Change in original statement cannot be relied unless supported by evidences

Brief of the case:

The Hon’ble Kerala High Court in the case of Parayil Balan Nair vs. CIT held that the change in statement made by a party on whose original statement the notice was issued to assessee cannot be relied without proper reasoning produced in support of such change.

Facts of the case:

• The case of the assessee was opened by Income Tax Department based on letter received from Mr. K.C Basheer who in his letter informed that he had paid a sum of Rs.15,00,000/- to the assessee on behalf of his brother Sri. K.C. Usman, a non-resident Indian doing business in Dubai.
• He further confirmed that the said amount was paid to assessee in cash and in support of the same he enclosed a copy of his Saving Bank A/c from which the required funds were withdrawn.
• Based on the letter notice was issued by Add. CIT u/s 274 r.w 271D to assessee stating that he had accepted loan in contravention of provisions of Sec 269SS , therefore, why penalty u/s 271D should not be imposed.
• Assessee in his reply submitted that the amount of Rs. Lacs received was not a loan rather only an advance received in connection with the sale of a property.
• Along with his reply he also enclosed a clarificatrory letter from the same Mr. Basheer who informed the department about the loan transaction. Mr. Basheer clarified that it was not actually a loan but was only a property advance.
• Finally, the order was passed levying the penalty u/s 271D equivalent to the loan amount.
• Assessee challenged such order before CIT(A) , who decided the appeal in favour of assessee on the ground that the transaction in question is not a loan or deposit and that therefore Section 269SS is not attracted.
• In appeal before tribunal , the order of CIT(A) and penalty order was restored. Tribunal decided the case in favour of assessee because the change in statement by Mr. Basheer was not reliable and was a planned U-turn to save assessee from penalty proceedings.
• The assessee again challenged the order of tribunal before Kerala HC.

Contention of Assessee:

• It was submitted that the advance given was not loan in nature but a property advance in connection with agreement to sale entered into between the buyer Mr. K.C Usman and his four children.
• Further, he also produced a copy of agreement to sale entered as aforesaid signed by a third person on behalf of his four children and also submitted clarificatrory letter supporting the his submission from same Mr. Basheer who first of all informed Income Tax Department about the transaction.

Contention of Revenue:

• The surprise change in statement made by Mr. Basheer is beyond understanding and not reliable because of many reasons particularly due to the fact that the claim of assessee that the property in question belongs to his four children whereas Mr. Basheer in his original letter nowhere mentioned that property belongs to assessee’s four children.
• Further, the assessee started repaying the amount during the course of assessment proceedings. However, the letters furnished by Shri.K.C.Basheer did not mention about the repayments nor did it state about the reasons for cancellation of the sale agreement.

Held by Hon’ble High Court:

• The point of dispute is that the change in statement made by Mr. Basheer could be relied upon to consider that the advance was not in nature of loan but was a property advance.
• High court agreed with the reasoning adopted by tribunal in non-relying on the changed statement of Mr. Basheer.
• The tribunal disbelieved the story that payment made was towards the property advance due to following reasons:

i) The property against whom the advance claimed to be received belong to four children of assessee but the sale agreement was signed by a third party Mr. V.V Sreedharan on behalf of four children of assessee that too when two of them were residing in the same village in which property located did not sign the sale deed.

ii) The description of property in agreement to sale was incomplete as the surrounding properties on the four sides of the said property was absent.

iii)No reasons explained for not executing sale deed even after expiry of six months of agreement to sale.

iv) No confirmation from the ultimate buyer or from four children of assessee was produced.

v) The amount received advance was not returned and held for a period of about 2 years

vi) And most importantly if the amount of Rs.15.00 lakhs was received as advance for sale of property belonging to four children of the assessee, then the said amount belong to them only and the assessee shall be deemed to have received the amount on behalf of them . However, the letters written by Shri.K.C.Basheer do not mention about the children of the assessee.

• The findings of tribunal are absolutely unassailable and there is no good reason to interfere with its findings. Therefore, the transaction was correctly assessed as a loan and penalty levied was levied correctly for contravention of Sec 269SS.
• In result the appeal of assessee was dismissed.