2019 (8) TMI 889 - AT - Income Tax

Unexplained investment - expenditure towards construction/furnishing of Hotel Courtyard Marriot - addition based on seized documents - Subsequent to the search proceedings the assessee company surrendered an amount of Rs. 4, 41, 26, 298/-towards bogus bills booked during various years - HELD THAT - A perusal of the seized annexure viz. Annexure A2 Page 13 (copy placed on record) clearly reveals that the source of the balance investment of Rs. 1, 88, 04, 000/- made by the assessee towards construction/furnishing of the Hotel Courtyard Marriot was from the cash that was received back by the assessee against the payments made towards bogus purchases . In fact we are in agreement with the contention advanced by the ld. A.R that inadvertently the remaining part of the seized document viz. Annexure A2 Page 13 had remained omitted to be considered by the CIT(A). As observed by us hereinabove a perusal of the seized document to the extent the same is relevant in context of the investment of Rs. 1, 88, 04, 000/- made by the assessee towards construction/furnishing of Hotel Courtyard Marriot We are of the considered view that as the investment made by the assessee towards construction/furnishing of Hotel Courtyard Marriot viz. (i). electrical fittings Rs. 79, 80, 001/-; and (ii). furniture and fittings Rs. 1, 08, 24, 000/- therein aggregating to Rs. 1, 88, 04, 000/- was sourced from the cash that was received back by the assessee against the payments made towards bogus purchases therefore in the backdrop of the declaration of the bogus purchases of Rs. 4, 41, 26, 298/- made by the assessee a separate addition as regards the application of the said amount would not be justified. - Decided in favour of assessee.

Issues Involved:
1. Addition of Rs. 1,88,04,000 as unexplained expenditure/investment in capital assets.
2. Reliance on seized papers by the assessee to prove the source of capital expenses.
3. Application of judicial precedents by the CIT(A) in the case.

Detailed Analysis:

1. Addition of Rs. 1,88,04,000 as Unexplained Expenditure/Investment in Capital Assets:
The assessee challenged the confirmation of part addition of Rs. 1,88,04,000 by the CIT(A) as unexplained expenditure/investment in capital assets. The CIT(A) had upheld this addition on the grounds that there was no direct correlation of the expenditure with the seized records. The assessee argued that the cash received back against payments made towards bogus purchases was used for the investment in capital assets, which should negate the addition. The Tribunal observed that the Assessing Officer (A.O) had partially accepted the contents of the seized diary but failed to recognize the source of the investment as stated in the same document. The Tribunal concluded that the A.O’s selective acceptance of the seized document’s contents was not justified, and the entire document should be considered holistically.

2. Reliance on Seized Papers by the Assessee to Prove the Source of Capital Expenses:
The revenue contended that the CIT(A) erred in accepting the assessee’s reliance on the seized papers without proving the nexus between capital expenses and cash from bogus bills. The Tribunal noted that the seized diary (Annexure A2 - Page 13) detailed the cash received back against bogus purchases and the corresponding expenditures, including those on capital assets. The CIT(A) had accepted the assessee’s explanation for Rs. 2,00,74,000 out of the total Rs. 3,88,78,000 based on these records. The Tribunal emphasized that the presumption under Section 292C of the Income Tax Act, 1961, regarding the truthfulness of the contents of seized documents, was applicable unless rebutted by contrary evidence, which the A.O failed to provide.

3. Application of Judicial Precedents by the CIT(A) in the Case:
The revenue also challenged the CIT(A)’s reliance on judicial precedents, arguing that the facts of those cases differed from the present case. The Tribunal upheld the CIT(A)’s application of the precedents, including the Supreme Court’s decision in Dhakeshwari Cotton Mills and the Kerala High Court’s decision in CIT vs. P.D. Abraham, which supported the principle that the entire contents of a seized document should be considered, not just parts of it. The Tribunal found that the CIT(A) correctly applied these precedents to allow the deduction of Rs. 2,00,74,000 based on the seized diary.

Conclusion:
The Tribunal dismissed the revenue’s appeal and allowed the assessee’s appeal. It vacated the addition of Rs. 1,88,04,000 sustained by the CIT(A) and deleted the entire addition of Rs. 3,88,78,000 made by the A.O. The Tribunal emphasized the need to consider the seized document in its entirety and upheld the presumption of its contents being true as per Section 292C of the Act. The Tribunal’s decision was pronounced in the open court on 07.08.2019.

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