2005 (3) TMI 20 - HC - Income Tax

Papers found during search additions made by AO on basis of the same Presumption of AO that these documents belongs to assessee was rebutted by assessee and were proved not related to them additions made were set aside by tribunal is upheld.

Summary

Issues:
1. Legality of canceling additions of Rs.1,35,000/- and Rs.14,645
2. Discharge of initial onus to prove ownership of seized paper and its contents

Analysis:
Issue 1: Legality of canceling additions of Rs.1,35,000/- and Rs.14,645
The case involved the cancellation of additions of Rs.1,35,000/- and Rs.14,645 to the income of the respondent-assessee under Section 69 of the Income Tax Act. The Income Tax Appellate Tribunal (ITAT) had initially added these amounts to the income of the assessee, but the Tribunal later deleted these additions. The Tribunal found that the seized paper containing the entries did not belong to the assessee firm or its partners, as confirmed by the assessee's submissions. The Tribunal noted that the paper did not bear the name of the assessee, was not in the handwriting of any partners or employees, and the contents did not pertain to the assessee. The Tribunal concluded that the Department failed to establish that the assessee made any unexplained investment during the relevant financial year. Therefore, the Tribunal held that the additions should be cancelled, and the additions were deleted.

Issue 2: Discharge of initial onus to prove ownership of seized paper and its contents
The Tribunal considered the presumption under Section 132(4A) of the Act, which presumes that documents found during a search belong to the person in possession and their contents are true. However, the Tribunal held that the respondent successfully rebutted this presumption by explaining that the paper was not theirs, as none of the partners or employees knew English, and the paper was found in the shop premises debris. The Tribunal noted that the Assessing Officer did not cross-examine the partners or employees to verify the truth of their statements. Additionally, the Tribunal found that the principal amount of Rs.1,35,000 could not have been earned during the assessment year in question, further supporting the cancellation of the additions. The Tribunal's approach was deemed in accordance with the law, and the explanations offered were considered credible. Consequently, the Tribunal answered both questions in favor of the assessee and against the Revenue.

In conclusion, the High Court upheld the Tribunal's decision to cancel the additions of Rs.1,35,000/- and Rs.14,645 to the income of the assessee, as the Department failed to establish the ownership of the seized paper and its contents, and the explanations provided by the assessee were found to be reasonable and credible.