2015 (5) TMI 86 - HC - Income Tax

Addition under Section 69 - ITAT s confirmation of the CIT (A) s order cancelling the addition - justification to reference to Section 132 (4A) and Section 292C - Held that - It is quite evident that what materially persuaded the AO to make the addition were the extracts from documents - in the form of handwritten ledger entries seized from Shri S.K. Gupta. These mentioned Shri Khandelwal s name as against which certain amounts were indicated. The other material was the statement of Shri S.K. Gupta recorded on 13.12.2006. Shri S.K. Gupta was further examined on 5.4.2011. The AO took recourse to the presumption permissible under Section 132 (4A) on the basis of these two statements. It is a matter of the record - duly noted by the CIT (A) as well as ITAT that the three companies or business concerns whose monies were supposed to have been reflected in the handwritten ledgers (Bondwell Insurance Brokers, E-Synergy Infosystems Pvt. Ltd. and Paradigm Advertising) were all concerns in which the assessee s family members or relatives were alleged to have been interested. In the absence of any corroborative evidence found during the search at the premises of the appellant, no adverse inference can be drawn against the appellant merely on the basis of the seized documents as found and seized from the premises of the third party. As has been held in a number of judicial pronouncements relied on by the appellant and extracted in para 2.2.2 hereinabove, presumption u/s 134(4A)/292C is available only in the case of the person from whose possession and control the documents are found and it is not available in respect of a third party. Even in the case of such a person from whose possession and control any incriminating document is found, the presumption u/s 132(4A)/292C is a rebuttable one. Since in the case of the appellant, no corroborative documents or evidence has been found from the control or possession of the appellant, thus hold that the legal presumption as incorporated u/s 132(4A)/292C will not be available to the Assessing Officer in the appellant's case. - Decided in favour of assessee.

Summary

Issues:
1. Appeal against the ITAT's order canceling inclusion of amounts in the appellant's income for AY 2006-07 and AY 2007-08.
2. Compliance with natural justice and sustainability of inferences drawn from seized materials.
3. Validity of addition under Section 69 based on seized documents and presumption under Section 132 (4A) and Section 292C.

Analysis:
1. The Revenue challenged the ITAT's decision canceling the inclusion of amounts in the appellant's income for AY 2006-07 and AY 2007-08. The search and seizure action on Shri S.K. Gupta led to the appellant's notice under Section 153A of the Income Tax Act, 1961. The AO confronted the appellant with seized documents, leading to additions in income. The CIT (A) accepted the appellant's contentions, directing deletion of the amounts. The ITAT upheld this decision, considering compliance with natural justice and sustainability of inferences drawn from seized materials.

2. The ITAT analyzed the CIT (A)'s reasoning and Supreme Court decisions on natural justice compliance. It confirmed the CIT (A)'s findings, emphasizing that the department failed to provide evidence or valid arguments against the CIT (A)'s decision. The ITAT highlighted that the appellant's filings were extensive, and no specific infirmity justified overturning the CIT (A)'s order. References to legal precedents supported the appellant's case, emphasizing the need for corroborative evidence and dismissing additions based solely on third-party statements.

3. The Revenue argued that the seized materials warranted additions under Section 69, supported by presumptions under Section 132 (4A) and Section 292C. However, the CIT (A) and ITAT found the appellant's explanations credible, noting the lack of corroborative evidence linking the seized documents to the appellant. The ITAT independently reviewed the evidence and upheld the lower authorities' findings, concluding that no substantial question of law arose. The Court dismissed the appeals, emphasizing the lack of merit and justifying the cancellation of the inclusion amounts in the appellant's income for the relevant assessment years.