2024 (10) TMI 29 - AT - Income Tax

Additions made on the basis of loose papers found during the search - additions based on rough jottings in loose papers - HED THAT - As observed that the search was conducted at the residence of Mr. Vijay Gupta and Vikas Gupta where it was found certain cash stock jewellery and loose papers relating to certain transactions. With regard to jewellery and stock CIT(A) has deleted the additions. The issues raised before us by Mr. Vijay Gupta relates to loose papers found at the premises of Mr. Vikas Gupta and additions were sustained in the hands of Mr. Vijay Gupta. All the notings recorded in the loose sheet of diary referred as A1 should have some connection with the activities carried by the assessee. We observe that no activities or source of income was found as carried out by Mr.Vijay. All the notings which are found has to have some credibility with the presumptions applied by the AO. From the first page relating to noting of Duster Vehicle which was presumed that this vehicle is owned by Mr. Vijay but the documents clearly shows that this is belongs to Hoover Marketing. There is absolutely no link established with the assessee as the owner. This is only a calculation of purchase of vehicle through bank and the relevant payment scheme. This shows the application of mind of the AO. Further the other notings show that certain expenses were written the same was not correlated with the nature of income earned by the assessee. As per the records submitted before us there is no regular income was found in the case of the assessee to relate the above said expenses. It is also relevant to note at this stage that this diary or loose paper was found at the possession or at the residence of Mr.Vikas. We know that Mr.Vikas is running the business in his proprietor concern VCS where the book result and financial results were accepted. Whereas in the case of Mr. Vijay no such regular income was established to have earned. This evidence may have related to the business carried on by Mr. Vikas. There is no correlation to Mr.Vijay and there is no evidence to show that these are incurred by Mr.Vijay. Hence this is nothing but dumb document found at the premises of Mr Vikas or it is related to business of VCS. Therefore this addition also directed to deleted in the hands of Mr. Vijay. Information recorded are in thousands and in the page 23 the informations are jotted with certain amounts in numerical like 15 3 8 etc along with certain percentages. For this AO has presumed that these are in lakhs. This is considered as undisclosed investments in the hands of Mr. Vijay but it is found at the residence place of Mr. Vikas. As discussed earlier this could be transactions relating to proprietary concern VCS. The AO has wrongly considered as transactions belongs to Mr. Vijay. There is no means of income or business identified or carried by Mr.Vijay it is not proper to presume that it is belongs to Mr. Vijay. Hence this addition also directed to be deleted in the hands of Mr. Vijay. Income earned u/s 69A - In our views this income also belongs to the business of Mr. Vikas and there is sufficient funds available and most of the transactions carried on by Mr. Vikas is in cash only the payment by cash and sells the cigarettes by cash. Therefore the information found in the loose paper found at the residence of Mr.Vikas therefore this is also relating to his business only and the addition made in the hands of Mr.Vijay is not proper. Hence this addition also deleted in the hands of Mr. Vijay. Assessee appeal allowed.

Summary

Issues Involved:
1. Legitimacy of additions based on loose papers not found from the appellant's possession.
2. Justification of additions based on rough jottings in loose papers.
3. Legitimacy of additions without corroborating evidence.
4. Specific additions related to unexplained investments and cash payments.
5. Legitimacy of additions under Section 69A of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Legitimacy of Additions Based on Loose Papers Not Found from Appellant's Possession:
The assessee argued that the loose papers were not found from his possession or control, and therefore, could not be considered while framing his assessment. The papers were found on the ground floor, whereas the assessee lived on the first floor. The CIT(A) incorrectly held that the family of the assessee and his brother were a joint family and that the papers belonged to the assessee. The Tribunal observed that the loose papers were found at the premises of the assessee's brother, Mr. Vikas Gupta, and there was no correlation to the assessee, Mr. Vijay Gupta. Therefore, the addition based on these papers was directed to be deleted.

2. Justification of Additions Based on Rough Jottings in Loose Papers:
The assessee contended that the loose papers contained only rough jottings and could not be treated as incriminating material. The Tribunal noted that the notings in the loose sheets did not correlate with the nature of income earned by the assessee. The Tribunal held that the loose papers were dumb documents and could not be used to make additions in the hands of the assessee.

3. Legitimacy of Additions Without Corroborating Evidence:
The assessee argued that no addition could be made on the basis of dumb/loose papers without corroborating it with any independent evidence. The Tribunal agreed, stating that the AO had not established any link between the loose papers and the assessee's income. The Tribunal directed the deletion of additions made on the basis of these papers.

4. Specific Additions Related to Unexplained Investments and Cash Payments:
The Tribunal examined the specific additions related to unexplained investments and cash payments:
- Duster Car (Rs. 2,95,331): The Tribunal found that the vehicle belonged to Hoover Marketing and not the assessee. Therefore, the addition was deleted.
- Chattarpur Payments (Rs. 4,95,267): The Tribunal observed that the notings did not correlate with any regular income of the assessee and directed the deletion of the addition.
- Unexplained Investment (Rs. 25,00,000): The Tribunal found no evidence linking the assessee to the investment and deleted the addition.
- Unexplained Receipt (Rs. 9,00,000): The Tribunal held that the income belonged to the business of Mr. Vikas Gupta and deleted the addition in the hands of Mr. Vijay Gupta.

5. Legitimacy of Additions Under Section 69A of the Income Tax Act:
For Mr. Vikas Gupta, the Tribunal observed that the cash found at the residence was part of his business income. The financial results showed substantial cash transactions, and the Tribunal concluded that the cash found was from the business. Therefore, the addition under Section 69A was deleted.

Conclusion:
In the result, the appeals filed by both the assessees were allowed, and the additions made by the AO were deleted. The Tribunal emphasized the importance of corroborating evidence and the proper identification of the source of income before making additions based on loose papers. The judgment highlights the need for a clear link between the evidence found and the assessee's income to justify any additions.