No Confirmation of Income Tax Addition based on Photocopy of Alleged Agreement to Sell: Delhi HC [Read Order]

A Division Bench of the Delhi High Court recently held that photocopy of an agreement to sell cannot be construed to be a sustainable ground for making addition to the income of the assessee.

The genesis of the case pertains to receipt of information by the Assessing Officer in the form of a photocopy of an alleged agreement to sell dated 5 March 2010. The said photocopy of the agreement to sell indicated that the land in Ghittorni, Delhi, was to be purchased against a total consideration of Rs.11,00,00,000/-, wherein, the assessee was described to be a co-purchaser. It was alleged that the assessee paid a sum of Rs. 2,75,00,000/- as advance for purchase of the said land, which amounted to 25% of the total consideration.

Out of the said amount, a sum of Rs.1,38,00,000/- was stated to have been paid by way of a cheque and the remaining amount i.e., Rs.1,37,00,000/- was allegedly paid in the form of cash at the time of the execution of the said agreement to sell.

Subsequently,, a notice under Section 148 of the Income Tax Act, 1961 was issued to the assessee. The assessee appears to have filed the Income Tax Return [ITR] on 07 November 2014, declaring total income of Rs.44,676/- for AY 2010-11. Consequently, proceedings under Section 143(3) read with Section 147 of the Act were initiated against the assessee.

The AO, while relying on the photocopy of the said agreement to sell vide assessment order dated 28 March 2016, inter alia made an addition of Rs. 9,00,00,000/- to the income of the assessee on account of purchase of the said land from undisclosed sources.

The assessee’s appeal succeeded in the tribunal level, where it was held that,  by the impugned order had taken the view that only on the basis of a photocopy of the alleged agreement to sell the addition of any amount would be unsustainable.

The Delhi High Court deemed the question to be answered as – Whether the photocopy of a document, some part of information/facts recorded on it found to be correct in verification, could be treated as a valid document or not in the absence of the original?

During the assessment proceedings, the assessee’s stand was to the effect that the said land was purchased against a consideration of Rs.2,00,00,000/-.The AO, on the other hand, while relying on the photocopy of the alleged agreement to sell, proceeded to make an addition treating the consideration to be Rs.11,00,00,000/-.

The Assessing Officer had held that the genuineness of the said document cannot be denied as the signatures of the relevant parties in the aforesaid agreement resembles with the signatures of the assessee and therefore, it has been presumed that the assessee had no explanation to offer in that regard.

It was noted that, “Admittedly, the entire foundation is laid on the basis of the photocopy of the alleged agreement to sell dated 5 March 2010. The original copy of the said document has not seen the light of the day. Further, there is no other evidence to support the veracity of the recitals made in the aforesaid alleged agreement.”

The decision of the Supreme Court in the case of Moosa S. Madha & Azam S. Madha v. CIT, of the opinion that photostat copies have very little evidentiary value was taken into account by the bench.

The Division Bench of Justices Yashwant Varma and Parushaindra Kumar Kaurav thus held that photocopy of an agreement to sell alone could not form the basis of income tax addition, thereby dismissing the revenue appeal.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates