Property Investment Can't Be Taxed As Unexplained Income In Later Year If Paid Earlier: ITAT Ahmedabad

The Income Tax Appellate Tribunal (ITAT) in Ahmedabad has upheld the deletion of additions made against a taxpayer after finding that documentary evidence showed the disputed property investments were made in an earlier financial year and not during the assessment year under consideration.

A bench of Vice President Dr. B.R.R. Kumar and Judicial Member Siddhartha Nautiyal dismissed the Income Tax Department's appeal against the relief granted by the Commissioner of Income Tax (Appeals).

"It is settled proposition of law that for invoking section 69 of the Act, the relevant year is the year in which the investment is actually made and not the year in which the asset is registered or documented," the tribunal observed.

The case arose from additions made by the Assessing Officer in Assessment Year 2016-17 in relation to two immovable properties, deposits of ₹80 lakh in an SBI account, and cash deposits of ₹41.96 lakh in an ICICI Bank account.

The taxpayer had purchased properties at Anand and Valasan that were registered in May 2015. During assessment proceedings, no explanation or supporting documents regarding the source of the investments and deposits were furnished. The Assessing Officer consequently treated amounts aggregating to ₹2.04 crore as unexplained investments.

In appeal, the taxpayer argued that the investments in the two properties had not been made during the relevant assessment year. To support the claim, purchase deeds, bank statements, and RTGS records were produced showing that ₹31.87 lakh towards the Anand property had been paid on November 27, 2013. Payments aggregating to ₹47 lakh towards the Valasan property had been made through cheques on April 15 and April 16, 2013.

The appellate authority sought a remand report from the Assessing Officer. During that exercise, the officer examined the purchase deeds and bank records and found that the dates and cheque numbers mentioned in the documents matched the entries in the bank statements for Financial Year 2013-14.

The tribunal noted that the Revenue had accepted in the remand proceedings that the payments towards the properties were made in earlier years.

"Once this factual position is accepted by the Revenue itself, the very basis of addition under section 69 of the Act in the year under consideration disappears," the tribunal held.

Agreeing with the Commissioner of Income Tax (Appeals), the tribunal held that the addition of ₹78.87 lakh relating to the two property transactions could not be sustained in Assessment Year 2016-17 merely because the properties were registered during the relevant period.

The tribunal also referred to a Chhattisgarh High Court ruling which held that unexplained money can be brought to tax only in the financial year in which the assessee is found to be its owner and not in a later year merely because the amount is subsequently deposited in a bank account.

It then went on to examine the addition relating to ₹80 lakh deposited in the SBI account. The taxpayer furnished confirmations, PAN details and bank statements of three persons from whom funds had been received through RTGS transfers.

It noted that the bank records reflected receipt of funds from those parties and their transfer to the taxpayer's account. The Assessing Officer, the tribunal observed, had not brought any material on record to establish that the lenders lacked creditworthiness.

"Once confirmations, PAN details, banking transactions and identity particulars were furnished, the onus shifted upon the Revenue to bring contrary material on record. In absence thereof, the Ld. CIT(A) was justified in accepting the explanation furnished by the assessee," the tribunal observed.

The tribunal also upheld the deletion of the addition relating to cash deposits of ₹41.96 lakh in the ICICI Bank account.

The taxpayer relied on a confirmation from M.V. Jewellers, PAN details of the proprietor, a promissory note, cash-flow statements and records relating to agricultural income.

The Commissioner of Income Tax (Appeals) found that ₹11.50 lakh received through an agricultural sharing arrangement was supported by land records and cash-flow statements, a finding the tribunal saw no reason to disturb.

The tribunal noted that the Assessing Officer had questioned the explanation but had not carried out any independent inquiry to disprove the documents produced by the taxpayer.

"The Assessing Officer neither conducted any inquiry from M.V. Jewellers nor issued summons under section 131 nor brought any adverse material on record to disprove the documentary evidences furnished by the assessee," the tribunal held.

Finding no infirmity in the appellate authority's order, the tribunal dismissed the Department's appeal.

For Appellant: Shri Sanjay R Shah, CA

For Respondent: Shri Rameshwar P Meena, Sr. DR