2009 (8) TMI 668 - HC - Income Tax

Failure to address statutory presumption leads to remand for fresh decision on seized documents

COMMISSIONER OF INCOME-TAX Versus DR. BANSAL

The court found that the Tribunal erred in not addressing the presumption under section 132(4A) of the Income-tax Act, which presumes the truthfulness of ... Search and Seizure- Whether under the facts and circumstances of the case, the Tribunal is justified in law in not giving finding in its order with regard to the applicability of presumption under section 132(4A) of the Income-tax Act, 1961 to the assessment proceedings? Held that- the Assessing Officer after considering the overall evidence available on record rejected the explanation of the assessee that the three sets of loose sheets were fabricated and unreal documents giving cogent reasons for disbelieving the confession statements of the two accountants. The reasoning assigned by the Commissioner (Appeals), which had subsequently affirmed by the Tribunal for accepting the explanation of the assessee and reversing the finding of the Assessing Officer was devoid of logic. The Tribunal was legally bound to record its findings with regard to the applicability of the presumption u/s 132(4A) of the Act to the assessment proceedings. This aspect was all the more significant in view of the provision contained in section 292C, which was inserted by the Finance Act, 2007 and has been given retrospective effect from October 1, 1975 and provides for legal presumption. The Tribunal was not justified in law in not giving finding in its order with regard to the applicability of the presumption under section 132(4A) to the assessment proceedings. Issues Involved:1. Applicability of presumption under section 132(4A) of the Income-tax Act, 1961 to the assessment proceedings.2. Validity of the evidence and confessional statements provided by the accountants.3. Legitimacy of the seized documents and their implications on the assessment.Detailed Analysis:Issue 1: Applicability of Presumption under Section 132(4A)The Tribunal was questioned on whether it was justified in not giving a finding regarding the applicability of the presumption under section 132(4A) of the Income-tax Act, 1961, which deals with search and seizure. Section 132(4A) presumes that any books of account, documents, money, bullion, etc., found in possession during a search belong to the person from whom they were seized, and that the contents are true. The Tribunal did not address this presumption in its order, which was a significant oversight. The court emphasized that the Tribunal should have considered this presumption in its findings, especially in light of section 292C, which was retrospectively applied from October 1, 1975, reinforcing the presumption of the truthfulness of documents found during a search.Issue 2: Validity of Evidence and Confessional StatementsThe assessees contended that the seized documents were fabricated by their accountants, who had planted them with the intention of blackmailing the assessees. This claim was supported by confessional statements and affidavits from the accountants. The Assessing Officer (AO) rejected these confessions, citing inconsistencies and the improbability of the accountants predicting a search. The Commissioner of Income-tax (Appeals) and the Tribunal accepted the accountants' confessions without adequately addressing the AO's reasoning. The court found that the appellate forums failed to consider the AO's detailed reasons for disbelieving the accountants' confessions, which included the continued employment of the accountants and the lack of any legal action against them by the assessees.Issue 3: Legitimacy of Seized DocumentsThe documents seized included loose sheets and financial statements allegedly showing undisclosed income. The AO proposed an addition to the income based on these documents, which was contested by the assessees as fabricated. The Commissioner of Income-tax (Appeals) and the Tribunal found the documents to be fabricated based on the accountants' confessions. However, the court noted that the appellate forums did not adequately address the AO's findings that the documents were genuine and reflected the assessees' clandestine business activities. The court highlighted the improbability of the accountants fabricating documents just before the search and the detailed nature of the entries, which suggested they were recorded over time in the regular course of business.ConclusionThe court concluded that the Tribunal was not justified in law in not giving a finding regarding the applicability of the presumption under section 132(4A) to the assessment proceedings. The appellate forums' acceptance of the accountants' confessions without addressing the AO's reasoning was also found to be flawed. The court remanded the appeals to the Tribunal to decide afresh in accordance with the law, considering the applicability of the presumption under section 132(4A). The judgment emphasized the need for the Tribunal to address the presumption of the truthfulness of documents found during a search and to provide a thorough analysis of the evidence and reasoning provided by the AO.