2011 (2) TMI 1416 - AT - Income Tax

Undisclosed negative peak credit - Addition on the basis of seized materials noted as A/GAR/5 - undisclosed money-lending business - materials seized on the basis of which the addition was made - assessee submitted before the lower authorities that it does not belong to him - Reliability on handwritten loose documents - HELD THAT - The seized material A/GAR/05 found during the course of search and the statement recorded is some piece of evidence to make an addition. The AO has to establish the link between the seized material A/GAR/05 and other books of accounts of the assessee. It cannot be considered alone as conclusive evidence. The words 'may be presumed' appearing in s. 132(4A) gives an option to the authorities concerned to presume the things. But it is rebuttable and it does not give a definite authority and conclusive evidence. The assessee has every right to rebut the same by producing the same in support of his claim. The entire case depends on the rule of evidence. The assessee has every right to shift the burden of proof. There is no conclusive presumption. In the present case, the assessee as well as the assessee's son and also assessee's brother Shri S.K. Agarwal categorically stated in every stage of examination and statement recorded under s. 132(1) or 132 that the seized material A/GAR/05 did not at all belong to them. In spite of this the AO proceeded to conclude that these seized materials conclusively belonged to the assessee. Leave alone the issue relating to authorship of the document seized and the findings of the GEQD, the Department should find out and establish the nexus of these seized materials to the assessee's business while concluding block assessment. In the present case the assessee is having grievance for not providing the opportunity of cross-examining the parties whose statements were relied on by the AO while completing the assessment. The circumstances surrounding the case are not strong enough to justify the rejection of assessee's plea asking the opportunity of cross-examination. In view of this, we set aside the block assessment order and remand back the matter to the file of the AO. The AO is directed to give an opportunity of cross-examination of the parties as required by the assessee and thereafter if there is any sufficient evidence other than the unsubstantiated note book/loose slips marked as document A/GAR/5 or if this document (viz., A/GAR/05) is substantiated by any other evidence to establish that the assessee is having undisclosed income, then the AO shall complete the assessment in accordance with law determining the undisclosed income covering this block period in addition to the other undisclosed income uncontested before us. The appeal of the assessee is allowed for statistical purposes.

Issues Involved:
1. Addition of Rs. 2,55,50,000 as undisclosed negative peak credit based on an unidentified notebook.
2. Reference to the Government Examiner for handwriting verification.
3. Examination and cross-examination of witnesses.
4. Compliance with the Tribunal's directions in previous orders.
5. Principles of natural justice and adequacy of evidence.

Detailed Analysis:

1. Addition of Rs. 2,55,50,000 as Undisclosed Negative Peak Credit Based on an Unidentified Notebook:
The core issue is the addition of Rs. 2,55,50,000 as undisclosed negative peak credit, which was based on an unidentified notebook found during a search and seizure operation at the assessee's residence. The assessee contested this addition, arguing that the notebook did not belong to him and lacked corroborative evidence. The Tribunal noted that the seized notebook alone, without any supporting evidence such as promissory notes, loan agreements, or receipts, was insufficient to conclude that the assessee was engaged in moneylending activities. The Tribunal emphasized that the evidence must be substantial and corroborated by other materials to justify such a significant addition.

2. Reference to the Government Examiner for Handwriting Verification:
During the assessment proceedings, the assessee and the Department agreed to refer the unidentified notebook to the Government Examiner of Questioned Documents (GEQD) for handwriting verification. The GEQD's report concluded that the handwriting in the notebook did not match any of the 11 family members' samples. However, the Department chose to disregard this report, arguing that it was not binding. The Tribunal highlighted that while the GEQD's report is not conclusive, it is a significant piece of evidence that should have been considered by the AO. The Tribunal criticized the Department for not adhering to the agreed-upon procedure and ignoring the GEQD's findings.

3. Examination and Cross-Examination of Witnesses:
The Tribunal had previously directed the AO to provide the assessee with an opportunity to examine or cross-examine certain witnesses whose statements could be relevant. The assessee was allowed to cross-examine search officials but not other individuals mentioned in the affidavits. The Tribunal found that the Department failed to produce these individuals for examination, which was against the principles of natural justice. The Tribunal stressed the importance of allowing the assessee to cross-examine witnesses to rebut the presumption under Section 132(4A) of the IT Act.

4. Compliance with the Tribunal's Directions in Previous Orders:
The Tribunal noted that the AO did not fully comply with its earlier directions to allow the assessee to examine witnesses and consider the GEQD's report. The Tribunal emphasized that partial compliance with its directions is not permissible and that the AO must adhere to all instructions to ensure a fair assessment process. The Tribunal criticized the AO for repeating the same addition without addressing the issues raised in the previous order.

5. Principles of Natural Justice and Adequacy of Evidence:
The Tribunal highlighted that the principles of natural justice demand comprehensive inquiries and adequate opportunities for the assessee to present their case. The AO's failure to conduct thorough inquiries and disregard for the GEQD's report violated these principles. The Tribunal emphasized that additions should not be based on suspicion or conjecture but on substantial evidence. The Tribunal concluded that the notebook found during the search was a "dumb document" with no evidentiary value in the absence of corroborative evidence.

Conclusion:
The Tribunal set aside the block assessment order and remanded the matter to the AO. The AO was directed to provide the assessee with an opportunity to cross-examine the relevant parties and consider any additional evidence. The AO was instructed to complete the assessment in accordance with the law, ensuring that any addition is based on substantial and corroborated evidence. The appeal of the assessee was allowed for statistical purposes.

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