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Facts
During a search operation, the Assessing Officer made additions to the assessee's income for unaccounted partner's remuneration and undisclosed investment in immovable property, based on seized loose sheets and a third-party statement. The Commissioner of Income Tax (Appeals) subsequently deleted these additions. The Revenue then filed nine appeals before the Income Tax Appellate Tribunal.
Held
The Tribunal upheld the CIT(A)'s decision, confirming that unaccounted partner's remuneration not allowed as a deduction to the firm under Section 40(b) cannot be taxed in the hands of the partners due to the proviso to Section 28(v), thus preventing double taxation. For the undisclosed investment, the Tribunal ruled that the Assessing Officer failed to provide independent corroborative evidence beyond a retracted third-party statement and a flawed seized material, which was not sufficient to prove the cash payments originated from the appellant. Consequently, all nine appeals filed by the revenue were dismissed.
Key Issues
1. Whether unaccounted partner's remuneration, not allowed as deduction to the firm under Section 40(b), is taxable in the hands of the individual partners as per the proviso to Section 28(v). 2. Whether additions for unaccounted investment in immovable property, based on seized material and a retracted third-party statement, can be sustained without independent corroborative evidence.
Sections Cited
132, 153A, 143(2), 142(1)(ii), 143(3), 40(b), 28(v), 68, 155, 132(4), 132(4A), 292C, 69, 34
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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI MANU KUMAR GIRI & SHRI JAGADISH
The captioned nine appeals by the revenue are filed against the separate orders of the Commissioner of Income Tax (Appeals)-19, Chennai dated 15.09.2023 for the assessment year 2015-16, 2016-17 and 2017-18.
The revenue has filed the following grounds of appeal in 1274, 1275 and 1283/Chny/2023 against the impugned orders for the A.Ys. 2015-16, 2016-17 and 2017-18:
ASSESSMENT YEAR : 2015-16:
“1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law.
2. The Ld.CIT(A) erred in directing the assessing officer to delete the addition of Rs. 28,33,33,333/- towards unaccounted receipt of partner's remuneration quantified on the basis of materials seized during the course of search. 2.1 The Ld. CIT(A) failed to appreciate that the remuneration was received in cash by the assessee from the firm as evidenced by the materials seized in the office of the firm, which is required to be assessed in the hands of the assessee. 2.2 The Ld.CIT(A) held that the partner's remuneration to the extent which has not been allowed as deduction in the hands of firm as per the provisions of 40(b) of the Act is not liable to be included in the total income of the partners. The assessment in the case of SRS Mining has been set aside by the Hon'ble High court with certain directions and the SLP filed by the assessee challenging the order of High Court is pending before the Supreme Court as on date. Since the assessment in the case of firm has not attained finality, the remuneration received in cash is assessable in the hands of partners. 3.For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of learned CIT(Appeals) may be set aside and that of the Assessing Officer be restored.”
ASSESSMENT YEAR : 2016-17:
The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law. 2 The Ld.CIT(A) erred in directing the assessing officer to delete the addition of Rs. 6,66,66,667/- made towards unaccounted receipt of partner's remuneration quantified on the basis of materials seized during the course of search. 2.1 The Ld.CIT(A) failed to appreciate that the remuneration was received in cash by the assessee from the firm as evidenced by the materials seized in the office of the firm, which is required to be assessed in the hands of the assessee. 2.2 The Ld.CIT(A) held that the partner's remuneration to the extent which has not been allowed as deduction in the hands of firm as per the provisions of 40(b) of the Act is not liable to be included in the total income of the partners. The assessment in the case of SRS Mining has been set aside by the Hon'ble High court with certain directions and the SLP filed by the assessee challenging the order of High Court is pending before the Supreme Court as on date. Since l the assessment in the case of firm has not attained finality, the remuneration received in cash is assessable in the hands of partners. The Ld.CIT(A) erred in directing to delete the addition of Rs.1,10,00,000/- made towards cash payments to Shri. Gopu Rajagopal for purchase of property from M/s. Kara Property Ventures LLP. 3.1 The Ld.CIT(A) erred in failing to appreciate that the addition was made on the basis of entries made in the materials seized during the course of search in the office premises of M/s.S.R.S.Mining, the firm in which the assessee is one of the partners. Shri.Gopu Rajagopal, in the sworn statement recorded u/s.132(4) admitted that the said payments in cash were received by him on behalf of M/s.Kara Property Ventures UP, as on money for property transactions which was outside the books of account.
3.2 The Ld.CIT(A) erred in placing reliance on the retraction filed by Shri.Gopu Rajagopal vide affidavit dated 03/01/2017, without appreciating that the retraction of statement was not backed by any evidence and only after thought by the influence from the parties involved in the transaction.
3.3 The Ld.CIT(A) ought to have appreciated that Shri.Gopu Raja Gopal admitted Rs.3,30,00,000/- under PMGKY Scheme 2016 vide Form:1 dated 15/02/2017. During the course of assessment proceeding in the case of Shri.Gopu Rajagopal, in response to query dated 28/11/2018, regarding the amount of Rs.3.3 Crores proposed for assessment, he submitted that the said amount is offered under PMGKY Scheme, Considering his reply, the AO has not made any addition in the assessment order for AY 2016-17 in the hands of Shri. Gopu Rajagopal. In view of the above, the retraction made by Shri.Gopu Raja Gopal is proved to be invalid.
4. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of learned CIT(Appeals) may be set aside and that of the Assessing Officer be restored.
ASSESSMENT YEAR : 2017-18:
1.The order of the learned Commissioner of Income Tax (Appeals) ls erroneous on facts of the case and in law. The Ld.CIT(A) erred in directing the assessing officer to delete the 2 addition of Rs.16,50,00,000/- made towards unaccounted receipt of partner's remuneration quantified on the basis of materials seized during the course of search. 2.1 The Ld.CIT(A} failed to appreciate that the remuneration was received in cash by the assessee from the firm as evidenced by the materials seized in the office of the firm, which is required to be assessed in the hands of the assessee. 2.2 The Ld.CIT(A) held that the partner's remuneration to the extent which has not been allowed as deduction in the hands of firm as per the provisions of 40(b) of the Act is not liable to be included in the total income of the partners. The assessment in the case of SRS Minining has been set aside by the Hon'ble High court with certain directions and the SLP filed by the assessee challenging the order of High Court is pending before the Supreme Court as on date. Since the assessment in the case of firm has not attained finality, the remuneration received in cash is assessable in the hands of partners. The Ld.CIT(A) erred in directing to delete the addition of Rs.3,83,33,330/- made towards cash payments to Shri.Gopu Rajagopal for purchase of property from M/s.Kara Property Ventures LLP. 3.1 The Ld.CIT(A) erred in failing to appreciate that the addition was made on the basis of entries made in the materials seized during the course of search in the office premises of M/s.S.R.S.Mining, the firm in which the assessee is one of the partners. Shri.Gopu Rajaqopal, in the sworn statement recorded u/s.132(4) ARWPR3777N AY 2017-18 M/s.Kara Property Ventures LLP, as on money for property transactions which was outside the books of accounts. 3.2 The Ld.CIT(A) erred in placing reliance on the retraction filed by Shri.Gopu Rajagopal vide affidavit dated 03/01/2017, without appreciating that the retraction of statement was not backed by any evidence and only after thought by the influence from the parties involved in the transaction. 3.3 The Ld.CIT(A) ought to have appreciated that Shri.Gopu Raja Gopal admitted Rs.3,30,00,000/- under PMGKY Scheme 2016 vide Form:1 dated 15/02/2017. During the course of assessment proceeding in the case of Shri.Gopu Rajagopal, in response to query dated 28/11/2018, regarding the amount of Rs.3.3 Crores proposed for assessment, he submitted that the said amount is offered under PMGKY Scheme. Considering his reply, the AO has not made any addition in the assessment order for AY 2016-17 in the hands of Shri. Gopu Rajagopal. In view of the above, the retraction made by Shri.Gopu Raja Gopal is proved to be invalid.
4. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of learned CIT(Appeals) may be set aside and that of the Assessing Officer be restored.”
Both the parties informed this bench that there is no stay of these appeal proceedings by the any forum. Hence, with the consent of both the parties we proceed to hear and adjudicate these appeals. We are taking I.T.A.Nos.1274, 1275 and 283/Chny/2023 for Assessment Years 2015-16, 2016-17 and 2017-18 as lead case and the findings in these appeals will accordingly apply mutatis mutandis to I.T.A.Nos.1276, 1277 and 1278/Chny/2023 an I.T.A.Nos.1279, 1280 and 1281/Chny/2023. The facts and issues involved in these nine appeals are identical.
The brief facts of the case are that a search u/s 132 of the Act was conducted in the case of Shri. M.Premkumar, Shri. K.Srinivasulu, Shri. J.Sekar Reddy and M/s SRS Mining (hereinafter referred to as ‘SRS Group’) on 08.12.2016. During the course of the search, certain books of accounts, documents and loose sheets were found and seized from various office premises of M/s SRS Mining. The Appellant is a Partner in M/s.SRS Mining and his residential premises was also searched on 10.12.2016.As a result of search, the AO issued notices u/s 153A of the Act for AYs 2015-16 and 2016-17 on 31.08.2017. In response to the aforesaid notices, the Appellant filed returns of income for the relevant assessment years on 10.08.2018. Notices u/s 143(2) of the Act were issued by the AO for the said assessment years on 24.08.2018. In respect of AY 2017-18 the Appellant filed the return of income for AY 2017-18 on 31.03.2018 and the AO issued notice u/s 143(2) for the said assessment year on 05.09.2018. Based on the material seized during the search, the AO issued notices u/s 142(1)(ii) on 07.09.2018 for AYs 2015-16 to 2017-18. Further, the AO issued letters dated 03.05.2019 and 09.05.2019 and notice dated 03.06.2019 requesting the assessee to furnish reply to the notice u/s 142(1)(ii) issued earlier on 07.09.2018.The Authorized Representative of the assessee appeared in response to the same and furnished the details called for by the AO. After taking into consideration, the seized material, the written submissions of the assessee and the material available on record, the AO completed the assessments u/s 143(3) r.w.s 153A for AYs 2015-16 to 2017-18 vide orders dated 06.02.2020. In the assessment orders, the AO made the following additions:
AY 2015-16 AY 2016-17 AY 2017-18 Total income admitted by 8,65,82,390 14,70,57,450 13,90,42,170 assessee Addition on account of - 1,10,00,000 3,83,33,330 investment as per para 4.4 Addition on account of 28,33,33,333 6,66,66,667 16,50,00,000 salary as mentioned in para 4.4 / 5.4 Unaccounted investment - 10,00,000 24,00,000 declared before ITSC from undeclared business activity Total income assessed 36,99,15,723 22,57,24,117 34,47,75,500
Aggrieved by the order of the AO the assessee preferred appeals before the ld.CIT(A)-19, Chennai. Before the ld.CIT(A) the assessee has taken various grounds. After hearing the lengthy arguments of the assessee, the ld. CIT(A) adjudicated the appeals and summarized the detailed submissions of the assessee. On the first issue of “addition of unaccounted partner’s remuneration received from the SRS mining”, the ld.CIT(A) held as under:
On the second issue of “unaccounted investment in immovable property”, the ld.CIT(A) held as under: Unaccounted Investment in Immovable Property: 5.26 In the grounds of appeal for AYs 2016-17 and 2017-18, appellant disputed addition of Rs.1,10,00,000/- and Rs.3,83,33,330/- made towards unaccounted invested in immovable property in the assessmen order for AYs 2016-17 and 2017-18 respectively. The details of ground Nos.dealing with the issue of unaccounted investment in immovable property for AYs 2016-17 and 2017-18 are as follows: Assessment year Ground No 2016-17 2 2017-18
2. Findings of the AO in the assessment order: 5.27 In the assessment orders for Assessment Years 2016-17 and 2017-18 Assessing Officer stated that during course of search at the registered office of M/s. SRS Mining at Bazullah Road, T. Nagar,
6. Aggrieved by the order of the ld.CIT(A) the revenue preferred appeals before us. On the first issue of “addition of unaccounted partner’s remuneration received from the SRS mining”, the revenue argued that the Ld. CIT(A) erred in directing the assessing officer to delete the addition of Rs. 6,66,66,667/- made towards unaccounted receipt of partner's remuneration quantified on the basis of materials seized during the course of search. The ld.DR of the revenue further submitted that the Ld. CIT(A) failed to appreciate that the remuneration was received in cash by the assessee from the firm as evidenced by the materials seized in the office of the firm, which is required to be assessed in the hands of the assessee. It is furthermore submitted by the revenue that the Ld.CIT(A) held that the partner's remuneration to the extent which has not been allowed as deduction in the hands of firm as per the provisions of 40(b) of the Act is not liable to be included in the total income of the partners.
7. Per contra, it is the argument of the assessee that the loose sheet relied upon by the AO was neither found nor seized from the residence of the appellant or from the office of the appellant. Further argument of the assessee is that without corroborative evidence available, the addition made by the AO on this account cannot be sustained. The assessee further advanced argument that the very same material was considered in the completed assessment of the firm and the same is pending adjudication before the Hon’ble Supreme Court against the remanding back /the setting aside of assessment order to AO by the Hon’ble jurisdictional High Court for fresh assessment. Further, the returns and statements of computation of income of the assessee also records that the appellant has admitted a sum of Rs.2,40,00,000/- and Rs.3,60,00,000/- towards remuneration to partners for AYs 2015-16 and 2016-17 as per the provisions of section 40(b)(ii) of the Act which is duly supported by the Partnership Deed. This is an undisputed fact that while finalizing the firm’s accounts for the AYs 2015-16 and 2016-17, remuneration to the partners to the extent of Rs.7,20,00,000 and Rs.7,20,00,000/- respectively has been debited in the books. This is also reflected in the Profit& Loss Account of the partnership firm which is attached to the Return of Income furnished before the date of search. Out of this, Appellant had received Rs.2,40,00,000 and Rs.3,60,00,000/- and this has been admitted in the returns of income furnished AYs 2015-16 and 2016-17.The Appellant further apprised the fact that while finalizing the firm’s accounts for AY 2017-18, no remuneration to the partners has been debited in the books. In fact, this is reflected in the P & L Account of the partnership firm which is attached to the Return of Income furnished. Therefore, there is no justification to make further addition of Rs.28,33,33,3337/-, Rs.6,66,66,667 and Rs.16,50,00,000/- as salary received for AYs 2015-16 to 2017-18 respectively based on the loose sheet found and seized by the department without any other corroborative evidences other than written in the purported loose sheet. It is further submitted by the ld. Counsel for the assessee that the addition made by the Assessing Officer is stated to be representing salary received by the Appellant from the partnership firm SRS Mining. Salary received / receivable by a person from the firm in which he is a partner is assessable as income in his hands as per section 28(v) of the Income- tax Act, 1961. Section 40(b) (v) imposes restrictions on the quantum of such salary which is allowable as deduction in the hands of the partnership firm and such restrictions are to be based on “book profits” of the relevant previous year. The term “Book profits” has been defined in Explanation 3 to section 40(b) (v) in the following words: “For the purpose of this clause, “book profits” means the net profit, as shown in the profit and loss account for the relevant previous year, computed in the manner laid down in Chapter IV-D as increased by the aggregate amount of the remuneration paid or payable to all the partners of the firm if such amount has been deducted while computing the net profit.”
Therefore, it is submitted by the appellant that what is debited in the firm’s books alone is taxable in the hands of the partners. The learned Assessing officer has not brought out on record or in the assessment order any concrete findings with documentary evidences that the Appellant had in fact received more salary than what had been admitted in the return of income, nor that the partnership firm had in fact paid anything more than what was debited in its accounts as salary to the partners. The modus of payment of such salary to the Appellant is also not established by the learned Assessing officer and the said amount is also not found or seized from the Appellant during the course of the search, nor any un disclosed investments reflecting the equaling amount was found by the department, the additions are made only on assumptions and doubt which cannot be upheld in a search and seizure assessment. The only evidence relied on by the Assessing Officer is a loose sheet of paper found and seized from a third party which also does not indicate that so much of amounts were paid as salary to the partners of the firm. It is further submitted that even if the contents of the seized materials are assumed to be correct, the same cannot be considered to be taxable in the hands of the Appellant since the same is not eligible for deduction in the hands of the firm and hence it cannot be included in the income of the partners as per the proviso to section 28(v) of the Act which is re-produced below for easy reference: Profits and gains of business or profession.
(v) any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from such firm: Provided that where any interest, salary, bonus, commission or remuneration, by whatever name called, or any part thereof has not been allowed to be deducted under clause (b) of section 40, the income under this clause shall be adjusted to the extent of the amount not so allowed to be deducted; In view of the above facts and considering the legal position as mandated under the provisions of the Act,the ld. Counsel for the assessee prayed that the additions so made as salary received amounting to Rs.28,33,33,3337/-, Rs.6,66,66,667/- and Rs.16,50,00,000/- for AYs 2015-16 to 2017-18 respectively are to be declared as illegal and the same may be directed to be deleted and relief allowed to the Appellant. The ld. Counsel for the assessee also read out the ratios of judgment which has been referred by the ld. CIT(A). He further argued that the loose papers found in search are dumb documents and cannot be the sole basis for the addition.
We have heard the rival submissions on the “addition of unaccounted partner’s remuneration received from the SRS mining”. This issue hinges upon the loose sheets ANN/KGAR/MPKSSR/LS/S-1 and ANN/KGA/SRS-YS/LS/S. These purported seized loose sheets shows total remuneration paid to the three partners asRs.85,00,00,000/-, Rs.20,00,00,000/- and Rs.49,50,00,000/- for AYs 2015-16 to 2017-18. The AO quantified the remuneration paid to the three partners and the share of each partner at 1/3rd of the total amount of remuneration as Rs.28,33,33,3337/-, Rs.6,66,66,667/- and Rs.16,50,00,000/- for AYs 2015-16 to 2017-18 respectively. We observe that the ld. CIT(A) in its para 5.14 noted as under: “the Appellant did not furnish any reasons backed by evidence in support of the said contention. As mentioned in the preceding paragraphs, the relevant loose sheets were found and seized from the office premises of M/s. SRS Mining. In view of the provisions of sec 132(4A) and 292C, the material seized from the premises of M/s. SRS Mining is required to be presumed to be belonging to M/s. SRS Mining and the burden is on the Appellant to rebut the said presumption. However, no evidence has been furnished by the Appellant for rebutting the said presumption. Hence, the contention of the Appellant that the seized loose sheets do not pertain to M/s. SRS Mining is held to be untenable. The contention of the Appellant that the seized loose sheets do not have any authenticity or reliability since they are not in the handwriting of any of the partners or employees of the firm and since they have not been verified and certified by any of the partners is also held to be unacceptable in view of the rebuttable presumption laid down in sec 132(4A) and 292C and in the absence of furnishing of any evidence by the Appellant for rebutting the said presumption. The Ground No.4 for AY 2015-16 and Ground No.5 for AYs 2016-17 and 2017-18 dealing with this issue are therefore dismissed.”
We find that the ld. CIT(A) is right to some extent in holding that the provisions of sec 132(4A) and 292C, the material seized from the premises of M/s. SRS Mining is required to be presumed to be belonging to M/s. SRS Mining and the burden is on the Appellant to rebut the said presumption. However, no evidence has been furnished by the Appellant for rebutting the said presumption. Hence, the contention of the Appellant that the seized loose sheets do not pertain to M/s. SRS Mining is held to be untenable. Therefore, on the facts of this case, we are also no convinced by the arguments of the assessee on loose papers as mentioned supra. Although, we have reservation on the issue of loose papers/dumb documents found in search u/s 132 of the Act.
Further, we have see this issue from another angle as discussed by the ld. CIT(A). What is the permissible limit for the remuneration to partners as per provisions of the Act? Section 40(b)(ii) and Section 28(v) of the Act are as under: Section 28(v): any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from such firm:
Provided that where any interest, salary, bonus, commission or remuneration, by whatever name called, or any part thereof has not been allowed to be deducted under clause (b) of section 40, the income under this clause shall be adjusted to the extent of the amount not so allowed to be deducted;
Amounts not deductible: Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",— ……………………………………………………….. …………………………………. (b) in the case of any firm assessable as such,— ………………………………………….. (ii) any payment of remuneration to any partner who is a working partner, or of interest to any partner, which, in either case, is not authorised by, or is not in accordance with, the terms of the partnership deed; or
As per section 40(b)(ii) of the Income Tax Act, any remuneration paid by the firm to any of its partners which is not authorised by the partnership deed will not be allowed as a deduction. The conjoint reading of section 40(b) (ii) and Section 28(v) of the Act is that even if it is assumed that the appellant is in receipt of partner’s remuneration as per the seized material, the same is not an allowable deduction in the hands of the firm and consequently, the same cannot be included in the income of the partner in view of the proviso to section 28(v) of the Act. We further find that the returns and statements of computation of income of the assessee admits a sum of Rs.2,40,00,000/- and Rs.3,60,00,000/- towards remuneration to partners for AYs 2015-16 and 2016-17 as per the provisions of section 40(b)(ii) of the Act which is duly supported by the Partnership Deed. Further, in this case, we are of the considered opinion that the presumption of noting/contents mentioned in the loose sheets ANN/KGAR/MPKSSR/LS/S-1 and ANN/KGA/SRS-YS/LS/S is not available to the revenue in the light of the provisions of section 40(b)(ii) read with section 28(v) of the Act. Therefore, in the light of above facts, on the issue of “addition of unaccounted partner’s remuneration received from the SRS mining”, we do not intend to interfere in the order of the ld. CIT(A) hence, upheld the same.
On the second issue of “unaccounted investment in immovable property”, the counsel for the revenue completely relied upon the order of the AO. The ld. Counsel for the assessee submitted that Shri Gopu Rajagopal, on 03.01.2017 has retracted his statement by filing affidavit. The ld. Counsel for the assessee pointed out that no payments in cash have been made by appellant and other two partners of M/s. SRS Mining over and above the payments made by them through cheques / bank transfer. The counsel for the Appellant stated that the assessee has cancelled the booking of the flat subsequent to the search vide his requisition letter dated 18.06.2018 addressed to M/s.Kara Property Ventures LLP. He further stated that M/s.Kara Property Ventures LLP has accepted his request and issued a letter confirming the cancellation of the booking. In the said letter, M/s. Kara Property Ventures LLP has confirmed that the Appellant paid advance of Rs.2,54,20,000/- only through cheques as against the total consideration of Rs.12,81,45,000/-. The Appellant furthermore contended that the payment of cash by him towards purchase of the property has not been established with any corroborative evidence other than the statement of Shri Gopu Rajagopal which has already been retracted by him. In the case of K.P Varghese Vs. ITO (1981) 131 ITR 597, the Hon'ble Apex Court held that “the onus of establishing that the conditions of taxability are fulfilled is always on the revenue and that throwing the burden of showing that there is no under-statement of consideration on the assessee would be to cast an almost impossible burden upon him to establish the negative, namely, that he did not receive any consideration beyond what has been declared by him. It needs to be held that the burden is on the revenue to adduce proper evidence to corroborate the contents of the seized material for the purpose of establishing that the Appellant was in fact in receipt of the payments as noted in the seized material”. It is evident that such a burden has not been discharged by the revenue in the case of the Appellant. As per the decisions of the Hon'ble Apex Court in the cases of CBI Vs. VC Shukla & Others (1998) 3 SCC 410, Common Cause (A Registered Society) Vs. Union of India (2017) 77 taxmann.com 254 (SC) and Dhakeshwari Cotton Mills Lids. CIT (1954) 26 ITR 775 (SC) corroborative evidence is essential to support the evidence found in third party premise. In order to properly appreciate the issue, it is useful to refer to the following extract from the decision of Hon'ble Apex Court in the case of Dakeswari Cotton Mills Ltd Vs. CIT (1954) 26 ITR 775 (SC): "As regards the second contention, we are in entire agreement with the learned Solicitor-General when he says that the Income-tax Officer is not fettered by technical rules of evidence and pleadings, and that he is entitled to act on material which may not be accepted as evidence, a court of law, but there the agreement ends; because it is equally clear that in making the assessment under sub-section (3) of Section 23 of the Act, the Income Tax Officer is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support the assessment under section 23(3). The rule of law on this subject has, in our opinion, been fairly and rightly stated by the Lahore High Court in the case of Seth Gurmukh Singh (supra)". As evident from the decisions cited above, though it is true that the provisions of Evidence Act do not apply with the same rigor to the Income Tax proceedings, the AO is not entitled to make a pure guess and make an assessment without reference to any evidence/material. It follows there from that addition cannot be made unless there is corroborative evidence to validate the entries found in the material seized from a third party. It is seen that in the cases of CBI v. VC Shukla & Others and Common Cause (A Registered Society) v. UOI (supra), it was held that it is an established legal principle that every transaction even when recorded in the regular books need to be independently corroborated and proved when some liability is to be fastened in respect of such transactions. This decision was rendered with reference to section 34 of the Indian Evidence Act. Though the technical rules of Evidence Act are not strictly applicable to Income Tax proceedings, the legal principle laid down by the Hon'ble Supreme Court in these cases that independent corroborative evidence is required in respect of entries in regular books of account when a liability is sought to be fastened based on such entries would be broadly applicable to Income tax proceedings also in cases where tax liability is sought to be fastened on an assessee based on entries found in the notebooks/loose sheets seized from a third party. In the case of the Appellant, addition was made in the assessment order for the AY 2017-18 on the basis of the entries found in material seized from a third party. When the tax liability was sought to be fastened on the Appellant based on the said seized material, the AO was duty bound to prove the correctness of the entries in the seized material with independent corroborative evidence. However, it is noticed that no such corroborative or cogent evidence has been brought on record and relied upon by the AO in the assessment order. It is also relevant to point out that ITAT, Bangalore held in the case of ACIT Vs. Shri B. S. Yediyurappa in vide order dated 07.04.2022 that the addition made in the hands of the said person, who was the Chief Minister of the State of Karnataka during the relevant period, based on the entries of cash payments found recorded with the initials "BSY" in the material seized during the course of search conducted in the case of a third party is not sustainable in the absence of any evidence to corroborate the noting in the seized material. The said decision is squarely applicable to the facts of the present case. The relevant portion of the decision of the Tribunal is extracted as under: “18. The payments are within the knowledge of the person, who written it. However, the said person denied the payment in the cross-examination and finally there is no evidence to suggest as to what they stand for and whom they referred to. Since the seized material is neither the regular books of account nor kept in the regular course of business of the assessee. They were not sufficient enough to fasten the liability on the present assessee, against whom they were sought to be used. The seized document collected by the department did not raise a reasonable ground to believe that there is a valid payment to the present assessee so as to award contract to the KNNL and the payment is relating to for awarding the contract of UBP. The seized material itself would not furnished evidences of the truth of their contents and that was not corroborated by any further evidence so as to hold that the assessee has actually received the said payment. In view of this, we are of the opinion that the order of the earlier Bench in the cases of Shri D.S.Suresh Vs ACIT in & 463/Bang/2020 (AYS 2009-10 & 2011-12), dt 22.02.2021 and Shri D.V.Sadananda Gowda Vs ACIT in (AY 2011-12). dt. 30.03.2021, are squarely applicable to the present facts of the case and accordingly in view of the above discussion, we confirm the deletion of the addition made by the CIT(A). Hence, the grounds raised by the Revenue are dismissed”. As already discussed in detail in the preceding paragraphs, the seized material is in the nature of a flawed document which does not contain complete and unambiguous information to arrive at any conclusion based solely on the said material that the Appellant was in receipt of the payments found noted therein. There is no corroborative evidence to prove that the payments noted in the seized material have actually materialised and transfer of money has actually taken place between the concerned parties. In view of these reasons, it is required to be considered that the AO has not discharged the onus cast on the revenue to prove that the Appellant had actually paid as reflected in the seized material with reliable and cogent independent evidences to corroborate the entries in the seized material. During the course of hearing before us, the Appellant has relied upon the various decisions of the jurisdictional tribunal which are applicable to the facts and circumstances to the case of the Appellants. The following are the decisions that are relied upon:- i. DCIT Central Circle-2(4) Chennai vs. O Pannerselvam in & 582/Chny/2023 dated 05.04.2024 ii. DCIT Central Circle-2(2) Chennai vs Karuppagounder Palaniswami in ITA No. 125, 126, 127 and 213, 214, 215 / Chny/2023 dated 03.04.2024 iii. DCIT Central Circle-2(4) Chennai vs Vaithialingam in ITA No. 604,605,606/chny/2023 dated03.04.2024 iv. DCIT Central Circle-2(4) Chennai vs Vivek papisetty in ITA No. 211, 212 and 405/Chny/2023 dated 02.04.2024 v. DCIT Central Circle-2(4) Chennai vs P Ram Mohan Rao in ITA No. 223,224,225/Chny dated 02.04.2024.
In all the above cases, we find that the AO made addition(s) on the basis of the seized material that was found and seized from M/s.
SRS Mining. The Revenue appeals in all the above cases were dismissed by the Tribunal upholding the order of the Commissioner of Income Tax (Appeals). We also observe that the payment of cash by him towards purchase of the property has not been established with any corroborative evidence other than the statement of Shri Gopu Rajagopal which has already been retracted by him. We also note that the assessee has cancelled the booking of the flat subsequent to the search vide his requisition letter dated 18.06.2018 addressed to M/s.Kara Property Ventures LLP. In fact, M/s.Kara Property Ventures LLP has accepted his request and issued a letter confirming the cancellation of the booking. In these cases, the AO miserably failed to show that the said amount emanates from the coffers of the appellant. Hence, in the background of the above judicial decisions(s) brought out supra, we are of the considered view that the action of the A.O. in making the addition, without bringing corroborative evidence is not legally and factually sustainable. In a similar situation the Banglore Bench of Tribunal in the case of Carpenters Classics (Exim) P. Ltd. Vs DCIT [2008] 299 ITR (AT) 124 has reviewed the case law on the subject and found that a retraction statement has to be considered in the light of all relevant facts. We also find that the ld. CIT(A) has meticulously gone through the seized materials, loose papers, retraction etc. and given the cogent findings. Hence, we are not inclined to interfere in the order of the ld.CIT(A) on this issue. Accordingly, all the nine appeals of the revenue are dismissed.
In result, all nine appeals of the revenue are dismissed.