M/S. GLOBAL STAR INDMETAL PRIVATE LIMITED ,UDUPI vs. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1, MANGALORE

4.1 The ld. A.R. for the assessee also argued that the above addition was made purely on assumptions and presumptions, based on some loose sheets/rough sheets, which was on a plain paper, which was undated/unsigned, which was unearthed during survey conducted under section 133A on 27.12.2016. In fact, no other materials were found at the time ofsurvey conducted on the assessee. Further, the above addition was made purely on assumptions and presumptions, based on some loose sheets/rough sheets, which was on a plain paper, which was unearthed during survey conducted under section 133A on 27.12.2016. In absence of any cogent evidence or corroboration in support of the entries in loose sheets, no adverse conclusion can be drawn against the assessee on mere guess and pure suspicion. Hence, AO is not justified in law in making additions of Rs. 15,00,000/- by reopening the assessment u/s 147, which is purely on assumptions and presumptions by relying on evidence and also the other loose sheetsfound at the time ofsurvey u/s 133A in the case of SCDCC Bank, whereinMr. M.N Rajendra Kumar is the President.

, 52/Bang/2024 Page 4 of 19 4.2 The above arguments are considered by the ld. CIT(A). Contrary to the claim of the assessee, the impounded materials were cogent, coherent and were part of the unaccounted books of account. As stated earlier, among the impounded materials, the dispatch records which are part of the business records of theassessee were analyzed and consolidated to ascertain the quantum of unaccounted scrap sales in different years. These records clearly pointed out theperiod of such scrap sales, the persons to whom such cash sales were made, amount of cash collected and the reference to the impounded materials in each case. The documents are well structured, have reference to time frame and the persons involved. All these facts and materials are corroborative in nature and are very much relevant in ascertaining the unaccounted income in the hands of the assessee. Therefore, disregarding these evidences as dumb documents are ruled out as the impounded materials have adequate evidentiary value.

4.3 Further, a sworn statement u/s 132(4) was recorded from the Managing Director of the assessee who had admitted to the generation of unaccounted income by unaccounted sale of scrap in cash. The admission was categoric and unambiguous. The materials impounded at the survey premises have equal evidentiary value as that of the materials seized from such premises. In this case, the impounded materials were not disputed and the only question raised was its relevance to the case. In this regard, it is pointed out that the materials were impounded from the survey premises i.e. SCDCBL where the Managing Director of the assessee, Mr. M.N. Rajendra Kumar was the President for more than 20 years and was having an office at this premises from where the materials were impounded. Precisely for this reason of suspicion, a survey was conducted rightfully and as expected, the , 52/Bang/2024 Page 5 of 19 materials reflecting true nature of business transactions of the assessee were recovered. It is quite a commonplace practice that the unaccounted affairs of the taxpayers are kept in secret and unassuming locations/places to avoid being detected. Knowing this, search/survey actions are conducted in multiple premises where it is suspected that the actual documents reflecting true nature of business affairs are kept by the persons on whom such actions are initiated. In this case, the search/survey actions wereinitiated against Mr.M.N.Rajendra Kumar and others in multiple premises wherever it was suspected that the unaccounted documents/books of account would have been kept by them. Since Mr. M.N Rajendra Kumar was the President of SCDCBL and had an office in the premises of SCDCBL, survey action was undertaken, and relevant unaccounted documents were recovered. The assessee's argument that the documents were recorded from third party premises and therefore, not to be considered as evidence is unacceptable and unreasonable.

4.4 The final argument of the assessee was that the statement provided u/s 132(4) was retracted and therefore, has no credence is discussed below. The retraction statement was filed by the assessee on 02.08.2018 before the AO. This retraction statement was filed after 18 months of the original sworn statement. The relevant portion of the retraction is reproduced below.

As regards M/S Global Stars IndmetalPvt. Ltd. (Q.NO. 15 of statement recorded on 03.02.2017)(Rs.55,00,000/-) a. The search party had shown some loose sheets/rough sheets, which was on a plain paper, which was undated, unsigned, , 52/Bang/2024 Page 6 of 19 having some figures. Search party alleged that the same was found in the bank premises. b. Upon receiving the statements recorded from the search party, I have discussed about the correctness of statements recorded with other Directors of the Company and employees who are entrusted with the business and all the persons have stated that no sales as alleged in the statement have been left unaccounted in the Books ofAccount. c. Under the above facts I am constrained to retract the declaration admitted on account of following preliminary grounds: i I am not actively involved in the day today operations of M/s. GlobalStars Ind Metal Pvt. Ltd. ii I am not a principal officer as defined u/s 2(25) of the Act. iii I will forward the copies of the seized materials to the company and get their comments also. Kindly note I have not been provided the opportunity till 25.06.2018 inspite of the repeated request so that I can atleast forward the seized materials to the Principal Officer of the above said Company. iv I have made a preliminary review of the Seized materials from the Department and willfile the detailed clarification in this regard once again after thorough study thereof v The entire admission was due to active pressure and at the behest of search party. vi I have been given to understand regarding the sale of scrap at Chennai branch of the company, from Mr. Sunil Kumar, that this allegation is incorrect and the Company has not received any such cash over and above the actual sale price and all the sales have been , 52/Bang/2024 Page 7 of 19 duly accounted and declared in the financial statement of the Company. vii I also request the Income tax department to get the confirmation from the alleged persons who have purchased the said scrap by giving us cash and provide us an opportunity to cross examine the same ifrequired. viiiConsequently, I therefore deny this allegation as incorrect, accordingly the statement recorded from me on 03.02.2017 andsuch other consequential statements in pursuance thereof on16.02.2017, in answer to question No. 15 & 6 respectively made by me was without proper information and under coercion, stress, duress, undue influence and accordingly I hereby expressly withdraw my declaration in question No. 30 of the statement dated 04.02.2017.

4.5 In addition to the above, Mr. M.N Rajendra Kumar also contended that he was under mental agony, stress, confusion and restless and the statement was taken under duress. General allegations were raised in the retraction letter without adducing any evidence. Being the key person and prominent businessman who ran numerous businesses for over 4 decades and acted as Director and then the President of SCDCBL for over 31 years, and has also acted as Director/President/Honorary Chairman for many Co- operative Societies and Co-operative Banks, it is hard to believe his claim that he did not have expert knowledge in understanding the financials or had the lack of understanding of the law and facts relating to his business affairs.

“11.15 Further, the loose sheets was interpreted by the ld. AO that these are unaccounted cash payments made by present assessee. But no amount or date has been mentioned in it. At this point it is appropriate to consider few judgements on this count. a) CIT Vs.K.V. Laxmi Savitri Devi Vs. ACIT 60 DTR 148, wherein held that no addition can be made on the basis of loose papers which does not contain the name and date of payment. The department is precluded in drawing inference on the basis of suspicion, conjectures and surmises and no addition can be made on the basis of such document or loose slips. b) In the case of K.V. Laxmi Savitri Devi Vs. ACIT 60 DTR 148 it was held by the ITAT Hyderabad Bench that "No addition can be made on the basis of a loose paper which does not contain the name and the date of payment. The department is precluded in drawing inferences on the basis of suspicion, conjecture and surmises and no addition can be made on the basis of such dump document or loose sheets. 11.16 On further appeal before the Hon'ble AP High Court, the court vide its order in ITTA No.563 of 2011 upheld the decision of the Tribunal. While upholding the decision of the Hon'ble ITAT, the court held as following: " We are of the view that the Tribunal has rightly held that the registered document dt.21-08-2006 under which the respondent purchased the above property showed that only Rs.65.00 lakhs was paid to the vendor by the respondent; that there was no evidence to how that the respondent had paid Rs.1.oo crore in cash also to the vendor; that no presumption of such payment of rs.1.00 crore in cash can be drawn on the basis of an entry found in a diary/loose sheet in the premises of C. Radha Krishna Kumar which is not in the respondent's handwriting and which did not contain the name of the , 52/Bang/2024 Page 9 of 19 respondent or any date of payment or the name of the person who made the payment. It rightly held that the Revenue failed to establish the nexus of the seized material to the respondent and had drawn inferences based on suspicion, conjectures and surmises which cannot take the place of proof. We also agree with the Tribunal that the assessing Officer did not conduct any independent enquiry relating to the value of the property purchased and the burden of proving the actual consideration in the purchase of the property is on the Revenue and it had failed to discharge the said burden." 11.17 No undisclosed Income can be computed by invoking the presumption U/s 132(4A) when the documents are seized from the premises of a third party. This was held in the case of [2005] 147 Taxman 59 (Visakhapatnam) (Mag.) In the ITAT Visakhapatnam Bench Smt. Bommana Swarna Rekha v. Assistant Commissioner of Income-tax. A presumption can be raised on the basis of possession of a document found during the course of search only against a searched person and, thus, no adverse inference could be drawn against the assessee on the basis of the possession of the diary with the third party. This was held in the case of SMC Share Brokers Ltd Vs DCIT [2008] 22 SOT 7 by Hon'ble ITAT Delhi. "Where Assessing Officer made addition to assessee's income on basis of a document seized in course of search, in view of fact that document seized was both undated and unsigned and even taken at face value did not lead to further enquiry on behalf of Assessing Officer, impugned order of Tribunal deleting addition was to be confirmed. Where Assessing Officer in course of block assessment proceedings made addition in respect of unexplained investment relating to purchase of property, in absence of any incriminating evidence with respect to payment over and above reported amount, addition so made deserved to be deleted." 11.18 The High Court of Delhi in the case of Commissioner of Income-tax-XIV v. Vivek Aggarwal [2015] 56 taxmann.com 7 (Delhi), the Assessing Officer has resorted to make the addition on mere loose paper without corroborative evidence. The document which does not describe and express any meaning cannot be relied upon by the Assessing Officer.

, 52/Bang/2024 Page 10 of 19 11.19 It was held by Hon'ble Delhi High court in the case of CIT Vs Sant Lal vide [2020] 118 Taxmann.com 432 that "13. In view of the aforesaid facts and the concurrent findings given by the CIT (A) and ITAT, it is evident that the Revenue has not been able to produce any cogent material which could fasten the liability on the respondent. The CIT(A) has also examined the assessment record and has observed that the AO did not make any further inquiry/investigation on the information passed on by the DCIT, Central Circle-19, New Delhi. No attempt or effort was made to gather or corroborate evidence in this relation.

• The trigger for the above change was a series of decisions under Section 153C, as it stood prior to the amendment, which categorically held that unless the documents or material seized 'belonged' to the Assessee, the assumption of jurisdiction under Section 153C of the Act qua such Assessee would be impermissible. The legal position in this regard was explained in Pepsi Foods (P.) Ltd. v. Asstt. CIT [2014] 367 ITR 112 (Del)where in para 6 it was held as under: '6. On a plain reading of Section 153C, it is evident that the Assessing Officer of the searched person must be "satisfied" that inter alia any document seized or requisitioned "belongs to" a person other than the searched person. It is only then that the Assessing Officer of the searched person can handover such document to the Assessing Officer having jurisdiction over such other person (other than the searched person). Furthermore, it is only after such handing over that the Assessing Officer of such other person can issue a notice to that person and assess or reassess his income in accordance with the provisions of Section 153A. Therefore, before a notice under Section 153C can be issued two steps have to be taken. The first step is that the Assessing Officer of the person who is searched must arrive at a clear satisfaction that a document seized from him does not belong to him but to some other person. The second step is -after such satisfaction is arrived at - that the document is handed over to the Assessing Officer of the person to whom the said document "belongs". In the present cases it has been urged on behalf of the petitioner that the first step itself has not been fulfilled. For this purpose it would be necessary to examine the provisions of presumptions as indicated above. Section132 (4A) (i) clearly stipulates that when inter alia any document is found in the possession or control of any person in the course of a search it may be presumed that such document belongs to such person. It is similarly provided in Section 292C (1) (i). In other words, whenever a document is found from a person who is being searched the normal presumption is that the said document belongs to that person. It is for the Assessing Officer to rebut that presumption and come to a conclusion or "satisfaction" that the document in fact belongs to somebody else. There must be some cogent material available with the Assessing Officer before he/she arrives at the satisfaction that the seized , 52/Bang/2024 Page 14 of 19 document does not belong to the searched person but to somebody else. Surmise and conjecture cannot take the place of "satisfaction'. • In the present case the search took place on 5th January 2009. Notice to the Assessee was issued under Section 153 C on 19th November 2010. This was long prior to 1st June, 2015 and, therefore, Section 153C of the Act as it stood at the relevant time applied. In other words, the change brought about prospectively with effect from 1st June, 2015 by the amended Section 153C (1) of the Act did not apply to the search in the instant case. Therefore, the onus was on the Revenue to show that the incriminating material/documents recovered at the time of search 'belongs' to the Assessee. In other words, it is not enough for the Revenue to show that the documents either 'pertain' to the Assessee or contains information that 'relates to' the Assessee. • In the present case, the Revenue is seeking to rely on three documents to justify the assumption of jurisdiction under Section 153 C of the Act against the Assessee. Two of them, viz., the licence issued to the Assessee by the DTCP and the letter issued by the DTCP permitting it to transfer such licence, have no relevance for the purposes of determining escapement of income of the Assessee for the AYs in question. Consequently, even if those two documents can be said to 'belong' to the Assessee they are not documents on the basis of which jurisdiction can be assumed by the AO under Section 153C of the Act. • As far as the third document, being Annexure A to the statement of Mr. D. N. Taneja, is concerned that was not a document that 'belonged' to the Assessee. Admittedly, this was a statement made by Mr. Taneja during the course of the search and survey proceedings. While it contained information that 'related' to the Assessee, by no stretch of imagination could it be said to a document that 'belonged' to the Assessee. Therefore, the jurisdictional requirement of Section 153C of the Act, as it stood at the relevant time, was not met in the present case. • For the aforementioned reasons, this Court concludes that the ITAT committed no legal error in holding that the AO had wrongly assumed jurisdiction under Section 153C qua the Assessee. The ITAT, rightly, therefore, set aside the order of the CIT (A), which had held the contrary." 11.26 Moreover, in the decision of the Hon'ble Supreme Court in the case of CIT Vs. Singhad Technical Education Society reported in , 52/Bang/2024 Page 15 of 19 [2017] 84 taxmann.com 290 (SC) it was categorically held that the incriminating material should belong to the assessee and for the assessment year under consideration in the following manner: "15. At the outset, it needs to be highlighted that the assessment order passed by the AO on August 7, 2008 covered eight Assessment Years i.e. Assessment Year 1999-2000 to Assessment Year 2006-07. As noted above, insofar as Assessment Year 1999-2000 is concerned, same was covered under Section 147 of the Act which means in respect of that year, there were re-assessment proceedings. Insofar as Assessment Year 2006-07 is concerned, it was fresh assessment under Section 143(3) of the Act. Thus, insofar as assessment under Section 153C read with Section 143(3) of the Act is concerned, it was in respect of Assessment Years 2000-01 to 2005-06. Out of that, present appeals relate to four Assessment Years, namely, 2000-01 to 2003-04 covered by notice under Section 153C of the Act. There is a specific purpose in taking note of this aspect which would be stated by us in the concluding paragraphs of the judgment. • In these appeals, qua the aforesaid four Assessment Years, the assessment is quashed by the ITAT (which order is upheld by the High Court) on the sole ground that notice under Section 153C of the Act was legally unsustainable. The events recorded above further disclose that the issue pertaining to validity of notice under Section 153C of the Act was raised for the first time before the Tribunal and the Tribunal permitted the assessee to raise this additional ground and while dealing with the same on merits, accepted the contention of the assessee. • First objection of the learned Solicitor General was that it was improper on the part of the ITAT to allow this ground to be raised, when the assessee had not objected to the jurisdiction under Section 153C of the Act before the AO. Therefore, in the first instance, it needs to be determined as to whether ITAT was right in permitting the assessee to raise this ground for the first time before it, as an additional ground. • The ITAT permitted this additional ground by giving a reason that it was a jurisdictional issue taken up on the basis of facts already on the record and, therefore, could be raised. In this behalf, it was noted by the ITAT that as per the provisions of Section 153C of the Act, , 52/Bang/2024 Page 16 of 19 incriminating material which was seized had to pertain to the Assessment Years in question and it is an undisputed fact that the documents which were seized did not establish any co- relation, documentwise, with these four Assessment Years. Since this requirement under Section 153C of the Act is essential for assessment under that provision, it becomes a jurisdictional fact. We find this reasoning to be logical and valid, having regard to the provisions of Section 153C of the Act. Para 9 of the order of the ITAT reveals that the ITAT had scanned through the Satisfaction Note and the material which was disclosed therein was culled out and it showed that the same belongs to Assessment Year 2004-05 or thereafter. After taking note of the material in para 9 of the order, the position that emerges therefrom is discussed in para 10. It was specifically recorded that the counsel for the Department could not point out to the contrary. It is for this reason the High Court has also given its imprimatur to the aforesaid approach of the Tribunal. That apart, learned senior counsel appearing for the respondent, argued that notice in respect of Assessment Years 2000-01 and 2001-02 was even time barred. • We, thus, find that the ITAT rightly permitted this additional ground to be raised and correctly dealt with the same ground on merits as well. Order of the High Court affirming this view of the Tribunal is, therefore, without any blemish. Before us, it was argued by the respondent that notice in respect of the Assessment Years 2000-01 and 2001-02 was time barred. However, in view of our aforementioned findings, it is not necessary to enter into this controversy." 11.27 Further, the findings of the ld. AO are mostly based on the admission made by Shri M.N. Rajendra Kumar. In our opinion, the statement has been retracted by Shri M.N. Rajendra Kumar himself and addition made in his hand also deleted by the Tribunal and hence no credence could be given to his statement while framing the assessment of the present assessee. In the light of above, no addition can be made in the hands of the assessee only on the basis of conjectures, surmises and presumptions. As there was no cogent incriminating material or admissible evidence pertaining to these assessment years under consideration as it belongs to the assessee, the addition cannot be made. 11.28 Further, the ld. AO has not brought on record any evidences as to utility of such amount nor any other corroborative evidence to support the findings. Such evidences (Messages) without any 52/Bang/2024 Page 17 of 19 supporting/corroborative along with admission of third person cannot be, basis for AO to come to conclusion and make addition in the assessment order. The law on the issue is laid down by the jurisdictional High Court, and followed by ITAT consistently in the following cases. • K. V. Lakshmi Savitri Devi Vs ACT 148 ITJ 517 (Hyd). • K. V. Lakshmi Savitri Devi Vs ACIT ITTA 563 of 2017 (AP)(HC) • Jawahar Bhai Atmaram Hathiwala Vs ITO 128 ITJ 36 (Ahd) • DCIT Vs B. Vijaya Kumar & 931 of 2009 (Hyd). • CIT Vs R. Nalini Devi ITTA 232 of 2013 (A. P) • CIT Vs P. V Kalyana Sundaran (2007) 294 ITR 49 • Venkata Rama Sai Developers Vs DCIT ITA 453/Vizag/2012. • P. Venkateshwar Rao Vs DCIT ITA 25/825/Vizag/2012. 11.29 Further, Hon'ble Supreme Court in the case of Common Cause (A registered Society) Vs. Union of India in Writ Petition (Civil) No.505 of 2015 dated 2.7.2018 [2017] 394 ITR 220 (SC) wherein it observed that "the entries in the loose papers/sheets are not "books of accounts" and has no evidentiary value u/s 34 of the Indian Evidence Act. The Hon'ble Supreme Court dismissing the writ petition filed by Common Cause, a registered society, refused to give nod to investigate against the Sahara and Birla Groups in the alleged payoff scandal. The factual setting of the case are that, a search was conducted by the CBI in the premises of Birla Groups, as a result of which, certain incriminating materials and an amount of Rs.25 crores were recovered. CBI referred the matter to Income Tax Department. In another search, the IT department recovered certain incriminating materials and unaccounted money of Rs.135 crores from Sahara Group of Companies. Allegedly the department recovered certain print out of excel sheets showing that Rs.115 crores were paid to several public figures. The settlement commission granted immunity to the Sahara Group of Companies on ground that the scrutiny of entries on loose papers, computer prints, hard disk, pen drives, etc. have revealed that the transactions noted on documents were not genuine and have no evidentiary value and that details in these loose papers, computer print outs, hard disks and pen drives, etc. do not comply with the requirement of the Indian Evidence Act and are not admissible evidence. The Income Tax Settlement Commission has also observed that department has not been able to make out a clear case of taxing such income in the hands of the applicant firm on the basis of these , 52/Bang/2024 Page 18 of 19 documents. The petitioner, Common Cause, impugned the orders before the Hon'ble Supreme Court which dismissed the petition. Supreme Court clarified that the evidence that had surfaced was not credible and cogent. The Attorney General contended that documents which have been filed by the Birla as well as Sahara Group are not in the form of Account books maintained in the regular course of business. They are random sheets and loose papers and their correctness and authenticity even for the purpose of income mentioned therein have been found to be unreliable having no evidentiary value, by the concerned authorities of Income Tax. Analysing the veracity of the evidences procured from the companies, the Supreme Court, relied upon the ratio laid in V.C. Shukla case and observed that the entries in loose sheets of papers are not in the form of "Books of Accounts" and has held that such entries in loose papers/sheets are irrelevant and not admissible u/s 34 of Indian Evidence Act, and that only where the entries are in the Books of Accounts regularly kept depending on the nature of the occupation, those are admissible. Being so, the addition towards the unaccounted cash payment is not based on any positive materials, hence the addition is deleted in all these assessment years. Accordingly, addition made in these AYs towards earning of alleged unaccounted cash payments on alleged is deleted."

6.31 In the present case also, the addition based on material uncorroborated loose slips found during the course of search action u/s 132 of the Act in the case of Sri M.N.Rajendra Kumar and survey in the case of SCDCC Bank Ltd on 27/12/2016 and there was no cogent material to suggest undisclosed income. Accordingly, the addition is deleted in both the assessment years on similar lines as the addition made in these assessment years towards scrap sales based on the uncorroborated loose slips. This ground of appeals of the assessee is allowed.

Pronounced in the open court on the date mentioned on the caption page.