2008 (4) TMI 341 - AT - Income Tax

Rebuttable presumption u/s 292C - Undisclosed income - Search Seized u/s 132 - during the course of search of the residential premises - documents were found and seized under identification mark AKG/3 - evidence of unaccounted profit of the appellant - addition made by the AO on the basis of AKG/3 can be sustained or not - Computation of Gross profit - without considering the opening Stock - closing stock has been considered for arriving at the GP - the profit worked out therein is not true profit. HELD THAT - It is evident that s. 292C is a presumptive provision where certain facts are to be presumed by operation of law. However, it is a settled law that such presumptions are rebuttable presumptions. As per cl. (i), it is to be presumed that the books of account or documents belong to the person from whose possession or control these were found As per cl. (ii) it is to be presumed that the contents of the documents are true. Now the papers were found from the bedroom of Sri Arun Kumar Goenka. However, Sri Arun Kumar Goenka is not carrying on any business in his individual capacity. He is director of NFPL and his wife is partner in NC. The presumption under s. 292C is rebuttable presumption and the document has to be considered considering the totality of the facts of the case. The deeming provision cannot be applied mechanically ignoring the facts of the case and the surrounding circumstances. In view of the above, we reject the contention of the learned counsel that as per s. 292C the papers are to be considered in the case of Sri Arun Kumar Goenka and not in the case of either NC or NFPL. As per the presumption of the AO, the assessee is carrying on the business of purchase and sale of saree outside the books on large scale which has resulted in the huge income which is not recorded in the assessee's books of account every year. However, during the course of search of the assessee's premises, no unrecorded stock, cash or other assets were found. The Revenue has searched the business premises of the firm/company as well as the residential premises of the partners/directors. Not a single evidence of purchase or sale outside the books is found. In our opinion, it is impossible to carry on business on a huge scale outside the books unless there is some unrecorded stock, cash, debtors, etc. Moreover, if the assessees had huge unrecorded income of crores of rupees in each year, it would have reflected in the form of asset or some expenditure outside the books. No significant asset outside the books or no evidence of ostensible expenditure outside the books is found. In the above circumstances, we cannot uphold the additions made by the AO in the case of both the assessees for the assessment years under consideration on the basis of loose papers by making certain presumptions which are found to be untenable or contrary to the other evidence on record. In view of the above, we delete the additions made by the AO and confirmed by the CIT(A) on the ground of alleged undisclosed net profit outside the books. It is evident that before Settlement Commission it was never admitted by the assessees under appeal that the seized documents represent undisclosed income, on the other hand it has been contended that the seized documents cannot be relied upon to work out the true profit. Therefore, the argument of the ld DR that the huge undisclosed income was offered on the basis of loose papers before Settlement Commission is not based on any actual facts. In the result, all the appeals filed by the assessee are allowed.

Issues Involved:
1. Admissibility of seized documents as evidence of unaccounted profit.
2. Presumption under Section 292C of the Income Tax Act.
3. Rebuttal of presumption and assessment of undisclosed income.
4. Consistency and reliability of entries in seized documents.
5. Statements made during search and their evidentiary value.
6. Role of Settlement Commission and its implications.

Issue-wise Detailed Analysis:

1. Admissibility of Seized Documents as Evidence of Unaccounted Profit:
The primary issue was whether the seized documents marked AKG/3, found from the bedroom of an individual associated with the assessee, could be considered as evidence of unaccounted profit. The Assessing Officer (AO) and Commissioner (Appeals) held that these documents represented the Profit and Loss Account and balance sheet of the assessee, including unrecorded transactions. The Tribunal noted that these documents were presumed to include both recorded and unrecorded transactions, leading to the assessment of unaccounted profit.

2. Presumption under Section 292C of the Income Tax Act:
The Tribunal examined the applicability of Section 292C, which presumes that documents found during a search belong to the person from whose possession they were seized. The Tribunal clarified that this presumption is rebuttable and must be considered in the context of the entire case. Despite being found in the possession of an individual not directly involved in the business, the documents were linked to the assessee due to their content and corroborative statements made during the search.

3. Rebuttal of Presumption and Assessment of Undisclosed Income:
The assessee argued that the presumption under Section 292C was rebuttable and provided several points to refute the AO's conclusions:
- The assessee maintained regular, audited books of account.
- No unaccounted stock, cash, or debtors were found during the search.
- No parallel books of account were discovered.
- The Tribunal found inconsistencies in the AO's presumption, such as the absence of opening stock in the calculations and implausibly high gross profit margins, which indicated that the seized documents could not reliably represent unaccounted income.

4. Consistency and Reliability of Entries in Seized Documents:
The Tribunal noted significant inconsistencies in the seized documents:
- Entries were marked inconsistently as "NC/NF" or "Books."
- Several entries lacked any marking, creating confusion.
- Discrepancies in stock figures and cash balances were highlighted.
- The Tribunal concluded that these inconsistencies undermined the reliability of the documents as evidence of unaccounted profit.

5. Statements Made During Search and Their Evidentiary Value:
The Tribunal considered the statements made by a partner of the assessee during the search, where he admitted that the documents represented the Profit and Loss Account of the assessee and disclosed concealed income. However, the Tribunal noted that these statements were not corroborated by other evidence and that the AO did not base the additions solely on these statements. The Tribunal emphasized that confessional statements extracted during searches should not be the sole basis for additions without credible supporting evidence.

6. Role of Settlement Commission and Its Implications:
The Tribunal addressed the role of the Settlement Commission, where the assessee had filed a petition admitting ownership of the seized documents and offering undisclosed income. However, the Settlement Commission did not admit the petition. The Tribunal noted that the income disclosed was on behalf of the entire Nirmal Group, not specific to the assessee under appeal. The Tribunal emphasized that the AO's additions were based on the seized documents, not on the statements or the Settlement Commission's proceedings.

Conclusion:
The Tribunal concluded that the additions made by the AO, based on the seized documents and certain presumptions, were not sustainable. The inconsistencies and lack of corroborative evidence led the Tribunal to delete the additions, allowing the appeals filed by the assessee. The Tribunal emphasized the importance of credible evidence and the need for a holistic consideration of all facts and circumstances in determining undisclosed income.

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