Case Law Details

Case Name : D.S. Suresh vs ACIT (ITAT Bangalore)
Appeal Number : ITA No. 462 & 463/Bang/2020
Date of Judgement/Order : 22/02/2021
Related Assessment Year : 2009-10 & 2011-12

D.S. Suresh vs ACIT (ITAT Bangalore)

In the present case, the addition is based on the diary jottings found during the course of search action in the case of RNSIL on 16.02.2012. We have carefully gone through the diary jottings recorded earlier part of this order. It contains the entry No.5 – MLA Tarikere Rs.27 lakhs upto 31.07.2010. However, it does not specify date on which it was paid or who has paid. It is not possible to any person to say conclusively that it is relating to these assessment years being the absence of date of payment. Further it is only diary jottings not supported by corroborated material or any independent evidence. In other words, there should be a material on record to show that there is an undisclosed income on the basis of material on hand with the Assessing Officer and guess work is not possible. The Assessing Officer shall have the basis for assuming that there was a payment by RNSIL to the assessee which was not disclosed to the Department. The unsubstantiated diary jottings cannot be considered as a conclusive evidence to make any evidence towards undisclosed escaped income. It was held by the Hon’ble Supreme Court in the case of CBI Vs. V.C. Shukla 3 SCC 410 that “file containing loose sheets or papers are not books” and hence entry therein are not admissible u/s. 34 of the Evidence Act, 1872. In the present case, the seized material having certain entries are found, regarding amount which was presumed thus are illegal payments to the persons mentioned therein. These entries are unsubstantiated. On that basis one cannot reach to the conclusion that figures mentioned therein are the undisclosed payments in these assessment years under consideration to the present assessee. In our opinion, the documents relied on by the Assessing Officer for making addition in these assessment years was dumb document and lead nowhere since these diary jottings are not supported by any corroborative material or evidence to show that the information made by lower authorities is correct. Further unsigned document in the form of diary jottings cannot be relied upon for making or sustaining the addition.

FULL TEXT OF THE ITAT JUDGEMENT

These two appeals by the assessee are directed against separate orders of Commissioner of Income Tax (Appeals)-1, Bangalore for the Assessment Years 2009-10 & 2011-12. The grounds in these appeals are common in nature, only change in figures, hence these appeals are heard together for the sake of convenience and common order is passed.

2. The first ground in this appeal is with regard to reopening of the assessment on the reason that the conditions precedent for reopening of the assessment u/s. 147 does not exist. Thus the assessment to be quashed.

3. The next ground in this appeal is with regard to addition made on account of receipt of money from RNS Infrastructure Limited is bad in law since the Assessing Officer has not provided an opportunity to rebut the alleged retrieved data which has used against the assessee.

4. The third ground is that the CIT (Appeals) ought to have deleted the addition on the reason that the assessee has not received any money during the Assessment Year 2009-10 at Rs.10 lakhs and Rs.49 lakhs during the Assessment Year 2011-

5. The last ground is with regard to levy of interest u/s.234A, 234B and 234C of the Act.

6. The facts of the case are that the assessee is an individual having income from partnership firm and other sources. In the Assessment Year 2009-1 0the assessee filed Return of Income on 22.3.2010 declaring an income of Rs. 1,80,139 and for the Assessment Year 2011-12, the assessee declared income at Rs.2,87,140 on 20.01 .2016 in response to Notice u/s. 148 of the Act. In A.Y. 2011-12, there was no Return of Income filed by the assessee u/s. 139(1) of the Act. Actually there was search action in the case of M/s. RNS Infrastructure Ltd. at Naveen Complex, 7th Floor, MG Road, Bangalore and at Murdeshwar Bhawan, 604-B, Gokul Road, Hubli, evidence was gathered which pointed to receipt of certain amounts by the assessee from the above company. These payments were made in cash and were not disclosed in the regular books of accounts of the above company. Information relating to such payments were gathered from the diary notings of several key personnel of the company as also from the deleted accounts named and styled “Sundry Payments” which were retrieved from the hard disks of the searched company. Consequent to this, the Assessing Officer issued Notice u/s. 148 for the Assessment Year 2009-10 on 13.3.2015. In response to the same, the assessee filed Return of Income on 20.01.2016 disclosing income of Rs.2,07,170 for the Assessment Year 2009-10. Similarly, Notice u/s. 148 was issued for the Assessment Year 2011-12 on 13.3.2015 as narrated earlier, the assessee filed return in response to Notice u/s. 148 of the Act on 20.03.2016, the assessee filed Return of Income declaring an income of Rs.2,87,140. The Assessing Officer while completing the assessment u/s. 143(3) r.w.s. 147 of the Act in these assessment years considered the material seized from the RNS Infrastructure Limited (RNSIL). M/s. RNS Infrastructure Limited is a leading contractor which has executed various Government contracts for roads and projects, canals in Karnataka including Upper Badra Irrigation Canal works costing Rs1,100 Crores. There was seized material in the form of daily jottings and recordings in the computer relating to the various payments made by RNSIL to public servants, Bureaucrats and politicians. Jottings are in the hand writing of the Vice President (Finance) of RNSIL. The digital evidence has been retrieved in a foolproof manner using the specialized forensic software “ENCASE” with MD5 hash value. Relating to the assessee, there was a payment entry of an amount of Rs.10 lakhs in the Assessment Year 2009-10 and Rs.49 lakhs in the Assessment Year 2011-12. The Assessing Officer on this issue, made respective additions in these assessment years under the head ‘income from other sources. Against the reopening of assessment and also on making addition by the Assessing Officer, the assessee challenged before the CIT (Appeals). The CIT (Appeals), both on reopening of assessment and addition made on merit sustained the findings of the Assessing Officer. Aggrieved by the order of CIT (Appeals), the assessee is in appeal before us.

7. The first issue for our consideration is with regard to reopening of assessment. The learned Authorised Representative submitted that the reasons recorded does not show that income has escaped from assessment in the assessment years under consideration. The seized material relied on by the ld. AR for reopening of assessment does not show that any chargeable income to tax had escaped assessment and there is no nexus with the conclusion reached by the Assessing Officer. He drew our attention to the reasons recorded for reopening of assessment which show that there was a payment of Rs. 10 lakhs and Rs.49 lakhs to the present assessee in the Assessment Year 2009-10 and 2010-11 respectively. However, there was no mention of these amounts relating to these assessment years under consideration. He submitted that as per the details furnished by the CIT(Appeals) in his order in para 5.4 does not contain the name of the assessee or date of payment of Rs.27 lakhs to the assessee. On the other hand, it contains only details as follows :

S.No. Name Amount
1 UBP Department 7828500
2 KPTCL 37000
3 Forest Department 128550
4 Police Department 569450
5 M LA Tarikere 2700000
7 DC Office & AC Office 432000
8 Tahasildar Office 160000
9 Revenue Department 82000
10 Survey Department 125800
11 T.V. Channels 40000
12 Press 125000
13 Local Leaders 2012500
Total 1,42,40,800

It was mentioned that M LA Tarikere Rs.27 lakhs, which does not show the date of payment or the name of the person to whom it was paid and who has paid. In the absence of sufficient information reopening of assessee’s assessment for these assessment years is bad in law. Further he submitted that the Assessing Officer has not furnished any details of seized material to the assessee even after request for the same.

8. On the other hand, the ld. DR submitted that there was a search in the case of RNS Infrastructure Limited (in short RNSIL) on 16.02.2012. Consequent to search action in the case of RNSIL, various incriminating material were unearthed and seized. This seized material indicates that unaccounted and illegal cash payments made by the assessee to various public servants, bureaucrats and politicians and seized documents are in the form of daily jottings and recordings in the computer. Jottings are in the hand writing of the Vice President (Finance) of RNSIL. The evidence has been retrieved in a fool proof manner using the specialized forensic software “ENCASE” with MD5 hash value. The seized documents revealed that all such illegal payments were took under the head “Sundry” in the accounts of RNSIL and it is a sister concern. However, when accounts are finalized for various strategic purposes, the expenses made under the head “Sundry” were not made part of the accounts. Thus from the seized documents from RNSIL, it was found that there was payment of Rs.10 lakhs in the Assessment Year 2009-10 and Rs.49 lakhs in the Assessment Year 2011-12 to the assessee on hand. These informations were passed on by DCIT, Central Circle 2(3), Bangalore to the Assessing Officer of the present assessee. On the basis of information gathered from DCIT, Central Circle 2(3), Bangalore, the Assessing Officer of the present assessee issued Notice u/s. 148 of the Act to the present as on 13.3.2015. As discussed earlier, there is a search in the case of RNSIL u/s. 132 of the Act and unearthing of incriminating material on 16.2.2012 on the basis of information supplied by the DCIT, Central Circle 2(3), Bangalore, the Assessing Officer come to a conclusion that there was an escapement of income in the hands of the assessee and issued Notice u/s. 148 of the Act. The reasons were germane to the prima facie reached by the Assessing Officer for any chargeable income to tax has escaped assessment by reason of non-disclosing the above payments recorded any seized material by the assessee in his books of accounts. The material that was considered by the Assessing Officer for reopening of the assessment may not show conclusively that there was escapement of income. The statement available at the time of reopening of assessment, the Assessing Officer reached conclusion that there is escapement of income in the hands of the assessee. It is well settled that at the time of issuing Notice u/s. 148 of the Act, the Assessing Officer is only required to reach a tentative or prima facie belief regarding escapement of income and that requirement is satisfied in the present case.

9. The argument advanced by the assessee’s counsel is that the name of the assessee is not specifically mentioned in the seized document seized during the search action and also date of payment is not mentioned therein and who has paid has also not mentioned, therefore, material gathered by the Investigation Wing cannot be the information for the purpose of reopening of the assessment. In our opinion the recorded reasons for reopening of assessment have nexus with the formation of A.O. belief that income chargeable to tax had escaped assessment. The required nexus also can be established by the statement of searched party recorded u/s. 132(4) of the Act. Being so, in our opinion, the Assessing Officer righly reopened the assessment for these assessment years and the ground relating to reopening of assessment in these two assessment years under consideration is upheld.

10. Now coming to the next ground with regard to sustaining addition made by the Assessing Officer at Rs.10 lakhs in Assessment Year 2009-10 and Rs.49 lakhs in the assessment year 2011-12 on the basis of seized material which is in the form of diary jottings in the hand writing of the Vice President (Finance), RNSIL which was retrieved from the computer maintained by RNSIL.

11. The learned Authorised Representative submitted that these are the diary jottings said to be hand writing of V.P. (Finance) of RNSIL. However the assessee filed a letter before the lower authorities from RNSIL sent by Managing Director which states as follows :

According to the ld.AR the unsigned diary jottings have no evidential value when there is actually letter issued by the Managing Director stating that there was no payment to the assessee from F.Y. 2008-09 to F.Y. 2010-11. The statement made by the M.D. in his above letter has to be considered and addition to be deleted. Further the assessee’s counsel submitted that the lower authorities have ignored the above letter furnished by the assessee and made additions. He submitted that there is no illegal payment by RNSIL to the assessee and uncorroborated diary jottings cannot be considered for addition.

12. The ld. DR submitted that there is an evidence found and seized in the course of search action in the case of RNSIL on 16.02.2012 which was independent evidence conclusively established that the impugned payments are made to the assessee by RNSIL. The crucial evidence i.e. digital evidence found and seized during the search from Corporate Office on 16.02.2012, was authenticated by forensic lab report of an independent forensic expert. The digital evidence conclusively established that certain payments were made outside the books of account under the head “sundry payments” to the extent of Rs.99,68,44,556 to various parties. The payments recorded in the digital evidence bear the date, voucher number and narration, and have been recorded in a systematic manner on daily basis. The payments were recorded under the head ‘RNS’ and ‘ZNS’. This evidence clearly suggested that the transactions recorded in the name of fictitious company ZNS belonged to the searched company only. The data that was available in the computer server was corroborated by independent evidence such as diary, note books, financial statements, print outs from computers, and data in soft form found in various computers in different locations. It was also tallying with the data in the standalone computer systems, which were located at different locations. In his sworn statement, Shri Sunil Sahasrabhude, Vice President (Finance) who is a Chartered Accountant, aged 51 years admitted with regard to the payments made under the head “sundry payments” which were unrecorded in the regular books as expenditure incurred outside the books. The above was also corroborated by the contents of M.D. Sri Naveen Shetty’s personal lap top which contained details of payments booked as Sundry Payments as below:

Abstract of Sundry (Category wise) upto 31.7.2010

S.No. Name Amount Rs.
1 UBP Department 7828500
2 KPTCL 37000
3 Forest Department 128550
4 Police Department 569450
5 MLA Tarikere 2700000
7 DC Office & AC
Office
432000
8 Tahasildar Office 160000
9 Revenue Department 82000
10 Survey Department 125800
11 T.V. Channels 40000
12 Press 125000
13 Local Leaders 2012500
Total 1,42,40,800

In the wake of the proceedings initiated under section 153A, M/s. RNS Infrastructure Ltd. approached the Settlement Commission and offered additional income for the A.Ys 2008-09, 2009-10, 2011-12 and 2012-13 amounting to Rs.16,80,07,102/-. The Company submitted that it had been incurring certain expenditures in the ordinary course of business for which proper vouchers could not be obtained and for these purposes the additional income offered was utilized. The entire gamut of evidence relating to the “sundry payments” seized in course of the search and the explanations offered by the Company were thoroughly examined by the Hon’ble Settlement Commission, after which the Commission upheld the evidentiary value of these seized documents. According to the ld. DR, in view of the findings of the Settlement Commission, the additions are to be sustained.

13. We have heard the rival contentions, perused and carefully considered the material on record. In the present case, the addition is based on the diary jottings found during the course of search action in the case of RNSIL on 16.02.2012. We have carefully gone through the diary jottings recorded earlier part of this order. It contains the entry No.5 – MLA Tarikere Rs.27 lakhs upto 31.07.2010. However, it does not specify date on which it was paid or who has paid. It is not possible to any person to say conclusively that it is relating to these assessment years being the absence of date of payment. Further it is only diary jottings not supported by corroborated material or any independent evidence. In other words, there should be a material on record to show that there is an undisclosed income on the basis of material on hand with the Assessing Officer and guess work is not possible. The Assessing Officer shall have the basis for assuming that there was a payment by RNSIL to the assessee which was not disclosed to the Department. The unsubstantiated diary jottings cannot be considered as a conclusive evidence to make any evidence towards undisclosed escaped income. It was held by the Hon’ble Supreme Court in the case of CBI Vs. V.C. Shukla 3 SCC 410 that “file containing loose sheets or papers are not books” and hence entry therein are not admissible u/s. 34 of the Evidence Act, 1872. In the present case, the seized material having certain entries are found, regarding amount which was presumed thus are illegal payments to the persons mentioned therein. These entries are unsubstantiated. On that basis one cannot reach to the conclusion that figures mentioned therein are the undisclosed payments in these assessment years under consideration to the present assessee. In our opinion, the documents relied on by the Assessing Officer for making addition in these assessment years was dumb document and lead nowhere since these diary jottings are not supported by any corroborative material or evidence to show that the information made by lower authorities is correct. Further unsigned document in the form of diary jottings cannot be relied upon for making or sustaining the addition. In the present case, more so, the Managing Director of RNSIL made a categoric statement in his letter that no payments were made to the assessee in the F.Y. 2008-09 to F.Y. 2010-11. Further even if the Assessing Officer wants to rely on the diary jottings to make an assessment or relying on the statement 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 statements were relied on by the Assessing Officer, the same is to be provided to the assessee In the present case, the assessee is having grievance for not furnishing the seized material to the assessee and there was no question of providing an opportunity of cross examining of the parties whose statements are relied on by the Assessing Officer while completing the assessment. In these circumstances, we are not in a position to uphold the addition sustained by the CIT(Appeals). The circumstances surrounding the case are not strong enough to justify the rejection of the assessee’s plea of asking the copies of seized material and providing an opportunity of cross examination of the parties concerned. In view of above, we set aside the order of the lower authorities and allow the ground taken by the assessee in their appeals for both the assessment years under consideration.

14. In the result, the appeals of the assessee are partly allowed.

Pronounced in the open court on the date mentioned on the caption page.

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Mr.Kapil Goel B.Com(H) FCA LLB, Advocate Delhi High Court [email protected], 9910272804 Mr Goel is a bachelor of commerce from Delhi University (2003) and is a Law Graduate from Merrut University (2006) and Fellow member of ICAI (Nov 2004). At present, he is practicing as an Advocate View Full Profile

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