By TIOL News Service

NEW DELHI, NOV 23, 2015: THE issue is - Whether if assessee makes cheque payment to one 'M' who in turn pays in cash to buy land in his name, it warrants protective addition for investment in land from undisclosed income. NO is the answer.

Facts of the case

A) The assessee was partner of ‘M' developers, where search proceedings was carried out in course of which it was found that it had purchased a piece of land. The value of purchase consideration was shown at lower amount in books of accounts of ‘M' developers.The A.O. on basis of estimating higher amount of purchase consideration, made addition in case of ‘M'. He also made protective addition in case of assessee representing its 6.5 percent share in ‘M' developers. The CIT(A) however deleted said additions on appeal.

B) The AO in course of assessment proceedings, noticed that one Mr. N.K. Jain was an entry operator who was involved in giving entries to various group concerns of Shri Vani Group which was also proved by the various pages of seized material. The revenue further pointed out that the substantial addition was made in the hands of Shiv Vani Oil & Gas Exploration Services Ltd., hence, protective addition was rightly made in the hands of the assessee who was beneficial owner of these transactions. The assessee has submitted that the share application amount received from group concern very much assessed by AO. The amount of Rs. 63 Lakhs was received from the NKP Holding Pvt. Ltd. on 3 different dates. Since the bank account was maintained by Mr. N. K. Jain his name appears at the top of the page. The source of the amount, is thus explained fully. Further the entries to this fact are also available in the bank account statement of the appellant company with Punjab National Bank on the respective dates. The assessee had also submitted before the AO confirmation from NKP holding Pvt. Ltd., the copy of which has also been submitted in the paper book. The AO rejected assessee's explanation and made addition u/s 68 in respect of amount in question. The CIT(A) however deleted said addition on appeal.

Having heard the parties, the Tribunal held that,

Cash Payment

++ the tribunal held that from operative part of order of the CIT(A) it was found that assessee had made only cheque payments to ‘M' Developers and no cash payment had been made. Moreover, the property had been purchased in the name of ‘M' developers and not in the name of assessee. In such situation, the protective addition in the hands of assessee was not sustainable. The Tribunal held that there was no valid reason to interfere with the order of the CIT(A). Thus, said order was to be upheld;

Protective Addition

++ on bare reading of above operative part of the impugned order, it was observed that the CIT(A) noted that wherever there was a cash element in the transaction with Mr. Jain, the appellant has duly included the same in the surrendered income. However, the details found revealed that being seized material were not having any cash element not accounted in the assessee's books. The CIT(A) has further observed that during the assessment proceedings, the complete books of accounts, bank statement and transactions were explained to the AO and no adverse inference was drawn by the AO therein. The CIT(A) explicitly held that none of the credit entries relate to any cash deposit and they are either Bank to Bank transfers or cheque deposits and hence, undisputedly, alleged amounts were received by the assessee through banking channels which were also duly reflected in the bank accounts of the assessee. In this situation, the CIT(A) did not find himself in agreement with the conclusion of the AO that source of impugned amounts/entries is not explained;

++ while last operative paras of CIT(A), it is amply clear that the AO added Rs.63 lac received from NKP Holding Pvt. Ltd. (NKPH) on three different dates and source of the same was fully explained as the bank account was maintained by N.K. Jain in his name which appeared in the copy of the bank statement. These entries were very well reflected in the bank statement of account with Punjab National Bank. The CIT(A) also noted that confirmation from NKPH was submitted before the AO during assessment proceedings and from the assessment order for AY 2007-08 passed in the case of NKPH, the AO has not disturbed the returned amount and the same has been accepted. In view of above noted facts, the CIT(A) rightly concluded that the amount added by the AO was received by the assessee from NKPH and when there is no adverse inference in the case of NKPH, the same cannot be held as unexplained in the case of assessee. Hence, the court is in agreement with the conclusion of the CIT(A) that the protective addition in the hands of assessee is not sustainable and he rightly directed the AO to delete the same.

(See 2015-TIOL-1913-ITAT-DEL)