2024 (7) TMI 1328 - AT - Income Tax

Addition on the basis of statement recorded u/s 132 (4) supported by unsubstantiated documents found during the course of search - unaccounted cash receipts from students - HELD THAT - As we examine the seized material relevant to this addition of Rs.50 lakhs. For making addition of Rs.50 lakhs, the ld. AO relied on the following seized materials received from Utsav Shetty for the academic year 2019-20 containing two cheques for Rs.25 lakhs each for MBBS course. The screen shot of the ledger submitted by the assessee in this case shows that Utsav Shetty paid Rs.40 lakhs and Rs.10 lakhs on 19.8.2019 and 1.2.2021 respectively for the academic year 2019-20. AO made addition as unaccounted fees collected from Utsav Shetty. It is to be see that statement from Uday Shetty, father of the student has been recorded on 14.3.2022. He stated that Rs.15 lakhs discount has been given by management due to Covid and remaining fees Rs.10 lakhs was paid through RTGS and he was advised by the management not to disclose the giving of discount to him and therefore, he has mentioned cash instead of discount in his Whatsapp message and he has paid only Rs.15 lakhs cash. AO observed that Dilip Kumar as mentioned in the seized material of 15 L pd to V.S . AO decoded 15LRs. Paid to Vishwanath Shetty in his statement. However, Dilip Kumar has not mentioned to the question No. 14 to sworn statement dated 11.8.2021 that Rs.15 lakhs was paid to Vishwanath Shetty. As noted that nowhere he has mentioned in his answer that Rs.15 lakhs was paid to Vishwanath Shetty and he also said in his answer to next question that he has not paid any attention of whatsapp message of Uday Shetty, father of Utsav Shetty. However, it is to be noted that the amount of Rs.15 lakhs is not encircled in the seized material. Being so, it cannot be said that the said amount of Rs.15 lakhs has been paid. Collection of unaccounted fees - addition made by the AO is based on unsubstantiated loose sheets and jottings or Excel sheets - Statements recorded u/s 132 (4) solely cannot constitute as incriminating material so as to make these additions. Addition made by the AO is based on unsubstantiated loose sheets and jottings or Excel sheets - As it cannot be stated as full-proof of material evidence to substantiate the addition. In our opinion seized documents do not support the AO s contention that assessee has received unaccounted fees for admission of the students to the college. Going through the entire facts of the case it creates only a suspicion in the minds of the revenue authorities that the assessee has collected unaccounted fees. The suspicion not enough to hold that the assessee has collected unaccounted fees in absence of concrete evidence bought on record by the authorities concerned. The suspicion cannot replace the material evidence brought on record by the authorities. The rough noting in the loose papers are not full-proof evidence without proving the correctness of the same. Nothing was recorded in the orders of lower authorities that assessee has deviated from its objects for which approval u/s. 12A was granted and not applied its funds towards its objects. No evidence was brought out to show that the amount of unaccounted fees alleged to have been collected resulted in creation of any unaccounted assets by the trust or trustees or by any interested person. On this count also the addition cannot be sustained. No assets commensurate with the alleged estimated collection of fees were found by the revenue authorities. The unbounded loose sheets having jottings are not speaking either by itself or in the company of others and not corroborated by enquiry, cannot be the basis of any inference that unaccounted fees was collected not entered in the accounts so as to sustain the addition. We are of the opinion that the evidence collected by the authority is not sufficient to establish that the assessee has collected unaccounted fees for admission of students to various courses in the assessee s college. Entire evidence has to be appreciated in a wholesome manner and even where there is documentary evidence in favour of an assessee, the same can be overlooked if there are surrounding circumstances to show that the claim of assessee is opposed to normal course of human thinking, conduct and human probability. Even applying this principle to the present case, we have difficulty in rejecting the assessee s plea as opposed to normal course of human conduct. The circumstances surrounding the case are also not enough to reject the assessee s explanation. We have considered all the material on record and also the statement of the parties as discussed in the earlier paragraphs. We are of the opinion that the department cannot rely on those statements, more so when it was confronted to the assessee s employees during cross-examination, they have denied the collection of unaccounted fees. The department failed to collect proper information from any source corroborating collection of unaccounted fees, except un-corroborating entries in the loose sheets. All attempts for corroboration failed. There is nothing to suggest that the trust has deviated from the objects for which registration was granted and not applied the funds for its objects. No evidence was brought on record to show that amount of alleged unaccounted fees which have been collected and misused by the assessee or by any interested persons. There is no instance of recovery of any assets commensurate with the alleged estimated unaccounted collection of unaccounted fees as found by the AO. The activities of the trust are genuine. There is no allegation by the lower authorities that activities of the trust are not genuine. Also there was no allegation that the activities of the trust are not carried on in accordance with the objects of the trust. There is no allegation that the assessee is not imparting education and it is an admitted fact that thousands of students are studying in the college and assessee has been carrying on educational activities imparting medical education. It fulfilled the requirement of imparting education which are not doubted or challenged by the authorities. Being so, the impugned collection of unaccounted fees cannot be determined and brought to tax. As seen from the seized material and Excel sheets that these are handwritten loose documents and undisclosed income of the assessee cannot be determined on the basis of these documents. There is no direct evidence or conclusive evidence to prove the collection of the unaccounted fees. The statements of parties of whosoever is relied upon are evasive replies given to the revenue authorities on the basis of which the AO made an estimate of collection of fees. This is only based on conjectures and surmises and only on circumstantial evidence. AO failed to established the live link between the seized material and the unaccounted fees which resulted in creation of any unaccounted assets in the form of possession of money, bullion, jewellery or other articles or any immovable properties in the name of the trust or the trustees. In our opinion, the unsubstantiated and uncorroborated seized material alone cannot be considered as conclusive evidence to frame these assessments. The words may be presumed in section 132 (4) of the Act given an option to the AO concerned to presume these things, but it is rebuttable and it does not give a definite authority and conclusive evidence. The assessee is having every right to rebut the same. The entire case depends upon the rule of evidence. There is no conclusive presumption with regard to unsubstantiated seized material to come to the conclusion that that assessee has collected unaccounted fees. In the present case, the assessee categorically denied collection of unaccounted fees. If it was collected, it was unauthorized collection by the person who is looking after the admission and that it is why it is unauthorized by the trust. Further, there is no confirmation from the students who get admitted into various courses and even there was statements recorded from two students/parents which were not confronted to the assessee for cross-examination. The revenue authorities cannot draw inference on the basis of suspicion, conjectures and surmises. Suspicion, however strong, cannot take place the material in place of evidence of the AO. AO should act in a judicial manner, proceed in a judicial spirit and come to the judicial conclusions. AO is required to act fairly as a reasonable person, not arbitrarily and capriciously. The assessment u/s. 153A of the Act should have been supported by adequate material and it should stand on its own leg. The AO without examining the students / parents who have paid the unaccounted fees cannot come to the conclusion that the assessee has received unaccounted fees. The basis for donation is notebook / loose sheet. This notebook or loose sheets found during the course of search is only circumstantial evidence and not full proof evidence to sustain the addition. No addition can be made in the absence of any corroborative material. If it is circumstantial evidence in the form of loose sheets and notebook, it is not sufficient to come to the conclusion that there is conclusive evidence to hold that assessee has collected unaccounted fees. The notes in the diary/loose sheets are required to be supported by corroborative material. Since there was no examination or cross-examination of persons concerned, the entire addition in the hands of the assessee on the basis of uncorroborated writings in the loose papers found during the course of search cannot be sustained. The evidence on record is not sufficient to uphold the stand of revenue that assessee is collecting huge unaccounted fees in the guise of carrying on educational activities. In our opinion the seized material relied by the assessing officer for sustaining addition is not speaking one in itself and also not speaking in conjunction with some other evidence with authorities found during the course of search or post search investigation. Thus, the well settled legal position is that a non-speaking document without any corroborative material, evidence on record and finding that such document has not materialised into transactions giving rise to income of the assessee which had not been disclosed in the regular books of accounts of the assessee has to be disregarded for the purpose of assessment to be framed pursuant to search and seizure action. In these cases, moreover these documents are relied upon by the AO without confronting them for cross examination. In our opinion, these documents cannot bring assessee into tax net by merely pressing to service the provision of Sec 132(4A) r.w.s Sec 292C of the IT act, which creates deeming fiction on the assessee subject to search wherein it may be presumed that any such document found during the course of search from the possession and control of such document are true. What has to be noted here is that deemed presumption cannot bring such a document in the tax net and the presumption is rebuttable one and the deemed provisions have no help to the department. In our opinion, in these cases addition is made by AO on arbitrary basis relying on the loose papers, containing scribbling, rough and vague noting s in the absence of any corroborative material and these materials cannot be considered as transacted into collection of unaccounted fees by assessee giving rise to income which are not disclosed in the regular books of accounts by assessee. There is no documentary evidence either to support the statements of employees or of the parents of the students; and The seized material are in the form of various loose sheets, scribblings, jottings and Excel sheets taken from the computer having no signature or authorization from the assessee s side. These are unsubstantiated documents and there is nothing to suggest any undisclosed assets of assessee found during the course of search. More so, search action not resulted in recovery of any undisclosed assets in the form of landed property, building, investments, money, bullion, jewellery or any kind of movable or immovable assets. As also noted that on cross examination of the employees, they have denied the receipt of the unaccounted fees. Further, out of 43 students alleged to have been paid unaccounted fees, 35 students denied the same in affidavit, 5 denied in their sworn statement and whereabouts of 3 students were not known. No efforts has been done to find out their whereabouts. Some of the statements have been recorded under section 131 by the authorized officer subsequent to completion of search and these statements cannot be considered as conclusive evidence in view of the below mentioned CBDT Circular. AO has made the addition only on the basis of sworn statements of the various parties backed by unsubstantiated loose slips/excel sheets, which cannot be basis for addition on that reason that it is uncorroborated as discussed above. On the date of search action on 6.8.2015, the search party found physical cash - This has been compared with the books of account on the date of search and it was observed by AO that this has been tallied with the same. Being so, it cannot be said any unaccounted cash was unearthed during the course of search action. This also supports the assessee s argument that there were no unaccounted fees collected by the assessee in the assessment year under consideration as in the earlier assessment years. It is to be accepted that the discount has been given by assessee to its students for payment of full fees only in this assessment year due to Covid Pandemic which has been given to them on their request on need basis considering the hardship faced by their parents during this Covid period. On this count, it is not possible disbelieve it and to hold that assessee is involving in collection fees in the guise of discount by not accounting the same, more so, the beneficiaries confirmed the getting of discount in fees payment during the Covid period. Thus, we are agreeing with the contention of ld. AR that placing reliance on the seized material is not proper and all the additions on the basis of the above are deleted. These grounds of appeal of the assessee are allowed. Claim of the appellant is that an amount is the accumulated interest on various fixed deposits and is actually not received by it and therefore is to be reduced from the gross receipts. In this regard, the appellant has to file Form 9A as prescribed in the Income Tax Rules with the concerned PCIT - In our opinion, it is appropriate to remit this issue to the file of AO to examine the same in the light of Form No.9A before PCIT, if any filed by the assessee. Assessee is partly allowed for statistical purpose

Summary

Issues Involved:
1. Legality of the addition of Rs. 6,61,00,000/- based on statements recorded under section 132 (4) of the IT Act and unsubstantiated documents.
2. Examination of seized materials and statements to corroborate the alleged unaccounted cash receipts.
3. Validity of retraction of statements by employees.
4. Consideration of affidavits and sworn statements from students and parents.
5. Treatment of discounts given due to COVID-19.
6. Relevance of corroborative evidence for additions.
7. Admissibility of loose sheets as evidence.
8. Examination of Form 9A for accumulated interest on fixed deposits.

Detailed Analysis:

1. Legality of the Addition of Rs. 6,61,00,000/-:
The Tribunal examined whether the addition of Rs. 6,61,00,000/- based solely on statements recorded under section 132 (4) of the IT Act and unsubstantiated documents was justified. The Tribunal emphasized that statements recorded under section 132 (4) alone cannot constitute incriminating material unless supported by corroborative evidence. The Tribunal relied on various judicial precedents, including the Hon'ble Supreme Court's judgment in the case of CIT vs. S. Khader Khan Son, which held that statements recorded during survey operations under section 133A do not have conclusive evidentiary value.

2. Examination of Seized Materials and Statements:
The Tribunal scrutinized the seized materials, including handwritten loose sheets and Excel sheets, and the statements made by employees and students. It was noted that the seized documents were not corroborated by any other evidence such as cheque leaves or other records. The Tribunal found inconsistencies and contradictions in the statements of employees, particularly Mr. Vishwanath Shetty and Mr. Dilip Kumar, who later retracted their statements.

3. Validity of Retraction of Statements:
The Tribunal acknowledged the retraction of statements by employees, emphasizing that retracted statements cannot be the sole basis for additions unless corroborated by concrete evidence. The Tribunal referred to the CBDT Circular emphasizing the need to avoid obtaining admissions of undisclosed income under coercion or undue influence.

4. Consideration of Affidavits and Sworn Statements:
The Tribunal considered affidavits and sworn statements from students and parents, where 35 out of 43 students denied paying unaccounted fees. The Tribunal found that the affidavits and sworn statements were credible and supported the assessee's claim that no unaccounted fees were collected.

5. Treatment of Discounts Given Due to COVID-19:
The Tribunal examined the assessee's claim that discounts were given to students due to the COVID-19 pandemic. The Tribunal found the explanation plausible and noted that the discounts were confirmed by the students and parents in their affidavits and sworn statements.

6. Relevance of Corroborative Evidence for Additions:
The Tribunal emphasized the importance of corroborative evidence for making additions. It was noted that the assessing officer failed to provide corroborative evidence to support the alleged unaccounted cash receipts. The Tribunal referred to the Hon'ble Delhi High Court's judgment in the case of PCIT vs. Pavitra Realcon Pvt. Ltd., which held that additions cannot be sustained merely on the basis of statements without corroborative material.

7. Admissibility of Loose Sheets as Evidence:
The Tribunal highlighted that loose sheets and handwritten documents found during the search cannot be considered conclusive evidence without corroboration. The Tribunal referred to the Hon'ble Supreme Court's judgment in the case of Common Cause (A registered Society) vs. Union of India, which held that entries in loose sheets are not admissible as evidence under section 34 of the Indian Evidence Act.

8. Examination of Form 9A for Accumulated Interest:
The Tribunal remitted the issue of accumulated interest on fixed deposits to the assessing officer for examination in light of Form 9A filed by the assessee. The Tribunal directed the assessing officer to verify the claim and provide appropriate relief if the form was duly filed.

Conclusion:
The Tribunal allowed the appeal of the assessee, deleting the addition of Rs. 6,61,00,000/- and remitting the issue of accumulated interest on fixed deposits for further examination. The Tribunal emphasized the need for corroborative evidence to support additions and highlighted the inadmissibility of loose sheets and uncorroborated statements as conclusive evidence.