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2019 (2) TMI 733 - HC - Income TaxReopening of assessment - addition on the basis of notings found in the books of third person - Held that - COMMON CAUSE (A REGISTERED SOCIETY) AND OTHERS VERSUS UNION OF INDIA AND OTHERS 2017 (1) TMI 1164 - SUPREME COURT incriminating materials in form of random sheets, loose papers, computer prints, hard disk and pen drive etc. and has held that they are inadmissible in evidence, as they are in the form of loose papers. In the present case also entries found during search and seizure which are on loose papers are being made the basis to add income of this respondent. Resultantly, in light of the Supreme Court judgments, referred above, no case for interference is made out with the order passed by the Tribunal.
Issues Involved:
1. Legality of the addition of income based on notings found in the books of a third person. 2. Admissibility of loose papers as evidence under Section 34 of the Indian Evidence Act. 3. Validity of reopening the case under Section 148 of the Income Tax Act. Issue-wise Detailed Analysis: 1. Legality of the Addition of Income Based on Notings Found in the Books of a Third Person: The Tribunal held that the Commissioner (Appeal) was justified in allowing the appeal as the Assessing Officer had made the addition based on notings found in the books of a third person. The Tribunal noted, "no search was carried out in the premises of Shri Pukhraj Soni and no loose paper/hundi/documents/promissory note/cash book or cash flow statement were found or seized, which could prove the movement of cash to & fro between Shri Pukhraj Soni & Shri Nilesh Ajmera with respect to interest and loans." The Tribunal emphasized that the Assessing Officer's inference was based on "suspicion, surmises and conjectures" without any corroborative and concrete evidence. The Tribunal supported its decision with precedents from the Hon'ble Supreme Court, such as Dhakeshwari Cotton Mill Pvt. Ltd. Vs. CIT and K.P. Varghese Vs. ITO, which held that assessments must be based on more than mere suspicion. 2. Admissibility of Loose Papers as Evidence Under Section 34 of the Indian Evidence Act: The Tribunal and the High Court referenced the judgment in Central Bureau of Investigation Versus V.C. Shukla, which clarified that for an entry to be relevant under Section 34, it must be shown that it has been made in a book of account regularly kept in the course of business. The judgment stated, "Loose sheets or scraps of paper cannot be termed as 'book' for they can be easily detached and replaced." The Court further noted that even if entries in books of account are admissible, they alone are not sufficient to charge any person with liability without independent evidence. This principle was reiterated by the Apex Court in Common Cause (A Registered Society) Versus Union of India, which held that entries on loose papers, computer prints, hard disks, and pen drives do not comply with the Indian Evidence Act and are not admissible evidence. 3. Validity of Reopening the Case Under Section 148 of the Income Tax Act: The appeal was filed by the Principal Commissioner of Income Tax-I, Indore, challenging the order of the Income Tax Appellate Tribunal, which had dismissed the department's appeal against the Commissioner of Income Tax (Appeal)'s decision. The case was reopened under Section 148 based on the belief that there was an escapement of income. However, the Tribunal found that the Assessing Officer's addition was not supported by concrete evidence but was based on notings found in the books of a third person. The Tribunal concluded that the reopening of the case under Section 148 was not justified as it was based on inadmissible evidence. Conclusion: The High Court dismissed the appeal, stating, "no case for interference is made out with the order passed by the Tribunal." The Court found that the materials in question, being loose papers, did not qualify as admissible evidence under Section 34 of the Indian Evidence Act. Furthermore, the Court held that "no substantial question of law arises in the present appeal," thereby upholding the Tribunal's decision and dismissing the appeal.
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