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May 10, 2022

Presumption cannot be used to determine an Assessee’s tax due.

by CA Shivam Jaiswal in Income Tax

Presumption cannot be used to determine an Assessee’s tax due.

Facts and issue of the case

The Assessee had entered into an agreement to sale (Ikrarnama) on dated 10.10.2006 with the owners of the land measuring 220 kanals, 6 marlas (27 acres 4 kanals, 6 marlas)situated at Village Salwan @Rs. 9.12 lakhs per acre and consequently paid an advance of Rs. 20 lakhs (Rs. 12 lakhs in cash and 4 cheques of Rs. 2 lakhs all dated 10.10.2006 of PNB Bank, Branch Karnal). Subsequently, by virtue of the saidagreement to sale (Ikrarnama) dated 10.10.2006, the Assessee had also entered into an agreement to sale (Ikrarnama) with ShriDharampal on dated 18.12.2006 for sale of the above stated land @ Rs. 10.60   lakhs per acre for which the Assessee had received an amount of Rs. 40 lakhs in cash as an advance. Later on, the said land was sold by the original/registered owners by way of registered sale deed dated 30.01.2007 at the sale consideration of Rs. 5 lakhs per acre. The AO on the basis of agreement to sale dated 10.10.2006 and 18.12.2006 held that the Assessee had earned income of Rs. 40.70 lakhs from the undisclosed sources and consequently, added the same in the income of the Assessee. The Assessee being aggrieved challenged the said addition inter-alia other additions before the Ld. Commissioner who vide impugned order sustained the same.

The Assessee being aggrieved preferred the instant appeal and raised the issue that both the authorities below acted only on the basis of surmises and conjectures without verifying as to whether the Assessee has received more than the advance given by him as per agreement dated 10.10.2006. The Assessee claimed that though he had entered into an agreement with the original owner of the property on dated 10.10.2006 and subsequently on 18.12.2006with the 3rd Party however, it is a fact that both the agreements referred above could not be materialized and stands cancelled. There is no dispute qua consideration amount of Rs. 20 lakhs which was refunded by the owners of the property to the Assessee and the Assessee also refunded the amount of Rs. 40 lakhs to the 3rd Party i.e. ShriDharampal as per agreement to sale dated 18.12.2006. It is not the case of the department that the Assessee had received more than the amount paid, from the owners of the property/land.On the contrary the ld. DR refuted the claim of the Assessee and vehemently supported the orders passed by the authorities below.

Observation of the court

Heard the parties and perused the material available on record. From the impugned order it clearly reflects that the Ld. Commissioner observed “that it is a well known fact that prices of real estate including land has been increasing day by day. Apparently the said land was actually sold at a price much higher to the collector’s rate enabling the appellant to make payment of the amount of  sale  to  the sellers and to refund the amount  of  advance  of  Rs.  40  lakhs  received from the Assessee. In view  of  the  facts  discussed  above  it  is  held  that sale of land was carried out atthe rate Rs. 10.60 per acre and hence, Assessee earned an  income  of  Rs.  40.70  lakhs from this  transaction  i.e. the amount taken by the AO and hence the addition  made  by  the  AO hereby confirmed.”Whereas the Assessee has claimed that he had entered into an agreement for purchase of said land on dated 10.10.2006 and by virtue of said Agreement to sell entered in to and Agreement to sell with Shri Dharampalon dated 18.12.2006. Since the agreement of sale of the said land could not be materialized, therefore the land was sold by the owners of the land to the 3rd Party as per sale deed dated 30.01.2007 which was got registered at the Collector’s rate i.e. Rs. 5 lakhs per acre. Assessee drew our attention to the collector’s decision dated 20.03.2007 (Pg 20-23 of Paper Book) wherein it has been held that registration of the said land was done @5 lakhs per acre only as per registered collector‟s rate. However it appears that the Authorities below have not taken into consideration the said decision. The assessee also claimed that though the Assessee appeared before the AO on various occasions but still the AO passed the order partly as ex-pate u/s 144/143(3) of the Act and therefore the case may be remanded to the file of the AO.

Court has given thoughtful consideration to the facts and circumstances of the case and find that both the authorities below have acted upon, only on the presumption and without any substantive material for making and sustaining the addition under consideration. In our considered view the presumption cannot be real adjudication of an issue.The very purpose of income tax proceedings is to correctly assess the tax liability of an Assessee in accordance with lawbut not under presumption as held in this case. Article 265 of the Constitution of India prescribes that no tax shall be levied or collected except by the authority of law. The Hon‟ble Allahabad high Court in the case of Pt. SheoNath Prasad Sharma Vs. C.I.T., 66 ITR, p.647 (All.) reminded that the law empowers the Income-tax Officer to assess the income of an Assessee and determine the tax payable thereon in accordance with law.

Hence on the aforesaid analyzations and considering the peculiar facts and circumstances of the case and specific prayer of the Assessee for remand of the case, we for the ends of justice, deem it appropriate to remit this case to the file of the AO for decision afresh, suffice to say while granting reasonable opportunity of being heard to the Assessee.


Appeal filed by the Assessee was allowed for statistical purposes.


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