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TMI Blog2012 (11) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... nable to appreciate the significance or sequitur of the statement made by the Tribunal. It is not necessary that the seized documents should be in the form of proper books of accounts so that they can be relied upon for the purpose of making additions. Unable to approve the approach adopted by the Tribunal. If it had found that there were procedural lapses on the part of the Assessing Officer while making the assessment, the proper course for it would be to not to invalidate the assessment or delete the additions but to remand the assessment to the Assessing Officer so that the procedural lapses which had prejudicially affected the assessee can be set right and the assessment be completed after duly complying with the rules of natural justice. - Order of tribunal set aside - matter remanded back. - ITA NO. 1132/2007 & 583/2010 - - - Dated:- 4-10-2012 - MR. S. RAVINDRA BHAT MR. R.V. EASWAR JJ. Appellant Through: Mr. Sanjeev Sabharwal, Sr. Standing Counsel with Mr. Puneet Gupta, Jr. Standing Counsel with Ms. Gayatri Verma, Advocate. Respondent Through: Mr. P. N. Monga with Mr. Manu Monga, Advocates Respondent Through: Mr. R. K. Sharma, Advocate. R.V. EASWAR, J. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 587/- made by the Assessing Officer on account of undisclosed income in a block period? 5. We have examined the facts and the rival contentions. The Revenue argues that the documents seized during the search disclosed several investments by the firm in properties which were not fully disclosed to the Revenue; the profits from these properties were also not fully disclosed, according to the Revenue. The general basis adopted by the Assessing Officer, as per the annexure to the assessment order was to arrive at the undisclosed income in the following manner. The sale consideration was reduced by the cost of the plot and the construction cost to arrive at the actual profit. In doing so, the sale consideration was taken as per the seized material, which was reduced by the consideration declared in the Income Tax returns, so as to arrive at the undisclosed consideration. From this figure, supervision charges of 10% was reduced. The balance of undisclosed investment and profit was proportionately worked out as per the shares of the partners as specified in the partnership deeds. In this way, the undisclosed income was arrived at in respect of 20 properties, the details of which are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hitherto disclosed to the Department. Therefore, any extra investment or extra profit which was not shown to the department is liable to be taxed as undisclosed income within the meaning of Section 158B(b) of the I.T. Act, 1961. 7.11 The appellant has submitted that the submissions made by it were not incorporated in the assessment order which clearly shows haste on the part of the AO in passing the block assessment order. Nevertheless, the appellant was given opportunity by the AO and he was also given various opportunities at the appellate stage to explain the nature of the transactions which have been recorded in the seized papers found at the time of search. The assessment has been framed on the basis of documents which are related to the properties and which disclose the extra profit and investment. The onus was on the appellant to explain the nature and source of investment recorded on the various seized documents which he failed to do so. The undisclosed investment and undisclosed profit are clearly mentioned in various documents mentioned by the AO in the order. On the basis of these documents, the AO found out that there was an extra profit and undisclosed investment in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment order, at Rs. 1,73,34,387/- and thus the excess addition amounted to Rs. 1,95,92,700/-. He referred to the well settled proposition laid down by the Andhra Pradesh High Court in Lagadapati Subba Ramaiah v. CIT, (1956) 30 ITR 593 and by the Madras High Court in S. Kupuswami Mudaliar v. CIT, (1964) 51 ITR 757 as also the judgment of the Supreme Court in CIT v. S. Nelliappan, (1967) 66 ITR 722 and held that if there was a connection between the profits withheld from the books and the amounts entered as cash credits, it is possible to hold that the former constituted the source for the latter and if such a finding is entered on the basis of the facts, the Court will be reluctant to disturb the finding. Considering the legal position laid down in the aforesaid decisions, the CIT (Appeals) accepted the alternative plea based on the peak theory and gave the benefit of telescopic adjustment to the assessee. He accordingly held that the undisclosed profits would be available to the assessee for making the unexplained investment. He calculated the peak profit/investment at Rs. 2,67,87,137/-, on which addition was sustained and granted a relief of Rs. 1,01,39,950/-. These calculations a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the handwriting of V.K. Narang, was also not examined in the course of the assessment proceedings of the assessee firm. These are fatal omissions, notwithstanding that the recovery of documents pertaining to the firm from the possession of the partner is a vital piece of evidence against the firm. iv) While making the additions, the Assessing Officer had merely relied upon the presumption about the genuineness and the truth of the contents of the documents found in the course of the search as provided in Section 132(4A) of the Act. This is not permissible. As held by the Supreme Court in the case of P.R. Metrani v. CIT, 287 ITR 209, the presumption cannot be used in the assessment proceedings and it was limited to the search proceedings only. Even the general rule in law that it is for the person from whose possession the document is recovered to explain its contents cannot aid the department because Narang, from whose possession the document was recovered, disowned any knowledge about its contents and if the Assessing Officer wanted to contradict his statement, the best occasion to do so was to call upon him in the course of the assessment proceedings to explain the conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search under section 132 or survey under section 133A, it may, in any proceeding under this Act, be presumed (i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person; (ii) that the contents of such books of account and other documents are true; and (iii) that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person s handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested. 15. The phrase in any proceeding under this Act are important. They permit the Assessing Officer to invoke the presumption that the seized documents belonged to the person searched, that the contents of the seized documents/books of accounts are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not find any merit in the conclusion of the Tribunal that the correlation between the seized material and the books of account, on which reliance was placed by the Assessing Officer, was not sufficient for the purpose of making the additions. V.K. Narang, from whose possession the documents were recovered, was a partner of the assessee firm and the Tribunal itself observes in paragraph 22 of its order that it is no doubt true that recovery of document pertaining to the firm from the possession of the partner of a firm is a vital piece of evidence against the firm . Notwithstanding this observation, the Tribunal proceeded to attach weight to the denial by Narang about any knowledge of the seized documents. It is strange that the Tribunal accepted Narang s denial as credible, observing at the same time that recovery of documents pertaining to the firm from the possession of the partner of the firm is a vital piece of evidence against the firm. A firm is merely a compendious name given to the partners collectively and when we say that the firm is carrying on the business, what we really mean is that the partners are carrying on the business. The firm and the partners are one and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... documents which are not meant for the eyes of the Revenue are unearthed after undertaking an exercise which involves an intrusion into the privacy of the assessee, it is not permissible to discount the veracity, genuineness and truthfulness of the contents therein for the flimsiest of reasons. It would be proper to insist upon strong evidence in rebuttal of the contents of the documents, particularly after the introduction of Section 292C with retrospective effect from 1.10.1975. 18. For the above reasons, we are unable to approve the approach adopted by the Tribunal. If it had found that there were procedural lapses on the part of the Assessing Officer while making the assessment, the proper course for it would be to not to invalidate the assessment or delete the additions but to remand the assessment to the Assessing Officer so that the procedural lapses which had prejudicially affected the assessee can be set right and the assessment be completed after duly complying with the rules of natural justice. Reference may be made to the recent decision of the Supreme Court in the case of ITO v. Pirai Choodi, (2011) 334 ITR 262. 19. Counsel for the assessee strongly objected to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Tribunal has found fault with the Assessing Officer for having made the additions on the basis of the statements made by Sodhi and Narang in pre-assessment proceedings i.e. during the search and the consequent investigation proceedings, without asking them to explain those statements during the assessment proceedings. If the Tribunal was of the view that this was a serious lapse on the part of the Assessing Officer, it would have been well-advised to remit the matter to the Assessing Officer to enable him to examine those persons with reference to their statements made prior to the assessment proceedings in an attempt to elicit the truth. It was not open to the Tribunal to cancel the additions in such circumstances. We have also referred to certain statements made by the Tribunal in Paragraph 22 of its order to the effect that there was a correlation established by the Revenue between the seized material and the regular books of accounts of the assessee and to the effect that recovery of documents pertaining to the assessee firm from the possession of Narang is a vital piece of evidence against the firm. In the light of these two observations it was for the assessee to firmly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 58 BC in the assessee s case were valid. On this basis and on the basis of the statement made in the memorandum of appeal filed by the assessee that there was a search operation under Section 132 of the Act at the assessee s residence on 17.12.1999, the CIT(Appeals) held that the proceedings under Section 158 BC were validly initiated. On merits, the CIT(Appeals) after examining the facts in some detail deleted both the additions. The Revenue filed an appeal before the Tribunal questioning the relief granted by the CIT(Appeals), whereas the assessee filed a cross-objection in the appeal filed by the Revenue, challenging the decision of the CIT(Appeals) regarding the validity of the block assessment. The Tribunal agreed with the decision of the CIT(Appeals) with regard to the merits of the additions and thus dismissed the appeal filed by the Revenue. As far as the cross-objection filed by the assessee is concerned, it was dismissed as infructuous or redundant. Moreover, the Tribunal noted that the assessee did not press the cross-objection. 24. The Revenue is in appeal contending that the Tribunal erred in deleting the additions made in the block assessment. The contention of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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