2007 (2) TMI 658 - AT - Income Tax

Income from undisclosed sources - Search and seizure Operation - addition was based on a loose paper No. 7 - dumb document - whether presumption lying under Section 132(4A) can be raised against the assessee - non-speaking order - Notice issued u/s 143(2) - Re-opening of the assessment u/s 148 - HELD THAT - We notice that the AO could not establish that the assessee has charged any interest if at all the impugned; figures were advances. There is no material to show that the AO has taxed these advances as wealth of the assessee. There is also no material to show that the assessee has taken any action to recover the money from the alleged debtors. It is not believable that the assessee or his legal heir would forget their money lying with the debtors. By one way or other he or his legal heir would try to recover the money. The department has not done anything to find out that after the search in April 1995. We are also unable to satisfy ourselves as to why the alleged transactions are considered in the assessment year 1989-90 when there is no date mentioned on the document. Once search took place in April 1995 then undated paper could be presumed to be belonging to that period and hence the year of taxability would be assessment year 1996-97. Thus it is merely by surmises that the AO has taxed it in the year 1989-90. Thus a document found during the course of search must be a speaking one and without any second interpretation must reflect all the details about the transaction of the assessee in the relevant assessment year. Any gap in various components as mentioned in Section 4 of the I.T. Act must be filled up by the AO through investigations and correlations with other material found either during the No. 7 course of the search or on investigation. As a result we hold that document No. 7 is a non-speaking document. Since the facts of the present case are similar to the case of Sri Kantilal Bros. we are of the view that no addition u/s 68 of the Act can be made on the basis of loose sheet being document No. 7 found during the course of the search. Presumption lying u/s 132(4A) - In our considered view such presumption is available to the proceedings u/s 132(5). In Section 278D a separate presumption has been provided for invoking in prosecution proceedings. As no such presumption is provided in assessment proceedings we infer that where the Legislature intended to provide such presumption it has been so provided in various Chapters. In Chapter relating to search and seizure that presumption about books of account and documents is provided but it is limited to the summary proceedings about retention or release of the assets u/s 132(5). This cannot be extended to assessment proceedings. Our view is supported by the decision of the Hon ble Supreme Court in P.R. Metrani v. CIT 2006 (11) TMI 136 - SUPREME COURT . Thus the case of the Revenue is not assisted by Section 132(4A) in any way. Even otherwise our considered view is that such presumption can only be raised when document is speaking one and it reflects complete transactions without two interpretations. As a result we hold that the impugned document No. 7 is a dumb document and no addition an be made on that basis. Therefore we confirm the order of the Ld. CIT (A) and dismiss the appeal filed by the revenue. Re-opening of the assessment u/s 148 and addition on the basis of a seized loose paper No. 9 - We find that there is a direct nexus of the material available with the AO with the formation of the belief. Once it is done in our considered view the reopening is justified. As a result we reject the contention of the ld. A.R. in this regard. We uphold the order of ld. CIT (A) wherein he has confirmed the re-opening of the assessment. This ground of the assessee is therefore rejected. It also does not show that the assessee has in fact advanced Rs. 20, 000 or for that matter Rs. 5, 30, 000 on various dates. Thus on the basis of same reasoning as we have given in respect of document No. 7 in revenue s appeal we hold that the document No. 9 also is non-speaking so far as entry of Rs. 20, 000 or for that matter entry of Rs. 5, 30, 000 being the total of various entries are concerned. It is not established by the AO that they are monies advanced. It is also not established that they are not recorded in the regular books of accounts. It is also not established that they relate to the assessee. As held in Revenue s appeal presumption u/s 132(4A) cannot be raised in assessment proceedings. Thus following our own reasoning in Revenue s appeal the addition sustained by the Ld. CIT (A) in our view is incorrect and the same is therefore deleted. Unexplained investment - search and seizure operations - found loose paper - HELD THAT - The nature of transaction is clear that they are purchases. The date is available i.e. 27.6.1992 and finally the quantum of expenditure is also clear i.e. Rs. 1, 31, 736. Thus there is no room for any doubt and therefore we are of the considered view that lower authorities were justified in treating this amount as expenditure/investment and as no explanation was forthcoming it was rightly treated as unexplained investment. It was for the assessee to submit cogent material so as to show that inference drawn by the AO was incorrect. It was for him to bring evidence from the concerned party that it is not a purchase but only a quotation. Since no such material was produced by the assessee the onus shifted back to the assessee remained undischarged. As a result we confirm this addition. This ground of the assessee therefore fails. Notice issued u/s 143(2) - assessment completed u/s 143(3) - We are of the view that there is no merit in the argument of the Ld. A.R. It is because there has been amendment in Section 148 wherein issuance of notice u/s 143(2) after expiry of 12 months is no longer required and in absence of issuance of such notice within 12 months the assessment will not be declared invalid. This amendment was introduced by the Finance Act 2006 with retrospective effect from 1.10.1991. Even otherwise our view that assessment cannot be annulled merely because notice u/s 143(2) was issued beyond 12 months in re-assessment proceedings initiated under Section 148(1) finds support from the decision of I.T.A.T. Amritsar Bench in the case of Sharma and Co. v. ACIT 2004 (6) TMI 242 - ITAT AMRITSAR . After the amendment by Finance Act 2006 the view was explicitly made clear that time limit for issuance of notice u/s 143(2) will not apply in re-assessment proceedings. Therefore this additional ground taken by the assessee has no force and hence fails. As a result this ground of the assessee is dismissed. As a result the appeal filed by the assessee is partly allowed.

Summary

Issues Involved:
1. Legality of the addition of Rs. 22,30,000 as income from undisclosed sources.
2. Admissibility of fresh evidence by CIT (A).
3. Validity of reopening the assessment under Section 148.
4. Addition of Rs. 20,000 based on seized loose paper No. 9.
5. Notional interest income on alleged advances.
6. Unexplained investment in hardware purchases.

Issue-wise Analysis:

1. Legality of the Addition of Rs. 22,30,000 as Income from Undisclosed Sources:
The Revenue challenged the deletion of Rs. 22,30,000 by CIT (A), which was added by the AO based on a seized document (loose paper No. 7). The AO presumed these entries as undisclosed advances by the assessee. However, the CIT (A) admitted affidavits and other evidence indicating that the document belonged to Dharamveer Wassan and represented orders for iron and steel, not loans. The Tribunal upheld CIT (A)'s decision, noting that the document lacked details such as dates, monetary units, and signatures, making it a "dumb document" insufficient for tax addition.

2. Admissibility of Fresh Evidence by CIT (A):
The Revenue argued that CIT (A) wrongly admitted fresh evidence without giving the AO an opportunity to respond, violating Rule 46A. However, the Tribunal found that the affidavits were in support of explanations already provided to the AO. Citing the Supreme Court's decision in Jute Corporation of India Ltd. v. CIT, the Tribunal held that CIT (A) had the authority to admit fresh evidence and that the AO should have investigated the affidavits.

3. Validity of Reopening the Assessment under Section 148:
The assessee contested the reopening of the assessment, arguing that the reasons were not provided and the AO's belief was based on arbitrary assumptions. The Tribunal noted that the AO had recorded reasons based on seized documents indicating undisclosed income. The Tribunal upheld the reopening, stating that the AO only needed a prima facie belief of income escapement, not a final conclusion, and found a direct nexus between the material and the AO's belief.

4. Addition of Rs. 20,000 Based on Seized Loose Paper No. 9:
The AO added Rs. 20,000 based on another seized document (loose paper No. 9), which the assessee claimed was a bad debt and neutralized by credit entries. The Tribunal found that the document lacked essential details and was not correlated with the assessee's books. It held that the document was non-speaking and could not justify the addition, thus deleting the Rs. 20,000 addition.

5. Notional Interest Income on Alleged Advances:
The AO added notional interest on presumed advances based on the seized documents. The Tribunal, having found that the documents did not conclusively prove the advances, held that no notional interest could be charged. It confirmed the deletion of notional interest additions for multiple assessment years, as the alleged advances were not substantiated.

6. Unexplained Investment in Hardware Purchases:
For the assessment year 1993-94, the AO added Rs. 1,31,736 based on a seized document listing hardware purchases. The assessee argued these were quotations, not actual purchases. The Tribunal, after examining the document, found it detailed and dated, indicating actual purchases. It upheld the addition as unexplained investment, rejecting the assessee's claim.

Conclusion:
The Tribunal's comprehensive analysis led to the confirmation of CIT (A)'s decisions on multiple grounds, emphasizing the need for concrete evidence and proper investigation by the AO. The Tribunal consistently found that the seized documents, lacking essential details and corroboration, could not substantiate the additions made by the AO. Consequently, most of the additions were deleted, and the appeals were decided in favor of the assessee.