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Income Tax Appellate Tribunal - Hyderabad
R.Nalini Devi, Hyderabad vs Department Of Income Tax on 27 June, 2012

0IN THE INCOME TAX APPELLATE TRIBUNAL

HYDERABAD " B " BENCH, HYDERABAD

BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT

MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER

ITA Nos. 930 and 931 of 2009

Assessment Years : 2003-04 & 2004-05

Dy. CIT, Central Cir-6,

Hyderabad. .... Appellant

vs.

Shri B. Vijaya Kumar (Indl.),

Hyderabad. ... Respondent PAN:AFCPB1023 P

Appellant by : Shri K. Gyana Prakash Respondent by : Shri M.Chandramouleswara Rao

ITA Nos. 235 & 236/Hyd/10

Asstt. Years: 2003-04 & 2004-05

Dy. CIT, Central Cir-6,

Hyderabad. .... Appellant -vs-

Smt. Nalini Devi,

L/R Sri R. Sudarshan Reddy,

Hyderabad.

PAN:AGKPR 2714 E ..... Respondent

Appellant by: Shri K. Gyna Prakash

Respondent : Shri Mohd. Afzal

Date of hearing : 27-06-2012 Date of Pronouncement : 18-09-2012

ORDER

2

ITA Nos. 930 and 931 of 2009

B. Vijay Kumar (Indl.) Hyd..

PER SAKTIJIT DEY, J.M.:

These Four appeals filed by the Revenue, 1st set of two appeals in the case of Sri B. Vijay Kumar (Indl) and other set of two appeals in the case of Smt. R. Nalini Devi, L/R Shri R. Sudarshan Reddy are directed against two common orders of CIT (A)-III, Hyderabad dated 3-6- 2009 and 11-12-2009 pertaining to assessment years 2003- 04 and 2004-05. Since common issues are involved in all these appeals, these are clubbed together and disposed of by this combined order for the sake of convenience. First let us deal with ITA Nos. 930 and 931 of 2009.

ITA Nos. 930 and 931/Hyd/2009 ( B. Vijaykumar (Indl.):-

2. The Revenue has raised following common effective grounds which are extracted hereunder:-

"1. The CIT (A) erred in holding that photo copy of the sale agreement found in the course of search has no evidential value.

2. The CIT (A) erred in directing the AO to consider the cost of purchase of the property as per sale deed and ignore the purchase agreement found during the course of search.

3. The CIT (A) failed to appreciate the direct evidence found during the course of search in the 3

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vendor's residence in the shape of receipt of advances as per sale agreements and incurring of huge expenditure by the vendor immediately after sale agreement. 4. Any other ground that may be urged at the time of hearing of the appeal.

4. The Supreme Court decision relied by the CIT (A) in the case of P.R. Metrani vs. CIT (287 ITR 209) is not applicable to the facts of the case since there is a direct and circumstantial evidence in this case to show that the assessee purchased the property for the consideration as per the sale agreement entered which is found during the course of search in the residence of vendor.

5. Any other ground will be urged at the time of appeal."

3. For the sake of brevity, we deal with facts as mentioned for assessment year 2003-04. Facts of the case are the assessee an individual derived income from business. For the assessment year under dispute, the assessee filed his return of income on 30-9-2003 declaring a total income of Rs.1,28,646/-. Subsequently, a search and seizure operation u/s 132 of the Act was conducted in the residential premises of the assessee on 4-8-2005. In course of search and seizure operation, the department found and seized a Photostat copy of agreement of sale dated 19-5-2002. The said agreement of sale was between the assessee in one hand and on the other hand Smt. Nalini Devi, her two sons Dr. Basant Reddy and Mr. R. Prem Reddy for purchase of land 4

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B. Vijay Kumar (Indl.) Hyd..

admeasuring 2400 sq. yards for a consideration of Rs.1,68,00,000/- . As per the Photostat copy of the agreement a sum of Rs.50 lakhs was supposed to be paid to the assessee towards advance to the vendor Smt. Nalini Devi & Others. Simultaneously, search action was also undertaken in the residential premises of Vendor Smt. Nalini Devi and similar photocopy of the agreement was also found and seized from her residence along with some other loose- sheets. The AO initiated assessment proceedings u/s 153A of the Act by issuing notice u/s 142(1) and 143(2). In course of assessment proceedings, when the AO queried about the investment made towards purchase of the property from Smt. R. Nalini Devi, the assessee submitted copies of four registered sale deeds towards purchase of the said property for aggregate sale consideration of Rs.22,98,000/-. The AO relying upon the photo copy of the sale agreement seized from the residence of the assessee as well as the vendor Smt. R. Nalini Devi came to a conclusion that the assessee had purchased the property for a total consideration of Rs.1,68,00,000/- as mentioned in the sale agreement photocopy and not at Rs.22,98,000/- as mentioned in the registered sale deeds. The AO further relying upon some materials seized from the residence of Smt. Nalini Devi concluded that Smt. Nalini Devi had incurred total expenditure of Rs.109.48 lakhs which could only have been made from the sale consideration of Rs.1,68,00,000/- received from the assessee. On the aforesaid inference, the AO treated the differential amount of Rs.1,48,52,000/- as unexplained investment in purchase of the land by the 5

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B. Vijay Kumar (Indl.) Hyd..

assessee and added to the total income u/s 69 of the Act. The assessee being aggrieved of the assessment made, filed an appeal before CIT (A).

4. In course of hearing before the first appellate authority, it was contended on behalf of the assessee that the seized sale agreement on the basis of which the addition was made is only a photo copy and also not signed by the assessee. The original of the said agreement was neither found during search, from the premises of the assessee or from the vendor Smt. Nalini Devi and it could be found during post search investigation. The sale agreement was also not signed by the assessee and therefore an unsigned document is not enforceable in law. It was further contended that the sale agreement allegedly found during the search operation materially differ from the registered sale agreement in terms of the ownership of the land, extent of land and sale consideration. While in the photocopy of the sale agreement, there are three owners of the land, the actual owner was only Smt. R. Nalini Devi as stated in the registered sale deed. Similarly, while in the sale agreement the area of property was mentioned as 2400 sq. yards, the actual area sold as mentioned in the registered sale deed is 2450 sq. yards. It was contended by the assessee that though the authorised officers while recording statement from the assessee at the time of search regarding immovable properties, no question was ever asked from the assessee in respect of the said seized Photostat copy of the sale agreement. It was contended that the assessee even though 6

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B. Vijay Kumar (Indl.) Hyd..

denied of having any knowledge of about the photocopy of his sale agreement found during the search but the same was not brought on record. The assessee therefore filed an affidavit on 12-9-2005 before the DDIT, Investigation, Hyderabad alleging therein that the photocopy of the sale agreement was planted in the residence of the assessee by a particular Officer of the department in course of search and seizure operation.

5. The assessee also submitted that the vendor Smt. Nalini Devi in the statement recorded from her u/s 132(4) of the Act had denied about the correctness of the sale agreement copy found at the time of search and categorically stated that the property was sold for a consideration of Rs.23.50 lakhs and against which she received an advance of Rs.50,000/- only. The assessee further contended that the paper slips containing some notings during the search of the premises of Smt. R. Nalini Devi and which was relied upon by the AO for making the addition was never shown to the assessee during the assessment proceedings. It was contended that the said document seized from residence of Smt. R. Nalini Devi did not mention the name of the assessee, therefore the assessee could not be linked with those documents.

6. The CIT (A) after considering the contentions raised by the assessee and examining the documents available on record, found that the addition on account of unexplained investment was made by the AO solely on the basis of photocopy of sale agreement dated 19-5-2002 allegedly 7

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B. Vijay Kumar (Indl.) Hyd..

seized from the residence of the assessee and Smt. R. Nalini Devi. The said photocopy of sale agreement did not bear the signature of the assessee. The assessee as well as vendor Smt. R. Nalini Devi had categorically denied the correctness and authenticity of the sale agreement. It was also found by the CIT (A) that no other evidence or material was found during the search or in post-search investigation to substantiate the fact that the assessee had actually paid sale consideration of Rs.1.68 crores as mentioned in the sale agreement of photocopy to Smt. R. Nalini Devi. The CIT (A) also took into note the allegation made by the assessee with regard to planting of the sale agreement in the residence of the assessee by a particular officer of the department which even though has specifically brought to the notice of the DDIT (Inv.) and the AO, no enquiry was made by them to ascertain the correctness of the allegation made by the assessee. It was also found by the CIT (A) that the assessee was never examined on oath in respect of that particular sale agreement either during the search proceedings or in course of assessment proceedings. The CIT (A) also took note of the fact that neither the DDIT (Inv.) or the AO made any attempt to controvert the averments made in the affidavit by bringing material and evidence on record.

7. The CIT (A) came to a conclusion that the AO has failed to bring sufficient material on record to satisfy himself that the transactions recorded in the photocopy of the sale agreement had been actually carried out between the parties or not. When the assessee has produced copies of the 8

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B. Vijay Kumar (Indl.) Hyd..

registered sale deeds indicating the actual amount of sale consideration paid towards purchase of the property, the AO should have brought sufficient material on record to prove that the actual consideration paid by the assessee is not what is mentioned in the registered sale deed but the amount mentioned in the photocopy of the sale agreement found at the time of search. The CIT (A) relying upon the judgment of Hon'ble Supreme Court in the case of KP Verghese (131 ITR 597) held that the AO is duty bound to prove the payment of on money. The CIT (A) while dealing with the provisions contained u/s 132(4A) which creates a presumption in respect of document found in the course of search held that the said presumption is rebuttable presumption and the assessee has rebutted such presumption by filing an affidavit and other documents to prove that the photocopy of the sale agreement was not acted upon either by the assessee or the seller Smt. Nalini Devi. The CIT (A) taking note of the contention of the assessee also held that the loose papers containing the notings of the expenditure made by the family members of Smt. R. Nalini Devi which was seized from her residence and was relied upon by the AO while making the addition at the hands of the assessee was never confronted to the assessee. The CIT (A) further examining the noting made in the loose sheets seized from the residence of Smt. R. Nalini Devi found that except for an entry made on 20-5-2002 for a cash deposit of s.1 lakh all other entries were made in Sept. 2002 and continued till May, 2005. It was also noticed by the CIT (A) that all the entireties were not of cash expenditure. Notings on certain 9

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B. Vijay Kumar (Indl.) Hyd..

pages were undated and the summary of the seized annexure is not the summary of expenditure amounting to Rs.109.48 crores, but, it is summary of balance of various accounts operated by the family members of Smt. R. Nalini Devi. The CIT (A) therefore held that the AO has linked the assessee to the entries made in the seized document seized from the house of R. Nalini Devi purely on presumptions and surmises without having any basis. The CIT (A) relying upon the decision of the Hon'ble Delhi High Court in the case of CIT vs. Kulwant Rai (291 ITR 36) and CIT vs. Ved Prakash Choudhary (305 ITR 245) held that no addition can be made in the hands of the assessee on the basis of unsigned agreement found as a result of search.

8. The CIT (A) relying upon the decision of Hon'ble Delhi High Court in the case of CIT vs. D.K. Gupta (308 ITR 230) held that in absence of corroborative or direct evidence to presume that the notings or jottings had materialised into transactions giving rise to income not disclosed in the regular books of accounts, no addition can be made. The CIT (A) taking note of the fact that the title of the land purchased by the assessee was in dispute and the land was in adverse possession, the consideration paid as per the registered sale deed could not be disbelieved and discarded in the absence of any other evidence brought on record to prove the contrary. The CIT (A) also found that the rate adopted by the AO of Rs.7000 per sq. yard to determine the unexplained investment is not on the basis of any valid evidence or enquiry conducted in this regard. On the aforesaid finding, 10

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B. Vijay Kumar (Indl.) Hyd..

the CIT (A) held that the addition made u/s 69 of the Act is not sustainable in law. He therefore directed for deleting the same.

9. The learned DR justifying the addition made by the AO submitted that the photocopy of the sale agreement having been seized from the possession of the assessee, it has to be presumed that the assessee is a party to the transaction mentioned in the sale agreement. That apart the documents seized from the premises of Smt. R. Nalini Devi also establishes a link that the expenditure incurred by Smt. Nalini Devi was out of the consideration paid by the assessee towards purchase of the property.

10. The learned AR for the assessee submitted before us that the assessment has been made completely on presumption and surmises. It was submitted by the learned AR that the photocopy of the sale agreement on the basis of which the addition was made by the AO did not bear the signature of the assessee, the original of the document was also neither found during the search operation nor during the post search investigation. That apart the assessee had specifically alleged by filing an affidavit that photocopy of the sale agreement was planted in the house of the assessee in course of search and seizure operation. These facts were neither enquired into nor taken note of either by the DDIT (Inv.) or the AO. On the other hand, the AO ignored the 11

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registered sale deeds which is an authentic document and valid piece of evidence for ascertaining the consideration paid for purchase of the land. The learned AR further contended that in course of recording of statement u/s 132(4) of the Act, the assessee had categorically stated about the immovable property standing in his and his family members' names. The assessee has also mentioned about the land purchased from Smt. R. Nalini Devi for consideration of Rs.23.50 lakhs. During recording of statements, the revenue authorities never asked the assessee about the photocopy of the sale agreement allegedly seized from the residence of the assessee nor put any question regarding the consideration paid as mentioned in the said sale agreement. Even in the statement recorded from Smt. Nalini Devi, she has categorically stated that she had received Rs.23.50 lakhs only as sale consideration as mentioned in the registered sale deed. The vendor Smt. Nalini Devi had also claimed she received advance of Rs.50,000/- only. Smt.R. Nalini Devi further stated that the property of the agreement seized at the time of search was never acted upon because of the legal dispute going on concerning the title of the property. The learned AR submitted that the AO having failed to establish any nexus between the loose papers seized from the residence of Smt.Nalini Devi was not justified in making the addition on the basis of entries made in the said papers. The ld. AR relying upon a decision of the ITAT, Jabalpur Bench in the case of ACIT vs.Satya Pal Wasan (295 ITR 352 (AT)(JAB) submitted that presumption raised on the basis of a dumb document are unsustainable and cannot give rise to 12

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an addition. In this regard, the learned AR also relied upon two decision of Delhi High Court in the case of CIT vs.Kulwant Rai 281 ITR 36 and CIT vs. D.K. Gupta (308 ITR 230) and a decision of Hon'ble Supreme Court in the case of P.R. Metrani vs. CIT(287 ITR 209). The learned AR relying upon the aforesaid decision submitted that the AO having failed to bring any material or evidence to corroborate the allegation regarding receipt of on money, the presumption arrived at on the basis of the photocopy of document not signed by the assessee cannot be sustained. The learned AR relying upon a decision of Hon'ble Supreme Court in the case of K.P. Verghese vs. ITO (131 ITR 597) submitted that the revenue is duty bound to prove the payment of on money for making addition u/s 69 of the Act. The ld. AR further relied upon a decision of Hon'ble Supreme Court in the case of reported in 89 ITR 65 to submit that photocopies have no evidentiary value.

11. We have heard rival submissions, perused the material submitted before us and also perused the orders of the revenue authorities. On a reading of the assessment order, it is absolutely clear that the addition has been made entirely on the basis of the photocopy of the sale agreement seized from the residence of the assessee in course of search and seizure operation. Undisputedly, the sale agreement is only photocopy and has not been signed by the assessee. The assessee has also raised serious allegation regarding the seizure of the impugned document and filed affidavit before 13

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B. Vijay Kumar (Indl.) Hyd..

DDIT (Inv.) asserting that the said document was planted by an officer of the department also named by the assessee in the affidavit. However, such allegation of the assessee has not at all been enquired into and has been met with complete silence by the department. From the materials on record, it is very clear that the AO has failed to lay his hands on any credible evidence to establish the fact that the assessee has purchased the property for a consideration of Rs.1,68,00,000/- as mentioned in the photo copy of sale agreement seized in course of search and seizure operation. The assessee has produced before the AO registered sale deeds in support of its claim that they had purchased the property for a consideration of Rs.23.50 lakhs. When the AO alleges that the assessee has paid more than what has been declared in the registered sale deed because the fair market value of the asset as on the date of transaction exceeds full value of consideration declared by the assessee then it is for the AO to prove that the value declared by the assessee is understated. In the appeal before us, excepting the photo copy of sale agreement, there is no other evidence on record found as a result of search or brought on record on the basis of enquiry conducted by the AO which could establish the fact that the actual consideration passed between the parties is not as mentioned in the registered sale deed but as per the sale agreement found during search operation. It is also an interesting fact to note that in the statement recorded from the assessee u/s 132(4) the revenue authorities have not put any question with regard to the sale agreement seized at the time of search and seizure operations. Smt. R. Nalini Devi 14

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B. Vijay Kumar (Indl.) Hyd..

also in her statement further clearly stated that the property was sold at Rs.23.50 lakhs and not at the rate of Rs.1.68 crores. The Hon'ble Supreme Court in the case of K.P. Verghese reported in 131 ITR 597 has held that onus is on the department to prove that the assessee has understated the value of the property and has paid more than what is mentioned in the registered sale deed. The Hon'ble Supreme Court in the case of Moosa S. Madha and Azam S. Madha vs. CIT ( 89 ITR 65) has held that photocopies have little evidentiary value. Therefore, photocopies of any document cannot by itself be considered as evidence for purpose of making addition in assessment proceedings. The AO is required to bring further evidence on record to show that the sale agreement was actually acted upon by the parties. This is because of the fact when the AO is going to make an addition, there should be sufficient evidence brought on record to support such addition. No addition can be made on conjectures and surmises. As seen from the assessment order, the AO has adopted value of the property at the Rs.7000/- per sq. yard on the date of transaction. For adopting such a valuation, the AO has not conducted any enquiry or brought any materials on record to show that the value of the property on the date of transaction was actually Rs.7000 per sq. yard. On the other hand, the assessee has demonstrated with supporting evidence that the value of the land on the date of transaction was the rate mentioned in the registered sale deed and for which the property was sold. The assessee has also produced sufficient evidence to show that there was dispute going on 15

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B. Vijay Kumar (Indl.) Hyd..

regarding the legal right over the property which also had an effect on the fair market value of the property. It is also pertinent to mention here that the assessee had filed his return f income for the assessment years under dispute much prior to the date of search declaring the purchase of land in question at the consideration mentioned in the registered sale deeds. So far as the AO's observations on the loose sheets recovered from the residence of Smt. Nalini Devi are concerned, the CIT (A) after duly examining them has given a conclusive finding that the assessee's name has no where been mentioned in those documents nor the amount of Rs.109.48 lakhs represents the expenditure incurred by Smt Nalini Devi. However, the amount was found to be the summary of the balance of various accounts operated by the family members of Smt. Nalini Devi. We find that the CIT (A) in his elaborate and well reasoned order has dealt with all these aspects and came to a finding on fact that the AO has made the addition purely on conjectures and surmises and not on the basis of any material or evidence brought on record. On examining the facts and materials before us, we are of the view that the finding arrived by the CIT (A) is just and proper and in accordance with the principles of law laid down by the Hon'ble Supreme Court and Hon'ble High Courts which are cited before him. We therefore find no necessity to interfere with the finding of the CIT (A) on this issue. Hence the grounds raised by the revenue for the years under consideration are dismissed.

16

ITA Nos. 930 and 931 of 2009

B. Vijay Kumar (Indl.) Hyd..

ITA Nos.235 and 236/Hyd/2010- Smt. R. Nalini Devi.

12. Since facts and the circumstances of both the cases i.e, Sri B. Vijay Kumar (Indl.) and Smt. Nalini Devi are inter woven and identical, following the elaborate reasons given in this order in the case of B. Vijay Kumar (Indl.) (supra), we dismiss the grounds raised by the revenue in the case of Smt. P. Nalini Devi also for the years under consideration.

13. In the result, all the appeals filed by the Revenue stand dismissed.

Order pronounced in the court on 18- 9-2012.

Sd/- sd/-

(CHANDRA POOJARI) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER

Hyderabad,

Dated the 18 th September, 2012.

Copy to:-

1) DCIT, CC-6, 7 th Floor Aayakar Bhavan, Hyderabad. 2) Sh. B. Vijay Kumar (Indl.) Laxmi Arcade, Margadarsi Colony, RK Puram, Hyderabad.

3. Smt. R. Nalini Devi, L/R Sri R. Sudarshan Reddy, 3-6- 361/22, Himayatnagar, Hyderabad.

4) CIT (A)-III, Hyderabad.

5) The CIT Concerned, Hyderabad

6)The Departmental Representative, I.T.A.T., Hyderabad.

Jmr*

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B. Vijay Kumar (Indl.) Hyd..