2024 (7) TMI 703 - AT - Income Tax

ITAT deletes section 69A additions based on seized excel sheets lacking corroborative evidence and proper confrontation

Deputy Commissioner of Income Tax, Central Circle 2 (1) Versus M/s. Appu Food Products, Cuddalore

Deputy Commissioner of Income Tax, Central Circle 2 (1) Versus M/s. Appu Food Products, Cuddalore - TMI Issues Involved:1. Legality of additions made under Section 69A of the Income-tax Act, 1961 based on excel sheets found in the possession of a third party.2. Evidentiary value and corroboration of entries in seized excel sheets.3. Presumption under Section 132(4A)/292C of the Income-tax Act, 1961.4. Methodology of appending two zeros to the values recorded in excel sheets.5. Aggregation of cash receipts and payments for determining undisclosed income.Issue-wise Detailed Analysis:1. Legality of Additions under Section 69A Based on Excel Sheets Found in the Possession of a Third Party:The judgment addresses the legality of additions made by the Assessing Officer (AO) under Section 69A of the Income-tax Act, 1961 based on excel sheets found in the possession of an employee of Christy group of companies. The Tribunal held that no additions can be made under Section 69A based on documents found in the possession of a third party without examining the contents of said documents from the person from whom they were found, and without confronting those documents to the assessee and its partners. The Tribunal emphasized that the excel sheets did not constitute adequate evidence to draw adverse inferences against the assessee in the absence of any corroborative evidence.2. Evidentiary Value and Corroboration of Entries in Seized Excel Sheets:The Tribunal noted that the excel sheets found in the possession of a third party did not have evidentiary value since they were not found in the premises of the assessee. The Tribunal observed that no corroborative evidence like cash receipts, unaccounted purchase bills, or sale bills were found to substantiate the entries in the excel sheets. The Tribunal further noted that the AO did not reference any statements recorded under Section 132(4) of the Act to corroborate the entries in the excel sheets. Consequently, the Tribunal found that the additions made by the AO were unsustainable in law.3. Presumption under Section 132(4A)/292C of the Income-tax Act, 1961:The Tribunal held that the presumption under Section 132(4A)/292C of the Act is applicable only when documents are found in the possession of the assessee. Since the documents in question were found in the possession of a third party, the presumption that the documents belong to the assessee and that the contents recorded therein are true and correct does not apply. The Tribunal cited several judicial precedents to support its conclusion that no adverse inference could be drawn against the assessee based on documents found in the possession of a third party.4. Methodology of Appending Two Zeros to the Values Recorded in Excel Sheets:The Tribunal found that the AO erred in appending two zeros to the values recorded in the excel sheets based on the statement of an employee of Christy group. The Tribunal noted that the statement of the employee was related to a specific transaction and did not pertain to the business activities of the assessee. The Tribunal further observed that the AO did not provide any valid reasons for appending two zeros to the values recorded in the excel sheets. The Tribunal concluded that the methodology adopted by the AO was untenable and unsustainable in law.5. Aggregation of Cash Receipts and Payments for Determining Undisclosed Income:The Tribunal held that it is not appropriate to aggregate cash receipts and cash payments for the purpose of determining undisclosed income. The Tribunal observed that aggregating cash receipts and payments results in an exaggerated amount of undisclosed income. The Tribunal noted that when the AO is unable to identify the nature of cash receipts or payments, the best approach is to net off the cash receipts against the cash payments to arrive at the undisclosed income. The Tribunal found that the findings of the CIT(A) regarding the manner of computing undisclosed income were reasonable and acceptable.Conclusion:The Tribunal upheld the findings of the CIT(A) and dismissed the appeals filed by the revenue for the assessment years 2017-18, 2018-19, and 2019-20. The Tribunal also dismissed the cross objections filed by the assessee as infructuous. The judgment emphasizes the importance of corroborative evidence and proper examination of documents before making additions under Section 69A of the Income-tax Act, 1961.