2025 (8) TMI 1317 - AT - Income Tax

Appellate authority decision upheld disallowing additions under section 69C for alleged unaccounted sales and undisclosed investment in shops

The Assistant Commissioner of Income Tax (Central Circle) -1 Versus M/s. Chhattisgarh Distilleries Limited, Kolkata

ITAT upheld the appellate authority's decision setting aside additions under sect. 69C (2% of revenue and alleged capital investment for 35 shops). The ... Addition on account of @2% of total revenue and on account of capital investment for obtaining 35 group shops u/s. 69C - dumb documents relied upon - Addition based on loose papers seized during search and a retracted statement recorded u/s 132(4) - Whether loose papers found could not be termed in any way as incriminating material? - any co-relation or direct link with regard to any tax evasion - whether there is any independent incriminating material that were found by the revenue suggesting any capital investment and unaccounted sales of liquor by the assessee? HELD THAT:- Loose papers that were found, there were no independent corroborative evidence brought on record by the revenue. Documents found during search was also undated and unsigned which is similar and directly applicable to the facts of the present case before us. We uphold the order of the CIT(Appeals) and sustain the relief provided to the assessee. As per the above terms grounds of appeal raised by the revenue are dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether additions under section 69C (unexplained investments/outstanding money) and charging under section 115BBE, based on loose papers seized during search and a retracted statement recorded under section 132(4), are sustainable in absence of independent corroborative evidence linking those papers/statements to the assessee's unaccounted income. 2. Whether loose papers found during search which are undated, unsigned and which correspond to a public Excise Department notification constitute admissible incriminating material or are 'dumb' (non-speaking) documents incapable of supporting additions. 3. What is the evidentiary value of a statement recorded under section 132(4) when subsequently retracted, and whether such a statement alone suffices to make additions without corroboration. 4. Whether the provisions of section 115BBE apply where no unaccounted income is proven. 5. Whether a legal challenge to jurisdictional provisions (section 153D) in cross-objection remains live once the revenue's appeal is dismissed and the assessee's relief is sustained. ISSUE-WISE DETAILED ANALYSIS Issue 1: Sustainability of additions under section 69C / charging under section 115BBE based on seized loose papers and retracted statement Legal framework: Additions under section 69C require proof of unexplained investments/credits attributable to the assessee. Section 115BBE taxes certain undisclosed incomes at specific rates; its applicability presupposes the existence of undisclosed income. Precedent treatment: The Tribunal and higher courts have repeatedly held that seized loose papers which are non-speaking cannot by themselves support additions; entries in loose papers require corroborative material to establish transactions and ownership (authorities interpreting admissibility under Section 34 Evidence Act and tax jurisprudence). Statements under search (s.132(4)) have evidentiary value but cannot alone sustain additions without corroboration (decisions cited by the Court). Interpretation and reasoning: The Court examined the seized loose papers and compared them with an official Excise Department notification and found that the figures and shop listings matched the public notification; the papers bore no name, were undated and unsigned, and did not identify any transactions attributable to the assessee. The Assessing Officer's additions rested on presumption that abbreviations referred to the assessee and on retracted admissions, but no independent incriminating material (licenses issued in assessee's name, records of sales, cash/asset recoveries, or corroborative documents) was produced to link papers/statements to actual unaccounted income or investment. The AO failed to fill the evidentiary gaps by independent investigation or by adducing material establishing nexus between the papers and the assessee's books/transactions. Ratio vs. Obiter: Ratio - additions under s.69C/charging under s.115BBE cannot be sustained where they are founded solely on non-speaking loose papers and retracted statements without corroborative evidence creating direct nexus with the assessee. Obiter - reliance on particular fact patterns (e.g., inability of a distillery to hold retail licenses) supports the outcome but is illustrative rather than a general rule beyond established precedent. Conclusion: The additions under section 69C (and consequential invocation of section 115BBE) made solely on the basis of the seized loose papers and retracted statement were unsustainable and are deleted. Issue 2: Admissibility and characterisation of seized loose papers as 'dumb' or 'speaking' documents Legal framework: Evidentiary principles require that documents relied upon by Revenue must be speaking, identifiable, and corroborated where necessary; loose sheets not constituting books of account are not admissible as conclusive evidence and need independent evidence for trustworthiness. Precedent treatment: The Court relied on established authorities holding that loose papers/diary jottings are inadmissible or insufficient without corroboration; non-speaking documents cannot be the sole basis for taxing alleged undisclosed income. Interpretation and reasoning: The appellate authority compared seized papers with the public Excise notification and concluded the seized material reproduced publicly available data; the papers lacked indicia (dates, signatures, transactional details) tying them to the assessee. The Court accepted that comparison and emphasised the AO's failure to discharge the onus of proving nexus between the papers and unaccounted transactions of the assessee. Ratio vs. Obiter: Ratio - undated/unsigned loose papers that correspond to public notifications and lack identifiers are 'dumb documents' and cannot, without corroboration, support additions. Obiter - specific observations about the paper's provenance inconsistencies (different claimed places of seizure) further undermine reliability. Conclusion: The seized loose papers are non-speaking/dumb documents and cannot sustain additions in the absence of corroborative evidence; AO erred in relying upon them. Issue 3: Evidentiary value of statements recorded under section 132(4) when retracted Legal framework: Statements recorded under section 132(4) are evidence but their probative value depends on surrounding circumstances, presence of corroborative material and voluntariness. Retraction of a statement is permissible and reduces its conclusiveness; Revenue must corroborate admissions. Precedent treatment: Jurisprudence confirms that admissions during search cannot be the sole basis for additions; corroboration is required and retracted admissions need careful scrutiny before being acted upon. Interpretation and reasoning: The Court observed that one director's statement was ambiguous (attributed explanation to a third party) and another director's statement was retracted within days and made under circumstances of health distress and alleged pressure. There was no independent material brought by AO tying the contents of those statements to any actual unaccounted transaction or investment by the assessee. Given absence of corroboration, the retracted statements lacked sufficient evidentiary weight to support additions. Ratio vs. Obiter: Ratio - a statement under section 132(4), particularly if retracted and uncorroborated, cannot alone justify additions; corroborative independent evidence is necessary. Obiter - factual credibility issues (health, coercion) are case-specific but relevant to assessment of voluntariness. Conclusion: The retracted statements lacked evidentiary value in the circumstances and could not sustain additions without corroboration. Issue 4: Applicability of section 115BBE Legal framework: Section 115BBE applies to specified incomes chargeable to tax where such undisclosed income is established. Precedent treatment: Where no unaccounted/undisclosed income is proved, consequential provisions like section 115BBE are not attracted. Interpretation and reasoning: Since the primary additions (unexplained investments/unaccounted sales) were unsupported and deleted, there was no basis to invoke section 115BBE. Ratio vs. Obiter: Ratio - section 115BBE is inapplicable in absence of a proven undisclosed income. Conclusion: Section 115BBE does not apply where alleged unaccounted income/investment is not established; invocation was inappropriate. Issue 5: Viability of challenge to jurisdictional provision (section 153D) in cross-objection after revenue appeal dismissal Legal framework: A cross-objection raising a legal question may become academic/non-est if the appellate outcome eliminates the tax consequences complained of. Precedent treatment: Courts/Tribunals may treat legal grounds as moot where primary relief granted to assessee removes any adverse tax effect. Interpretation and reasoning: The assessee's cross-objection included a legal contention on section 153D but, as the Tribunal dismissed the revenue's appeal and sustained the assessee's relief, the tax consequences the legal ground sought to address no longer subsist. Accordingly the Tribunal treated that ground as partly non-est and allowed the cross-objection partly (supporting the primary order). Ratio vs. Obiter: Ratio - a legal challenge that no longer relates to a subsisting adverse consequence may become non-est; Tribunal may decline to decide moot issues. Conclusion: The cross-objection on section 153D became partly moot after the revenue's appeal was dismissed and the assessee's relief sustained; cross-objection is accordingly partly allowed in support of the main decision.