2011 (7) TMI 962 - HC - Income Tax

Unaccounted immovable and movable properties - Search and seizure at residential premises of the partners of the firm and other business concerns - addition on account of difference in value as unexplained investment in the block assessment - Held that - Transactions being done by the partners of the firm should be treated as the transactions being done by the firm. Therefore, the contention that the assessee-firm is not liable to be assessed cannot be accepted. Further CIT or the Tribunal had not brushed aside the finding of the AO with regard to the difference amount in sale consideration, on the other hand, they came to a conclusion that since the assessee had admitted an excess amount than the actual undisclosed income, the assessee is not liable to pay tax on the addition amount. Aforesaid contention cannot be accepted Entries in the seized diary - whether treated as a document as contemplated u/s 132(4A)- Held that - From the materials on record it is seen that Shri Vishnu, the author of the diary, is none other than the son of one of the partners and it is stated that on the instructions of the father, the son had written them in the diary. The appellate authority as well as the Tribunal had failed to take note of the applicability of section 132(4A) to the present case as it was specifically enacted to the purpose of search and seizure, instead they had relied on the general provision of section 132(4) of the Act. Section 132(4A) does not prohibit the Assessing Officer from drawing a presumption when the case falls under the case of search and seizure. Hence, presumption, raised by the AO with regard to the seized diary is a valid one and it was very much available to be raised u/s 132(4A) - Decided in favor of Revenue

Issues Involved:
1. Whether the Tribunal was right in deleting the addition made by the Assessing Officer on account of the purchase of land by the assessee when incriminating documents found during the search showed a higher value compared to the purchase documents showing a lesser figure.

Issue-wise Detailed Analysis:

1. Tribunal's Deletion of Addition by Assessing Officer:
The primary issue revolves around whether the Tribunal was justified in deleting the addition made by the Assessing Officer based on incriminating documents found during a search. The Assessing Officer included a difference of Rs. 16.30 lakhs as unexplained investment in the block assessment, which was contested by the assessee and subsequently deleted by the Tribunal.

2. Facts and Background:
The assessee, a partnership firm engaged in selling homelink products, was subjected to search and seizure actions under section 132 of the Income-tax Act, 1961. During the search, documents indicated that a property was purchased for Rs. 29 lakhs, while the assessee claimed it was purchased for Rs. 14.32 lakhs. The Assessing Officer included the difference as undisclosed income, which was later deleted by the Commissioner of Income-tax (Appeals) and the Tribunal.

3. Revenue's Contention:
The Revenue argued that the Tribunal should not have deleted the addition made by the Assessing Officer, as the diary seized during the search indicated a higher purchase value of Rs. 29 lakhs. The Revenue emphasized that under section 132(4A), the contents of the seized documents should be presumed true unless proven otherwise. The Revenue cited Supreme Court decisions in P. R. Metrani v. CIT and CIT v. Mukundray K. Shah to support their position.

4. Assessee's Contention:
The assessee contended that the purchase of the lands was already declared in the partners' returns for the relevant assessment years. They argued that the seized diary should not be considered under section 132(4A) as it was not connected to the firm. Additionally, the property was purchased by the partners in their individual capacity, not by the firm.

5. Connection of Seized Diary to Assessee-Firm:
The court examined whether the seized diary from one Vishnu was connected to the assessee-firm and if the entries could be used against the assessee. The court found that the transactions by the partners should be treated as transactions by the firm, rejecting the assessee's contention that the firm was not liable.

6. Validity of Assessing Officer's Findings:
The court upheld the Assessing Officer's findings that the assessee did not disclose the actual value of the lands purchased. The Commissioner of Income-tax (Appeals) and the Tribunal's conclusions were based on the assessee admitting an excess amount of undisclosed income, but the court confirmed the Assessing Officer's conclusion regarding the difference in sale consideration.

7. Presumption under Section 132(4A):
The court discussed the presumption under section 132(4A) that allows the Assessing Officer to presume the contents of seized documents are true. The court referenced the Supreme Court's elaboration on the nature, scope, and object of section 132(4A) in P. R. Metrani v. CIT, noting that the presumption is rebuttable but valid for search and seizure proceedings.

8. Tribunal's Error in Not Considering Section 132(4A):
The court found that the Tribunal and the appellate authority failed to consider the applicability of section 132(4A) to the case, which allows the Assessing Officer to draw a presumption in search and seizure cases. The court set aside the Tribunal's order, confirming the validity of the Assessing Officer's presumption.

9. Connection of Author of Diary to Transaction:
The court rejected the assessee's argument that the diary's author was not connected to the transaction, noting that Vishnu, the author, was the son of one of the partners and wrote the entries on his father's instructions.

Conclusion:
The substantial question of law was answered in favor of the Revenue, and the tax case appeal was allowed. The court upheld the presumption under section 132(4A) and confirmed the Assessing Officer's addition of Rs. 16.30 lakhs as undisclosed income.

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