2015 (7) TMI 47 - AT - Income Tax

Undisclosed income - addition based on information found on the computer during search - presumption u/s 292C - Apart from the fact that the specific unrelated documents were found it was vehemently argued there is no other evidence with the department to insist that the assessee had transactions with the said concern. - The assessee denied having any transaction with M/s Smridhi Sponge Ltd. and made a claim that it may have belonged to someone who may have visited the assessee s office. - Held that - The present case is not only a case of simple denial but the denial is on affidavit. The assessee as per record is also found to have made efforts to trace the said concern. The internet search conducted admittedly as per record has made a mention of specific Kolkata s address as per ROC site on a specific date. Admittedly one notice was sent to it that too after a lapse of almost a year which came back unserved. It is also seen that apart from that the assessee has also made efforts to give PAN details and also the jurisdiction of the AO where M/s Smridhi Sponge was being assessed. The record demonstrates that the AO chooses to rely more on postal authorities and makes no effort to cross check the information from the AO of M/s Smridhi Sponge who admittedly had many transactions in cash with some parties. M/s Smridhi Sponge as per record was not a dummy entity but a functional thriving entity. What repeatedly emerges from the above-mentioned facts and evidences is that the assessee during the assessment proceedings and in the appellate proceedings makes an all out mammoth exercise to give the details of M/s Smridhi Sponge Ltd. and also traces the two specific cheque numbers mentioned in the seized documents which were paid by the bankers of M/s Galaxy found mentioned as Galaxy in the seized documents however surprisingly for unstated reasons the department sits back after issuing notices to the address provided of M/s Smridhi Sponge relying blindly on section 292C of the Act only on the rationale that the print outs had been founded from assessee s premises and thus they necessarily disclosed the assessee s undisclosed transactions with the said concern. The said conclusion of the tax authorities is completely misplaced on facts. A perusal of section 292C shows that a statutory presumption can be drawn where any documents is found in possession of a person in the course of a search or survey that it belongs to such a person . A presumption is also drawn that the contents of such a document are true. The presumption having been drawn as per law is required to be confronted and the documents as per record have been confronted. Whether the onus placed upon the assessee in a given set of facts is discharged or not has to be seen from the replies of the assessee based on facts. However, the law is well settled that the presumption is rebuttable. In the facts of the present case, the assessee has denied having any transactions with M/s Smridhi Sponge and has also denied consequently the contents of the seized document as relatable to it; the denial as per the assessment order is also on an affidavit; the particulars available in the public domain procured through the internet searches from the ROC and the official income tax sites as per print outs of the downloads are relied upon. The fact that these were unimpeachable third party evidences that too from the official government sites goes without saying. In these facts, merely sending notices to the addresses provided on the ROC site cannot be said to be rebutting the evidence on record namely that M/s Smridhi Sponge, assessed to tax in a specific jurisdiction in Kolkata manufacturing M.S.Ingot and Sponge Iron, having specific address as per ROC site receiving payments in cash and cheque as per the seized documents qua which presumption u/s 292C operates towards their correctness; wherein two specific cheques were honoured by Punjab National Bank at Jamshedpur whose account number was 1021 ; , branch code and factum of the payments made on behalf of the M/s Galaxy Exports as the same Galaxy found mentioned at Paper Book page 47 (Seized documents) also dealing in Iron Ore were provided; where the names and addresses of the Directors of both the companies; their authorized share capital; details of their balance sheets as per ROC site; Auditor s, Reporters etc. are all given. The fact that these were relevant unimpeachable evidence has not been doubted. In these facts the reluctance of the tax authorities to address this issue and to carry the enquiries to the logical conclusion is a glaring fact of deliberate inaction. The repeated inactions speak louder then the half hearted actions undertaken. The evidences remains unrebutted on record. No effort to co-relate the assessee s alleged undisclosed transactions with M/s Smridhi Sponge appear to have been addressed so as to demolish the consistent claim on record that it had no dealings with the said concern. In such a background the departmental stand that the level of information available with the assessee proved that the assessee had interactions with the said concern is adding insult to injury. The silence of inaction speaks much louder than the frenzy of the misdirected actions necessitating a pro-active department to address the fest spreading malaise lest the tools of search and seizure are reduced to a farce. The repeated inactions speak louder than the half-hearted actions taken. We are of the view that as far as the assessee is concerned the onus to address the seized documents qua which a statutory presumption has been drawn stands fully discharged. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition of Rs. 1,47,78,159/- out of total addition of Rs. 2,68,11,454/- by CIT(A).
2. Sustaining of addition of Rs. 1,20,33,295/- on account of transactions with M/s Smridhi Sponge.
3. Validity of addition based on impounded documents.
4. Interpretation and application of Section 292C of the Income Tax Act.
5. Adequacy of investigation and cross-verification by the Assessing Officer (AO).
6. Presumption of transactions based on loose sheets.
7. Rejection of affidavit and other evidence by CIT(A).
8. Calculation of Gross Profit (G.P.) and capital requirement for undisclosed business activities.

Detailed Analysis:

1. Deletion of Addition by CIT(A):
The CIT(A) deleted an addition of Rs. 1,47,78,159/- out of the total addition of Rs. 2,68,11,454/- made by the AO on account of undisclosed income. The CIT(A) upheld the gross profit addition of Rs. 20,60,108/- but had reservations about adding the entire sale proceeds as income outside the books. The CIT(A) applied the "peak theory" or "telescoping" to determine the minimum capital required to carry on business activities outside the books, leading to a revised addition.

2. Sustaining of Addition on Account of Transactions with M/s Smridhi Sponge:
The CIT(A) sustained an addition of Rs. 1,20,33,295/- based on transactions with M/s Smridhi Sponge, despite the assessee's denial of any business relationship with the said entity. The assessee provided details from internet searches and official sites, including the ROC and income tax site, to support its claim. However, the AO issued notices to M/s Smridhi Sponge, which were returned unserved, and the CIT(A) did not accept the assessee's explanation.

3. Validity of Addition Based on Impounded Documents:
The AO made the addition based on impounded documents found during a search and seizure operation, which showed transactions with M/s Smridhi Sponge. The assessee denied the transactions and provided an affidavit and other evidence to support its claim. The CIT(A) and the Tribunal had to consider whether the addition based on these documents was justified.

4. Interpretation and Application of Section 292C:
The CIT(A) and the AO relied on Section 292C of the Income Tax Act, which presumes that documents found during a search belong to the person from whose possession they were found. The Tribunal had to determine whether the assessee successfully rebutted this presumption by providing sufficient evidence.

5. Adequacy of Investigation and Cross-Verification by AO:
The assessee argued that the AO did not adequately investigate or cross-verify the information provided about M/s Smridhi Sponge. The AO sent notices to the addresses provided, which were returned unserved, but did not make further efforts to verify the transactions from the AO of M/s Smridhi Sponge or other relevant parties.

6. Presumption of Transactions Based on Loose Sheets:
The AO presumed that the transactions recorded on loose sheets found during the search pertained to the assessee. The Tribunal had to assess whether this presumption was valid and whether the assessee provided sufficient evidence to rebut it.

7. Rejection of Affidavit and Other Evidence by CIT(A):
The CIT(A) rejected the affidavit and other evidence provided by the assessee, including a letter from a director of M/s Smridhi Sponge denying any transactions with the assessee. The Tribunal had to evaluate whether the CIT(A) was justified in rejecting this evidence.

8. Calculation of Gross Profit and Capital Requirement:
The CIT(A) calculated the gross profit and capital requirement for the alleged undisclosed business activities outside the books. The Tribunal had to review whether this calculation was appropriate and whether the additions were justified based on this calculation.

Conclusion:
The Tribunal concluded that the onus placed upon the assessee under Section 292C was rebuttable and that the assessee had successfully discharged this onus by providing sufficient evidence, including details from official sites and an affidavit. The Tribunal found that the AO did not adequately investigate or cross-verify the information provided by the assessee. Consequently, the Tribunal allowed the appeals of the assessee, deleted the additions made based on the impounded documents, and dismissed the departmental appeal. The Tribunal emphasized the need for the Revenue to act upon the information provided and take appropriate action against the actual parties involved.