Ramesh Vs ITO (ITAT Chennai)
Chennai ITAT: Registered Mortgage Adjustment Is Not Fresh Investment; Guideline Value Alone Cannot Trigger Section 56(2)(x) Addition
The Chennai ITAT granted complete relief to the assessee by deleting additions made under sections 69A and 56(2)(x), holding that an earlier loan adjusted against the purchase price of a property cannot be treated as a fresh unexplained investment, and that stamp duty guideline value by itself is not conclusive evidence of the property’s fair market value.
The Assessing Officer had treated ₹50 lakh as unexplained investment under section 69A on the ground that the assessee failed to establish the source of funds used for purchasing a property. The Tribunal, however, found that the registered sale deed specifically recorded that ₹50 lakh of the sale consideration had been adjusted against a mortgage debt created under a registered mortgage deed executed in the preceding year, while only the balance amount was paid through banking channels. Since no fresh investment of ₹50 lakh had been made during the relevant previous year, the Tribunal held that if the Department had any doubt regarding the source of the mortgage advance, such enquiry could be undertaken only in the year in which the advance was originally made and not in the year when the debt was adjusted against the sale consideration. The Revenue had also failed to produce any material to show that the registered documents were sham or fabricated. Accordingly, the addition under section 69A was deleted.
The Tribunal also deleted the addition made under section 56(2)(x)(b) towards the difference between the purchase consideration and the stamp duty value. It observed that the assessee had consistently disputed the guideline value and sought an independent valuation. The authorities below had mechanically adopted the stamp duty valuation without bringing any independent material on record to establish that the actual fair market value exceeded the consideration stated in the sale deed. The Tribunal emphasised that the value adopted by the Registration Department is merely a statutory benchmark for stamp duty purposes and cannot invariably be equated with the fair market value. In the absence of any independent evidence, the addition under section 56(2)(x) was held to be unsustainable.
On the addition of ₹31.56 lakh towards cash deposits under section 69A, the Tribunal observed that the assessee had furnished explanations attributing the deposits to opening cash balance, rental income, redeposit of earlier withdrawals and gifts from relatives. It held that the CIT(A) erred in rejecting additional evidence on technical grounds under Rule 46A without examining its evidentiary value or calling for a remand report. Relying on the Supreme Court’s decision in CIT v. P.K. Noorjahan (237 ITR 570), the Tribunal reiterated that an unsatisfactory explanation does not automatically mandate an addition under section 69A, as the provision confers discretion which must be exercised judiciously based on the facts of each case. Since the Revenue failed to objectively verify the explanation or establish that the deposits represented undisclosed income, the addition was also deleted. The assessee’s appeal was accordingly allowed in full.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
