The Chennai bench of the Income Tax Appellate Tribunal (ITAT) held that merely on the basis of the statement of the director of the vendor company an addition under Section 69B of the Income Tax Act, 1961 cannot be made by ignoring the facts of the assessee company.
The appellant is a Private Limited Company, filed its return of income admitting Nil total income. A search and seizure action under Section 132 of the Income Tax Act was conducted where it was noticed that the appellant company had purchased an immovable property measuring 1.97 acres of land and building from M/s. Premier Roller Flour Mills Ltd., for a consideration of Rs. 12 crores.
A statement of an oath was taken from Shri. C. Doraisamy, Managing Director of M/s. Premier Roller Flour Mills Ltd., where he had admitted that the property had been sold to M/s. ARRS Malls (P) Ltd., for a consideration of Rs. 24 crores, and the sale deed was executed for Rs. 12 crores only. An additional consideration of Rs. 12 crores was unaccounted.
The assessee submitted details of payment of Rs. 24 crores for purchase of property and explained that sum of Rs. 4.85 crores have been paid for purchase of property on various dates. The remaining amount of Rs. 1.50 crores have been offered to tax in the hands of Shri. R. Srinivasan, Director of the appellant company, because the assessee could not explain source for payment made for purchase of property.
The Assessing Officer rejected the explanation furnished by the assessee and made additions of Rs. 6.15 crores as an unexplained investment under Section 69B of the Income Tax Act. The Commissioner of Income Tax (Appeal) [CIT(A)] also rejected the explanation of the assessee and sustained additions made by the Assessing Officer towards the unproved amount paid for the purchase of the property.
The Two-member bench comprising of Manjunatha G (Accountant member) and Manomohan Das (Judicial member) held that merely on the basis of the statement of the Director of the vendor company, additions cannot be made ignoring the fact that the appellant company had categorically stated during the post-search investigation that, balance consideration has been paid on subsequent dates.
Therefore, the bench set aside the order passed by CIT(A) and directed the Assessing Officer to delete additions made towards additional consideration paid for the purchase of property amounting to Rs. 6.15 crores as an unexplained investment under Section 69B of the Income Tax Act. Thus, the appeal filed by the assessee was allowed.
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