2011 (10) TMI 605 - HC - Income Tax

Court affirms Tribunal decision, finding AO's conclusions lacking evidence. Assessee successfully rebuts allegations.

Commissioner of Income-tax Versus Mangalchand Parekh

The Court upheld the Tribunal's decision to delete additions made by the AO based on incriminating documents seized during search operations. The Court ... Addition mentioned in the incriminating documents seized during search operations, particularly, disregarding statement of the assessee recorded under s. 132(4) - Whether, in law, in respect of hundies/promissory notes recovered and seized during the course of search the onus is cast on the AO to prove that the amount shown in such hundies/promissory notes was actually advanced by the assessee ? - Tribunal was justified in upholding CIT(A)'s order whereby the CIT(A) deleted addition - Held that:- The findings recorded by the CIT(A) and affirmed by the Tribunal are based on proper appreciation of facts and are not perverse, being correlated with each and every transaction. Thus, the issue is purely question of facts. No question of law, more so substantial questions of law, as aforestated, arise in the facts of the case. Issues Involved:1. Justification of the Tribunal in upholding the CIT(A)'s deletion of additions based on incriminating documents seized during search operations.2. Onus on the AO to prove the amounts shown in hundies/promissory notes were actually advanced by the assessee.Detailed Analysis:Issue 1: Justification of the Tribunal in Upholding the CIT(A)'s Deletion of AdditionsThe appeals arose from the Tribunal's orders dated 22nd September 2003, concerning the block period from 1st April 1987 to 14th November 1997. The primary question was whether the Tribunal was justified in upholding the CIT(A)'s order, which deleted additions based on incriminating documents seized during search operations, disregarding the statement of the assessee recorded under Section 132(4) of the Income Tax Act.Facts and Arguments:- During a search at the assessee's residential premises, incriminating documents, including promissory notes/hundies, were found.- The AO issued a notice under Section 158BC, and the assessee declared undisclosed income of Rs. 11,44,218 for the block period.- The AO added the amounts reflected in the hundies to the undisclosed income, rejecting the assessee's explanation that these were securities or counter-guarantees for trade/loan transactions.- The CIT(A) deleted the additions, stating that the AO did not cross-examine the deponents or provide the assessee an opportunity to produce them, and the affidavits filed were not disproved.Tribunal's Decision:- The Tribunal affirmed the CIT(A)'s findings, emphasizing that the AO's conclusions were based on surmises and conjectures without proper evidence.- The Tribunal found no correlation between the promissory notes/hundies and the alleged trade/loan transactions, but it upheld the CIT(A)'s view that the AO had not disproved the affidavits.Court's Analysis:- The Court noted that the Tribunal had considered each ground raised by the Department and affirmed the CIT(A)'s findings without modification.- The Court agreed with the Tribunal that the AO's findings were based on surmises and conjectures and lacked proper appreciation of facts.- The Court held that the findings of the CIT(A) and Tribunal were based on proper appreciation of facts and were not perverse.Issue 2: Onus on the AO to Prove the Amounts in Hundies/Promissory NotesThe second question was whether the onus was on the AO to prove that the amounts shown in hundies/promissory notes were actually advanced by the assessee.Arguments:- The Department argued that the AO had rightly added the amounts as undisclosed income since the assessee's explanation was not satisfactory.- The Department contended that the affidavits submitted by the assessee were doubtful and should not have been accepted as true without proper evidence from the AO.Court's Analysis:- The Court referred to various precedents, emphasizing that the burden of proving that a statement was involuntary or extracted under duress lies on the assessee.- The Court noted that the CIT(A) and Tribunal had considered the evidence led in rebuttal and found that the assessee had discharged the burden of rebuttal under Section 132(4A).- The Court held that the AO's rejection of the affidavits without proper evidence was not justified.Conclusion:- The Court concluded that the findings of the CIT(A) and Tribunal were based on proper appreciation of evidence and were not perverse.- The appeals were dismissed, and no substantial question of law arose in the facts of the case.Judgment:The appeals were dismissed, affirming the CIT(A) and Tribunal's decisions to delete the additions made by the AO. The Court held that the findings were based on proper appreciation of facts and were not perverse. There was no order as to costs.