2022 (7) TMI 252 - AT - Income Tax

Addition on the bases of seized material procured from corporate office - HELD THAT - As entire case of the department is based on the un-corroborated entries found in the computer server which were retrieved by using the forensic tools. These alleged documents collected by the department from the computers of M/s.RNS Infrastructure Ltd., cannot be described as evidence so as to fasten the tax liability on the present assessee. These are not maintained on day-to-day basis and not the part of the books of accounts maintained by M/s.RNS Infrastructure Ltd., there is no mention of the date on which the alleged payments were made. Even the AO not brought on record the dates of such payment, he presumed in wholesome manner that amount was the payment made to the present assessee during this assessment year. The payments are within the knowledge of the person, who written it. However, the said person denied the payment in the cross-examination and finally there is no evidence to suggest as to what they stand for and whom they referred to. Since the seized material is neither the regular books of account nor kept in the regular course of business of the assessee. They were not sufficient enough to fasten the liability on the present assessee, against whom they were sought to be used. The seized document collected by the department did not raise a reasonable ground to believe that there is a valid payment to the present assessee so as to award contract to the KNNL and the payment is relating to for awarding the contract of UBP. The seized material itself would not furnished evidences of the truth of their contents and that was not corroborated by any further evidence so as to hold that the assessee has actually received the said payment - we are of the opinion that the order of the earlier Bench in the cases of Shri D.S.Suresh Vs. ACIT 2021 (4) TMI 1 - ITAT BANGALORE and Shri D.V.Sadananda Gowda 2021 (4) TMI 55 - ITAT BANGALORE are squarely applicable to the present facts of the case and accordingly in view of the above discussion, we confirm the deletion of the addition made by the CIT(A). Hence, the grounds raised by the Revenue are dismissed.

Issues Involved:
1. Validity of the reassessment order under Section 148 of the Income Tax Act.
2. Legitimacy of additions made by the Assessing Officer (AO) based on seized materials and statements.
3. Compliance with principles of natural justice in the reassessment proceedings.
4. Admissibility and reliability of evidence obtained during the search and seizure operation.
5. Whether the CIT(A) was justified in deleting the additions made by the AO.

Detailed Analysis:

1. Validity of the Reassessment Order under Section 148:
The assessee argued that the reassessment was void ab initio due to non-compliance with mandatory requirements under Section 148 of the Income Tax Act. The CIT(A) upheld the reopening of the assessment, noting that the AO had recorded reasons to believe based on information from a search and seizure operation at RNS Infrastructure Pvt. Ltd. The Tribunal agreed with the CIT(A) that at the stage of recording reasons, the AO only needed prima facie materials to support the belief that income had escaped assessment.

2. Legitimacy of Additions Made by the AO:
The AO made additions based on seized materials and statements obtained during a search at RNS Infrastructure Pvt. Ltd., alleging that the assessee received substantial cash payments. However, during cross-examination, key witnesses, including Shri Sunil Sahasrabhudhe and Shri Naveen R. Shetty, denied making any cash payments to the assessee. The CIT(A) found that the seized materials did not conclusively prove any cash payments to the assessee and were not part of the regular books of accounts of RNS Infrastructure Pvt. Ltd. The Tribunal upheld the CIT(A)'s decision to delete the additions, citing a lack of corroborative evidence.

3. Compliance with Principles of Natural Justice:
The assessee contended that the reassessment order was passed in gross violation of natural justice principles as the AO did not furnish copies of the materials relied upon for making the additions. The CIT(A) directed the AO to provide these materials and allowed the assessee to cross-examine relevant witnesses. The Tribunal noted that the AO failed to provide adequate opportunity for the assessee to address the issues raised, further justifying the CIT(A)'s decision to delete the additions.

4. Admissibility and Reliability of Evidence:
The Tribunal emphasized that the seized materials, which were digital files retrieved using forensic tools, were not part of the regular books of accounts and lacked corroborative evidence. The Tribunal referenced the Supreme Court's ruling in CBI vs. V.C. Shukla, which held that loose sheets or papers are not admissible as evidence under Section 34 of the Evidence Act. The Tribunal concluded that the seized materials were "dumb documents" and could not be relied upon to substantiate the additions.

5. Justification of CIT(A)'s Deletion of Additions:
The Tribunal reviewed similar cases, including those of Shri D.S. Suresh and Shri D.V. Sadananda Gowda, where additions based on unsubstantiated diary jottings and statements were deleted. The Tribunal found that the CIT(A) correctly deleted the additions in the present case, as the evidence relied upon by the AO was neither reliable nor corroborated.

Conclusion:
The Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s order deleting the additions made by the AO. The Tribunal also dismissed the assessee's Cross Objection as not pressed. The judgment emphasized the necessity of corroborative evidence and adherence to principles of natural justice in reassessment proceedings.

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