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, ... Additions towards Undisclosed profit made on the basis of the seized documents - search and seizure operation - During the course of search books of account, loose papers and documents were also seized - ITAT deleted the addition - Presumption as to assets, books of account, etc u/s 292C - Decision by two bench judges - HELD THAT:- I. P. MUKERJI, J - As presumption may be rebuttable or irrebuttable. If it is irrebuttable, it is conclusive proof of the fact. The court will not admit any evidence to disprove the presumption. The question is who has the onus of disproving the presumed fact. One who challenges the presumption has the onus to disprove the fact. Adjudicating authority has two options, either not to presume that the papers and other documents seized during search and seizure belonged to the assessee, the contents are true and that the signatures appearing thereon are that of the assessee or not to presume so. In this case, AO has made the presumption and proceeded accordingly. Now, the drawing of a presumption by the assessing officer in terms of Section 292C, in our opinion, is based on assessment of facts and discretionary and should not ordinarily be interfered with by an appellate authority. Once this presumption had been made, the onus squarely shifted to the respondent assessee to disprove those facts. The tribunal was enjoined with a duty to appreciate this law and to examine whether the assessee had been able to discharge the burden. Now, look at the reasons given by the tribunal. It cast a duty on the Revenue to prove the handwriting of the assessee. It accepted the contention of the assessee that the documents did not belong to him instead of requiring him to prove it. It allowed the assessee to retract the admission made by him during the course of the proceedings, by a statement dated 9th March, 1999 that the trial balance for the period 1st April, 1997 to 31st March, 1998 “summarizes my entire business operation for 1997-1998”. Since Income Tax officers are not police officials, the view of the Supreme Court in Surjeet Singh Chhabra vs. Union of India and Ors. [1996 (10) TMI 106 - SUPREME COURT] at even if a confession was retracted it was to be taken as an admission and binding on the maker is very relevant in this case. The tribunal ought not to have disregarded the admission merely on the ground that later on the assessee had withdrawn the admission, without scrupulously examining whether there were any substantial grounds enabling the assessee to resile from such admission. The order of the tribunal with regard to the above issues is set aside. We remand the matter back to the tribunal with a direction upon it to reexamine the same on the basis of evidence on record by a detailed order within six months of communication of this order. BISWAROOP CHOWDHURY, J. - Whether the Income Tax Authority acted correctly in putting question to assessee with regard to Trial balance and other accounts papers seized from the establishment of assessee? - It is a common practice that in a business establishment of a businessman business accounts are prepared by accountant or chartered accountant and the same are audited. The preparation of accounts requires special knowledge and skill. Thus it is the accountant or charactered accountant having special knowledge are entrusted with the preparation of accounts which are audited. Hence it is the accountant or chartered accountant who are in a position to give statement regarding statement of accounts or Trial balance. The business man who has engaged accountant or chartered accountant cannot be said to have knowledge and cannot be expected to make statement on the preparation of accounts, which are prepared by Accountant or Chartered Accountant. A business man can admit his signature if it appears on any accounts or other documents and anything prepared in his own handwriting. Apart from his own handwriting he cannot admit any document prepared by others. Thus the Income Tax Authority ought to have interrogated the Accountant of the establishment regarding documents seized. Thus there was an error on the part of the Assessing Officer. This issue was not considered by the Learned Tribunal. Thus, this matter should be remitted to the Tribunal for reconsideration. 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.