2024 (4) TMI 311 - AT - Income Tax

Validity of proceedings u/s 153C - statement recorded u/s 132(4) and the material seized at third party premises - Addition of undisclosed amount - CIT(A) deleted addition - HELD THAT - The seized material was in the nature of dumb document which did not contain complete and unambiguous information to arrive at a conclusion that the assessee was in receipt of the payments found noted therein against the name HM . There was no corroborative evidence to support and supplement the details in the seized material to conclusively establish that the name HM found in the seized material refers to the assessee only. There was no corroborative evidence to prove that the payments noted in the seized material have actually materialized and transfer of money had actually taken place between the concerned parties. In view of all these reasons, the addition of alleged receipts by the assessee from M/s SRS Mining has rightly been deleted by Ld. CIT(A). We endorse the view of Ld. CIT(A), in this regard. Addition of alleged receipts from assessee to SRS Mining and distribution thereof to various constituencies - As observed that the impugned addition has been made based on the entries found in the loose sheets seized from the office premises of M/s SRS Mining coupled with statement of Shri K. Srinivasulu u/s 132(4) (from whose possession the material was seized) with regard to the contents of the said seized material, entries found in the loose sheets seized from the residential premises of accountant of M/s. SRS Mining and the statement of Shri. T. Shanmugasundaram u/s 132(4) dated 09.12.2016 with regard to the contents of the said seized material. Name of the assessee did not appear in any of the relevant loose sheets taken into consideration by the AO while drawing such an inference. It was also noted that the acronym HM appears as scribbling at the top of the loose sheets only whereas the said acronym HM was not found noted in any of the remaining loose sheets as referred to by Ld. AO. Though the name of the assessee was not found noted in any of the relevant seized loose sheets and the acronym HM was found noted only on top of two sheets, Ld. AO held that entire entries in the said seized loose sheets reflected the transactions of the assessee merely by relying on the statement of Shri K. Srinivasulu. Statement of Shri. K. Srinivasulu (from whose possession the material was seized) recorded u/s 132(4) is concerned, he merely stated that HM found in the seized notebook denotes Housing Minister . However, Shri K. Srinivasulu did not explain or elaborate in the said statement regarding what the acronym HM stands for. Further, this statement was a retracted statement. Considering the observation of Shri P. Rama Mohan Rao 2018 (12) TMI 1990 - MADRAS HIGH COURT his statement, on standalone basis, would have no evidentiary value. The Hon ble Court held that if Ld. AO was to rely on this statement, he was to let in other reliable evidence to corroborate the same. Similar were the directions of Hon ble Court in the case of M/s SRS mining 2022 (8) TMI 968 - MADRAS HIGH COURT Therefore, the statement of Shri K. Srinivasulu could not be used against the assessee unless some other evidence to corroborate the same was made available on record. Another fact is that the material has been seized from a third-party and the presumption of Sec.132(4A) r.w.s. 292C would arise qua the searched person or qua the person who was found in the possession or control of such documents. Such a presumption was not applicable to a person other than the searched persons as held in the case of MISS LATA MANGESHKAR. 1973 (6) TMI 13 - BOMBAY HIGH COURT and various other decisions including the decision of Gaurangbhai Pramodchandra Upadhyay 2020 (3) TMI 882 - GUJARAT HIGH COURT as well as the decision of Vinit Ranawat 2015 (6) TMI 608 - ITAT PUNE In a recent decision titled as CIT vs. Sunil Kumar Sharma 2024 (2) TMI 116 - KARNATAKA HIGH COURT held that a sheet of paper containing typed entries and in loose form, not shown to form part of the books of accounts regularly maintained by the assessee or his business entities, do not constitute material evidence. Supreme Court in the case of CBI vs. V.C. Shukla 1998 (3) TMI 675 - SUPREME COURT held that it is that independent corroborative evidence is required in respect of entries in regular books of accounts and the same would apply in the present case. The adjudication of Ld. CIT(A), on legal grounds as well as on merits, would not require any interference on our part. Appeals of the revenue as well as the cross-objections of the assessee, for all the three years, stands dismissed.

Summary

Issues Involved:
1. Condonation of delay in filing cross-objections.
2. Validity of jurisdiction u/s 153C.
3. Merits of additions based on search findings and seized material.
4. Addition of undisclosed income for AY 2017-18.

Summary of Judgment:

1. Condonation of Delay:

The Registry noted a delay of 165 days in the cross-objections. The delay was condoned by the Tribunal considering the principle of natural justice, despite opposition from the Revenue.

2. Validity of Jurisdiction u/s 153C:

The Tribunal upheld the validity of the proceedings u/s 153C, rejecting the assessee's contention that the seized materials were neither "pertaining to" nor "related to" the respondent. The Tribunal noted that the amendments made by the Finance Act, 2015, substituting the words "belongs to" with "pertains to" and "relates to," were applicable.

3. Merits of Additions Based on Search Findings:

The Tribunal found that the seized materials, which included various notebooks and loose sheets, did not conclusively establish that the assessee received payments from M/s SRS Mining. The Tribunal noted that the entries were vague, lacked corroborative evidence, and were based on the abbreviation "HM," which was presumed to refer to the assessee. The Tribunal emphasized that the material seized from a third party could not be used to draw adverse inferences against the assessee without corroborative evidence. The Tribunal also noted that the statements of Shri K. Srinivasulu and Shri T. Shanmugasundaram, which were used to support the additions, were retracted and lacked credibility.

4. Addition of Undisclosed Income for AY 2017-18:

The Tribunal observed that the addition of Rs. 227.24 Crores for AY 2017-18 was based on loose sheets and statements that lacked credibility and corroborative evidence. The Tribunal reiterated that the seized material was a "dumb document" and could not be used to fasten tax liability without reliable and cogent evidence. The Tribunal upheld the CIT(A)'s decision to delete the addition.

Conclusion:

The appeals of the Revenue and the cross-objections of the assessee for all three years were dismissed.

Order pronounced on 3rd April, 2024