2023 (12) TMI 391 - AT - Income Tax

ITAT allows appeal on Section 69 unexplained investments, rejects presumption-based additions without recorded statement

ITAT Delhi allowed assessee's appeal regarding addition u/s 69 for unexplained investments, holding that treating account 'AP' as belonging to assessee ... Treatment of seized third party ledger as belonging to assessee - unexplained investments under section 69 - parallel books maintained in Hazir Johri software - reliance on statements of persons from searched party and need for corroboration/cross examination - peak credit theory - dabba trading (private MCX) and trial balance as evidence of profit - presumption as to truth of seized documents under section 132(4A) and section 292CTreatment of seized third party ledger as belonging to assessee - parallel books maintained in Hazir Johri software - reliance on statements of persons from searched party and need for corroboration/cross examination - unexplained investments under section 69 - Addition based on the Hazir Johri ledger account code named 'AP' seized from Jindal Bullion Ltd. being attributed to the assessee and taxed as unexplained investments. - HELD THAT: - The Tribunal examined the Hazir Johri data, the loose sheets and the statements of witnesses from JBL and found no direct or corroborative evidence to establish that the ledger code 'AP' belonged to the assessee. The Assessing Officer's identification rested primarily on banking entries and statements of JBL employees; the material reproduced in the ledger contained multiple acronyms and names indicating transactions of various parties, not exclusively the assessee. The assessee had specifically sought production of statements and opportunity for confrontation; having not been afforded corroborative material linking 'AP' exclusively to him, the Tribunal held that the AO's conclusion was based on presumption. In these circumstances no addition could be sustained in the assessee's hands on the basis of the Hazir Johri ledger. [Paras 25, 26, 30, 31, 32]Addition based on the 'AP' Hazir Johri account is set aside and the appeals of the assessee on this ground are allowed; corresponding revenue appeals are dismissed.Peak credit theory - unexplained investments under section 69 - Whether benefit of peak credit allowed by the CIT(A) should be sustained where additions were made on the basis of seized Hazir Johri material. - HELD THAT: - The CIT(A) had applied peak credit to determine the quantum of unexplained receipts after finding unaccounted cash transactions. However, because the Tribunal has held that the Hazir Johri 'AP' account could not be attributed to the assessee and no addition on that basis is sustainable, the question of peak credit as applied by the CIT(A) becomes moot in respect of those additions. The Tribunal therefore observed that the peak credit determination becomes infructuous in the facts of these appeals. [Paras 17, 18, 32]The peak credit computation allowed by the CIT(A) (insofar as it related to the set aside Hazir Johri additions) is rendered infructuous and revenue appeals on that aspect are dismissed.Out of books sale of gold/silver treated as taxable transaction - application of profit rate (2%) on sales - Tax treatment of out gold/out silver quantities recorded in impounded Annexure A 1 - whether sale should be taxed on full amount or only profit. - HELD THAT: - For entries reflecting out gold/out silver which the AO treated as sales, the Tribunal accepted the assesssee's submission that, if such quantities are treated as sold, corresponding purchases must be assumed and therefore only the trading profit should be taxed. The Tribunal directed the AO to compute tax on 2% of the sale value as the taxable profit in respect of those gold and silver transactions. [Paras 33, 35, 36, 37]AO directed to compute taxable income at 2% (profit) on the recorded out gold and out silver transactions.Dabba trading (private MCX) and trial balance as evidence of profit - presumption as to truth of seized documents under section 132(4A) and section 292C - Whether a single page trial balance seized (Annexure A 2) is sufficient to treat the credit shown as profit from dabba trading and make an addition. - HELD THAT: - The seized single page trial balance listed multiple coded accounts and reflected a credit against 'self account' which the AO treated as profit. The Tribunal held that, without primary or corroborative evidence of running dabba trading (such as broker records, terminal data, settlement evidence or other back up), a solitary page cannot sustain the inference of profit. The Tribunal noted that the seized printout did contain a distinct line item 'Anoop Ji (cash)' and accordingly limited the addition to that identifiable cash amount. The broader addition based on the entire credit was not sustained. [Paras 38, 39, 40, 41]Addition on account of trial balance profit largely set aside; sustained only to the extent of the identifiable amount shown as 'Anoop Ji (cash)'.Seized cash and jewellery - proof of source - Confirmation of addition on seized cash/jewellery found at assessee's residence. - HELD THAT: - Cash seized at the residence was partly explained by withdrawals and exchange transactions adduced by the assessee. After considering the explanation, the Tribunal reduced the addition: it sustained only the unexplained balance after accepting the stated sources for portions of the seized cash. [Paras 42, 43]Addition in respect of seized cash/jewellery confirmed only to the extent of the unexplained balance; remainder accepted on explanation.Small quantum additions not pressed - Addition in respect of seized silver amounting to small quantum. - HELD THAT: - The assessee did not press the challenge to the addition relating to seized silver on account of the low quantum involved. Tribunal therefore dismissed that ground as not pressed. [Paras 44]Ground not pressed; addition dismissed.Final Conclusion: The Tribunal set aside the additions based on the Hazir Johri 'AP' ledger for A.Y. 2015 16, 2016 17 and 2017 18 for lack of corroboration linking the seized third party material to the assessee; consequential peak credit computations became infructuous and revenue appeals on that aspect were dismissed. For A.Y. 2017 18 other impounded document additions were partly sustained with directions: out of books gold/silver transactions to be taxed on 2% profit, the alleged dabba trading trial balance addition reduced to the identifiable cash item, seized cash addition limited to the unexplained balance, and a minor silver addition dismissed as not pressed. Issues Involved:1. Addition based on Hazir Johri software and unexplained investments under section 69.2. Unaccounted sale of gold.3. Addition under section 69 for unexplained investments in gold and silver.4. Addition based on trial balance for dabba transactions.5. Addition for unexplained cash and jewelry.6. Addition for unexplained investment in silver.Summary:1. Addition based on Hazir Johri software and unexplained investments under section 69:The assessee contested the addition made by the AO based on the Hazir Johri software seized during a search on Jindal Bullion Ltd. The AO treated the ledger account titled 'AP' in the software as belonging to the assessee and made additions under section 69. The CIT(A) reduced the addition by applying the peak credit concept. The Tribunal found no direct evidence linking the assessee to the ledger account 'AP' and held that the addition was based on presumptions. Consequently, the Tribunal allowed the assessee's appeal and dismissed the revenue's appeal.2. Unaccounted sale of gold:During the search, documents showing 'out gold' were found, leading to an addition for unaccounted sale. The Tribunal directed the AO to compute the profit at 2% on the said sale, aligning with regular business practice.3. Addition under section 69 for unexplained investments in gold and silver:The AO made additions based on notings in the impounded documents. The CIT(A) provided partial relief by considering unaccounted receipts. The Tribunal upheld the CIT(A)'s decision for unexplained investments in gold and directed the AO to compute the profit at 2% for both gold and silver.4. Addition based on trial balance for dabba transactions:The AO added Rs. 54,80,828/- as income from dabba transactions based on a trial balance found during the search. The CIT(A) confirmed the addition. However, the Tribunal found no corroborative evidence linking the assessee to dabba trading and sustained the addition only to the extent of Rs. 1,16,365/- based on cash payment evidence.5. Addition for unexplained cash and jewelry:During the search, cash and jewelry were found at the assessee's residence. The Tribunal confirmed an addition of Rs. 46,010/- for unexplained cash, considering the assessee's explanation for the source of cash.6. Addition for unexplained investment in silver:The assessee did not press this ground due to the low quantum of the addition. The Tribunal dismissed this ground.Conclusion:The Tribunal partly allowed the assessee's appeals and dismissed the revenue's appeals, providing relief on various grounds while sustaining some additions based on available evidence.