In the case at hand, the Assessing Officer made additions to the assessee’s income based on certain loose papers found during a search. The Commissioner (Appeals) deleted the additions, and the revenue appealed to the Tribunal, which was eventually dismissed. Let’s delve into the detailed analysis and the court’s final decision.
The assessment order indicated a proposed payment schedule, including cash payments to landowners. However, the Commissioner (Appeals) sought a remand report, which revealed no adverse statements against the assessee. The revenue claimed a sheet of paper found during the search supported cash payments, but the court found it insufficient to justify the additions.
Upon thorough examination of the case and considering the fact-finding authorities’ decisions, the High Court upheld the Commissioner (Appeals) and Tribunal’s rulings. The Assessing Officer’s addition based on loose papers was deemed inadequate to justify the additions, leading to the dismissal of the appeal filed by the revenue.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
This appeal by the Revenue challenging the order dated 28.09.2018 in ITA No.1363/BANG/2017 passed by the ITAT1, “C” Bench, Bangalore, has been admitted to consider the following questions of law:
“1. Whether on the facts and in the circumstances of the case, the CIT and Tribunal are right in law in deleting the additions made on account of cash payments of `3,45,00,000/- made to M/s.T.V.Aleyas Engineering Pvt.Ltd., by erroneously holding that the CIT(A) has rightly deleted the said additional by a detailed analysis of the entries found in the seized material and the entries recorded in the books of accounts without considering the seized materials which contained cash payments amounting to `5,00,00,000/- made to M/s.T.V.Aleyas Engineers Pvt.LTd., and assessee had not satisfactorily explained the said payments and as such assessee failed to discharge burden of proof?
ii. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in deleting the addition made under Section 69C of the Act for `1,09,05,000/- as interest by erroneously holding that the materials relied upon by assessing authority for making such addition is not reliable piece of evidence and entries found with regard to the payment through cheque do not co-relate with the entries found in the books of account even though the seized document contains information that the assessee was paid interest @ 24% on account of delay in payment of non refundable deposit amounting to `1,09,05,000/- and further statement recorded on 4.2.2013 also establishes the same?
iii. Whether on the facts and in the circumstances of the case, the Tribunal’s order can be said as perverse in nature as the Tribunal has not considered the seized materials in proper prospective which clearly establishes that assessing authority rightly made additions on the basis of seized materials?”
2. Heard Shri.K.V.Aravind, learned Senior Standing Counsel for the Revenue and Shri.K.Mallahar Rao, learned Advocate for the Assessee.
3. Brief facts of the case are, the Assessee has filed its return for AY2 2011-12 disclosing a taxable income of Rs. 5,93,32,960/-. A search under Section 132 of the Income Tax Act, 1961 (for short ‘IT Act’) was conducted in Assessee’s premises. A notice under Section 153 was issued and Assessee filed its return disclosing the same taxable income. The AO3 completed assessment and added a sum of Rs. 3,45,00,000/- and Rs. 1,09,05,000/-. The CIT(A)4 allowed the appeal and deleted both the additions made by the AO. Revenue preferred an appeal before the ITAT5 and the same has been dismissed by the impugned order.
4. Shri.Aravind adverting to para 4.11 and 4.12 of the assessment order submitted that the Assessee has contended that a sum of `5 crores was agreed to be paid in cash. The same is corroborated by the seized material which is at page 9 and e-mail page No.11 of the assessment order. In substance, he submitted that the books of accounts reflected payment of `19.30 crores, whereas in the explanation given by Assessee, a payment of `22.30 crores has been shown. According to him, the explanation also suggests that initial proposal was to pay Rs. 17.30 crores by way of cheque and balance sum of `5 crores by cash. Therefore, based on Assessee’s statement and the seized material on record, AO was justified in adding the aforementioned amounts. Assailing the order passed by CIT(A), he submitted that CIT(A) has merely tabulated the payments made through cheques and recorded a finding that the amount of `22.35 crores has been made to M/s.TVAEPL. He argued that in addition to the amounts reflecting in the tabular form relied upon by CIT(A), there could be additional payment of `5 crores as the same has been admitted by Assessee itself. He submitted that ITAT has also failed to appreciate this crucial fact and therefore, both the orders passed by CIT(A) and ITAT are unsustainable in law.
5. Shri.Mallahar Rao for the Assessee submitted that what is recorded in paras 4.11 and 4.12 of the assessment order is the factual matrix of the case. Assessee has clearly stated that there was a proposal to pay a sum of `17.30 crores through cheques and balance amount of `5 crores in cash. However, Assessee has subsequently paid the entire money through cheque. Assessee has produced the ledger extracts of M/s.TV Aleyas Engineers Pvt.Ltd., for the period between 1.4.2005 and 31.3.2013. He contended that CIT(A) has made a critical analysis of the case and tabulated each and every cheque payment in para 4.12 of his order and recorded his satisfaction that all the payments were made through cheques. ITAT, on re-examination of the entire material on record, has accepted the view taken by CIT(A).
6. We have carefully considered the rival contentions and perused the records.
7. Revenue’s specific case is, payment of `5 crores has been made outside the books. Shri.Aravind has placed strong reliance on paras 4.11 and 4.12 of the assessment order and page 9 containing a tabular column as well as page 11 of e-mail sent by one S.Pradeep Kumar Shenoy. A cumulative reading of paras 4.11 and 4.12 shows that the Assessee had proposed to pay a sum of `30 crores in cheque and balance sum of Rs. 5 crores in cash. CIT(A) has extracted entire payment schedule with dates in para 4.12 of his order. We may record that payments have commenced from 2.5.2006 and ended on 31.5.2013. On an analysis of the payments contained in tabular column, the CIT(A) has recorded in 4.13 as follows:
“4.13 From the above table, it is clear that the appellant paid Rs. 16.60 crores to TVAEPL in 19 transactions from 26.07.2006 to 11.07.2012. Similarly, the appellant paid `3 crores to M/s Somayaji Holdings Pvt.Ltd. in 5 transactions from 02.05.2006 to 30.11.2012 and further paid `2.75 crores in 6 transactions starting from 31.12.2012 to 31.05.2013. Thus, the total payment made towards the JDA between the appellant and TVAEPL for land is `22.35 crores. All these payments are made by cheques and the debit of the cheques was verified in the bank statements of the appellant. During appellate proceedings, the AR of the appellant submitted that though `22.35 crores has been paid to TVAEPL, the actual payment made for the JDA is only `22.05 crore as `30 lakhs excess paid by the appellant to TVAEPL has been shown receivable in the books of the appellant and payable in the books of TVAEPL.”
8. We may also record that before arriving at a conclusion, CIT(A) had called for a remand report from the AO and he has noted about the same in para 4.10 of his order that in the remand report dated 27.10.2016, the AO had confirmed that he had recorded the sworn statements of Shri.Arun Nayak and Shri.Pradeep Kumar Shenoy under Section 132(4) and 131 of the IT Act and they have not stated anything adverse against the Assessee. Therefore, their statements were not used by AO in scrutiny assessments.
9. As far as the contention of page 9 of AO’s order is concerned, it contains a tabular column and certain payments. The third column shows “to be paid in due course”. This extracted portion, according to the Revenue is a sheet of paper found during search. The e-mail produced at page 11 is dated March 17, 2010 and the same is sent by Shri.Pradeep Kumar Shenoy. His statement has been recorded by AO as mentioned in the remand report. According to AO, nothing adverse was stated by him against the Assessee. Above all, it is relevant to notice that the payments through cheques have commenced from 2.5.2006 and ended on 31.5.2013. The e-mail is of the year 2010. In para 4.12 of AO’s order, the explanation given by Assessee has been recorded and it shows that according to the Assessee, initial sum of `5 crores was sought to be paid in cash, but subsequently the same has been paid in cheque. Both CIT(A) and ITAT which are the last fact finding authorities, on examination of the material on record, the remand report submitted by AO and by following the authority in the case of CIT v. Anil Bhalla6, have held that the addition made by AO based on lose paper, was not sufficient to make additions.
10. In view of the factual matrix concurrently held by both fact finding authorities, we find no merit in this appeal.
11. In view of the above, following:
(i) Appeal is dismissed;
(ii) The substantial questions of law are answered in favour of the Assessee and against the Revenue.
1 Income tax Appellate Tribunal, Bengaluru Bench
2 Assessment Year
3 Assessing Officer
5 Income Tax Appellate Tribunal