ITAT upholds deletion of additions based on seized materials from third-party premises lacking corroborative evidence

ITAT Chennai dismissed revenue appeals and assessee's cross-objections regarding additions based on seized materials from third-party premises. The tribunal upheld CIT(A)'s deletion of additions, finding seized documents were "dumb documents" lacking complete information to establish assessee's involvement. The acronym "HM" found on loose sheets could not be conclusively linked to the assessee without corroborative evidence. Statement recorded under section 132(4) was retracted and had no standalone evidentiary value. Presumption under section 132(4A) applies only to searched persons, not third parties. Court emphasized need for independent corroborative evidence for loose sheets not forming part of regular books of accounts.

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Issues Involved:
1. Condonation of delay in filing cross-objections.
2. Validity of jurisdiction u/s 153C.
3. Merits of additions based on search findings and seized material.
4. Addition of undisclosed income for AY 2017-18.

Summary of Judgment:

1. Condonation of Delay:

The Registry noted a delay of 165 days in the cross-objections. The delay was condoned by the Tribunal considering the principle of natural justice, despite opposition from the Revenue.

2. Validity of Jurisdiction u/s 153C:

The Tribunal upheld the validity of the proceedings u/s 153C, rejecting the assessee's contention that the seized materials were neither "pertaining to" nor "related to" the respondent. The Tribunal noted that the amendments made by the Finance Act, 2015, substituting the words "belongs to" with "pertains to" and "relates to," were applicable.

3. Merits of Additions Based on Search Findings:

The Tribunal found that the seized materials, which included various notebooks and loose sheets, did not conclusively establish that the assessee received payments from M/s SRS Mining. The Tribunal noted that the entries were vague, lacked corroborative evidence, and were based on the abbreviation "HM," which was presumed to refer to the assessee. The Tribunal emphasized that the material seized from a third party could not be used to draw adverse inferences against the assessee without corroborative evidence. The Tribunal also noted that the statements of Shri K. Srinivasulu and Shri T. Shanmugasundaram, which were used to support the additions, were retracted and lacked credibility.

4. Addition of Undisclosed Income for AY 2017-18:

The Tribunal observed that the addition of Rs. 227.24 Crores for AY 2017-18 was based on loose sheets and statements that lacked credibility and corroborative evidence. The Tribunal reiterated that the seized material was a "dumb document" and could not be used to fasten tax liability without reliable and cogent evidence. The Tribunal upheld the CIT(A)'s decision to delete the addition.

Conclusion:

The appeals of the Revenue and the cross-objections of the assessee for all three years were dismissed.

Order pronounced on 3rd April, 2024

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