2023 (9) TMI 201 - AT - Income Tax

Search proceedings - Addition based on loose sheets found - Whether the presumption as enumerated in the provisions of section 132(4A) and section 292C can be drawn against a third person from whose possession and control, in the course of search, no books of accounts, other documents, money, bullion, jewellery or other valuable articles etc. have been recovered? - HELD THAT - Presumption that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to a person may be drawn against such person from whose possession or control of, in the course of a search, such documents etc. found. We are of the considered view that the presumption as prescribed, under the provisions of section 132(4A) and 292C of the Act, may be drawn against such person only from whose possession or control, the documents etc. as mentioned in the said provisions is/are found and seized or recovered but not against the third person from whose possession or control, no such document(s) etc. as mentioned in the said provisions, is/are found and seized or recovered. We answer question no. (i) accordingly. Coming to the instant case, the alleged documents, have been found in the premises of Shri Ajay Kumar and therefore, the presumption as prescribed u/s. 132(4A) and 292C of the Act, can only be drawn against Shri Ajay Kumar, which infact has already been drawn by making the addition on the basis of the seized documents including Annexure LP-04 used in this case. It is also not the mandate of law that the addition can be made in two hands on substantive basis. Hence on the aforesaid analyzations, the addition is liable to be deleted in this count itself. Whether, a third person, from whose possession or control, no recovery of such documents etc. as referred to u/s 132(4A) and section 292C has been effected, is still required to rebut the presumption as prescribed section 132(4A) and 292C? - Our answer is no because as we already held that presumption u/s 1324A and 292C cannot be drawn against third party from whose possession, no documents etc. found and seized and therefore in our considered view, such party is not under obligation to rebut the presumption. Whether the loose papers, on which entries of some amounts are depicted, can be used without corroborative evidences? - Unless the statement/document is tested under the cross examination, the same cannot be read in evidence against the Assessee and no adverse inference can be drawn, unless the entries made in the documents so found are corroborated by the independent evidence. The presumption as provided in section 132(4A) and 292C of the Act, is not in absolute terms, but is subject to corroborative evidence. Where the department proposes to invoke section 69 of the Act for taxing unexplained investments, it cannot harp on the presumption u/s. 132(4A) of the Act. It will first have to prove by independent evidence that the Assessee has, in fact, made investments, which are not recorded in the books of account etc. and this burden cannot be said to have been discharged merely on the basis of some entries found in the books of account or documents seized in the course of search. The onus of proving the source etc. will shift to the Assessee only, after the burden of establishing unexplained investment has been discharged by the Revenue Department. The loose papers, on which entries of amounts are depicted, can not be used without corroborating evidences, hence we answer question no. (iii) accordingly. The Hon ble jurisdictional High court of Allahabad in the case of Mumar Trading Co. Vs. Commissioner of Trade Tax, 2007 (9) TMI 284 - HIGH COURT OF JUDICATURE AT ALLAHABAD as well, also clearly held that it is settled principle of law that if the Revenue wants to rely upon the entries of the document, seized from the premises of third party, the burden lies upon the Revenue Authorities to prove the genuineness and authenticity of the said entries to connect the said entry with the dealer, in case the dealer denies to have any connection with such entry. In the instant case the Assessee as well as Sh. Ajay Kumar from whose possession documents found and seized, denied to have any connection with payments as noted in the notings/documents, which have been used by the Revenue, against the Assessee in making the addition in hand. Department failed to prove/bring on record the author of the writings on the loose papers, on the basis of which the addition under consideration has also been made. It is also a fact that the Assessee was never provided an opportunity to cross examine the scriber of the notings and even the other persons whose names have also been narrated in short form and Mr. Ajay Kumar from whose possession and control, the alleged documents were recovered. On the aforesaid analyzations as well, the addition in hand is also un-sustainable. Where the presumption is rebuttable, then how and in what mode, the presumption can be rebutted by the third person? - It is not the mandate of law as provided u/s. 132(4A) and 292C of the Act that whenever the documents etc. as prescribed in the said provisions are seized with, the court shall necessarily bring the presumption irrespective of the other factors which may dissuade the court from doing so. The question also arise, what kind of evidence would rebut a legal presumption in the given set of facts, in fact there is no rigid rule. In our opinion, the evidence can be direct or indirect or circumstantial or in combination, however, in certain cases/ situation, a mere statement of the Assessee (third person) can suffice or may be enough to rebut the legal presumption. We answer question no. (iv) accordingly. Though the Assessee is not liable to rebut the presumption drawn by the Assessing Officer, however, still rebutted the same by raising aforesaid pleas and therefore, the presumption drawn against the Assessee is un-sustainable. We also observe as held by the Hon ble Courts that presumption can only be drawn after establishing the addition under the substantive provisions of section 69 of the Act as involved in this case and before fulfilling the conditions of section 69 independently, the presumption cannot be drawn, which in the instant case is missing. Hence, on this aspect as well the addition in hand is unsustainable. Asadmitted fact that the Assessee was not empowered to grant any contract of value of more than Rs. 40 lacs and as alleged contracts were of more than the prescribed limit of Rs.40 lacs, then the circumstantial evidence as construed by the Assessing Officer having no value, as the same is based on surmises and conjectures. As no recovery of any documents as used by the Assessing Officer, has ever been effected from the Assessee s possession or control and even otherwise, no corroborative evidence against the Assessee has been established. Therefore, the adverse inference drawn, against the Assessee is unsustainable. The addition is deleted and the appeal filed by the Assessee is allowed.

Summary

Issues Involved:
1. Validity of the assessment order under section 143(3)/153A.
2. Application of section 153C instead of section 153A.
3. Addition of Rs. 5,98,76,460/- based on loose papers found during a search.
4. Denial of cross-examination of Shri Ajay Kumar.
5. Presumption under sections 132(4A) and 292C of the Act.
6. Circumstantial evidence and corroboration.

Summary of Judgment:

1. Validity of the Assessment Order:
The Assessee challenged the validity of the assessment order on legal grounds, claiming it was arbitrary, illegal, and violated natural justice principles. However, these grounds were not pressed during the hearing, and thus, the judgment of the jurisdictional High Court in the case of Raj Kumar Arora was not considered.

2. Application of Section 153C Instead of Section 153A:
The Assessee argued that the addition should have been made under section 153C as the documents were seized from a third party's premises. The Tribunal noted that the presumption under sections 132(4A) and 292C can only be drawn against the person from whose possession the documents were found, not against a third party.

3. Addition of Rs. 5,98,76,460/- Based on Loose Papers:
The Tribunal held that the loose papers found during the search at Shri Ajay Kumar's premises could not be used as the sole basis for the addition without corroborative evidence. The Tribunal cited various judgments, including those of the Delhi High Court and the Supreme Court, emphasizing that entries in loose papers must be corroborated by independent evidence to be used against the Assessee.

4. Denial of Cross-Examination of Shri Ajay Kumar:
The Tribunal found that the Assessee was not provided an opportunity to cross-examine Shri Ajay Kumar, which violated principles of natural justice. The Tribunal noted that the statements and documents must be tested under cross-examination to be admissible as evidence.

5. Presumption Under Sections 132(4A) and 292C of the Act:
The Tribunal clarified that the presumption under sections 132(4A) and 292C is rebuttable and can only be drawn against the person from whose possession the documents were found. The Tribunal held that the Assessee had successfully rebutted the presumption by denying any connection with the loose papers and pointing out that other individuals with similar initials were also involved.

6. Circumstantial Evidence and Corroboration:
The Tribunal concluded that the circumstantial evidence relied upon by the Assessing Officer was based on conjectures and surmises. The Tribunal emphasized that suspicion, however strong, cannot replace legal proof. The Tribunal also noted that the Assessee was not empowered to grant contracts exceeding Rs. 40 lakhs, further weakening the circumstantial evidence against him.

Conclusion:
The Tribunal deleted the addition of Rs. 5,98,76,460/- for the assessment year 2017-18 and Rs. 25 lakhs for the assessment year 2018-19, allowing the appeals filed by the Assessee. The Tribunal emphasized the need for corroborative evidence and adherence to principles of natural justice in making additions based on seized documents.