Undisclosed income beyond block period cannot be taxed

Issue before court:

• Whether undisclosed income can be taxed in the hands of assessee does not belong to block period.
• Whether addition can be made relying on undated & unsigned documents seized during search without proper enquiry by AO.

Brief Facts:

• A search and seizure proceedings were conducted on 28.2.2007 in the assessee’s premises. Notice u/s 153 A was issued and assessee filed return in response to notices for the AYs 2002-03, 2003-04, 2004-05, 2005-06.
• AO made additions of Rs. 3.64 crores and Rs. 20 lakhs, on the basis of some loose papers and chit, alleged to be property related transactions again not reported by the assessee. The CIT(A) and ITAT concurrently ruled with respect to the second amount (i.e. Rs. 20 lakhs) that since the transactions related to the time period 1999-2000, the addition was time-barred, besides overturning it on the merits.
• AO again determined salary of the assessee at higher amount relying on a letter/ e-mail sized document seized during search operation on which no sign and date was mentioned. AO on relying upon the seized documents made various additions in different AYs.
• On appeal CIT (A) after examining facts held that the document seized cannot be exclusively relied upon to make additions.

Contention of the revenue:

• The amounts, relevant to seized document found during search, liable to be added as they form undisclosed salary component of the assessee’s income.
• The assessee did not offer any logical explanation about the contents of the e-mail/draft letter seized.
• Loose papers were sufficient to indicate undisclosed investments.

Contention of the assessee:

• Assessee submitted in relation to property transactions that he entered into transactions which ultimately did not materialize.
• Assessee relied upon the case of Urmila Gambhir V. CIT 325 ITR 171 (Delhi) to say that in the past the Courts have taken note of such seemingly innocuous documents which do not connect with the assessee and yet upheld the liability in income tax proceedings.
• A bare reading of the documents seized shows that it had no connection with the assessee or his family.
• It was submitted that prior to 30.6.2000 the assessee was an independent consultant who had entered into an agreement with a private software consultancy and that the agreement dated 30.4.2000 was on the record. However, for the later period i.e. after 1.7.2000, the assessee became a salaried employee of C-1 India Pvt. Ltd.
• It was urged by counsel that it was unreasonable to add amounts for the previous block period which were sought to be brought to tax slowly on the basis of the document which had no connection or bearing with the assessee’s declared income.
• Assessee had furnished explanation by way of the affidavit of concerned parties of property transaction which was not even considered and replied to by the AO in assessment proceedings.

Held by the Court:

• There is no need to interfere in the order passed by ITAT & CIT (A) as they have examined all the facts relevant to the case of assessee.
• The letter sized document seized responsible for addition of salaries did not addressed to anyone, not any signature or date was mentioned on the document.
• The document can jot be accepted at its face value in terms of section 2 (22AA) of the Act which includes electronic records defined in section 2 (t) of the Information technology Act.
• There nothing on record to show that any effort was made by the department to establish the nexus of the assessee with the said undated & unsigned print out by locating the person who had seen it and who was the recipient.
• As per the provisions laid down u/s 132 (4A), an adverse presumption can be drawn only when firstly the document was found from the possession of the assessee and secondly, the assessee was in the control over the said document.

Conclusion:

CIT (A) appeal as well as ITAT examined the document relied upon the revenue for making addition. It was found that the document was not addressed to anyone and without any signature and date. In such situation it can be said that it belong to assessee. Regarding another issue court found that income belong to period prior to block assessment hence can not be added for the block period.