1999 (1) TMI 72 - AT - Income Tax

Appeal allowed where revenue failed to prove undisclosed income; loose papers held dump papers, s.69 not applicable

ITAT (Pune - AT) allowed the appeal, holding Revenue failed to prove undisclosed income under Chapter XIVB. Loose papers found at survey were held to be ... Block Assessment - Computation Of Undisclosed Income - income from money lending business - Applicability of section 68 - loose papers found during the survey from the premises - Burden of proof - genuineness of the borrowings - whether there is any material or evidence on the record which was available to the Assessing Officer to prove the undisclosed income of the assessee. - HELD THAT:- It would be useful to refer the well-settled legal position, that burden lies on the Revenue to prove. that case of assessee falls within the four corners charging provisions of the fiscal statute. Special provisions have been enacted by the legislature in Chapter XIVB for assessing the undisclosed income. Section 158BA is the charging section which authorises the AO to assess the undisclosed income in accordance with the provisions of Chapter XIVB. What is undisclosed income is defined in section 158B. Section 158BB provides that undisclosed income shall be computed on the basis of evidence found as a result of search and such other materials as are available with the AO. The combined reading of these provisions reveals that AO has to prove, on the basis of the evidence or material found as a result of search or as available with the AO, that assessee had the undisclosed income chargeable to tax under section 158BA. The perusal of the record shows that only materials found in the course of survey of the business premises of the assessee, though after the search, are certain loose papers containing the list of certain persons against whom some small amounts varying between Rs. 5 to Rs. 150 are mentioned and the statement of assessee recorded under section 131 on the date of survey itself. These loose papers, even do not indicate the name of the assessee. From the list of persons, it cannot be inferred that either any loan or any advance was given to these persons or received from these persons. The total amount on these loose papers would not exceed even Rs. 20,000. Therefore, if we consider these loose papers as the only material, then in our opinion, it would lead to no conclusion whatsoever and these loose papers will have to be considered as dump papers having no evidentiary value. In such situation, no addition can be sustained on the basis of such dump papers in view of the Tribunal decision in the case of Ashwani Kumar [1991 (8) TMI 142 - ITAT DELHI-D]. The loose papers were maintained and kept by the assessee for his private knowledge and information and not meant for disclosing to the Department. If the statement of the assessee is to be rejected in toto, then no addition can be made on the basis of loose papers since those would be dump papers as discussed in the earlier part of our order. If the statement of the assessee is accepted in toto, then contents of the statement are to be accepted and the borrowings mentioned in these loose papers have to be accepted as genuine. In either case, no addition is called for. No doubt, the presumption to the correctness of the documents can be rebutted by the Department, but the Revenue has not been able to bring any material on the record for rebuttal. Therefore, we are of considered view that no addition can be sustained on the basis of these materials. No material has been brought on the record to prove that these confirmations were false. Further, there is nothing on the record to suggest that statements of the persons recorded by the AO were false. Therefore, the question of rejection of the confirmations does not arise. In our considered opinion, we are of the view that initial burden which lies on the assessee has been discharged and the onus shifted to the Revenue to prove that evidences produced by way of confirmations were false. In the absence of any adverse material on the record, the addition cannot be sustained on mere surmises and conjectures. We need not repeat the reasons given by the AO which have been reproduced by us while stating the facts of the case. Therefore, even on this alternative ground, the assessee must succeed. Admittedly, the assessee had been carrying on the business of money lending for the last 4 years i.e. assessment years 1993-94 to 1996-97 as is apparent from page 4 of the assessment order where the AO has accepted the undisclosed income of Rs. 10,00,000 on account of money lending business pertaining to the above 4 years. This amount was therefore available with the assessee for investment for which credit has to be given. Besides this, the assessee must have been receiving the money back from the borrowers which could be re-invested by the assessee. In the absence of any material on record in this regard, it cannot be said positively that there was any negative balance on the date stated by the learned D.R. Hence, this contention of the D.R. cannot be accepted. Since it has been held that assessee has discharged his onus regarding his borrowings, the question of considering the contention of the learned Senior D.R. regarding unexplained investment u/s 69 does not arise. In the result, appeal of the assessee is allowed. Issues Involved:1. Legitimacy of the borrowings claimed by the assessee.2. Applicability of section 68 to the loose papers found during the survey.3. Burden of proof regarding undisclosed income.4. Evidentiary value of the loose papers and the statement recorded u/s 131.5. Onus of proving the genuineness of the borrowings.6. Consideration of negative balance and unexplained investment u/s 69.Summary of Judgment:1. Legitimacy of the borrowings claimed by the assessee:The assessee, dealing in batteries, was searched u/s 132 on 10th February 1996, and in response to notice u/s 158BC, filed a return declaring undisclosed income of Rs. 2,10,000. Post-search enquiries revealed money lending activities, leading to a revised return disclosing additional undisclosed income of Rs. 10,00,000. The AO assessed the borrowings of Rs. 79,00,000 as bogus and added it back to the total income. The assessee's confirmations from creditors were rejected by the AO as stereotype and not genuine.2. Applicability of section 68 to the loose papers found during the survey:The assessee contended that section 68 could not be applied as the loose papers found during the survey were not books of account. The Tribunal agreed, stating that the loose papers were not meant for disclosure to the income-tax authorities and should be accepted in toto unless disproved by the department.3. Burden of proof regarding undisclosed income:The Tribunal emphasized that the burden lies on the Revenue to prove the undisclosed income u/s 158BA. The AO failed to bring any material on record to prove that the borrowings mentioned in the loose papers amounted to undisclosed income.4. Evidentiary value of the loose papers and the statement recorded u/s 131:The Tribunal held that the loose papers, when considered with the statement recorded u/s 131, had evidentiary value. The statement explained the nature of transactions and was to be accepted in its entirety. The AO could not selectively accept parts of the statement beneficial to the Revenue and reject parts detrimental to it.5. Onus of proving the genuineness of the borrowings:The Tribunal found that the initial burden of proving the genuineness of the borrowings was discharged by the assessee through confirmations and the statements of creditors recorded u/s 131. The AO failed to bring any adverse material to disprove the assessee's evidence.6. Consideration of negative balance and unexplained investment u/s 69:The Tribunal rejected the contention of sustaining an addition of Rs. 18,20,000 for negative balance, noting that the assessee had been carrying on money lending for four years, and the income from this business was available for investment. The question of unexplained investment u/s 69 did not arise as the assessee had discharged the onus regarding borrowings.Conclusion:The Tribunal set aside the AO's order and deleted the addition of Rs. 79,00,000, allowing the appeal of the assessee.