2016 (2) TMI 1105 - AT - Income Tax

Tribunal emphasizes concrete evidence over presumptions in tax case, rejects reliance on third-party documents

The Tribunal dismissed the departmental appeals and upheld the CIT(A)'s deletion of additions in a tax case. It emphasized the importance of concrete ... Addition on sized material from search - addition on purchase of shares - Held that:- It is not in dispute that seized papers were found and recovered during the course of search in the case of Shri Surinder Gulati. These documents were used against Shri Surinder Gulati in his assessment and all these seized papers have been mentioned in the assessment order of Shri Surinder Gulati dated 28.02.2013 for assessment year 2006-07. The statement of Shri Surinder Gulati at the time of search was recorded under section 132(4) of the Income Tax Act which is also reproduced in his assessment order as above. The seized paper alongwith small blue diary marked ‘Raymond’ were confronted to him in which he has admitted that diary was written in his handwriting and belongs to him. He has also explained the abbreviations contained in the seized paper but none of the abbreviations were having any link or connection with the assessee. In answer to one of the question, while referring to the seized paper, he has explained that these are estimates and the actual fact remained that he has received money @ ₹ 3900/- per share. Shri Surinder Gulati did not make any allegation against the assessee in respect of shares purchased by the assessee. The seized paper as referred in his assessment order have been reproduced in which, on certain shares the value have been shown @ 3900/- as well as in another paper, the same rate is mentioned against the total shares of 3258 and in the third seized paper, total sale proceeds of 3258 shares have been considered by Assessing Officer in a sum of ₹ 2.13 Crores. This sale consideration was divided by 3258 shares and Assessing Officer concluded the value of each share at ₹ 6554/-. However, all the above material on record i.e. statement of Shri Surinder Gulati and the seized paper did not make any allegation against the assessee of purchase of shares at ₹ 6554/-. It was a presumption of the Assessing Officer that when one of the transactions is conducted by Shri Surinder Gulati for a sum of ₹ 6554/- then presumption would be that other shares have also been transferred at the same value. However, it is well settled law that presumption, what-so-ever may be strong but same cannot take place of proof. It is also admitted fact that assessee did not have any transaction with Shri Surinder Gulati or any of his family members. The assessee had purchased shares from Chadha family and even in search in the case of Chadha family, no material or document was found making any allegation against the assessee. Considering the totality of the facts and circumstances in the light of the findings of ld. CIT(Appeals), particularly when the additions have been deleted in the case of Shri Surinder Gulati and the matter has reached finality, nothing survive in favour of the revenue to make any addition against the assessee. In the absence of any evidence on record against the assessee, we are not inclined to interfere with the order of the ld. CIT(Appeals) for deleting the addition. No error have been pointed out in the order of the ld. CIT(Appeals). The contention of ld. DR have no force that when one transaction is conducted at the same rate, the same rate should be applied in other cases. In view of the above, we do not find any merit in the departmental appeal Issues Involved:1. Deletion of addition on account of unexplained investment in the purchase of shares.2. Validity of evidence found during search operations.3. Application of presumption under section 132(4A) of the Income Tax Act.4. Relevance of third-party documents in making additions.5. Comparison with market value and other transactions.Issue-wise Detailed Analysis:1. Deletion of Addition on Account of Unexplained Investment in the Purchase of Shares:The core issue revolves around the deletion of additions made by the Assessing Officer (AO) regarding unexplained investments in the purchase of shares. The AO had applied a higher rate of Rs. 6554 per share based on seized documents, whereas the assessee declared the purchase price at Rs. 3900 per share. The CIT(A) deleted the additions, reasoning that the AO's basis for the higher rate lacked corroborative evidence directly linking the assessee to the alleged higher payments. The CIT(A) emphasized that no adverse documents were found against the assessee during the search, and the seized documents from a third party (Shri Surinder Gulati) did not implicate the assessee.2. Validity of Evidence Found During Search Operations:The judgment scrutinized the validity of the evidence found during search operations at the premises of Shri Surinder Gulati. The AO had relied on documents seized from Gulati's residence, which indicated a higher sale price for shares. However, the CIT(A) noted that these documents were cryptic and lacked specific details directly implicating the assessee. The CIT(A) highlighted that the documents mentioned a sale price of Rs. 3900 per share and that no extra consideration was received. Additionally, the CIT(A) pointed out that the AO did not provide logical reasoning for rejecting the assessee's explanation.3. Application of Presumption Under Section 132(4A) of the Income Tax Act:The presumption under section 132(4A) was a significant point of contention. The AO presumed that the seized documents indicated a higher sale price for all transactions, including those involving the assessee. However, the CIT(A) and the Tribunal stressed that such presumptions could not replace concrete evidence. The Tribunal reiterated that the presumption under section 132(4A) was not applicable when the seized documents were recovered from a third party and not from the assessee.4. Relevance of Third-Party Documents in Making Additions:The judgment extensively discussed the relevance and admissibility of third-party documents in making additions. The CIT(A) and the Tribunal emphasized that documents found with a third party (Shri Surinder Gulati) could not be used against the assessee without direct evidence linking the assessee to the alleged transactions. The Tribunal noted that the addition made in Gulati's case based on the same documents was deleted by the CIT(A) and was not contested further by the department due to low tax effect, thereby weakening the case against the assessee.5. Comparison with Market Value and Other Transactions:The assessee argued that the AO's assumption of a higher market value for the shares was unfounded. The CIT(A) accepted the assessee's contention that the market value assumed by the AO was far-fetched, especially when compared to a similar transaction involving Jagat Theatre, which was sold at a lower price. The Tribunal upheld this view, noting that the AO's assumption was not backed by documentary evidence and was based on hearsay.Conclusion:The Tribunal dismissed the departmental appeals, upholding the CIT(A)'s deletion of additions. The judgment underscored the importance of concrete evidence over presumptions and third-party documents in making additions. The Tribunal concluded that the AO's reliance on seized documents from a third party, without direct evidence against the assessee, was insufficient to justify the additions. The decision highlighted the necessity of a direct nexus between the evidence and the assessee's transactions, reinforcing the principle that suspicion, however strong, cannot replace proof.