2010 (4) TMI 1199 - HC - Income Tax

Addition towards Unexplained investment and interest - No opportunity of cross-examination - Whether the Tribunal was justified in holding that the investment in question reflected in parcha No. 56 could not be brought to assessment in the hands of assessee in the manner in which the Department had brought them to assessee in their hands? - HELD THAT - Admittedly, the parcha was found from the possession of Sri D.P. Kanodia and, therefore, at the most a presumption can be raised against him. Sri D.P. Kanodia, at no stage, in the statement admitted that these entries relate to the unexplained investment made by the assessees and the interest mentioned therein had been accrued to them. No opportunity of cross-examination to Sri D.P. Kanodia was given to the assessees. The entries in the parcha, therefore, remained uncorroborated. Moreover, the entries against Sri S.P.Kanodia and Smt. Premlata Kanodia were found scored out. What is the reason for scoring out such entries is not explained and, therefore, in the absence of corroborative evidence, the Tribunal has rightly held that no adverse inference can be drawn from the entries of parcha No. 56 against the assessees. The finding of the Tribunal is finding of fact based on the material on record, which cannot be said to be perverse, which requires any interference. Thus, the questions referred hereinabove are answered in affirmative against the Revenue and in favour of the assessees.

Summary

Issues:
1. Interpretation of investment in loose parcha No. 56 for assessment.
2. Application of provisions of section 132(4A) of the Income-tax Act, 1961.

Issue 1: Interpretation of investment in loose parcha No. 56 for assessment

The case involved a partnership firm where a search led to the recovery of a loose parcha with entries indicating investments and interest. The Income-tax Officer added amounts as unexplained investments in the hands of the partners. The Tribunal, however, noted discrepancies and lack of corroborative evidence. It highlighted that entries related to a proposed project and not the assessees. The Tribunal emphasized that the burden of proof lay with the department, which failed to provide substantial evidence. Notably, entries against some partners were struck off, indicating inaccuracies. The Tribunal concluded that the investments in question could not be assessed in the partners' hands as per the department's claims.

Issue 2: Application of provisions of section 132(4A) of the Income-tax Act, 1961

The Revenue argued that a presumption under section 132(4A) could link the parcha to the persons from whom it was seized. However, the respondent contended that no admission was made by the person in possession, and no cross-examination opportunity was given. The Tribunal found the entries uncorroborated and rightly deleted the additions. Citing legal precedents, the Court emphasized the burden on the department to prove the authenticity of such entries through cross-examination. The Court upheld the Tribunal's decision, stating that no adverse inference could be drawn against the assessees due to lack of substantial evidence. The judgment highlighted the importance of corroborative evidence and the right to cross-examine witnesses for establishing the authenticity of entries.

In conclusion, the High Court ruled in favor of the assessees, affirming the Tribunal's decision to delete the additions based on the loose parcha entries. The judgment underscored the significance of corroborative evidence and the burden of proof on the department to substantiate claims during assessments.