Addition of unexplained investment u/s 69 untenable as source of investment duly explained

DCIT Vs Sukhbir Shokeen (ITAT Delhi)

ITAT Delhi held that addition u/s 69 of the Income Tax Act towards unexplained investment untenable as source of investment made by the appellant stands sufficiently explained.

Facts- AO noted that during the year under consideration, the appellant has been engaged in plotting and sale of this land to different parties. During the A.Y. 2016-17, AO noted that there were substantial credits including the cash deposits in his different bank accounts and that the assessee has not been able to explain how the income figure for different assessment years has been worked out.

The income declared by the appellant in the A.Y. 2016-17 was not accepted and AO concluded that the assessee being a broker in real estate business and having no other substantial source of income than the real estate business, the credits in the bank accounts represent the gross receipts of the assessee. Thus, the income of the appellant has been computed by AO @8% of the total receipts/credits of Rs.11,08,41,059/-, u/s 44AD of the Act at Rs.88,67,284/-.

Notably, the explanation in this regard filed by the appellant was not acceptable and added the amount of Rs. 4,59,50,000/- on account of unexplained investment u/s 69 of the Act.

Aggrieved by the order of the AO, the assessee filed appeal before the ld. CIT(A) who deleted the addition which led to filing of the appeal before us by the revenue.

Conclusion- Held that during the course of search, no incriminating evidence was discovered or seized to show that the credits of the appellant’s bank statements were in the nature of income or that he was engaged in any other line of work. In this regard, it is noteworthy that the appellant was required to explain the source of funds utilized for purchasing the said properties, which has been duly discharged by the appellant. A mere suspicion has been raised by the Assessing Officer on such other credits of equivalent amounts, without seeking explanation of such other credits from the appellant. All credits appearing in his bank statement are duly explained, and the documentary evidence placed on record has been duly perused and examined. The source of investment made by the appellant during the year stands sufficiently explained. Hence, we decline to interfere with the reasoned order of the ld. CIT(A).

FULL TEXT OF THE ORDER OF ITAT DELHI

The present appeal has been filed by the Revenue against the order of ld. CIT(A)-30, New Delhi dated 09.03.2020.

2. The Revenue has raised the following grounds of appeal:

“1. On the facts and in the circumstances of the case, the Ld.CIT(A) has not appreciated the facts and erred in law that the assessee did not cooperate during the assessment proceedings for which he was asked specifically to provide details of all his bank accounts but he failed to do so. When enquiry letters were sent on the bank accounts disclosed by the Investigation Wing, many other bank accounts came to the notice.

2. On the facts and in the circumstances of the case, the Ld.CIT(A) has not appreciated the facts and erred in law that inspite of being provided sufficient opportunities, the assessee did not explain the debit/credit entries appearing in his bank account.

3. On the facts and in the circumstances of the case, the Ld.CIT(A) has not appreciated the facts and erred in law that the assessee was asked to submitted the details of debit/credit entries of his bank account from the very beginning through detailed questionnaires.

4. On the facts and in the circumstances of the case, the assessee himself accepted that he does not maintain regular books of accounts.

5. On the facts and in the circumstances of the case, the Ld.CIT(A) has not provided opportunity to the AO and no remand report u/s 46A of the Act has been called for from the AO in this case so as to counter the new evidences, if any filed by the assessee before the Ld. CIT(A).

6. On the facts and circumstances of the case, the Ld. CIT(A) has not appreciated the facts and erred in law that on the issue of addition of Rs. 4,59,50,000/-on account of unexplained investment no evidence was filed before the AO during the assessment proceedings in the form of identity, creditworthiness of the lender.”

3. The brief facts of the case are that the assessee filed return of income declaring income at Rs. 10,65,080/-. A search and seizure action u/s 132 of the Act, was carried out on 13.12.2016 at the premises of the appellant. The assessee is engaged in sale and purchase of properties as a broker and deals in real estate and agricultural land. While explaining the substantial cash credits in his bank accounts, the appellant has submitted that he mostly acted as a broker for trading in agricultural land. The appellant also traded in agricultural land and submitted that his family owns ancestral agricultural land approximately 20 acres in Village Chhawla.

4. The A.O. has noted that during the year under consideration, the appellant has been engaged in plotting and sale of this land to different parties. During the A.Y. 2016-17, the A.O. noted that there were substantial credits including the cash deposits in his different bank accounts and that the assessee has not been able to explain how the income figure for different assessment years has been worked out.

5. The income declared by the appellant in the A.Y. 2016-17 was not accepted and the A.O. concluded that the assessee being a broker in real estate business and having no other substantial source of income than the real estate business, the credits in the bank accounts represent the gross receipts of the assessee.

6. Thus, the income of the appellant has been computed by the A.O. at the rate of 8% of the total receipts/credits of Rs.11,08,41,059/-, u/s 44AD of the Act at Rs.88,67,284/-. Since, the appellant has already declared his return of income at Rs.10,65,080/-, for the year under consideration, the difference of Rs.78,02,204/- (188,67,284 – 10,65,080) is added by the Assessing Officer in the returned income of the appellant.

7. Further, during the assessment proceedings, the AO sought explanation regarding purchase of property by the appellant. The appellant was asked to submit all the documentary evidences with regard to the investment in property amounting to Rs. 4,59,50,000/-. The AO noted that the explanation in this regard filed by the appellant was not acceptable and added the amount of Rs. 4,59,50,000/- on account of unexplained investment u/s 69 of the Act.

8. Aggrieved by the order of the AO, the assessee filed appeal before the ld. CIT(A) who deleted the addition which led to filing of the appeal before us by the revenue.

9. Excerpts from the Assessment Order:

“2. Information was received in this case about huge amount of cash in possession of Sh. Sukhbir Shokeen at his residence A-71, Pachhiya Mohalla, Chawla, Delhi 71. Accordingly, warrant u/s 132 of the Act as issued in respect of the above premise. During the course of search proceedings u/s 132 of the Act on 13.12.2016, cash seizure of Rs. 64,84,000/- (including new currency of Rs. 11.32 lacs) was made. Sh. Sukhbir Shokeen in his statement stated that the above mentioned cash was his unaccounted income of commission/brokerage received from the real estate business during the F. Y. 2016-17. He further stated that this unaccounted income has been generated in the form of commission received from the sale/purchase, mutation, lease deed, rent agreements and this was received by him from different parties in the form of cash. He further stated that he does not remember names of those parties from whom he has received the commission income in cash and does not keep any record of sale/purchase, mutation, lease deed and rent agreements. His statements were recorded u/s 132(4) of the Act on 13.12.2016 & 11.02.2017 and on 31.05.2017 u/s 131(1A) of the Act. Statement of the assessee was also recorded before the undersigned during assessment proceedings on 24.12.2018. The above statements recorded during the search and post search proceedings were confronted to the assessee.

3. A notice u/s 153A of the Act was issued on 14-12-2017 and served on the assessee requesting to file his return of income within 15 days of the receipt of notice. In response to the statutory notice u/s 153A of the Act, the assessee filed his return of the income on 29-11-2018 declaring total taxable income of Rs. 10,65,080/-. Notice u/s 143(2) of the Act was issued on 07-12- 2018 fixing the case for hearing on 13-12­2018, which was duly served upon the assessee through speed post. Notices u/s 142(1) of the Act alongwith detailed questionnaires was issued on 24-07-2018, 16-10-2018, and 26.12.2- 018 which were duly served on the assessee through speed post and AR of the assessee. In response thereto, Sh. Karan Kumra, of Kumra Bhatia & Co. represented the case before this office as authorized by the assessee and filed necessary details/information/documents, etc. as required.

4. During the year under consideration, the assessee is engaged in the sale and purchase of properties as a broker and deals in real estate and agricultural land. On perusal of the findings of the Investigation Wing, submission/details filed by the assessee and enquiries conducted u/s 133(6) of the Act, the following issues have emerged.

5. Enquiries u/s 133(6) of the Act and information relating to the bank accounts in assessee’s name/joint name.

5.1 During the post search as well as assessment proceedings, the assessee has admitted that he has not been maintaining regular books of accounts. Enquiries in the form of issuance of notices u/s 133(6) of the I.T. Act to the concerned bank branches were conducted and information relating to the bank statements of the assessee in his name/joint name were obtained. On perusal of these bank statements, it has been observed that there are substantial credit and debit entries in these bank accounts.

5.2 During assessment proceedings, vide this office questionnaire dated 26.12.2018, the assessee has been asked to explain these entries and provide narration of these entries. The AR of the assessee submitted that since regular books of accounts have not been maintained by the assessee over the years under consideration, it is not possible for the assessee to recall these entries.

5.3 The assessee is engaged in the sale and purchase of properties as a broker and deals in real estate and agricultural land. While explaining the substantial cash credits in his above mentioned bank accounts, he has submitted that the assessee mostly acts as a broker for trading in agricultural land. The assessee also trades in agricultural land himself and submitted that his family owns ancestral agricultural land approximately 20 acres in Village Chhawla. On perusal of the documents submitted by the assessee, it is seen that during the years under consideration, the assessee has been actively engaged in plotting and sale of this land to different parties. During A.Y. 2016-17, there are substantial credits (including the cash deposits) in his different bank accounts and the assessee has not been able to explain how the income figure for different assessment years has been worked out in absence of any regular books of accounts maintained by him.

6. Special provision for computing profits and gains of business on presumptive basis.

6.1 44AD of the Act states as under:

(1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an eligible assessee engaged in an eligible business, a sum equal to eight per cent of the total turnover or gross receipts of the assessee in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the eligible assessee, shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession”:

Provided that this sub-section shall have effect as if for the words “eight per cent”, the words “six per cent” had been substituted, in respect of the amount of total turnover or gross receipts which is received by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account during the previous year or before the due date specified in sub-section (1) of section 139 in respect of that previous year.]

(2) Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed.

(3) The written down value of any asset of an eligible business shall be deemed to have been calculated as if the eligible assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years.”

A search and seizure operation u/s 132 of the Act was carried out on the assessee on 13.12.2016 and cash of Rs. 64.84 lacs was found at his residence. The assessee during the course of statement recorded on oath u/s 132(4) of the Act admitted this amount to be his unaccounted income from real estate business. Later, he declared 100% of this amount for taxation u/s 44AD in his return of income filed for A.Y. 2017-18.

6.3 The above discussion implies that consequent upon the search on the assessee and seizure of unaccounted cash of Rs. 64.84 lacs, the assessee declared income from business or profession amounting to Rs. 71,73,450/- u/s 44AD. This amount of Rs. 71,73,450/- includes 100% of the cash seized during search and offered the same as his unaccounted income while filing his return of income for A.Y. 2017-18. In the preceding years as well as the instant A.Y. 2016-17, the income declared are low as compared to the income declared in A.Y. 2017-18 consequent to the search. Thus, it is apparent that the assessee was having substantially higher income over the different assessment years under consideration. Therefore, income declared by assessee w.e.f. A.Y. 2011-12 to 2016-17 are not acceptable and are re-worked out. The following credits have been observed in different bank accounts of the assessee in his name/joint name during the years under consideration.

6.4 The assessee being a broker in real estate business and having no other substantial source of income than the real estate business, these credits represents the receipts of the assessee from real estate business. The income of the assessee has been worked out as eight percent of the above receipts during the relevant financial year u/s 44AD of the I T Act. As per the table above, the gross receipts during the relevant assessment years are Rs. 11,08,41,059/-. Therefore, income of the assessee is calculated at Rs. 88,67,284/- @8% of gross receipts as per the discussion made above. Further, for the relevant assessment year, the assessee has declared taxable income of Rs. 10,65,080/- in his return of income filed. Therefore, after deducting this amount from the income worked out above, the balance figure of Rs. 78,02,204/ – is added to the returned income of the assessee.

(Addition Rs. 78,02,204/-)

7. Issue of property purchase by Sh. Sukhbir Shokeen

7.1 During the course of survey proceedings u/s 133A of the Act at Ran gpuri, Delhi at the office premise of M/s Shokeen Real Estate Pvt. Ltd., Annexure A-1 to A-5 were impounded. These annexures contain sale deed/sale and purchase agreements registered at sub-registrar office. Page 36 to 43, 48 to 55, 56 to

63 and 64 to 71 are related to the purchase of agricultural land by Sh. Sukhbir Shokeen as per following details:-

7.3 The assessee vide his submissions dated 18.12.2018, submitted that he had purchased lands in village Dhansa, New Delhi during F.Y. 2015-16. The sources of payment have been stated to be advance of Rs. 1,00,00,000/ – from Mr. Vikram Burman received in assessee’s SBI a/c, advance of Rs. 1,00,00,000/- from Ms. Asha Singla received in assessee’s HDFC Bank a/c and Rs. 75,00,000/- received in assessee’s HDFC Bank a/c, Rs. 25,00,000/- from Sh. Sunil Kumar Sehrawat received in assessee’s HDFC a/c. Further, amounts of Rs. 1,00,00,000/- and Rs. 25,00,000/- have been transferred from assessee’s own a/c in SBI to assessee’s a/c in HDFC Bank.

7.4 As discussed above, additions @8% of the gross receipts in the form of credits entries in his different bank accounts is also being made, therefore the above mentioned amounts paid by the assessee from his bank accounts for the purchase of properties have been excluded from the gross credits entries considered for calculating the income of the assessee @8% u/s 44AD of the Act. In view of the discussion made above, the payments made by the assessee for the purchase of above properties have remained unexplained and are added to the income of the assessee u/s 69 of the Act for A. Y. 2016-17.

(Addition Rs. 4,59,50,000/-)”

10. Before us, the ld. AR supported the order of the ld. CIT(A) whereas the ld. DR supported the order of the Assessing Officer.

11. Heard the arguments of both the parties and perused the material available on record.

12. We find that the ld. CIT(A) deleted the addition holding that the assessee was issued questionnaire on 26.12.2018 and the assessment has been completed on 30.12.2018 and there is absolute lack of time given to the assessee to explain the transactions of the entire period u/s 153A. The ld. CIT(A) held that the provisions of section 44AD are clear and unambiguous. Section 44AD (6)(ii) clearly provides that the provisions of this section do not apply to a person who earns income in the nature of commission or brokerage. As the appellant only earns income in the nature of commission or brokerage consistently across the years, the provisions of section 44AD cannot be applied to the facts of the appellant. The ld. CIT(A) has also held that on law the explanation B to section 44AD provides for a monetary limit of gross receipts/ turnover for application of deemed profit of 8%. A perusal of the assessment order also shows that the turnover computed for the subject assessment year (Rs.11,08,41,059) also breaches the threshold as per explanation B of section 44AD (Rs. 2,00,00,000). Thus, the application of section 44AD is not correct. The ld. CIT(A) held that no evidence has been brought on record by the Assessing Officer to attract provisions of section 44AD to all credits of the appellant’s bank statements. In the absence of any such basis or reasoning, it was held that the application of section 44AD to the facts of the appellant’s case is not proper. In the absence of any material contra, we decline to interfere with the adjudication of the ld. CIT(A) on the issue of invocation of the provisions of Section 44AD of the Income Tax Act, 1961.

13. With regard to the addition of Rs.4.59 Cr., the details of the fund flow till the date of payment for all the four properties is as under:

14. We find that the ld. CIT(A) deleted the addition on the grounds that the sources of the entire amounts, the credits and debits in the bank account have been duly explained. We find that the amounts have been received against purchase of properties from various persons namely, Ms. Sarika Malu, Sh. Vikram Burman, Sh. Sunil Kumar, Sh. Jasbir, Ms. Premwati, Sh. Ram Karan Rana, Sh. Jagdish Yadav, Ms. Asha Singhla, Sh. Sudesh Gahlot. The bank statement also consists of amounts received and refunded to various people in total five properties have been purchased and payment of stamp duty is also reflected in the same bank account.

15. The assessee also submitted the documentary evidence such as confirmation, PAN details, copies of accounts etc. to substantiate the above source of funds. No adverse inference has been drawn on such explanations by the Assessing Officer. However, it is seen that the Assessing Officer has passed a remark that there exist other transactions of equivalent amounts from these persons and that it is not clear whether these amounts are also advances. The properties which have been purchased in the name of the assessee and the subsequent sale from such properties is offered to tax as capital gains in the year in which such sale is undertaken.

16. The Assessing Officer has made a remark that it is not explained why the properties were purchased by the appellant where the loans were provided by other parties. However, there is no embargo in law to purchase a property from borrowed funds. The appellant has explained that the nature of income earned by him is solely that of commission/ brokerage, pension, interest and capital gains. While explaining his investment activities from which capital gains are earned in the year of sale, the appellant submitted that he makes investment in properties either from his own funds or from borrowed funds. Whenever such properties are sold, the resultant capital gains is offered to tax in the relevant assessment year.

17. Further, during the course of search, no incriminating evidence was discovered or seized to show that the credits of the appellant’s bank statements were in the nature of income or that he was engaged in any other line of work. In this regard, it is noteworthy that the appellant was required to explain the source of funds utilized for purchasing the said properties, which has been duly discharged by the appellant. A mere suspicion has been raised by the Assessing Officer on such other credits of equivalent amounts, without seeking explanation of such other credits from the appellant. All credits appearing in his bank statement are duly explained, and the documentary evidence placed on record has been duly perused and examined. The source of investment made by the appellant during the year stands sufficiently explained. Hence, we decline to interfere with the reasoned order of the ld. CIT(A).

18. In the result, the appeal of the Revenue is dismissed.

Order Pronounced in the Open Court on 23/05/2023.