2013 (1) TMI 451 - HC - Income Tax

Undisclosed income - Presumption as to assets, books of account u/s 292C During search, certain documents and material were found and the same were seized vide a Panchnama - Any documents/Books of accounts found from the possession of the assessee belongs to such persons and contents of such documents are true - Difference in physical stock in compare to the books of account - entries found noted on the front side as well as on the back-side - no description of the nature of entries made therein - whether the entries reflect purchases effected by the assessee or sales effected by the assessee - document is unsigned - the nature and ownership of entries found in the seized document - dumb document - corroborative evidence Held that - document was a dumb document inasmuch as it does not contain any intelligible narration in support of the inference drawn by the Assessing Officer that it reflected sales carried out by the assessee outside the regular books of account. Revenue was unable to demonstrate that the entries where there were no names of purchasers should have been added to the undisclosed income of the assessee alone particularly when the document related to entries concerning other purchasers mentioned therein as well. On the basis of documents which were seized from the possession of Assessee s, son of the partner of the firm did not disclose any material to establish that undisclosed income, as deleted by the Tribunal, had arisen in this case. Thus, the plea relating to presumption available u/s 292C in respect of documents etc. seized u/s 132(4A) being available to the revenue, yet the revenue is unable to derive any benefit therefrom - In favour of assessee

Issues Involved:

1. Scaling down of addition on account of discrepancy in physical inventory of stock.
2. Deletion of addition based on document D-22 of Annexure A-18.
3. Deletion of addition based on document D-24.
4. Deletion of addition based on document D-4 of Annexure A-22.
5. Applicability of Section 292C of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Scaling down of addition on account of discrepancy in physical inventory of stock:

The Assessing Officer initially added Rs. 83,287/- based on the physical inventory of rice found during the search, which was later scaled down to Rs. 33,200/- by the CIT(A). The CIT(A) justified this reduction by noting that no actual physical verification of stock was conducted, and the stock estimation was based on loose heaps of rice and paddy. The Tribunal upheld this decision, agreeing that the physical inventory was estimated and the rate applied was appropriate for 'Parmal Rice' and not 'Basmati Rice'. The Tribunal found that the findings of CIT(A) were not perverse or erroneous, thus maintaining the addition at Rs. 33,200/-.

2. Deletion of addition based on document D-22 of Annexure A-18:

The Tribunal found that document D-22 did not clearly indicate the nature of entries or ownership, making it a "dumb document." The document was unsigned, did not bear the name of the assessee firm, and lacked any intelligible narration to support the Assessing Officer's inference of sales outside the books of account. The Tribunal emphasized that the burden was on the revenue to establish that the document reflected any income in control and possession of the assessee, which was not done. Thus, the deletion of Rs. 5,95,900/- and Rs. 11,17,596/- was upheld.

3. Deletion of addition based on document D-24:

The addition of Rs. 8,20,065/- was based on purchases of paddy made outside the books of account as per document D-24. The CIT(A) and the Tribunal deleted this addition, noting that the document belonged to a broker, Shri Sudesh Jain, who made purchases on behalf of various concerns, including the assessee firm. The entries in the document were verified and found to be reflected in the assessee's books of account. The Tribunal found no justification for treating unspecified entries as the assessee's undisclosed income, and thus upheld the deletion.

4. Deletion of addition based on document D-4 of Annexure A-22:

The addition of Rs. 27,500/- was deleted by the CIT(A) and upheld by the Tribunal due to a lack of evidence corroborating that the assessee incurred such expenditure. The document in question was unsigned and unauthenticated, and there was no corroborative evidence to prove the expenditure. The Tribunal affirmed the CIT(A)'s conclusion, finding no material to negate the factual findings.

5. Applicability of Section 292C of the Income Tax Act, 1961:

The revenue argued that Section 292C, which provides for presumptions regarding documents found during a search, should apply. However, the Tribunal found that the documents in question (D-22 of Annexure A-18, D-24, and D-4 of Annexure A-22) did not disclose any material to establish undisclosed income. Despite the presumption under Section 292C, the Tribunal concluded that the revenue could not derive any benefit due to the lack of corroborative evidence supporting the additions made by the Assessing Officer.

Conclusion:

The High Court dismissed the appeal, finding no merit in the revenue's arguments. The Tribunal's findings were upheld, and the deletions of various additions were justified based on the lack of clear evidence and proper documentation. The application of Section 292C did not aid the revenue due to the absence of corroborative evidence.

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