By TIOL News Service

NEW DELHI, JULY 27, 2016: THE issue is - Whether when a dumb document is seized from third party, duty is cast on Revenue to prove that transactions have really taken place and sum involved constitutes undisclosed income. YES is the answer.

Facts of the case

Assessee company is engaged in the business of real estate. The investigation wing conducted survey u/s 133A and pursuant to survey, notices u/s 142(1) and 143(2) were issued. The reason for the survey conducted on the assessee was that it has an interconnected business activity with 'M/S Thapar Home' group of cases, which was, searched on the same day u/s 132. During the course of search at place of one of the director of the group loose paper was impounded. As per AO, these papers contained details of area booked by various concerns in one project where assessee along with two other companies were developers, showing square feet, rate per square feet, amount in cash, amount by cheque and balance amount. According to AO, the parties who booked the area are dummy concerns of M/s Thapar home group, and these parties were held to be bogus entities engaged in huge capital formation operated by Mr. B K Dhingra.

Assessee denied any financial implication of the seized document stating that these pages are not pertaining to the assessee company and do not have any business relationship with the person searched from whom paper is impounded. The premises where from the document seized also does not belong to it.

AO rejected the claim of assessee stating that seized document is a chart showing names of 66 parties and against their name area booked in square feet, rate per square feet and total advance payment is mentioned. Next columns shows amount in cheque, cash, cheques issued and balance amount. On the basis of the same, AO made addition in the hands of assessee u/s 68.

Before CIT (A), assessee contended that Shri BK Dhingra was the third party who had no connection with the assessee that as per heading of the chart seized it merely listed parties 'taking interest in the residential projects'. There is no signature of the director/ shareholder on it. Therefore, burden of proof rests with the revenue. No cheques were ever transacted as per the bank statements as the counterfoils of chequebook seized by the Income tax department. CIT (A) rejected the claim of assessee stating that noting on the pages are not projections but record of real events. Counterfoil of the chequebook is a basic and primary record created by the drawer of the cheque, immediately upon writing of the cheque. All the parties including the assessee company are closely connected to one another and in the circumstances when there are clear nexus of the transaction the confirmation obtained by the assessee would be meaningless and futile.

Before ITAT, the assessee took an additional ground that AO erred in framing the assessment u/s 143(3) relying on documents seized in a search on a third party without satisfaction u/s 153C and without issue of notice u/s Section 153A. Before handing over seized documents etc., to AO of 'other person', a 'satisfaction' has to be recorded by AO of person searched that document belong to 'other person' and recording of such satisfaction is an essential and prerequisite condition for bestowing jurisdiction on to AO of 'other person'. Even if AO of searched person and such other person is same, he has to carry out dual exercise, first as AO of person searched and thereafter in capacity of AO of such other person, in which he has to issue notice u/s 153A, rws 153C. The revenue has not done all these mandatory exercise and despite the seized documents. The assessment order passed u/s 143(3) based on seized material which has come in to possession of AO is bad in law and should have carried out assessment proceedings in accordance with section 153C of the act. On merits it was contended that there is no such project in existence at that time. Further during the course of survey no incriminating material has been found which can corroborate the seized document allegedly found from Shri B K Dhingra. The document itself says that these are the details of parties showing interest in the residential project. The alleged document, which was relied upon by the revenue, was seized from the third party and it is the duty cast upon the revenue to state that these transactions have really taken place and the money involved there in constitute the undisclosed income of the assessee. There is no evidence found by the revenue and infact, all those cheques were never encashed in the bank account of the assessee.

After hearing both the parties, the ITAT held that,

++ in the present fact, it is apparent that that impugned documents were found during the course of search on third party, which has been received by the AO. Now AO is duty bound to record his satisfaction about seized documents having bearing on the income of the assessee. After that, he has to proceed to assess the income of the assessee according to section 153A of the Income tax Act. The Assessing officer is empowered to assess six assessment years immediately preceding the assessment year relevant to the previous years in which search takes place. In this case, Search was conducted on 20-10-2008, previous year is F Y 2008-09 and AY 2009-10, and therefore impugned assessment year is outside the purview of section 153A of the Act. In view of this, the ground with respect to applicability of section 153C and all other consequent issues are rejected and assessment u/s 143(3) in the present case is upheld;

++ on merits, on the document seized it is mentioned that "names of the parties in whom favors cheques are to be issued'. Further on that chart below on top also shows the names of the above three companies purportedly written in acronyms and below that square feet and area converted in to square meter is mentioned. Then the details of 66 parties are mentioned showing area booked, rate per square feet, total advance payment, then there is bifurcation between above three companies including appellant of the square feet area, next column shows amount of cheque, amount in cash and cheques issued, balance. Subsequent documents shows the cheque book counterfoils of six companies where in the counter foils of cheque books were found showing issue of cheques in the name of assessee and other two entities;

++ the documents are not seized from the premises of the assessee but at the premises of third party who is neither the director nor the shareholder of the company. However neither the AO as well as CIT(A) has led any evidence that though the paper shows the names of the assessee along with two other companies but these papers are found from the third party i.e. Shri B K Dhingra and how is he associated with the assessee. Merely an assertion that somebody is close to one of the director cannot become the close associate of the assessee company itself. AO has not led any evidence that Shri Dhingra looks after the affairs of the company in any manner;

++ during survey no evidences with respect to the projects whether in existence or not for which the statement is found, whether the counterfoils of cheques, which were relied up on whether cleared in the bank, account of the assessee were examined. As the cheques have not at all been received by the assessee, merely because in the counterfoil of the chequebook of issuing party, name of the assessee is mentioned, it cannot result into addition in the hands of the assessee unless it is cleared in the bank account of the assessee;

++ the assessee was not confronted with the statement of the person from whose possession the chart and also the counterfoils of the cheques of six companies were found. Furthermore the name of all the parties in that particular statement wherein bookings in the name of those parties have been shown, assessee has filed confirmation of those parties stating that they have not booked any such premises and also apparently no payment have been made. On these confirmation, AO has neither issued any summons to those parties nor examined their bank statement about the issue of those cheques and whether these cheques have been cleared or not. It is an uncontroverted facts that those cheques remaining non-transacted;

++ it is the allegation of the revenue that these companies are the bogus companies floated by one Shri B K Dhingra and they are used for capital formation activities. This fact merely remains a conjecture and surmises in absence of any evidences led by revenue against that person. Merely making an assertion that Shri B K Dhingra is entry operator or the companies are formed for capital formation remains unsubstantiated allegation unless there are any evidences such as assessment orders etc of entry operator or the assessment orders of those companies operated by him;

++ therefore, the finding of CIT (A) in confirming the addition of Rs 14078000/- in the hands of the assessee is reversed.

(See 2016-TIOL-1324-ITAT-DEL)