2022 (8) TMI 1607 - AT - Income Tax

Seized documents in search under section 153C challenged as non-incriminating; additions struck down for relying on untested oral statements

Whether seized papers during a search qualify as incriminating documents was contested; registered sale deeds, site maps, government receipts, ... Assessment u/s 153C - addition made on account of on-money payment of against land - Whether documents seized during the search is an “incriminating document? - HELD THAT:- AR has successfully demonstrated that the seized-documents were in the nature of registered sale-deeds of the lands purchased by the assessee, site-maps, receipts of fee paid to Govt. offices, letters exchanged with Govt. offices, project-report, etc. which are not in the nature of “incriminating documents”. No addition has been made by the AO on the basis of these documents while completing assessment u/s 153C. We observe that revenue has made various additions on the basis of the oral-statements given by the sellers in post search enquiries. Therefore, the additions are beyond the authority of section 153C per se and liable to deleted. Secondly, the only basis available to the Ld. AO for making additions, was the statements recorded by DDIT(Inv), Bhopal. Neither those statements were recorded by AO nor any kind of opportunity of cross-examination was given to the assessee. Even the Ld. CIT(A) has also mentioned “This is an admitted fact that statements of sellers were recorded by DDIT(Inv), Bhopal and not by the AO.” Thus, viewed from both angles, the additions do not have legs to stand. Addition on account of on money paid to sellers for purchase of land - loose papers seized - No addition can be made on the basis of dumb document. Issues: (i) Whether additions to income on account of alleged on-money payments and unexplained investments could be sustained where they were founded on statements recorded post-search and on loose papers seized from third parties; (ii) Whether assessment proceedings initiated under section 153C are vitiated or rendered invalid where no incriminating speaking documents linking the searched person to the assessee exist and where procedural safeguards such as opportunity to cross-examine were not afforded.Issue (i): Whether additions based on sellers' oral statements and loose seized papers (dumb documents) can be sustained as basis for making additions to the assessee's income.Analysis: The seized materials comprised registered sale deeds and loose papers; the assessment additions were founded primarily on post-search oral statements of sellers and on a loose paper (back side of a seized page) alleged to record on-money. The loose paper was not authored by or found in possession of the assessee, was undated and unsigned, and did not identify payer/receiver or dates. The statements relied upon were recorded by investigative officers, not the assessing officer, and no opportunity of cross-examination was afforded to the assessee. Established authorities require that loose sheets must be corroborated by independent evidence and that dumb/non-speaking documents cannot, by themselves, support additions; the burden to prove undisclosed transactions lies on the revenue.Conclusion: Additions founded solely on the sellers' post-search statements and the seized loose paper are unsustainable and are deleted. This conclusion is in favour of the assessee.Issue (ii): Whether assessments under section 153C are unlawful or without jurisdiction in the absence of incriminating speaking documents linking the searched person to the assessee and absence of required procedural compliance.Analysis: The assessee was an 'other person' (not searched); no incriminating document directly linking the seized materials to undisclosed transactions of the assessee was found in the searched person's records. The presumption under section 132(4A) could not be applied to the assessee as it was not a searched person; the assessing officer did not bring corroborative material to establish direct nexus between the loose paper entries and the assessee's undisclosed receipts. Procedural safeguards, including effective opportunity to meet or cross-examine statements relied upon, were lacking.Conclusion: The assessment and additions under section 153C premised on non-speaking seized documents and uncorroborated post-search statements are not sustainable; the outcome favours the assessee.Final Conclusion: On the issues considered, the appellate authority's deletions of the impugned additions are upheld; revenue appeals are dismissed and the connected appeals of the assessee are rendered infructuous and dismissed accordingly.Ratio Decidendi: Additions to income under search-related proceedings cannot be sustained on the basis of loose non-speaking documents or post-search statements of third parties unless there is independent, corroborative evidence directly connecting those documents or statements to the assessee and procedural safeguards (including opportunity to rebut or cross-examine) are observed.