COMMISSIONER OF INCOME TAX V. K C REDDAPPA NAIDU

ITTA/356/2015

AI Insights

The case involves multiple appeals by the Revenue against the orders of the Income Tax Appellate Tribunal, which had deleted additions made by the Assessing Officer on account of unexplained investments in land purchases by the respondent-assessee for the assessment years 2006-07 and 2007-08. The main legal issue was whether the Tribunal was correct in law in directing the deletion of these additions based on the seized documents under Section 132(4) of the Income Tax Act, 1961. The Tribunal had found that the documents did not establish the ownership or the transactions claimed by the Revenue, as the lands were not in the possession of the assessee and the agreements were not signed by them.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 718302 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 11-08-2022
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: K KUMAR
• Keywords: Income Tax; Land purchase; Seized documents; Unexplained investment
• Section: 153A; 132(4)

Judgement Text

"HON'BLE SRI JUSTICE C. PRAVEEN KUMAR AND HON'BLE SRI JUSTICE A.V. RAVINDRA BABU I.T.T.A. Nos.356, 357 & 365 OF 2015 COMMON JUDGMENT: (Per Hon‟ble Sri Justice C. Praveen Kumar) Heard Ms. M. Kiranmayee, learned Standing Counsel for Income Tax, appearing for the appellant, in all the Appeals, and perused the record. Though, Sri K. Vasant Kumar, learned counsel, filed vakalath on behalf of the respondent-assessee, but on 27.07.2022 he filed a Memo in I.T.T.A. Nos.356 & 365 of 2015 giving up his vakalath. It appears that notice sent by him to the assessee intimating giving up his vakalath was received by the assessee on 30.07.2022 but there was no response on his behalf. 2. I.T.T.A. Nos.356 and 357 of 2015 are filed by the Revenue against the orders in I.T.A. No.1466/Hyd/2012 and I.T.A. No.1453/Hyd/2012, dated 16.05.2014, passed by the Income Tax Appellate Tribunal Bench at Hyderabad (for short, „the Tribunal‟) for the assessment year 2007-2008, while I.T.T.A. No.365 of 2015 is filed by the Revenue against the order passed in I.T.A. No.1452/Hyd/2012, dated 16.05.2014, by the Tribunal for the assessment year 2006-2007. All the three Appeals are taken up for disposal by way of this common judgment as the issue involved and the party being one and the same, taking I.T.T.A. No.356 of 2015 as a lead case. 3. The brief facts, which led to filing of the present Appeals, are that originally the respondent-assessee was assessed to tax by the 2 respondent-assessee in I.T.T.A. Nos.356 & 357 of 2015, he was assessed to tax for the assessment year 2007-2008 and in I.T.T.A. No.365 of 2015, he was assessed to tax for the assessment year 2006-07 by the ACIT, Central Circle, Tirupathi and two separate orders came to be passed on 31.12.2009, referring to the un- accounted investments made by the assessee. The said orders of assessment came to be made basing on the material seized during search. Pursuant to the said search, which was on 23.01.2008, a notice was issued under Section 153A of the Income Tax Act, 1961 (for short, „the Act of 1961‟), calling upon the respondent-assessee to file his return of income. In response to the said notice, the respondent-assessee filed his returns on 29.08.2008, admitting the total income at Rs.12,44,560/- for the assessment year 2007-08 and Rs.26,49,110/- for the assessment year 2006-07. During the assessment, the Assessing Officer found certain material seized during the search, more particularly, the investments made in the land, which is evident from the unregistered agreement of sale- cum-General Power of Attorney, dated 02.11.2006, and absolute transfer-cum-G.P.A., dated 19.12.2006, etc., It was found that an amount of Rs.5,15,42,595/- was invested in land admeasuring Ac.34.15 cents in Kothapalem village and an amount of Rs.1,19,37,000/- in land to an extent of Ac.3.00 cents in Yelamandyam village. As the amounts were not reflected in the assessment, the Assessing Officer treated the amounts mentioned in the sale deeds as un-recorded investments, added an amount of Rs.3,90,42,595/- towards purchase of land at Kothapalem village 3 an amount of Rs.1,25,00,000/- towards purchase of land at Kothapalem for the assessment year 2006-07, to the income of the respondent-assessee. In the absence of any explanation for the amounts mentioned in the lease deeds etc., it was treated as unexplained credits and added to the income of the assessee. , 4. Challenging the orders of the Assessing Authority, Appeals came to be preferred before the Commissioner of Income-Tax (Appeals). The CIT(A) vide separate orders, dated 21.06.2012, in I.T.A. Nos.129/ACIT CC-TPT/CIT(A)-VII/2010-11 and 130/ACIT CC-TPT/CIT(A)-VII/2010-11 dealt various issues raised in the Appeals. 5. For addition on account of unexplained investment in land (Kothapalem) – Rs.3,90,42,595/- for AY 2007-2008 in I.T.A. No.129/ACIT CC-TPT/CIT(A)-VII/2010-11 & for addition on account of unexplained investment in land (Kothapalem) - Rs.1,25,00,000/- for AY 2006-07 in I.T.A. No.130/ACIT CC- TPT/CIT(A)-VII/2010-11, the Commissioner of Income-Tax (Appeals), after perusing the observations of Assessing Officer and submissions of appellant (assessee), allowed the Appeals on grounds that:  though document bearing Annexure No.A/KCRN/05 shows that appellant (assessee) along with his wife entered into an agreement for purchase of land admeasuring 34.15 acres located at Kothapalem Village, for a total consideration of Rs.5,15,42,592/-, where an amount of Rs.1,25,00,000/- has been paid on date of agreement i.e., on 02.02.2006 and 4  When vendors were examined by the investigation authorities, they have not only denied to have sold the property to the appellant (assessee) and his wife, but also identified the buyers and held that such documents were created for inflating the value of property in the market.  The statements of vendors and affidavits filed by the new vendees indicate that the land under reference has not come to possession of the appellant (assessee) by virtue of the document under reference and subsequent transaction related to the transfer of land in the name of Sri Madala Chaitanya also clear the fact that the portion of land has been transferred to a third party in month of March, 2007 i.e., much before the date of search, which strongly indicate that the land was not in the possession of the appellant.  As there is no any other corroborative evidence and assumption cannot be drawn on the reliability of the document as regards to its exact nature and validity, the transaction related to Kothapalem Village cannot be concluded as transaction executed by the appellant (assessee) and addition of Rs.3,90,42,595/- & Rs.1,25,00,000/- are not sustainable. 6. For addition on account of unexplained investment in land (Yellamandam) – Rs.1,19,37,000/- for AY 2007-2008 in I.T.A. No.129/ACIT CC-TPT/CIT(A)-VII/2010-11, the Commissioner of Income-Tax (Appeals), while opining that there is considerable force in the stand of the Assessing Officer, dismissed the Appeal on the following grounds:  Though the agreement dated 19.12.2006 is an unregistered agreement for sale, it has no signature of vendee i.e., the appellant (assessee), the details in the document indicate a 5  The affidavits furnished by the vendors denying the sale of land to appellant (assessee) and affidavits furnished by the vendee (appellant), indicating the particulars of land in their names, contradict the inferences/conclusions drawn by the Assessing Officer.  Though the appellant (assessee) has termed the agreement for sale as a fake document, it cannot be treated so, for the reason that the full details related to the transaction are clearly inscribed therein.  The affidavits filed by the vendors denying the transaction before the Appellate Authority, instead of filing before the Assessing Officer, clearly reflect the angle of an afterthought.  The Affidavits of the new vendees have also come into picture only at a later stage of proceedings and as such they cannot undermine the intended original transaction indicated in the agreement of sale dated 19.12.2006.  The subsequent registration in the name of new vendees after the date of search, indicate the clear element of an afterthought in the stand of the appellant (assessee) with the help of vendors is established.  The unregistered status of document, alone may not be the impediment in treating an investment as unexplained investment, where other factors are in order and support the document under reference to partake the investments. The same cannot be treated as unexplained, since the same are not reflected in the books of accounts.  Accordingly, the addition of Rs.1,19,37,000/- made by the Assessing Officer by treating the amount as reflected in the agreement for sale, as unexplained investment, is upheld. 7 Challenging the orders of the Commissioner of Income Tax 6 Tribunal. After hearing the concerned, the Tribunal by its order, dated 16.05.2014, accepted the plea of the respondent-assessee and rejected claim of the appellant-Revenue. 8. Before proceeding further, it is to be noted that though the Assessing Authority has dealt with various issues namely unaccounted investments made in different lands, unaccounted expenditure (donations) and unaccounted investment in property, but ultimately the issue in these Appeals boils down to addition of unrecorded investments made in land admeasuring Ac.34.15 cents in Kothapalem village and Ac.3.00 cents of land in Yellamandam village. 9. Ms. M. Kiranmayee, learned Standing Counsel for the Income Tax, appearing for the appellant, submits that the findings of the Tribunal cannot be accepted for the reason that in respect of identical transaction in I.T.A. No.129/ACIT CC-TPT/CIT(A)- VII/2010-11, dated 21.06.2012 i.e., addition of Rs.1,19,37,000/- on account of unaccounted investment in land at Yellamandam village, the CIT(A) accepted the plea of the Revenue and denied the benefit to the respondent-assessee. Applying the same analogy, she would contend that the Tribunal erred in accepting the plea of the respondent-assessee, more so when the un-registered agreements of sale are seized from the exclusive possession of the assessee. In other words, her argument appears to be that when once the agreements of sale are recovered from the possession of the assessee, which may not contain the signature of the assessee, but i th t i th i t f th ti it h t b 7 the same. Even otherwise, she would contend that these being agreements of sale-cum-G.P.A. deeds, the property would naturally be sold by the respondent-assessee to third parties and as such the finding given by the Tribunal that the statements of the purchasers go against the plea of the Revenue may not matter much. 10. The following substantial question of law arises for consideration in I.T.T.A No.356 of 2015: “In the facts and circumstances of the case, whether the Hon‟ble Tribunal (ITAT) is correct in law in directing the Assessing Officer to delete the addition made on account of unexplained investments in purchase of the property under the seized document, when the said addition is sustainable on the basis of seized document and in terms of Section 132(4) of the Income Tax Act 1961?” 11. It is to be noted that the issue mainly relates to addition of an amount of Rs.1,19,37,000/- on account of unexplained investment in the land. The dispute, as stated earlier by us, is only with regard to land admeasuring Ac.3.00 cents purchased by the respondent-assessee and his wife viz., Smt. K. Aruna Kumari at Yelamandyam village for a consideration of Rs.1,19,37,000/- from Sri G. Srinivasulu Reddy and others vide absolute transfer-cum- G.P.A. on 19.12.2006. The said deed was signed by all the agreement holders on behalf of the owners of the property. Though the respondent-assessee is said to have confirmed about the transaction at the time of search but later on when the statements 8 into such deed only for business promotion but sold the property to others. As stated by us earlier, the Assessing Officer rejected the contention of the assessee and noted that the transaction has legal sanctity since a reading of the document would show the assessee as a stake owner/holder of the property, more so when the contents of the document show payment of Rs.1,19,37,000/-. Before the Commissioner of Appeals it was urged that the extent of the land mentioned in the body of the document and in the schedule are not tallying and that this document does not in anyway establish any case against the assessee, more so when the document is dated 19.12.2006, which is prior to the date of search. It was further held that after the entire sale consideration was received by the vendors, then the original documents and the link documents should have been with the assessee but not even a single piece of paper was found at the time of search. In fact, it is pleaded that the land was sold to various other persons. The authority took the statements made on oath, of those persons who purchased the property, and stated that the land was never purchased by either assessee or his wife but only purchased by other parties. Therefore, except the un-registered absolute transfer- cum-G.P.A. deed, dated 19.12.2006, which do not contain the signatures of the assessee or his wife, there is no other material to show that the assessee had, in fact, purchased the property and paid the sale consideration of Rs.1,19,37,000/-. 12. The Commissioner of Appeals though accepted the fact that the assessee has not signed the document during search and also 9 at the time of search cannot be considered to be a fake document, as it contains all the details of the transaction, and upheld the addition of income of Rs.1,19,37,000/- as unaccounted investment of land in Yellamandyam village. This finding of the CIT(A) was overturned on various grounds by the Tribunal. 13. The following substantial question of law arises for consideration in I.T.T.A No.357 of 2015: “In the facts and circumstances of the case, whether the Hon‟ble Tribunal (ITAT) is correct in law in upholding the deletion of addition made on account of unexplained investment based on the seized document, when the said addition is sustainable based on the seized document and its validity in terms of Section 132(4) of the Income Tax Act 1961?” 14. The following substantial question of law arises for consideration in I.T.T.A No.365 of 2015: “In the facts and circumstances of the case, whether the Hon‟ble Tribunal (ITAT) is correct in law in upholding the deletion of addition made on account of unexplained investment based on the seized document, when the said addition is sustainable based on the seized document and its validity in terms of Section 132(4) of the Income Tax Act 1961?” 15. It is to be noted that the issue in I.T.T.A Nos.357 and 365 of 2015 relates to additions of an amount of Rs.3,90,42,595/- and Rs.1,25,00,000/- on account of unexplained investment of the land. The dispute, as stated earlier by us, is with regard to land admeasuring Ac.34.15 cents purchased by the respondent- 10 for a total consideration of Rs.5,15,42,595/- out of which an amount of Rs.1,25,00,000/- was paid as advance on 02.02.2006 (AY 2006-07), and the balance amount was paid on 02.10.2006 (falling in the assessment year 2007-08) and accordingly Rs.3,90,42,595/- has been treated as unrecorded investment and added to the income. When this was confronted to the assessee by the Assessing Officer, the assessee admitted the transaction and offered Rs.2,00,00,000/- as undisclosed investment, with the balance of the investment explained through the loans obtained but ultimately on the very next day, denied the transaction carried on and that the money was passed on and accordingly the declaration made originally in respect of the transaction for Rs.5,15,42,595/- was denied. It was urged that during the course of search operation, the search team seized various documents, and the assessee was in total confused state of mind and in pressure could not state the facts correctly. The said deed was signed by all the agreement holders on behalf of the owners of the property. Though the respondent-assessee is said to have admitted about the transaction and offered Rs.2,00,00,000/- as undisclosed investment with the balance of the investment explained through the loans obtained from various persons, but later on when the statements of the G.P.A. holders were recorded on oath, they have stated that they have not received the consideration as mentioned in the agreement and the land was not purchased by the assessee but purchased by some others namely N. Sunitha, A. Lokanatha Reddy, M. Shamsunder Reddy, K. Bhuvaneswara Naidu, P.Ananda 11 16. As stated by us earlier, the Assessing Officer rejected the contention of the assessee and noted that the transaction has legal sanctity since a reading of the document would show that the assessee was a stake owner/holder of the property. Before the Commissioner of Appeals it was urged that the alleged agreement of sale was not signed by the assessee and the vendors accepted that the transaction was not effected by them in favour of the assessee and to that extent assessee also furnished copies of the affidavits from the said parties, who submitted that they have directly acquired land from the original vendors and that all the evidence clearly indicate that the assessee did not acquire the said property and the land owners have created the document and kept it to increase the value of the land. 17. The Commissioner of Appeals accepted the fact that the assessee has not signed the document during search and also that the land in question is owned by others and not sold to assessee, and that the document dated 02.11.2006 found at the time of search cannot be treated as document that confers rights on the assessee. Accordingly, the transaction is not established and out of the total sale consideration of Rs.5,15,42,595/-, the addition of Rs.3,90,42,595/- made by the Assessing Officer shown to have been paid on 02.10.2006 falling into assessment year 2007-08 and the addition of Rs.1,25,00,000/- made by the Assessing Officer shown to have been paid as advance on 02.02.2006 falling into the assessment year 2006-07 were held to be not sustainable and the additions were directed to be deleted. These findings of the CIT(A) 12 18. As stated by us earlier, the material on record only establishes seizure of un-registered absolute transfer-cum-General Power of Attorney, dated 19.12.2006, and unregistered sale agreement-cum-General Power of Attorney, dated 02.11.2006, executed in favour of the assessee but the said documents were neither signed either by the assessee nor his wife. Further, the vendors have categorically stated that the lands were never sold to the assessee nor any consideration was received from the assessee in that regard. In view of the material on record, we find it very difficult to see that the assessee has purchased the property and paid consideration to the extent indicated above. Further, a perusal of the documents, as indicated in the order of the Tribunal, which is the ultimate authority on factual aspects, categorically states that the property was in fact sold to some other persons, which is evident from the registered sale deeds, copies of which were placed on record, coupled with the affidavits filed by the vendors and vendees. Therefore, as observed above, relying upon the aforesaid un-registered agreements of sale-cum-General Power of Attorney deeds, which does not contain the signatures of the assessee or his wife, addition of Rs.1,19,37,000/- towards purchase of Ac.3.00 cents of land at Yelamadyam village and additions of Rs.3,90,42,595/- and Rs.1,25,00,000/- towards purchase of Ac.34.15 cents of land at Kothapalem village ought not to have been added to the income of the assessee. Accordingly, while agreeing with the view taken by the Tribunal insofar as this aspect is concerned, the I.T.T.A. Nos.356, 357 and 365 of 2015 are 13 As a sequel, Miscellaneous Applications pending, if any, in these Appeals shall stand closed. ___________________________ C. PRAVEEN KUMAR, J ___________________________ A.V. RAVINDRA BABU, J Date: 11.08.2022 Dsh 14 HON'BLE SRI JUSTICE C. PRAVEEN KUMAR AND HON'BLE SRI JUSTICE A.V.RAVINDRA BABU 153 I.T.T.A. Nos.356, 357 & 365 OF 2015 (Common Judgment of the Division Bench delivered by Hon'ble Sri Justice C. Praveen Kumar) Dated: 11.08.2022 Dsh "