Onus to prove Third party documents found during search is on department

Brief fact

Assessee was a Non-resident individual. During the course of search operation u/s 132 of the Act carried out at the site office of J.P. Construction, certain loose papers were seized which showed that Jigna Shah, the assessee, had advanced Rs.50 lac to Jigen Shah before Feb 1996 and it was also mentioned that interest @ 12% has been charged by Jigna Shah on such loan. Property of Rs.40 lac was also shown to be given to assessee to which the AO accepted as part payment of interest. Notice u/s 153C was issued and in response, the assessee filed NIL return of Income. It was submitted by the Assessee that no interest has been charged by her but the submission of the Assesee was not found acceptable to the A.O. He therefore calculated interest income at 12% on the outstanding loan amount and worked out the interest income at Rs. 5,79,000/- and made addition of it. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who deleted the addition. Aggrieved with the order, Revenue filed the appeal before ITAT.

Contention of Revenue-

The seized paper clearly indicates computation of accrued interest at per 12% at prevailing market rate on outstanding balance as on that particular date on investment made by the assessee. The interest as computed in the document was accrued and actually to be paid.

Contention of Assessee

The interest of Rs.24.23 lac was calculated just to show how much loss has been incurred by the assessee because of delay and non-fulfillment of the promises by Shri Jigen Shah on the request of Mediator. The assessee insisted that no property was transferred although offer was given.

Held

ITAT relied on the order of Ld.CIT(A) wherein it was held that document found during search was a third party document which was neither in the handwriting of the assessee nor bears her signature. Its inference has to be taken as stated by the person who possessed the document. If anything is to be inferred contrary to it, it is the department’s onus to prove what it alleges. The undated letter seized showed that till the date of writing of the letter no property was transferred which was also stated by Shri Jigen Shah in his statement which was not refuted by the department.

It was not been proved or even indicated that this or some other property was indeed transferred. Further interest accrued has been computed by the AO as if the house was not transferred (given). In these circumstances, the inference on the document as given by the assessee and the person from whom it has been recovered has to be taken to be true. Therefore, it was held that the interest was calculated to indicate the loss and to press settlement and is not proved to be actually accrued. Ground of appeal by Revenue is dismissed.