claimed, the mother of the assessee received the properties from her other sons under settlement without making any payment and therefore, the settlement in her case is equivalent to gift as per the Transfer of property Act, 1882. Applying the provisions of Section 49(1) of the Income-tax Act, 1961, the cost in her case shall be the cost of previous owner(s) only, i.e. of her other sons. Hence, there is no case of application for taking market value as the cost of property by her and she can take only the cost of original owner in her books since she had not :-9-: ITA. No.: 2054/Chny/2024 made any payment towards the receipt of the properties in question. Then, she along with her spouse and brothers of the assessee had transferred the properties to the assessee again through settlement deeds without any receipt of money. Therefore, the cost of property in the case of the assessee shall also be cost of the previous owner, i.e., the cost of the original owner(s) which remains the same. Since the assessee has neither received any money nor paid any amount and transfer is among related parties as per proviso to section 56(2)(x), there is no applicability of provisions of Section 56(2)(x), i.e., in other words, the assessee officer cannot claim the market value as deemed amount received to be covered u/s 56(2)(x) of the Income-tax Act, 1961.

7.1.8 It is apparent that the assessee has taken the value of the properties at book value in his books, whereas the AO took it that the value in the books is as per market value as in the networth statement as on 31.03.2018, which is the main reason for the AO to make the addition under section 69B of the Income-tax Act, 1961. As there is no money paid by the assessee and as per the provisions of Section 49(1), only the cost to the previous original owner is deemed as the cost of acquisition of the asset as explained by the Explanation under sub-section (1) of Section 49. The assessee however submitted that the cost of acquisition of the previous original owner only had been quoted in his books and not market value. However, there could be a possibility that when the properties are sold by the assessee on a later date, the assessee may offer the difference between sale value and the guideline value appearing in the settlement deeds for stamp duty purposes, as profit/gain in such capital gains transactions, whereas he ought to offer the difference between the sale value and the cost of acquisition of the asset in the hands of the previous owner. This is the reason for the AO to make the addition under section 69B. Though this suspicion of the AO is understandable, it cannot directly translate into an addition u/s 69B of the Act, as the properties in question were in the possession of the assessee during the relevant previous year. Therefore, the addition made by the AO u/s 69B of the Act based on the net worth of properties is not sustainable and hence, deleted.”

Aggrieved by the order of the ld.CIT(A), the revenue is before us.

:-10-: ITA. No.: 2054/Chny/2024 assets value as on 31.07.2018 in the accounts of the assessee, has not been explained by the assessee. Further the ld.DR stated that the ld. CIT(A) disregarded the findings of the AO that the alleged family settlement is not bonafide and that the conveyance deeds submitted did not refer to any family settlement and without reasoning erroneously deleted the impugned addition. The ld.DR also argued that the ld. CIT(A) has failed to appreciate that the family settlement arrangement under which the assessee claims to have received the properties is not bonafide and in such a case the exchange of assets between the members of family amounts to 'transfer' within the meaning of section 2(47) of the Act and hence capital gains tax is eligible. The ld. CIT(A) ought to have held that the profit is taxable as 'capital gains tax' even if the same is not taxable as unexplained investment u/s.69 as may be erroneously held by the AO in the assessment order and the Id. CIT(A) ought to have exercised his powers conferred u/s.251(1)(a) of the Act as in an assessment order under appeal, the powers of ld. CIT(A) are co-terminus with those of the AO and he can do what AO could do and can also direct the later to do what the latter has failed to do so. The ld.DR argued that the Id.CIT(A) has erroneously observed that the AO has made the addition for the reason that at a future point of time when the property is sold the assessee may offer the difference between the sale value and the market value as per the Net worth statement and not the difference between the sale value and cost of the asset to the previous owner whereas the AO has clearly made the addition holding that the family settlement agreement/arrangement is not bonafide. In light of the above arguments the ld.DR prayed for setting aside the order of :-11-: ITA. No.: 2054/Chny/2024 the ld.CIT(A) and confirm the addition of Rs.32.72 Crores as per the order of the AO.

6. Per contra the ld.AR asserted the action of the ld.CIT(A) and submitted that there is no reason to interfere in the order of the ld.CIT(A) since the addition was made by the AO on account of the assumptions and surmises. The AO had made the impugned additions of Rs.32.72 Crores merely based on the two loose sheets showing the actual net worth statement as on 31.03.2017 and the other one is estimated market value of the net worth as on 31.07.2018. The difference between these two statements i.e. the book value of net worth as on 31.03.2017 of Rs.14.44 crores and the market value of the net worth as on 31.07.2018 of Rs.47.16 amounting to Rs.32.72 crores is of notional in nature.

6.1 Further, the ld.AR submitted that the increase in net worth of the assessee is due to receipt of immovable properties from his mother Smt.Revathi and from his brothers. The details of the immovable properties received by the assessee as detailed were furnished both before the AO as well as ld.CIT(A). a) No.133, MH Road, (RTM Properties): The assessee had purchased 25% of the property on 12.12.2005 and the balance 75% was acquired by settlement deed from his father and his own brothers on 31.08.2017 (Page No.2 – 26 of the paper book) b) No.14A part, MH Road, (RS Properties): The assessee had purchased 1/3rd of the property on 13.06.2011 and the balance 2/3rd was acquired by settlement deed from his father and his own brothers on 31.08.2017 (Page No.27 – 71 of the paper book) c) Redhills Property: This property was purchased by assessee’s father and his two brothers through 3 deeds on 30.03.1999, 30.07.2002 and 19.09.2001. Later the assessee’s father and his own brothers transferred to their respective share to assessee’s mother. Subsequently the said

:-12-: ITA. No.: 2054/Chny/2024 property was acquired by settlement deed from his mother on 31.08.2017. (Page No.72 – 116 of the paper book)

The ld.AR submitted that the above said properties were available with the assessee as on 31.07.2018 and hence the net worth statement was prepared with the estimated market value of the properties to submit to the bankers to avail credit facilities which was seized by the authorities in the loose sheet. Therefore, the book value of the said properties transferred to the assessee by his mother and brothers are not liable for tax in the hands of the assessee u/s.56(2)(x) of the Act and the cost of the previous owner will be cost of acquisition for the assessee as per section 49(1) Act at the time of the transferring such asset.

6.2 Further, the ld.AR also submitted that the assessee has clearly stated in the sworn statement recorded also that the loose sheet seized is relates to net worth statement as on 31.07.2018 prepared based on the current market value of the immovable properties to obtain the bank loan and hence there is no income accrued or arise to the assessee.

In light of the above, the ld.AR prayed for the confirming the order of the ld.CIT(A) and dismiss the appeal of the assessee.

7. We have heard the rival contentions perused the material available on record and gone through the orders of authorities along with the paper book filed by the assessee. Admittedly the assessee had filed his return of income for the A.Y. 2018-19 on 02.12.2018. However, the search conducted in the premises of the assessee 29.01.2019. In response to the notice u/s.153A of :-13-: ITA. No.: 2054/Chny/2024 the Act the assessee had filed the return of income on 03.02.2021 admitting the same income as declared in the original return of income filed. On perusal of submissions and seized materials of loose sheets no.166 and 167 i.e. ANN/SBG/LOOSE SHEET/RTM/S-3 at M/s.Revathi Thanga Maligai on 29.01.2019, the AO concluded the assessment u/s.153A of the Act dated 30.09.2021 by making an addition of Rs.32,72,00,000/- on account of increase in net worth and Rs.75,00,000/- on account of loan given as unexplained investment u/s.69 of the Act. The AO found that the assessee had received certain immovable properties during the impugned assessment year from his relatives and accordingly the assessee’s net worth was increased. Hence the addition of Rs.32.72 crore was made based on the difference between the book value of net worth as on 31.03.2017 of Rs.14.44 crores and the market value of the net worth as on 31.07.2018 of Rs.47.16 crores. The ld.CIT(A) has deleted the addition made by the AO by observing that the difference in net worth is purely based on the estimated market value of the assets as on 31.07.2018 prepared for the purpose of obtaining bank loan. There is no income earned or accrued to the assessee in the impugned assessment year, since there is no transfer of assets. On examination of the answer given in the sworn statement recorded from the assessee on date of search, it is established that the net worth statement as per the market value of assets was prepared only for the purpose of obtaining the credit facilities from the bank. The Ld.CIT(A) also found that the transfer of immovable properties from assessee’s mother and his brothers are purely a settlement of the family properties, which is not taxable in the hands of recipient of the properties u/s.56(2)(x) of the Act.

:-14-: ITA. No.: 2054/Chny/2024 7.1 Firstly, we find that the AO has made the additions merely based on the 2 loose sheets found at the time of search operations conducted at the premises of the assessee and his relatives. a) The loose sheets found is related to the net worth statement as per the book value of the assessee as on 31.03.2017 having assets value of Rs.18,34,88,638/- and the liabilities of Rs.3,90,75,588/- with a net worth of Rs.14,44,13,050/-. b) The other net worth statement as per the estimated market value as on 31.07.2018 having assets value of Rs.54,87,86,450/- and the liabilities of Rs.7,71,27,403/- with a net worth of Rs.47,16,59,047/-. c) The difference between net worth as on 31.03.2017 and 31.07.2018 as appearing from the above sheets i.e. Rs.32.72 Crores was made as addition by the AO. 7.2 Upon careful examination, we observe that, as stated by the assessee in his sworn statement, the net worth statement was prepared by taking into account the market value of immovable properties for the specific purpose of availing a bank loan. Apart from this, the Assessing Officer (AO) has not brought on record any independent evidence to substantiate that the impugned addition represents an undisclosed investment made by the assessee. Furthermore, it is noted that the assessee has submitted registered documents evidencing the acquisition of the said assets from his mother and brothers, which are part of the paper book placed on record before us. In light of the above, the addition made by the AO on the basis of the variation in the values reflected in the net worth statements dated 31.03.2017 and 31.07.2018 is found to be without merit and unsustainable.

:-15-: ITA. No.: 2054/Chny/2024 7.3 We observe that the ld. CIT(A) has rightly recorded that the value of fixed assets amounting to ₹4,78,90,116/–, as reflected in the net worth statement as on 31.03.2017, corresponds exactly with the value of fixed assets reported in the assessee’s financial statements as on the same date, barring a minor discrepancy of ₹29,100/– pertaining to MH Property, which was inadvertently included twice in the net worth statement. However, the book value of fixed assets amounting to ₹8,37,61,920/– as on 31.03.2018 does not reconcile with the net worth statement dated 31.07.2018, as per the loose sheet seized during the search, since the latter was prepared on the basis of estimated market values. In light of the above, we are of the considered opinion that the learned CIT(A) has correctly appreciated the facts and there exists no justification to interfere with his decision in deleting the addition of ₹32.72 Crores made by the Assessing Officer.

7.4 Upon perusal of the paper book filed by the ld. AR, along with the accompanying family tree chart, it is evident that the immovable properties acquired by the assessee on 31.08.2017 through three separate registered settlement deeds were received from relatives. As defined u/s. 56(2) of the Act, such transfers are not chargeable to tax under the said provision. Consequently, the addition made by the AO on account of an alleged increase in the value of immovable properties standing in the name of the assessee based solely on a loose sheet reflecting a net worth statement as on 31.07.2018, (which was prepared on the basis of estimated market value) when compared to the net worth statement as on 31.03.2017, which is based

:-16-: ITA. No.: 2054/Chny/2024 on the assessee’s financial statements, is devoid of legal merit and cannot be sustained in law.

7.5 In view of the foregoing, we are of the considered opinion that the AO erred in making the addition of ₹32.72 crores on account of alleged unexplained investment. The action of the ld.CIT(A) in deleting the said addition is found to be justified and in accordance with law and therefore cannot be faulted. Accordingly, we uphold the order of the ld. CIT(A) and dismiss the grounds of appeal raised by the Revenue on this issue.

Order pronounced in the court on 26th May, 2025 at Chennai.