2023 (12) TMI 625 - AT - Income Tax

Scribbled notings on loose papers insufficient for unexplained investment additions without corroborative evidence

Clavecon India P Ltd. Versus The D.C.I.T Central Circle, Ghaziabad

ITAT Delhi allowed the assessee's appeal against unexplained investment additions based on loose papers found during search. The Tribunal held that ... Unexplained investment - scribbling/notings/jottings on loose papers found during the course of search relied concluding assessee has made expenditure out of books for purchase of land and construction of the factory thereon - HELD THAT:- The Hon'ble Delhi High Court in the case of Praveen Juneja [2017 (7) TMI 1102 - DELHI HIGH COURT] held that addition cannot be made on the basis of a document which is silent as to the payer and payee of the amount in question and does not disclose that the payment was made by cheque or cash nor it is proved that the document is in the handwriting of the assessee or at least bears his signature. Also in Common Cause & Others Vs. UOI [2017 (1) TMI 1164 - SUPREME COURT] has held that loose sheet of papers are wholly irrelevant as such evidence is not admissible u/s 34 of the Act. These transactions mentioned therein have no evidentiary value. If we consider the entire factual matrix relating to the impugned additions apart from the impugned loose sheets, there is no further corroborative evidence suggesting undisclosed investment was available on record. As A.Y 2014-15 is the first year of incorporation. Therefore, by no stretch of imagination it can be said that the assessee company has brought in its own unaccounted funds for making the unaccounted purchases. Since the business has not even commenced in the subsequent A.Y. i.e. 2015-16 also, the assessee company had no funds on its own, whether accounted or unaccounted from revenue operation. There is nothing on record to suggest that the Assessing Officer has taken any action against the promoters/directors of the assessee company. Similar view was taken by the Hon'ble High Court of Allahabad in the case of Lal Mohar [2017 (12) TMI 133 - ALLAHABAD HIGH COURT] wherein as held that since it was the first year of business of the AOP, and no business activity having shown to have been conducted by it that could lead to generation of unaccounted income on the first day of relevant accounting period itself, the Tribunal has not committed any error in deleting the impugned addition. No merit in the additions made by the Assessing Officer. Appeal of assessee allowed. Issues Involved:1. Addition based on loose papers found during search.2. Fair market value estimation by DVO.3. Validity of additions under Section 69 of the Income-tax Act, 1961.4. Corroborative evidence for unexplained investment.Summary:Issue 1: Addition based on loose papers found during searchThe common grievance in both appeals relates to the addition made by the Assessing Officer (AO) based on various jottings and notings on loose papers found during the course of search, which were considered as unexplained investment. The AO believed that the assessee made expenditure out of books for the purchase of land and construction of the factory. The AO deduced cash payments from these loose sheets and made additions under Section 69 of the Act, alleging them to be unexplained investments.Issue 2: Fair market value estimation by DVOPost search proceedings, the DDIT referred the matter to the DVO to estimate the fair market value of the land and factory building. The DVO's report provided estimates that differed from the declared values by the appellant. The AO made additions based on these differences for A.Y 2014-15 and 2015-16.Issue 3: Validity of additions under Section 69 of the Income-tax Act, 1961The CIT(A) confirmed the addition for A.Y 2014-15 but modified the addition for A.Y 2015-16 to align with the cash expenses noted on the loose sheets. The Tribunal found that the loose sheet was neither signed nor stamped and its author was unknown. The Tribunal emphasized that the AO did not examine any sellers of the land or persons involved in the construction activity. The Tribunal referred to the Supreme Court's decision in CBI Vs. V.C. Shukla, which held that loose sheets without corroborative evidence cannot be considered legal evidence.Issue 4: Corroborative evidence for unexplained investmentThe Tribunal highlighted that there was no corroborative evidence apart from the loose sheets to suggest undisclosed investment. The Tribunal noted that A.Y 2014-15 was the first year of incorporation, and the business had not commenced in A.Y 2015-16. Thus, it was implausible for the assessee company to have unaccounted funds for making unaccounted purchases. The Tribunal cited several High Court decisions, including Praveen Juneja and Satkar Infrastructure Ltd, which held that additions cannot be made based on documents that are silent on crucial details like payer and payee.Conclusion:The Tribunal directed the AO to delete the impugned additions for both assessment years, stating that the entire assessment was based on a 'dumb document' without any corroborative evidence. The appeals were allowed in favor of the assessee. Result:Both appeals of the assessee in ITA Nos. 1907 & 1908/DEL/2022 were allowed. The order was pronounced in the open court on 06.10.2023.