2023 (4) TMI 498 - AT - Income Tax

Tribunal overturns Assessing Officer's additions for lack of evidence, allows assessee's appeals

Smt. Suman Sabharwal Versus A.C.I.T., Central Circle-2, Jalandhar

Smt. Suman Sabharwal Versus A.C.I.T., Central Circle-2, Jalandhar - TMI Issues Involved:1. Legality and sustainability of assessment orders under Section 153A/143(3) of the Income Tax Act.2. Addition of unexplained expenditure under Section 69C of the Income Tax Act based on rough diary entries.3. Interpretation of diary notations and their validity as evidence.4. Presumption under Section 292C of the Income Tax Act.Detailed Analysis:1. Legality and Sustainability of Assessment Orders:The assessee challenged the assessment orders framed under Section 153A/143(3) of the Income Tax Act, claiming they were 'bad in law and against the facts and circumstances of the case.' The Tribunal examined whether the assessment orders were legally sustainable. The Tribunal found that the Assessing Officer (AO) had issued notices under Section 153A following a search and seizure operation and that the assessee had duly complied by filing returns and submitting necessary documents. However, the Tribunal's focus was on whether the subsequent additions made by the AO were justified.2. Addition of Unexplained Expenditure under Section 69C:The primary contention was the addition of Rs. 4,50,000/-, Rs. 31,50,000/-, and Rs. 21,85,000/- for the assessment years 2012-13, 2013-14, and 2014-15, respectively. These additions were based on rough diary entries that the AO interpreted as coded figures representing larger sums. The Tribunal scrutinized whether these additions were backed by substantial evidence. The Tribunal noted that the entries in the diary were rough notations and lacked corroborative evidence to support the AO's interpretation that the figures were in coded form.3. Interpretation of Diary Notations:The Tribunal found that the AO and the Commissioner of Income Tax (Appeals) [CIT(A)] had interpreted the diary notations as coded figures by multiplying them by 100, without any corroborative evidence. The Tribunal emphasized that such an interpretation based on 'assumption, presumption, and conjectures' is not justified. The Tribunal highlighted that the figures in the diary were rough estimates and not conclusive proof of actual expenditure. The Tribunal cited various judicial precedents, including decisions from the Punjab Haryana High Court and the Delhi High Court, which held that rough notations on loose papers without corroborative evidence cannot form the basis for additions.4. Presumption under Section 292C:The Tribunal addressed the presumption under Section 292C, which allows for certain presumptions regarding documents found during a search. The Tribunal noted that the presumption under Section 292C is rebuttable and cannot be taken against the assessee without substantial evidence. The Tribunal found that the AO had failed to bring any corroborative evidence to support the presumption that the diary notations represented actual unexplained expenditure. The Tribunal concluded that the rough diary entries, without more, could not be treated as conclusive proof of the alleged expenditure.Conclusion:The Tribunal held that the additions made by the AO were based on 'assumption, presumption, and conjectures' and lacked corroborative evidence. The Tribunal emphasized the need for substantial evidence to support any additions based on rough notations. Consequently, the Tribunal deleted the additions of Rs. 4,50,000/-, Rs. 31,50,000/-, and Rs. 21,85,000/- for the assessment years 2012-13, 2013-14, and 2014-15, respectively. The Tribunal allowed the appeals of the assessee and set aside the orders of the CIT(A).Order Pronounced:The order was pronounced in the open court on 20.02.2023, allowing all three appeals of the assessee.