2014 (1) TMI 1684 - AT - Income Tax

Assessment u/s 153A - addition towards undisclosed income - Held that - Provisions of section 153A that the income of the assessee in case of a person where search is initiated u/s. 132 the books of account or other documents or any assets are requisitioned u/s. 132A the Assessing Officer after issue of a notice to furnish income of the assessee in respect of each assessment year falling within 6 assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition made the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such 6 assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisitioned as the case may be on bringing on record the material to show that there is undisclosed income of the assessee. In other words there should be material on record to show that the income is assessed on the basis of material/ evidence in hands of the Assessing Officer. Being so in our opinion guess work is not possible in case of search assessment framed u/s. 143(3) or u/s. 153A of the Act without any proper material. The AO shall have the basis for assuming that the expenditure incurred by the assessee is out of undisclosed income. It is not permissible to assess the undisclosed income in the absence of any other evidence on arbitrary basis. The unsubstantiated loose sheets cannot be considered as a conclusive evidence to make any addition towards undisclosed income. In the present case the seized material (two note books) marked as KBR/A/02 and KBR/A/04 wherein certain entries are found recording various transactions pertaining to the assessee. These entries in the notebook are unsubstantiated and on that basis the AO reached to the conclusion that the figures mentioned therein are to be read by adding 3 zeros and thereby he came to conclude that there is undisclosed income in these 6 assessment years. In our opinion the document recovered during the course of search was a dumb document and led nowhere. The CIT(A) rightly came to the conclusion that it cannot be acted upon and deleted the addition. - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of the assessment based on seized material.
2. Interpretation of coded entries in seized documents.
3. Justification of additions made by the Assessing Officer (AO).
4. Treatment of agricultural income.

Detailed Analysis:

1. Validity of the Assessment Based on Seized Material:
The case revolves around a search and seizure operation conducted under Section 132 of the Income Tax Act, 1961, at the premises of the assessee. The AO issued a notice under Section 153A and assessed the total income for six assessment years based on the seized material. The CIT(A) observed that the AO's assessment was based on assumptions and lacked corroborative evidence. The CIT(A) emphasized that the seized papers were not regular books of account and were written by various persons, making it difficult to assume a uniform method for recording transactions. The Tribunal upheld the CIT(A)'s view, stating that guesswork is not permissible in search assessments without proper material and corroborative evidence.

2. Interpretation of Coded Entries in Seized Documents:
The AO noticed that the entries in the seized documents were written in coded form, with the last three digits omitted for banking transactions and the last two digits omitted for non-banking transactions. The AO concluded that three digits were omitted for almost all transactions, leading to a significant increase in the assessed income. The CIT(A) disagreed, stating that many entries represented day-to-day household expenses, which would not be incurred in multiples of thousands. The Tribunal agreed with the CIT(A), noting that the AO's approach was based on presumptions and lacked direct evidence to support the multiplication of entries by '1000'.

3. Justification of Additions Made by the AO:
The AO made substantial additions to the assessee's income based on the interpretation of the coded entries. The CIT(A) found that the AO's additions were based on isolated entries and conjectures without any independent material supporting the view that the entries were to be multiplied by '1000'. The CIT(A) directed the AO to delete the additions based on the multiplication of entries with three zeros and instead made a reasonable estimate of disallowance for unrecorded and under-recorded expenses. The Tribunal upheld the CIT(A)'s decision, stating that the AO's additions were not justified and lacked corroborative evidence.

4. Treatment of Agricultural Income:
The assessee contested that the AO added the agricultural income disclosed in the names of the assessee's two wives to the assessee's total income, despite the agricultural income being duly reflected in the returns of the respective income holders and accepted by the AO. The CIT(A) directed the AO to delete the addition of agricultural income belonging to the assessee's wives from the total income of the assessee. The Tribunal upheld the CIT(A)'s decision, stating that the AO's action of adding the agricultural income again in the hands of the assessee was not justified.

Conclusion:
The Tribunal affirmed the CIT(A)'s order, concluding that the AO's additions based on the seized material were not justified due to the lack of corroborative evidence and the arbitrary nature of the assessments. The Tribunal dismissed the Revenue's appeals, upholding the deletion of the additions made by the AO and the treatment of agricultural income as directed by the CIT(A).