2017 (5) TMI 1354 - AT - Income Tax

Tribunal deletes excessive tax addition due to lack of evidence, emphasizing need for corroborative proof.

The Tribunal allowed the appeal, deleting the addition of Rs. 1,29,82,873/- as the AO failed to provide substantial evidence linking the seized documents ... Unrecorded sales/unrecorded business transactions and unrecorded payments etc. - search operations - addition on basis of loose papers - Held that:- CIT(A) grossly erred in confirming the addition as the assessee from the very beginning denied that loose papers belonged to him and that the presumption u/s 292C of the Act is rebuttable presumption and does not lead to a conclusive evidence. The assessee from the very beginning denied that the documents belonged to him and the AO made no effort to find out the real truth. It is not brought on record that the assessee was engaged in the business of gold or jewellery and earning the income from said business, the addition has been made by the AO by presuming that the assessee had made payments to the certain parties but in those documents which had been relied by the AO nowhere it is mentioned that the assessee purchased the gold and even the nature of the transaction is not clear because against certain payments, some quantity of gold has been written and against the others nothing is mentioned. Therefore, the addition made by the AO is only on the basis of surmises and conjecture without bringing any cogent material on record to substantiate that the assessee was engaged in the business of gold and jewellery and the AO had not brought any material on record to substantiate that the denial of the assessee was false. As during the course of search no unaccounted stock or assets were found. It is also noticed that in the assessee’s case search took place on 09.12.2005 and the seized material was with the AO who issued notice u/s 153A of the Act on 05.09.2007 but he did not make any enquiry during that period i.e. between 09.12.2005 and 05.09.2007, to ascertain as to whom the payments, if any, were made and how the assessee was related to those payments. On the contrary, the assessee denied the ownership of the document from the very beginning. We, therefore, considering the totality of the facts and by keeping in view the ratio laid down by the Hon’ble Jurisdictional High Court in the aforesaid referred to decision of Pr. CIT Vs M/s Delco India Pvt. Ltd. (2015 (7) TMI 47 - ITAT DELHI) are of the view that the addition made by the AO and sustained by the ld. CIT(A) was not justified. Accordingly, the same is deleted. - Decided in favour of assessee. Issues Involved:1. Sustenance of addition for unrecorded sales/unrecorded business transactions and unrecorded payments.2. Application of Section 292C of the Income Tax Act, 1961.3. Relevance of documents found during the search to the assessee.4. Assessment procedure under Section 153C of the Income Tax Act.5. Presumption under Section 132(4A) and its applicability to regular assessments.Issue-Wise Detailed Analysis:1. Sustenance of Addition for Unrecorded Sales/Unrecorded Business Transactions and Unrecorded Payments:The main grievance of the assessee was the addition of Rs. 1,29,82,873/- for alleged unrecorded sales and payments. The search operation on 09.12.2005 at the assessee's residence led to the seizure of documents. The AO based the addition on these documents, which the assessee disowned, claiming they did not belong to him. The assessee argued that the documents were left by someone during a family function and did not pertain to his business activities. The AO, however, treated the documents as evidence of unrecorded transactions and added the amount to the assessee's income.2. Application of Section 292C of the Income Tax Act, 1961:The AO invoked Section 292C, presuming the seized documents belonged to the assessee. The assessee contended that this presumption is rebuttable and not conclusive. The CIT(A) confirmed the addition, stating that under Section 292C, documents found in possession during a search are presumed to belong to the person unless proven otherwise. The assessee argued that the presumption under Section 292C is discretionary and rebuttable, supported by various case laws, including the ITAT Delhi Bench's decision in DCIT Vs Delco India Pvt. Ltd.3. Relevance of Documents Found During the Search to the Assessee:The assessee consistently denied ownership of the documents, stating they were unrelated to his business. The AO did not conduct any inquiry to verify the parties mentioned in the documents. The ITAT noted that the documents did not explicitly mention the assessee's name and contained details irrelevant to his business. The Tribunal emphasized that mere possession of documents does not warrant an addition unless corroborated with substantial evidence linking the documents to the assessee's business activities.4. Assessment Procedure under Section 153C of the Income Tax Act:The assessee argued that the AO should have invoked Section 153C to ascertain the correct assessee. The AO issued the notice under Section 153A, and the assessee filed the return of income. The Tribunal observed that the AO did not utilize the period between the search and the notice issuance to conduct necessary inquiries. The lack of effort to verify the documents' relevance to the assessee's business weakened the AO's case.5. Presumption under Section 132(4A) and Its Applicability to Regular Assessments:The CIT(A) relied on the presumption under Section 132(4A) to confirm the addition, which the assessee argued was not applicable for regular assessments. The Tribunal referred to the Supreme Court's judgment in P.R. Metrani, which clarified that the presumption under Section 132(4A) is limited to search and seizure proceedings and not applicable for regular assessments. The Tribunal concluded that the AO's reliance on this presumption was misplaced and unsupported by corroborative evidence.Conclusion:The Tribunal allowed the appeal, deleting the addition of Rs. 1,29,82,873/-. It emphasized that the presumption under Section 292C is rebuttable and not conclusive. The AO failed to provide substantial evidence linking the seized documents to the assessee's business activities. The Tribunal highlighted the necessity of corroborative inquiries and evidence to justify such additions, which were lacking in this case.