IT APPEAL NO. 334 (PUNE) OF 2013
[ASSESSMENT YEAR 2004-05]

SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND R.K. PANDA, ACCOUNTANT MEMBER

Nikhil Pathak for the Appellant.
P.L. Pathade for the Respondent.

ORDER

Shailendra Kumar Yadav, Judicial Member - This appeal has been filed by the assessee against the order of Commissioner of Income Tax (Appeal)-II, [in short CIT(A)] Pune, dated 11.10.2012 for A.Y. 2004-05 on the following grounds.

(1) The learned CIT(A) erred in upholding the action of the learned A.O. in reopening the case of the assessee u/s 148 on the following grounds—

(1.1) The learned CIT(A) ought to have appreciated that the reopening u/s 148 is bad in law and hence, the reasst. u/s 147 be declared null and void for the following reasons —

Without prejudice to the above ground, the assessee submits the following grounds —

2. The learned CIT(A) erred confirming the addition of Rs.5.10 Crs. made by the learned A.O. u/s 69A on the ground that the assessee had received the said amount from RMD Gutkha Group on the basis of papers seized in the course of search action "on the said Group.

2.1 The learned CIT(A) erred in holding that the addition was justified for the following reasons—

3. The learned CIT(A) ought to have appreciated that the addition made by the learned A.O. is totally based on presumption and surmises and there is no evidence that the assessee had received any such amount from RMD Gutkha Group and hence, the addition made is not justified at all.

3.1 The learned CIT(A) failed to appreciate that —

4. The learned CIT(A) ought to have appreciated that no addition could be made on the basis of documents found with third parties and hence, the addition made should have been deleted.

5. The learned CIT(A) erred in placing reliance on section 114 of the Indian Evidence Act without appreciating that it had no relevance to the facts of the present case.

6. The learned CIT(A) failed to appreciate that the assessee had not carried out any transaction with RMD Gutkha Group and hence, the addition made on presumptions and surmises may kindly be deleted.

7. The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal.
2. At the outset of hearing, the learned Authorized Representative has not pressed the ground Nos.1 and 1.1 which pertain to reopening, so they are dismissed as not pressed. The assessee is an individual. The original return of income declaring the total income of Rs. 3,12,974/- was filed on 01.11.2004. The Assessing Officer thereafter received information from ACIT, Central Circle-1(2) that a search and seizure action u/s.132 was carried on 21.01.2010 in the case of Shri Sohanraj Mehta, C & F of the RMD Gutka Group, wherein, the documents seized during the course of search action included transaction related to the assessee. The seized documents revealed that the assessee was in receipt of Rs. 4,80,00,000/- on 17.05.2003 and Rs. 30,00,000/-on 13.05.2003. The Assessing Officer, thus after seeking approval of Addl. CIT, Range-3, Pune issued a notice u/s.148 of the Act. In response to the same, the assessee filed a return of income for A.Y. 2004-05 on 15.04.2012 with the same returned income of Rs. 3,12,974/- as filed in original return. The Assessing Officer sought the explanation from assessee with regard to the noting made on seized documents, found and seized during the search action. The assessee put forward his explanation vide its letter dated 28.12.2011. However, the Assessing Officer did not accept the submission and explanation furnished on behalf of assessee. The Assessing Officer thereafter noted that seized documents found at the residence of Sohanraj Mehta C & F of RMD Gutka Group had been accepted to have been written by him and also that the modalities of the method of transaction entered into by RMD Gutka group had been completely exposed. The Assessing Officer, thus, placing reliance on sections 80 and 114 of the Indian Evidence Act and also following the certain decisions held that the entire amount of Rs. 5,10,00,000/- as unexplained money u/s.69A of the Act.

3. The matter was carried before first appellate authority, wherein the various contentions were raised on behalf of assessee and having considered the same, the CIT(A) has confirmed the order of Assessing Officer on preliminary as well as on merit. The same has been opposed before us on behalf of assessee. As discussed above, the issue of reopening has not been pressed before us, we are confined to adjudicate the issue on merit which is with regard addition of Rs. 5,10,00,000/- made by the Assessing Officer u/s.69A on the ground that the assessee has received the said sum from RMD Gutka group. The stand of the assessee has been that the CIT(A) erred in holding that the addition was justified for the following reasons—

4. On the other hand, the stand of learned Departmental Representative has been as under:

4.1 Besides this, the learned Departmental Representative has pointed out that a similar addition has been made in other cases i.e. Shri S. Balan, Shri Binit Ranawat, Shri Vimal Nahar and Shri P.C. Jain who were assessed with DCIT, Central Circle 1(1), Pune and additions were also made in the case of assessee i.e. Shri Pradeep Runwal, Shri Kantilal Lunkad & Shri Pravin Lunkad which were assessed with Circle-3, Circle-2 & Ward 1(1) respectively. The issue of Shri Pradeep Runwal is before us and we will concentrate the same on merits in its facts and circumstances. It is pertinent to mention here that every case is decided in its facts and circumstances, so we will decide the case of assessee in its facts and circumstances which are without prejudice to other similarly placed cases. It is not appropriate for us to comment on other parties which are not before us. So, this case is being decided in its facts and circumstances.

4.2 Further, with regard to the assessee's observation that the Assessing Officer has neither provided copies of statements of seized persons i.e. Sohanraj Mehta nor any opportunity to cross examination given to the assessee. The learned Departmental Representative stated that the Assessing Officer has not relied on statement of Shri Sohanraj Mehta while making the addition. There is no discussion of the said statement in the assessment order. When the Assessing Officer is not relying on the statement for making addition, so, there is no need to give its copy to the assessee. Secondly, a copy of assessee's letter dated 28.12.2011 furnished to the Assessing Officer during scrutiny proceedings clearly states that the assessee was given all information of seized documents by the Assessing Officer. Hence, the principles of natural justice have not been violated by the revenue. With regard to the identity of Shri Pradeep Runwal, it was stated on behalf of learned Departmental Representative that the seized documents mentioned Shri Pradeep Runwal from Pune. A search in the ITD database of the Income Tax Department shows only one Pradeep Runwal, which is the assessee. So, according to learned Departmental Representative, the person mentioned in seized documents in question is only Pradeep Runwal, so the action in the case of assessee is justified and the addition made in his hand should be sustained.

5. After going through the rival submissions and material on record, we find that the issue before us is regarding the addition of Rs. 5,10,00,000/-. As stated earlier, during the search proceedings in the case of Dhariwal Group, some loose papers were seized wherein certain amounts were written against the name of 'Pradeep Runwal'. Hence, the case of the assessee was reopened u/s 148 of the Income Tax Act. It was explained to the learned Assessing Officer that the assessee had not earned any such income of Rs. 5.10 crs. and therefore, no addition should be made. However, the Assessing Officer has not accepted the contention of the assessee.

5.1 The Assessing Officer has stated that the papers were seized from Dhariwal Group. The said papers were seized from the residence of Shri Sohanraj Mehta. According to the Assessing Officer, the assessee could not disown the existence of such documents. The Assessing Officer observed that the money has been passed on by Dhariwal Group through their staff. Hence, the assessee must have received the amount noted on the seized papers. The Assessing Officer has proceeded to make the addition of Rs. 5.10 crs. by stating that as per section 114 of the Indian Evidence Act, it is an accepted rule of evidence that if a person possessing an evidence does not produce it, the inference is that such evidence if produced is detrimental to him. Accordingly, the Assessing Officer held that the said receipts were the income of the assessee.

5.2 The Assessing Officer has further held that according to the provisions of section 80 of the Indian Evidence Act, there is a presumption as to the documents produced as record of evidence are genuine. Hence, he has held that the documents seized from Dhariwal Group could be relied upon for making addition in the hands of the assessee. The Assessing Officer has placed reliance on the decisions of Sumati Dayal v. CIT [1995] 214 ITR 801/80 Taxman 89 (SC), CIT v. Durga Prasad More [1969] 72 ITR 807 (SC), Himmatram Laxminarain v. CIT [1986] 161 ITR 7/24 Taxman 768 (Punj. & Har.), CIT v. Ganapathi Mudaliar [1964] 53 ITR 623 (SC) and CIT v. Lachhman Dass Oswal [1980] 126 ITR 446/4 Taxman 24 (Punj. & Har.).

5.3 According to us, the additions made by the Assessing Officer were not justified in the facts and circumstances vis-à-vis of the assessee. As discussed earlier, during the course of search in the case of Dhariwal Group, the only documents found on the basis of which the addition u/s 69A has been made in the case of the assessee are in the form of two loose papers wherein amounts of Rs. 4.80 Crores and Rs. 30 lacs were noted against the name "Mr. Pradeep Runwal". Apart from this, no evidence has been found to suggest that the assessee had actually received the said amount or that the assessee had entered into any transaction with Dhariwal Group. There is no evidence on record to suggest that the assessee has previous business relations with the Dhariwal Group. In the absence of any documentary evidence to suggest the same, it could not be presumed that the amounts reflected in the loose papers were the income of the assessee received from Dhariwal Group. It has been the consistent stand of the assessee that there may be many persons of the name Pradeep Runwal in Pune and there was no specific evidence to suggest that the said notings pertained to the assessee. Hence, it was not justified as to how, in the absence of any other corroborative details, the Assessing Officer has assumed that the amounts reflected the income of the assessee himself, while the assessee has no business dealings of his with Dhariwal Group. The Assessing Officer has not brought on record any evidence to suggest that Dhariwal Group has admitted that the amounts were paid to the assessee. Hence, simply because the name of the assessee is noted on the seized papers does not mean that the addition could be made in the hands of the assessee. Since no evidence was found relating to the existence of any transaction between the assessee and Dhariwal Group and in the absence of any corroborative evidence to suggest that the assessee had actually received the said amount, no addition could be made merely on the basis of noting in loose papers found during the search proceedings in the case of Dhariwal Group against the name of the assessee.

5.4 The presumption u/s 132(4A) is available only in respect of the person from whom the paper is seized. It could not be applied against a third party and hence, no addition could be made on the basis of the evidence found with third party. The presumption u/s. 132(4A) could be used only against the person from whose premises the documents are found and not against the person whose name appears in the seized papers.

5.5 In this case, the addition has been made on the basis of the documents found with Dhariwal Group and thus, the presumption u/s. 132(4A) could not be used against the assessee since no incriminating documents were found with it. In the case of Addl. CIT v. Miss Lata Mangeshkar [1974] 97 ITR 696 (Bom), the addition was made in the hands of the assessee on the basis of the entries in the books of third persons. Hon'ble Bombay High Court held that such addition could not be made only on the basis of the notings in the books of third persons. The facts of the present case are covered by the decision of Miss Lata Mangeshkar (supra). It is a settled legal position that the decision of jurisdictional High Court is binding on all authorities below it. Thus, the reliance placed by the Assessing Officer on the loose papers is not justified at all. Therefore, the question of making any addition is not justified in the absence of other corroborative evidence to that effect.

5.6 Without prejudice to the above, the learned Authorized Representative submitted that the Assessing Officer was not justified in making the additions by relying on the provisions of section 114 of the Indian Evidence Act. The concerned Assessing Officer has referred the aforesaid section which states that the court may presume that the evidence which could be and is not produced would, if produced be unfavourable to the person who withholds it. It is pertinent to mention this rule applies to the cases wherein it is evident or an established fact that a particular evidence or document was in possession of the assessee. For example, an owner of a land may well be expected to be in possession of a 7/12 extract of the said land in order to check whether the said land was used for agricultural purposes. In the present case, the provisions relied by the Assessing Officer are not applicable, the assessee is not withholding any documents. The case of department is that the amount mentioned on the seized paper found with the Dhariwal Group indicates that the assessee has received the amount, therefore, the burden was on the Assessing Officer to establish the same. The reliance placed on the provisions of section 114 of Indian Evidence Act is misplaced.
5.7 As stated above, it has been consistent stand of the assessee that the assessee has had no business relations whatsoever with the Dhariwal Group. Further, apart from the noting on paper with the name 'Pradeep Runwal, there is no corroborative evidence in this regard against the assessee. In such circumstances, where the assessee has not entered into any transaction with the Dhariwal Group, one certainly could not expect the assessee to be in possession of any evidence to suggest that it has not entered into any such transaction except for his books of account which have already been verified by the concerned Assessing Officer. Hence, the Assessing Officer was not justified in placing reliance on the provision of section 114 of the Indian Evidence Act.

5.8 It was further submitted on behalf of assessee that the Assessing Officer was not justified in making the addition by relying on the provisions of section 80 of the Indian Evidence Act which states that there is a presumption that the documents produced before the court as record of evidence are genuine. In this regard, the stand of the assessee is that in the case of assessee, document produced was merely in the form of a rough noting wherein certain amounts were written against the name 'Pradeep Runwal'. As discussed earlier, there may be many people of that name in Pune and in the absence of any other corroborative evidence to that effect. In such a situation, it cannot be inferred that it belongs to the assessee.

5.9 While making the addition of Rs. 5.10 crores as stated above, the CIT(A) relied on the following decisions of Sumati Dayal (supra), Durga Prasad More (supra),Himmatram Laxminarain (supra), Ganapathi Mudaliar (supra) and Lachhman Dass Oswal (supra). In this regard, the stand of the assessee has been that the case laws relied by the Assessing Officer are differentiable on facts and hence, the same are not applicable to the case of the assessee. In all the cases relied by the Assessing Officer, the fact that the assessee had actually earned income or received amounts by way of cash credits, unexplained investment etc. was not under dispute. The issue related to whether the receipts were received from genuine lenders or whether the investments or receipts were a part of the disclosed sources of income of the assessee. We find that in the present case, the issue in question itself is whether rough noting on loose paper found in the course of search at the premises of third person could be assumed the income from the assessee as in the cases relied by the Assessing Officer. This fact has not been established in the case of assessee, therefore, the case laws relied by the Assessing Officer are clearly distinguishable on facts and hence, not applicable to the case of the assessee.

5.10 According to CIT(A), the name of the assessee appears on the seized papers and seized documents give a detailed and minute noting of the transactions of Dhariwal Group. He has stated that Shri Sohanraj Mehta has admitted that the documents were written by him and most of the papers were written in marwadi language. The CIT(A) referred to the fact that Shri Mehta had admitted that the papers belonged to Dhariwal Group. In para 4.3, the CIT(A) states that when the author of the paper has accepted the notings made by him, in that event, the document is having great evidentiary value and could not be rejected. As regards, the objection of the assessee that no evidence was found to indicate that the assessee had received the amount, the CIT(A) referred to the fact of acceptance of the paper by Shri Mehta and considering the fact that the modus operandi was clarified by Shri Mehta, the addition was rightly made by the Assessing Officer, has been held by CIT(A). He has referred to various decisions in support of the addition made. Firstly, he has relied upon the decision of ITAT Third Member in the case of Khopade Kisanrao Manikrao v. Asstt. CIT [2000] 74 ITD 25 (Pune). In this regard, the stand of assessee is that the decision in the case before Third Member was not applicable to the facts of the present case. In the said case, the assessee was searched and documents were found indicating on money received on sale of plots. On the basis of the documents found, the Assessing Officer estimated the income from on money which was held to be valid. In that case, the issue that no addition could be made on the basis of documents found with third party was neither raised nor applicable. Thus, according to us, the said decision has no application to the facts of the assessee's case.

5.11 The CIT(A) in para 2.5 has placed reliance upon ITAT, Pune decision in the case of Dhanvarsha Builders & Developers (P.) Ltd. v. Dy. CIT [2006] 102 ITD 375. In the said case, the assessee was searched and documents were found indicating on money received by the assessee. It was held that the document was found with the assessee and therefore, the A.O. was justified in making the addition. Even in this case, the issue of no addition can be made on the basis of documents found with third party was not raised. The CIT(A) has further referred to the decision of ITAT, Mumbai in the case of P. R. Patel v. Dy. CIT [2001] 78 ITD 51 for the proposition that seized papers cannot be called dumb paper because they indicate date, amount and calculation. There is no dispute with the above proposition. The papers are found pertaining to Dhariwal Group as admitted by Shri Mehta and therefore, these documents may be relevant for deciding the issue in the case of Dhariwal Group. However, in the absence of any corroborative evidence, the addition could not be made in the hands of the assessee on the basis of the said papers.

5.12 The CIT(A) has further relied upon ITAT Third Member decision in the case of Dhunjibhoy Stud & Agricultural Farm v. Dy. CIT [2002] 82 ITD 18 (Pune), In this case, the assessee was a builder and had sold flat to one Mr. Tanna. There was search on Mr. Tanna wherein a document was found indicating flat purchased from the assessee firm and the amount of cheque and cash paid. The amount of cheque paid was tallying with the books and therefore, it was held that cash was paid as noted on the paper. Mr. Tanna had also accepted the fact that cash was paid to the assessee. In these facts, ITAT held that since there was transaction between assessee and Shri Tanna and also the fact that the amounts paid by cheque tallied, the addition was rightly made. The assessee rightly submitted that the said decision is not applicable to the facts of the present case. Firstly, there is no transaction between the assessee and Dhariwal Group. Secondly, there is no corroborative evidence found which could suggest that the assessee had received any amount. The Assessing Officer and CIT(A) have also not brought on record any evidence to suggest that the payment was made to the assessee. Accordingly, considering the factual position, the decision in the case of Dhunjibhoy Stud & Agricultural Farm (supra) is not applicable in the case of assessee.

5.13 The CIT(A) has relied on the decision in the case of Smt. Vasantibai N. Shah v. CIT [1995] 213 ITR 805/81 Taxman 348 (Bom). In this case, the issue was regarding validity of reassessment proceedings. The assessee had made a false disclosure. Subsequently, the case was reopened. Hon'ble High Court held that the reopening was valid since the assessee herself had made a false disclosure. Thus, the facts are totally different from the present case and hence, the ratio of Smt. Vasantibai N. Shah (supra) is not applicable to the assessee's case. The CIT(A) further relied on the decision in the case of Green Valley Builder v. CIT [2008] 296 ITR 225/[2005] 149 Taxman 671 (Ker). In the said case, the assessee was engaged in real estate business and it had sold certain plots. The assessee stated that the plots were sold at Rs.1750/- per cent while the Assessing Officer on the basis of evidences held that actually the lands were sold at Rs.4,000/- per cent. Hon'ble High Court held that the additions made were correct. The said decision is not applicable to the facts of the present case. The CIT(A) has further relied upon the decision in the case of Chuharmal v. CIT [1988] 172 ITR 250/38 Taxman 190 (SC) for the proposition that documentary evidence plays an important part. There is no dispute to the said proposition but in the absence of any corroborative evidence no addition could be made in the hands of the third party.

5.14 We find that in ACIT v. Thakkar Developers Ltd. [IT Appeal No. 581 (PN) of 2008, dated 26-7-2010, ITAT in paras 3 and 4 held as under:—

'The above said Shri Kolhe was examined, cross examined and re-examined and no evidence was gathered from him to establish that the contents of the seized documents were correct and true. Thus, in the absence of any corroborative evidence in the present case, the said seized document has to be treated as a dumb document as rightly observed by the CIT(A). The A.O. dismissed the retraction of the statement dated 29.03.2003 by filing an affidavit as an after thought and self serving. The A.O. concluded that the facts mentioned in the seized documents clearly indicated that the statement given on 29.03.2003 was true and correct. The A.O. has not brought on record any material or corroborative evidences to come to these conclusions. The reasons given by the A.O. in this regard are without any basis and support. The affidavit filed by Shri Kolhe remained uncontroverted and which is against the settled legal position on the issue that the contents of the affidavit be rejected by confronting the same to the deponent which is missing in this case. Nothing was shown by the A. O. that there was any other material co related to the seized documents. The A.O. was not justified in rejecting the contents of the affidavit as mentioned above. The A.O. further relied on the presumptions u/s 132(4A) of the Act on the ground that this section was very clear that the contents of book of account and other documents may be presumed to be true and presumption can be drawn even on the third person who was not searched u/s 132 of the Act. The A.O. further rejected the submissions given by the assessee in his paper book dated 28.12.2007 reiterating the same stand. The A.O. has drawn inferences and presupposes relying on surmises and conjectures. The ITAT Mumbai Bench in their decision in the case of Straptex (India) (P.) Ltd. v.Dy. CIT [2003] 84 ITD 320 (Mum), clearly held that the presumption u/s 132(4A) is applicable only against the person from whom possession the books of accounts or other documentary were found and not against any other person. It is held that as per Section 132(4A) where any books of account or document is found in the possession and control of any person in the course of the search, it is to be presumed that they belong to " such person". Thus, clearly the presumption is in respect of the person from whom they were found. The use of the word "to such person" in the said Section means the person from whom the books of account or documents were found. Clause (ii) of Section 132 (4A) provides that the contents of such books of account or documents are true. This presumption can be applied only against the person from whose possession the books of account or the document were found. Therefore, the A.O. was not justified in applying the provisions of Section 132(4'A) to the assessee in the present case who was not searched u/s 132 of the Act nor the document was found and seized from, their possession. Even, otherwise, such presumption u/s 132(4A) of the Act is not conclusive and rebuttable one'.

6. Similar view has been taken by ITAT, Pune in ACIT v. Amit D Irshid [IT Appeal No.988 (PN) of 2011, dated 22-4-2013] that presumption u/s. 134(4A) is available only against the person from whose possession the document is found and not against the third person. In the absence of clinching evidence against the third person as stated above, no action could be taken against him. In such a situation, the Assessing Officer was not justified to make addition in question in assessee's case. In view of above, we are of the view that the addition made by the Assessing Officer is not justified and the same is directed to be deleted. It is pertinent to mention here that this case is being decided in its facts and circumstances; it cannot be applied to other cases as such.

7. In the result, appeal filed by the assessee is allowed.