2018 (11) TMI 588 - AT - Income Tax

Addition on the basis of entries found in the seized documents from the residence of the assessee during the course of search - Held that - We find that the documents seized from the possession of the assessee contains calculations of interest mentioning therein the amount, rate of interest, period and amount of interest. The authorities below had tried to decode the contents of the document by coming to the conclusion that the last three digits were removed from the amount and various amounts were mentioned by deleting the last three zeros. For example, ₹ 1,00,000/- has been mentioned as ₹ 100/- and ₹ 5,00,000/- has been mentioned as ₹ 500/-. We further observe that the said document does not state whether the amounts stated therein are the loans given or accepted by the assessee. We also find that the assessee has denied or disowned the said document right from the inception when the search was conducted on the assessee and also tried to explain his stand by filing an affidavit the copy Indisputably , the document is seized from the possession of the assessee and onus is on the assessee to explain the contents therein but we find that even before the CIT(A) the assessee has specifically stated the presumption of the AO as wrong the monies mentioned therein represented loan given by the assessee whereas the said document is silent as to the money lent or borrowed by the assessee. Moreover the document is not in the handwriting of the assessee or his family or singed by the assessee. Considering all we observe that it is a guess or presumption of the AO that the money might have been lent by the assessee and assessee is deriving interest out of money lent. Moreover, during the course of search nothing incriminating material or unaccounted wealth was found to corroborate the contents of the paper. Under these circumstances, we are of the considered view that to make an addition on the basis of document which does not state the amount lent by the assessee or borrowed by the assessee is not justified and can not be sustained. - Decided in favour of assessee.

Summary

Issues:
1. Addition of ?1,01,00,000 based on seized documents
2. Confirmation of addition of ?38,217 as interest income
3. Deletion of additions in appeals for AYs 2010-11 & 2011-12

Issue 1: Addition of ?1,01,00,000 based on seized documents

The assessee appealed against the addition of ?1,01,00,000 made by the AO and confirmed by the CIT(A) based on entries found in seized documents during a search. The AO concluded that the assessee had advanced unrecorded cash as interest-bearing loans. However, the assessee denied ownership of the documents, claiming they may belong to individuals seeking dispute resolution through charitable trusts he was associated with. The documents did not specify if the amounts were loans given or taken. The ITAT observed that the AO's presumption lacked substantiation, as no incriminating material was found during the search. The ITAT ruled in favor of the assessee, directing the AO to delete the addition.

Issue 2: Confirmation of addition of ?38,217 as interest income

The second ground of appeal challenged the addition of ?38,217 as interest income based on seized documents. Since the main addition of ?1,01,00,000 was deleted in the first issue, the addition of interest income was automatically deleted. Consequently, this appeal was allowed in favor of the assessee.

Issue 3: Deletion of additions in appeals for AYs 2010-11 & 2011-12

As the main addition for AY 2008-09 was deleted, the interest additions for AYs 2010-11 & 2011-12 were also deleted. Therefore, all three appeals by the assessee were allowed. The ITAT pronounced the order in favor of the assessee on 01.10.2018.

This detailed analysis highlights the challenges faced by the assessee regarding additions based on seized documents, the arguments presented, and the ultimate decisions by the ITAT in favor of the assessee by deleting the additions in all appeals.