2025 (4) TMI 1476 - AT - Income Tax

Unexplained expenditure on election - Post Search Assessment u/s 153A - expenditure recorded in a diary seized during search in the name of a third party and the assessee denied ownership or connection with the diary - HELD THAT - The diary found with the assessee was in the name of Third party/Mr. Alok Tiwari that it contained details of expenses incurred during election and the source of these expenses remained unverified by the Department the only conclusion which can be drawn is that the diary belonged to Third party/Mr. Alok Tiwari and the said expenses were incurred by him. We do not agree with the CIT (A) that applying the provisions of section 132( 4A) and section 292C of the Act the diary is to be attributed to as belonging to the assessee and addition to be confirmed in the hands of the assessee. The addition made in the hands of the assessee is therefore directed to be deleted. Addition made on account of cash found deposited in the bank account of the assessee - source of the same remained unexplained - AO made addition of the peak of the bank deposits while the CIT (A) rejected the addition made of the peak balance and on the basis of data available with him extracted from the Balance Sheet of the assessee reworked the availability of cash with the assessee and accordingly noted that an partly deposited in the bank account of the assessee remained unexplained - HELD THAT - We have gone through the contents of the Balance Sheet which was placed before us in a paper book at page number 21-24. The said Balance Sheet we have noted records the opening and closing balances of both the bank accounts in which the Revenue authorities have noted cash to be deposited by the assessee. Considering the fact that both the bank accounts are recorded in the balance sheet of the assessee there can be no case with the Revenue of the cash found deposited therein being from unexplained sources .As long as the cash and bank balances are recorded in the Balance Sheet of the assessee it is simple accounting that all the transactions recorded therein are duly accounted for in the books of the assessee and therefore are from accounted sources. The addition therefore made by the Revenue authorities we hold is without any basis and is therefore directed to be deleted. Unsecured loans from different persons found to be not genuine - Not allowing credit for redeposit of surplus business funds in bank account and the addition sustained - HELD THAT - The only reason for holding the loans ingenuine was the fact that the said persons could neither be produced by the assessee for examination nor did they respond to notices issued by the AO with regard to the same. This is not sufficient for treating the impugned loans as not genuine. Undoubtedly the assessee had furnished the names and details of all persons from whom the loans had been taken and had also given their affidavits. In this regard no infirmity has been pointed out as such in the affidavits furnished by the assessee of these persons. Merely because the said persons did not respond to notices issued by the AO cannot be read adversely against the assessee and neither does it establish that the loans were not genuine. As we find that the assessee had duly discharged its onus of establishing the genuineness of the loan by furnishing all details of the lenders and also their affidavits. Addition deleted. Addition of entries of expenses and investments found recorded in seized document BK 2 treating them to be unexplained - HELD THAT - The findings of the CIT (A) noted is a detailed finding who has considered all the contentions of the assessee and after dealing with all of them has given part relief to the assessee.The original edition made by the AO was to the tune of Rs.20, 23, 567 /-which the Ld. CIT(A) after considering each and every argument and contention made before him and corraborating it with the documents on record has confirmed to the extent of Rs.12, 75, 317/- which he noted to have remained unexplained. In the absence of any assistance on behalf of the assessee on this factual issue we are left with no option but to confirm the order of the Ld. CIT(A) upholding the addition. Unexplained expenditure incurred through the employee Rajan Dubey for the purchase of fertilizer for agriculture - HELD THAT -CIT(A) we have noted, has confirmed the addition since the assessees explanation of having made the payment out of his available cash balance was not substantiated through any cash book and the assessee as per its Balance Sheet, was found to have only nominal cash balance of 3000 odd rupees. We find no merit in the ground raised by the assessee seeking deletion of the impugned addition in the absence of any assistance from the assessee controverting the findings of the AO and Ld.CIT(A).

Summary

The appeals concern assessments framed under section 153A of the Income Tax Act, 1961, following a search under section 132 at the assessee's residence. The core issues relate to additions made to the assessee's income based on seized documents and unexplained bank deposits for assessment years 2005-06 and 2002-03.

Issues Presented and Considered:

1. Whether the addition of Rs. 16,70,000 on account of unexplained election expenditure, based on a seized diary not in the assessee's name, is justified.

2. Whether the addition of Rs. 1,51,286 (for A.Y 2005-06) and Rs. 5,88,053 (for A.Y 2002-03) on account of unexplained cash deposits in bank accounts is sustainable.

3. Whether the addition of Rs. 1,20,000 on account of unsecured loans from various persons, held to be not genuine, is correct.

4. Whether the addition of Rs. 12,75,317 (out of Rs. 20,23,567) on account of unexplained investments and expenses recorded in seized document BK-2 is justified.

5. Whether the addition of Rs. 60,000 as unexplained expenditure paid to an employee for purchase of fertilizer is sustainable.

Issue-wise Detailed Analysis:

1. Addition of Rs. 16,70,000 on Account of Unexplained Election Expenditure

Legal Framework and Precedents: The addition was made relying on the presumption under section 132(4A) and section 292C of the Act, which presume that books of account or documents found during search belong to the person searched unless rebutted by cogent evidence. The assessee cited precedents emphasizing that entries in books or seized documents cannot fix liability without independent corroborative evidence (CBI vs VC Shukla, 1998; CIT vs Chamanlal Dhingra, 1994).

Court's Interpretation and Reasoning: The diary seized was in the name of Alok Kumar Tiwari, not the assessee. The assessee denied any connection with the diary, highlighting an ongoing dispute with the Tiwari family and submitted court documents and complaints as evidence. The AO conducted inquiries with Alok Tiwari, who denied maintaining the diary. Despite this, the CIT(A) upheld the addition, relying on the statutory presumption that the diary belonged to the assessee due to its seizure from his premises and the absence of satisfactory explanation.

Key Evidence and Findings: The diary's ownership was disputed; the diary bore the name of a third party. The assessee provided evidence of adversarial relations and denied possession or ownership. The AO failed to verify the source of the election expenditure with the district election officer. The CIT(A) relied heavily on statutory presumptions without requiring independent evidence linking the diary's contents to the assessee.

Application of Law to Facts: The Tribunal held that the statutory presumption under section 132(4A) and 292C cannot be applied mechanically when the document is not in the name of the searched person and there is credible denial supported by evidence. Mere seizure from the premises does not establish ownership or liability for the contents. The burden to disprove the presumption lies on the revenue, especially when the document is clearly in another's name and the assessee has provided cogent reasons for non-ownership.

Treatment of Competing Arguments: The Tribunal rejected the CIT(A)'s reliance on presumption, emphasizing the need to consider the document as a whole and the credible denial by the assessee. It also noted the absence of independent evidence linking the expenditure to the assessee.

Conclusion: The addition of Rs. 16,70,000 was deleted as the diary belonged to Alok Kumar Tiwari and the expenses recorded therein could not be attributed to the assessee.

2. Addition on Account of Unexplained Cash Deposits in Bank Accounts

Legal Framework and Precedents: The Revenue made additions based on peak bank deposits allegedly unexplained by the assessee. The CIT(A) reworked the figures based on the assessee's balance sheet and sustained partial additions.

Court's Interpretation and Reasoning: The Tribunal examined the balance sheets for the relevant years, which recorded opening and closing balances of bank accounts where the deposits were made. It held that since these bank accounts and their balances were duly reflected in the balance sheet, the deposits could not be considered unexplained or from undisclosed sources.

Key Evidence and Findings: The balance sheets showed the bank accounts and cash balances, indicating that the deposits were accounted for. The Revenue failed to demonstrate any discrepancy or unexplained source.

Application of Law to Facts: Accounting principles dictate that transactions recorded in the balance sheet are from accounted sources unless disproved. The Tribunal found no basis for additions on this ground.

Treatment of Competing Arguments: The Revenue's contention was rejected as arbitrary and against natural justice.

Conclusion: The additions of Rs. 1,51,286 (A.Y 2005-06) and Rs. 5,88,053 (A.Y 2002-03) on account of unexplained bank deposits were deleted.

3. Addition of Rs. 1,20,000 on Account of Unsecured Loans Held Not Genuine

Legal Framework and Precedents: The Revenue disallowed loans on the basis that the persons who allegedly lent the money could not be produced for verification, and affidavits submitted were unsubstantiated.

Court's Interpretation and Reasoning: The Tribunal noted that the assessee furnished names, details, and affidavits of the lenders. The mere failure of lenders to respond to notices or appear for verification was insufficient to discredit the genuineness of the loans. The Tribunal emphasized that the assessee discharged the onus by providing documentary evidence and details.

Key Evidence and Findings: Affidavits and lender details were on record; no infirmity was pointed out in these documents. The Revenue's reliance on non-appearance was not a valid ground to treat loans as bogus.

Application of Law to Facts: The Tribunal applied the principle that the burden to prove loans as not genuine lies on the Revenue. The assessee's evidence was held sufficient to establish genuineness.

Treatment of Competing Arguments: The Revenue's argument was rejected as insufficient to disprove the loans' genuineness.

Conclusion: The addition of Rs. 1,20,000 on account of unsecured loans was deleted.

4. Addition of Rs. 12,75,317 on Account of Unexplained Investments and Expenses Recorded in Seized Document BK-2

Legal Framework and Precedents: The AO made additions based on entries in seized diary BK-2 totaling Rs. 20,23,567, treating them as unexplained investments and payments.

Court's Interpretation and Reasoning: The CIT(A) analyzed the entries in detail, distinguishing between explained and unexplained amounts. The assessee explained three major entries supported by bank account withdrawals and statements on oath. However, the remaining entries were unexplained. The CIT(A) confirmed additions of Rs. 12,75,317, granting relief on Rs. 7,48,250.

Key Evidence and Findings: The AO provided a detailed breakup of receipts and payments from BK-2. The assessee explained certain payments with corroborative bank transactions and statements. The unexplained portion remained substantial.

Application of Law to Facts: The Tribunal upheld the CIT(A)'s approach of partial acceptance of explanations and partial confirmation of additions where explanations were lacking.

Treatment of Competing Arguments: The assessee's general rejoinder was insufficient to explain all entries. Absence of complete documentary evidence or explanation for the unexplained entries justified the additions.

Conclusion: The addition of Rs. 12,75,317 was upheld.

5. Addition of Rs. 60,000 as Unexplained Expenditure Paid to Employee for Fertilizer Purchase

Legal Framework and Precedents: The AO disallowed the expenditure for lack of explanation of source of payment, adding it as income from undisclosed sources.

Court's Interpretation and Reasoning: The assessee claimed the payment was made in cash from available cash balance for agricultural purposes, which are typically transacted in cash. However, no cash book or documentary evidence was produced to substantiate this. The balance sheet showed only nominal cash balance during the year.

Key Evidence and Findings: Absence of cash book or other evidence to prove availability and utilization of cash for the payment. The balance sheet's nominal cash balance contradicted the claim.

Application of Law to Facts: Without documentary proof, the AO and CIT(A) were justified in treating the amount as unexplained expenditure.

Treatment of Competing Arguments: The assessee failed to controvert the findings or produce evidence; hence, the addition was sustained.

Conclusion: The addition of Rs. 60,000 was confirmed.

Significant Holdings:

"Mere denial by the assessee about any seized document as not belonging to him is not sufficient, he has to establish with cogent reasons to show that any particular document found from his possession does not belong to him."

"The presumption under section 132(4A) and 292C of the Act cannot be mechanically applied when the document is not in the name of the searched person and there is credible denial supported by evidence."

"As long as the cash and bank balances are recorded in the Balance Sheet of the assessee, it is simple accounting, that all the transactions recorded therein are duly accounted for in the books of the assessee and therefore are from accounted sources."

"Merely because the persons who lent money did not respond to notices cannot be read adversely against the assessee and neither does it establish that the loans were not genuine."

"The burden to disprove genuineness of loans lies on the Revenue and furnishing of names, details and affidavits by the assessee discharges the onus."

"Additions based on seized documents require detailed scrutiny of each entry and acceptance of explanations where provided; unexplained portions can be added."

"In absence of any documentary evidence to prove availability and utilization of cash for expenditure, additions on account of unexplained expenditure are justified."

Final Determinations:

1. Addition of Rs. 16,70,000 on election expenditure was deleted as the diary was not the assessee's and no evidence linked the expenses to him.

2. Additions on account of unexplained bank deposits of Rs. 1,51,286 (A.Y 2005-06) and Rs. 5,88,053 (A.Y 2002-03) were deleted as the bank accounts and balances were duly recorded in the balance sheets.

3. Addition of Rs. 1,20,000 on account of unsecured loans was deleted as the assessee furnished sufficient evidence of genuineness.

4. Addition of Rs. 12,75,317 out of Rs. 20,23,567 on account of unexplained investments and expenses recorded in seized document BK-2 was confirmed.

5. Addition of Rs. 60,000 as unexplained expenditure paid to an employee was confirmed due to lack of evidence of source of payment.