No addition can be made on the basis of dumb papers seized in search without establishing any relation with the assessee – ITAT
ABCAUS Case Law Citation:
ABCAUS 3828 (2023) (12) ITAT
Important Case Laws relied upon by parties:
Clarity Gold Pvt. Ltd. v/s PICTGEM Mart India Pvt. Ltd. [2019] 306 CTR 93 (Raj)
CIT Vs Ashok Kumar Jain 369 ITR 145 (Raj)
Shree Ganesh Trding Co Vs CIT 257 CTR (Jharkhand) 159
Avishkar Infrastructure Pvt Ltd Vs DCIT
DCIT Vs NIBR Bullion Pvt Ltd
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming addition made on the basis of dumb papers seized in search u/s 132 of the Income Tax Act, 1961 (the Act).
The assessee company was doing manufacturing and trading of textile. It had filed its original return of income on u/s 139(1) through e-filing mode.
A search and seizure action u/s 132 of the Act was carried out at the residential as well as business premises of the Group and its family members including their flagship company i.e the assessee.
During the search various incriminating documents / Loose papers were found and some of them were also seized at various places of the group. It was alleged by the Assessing Officer (AO) that records found contained transactions entered In the instant appeal, the assessee had challenged the order of CIT(A) in confirming by the assessee company.
The company stated that it had no connection with the seized paper and these papers were not part of their account and even not taken print from any of company’s computer server.
It was further stated that without prejudice to that if deem it fit, it may be treated sales out of books and suitable N.P. rate may be applied.
The Assessing Officer was not satisfied with the explanation and discounted the same by observing that the absolute denial of ownership over the seized papers was not acceptable for the reason the same were seized from the factory premises of the appellant company and connection of the same with them cannot be ruled out.
The AO deciphered the unaccounted cash on the basis of alleged transactions found in records seized and applied gross profit rate.
The CIT(A) upheld the additions.
The Tribunal noted that the assessee before both the lower authorities categorically submitted and argued that based on the documents seized, the contention of the lower authorities in considering that transactions as undisclosed sales was purely based on the assumption, presumption and surmises. The assessee vehemently argued that Seized documents nowhere contained the name of the appellant, were rough papers and strike off, that these papers were dumb and deaf papers.
The Tribunal observed that the contentions of the assessee were not considered by the CIT(A) stating that the documents were found and seized from the business premises of the assessee. The decision of the CIT(A) was mainly based on the two contentions that the assessee was having regular business with the alleged entities and secondly Director of the assessee company in his statement voluntary admitted the alleged transactions.
The case of the assessee was that the lower authorities had not considered the contention of the assessee that the addition was based on assumptions and surmises but suffer from gross perversity of facts too.
The Tribunal further noted that the assessee contended that it was not even aware of the status or location of the alleged concerns and the assessee never had any business connection whatsoever with these persons/entities. Observations of the CIT(A) that it was an undisputed fact that the assessee company was having its regular business with those alleged entities so correctness of these seized documents and unrecorded transactions mentioned on these papers cannot be ruled out, was simply an illusion without any finding and support.
The Tribunal opined that the contention of the assessee that the it never had any business of any sort with these concerns was not considered and even though these facts submitted there was no finding in the order of the lower authority to this effect based on any evidence. As the statement of the director the same cannot alone be read without any corroboration and cannot form the basis of additions to the total income of the assessee. The documents found during search were dumb documents, documents nowhere bear the name of the assessee, never be correlated with the Books of accounts of the assessee.
The bench also noted that in the same page transaction of bank were also recorded and there was no efforts made to reveal the correctness with the books of the assessee that whether the transactions recorded are part of the books or not.
The Tribunal opined that there was complete lack of enquiry against the contentions raised by the assessee and simply based on the statement the addition of GP was made in the case of the assessee.
The Tribunal also observed that the argument of the assessee was that except these documents which has no relation to any unaccounted sales as alleged there is no other corroborative evidence or no iota of doubt about the shortage or excess of cash or stock which suggest the unaccounted sales and purchase by the assessee. So, the allegation of the revenue was purely based on surmises and conjecture without any evidence and is required to be deleted.
The bench also noted that the Assessing Officer even after examination of the Books of accounts of the assessee could not bring any corroborative fact on record. Thus, addition cannot be sustained solely based on offer of buying peace made by the Director of the assessee company during the course of search when the addition otherwise could not have legally been made to the total income of the assessee.
The bench also noted that none of the authorities below made any allegation as to the correctness of neither the stock register nor the Books of accounts presented before the authorities were found to be unreliable and were also not rejected. The bench also thus considering the facts of the case in that case that a) Seized documents nowhere to contain the name of the assessee, (b) These are rough papers and strike off, (c) No addition can be made in the absence of any corroborative material brought on record (d) That on these papers the heading is ‘my wish list’ and there is no relation established that wish list to the business of the assessee (e) The assessee has not done any business with these concerns (f) These paper contains transaction with the bank and there is no finding that these transactions are of the assessee.
Thus, the Tribunal said that document relied upon by the authorities were dumb papers and without establishing any relation with the assessee no addition can be made considering the various decision cited by the assessee. It was noted that the decision of the Coordinate Bench also supports the case of the assessee.
The Tribunal held that he additions made and sustained to the extent for the year under consideration was purely based on the surmises and conjectures and without any corroborative evidence placed on record.
The Bench also stated that lower authorities considered the assessee had unaccounted sales without making any enquiry and without rejecting the books of account and not a single defect in the books of account or stock records produced by the assessee. During search neither there was excess nor shortage of stock or cash found.
Therefore, the Tribunal held that merely based on the statement of the director of the assessee the addition cannot be sustained the addition was deleted.
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