Section 69, read with section 132 of Income-tax, Act 1961

HIGH COURT OF DELHI Commissioner of Income-tax, (Central)-1, New Delhi v. Ved Prakash Choudhary MADAN B. LOKUR AND V. B. GUPTA, JJ IT APPEAL NO. 903 OF 2007 February 19, 2008 Section 69, read with section 132 of Income-tax, Act 1961 - Unexplained investment - Block Period 1-4-1989 to 20-2-2000 - Pursuant to a search at residence of assessee two memorandum of understandings (MoUs) were recovered, which were entered into by assessee and ‘R’ and ‘M’ for purchase of agricultural land - In terms of MoUs, assessee had paid certain amount as part consideration - However, assessee denied of having made payment and ‘R’ and ‘M’ denied of having received any amount - Assessing Officer concluded that denial was only to escape payment of tax liabilities and added that amount to income of assessee under section 69 as unexplained expenditure - However, Commissioner (Appeals) as well as Tribunal deleted that addition on ground that there was not enough evidence to add that amount in hands of assessee, and that property in question was eventually sold by ‘R’ and ‘M’ to ‘D’ - Whether from facts it was clear that MoUs did not fructify - Held, yes - Whether since there was no corroborative evidence to show that there was in fact a transfer of money, addition was rightly deleted - Held, yes FACTS Pursuant to search at the residence of the assessee, two memorandums of understanding (MoUs) were recovered. Those MoU were entered into by assessee with ‘R’ and ‘M’ in respect of purchase of agricultural land. In terms of the MOUs, the assessee had paid Rs. 25 lakh each to ‘R’ and ‘M’ towards part consideration for the purchase of agricultural land. The balance amount was to be paid on or before 30-4-1999, failing which the amount of Rs. 25 lakh each would be forfeited. On the basis of the MOU the Assessing Officer issued a questionnaire to ‘R’ and ‘M’ regarding receipt of the amount of Rs. 25 lakh each but while they both admitted of having signed the MoU, they denied having received any amount. The Assessing Officer concluded that the denials by the assessee of having made payments and of ‘R’ and ‘M’ of having received the amount was only to escape payment of tax liabilities. Accordingly, the amount of Rs. 50 lakh was added in the hands of the assessee under section 69 as unexplained expenditure. The Commissioner (Appeals) as well as the Tribunal set aside the order of the Assessing Officer holding that there was not enough evidence to add the amount in the hands of the assessee. On appeal under section 260A: HELD Notwithstanding that the assessee as well as ‘R’ and ‘M’ denied the money transaction. In addition thereto, the case set up was that the agricultural land had, in fact, been sold to ‘D’ by ‘R’ and ‘M’. That was confirmed by one of the directors of ‘D’. Thus, the MoUs did not fructify. [Para 9] Section 132(4A) uses the expression ‘it may be presumed’. It is not obligatory on the assessing authority to make a presumption. Even if a presumption is required to be made then as held in CIT v. S.M.S. Investment Corpn. (P.) Ltd. [1994] 207 ITR 364 (Raj.), the presumption is a rebuttable one and relates to a question of fact. [Para 10] In the instant case, the assessee had stated that in fact there was no transfer of money between him and R’ and ‘M’. On the other hand, ‘R’ and ‘M’ had denied receipt of any money from the assessee. In the fact of those denials, there ought to have been corroborative evidence to show that there was in fact such a transfer of money. Both the Commissioner (Appeals) as well as the Tribunal had come to the conclusion that there was no such material on record. [Para 12] The Assessing Officer relied on certain other transactions entered into by the assessee with ‘R’ and ‘M’ for drawing a presumption in respect of the transfer of money, but the Tribunal rightly held that those were independent transactions and had nothing to do with the MoUs, which were the subject matter of discussion. Even if there was something wrong with some other transactions entered into, that would not give rise to an adverse inference in so far as the subject MoUs were concerned. [Para 13] Hence, no substantial question of law arose. [Para 14]