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Facts
The assessee filed its return of income and was selected for scrutiny. The AO received information from the investigation wing regarding forfeiture of earnest money related to an Agreement to Sell, which the assessee claimed as expenses. This information originated from a search conducted in a group company's case.
Held
The Tribunal held that the initiation of reassessment proceedings under Section 147 by the AO was bad in law as it was based on borrowed satisfaction without proper investigation or seized material from the assessee's case. The AO failed to follow due process and lacked the necessary material to assume jurisdiction.
Key Issues
Whether the reassessment proceedings initiated under Section 147 were legally valid due to lack of proper jurisdiction and evidence. Whether the forfeiture of earnest money claimed as business expenses was correctly treated as income by the AO.
Sections Cited
147, 148, 132, 153C, 153A, 143(3), 142(1), 65B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘E’: NEW DELHI
(Assessment Year: 2012-13) Sri Prem Properties Private Limited, vs. ACIT, Circle 24 (1), A – 99, Bajghera Chowk, Delhi. New Palam Vihar, Gurgaon – 122 017 (Haryana). (PAN :AAACS2554E) (APPELLANT) (RESPONDENT) ASSESSEE BY : Dr. Rakesh Gupta, Advocate Shri Skasham Agarwal, CA Shri Deepesh Garg, Advocate REVENUE BY : Ms. Kirti Sankratyayan, CIT DR Date of Hearing : 01.09.2025 Date of Order : 24.10.2025 ORDER
PER S. RIFAUR RAHMAN, ACCOUNTANT MEMBER :
This appeal preferred by the assessee is directed against the order of the ld. Commissioner of Income-tax (Appeals)-23, New Delhi [for short ‘ld. CIT (A)]dated 04.01.2024 for Assessment Year 2012-13.
Brief facts of the case are, assessee filed its original return of income on 30.09.2012 declaring an income of Rs.2,15,340/-. The case of the assessee was selected for scrutiny for the year under consideration.
Subsequently, AO received information from DDIT (Inv), Unit 7(4), New Delhi vide letter dated 29.03.2019 in the case of the assessee. As per the information, it was informed that forfeiture amount of Rs.45.50 lakhs each on entering into Agreement to Sell with Kanwal Jeet Singh Kohli and Charan Jeet Singh Kohli on 15.02.2012 for Rs.3 crores and Rs.4 crores respectively. The AO has reproduced the investigation report at pages 1 & 2 of the assessment order as per which it was informed to the AO that a search and seizure action u/s 132 of the Act was conducted in the case of the Brisk Infrastructure & Developers Pvt. Ltd. (BIDPL) and others on 10.10.2018. During the course of investigation, it was observed that assessee is one of the companies of the target group who has entered into an Agreement to Sell with abovesaid two gentlemen on 15.02.2012 for Rs.3 crores and Rs.4 crores respectively. Earnest money of Rs.45.50 lakhs each was paid on 15.12.2012. Later on, due to non-payment of remaining amount, the earnest money was forfeited and claimed as expenses by the assessee in Profit and Loss account during the year under consideration. Further they observed that BIDPL has adopted the same modus operandi to claim forfeited amount as business expenses in AYs 2013-14 and 2014-15 respectively. Scrutiny assessment of BIDPL was completed and made addition of Rs.5 crores as forfeiture amount of earnest money. They also observed that the group is involved in dubious transactions to avoid tax and its modus operandi in the process of converting black money. With the above observation, it was also informed that the information found and analysed from the ITR and other documents of the assessee, it was found that assessee has also forfeited the abovesaid amount during the year. In order to verify the above information, assessee was asked to submit relevant information. Since no details were submitted by the assessee, the AO rejected objections raised by the assessee on the reasons for reopening and notice was issued to the assessee u/s 148 of the Act. Since there was no response from the assessee, the AO proceeded to make the addition of the forfeiture of advance of Rs.99 lakhs and also observed that assessee has claimed certain expenses, according to the Assessing Officer the same are excessive and not explained, accordingly he proceeded to disallow 25% of the expenditure i.e. Rs.29,20,002/- which comes to Rs.7,30,000/-.
Aggrieved with the above order, assessee preferred an appeal before the ld. CIT (A)-23, New Delhi and filed detailed submissions which are reproduced at pages 3 to 23 of the appellate order. After considering the submissions of the assessee, ld. CIT(A) observed that assessee did not raise any ground regarding reopening of the proceeding’s u/s 147 of the Act, therefore, there is no need to separately adjudicate with the arguments of the assessee. Further ld. CIT (A) observed that the assessee for the first time placed certain documents in respect of the claim, however assessee has not furnished any application under Rule 46A of the Income-tax Rules, 1961 for admission of additional evidences and also not explained the reasons for not placing the evidences before the AO during the course of assessment proceedings and he rejected the additional evidences submitted by the assessee. After considering the Agreement to Sell submitted by the assessee which is also placed at pages 28 to 43 of the appellate order. After considering the above documents, ld. CIT (A) observed that the assessee could not establish whether or not two persons were actually owned title of the land was clear in their hands. After considering several documents and communications between the parties, he rejected the same and proceeded to sustain the additions made by the AO. Further he sent the letters for forensic examination and based on the forensic investigation, he rejected the documents and letters submitted by the assessee. He also sustained the adhoc disallowance of expenses made by the AO considering them as excessive.
Aggrieved with the above order, assessee is in appeal before us raising following grounds of appeal :-
1. That having regard to the facts and circumstances of the case, assumption of jurisdiction in initiating the proceedings u/s 147 and passing the impugned order u/s 147/43(3) and that too without complying with mandatory order u/s 147 to 151 as envisaged under the Income Tax A 1961 is bad in law and against the facts and circumstances of the ease 2. That having regard to the facts and circumstances of the case, Ld. CIT (A) ought to have quashed the impugned reassessment order as the procedure laid down u/s 153C r.w.s. 153A has not been followed and jurisdiction has not been assumed u/s I53C.
3. That in any case and in any view of the matter, assumption of jurisdiction u/s 147 and passing the impugned order u/s 147/143(3) is illegal, bad in law and against the facts and circumstances of the case and the same is not sustainable on various legal and factual grounds.
4. That having regard to the facts and circumstances of the case, ld CIT(A) has erred in law and on facts in confirming the action of ld AO in making addition of Rs.99,00,000/- by treating it as alleged bogus forfeiture of earnest money and that too by recording incorrect facts and findings and without observing the principles of natural justice and without confronting the adverse material available on record.
5. That in any case and in any view of the matter, action of ld. CIT(A) in confirming the action of Ld. AO in making addition of' Rs,99,00,000/- by treating it as alleged bogus forfeiture of earnest money, is bad in law and against the facts and circumstances of the case and the same is not sustainable on various legal and factual grounds.
6. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making estimated addition of Rs.7,30,000/- (i.e. 25% of Rs.29,20,002/-) under the heads as mentioned in the assessment order and that too by recording incorrect facts and findings and without observing the principles of natural justice.
7. That in any case and in any view of the matter, action of Ld. CIT(A) In confirming the action of Ld. AO in making estimated addition of Rs.7,30,000/- under the heads as mentioned in the assessment order, is bad in law and against the facts and circumstances of the case and the same is not sustainable on various legal and factual grounds.
8. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in observing as under :- In not appreciating/considering/adjudicating the additional grounds filed by the assessee company. In not appreciating/ considering the submissions and evidences filed by the assessee company. In holding at page 23 that appellant did not raise any grounds of appeal regarding the re-opening of the proceedings u/s 147, therefore there is no need to separately adjudicate the argument of the appellant.
In not quashing the impugned reassessment order as the procedure prescribed u/s 153C r.w.s. 153A was not followed. That the entire documents filed by the assessee company regarding forfeiture is basically is fabricated and not a reliable document. The appellant could not establish that whether or not two persons were actually owning the land and the title of the land was clear in their hands. That the identical letters were written to the appellant by both parties on the same dates. Even the signature on both the letters are by the same pen. That the documents and the case of the appellant fails to justify that the transaction was a bonafide business transaction. That all the letters regarding correspondence for forfeiture documents were found from the computer system of the appellant. The appellant was involved in fabrication of documents for forfeiture in order to make it look like a genuine transaction. That the appellant was engaged in money laundering activity whereby cash received by the appellant in lieu of giving of cheque/money through banking channels. That the forfeiture was a concocted deal and part of sham transaction.
At the time of hearing, ld. AR of the assessee challenged the first ground and third ground which is against assumption of jurisdiction under section 147. He referred to pages 32 to 34 of the paper book which are the reasons recorded. He further submitted that validity of reopening is to be judged with reference to Reason recorded alone and this regard, he relied on the following decisions :- (i) Northern Exim (P.) Ltd. vs. DCIT, (2013) 357 ITR 586(Del.) (ii) Shipra Srivastava &Anr. vs. ACIT, (2009) 319 ITR 221 (Del.)
Further he submitted that there is no material having any nexus much less live nexus based on which belief of escapement of income has been made. He further relied on the pages 102-108 of the paper book which is the written submissions made before ld. CIT(A). He submitted that Information of forfeiture of earnest money is there on the face of profit Loss Account and there is nothing more in the reason recorded except that similar write off has been made by another company, M/s Brisk Infra. He brought to our notice page 25 of the paper book which is the profit Loss account of the assessee-company for the year under consideration. He further submitted that the reason is based on borrowed satisfaction taken from the satisfaction of Investigation wing without application of mind. He also brought to our notice pages 108 to 110 which are the written submissions made before Ld. CIT(A) and also to pages 11-15 of Synopsis. He also brought to our notice that ld. CIT(A)’s saying that this ground was not raised is not correct for two reasons: First, detailed submissions were made before CITA on this issue and in this regard, he brought to our notice pages 102- 112 of the written submissions before Ld. CIT(A). Second, Additional Ground was raised on 4.8.2023 and brought to our notice pages 123-124 of the paper book which is petition for Additional Ground.
6. With regard to Ground No.2, he submitted that based on same search, proceeding under section 153C started. In this regard, ld. AR brought to our notice pages 149-150 which is satisfaction u/s 153C and page 153 which is Notice u/s 153C dated 13.07.2021. Further he brought to our notice pages152-157 which is the Assessment Order u/s 153C.
7. With regard to Ground Nos.4 & 5 regarding forfeiture of earnest money of Rs.99,00,000/-, ld. AR submitted that assessee deals in real estate business and gave this amount towards property buying agreements which was forfeited by the sellers and thus, it was claimed as expenditure. He brought to our notice page 20 which is Profit Loss Account of the assessee-company for the year under consideration. He submitted that this was substantiated with the help of various evidences. He further brought to our notice pages 39-61 which is letter to AO with evidence. He also brought to our notice pages 114-120 which are written submissions before Ld. CIT(A) and also the pages 32 to 36 of the synopsis. He further submitted that ld. CIT(A) has raised doubts on the authenticity of three letters issued by the sellers on the ground that these were found in the computer of another company namely M/s Brisk Infrastructure P Ltd in the course of their search and brought to our notice pages 50 to 61 of the ld. CIT (A) order. He further submitted that first submission is that there was no certificate provided under section 65B of Indian Evidence Act and thus, the authenticity of something which was not found from the possession and control of the assessee but allegedly found from third party is not established in view of umpteen number of judicial decisions. He brought to our notice pages 22 to 32 of the synopsis and also PB pages 163 & 164 of Digital Evidence Manual. He further submitted that second submission is that the basic documents in support of the allegation were not supplied to the assessee, he submitted that page 141 of the paper book is our letter to ld. CIT (A) demanding such documents. He submitted that it was wrong for ld. CIT(A) to say that additional evidences were furnished without application under Rule 46A as these evidences were there before AO only. He further brought to our notice pages 39-61 which is the letter and evidence filed before AO on 04.12.2019 as per hand written noting. He submitted that these evidence establish that the loss was incurred genuinely.
8. With regard to Grounds No.6 and regarding ad hoc disallowance out of expenses, ld. AR brought to our notice pages 120 to 122 of the written submissions before Ld. CIT(A).
On the other hand, ld. DR of the Revenue submitted that reason to believe u/s 147 is recorded on the basis of information available with the AO. Since the assessee has not responded to the notices/letters sent to the assessee. Therefore, the AO is right in invoking section 147 of the Act.
With regard to jurisdiction issue, the assessee has not raised any ground before the ld. CIT (A). He brought to our notice findings of the ld. CIT (A). He submitted that the information brought to notice of AO that group companies are adopting modus operandi to convert the black money into white money. He brought to our notice page 1 of the assessment order where investigation report was reproduced. On the issue of merit, he submitted that the assessee has forfeited the amount of Rs.99 lakhs, brought to our notice findings of the ld. CIT (A) that ownership of the land was not with the parties to whom assessee has made the payment. Further he submitted that none of the parties were produced before the authorities below, he brought to our notice detailed findings of the ld. CIT (A) from page 43 of the appellate order and prayed that assessment order may be upheld.
Considered the rival submissions and material available on record. We observe that the reassessment was completed u/s 147 of the Act in the case of the assessee based on the information received from Investigation Wing. As per the reasons recorded by the AO at page 1 of the assessment order, we observe that a search action u/s 132 was conducted in the case of BIDPL and not in the case of the assessee, further there is no mention of the search being conducted in the case of the assessee. Further it was observed that assessee has entered into Agreement to Sell and their Profit & Loss account. On careful observation of the issues involved, we observed that the AO had received information from the investigation wing, since the same was found during the search operation conducted on 10.10.2018 in the case of one of the group company i.e., Brisk Infrastructure, the investigation wing has forwarded the same to the AO of the assessee with the (only)observation that the modus operandi was adopted by the group companies, the same was forwarded with the information on the basis that similar forfeiture was made by the assessee company. It is not clear from the assessment order whether the investigation wing has forwarded any seized material found from the group company or just their observations from the materials found during the search in the case of Brisk Infrastructure. From the recording of the reasons by the present AO shows that he has only received the information without there being any seized material. It is also relevant to note that the present AY being unabated, the AO must have initiated proceedings u/s 153C, since there was no material forwarded by the investigation wing, the AO merely recorded the reasons for initiating the reassessment proceedings, he merely borrowed the satisfaction from the mere observations of the investigation wing for the reason that similar forfeiture was also claimed by the assessee in their profit and loss account. The investigation wing has only indicated that there may be chances of similar transactions. The AO, on receipt of such information, in our view, he should have investigated and after addressing the objections only he should have proceeded to issue the notice u/s 148 of the Act. He has proceeded to obtain jurisdiction without properly investigating the case of the assessee, in particular, with the borrowed satisfaction and without there being any material supplied by the investigation wing. Based on mere observations of the wing, he has proceeded to initiate the proceedings. We observed that the assessee submitted the confirmations from the vendors before the AO in reply to the notice u/s 142(1) dated 4.11.2019. It is also fact on record that the assessee had claimed the same as expenses in their books. The AO should have made the investigation at this stage. He failed to do the same and proceeded to issue the notice u/s 148 on the borrowed satisfaction recorded by the investigation merely because one of the group companies had indulged in such activities. There is absolutely no material with the AO to initiate proceedings u/s 147 of Act.
Further we observed that the Ld CIT(A) had rejected the additional evidence on the basis that this was not submitted before AO, we observed that the assessee had already submitted the same in reply to the notice u/s142(1) of Act. We observed that the Ld CIT(A) has proceeded to carry out the forensic examination at the appellate stage and tried to prove that these were fabricated and not reliable documents. We find that these were already submitted before the Assessing Officer and the AO had not carried out any investigations at that stage and proceeded to initiate the reassessment proceeding with the borrowed satisfaction. This is clearly an initiation of proceedings without the jurisdiction at the initiation stage itself, therefore, the proceedings is nothing but void ab initio. From the above facts on record, we observe that the AO neither initiated the proceedings with the due process of law u/s 153C nor under the provisions of section 147/148 of the Act. Therefore, we are inclined to allow the grounds raised
by the assessee on the jurisdictional issue without going into the merits of the case.
9. With regard to forfeiture of the expenses claimed by the assessee, it has already claimed them as business expenditure considering the fact that it is in the business of real estate. The information was part of the ROI income filed by the assessee.
10. With regard to adhoc disallowances, we observed that the assessee had incurred expenses like Legal and professional, ROC expenses, accounting expenses, late deposit of TDS and interest expenses written off. On careful verification of the expenses, we are of the view that these are business expenses incurred for the purpose of business. Except late TDS, this is also only fine and not penal in nature. Therefore, the AO should have verified the details of the expenses, since the assessee had not filed the details before AO, but the same should have been verified by the Ld. CIT(A) at the appellate stage. In our view, no expenses can be disallowed on the adhoc basis. We rely on the findings of following judicial precedents, Beta Naphthol (P) Ltd (50 TTJ (IND) 375), Dwarka Prasad Agarwal (52 ITD 239 (CAL)). Further, we already held that the initiation of proceedings u/s 147 is bad in law, the above findings are only academic in nature.
In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on this 24th day of October, 2025.