By TIOL News Service

RANCHI, JAN 30, 2014: THE issue before the Bench is - Whether, for the purpose of assessment of undisclosed income, loose papers seized during the Search have any evidentiary value. And the answer goes against the assessee.

Facts of the case

The assessee, an individual, has filed the present appeal challenging the order passed by ITAT whereunder ITAT had dismissed the appeal and affirmed the order of CIT(A) and remitted the matter to AO. Assessee had submitted his returns for the block period 1stst April 1987 to 27thth October 1997 on notice issued after a search conducted in his premises u/s 132(1). A notice u/s 158BC was issued on 25thth March 1998. On 5th October 1999 a notice u/s 142(1) JCIT in connection with the assessment for the block period 1stst April 1987 to 27thth October 1997 asking him to produce the Books of Account and documents. The Assessee filed his returns wherein he had declared undisclosed total income of Rs. 8,85,000/- representing undisclosed investment made in acquiring relief bonds with the aforesaid sum. It had further submitted his explanation whereupon notices u/s 158BFA(2) were issued asking him to show reasonable cause as to why he failed to furnish return of the undisclosed income. AO found the undisclosed salary income of Rs. 3,39,900/-; unexplained payment on account of purchase of property totalling Rs. 3,00,000/-; unexplained investment in shares and bonds to the tune of Rs. 8,85,000/-. Consequently, on the basis of appreciation of seized documents, assessment have been made on total income of Rs. 15,24,000/- out of which, undisclosed income of Rs. 8,85,000/- have been given deduction, thereby assessment have been made on the total income of Rs. 6,39,900/-.

On appeal, CIT(A) on the first ground of challenging the addition of Rs. 3,39,900/- as undisclosed salary income, held that the addition of the salary income of Rs. 1,80,000/- for the AY 97-98 made on the basis of certificate seized from the possession of the appellant, was proper. However, the said certificate could not be made a basis for estimate for other periods, as every AY is a self contained AY and block assessment had to be made on the basis of actual seizure made in the course of search operation. There was no material on record to suggest that for the other periods, assessee was actually in receipt of salary income of Rs. 1,80,000/-. CIT(A) therefore directed AO to take the salary of the appellant of Rs. 1,80,000/- for AY 1997-98 and deleted the addition for the subsequent period. The assessee accordingly got the relief of Rs. 1,59,500/-. On the next ground of appellant's challenge to the addition of Rs. 3,00,000/- under the head 'unexplained payment' on account of purchase of property of Rs. 3,00,000/-, CIT(A) held that proper inquiries had not been conducted in this regard by AO on the basis of paper said to have been seized by the AO and relied as statement of one P.P. Sharma. CIT(A) held that in order to come to a finding in relation to such addition, AO should have confronted P.P. Sharma as the seized document was found from his possession and not from the possession of assessee himself. CIT(A) remitted the issue to the file of the AO to re-examine the issue afresh in the light of the direction given. Thus, the appeal was partly allowed.

On further appeal before Tribunal addition of salary income for the period 1stst April 1995 to 31stst March 1996 was challenged asserting that the Assessee was getting Director's remuneration of Rs. 48,000/- from M/s Runga Projects Limited from 1stst April 1995. Tribunal held that CIT had rightly deleted the addition of undisclosed salary income for the subsequent year as the addition made by AO was not proper. It also found that on the basis of rectification petition u/s 154, the Assessee should get further relief of Rs. 48,000/- on the basis of own averments made by CIT(A). Tribunal further allowed the relief of Rs. 48,000/- on the addition of undisclosed salary of Rs. 1,80,000/- in the FY 1995-96. In relation to other grounds raised by the Assessee relating to the addition of Rs. 3,00,000/- alleged to have been paid by one P.P. Sharma to Sarswati Kunj Cooperative House Building Society, Tribunal concluded that AO should have cross-verified the same from the society and thereafter, this amount ought to be taxed in the hands of the Assessee as his undisclosed income, which the AO had failed to do. Tribunal therefore upheld the order of CIT(A) for directing the AO to examine the issue afresh in the light of the direction and observations made by him under section 250. Thus, appeal filed by the Assessee was partly allowed.

Before HC, the assessee's counsel had contended that assessment order of adding undisclosed income on the basis of loose sheet of papers seized during the course of search and seizure operation in the premises of the appellant, had no evidentiary value. AO and the CIT (A) and ITAT had not considered the provisions of section 34 of the Indian Evidence Act in proper perspective and seizure of such loose sheets of papers not regularly kept in the course of business, were not sufficient to charge any person with liability. Counsel for the appellant had relied upon a judgment of SC in the case of Central Bureau of Investigation vs. V.C. Shukla and others reported in (1998) 3 Supreme Court Cases 410. It had further relied upon a judgment rendered by the Bombay High Court in the case of Addl.CIT, Bombay City vs. Lata Mangeshkar. It was further submitted that the loose sheets of paper and diary which were unnumbered, had no evidentiary value if they were not corroborated by any other evidence. It had been further submitted that the Tribunal itself had observed that the matter requires investigation and remanded the matter. In any case, such loose sheets could not be the basis for any addition made as undisclosed income to the Assessee.

On the other hand, the Revenue's counsel had relied upon the provisions of section 158 B(b) which lay down the special procedure for assessment of search cases. It was further submitted that where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search, it may be presumed that it belongs to such person; the contents of such books of account and other documents are true; and there is presumption in relation to signature and every other part of such books of account and other documents. It was submitted that assessee having failed to satisfy AO and CIT(A) as to the entries in such documents seized from his premises and having failed to rebut the presumption, AO and the CIT (A) and the Tribunal were wholly justified in accepting the addition made on the basis of such loose sheets entries as undisclosed income seized from the premises of the appellant. It was further submitted that the CIT had remanded the matter for investigation by the AO in respect of addition made in respect of undisclosed income of Rs. 3,00,000/- as payment made through one P.P. Sharma. The addition of the aforesaid undisclosed income therefore depends upon ascertainment of facts on the basis of query made by AO and in the wake of provisions specially incorporated in the Income Tax Act, no substantial questions of law arises for determination in the instant case.

Held that,

++ in so far as other contention in respect of Rs. 3,00,000/- is concerned, the CIT (Appeals) and Tribunal both have found that AO has not cross verified the payment made by one P.P. Sharma from the Society before adding undisclosed income in the hands of the Assessee. The Tribunal therefore has affirmed the direction of the CIT (A) in remanding the matter to the AO to examine the issue afresh in the light of the direction and observations made by him under section 250 of the Act. Reference may be drawn to the provisions of section 158B(b) contained in Chapter XIVB which provides for special procedure for assessment of search cases. A provision has been made u/s 158B(b) that undisclosed income would include any money, bullion, etc. or any income based upon any entry in the books of account or other documents or transactions representing wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act. At the same time, section 132(4A) draws a presumption in relation to any books of account or other documents, money, etc. which are found in possession or control of any person in the course of a search; that contents of such books of account and other documents are true; and also signature and every other part of such books of account and other documents relating to its execution of any particular person. It raises presumption concerning correctness of contents of the documents (seized), author of the documents or it being executed, attested and stamped by the person as purported by it and propriety of the documents, money, valuable article or things vesting in the person through whom it was seized. This of course is rebuttable presumption which is available to the Revenue. The Assessee has to rebut the aforesaid presumption;

++ in the instant case, the Tribunal and the CIT (Appeals) have found that the proper cross verification was not made by the AO before making such an addition and therefore, the matter has been remitted to the AO for proper examination and cross verification. The aforesaid addition is therefore subject to ascertainment of facts on proper verification by the AO. In such circumstances, the contention of the petitioner based upon interpretation of section 34 of the Indian Evidence Act, is misconceived and fit to be rejected. Even in the judgment relied upon by the appellant in the case of Additional Commissioner of Income Tax, Bombay City vs. Lata Mangeshkar rendered by the Bombay High Court, the Division Bench also was of the view that the question raised by the Income Tax Department was purely on appreciation of evidence and it held that the ITAT after appreciation of the pieces of evidence relied upon by the Department to justify the addition made in the income of the Assessee based upon certain entries in the ledger of the Firm, seized by the Income Tax Authorities from the premises of that Firm, could not support the conclusion that even in a single instance, the Assessee could be said to have received money in black as remuneration. Division Bench therefore found that the addition made in the income of the Assessee, based upon the entries made in ledger seized from the premises of another Firm, was not justified as no such actual payments could be proved on appreciation of evidence. In the instant case also, in the wake of clear provisions contained in section 158B(b) read with section 132(4A), the addition of undisclosed income on the basis of entries made in the loose sheet is dependent upon the investigation of facts and cross verification by the Assessing Officer. The substantial questions of law is accordingly answered against the Assessee;

++ we therefore, do not find any merit in the appeal and therefore, the same is dismissed.

(See 2014-TIOL-117-HC-JHARKHAND-IT)