Income Tax Appellate Tribunal - Panji
Assistant Commissioner Of Income ... vs Shri. Javed Ali Pradhan,, Raipur on 10 January, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL RAIPUR BENCH,
RAIPUR
BEFORE : SHRI N.S.SAINI, ACCOUNTANT MEMBER
AND
SHRI PAVAN KUMAR GADALE, JUDICAL MEMBER
ITA Nos.126 to 132/BLPR/2011
(Assessment Years :2001-2002 to 2007-2008)
ACIT-1(1), Central vs Shri Javed Ali Pradhan,
Revenue Building, Civil Pradhan House, Civil Lines,
Lines,Chhattisgarh Raipur, Chhattisgarh
PAN No. : AGBPA 1758 J
(Appellant) .. tsednepseR
Revenue by : Shri R.K.Singh, CITDR
Assessee by : None
Date of Hearing : 08/01/2018
Date of Pronouncement 10/01/2018
आदे श / O R D E R
Per Shri N.S.Saini, AM:
These are the appeals filed by the Revenue against the consolidated order of the CIT(A), Raipur, dated 31.03.2011 for the assessment years 2001-2002 to 2007-2008.
2. Since the facts and issues involved in all the appeals of the Revenue are common, they are disposed off together for the sake of convenience.
3. The respondent-assessee has filed an adjournment application seeking adjournment of the hearing on the ground that his counsel is not available to argue the appeals for some personal reasons. As the reason for seeking adjournment is vague and not convincing, the adjournment application filed by the assessee was rejected and appeals were heard ex-parte qua the respondent-assessee.
2ITA Nos.126-132/BLPR/2011
4. The first grievance of the Revenue is that the CIT(A) erred in deleting the following additions on account of unexplained payments made treating as undisclosed income :-
Assessment Year Vide Additions deleted by CIT(A) Para No. 2001-2002 1.47 Rs.16,11,500 2002-2003 1.47 Rs.1,33,33,786/-
2003-2004 1.47 Rs.20,84,355/-
2004-2005 1.47 Rs.18,00,000/-
2005-2006 1.47 Rs.78,500/-
2006-2007 1.47 Rs.54,865/-
2006-2007 1.47 Rs.5,53,015/-
2007-2008 1.47 Rs.47,01,150/-
5. Brief facts of the case are that the AO has made addition of the following amounts with reference to the seized material as under :-
AY Appeal No. With reference to Addition
seized material
2001-02 709/08-09 A-1/4/43 Rs.16,11,500/-
2002-03 710/08-09 A-1/4/43 Rs.1,33,33,786/-
2003-04 711/08-09 A-1/4/43 Rs.20,84,355/-
2006-07 714/08-09 A-1/4/43 Rs.5,53,015/-
2004-05 712/08-09 A-1/4 Rs.18,00,000/-
2005-06 713/08-09 A-1/4 Rs.78,500/-
2006-07 714/08-09 A-1/4 Rs.54,865/-
2007-08 715/08-09 A-1/4 Rs.47,01,150/-
The assessee explained that the jottings and rough working noted in the aforementioned seized material, was explained as related to the real estate dealings of the investors arranged through the assessee and his associates who were also engaged in deriving income from 3 ITA Nos.126-132/BLPR/2011 commission in real estate dealings. The assessee was confronted with the entries in the loose papers marked A-1/4/43 and A-1/4 for the aforementioned assessment years. The assessee submitted that he is a real estate broker and derives brokerage/commission therefrom. It was submitted that in dealings exceeding Rs.10 lakhs, brokerage receivable was 1% and in transactions less than Rs.10 lakhs, the brokerage receivable was 2%. S/Shri M.A. Bhai, Aathar Bhai, Raju Bhai, Naidu, Shafique Bhai, Dhingaraji, Bajaj, Zia Bhai, Thakurram, Chopdaji etc., were some of the brokers engaged in this line through whom some dealings might have been made 'and the commission paid to them/received by the assessee, was invariably accounted for. The assessee in the course of acting as a real estate broker is required to organize meetings between the sellers and the buyers and have to be there till the execution of registered sale deed. During this process, the transactions passes through the hands of the assessee. As such the party for whom the assessee acts as broker, hands over the cash to the assessee for passing on to the seller and for various expenses relating to the deal. Since the assessee is involved as a broker, and the two parties are not normally known to each other, the buyer trusts the assessee and hence the money is handed over to him. In some cases, the deal is settled through the assessee and after deducting brokerage, the purchase consideration received from the purchaser is passed on to the seller but for some reason the settled deal stands subsequently cancelled/revoked and the consideration is vice-versed, even in such cases, the assessee's 4 ITA Nos.126-132/BLPR/2011 brokerage was not affected. Hence finality and ultimate registration were not the necessary considerations and conditions for earning brokerage and in some cases, at the time of execution of sale deed, the assessee passes on the consideration to the seller. The assessee has few employees who look after the work. As and when the sale deeds are to be executed, the consideration is handed over by the assessee to his employees, for passing the same to the seller. Since employees of the assessee might be dealing with more than one transaction at a time, an account is prepared by them. Loose papers found during search represent such notings. On some of the loose papers, there is an account of various details like cash commission, registration expenses etc. These details are maintained out of the money given by the buyers. At the end of the deal, such account is given to the assessee by his employees and the assessee in turn accounts for the same to the buyer. The assessee in the course of a day undertakes a number of transactions through his employees and since he is required to deal with number of persons, has to maintain account which was found during search. On some of the pages, details like registration expenses, stamp charges etc. were noted.
This proves that in respect of amounts received from the buyers, the assessee maintained account upto execution of the registered document.
Therefore, notings are not related to the assessee but related to the transactions between the buyer and seller. Hence the gross value of the considerations mentioned in these loose papers by no stretch of imagination could be presumed to be the receipts/payments assessable 5 ITA Nos.126-132/BLPR/2011 as undisclosed income of the assessee particularly when the assessee gets only brokerage at specified percentage in such dealings and nothing more than that. Hence the impugned receipt/payments etc., mentioned in these loose papers should not have been construed as related to the investments made by the assessee in real estates and hence it was vehemently contended that assessment of the same as undisclosed income in the hands of the assessee, unsubstantiated on the strength of evidence, was unsustainable on facts and in law.
Referring to A-l/4/43, it was explained that the entries noted on some of the loose papers are haphazard in nature. On some of the loose papers, no date was mentioned. There was no mention of the names of the buyers/sellers nor was there any description/details of the involved properties relating to the rough jottings/scribbling noted therein. It was explained that all these related to the transactions of the parties for whom the assessee acted as a broker and so in the case of the assessee it is only the brokerage income which was to be considered. The nature of the jottings/scribblings in A-l/4/43 were explained to be almost similar to the jottings in A-1/4/41. The AO was requested to consider the explanation given against A-l/4/41 for arriving at right and reasonable conclusions in respect of the jottings in the impugned A-l/4/43. The explanation was accepted by the AO since there was no addition with reference to that. As per the AO, no details or evidence in respect of the aforementioned transactions, were furnished by the assessee and hence the AO opined that the aforementioned transactions appearing in A-l/4/43 were nothing 6 ITA Nos.126-132/BLPR/2011 but the payments made by the assessee from his undisclosed income.
Similarly, the transactions found noted in Annexure A-l/4, were presumed to be the deposits made by the assessee income, in the huge business done by the assessee.
The assessee submitted before the CIT(A) that search was completed in the first week of December 2006; the entire seized material was in the possession of the Department; the impugned assessments were completed on the last day of limitation i.e. on 31-12-08 and this shows that the learned AO had completed 2 years time at his credit but had not conducted any enquiries nor collected any evidence during this long span, to substantiate the presumptions and adverse inferences to be drawn, if any, against the assessee; but no such evidence was collected against the assessee. The detailed explanation submitted in assessment proceedings was not at all considered; no evidence whatsoever was brought on record either to prove the contrary or to substantiate that the jottings/scribblings in these Annexures represented the unexplained and unrecorded payments/ deposits made by the assessee in the respective years. According to the assessee, the impugned additions made on presumptions and suspicions holding the same to be the payments/ deposits made by the assessee for the respective years, unsubstantiated on the strength of evidence brought on record against the assessee, were opposed to all factual and legal standards and hence the same was urged for deletion.
7ITA Nos.126-132/BLPR/2011 It was further submitted that in the impugned assessment orders, the AO had not given detailed working page-wise with reference to A-
l/4/43 and A-1/4 to substantiate the aforementioned figures/conclusions arrived at. Hence the assessee sought for the aforementioned detailed working together with supporting evidence, if there be any, in possession of the AO to substantiate his presumptions in this regard.
The issue was remanded to the AO with specific directions to submit detailed working of the additions giving page-wise details of A-
1/4/43 and A-1/4 together with supporting evidence and the AO was also directed to submit comments as to why the detailed explanation submitted on 15-12-08 together with its reply on Page No. 10 of enclosures running in 11 pages, was not considered.
In the remand report dt. 23-02-10 the.AO had given the Page Nos.
and amounts mentioned against each and submitted that the entries in the relevant pages of A-1/4/43 and A-l/4 were the payments/ deposits made to several persons and according to him, the source of these amounts were not explained and hence the same were added to the income returned. In the remand report, the AO mentioned that the impugned seized documents were verified in the presence of assessee's employee and since the amounts were not explained, the same were added.
6. The CIT(A) after considering the remand report of the Assessing Officer and submissions of assessee, observed as under :-
1.20 I have gone through the judicial pronouncements relied upon by the AO. The first decision relied upon by the AO was that of CIT 8 ITA Nos.126-132/BLPR/2011 v. D.R.Bansal [2010] 228 CTR 247 [Chhattisgarh]. In that case Tribunal accepted appellant's explanation that loose papers found during search were forged documents planted by two accountants for some ulterior motive and the Tribunal had not adverted to applicability of presumption u/s 132(4A) and hence the High Court remanded the issue to the ITAT. The facts in the appellant's case are entirely different and distinguishable from the above, which is evident from the detailed discussion supra..
1.21 In CIT v. S.P. Jain [1973] 87 ITR 370 [SC], the second case heavily relied upon by the AO, that appellant was proved to have purchased shares in benami names. Whereas in the case of the appellant, it was not proved that the impugned loose papers related to the appellant's unexplained investment in acquiring unrecorded assets either in his name or in the name of any benamidar. Hence the ratio of the Supreme Court decision was misapplied by the AO.
1.22 The third case relied upon by the AO was that of CIT v. South Indian Rubber Products 1987 166 ITR 687 [Kerala], the evidence collected by the AO for making the addition, was ignored by the ITAT and hence the order of the ITAT was reversed and the AO's order was upheld. Whereas in the case of the appellant, despite extensive search operation, no evidence was brought by the AO on record to support the impugned additions made and hence the decision of Ker. H.C. has no application at all to the facts of the instant case.
1.23 Similarly the decision in Shri Meenakshi Mills Ltd. v. CIT [1957] 31 ITR 28 [S.C.], it was cautioned that conclusions have to be arrived at on appreciation of a number of facts and factors established by evidence and this ratio, relied upon by the AO, in my considered view, squarely supports the case of the appellant.
1.24 For arriving at right and reasonable conclusions on the crux of the issue, the aforementioned seized documents have been carefully gone through. The contention of the appellant that the aforementioned jottings on the impugned seized documents, related to the various investors, was substantiated on the strength of affidavits sworn-in by various real estate brokers who deposed to have associated with the appellant in arranging and finalizing the real estate investment dealings of their customers, in mutual co-
ordination with the appellant and vice versa. The AO had examined almost all the deponents and in the discrete examination, they had categorically affirmed the facts deposed in the affidavits sworn-in by them. All of them admitted having not maintained any accounts since it was not obligatory for them to maintain the same. No evidence whatsoever was brought by the AO on record to controvert the categorical depositions of the aforementioned deponents. The AO had also not brought any evidence on record to substantiate his allegation that the impugned jottings in fact represented the unrecorded payments/investments made by the appellant in the respective years and unless such evidence was available on record, 9 ITA Nos.126-132/BLPR/2011 it was impermissible for the AO to invoke deeming provisions against the appellant. It is settled position of law that heavy burden is cast upon the AO to bring evidence on record, to justify application of the deeming provisions of law. This was not done in the instant case, although ample time and opportunity was granted to the AO. The AO had also not brought any evidence on record to disprove the genuineness and correctness of the factual submissions made on behalf of the appellant, explaining the modus operandi of the appellant's business of earning brokerage in the real estate dealings. On appreciation of the evidences available on record, coupled with the uncontroverted depositions of the concerned real estate brokers, it is abundantly clear that the notings are thus not related to the appellant but related to the transactions between the buyer and seller. Hence the gross value of the considerations mentioned in these loose papers, by no stretch of imagination, could be presumed to be the receipt/payments assessable as undisclosed income of the appellant, particularly when the appellant gets only brokerage at specified percentage in such dealings and nothing more than that. Hence the impugned receipt/payments etc., mentioned in these loose papers, in my considered view, should not have been construed as related to the unrecorded investments made by the appellant in real estates. Assessment of the same, as undisclosed income in the hands of the appellant, without bringing corroborative evidence on record, is unsustainable on facts and in law.
1.25 Even if it is assumed that the impugned entries in the seized documents pertained to the unrecorded payments/investments of the appellant, then, corroborative evidence in the form of purchase deeds/ title deeds of the properties etc. should also have been found during the search. No such finding was given by the AO and nothing incriminating was found, either during search or thereafter to substantiate this wild presumption of the AO and to conclusively prove that the appellant made these presumed payments/investments from his undisclosed income earned during the relevant previous years and acquired corresponding value of either movable or immovable assets, which were not disclosed. Record evidences the fact that nothing more than that disclosed, was found during search, either in kind or in coin, to substantiate the impugned presumptive high pitched additions. The fact that no substantial assets over and above those found/inventorised by the search team, were seized, should also go in favour of the appellant and no heavy additions could be made on presumptions, as held in
(i) ITO v. W.D. Estate (P) Ltd. (1993) 46 TTJ (Bom.) 143 : and (ii) Amar Natwarlal Shah v. ACIT (1997) 57 TTJ (Ahd.) 454.
1.26 It is settled position that the very purpose of a search is to take the appellant by surprise and to assess his income on the basis of evidence and material found during search. Once the rationale behind the search is kept in view, it would be clear that the law presumes that the assets or material found in the course of search are exhaustive of the undisclosed income of the appellant. The AO 10 ITA Nos.126-132/BLPR/2011 cannot presume that there must be some other material or evidence which is not found during the search and the appellant must have derived undisclosed income therefrom. To hold that even in the absence of any such evidence or material found during search or thereafter, the AO would be empowered to estimate the income, is fraught with dangerous consequences [Samrat Beer Bar v. ACIT (2000) 69 TTJ 113 (Pune)].
1.27 The appellant has been reiterating from the very inception of the impugned proceedings that he is only a broker in real estate dealings and was not an investor and that the brokerage earned in these dealings was substantially disclosed. Without bringing any evidence to prove the contrary, the AO presumed that the appellant was investor and invested more than Rs. 2.42 crores for acquiring immovable properties. All these unsubstantiated adverse presumptions drawn by the AO against the appellant demonstrates that the power for exercising discretion for delivering the judgment was not exercised judiciously and hence his action in this regard, in my considered view, is opposed to the decision in CIT v. Laxminarayan Badridas (1937) 5 ITR 170 (PC) and the decision in State of Kerala v. V.C.Velukutty (1966) 60 ITR 239 (SC) wherein it was held that the AO must not act dishonestly or capriciously because he must exercise his discretion and judgment in the matter judiciously to ensure that the scales of justice were not weighed against the appellant. Reliance for this proposition is placed on the decision in CIT v. Simon Carves Ltd. (1976) 105 ITR 212 (SC) wherein it was held that the taxing authorities exercise quasi- judicial powers and in doing so, they must act in a fair and not in a partisan manner. Although it is a part of their duty to ensure that no tax which is legitimately due from an appellant would remain unrecovered, they must also at the same time not act in a manner as might indicate that the scales are weighed against the appellant. This is more so because the language used by the law framers in these deeming provisions is "may" and not "shall" and hence significant amount of discretion was vested with the AO which should have been judiciously exercised and by virtue of this discretion inherently vested by the Statute, even if the explanation of the appellant was not found to the satisfaction of the AO, the AO is not obliged to treat the impugned sums on presumptions and assumptions, as payments/investments made from the undisclosed income. [CIT v. Smt. PK. Noorjahan (1999) 237 ITR 570 (SC)]; [CIT v. Moghul Durbar (1995) 216 ITR 301 (AP) ].
1.28 This leads to an irresistible conclusion that the entries in the impugned loose papers were not the payments/investments made by the appellant and since the brokerage earned by the appellant, if any in such dealings having been sufficiently disclosed in the returns, the impugned presumptive additions made, unsubstantiated on the strength of corroborative evidence, are unsustainable on facts and in law. This is more so because in the assessment for the AY 2001-02 in Para No. 3/ Page No 2, the AO himself accepted in 11 ITA Nos.126-132/BLPR/2011 unambiguous terms that :"The rate of brokerage/commission mentioned by the appellant appears to be reasonable".
1.29 There is no dispute that it is a tax on income of the previous year and it would not cover something which is not the income of the previous year or made fictionally so. (1995) 214 ITR 202 (Mad. HC.). In Moolchand v. CIT (1978) 115 ITR 1 (All.) it was held that the AO in fact should boldly accept a situation which stands to logic and which favours the appellant and avoid any bias approach in assessment. Broadly speaking the requirement of giving justice should not only be done but it should also be seem to have been done.
1.30 It was reiterated time and again that the entries noted on the loose papers pertained to third parties, for whom the appellant acted as a broker. If the AO disbelieved this fact/explanation, he should have brought necessary rebuttal evidence on record to disprove the aforementioned facts, by conducting the needed investigation. This was not done and hence the impugned additions made on incorrect appreciation of facts, on presumptions and suspicion, are opposed to the decisions in Dhakeshwari Cotton Mills Ltd. v. CIT, (1954) 26 ITR 775 (SC) ; Omar Salay Mohamed Salt v. CIT, (1959) 3 7 ITR 151 (SC) and Lalchand Bhagat Ambica Ram v. CIT, (1959) 37 ITR 288 (SC)wherein it was held that : There must be something more than mere suspicion to support an mere suspicion can not take the place of proof for the purpose of passing an order of assessment. Similarly in Mehta Parikh & Co. v. CIT, (1956) 30 ITR 181 (SC) it was held that : " any addition unsupported by evidence will be erroneous and unsustainable on facts and in law.
1.31 The seized documents in question may create a doubt but such a doubt, if extensively clarified on the strength of circumstantial evidence to be otherwise, should not have been substituted for proof. In CIT v. Chamanlal Dhingra (1994) 121 Taxation 272 (AIL), the All HC, following the decision of the BOM. HC in Addl. CIT v. Lata Mangeshkar (1974) 97 ITR 696 (BOM.) held that : " The seized documents cannot take the place of proof, rather they merely create suspicion and suspicion, however, grave does not take place of the truth.
1.32 In Kishan Chand Chellaram v. CIT (1980) 125 ITR 713 (SC) it was held that the burden lay on the Deptt. to prove, by bringing proper evidence on record, that the impugned transactions belong to the appellant and that the sums presumed as his undisclosed income/investment, were in fact the income of the appellant earned during the relevant previous years and that the appellant could not be expected to call the third parties in evidence to help the Deptt. to discharge the burden that lay upon it. It was also held that in the absence of corroborative evidence of the third parties, no addition on presumptions could be made.
12ITA Nos.126-132/BLPR/2011 1.33 In S.P. Goyal v DCIT (2002) 81 ITD 85 (Mum.) (TM.) there was no evidence for extra cash, jeweller)' or investment outside the books of account, found during search or thereafter, and hence it was held that explanation offered by the appellant could not be rejected as no addition could be made merely on the basis of suspicion without any corroborating evidence. It is settled position that the Revenue must establish that there was an unrecorded investment in the relevant financial year and presumption raised in search proceeding u/s.132(4A) is not sufficient for assessment.
1.34 In Para No.5/Page No.2 of the assessment order for the AY 01-02, the AO mentioned name of the persons viz. S/shri MA Bhai, Aathar Bhai, Raju Bhai. Naidu, Shafique Bhai, Dhingraji etc. to whom several payments were presumed to have been made. But then, the notings in this Annexure A-l/4/43, evidences the fact that during the year under consideration, the persons through whom the property dealings made, were S/shri Naidu, Bajaj, Zia Bhai, Thakurram, Chopdaji. This demonstrates that the impugned adverse inferences were drawn by the AO on his own presumptions and hence the impugned additions based on such incorrect facts and unsubstantiated evidence, in my considered view, are unsustainable on facts and in law.
1.35 In order to reduce the rigours of new procedure, it is essential that the addition should be made only in relation to such income in respect of which some incriminating material was found during search. There should be no estimation of income and additions thereof merely on presumptions and in any ease not on the basis of mere speculation germane to half-baked discussion of facts or un- corroborated piece of evidence. If nothing incriminating was found during search or thereafter in relation thereto, no addition should be made in respect of such issues, as held in [LMJ International Ltd. v. Dy. CIT (2008) 22 SOT 315 (Kol.)]; Senairam Doongarmal Agency (P.) Ltd. v. K.E. Johnson (1964) 52 ITR 637 (Assam) (FB) and N.K. Textile Mills v. CIT (1996) 62 ITR 58 (Punj.).
1.36 Courts have uniformly taken the view that post-search assessment should be with reference to the seized assets and material gathered during search. It may include the result of further inquiry but necessarily with reference to such materials. In CIT v. Rajendra Prasad Gupta (2001) 248 ITR 350 (Raj.), the HC pointed out that assessment to be framed as a consequence of search should be with reference to undisclosed income. In other words, the estimate is not lightly made in every case of assessment framed as a result of search except on a clear finding giving justification for the same with reference to the material found during search or thereafter.
1.37 In Dr. S. Surendranath Reddy v. ACIT (2000) 72 ITD 205 (Hyd.) it was held that it is the settled position of law that in order to determine the undisclosed income/investment of a previous year falling within the block period, there should be corresponding 13 ITA Nos.126-132/BLPR/2011 matching material available for that previous year. This matching principle is very important for determination of undisclosed income/investments in assessments to be framed as a result of extensive search operations.
1.38 In the case of the appellant, under consideration, as already stated, the jottings/scribblings in the referred loose sheets did not specify as to who were those persons to whom such alleged payments were made and for what consideration the same were presumed to have been made. Since the AO alleged that these were payments made from undisclosed income of the appellant, it was for him to have proved such allegation on the strength of evidence found/recovered if any during search or thereafter. This onus to prove the allegation was not discharged by the AO, There was not even an iota of evidence whatsoever to conclusively prove that the impugned figures appearing on these loose papers, were the payments made by the appellant from undisclosed sources. Except suspicion, there was no evidence in favour of the conclusion arrived at by the AO and since it is settled position that if the decision of quasi judicial authority is based only on suspicion, conjectures and surmises or on no material evidence, the same is to be struck down. For this proposition reliance is placed on the decisions in Monga Metals (P) Ltd. v. ACIT (2000) 67 TTJ 247 (AIL).
1.39 In Elite Developers v. DCIT (2000) 68 TTJ (Nag.) 616 it was held that in scrutiny assessment 'completed in consequence of search, no addition should be made on account of undisclosed income on estimations, presumptions, imaginations and guess work and income estimated on the basis of probabilities, possibilities, guess work, surmises and conjectures, cannot be assessed as undisclosed income, as held in 219 ITR 330 (SC).
1.40 The impugned addition was made purely on presumptive basis and this is against the ratio pronounced by the MP HC in (1996) 218 ITR 48 (MP) wherein it was held that : "Why should every exercise begin with mistrust or no trust ? Law lives on logic and hence any illogicality basing on probabilities/ technicalities or notions is to be spurned."
1.41 In Dy. CIT v. Royal Marwar Tobacco Product (P.) Ltd., (2009) 120 TTJ (Ahmd) 387 it was held that : The undisputed facts of the case are that during the search and seizure proceedings, no evidence and/ or material indicating any suppression in sales or investments, was detected. No material was also found to indicate the undisclosed income earned, if any. In absence of any such evidence/material found during the search, relevant to the aforesaid assessment years, it was held that the CIT (A) was justified in deleting the addition made on assumption and surmises.
1.42 In Atul Kumar Jain v. Deputy CIT, (1999) 64 TTJ (Del) 786, it was held that the paper seized had no evidentiary value and it does not prove that consideration being understated. If the piece of 14 ITA Nos.126-132/BLPR/2011 paper seized during search is considered in the light of the definition of the word "document" as given in the Indian Evidence Act and General Clauses Act, it is found that the said paper contains jottings of certain figures but the same does not describe or express the substance of any transaction and even if the said paper was seized from the possession of the appellant, the contents thereof are not capable of describing the transactions the way the AO has deciphered them without support of corroborative evidence of the parties attributed to the alleged transactions. Therefore, said paper also does not fall within the compass of the meaning of the books of account having credibility of its acceptance without support of corroborative evidence which is admittedly missing. Looking to the nature of the paper seized, the presumptions drawn by the Revenue stood uncorroborated and hence the addition based on such presumptions, unsubstantiated on the strength of evidence, was directed to be deleted.
1.43 The impugned loose papers seized during search had no evidentiary value to draw any wild presumptions against the appellant. Although the AO had not mentioned the section under which the impugned additions were made, for the purpose of resorting to deeming provisions of sections 68, 69, 69A to 69C, in the absence of any adequate material as to their nature and consideration etc, the evidentiary value of these loose papers was insufficient to deem the figures totaled by the AO as undisclosed income. Loose papers, in question, contained only scribblings or rough notes and do not mean anything more. Hence no adverse inferences should have been drawn on presumptions. Over the course of time, the courts have held that the Department has no such authority and unless meaningful data can be culled out which can be corroborated from other material, no addition is called for on the basis of such loose papers. It is for the Department to supply language to such documents, substantiated on the strength of evidence. In the absence of any evidence about the nature of figures noted on the loose papers seized, date, name of the party, considerations for the same, etc. no addition could be made merely on suspicion. (Asstt. C1T v. Shailesh S. Shah (1997) 63 ITR 153 (Bom.).
1.44 It is trite law that if an income not admitted by an appellant is to be assessed in his hands, the burden to establish that there is such income chargeable to tax in the hands of the appellant, is on the AO. With a view to assist the AO and to reduce the rigour of the burden that lay upon him, provisions of sections 68, 69, 69A to 69C have provided for certain deeming provisions, where an assumption of income is raised in the absence of satisfactory explanation from the appellant. As these are deeming provisions, the conditions precedent for invoking such provisions are required to be strictly construed. The facts and circumstances giving rise to the presumption have to be established with reasonable certainty. The AO cannot first make certain conjectures and surmises and thereafter apply the deeming provisions based on such conjectures 15 ITA Nos.126-132/BLPR/2011 and surmises. In the absence of adequate material as to the nature of the transactions, undisclosed income could not be assessed in the hands of the appellant merely by arithmetically totaling various figures jotted down on these loose papers.
1.45 In Brijlal Rupchand v. ITO [1991] 40 TTJ 668 (Indore) it was held that: The only known facts are that certain papers were found in the premises of the appellant and they contained certain calculations ( origin and connection of which is not known ) and no intelligible inference therefrom can be drawn. No sensible inference of any fact can be drawn from such known facts. Hence all the additions made were held imaginary as a result of suspicion.
1.46 Record evidences the fact that on behalf of self and other family members, substantial surrender was made and tax payable thereon, was duly paid. The brokerage disclosed in the block returns was substantially much more than that workable from the notings in this Annexure. No evidence was brought on record either during search or thereafter to prove that the appellant in fact earned brokerage more than that disclosed. The appellant extended all possible co-operation to disclose the income in conformity with the declaration made u/s 132(4) of the Act which is evident from the fact that the substantial surrender and disclosure of the income in the block returns was much more than that declared u/s 132(4). The AO should have appreciated this fact coupled with the fact that the appellant extended all possible cooperation in assessment proceedings by filing detailed replies and explanations clarifying various queries raised - notwithstanding the fact that most of the replies were not at all considered by the AO nor mentioned in the assessment orders.
1.47 For the reasons extensively enumerated above, the impugned presumptive additions, substantiated on the strength of evidence found during search or adverse information/material gathered by the AO during the course of assessment proceedings, in my considered view, are unsustainable on facts and in law. The same are, therefore, deleted. The appellant accordingly gets relief of Rs.2,42,17,171/- (i.e. with reference to A-l/4/43: Rs,16,11,500/-for AY 2001-02, Rs.1,33,33,786/- for AY 2002-03, Rs.20,84,355/- for AY 2003-04,' Rs.5,53,015/- and with reference to A-l/4: for AY 2006- 07, Rs. 18,00,000/- for AY 2004-05, Rs.78,500/-for AY 2005-06, Rs.54,865/- for AY 2006-07, Rs.47,01,150/- for AY 2007-08).
7. In ground No.3 of the appeal for the assessment year 2006-07, the grievance of the Revenue is that the CIT(A) was not justified in deleting the addition of Rs.5,00,000/- made by the AO as unaccounted promissory notes.
16ITA Nos.126-132/BLPR/2011
8. Brief facts of the case are that the AO observed that the assessee borrowed Rs. 5,00,000/- on a promissory note, which was not recorded in the books. The assessee explained that the promissory note was made in connection with a proposed borrowing and the assessee had signed the promissory note and kept it ready, as the financier was to leave the finance amount at assessee's residence, since the assessee at the relevant time would be away from headquarters. Later on, as its terms were not found suitable, no amount was borrowed against these loose papers. They represent an immaterialized proposal and hence no addition should be made. The AO did not accept the explanation of the assessee and added the same u/s.69D of the Act.
On appeal before the CIT(A), the assessee reiterated the submissions and submitted that the promissory note was incomplete as the name of the lender and other details were not properly filled therein.
The assessee in support of his contention filed confirmation from the broker, who was to arrange the finance. The CIT(A) sent this additional evidence for the comment of the AO. The AO in his remand report dated 29.3.2011 stated that the person Mohammad Naushad was not produced for examination and verification of the stated facts and therefore, the assertions of the assessee in this regard, remained unproved and unverified. No justification whatsoever was given for not filing the aforementioned evidence in assessment proceedings before him and therefore the same having been filed for the first time in appeal proceedings, should not be admitted. The CIT(A) observed that the 17 ITA Nos.126-132/BLPR/2011 observation of the AO was nothing but misutilisation of the privilege granted by the law framers by enacting Rule 46A on the Statute Book.
When confronted with these remarks of the AO, the AR of the assessee submitted that neither in the original assessment proceedings nor in the remand proceedings, the assessee was directed to produce the aforementioned person for examination and hence the adversity reported against the assessee in this regard, was unjustified.
The CIT(A) after considering the submissions of the assessee and the remand report filed before him held that the assessee was never directed to produce Mohd. Naushad for examination either in the assessment proceedings or in the remand proceedings, therefore the assessee could not be blamed for not producing the said person for examination and verification. The assessee filed confirmation from the said person, substantiating the facts asserted and requested the Department for getting the confirmed facts, got verified through the AO.
The matter was remanded with specific direction to examine and report the correct state of affairs. In spite of that, the AO has not confirmed the aforesaid facts by carrying out the examination and, therefore, in view of the CIT(A), no adverse inference should be drawn against the assessee.
He relied on the decision of the Nagpur Bench of the Tribunal in case of Laxmandas Kukreja in IT(SS)A No.86/Nag/2001, where a promissory note containing receipt of amount was found and assessee had explained that it was a mere proposal and not the evidence of investment. The Tribunal accepted the explanation of the assessee and the order of the CIT (A) 18 ITA Nos.126-132/BLPR/2011 deleting the addition, was confirmed. Therefore, the CIT(A) held that it was an undisputed position that the impugned borrowing was presumed to have been done on the basis of the impugned promissory notes. The assessee has not admitted of the transaction having been materialized.
The transaction was presumed on the basis of promissory note found/seized during search. The CIT(A) further observed that assuming without accepting that the impugned transaction was materialized, even then provisions of section 69D of the Act were not attracted to the borrowings raised by executing such promissory notes and the addition made by the AO is unsustainable both in facts and in law, therefore, he deleted the addition.
9. In ground No.4 of the appeal for the assessment year 2006-2007, the grievance of the Revenue is that the CIT(A) is not justified in deleting the addition of Rs.20,40,000/- made by the AO on account of undisclosed income from cash transactions.
10. Brief facts of the case are that the AO treated the entries in A-
1/2/19 page Nos.1 to 35 in the seized documents as the assessee's receipt from unrecorded business and accordingly estimated circulating investment together with the presumed profit earned and made addition of Rs.20,40,000/- to the income of the assessee. Before the AO, the assessee explained that these entries related to AY 05-06 and not to AY 06-07 and they represent the real estate dealings of the customers of Manoj Agrawal, who is also a real estate broker- dealt in association with the assessee and this was the account to be passed on to the investor 19 ITA Nos.126-132/BLPR/2011 through Manoj Agrawal. The assessee in support of the same, filed affidavit of Shri Manoj Agrawal. Shri Manoj Agrawal accordingly appeared before the AO and deposed and affirmed the facts stated by the assessee relating to the aforementioned transactions, to be true. The AO had not brought any evidence on record nor confronted the deponent with any contrary evidence, to prove the impugned depositions as false. Neither the search team nor the AO had found/seized any unrecorded valuables, either in kind or in coin, to substantiate and fortify the presumption that the impugned sum represented the undisclosed income/investment made by the assessee in the relevant previous year. No title deeds were recovered to prove the presumed undisclosed income/investment. If the assessee was presumed to be an investor or buyer, then, there must be corresponding seller without whom the purchaser could not be presumed to have purchased/ invested in the assets, since it was for the Department to identify and bring on record, the seller. This exercise and investigation was not carried out. It was for the AO, who was alleging, to prove this allegation. Nothing was brought on record against the assessee to prove this allegation leveled against the assessee on presumption and surmises. The AO has admitted in the original assessment order that the assessee is a real estate broker and the rate of brokerage/commission mentioned by the assessee was accepted to be reasonable. It was submitted that even assuming without accepting that the impugned transactions related to the investors of the assessee, the brokerage available to the assessee in arranging such dealings, was not more than 20 ITA Nos.126-132/BLPR/2011 1% or 2 % , and therefore, there was no necessity for him to make any initial investment, as presumed by the AO. Viewed from this perspective also, the impugned addition made by the AO was unsustainable on facts and in law.
The CIT(A) observed that in the case of the assessee there was not even an iota of evidence whatsoever to conclusively prove that the impugned figures appearing on these loose papers, were the income/investments made by the assessee from undisclosed sources.
Except suspicion, there was no evidence in favour of the conclusion arrived at by the AO and since it is settled position that if the decision of quasi judicial authority is based only on suspicion, conjectures and surmises or on no material evidence, the same is to be struck down. The CIT(A) relied on the decision of Allahabad Bench of the Tribunal in the case of Monga Metals (P) Ltd. v. ACIT (2000) 67 TTJ 247 (AIL). Further, the CIT(A) observed that the Nagpur Bench of the Tribunal in the case of Elite Developers v. DCIT (2000) 68 TTJ (Nag.) 616, has held that in scrutiny assessment completed in consequence of search, no addition should be made on account of undisclosed income on estimations, presumptions, imaginations and guess work and income estimated on the basis of probabilities, possibilities, guess work, surmises and conjectures, cannot be assessed as undisclosed income.
The CIT(A) observed that the entries noted on the loose papers pertained to third parties, for whom the assessee acted as a broker. If the AO disbelieved this fact/explanation, he should have issued summons to 21 ITA Nos.126-132/BLPR/2011 the parties concerned and should have enquired into the facts. This was not done and hence the impugned addition made on unverified and incorrect appreciation of facts, on presumptions and suspicion, is opposed to the decisions in Dhakeshwari Cotton Mills Ltd. v. CIT, (1954) 26 ITR 775 (SC); Omar Salay Mohamed Suit v. CIT, (1959) 37 ITR 151 (SC) and Lalchand Bhagat Ambica Ram v. CIT, (1959) 37 ITR 288 (SC), wherein it was held that: there must be something more than mere suspicion to support an assessment and mere suspicion cannot take the place of proof for the purpose of passing an order of assessment. The CIT(A) further observed that in the case of Mehta Parikh & Co. v, CIT, (1956) 30 ITR 181 (SC), the Hon'ble Supreme Court has held that: "any addition unsupported by evidence will be erroneous and unsustainable on facts and in law. Finally the CIT(A) observed that the seized documents in question may create a doubt but such a doubt, if extensively clarified on the strength of circumstantial evidence to be otherwise, should not have been substituted for proof, hence, he deleted the addition made by the AO.
11. In ground No.2 of the appeal for assessment year 2007-2008, the grievance of the Revenue is that the CIT(A) is not justified in deleting the addition of Rs.2,00,000/- made by the AO on account of unexplained investment in land.
12. Brief facts of the case are that referring to the Annexure A-2/11 pages Nos.1 & 2 of the seized material, the AO found that the assessee has made investment of Rs.2,00,000/- in land. The assessee submitted 22 ITA Nos.126-132/BLPR/2011 before the AO that it was a proposed sale agreement. The assessee was negotiating a deal with one Shri Zakir Khan. Certain terms were agreed upon while some of the conditions like total consideration, payment of balance consideration etc. were not finalized. The vendor had prepared a draft sale agreement and brought it to the assessee. The assessee did not agree with the total consideration proposed by the seller and hence the deal was not materialized. For this reason, the assessee did not sign the sale agreement. Since the assessee was interested in buying the property, the proposed sale agreement was retained by the assessee.
The loose paper did not have any financial impact. In the sale agreement, the column of total consideration, date of balance payment have been left blank. This itself shows that the agreement was incomplete and it was not acted upon. This explanation was not proved as false by bringing any material on record. He observed that this explanation was simply ignored and brushed aside and the impugned addition of Rs.2 lakhs was made as unexplained investment.
On appeal, the CIT(A) called for a remand report from the AO, who in his report dated 5.3.2010 stated that the impugned sale agreement did not bear the signature of the assessee. Therefore, in the given facts and circumstances, to substantiate the evidence, the assessee was required to obtain confirmation of the seller. The assessee obtained confirmation in the form of an affidavit from the vendor. The AO had not brought any evidence on record to controvert the aforementioned categorical 23 ITA Nos.126-132/BLPR/2011 depositions of Zakir Khan made in the affidavit. The CIT(A) deleted the addition by observing as under :-
"12.1 I have gone through the document in question and I find that the same did not bear the signature of the appellant and thus the seized document was an unenforceable agreement and no evidence for investment presumed to have been made by the appellant, was found during search or thereafter. In my considered view, according to the provisions of section 10 of the Indian Contract Act, any contract/ agreement should be signed by the parties to the agreement which is the first and foremost condition precedent for a valid contract. As admitted by the AO in the remand report dt 05-03-10 the impugned document did not bear the signature of the appellant. Even assuming that only one party has signed the contract/ agreement and the other party refused to sign the same, the same does not constitute a valid contract in the eyes of Law as there is no consent between the parties which is one of the essential ingredients of a valid contract. Simply because one party has signed the contract and the other has not, the same will not constitute a valid, contract because both the parties have to invariably execute and sign such document to make such agreement/ contract authentic, since a contract without consent between the parties is ab initio void. In CIT v. Kulwant Rai [2007] 163 Taxman 585/291 ITR 36 (Delhi) the facts of the case before the HC were that the appellant had not signed the agreement in question and since the appellant had not signed the agreement, it was held by the Del. HC that no liability could be attributed qua that agreement towards the appellant since he was not a party to the agreement till he had signed the same. The mere fact that agreement was found in the possession of the appellant did not lead one anywhere. The addition made on surmises and guess- work was deleted . In M.M. Financiers (P.) Ltd. v. Dy. CIT [2007] 17 SOT (Chennai) (URO) the AO made addition towards undisclosed purchase consideration of certain property on the basis of third party's statement and an unsigned agreement found during search. On these facts, it was held that the third party statement and unsigned agreement cannot be acted upon since there was no valid seized material representing the impugned addition towards undisclosed purchase consideration. The addition was based only on surmises and statement recorded from third party. It was held by the Hon'ble Tribunal that while determining the undisclosed income in the search assessments, the AOshall be specific in his statement. He cannot draw his inference on the basis of suspicion , conjectures or surmises, since suspicion , however strong, cannot take place of material proof in support of findings of the AO. The AO should act in a judicial manner, proceed with judicial spirit and should come to judicial conclusion. The AO is required to act fairly as a reasonable person and not arbitrarily or capriciously. An assessment made on inadequate material cannot stand on its own leg. No addition can be made on the basis of noting on loose 24 ITA Nos.126-132/BLPR/2011 sheets in the absence of corroborative material if the Revenue has not found any circumstantial evidence in the form of any investment in cash, jewellery etc. Reliance is also placed on the decision of the then Jurisdictional Bench of ITAT Nagpur in Laxmandas Kukreja ITA/SS No.86/ Nag./ 2001. For the reasons extensively enumerated above, the impugned addition is unsustainable on facts and in law. The same is, therefore, deleted. The appellant accordingly gets relief of Rs.2,00,000/-."
13. We have heard rival submissions and perused the materials available on record. We find that the ld.DR could not point out any specific error in the order of the CIT(A) rendered in the above grounds of appeal raised by the revenue. The copy of loose sheets on the basis of which additions were made, was not produced before us. However, it is not in dispute that the addition was made merely on the basis of certain jottings made in the loose sheets found in the possession of the assessee during the course of search and no corroborative material was found to show that the jottings in the loose sheets were in fact the transactions of the assessee.
The Hon'ble Supreme Court in the case of Central Bureau Of Investigation vs V.C. Shukla & Ors, 1998 (3) SCC 410, held that loose sheets are not admissible in evidence and entries in such loose sheets are not even a prima facie evidence. Still further, the Hon'ble Supreme Court in the case of Common Cause (A Registered Society) Vs. Union of India, [2017] 77 taxmann.com 245 (SC) has held that ;
i) Entries in loose papers/sheets are irrelevant and not admissible under Section 34 of the Evidence Act. It is only where the entries are in the books of accounts regularly kept, depending on the nature of occupation, that those are admissible;
(ii) As to the value of entries in the books of account, such statement shall not alone be sufficient evidence to charge any person with liability, even if they are relevant and admissible, 25 ITA Nos.126-132/BLPR/2011 and that they are only corroborative evidence. Even then independent evidence is necessary as to trustworthiness of those entries which is a requirement to fasten the liability;
(iii) The meaning of account book would be spiral note book/pad but not loose sheets;
(iv) Entries in books of account are not by themselves sufficient to charge any person with liability, the reason being that a man cannot be allowed to make evidence for himself by what he chooses to write in his own books behind the back of the parties. There must be independent evidence of the transaction to which the entries relate and in absence of such evidence no relief can be given to the party who relies upon such entries to support his claim against another;
(v) Even if books of account are regularly kept in the ordinary course of business, the entries therein shall not alone be sufficient evidence to charge any person with liability. It is not enough merely to prove that the books have been regularly kept in the course of business and the entries therein are correct. It is further incumbent upon the person relying upon those entries to prove that they were in accordance with facts;"
In absence of any material brought before us to show either that the assessee had made actually any investment or the assessee had actually sold any asset/investment, we do not find any good reason to interfere with the order of the CIT(A), which is confirmed and the appeals of the Revenue are dismissed.
14. In the result, all appeals filed by the Revenue are dismissed.
Order pronounced in the open court on this 10/01/2018.
Sd/- Sd/- (PAVAN KUMAR GADALE) (N. S. SAINI) न्याययक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER Raipur; ददन ांक Dated 10/01/2018 प्र.कु.मि/PKM, Senior Private Secretary
आदे श की प्रयिलऱपि अग्रेपिि/Copy of the Order forwarded to :
1. अऩीऱ थी / The Appellant-
2. प्रत्यथी / The Respondent-
3. आयकर आयक् ु त(अऩीऱ) / The CIT(A),
4. आयकर आयुक्त / CIT
5. विभ गीय प्रतततनधध, आयकर अऩीऱीय अधधकरण, Raipur / DR, ITAT, Raipur 26 ITA Nos.126-132/BLPR/2011
6. ग र्ड प ईऱ / Guard file.
सत्य वऩत प्रतत //True Copy// आदे शानस ु ार/ BY ORDER, (Senior Private Secretary) Income Tax Appellate Tribunal, Raipur