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June 17, 2022

It is unsustainable to make additions based just on loose paper.

by CA Shivam Jaiswal in Income Tax

It is unsustainable to make additions based just on loose paper.

Facts and Issue of the case

The present appeal has been filed by the assessee against the order of the ld. CIT( A)-17 , New Delhi dated 21 .11.2017 .
The only tangible ground taken up by the assessee is as under:

“2. That on  the  facts and circumstances of  the  case and in law the ld. CIT(A) was not justified in upholding the action of AO  in making addition of Rs.55 ,00,000/- on the basis of contents of the seized document, page – 8 of Annexure A-5/RS-1, by treating the amount as unexplained and invoking section 69C of  the  Income Tax Act, 1961 .”

A search and survey operation u/ s 132/133A of the Income tax Act, 1961 was carried out on 15.10 .2013 in SRM group of eases by the Investigation Wing, New Delhi. Simultaneously, a survey was carried out on M/s Shree Raj Mahal Jewellers Ltd., M/ s PLB Infrastructure Pvt. Ltd., M/ s Shree Raj Mahal Diamonds Pvt. Ltd., at 2633 & 2634, Bank Street, Karol Bagh, New Delhi wherein papers/ documents related to M/s  Solitaire World Pvt. Ltd. was found and impounded. Subsequently, the case was centralized from Ward-68 (2), New Delhi u/ s 127 of the IT Act, 1961, by the jurisdictional CIT vide order F.No. CIT- B/Delhi/Centralization/2014 -15/686 dated 06 .02. 2015 and the assessment u/s 143(3) has been completed on 29.03.2016.

During the  survey proceedings Annexure A-5,  Page No.8 was impounded which shows transactions and  on  top  of the paper ‘Received A/ c’ and ‘Payment A/c’ is written. In the said document, in the ‘Received A/ c’ side property description “62 /1 Ajmal Khan Park” was found mentioned. During the post survey proceedings, on being asked to explain the contents of the said document, it was submitted that the above property description belong to M/s Solitaire World Pvt, Ltd. which is a part of SRM group of company. During the assessment proceedings, the assesses was asked vide letter dated 23.02 .16 to furnish the following details with  respect to aforesaid document.

After going through the replies, the Assessing Officer held that the assessee failed to reconcile the amounts mentioned therein with its books of accounts. It was held that the assessee has only mentioned that figures on seized Pages were reconciled with some other page and rent accounted for  in  books  of accounts and accordingly, an amount of Rs. 11,17,000 /- has been surrendered on the basis Annexue A-1 seized, from premises R-4 for pages 4-6 , As far as the impounded document is concerned, the assessee admitted that  the  amounts  are written in thousands and accordingly made the surrender. In the same manner, in this document also, the amounts are bound to be   mentioned   in   thousands.   Hence,    the    amount    of Rs.55 ,00,000 /- and an amount of Rs.20,00 ,000/- totaling to Rs.75 ,00,000 /- has been added to the total income of the assessee based on the notings on  the  documents  on  04 /12 being 5500 and 2000 CHQ. Aggrieved the assessee filed appeal before the ld. CIT( A).

The ld. CIT( A) gave remission of Rs.20 ,00,000 /- paid by cheque as forming part of the regular books of accounts. The revenue accepted the decision of the ld. CIT( A) on the issue of remission of Rs.20 ,00 ,000/- and no appeal has been filed. Aggrieved the assessee filed appeal before the Tribunal against the confirmation of Rs.55, 00,000/-.

Before this court, the ld.  AR argued that  the  entries cannot be read in isolation but they have to be read holistically. It was argued that the total receipts on  the  said impounded page have to be taken into consideration. It  was  argued as  per  the  page the  total  receipts  (Received   A/ C)   were   to   the   tune   of Rs.2 ,19,70 ,000/- whereas the total expenditure ( Payment A/C) was Rs.3,32 ,89,000/- (Payment A/ C). He relied on the orders of the Co- ordinate Bench of ITAT in the case of D. Suresh Vs. ACIT in ITA Nos.  462  & 463/Bang./2020, ACIT Vs Sharad Chaudhary 55  Taxmann.com 324 and the judgment of  Hon’ ble Kolkata High Court in the case of Pr. CIT Vs. Ajanta Foot Care 84 Taxmann.com 109.

On the other hand, the ld. DR relied on the order of the ld. CIT( A). Placing reliance on the ld CIT( A)’s order and that no explanation was provided in appellate proceedings nor any supporting document was adduced as  regards to the figure of 5500 as stated by CIT( A) in para 5.2  of  impugned  appellate order dated 21. 03.2018. It was argued that the assessee has not explained as to the source of Rs.55 lacs and the additions under section 69 C of the Act are, therefore, justifiable and may kindly be upheld. Therefore,  in   the   light  of   the  definition  of   the expression ‘ document’ and in the light of admissibility of the said document based upon the statements made by the assessee, the additions made  by  the  Assessing  Officer  cannot  be found  fault with. Though there was a retraction of those statements by the assessee,  those retractions  were  rightly  rejected  on  the appreciation  of  the  return filed  on   27 .09 .2002  where  admittedly, a particular  amount   was shown as undisclosed income. Therefore, the retraction is of no avail in l ight of section 132( 4) and its Explanation. In view of the above, the   question   of   law   are answered    in     favour    of    the appellant/ Department and the appeal is allowed. No costs.”

Observation of the court

Heard the arguments of both the parties and perused the material available on record. Court finds that the case quoted by the ld. DR of the Hon’ ble Madras High Court in the case of S. S. Shankar Vs. ITO (107 Taxmann 55 ) dealt with issue of expenditure on credit  cards which is not applicable to the  facts of  the  instant case  before us.

Similarly, in the case of S. A. Prajapati Vs. ACIT, CC-22 , Ahmadabad (88 Taxmann 369) dealt with cash withdrawals. Hence, not applicable to the facts of the instant case before this court. CIT Vs. Narendra Kumar Gupta  (55  Taxmann 371)  dealt with the issue of bogus bills, hence, not applicable to the facts of the instant case before us. ACIT Vs. Subhash Verma (125 TTJ 865) deals with the issue of cash loans and  subsequent payment to LIC. Hence, not applicable to the facts of the instant case before us. Grand Bazar Vs. ACIT (166 Taxmann 232 ) dealt with the issue of cash credits in the books of account. Hence,  not applicable to the facts of the instant case before this court.

Similarly, the ld. DR’s reliance on the judgment of Hon’ ble Apex Court in the case Pradeep Kumar Vs. ITO ( 101 Taxmann 131) is not applicable to the  facts of  the  instant case  as  the said judgment of the Hon’ ble Apex Court dealt with the gross profit rate and the stock reconciliation. In the instant case, the impounded  material  reflects receipts and payments and the assessee has already paid the difference of the amounts to taxation after going through the entire set of papers. The property 62/1 , Ajmal Khan Park has been purchased on 08.11.2012 whereas the notings reflect 04.12.2012. The transaction of  purchase of  the  said property has culminated on 08 .11.2012. Hence, the probability of any payment post, purchase of a property is also ruled out. The assessee has offered to tax the amount on account of the payments A/ c and receipts A/ c.  The  case  laws relied upon  by the revenue are not applicable to the facts of the case. Reliance is being placed on the order of the Co-ordinate Bench of ITAT in the case of D.S. Suresh Vs. ACIT in ITA No.  462  & 463/Bang./2020 wherein it was held that there  should  be material on  record to show that there is an  undisclosed income on the basis of material on hand with the Assessing Officer and guess work is not possible. The Assessing Officer shall have the basis for assuming that the assessee has not  disclosed  the income for taxation. Reliance was also placed on the decision of Hon’ ble Supreme Court in the case of CBI Vs. V.C. Shukla 3 SCC 410. In the case of ACIT Vs. Sharad Chaudhary in 55 Taxmann 324, it was held that the loose paper found on standalone could not be used as a basis for making the addition without  the company of  any  other  supportive material and  evidence, more so when the contents were  not  interlinked. Hence, keeping in view the fact that the assessee has offered the  amounts mentioned on  the impounded material which has  been accepted by the revenue and also keeping in view that revenue has not brought anything on record to prove that the assessee is liable to pay the taxes more than what has been already disclosed and also keeping in view the fact  that  the  transactions  of  Ajmal Khan Park, 62 /1 stands culminated, we hereby direct that the addition made be deleted.


The appeal of the assessee was allowed by the court.


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