ASSISTANT COMMISSIONER OF INCOME TAX (CENTRAL CIRCLE), JAMMU vs. ANITA KAPAHI, JAMMU

4. The assessee’s husband Mr. Anil Kapahi and her two sons Mr. Akhil Kapahi and Mr. Nikhil Kapahi are partners in a partnership firm namely M/s Kapahi Construction Company, and in course of surveyu/s 133A conducted at the premises of the partnership firm on 14th March, 2019, documents identified and marked as Annexure A-3 has been impounded, which has formed the basis of this addition of Rs. 2.05 crores, which is the subject matter of this appeal.

2019, by the AO, where she also denied having paid any amount in cash in respect of the purchase of the said property. It was further submitted by her that the fair market value of the land on the date of registration has been rightly adopted by the Registration Officer and registration has been done at circle rate applicable, and there is neither any material on record nor any inquiry conducted by the AO to disbelieve the circle rate or the FMV, at which the property has been registered.

“The Hon'ble Supreme Court of India in the case of Omar Salay Mohamed Sait vs. Commissioner of Income-tax reported at [1959] 37 ITR 151 (SC) [05-03-1959] held as under:

"Whether Tribunal should not base its findings on suspicions, conjectures, or surmises nor should it act on evidence at all or on improper rejection of material and relevant evidence or partly on evidence and partly on suspicions, conjectures or surmises and if it does anything of that sort, its findings, even though on questions of fact, will be liable to be set aside by Supreme Court-Held, yes"

The Hon'ble Supreme Court in the case of Dhakeshwari Cotton Mills Ltd. vs. CIT reported at 26 ITR 775held as under:

"Section 143 of the Income-tax Act, 1961 [Corresponding to section 23(3) of the Indian Income-tax Act, 1922]-Assessment - Additions to income - Assessment year 1944-45-Whether though ITO is not fettered by technical rules of evidence and pleadings and he is entitled to act on material which may not be accepted as evidence on account of law, but in making assessment under section 23(3) of 1922 Act he is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all - Held, yes - Whether where, on request of Tribunal, departmental representative had produced certain material, Tribunal should have given an opportunity to assessee to rebut such material and should have also taken into account material produced by assessee on issue in question - Held, yes."

The Hon'ble High Court of Madras in the case of S. Sivan Pillai vs. CIT reported at [1958] 34 ITR 328 (Mad.) has held as under:

"During relevant assessment year assessee exported and also sold onions in open market at controlled price However ITO taking view that assessee must have sold goods in open market at price higher than controlled price made certain addition in assessee's income - In coming to said conclusion, ITO relied upon transactions entered into by another dealer who also had dealings in exporting onions Tribunal upheld ITO's order - Whether in absence of direct evidence showing that assessee did sell onions in excess of controlled price, ITO's estimate of excess receipt by assessee on sale of onions could not be affirmed Held, yes Whether, therefore, impugned addition made in assessee's income was to be set aside-Held, yes"

(i) Addition u/s 69

The AO has made addition in the hands of assessee u/s 69 of the Income Tax Act, 1961. It shall be important to analyze here the latest legal position regarding the applicability of provisions of Section 69 to the loose document seized during the course of search.

The Supreme Court of India in the case of Principal Commissioner of Income-tax vs. Nishant Construction (P.) Ltd. reported at [2019] 101 taxmann.com 180 (SC)has held as under.

"Section 69A of the Income-tax Act, 1961 Unexplained money (On money) Assessee was engaged in construction and development of housing projects - It was subjected to survey operation during which certain documents were found and impounded - On basis of such documents, Assessing Officer came to conclusion that assessee had received on-money from sale of flats He therefore, made certain addition to assessee's income Tribunal, however, deleted said addition on ground that there was no reliable or independent evidence to come to conclusion that assessee had accepted on-money for sale of constructed properties High Court upheld order passed by Tribunal - Whether, on facts, SLP filed against decision of High Court was to be dismissed Held, yes [In favour of assessee]"

Further, the Hon'ble High Court of Delhi in the case of Commissioner of Income- tax vs. Sant Lal reported at [2020] 118 taxmann.com 432 (Delhi) has held as under:

"Since diary was neither found from premises of assessee nor was it in hand writing of assessee, in view of possibility of any third person writing name of any person at his sweet will, Tribunal held that assessee could not be put to any liability without corroboration but same was not done - Whether since revenue was not able to produce any cogent material nor any attempt or effort was made to gather or corroborate evidence, instant appeal could not be entertained Held, yes [Para 13] [In favour of assessee]”

Further, the Hon'ble High Court of Delhi in the case of Commissioner of Income- tax-XIV vs. Vivek Aggarwal reported at [2015] 56 taxmann.com 7 (Delhi) has held as under:

"A search was carried out at assessee's premises in course of which Assessing Officer seized certain letters/e-mail - On basis of said documents, Assessing Officer made addition to assessee's income on account of undisclosed salary Commissioner (Appeals) as well as Tribunal deleted addition holding that in absence of any corroborative material to link such e-mail letter or its contents with assessee, inference that some additional income was earned by him by way of salary, was incorrectly drawn - Whether since 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-Held, yes [Para 13] [In favour of assessee)"

Further, the Hon'ble High Court of Madras in the case of CIT vs. KTMS Mohammad [1997] 228 ITR 113 has held that "In order to make assessment u/s 69A for undisclosed income, the assessee must not only be a person who is in possession of undisclosed income, but he should also be the owner of the same."

(j) Addition made on basis of photocopy of an unregistered document

On the issue of use of photocopy of unregistered documents while framing the assessment, the Ld. Jurisdictional Tribunal Bench of Amritsar in the case of Smt. Gurjeet Kaur vs. Income-tax Officer reported at [2022] 139 taxmann.com 192 (Amritsar - Trib.) has held as under.

“Where Assessing Officer made additions to assessee's income on basis of an agreement to sale, however, revenue was only in possession of photocopy of agreement alleged to have been executed and assessee was able to prove that same agreement was an unregistered document, and assessee claimed to have sold land in question vide a registered sale deed, addition made to income of assessee under section 69, on basis of uncertified copy of an agreement to sell was not justified."

(k) Value of unregistered document

The Hon'ble High Court of Punjab & Haryana in the case of C. S. Atwal vs. CIT, Ludhiana reported at [2015] 59 taxmann.com 359 (Punjab & Haryana) on the issue of importance of registered contract agreements has held as under:

"The Registration and Other Related Laws (Amendment) Act, 2001 has brought about a radical change in the rights flowing on the basis of agreements executed in part performance of the contract under section 53A of the 1882 Act. The amendments have been made in section 53A of 1882 Act and sections 17 and 49 of the 1908 Act by amendment vide 2001 Act which stood enforced with effect from 24- 9-2001, and the words "the contract, though required to be registered, has not been registered, or in section 53A of 1882 Act have been omitted. Simultaneously, sections 17 and 49 of the 1908 Act have been amended clarifying that unless the document containing contract to transfer for consideration of any immovable property for the purpose of section 53A of 1882 Act is registered, it shall not have effect for purposes of section 53A of the 1882 Act. (Para 21]"

The jurisdictional High Court of Punjab & Haryana has clearly upheld the view that the registered document shall carry the legal backing rather than an unregistered photocopy of the document.

Further, the Hon'ble ITAT Bench of Amritsar in the case of Smt. Gurjeet Kaur vs. Income-tax Officer reported in [2022] 139 taxmann.com 192 (Amritsar -Trib.) has held as under:

Where Assessing Officer made additions to assessee's income on basis of an agreement to sale, however, revenue was only in possession of photocopy of agreement alleged to have been executed and assessee was able to prove that same was an unregistered document, and assessee claimed to have sold land in question vide a registered sale deed, addition made to income of assessee under section 69, on basis of uncertified copy of an agreement to sell was not justified

Further, the Hon'ble High Court of Delhi in the case of Principal Commissioner of Income Tax vs. Smt. Rashmi Rajiv Mehta reported in [2024] 160 taxmann.com 723 (Delhi) has held as under:

Assessing Officer based on said information issued reopening notice and made addition to income of assessee on account of purchase of said land from undisclosed sources - It was noted that entire foundation of addition was based on photocopy of Assessment Year: 2019-20 alleged agreement to sell and original copy of said document was not seen - Whether since there was no other evidence to support veracity of recitals made in aforesaid alleged agreement, impugned addition made to income of assessee was unjustified and was to be deleted-Held, yes [Paras 17 and 18] [In favour of assessee]

(l) In light of these observations, it is evident that the addition of Rs. 2,05,44,000/-to the appellant's income lacks a sound legal and factual basis. On the basis of above discussion, it is held that the appellant has been able to rebut the presumption u/s 292C(1) of the Income Tax Act, 1961. It is a matter of record that the payment of cash was denied by both the parties. This coupled with other facts discussed above, I am of the considered view that the addition is not sustainable. Therefore, this addition is deleted. Accordingly, these grounds of appeal are allowed.

11. Now, the revenue is before the Tribunal on the grounds contained in the memorandum of appeal.

12. The ld. DR relied on the order of the Assessing Officer and submitted that the assessee is a director and shareholder of Jammu Hotels Pvt. Ltd. and Future Housing Infra Pvt. Ltd. During the year under appeal, the assessee has declared income from long term capital gains amounting to Rs.67.53 lacs only, (without any income being declared either from Jammu Hotels Pvt. Ltd. or from Future Housing Infra Pvt. Ltd.)Referring to the impounded documents, the Ld DR submitted that the same has been found at the premises of the partnership firm M/s Kapahi Construction Company where the husband and both the sons of the assessee are partners, and the the transactions of purchase of plot of land made by the assessee (Anita Kapahi) from the seller Mr. Abdul Hamid. He further submitted that the contents of the loose paper regarding the plot size, khasrano., mutation no. and area chowadi, perfectly matches with the contents of the registered deed of conveyance. He further submitted that the circle rates and the cheques amount of the transaction also matches with the contents of the registered deed and bank statements and he argued that on the face of such matching particulars, there is no reason as to why the balance amount of Rs.2.05 cores ( which is the difference amount of the agreed rate and the sale rate) should not be considered as cash payments made to the seller , over and above, the amount disclosed by the assessee, and he submits that the addition made by the AO has been rightly done and the said addition should be sustained.

, issued by the Government of India , Ministry of Finance , Department of Revenue, Central Board of Direct Taxes dated 13/09/2007 , the loose single sheet of paper on the basis of which this addition has been made was never properly numbered and sealed and neither contains the signature of authorized persons, nor the signature of the witnesses and not even the signature of the assessee, as mandated by the CBDT seizure manual. It is further contended that during the course of search no marking was made on the said loose sheet and it contains signatures of office staffs only, (instead of signatures of the authorized persons, witnesses and the assessee) and as addition could be made or sustained.

Relevant portion reproduced:

“8. The Ld. DR for the department submitted that the Ld.CIT(A) is not justified in deleting the addition of Rs.3,12,44,640/- made by the assessing officer u/s 69 /69B of the IT Act,1961 by holding that the Documents i.e. MOU dated 22.01.2008 and supplement MOU dated 18.03.2008 which were found and seized during the time of search, though not signed by either of the parties, could not be taken as evidence of the payment of unaccounted money over and above the registration price of impugned land purchase, ignoring the detailed discussion of the same in the assessment order; that the Ld. CIT(A) is not right to hold that various ikrarnamas, photocopies of which were found and seized during search viz. A-9 DNB-1 are collusive in nature, as claimed by the assessee, when these documents have actually been seized from the premises of the assessee itself; and that the Ld. CIT(A) is wrong to conclude that various documents found and seized at the time of search have no evidentiary value when the assessing officer has discussed in detail in para 05(a) to (h) of his assessment order dated 21.03.2014 that the same reflect the actual state of affairs of business transactions carried out by the assessee as compared to what is reflected in its books of accounts. He prayed that the order of the Commissioner of Income Tax (Appeals), be set-aside and that of the AO be restored on merits although he has failed to file any rebuttal to the contention raised by the counsel in support of the impugned order that the MOU and supplement MOU were not signed by either of the parties or being not corroborated with supporting material evidence by the AO in the assessment proceedings and hence has no evidentiary value.

9. The defendant counsel for the assesse vehemently supported the impugned order, and contended that the unsigned MOU and Supplement MOU by either of the parties and being not corroborated with supporting material evidence by the AO in the assessment proceedings has no evidentiary value (APB, Pgs. 27-32). The documents as highlighted in the assessment order does not give any support to Assessing Officer's preliminary view of purchase consideration being at Rs. 11.55 Crore. Similarly, the Assessing Officer has relied upon the documents seized as page 1 & 2 of A-2 DNR which records various payment made to Sh. Surjit Singh and all of these payments have been found recorded in the books of account of the appellant and verified accordingly during remand proceedings by the Assessing Officer. He prayed that the impugned order is passed by the Ld. CIT(A) discussing and analyzing the facts of all the documents seized during search and passed a well-reasoned order duly supported with the judgement of higher judicial forum and hence, he prayed that it may be sustained.

10. Heard rival contentions, perused the material on record, impugned order, written submissions and case law cited before us. It is admitted facts on record that the disputed seized MOU are unsigned documents by either of the parties to the agreement and therefore

cannot be said to be of any evidentiary value for the purpose of preliminary or final view of aforesaid sale consideration of 11.05 acre. The Assessing Officer in this pursuit has relied upon another supplementary agreement MOU dated 18.3.2008 which is again not signed by either of the parties therefore it cannot lend any credence to the first MOU as both are unsigned and therefore could be in the nature of evidence for the proposed consideration for purchase of land by appellant. The Assessing Officer further has relied upon document at 168 of A-9/DNB-1 which record details of part payment of Rs. 11,94,37,570/- and the same have been held by the Assessing Officer to be corroborating with the sale consideration recorded in the MOU at 11.55 Crore. This document has been shown by the appellant to be accounted for in its books of accounts as substantial payments out of the same have been made to specific parties through cheque and the same had been verified by the Assessing Officer as well during remand proceeding. Therefore, this document as highlighted in the assessment order does not give any support to Assessing Officer's preliminary view of purchase consideration being at Rs. 11.55 Crore. Similarly, the Assessing Officer has relied upon the documents seized as page 1 & 2 of A-2 DNR which records various payment made to Sh. Surjit Singh and all of these payments have been found recorded in the books of account of the appellant and accordingly, verified during remand proceedings by the Assessing Officer.

(i) Entries in loose papers/sheets are irrelevant and not admissible under Section 34 of the Evidence Act. It is only where the entries are in the books of account regularly kept, depending on the nature of occupation, that those are admissible; (ii) As to the value of entries in the books of account, such statement shall not alone be sufficient evidence to charge any person with liability, even if they are relevant and admissible, and that they are only corroborative evidence. Even then independent evidence is necessary as to trustworthiness of those entries which is a requirement to fasten the liability; (iii) The meaning of account book would be spiral note book/pad but not loose sheets; with liability, the reason being that a man cannot be allowed to make evidence for himself by what he chooses to write in his own books behind the back of the parties.

There must be independent evidence of the transaction to which the entries relate and in absence of such evidence no relief can be given to the party who relies upon such entries to support his claim against another; (v) Even if books of account are regularly kept in the ordinary course of business, the entries therein shall not alone be sufficient evidence to charge any person with liability. It is not enough merely to prove that the books have been regularly kept in the course of business and the entries therein are correct. It is further incumbent upon the person relying upon those entries to prove that they were in accordance with facts; (vi) The Court has to be on guard while ordering investigation against any important Constitutional functionary, officers or any person in the absence of some cogent legally cognizable material. When the material on the basis of which investigation is sought is itself irrelevant to constitute evidence it is not admissible in evidence.

Order pronounced in accordance with Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963 as on 29.05.2025.