Actual Expenditure, Source Of Which Was Not Explained, Attracts Deeming Provisions Of Sec 69: Ahmedabad ITAT

The Ahmedabad ITAT recently ruled that actual expenditure, the source of which has not been explained, attracted the deeming provisions provided u/s 69 of the Income tax Act.

The ITAT at the same time clarified that no addition can be made in the hands of the assessee merely on the reason that the assessee got the property transferred through registered sale without making the payment to the vendor.

Referring to the decision of High Court of Delhi in the case of CIT versus Lubtec India Ltd - 311 ITR 175, the Bench of Waseem Ahmed (Accountant Member) And T R Senthil Kumar (Judicial Member) reiterated that “provisions of section 69C of the Act are applicable with respect to the expenditures which have actually been incurred by the assessee and the assessee fails to offer any explanation about the source of such expenditure”. (Para 12.2)

As per the brief facts of the case, the assessee is carrying out the business of wholesale trading of vegetables. The AO as per ITS Data found that the assessee during the year purchased two immovable properties for Rs. 95,47,000/- registered with sub-registrar office (SRO) Kadi, Mehsana, but no such property was disclosed in the books of accounts. The AO found that assessee had purchased agricultural lands for Rs. 48,02,000/- and Rs. 47,50,000/- and consideration was paid through cheques. The assessee before the AO claimed that title of the property was defective, therefore the cheques issued to the vendors were not cleared/debited in the bank account and accordingly, the possession of the property was also not transferred. Thereafter, the AO made verification from the vendors by issuing notice u/s 133(6) and deputed income tax inspector to carry out the spot verification of land property. The vendor's confirmed that the sale of the property is yet to be materialized due to some technical issues. The AO observed that in the land or real estate deal, the seller/vendor receives purchase consideration on or before the execution of sale deed. However, in the present case, the sale deed has been executed by the vendor without encashing the cheque issued for payment of consideration and possession of the property was also given to the assessee as reported by the inspector.

Accordingly, the AO concluded that the circumstances suggest that the consideration was paid from unaccounted sources and so-called cheque issued by the assessee as mentioned in sale deed but never honored is nothing, but a camouflage and the story of title defect are cooked up. Hence, the AO made addition of Rs. 95,47,000/- on account of unaccounted income used for the purchase of such land property, by invoking the deeming provision of section 69 of the Act.

The Bench found that the land in question was purchased by the assessee much earlier through the sale deed and payment for the same was made subsequently, which is generally against the prevailing market forces/ practices.

Under standard conditions, the buyer needs to make the payment to the vendor on or before the registration of the sale deed, added the Bench.

However, the Bench clarified that there can always be exceptions to such kind of prevailing market practices but the same can be accepted if there is some reasonable justification.

Hence, the ITAT allowed the assessee's appeal and directed the AO to delete the addition.

Counsel for Appellant/ Assessee: D K Parikh

Counsel for Respondent/ Revenue: Ashok Kumar Suthar

Case Title: Hyfun Frozen Foods Pvt. Ltd. Verses Income Tax Officer

Case Number: ITA No.2287/AHD/2018

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