2011 (3) TMI 1611 - HC - Income Tax

Addition on ground of Undisclosed Income - Documents seized from Third Party - During the course of search operations, loose documents indicated transactions involving the name of the assessee company were seized from third party - AO based upon such documents made addition on account of undisclosed income - Tribunal deleted such addition by stating if evidentiary value of the said loose papers and documents is considered, the same cannot possibly construed, as books of account regularly kept in the course of business and such evidence would, therefore, be outside the purview of section 34 of the Evidence Act, 1872 in the light of the ratio of the decision of VC. SHUKLA ORS. 1998 (3) TMI 675 - SUPREME COURT HELD THAT - The conclusion arrived at by the Tribunal is on the basis of the findings of fact recorded by it cannot in any manner be said to be unreasonable. Said conclusion is based upon findings of fact recorded by it upon appreciation of the evidence on record, which findings have not been dislodged by the revenue by pointing out any evidence to the contrary, therefore, does not warrant any interference. Thus, the Appellate Tribunal was right in law in deleting the additions made on the basis of statements of third party. Decided in favour of assessee.

Issues Involved:
1. Legality of the deletion of additions based on statements and documents seized during a raid.
2. Validity of evidence obtained from third parties.
3. Opportunity for cross-examination of witnesses.
4. Applicability of section 132(4A) of the Income Tax Act, 1961.

Detailed Analysis:

1. Legality of the Deletion of Additions Based on Statements and Documents Seized During a Raid:
The core issue revolves around whether the Income Tax Appellate Tribunal (the Tribunal) was justified in deleting the additions of Rs. 20 lakhs and Rs. 25 lakhs made by the Assessing Officer (AO) based on statements and documents seized during a raid. The AO had made these additions as undisclosed income for the block period 1994-95, relying on documents found during a search operation at the premises of M/s Gokul Corporation and its partners.

2. Validity of Evidence Obtained from Third Parties:
The Tribunal found that the documents seized from the premises of a third party (Sureshbhai A. Patel) could not be considered as books of account regularly kept in the course of business. This aligns with the Supreme Court's decision in Central Bureau of Investigation v. V.C. Shukla, which states that loose papers and documents do not hold the same evidentiary value as regular books of account. The Tribunal noted that the evidentiary value of such documents is limited and cannot be the sole basis for additions.

3. Opportunity for Cross-Examination of Witnesses:
The respondent argued, and the Tribunal agreed, that the assessee was not given an opportunity to cross-examine the individuals (Sureshbhai A. Patel and Deepakbhai Mehta) whose statements were used to make the additions. This is crucial as per the Supreme Court's decision in Kishinchand Chellaram v. Commissioner of Income Tax, which mandates that the assessee must be given a chance to cross-examine witnesses whose statements are relied upon. The Tribunal held that statements recorded at the back of the assessee cannot conclusively determine the case against the assessee.

4. Applicability of Section 132(4A) of the Income Tax Act, 1961:
The Tribunal observed that the presumption under section 132(4A) of the Act applies to the person from whom the documents are seized. In this case, since the documents were seized from a third party, the presumption under section 132(4A) could not be applied against the assessee. The Tribunal relied on the Supreme Court's decision in Kishinchand Chellaram, which emphasizes that documents recovered from third parties and statements made by them without cross-examination cannot be used to make additions.

Conclusion:
The Tribunal's decision to delete the additions of Rs. 20 lakhs and Rs. 25 lakhs was based on several findings:
- The documents seized were not regular books of account.
- The presumption under section 132(4A) did not apply to the assessee.
- The assessee was not given an opportunity to cross-examine the witnesses.
- The evidence was insufficient to support the additions.

The High Court upheld the Tribunal's decision, stating that the findings were based on a proper appreciation of the evidence on record and that the revenue failed to show any perversity in these findings. The Tribunal's conclusions were deemed reasonable and did not warrant interference. The appeal was dismissed with no order as to costs.

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