2017 (5) TMI 1750 - AT - Income Tax

Unrecorded sales/unrecorded business transactions and unrecorded payments - Addition based on documents found in search - As argued documents on the basis of which the addition was made were dump documents - submitted that the ld. CIT(A) grossly erred in confirming the addition as the assessee from the very beginning denied that loose papers belonged to him and that the presumption u/s 292C of the Act is rebuttable presumption and does not lead to a conclusive evidence - HELD THAT - AO made the addition by invoking the provisions of Section 292C of the Act and considering the notings of Annexure A found during the course of search in those documents, certain notings were there but name of the assessee was not mentioned, in some of the documents there were details of clothes like sari, suits and shirts etc. The claim of the assessee is that he was not engaged in the business of gold or jewellery. The assessee in the present case, from the very beginning stated that page nos. 31, 32 33 etc. of Annexure A did not relate to him. AO did not make any inquiry from the parties whose names were appearing in the said documents but made the addition by invoking the provisions of Section 263 of the Act. The assessee is earning his income mainly from commission and interest which is evident from the copy of acknowledgment of ITR placed. It is not brought on record that the assessee was engaged in the business of gold or jewellery and earning the income from said business, the addition has been made by the AO by presuming that the assessee had made payments to the certain parties but in those documents which had been relied by the AO nowhere it is mentioned that the assessee purchased the gold and even the nature of the transaction is not clear because against certain payments, some quantity of gold has been written and against the others nothing is mentioned. Therefore, the addition made by the AO is only on the basis of surmises and conjecture without bringing any cogent material on record to substantiate that the assessee was engaged in the business of gold and jewellery and the AO had not brought any material on record to substantiate that the denial of the assessee was false. The contention of the assessee that there was a family function two months prior to the search and somebody has forgotten the documents found during the course of search has not been rebutted. Also an admitted fact that during the course of search no unaccounted stock or assets were found. It is also noticed that in the assessee s case search took place on 09.12.2005 and the seized material was with the AO who issued notice u/s 153A of the Act on 05.09.2007 but he did not make any enquiry during that period i.e. between 09.12.2005 and 05.09.2007, to ascertain as to whom the payments, if any, were made and how the assessee was related to those payments. On the contrary, the assessee denied the ownership of the document from the very beginning. Addition made by the AO and sustained by the ld. CIT(A) was not justified. Accordingly, the same is deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Sustaining addition of ?1,29,82,873/- for unrecorded sales, business transactions, and payments.
2. Application of Section 292C of the Income Tax Act, 1961.
3. Relevance of documents found during the search to the assessee.
4. Failure to invoke Section 153C of the Income Tax Act.
5. Rebuttable presumption under Section 292C.

Issue-wise Detailed Analysis:

1. Sustaining Addition of ?1,29,82,873/- for Unrecorded Sales, Business Transactions, and Payments:
The primary grievance of the assessee was the addition of ?1,29,82,873/- based on unrecorded sales and transactions. The Assessing Officer (AO) made this addition based on documents seized during a search operation. The assessee contended that these documents were "dumb documents" and did not belong to him. The AO, however, was not satisfied with the explanation provided and estimated the income based on these seized documents.

2. Application of Section 292C of the Income Tax Act, 1961:
The AO invoked Section 292C, which presumes that documents found during a search belong to the person from whose possession they were seized. The assessee argued that this presumption is rebuttable and does not lead to conclusive evidence. The CIT(A) upheld the AO's decision, stating that the documents found during the search must be presumed to belong to the assessee as per Section 292C.

3. Relevance of Documents Found During the Search to the Assessee:
The assessee consistently denied ownership of the documents, claiming they were left by someone else during a family function. The AO did not conduct any inquiry to verify the names and details mentioned in the seized documents. The CIT(A) also acknowledged that no corroborative evidence was found to link the documents directly to the assessee.

4. Failure to Invoke Section 153C of the Income Tax Act:
The assessee argued that the AO should have invoked Section 153C to ascertain the correct assessee. The AO did not make any effort to determine the actual owner of the documents. The CIT(A) did not address this issue, focusing instead on the presumption under Section 292C.

5. Rebuttable Presumption Under Section 292C:
The ITAT observed that the presumption under Section 292C is rebuttable and not conclusive. The assessee provided sufficient evidence to rebut the presumption, including an affidavit denying ownership of the documents and pointing out the lack of any unaccounted assets or stock found during the search. The ITAT noted that the AO failed to conduct any inquiry to substantiate the claim that the documents belonged to the assessee.

Conclusion:
The ITAT concluded that the addition made by the AO and sustained by the CIT(A) was not justified. The presumption under Section 292C is discretionary and rebuttable. The assessee successfully rebutted the presumption by consistently denying ownership of the documents and providing reasonable explanations. The AO's failure to conduct any inquiry or gather corroborative evidence further weakened the case. Consequently, the ITAT deleted the addition of ?1,29,82,873/- and allowed the appeal of the assessee.