ACIT Vs Mayfair Resorts India Ltd. (ITAT Delhi)
ITAT Delhi held that towards unexplained money u/s. 69A of the Income Tax Act merely on the basis of unsigned unexecuted draft agreement to sale without any other collaborative evidence is unsustainable in law.
Facts- The present appeal is preferred by the revenue contesting that CIT(A) has erred in deleting the addition of Rs. 1.50 Cr. made as unexplained money u/s. 69A of the IT, 1961 by ignoring the established facts that seized document found during search has permissibility as per the provision of presumption u/s. 292C of the IT Act, 1961.
Conclusion- Held that the CIT(A) was right in holding that no addition can be made and sustained only on the basis of an unsigned unexecuted draft agreement to sale found from the premises of third party i.e. deed writer without any other collaborative evidence supporting the factum of receipt of cash by the assessee under the alleged document. We are unable to see any ambiguity, perversity or any other valid reason to interfere with the findings recorded by the ld. CIT(A) and thus we uphold the same. Accordingly, grounds of revenue being devoid of merits are dismissed.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal has been filed against the order of CIT(A)-26 New Delhi dated 26.08.2021 for AY 2010-11.
2. The grounds of revenue are as follows:-
i. Whether the Ld. CIT(A) has erred in law and on facts of the case by deleting the addition of Rs. 1.50 Cr. Made as unexplained money u/s69A of the IT, 1961 by ignoring the established facts that seized document found during search has permissibility as per the provision of presumption u/s292C of the IT Act, 1961.
ii. Whether the Id. CIT(A) has erred in law and on facts by ignoring facts that the contents of ATS where all other details like past ownership of plot, details of director o f these companies, details of cheque of Rs.50 lakhs, the issuing bank branch etc. were al l matching and parties denied only the cash components of agreement.
iii. Whether the Ld. CIT(A) were right in discarding the unsigned agreement to sell (ATS) without appreciating the fact that all other details were exacting matching with the particulars of parties and bank account receipt/payments in this respect.
iv. Whether in law and facts of the case, the order of the CIT(A) is erroneous and not tenable in law and on facts.
3. We have heard argument of both the sides and carefully peruse the relevant material placed on record inter alia paper book filed by assessee spread over 88 pages. The ld. CIT(DR), supporting the assessment order submitted that Ld. CIT(A) has erred in law and on facts of the case by deleting the addition of Rs. 1.50 Cr. Made as unexplained money u/s69A of the IT, 1961 (for short the ‘Act’)by ignoring the established facts that seized document found during search has permissibility as per the provision of presumption u/s292C of the IT Act, 1961. He further submitted that the Id. CIT(A) has erred in law and on facts by ignoring facts that the contents of ATS where all other details like past ownership of plot, details of director of these companies, details of cheque of Rs.50 lakhs, the issuing bank branch etc. were all matching and parties denied only the cash components of agreement. Drawing our attention towards orders of the authorities below the ld. CIT(DR) also submitted that the Ld. CIT(A) were right in discarding the unsigned agreement to sell (ATS) without appreciating the fact that all other details were exacting matching with the particulars of parties and bank account receipt/payments in this respect.
4. The ld. CIT(DR) has placed reliance on the following judgments and orders to support the addition made by the Assessing Officer u/s. 69 of the Act:-
1. [2021] 128 com 414 (Delhi) – Jatinder Pal Singh vs. DCIT, Centra l Circule-9.
2. [2021]f 126 com 82 (Gujarat)- Heval Navinbhai Patel vs. ITO, Ward 3(2)(2).
3. [2019] 107 com 464 (SC)- Krishan Kumar vs. ITO, Patiala
4. [2014] 49 com 101 (Gujarat) CIT-1 vs. Sarwankumar Sharma.
5. [2014] 45 com 276 (Allahadbad)- Swami Sharan Garg vs. CIT, Meerut.
6. [2005] 148 Taxman 569 (Madhya Pradesh)- Kantilal Prabhudas Patel vs. DCIT-Investigation, Circle-2.
7. Malika vs CIT [2017] 79 taxmann.com 117(SC).
8. Ashokbhai H Jariwala vs ACIT [2017] 84 com 196 (SC)/[2017] 250 taxman 14 (SC)
5. Replying to the above, the learned authorised representative of assessee (AR) submitted that the provision of section 69A of the Act cannot be invoked in a vacuum only on the standalone basis of a unsigned document found from the computer of document writer which was never acted upon either by the assessee or by the other party. Drawing our attention towards relevant part of the assessment as well as first appellate order the ld. AR submitted that the ld. CIT(A) has noted facts pertaining to the unsigned agreement to sale (ATS) seized in the soft copy from the computer of a deed writer who was a third party and existence of the same was denying by the both parties to it including the assessee. The ld. CIT(A)also noted that the cheque amount and details are verifiable from the parties to the agreement and there was no evidence on record of any cash exchange between the parties and mention in the ATS. The ld. counsel submitted that the said ATS never culminated into a complete transaction by execution of the registered sale deed and the appellant never sold property to M/s. J P Holding & Leasing Pvt. Ltd. but in fact the same was sold to M/s. Luv Luxmi Land Developers ltd. under the registered sale deed executed on 26.06.2014 and capital gain have been shown by the assessee in the written of income for FY 2014-15 pertaining to AY 2015-16.
6. The learned AR further drew our attention towards para 5.6 to 5.8 of first appellate order and submitted that the ld. CIT(A) has rightly relied on the order of ITAT Delhi Bench dated 25.01.2019 in the case of Shri Bhagat Singh vs. ACIT wherein by relying on the judgment of Hon’ble jurisdictional High Court of Delhi in the case of Smt. Vineeta Chaurasia the addition has been deleted based on dumb document by holding that since the document was not found and seized from the assessee during search & seizure operation and the same was seized and found in the soft copy from the computer of a deed writer Shri Naresh Gupta, who was a third party, therefore presumption u/s. 292C(1)(i) of the Act cannot be drawn against the assessee that the same belongs to the assessee. The ld. AR lastly submitted that the ld. CIT(A) was right in deleting the baseless addition therefore the first appellate order may kindly be uphold by dismissing the ground of revenue.
7. On careful consideration of above rival submissions, first of all, we find it appropriate to reproduced the findings of the ld. CIT(A), which are as follows:-
5.2 Facts of the case:
(i) The search & seizure action was carried out in AN group of cases, during which search was carried at the residence of Sh. Naresh Gupta who is a deed writer and advocate by profession.
(ii) In the hard disc seized from the residence of Sh. Naresh Gupta, an unsigned Agreement to Sell (ATS) between the appellant and M/s JPHLPL for the property belonging to the appellant, as per the details in the above table, was found.
(iii) The appellant and M/s JPHLPL, both have denied the existence of this ATS as well as any amount of cash exchanged as mentioned in this ATS. There is no evidence on record that the amount of Rs. 1.5 cr. had actually exchanged hand between these two parties.
(iv) The AO had invoked presumption us 292C against the appellant on the basis of the unsigned ATS seized from the third party.
(v) The AO had not mentioned the section under which addition had been made by it, however from the wording of addition made, it appears that the addition had been made u/s 69A of IT Act, 1961.
5.3. Let us examine the legal position vis-a- vis the facts of the present case w.r.t presumption of section 292C.
(i) Hon’ble Jurisdictional Delhi High Court vide its order dated 10.02.2016 in the case of Pr. CIT VS M/s Delco India Pvt. Ltd. reported at (2016) 2 TMI 607 (Del.) wherein it has been held as under:
“17. Section 292C of the Act, inter alia, provides that where any books o f accounts or other documents are found in possession or control of any person in the course of search under Section 132 or survey under Section 133A of the Act, it may be presumed that such books or documents belong to such person. Undisputedly, such presumption is rebuttable.
As per this judgment, the presumption u/s 292C and 132 rebuttable.
(ii) The ITAT Mumbai Bench in the case of Sh. Pandoo P. Naig vs A CIT in IT Nos. 7089 & 7364/Mum/2011 and ITA No. 6671 & 6672/Mum/2012 (supra) vide order dated 24.06.2016 had held, as under:
“14. We find that the wording of the section 292C which supposes the presumption to be taken is qualified with the words ‘may be, hence, it, may or may not be presumed that such documents belong to the person searched. Firstly, the section uses the word ‘may presume and not ‘shal l presume’, hence the presumption of facts under section 292C is not a mandatory or compulsory presumption, but, discretionary presumption; secondly, such a presumption is not a conclusive presumption but is a rebuttable presumption because it is a presumption of fact not a presumption of law.
The presumption u/s 292C and 132 are not presumption of law, but facts and are rebuttable.
(iii) In the case of Vijay Kumar Aggarwal vs. ACIT, Central Circle- 12, New Delh i [No.- ITA No. 1182/Del/2011 dated 17/02/2017], the Hon’ble ITAT Delhi had held as under:
“12. From the observations made in the aforesaid referred to orders, it is clear that the presumption of facts us 292C of the Act is not a mandatory or compulsory presumption but a discretionary presumption. Since, the word used in the said Section is “may be” and not “shall”. Secondly, such a presumption is rebuttable presumption and not a conclusive presumption because it is a presumption of fact not a presumption of law.
5.3.1 The ratio-decidendi on section 292C emerging from the above judicia l precedents is that:
(a) The presumption of facts u/s 292C of the Act is not a mandatory or compulsory presumption but a discretionary presumption. Since, the word used in the said Section is “may be” and not “shall”.
(b) Such a presumption is rebuttable presumption and not a conclusive presumption because it is a presumption of fact, not a presumption of law.
5.3.2 The above judgments of various courts had held that the presumption available in section 292C of the Act is a rebuttable presumption, Mere possession of documents perse does not warrant any addition on the basis of values in non executed documents. The AO cannot make any addition simply on the basis o f this presumption but need to bring other corroborative evidences on record.
5.4 There are other judicial pronouncements on the issue of burden of proof, corroborative evidences of actual payments, applicability of deeming provisions etc. in such circumstances. Some of these are as under:
(i) The Hon’ble Madras High Court in the case of CIT vs. P.V. Kalyanasundaram (2006) 282 IT 259 (Madras) has held as under :
“The burden of proving actual consideration in such transaction is that o f the revenue. The Tribunal had given factual finding and, inter alia, held that the Apex Court in K.P. Varghese v. ITO (19911 131 ITR 597 | 7 Taxman 13 held that the burden of proving actual consideration in such transaction is that of the revenue. The Assessing Officer did not conduct any independent enquiry relating to the value of the property purchased. He merely relied upon the statement given by the seller If he would have taken independent enquiry by referring the matter to the Valuation Officer, the controversy could have been avoided. Failing to refer the matter was a fatal one. In view of the above, there was no error in the order of the Tribunal and required no interference.
The Hon’ble Supreme Court in the case of CIT vs. P.V. Kalyanasundaram (2007) 294 IT 49 (SC has confirmed the above Judgment of the Hon’ble Madras High Court by dismissing the Departmental Appeal.
(ii) In the case of CIT vs. Provestment Securities (P.) Ltd. [20161 65 com 69 (Delhi), the Hon’ble Delhi High Court has held as under: –
“14. At this stage it is necessary to refer to Section 69 of the Act, which reads as under:- “69. Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.”
15. It is apparent from the plain language of Section 69 of the Act that in order for any addition to be made under Section 69 of the Act, the following conditions must be met:
(a) It is established as a fact that the Assessee has made an investment:
(b) That the investment made is not recorded in the books of the Accounts, if so maintained; and
(c) The Assessee offers no explanation as to the nature and source of investment made or the explanation offered by the Assessee is, in the opinion of the AO, not satisfactory.
16. Thus, first and foremost, A0 must come to a conclusion that an Assessee had, in fact, made an investment. Once an AO finds that an investment has been made, he has to examine the Assessee’s explanation as to the source of that investment. It is only in cases where the Assessee is unable to explain the source of the investment made that provisions of Section 69 of the Act can be applied to tax the value of the investment made.
19. In the circumstance, we are inclined to agree with the Tribunal that the question whether an investment had been made or not is a matter of fact and the same cannot be presumed. “
The ratio of the aforesaid decision is squarely applicable to the facts of the present case of the appellant. The AO has not been able to establish through any evidence that the appellant had, in fact, received any amount for which the addition had been made in the assessment order. Once this primary and basic condition of section 69/69A has not been fulfilled, as held by the Hon’ble High court in the above case, provisions of Section 69/69A of the Act cannot be applied.
(iii) In the case of Pr. Commissioner of Income Tax-III, Ahmedabad Versus Vivek Prahladbhai Patel 2015 (12) TMI 1287 – GUJARAT HIGH COURT the hon’ble high court had held as under: –
8. For the reasons stated hereinabove, this court is in complete agreement with the findings recorded by the Tribunal upon appreciation of the evidence on record and finds no reason to take a different view. In the opinion of this court, having regard to the evidence which has come on record, which reveals that there is an agreement to sell executed between the assessee and the sellers, which shows the price of the plots of land in question to be a much higher figure than the documented price and the fact that the sellers have stated that they have received higher amounts by way of on-money and have also shown receipt of such amount in their income tax returns, the circumstances do raise a suspicion. However, as held by the Supreme Court in Commissioner of Income tax v. Daulatram Rawatmull, (1964) 53 IT 574 (SC), even if circumstances raise a suspicion, suspicion cannot take the place o f evidence.
The facts of the case of the appellant are even stronger. There is neither any evidence of any consideration received by the appellant over and above the amounts mentioned in books nor there is any confession/admission by the proposed sellers/purchasers of having received any amount over and above the amount recorded in the books. Applying the ratio of the aforesaid decision on the present case of the appellant, the AO could not have drawn any adverse inference.
iv. In the case of ACIT V. Rakesh Narang, 64 com 332 (Del), the Court had held as under: –
4. We have heard the rival submissions and perused the relevant materia l on record. It is noticed that the extant addition was made by the AO us 69B of the Act. The relevant part of this section stipulates that: ‘Where in any financial year the assessee has made investments or and the Assessing Officer finds that the amount expended on making such investments or … exceeds the amount recorded in this behalf in the books of account maintained by the assessee for any source of income, and the assessee offers no explanation about such excess amount or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the excess amount may be deemed to be the income of the assessee for such financial year.’ The pre-requisite conditions for making an addition under this section are that firstly, the assessee should have made investment and then the AO should find that the amount actually expended on making such investment is more than the amount recorded in the books of account. In other words, there should be some positive evidence with the AO to find that the assessee had, in fact, invested more amount than that actually recorded in the books of account. Such a finding by the AO can be based on some positive evidence about the making of more investment than that declared in the books of account.
This section cannot be triggered on a mere presumption of the AO. When the legislature has unambiguously provided so, it is impermissible to substitute such a finding with a presumption about actual investment having been made by the assessee at a level higher than that depicted in the books of account. Only some positive and irrefutable evidence converts a presumption into a finding. Absent affirmative evidence, what remains is a mere supposition of unexplained investment etc., which cannot take the place of a finding of the AO towards unexplained investment.
(v) In the case of CIT vs Dinesh Jain HUF, IT no. 610/2012, Dated 19.10.2012 (Del), the Court had held as under:-
“This Court in its order dated 28.9.2012 held that (a) Section 69B in ) terms requires the assessing officer to first prove that the assessee has actually expended an amount which he has not fully recorded in his books of account; (b) there has to be a finding that such amount was actually paid by the assessee over and above the declared consideration and the extra amount was not recorded in the assessees books of account; (c) the provisions of the Wealth Tax Act and Schedule III thereto cannot be imported into the provisions of Section 69B because the enquiry under o the Wealth. Tax Act is towards estimating the market value of the property which is different from the actual price paid for the property; (d) Section 69B does not permit an inference to be drawn from the circumstances surrounding the transaction that the purchaser of the property must have paid more than what was actually recorded in this books of account, because such an inference could be very subjective and could lead to the taxation of notional or fictitious income contrary to the strict provisions of Article 265 of the Constitution of India as held by the Supreme Court in the case of K P Verghese Vs. ITO (1981) 131 ITR 597 “
(vi) In the case of CIT vs. Naresh Khattar (HUF) 261 IT 664 (Del), the Court had held as under:-
“8. There is no gainsaying that to invoke the provisions of section 69B of the Act, the burden is on the Revenue to prove that the real investment exceeds the investments shown in the books of accounts of the appellant. As observed by the Apex Court in K.P. Varghese v. ITO /19811 131 ITR 597′, to throw the burden of showing that there is no understatement of the consideration received, on the appellant would be to cast an almost impossible burden upon him to establish in negative, namely, that he did not receive any consideration more than what has been declared by him. Therefore, if the Revenue seeks to hold that the appellant has received more than what has been declared by him in respect of the assessment in question, the onus would lie on the Revenue to prove this fact by bringing some material on record.
(vii) In the case of CIT vs. Kulwant Rai reported in 291 IT 36, Delhi High Court had held as under:
“12. Coming to the facts of the present case with regard to the addition o f Rs. 17,00,892/- made by the Assessing Officer as undisclosed income of the Assessee for the block period, we may refer to the findings of the Tribunal on this point and the relevant portion reads as under:-
“On consideration of the matter we find that the addition has been made by the learned Assessing Officer on the basis of surmises and guess work. He has ignored the fact that the agreement was found in possession of the Assessee. …The reasoning given by the learned Assessing Officer is entirely guess work. It is well settled legal position in respect of income tax assessment proceedings that although strict rules of Evidence Act do not apply to Income-tax proceedings, assessments cannot be made on the basis of imagination and guess work. Reference in this respect may be made to the judgment of Hon’ble Supreme Court in the case o f Dhakeswari Cotton Mills Ltd. vs. CIT (1954) 26 IT 775 (SC) and a host of Supreme Court and High Court’s judgments thereafter on the subject. We, therefore, direct deletion of the sum o f Rs.17,00,892/- assessed by the Assessing Officer by way of hal f share of the Assessee in the alleged earnest money.
13. It is an admitted fact that the present Assessee had not signed the agreement in question and since the Assessee had not signed the agreement, no liability can be attributed qua that agreement towards the Assessee since he is not party to the agreement till he had signed the same. The mere fact that this agreement was found in the possession o f the Assessee does not lead us anywhere. We find no hesitation in holding that this addition of Rs. 17,00,892/- made by Assessing Officer is based on surmises and guess work and on this point case of Dhakeswari Cotton Mills Ltd v. Commissioner of Income Tax, (1954) 26 IT 775, may be referred to..
(viii) In the case of CIT vs. Mother India Refrigeration Industries (P.)v Ltd – SC-155 ITR 711 Hon’ble Supreme Court observed that –
“10. It is true that proviso (b)to section 10(2)(vi)( Corresponding to section 32(2) of Income Tax Act 1961) creates a legal fiction and under that fiction unabsorbed depreciation either with or without current year’s depreciation is deemed to be the current year’s depreciation but it is well settled, as has been observed by this Court in Bengal Immunity Co. Ltd. v. State of Bihar (1955] 2 SCR 603 at p. 606, that legal fictions are created only for some definite purpose and these must be limited to that purpose and should not be extended beyond that legitimate field. 11. Such being the purpose for which the legal fiction is created, it is difficult to extend the same beyond its legitimate field and will have to be confined to that purpose. It is, therefore, not possible to accept the contention of the counsel for the assesses that because of the legal fiction the unabsorbed carried forward losses should be given preference not merely over the unabsorbed carried forward depreciation but also over the current year’s depreciation. There is, thus, no modification of nor deviation from the basic and well recognised principle of commercial accountancy by the statute as is contended by the counsel for the
(ix) The Hon’ble Supreme Court in the case of CIT vs. Moon Mills Ltd – 59 ITR 574 [larger bench of 3 judges] held that –
But the fourth proviso introduces a fiction that in case any insurance, salvage or compensation money received in respect of the said property exceeds the difference between the written down value and the scrap value, so much of the excess as mentioned therein will be deemed to be the profits of the previous year in which such money is received. Though in fact the said compensation represents a capital asset, to the extent mentioned in the proviso, the compensation is deemed to be the profits o f the previous year in which such money is received. The proviso, therefore, introduces a fiction. What is not a profit in the previous year is… deemed to be a profit in that year. The previous year is that year in which such moneys were received. The fiction is an indivisible one. It cannot be enlarged by importing another fiction, namely, that if an amount was receivable during the previous year it must be deemed to have been received during that year.
So too, in the instant case, the fiction serves the purpose, if the said compensation was deemed to be the profits of the previous year or of the year in which it was received. This fiction cannot be enlarged by giving the expression “received” a technical meaning which it may bear in the mercantile system of accountancy.
(x) In the case of ACIT vs. M/s Vatika Greenfield (P) Ltd. IT 113 (AT) (Del), the court had held as under:-
“21. A conjoint reading of the above decisions suggests that taxing statutes have to be interpreted strictly. In the deeming provision what is prescribed is to be deemed and deeming provision cannot be extended beyond the legislative scope. The presumption as envisaged in s. 292C is limited to the correctness of the documents found at the time of search or survey, but that presumption has not been extended by the statute to be presumed to be the income of the assessee. If it is so, then unless some evidence/material is brought on record by the Revenue to say that what is stated in the seized document is not correct, state of affairs, the state o f affairs stated in the impounded document has to be presumed to be true. It has already been observed that there is no material/evidence on record to suggest alleged excess payment of Rs.1 crore received by the assessee from Raja Singh Sethi was in any way in the shape of income and not an unsecured interest-free loan. Therefore also, the argument of learned Departmental Representative that on the basis of s. 292C, the action of the AO should be upheld, cannot be accepted. Therefore, we find no material to interfere in the decision arrived at by the CIT(A) vide which impugned addition has been deleted. “
5.5 It is observed that in the present case:
(i) There is no original ATS, but a soft copy, which is not on any stamp paper, not signed by any party to the ATS, including any witness.
(ii) The ATS had been seized in the soft copy from the computer of a deed writer, which is a third party.
(iii) The existence of this ATS had been denied by both the parties to it.
(iv) Only cheque amounts & their details are verifiable from the parties to the agreement. There is no evidence on record of any cash exchanged between the parties as mentioned in ATS, to which appellänt is the receiving party as seller o f property.
(v) The deed writer had not given any adverse statement to the contents of this ATS, as nothing had been reproduced in the assessment order.
(vi) This ATS never culminated into the sale deed. Infact, the appellant had sold this property later on at value of Rs3,61,00,000/- to another party M/s Luv Laxm i Land Developers (P) Ltd. as per the sale deed dated 26.6.2014 submitted by the appellant and capital gains have been shown in the return of income filed by the appellant for AY 2014-15.
5.6 In the situation where the ATS is unsigned, not on any stamp paper and had been denied by all the parties to it and had been found from the computer of a deed writer ( a third party on which the appellant had no control), the contents & purpose of this allegedly partly executed ATS is not fully established. In these circumstances, the presumption u/s 292C, for the cash amounts exchanged between the parties, as mentioned in the ATS cannot be taken on the face value and had to be corroborated with other independent evidences. Further it had been held in various judicial pronouncements cited above that the presumption of section 292C cannot be raised and the deeming provisions of sections 68/69/69/69B/69C cannot be applied, without evidences of actua l payments/investments or any adverse statements on record. Thus, the presumption u/s 292C the presumption is rebuttable and cannot be raised in the case of the appellant, in case the document have been found from the premises of the third party, unless there are corroborative evidences. Further, the deeming provision of section 69/69A cannot be invoked against the sellers/buyers only on presumption, in the absence of any evidence of money actually paid/received had been brought on record.
(i) The above judgments of various courts had held that the presumption available in section 292C of the Act is a rebuttable presumption, mere possession of documents perse does not warrant any ran addition and the AO cannot make any addition simply on the basis of this presumption. In the case laws cited above, the courts have mentioned that presumption cannot be made for the value mentioned in ATS even if it belongs to the same parties.
(ii) In order to invoke the provisions of Section 69/69A of the Act, the AO ought to have established that the Appellant is the owner of money during the above assessment year. Section 69A cannot be invoked on the basis of suspicion. It is for the AO to prove that assessee has made received cash payment over and above the amount mentioned in the proposed unsigned agreement.
(iii) In the present case, the assessment order is completely silent as to how and in which manner the AO had invoked the provisions of Section 69A of the Act. There are no details in the assessment order of the unexplained amounts received and added by the AO. No material has been brought on record by the AQ, except for presuming that the appellant must have received the amounts mentioned in the unsigned ATS.
iv. From the above decisions at (viii) to (x) in para above, following noteworthy principles follow –
