2025 (7) TMI 941 - AT - Income Tax

Undisclosed investment in LIC premium - assessee failed to furnish any proof regarding the claim during the assessment proceedings - CIT(A) deleted addition accepting the assessee s explanation that this investment was made out of current year s income and savings from earlier years - HELD THAT - CIT(A) gave due consideration to cash flow statement of the assessee. The order of the Ld. CIT(A) on this issue is found to be just and fair reasonable and in accordance with law having regard to specific facts and circumstances of the present case before us. Therefore the order of the Ld. CIT(A) on this issue is upheld. Unexplained income - addition based on the dumb document - CIT(A) deleted addition - HELD THAT - As per CIT(A) documents seized at the time of search action u/s 132 of the Act were dumb documents but has not given any valid reason for this observation. On the contrary the AO has fully discussed the contents of the seized documents and has also reverted these submissions made by the assessee in this regard in a conclusive manner. The contents of the seized documents are found to be quite speaking. It is quite logical to draw the inference that has been drawn by AO where on the seized documents. Therefore the aforesaid addition is upheld and the order of the Ld. CIT(A) on this issue is over-turn.

Summary

Two core legal questions were considered by the Tribunal in this appeal arising from an assessment order under sections 143(3) and 153A of the Income Tax Act, 1961 for the assessment year 2009-10. First, whether the addition of Rs. 2,00,000 on account of undisclosed investment in LIC premium was justified, given the assessee's failure to furnish proof during assessment proceedings. Second, whether the addition of Rs. 3,53,00,000 on account of unexplained cash payments, based on documents seized during a search and seizure operation, was sustainable as income from undisclosed sources.

The Tribunal also considered related issues including the applicability of section 69C and section 292C of the Income Tax Act, the evidentiary value of seized documents, the correctness of the Commissioner of Income Tax (Appeals)'s deletion of the additions, and the relevance of precedent decisions concerning the treatment of seized documents as evidence.

Issue 1: Addition of Rs. 2,00,000 for Undisclosed Investment in LIC Premium

The legal framework relevant to this issue involves the provisions of the Income Tax Act relating to undisclosed income and the burden of proof on the assessee to establish the source of investment. The Assessing Officer (AO) had made an addition of Rs. 2,00,000 on the ground that the assessee failed to substantiate the availability of cash on the date of payment of the LIC premium during the assessment proceedings. The AO treated this amount as income from undisclosed sources and initiated penalty proceedings under section 271(1)(c) for concealment and furnishing inaccurate particulars.

In appeal, the Commissioner of Income Tax (Appeals) (CIT(A)) deleted the addition after accepting the assessee's explanation that the LIC premium payment was made directly by a private limited company (M/s A. Automovers Pvt. Ltd.) on behalf of the assessee in lieu of salary payable. The CIT(A) relied on documentary evidence including the salary ledger and salary certificate of the assessee from the company, which was a regular taxpayer. The CIT(A) found that the payment was out of disclosed income and savings, thus negating the claim of undisclosed income.

The Tribunal found the CIT(A)'s order on this issue to be just, fair, reasonable, and in accordance with law, given the facts and circumstances. It upheld the deletion of the addition, thereby rejecting the AO's addition of Rs. 2,00,000 as undisclosed income.

Issue 2: Addition of Rs. 3,53,00,000 on Account of Unexplained Cash Payments Based on Seized Documents

This issue revolves around the treatment of seized documents during a search under section 132 of the Act and whether the entries therein could be treated as conclusive evidence of undisclosed income. The AO had made an addition of Rs. 3.53 crores on the basis of seized loose papers (pages 52 to 56 of Annexure LP-8) containing entries of large financial transactions, including cash payments allegedly made by the assessee. The AO rejected the assessee's explanation that these were mere rough working papers relating to a proposed investment which never materialized. The AO also noted that the assessee's reply that the entries were just numbers and not rupees was vague and unacceptable. The AO correlated certain figures within the seized documents and inferred that the cash payments were made out of undisclosed income. Penalty proceedings were also initiated under section 271(1)(c).

The CIT(A), however, deleted this addition on the ground that the seized documents were "dumb documents" - that is, documents that were not speaking or intelligible on their own and lacked corroborative evidence. The CIT(A) observed that the documents did not bear the assessee's or any representative's signature, did not mention dates or years relevant to the assessment year, and contained entries relating to entities and transactions unrelated to the assessee's business or family concerns. The CIT(A) emphasized that the AO failed to verify or correlate the entries with the assessee's books of accounts, bank statements, or with third parties such as public sector undertakings or tax authorities. The CIT(A) held that additions in block assessment cases must be based on material detected as a result of the search and should not be founded on conjectures or surmises.

The CIT(A) relied on precedents including an ITAT Pune Appellate Bench decision and the case of Thakkar Developers Ltd., which held that in the absence of corroborative evidence, seized documents that are not self-explanatory cannot be the sole basis for additions. The CIT(A) concluded that since the alleged transactions never took place, there was no question of unexplained income, and thus deleted the addition of Rs. 3,53,00,000.

The Tribunal, however, reversed the CIT(A)'s deletion on this issue. It observed that the AO had thoroughly discussed the contents of the seized documents and conclusively controverted the assessee's submissions. The Tribunal found the seized documents to be quite speaking and logical to draw the inference of undisclosed income. The Tribunal criticized the CIT(A) for not giving valid reasons for labeling the documents as dumb and for ignoring the detailed analysis by the AO. The Tribunal upheld the addition of Rs. 3,53,00,000 as income from undisclosed sources.

The Tribunal also noted that the presumption under section 292C of the Act applies to books of account and other documents found during search, provided their contents are intelligible and comprehensible either by themselves or in correlation with other material. The Tribunal found that the AO's inference was reasonable and based on the seized material, which was sufficient to sustain the addition.

Other Issues Considered

The Tribunal briefly considered the issue of whether the CIT(A) erred in deriving analogy from section 158BC in a case governed by section 153C, and the applicability of section 292C introduced by the Finance Act, 2007. The Tribunal did not find merit in the appellant's contentions and treated all other grounds as disposed of in accordance with its directions.

Significant Holdings and Core Principles

On the first issue, the Tribunal upheld the principle that an addition on account of undisclosed investment cannot be sustained if the assessee satisfactorily demonstrates the source of investment through credible documentary evidence such as salary ledgers and certificates, even if the payment is made by a third party on the assessee's behalf.

On the second issue, the Tribunal affirmed that documents seized during a search can form the basis of addition under sections 132 and 153A, provided that the contents are intelligible and corroborated by other material or evidence. The Tribunal emphasized that the presumption under section 292C applies when the documents are speaking and not ambiguous or "dumb." Mere rough notings or uncorroborated papers that are open to multiple interpretations cannot justify additions. However, in the present case, the Tribunal found the seized documents sufficiently speaking and corroborated to uphold the addition.

The Tribunal stated: "The contents of the seized documents are found to be quite speaking. It is quite logical to draw the inference that has been drawn by Assessing Officer where on the seized documents."

Further, the Tribunal observed that "the presumption under section 292C of the Act does raise a presumption against the assessee who has been searched upon that the contents of books of accounts and other documents found from his possession or control are true. However, the word contents used in this section presupposes that the contents should be or are intelligible, comprehensible and speaking either by itself or in correlation with other material or upon further investigation."

In conclusion, the Tribunal partly allowed the appeal by upholding the deletion of Rs. 2,00,000 addition but restored the addition of Rs. 3,53,00,000, thereby affirming the Assessing Officer's order on the larger undisclosed income issue.