2025 (7) TMI 965 - AT - Income Tax

Addition u/s 69A - Addition based on seized loose papers - HELD THAT - Scribbling as found noted in the seized pages does not speak about the true nature whether they were in respect of receipt of money or payment of money nor was any effort made by the AO though he had all the whereabouts of the persons whose names are written therein. It appears that the AO was bent upon to make the addition of this amount by any means without bringing any corroborative evidence on record to hold that the amounts noted against these 13 persons is the unexplained money of the assessee. More particularly when one person namely Shri Ravi Malhotra whose identity was written as Jijaji in the seized papers had appeared and denied any such transaction. It is also seen that no action is taken in the hands of any of the person whose name is written in the said seized papers even though their particulars were available with the AO. The entire addition is based on the suspicion and surmises. In view of these facts we are left with no option but to delete this entire addition which has been found to have been made based on no corroborative material and based on dumb documents. Accordingly we hereby delete the addition made by AO alleged as found noted in the seized papers and further delete to addition made on account of interest thereon. Assessee appeal allowed. Disallowance of expenses and Addition on account of unexplained cash - HELD THAT - Addition was challenged by the assessee in first round of appeal before CIT(A) who vide its order dated 15.09.2014 has confirmed the disallowance in terms of para 17 of the very same order. This fact is also observed by AO in the present order passed u/s 254/143(3) in para 2. Further the assessee has not challenged the order of Ld.CIT(A) and accepted such disallowance. Therefore we find no occasion to challenge this disallowance before us in the present appeal accordingly Ground raised by the assessee is dismissed.

Summary

The core legal questions considered in this appeal pertain primarily to the validity and correctness of additions made by the Assessing Officer (AO) under the Income Tax Act, 1961, specifically:

• Whether the addition of Rs. 6,81,55,760/- under section 69A on account of unexplained investments based on seized loose papers is sustainable.
• Whether the addition of Rs. 16,25,000/- as unexplained interest income related to the above amount is justified.
• Whether the disallowance of expenses amounting to Rs. 1,27,664/- is appropriate.
• Whether the addition of Rs. 3,76,026/- on account of unexplained cash is justified.
• Whether the presumption under section 132(4A) and the evidentiary value of the seized documents (loose papers) can sustain the additions.
• Whether the provisions of sections 234B and 234C regarding interest are applicable.
• Whether the additions and orders are arbitrary, illegal, or violative of principles of natural justice and jurisprudence.

Issue-wise Detailed Analysis

1. Validity of Addition of Rs. 6,81,55,760/- under Section 69A Based on Seized Loose Papers

Relevant Legal Framework and Precedents: Section 69A applies when the assessee is found in possession of money, bullion, jewellery, or other valuable articles not recorded in books of account. The burden lies on the Revenue to prove that the seized documents represent actual transactions and unexplained investments. The presumption under section 132(4A) is rebuttable. The evidentiary value of loose papers or "dumb documents" is limited unless corroborated by independent evidence. Key precedents include:

• Common Cause vs. UOI (Sahara Diaries case) - Supreme Court held that loose sheets, diaries, or random entries not maintained as regular books of account are inadmissible as evidence and cannot form the basis of additions.
• CBI v. V.C. Shukla (Jain Diary Hawala case) - Diary entries alone cannot be treated as evidence without corroboration.
• CIT vs. Girish Chaudhary - Documents must be "speaking" and contain narration; otherwise, they are dumb documents.
• Habitat Royale Projects Pvt. vs. ACIT - Additions based on projections or loose papers without corroboration are not sustainable.
• ACIT vs. Satyapal Wassan - Emphasized the need for documents to be clear, definite, and corroborated to sustain additions.

Court's Interpretation and Reasoning: The seized pages (Nos. 23 & 24 of Annexure A-2) were handwritten by the assessee but contained only rough, undated, unsigned jottings with no clear indication of the nature of transactions-whether loans taken, loans given, or interest payable or receivable. The assessee explained these as mere memoranda for potential loans to be taken for purchasing property, which were never actualized due to high-interest costs.

The AO made additions treating these as unexplained investments under section 69A, assuming loans were given by the assessee out of unaccounted income. However, the AO did not summon or verify the parties named in the papers, except one close relative who denied any transactions. The AO's conclusion was based on surmises and conjectures without corroborative evidence.

The Tribunal noted that the loose papers are not part of books of accounts and do not constitute admissible evidence. The entries are "dumb documents" lacking necessary particulars such as dates, signatures, or clear narration. The presumption under section 132(4A) is rebuttable, and the assessee's plausible explanation was not effectively rebutted by the Revenue.

The Tribunal also observed that the amount noted (Rs. 6.81 crores) was disproportionate to the property value (approx. Rs. 1.10 crores) for which the loans were allegedly planned, further undermining the AO's assumption.

Key Evidence and Findings: The assessee's explanation during search and assessment proceedings, the statement of the wife, absence of corroborative evidence from named parties, and the disproportionate amounts noted in the seized papers.

Application of Law to Facts: The Tribunal applied the principle that additions cannot be based solely on dumb documents without corroboration. The presumption under section 132(4A) was rebutted by the assessee's explanation and lack of evidence from the Revenue. The addition under section 69A was therefore unsustainable.

Treatment of Competing Arguments: The Revenue argued that the seized papers belonged to the assessee and the onus shifted to him to disprove the additions. However, the Tribunal found that the Revenue failed to produce corroborative evidence or summon the parties effectively, relying instead on assumptions.

Conclusion: The addition of Rs. 6,81,55,760/- under section 69A is deleted.

2. Addition of Rs. 16,25,000/- as Interest Income on Unexplained Investments

Relevant Legal Framework and Precedents: Interest income addition is consequential to the principal addition. If the principal addition is not sustainable, the interest addition also fails. The rate of interest noted was unnatural and inconsistent.

Court's Interpretation and Reasoning: Since the principal addition under section 69A was deleted, the interest addition based on the same premise was also unsustainable. The Tribunal noted the unnatural interest rates and the lack of any actual transaction.

Application of Law to Facts: The interest addition is directly linked to the principal amount; without the principal addition, the interest addition cannot stand.

Conclusion: The addition of Rs. 16,25,000/- as interest income is deleted.

3. Disallowance of Expenses of Rs. 1,27,664/-

Court's Interpretation and Reasoning: This disallowance was upheld by the Commissioner of Income Tax (Appeals) in the first round of appeal and was not challenged further by the assessee in the present appeal.

Conclusion: The disallowance is confirmed; ground dismissed.

4. Addition of Rs. 3,76,026/- on Account of Unexplained Cash

Court's Interpretation and Reasoning: This addition was confirmed by the CIT(A) in the first round of appeal and was not challenged in the present appeal.

Conclusion: The addition is upheld; ground dismissed.

5. Evidentiary Value of Seized Loose Papers and Presumption under Section 132(4A)

Relevant Legal Framework and Precedents: Section 132(4A) provides a rebuttable presumption that seized documents belong to the person from whose possession they are recovered. However, this presumption is not conclusive and can be rebutted by evidence. Loose papers or dumb documents require corroboration to be relied upon for making additions. Key precedents include:

• ACIT vs. Satyapal Wassan - presumption under section 132(4A) is rebuttable and requires judicial application of mind.
• Orissa Corporation case - burden on Revenue to establish the case against the assessee when names and addresses are furnished.
• Various Supreme Court and High Court rulings emphasizing that mere entries in loose papers or diaries without corroboration do not constitute evidence.

Court's Interpretation and Reasoning: The Tribunal found that the seized loose papers were mere rough jottings without dates, signatures, or clear narration. The assessee gave a plausible explanation that these were memoranda for potential loans that were never taken. The Revenue failed to produce corroborative evidence or summon parties effectively. The presumption under section 132(4A) was thus rebutted.

Application of Law to Facts: The Tribunal applied the principle that the presumption under section 132(4A) is rebuttable and requires corroborative evidence for additions. The AO's reliance on dumb documents without investigation was held to be arbitrary.

Conclusion: The additions based on these seized loose papers are not sustainable.

6. Applicability of Sections 234B and 234C (Interest Provisions)

Court's Interpretation and Reasoning: The levy of interest under these sections is consequential to the income assessed. The AO is directed to charge interest as per the income computed after the Tribunal's order.

Conclusion: Interest is to be charged mandatorily and consequentially on the reduced income.

7. Allegations of Arbitrariness and Violation of Principles of Natural Justice

Court's Interpretation and Reasoning: The Tribunal found that the AO's additions were based on assumptions, surmises, and conjectures without corroborative evidence. The AO did not exercise powers to summon parties or conduct proper investigation, thereby making the additions arbitrary.

Conclusion: The Tribunal held the additions to be arbitrary and unsustainable.

Significant Holdings

"The entries contained in the said loose papers does not mention about any transaction and therefore, the same at most could be held as dumb documents based on which no addition could be made."

"No addition on the basis of dumb documents: The presumption under section 132(4A) is rebuttable and the assessee's plausible explanation, not rebutted by any material evidence, must be accepted."

"The Assessing Officer has made the addition on the basis of surmises and conjecture without any corroborative evidence or material on record to justify the same."

"Addition under section 69A is not tenable where the assessee is found in possession of loose slips and not any money, bullion, jewellery or other valuable article."

"Entries in loose papers are irrelevant and inadmissible as evidence and cannot be the sole basis for charging income tax liability."

"The burden lies on the Revenue to prove the undisclosed income beyond doubt and documents should be speaking and contain narration in respect of various figures noted therein."

"The presumption under section 132(4A) is optional and rebuttable; the AO must apply judicial mind and produce corroborative evidence."

"Additions based on assumptions, surmises, guesswork, and conjectures without independent corroboration are unsustainable."

"The levy of interest under sections 234B and 234C is mandatory and consequential to the income computed."

Final Determinations

• The addition of Rs. 6,81,55,760/- under section 69A and the related interest income addition of Rs. 16,25,000/- are deleted.
• The disallowance of expenses of Rs. 1,27,664/- is upheld as not challenged.
• The addition of Rs. 3,76,026/- on account of unexplained cash is upheld as not challenged.
• The presumption under section 132(4A) was rebutted by the assessee's explanation and lack of corroborative evidence from the Revenue.
• The additions based on dumb documents and conjectures without corroboration are unsustainable and arbitrary.
• The AO is directed to levy interest under sections 234B and 234C on the income computed after the Tribunal's order.
• The appeal is partly allowed accordingly.