Addition towards unexplained investment u/s 69 on loose sheet is unsustainable

Nischal Sethi Vs ITO (ITAT Delhi)

ITAT Delhi held that addition of unexplained investment under section 69 of the Income Tax Act merely on the basis of loose sheet alone without any other corroborative evidence is unsustainable in law.

Facts-

The assessment was re-opened based on the information received from Investigation Wing that the assessee has invested 40,00,000/- towards purchase of commercial property in Nehru Vikas Minar Projects out of which Rs.20,00,000/- was paid in cash. In the course of re-assessment proceedings the Assessing Officer required the assessee to explain the investment made towards purchase of property with documentary evidences. The assessee submitted that during the year assessee has not purchased any commercial property in Nehru Vikas Minar Projects neither in his own name nor in the name of any family members. It was also submitted that assessee has only one savings bank account with Punjab National Bank, Kaushambi branch and an affidavit was also furnished.

However, the Assessing Officer based on the loose papers which were seized in the corporate office of AEZ group wherein the assessee’s name was reflected as one of the investors concluded that the assessee purchased commercial property in Nehru Vikas Minar Projects by paying Rs.20,00,000/- in cash as the assessee failed to adduce any evidence to rebut the findings of the Investigating Wing. He treated Rs.20,00,000/- as unexplained investment made by the assessee under section 69 of the Act.

Conclusion-

The Department could not produce any corroborative evidence to show that the assessee had in fact made investment in the concerns of AEZ group. The evidences furnished by the assessee in the form of confirmation from the concerns of AEZ group that the assessee nor his family members never made any investment by paying cash or cheque were not at all examined by the Assessing Officer in spite of the assessee stating that no such investment had been made by the assessee. The only basis for making addition under section 69 of the Act in the hands of the assessee is the loose sheets said to have been seized in AEZ group. This alone cannot be the basis for treating such alleged investment as un-explained by the assessee especially when the assessee furnished evidences to show that he has never made such investment in group concerns of AEZ group.

Held that the Assessing Officer erred in treating Rs.20,00,000/- as un-explained investment in the hands of the assessee. The ground raised by the assessee is allowed.

FULL TEXT OF THE ORDER OF ITAT DELHI

1. This appeal is filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeals) Ghaziabad [hereinafter referred to CIT (Appeals)] dated 27.03.2015 for assessment year 2008-09 in sustaining the addition of Rs.20,00,000/- on account of un-explained investment on the basis of search report in the case of AEZ group.

2. Briefly stated the facts are that the assessment in the case of the assessee was re-opened by issue of notice dated 16.11.2012 under section 148 of the Income Tax Act, 1961 (the Act). In response to notice under section 148 of the Act the assessee filed return of income on 18.12.2013. The assessment was re-opened based on the information received from Investigation Wing that the assessee has invested 40,00,000/- towards purchase of commercial property in Nehru Vikas Minar Projects out of which Rs.20,00,000/- was paid in cash. In the course of re-assessment proceedings the Assessing Officer required the assessee to explain the investment made towards purchase of property with documentary evidences. The assessee submitted that during the year assessee has not purchased any commercial property in Nehru Vikas Minar Projects neither in his own name nor in the name of any family members. It was also submitted that assessee has only one savings bank account with Punjab National Bank, Kaushambi branch and an affidavit was also furnished. However, the Assessing Officer based on the loose papers which were seized in the corporate office of AEZ group wherein the assessee’s name was reflected as one of the investors concluded that the assessee purchased commercial property in Nehru Vikas Minar Projects by paying Rs.20,00,000/- in cash as the assessee failed to adduce any evidence to rebut the findings of the Investigating Wing. He treated Rs.20,00,000/- as unexplained investment made by the assessee under section 69 of the Act.

3. On appeal the ld. CIT (Appeals) sustained the addition made by the Assessing Officer. He observed that around 23 investors had accepted on the basis of identical information that they had actually made such investments.

4. Before me the ld. Counsel for the assessee submits that based on the report of the Investigation Wing, the assessment of the assessee was re-opened. It is submitted that the assessee did not purchase any property from the seller. Referring to page 15 of the paper book the ld. Counsel submits that in the course of re-assessment proceedings the assessee had in fact furnished his reply along with affidavit before the Assessing Officer submitting that assessee has neither purchased any commercial property at ground floor measuring 800 sq. ft. at Nehru Vikas Minar Projects in his own name nor in the name of any of the family members. The ld. Counsel submits that the Assessing Officer has not made any enquiry on the submissions made by the assessee. It is submitted that the Assessing Officer solely relied on the report of the Investigation Wing. The ld. Counsel submits that assessee neither paid any cash nor any cheque for purchase of any commercial property. Referring to page Nos. 16 to 22 of the paper book the ld. Counsel submits that the bank statement of the assessee in Punjab National Bank does not reflect any payment of Rs.20,00,000/-. It is submitted that this was the only bank account maintained by the assessee during the subject assessment year. Referring to page Nos. 6 to 23 of the paper book which is a copy of reply dated 25.02.2015 filed by the assessee before the Assessing Officer, the ld. Counsel submits that Nehru Vikas Minar Projects was under the name of M/s. Celebration City Projects Pvt. Ltd. of AEZ group and they have expressly confirmed that no payment has been received by them from the assessee either in cash or cheque or demand draft and they have no booking of any commercial establishment in assessee’s name. The ld. Counsel further submits that the assessee has not shown any investment in his financials. It is submitted that only loose sheets were seized in the premises of AEZ group and even these sheets were not available at the time of recording of reasons. The ld. Counsel further submits that assessee also submitted confirmation from M/s. Celebration City Projects Pvt. Ltd. of SEZ group company confirming that no payment has been received by them from the assessee either in cash or cheque or demand draft for sale of space in any of its projects by the assessee. Therefore, the ld. Counsel submits that even the alleged recipient of cash has denied any such transaction with the assessee of any nature in cash or through banking channels and this was also admitted by the ld. CIT (Appeals) at page 8 of the order. Therefore, it is submitted that the assessee has not purchased any commercial property measuring 800 sq. ft. at Nehru Vikas Minar Projects, Ghaziabad, and paid either in cash or through any other mode.

5. The ld. Counsel further submits that in the present case, assessee has expressly stated that he has not purchased any property from the searched party i.e. AEZ group and the assessee was asked to prove the Any assessment based on the inability of the assessee to prove his negative statement and on general assumptions only is bad and should be annulled more so when there was no corroborative information/ evidence available with the Ld. AO to prove assessee had purchased the impugned property and that too in cash. It is submitted that no agreement or any document with respect to purchase of impugned property by the assessee bearing the signatures of the assessee were recovered during the course of search on AEZ group. Even the alleged seller of alleged property has denied any transaction with the assessee.

6. Next submission of the assessee is that no investigation has been carried on by the Ld. AO and sole reliance has been placed on the report of the investigation wing. This is evident from perusal of page 3 (para 1) of the assessment order wherein the Ld. AO has admitted that only reliance is placed on investigation carried out by the investigation wing and he has simply relied on their enquiries “As deeply investigated and enquired by the investigation wing, New Delhi, it is established that the assessee has invested Rs. 20,00,000/- cash to purchase of commercial property at Nehru Vikas Minar Projects.”

7. It is submitted that this fact is even evident from perusal of page 11 (para 1) of order of CIT(A) wherein he has concluded that “On the basis of above judicial pronouncements, it can be seen that the material gathered by the Investigation wing was sufficient for the assessing officer to come to the conclusion that unaccounted cash was invested by the assessee in purchase of commercial property.”

8. Ld. Counsel for the assessee submitted that in fact, at the time of assessment proceedings the only information available with the Ld. AO was report of the investigation wing and the Ld. AO did not even have copy of seized material allegedly bearing the name of the assessee or any other document to prove that the assessee has made payment of Rs.20,00,000/- in cash. It is pertinent to note here that this alleged seized material was also no available the Investigation Unit, New Delhi. This is evident from copy of remand report dated 16.03.2015 sent by Ld. AO to Ld. CIT(A) enclosed as PB 8- 9. Perusal of para 3 would show that copy of alleged seized material i.e. page 39 of Annexure-1, copy of statements and other documents were requisitioned by the Ld. AO for the first time vide office letter dated 20.02.2015 i.e. after the conclusion of assessment proceedings and nothing was available with the Ld. AO at the time of passing the impugned assessment order. Further, it is submitted that it is evident that even DDIT (Invt.) did not have the said document and it has been admitted that alleged loose sheet was the only document with respect to alleged transaction of Rs. 20,00,000/- in cash and there is nothing more available against the assessee. It is also submitted that the Ld. AO has in the remand report, requested the Ld. CIT(A) to consider the confirmations filed by the assessee as he could not find any factual discrepancies in the same. The ld. Counsel submitted that the assessment order has been passed in the most machinal and negligent manner as the Ld. AO has alleged that assessee has purchased the impugned property for total consideration of Rs. 40,00,000/- out of which Rs. 20,00,000/- has been paid in cash. For the alleged cash part of the transaction, Ld. AO has simply relied on the report of the investigation wing but the remaining part no details have been mentioned in the entire assessment order. Table reproduced by the Ld. AO at page 2 of the assessment order would show that Ld. AO has not considered how a total of “0+20,00,000” can give a total of Rs. 40,00,000/- and simply alleged unexplained investments held by the assessee.

9. It is submitted that the case of the assessee is squarely covered by decision of Hon’ble Delhi Bench of ITAT, Subhash Sushila Lakhotia Trust vs. ACIT, ITA No. 751/DEL/2015 vide order dated 30.06.2016 (copy enclosed). In that case also consequent to search on AEZ group it was alleged that assessee invested an amount of Rs 25,20,884/- via cash in M/s Indrapuram Habitat Center Pvt Ltd. During the course of assessment proceedings, the assessee explained that assessee had not invested anything in the alleged property. However additions were still made by the Ld. AO. Hon’ble Tribunal in para 9 of the order has held that “Merely because name of the assessee is appearing in the said hard disc and amongst other investors are investor Shri I. E. Soomar appearing in the said hard disc has admitted payment of cash amount, cannot be a basis for arriving at a definite conclusion, in absence of corroborative evidence in support, that the assessee had also paid the amount of Rs.3,21,00,000/- in cash”. Therefore it is prayed that the said decision may be followed in case of the assessee and delete the addition made under section 69C of the Act.

10.The ld. DR strongly placed reliance on the order of the ld. CIT (Appeals).

11. Heard rival contentions perused the orders of the lower authorities and the record placed before me. On perusal of the assessment order it is noticed that the assessment was re-opened based on the investigation report but the assessee made some investment in the SEZ group for purchase of commercial property in Nehru Vikas Minar Projects Pvt. Ltd. The assessment was re-opened solely on the basis of report of Investigation Wing. In the assessment order the Assessing Officer noted that in the course of search and seizure operation in AEZ group details of the assessee were found regarding investment in Nehru Vikas Minar Projects and such total investment was Rs.40,00,000/- out of which Rs.20,00,000/- was paid in cash. Therefore, based on the report of the Investigation Wing the Assessing Officer concluded that the assessee had made un-explained investment and accordingly Rs.20,00,000/- was treated as un-explained investment under section 69 of the Act which was sustained by the ld. CIT (Appeals). The assessee contends that neither he nor any of his family members purchased any commercial property from AEZ group concerns and the confirmations were also furnished stating that the assessee neither made any cash payment or cheque payment or made any sort of investment for purchase of commercial property. The assessee also furnished bank statement wherein nothing was reflected as to any investment made by the assessee. The finances of the assessee were also not shown any investments. None of these evidences were rebutted by the Revenue. We notice that no enquiry whatsoever has been conducted by the Assessing Officer in spite of the assessee producing confirmations from the concerns of AEZ group wherein it has been stated that they have not received any cash or cheque from the assessee for the alleged investment in their group by the assessee. The Assessing Officer seems to have relied solely on the report of Investigation Wing of the Department without making any further enquiriesin treating Rs.20,00,000/- as un-explained investment in the hands of the assessee.

12. It is noticed that an identical issue came up for hearing in the case of Subhash Sushila Lakhotia Trust Vs. ACIT in ITA. No. 751/Del/2015 dated 01 .06.2018 and the co-ordinate bench held as under:-

“5. The Ld. AR submitted that the present appeal of the assessee is arising from the order of CIT(A) dated 27/11/2014 and relates to Assessment Year 2006-07. The Ld. AR pointed out certain dates which are as under:-

6. The Ld. AR submitted that the assessee is a trust and filed its Original return on 11.09.2006. The return filed by the assessee was processed and not pending on the date of search. On 17.08.2011, a search and seizure action has undertaken in The case of AEZ group during this search it is alleged that it has come to light (details of this light is not mentioned in Assessment order) that assessee has invested an amount of Rs 25,20,884/-via cash in M/s Indrapuram Habitat Center Pvt. Ltd. Thereafter, a search action has also been undertaken in the case of assessee on 10.02.2012. The Ld. AR submitted that no evidence supporting the case of revenue vis-a-vis investment in cash in Indrapuram Habitate Center has been found. The Ld. AR further submitted that the Assessing Officer issued notice to the assessee asking the source of alleged investment. The Ld. AR submitted that during the course of assessment proceedings the assessee explained that the assessee had not invested anything in the alleged property. However, the Assessing Officer relying of the confession of some I.E. Soomar made the addition in the hands of the assessee. The Ld. AR further submitted that the Assessee filed appeal before the CIT (A) and argued that no addition can be made as no incriminating material has been found in the search of assessee. The Ld. AR submitted that the CIT(A) dismissed the appeal without taking cognizance of the correct facts.

7. The Ld. AR submitted that in one similar matter namely in the case of Subhash Khattar a similar addition of Rs 3,21,00,000/- has been made by the revenue. In that case also two searches were conducted one at AEZ group on 17.08.2011 and one at Mr Subhash Khattar on 10.02.2012. This addition was also made in respect of investment in Indrapuram Habitat Center Gziabad and on the basis of confession of Shri E.Soomar. The appeal of the assessee Subhash Khattar when come up before the ITAT, the Tribunal in ITA No 902 of 2015 held that no addition under section 1 53A of the Act can be made in absence of any incriminating documents found in search. The Tribunal further gave a finding that merely because some third party has surrendered some amount in his hands that does not mean that such surrender binds all other independent assessee. The Ld. AR submitted that all these aspects have been considered by the Tribunal in its order dated 30.06.2016. The Ld. AR further submitted that order of the Tribunal has now been affirmed by the High Court in ITA no 60 of 2017 order dated 25.07.2017. The Ld. AR submitted that while deciding the case of Subhash Khattar, the Hon’ble High Court decided the issue after framing the question of law. The Ld. AR submitted that the Tribunal in the case of Asha Rani Lakhotiya, which belongs to same group, following the verdict of Delhi High Court has allowed the appeal of the assessee. Therefore, the Ld. AR submitted that the issue is squarely covered by the judgment of Hon’ble Delhi High Court and hence no addition can be made in the hands of the assessee.

8. The Ld. DR relied upon the order of the Assessing Officer and the CIT(A), but could not controvert the decision of the Hon’ble High Court in case of Subhash Khattar ITA No. 60 of 2017 (Delhi High Court).

9. We have heard both the parties and perused all the records. It is pertinent to note that in present case on 17.08.2011, a search and seizure action has undertaken in the case of AEZ group during this search it is alleged that the assessee invested an amount of Rs 25,20,884/-via cash in M/s Indrapurarn Habitat Center Pvt Ltd. Thereafter, a search action was also undertaken in the case of assessee on 10.02.2012. However, no evidence supporting the case of revenue vis-a-vis investment in cash in Indrapurarn Habitate Center was found. AO issued notice to the assessee asking the source of alleged investment. During the course of assessment proceedings, the assessee explained that assessee had not invested anything in the alleged property. However, the Assessing Officer relied upon the confession of some I.E. Soomar and made the addition in the hands of the assessee. The said confession and the said Group search is already taken into account in co-investor’s case by this Tribunal. The Tribunal has allowed the appeal of the co-investor which is mentioned in the proceedings of the present assessee (Subhash Khattar Vs. ACIT A.Y. 2006-07 ITA No. 902/Del/2015 order dated 30/06/2016). The Hon’ble Tribunal held in para 8 as under:

8. Considering the above submissions, we find that the Learned CIT(Appeals) has upheld the addition in question mainly on the basis of (i) the details written on the hard disc found during the course of search from the premises Aerens Group, wherein payment through cheque and cash have been mentioned against the name of assesee at Sr. No. 32; Shri I. E. Soomar appearing at Sr. No. 39 of the said hard disc had admitted the cash investment of Rs. 6.64 crores being made in the said project and had paid the taxes on the same; (iii) the said hard disc cannot be relied upon in part as the assessee has admitted the payment through cheque but denied the cash payment shown therein etc. In our view, a hue addition of Rs.3,21,00,000/- cannot be made in a casual manner without having corroborative evidence in support. It is a prevailing practice in the dealings of immovable properties that cash amount, if any, out of the agreed consideration is paid during the course of execution/registration of the sale deed and admittedly in the present case no sale deed or other mode of transfer has been effected. Merely because name of the assessee is appearing in the said hard disc and amongst other investors are investor Shri I. E. Soomar appearing in the said hard disc has admitted payment of cash amount, cannot be a basis for arriving at a definite conclusion, in absence of corroborative evidence in support, that the assessee had also paid the amount of Rs.3,21,00,000/- in cash. The Hon’ble Jurisdictional High Court of Delhi in the case of CIT Vs. Prem Prakash Nagpal (Supra) wherein Assessing Officer had made certain additions u/s 69 of the Act on the basis of the documents found during search at a place of third party which indicated that assesseee had purchased a plot by paying consideration in cash, it was held by the Hon’ble High Court that the Assessing Officer could not prove by evidence that said doucemtns belonged to the assessee and that any on money transaction had taken place. The documents at the best only showed tentative/projected purchase consideration held the Hon’ble High Cout. Again, in the case of CIT Vs. Alpha Impact Pvt. Ltd (Supra), the Hon’ble Bombay High Court has been pleased to hold that addition to assessee’s income in respect of additional sales consideration received in sale of land merely on the basis of Email recovered during the course of search action at the premises of another person and there being no independent material available supporting such addition, was not justified. Besides we also find substance in the contention of the Learned AR that assessment u/s153A of the act in absence of incriminating material found during the course of search at the premises of the assessee and in absence o abatement of assessment on the date of search, cannot be made in the present case as per the above cited decisions including the decision of Hon’ble Jurisdictional Delhi High Court in the case of CIT vs Kabul Chawla (Supra). Under the circumstances, we are of the view that the Assessing Officer was not justified in assuming jurisdiction u/s 153A and authorities below ere also not justified in making and sustaining the addition in question merely on the basis of a hard disc found during the course of search at the premises of Aerens Group without any corroborative evidence in support. We thus hold that the assessee/appellant succeeds on both the above issues, i.e. on validity of assumption of jurisdiction u/s 153A and the addition in question. The grounds involving the above issues are accordingly allowed.

The issue contested herein is confirmed by the Hon’ble Delhi High Court vide order dated 25.07.2017. Thus, the issue raised in the present appeal is already covered in co-investors’ case.”

13. In the case on hand also the Department could not produce any corroborative evidence to show that the assessee had in fact made investment in the concerns of AEZ group. The evidences furnished by the assessee in the form of confirmation from the concerns of AEZ group that the assessee nor his family members never made any investment by paying cash or cheque were not at all examined by the Assessing Officer in spite of the assessee stating that no such investment had been made by the assessee. The only basis for making addition under section 69 of the Act in the hands of the assessee is the loose sheets said to have been seized in AEZ group. This alone cannot be the basis for treating such alleged investment as un-explained by the assessee especially when the assessee furnished evidences to show that he has never made such investment in group concerns of AEZ group. In the circumstances, I hold that the Assessing Officer erred in treating Rs.20,00,000/- as un-explained investment in the hands of the assessee. The ground raised by the assessee is allowed.

14. In the result, appeal of the assessee is allowed.

Order pronounced in the open court on :  20/09/2022.