2019 (2) TMI 656 - HC - Income Tax

Unexplained credit - Presumption of document recovered on search to be true and correct u/s 292C - Presumption as to assets, books of account, etc - Held that - Section 292C speaks of a presumption insofar as books of accounts, other documents, money, bullion, jewellery or other valuable article or thing recovered in the course of a search under Section 132 or survey under Section 133A; as belonging to such person whose premises were searched and the contents of such books of accounts and other documents as being true. The initial burden necessarily has to be discharged by the department especially when the additions are proposed on one, other than the person whose premises were searched from where the documents were recovered. As to the addition made the assessee had no satisfactory explanation was the finding of the A.O. The fact that the amounts were paid to Sri. T.S.Asok by way of cheque was admitted by the assessee firm. The explanation was that it was refund of excess amounts paid by the said Asok. The A.O found that if the transaction was a legitimate one the credit and the debit would both be disclosed in the accounts. Here the payment alone was reflected in the accounts of the assesssee. The explanation offered by the assesssee as to the credit was not credible and hence disbelieved by the A.O. The first appellate authority rightly found that the cheque payment was a debit as seen from the accounts of the assessee and there was no reason to assume an unexplained credit. We perfectly agree with that and find no question of law arising therefrom. The first two questions of law has to be answered against the Revenue and in favour of the assessee. Insofar as the first appellate authority having not remanded the matter, on facts it is seen that the first appellate authority specifically called for a remand report from the AO; along with the documents produced by the assessee-firms before the first appellate authority. The AO even then did not carry out a proper enquiry. We, hence, find that the third question of law does not arise at all from the order of the Tribunal. Undisclosed income - balance consideration received from five purchasers of apartments in the assessee firm s project Cordial Tower - corroborative evidence to find any additional sum having been received by the assessee firm - Held that - We find Section 292C of the Act to be squarely applicable, since the document relied on was with respect to the assessee firm itself. The statement made by one of the purchasers, we find, is a self serving statement, which would not dispel the fact of receipt, of excess amounts, evidenced by documents recovered from the assessee s premise itself. On the specific transactions for which addition was made of ₹ 64,22,800/- and the documents relied on by the Department, we answer the question framed in favour of the Revenue and against the assessee. The order of the Tribunal, deleting ₹ 64,22,800/-, is set aside and the order of the Assessing Officer, making such addition, is restored.

Summary

Issues:
1. Undisclosed investment found based on recovered documents in search of another firm's premises.
2. Burden of proof on the Department.
3. Failure to remand the matter to the Assessing Officer.

Issue 1 - Undisclosed Investment:
The case involved undisclosed investments discovered through documents recovered during a search of a related firm's premises. The investments were linked to the purchase of properties for a project named Cordial Regency by M/s.Cordial Developers and M/s.Cordial Company. The Assessing Officer (AO) made additions under Section 69 for undisclosed investments and unexplained credits. The Tribunal confirmed the first appellate authority's decision to set aside the assessments.

Issue 2 - Burden of Proof:
The questions of law revolved around the presumption of truth under Section 292C of the Income Tax Act, 1961, the burden of proof on the Department, and the failure to remand the matter to the Assessing Officer for fresh materials. The Department argued for a presumption in its favor based on recovered documents, while the assessee contended that there was no corroborative evidence to support the additions made.

Issue 3 - Failure to Remand:
The failure to remand the matter to the Assessing Officer was a key issue. The first appellate authority had called for a remand report and examined documents produced by the assessee-firms. However, the AO did not conduct a proper inquiry, leading to the question of whether a remand was necessary. The Court found that the third question of law did not arise from the Tribunal's order due to the lack of proper verification by the AO.

The Court highlighted the lack of corroborative evidence in the assessment orders to support the additions made by the AO. It questioned the reliance on handwritten notes without proper verification of handwriting and emphasized the importance of cross-verifying bank transactions with seized documents. The Court also noted the presumption under Section 292C against the person whose premises were searched and stressed the need for the Department to discharge the initial burden when proposing additions based on recovered documents.

In a separate issue related to another firm, the Court addressed the addition made against the assessee firm for undisclosed income from property transactions. The Tribunal had set aside the addition due to a lack of corroborative evidence. However, the Court found that the seized documents provided sufficient evidence of excess amounts received by the assessee firm, leading to the restoration of the AO's order for the addition.

Ultimately, the Court ruled in favor of the assessee on the burden of proof and remand issues, while upholding the addition of undisclosed investments in one case and reversing the decision to set aside an addition in another. ITA No.366 of 2010 was rejected, ITA No.226 of 2010 was allowed, and ITA No.211 of 2010 was partly allowed based on the specific circumstances and evidence presented in each case.