2009 (1) TMI 312 - AT - Income Tax

Additions made on the basis of loose papers found and impounded from the premises of the assessee - Presumption u/s 292C - CIT(A) reduced the addition giving partial relief to the assessee - HELD THAT - The text of the seized documents based upon which the addition has been made has been reproduced in the above part of this order. The document has clearly described that the sum was received by the assessee as unsecured interest-free loan against the development of project. namely, First India Place . There is no material on record to, suggest that the said amount received by the assessee in any way represented the income of the assessee. Thus, there is nothing on record to suggest that the source stated in the document as interest-free loan is in any way false or incorrect. Sec. 292C has been inserted by Finance Act, 2007 with retrospective effect from 1st Oct., 1975. It presumes that in a case of search or survey wherein any books of account, other documents, money, bullion, jewellery or other valuable article or thing is found in the possession or control of any person, then, it will be presumed that such books of account, etc. belong to such person and its contents are true, there is a presumption of signature and stamping. In this manner, according to the facts of the present case, a presumption has been raised in respect of correctness of the document impounded in the course of search. The documents found and impounded during the course of search describe the nature of amount as unsecured interest-free loan and seized document does not mention that the said amount represented the income of the assessee. It may also be mentioned that as per well established law as explained by Hon'ble Supreme Court in the case of Smt. Tarulata Shyam Ors. vs. CIT 1977 (4) TMI 3 - SUPREME COURT , there is no scope for importing into the statute words which are not there. The intention of the legislature is primarily to be gathered from the words used in the statute. Once the assessee comes within the letter of law he must be taxed. Ld DR has relied upon the provisions of s. 292C which raise a presumption/legal fiction. The presumption as envisaged in s. 292C is limited to the correctness of the documents found at the time of search or survey, but that presumption has not been extended by the statute to be presumed to be the income of the assessee. If it is so, then unless some evidence/material is brought on record by the Revenue to say that what is stated in the seized document is not correct, state of affairs, the state of affairs stated in the impounded document has to be presumed to be true. It has already been observed that there is no material/evidence on record to suggest alleged excess payment received by the assessee from Raja Singh Sethi was in any way in the shape of income and not an unsecured interest-free loan. Therefore also, the argument of ld DR that on the basis of s. 292C, the action of the AO should be upheld, cannot be accepted. Therefore, we find no material to interfere in the decision arrived at by the CIT(A) vide which impugned addition has been deleted. As we have upheld the order of CIT(A), we do not consider it necessary to go into the other aspect which has been argued by ld AR regarding invalidity of assessment proceedings on the basis of satisfaction based on the issuance of notice u/s. 158BD, as the same will be of academic interest only. The appeal filed by the Revenue is dismissed.

Summary

Issues Involved:
1. Deletion of the addition of Rs. 1 crore by CIT(A).
2. Validity of the assessment proceedings under section 158BD.
3. Interpretation and application of section 292C of the IT Act.
4. Treatment of loan as income in block assessment proceedings.
5. Burden of proof in search assessment proceedings.

Issue-Wise Detailed Analysis:

1. Deletion of the Addition of Rs. 1 Crore by CIT(A):
The Revenue contended that the CIT(A) erred in deleting the addition of Rs. 1 crore made by the AO, which was based on a seized paper signed by the managing director of the assessee company. The AO presumed that the contents of the seized paper were correct under section 132(4A) and added Rs. 1 crore as unexplained income under section 69A. The CIT(A), however, concluded that the seized document described the amount as an "unsecured interest-free loan" and not as income. The CIT(A) relied on the Tribunal's decision in the case of Vatika Farms (P) Ltd., which held that a loan cannot be treated as income.

2. Validity of the Assessment Proceedings under Section 158BD:
The assessee argued that the initiation of block assessment proceedings was invalid due to the lack of recorded satisfaction by the AO, as discernible from the notice issued under section 158BD. The CIT(A) did not address this issue directly, as the deletion of the addition was upheld on other grounds. The Tribunal also did not find it necessary to delve into this aspect, as it upheld the CIT(A)'s decision on the primary issue.

3. Interpretation and Application of Section 292C of the IT Act:
The Revenue argued that the Tribunal's earlier decision did not consider section 292C, which was inserted with retrospective effect from 1st October 1975. This section presumes the correctness of documents found during a search. The Tribunal, however, held that section 292C supports the conclusion that the seized document's description of the amount as a loan should be presumed correct unless proven otherwise. The Tribunal found no evidence to suggest that the amount was anything other than an "unsecured interest-free loan."

4. Treatment of Loan as Income in Block Assessment Proceedings:
The Tribunal reiterated that a loan cannot be treated as income unless there is evidence to suggest otherwise. The seized document explicitly described the amount as a loan, and there was no material on record to prove it was income. The Tribunal referred to the definition of 'undisclosed income' under section 158B(b), which does not include capital receipts like loans. The Tribunal emphasized that all receipts are not income liable for assessment, and the burden of proof lies with the Revenue to establish that a receipt is taxable income.

5. Burden of Proof in Search Assessment Proceedings:
The assessee argued that the burden of proof in search assessment proceedings lies with the AO to establish undisclosed income through clinching evidence. The Tribunal agreed, stating that the AO cannot merely reject the assessee's explanation without substantial evidence. The Tribunal found that the Revenue failed to discharge its burden of proving that the amount in question was income and not a loan.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 1 crore, concluding that the amount described in the seized document as an "unsecured interest-free loan" could not be treated as income. The Tribunal found no material evidence to contradict the description in the document and held that the presumption under section 292C supported the assessee's case. Consequently, the appeal filed by the Revenue was dismissed.