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Judgment
Dr. Satish Chandra, J.—The present appeal has been filed by the appellant-department u/s 260A of income tax Act, 1961, against the judgment and order dated 05.12.2008 passed by Income Tax Appellate Tribunal, Lucknow in LT.A. Nos. 534 and 648/Luc/2008, for the assessment year 2005-06. On 19.11.2009, a Coordinate Bench of this Court has admitted the appeal on the following substantial questions of law:--
Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal erred in law in deleting the addition of Rs. 42.50 lacs under the head ''undisclosed investments'' in the purchase of land?
Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal erred in law in deleting the addition of Rs. 10.00 lacs made by the Assessing Officer on account of unexplained loan?
The brief facts of the case are that the assessee is a company engaged in development of land and construction. During the assessment year under consideration which is the second year of operation, the assessee filed the loss return for Rs. 1,33,575/-. However, the A.O. has completed the assessment on positive income of Rs. 51,16,420/-. During the scrutiny, the A.O. found that the assessee has deposited an amount of Rs. 39 lacs in the bank account of Mr. Nankau. Actually, a sum of Rs. 42.5 lacs was paid to him by the assessee who in return re-sold the land to the assessee. The A.O. has treated a sum of Rs. 42.5 lacs as unexplained income and made the addition in the hands of the assessee. The first appellate authority as well as the Tribunal has deleted the addition.
At the same time, the A.O. made the addition of Rs. 10 lacs pertaining to the loan received from M/s. L.N. Seth, HUF. The same was upheld by the first appellate authority. However, the second appellate authority has deleted the addition. Being aggrieved, the department has filed the instant appeal.
With this background, Sri D.D. Chopra, learned counsel for the appellant-department submits that the assessee has advanced through banking channel a sum of Rs. 39 lacs to Mr. Nankau to purchase the land. Later, Mr. Nankau has re-sold the same land to the assessee company for a consideration of Rs. 42.5 lacs. He also submits that Mr. Nankau has officially received the amount and paid back the same to the assessee out of the books of account. He further submits that the status of Mr. Nankau at the relevant time, was penniless person prior to the purchase of the land by him. He belongs to the SC/ST category and he was not having any own means to purchase the land by making initial investment. The assessee''s money was used. Later, the company has received back the land as well as the unaccounted money. Lastly, he justified the addition made by the A.O.
On the other hand, Sri Dhruv Mathur, learned counsel for the assessee submits that Mr. Nankau was a conduit to whom the money was provided by the assessee''s company through banking channel. He has purchased the land and re-sold to the assessee''s company. Mr. Nankau was examined on oath. No enquiry was made by the A.O. from the original seller of the land as to when and how and from whom they have received the money and sold the land, Mr. Nankau has withdrawn the money from the bank account to purchase the land. Mr. Nankau was also not examined. So, no addition is required. Lastly, he justified the impugned orders.
After hearing both the parties and on perusal of the record, it appears that the money was deposited by the company in the account of Mr. Nankau, who has withdrawn the same and purchased the land. Later, the land was re-sold to the assessee''s company. In the hands of the assessee''s company, the source of the advance was fully explained. In fact, the land was purchased by the assessee''s company through Mr. Nankau. The A.O. made the addition merely on suspicion which is not desirable in the eye of law. The money used by the company through Mr. Nankau has been fully explained in the books of account. Nobody would like to convert the white money into black money.
In the present case, there is no material available on record to show that the assessee company has paid money in cash to the original seller of the land. When it is so, then we find no reason to interfere to interfere with the impugned order passed by the Tribunal. The same is hereby sustained along with the reasons mentioned therein, where an addition of Rs. 42.5 lacs was deleted. The concrete findings of both the appellate authorities are hereby sustained.
Another grievance of the department is pertaining to the addition of Rs. 10 lacs being credit balance in the account of M/s. L.N. Seth, HUF.
During the assessment year under consideration, the assessee has shown the unsecured loan from M/s. L.N. Seth, HUF in the balance-sheet. M/s. L.N. Seth, HUF had a bank account in the Karnataka Bank Ltd. in which he has received Rs. 40 lacs and on the same day, disbursed Rs. 32 lacs to the assessee. The assessee then returned a sum of Rs. 31 lacs on 11.08.2004 leaving Rs. 1 lac as credit from M/s. L.N. Seth, HUF. Subsequently, M/s. L.N. Seth, HUF further gave a sum of Rs. 5 lacs and Rs. 4 lacs, total Rs. 9 lacs, on 08.09.2004 and 12.10.2004 to the assessee. Thus, a sum of Rs. 10 lacs remained outstanding against M/s. L.N. Seth, HUF in the balance sheet of the assessee.
The A.O. made an addition of this amount in the hands of the assessee which was upheld by the first appellate authority. However, the Tribunal has deleted the said addition.
Sri D.D. Chopra, learned counsel for the department submits that the assessee company has received the money from the father of the Director who received the money from his minor children and who in turn received the money as gift from NRE account of one Fatima Zohra Khan, who in turn received the money from Shri Shakeel Ahmed Khan, who claimed to be uncle of another director of the assessee company. He has drawn the attention to the chart prepared by the A.O. in his order to show that the same is unaccounted money. Lastly, he justified the addition made by the A.O.
On the other hand, learned counsel for the assessee has justified the order.
After hearing both the parties and on perusal of the record, it appears that M/s. L.N. Seth, HUF of the Karta and one of the Director of the assessee Company, has received the money from his minor children who had received the gift from NRE account. If the addition will have to be made, the same will have to be made in the hands of M/s. L.N. Seth, HUF, and certainly, not in the hands of the assessee company who has received the amount through banking channel from M/s. L.N. Seth HUF, in whose account there was sufficient funds available.
In the instant case, money has come at all the level through banking channel and creditworthiness and identity of the donors/creditors have been proved. When it is so, then all the three conditions, namely, identity, creditworthiness; and banking transaction have been proved in the instant case. When it is so, then we find no reason to interfere with the impugned order passed by the Tribunal. The same is hereby sustained along with the reasons mentioned therein.
The answer to both the substantial questions of law is in the favour of the assessee and against the department. In the result, appeal filed by the department is hereby dismissed.