2023 (9) TMI 441 - AT - Income Tax

Unexplained investment - AO was of the view that the seized document reveals that the assessee had entered into cash transaction related to purchase and sale of flat - CIT(A) treating the incriminating documents seized during the search action u/s. 132 oas dumb document and deleted the addition - HELD THAT - CIT-DR for the revenue raised additional plea before us that Param Property, on whom search action was carried out has accepted all the transaction in the Petition filed before Income Tax Settlement Commission (ITSC) including on the transaction mentioned in the MOU found during search. We find that in PCIT Vs Mukesh Keshav Lal Patel 2020 (3) TMI 129 - GUJARAT HIGH COURT while relying on the decision of Vineeta Gupta 2014 (5) TMI 543 - DELHI HIGH COURT held that declaration made by another party before ITSC is not binding upon the assessee, therefore, no addition can be made in absence of independent material. Thus, we do not find any infirmity or illegality in the order passed by ld CIT(A), which we affirm with our aforesaid observation. In the result, ground No. 1 of the appeal of revenue is dismissed. Addition on substantive basis and on protective basis - CIT(A) was of the view that it is an undisputed fact that the documents relied upon for making additions were found from the third party. Such documents are not signed by any one, not in the writing of assessee, thus deleted both the additions - HELD THAT - We find merit in the submissions of assessee that the Assessing Officer made addition on the basis of guess work. There is no direct evidence against the assessee to connect the assessee with the investment made for purchase of flat No. A-501 and G-901. We find that search party recorded statement of Aagam Vadecha on 30/09/2015 in post search proceedings and Aagam Vadecha has not identified the assessee. In the course of assessment, the assessee asked for cross examination of Aagam Vadecha but he neither attended the proceedings nor sent any reply on his behalf. No independent investigation was carried out by Investigation Wing or by the Assessing Officer about the investment in Enn Enn Corporation about the purchase of flat No. A-501 or G-901. There is no evidence on record that the assessee has not purchased any such flat hence there is no occasion for making such investment with Enn Enn Corporation. Thus, we do not find any justification to interfere with the findings of the ld CIT(A), which we affirm. In the result, ground No. 2 3 of the appeal is dismissed.

Summary

Issues Involved:
1. Treatment of MOU as a "dumb document" and deletion of addition on account of unexplained investment.
2. Treatment of incriminating documents seized during the search action as "dumb documents" and deletion of addition on account of unexplained cash receipts.
3. Treatment of incriminating documents seized during the search action as "dumb documents" and deletion of addition on account of unexplained cash payments.
4. Deletion of additions on the ground that the A.O. did not allow cross-examination of the person from whom the incriminating documents were found.

Summary:

Issue 1: Treatment of MOU as a "dumb document" and deletion of addition on account of unexplained investment
The Assessing Officer (AO) made an addition of Rs. 55.00 lacs under Section 69A of the Income Tax Act, based on an unsigned Memorandum of Understanding (MOU) found during a search action on Param Properties. The AO considered the MOU as evidence of unexplained investment by the assessee. However, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, holding that the MOU was unsigned, found at a third party's premises, and not in the handwriting of the assessee. The CIT(A) referred to precedents, including the Supreme Court's decision in Common Cause (Registered Society) and Others Vs Union of India, to conclude that the MOU was a "dumb document" with no evidentiary value.

Issue 2: Treatment of incriminating documents seized during the search action as "dumb documents" and deletion of addition on account of unexplained cash receipts
The AO made an addition of Rs. 80.00 lacs on the basis of documents seized from Param Properties, which allegedly showed cash transactions involving the assessee. The assessee denied these transactions and requested cross-examination of the relevant persons, which was not provided. The CIT(A) deleted the addition, stating that the documents were found at a third party's premises, were not signed, and were not in the handwriting of the assessee. The CIT(A) concluded that these documents were "dumb documents" and could not be used as evidence against the assessee.

Issue 3: Treatment of incriminating documents seized during the search action as "dumb documents" and deletion of addition on account of unexplained cash payments
The AO made an addition of Rs. 70.00 lacs on a protective basis, based on a diary seized from Param Properties that allegedly showed cash payments by the assessee. The assessee denied these transactions, and the CIT(A) deleted the addition, holding that the documents were found at a third party's premises, were not signed, and were not in the handwriting of the assessee. The CIT(A) concluded that these documents were "dumb documents" and could not be used as evidence against the assessee.

Issue 4: Deletion of additions on the ground that the A.O. did not allow cross-examination of the person from whom the incriminating documents were found
The CIT(A) deleted the additions made by the AO on the grounds that the assessee was not provided an opportunity to cross-examine the persons from whom the incriminating documents were seized. The CIT(A) referred to the Supreme Court's decision in Kishanchand Chellaram Vs CIT, which held that in the absence of cross-examination, the additions could not be sustained due to the violation of principles of natural justice.

Conclusion:
The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s order, affirming the deletion of all additions made by the AO. The ITAT agreed with the CIT(A) that the documents in question were "dumb documents" with no evidentiary value and that the assessee's right to cross-examination was violated. Consequently, the appeals filed by the revenue for both assessment years 2015-16 and 2016-17 were dismissed.