AO can not add difference between the sale consideration in the agreement to sell and the registered sale deed as unexplained cash receipt if No Evidence of Cash Receipt

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AO can not add difference between the sale consideration in the agreement to sell and the registered sale deed as unexplained cash receipt if No Evidence of Cash Receipt

Clarifications on Capital Gains, Unexplained Income, and Cash Credits

Key Issues and Decisions:

I. Referral to DVO for Fair Market Value:

  • Issue: Should the Commissioner (Appeals) have referred the matter to the Departmental Valuation Officer (DVO) when the assessee disputed the use of circle rates for determining capital gains on the sale of flats under Section 50C?
  • Decision: The court held that when the assessee disputes the circle rate and provides a valuation report from an approved valuer, the Commissioner (Appeals) must refer the matter to the DVO for determination of the fair market value as per Section 50C(2). The matter was remanded for this purpose. (Matter remanded)

II. Unexplained Cash Receipt:

  • Issue: Was the Assessing Officer justified in treating the difference between the sale consideration in the agreement to sell and the registered sale deed as unexplained cash receipt under Section 68?
  • Decision: The court held that without any evidence to prove the receipt of excess cash and without cross-verification with the buyer, the addition as unexplained cash receipt was not justified. (In favor of the assessee)

III. Unexplained Investment in Cash:

  • Issue: Can the assessee’s cash flow statement be ignored when explaining the source of cash payments towards construction costs, which were treated as unexplained investments under Section 69A?
  • Decision: The court held that the cash flow statement cannot be disregarded and requires examination by the Assessing Officer. The matter was remanded for determining the available cash source and providing relief to the assessee accordingly. (Matter remanded)

IV. Dumb Document for Unexplained Expenditure:

  • Issue: Can an unsigned loose paper with limited information be used to make additions under Sections 69C and 68 for unexplained expenditure and cash credit?
  • Decision: The court held that the loose paper was a “dumb document” without sufficient details or evidence to support the additions. The additions were deleted. (In favor of the assessee)

V. Loan Repayment or Sale Consideration:

  • Issue: Whether an amount received from a third party (V) should be treated as unexplained income under Section 68 (loan repayment) or as sale consideration for a generator.
  • Decision: The court held that the assessee’s explanation regarding the sale of the generator was plausible and required factual verification. The matter was remanded for fresh consideration. (Matter remanded)

Key Takeaways:

  • Fair Market Value: This case clarifies the need for referral to the DVO when the assessee disputes the use of circle rates.
  • Evidence for Additions: Additions under Sections 68 and 69A cannot be made without proper evidence and verification.
  • Dumb Documents: Additions cannot be based on documents lacking essential details.
  • Plausible Explanations: The Assessing Officer must consider plausible explanations provided by the assessee and conduct further inquiries if necessary.

This case provides valuable insights into various provisions of the Income-tax Act, 1961, emphasizing the importance of proper evidence, verification, and consideration of the assessee’s explanations in tax assessments.

IN THE ITAT DELHI BENCH ‘C’
Hemant Vasisht
v.
Deputy Commissioner of Income-tax
M. Balaganesh, Accountant Member
and Vimal Kumar, Judicial Member
IT Appeal No. 2111 (Del) of 2016
[Assessment Year 2011-12]
JANUARY  9, 2025
M.R. Sahu, CA for the Appellant. Sanjay Kumar, Sr. DR for the Respondent.
ORDER
M. Balaganesh, Accountant Member.- The appeal in ITA No. 2111/Del/2016 for AY 2011-12, arises out of the order of the Commissioner of Income Tax (Appeals)-1, Gurgaon [hereinafter referred to as „ld. CIT(A)’, in short] in Appeal No. 99/2014-15, dated 15.03.2016 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as „the Act) dated 31.03.2014 by the Assessing Officer, DCIT, Circle-II, Gurgaon (hereinafter referred to as ‘ld. AO’).
2. The assessee has raised the following grounds of appeal:-
“1. That on the facts, and in the circumstances of the case and in law, the CIT(A) erred in confirming the addition of Rs.1,79,50,000/- u/s.50C on accepting higher circle rate/stamp duty value of Rs.3,69,00,000/- as against the actual sales consideration on sale of flats of Rs.1,89,50,000/-without appreciating the fact that the CIT(A) has ample power u/s.251 r.w.r 46A to accept additional evidences and his power is co-terminous with that of the AO including that the legislature has taken care to provide adequate machinery for determination of ‘Fair Market Value’ by the ‘DVO’ u/s 50C(2) so as to avoid charging tax on hypothetical income i.e capital gain, thus assessee prays that the additional evidences in the nature of valuation report including litigation documents placed before the CIT(A) may kindly be accepted for passing necessary instruction towards determination of ‘Fair Market Value’ by the ‘DVO’ u/s.50C(2).
2. That on the facts, and in the circumstances of the case and in law, the CIT(A) erred in confirming addition of Rs.43,20,000/- on sale of flats in favour of Sh. Krishan Kumar relying upon the remand report and discarding the sale deed dated 05/04/2011 including the computation of income for the assessment year 2012-13 placed before him, thus the assessee prays that the addition of Rs.43,20,000/- in the assessment year 2011-12 may kindly be deleted in full.
3. That without prejudice to the contention raised above in the Grounds of Appeal No.3, that the CIT(A) erred in confirming the addition of Rs.43,20,000/- on sale of flats in favour of Sh.Krishan Kumar without appreciating the fact that the higher consideration if any received shall be brought to tax in the assessment year 2012-13 on registration of sale deed including in the year in which sale consideration was offered to tax and ignoring the law that under the I.T Act, 1961 each financial year is unique /separate and the income of one year cannot be brought to tax in another year even if escapement of income is detected in other year, accordingly assessee prays that the addition of Rs.43,20,000/- in the assessment year 2011- 12 may kindly be deleted in full.
4. That on the facts, and in the circumstances of the case and in law, CIT(A) erred in confirming the addition of Rs.40,00,000/- [out of Rs.1,63,24,000/-] being cash paid to M/s. Ring India Infotech Pvt Ltd on various dates without finding any fault towards genuineness of the cash flow statement submitted before him to prove the source of cash received on withdrawals including gifts from family members, thus assessee prays for passing necessary instruction towards verification of the genuineness of the cash flow statement including gift deeds of the relatives so as to provide relief on account addition of Rs.40,00,000/- being cash paid to M/s.Ring India Infotech Pvt Ltd.
5. That on the facts, and in the circumstances of the case and in law, CIT(A) erred in confirming the addition of Rs. 10,00,000/- under section 68 and addition of Rs.40,000/- under section 69A referring the loose sheet impounded during the course of survey without appreciating the fact that the assessee is not maintaining books of accounts thus addition u/s.68 can not be made and more over loose sheet impounded during survey being a ‘Dumb Document’ no charge can be created against the assessee in absence of corroborative evidence, accordingly assessee prays for deletion of Rs.10,40,000/- in full..
6. That on the facts, and in the circumstances of the case and in law, CIT(A) erred in confirming the addition of Rs. 1,70,000/- under section 68 without appreciating the fact that the assessee is not maintaining books of accounts thus addition u/s.68 cannot be made and more over loose sheet /Kacha Khata impounded during survey being a ‘Dumb Document’ no charge can be created against the assessee in absence of corroborative evidence, accordingly assessee prays for deletion of Rs. 1,70,000/- in full.
7. That the assessee craves leave to amend, add, delete, replace, alter, vary or withdraw any or all the grounds of appeal either during the course of hearing or at any time before hearing of this appeal. “
3. The ground No. 1 raised by the assessee is challenging the confirmation of addition of Rs. 1,79,50,000/- made u/s 50C of the Act.
4. We have heard the rival submission and perused the material available on record. The assessee is an individual. A survey operation was conducted in the premises of the assessee on 16.05.2012 u/s 133A of the Act. The assessee owns 7 storey office complex building having numerous flats at each floors. The ld AO observed that assessee had sold various flats during the year under consideration. These flats were purchased in the year 2006-07. The ld AO observed that the sale consideration reported by the assessee was less than the circle rate determined in terms of Section 50C of the Act. Accordingly, the assessee was show caused by the ld AO as to why the capital gains be not recomputed by adopting the sale consideration as per provision of Section 50C of the Act. The ld AO noted that no response was filed by the assessee in that regard. Accordingly, the ld AO worked out differential sale consideration figure (i.e. difference between sale consideration reported in the registration deed and sale consideration as per circle rate) in the sum of Rs. 2,14,50,000/- and added the same to the total income of the assessee. Before the ld CIT(A), the assessee submitted the following to buttress the adoption of circle rate as sale consideration:-
“1. The plot to DLF situated is established only attract lower budget offices in New the Old Gurgaon. Gurgaon So City as compared the property could 2. The approach from the main road is not motorable.
It is difficult for the emergency services such as fire tenders, ambulances etc to enter the premises.
The Building does not have adequate parking facility to host as many offices as per Building Norms.
The Building is not even visible from the main road and is only approachable from a narrow lane adjoining Haryana Agro Petro Pump.
There is also a Power House in proximity adding to nonsense value.”
5. The assessee also submitted that the impugned property was subject matter of litigation and brother of the assessee had filed a suit for partition of the property by metes and bounds and also Contempt of Court and for appointing a receiver for the building. All these facts had collectively reduced the possibility for occupancy of the property in lease by giving the space to tenants. Ultimately, the assessee decided to sell the property out of compulsion at a distressed sale price. The assessee also furnished a valuation report from an approved valuer and furnished the same as additional evidence before the ld CIT(A). The ld CIT(A) ignored the said valuation report and upheld the circle rates adopted for the property and confirmed the addition made by the ld AO.
6. We find that the assessee had even sought for reference of the properties to Department Valuation Officer (DVO) in terms of Section 50C(2) of the Act. This request was not adhered to by the ld CIT(A). We find that the assessee had indeed sought to file its objection for adoption of circle rate on the properties sold by him. In support of his contention, he has also furnished a valuation report from an approved valuer though that is subsequent to the completion of the assessment. In this scenario, the ld CIT(A) ought to have referred the matter to the file of DVO for determination of fair market value of the property in terms of Section 50C(2) of the Act which was not done in the instant case. In fact even if the assessee does not request for referring the matter to DVO, still the ld CIT(A) or the ld AO ought to have referred the matter to the DVO once the adoption of circle rate has been disputed by the assessee. Admittedly, the adoption of circle rate has indeed been objected by the assessee which is evident from various points addressed by the assessee before the ld CIT(A) which are already mentioned herein above as to why the circle rate should not be adopted. Reliance in this regard is placed on the decision of the Hon’ble Calcutta High Court in the case of Sunil Kumar Agarwal v. CIT reported  (Calcutta) wherein, it was held that when the agreed consideration as per conveyance deed and circle rates are different and assessee objects to the adoption of such circle rate, then the ld AO should refer the matter to valuation officer as contemplated in Section 50C(2) of the Act. Respectfully following the same, we direct the ld AO to refer the matter to ld DVO and determine/ recompute the capital gains in accordance with the provision of Section 50C(2) of the Act. Accordingly, the ground No. 1 raised by the assessee is allowed for statistical purposes.
7. Ground Nos. 2 and 3 raised by the assessee are challenging the confirmation of addition of Rs. 43,20,000/- on account of unexplained cash receipt.
8. We have heard the rival submission and perused the material available on record. The ld AO observed from the impounded documents during the survey vide Annexure A-4 page 15 consisting of agreement to sell dated 17.02.2011 that the assessee executed agreement to sell with Krishan Kumar for an agreed consideration of Rs. 1,15,20,000/-, out of which the assessee received cash amounting to Rs. 19 lakhs. This property was ultimately registered by way of sale deed dated 05.04.2011 for a sum of Rs. 72 lakhs. Accordingly, the ld AO brought the differential sum of sale consideration of Rs. 43,20,000/- (1,15,20,000-72,00,000) to tax as unexplained cash receipt. This action of the ld AO was upheld by the ld CIT(A).
9. Before us, the ld AR drew our attention to page 138 of the Paper Book being the order passed u/s 7(1) of the Right to Information Act (RTI) Act, 2005 by the ld AO wherein, the assessee had specifically sought for the certified copy of agreement to sell dated 17.02.2011 with Shri Krishan Kumar which has been relied upon by the ld AO to frame the addition of Rs. 43,20,000/-. The ld AO in response to RTI Application dated 01.05.2023 of the assessee mentioned in the said order that the documents are enclosed herewith. Those documents are enclosed in pages 139 to 140 of the Paper Book. On perusal of the pages 139 to 140 of the paper book, we find that there is absolutely no mention of the figure of Rs. 1,15,20,000/- being the agreed sale consideration and there is also no mention about the receipt of Rs. 19 lakhs in cash as alleged by the ld AO in the assessment order. There is absolutely no evidence brought on record by the ld AO or by the ld CIT(A) to prove the fact that the assessee had indeed received a sum of Rs. 43,20,000/- in cash on account of alleged excess sale consideration. No cross verification whatsoever was made by the lower authorities with the buyer of the property i.e. Shri Krishan Kumar. Hence, there is no scope for making any addition on the ground of suspicion that assessee had received Rs. 43,20,000/- in cash on sale of property. Further, we find that the sale deed was ultimately registered by the assessee only on 05.04.2011, which falls in AY 2012-13. Hence, in any event, the alleged differential sale consideration figure of Rs. 43,20,000/-cannot be brought to tax in the hands of the assessee for the year under consideration. Accordingly, ground Nos. 2 and 3 raised by the assessee are allowed.
10. Ground No. 4 raised by the assessee is challenging the addition of Rs. 40 lakhs on account of cash paid to M/s. Ring India Info Tech Pvt. Ltd towards construction cost.
11. We have heard the rival submission and perused the material available on record. The ld AO on perusal of pages 92 and 94 and Annexure A-4 of impounded documents during the survey found that the assessee had paid cash consideration aggregating to Rs. 1,63,24,000/- in respect of property No. 339/2, Mehrauli Road, Gurgaon. The ld AO observed that the assessee failed to explain the source of payment and accordingly, brought the said sum of Rs. 1,63,24,000/- to tax while completing the assessment. The assessee submitted before the ld CIT(A) as under:-
“The Assessing Officer had during the course of survey operations found a letter in the form of Receipt/ Acknowledgement The Assessing Officer has relied selectively on Pages 92 and 94 with respect to this addition. There are four pages numbered 91,92,93 and 94 which are all part of survey documents. (Refer Pages 91 to 94 enclosed) Annexure A5 (PB 140 to 143) Page 91 specifically refers to agreement dated 06.12.2007. Your attention is invited to this very agreement dated 6th December, 2007 (Copy Enclosed in Annexure A6 (PB 144 TO 149) where in the Assessee had already entered into an agreement with M/s. RING INDIA INFOTECH PVT LTD. duly represented by its Director Mr. M. K. Jaswani. The salient features of this agreement is as under:
1. Hemant Vasisht the Assessee is the absolute owner of the Property bearing No. 339/2, Mehrauli Road, Gurgaon,
2. On 04.07.1997 he entered into a Collaboration Agreement with Creator Constructions Pvt. Ltd. (CCPL) to develop and construct a commercial building at the exclusive Cost of Creator Constructors Pvt Ltd. and the building so constructed was to be shared between the parties equally.
3. CCPL was unable to complete the constructions and had then surrendered their rights to the Assessee permitting him to enter into a fresh Collaboration Agreement with Senior Builders Pvt. Ltd 4. Another Collaboration Agreement was entered into between the Assessee and Senior Builders Pvt. Ltd. (SBPL) on 02/09/2002. This Party SBPL also could not honor the commitment and despite spending funds from our resources the building remained incomplete.
5. It was at this stage that M/s. RING INDIA INFOTECH PVT LTD. represented by its Director Mr. M.K.JASWANI stepped into the shoes of Senior Builders Private Limited and got the rights to get entire SBPL’s share at a consideration of Rs. 6,42,00,000/- paid to Senior Builders Ltd.
6. Even after the entry of RING INDIA INFOTECH PVT LTD. the Building remained incomplete and in order to avoid complications this agreement was made that the RING INDIA INFOTECH PVT. LTD. shall relinquish and surrender all the rights, claims and title etc in favor of Assessee along with proportionate land rights.
In this context Page 92 (stated above in Annexure A5) is important so as the relinquishment of proportionate share is towards payment / adjustment of floors. The Assessing Officer has taken adverse inference to Rs. 40 Lacs in Cash (Refer Page 94 stated above in Annexure A5) out of the Total Payment/ Adjustment with respect to the Collaboration Agreement acting lack of explanation to the source of payment.
The addition with respect to the payment is unwarranted
as: 1) The Assessee has been deriving considerable rental income from these commercial properties.
2) The Assessee has further taken Loan against capitalization of Rental Income against these properties which were let out commercial properties.
3) The Cash payments were made out of period with drawls from the Bank where such Income / Loan Balance which are offered to tax were available. A copy of Corporation Bank A/c Statement for the period from 01.04.2010 to 31.03.2011 is enclosed in Annexure A7 (PB 150 to 190) depicting the Cash with drawls and payments made from time to time and justifies the payment of amount of Rs. 40 Lacs in Cash. But the Assessing Officer has further added a sum of Rs. 1,23,24,000/- (Annexure 4 Page 92 referred to above as Annexure 5) which pertains to Financial Year 2010-11. The addition with respect to the above is derived from Page 94 and Page 92 (referred to above Annexure 5) wherein Cash Payment of Rs. 40,00,000/- are mentioned on Page 94 on the Receipt/ Acknowledgement dated 23/02/2011 which falls in the Assessment Year 2011-12.
The addition with respect to Page 94 is unwarranted as the Receipt/ Acknowledgement is dated 26/03/2010 ((referred to above Annexure 5) falls in the Assessment Year 2010-11 and not in the Assessment Year in question. Hence this addition of Rs. 1,23,24,000/- is void ab initio.”
12. The assessee also furnished the cash-flow statement proving various cash withdrawals made which would act as a cash source for making payment to the builder. The ld CIT(A) dismissed the cash flow statement filed by the assessee to be of general in nature. However, the ld CIT(A) observed that out of total payments made in the total sum of Rs. 1,63,24,000/-, a sum of Rs. 1,23,24,000/- was made on 26.03.2010 which pertains to AY 2010-11 and hence, cannot be subject matter of addition in AY 2011-12. Accordingly, the ld CIT(A) deleted the sum of Rs. 1,23,24,000/- for AY 2011-12 and restricted the addition only to Rs. 40,00,000/- paid on 23.02.2011 falling in AY 2011-12. Against this order, only the assessee is in appeal before us. The assessee placed on record the cash flow statement in pages 136 to 139 of the Paper Book filed on 10.07.2023 also giving the daily cash balance available with him. This cash flow statement cannot be ignored to be of general in nature. We find that this cash flow statement requires factual examination of the ld AO to ascertain on a holistic basis as to whether the said statement would provide sufficient cash source to the assessee to explain the payment of Rs. 40 lakhs on 23.02.2011. To the extent of available cash source, the assessee certainly is entitled for relief. With these directions, we restore ground No. 4 to the file of the ld AO and allow for statistical purposes.
13. Ground No. 5 raised by the assessee is challenging the addition of Rs. 10 lakhs on account of unexplained cash credit and Rs. 40,000/- on account of unaccounted expenditure.
14. We have heard the rival submission and perused the material available on record. The ld AO based on page 7 of Annexure 4 impounded during the survey which was a loose paper, observed that the said loose paper notes the receipt of Rs. 10 lakhs from Ring India Infratech and interest @2% per month is paid for May and June through Shyamlal. Based on this loose slip which is enclosed in page 136 of the Paper Book dated 06.07.2023, the ld AO concluded that assessee had received Rs. 10 lakhs in cash which is to be taxed as unexplained cash credit u/s 68 of the Act and assessee had paid interest @2% per month for 2 months in the total sum of Rs. 40,000/- which is to be brought to tax on account of unaccounted expenditure u/s 69A of the Act. This action of the ld AO was upheld by the ld CIT(A).
15. At the outset, we find on perusal of page 136 of the Paper Book containing the loose slip impounded during the survey, the said loose paper is unsigned. The assessee has also pleaded that he had no transaction with Ring India Infratech whose name is mentioned in the said loose paper. The assessee specifically had submitted that he had transaction only with Ring India Infotech Pvt. Ltd. The assessee also submitted that he does not know who Ring India Infratech is. Further, the assessee had also stated that if the loan is borrowed from Ring India Infratech as per the ld AO, then why interest is to be paid to Shyamlal. The assessee had also categorically denied who Shyamlal is. We find that no cross verification either from Shyamlal or Ring India Infratech has been made by the lower authorities. In fact even the existence of Ring India Infratech and Shyamlal have not brought on record by the lower authorities. Even though the presumption u/s 292C of the Act would go against the assessee still the same would be rebuttable presumption. On perusal of the said impounded documents, crucially we find that no date or year is mentioned. Hence, there is no cogent material brought on record by the revenue to justify the fact as to whether the said loose slip even pertains to the year under consideration. Further, the said loose slip nowhere states that Rs. 10 lakhs was either received by the assessee or paid by the assessee. Hence, it could be safely concluded that the said loose slip is nothing but a mere dumb document based on which no addition could be made in the hands of the assessee. Further, we find from page 5 para 4 of the assessment order that ld AO relates this loose slip and interest payment for May and June to be relating to May and June 2009. If that be so, then it only pertains to AY 2010-11 and hence, no addition could be made for the year under consideration.
The addition deserves to be deleted even on this count. Accordingly, ground No. 5 raised by the assessee is allowed.
16. Ground No. 6 raised by the assessee is challenging the confirmation of addition of Rs. 1,70,000/- made u/s 68 of the Act.
17. We have heard the rival submission and perused the material available on record. The ld AO on perusal of page 84 of Annexure-4 of impounded document during the survey which consists of Kacha Khata of Vipin Sharma to whom the assessee had given loan during FY 2008-09. The ld AO observed that in support of the same, the assessee had received back the loan of Rs. 1,50,000/- and interest of Rs. 20,000/- on 23.03.2011 and 16.12.2010 respectively. This alleged receipt of Rs. 1,70,000/- was treated as unexplained income u/s 68 of the Act in the hands of the assessee. The assessee before the ld CIT(A) submitted that there was no loan transaction between him and Vipin Sharma. The assessee submitted that he had sold an old generator which was available with him to Vipin Sharma and he had received Rs. 1,70,000/- towards the same. It was also clarified that Shri Vipin Sharma is cousin of the assessee. Further, the cheque given by Vipin Sharma got bounced and accordingly, the assessee decided to receive the sale consideration of the generator in cash. The ld CIT(A) ignored the aforesaid contention and confirmed the action of the ld AO.
18. Before us, the assessee who was present in person confirmed the fact that he had sold old generator to his cousin Vipin Sharma and since the cheque given by Vipin got bounced, the assessee received Rs. 1,70,000/- in cash towards sale of old generator. We find only the date and figure and name of Vipin are mentioned in the said loose sheet which is enclosed in page 137 of Paper Book. The nature of payment or receipt is not even mentioned thereon. Hence, the explanation given by the assessee could be considered as a plausible explanation in the facts and circumstances of the case. However, this matter, in our considered opinion, requires factual verification. Hence, we deem it fit and appropriate in the interest of justice and fairplay, to restore this issue to the file of ld AO for de novo adjudication in accordance with law and also in the light of explanation given by the assessee before us. Accordingly, ground No. 6 raised by the assessee is allowed for statistical purposes.
19. Ground No. 7 raised by the assessee is general in nature and does not require any specific adjudication.
20. In the result, the appeal of the assessee is allowed for statistical purposes.