9911796707
TMI Blog2014 (1) TMI 1684X X X X Extracts X X X X X X X X Extracts X X X X ..... be material on record to show that the income is assessed on the basis of material/ evidence in hands of the Assessing Officer. Being so, in our opinion, guess work is not possible in case of search assessment framed u/s. 143(3) or u/s. 153A of the Act without any proper material. The AO shall have the basis for assuming that the expenditure incurred by the assessee is out of undisclosed income. It is not permissible to assess the undisclosed income in the absence of any other evidence on arbitrary basis. The unsubstantiated loose sheets cannot be considered as a conclusive evidence to make any addition towards undisclosed income. In the present case, the seized material (two note books) marked as KBR/A/02 and KBR/A/04 wherein certain entries are found recording various transactions pertaining to the assessee. These entries in the notebook are unsubstantiated and on that basis the AO reached to the conclusion that the figures mentioned therein are to be read by adding 3 zeros and thereby he came to conclude that there is undisclosed income in these 6 assessment years. In our opinion, the document recovered during the course of search was a dumb document and led nowhere. The CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 09 admitting incomes as under. Asst. Year Income returned (Rs.) Agricultural income (Rs.) 2003-04 83,889 7,00,000 2004-05 1,41,55,230 (includes LTCG of ₹ 49,38,085) 6,50,000 2005-06 8,22,630 (includes LTCG of ₹ 50,000) 7,50,000 2006-07 73,21,661 7,50,000 2007-08 42,84,275 (includes LTCG of ₹ 10,39,275) 8,00,000 2008-09 -7,22,080 7,50,000 4. During assessment proceedings, the AO observed that as per the seized material Annexure KBR/A/02 and KBR/A/4, assessee was involved in several financial transactions relating to real estate business for the period 2003 to 2008 and these transactions were written in coded form. He observed that in the statement recorded on the date of search, assessee admitted that the seized books contain details of day to day expenditure. In the statement recorded u/s. 131 on 23 7 2008, the assessee further admitted that the seized books contain receipts and payments partly related to him and partly related to others and the entries were written in coded form. He also admitted that these books were written by his managers and his two wives Smt. Sridevi and Smt. Rani. The AO analyzed the entries in the books by entering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that up to Sep. 2003 the books were written eliminating two digits and from Sep. 2003 to Apr. 2008, books were written omitting three digits and arrived at the undisclosed income of the assessee and his two wives as under. F.Y. K. Babu Rao (Rs.) K. Sridevi (Rs.) K. Rani (Rs.) 2002-03 209640 209640 0 2003-04 138422220 0 0 2004-05 11596300 0 0 2005-06 77480300 0 0 2006-07 50342750 320780 10296390 2007-08 1529200 835780 0 2008-09 0 0 0 Total 279580410 1258785 10296390 5. After giving an opportunity to the assessee the AO rejected the submissions of the assessee as not standing .to the test of rationality and concluded that three digits were omitted by the assessee for both banking and nonbanking transactions. The undisclosed incomes of the assessee for the assessment years 2003 04 to 2008 09 under consideration and tax demands thereon were thus arrived at as under. A.Y. Income assessed (Rs.) Tax demand raised (Rs.) 2003-04 2,09,640 96,263 2004-05 13,84,22,220 10,46,24,924 2005-06 1,15,96,300 78,42,773 2006-07 7,74,80,300 4,90,56,813 2007-08 5,03,42,750 2,62,72,072 2008-09 15,79,200 6,75,340 6. On appeal, the CIT(A) obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rer to ₹ 83,500 than 'Rs. 8,350' thereby concludes that all the entries are to be read as multiplication with thousand. In this case also, the dates are not matching as the entry in the document is appearing on 12 7 2007 and fee is remitted on 16 7 2007. When the AO is referring to a specific item, then he should bring direct evidence to such entry without leaving any scope for logic or conjectures. He is only talking about nearest figure than the direct amount. In the same way the AO tried to justify his stand by bringing out some entries which are appearing twice on page 63 and 64 as well as on 66 and 67 and also entries appearing on a few pages as narrated in page 17 and 18 of the assessment order. Without any independent material supporting the view that the entries are to be multiplied with '1000', it is very difficult to validate such contention. Neither the evidences of the assessee are disproved nor any evidence brought to support the contention of the AO. 8. The CIT(A) observed that although the assessee owned up the document and entries appearing on those documents as his own and disclosed additional income, the fact remains is that the onus shifts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected of such methodology of entering the expenses which are incurred from time to time. Another factor to be noted is that assessee is not engaged in any day to day business activity. Therefore, the view of the AO is not correct. Tax has to be collected on real income but not on hypothetical income. Unless those entries are independently corroborated with contemporaneous record, no adverse view can be taken by the .Assessing Authority. No such direct independent evidences have been brought to demolish the contention of the assessee. As contended by the assessee, no assets have been unearthed during search, which is ultimate weapon of the Dept., for making such addition on the basis of some mathematical calculation. Mostly, the AO proceeded on assumptions and presumptions to arrive at the additional income by multiplying all entries with '1000'. If all the entries appearing on the seized documents are multiplied with thousand, the resultant figure leads to an absurdity because there are number of entries in the nature of day to day domestic and personal expenses etc. If one is to follow the method adopted by the Assessing Officer, expenditure like cycle repairs, purchase o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The CIT(A) observed that it cannot be ruled out about the possibility of some of the expenditure not recorded in the documents itself. This has been evidenced by the fact of children's school fee and college fee as brought out by the AO in respect of DP School, Engineering college fee, etc. Besides, there are other entries in the nature of interest payment on loans, furniture purchase, house repairs which includes marble, brick purchases etc. which require more than the value adopted by the assessee. For instance, interest payment of ₹ 900 on a loan of ₹ 3 lakhs is not realistic by any reckoning. Similarly, expenditure on marble of ₹ 500 is also quite low when compared to the value of marble in the market. To cover all such discrepancies and unrecorded cash expenses, a reasonable estimate of disallowance is inevitable. After going through such entries and the nature of expenditure, the CIT(A) held that disallowance of a sum of ₹ 5 lakhs for each asst. year would suffice the shortfall if any in respect of the expenditure unrecorded and under recorded. Therefore, the CIT(A) directed the AO to make addition of ₹ 5 lakhs for each asst. year from 2004 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to sustain the addition. According to him, it is not a inviolable rule applicable to all situations and to all cases that every seized document should be corroborated before addition can be based on it. He submitted that if calculations and computations having been made in the seized document in such a manner that its probative value and genuineness cannot be doubted, nothing prevents the AO from making additions on the basis of such document despite the absence of any corroboration. The CIT(A) should have observed that in a case like this, it is difficult to obtain corroboration particularly when there is seized material showing unaccounted transactions. Seized document should be considered as a foolproof evidence in the absence of proper books of account maintained by the assessee and even scribbling in the loose paper suggested that the assessee has been involved in gross violation of maintaining books of account and habitually detail in the transactions and entering the same in loose slips. Even if there are procedural lapses on the part of the AO, the CIT(A) could have very well avoided the errors in his order and the proper course allowed to the CIT(A) is to remit the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iaries based on the workings which were also subsequently verified by the Dy. Director of Income tax (Investigation). He made a disclosure under section 132(4) admitting his undisclosed income from each of the Assessment Years under the various heads as his as well his two wives (viz., Smt. K. Sridevi and Smt. K. Rani) income. 17. The AR submitted that the workings which were submitted to the Dy. Director of Income tax (Investigation) and explained in detail about his income from business, his drawings, investments, capital gains, etc. On specific query from DDIT(Inv), bank statements were produced and verified with the transactions in the noting of the diary which confirms the contention of the assessee that the bank transactions are written by omitting three zeroes. The DDIT verified and did not raise any issue on this matter. As regards the cash transactions, the assessee produced proof of payments of around 72 instances from the diary which clearly establishes the fact of cash transactions were recorded after eliminating two zeroes only. The same instances have been mentioned in the assessment order by the AO in page No. 9 to 11. Some of these payments were LIC and tax payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abilities mentioned in the said statement. The diaries were written in coded form and therefore to write bank transactions by eliminating 3 zeros and cash transactions by eliminating 2 zeros is known only to the person writing or under whose instructions the transactions are being written. The assessee has been able to substantiate with third party evidence regarding veracity of this fact. However, the Assessing Officer has chosen not to verify the seized material or the supporting material which were furnished during the course of the proceedings but in an arbitrary manner, concluded that all transactions were written by eliminating 3 zeros and thereby assessed the undisclosed income at an unimaginable and unrealistic high figures by simply adding one more '0' to the workings which were furnished by K. Babu Rao during the course of the proceedings. 21. The AR submitted that the Assessing Officer has also ignored the bank statements provided by banks and the transactions of which were also mentioned in the diaries and therefore could be easily correlated as to the actual amount of these transactions. In all the cases of bank transactions, the assessee was able to furnish t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with 3 zeros. The Assessing Officer has also not substantiated the income assessed by him with the end use of such income. There has to be some assets backed by such huge income. The Assessing Officer cannot take one sided view while determining the income without considering related asset. The entire assessment has been made by simply adding one more zero to the income admitted by the assessees. The Assessing Officer has not considered the transactions of capital gains for which documentary proofs was provided. Similarly, he has not considered the third party evidence in support of the cash payments furnished by the assessee. Finally, by refuting his own findings that the bank transactions have been considered after adding 3 zeros, he has once again added one more zero to the bank transactions while arriving at the assessed income. Similarly by accepting the agricultural income admitted by the assessee, and setting off the same only while calculating the taxable income, the AO has sought to inflate the taxable income in a pick and choose manner to his liking. Accordingly it is requested to delete the additions made in such an arbitrary manner by the Assessing Officer and to accept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139; (b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made : Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years: Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this [sub-section] pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate; [Provided also that the Central Government may by rules made by it and published in the Official Gazette (except in cases whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. 27. Being so, in our opinion, guess work is not possible in case of search assessment framed u/s. 143(3) or u/s. 153A of the Act without any proper material. The AO shall have the basis for assuming that the expenditure incurred by the assessee is out of undisclosed income. It is not permissible to assess the undisclosed income in the absence of any other evidence on arbitrary basis. The unsubstantiated loose sheets cannot be considered as a conclusive evidence to make any addition towards undisclosed income. It was held by the Supreme Court in the case of CBI vs. V.C. Shukla (1998) 3 SCC 410 that "file containing loose sheets of papers are not books" and hence entries therein are not admissible u/s. 34 of the Evidence Act, 1872. 28. In the present case, the seized material (two note books) marked as KBR/A/02 and KBR/A/04 wherein certain entries are found recording various transactions pertaining to the assessee. These entries in the notebook are unsubstantiated and on that basis the AO reached to the conclusion that the figures mentioned therein are to be read by adding 3 zeros and thereby he came to conclude that there is undisclosed income in these 6 assessment y ..... X X X X Extracts X X X X X X X X Extracts X X X X
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