2023 (10) TMI 1145 - HC - Income Tax

ITAT wrongly deleted additions from seized documents under Section 292C burden of proof rules

The HC held that the ITAT erred in deleting additions based on seized documents during search operations. The court emphasized that under Section 292C, ... Presumption under Section 132(4A) / Section 292C - rebuttable presumption and onus of proof - appreciation of evidence and admissions made during search - role of appellate authority in interfering with factual discretion - remand for fresh appreciation of evidencePresumption under Section 132(4A) / Section 292C - rebuttable presumption and onus of proof - Validity and legal effect of the presumption drawn from seized documents and the allocation of onus after such presumption is drawn. - HELD THAT: - The court held that the statutory presumption in Section 132(4A) (reflected in Section 292C) is a 'may presume' presumption and therefore rebuttable. Once the assessing officer draws the presumption that seized books/documents belong to the person, their contents are true and the handwriting is that of the person, the evidential burden shifts to the assessee to disprove those facts. The drawing of the presumption by the assessing officer is a fact-sensitive and discretionary exercise which appellate authorities should not ordinarily reverse without proper appreciation of the burden-shifting principle and the material on record. The tribunal erred in treating the burden as lying on the Revenue to prove handwriting or in accepting the assessee's denial without requiring the assessee to discharge the burden of rebuttal.Presumption is rebuttable; once drawn by AO the onus is on the assessee to disprove it, and the tribunal erred in reversing that approach.Appreciation of evidence and admissions made during search - role of appellate authority in interfering with factual discretion - remand for fresh appreciation of evidence - Whether the tribunal's deletion of the additions based on seized documents (including the deletion of the additions referred to in the appeal) was perverse and required setting aside and remand. - HELD THAT: - The court found that the tribunal improperly (a) required the Revenue to prove handwriting instead of ensuring the assessee discharged the burden of rebuttal after the presumption was drawn, (b) accepted the assessee's later retraction of an earlier admission without scrutinising whether the assessee had any substantial grounds to resile from that admission, and (c) gave undue weight to the absence of 'matching assets' without properly reassessing the evidential material. Given these errors in appreciation of facts and evidence, the court concluded that the tribunal's conclusions in deleting the additions were unsustainable. Rather than finally deciding the correctness of the additions on merits, the court set aside the tribunal's order on these issues and directed a fresh, detailed examination by the tribunal of the evidence on record within a stipulated time.Tribunal's order deleting the additions was set aside; matter remitted to the Tribunal for detailed re-examination of the evidence and admissions within six months.Final Conclusion: The Tribunal's order deleting the additions was set aside. The legal position that the presumption under Section 132(4A)/Section 292C is rebuttable and casts the onus on the assessee once drawn was affirmed. The matter is remitted to the Tribunal for fresh and detailed appreciation of the evidence (including admissions and handwriting issues) and reconsideration within six months. Issues Involved:1. Whether the findings of facts and the appraisal of evidence by the tribunal leading to the deletion of the addition of Rs. 3,25,37,586/- and Rs. 17,29,25,670/- were perverse.2. Whether the tribunal's order with respect to the said issue should be set aside.Summary:Issue 1: Findings of Facts and Appraisal of Evidence by the TribunalThis appeal under Section 260A of the Income Tax Act, 1961, was admitted on 30th September 2019, on the substantial questions of law regarding the deletion of additions of Rs. 3,25,37,586/- and Rs. 17,29,25,670/-. It was later discovered that the appeal had previously been admitted on 26th August 2008, but only concerning the deletion of Rs. 17,29,25,670/-. The court directed the inclusion of the 2008 order in the supplementary affidavit, considering the 2019 order as allowing an additional ground for the deletion of Rs. 3,25,37,586/-.A search and seizure operation on 19th December 1998 led to the discovery of undisclosed income and assets. The assessing officer recorded the respondent assessee's statement admitting undisclosed income and the purchase of jewellery from this income. However, the assessee later retracted this statement, claiming the documents were 'test trial balances of imaginary figures.' The assessing officer disbelieved this explanation, leading to the computation of undisclosed income.The Commissioner of Income Tax (Appeals) found the seized documents did not belong to the assessee and that the presumption under Section 132(4A) was wrongly applied. The tribunal upheld this view, noting the lack of verification of handwriting and the absence of matching assets. The tribunal emphasized the rebuttable nature of the presumption under Section 132(4A), as supported by precedents like P.R. Metrani vs. Commissioner of Income Tax and Principal Commissioner of Income-tax, Central-1, Kol. Vs. Ajanta Footcare (India) (P.) Ltd.Issue 2: Whether the Tribunal's Order Should Be Set AsideThe court highlighted that the presumption under Section 292C is discretionary and should not be interfered with unless disproved by the assessee. The tribunal failed to appreciate this, wrongly shifting the burden of proof to the Revenue. The tribunal allowed the assessee to retract his admission without substantial grounds, contrary to the principles laid down in cases like Bannalal Jat Constructions Pvt. Ltd. vs. Assistant Commissioner of Income-Tax and Surjeet Singh Chhabra vs. Union of India and Ors.The court concluded that the tribunal's order was flawed and remanded the matter back to the tribunal for reexamination based on the evidence on record within six months.Separate Judgment by BISWAROOP CHOWDHURY, J.:Justice Biswaroop Chowdhury agreed with the grounds cited by Justice I. P. Mukerji but added that the Income Tax Authority should have verified the assessee's statements and interrogated the accountant responsible for the accounts. The matter was remitted to the tribunal for reconsideration, emphasizing the need for a thorough examination of the evidence and proper interrogation of relevant parties.