2022 (4) TMI 1181 - AT - Income Tax

Addition based on seized documents - cheque transactions of lCD and debenture application money recorded in the seized paper - whether at documents seized from the premises of Dalmias of Delhi is not conclusive evidence? - Dalmia Group has approached the Income-tax Settlement Commission wherein the cash transactions arising out of the seized documents have been admitted by them - whether the documents found from the premises of third party can be relied upon for making the addition in the hands of the assessee? - HELD THAT - Assessing Officer has made the addition by merely relying on the documents found during the course of search conducted in third party premises i.e. Dalmia Group. The assessee has denied any transactions with Dalmia Group. The department has not brought any other corroborate evidence on record to suggest that the assessee has entered into any cash transactions. It is important to note that the Seized documents contained details of investment in shares (of listed companies), dividend income etc. (which admittedly could not be in cash). The Assessing Officer should have corroborated the said transactions with the books of accounts of the assessee. But no such evidences were collected by the Assessing Officer to corroborate the seized material before completing the assessment of the assessee. Coming to the nature of seized material found during search, we observe that the seized data was maintained by Shri Joydeep Basu but he is stated to be only recording the entries. He is stated to be doing as per the inputs provided by Shri Neel Kamal Berry. Shri Neel Kamal Berry is stated to be receiving instructions from Sanjay Mitra and Puneet Dalmia. It is evident from the above that, even as per Department, the person carrying out the transactions, person recording the transactions and person giving instructions are different. This is to be seen in the light of the fact that Dalmia Group have disown the seized data while filing the application before Settlement Commission. We observe that the amount of addition admitted before the Settlement Commission by the Dalmias is way too small than the addition made in the case of the assessee. Although the Department has strongly objected this before the Settlement Commission the application has been accepted and nothing has been brought on record to show that the order of the Settlement Commission has been reversed or even challenged. In any case, even if the person from whom the documents have been found out have accepted the Correctness of transaction before the Settlement Commission, in our considered view, the same is not binding on the assessee. Further, it is brought to our notice that the seized MOUs relied upon by the Department are undated, unsigned (by either party) and titled as 'draft'. It is the duty of the AO to bring on record that the same was acted upon, at the same time, the Dalmia Group has gone to ITSC to settle the issue, this itself does not prove that unsigned MOUs were actually acted upon and how it is linked to the assessee. AO has not conducted any independent enquiry or made any efforts to corroborate the seized pages or link it to assessee. The entire assessment has been made without bringing on record any evidence but merely relying on statements made by persons from Dalmia Group and AO s perceptions/presumptions - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of addition based on seized documents from a third party.
2. Determination of annual letting value of certain flats owned by the assessee.

Issue-Wise Detailed Analysis:

1. Validity of Addition Based on Seized Documents from a Third Party:

The case revolves around the addition made by the Assessing Officer (AO) based on seized documents from the Dalmia Group, which allegedly indicated unaccounted cash transactions between Dalmia Group and the Jain Group. The AO issued a notice under section 148 of the Income-tax Act, 1961, and proceeded to make an addition of ?47 crores for the Assessment Year (A.Y.) 2008-09, asserting that the assessee received unaccounted cash from the Dalmia Group for holding shares on their behalf.

The assessee consistently denied any cash transactions with the Dalmia Group, both during the assessment proceedings and in a statement recorded under section 131(1). The assessee also submitted an affidavit to this effect, which was not disproved by the AO.

The Commissioner of Income Tax (Appeals) [CIT(A)] held that the seized documents were insufficient to establish the alleged cash transactions, noting that the term 'SJ' in the documents did not conclusively refer to the assessee or his family members. The CIT(A) also observed that there was no corroboration of the alleged share investments recorded in the seized documents.

The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s decision, emphasizing that the seized documents did not mention the assessee's name and that the AO failed to corroborate the seized material with any independent evidence. The ITAT also noted that the Dalmia Group had disowned the seized data before the Income-tax Settlement Commission, and the pen drive containing the data was not authenticated as required under Section 65B of the Indian Evidence Act, 1872.

The ITAT referred to several judicial precedents, including the decisions in CIT v. Sant Lal and Naren Premchand Nagda v. ITO, which held that additions based on documents found from third-party premises, without corroborative evidence, cannot be sustained.

2. Determination of Annual Letting Value of Certain Flats Owned by the Assessee:

For A.Y. 2011-12, the AO determined the annual letting value of certain vacant flats owned by the assessee based on market value, disagreeing with the municipal ratable value offered by the assessee. The CIT(A) directed the AO to determine the annual ratable value as per the method prescribed by the ITAT in earlier years, noting that this issue had been consistently decided in favor of the assessee in previous assessments.

The ITAT upheld the CIT(A)'s decision, observing that the issue was settled in favor of the assessee by various decisions of the coordinate benches and the Hon'ble Bombay High Court in the cases of Laxmi Jain and Harsh Jain.

Conclusion:

The ITAT dismissed the revenue's appeals, affirming the CIT(A)'s findings that the addition based on seized documents from a third party was not sustainable without corroborative evidence and that the determination of annual letting value should follow the method consistently upheld in favor of the assessee in previous assessments.