2024 (7) TMI 91 - AT - Income Tax

Unexplained investment/receipt on the basis of the diary seized from third person - Addition applying peak credit theory - denial of natural justice - whether third party statement or entry recorded in the diary in the absence of any corroborative evidence can be ground to make addition in the hands of the assessee? - HELD THAT - The legal position relating to presumption u/s132(4A) of the Act is applicable to the person in whose possession or control, the incriminating material is found and seized. The presumption cannot be arrived based on incriminating material found from the third party search but not belongs to the Assessee unless there is any corroborative evidence against the Assessee. The presumption u/s 132(4A) of the Act can be drawn against the person in whose case the search is authorized and from whose possession or control of diary or documents are found in the course of search. Though the authorities have heavily relied on the statement of the third party, no opportunity of cross examination has been given to the Assessee even though the Assessee has specifically sought for opportunity to cross examine the said third party. While framing the assessment in the case of Sh. Ramesh Kumar Goyal it has been held that in view of provision of Section 278D r.w.s. 132(4A) of the Act, the onus was one Sh. Ramesh Kumar Goyal to substantiate the contents of the diary which could not be proved, therefore, entire addition mentioned in the diary has been made in the hands of Sh. Ramesh Kumar Goyal including the amount which is the subject matter of the present addition made in the hands of the assessee. It is well settled law that the same income cannot be taxed twice. As the entire addition has already been made in the case of Sh. Ramesh Kumar Goyal in whose possession the incriminating documents were seized, the authorities are precluded from making the additions in the hands of the Assessee. Thus, we are of the opinion that the A.O. committed error in making addition on the basis of diary found at the premises of the third party . Decided in favour of assessee. Unexplained expenditure u/s 69 in respect of purchase of mobile in cash - assessee has failed to substantiate his submission by furnishing necessary documentary evidence for the source of payment for purchase of mobile - HELD THAT - Considering the smallness of the amount involved in the addition and also looking into the documents produced by the assessee to prove the cost of the mobile which has been shown in the statement of affairs for the year under consideration and also considering the ledger account of the Sky connect, we delete the said addition. Decided in favour of assessee. Unexplained expenditure/investment on vehicles u/s 69 - CIT(A) restricted the addition for advance paid for vehicle booking and deleted the rest of the addition - HELD THAT - CIT(A) while deleting the addition observed that the transaction on account of purchase of Maruti Car pertaining to Sh. Digvijay Singh son of the Assessee who is a separate assessee and separate proceedings u/s 153C of the Act has been initiated by the A.O. It is not the case of the A.O. that payment of the above transaction pertaining to Sh. Digvijay Khatana has been made by the Assessee, therefore, in our considered opinion, the Ld. CIT(A) rightly directed to consider the said transaction while making assessment in the case of sh. Digvijay Khatana u/s 153C of the Act and deleted the addition of Rs. 5,50,000/- which requires no interference. Addition of amount has been paid by Ms. Roma Grover who has purchased the car on 10/07/2014, therefore, the Ld. CIT(A) has not sustained the said addition in the hands of the Assessee. It is the Ground of the Department that the additional evidence has been field by the Assessee but the Ld. CIT(A) has not called for the Remand Report. On going through the order of the Ld. CIT(A) no such mentioning of additional evidence is forth coming and the same has not been argued before us. Therefore, we find no merit in the said ground of the Department. Thus, in our considered opinion, the Ld. CIT(A) has committed no error in deleting the addition. Addition of interest income under the head of income from other sources - interest free loans extended by assessee - as observed by the A.O. that the Assessee had been earning interest @2% on cash loans, therefore, Assessee was likely to earn interest on bank loans also - HELD THAT - Considering the fact that the said loan given by the Assessee to Supra Finance has been received the same back in his bank account and the Assessee has charged the interest of in the AY 2014-15 and 2015-16 which was duly shown in the computation of income and as the A.O. made the addition of 20,00,000/- on account of interest income earned @2% on presumptive basis without there being any material available on record to support the said rate of interest, we find no reasons to interfere with the finding of the Ld. CIT(A) in deleting the addition. Unexplained investment made u/s 69 AND interest on unexplained investment - Loose sheet has been found and seized which was marked as A-1/73 wherein certain amounts have been jotted - HELD THAT - In the absence of any corroborative evidence, the loose sheet seized during the course of search from the premises of the Assessee which is nothing but a dumb document which did not contain full details about the dates, parties name, absence of signature and in the absence of any corroborative material, could not have been relied by the authorities below. Accordingly, finding merit in Ground of the Assessee, we delete the addition. Addition on account of purchase of spectacle and mobile phone as unexplained expenditure u/s 69 of the Act - HELD THAT - Considering the fact that the above cash in hand was very well recorded in statement of affairs and the ledger accounts of the vendors have been provided to the Lower Authorities, the additionmade u/s 69 of the Act is hereby deleted. Unexplained marriage expenses - HELD THAT - In so far as payment made to photographer i.e. Arjun Colour Lab it was contended by the Assessee that the actual payment was made partly through cheque and partly in cash which has been recorded in the statement of affairs, which can be corroborated from the ledger copy showing the details of the payments to such person which is enclosed. In our opinion, the authorities below committed error in not considering the above materials and made addition. Payment made to FNP Wedding and Events India Pvt. Ltd. as contended by the Assessee that actually the payment against the tax invoice received from the said company and the entire payments have been paid through banking channels from Assessees bank account. The said amount has also been recorded in the statement of affairs. The copy of the ledger showing the details of the payment made by the Assessee and the copy of the bank account were also enclosed in the paper book to prove the claim of the Assessee. Both the A.O. and the Ld. CIT(A) have not considered the above documents and erroneously made the addition. Estimation of expenditure on account of catering company has issued GST invoice including GST and the payment has been a made by the Assessee through banking channel from his saving bank account with Axis Bank and SBI and the payments have been recorded in the statement of affairs and shown as personal drawings. The Ledger copy of account of the said party along with GST invoice is submitted and is marked and statement of affairs is marked. Thus, in our opinion, the authorities have committed error in not considering the above documents while making the above addition - CIT(A) have committed error in confirming the addition on account of unexplained marriage expenses. Cash found at time of search - HELD THAT - From the cash flow statement and the statement of affairs as on 01/04/2019, the Assessee had cash balance which has been brought forward in the AY 2020-21 and during the year the Assessee claimed to have made some saving as on the date of search. Thus, the Assessee was having cash balance which can be corroborated from the above documents. Neither the A.O. nor the Ld. CIT(A) have found any defect in the cash flow statement or in the statement of affairs of each year and not brought any adverse material on record to prove contrary against the case of the Assessee. Addition made on the basis of the seized document as interest received and computed the principal amount as unexplained cash investment - A.O. presumed that the said amount as monthly interest @2% per month and based on the entries jotted therein, worked out the principal amount of loan investment by applying interest @24% per annum - HELD THAT - Considering the rental agreements placed , computation of income and the computation of income of the wife of the assessee, we find merit in the argument of the Assessee's Representative and hold that the authorities below have committed an error in making the addition. In addition to the same, the identical issue regarding the addition based on the loose sheet has been already discussed in detail and deleted the addition for A.Y 2016-17 - By relying on the very same adjudication and the conclusion and applying the said ratio, we delete the above addition made by the A.O. by allowing Ground No. 3 of the Assessee. Unexplained expenditure for purchase of foreign currency - addition made by the A.O. on the ground that the Assessee has made payment in cash for purchase of foreign currency - HELD THAT - Assessee produced the bank accounts wherein the Assessee made two payments. An amount of Rs. 96,780/- was withdrawn from the account of the son of the Assessee Sh. Digvijay Singh vide Cheque No. 784402 dated 06.07.2019 from his bank account No. 65111564991 maintained with SBI, Faridabad, which can be corroborated from the statement of account produced at page No. 182 to 190 of the PB. Further, both the bank accounts have duly been reflected in the return of income and statement of affairs of the Assessee and his son and same has been shown as personal withdrawal from the capital account. Thus, we delete the addition.

Summary

Issues Involved:
1. Addition based on diary found at third party premises.
2. Addition on account of unexplained expenditure for purchase of mobile.
3. Addition on account of unexplained receipts and payments in cash.
4. Addition on account of unexplained investment in vehicles.
5. Addition on account of interest income from loans.
6. Addition on account of unexplained investment in jewellery.
7. Addition on account of unexplained marriage expenses.
8. Addition on account of cash found during search.
9. Addition on account of unexplained investment in construction.
10. Addition on account of unexplained expenditure for purchase of foreign currency.

Detailed Analysis:

1. Addition Based on Diary Found at Third Party Premises:
The Tribunal consistently held that additions based on a diary found at a third party's premises cannot be sustained without corroborative evidence. The presumption under Section 132(4A) of the Income Tax Act applies only to the person from whose possession the documents were seized. The Tribunal cited various judicial decisions supporting this view, including Starptex India Pvt. Ltd. v/s DCIT and ACIT v/s Kishore Lal Balwani Rai. As a result, all additions based on the diary found at the premises of Shri Ramesh Kumar Goyal were deleted for all assessment years.

2. Addition on Account of Unexplained Expenditure for Purchase of Mobile:
For AY 2013-14, the Tribunal deleted the addition of Rs. 45,500/- made for the purchase of a mobile, as the assessee provided sufficient documentary evidence showing the payment was made through declared sources and recorded in the books of account.

3. Addition on Account of Unexplained Receipts and Payments in Cash:
For AY 2014-15 and 2015-16, the Tribunal applied the same reasoning as in AY 2012-13 and deleted the additions made based on the diary found at the third party's premises. The Revenue's appeals challenging the partial deletion of these additions were dismissed as infructuous.

4. Addition on Account of Unexplained Investment in Vehicles:
For AY 2015-16, the Tribunal deleted the addition of Rs. 1,00,000/- for advance booking of a vehicle, as the payment was recorded in the books of account. The Tribunal also upheld the deletion of Rs. 14,00,000/- by the CIT(A), finding no error in the CIT(A)'s conclusion that the transactions pertained to the assessee's son and another individual.

5. Addition on Account of Interest Income from Loans:
For AY 2015-16, the Tribunal deleted the addition of Rs. 20,00,000/- made on a presumptive basis for interest income, as there was no material evidence to support the rate of interest applied by the AO.

6. Addition on Account of Unexplained Investment in Jewellery:
For AY 2019-20, the Tribunal remanded the issue back to the AO for de-novo adjudication, directing the AO to consider the reconciliation provided by the assessee and the explanation regarding the source of funds for the jewellery purchase.

7. Addition on Account of Unexplained Marriage Expenses:
For AY 2019-20, the Tribunal deleted the addition of Rs. 27,17,000/- for marriage expenses, as the assessee provided sufficient evidence showing the payments were made through banking channels and recorded in the statement of affairs.

8. Addition on Account of Cash Found During Search:
For AY 2020-21, the Tribunal deleted the addition of Rs. 29,78,000/- made for cash found during the search, as the assessee provided a cash flow statement and statement of affairs showing the source of the cash, which the authorities did not find defective.

9. Addition on Account of Unexplained Investment in Construction:
For AY 2020-21, the Tribunal deleted the addition of Rs. 45,24,810/- for construction expenses, as the payments were made through banking channels and recorded in the statement of affairs. The Tribunal noted that an amount of Rs. 10,27,405/- was already considered in the assessment of the assessee's son.

10. Addition on Account of Unexplained Expenditure for Purchase of Foreign Currency:
For AY 2020-21, the Tribunal deleted the addition of Rs. 1,46,050/- for the purchase of foreign currency, as the payments were made through cheques and recorded in the bank accounts and statement of affairs of the assessee and his son.