Addition on the basis of loose sheet and torn papers found during search is unwarranted
ORDER
J.P. BENGRA, J.M.:
This is an appeal by the assessee against the block assessment made under s. 158BC(c) of the IT Act, 1961 determining undisclosed income of the assessee at Rs. 5,62,13,938. The search and seizure operation was conducted against the assessee on 17th Nov., 1995, along with other Aerens group of cases. Notice under s. 158BC dt. 20th May, 1996, was served on the assessee. In compliance of the notice the assessee filed his return for the block period on 14th Aug., 1996, declaring nil income. However, the AO after scrutinising the seized material, at the inquiry stage of the assessment and after making inquiries, sustained three major additions given as under :
Rs.
Rs.
(a) 3.80 crores on the basis of loose sheet which was listed at p. 13 of the Annexure A-1.
(b) 1,71,53,938 on the basis of torn papers seized by the raiding party from toilet and sewerage line.
(c) 10,60,000 on account of gifts received from NRI staying outside India.
Unaccounted receipt receivable money to the tune of Rs. 9,50,00,000 (Annexure A-1, P. 13)
2. On P. 13 of Annexure A-1 was captioned as “Estimates” and the entries mentioned therein are given below :
“Estimates”
Area Area Rent Rent Cost Cost Sale Sale GF 29,100 29.10
—
29.10 —
MF 1,137 43,206 25.00 appx.
@ 3000 @ 2,200 FF 2,005 76,190 44.00 @ 2,200 SF 2,005 76,190 44.00 2,24,486 142.10 M-37 6897 x 3000 FF 1,750 42.00 @ 2,400 206.91 184.10 236.01 4.50 2.36.01 Less sold to self .90 .28.32 12 months 48+42 3.600 @12% 2.07.69 APPx.
64.818 month Dep.
2.9520 For G 14 2.0769 5.00 87.51/= 1.20 Less 24 months 3.8000 2.0769 1.7231 The AO desired the assessee to explain the entries on this paper and to show whether it represented undisclosed income of the assessee. In response to the query assessee explained to the AO vide para 11 of letter dt. Ist Aug., 1996. According to this explanation, the notings: on this paper relate to some projections and futuristic planning of the assessee. It was mentioned that as the assessee is carrying on business of estate agent, broker, builder and developer in that process, in this business, he was required to discuss various plans, projects and proposals with various parties like brokers, builders, land owners, employees, etc. and during discussions before a decision is taken on a project for purchase or development, the plans are discussed as an agent on behalf of the buyers or sellers. Therefore, the notings on the piece of paper do not indicate the actual transactions. Even the notings do not indicate as to which property the projections are related except for property No. M-37, Greater Kailash, first floor, where the area mentioned is also shown, Actually the area is 1,800 sq. ft. and not 1,750 sq. ft. The sale of this property did not materialise ultimately. Property No. G-14, Hauz Khas mentioned in this paper is owned by M/s. Rajhans: Developers (P) ITD, Co. The complete details of purchase and cost of improvement thereof have been duly recorded in the books of accounts of Raffians Developers (P) ITD. as under :
Cost of purchase as per sale deed 18,00,000 Incidental expenses 1,45,000 Development/reconstruction expenses 28,50,000 Total 47,95,000 This property was on rent to M/s. Stanley International Holdings Inc. and the company has also received Rs. 1,20,00,000 (60,00,000 security deposit and Rs. 60,00,000 as advance lease charges. Tin the date of search no sale of this property has taken place. Therefore, the information given on this piece of paper is nothing but estimates and projections. The AO was not satisfied with this explanation. He mentioned that the figure of Rs. 2.0769 crores has been arrived at by the assessee and indicated by the assessee at three places in the paper itself. On the right hand side, the cost has been worked out to Rs. 2.36 crores out of which some element of interest or rent or similar charge for the 12 months on approximate basis has been deducted which has been worked out at 2.832 crores and hence the figure of cost as worked out to Rs. 2.0769 crores. For G-14, the notings have been made on the extreme right hand corner where Rs. 1.20 crores have been subtracted from Rs. 5 crores, Rs. 1.2 crores appeared to be amount relatable to 24 months towards interest or rent or similar expense. The remaining 3.8 crores has been further reduced by the amount of cost at Rs. 2.0769 crores. The notings on the left hand side show that out of 4.5 crores after deduction of 0.9 crore, 3.6 crores remains. This amount is further reduced by 18 months deferred payments charges @ 12 per cent, which had been worked out at Rs. 64.8 lakhs. After allowing deduction at 2.0769 crores, the net amount has been worked out to 87.5 crores. He further observed that there could be two proposals for some property or group of properties the cost of which could be to the extent of Rs. 2.0769 crores. This might have been mentioned in the paper, one at left and other at the right hand side of the bottom of the paper. The right hand side proposal gives the profit element to the tune of Rs. 1.7231 crores, either of them might have clicked to the assessee. It was observed by the AO that entire property No. G-14, Hauz Khas, was taken on rent by Stanley International Holdings Inc., a foreign company which paid total sum of Rs. 1.20 crores to Rajhans Developers (P) ITD. According to the AO, it was thus proved that figure of Rs. 5 is coded in crore otherwise there is no sense in subtracting 1.20 crore because the result could not be arrived at correctly unless the figures were of the same units/value. He further mentioned that in the absence of specific explanation the right hand side proposal must have materialised and profit to the tune of Rs. 1.7231 crores was earned and as such to be treated as profits earned from undisclosed transaction which was added to the undisclosed income of the assessee from undisclosed sources along with the investment as per cost of the property or group of properties. Therefore, Rs. 3.80 crores was added to the undisclosed income for the block period, i.e., financial year 1995-96 relevant to asst. yr. 1996-97.
3. The learned assessee’s Counsel submitted that the addition of Rs. 3.80 crores is made merely on the basis of piece of paper recovered during the course of search and seizure operation. The seized paper is not corroborated by any evidence. He emphasised that the paper is marked as “Estimates” and the entries made on the page relate to some projection and futuristic planning, as the assessee happens to be a director in some of the companies engaged in the business of estate agents, builders and developers, and he is required to discuss various plans, projects and proposals with different persons like builders, land owners and brokers. These discussions take place before the project for development is taken and plans are discussed. The paper in question does not indicate that any transaction ever took place. It does not contain information as to what was the nature of transaction, if at all any such transaction took place, who were the parties to the transaction, what were the dates of the transaction, what did the figure noted in the piece of paper represent and whether in any manner the paper in question has any relevance to the determination of income. It is pointed out that the AO related the transaction to property at M-37, Greater Kailash, which belongs to M/s Aerens Developers & Engineers ITD., who is an independent entity and its assessment is completed under s. 143(3) and under s. 158BC for asst. yr. 1995-96 and no addition of any kind was made there. It is further pointed out that transaction of the property at G-74, Hauz Khas did not belong to the assessee but belongs to M/s Raffians Developers (P) ITD., which is an independent entity and is assessed separately. The acquisition of the property by the said company has been duly disclosed in the return of the said company and an investment of Rs. 47,95,000 has been duly disclosed by that company on the acquisition and development thereof. It is pointed out that the sale of flat No. G-14, Hauz Khas and M-37, Greater Kailash has not taken place till the date of search. It is further pointed out that in the assessment of M/s Rajhans Developers (P) ITD. the assessment was completed under s. 143(3) and no addition of any kind was made. The learned counsel invited our attention to the affidavit of Shri Sanjeev Gupta, director of M/s Rajhans: Developers (P) ITD. paper-book pp, 100 and 82 respectively, which were filed before the AO confirming these facts. The AO neither doubted nor controverted the affidavits by any material on record. The assessment order shows that the addition is based wholly on presumption and the AO himself concedes absence of any specific information in this regard. Therefore, he only surmises that the paper contained transaction pertaining to some property or group of properties in the absence of any information or material to support is guess. The learned counsel invited our attention to the definition of term “undisclosed income” as given in s. 158B(b) and contended that paper in question cannot be treated as books of account or document. It submitted that both these terms are not defined in the IT Act. Therefore, their meaning as understood in a common parlance has been taken into consideration and for this purpose he relied on the meaning to this term as given in Black’s Law Dictionary at p. 432, 165 fifth Edri. He also relied on the following decisions in support of his contention that the seized paper in question could not be treated as a document or book of account and no addition could be made merely on the basis of such a paper in the absence of any other corroborative evidence.
(1) Kantilal & Bros. vs. Asstt. CIT (1995) 51 77J (Pune) 513 : (1995) 52 ITD 412 (Pune) ‘ –
(2) Asstt CIT vs. Karodilal Agarwal (1994) 50 M (Jab) 393;
(3) Addl. ITO vs. T. Mudduveerappa Sons (1993) 45 ITD 12 (Bang),-
(4) ITO vs. WD. Estate (P) ITD. (1993) 46 M (Bom.) 143(1993) 45 ITD 473 (Bom.); and (5) Asstt. CIT vs. Shailesh S. Shah (1997) 59 M (Mum) 574 (1997) 63 ITD 153 (Mum).
He also referred to the following judgments
(a) Ramlal Daya wala & Sons (P) ITD. vs. Invest Import AIR 1981 SC 2085;
(b) Sir Mohammed Yusuf & Anr. vs. D. & Anr. AIR 1968 112 42 (Bom.); and
(c) Criminal Petition No. 265/1995, April, 1997-L.K. Advani.
It is further submitted that un corroborative entries in the books of accounts or documents do not establish their truthfulness and in this connection he laid emphasis on the contents of the document or book of account and truthfulness of the contents. It is emphasised that jotting in diary is held neither a book nor a document. Therefore, addition cannot be justified merely on the basis of seized papers. With reference to the decision of Tribunal in the case of ITO vs. WD. Estates (P) ITD. (supra) it was submitted that no addition could be made merely on the basis of a notorious fact that on-money is involved in property deals, particularly when the AO has not made any such allegation in the present case and no evidence was found during the course of search that any transaction entered into by the assessee is not disclosed by him.
3.1. The learned assessee’s counsel further contended that as the AO has not given any reasoning or finding or had not mentioned any evidence or material as to how or on what basis the above figures were considered as the assessee’s income. It was clear that he had not invoked any of the deeming provisions of ss. 69 to 69D of the IT Act. The assessee’s case could not be put in within the ken of s. 68also, as the piece of paper impounded at the time of search could not be construed to be a book. The learned assessee’s counsel also contended that the presumption contained in s. 132(4A) did not overridess. 68 and 69 and the presumption could not be raised for the purpose of regular assessment. In this connection, reliance was placed on the decisions of the Tribunal in the case of Raj Pal Singh Ram Autar vs. 1TO (1991) 39 M (Del) 544, in which one of us was a party to the order, in the case of T. Mudduveerappa Sons (supra) and in the case of Pushkar Narain Saraf vs. CIT (1990) 86 CTR (All) 110 : (1990) 183 ITR 388 (Mum). It was submitted that no addition could be made merely on the basis of a notorious fact that on money is involved in the property deals, particularly when the AO has not made any such allegation in the present case and no evidence was found during the course of search that any transaction entered into by the assessee is not disclosed by him. With reference to the decision of the Tribunal in the case of Asstt. CIT vs. Shailesh S. Shah (supra) it was pointed out that where the factual condition is not laid by the AO which would show as to which of the sections from s. 68 onwards is invoked, the AO cannot get the benefit of rule of evidence which cast burden of proof on the assessee. On the contrary, in such circumstance, the principle of general law will apply and the burden of proof that a particular amount represents assessee’s income will lie upon the Revenue. The AO has failed to state the facts to indicate as to whether at all any ss. 68, 69 or 69A of the IT Act is invoked by him. In this way, the AO has failed to discharge the burden of proof to establish that the figure in question is the assessee’s income. The entire evidence is based on presumptions, surmises and conjectures. In the end, it is pointed out that if the contents of this paper and the handwriting is proved, even then the truthfulness of it has not been proved. The contents of the paper is denied by an affidavit, which is not controverted.
3.2. As against this, the learned Departmental Representative relied on the order of the AO and submitted that the assessee has failed his return of income on 14th Aug., 1996. The assessment was getting time-barred on 30th Sept., 1996, which was completed on 29th Nov., 1996. Therefore, the assessment should be set aside for inadequacy of time available to the AO. He also disputed that the contention of the assessee that the seized paper in question could not be treated as document is not correct. It is pointed out that in the seized document there is some material recorded by the assessee, in those papers the affairs of the assessee are mentioned, which the AO has tried to interpret and came to the conclusion that some income is generated out of the deal of property at M-37, Greater Kailash and G-14 Hauz Khas.
3.3. In reply, the learned assessee’s counsel submitted that perusal of the assessment would reveal that the assessee extended every co-operation during the course of assessment proceedings. He pointed out that the assessee did so in spite of the fact that photostat copies of seized material was supplied to the assessee belatedly. He also emphasised the fact that it is a case in which extensive search of residential and business premises was conducted and the documents seized were in possession of the Department right upto the date of assessment order and continued to be there. Every explanation, clarification required by the Department was submitted. The assessee was called at least 25 times for this purpose. Witnesses required by the AO to be produced by the assessee were produced. Most significant aspect of the case is that the AO has himself not complained of any inadequacy of time which might have handicapped him in making the proper assessment. Therefore, the learned Departmental Representative was not justified in making a grievance of what was indeed not made out by the AO. The documents were seized on 17th Nov., 1995, whereas the assessment was completed on 29th Nov., 1996. Still they say that the AO needed more time. This plea of the learned Departmental Representative is devoid of force and in case the matter is sent back it will cause undue harassment to the assessee. At the level of the Tribunal it was not justified in making a grievance of what was indeed not made out by the AO. The Department having failed to establish any case against the assessee cannot use the Tribunal as an instrument of investigation on their behalf and that too merely for the purpose of making roving and fishing inquiry so that the Department may stumble against something in their favour and against the assessee by way of chance detection. It is not permissible in law to reopen concluded proceedings of this kind. It is further contended that the AO has the benefit of investigation done by the Investigating Wing and in this case the show-cause notice was issued to the assessee on 19th July, 1996, on the basis of which search investigation was conducted by Investigation Wing. The assessee submitted his reply in detail and full compliance was made, which involved voluminous task. Each and every question was explained with reference to seized document. It is further submitted that in the name of principle of natural justice the forum of the Tribunal cannot be used to extend the time more significantly when the AO does not complain of any paucity of time or lack of co-operation. Therefore, setting aside the assessment would be unjustified and unfair.
3.4. We have considered the rival submissions and have gone through the material available on record. The basis of addition in this case is a seized paper – p. 13, Annexure AI, relating to purchase/sale of property. The document bears the caption “Estimates”. There seems some truth in the explanation of the assessee where it is alleged that the entries relate to some futuristic planning. Since the assessee is carrying on the business of estate agent, in the process of this business, he is required to discuss various plans, projects and proposals with various parties like brokers, builders, etc. These discussions generally take place before a project for purchase of development, plans are discussed as the assessee acts as an agent on behalf of the buyer or seller. Therefore, notings: on the piece of paper do not indicate the actual transaction.
The paper in question does not indicate that any transaction had ever taken place because it does not contain any information as to what was the nature of transaction. If at all, any such transaction took place for the parties to the transaction, what was the date of the transaction, what did the figure noted on the piece of paper represent, and whether in any manner the paper in question has any relevancy to the determination of the income in the hands of the assessee. No evidence has been brought on record to corroborate the allegation that the assessee had entered into any transaction or had earned any income. There was no evidence to show that there was any undisclosed investment or any sale of any property for the amount as given in this piece of paper. The assessee has alleged that the properties in question G- 14, Hauz Khas and M- 37, Greater Kailash were not sold during that period. These properties were sold after the date of the search. This fact has not been controverted by any material or evidence on record. Therefore, there was no question of any income arising from sale of these properties at the time of search. Besides this the property G14, Hauz Khas belongs to different entity, M/s Rajhans Developers (P) ITD., which is an independently assessed entity. The acquisition of the property by the said company had been duly disclosed by the said company and the assessee had filed proof of the same. The said company made investment of Rs. 47,95,000. The assessee had further disclosed that the said company was on rent to M/s Stanley International Holdings Inc. and the company had also received security deposit which is recorded in the books of the company. The PAN number of the company and the circle is also given. There is no material that the sale of this property took place earlier and the assessee had earned any income. It is alleged by the assessee that the acquisition of the said property as well as sale thereof was duly disclosed in the return of income of the said company and the assessment of the said company had been duly completed without any dispute. Particulars of acquisition and further investment in the property in question are placed on the paper-book and particulars of sale which took place after search are also placed before us.
No material has been brought on record by the Department to come to the conclusion that the property G-14, Hauz Khas belonged to the assessee and the figure mentioned in the seized paper could be treated as the income of the assessee. Similarly it is alleged by the assessee that property M-37, Greater Kailash belongs to the company named M/s Aerens Developers & Engineers ITD., which is also an independent entity and its assessment is completed under s. 143(3) and under s. 158BC and no additions were made there. The Department could not controvert this allegation by any material on record. Some jottings were found on the piece of paper, from which it could not be presumed that any purchase or sale has taken place with regard to these properties. The AO has not raised any dispute regarding the facts about the properties standing in the names of M/s Rajhans Developers (P) ITD. and M/s Aerens Developers and Engineers (P) ITD. Therefore, no corroborating evidence is brought on record to corroborate the conclusion that the assessee has entered into any transaction or had earned any income. The AO himself has mentioned that the paper in question is a bald estimate. Therefore, unless there is a corroborating evidence to show that the purchase and sale of these properties has taken place and the assessee has earned income, no amount can be added in the hands of the assessee. In the instant case distinct and separate proofs were necessary, namely, proof of recovery and proof of the truth of the contents of the seized papers. So far as the truthfulness of the seized paper was concerned, the Department’s case is that seized document contained details of secreted income. In this regard the Department had not brought on record any evidence conclusively that the seized documents contained details of sale of properties and profit earned, which was chargeable to tax. On the other hand, the assessee has now brought on record that no such sale of these properties and taken place prior to the date of search. No doubt the seized papers contained statement, the figures of which appeared to be certain unnamed transaction but there was nothing either in law or in logic to warrant the conclusion that the figures noted therein pertain to sale of properties and secret profits. Thus, going merely on the basis of the seized paper and nothing more, it could not be predicated that what was shown in the paper was secreted profits and sale proceeds. In other words, the details contained in the seized papers did not by themselves represent a preponderance of probabilities so as to support the Department’s case that what was shown was taxable income. As the AO had not given any reasoning or finding or had not mentioned any evidence or material as to how and on what basis the figures were considered as income. Contrary to that as there was no sale of the properties, it was clear that he had not invoked any deeming provisions. The Revenue can tax only those receipts which must have been proved to be income in the hands of the recipient. Therefore, it is the Revenue’s onus to prove, if the assessee had received any income. Therefore, it is the Revenue’s onus before assessing any receipt as taxable income to prove that the receipt in the hands of the recipient is income and this can be proved or established only on the basis of some material or evidence. A similar view was taken by the Bench of the Tribunal in the case of T. Mudduveerappa Sons (supra) and in the case of Assn. CIT vs. Shailesh S. Shah (supra).
3.5. The basis of addition by the Revenue is entirely rests on the presumption of recovery of p. 13, Annexure A-1, and the presumption contained under s. 132(4X of the IT Act. In this connection, we would like to mention here that presumption arising out of sub-s. (4A) of s. 132 of the Act i available to the Revenue for the limited purpose of search and seizure and the proceedings under s. 132(5) and 132(11). Such presumptions are available for the limited purpose of estimating the undisclosed income and the estimated tax liability for the purpose of deciding whether the seized assets should be seized or retained. The presumption cannot have the effect of excluding or overriding the provisions of s. 69 of the IT Act during the course of regular assessment proceedings. This view was taken by the Tribunal in the case of Raj Pal Singh Ram Autar vs. ITO (supra),which in turn has based on its order on the decision of Hon’ble Allahabad High Court in the case of Pushkar Narain Saraf vs. CIT (supra), wherein the Hon’ble Allahabad High Court laid down the following principles :
“The presumption arising under sub-s. (4X of s. 132 of the IT Act, 1961, applies only in relation to the provisional adjudication which is contemplated under sub-s. (5) of s. 132. Sub-s. (5) of s. 132 provides for estimation of the undisclosed income or the calculation of the amount of tax on the income so estimated and the determination of the amount of interest payable or the amount of penalty imposable in a summary manner. For this limited purpose, the legislature has provided under s. 132(4A) that the books of account, other documents, money, bullion, jewellery or other valuable articles seized from the possession of the assessee shall be presumed to belong to the assessee if they are found in the possession or control of the assessee in the course of the search. A similar presumption may also be made as to the correctness of the contents of the books of account so seized. So also the signature and every other part of the books of account may be assumed to be in the handwriting of the person by whom it is purported to have been written. This presumption cannot, however, have the effect of excluding s. 68 when regular assessment is made in regard to the income of the person from whose possession those books of account were seized under s. 132. It does not obviate the necessity to establish by independent evidence the genuineness of cash credits.”
Therefore, we hold that there is no corroborating evidence of the contents of the documents and also there is no material to ascertain the truthfulness of the statement. 3.6. In such circumstances, it cannot be presumed that seized document shows any transaction of sale and purchase entered into by the assessee, which is not disclosed by him. In the case of Hindustan Ferodo ITD. vs. Collector of Central Excise (1997) 89 ELT 16 (SC) the Hon’ble Supreme Court laid down that it is not the function of the Tribunal to enter the arena of making suppositions that are tantamount to evidence that the party has failed to lead. Therefore, it is clear that from any material evidence on record the Tribunal is not supposed to infer from the facts which are not supported by any material or evidence on record.
3.7. The principle of natural justice is a privilege of the subject. The forum of the Tribunal cannot be used to extend the time more significantly when the AO does not complain of paucity of time or lack of co-operation. Therefore, the contention of the Senior Departmental Representative for setting aside the matter for investigation has no bearing. It is not a case where the assessee did not produce any evidence or furnished, any information required by the AO. The Department was in possession of the entire seized material and the material collected in post-search and investigation. Therefore, no case is made out for setting aside the matter. Accordingly, the plea of the Departmental Representative cannot be accepted. In view of our above discussion, we are of the opinion that no addition can be sustained on the basis of the seized paper at p. 13 of the Annexure AI bearing “Estimates”. The addition of Rs. 3.80 crores is deleted.
Addition of Rs. 1,71,53,938 made on the basis of torn papers recovered during search 4. During the search certain torn papers were found from the bed room as well as from the sewerage line. The story goes like this that on arrival of the search party the assessee entered the toilet/latrine and torn out some documents being agreement to sell, receipts issued by various parties in token of having received sale consideration on sale of properties. All the torn bits of agreement to sell and receipts and torn pieces of documents were seized and rejoined/reconstructed so as to make these readable and understandable documents. The assessee was requested to explain such behaviour of tearing of the papers and show cause as to why appropriate action as per law should not be taken on the behaviour of tearing of the papers. The assessee furnished explanation in this regard and most of the pieces had been explained for which explanation was kept on record after verification. Those which were not explained, additions were made on the basis of those torn papers as undisclosed income from undisclosed sources of the assessee for this block assessment periods. The details of torn pieces of papers with amounts and block periods are given in an Annexure ‘X’ to this order. The assessee furnished detailed reply in respect of each torn pieces of papers vide letter dt. 15th Oct., 1996, and in an affidavit dt. 22nd Nov., 1996. According to the AO, these torn pages contained some agreements to sell, receipts issued by the vendees and pages of ledger, etc. These documents were reconstructed and put to the assessee. According to the learned counsel these torn pages were found in a bedroom and the sewerage line, outside the house where several other sewerage lines join. Regarding the first set of papers recovered from the bed, the AO asked for the explanation from the assessee and there is no dispute on that matter. Regarding the second set of papers, which were reconstructed and put to the assessee, the AO accepted that these are rough trial balance and there is no dispute about the figures shown in the rough trial balance. The third category of papers are tiny pieces. Those papers, according to the AO, could not be explained by the assessee, which contained undisclosed income aggregating to Rs. 1,71,53,938 and the same was added as income of the assessee for the reasons given in para 10.1 of the assessment order and details as per Annexure ‘X’ of the order.
4.1. The learned counsel of the assessee submitted that no doubt, some torn papers were found during the course of the search and seizure operation but these were working papers and they were destroyed after the entries were made in regular books of accounts. He explained that the papers which were recovered from the bed were fully explained and the assessee’s explanation was duly accepted by the AO, As regards the remaining papers it was submitted that most of them related to M/s Arenas Export Corporation and they constituted pre-audited trial balance which was tom off after the final trial balance was prepared. The figures contained therein duly tallied with the books of accounts of M/s Aerens Export Corporation, which were seized by the Department and were in their custody. The torn bits of pieces of paper did not contain any information except the few figures and words and it was practically impossible to discern or decipher them. Further piece of papers were recovered from the sewer line from outside the residence of the assessee, where several other sewer lines joined together and, therefore, there was every possibility that some of these papers related to others and had nothing to do with the assessee. There is no single document on the basis of which the allegation of the AO could be proved to the effect that the turnover was suppressed or any income was concealed or any transaction was not revealed to the Department itself. He relied on the submissions with regard to the preceding ground to buttress his contention that the pieces could not be treated as a document in terms of definition of the term undisclosed income as contained in s. 158B(b) and also relied upon various decisions reported in support of his submissions in this behalf earlier. He referred to the decision in the case of Kantilal & Bros. vs. Assn. CIT (supra) for the proposition that jottings appearing in a diary are neither a book nor a document and the addition cannot be justified merely on the basis of tiny pieces of papers.
4.2. On the other hand, the learned Departmental Representative relied on the order of the AO and repeated the contention for setting aside the assessment order with regard to this item as well.
4.3. We have considered the rival submissions and have gone through the entire material available on record. The papers in question are tiny pieces of papers. It does not Indicate that any transaction ever took place. It does not contain any information as to what was the nature of the transaction, if at all, any such transaction took place, who were the parties to the transaction and what was the date of the transaction, what did the figures noted in the piece of paper represent and whether in any manner the paper in question has any relevance to the determination of income in the hands of the assessee. In fact the obtuse information, if any, then made out from these papers has not been shown to relate to the assessee. The case of the assessee is that it related to M/s Aerens Export Corporation and they constituted a rough trial balance, which was torn off after final trial balance was prepared. No evidence is brought on record either during the course of search and seizure operations or thereafter that any transaction was undisclosed in the regular books of accounts by the assessee. The Department has not succeeded in bringing any corroborating evidence on record to support their findings and the fact remains that these papers were found outside the residence of the assessee from the sewer line where other sewer lines joined together. In fact the assessee’s assertion that most of these papers related to M/s Aerens Export Corporation and they constituted pre-audited trial balance, which were tom off after the trial balance was prepared, have not been rebutted by the learned Departmental Representative. Thus, addition on this account cannot be sustained. As regards the request of the learned Departmental Representative for setting aside the assessment, it cannot be accepted for the reasons given in the preceding paragraphs of this order, while dealing with issue No. 1.
Addition of Rs. 10. 60 lakhs
5. During the course of search and seizure operation, certain unsigned letters dt. 10th June, 1995, and 13th June, 1995, exchanged between Shri J.P. Aggarwal and the assessee were found from the possession of the assessee. According to the AO, the gifts were in genuine and they were pre-decided, instigated and schematic. The AO on the basis of these letters and reply of the assessee reproduced in paras 8, 8.1 and 8.2 of his order, came to the conclusion that the gift from J.P. Agarwal, N.R.I. to the assessee is neither a genuine gift, nor it is made out of natural love and affection and there is no probability of such a conclusion. However, in view of the confirmations from the family members of Shri J.P. Aggarwal and gifts received by the persons of Shri S.K. Gupta family members on behalf of Shri S.K. Gupta, the amount of gifts is treated to be representing the undisclosed income of the assessee managed by him to receive back through this scheme and is added as undisclosed income for the block assessment purpose.
5.1. The explanation of the assessee was that the assessee and his family members received gifts from Jagdish Prasad Agarwal, a Chartered Accountant, who is a family friend of the assessee at Muscat since his childhood. He was gainfully employed drawing handsome salary at Muscat, and the assessee had spent his childhood together as they were classmates. This gift was given to the assessee and his other family members out of his natural love and affection. The payment has been made through banking channel. However, the AO was of the view that the gift is not genuine. He also doubted the genuineness of the donor also. In fact he also doubted the capacity of the donor to make the gifts and thus came to the conclusion that the gifts so made represent the undisclosed income of the assessee managed by him to receive back through this scheme. Therefore, an addition of Rs. 10,60,000 was made as income of the assessee for the block periods (Financial year 1995-96) relevant to asst. yr. 1996-97.
5.2. The learned assessee’s counsel submitted that the addition is fully unjustified for the reasons that the assessee discharged his burden of proof to prove the identity, capacity and genuineness of the gifts. He emphasised that the identity of the donor is not in dispute. The capacity of the donor is also established, inter alia, by the fact that he has not only made the gift of Rs. 10.60 lakhs to the members of the family of the assessee but simultaneously he made a gift of Rs. 10 lakhs to his relations. Confirmation from the donor is duly filed. Confirmation from the father of the donor, confirming the receipt of gifts by his own family member is also filed. It is also explained that the gifts were made out of natural love and affection and for discharging personal obligation for which the donor was indebted by virtue of the fact that the donor got great help from the family of the assessee in his admission and furtherance of his career. The donor is a qualified Chartered Accountant who is gainfully employed at Muscat, Sultanate of Oman. The particulars of the demand draft and the bank on which they were drawn, were fully furnished. On this basis it was contended that the assessee discharged his initial burden but the AO failed to discharge his onus of proof which shifted on him. The AO did not require the assessee either to produce the donor or to furnish any further information. It was contended that no incriminating evidence was found during search or brought on the record on the basis of which the gifts were held as in genuine and that it was the assessee’s own money which was considered in the process. Reliance was placed on the following decisions in support of his contention that the initial burden has been discharged by the assessee and the onus now stands shifted on the Revenue :
(a) Sarogi Credit Corpn. vs. CIT 1975 CTR (Pat) 1 : (1976) 103 ITR 344 (Pat);
(b) Addl. CIT vs. Bahri Brothers (P) ITD. (1984) 42 CTR (Pat) 66 : (1985) 154 1TR 244 (Pat);
(c) CIT vs. Sahibganj Electric (P) ITD. (1978) 115 ITR 408 (Cal);
(d) CIT vs. Baishnab Charan Mchanty (1995) 2112 ITR 199 (Ori);
(e) CIT vs. Shree Gopal & Co. (1994) 117 CTR (Gau) 357;
(f) CIT vs. Jaiswal Motor Finance (1983) 37 CTR (All) 217 (1983) 141 ITR 706 (All);
(g) S. Hastimal vs. CIT (1963) 49 ITR 273 (Mad); and
(h) CIT vs. Orissa Corporation (P) ITD. (1986) 52 CTR (SC) 138: (1986) 159 ITR 78 (SC).
It was further contended that in any case, the burden of proving source of source could not be extended without rebutting the evidence produced by the assessee and without discharging the burden which gifted to Revenue. In this connection, reliance was also placed on the decision of Delhi High Court in the case of CIT vs. KMck Travels ITC 168 of 1991 and it was also pointed out that SLP has been dismissed by the Hon’ble Supreme Court vide (1993) 199 ITR (St) 85. It was further contended that the present addition is made merely on the ground of suspicion. Even after the conduct of massive search and seizure, the Department did not find even an iota of evidence to hold that the gifts were not genuine. The AO having accepted the documentary evidence placed on record and having failed to rebut the same was not justified in disbelieving the assessee’s explanation. The correspondence indicated the fact that the assessee was keen to ensure that he is not caught within the mischief of Gift-tax Act. Therefore, as per advice required the donor to write the covering letters to make the gifts outside the taxable territory. In this connection, reliance was placed on the decision of the Supreme Court in the case of Dhakeswan Cotton Mills ITD. vs. CIT (1954) 26 ITR 775 (SQ) for the proposition that no addition can be made merely on the basis of suspicion. Reliance was also placed on the following decisions :
(i) CIT vs. Daulat Ram Rawatinull 1972 CTR (SC) 411..(1973) 87 ITR 349 (SQ)’.
(j) Omar Salay Mohamed Sait vs. CIT (1959) 37 ITR 151 (SQ)’.
(k) Lalchand Bhagat Ambica Ram vs. CIT (1959) 37 ITR 288 (SQ)’.
(1) Umacharan Shaw & Bros. vs. CIT (1959) 37 ITR 271 (SC); and
(m) K. Hari Prasad (1994) 50 ITJ (Hyd) 4 50 : (1995) 52 177) 563 (Hyd).
It is further pointed out that the seized documents in question establish that the gifts were genuinely received from the donor. In the absence of any material the AO should have accepted the correctness of the documents. He further pointed out that there was absolutely no justification for adding the entire amount of gift in the hands of the assessee. Without prejudice to the main contention that the entire amount of gift of Rs. 10.60. ‘ lakhs should not be assessed in the hands of the assessee, the assessee’s counsel pointed out that only three gifts of Rs. 1,00,000 each were received by the three minors of the assessee, namely, Ashish Gupta, Master Amit Gupta and Master Gaurav Gupta on 23rd Aug., 1995, totalling to Rs. 3,00,000, the remaining gifts of Rs. 7,60,000 were made to the children of the other brothers, who were fully independent and have their independent and distinct books of accounts and are assessed separately. In this connection, our attention was invited to the details of gifts given at pp. 55 to 59 of the paper-book. He pointed out that the details of demand draft number, and date were furnished to the Department and the Department has not asked the assessee to file bank account of the donor or to produce the donor. There is no iota of evidence pointing out any such paper to show that it is not on money of the assessee.
5.3. On the other hand, the learned Departmental Representative relied on the order of the AO. He submitted that in the nature of things one is not expected to keep any evidence which should be recovered during the course of search to prove the lack of genuineness. The gift made to the family members by itself is not sufficient to prove the capacity of the donor and also the burden of genuineness is not discharged. In this connection, reliance was placed on the decision of the Supreme Court in the case of CIT vs. Biju Patnaik (1986) 58 CTR (SQ) 65 : (1986) 160 ITR 674 (SC).
5.4. In reply the learned assessee’s counsel submitted that the decision in the case of CIT vs. Bilu Patnaik (supra) is distinguishable on facts as in that case no material was produced regarding the persons who entered into the trust or they had capacity to donate. On the contrary in the present case necessary evidence was produced. The same remained totally unrebutted. It was submitted that no addition can be made on the basis of presumption and assumptions.
5.5. We have considered the rival submissions and have gone through the material available on record. The AO on the basis of correspondence between Shri S.K. Gupta and Shri J.P.
Aggarwal dt. 18th June, 1995, and 10th June, 1995, came to the conclusion that the alleged gift amounting to Rs. 10.60 lakhs received from Shri J.P. Aggarwal, N.R.I. during the financial year 1995-96 is a procured gift made at the request of the assessee. It is not a genuine gift not in fact out of natural love and affection, rather instigated and schematic. So he treated the same as undisclosed income of the assessee. As against this, the case of the assessee is that Shri J.P. Aggarwal is a family-friend of the assessee and spent their childhood together with the assessee and was also his classmate, had given the aforesaid gift to the assessee and other family members out of natural love and affection, which has been received through banking channel. Details of gifts received and confirmation in the form of correspondence and confirmation from Shri J.P. Aggarwal was furnished from p. 55 to 81 of the paper-book and 90 to 94 of the paper-book. A perusal of the details filed by the assessee reveals that a sum of Rs. 3,00,000 has been received in the names of minors of the assessee, viz. Ashish Gupta, Master Amit and Master Gaurav from said Shri J.P. Agarwal as on 1st Sept., 1995. The remaining gifts were made to the minor children of Shri S.K. Gupta, Shri Sanjeev Gupta and Shri Kailash Gupta and Shri Rajesh Gupta, brothers of the assessee. The case of the assessee is that these brothers are fully independent and have their independent income and they are assessed separately. There is no material on record to show that the other gifts received from Shri J.P. Aggarwal in the names of minor children of other brothers, were infact received by the assessee. Therefore, the assessee, as an Individual cannot be called upon to explain the genuineness of the gifts received by the minor children of other brothers. Since the other brothers are alleged to be independent assessees, gifts received by their respective minor children can at most be investigated at their hands. Therefore, the AO is at liberty to take action against the other brothers. There is no presumption in law that gift received in the names of minor children of other brothers should be clubbed as income from undisclosed sources of the assessee, unless it is proved from the record that the amount received in the names of minors of other brothers, were in fact received by the assessee or the demand drafts have been encashed by the assessee himself. In the absence of this evidence the amount of Rs. 7.60 lakhs received in the names of minors of other brothers cannot be added as income from undisclosed sources of the assessee. However, this matter also requires to be investigated by the AO. Therefore, we send this matter back to examine the same afresh.
6. Now we are left with the amount of alleged gifts received in the names of minors of the assessee. The minors of the assessee received gifts of Rs. 1,00,000 each, totalling to Rs. 3,00,000. The burden of proving the genuineness of the gifts and other ingredients envisaged under s. 68 of the IT Act lies upon the assessee. The words used in s. 68 are “Any sum credited in the books of an assessee”. The sum of money is not restricted to cash transaction only. The mere fact that the headnote to s. 68 refers to cash credit is not sufficient to support the view of the assessee. Sec. 68 is unambiguous and the sum referred to in that section would include the sum of money by whatever mode received. The ratio of the Delhi High Court in the case of CIT vs. Sophia Finance ITD. (1993) 113 CTR (Del)(FB) 4 72 : (1994) 205 1TR 98 (Del)(FB) supports the view. It is also a well-settled established principle of law that in the case of cash credit the onus is on the assessee to establish the identity and the capacity of the creditor as also the genuineness of the transaction. Similar is the position in regard to the gifts. It is the duty of the assessee to establish by necessary evidence that the gift claimed to have been received from the donor abroad is genuine and the same is made by a person having financial capacity. In the instant case the assessee had received the amount of gift through banking channel from a country outside India. A reading of the letters referred to goes to show that the amounts were stated to be personal gift sent at the request of the assessee in India. The remitter, Shri J.P. Agarwal, has given a confirmation saying that the amount has been given out of natural love and affection to Shri S.K. Gupta. He further mentioned that he had also given gift to the extent of Rs. 10,00,000 to his family members out of natural love and affection, the details of which are given in paper-book at p. 91. The AO has not challenged the identity of the donor, However, the genuineness of the gift and the capacity of the donor has been doubted. Simply on the basis that the so-called gift is predecided, instigated and schematic state of affairs between Shri S.K. Gupta and Shri J.P. Aggarwal, it is the case of the assessee that after furnishing confirmation to the AO and whatever was called by the AO, no other information was sought. The AO has not called upon the assessee to explain these gifts. The assessee was not called upon either to file the bank account of the donor or produce the donor. Therefore, it is clear that the AO has jumped upon the conclusions on the basis of these letters and necessary enquiries regarding genuineness of the transaction and capacity to make gift has not been conducted vis-a-vis N.R.L’s bank account and entries from any bank establishing his creditworthiness. Such information was not called upon by the assessee to establish. The AO was under duty to make such enquiries and bring adequate material to show that an amount of Rs. 3,00,000 gifted to the mores of the assessee in fact was the assessee’s own money. Since the AO doubted the capacity of the donor, or the genuineness of the transaction, he should have made necessary inquiry and keep adequate material to rebut the assessee’s case. He has also not enquired as to whether the donor, Shri J.P. Aggarwal had made gifts of Rs. 10,00,000 to his relations, therefore, he held that in the shape of gift given to the minor children of the assessee amounting to Rs. 3,00,000 should be inquired and investigated by the AO. This addition of Rs. 3,00,000 has been sustained in the hands of the assessee as undisclosed income of the assessee. We, therefore, send this matter back to the file of the AO to examine the issue afresh in the light of our observation about the genuineness and capacity of the transaction of the donor after giving reasonable opportunity of being heard to the assessee. This issue is accordingly allowed for statistical purpose.
7. In view of our above discussion, the assessee’s appeal is partly allowed.
