DCIT, CC-II, KOLKATA, KOLKATA vs. M/S. AJANTA FOOTCARE (INDIA) PVT. LTD., KOLKATA

ORDER Per Shri Mahavir Singh, JM:

This appeal by revenue is arising out of order of CIT(A), Central-III, Kolkata in Appeal No.191/CC-II/CIT(A)C-III/08-09 dated 30.12.2011. Assessment was framed by ACIT, C.C-2, Kolkata u/s. 144 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) for AY 2007-08 vide its order dated 31.12.2008.

2. That in the facts and circumstances of the case and in law the Ld. CIT(A) erred in deleting the additions of Rs.5.,10,33,507/- on account of undisclosed purchases and investment in stock.

3. That in the facts and circumstances of the case and in law the Ld. CIT(A) erred in deleting additions of Rs.5,98,10,222/- on account of undisclosed expenditure/investment.”

3. Briefly stated facts are that a search and seizure operation u/s. 132 of the Act was conducted on the group companies of the assessee on 06.11.2006. Simultaneously, a survey u/s. 133A of the Act was conducted on the business premises including show rooms of the assessee company on 06.11.2006. During the course of search and seizure

2 Ajanta Footcare (India) P. ltd. AY 2007-08 operation following books of account and documents found and seized from the premises of the assessee (the same is noted in the assessment order at page 2):

Name and Address Books of a/cs seized 1 Subrara Banik, 7/2B, Ballygunge Books of Accounts/documents with ID Marks Park, Kol-19 SB/1 to SB/3. 2 Banik Rubber Industries, 79/2, AJC Books of a/cs/documents with ID Marks Bose Road, Kol-14. BRI/1 to BRI/84; BRI/C-1/1 to 28, BRI/C- 4/1 to BRI/C-4/7;BRI/LT/SB-1; BRI/C-1 to BRI/C-4; BRIC-2/1 to BRI/C-2/2; BRI/C- 3/1 to BRI/C-3/6; BRI/C-5/1 to BRI/C-5/5; BRI/C-2, C-3, C-5.

The AO during the course of assessment proceedings noted that document BRI-20 which contains a bunch of loose sheets from pages 1 to 89 and particularly page 7 contains details of purchase, payments, sales, receipts and expenses incurred in various show rooms and show room decoration. He, in view of this page 7 of BRI-20, required the assessee to explain the transactions but no explanation was submitted by the assessee and accordingly, the AO after noting the detailed facts made addition of suppressed purchases at Rs.5,10,33,507/- by observing as under: “It is seen from the above page of the seized document that the assessee had made a purchase of Rs.7,77,35,924/55 during the year against which it made a payment of Rs.6,43,28,726/61. Similarly, it made a sale of Rs.3,11,85,100/90 against which the assessee company received payment of Rs.2,63,58,743/31. On perusal of the e-return of the assessee for the Ay 2007-08, it is found that the assessee has shown a sale of Rs.3,19,13,094/- and purchase of Rs.2,67,02,417/-. It clearly shows that the assessee company has grossly suppressed its purchase, which comes to Rs.7,77,35,924/55 – Rs.2,67,02,417/- = Rs.5,10,33,507/55.” Similarly, from the same documents, he noted that there is unexplained expenditure but no explanation is coming from the assessee and she added a sum of Rs.98,10,220/- as under: “Under the circumstances, I do not find no other alternative but to treat the expenditure shown by the assessee as unexplained expenditure and add the same to the total income of the assessee. The addition comes to Rs.6,84,768/- + Rs.2,70,677/- + Rs.1,82,851/- + Rs.36,96,085/- + Rs.7,00,000/- +1,50,000/- + Rs.1,30,694/- + Rs.2,95,145/- + Rs.37,00,000/- = Rs.98,10,220/-.” Aggrieved against both the additions, assessee preferred appeal before CIT(A).

3 Ajanta Footcare (India) P. ltd. AY 2007-08 “9.6. I have carefully considered the submission of the appellant, the assessment order, both the remand reports of the AO. and the rejoinder of the appellant. This document appears to contain some rough notings. It is undisputed fact that it does not indicate the name of the assessee or any other concern. In the remand report the AO has observed that certain "pay", "pur", "sale" figures have been jotted down but neither any date nor any year to which the document relates have been mentioned specifically except a short mention of "06-07" against one row of "pay" and "pur". The appellant denied the ownership of such seized document and further contended that there being no mention of specific date or specific year the document cannot be relied upon for any addition. After perusing this document and all the facts material to the issue I find that this is only a "dumb document" on the basis of which no interpretation can be made to establish the ownership of such document and the period to which it pertains. This document has evidentiary value only if it can be corroborated by any other cogent material or evidence. In the assessment order no definite finding regarding stock discrepancy detected in the course of survey was spelt out although generalized comment was made regarding discrepancy in stock. In the remand report the AO. has clearly stated that the figures regarding purchases, payment and sales could not be linked with stock discrepancy detected in the course of survey, neither quantum of stock discrepancy detected and worked out was discussed in the assessment order. Later the AO was requested to examine the seized documents and clarify whether any stock discrepancy was detected during the course of survey. However, in the second remand report also no such stock discrepancy was pointed out. Secondly, the AO was also asked to clarify whether any statement of the appellant was recorded regarding the contents of the seized documents BRI/20 Page-7 during the course of search or post search investigation. However, the AO has remained silent on this point. I found that a statement of Sri Subrata Banik, Director of the assessee company was recorded during the course of search & seizure operation on 07.11.2006. In this statement although questions were asked about several seized documents including Page -9 of seized document BRI/20 , no question was asked about the seized document BRI/20 Page - 7 which implies that this page was not considered important at that point of time. From the above discussion it is clear that no cogent material was unearthed during the search or post search investigation or assessment or remand proceedings to suggest that the assessee has indulged in making huge purchases in excess of Rs.5 Crores outside its regular books of accounts. Similarly no cogent material has been adduced at any point of time to suggest that amounts have been spent on show-room decoration outside the books of accounts. I have already given a finding that the seized document BRI/20 Page -7 is a dumb document. Since no cogent material could be adduced by the AO. at any point of time to corroborate either the fact of out of book purchases or out of book expenses on show-rooms, no addition on the basis of just this seized document is justified. Therefore, I hold that the additions of Rs.5,10,33,507/- as undisclosed purchase and Rs.98,10,220/- as unexplained expenditure are not justified and the AO. is directed to delete the same.” Aggrieved, now revenue is in appeal before us.

4 Ajanta Footcare (India) P. ltd. AY 2007-08 6. On the other hand, the Ld. Counsel for the assessee also drew our attention to page 7 of BRI-20, which is given at page 85 of assessee’s paper book and stated that the sheet contains certain figures which have been jotted but it neither gives any dates nor gives any year to which it is related except a short mention of 06-07 against one particular item and it does not indicate either the name of the assessee or anybody. According to Ld. Counsel, it appears that figure jotted there may have been for several accounting years representing 2004-05, 2005-06 and 2006-07 and if sales and purchases of all these three years and the itemized purchases are taken together, it will be seen that purchases and sales recorded in the books of account are much more than the figures appearing at page 7 of the seized documents. According to Ld. Counsel, there are no specific dates or specific year and hence, no addition can be made on account of such loose sheets or loose papers, it is nothing but ‘dumb document’. For this, he supported the order of CIT(A) and also relied on certain judgments, which we will deal with in the later part of this order.

6 Ajanta Footcare (India) P. ltd. AY 2007-08 Addition of Rs. 6,08,43,727/- i.e. ( Rs.51033507/- + Rs.9810220/-) has been made as per discussion in paragraph 5.4 on the basis of page-7 of BRI/20 . On a perusal of page-7 of BRI/20 it is seen that certain "pay ", "pur ", "sale" figures have been jotted down but neither any date nor any year to which the document relates have been mentioned specifically. There is a short mention of "06-07" against one row of "pay" and "pur" but it does not indicate the name of the assessee specifically. From the arguments of Ld. Counsel Sh. Bajoria that the figures jotted down might have been for several accounting years 2004-05, 2005- 06 and 2006-07 relevant to assessment years 2005-06, 2006-07 and 2007-08 respectively, hence this cannot applied to this year clearly. We find from this document that if sales and purchases of all these 3 items are taken up together, the consolidated purchases and sales recorded in the books of accounts would be much more than the figures appearing at page no. 7 of seized document BRI/20. However, the assessee denied the ownership of such seized document and further contended that there being no mention of specific dates or specific years this document cannot be relied upon for making any addition. As regards observation of the A.O. regarding stock, it was contended that the A.O. did not specifically point out in the assessment order as to how much un-accounted/un-disclosed stock was found during survey.

12. The first case law referred by Ld. Counsel of ITAT, Hyderabad Bench in the case of Gyankumar Agarwal (Ind.) Vs. ACIT (2013) 30 Taxman.com 114 (Hyd) wherein it is explained that how to read the seized documents and what is dumb document. For this, it was held as under:

“The Department cannot draw inference on the basis of suspicion, conjecture and surmise. Suspicion, however strong cannot take place of material in support of the findings of the AO. The AO should act in a judicial manner, proceed with judicial spirit and should come to a judicial conclusion. The AO is required to act fairly as a reasonable person and not arbitrarily and capriciously. Assessment made should have adequate material and it should stand on its own legs. The AO without examining any party, who has taken the loan from the assessee, cannot come to the conclusion that the assessee lends money. The basis for addition is only note book/loose slips. These note book/loose slips are unsigned documents. The AO has not established nexus between the note book/loose slips and business of the assessee. There is no narration regarding the address of the parties, the exact amount of loan, period of advance, rate of interest and instalments due. Also there is no evidence for repayment of money towards the loan. There is no valid seized material to come to the conclusion that the assessee has actually made an advance of that amount i.e. Rs. 2,55,50,000. The note book/loose slips marked A/GAR/05 found during the course of search is a dumb document having no evidentiary value, no addition can be made in the absence of corroborative material. If there is circumstantial evidence in the form of promissory notes, loan agreement and address of the parties or bank entries, the addition is to be made on that basis to the extent of material available. The assessee is not expected to explain the loose papers found as there is no evidence other than note book/loose slips carrying on money lending business of the assessee. The AO has failed to prove the money lending business carried on by the assessee on the basis of seized material A/GAR/05. In our opinion, no addition can be made on the basis of dumb documents/note book/loose slips in the absence of any other material to show that the assessee has carried on money lending business. Noting on the note book/diary/loose sheets are required to be supported/corroborated by other evidence and also include the statement of a person who admittedly is a party to the noting and statement from all the persons whose names are there on the note book/loose slips and their statements to be recorded and then such statement undoubtedly should be confronted to the assessee and he has to be allowed to cross-examine the parties. In the present case, undoubtedly no statement from the parties whose names were found in the note book/loose slips has been recorded and as such there is no question of cross-examination of them and entire addition in the hands of the assessee on the basis of uncorroborated writings in the loose papers found during the course of search is not possible. The evidence on record is not sufficient to support the Revenue's case that huge money lending business has been carried on by the assessee outside the business of the assessee. This is the block assessment and we are concerned only with the undisclosed income and we have to consider only material and evidence detected as a result of search. It means that if an examination of the material already on record before search or if as a result of some external information or some other sources other than a search, it is found that some income had escaped assessment then it is open for the AO to resort to a regular assessment including reopening of a completed assessment if so advised. But he cannot drag these items into the block assessment proceedings envisaged under Chapter XIV-B of the IT Act. In our opinion evidence available with the AO as a result of search is to be used for the purpose of determining the undisclosed income of the block period. The evidence, if any, relied on by the AO for the purpose of determining the undisclosed income of the block assessment is to be put before the assessee for his comments before completing assessment. More so, if the AO wants to rely on the statement 9 Ajanta Footcare (India) P. ltd. AY 2007-08 of any third party the same is required to be furnished to the assessee and if the assessee wants to cross-examine any of the parties whose statement was relied on by the AO the same is to be provided to the assessee. In the present case the assessee is having grievance for not providing the opportunity of cross-examining the parties whose statements were relied on by the AO while completing the assessment. The circumstances surrounding the case are not strong enough to justify the rejection of assessee's plea asking the opportunity of cross-examination. In view of this, we set aside the block assessment order and remand back the matter to the file of the AO. We direct the AO to give an opportunity of cross- examination of the parties as required by the assessee and thereafter if there is any sufficient evidence other than the unsubstantiated note book/loose slips marked as document A/GAR/5 or if this document (viz., A/GAR/05) is substantiated by any other evidence to establish that the assessee is having undisclosed income, then the AO shall complete the assessment in accordance with law determining the undisclosed income covering this block period in addition to the other undisclosed income uncontested before us. It is needless to say that the evidence to be considered by the AO for this block assessment is all the evidence on record found as result of search or requisition of books of account or other documents and such other materials or information as are available with the AO and relatable to such evidence.”

13. The next case law of Hon’ble Delhi High court in the case of CIT Vs. S. M. Agarwal (2007) 162 taxman 3 (Del) wherein certain documents found during the course of search was treated by Hon’ble High court as dumb document by observing in para 11 to 15 as under: “11. In the present case the Assessing Officer has placed reliance on the statement of Smt. Sarla Aggarwal, daughter of the assessee while arriving at the conclusion, that the entries belong to the transactions of the assessee. This statement made by Smt. Sarla Gupta cannot be said to be relevant or admissible evidence against the assessee, since the assessee was not given any opportunity to cross-examine her and even from the statement, no conclusion can be drawn that the entries made on the relevant page belongs to the assessee and represents his undisclosed income. It is also an admitted fact that the statement of the assessee was not recorded at any stage during the assessment proceedings. The only conclusion which can be drawn about the nature and contents of the document is that it is a dumb document and on the basis of the entry of notings or figure etc. in this document, it cannot be concluded that this represents the undisclosed income of the assessee.

14. Further Hon’ble Delhi High court in CIT Vs. Jai Pal Aggarwal (2012) 28 Taxman.com 269 (Del) has also considered the issue of dumb document by observing in para 9 as under: “9. On appeal the Tribunal examined the seized document and found that the figures did not co-relate with any date or details nor was the document signed. It also referred to the details of the fixed deposit receipts given in page 10 of Annexure A4, which was the seized document, and noted that except for mentioning the figure of Rs. 27,50,000/-, no details for the said figure were given. However, in respect of the fixed deposits with Karnataka Bank, the seized paper showed that the source for the same was the maturity proceeds of earlier fixed deposits. The Tribunal ultimately cancelled the addition by observing as under: "65. On going through page 463 of the paperbook, which is copy of page 10 of annexure A- 4, it is found that on these documents, some figure has been noted. From the noting on this paper, the details of FDRs cannot be detected. The assessee has denied this to be in his handwriting. The entries do not correlate any date or the signatures. The Assessing Officer did not collect any other evidence from banks or post office to correlate investment of the assessee in any other FDRs except the FDRs of Rs. 12,25,000/-, the source of which has been duly disclosed by the assessee. 66. Keeping in view of the above facts and also after taking to account the nature of entry on the seized document which is to be treated as dumb document, the addition of Rs. 27,50,000/- cannot be justified in block assessment year. In this view of the matter, the addition is deleted and the ground is allowed." It may be noted that the Tribunal saw the seized paper as a "dumb document" which meant that nothing could be understood from it. The document, according to the Tribunal, merely noted a figure of Rs. 27,50,000/- without any details whereas details of other fixed deposits made with Karnataka Bank were given including the interest figure. The Tribunal also felt difficulty in gathering the details of fixed deposits for Rs. 27,50,000/- from the seized paper; there was no date or signature therein. On these facts the Tribunal has drawn the conclusion that the addition is without any basis. We are unable to say that the inference is unreasonable or is of such nature that no person, properly instructed on facts and law, would have come to. The Tribunal has properly taken note of the evidence; it has not ignored any relevant piece of evidence. Its conclusion cannot therefore be said to be perverse. We therefore, answer the question (c) in the negative, in favour of the assessee and against the revenue.”

In view of the above facts and circumstances of the case as discussed and also the precedents relied upon, we are of the view that page no. 7 of BRI-20 is a dumb document and particularly one of the director of the assessee company Shri Subrata Banik was deposed during the course of search on 07.11.2006 but no question about this document was asked, which implies that this page was not considered as important and even after

11 Ajanta Footcare (India) P. ltd. AY 2007-08 search no questions were asked about the narrations or entries. In view of the above, we confirm the order of CIT(A) and both the issues of revenue’s appeal are dismissed. 15. In the result, the appeal of revenue is dismissed. 16. Order is pronounced in the open court on 04.12.2015 Sd/- Sd/- (Waseem Ahmed) (Mahavir Singh) Accountant Member Judicial Member

Dated : 04th December, 2015 Jd. Sr. P.S Copy of the order forwarded to: