2025 (3) TMI 930 - AT - Income Tax

Diary entries alone insufficient for tax additions under sections 153A and 69C without corroborative evidence

Munesh Tyagi Versus DCIT Central Circle, Ghaziabad Uttar Pradesh And ACIT Central Circle Ghaziabad Uttar Pradesh Versus Munesh Tyagi

ITAT Delhi allowed the assessee's appeal, reversing additions made under sections 153A and 69C based on seized diary entries. The tribunal held that mere ... Additions made u/s 153A - Addition u/s 69C for unexplained payments - entries in a seized diary relied upon - AO also took cognizance of Annexure A-4 of small diary on which certain date-wise hand-written entries towards payments made to different parties were found - HELD THAT:- The assessee has denied the contents of loose papers. In the absence of any corroborative material or any admission on the part of the assessee, the primary onus which lay upon the assessee stood discharged. It is difficult to conceive as to how the assessee would be able to disprove the contents of the loose papers/documents. Revenue, on its part, has not made any worthwhile inquiry independently using tools available u/s 133(6) or sec 131, except making enquiries from the assessee at the time of assessment. No material is brought on record to justify the contents of the loose papers/diary. The presumption available u/s 132(4A) & S. 292C of the Act being rebuttable, has to be seen in the light of direct and circumstantial evidences. Despite extreme course of search, no irregularity in the form of excess cash or other unaccounted assets has been claimed to be discovered. The circumstantial evidence thus, does not stand contrary to the assertions made by the assessee. Additions based on mere discovery of diary without anything more, in such circumstances would tantamount to assuming such entry to be conclusive for the purpose of assessment. Such view, if taken, would run contrary to the judicial dicta available in this regard. The adverse view taken by the AO as well by Ld.CIT(A) based on the entries in diary seized in the course of search appears to be of abstract nature and without corroboration. Preponderance of probabilities in the facts of the present case are in favour of the assessee and against the Revenue. It is well settled that onus lies on the person who alleges. The assessee cannot be placed with impossible burden to prove a negative point as held in the case of K.P.Varghese [1981 (9) TMI 1 - SUPREME COURT] No negative evidence to support the entries was found despite a drastic step of search. The absence of material and denial by the assessee coupled with social status of the assessee where, as claimed, number of people regularly visit the premises of the assessee, do raise estoppels. The benefit of doubt thus, requires to go in favour of the assessee. The CIT(A) was thus not justified in applying ‘Peak Theory’ to partially confirm additions carried out by AO. Where the veracity of entries itself is not conclusively established, the additions made by the AO were not justified at all. The additions made in the instant case cannot be countenanced. The order of the CIT(A) is thus modified and additions made by the AO stands reversed. Unexplained investment by way of purchase of plot from one Mr. Pintu arose in AY 2011-12 based on jottings in loose papers/diary - The legal position was perused and in the absence of any cogent evidence against the assessee, it was held that the preponderance of probabilities do not support the case of the AO. The facts placed in AY 2013-14 are also identical. No documentary evidence has been found towards alleged purchase of plot from Mr. Pintu giving rise to additions of INR 18,50,000/-. The observation made in the case of Maulikumar K Shah [2007 (7) TMI 267 - GUJARAT HIGH COURT] that mere entries in seized diary are not sufficient to prove the assessee is indulged in such transaction, was taken into account. The delineations made in AY 2011-12 shall thus apply mutatis mutandis to the instant appeal concerning AY 2013-14. Appeal of the assessee is allowed. ISSUES PRESENTED and CONSIDEREDThe core issues considered in the judgment include:Whether the additions made under section 153A read with section 143(3) of the Income Tax Act, 1961, are permissible in the absence of any incriminating documents found during the search and seizure operation.The validity of the approval granted under section 153D of the Act by the Competent Authority to the assessment order framed under section 153A.The appropriateness of the additions made by the Assessing Officer (AO) based on entries in a seized diary/loose papers, and the application of the 'Peak Theory' by the CIT(A) in confirming partial additions.The extent of presumptions available under section 132(4A) read with section 292C of the Act regarding the contents of seized documents.ISSUE-WISE DETAILED ANALYSIS1. Additions under section 153A in the absence of incriminating documents:The legal framework under section 153A allows for assessment in cases where a search is initiated. However, the Tribunal observed that mere entries in a seized diary, without corroborative evidence, do not justify additions. The Court emphasized that the presumption under section 132(4A) and section 292C is rebuttable, and the burden of proof lies on the Revenue to substantiate the entries with evidence.The Court found that the AO relied solely on entries in a diary without conducting independent inquiries or finding corroborative evidence. The Tribunal noted that the assessee, being a community leader, had numerous visitors, and the entries could pertain to transactions of others, not the assessee.2. Validity of approval under section 153D:The Tribunal did not delve deeply into this issue, as the primary focus was on the merits of the additions made. However, it was implied that if the foundational basis of the additions is flawed, the approval under section 153D becomes irrelevant.3. Additions based on seized diary entries and application of 'Peak Theory':The Court scrutinized the application of the 'Peak Theory' by CIT(A), which involves considering the highest unexplained credit balance during the period as taxable. The Tribunal found that the CIT(A) erred in applying this theory without establishing the veracity of the entries. The Tribunal concluded that the entries lacked corroboration and were not conclusively linked to the assessee, thus reversing the additions.4. Presumptions under sections 132(4A) and 292C:The Court reiterated that the presumptions under these sections are rebuttable. The Tribunal emphasized that the presumption of ownership or correctness of the contents of seized documents does not automatically lead to additions unless supported by further evidence. The Tribunal highlighted that the standard of proof is the preponderance of probabilities, not beyond a reasonable doubt.SIGNIFICANT HOLDINGSThe Tribunal held that:The presumption under section 132(4A) and section 292C is rebuttable and does not automatically justify additions based on seized documents.The absence of corroborative evidence and lack of inquiry by the AO undermines the validity of the additions made solely on diary entries.The application of the 'Peak Theory' by the CIT(A) was inappropriate without establishing the authenticity and relevance of the entries to the assessee.The Tribunal reversed the additions made by the AO and confirmed by the CIT(A), emphasizing the need for evidence beyond mere entries in seized documents.In conclusion, the Tribunal allowed the appeals of the assessee, reversing the additions made by the AO, and dismissed the appeal of the Revenue. The Tribunal's decision underscores the importance of corroborative evidence and proper inquiry in assessments based on search operations.