2007 (4) TMI 298 - AT - Income Tax

Assessment u/s 158BD r/w s. 158BC - Search And Seizure - Document found marked as Annex. AD-46 - undisclosed income - Addition made on basis of the entries found in the books of accounts of the party under searched - HELD THAT - The combined reading of the provisions of ss. 158BA and 158BB shows that the AO has to prove on the basis of evidence found as a result of search and such other material or information as are available with him and relatable to such evidence that the assessee had the undisclosed income chargeable to tax in the block assessment. In block assessments additions can be made on the basis of concrete material and not on suspicion or surmises. Suspicion however strong cannot take place of proof. No corroborative material of any nature whatsoever was brought on record by the AO to indicate that noting on the seized paper was related to the assessee. This document was seized from the office of Dr. M.C. Gupta but neither during the course of search nor even thereafter the Department has tried to record his statement to substantiate their stand that document was belonging to any of the companies in whose hands the addition was made. This document indicated transaction in respect of 3 big has of land alleged to be purchased from three persons but in the books of none of the assessees there was any such transaction for 3 bighas so as to corroborate the same with seized document. Furthermore the Department itself has carried out the valuation of the land shown by the assessee in their regular returns by its own valuation cell which has also valued the same near to the price at which these were shown by the assessee in their books of account. The registering authorities have also registered the land purchased by the assessee at the price shown in the sale deed. Thus neither the State Government being the registering authorities supports the value taken by the AO on the basis of dumb document nor the valuation cell of the IT Department itself supports the rate of land shown in the document so found. Applying the propositions laid down by the various authorities as referred by the ld AR during the course of hearing to the facts and circumstances of the present case where addition has been made on the basis of dumb document the AO could not corroborate the document or its contents with any other information or evidence whereas on the contrary the documents/information so gathered by the AO goes against the Department we do not find any merit in the additions so made by the AO and confirmed by the CIT(A) in case of all the assessees. We therefore direct for deletion of all these additions. Ground taken with regard to initiation of penalty proceedings u/s 158BFA(2) being premature is dismissed in limine - In the result all the three appeals of the assessee are allowed in terms indicated hereinabove.

Summary

Issues Involved:
1. Addition on account of purchase of land at Village Chawla.
2. Applicability of Section 158BB of the IT Act, 1961.
3. Addition of Rs. 50,000 for commission, mutation charges, NOC charges, etc.
4. Jurisdiction of AO under Section 158BD of the IT Act, 1961.
5. Initiation of penalty proceedings under Section 158BFA(2) of the IT Act, 1961.
6. Validity of the seized document as evidence.

Issue-wise Detailed Analysis:

1. Addition on account of purchase of land at Village Chawla:
The CIT(A) confirmed the addition made by the AO, who inferred that the actual cost of land at Village Chawla was Rs. 20 lakhs per acre based on a seized document (Annex. AD-46). The assessee contended that the transaction was disclosed in regular IT returns and that the document was a "dumb document" with no signatures, dates, or names linking it to the assessee. The Tribunal found that the document did not bear any name or indication that it belonged to the assessee, and the investments were properly recorded in the regular books of account and disclosed in the returns. Thus, the addition was directed to be deleted.

2. Applicability of Section 158BB of the IT Act, 1961:
The CIT(A) observed that if material information made available after the search showed that the facts in the return were wrong, Section 158BB would apply. The assessee argued that no new facts or evidence emerged from the search to justify the addition. The Tribunal held that in block assessments, additions must be based on concrete material found during the search, not on suspicion or surmises. Since the document in question was not corroborated by any other evidence, the addition was not justified.

3. Addition of Rs. 50,000 for commission, mutation charges, NOC charges, etc.:
The AO made an addition of Rs. 50,000 on the grounds that these charges were not shown in the return but were paid as per the seized document. The assessee argued that the amount incurred on stamp duty included these charges. The Tribunal found that the seized document did not provide sufficient evidence to support the AO's claim, and the addition was directed to be deleted.

4. Jurisdiction of AO under Section 158BD of the IT Act, 1961:
The assessee challenged the AO's jurisdiction to pass an assessment order under Section 158BD, arguing that no search had taken place in the case of the assessee and the required satisfaction was not recorded. The Departmental Representative presented the recorded statement of satisfaction during the hearing, leading the assessee to not press this ground of appeal. Consequently, this ground was dismissed in limine.

5. Initiation of penalty proceedings under Section 158BFA(2) of the IT Act, 1961:
The assessee contested the initiation of penalty proceedings. The Tribunal dismissed this ground as premature, as the penalty proceedings were not yet concluded.

6. Validity of the seized document as evidence:
The AO relied on a seized document (Annex. AD-46) to make the additions, which the assessee argued was a "dumb document" with no identifiable links to the assessee. The Tribunal noted that the document was neither signed nor dated and did not bear any name. Furthermore, the valuation by the IT Department's valuation cell and the registration by the stamp authorities did not support the AO's valuation. The Tribunal concluded that the document could not be used as the basis for making additions, leading to the deletion of the additions.

Conclusion:
The Tribunal allowed the appeals of the assessee, directing the deletion of all additions made by the AO and confirmed by the CIT(A). The grounds related to jurisdiction and penalty proceedings were dismissed in limine.