The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) held that the difference between the average sale rate and the actual transaction value should be treated as “on-money”. However, if the average sale rate is found to be higher than the actual transaction value, then the difference should be considered as “on-money” paid in cash for the purchase of the flat and added to the total income of the assessee under Section 69 of the Income Tax Act, 1961.
The assessee, Ajay Bhagwati Chauhan an individual, derives income under all heads except “Profit & Gains from Business or Profession.” For the year under consideration, the assessee filed their return of income on 25/07/2014, declaring a total income of Rs.53, 53,380/-. The return was initially processed under section 143(1) of the Act without variation in the returned income. Subsequently, based on information received from DDIT (Inv.), Unit 8(3), Mumbai, the case was selected for scrutiny with the approval of the Chief Commissioner of Income Tax, in accordance with CBDT Instruction No. 8 of 2015. The information from DDIT (Inv.), Mumbai revealed that a search and seizure action was conducted in the case of M/s. Nish Developers Pvt. Ltd., who were developing premium residential apartments under the project name “One Avighna Park.
During the course of the aforesaid search action, a pen drive and loose papers were seized from the residential premises of Pravin Mishra, an employee of Kailash Agarwal, the main promoter of M/s. Nish Developers Pvt. Ltd. In his statement recorded under oath, Pravin Mishra admitted that M/s. Nish Developers Pvt. Ltd. generated unaccounted receipts. Furthermore, details in the pen drive seized during the search action revealed that Rs.199.90 lakh was paid in cash by the assessee as “on money” to M/s. Nish Developers Pvt. Ltd. during the financial year 2013-14.
Accordingly, on the basis of the aforesaid information, the assessee was asked to provide the details of the flat booked, area of the flat, copy of the registered agreement, total purchase consideration as per the agreement, details of payment made to M/s. Nish Developers Pvt. Ltd., and the source of the same. The assessee was further asked to explain why the sum of Rs.199.90 lakh should not be brought to tax under section 69 of the Income Tax Act. In response, the assessee provided the requisite details and vehemently objected to the addition as proposed in the notice issued under section 142(1) of the Income Tax Act.
The Assessing Officer (“AO”) vide order dated 16/12/2016 passed under Section 143(3) of the Income Tax Act did not agree with the submissions of the assessee and held that the same cannot be accepted in view of the statements recorded under oath by the Director and staff of M/s. Nish Developers Pvt. Ltd, and the findings of the Investigation Wing. Accordingly, the sum of Rs.199.90 lakh was added to the total income of the assessee as undisclosed income under Section 69 of the Income Tax Act.
The CIT (A), vide impugned order, after taking into consideration the decision of the Coordinate Bench of the Tribunal in the case of M/s. Nish Developers Pvt. Ltd, held that the fact of receipt of “on money” had been confirmed by the Tribunal; accordingly, the CIT (A) dismissed the appeal filed by the assessee on this issue and upheld the addition of Rs.199.90 lakh made by the AO.
Mr. Gaurav Kabra representing the assesee submitted that the assessee furnished all the details as sought by the AO during the assessment proceedings. It was further submitted that in the case of M/s. Nish Developers Pvt. Ltd., the Tribunal has held that pen drives seized during the course of search action cannot be relied to make any addition on account of “on money”. Further submitted that the AO has merely relied on the information received from the Investigation Wing and made no independent inquiry.
On the other hand, Mr. Sunny Kachhwaha representing the department vehemently relied upon the order passed by the lower authorities and submitted that the statement of Shri Pravin Mishra and Shri Kailash Agarwal, recorded during the course of search action, was provided to the assessee. However, the assessee has not found fault with any of the statements of the above two persons. Further referring to the decision of the Tribunal in M/s. Nish Developers Pvt. Ltd., submitted that though the Tribunal did not agree with making the addition merely on the basis of the information found in the pen drive, however, directed the AO to determine the quantum of “on money” by comparing the average rate of sale of each year with the transaction value.
The two member bench of the ITAT comprising Narendar Kumar Billaiya (Accountant member) and Sandeep Sigh Karhail ( Judicial member) directed that if the average sale rate for the assessment year 2014-15 of the flat is found to be lower than the actual transaction value in the case of the assessee, then no addition on account of “on money” be made in the hands of the assessee. However, if the average sale rate is found to be higher than the actual transaction value, then the difference should be considered as “on money” paid in cash for the purchase of the flat and added to the total income of the assessee under Section 69 of the Income Tax Act.
Accordingly, the impugned order is set aside and the appeal by the assessee was partly allowed for statistical purposes.
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