2013 (4) TMI 749 - AT - Income Tax

Addition on account of loans advances as per Promissory Notes - Held that - A copy of assessee s letter dated 29.12.2009 duly acknowledged by the Assessing Officer in his Tapal on the same date in which the assessee has claimed to have clarified the impugned issue by stating that he has not signed any promissory note to Mr. Sunil D. Khosla neither he knew any such individual. Similarly his mother Malani D. Irshid had not taken any promissory note from any Shri Mandar Kelkar. So the Assessing Officer was not justified in reaching to the conclusion. The Assessing Officer has applied the presumption u/s.143(4A) against the assessee. Normally the said presumption is applicable to the person from whose possession the document is found in the course of search action. The presumption under section 132(4A) is available only against the person from whose possession the document is found and not against the third person. In absence of clinching evidence against the third person as stated above no action has been taken against him. In such situation the Assessing Officer was not justified in making the addition of Rs. 31, 50, 000/- in case of assessee and same has been rightly deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition of Rs. 31,50,000/- made by the Assessing Officer (AO) on account of loans/advances as per promissory notes.
2. Validity of the presumption under Section 132(4A) of the Income Tax Act regarding the ownership of seized documents.

Issue-Wise Detailed Analysis:

1. Deletion of Addition of Rs. 31,50,000/-:
The Revenue challenged the CIT(A)'s decision to delete the addition of Rs. 31,50,000/- made by the AO. The AO had added this amount to the assessee's income based on promissory notes found during a search and seizure action under Section 132 of the Income Tax Act. The promissory notes, which were seized from the premises of Shri Amit Digvijay Singh, bore the names of the assessee and his mother. The AO argued that the promissory notes indicated loans/advances made by the assessee, justifying the addition of Rs. 31,50,000/- to the assessee's income.

The assessee contended that he was merely an employee of Shri Amit Digvijay Singh and had no substantial income or means to lend such a large amount. He denied any connection with the promissory notes and stated that neither he nor his mother had signed any such documents. The CIT(A) called for a remand report, which reiterated the AO's stance but failed to provide conclusive evidence linking the promissory notes to the assessee.

The CIT(A) found the AO's addition baseless and unsupported by substantial evidence. The CIT(A) noted that the promissory notes were undated and lacked corroborative evidence. The CIT(A) emphasized that the presumption under Section 132(4A) applies primarily to the person from whose possession the documents were seized, not to third parties like the assessee. Consequently, the CIT(A) deleted the addition, a decision upheld by the appellate tribunal as it found no reason to interfere with the CIT(A)'s findings.

2. Validity of the Presumption under Section 132(4A):
The AO relied on the presumption under Section 132(4A) of the Income Tax Act, which allows the presumption that documents found during a search belong to the person from whose possession they were seized. The AO presumed that the promissory notes, found in Shri Amit Digvijay Singh's possession, belonged to the assessee and his mother.

The assessee argued that the presumption under Section 132(4A) should apply to Shri Amit Digvijay Singh, from whose premises the documents were seized, and not to him. The CIT(A) agreed, citing legal precedents that the presumption under Section 132(4A) is rebuttable and applies only to the person in possession of the documents during the search. The CIT(A) noted that Shri Amit Digvijay Singh, who had business transactions with the individuals named in the promissory notes, had denied ownership but failed to provide evidence to rebut the presumption effectively.

The appellate tribunal concurred with the CIT(A), stating that the AO had not provided any additional evidence to substantiate the addition of Rs. 31,50,000/- to the assessee's income. The tribunal upheld the CIT(A)'s decision, emphasizing that the presumption under Section 132(4A) could not be extended to the assessee without substantial evidence.

Conclusion:
The appellate tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s decision to delete the addition of Rs. 31,50,000/- to the assessee's income. The tribunal agreed that the presumption under Section 132(4A) applies to the person from whose possession the documents were seized and found no substantial evidence linking the promissory notes to the assessee. The cross-objection by the assessee was also dismissed as it was not pressed during the hearing.