2024 (8) TMI 1621 - AT - Income Tax

Additions under s.69 deleted where unsigned Sauda-Ikrarnama was uncorroborated; AO's additions deemed conjectural and dismissed

DCIT (Central-2), Raipur Versus Shri Sanjay Agrawal, Shri Mukesh Kumar Agrawal, Shri Rajesh Kumar Agrawal

DCIT (Central-2), Raipur Versus Shri Sanjay Agrawal, Shri Mukesh Kumar Agrawal, Shri Rajesh Kumar Agrawal - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether an addition under section 69 (unexplained investment) can be sustained on the basis of an undated, unsigned, unwitnessed loose paper (the seized 'Sauda-Ikrarnama') recovered during search, without independent corroborative evidence that cash payments actually passed between parties. 2. Whether a document seized during search which is a draft/projection and not acted upon (a 'dumb document') is admissible and sufficient to draw adverse inference under sections 132/143(3)/153A and to invoke deeming provisions for unexplained investment. 3. Whether the Assessing Officer discharged the burden of proof required to make additions under section 69 by establishing nexus and contemporaneous evidence of cash receipts/payments referred to in the seized document. 4. Whether approval under section 153D (for making assessment in search-related cases) was validly granted (raised but left open because tax additions were deleted). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Sustaining addition under section 69 on basis of seized undated/unsigned draft document Legal framework: Additions under section 69 require proof that the assessee made unexplained investments/unrecorded cash payments; material seized during search may give rise to a presumption under search provisions, but that presumption is rebuttable and cannot replace independent evidence of actual cash movement. Precedent treatment: Tribunal relied on established authorities holding that loose sheets/unsigned draft documents are 'dumb' and cannot, without corroboration, support additions - authorities cited include decisions treating loose papers/computer printouts as inadmissible or insufficient absent independent corroboration. Interpretation and reasoning: The seized paper was undated, unsigned, un-witnessed, contained handwritten interpolations and speculative figures (ballpark/ projections). Many material terms in it (transfer of identified land, settlement of liabilities, advance payments) were not performed; statements recorded under section 132(4) from the counterparty denied knowledge of or receipt under that draft; contemporaneous bank records showed loans/advances and subsequent repayments and later share transfers effected by banking channels in a subsequent year. The AO relied selectively on a clause to infer cash instalments and added three instalments within the assessment year, but failed to produce any independent corroborative evidence (no vendor admissions of cash receipt, no witnesses producing cash receipt, no contemporaneous records evidencing cash). Mere possession of the draft by the assessee and speculative notings do not establish actual cash payments. Ratio vs. Obiter: Ratio - where a seized loose paper is non-speaking (dumb) and not corroborated by independent evidence, it cannot form the sole basis to make additions under section 69; the burden to establish actual unexplained investment lies on the revenue/AO. Obiter - observations on the specific factual matrix (e.g. reasons why certain clauses were not acted on) are factual findings supporting the ratio. Conclusions: Addition based solely on the seized draft was unsustainable; the draft was a dumb document and absence of corroboration and vendor denial of cash receipts defeated the AO's case. Deletion of the addition was justified. Issue 2 - Evidentiary value of 'dumb documents' seized in search and requirement of corroboration Legal framework: Documents found in search are admissible but their evidentiary value depends on whether they are speaking documents containing clear, unambiguous details of transaction components (who, when, how much); loose/projection notes/unsigned drafts require corroboration to support adverse inferences; presumption under search provisions is rebuttable. Precedent treatment: Authorities consistently held that loose sheets, undated/unsigned notes, computer printouts and projections are not akin to books of account and cannot alone fix liability; independent corroboration (statements of vendors, bank cash traces, contemporaneous entries, witness evidence) is necessary. Interpretation and reasoning: The Tribunal applied these principles: the seized paper lacked signatures, dates, clear identification of property, and many conditions were unfulfilled. The AO did not fill gaps by investigation - he did not procure independent documentary or testimonial corroboration showing cash passage. Presence of later cheque payments and share transfers in subsequent year showed the substance of transaction crystallized later and through banking channel - undermining the AO's inference of cash payments in the relevant year. Ratio vs. Obiter: Ratio - a seized document must be a speaking document or be supported by corroborative material before it can be used to make additions; otherwise it is a dumb document and cannot be the sole basis for tax charges. Obiter - emphasis on the necessity to examine whole document not piecemeal and to call authors/writers to explain computer printouts/projections. Conclusions: The 'Sauda-Ikrarnama' was a projection/draft and, standing alone, was a dumb document; without required corroboration, it had no evidentiary value to support additions. Issue 3 - Burden of proof and onus on Assessing Officer to establish unexplained investment Legal framework: The onus to prove unexplained investment lies on the revenue/AO; inference or suspicion is insufficient. When a presumption arises from seized material, it is rebuttable and the AO must adduce independent proof to sustain addition. Precedent treatment: Courts and tribunals have repeatedly held that authorities must bring positive corroborative material (vendor admissions, cash traces, banking/third-party evidence) and cannot rely on conjecture; burden does not shift to the assessee to prove a negative. Interpretation and reasoning: AO made addition on conjectural reading of a clause and absence of action on many clauses was accepted by revenue yet not probed further. The seller denied cash receipt; bank statements showed loans/repayments and subsequent cheque payments for share transfers in the next year. AO failed to examine sellers/writers/authors or other corroborative witnesses/materials to prove cash passage. Thus the AO did not discharge the required burden. Ratio vs. Obiter: Ratio - additions under section 69 cannot be sustained unless AO proves by independent material that the alleged unexplained investment/cash payment actually occurred; mere seized notings are insufficient. Obiter - specifics as to what corroborative material would suffice are fact-sensitive. Conclusions: AO failed to discharge the burden; additions were based on presumption and guesswork and therefore unsustainable. Issue 4 - Validity of approval under section 153D (raised but left open) Legal framework: Approval under section 153D is a condition precedent for certain assessments arising from search; validity may be challenged if approval is a mere mechanical formality without application of mind. Precedent treatment: Issue of validity can be adjudicated when it is necessary to decide tax liability; if additions are deleted on merits, the Court/Tribunal may refrain from deciding collateral challenge to approval. Interpretation and reasoning: The assessees sought to challenge approval under section 153D; however, because the Tribunal upheld deletion of the impugned additions on merits, the Tribunal declined to adjudicate the validity of the approval and left that ground open. Ratio vs. Obiter: Obiter - no authoritative finding on validity of approval was rendered; the point is expressly left open and not decided. Conclusions: The question of validity of approval under section 153D was not adjudicated and remains open for future consideration. FINAL CONCLUSIONS 1. The seized 'Sauda-Ikrarnama' was an undated, unsigned, un-witnessed draft/projection - a dumb document - many of its material terms were not acted upon; vendor statements denied the alleged cash receipts; independent corroborative evidence of cash payment was absent. 2. Revenue failed to discharge the onus to prove unexplained investment under section 69; additions premised on the seized draft were founded on presumption and conjecture and therefore unsustainable. 3. Additions made by the Assessing Officer based on the draft were correctly deleted by the appellate authority; consequent departmental appeals against those deletions were dismissed. The challenge to the validity of approval under section 153D was not decided and was left open.