2023 (4) TMI 498 - AT - Income Tax

Assessment u/s 153A - Search and seizure was conducted u/s 132 at the premises of the assessee - addition was being made on the basis of uncorroborated rough noting in a diary - presumption u/s 292C of the act for the purpose of assessing the undisclosed income - Credibility of rough blank figure/jotting in a diary - addition on account of unexplained expenditure on renovation of in cash u/s 69C on the renovation of her house - HELD THAT - In the present case the cheques amounts written in the alleged diary have been validated from the bank account statement and such Confirmation of cheque payments supports the fact that these relates to renovation/construction of the house. CIT(A) ought to have brought on record corroborative documentary evidence on record to interpret or decode the alleged notings/jotting as multiple of 100. Meaning thereby the interpretation of the noting of entries/jotting in the diary by multiple of 100 has no basis therein and such an interpretation made on the basis of assumption presumption and conjectures in absence of supporting corroborative evidence such application of money for alleged expenditure renovation/construction material bills payment of labor or even Department Valuation Officer report in order to estimate the expenditure is not tenable and cannot be approved. Addition was being made on the basis of uncorroborated rough noting in a diary. CIT(A) has deciphered the figures by decoding in the form of Indian style and international style at his whim and caprice based on presumption and conjectures without bringing any corroborative material evidence in support for such assumption of the decoded figures to multiple of 00 (stands 100) is not justified. AO had made no enquiry regarding the alleged disputed expenditure based on rough blank figure/jotting in a diary that what are the renovation/construction material bills payment of labor or even not referred Department Valuation Officer s report in order to estimate the expenditure on the said rough noting of the paper of diary which does not fall within the definition of books of account or document. If a rough diary paper seized without being corroborated with relevant documentary evidence to the effect to understatement the alleged renovation expenditure on the house then it had no evidentiary value and it would not disprove the claim of the appellant that the jottings in the diary were actual figure of renovation expenditure on her house According same cannot form the basis for presumption u/s 292C of the act for the purpose of assessing the undisclosed income of the appellant assessee. Thus without substantiating the content of the noting in the diary the value adopted by way of decoding by the authorities below based on assumption presumption and guess work is illegal and against the law. Since the diary jottings have not been corroborated from any relevant material documentary evidence and hence the jottings in the diary by no stretch of imagination can be accepted as an evidence or conclusive proof of renovation expenditure in multiple of 00/100 by the assessee for the purpose of presumption u/s 292C of the Act against the assessee. Assessee appeal allowed.

Summary

Issues Involved:
1. Legality and sustainability of assessment orders under Section 153A/143(3) of the Income Tax Act.
2. Addition of unexplained expenditure under Section 69C of the Income Tax Act based on rough diary entries.
3. Interpretation of diary notations and their validity as evidence.
4. Presumption under Section 292C of the Income Tax Act.

Detailed Analysis:

1. Legality and Sustainability of Assessment Orders:
The assessee challenged the assessment orders framed under Section 153A/143(3) of the Income Tax Act, claiming they were "bad in law and against the facts and circumstances of the case." The Tribunal examined whether the assessment orders were legally sustainable. The Tribunal found that the Assessing Officer (AO) had issued notices under Section 153A following a search and seizure operation and that the assessee had duly complied by filing returns and submitting necessary documents. However, the Tribunal's focus was on whether the subsequent additions made by the AO were justified.

2. Addition of Unexplained Expenditure under Section 69C:
The primary contention was the addition of Rs. 4,50,000/-, Rs. 31,50,000/-, and Rs. 21,85,000/- for the assessment years 2012-13, 2013-14, and 2014-15, respectively. These additions were based on rough diary entries that the AO interpreted as coded figures representing larger sums. The Tribunal scrutinized whether these additions were backed by substantial evidence. The Tribunal noted that the entries in the diary were rough notations and lacked corroborative evidence to support the AO's interpretation that the figures were in coded form.

3. Interpretation of Diary Notations:
The Tribunal found that the AO and the Commissioner of Income Tax (Appeals) [CIT(A)] had interpreted the diary notations as coded figures by multiplying them by 100, without any corroborative evidence. The Tribunal emphasized that such an interpretation based on "assumption, presumption, and conjectures" is not justified. The Tribunal highlighted that the figures in the diary were rough estimates and not conclusive proof of actual expenditure. The Tribunal cited various judicial precedents, including decisions from the Punjab Haryana High Court and the Delhi High Court, which held that rough notations on loose papers without corroborative evidence cannot form the basis for additions.

4. Presumption under Section 292C:
The Tribunal addressed the presumption under Section 292C, which allows for certain presumptions regarding documents found during a search. The Tribunal noted that the presumption under Section 292C is rebuttable and cannot be taken against the assessee without substantial evidence. The Tribunal found that the AO had failed to bring any corroborative evidence to support the presumption that the diary notations represented actual unexplained expenditure. The Tribunal concluded that the rough diary entries, without more, could not be treated as conclusive proof of the alleged expenditure.

Conclusion:
The Tribunal held that the additions made by the AO were based on "assumption, presumption, and conjectures" and lacked corroborative evidence. The Tribunal emphasized the need for substantial evidence to support any additions based on rough notations. Consequently, the Tribunal deleted the additions of Rs. 4,50,000/-, Rs. 31,50,000/-, and Rs. 21,85,000/- for the assessment years 2012-13, 2013-14, and 2014-15, respectively. The Tribunal allowed the appeals of the assessee and set aside the orders of the CIT(A).

Order Pronounced:
The order was pronounced in the open court on 20.02.2023, allowing all three appeals of the assessee.