2025 (5) TMI 1940 - AT - Income Tax

ITAT deletes additions based on uncorroborated loose slips from search operations under section 132

Global Star Realtors Pvt. Ltd. Versus The Deputy Commissioner of Income Tax, Central Circle 1, Mangalore

The ITAT Bangalore held that additions based on uncorroborated loose slips seized during search operations under section 132 cannot be sustained. The ... Addition of cash payments based on the uncorroborated loose slips - material used for reopening is collected during the course of search action u/s 132 - additions based on the loose sheet found/seized - Assessment u/s 153A HELD THAT:- No undisclosed Income can be computed by invoking the presumption U/s 132(4A) when the documents are seized from the premises of a third party. This was held in the case [2005 (3) TMI 429 - ITAT VISAKHAPATNAM] As in Visakhapatnam Bench Smt. Bommana Swarna Rekha [2005 (3) TMI 429 - ITAT VISAKHAPATNAM]. A presumption can be raised on the basis of possession of a document found during the course of search only against a searched person and, thus, no adverse inference could be drawn against the assessee on the basis of the possession of the diary with the third party. The High Court of Delhi in the case of Vivek Aggarwal [2015 (2) TMI 590 - DELHI HIGH COURT] Assessing Officer has resorted to make the addition on mere loose paper without corroborative evidence. The document which does not describe and express any meaning cannot be relied upon by the Assessing Officer. The seized material relied by the ld. AO for framing the assessment, wherein we do not find the name of the present assessee and also without mentioning of any amount or date referring to the PBT. Thus, in our opinion, placing reliance on the seized material for framing assessment u/s 153C of the Act wherein there was no name of PBT found place in the incriminating material used for the purpose of issuing notice u/s 153C of the Act by recording the satisfaction. Even otherwise, there was no mentioning of the assessee's name and figure of loan alleged to be lent by the assessee in the loose slips. The word 'such person' used in section 292C of the Act is only referrable to the person in whose premises the things or materials were found in possession or control at the time of search. If any document is found in the premises/possession/control of such person which belongs to the other person then the said documents can be used for making the addition, however, it is necessary to prove that the said document is incriminating in nature and belongs to other person. The presumption u/s 292C can only be invoked against such/searched person and not against another person like person before us. In the present case, no corroborative evidence was brought on record to confirm that the entries in seized material actually reflects the loan transaction in the form of cash payment between the assessee and third parties as presumed by the lower authorities and there was no entry regarding the payment of cash between these parties. Even the reply given by Shri M.N. Rajendra Kumar has been retracted and the basis of addition is held invalid in the case of the person who made the statement i.e. in the case of M.N. Rajendra Kumar as held by Tribunal [2020 (10) TMI 187 - ITAT BANGALORE] AO has not brought on record any evidences as to utility of such amount nor any other corroborative evidence to support the findings. Such evidences (Messages) without any supporting/corroborative along with admission of third person cannot be, basis for AO to come to conclusion and make addition in the assessment order. Thus, we delete the addition made in all these assessment years towards cash payments based on the uncorroborated loose slips. This ground of appeal of the assessee is allowed. Addition towards interest on advances receivable from sister concern - HELD THAT:- Money advanced to sister concern Om Sai Riddhi Siddhi Developers towards their business purpose who is in similar business of the assessee. Had the money not advanced to that assessee, it has to borrow money from outside and that leads to incurring of additional expenditure and suffering loss, which falls on the head of the present assessee. So, to avoid that loss, the assessee advanced the money from its kitty and saved from incurring loss. Accordingly, in our opinion, no notional interest could be disallowed on this count. This ground of assessee is allowed in AY 2014-15. The core legal questions considered by the Tribunal in these appeals relate primarily to the validity and jurisdiction of reopening assessments under section 147 of the Income Tax Act, 1961 ('the Act') versus the applicability of sections 153A/153C in the context of materials seized during search and survey operations. Further issues pertain to the legitimacy of additions made under section 69B read with section 115BBE on account of unexplained cash receipts, and the disallowance of interest on advances given to a sister concern. The Tribunal also examined the evidentiary value of loose papers and impounded documents found during survey and search proceedings, and the extent to which statements recorded under section 132(4) can be relied upon against third parties.Regarding the jurisdictional issue, the Tribunal considered whether reopening of assessments under section 147 was appropriate or whether the proceedings should have been initiated under sections 153A/153C, given that the material for reopening was obtained during search action under section 132. The Tribunal admitted the additional ground raised by the assessee challenging the framing of assessment under section 147 instead of sections 153A/153C, relying on the Supreme Court ruling in NTPC Vs. CIT, which allows raising jurisdictional grounds at appellate stage if based on facts already on record. However, the Tribunal found this ground to be infructuous in light of its findings on the merits of the additions.On the substantive issue of additions under section 69B read with section 115BBE for unexplained cash receipts, the Tribunal analyzed the facts year-wise, focusing on the assessment year 2013-14 as representative. The assessee, a private limited company engaged in real estate development, had its assessment reopened following a search on one of its directors and a survey at a cooperative bank where the director was chairman. The Assessing Officer (AO) alleged that the assessee received unaccounted cash components in the sale of various projects, based on impounded documents found during the survey and statements recorded under section 132(4). The AO quantified additions running into crores of rupees for multiple years, asserting that these cash payments were not recorded in the assessee's books.The assessee contested these additions on multiple grounds: that the books of account were audited and prepared according to applicable accounting standards; that the impounded documents were loose sheets or computer printouts without authentication, dates, or signatures; that there was no corroborative evidence of generation or receipt of unaccounted money; and that the statements recorded under section 132(4) were later retracted. The assessee also pointed out that similar additions made in the hands of the director were deleted by the Tribunal, and that addition in the hands of the company would amount to double taxation.The Tribunal extensively reviewed the evidentiary value of the impounded materials, relying on a wealth of judicial precedents. It noted that loose papers, computer printouts, and unsigned, undated sheets do not constitute admissible evidence under section 34 of the Indian Evidence Act and cannot be treated as books of account. The Tribunal cited Supreme Court rulings, including Common Cause (A Registered Society) Vs. Union of India, which held that entries in loose papers or computer printouts are irrelevant and inadmissible unless maintained regularly as books of account. It also referenced decisions emphasizing that additions cannot be based on assumptions, conjectures, or surmises, especially in the absence of corroborative evidence such as corresponding entries in the accounts of the opposite party or any independent proof of cash transactions.The Tribunal further held that statements recorded under section 132(4) of the Act against third parties cannot be used to fasten liability on the assessee, particularly when such statements are retracted and additions in the declarant's hands have been deleted. It underscored that presumption under section 292C can only be invoked against the person in whose premises the incriminating material was found, not against third parties. The Tribunal also noted that the AO failed to conduct any independent inquiry or cross-examination of persons whose statements were relied upon, which is mandatory under the Evidence Act.In applying the law to the facts, the Tribunal concluded that the AO's additions were based purely on uncorroborated loose sheets and retracted statements, lacking any concrete evidence linking the alleged cash receipts to the assessee. The Tribunal emphasized the absence of material particulars such as names, dates, amounts, and authentication in the seized documents. It found that the AO's reliance on such non-speaking documents and third-party admissions was legally unsustainable. The Tribunal thus deleted the additions made under section 69B read with section 115BBE for unexplained cash receipts in all the assessment years under consideration.Regarding the disallowance of interest on advances to Om Sai Riddhi Siddhi Developers (OSRSD) for AY 2014-15, the AO disallowed interest on the ground that the advances were made from the overdraft account of the assessee and were used for the personal interest of the Managing Director. The assessee contended that the advances were made in the ordinary course of business to a sister concern engaged in a similar business and thus should not attract disallowance. The Tribunal relied on the Supreme Court decision in SA Builders, which held that interest on borrowed funds cannot be disallowed if the loan is advanced to a sister concern as a measure of commercial expediency. Applying this principle, the Tribunal allowed the ground of the assessee and held that no notional interest could be disallowed on this count.On the issue of reopening the assessments under section 147 instead of sections 153A/153C, the Tribunal observed that this ground was rendered infructuous due to the findings on the merits. It also referred to the legal requirement that for invoking section 153C, the incriminating material seized must belong to the assessee and pertain to the relevant assessment years. The Tribunal noted that the impounded documents did not bear the name of the assessee, did not indicate amounts or dates, and lacked authentication, thus failing the jurisdictional requirement for proceeding under section 153C. It cited judicial precedents including the Supreme Court ruling in CIT Vs. Singhad Technical Education Society, which emphasized that satisfaction for issuing notice under section 153C must be based on incriminating material that belongs to the assessee for the relevant years. Consequently, the Tribunal found no infirmity in the AO framing assessment under section 147.The Tribunal's significant holdings include the following verbatim legal reasoning:'The entries in loose papers/sheets are not 'books of accounts' and have no evidentiary value under section 34 of the Indian Evidence Act. Only entries in books of account regularly kept depending on the nature of the occupation are admissible. Entries in loose sheets or computer printouts are irrelevant and inadmissible.''Statements recorded under section 132(4) of the Act against third parties cannot be used to fasten liability on another person, especially when such statements are retracted and additions in the declarant's hands have been deleted.''The presumption under section 292C of the Act can only be invoked against the person in whose premises incriminating material was found during search, and not against other persons.''No addition can be made on the basis of loose papers which do not contain the name and date of payment. The department is precluded from drawing inferences on suspicion, conjecture, and surmises.''Interest on borrowed funds cannot be disallowed if the loan is advanced to a sister concern as a measure of commercial expediency; the business purpose and use of the funds by the sister concern are decisive.''For invoking jurisdiction under section 153C, incriminating material must belong to the assessee and relate to the relevant assessment years. Surmise and conjecture cannot take the place of satisfaction.'In conclusion, the Tribunal partly allowed the appeals by deleting the additions made under section 69B read with section 115BBE for unexplained cash receipts across all assessment years and allowing the claim of the assessee regarding interest on advances to the sister concern. The Tribunal upheld the framing of assessments under section 147, finding no jurisdictional error, but held that the additions were unsustainable on the facts and law. The Tribunal emphasized the necessity of cogent, admissible, and corroborative evidence to sustain additions based on seized material and rejected reliance on loose sheets, retracted statements, and uncorroborated third-party admissions. This decision reinforces the principle that tax assessments must be founded on credible evidence and that procedural safeguards and evidentiary standards must be strictly adhered to in proceedings involving search and seizure operations.