Delhi H.C : Whether, the Tribunal was justified in law in deleting the addition of Rs. 8.01 crores made by the AO on account of unexplained investment in the Mussoorie project under s. 69B of the IT Act ?

High Court Of Delhi

CIT vs. Naresh Khattar (HUF)

Sections 69B, 260A

D.K. Jain & Madan B. Lokur, JJ.

IT Appeal No. 327 of 2002

28th January, 2003

Counsel Appeared

Ms. Prem Lata Bansal, for the Appellant : None, for the Respondent


D.K. JAIN, J :

This appeal by the Revenue under s. 260A of the IT Act, 1961 (for short the Act), is directed against the order of the Income-tax Appellate Tribunal, New Delhi, (for short the Tribunal), dt. 21st June, 2002, in ITA No.953/Del/2002, pertaining to the asst. yr. 1998-99. The following questions, stated to be substantial questions of law, have been proposed in the appeal :

“(a) Whether, the Tribunal was justified in law in deleting the addition of Rs. 8.01 crores made by the AO on account of unexplained investment in the Mussoorie project under s. 69B of the IT Act ?

(b) Whether, the Tribunal was correct in deleting the addition of Rs. 8.01 crores only on the ground that statement made by the counsel is not conclusive, altogether ignoring the other evidence gathered by the lower authorities ?”

(c) Whether, the Tribunal was correct in holding that the statement made by the senior standing counsel in the proceedings other than income-tax proceedings before the Hon’ble Court is not the statement at the Bar and is not conclusive ?

(d) Whether, Tribunal was correct in holding that the addition under s. 69B cannot be made in the asst. yr. 1998-99 ?

(e) Whether, Tribunal was correct in holding that the AO had not rejected the books of accounts of the assessee when the AO had made the specific query as regard to the omissions made in the balance sheet and P&L a/c ? (f) Whether, Tribunal was correct in deleting the addition of Rs. 2.99 crores when there was enough material to uphold the addition of Rs. 8.01 crores ?

(g) Whether, order of Tribunal is perverse in law and on facts when it had altogether ignored the evidence gathered by the lower authorities ?”

2 Briefly stated, the material facts leading to the appeal are : The respondent-assessee is an HUF engaged in the business of development, construction, sale and leasing of flats, etc., under the name and style of M/s Empire Builders, a proprietary concern of the said HUF. For the relevant assessment year, for which the previous year ended on 31st March, 1998, the assessee filed its return of income declaring a total income of Rs. 5,29,500. During the course of assessment proceedings, the AO noticed that in the balance sheet and the P&L a/c of M/s Empire Builders for the year ending 31st March, 1997, an amount of Rs. 2,92,79,574 was shown as closing work- in-progress of Mussoorie project. However, the same amount did not appear as pending work-in-progress as on

1st April, 1997, in the balance sheet of Empire Builders for the period ending 31st March, 1998. Nor did it appear as sales made during the year ending 31st March, 1998. The assessee was required to explain as to why the sale value of the closing stock-in-progress be not treated as its undisclosed income. In response thereto, it was explained by the assessee that Empire Builders had entered into an agreement dt. 2nd Feb., 1996, with one M/s

Hotel Hans (P) Ltd. for undertaking the development of time share project in Mussoorie jointly. The same was to be initially started between the said two concerns. In terms of the said agreement a private limited company was to be formed jointly by the said two concerns and the Mussoorie project was to be transferred to the new company. As per the said agreement one M/s Avlon Resorts (P) Ltd. was incorporated on 4th June, 1996, having representatives of both the groups. The Mussoorie project was accordingly transferred to the said Avlon Resorts for a sum of Rs. 3,37,24,920 as, according to the assessee, it belonged to this company and they were doing only job work for them for which the assessee had charged a sum of Rs. 6,47,500 during the previous year, which was shown as income. However, some disputes had arisen between the assessee and M/s Hotel Hans (P) Ltd., which were ultimately resolved by way of arbitration. It was stated that since the project was transferred during the previous year, inadvertently it was not reflected in the opening work-in-progress as well as closing work-in- progress and only the differential amount of Rs. 6,74,500 was taken in the P&L a/c. The AO was not convinced with the explanation furnished by the assessee. Inter alia, observing that at no point of time the assessee was interested in carrying out the job work for and on behalf of M/s Avlon Resorts and as per the memorandum of understanding the assessee was to develop and construct the property of their own, which was to be managed jointly, the AO held that all the amounts spent for work-in-progress as on 1st April, 1997, acquisition of land, improvement in right/title of the land and other miscellaneous expenses (duly supported by bills, etc.), totalling Rs. 2,92,79,574, were by the assessee himself and, therefore, the property belonged to him. After holding so, the AO proceeded to determine the quantum of the total investment by the assessee in the said project. Though the AO noticed that a sum of Rs. 29,27,952 was accounted for in the books of the assessee as on 31st March, 1997, but in the month of May 1997 the senior counsel for the assessee had made a statement before the High Court in OMP No. 13/1997 (proceedings arising out of the arbitration award) that the assessee had invested a sum of Rs. 13 crores in the said project. Taking the said statement as reflecting the actual amount invested by the assessee (M/s Empire Builders) in the acquisition, development and construction of the resort, the AO came to the conclusion that the assessee had made substantial investment in the project from out of his undisclosed sources. He accordingly, made an addition of Rs. 8,01,04,149 under s. 69B of the Act as investment from undisclosed sources.

3. Against the said addition, the assessee preferred appeal to the CIT(A) but without any success. The matter was carried in further appeal to the Tribunal. By the impugned order, the Tribunal has deleted the said addition. For deleting the said addition, the Tribunal has taken into consideration the following facts, which according to it were not rebutted by the Departmental Representative: “(i) The appellant had got the property in question valued by an approved valuer, who had worked out “a figure of Rs. 3.69 crores as on 30th March, 1997.” The assessee’s request to the AO to refer the matter to the valuation cell did not elicit any response and the AO in his remand report to the CIT(A) categorically stated that this could not be done “due to paucity of time”; (ii) The rateable value of the property fixed by the municipal authorities of Mussoorie was fair and reasonable with reference to the cost of construction shown and it did not take into account a figure which was anywhere in the region of Rs. 13 crores as the cost of construction/investment in property; (iii) A reading of the interim order of the Hon’ble High Court coupled with the observations of the AO in the assessment order and then again in the remand report clearly shows that major development in the property and the entire investment seems to have been done upto the period ending 31st March, 1997. In other words, provisions of s. 69B are not attracted since the assessment year under appeal is 1998-99; (iv) The assessee i.e., the present appellant before the Tribunal was not the only party to the Mussoorie project and one really wonders as to how the entire addition could be made in his hands and none of the other parties including M/s Hotel Hans (P) Ltd., have been touched and this is going by the assumption that there was some investment outside the books of accounts. This, fact has been emphasized even by the AO in his remand report to the CIT(A); (v) M/s Hotel Hans (P) Ltd. is stated to be a 50 per cent partner in the project and it has accepted a sum of Rs. 3.45 crores including Rs. 45,00,000 as compensation to opt out and it is the assessee’s stand before us and which is not rebutted by the learned Departmental Representative that statement of the person concerned from M/s Hotel Hans (P) Ltd was recorded behind the back of the assessee and wherein investment of unaccounted money was completely denied. Further, it stands to no reason that a 50 per cent owner should withdraw taking only Rs. 3.45 crores when there are allegations of a much larger investment in the property. (vi) The AO himself has observed in the assessment order at p. 6 that the amounts shown as having been invested in the Mussoorie project are supported by bills and evidence. We do not find any observation in the assessment order to the effect that the assessee’s book of accounts are being rejected and it is stated before us and not rebutted by the learned Departmental Representative that the accounts of the assessee as also the other persons/parties connected with the Mussoorie’s project are audited; and (vii) The assessee is also purported to have made an offer

to the Department to have the property inspected so as to confirm for themselves as to what would be the probable investment thereof.” Relying on the remand report of the AO, the Tribunal has also recorded a finding that the only basis for making the said addition was the statement of senior counsel before the High Court. Hence the present appeal.

We have heard Ms. Prem Lata Bansal, learned senior standing counsel for the Revenue. It is vehemently submitted by the learned counsel that the Tribunal has misdirected itself in not taking into consideration the other material which had been referred to by the AO while making the addition in question. It is urged that the Tribunal was wrong in proceeding on the basis that the addition had been made only on account of the statement of the senior counsel before the Court. She would assert that the entire order, being based on a wrong premise namely, that the addition was made only on the basis of the statement of the counsel, is perverse and, therefore, involves a substantial question of law. We are unable to persuade ourselves to agree with learned counsel for the Revenue. As noticed above the Tribunal has recorded in very clear terms that it had been accepted by the Department that “the only basis for making the addition is the submission of learned senior advocate in the Hon’ble Delhi High Court.” Although from the format of the questions proposed, it would appear that the Revenue has taken the stand that the addition was not based only on the stand of the counsel in the High Court but neither in the body of the petition nor before us learned counsel for the Revenue has been able to rebut the afore-quoted finding of the Tribunal by pointing out as to what other material has been brought on the record by the Revenue in support of the addition in question. If it was felt by the Revenue that the said finding, essentially one of fact, was not factually correct, it was open to it to take recourse to appropriate remedy before the Tribunal for getting it corrected. But no steps in this behalf seem to have been taken. In that view of the matter, we are not convinced with the argument of learned counsel for the Revenue that the Tribunal has failed to take into consideration the relevant material, rendering its aforenoted findings as perverse. Therefore, the only question which now survives for consideration is as to whether the Tribunal was justified in taking the view that a mere statement of counsel before the High Court in civil litigation between the parties was not conclusive and the material placed on record by the assessee had bearing on the question of investment in the property in question.

There is no gainsaying that to invoke the provisions of s. 69B of the Act, the burden is on the Revenue to prove that the real investment exceeds the investments shown in the books of accounts of the assessee. As observed by the apex Court in K.P. Varghese vs. ITO & Anr. (1981) 24 CTR (SC) 358 : (1981) 131 ITR 597 (SC), to throw the burden of showing that there is no understatement of the consideration received, on the assessee would be to cast an almost impossible burden upon him to establish in negative, namely, that he did not receive any consideration more than what has been declared by him. Therefore, if the Revenue seeks to hold that the assessee has received more than what has been declared by him in respect of the assessment in question, the onus would lie on the Revenue to prove this fact by bringing some material on record. In the instant case, the Tribunal has noted that before it the parties were at ad idem that the addition in question was made only on the basis of the observations in the interim order passed by the Court in a civil suit between the three parties, including the assessee. We feel that the Tribunal was correct in holding that merely because counsel for the assessee made a statement in civil Court that the total investment in the property was Rs. 13 crores and odd, it would not be sufficient material to come to the conclusion that the said figure represents the actual investment. There has to be something more than that. We are, therefore, of the view that the Tribunal’s finding that the Revenue has failed to place on record any material to show that how the total investment of the assessee was determined at Rs. 13 crores cannot be said to be perverse for having taken into consideration some irrelevant factors or that its decision is such that no reasonable person could have come to the same conclusion. In our opinion, while deleting the addition, the Tribunal has taken into consideration the relevant factors, extracted hereinabove. The issue raised by the Revenue essentially pertains to a question of fact and does not involve the application of any legal principles to the facts established by evidence. Consequently, in our view, no question of law, much less a substantial question of law, arises from the impugned order of the Tribunal. We accordingly decline to entertain the appeal. Dismissed.

[Citation : 261 ITR 664]

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