2006 (9) TMI 240 - AT - Income Tax

Block assessment - Search And Seizure - Onus to disprove the contents - additions made on account of notings in the seized documents PKC-60 found and seized during the search in the case of the assessee showing outstanding debts regarding amounts receivable from the various parties - HELD THAT - In the present case in hand, the AO has not been able to demonstrate with adequate evidence that the assessee received the amounts in two years as alleged. These entries as recorded in 'PKC-60 do not clearly reveal that the assessee has earned income. The assessment of undisclosed income is under Chapter XIV-B of the Act and there is no scope of assumption or presumption while making assessment under this chapter. They are dumb documents on which reliance cannot be placed, unless they are corroborated with other evidences. In our considered opinion we see no infirmity in the order of learned CIT(A) in deleting the additions. Accordingly, we uphold the order of the learned CIT(A) and dismiss the ground of appeal of the Revenue. Addition on protective basis when the substantive addition has been made in the hands of Smt. Kanchan Khullar - HELD THAT - We are of the considered view that the protective assessment does not survive as the basis of determination of undisclosed income i.e. seized documents were found from the business premises of Ms. Kanchan Khullar and, therefore, any undisclosed income computed therefrom can be assessed in her hands alone. The AO did not transfer the proceedings in respect of these seized documents in the hands of the assessee respondent u/s 158BD of the Act. Further, the assessee respondent did not include any undisclosed income computed from the seized documents under reference in his block return in Form 2B. Therefore, the protective assessment of this income cannot be sustained in the hands of the assessee respondent. Accordingly, the decision of the learned CIT(A) in this regard is upheld and the Revenue's ground of appeal is dismissed. Before parting with this ground, we would like to make it clear that our observation in respect of this ground would not prejudice the Revenue's stand in the case of Ms. Kanchan Khullar pending before Tribunal on merit. Undisclosed deposit made by the assessee in the names of Sunita, Renu Soni in the HDFC Bank, Jamshedpur, holding the same to be the Stridhan of the depositors - HELD THAT - We find that the assessee respondent has explained regarding these investments before the AO that these are 'Stridhan'. The learned CIT(A) took the view that the fixed deposits were not found in the search. The onus is on the AO to bring material evidence to prove that the assessee respondent has made these investments. In that view of the matter, we are of the view that the observation of learned CIT(A) does not need any clarification as because this being 'Block assessment' proceeding, the Revenue has failed to discharge the onus which lies on them. Accordingly, the order of the learned CIT(A) is upheld and the ground of appeal of the Revenue is dismissed. Addition in respect of the difference in the amount of investment noted in the seized documents pp. 37-45 of SK-I against disclosed investment made ignoring the provisions of sub-s. (4A) of s. 132 - HELD THAT - We find that the AO while making the addition has failed to confirm the actual payment made by the assessee with the person to whom the payment was made. The assessee has also not denied regarding the documents so referred and has duly explained. We, therefore, do not find any reason to interfere with the order of the learned CIT(A). Accordingly, the same is upheld. Expenditure in respect of inflation of expenditure to suppress income - HELD THAT - We find that the AO while completing the assessment has not considered the payments made by the assessee through cheques as pointed out during the course of hearing. The assessee has given the same explanations before the lower authorities also. It is apparently clear that the cheques were drawn on on account , which was duly reflected in the audited accounts. The ld DR has not been able to controvert the submissions made by the learned counsel for the assessee in this regard. Therefore, we see no infirmity or illegality in the order of the learned CIT(A). Accordingly, the order of the learned CIT(A) is upheld and the ground of appeal taken by the Revenue is dismissed. In the result, the appeal of the Revenue stands dismissed.

Summary

Issues Involved:
1. Deletion of additions based on seized documents showing outstanding debts.
2. Relief in respect of outstanding debtors recorded in seized documents.
3. Deletion of addition regarding undisclosed deposits in the names of third parties.
4. Deletion of addition regarding the difference in the amount of investment noted in seized documents.
5. Deletion of addition under various heads of expenditure for inflation of expenditure to suppress income.

Issue-wise Detailed Analysis:

1. Deletion of Additions Based on Seized Documents Showing Outstanding Debts:
The Revenue challenged the deletion of additions totaling Rs. 67,01,380 and Rs. 77,02,747 by the CIT(A), which were based on notings in the seized documents PKC-60. The AO had determined these amounts as undisclosed sundry debtors of Bhartiya Oil Company, arguing that the diary entries were not reflected in the seized books of account or the return of income. The CIT(A) deleted the additions, stating that the AO failed to verify whether the balances were actually debts or had been paid. The Tribunal upheld the CIT(A)'s decision, noting that the AO did not corroborate the diary entries with other evidence and failed to demonstrate that the amounts were undisclosed income.

2. Relief in Respect of Outstanding Debtors Recorded in Seized Documents:
The Revenue contested the deletion of Rs. 1,06,90,852 by the CIT(A) in respect of outstanding debtors recorded in seized documents PKS-1 to 126. The AO had added this amount as undisclosed income based on the seized ledgers of Maa Durga Service Station, which were not fully disclosed in the returns. The CIT(A) deleted the protective addition made in the hands of the respondent, stating that the seized documents were found in the possession of Ms. Kanchan Khullar, and any undisclosed income should be assessed in her hands alone. The Tribunal upheld the CIT(A)'s decision, finding no basis for the protective assessment in the respondent's hands.

3. Deletion of Addition Regarding Undisclosed Deposits in the Names of Third Parties:
The Revenue appealed against the deletion of Rs. 2,70,000 by the CIT(A), which was added by the AO based on seized documents indicating deposits in the names of Sunita, Renu, and Sonia. The AO considered these as the respondent's undisclosed income. The CIT(A) deleted the addition, stating that no corroborative evidence was found during the search to prove that the deposits were made by the respondent. The Tribunal upheld the CIT(A)'s decision, noting that the Revenue failed to discharge the onus of proving the deposits were the respondent's undisclosed income.

4. Deletion of Addition Regarding the Difference in the Amount of Investment Noted in Seized Documents:
The Revenue challenged the deletion of Rs. 11,000 by the CIT(A), which was added by the AO as a difference in the investment amount based on seized documents. The AO found a discrepancy in the investment amount shown in the return and the seized documents. The CIT(A) deleted the addition, stating that the AO could have verified the actual payment made by the respondent. The Tribunal upheld the CIT(A)'s decision, noting that the AO failed to confirm the actual payment and the respondent had duly explained the discrepancy.

5. Deletion of Addition Under Various Heads of Expenditure for Inflation of Expenditure to Suppress Income:
The Revenue contested the deletion of Rs. 41,00,000 by the CIT(A), which was added by the AO based on differences in expenditure under various heads noted in the seized documents and the P&L account. The AO argued that the respondent inflated expenses to reduce net profit. The CIT(A) deleted the addition, stating that the AO did not verify the expenses with corroborative evidence. The Tribunal upheld the CIT(A)'s decision, noting that the AO failed to establish that the respondent inflated expenses and the payments were made through disclosed bank accounts.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s deletions of the various additions made by the AO. The Tribunal found that the AO failed to corroborate the seized documents with other evidence and did not adequately verify the respondent's explanations and records.