2014 (1) TMI 1189 - HC - Income Tax

Block assessment - Evidentiary value of assessment order u/s 34 of Evidence Act Order for undisclosed income passed on the basis of loose sheets of paper Held that - The Tribunal and the CIT (Appeals) have found that the proper cross verification was not made by the Assessing Officer before making such an addition and therefore, the matter has been remitted to the Assessing Officer for proper examination and cross verification - The addition is therefore subject to ascertainment of facts on proper verification by the Assessing Officer thus, the contention of the petitioner based upon interpretation of section 34 of the Indian Evidence Act, is misconceived and liable to be rejected - The addition made in the income of the Assessee, based upon the entries made in ledger seized from the premises of another Firm, was not justified as no such actual payments could be proved on appreciation of evidence - in the wake of clear provisions contained in section 158B(b) read with section 132(4A) of the Income Tax Act, the addition of undisclosed income on the basis of entries made in the loose sheet is dependent upon the investigation of facts and cross verification by the Assessing Officer - The substantial questions of law is accordingly answered against the Assessee Decided against Assessee.

Issues Involved:

1. Whether an assessment order regarding undisclosed income passed on the basis of loose sheet of papers has any evidentiary value.
2. Whether Section 34 of the Indian Evidence Act renders a loose sheet of paper regularly kept in the course of business not sufficient by itself to charge any person with liability.

Detailed Analysis:

Issue 1: Whether an assessment order regarding undisclosed income passed on the basis of loose sheet of papers has any evidentiary value.

The appellant challenged the assessment order which added undisclosed income based on loose sheets of papers seized during a search operation. The appellant argued that such loose sheets have no evidentiary value. The court examined the provisions of Section 158B(b) and Section 132(4A) of the Income Tax Act. Section 158B(b) defines "undisclosed income" to include any income based on entries in books of account or other documents representing income not disclosed for tax purposes. Section 132(4A) presumes the contents of seized documents to be true unless rebutted by the assessee. The court noted that these provisions create a rebuttable presumption in favor of the revenue authorities. The Tribunal and CIT (Appeals) found that the Assessing Officer did not properly cross-verify the seized documents before making the addition. Consequently, the matter was remitted to the Assessing Officer for proper examination and cross-verification. The court concluded that the addition of undisclosed income based on loose sheets is subject to proper verification by the Assessing Officer, and thus, the appellant's contention was rejected.

Issue 2: Whether Section 34 of the Indian Evidence Act renders a loose sheet of paper regularly kept in the course of business not sufficient by itself to charge any person with liability.

The appellant argued that under Section 34 of the Indian Evidence Act, loose sheets not regularly kept in the course of business cannot alone be sufficient to charge any person with liability. Section 34 states that entries in books of account regularly kept in the course of business are relevant but not sufficient alone to charge any person with liability. The court distinguished the present case from the CBI case cited by the appellant, where entries in a diary were used to implicate individuals in criminal offenses. The court emphasized that the present case involves tax assessment following a search under Section 132(1) of the Income Tax Act. The court noted that the judgment in the CBI case was not applicable as the context and legal provisions were different. The court reiterated that the addition of undisclosed income based on seized documents is subject to verification by the Assessing Officer. The court also referred to the Bombay High Court judgment in Lata Mangeshkar's case, where it was held that additions based on seized entries require proper evidence and verification. The court concluded that the appellant's reliance on Section 34 of the Indian Evidence Act was misplaced, and the substantial questions of law were answered against the appellant.

Conclusion:

The court dismissed the appeal, upholding the orders of the ITAT and CIT (Appeals). The court held that the addition of undisclosed income based on loose sheets is subject to proper verification by the Assessing Officer, and the provisions of Section 34 of the Indian Evidence Act do not preclude such additions if corroborated by other evidence. The court found no merit in the appellant's arguments and affirmed the remittance of the matter for further investigation and cross-verification.

← Previous Next →