TMI Blog2014 (1) TMI 1684X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer. Being so, in our opinion, guess work is not possible in case of search assessment framed u/s. 143(3) or u/s. 153A of the Act without any proper material. The AO shall have the basis for assuming that the expenditure incurred by the assessee is out of undisclosed income. It is not permissible to assess the undisclosed income in the absence of any other evidence on arbitrary basis. The unsubstantiated loose sheets cannot be considered as a conclusive evidence to make any addition towards undisclosed income. In the present case, the seized material (two note books) marked as KBR/A/02 and KBR/A/04 wherein certain entries are found recording various transactions pertaining to the assessee. These entries in the notebook are unsubstantiated and on that basis the AO reached to the conclusion that the figures mentioned therein are to be read by adding 3 zeros and thereby he came to conclude that there is undisclosed income in these 6 assessment years. In our opinion, the document recovered during the course of search was a dumb document and led nowhere. The CIT(A) rightly came to the conclusion that it cannot be acted upon and deleted the addition. - Decided in favou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 09 admitting incomes as under. Asst. Year Income returned (Rs.) Agricultural income (Rs.) 2003-04 83,889 7,00,000 2004-05 1,41,55,230 (includes LTCG of ₹ 49,38,085) 6,50,000 2005-06 8,22,630 (includes LTCG of ₹ 50,000) 7,50,000 2006-07 73,21,661 7,50,000 2007-08 42,84,275 (includes LTCG of ₹ 10,39,275) 8,00,000 2008-09 -7,22,080 7,50,000 4. During assessment proceedings, the AO observed that as per the seized material Annexure KBR/A/02 and KBR/A/4, assessee was involved in several financial transactions relating to real estate business for the period 2003 to 2008 and these transactions were written in coded form. He observed that in the statement recorded on the date of search, assessee admitted that the seized books contain details of day to day expenditure. In the statement r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lained to the AO that three digits were omitted for all the bank transactions and two digits were omitted for all non banking transactions. However, the AO held that the assessee had omitted three digits for almost all the transactions i.e. both banking and non banking transactions. The AO for the detailed reasoning given at page No. 15 to 19 of the assessment order, held that up to Sep. 2003 the books were written eliminating two digits and from Sep. 2003 to Apr. 2008, books were written omitting three digits and arrived at the undisclosed income of the assessee and his two wives as under. F.Y. K. Babu Rao (Rs.) K. Sridevi (Rs.) K. Rani (Rs.) 2002-03 209640 209640 0 2003-04 138422220 0 0 2004-05 11596300 0 0 2005-06 77480300 0 0 2006-07 50342750 320780 10296390 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bills, ticket expenses, electricity bill etc. None of these items appearing on these documents would support the contention of the AO to base his addition for all the years under reference. 7. The CIT(A) observed that the AO has proceeded on the basis of some isolated entries that they do not correctly represent what the appellant has considered in his submission. He has made some enquiries independently and obtained information from Delhi Public School about the school fee paid by the appellant for his children. If the payment of school fee is not appearing in the documents, the AO could have made independent addition about such expenditure instead of trying to link such payment to the nearest figure appearing on the documents. He is resuming a particular entry of '100' as one lakh as against 10000 and trying to apportion ₹ 80,000/ towards school fee and balance ₹ 20,000/ as incidental expenses. The entry in the seized document for '100' is appearing on 10 6 2006 whereas the school is confirming that the fee was paid on 12 6 2006 so that it cannot be linked. The argument of the AO is purely presumptuous and on conjectures without any base to make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e multiplication figure uniformly for all entries. More so, when the assessee furnished third party evidences to such entries and the same were not rebutted by the AO in his order. Mere rejection does not amount to rebuttal of the evidences furnished by the assessee. As narrated above, many of such entries do not require supporting evidence to suggest that they are to be multiplied with two zeroes only as they speak themselves. 9. The CIT(A) further observed that the seized papers do not represent regular books of account so that the accounting system is not to be applied. As admitted, they are written by various persons other than the assessee from time to time. Hence one cannot be expected a uniform method and the entries can at best be deciphered by the persons who have written those entries. In view of the above factual matrix, it is not correct to assume that a uniform method is followed in respect of totalling and balancing of the payments and receipts. They are written as and when a particular event of payment or receipt takes place. The entries are totalled for convenience sake but not for accounting purpose. Based on such totalling one cannot assume that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting to period prior to Sep. 2003 that the elimination of two zeroes and from Sep. 2003 onwards, elimination of three zeroes is considered, but in reality, he as in wholesome adopted affixing three zeroes for all the entries in the year. However, the assessee has taken uniform stand for all the entries in the diaries. Instead of identifying the nature of expenditure which necessitates the adoption of higher value than the value adopted by the assessee (by adopting two zeroes), the AO went on to assess the total amount based on affixing three zeroes for all entries which leads to abnormality as well as unrealistic figures. 11. The CIT(A) was of the view that it is very difficult to sustain the stand of the AO in making addition based on multiplication of the entries with '1000', He simply added one zero to the income disclosed by the assessee. Without rebutting the evidences filed by the assessee and without bringing any evidence to his logic, the addition made by him is unsustainable under law. Such presumption of AO needs sound logic and cogent evidence. Lack of unaccounted assets also weakens the case of AO. Therefore, adding three zeroes uniformly to all entries is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is not justified again subjecting the same agricultural income in the hands of the assessee for taxation. Therefore, he directed the AO to re compute the total income of the assessee for all these years under appeal i.e., 2003 04 to 2008 09 by deleting the agricultural income of assessee's wives and following the above directions of adding ₹ 5 lakhs to the income disclosed for each assessment year from 2004 05 to 2008 09. Against this, the Revenue is in appeal before us. 14. The learned DR submitted that the CIT(A) is not justified in deleting the addition by taking certain isolated entries in the seized material to suggest that the amount written by the assessee becomes exorbitant if 000 are added to the figures written by the assessee. Those entries are isolated entries and a conclusion cannot be drawn on the basis of those entries like non vegetarian plus parcel kirana 5.00, Doctor 4.00, Indica diesel 5.00, Sweet and mixture 3.00, Tirupatamma 30.00, Vengaiah (car repair) 3.00, Opel car petrol 5.00, Kirana 4.00, Magic card 10.00, cycle repair 6.00, Non veg 2.00, AC repair 15.00, Indica car repair 13.00, Ramalakshmi salary 10.00, Indica diesel and Doctor fee 10.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gation Wing. During the course of post search operations, K. Babu Rao admitted that the notebooks contained receipts and payments which partly relate to him and partly to others. He also mentioned categorically that the amounts were written in coded form and further that these notebooks were written by his managers and sometimes by his two wives, viz., Smt. K. Sridevi and Smt. K. Rani. The statement of the assessee was recorded on 23 7 2008 by Dy. Director of Income tax (Inv) wherein the assessee has clearly stated about the nature of entries recorded in the seized documents. That these entries relate to receipts and payments of partly to the assessee and partly to others. That they are written by his Managers, workers and his two wives. That the entries are in coded form and all bank transactions are to be multiplied by '1000' and all other transactions are to be multiplied by '100'. 16. The AR submitted that during the course of post search operations, K. Babu Rao fully cooperated with the Department and himself arrived at his undisclosed income as evidenced from the diaries. Although some of the transactions did not relate to him, in order to buy peace with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 73,98,030 36,062 Nil 2006-07 2007-08 43,84,275 72,078 12,79,639 2007-08 2008-09 1,52,920 1,26,078 3,61,733 Total 2,63,73,952 3,54,518 16,41,372 19. Further, in addition to the above, the assessees also admitted the income from agriculture in the Returns as per the evidences of Tahsildar receipts produced before the DDIT (Investigation). The agricultural income admitted by. the three assessees for each of the Assessment Years is as follows: F.Y. A.Y. Sri K. Babu Rao (Rs.) Smt. K. Sri Devi (Rs.) Smt. K. Rani (Rs.) 2002-03 2003-04 7,00,000 2,25,000 NIL 2003-04 2004-05 6,50,000 3,25,000 NIL 2004-05 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nored the bank statements provided by banks and the transactions of which were also mentioned in the diaries and therefore could be easily correlated as to the actual amount of these transactions. In all the cases of bank transactions, the assessee was able to furnish the bank transactions which clearly reveal that the transactions in the diaries relating to the bank were written after eliminating 3 zeros. Copies of the bank statements are being enclosed which clearly identify the transactions recorded in the diaries and clearly prove the fact that the entries were written after eliminating 3 zeros. The Assessing Officer has, with a prejudice mind and without servicing the cause of natural justice, chose to add one more '0' to the non bank transactions thereby making a very high pitched assessment of the undisclosed income. With regard to the non bank transactions also, the noting on diaries reveal payments made which were relating to his business. To the extent that the third party evidence was available, K. Babu Rao was able to produce the same which conforms that the cash transactions were written by eliminating 2 zeros. 22. The AR submitted that the assessee conteste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing off the same only while calculating the taxable income, the AO has sought to inflate the taxable income in a pick and choose manner to his liking. Accordingly it is requested to delete the additions made in such an arbitrary manner by the Assessing Officer and to accept the income admitted by the assessee based on the seized material for which the statement under section 132 was also made and taxes paid. 23. The AR submitted that in the further submissions filed during appellate proceedings assessee pleaded that the AO has ignored the agricultural income of Smt. K. Rani and Smt. K. Sridevi and added the same as business income of the assessee. It is submitted that the agricultural income disclosed by Smt. K. Rani and Smt. K. Sridevi in their returns of income has been accepted by the Department. Hence due credit has to be given to the agricultural income of these two persons and the same cannot be added as income of the assessee as was done by the AO in all the years under appeal. Accordingly it was pleaded that the same may be deleted. 24. The AR submitted that the Assessing Officer on Page 12 of his Order in Paragraph 3.5, has mentioned that there is a discrepancy betwe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to in this [sub-section] pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate; [Provided also that the Central Government may by rules made by it and published in the Official Gazette (except in cases where any assessment or reassessment has abated under the second proviso), specify the class or classes of cases in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made.] [(2) If any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) or section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to sub-section (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Commissioner: Provided that such revival sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries are found recording various transactions pertaining to the assessee. These entries in the notebook are unsubstantiated and on that basis the AO reached to the conclusion that the figures mentioned therein are to be read by adding 3 zeros and thereby he came to conclude that there is undisclosed income in these 6 assessment years. In our opinion, the document recovered during the course of search was a dumb document and led nowhere. The CIT(A) rightly came to the conclusion that it cannot be acted upon and deleted the addition. 29. Other than the loose paper, the AO has not brought on record any corroborative material or evidence to show that the inference made by him is correct. The CIT(A) after taking the totality of the circumstances into consideration came to the conclusion that the addition made by the AO is not justified and the argument put forth by the assessee is supported by documentary evidence. This was not a case where relevant evidence had been ignored by the CIT(A) and their relevant evidence has been taken into consideration. The only test that was required to be applied was whether on the facts found and the state of evidence on record, the conclusion arrive ..... X X X X Extracts X X X X X X X X Extracts X X X X
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