$~5&6
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% DECIDED ON: 21.04.2015
+ ITA 247/2015 & ITA 248/2015
COMMISSIONER OF INCOME TAX, DELHI XI ..... Appellant
Through: Mr. Arjun Harkauli, Advocate.
versus
ANIL KHANDELWAL ..... Respondent
Through: None.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE R.K. GAUBA
S.RAVINDRA BHAT, J. (OPEN COURT)
1. The Revenue is aggrieved by an order of the Income Tax
Appellate Tribunal (`ITAT') dated 18.07.2014 in ITA Nos.5516-
5517/Del/2012. Its grievance - urged as a question of law - is against
the ITAT's confirmation of the CIT (A)'s order cancelling the
inclusion of `27 lakhs (for AY 2006-07) and `1,14,80,000/- (for AY
2007-08) in ITA Nos.5516-5517/Del//2012.
2. A search and seizure action was conducted on 12.12.2006 at the
business and residential premises of Shri S.K. Gupta along with other
concerns. Similar search action was conducted in respect of
companies and other business entities which were controlled by him
or owned by him or different individuals connected with him. The
assessee was one such individual. He was issued with notice under
ITA247&248/2015 Page 1
Section 153A of the Income Tax Act, 1961 on 24.10.2008. The
assessee had filed return of income on 5.11.2008 showing
`1,82,556/-. In further proceedings under Section 143 (3) read with
Section 153A, it was asked to respond to a questionnaire dated
7.11.2008 in regard to the transactions concerning his family
members and concerns with which they were connected. The AO
specifically confronted the assessee with extracts of certain
documents, i.e., Annexure A-1 of party A-5 seized during the course
of search of S.K. Group in the New Asiatic Building, Connaught
Place, New Delhi. The assessee's replies were not accepted resulting
in addition to the extent noticed in the earlier part of the judgment.
The assessee preferred appeals [to the CIT (A)]. After considering
the submissions, the said Commissioner accepted the assessee's
contentions and directed that the amounts sought to be brought to tax
by the AO ought to be deleted. The revenue's appeals were rejected
by the ITAT through the impugned order.
3. The ITAT took note of the reasoning of the CIT (A) as well as
various Supreme Court decisions on the question as to whether the
principle of natural justice had been complied with. It secondly went
into the question as to whether the inference drawn on the basis of the
materials seized was sustainable. Confirming the reasoning of the
CIT (A) in paragraph 2.2 of the appellate order, the ITAT held as
follows: -
"7. We have heard the rival submissions and perused the
material available on record. On a consideration of the
same, we find that the arguments of the Ld. CIT DR have
no merit. We find that the specific questions put to Sh.
ITA247&248/2015 Page 2
S.K.Gupta extracted in the impugned order during the
cross-examination cannot be termed to be vague where
full facts have not come out. A perusal of the same shows
that consistently Sh. S.K.Gupta states that no money has
been received or paid by him relatable to the annexures
shown. The other objection of the Ld. CIT DR that the
questions put forth in the cross-examination specifically
question 14 & 15 were also vague. We find that the
arguments of the Ld. AR that these are the extracts of the
statement of Sh.S.K.Gupta recorded at the time of the
search are correct and the Ld. CIT DR is mistaken in her
arguments to contend that the questions No-14 & 15
extracted in the impugned order are vague questions put
forth during the cross examination. It is seen that the
assessee in both the years has filed a Paper Books
running into 71 pages and 87 pages respectively and
none of the parties have considered it necessary or
expedient to refer to any document or fact therein."
It further held as follows: -
"7.1. We find that no evidence has been placed before us
nor any cogent argument has been raised before us so as
to show that on facts the view taken by the CIT(A) was
not correct. In the absence of any specific infirmity in the
impugned order or reliance placed upon any evidence
upsetting the view taken, we find that the department has
failed to offer any meaningful argument in support of its
claim. No reasons which can be legally accepted so as to
remand the matter have also been placed before us. Thus
in the light of the arguments advanced before us being
satisfied by the reasoning and finding arrived at in the
impugned order, we are of the view that the departmental
appeal has no merit. We further find that the finding
arrived at in the impugned order is fortified by the
principle laid down in the judgement of the Hon'ble
Bombay High Court in the case of ACIT vs Lata
ITA247&248/2015 Page 3
Mangeshkar (1973) 97 ITR 696 (Bom.). A perusal of the
same shows that in the facts of that case reliance placed
by the Revenue on the statement of two witnesses was
considered to be not relevant for making an addition in
the hands of the assessee therein. It is seen that whereas
one of the witnesses was considered to be a person who
could not have any knowledge the other witness who
though was a partner in the concerned firm had given a
statement that he had made payments to the singer in
"black". Their Lordships were pleased to observe in the
facts of that case that the statement at best could arouse
suspicion but suspicion could not take place of proof and
in the absence of proof, the statement was discarded. We
also find that the order of the Coordinate Bench dated
07.02.2013 relied upon by the assessee in DCIT vs
Yashpal Narendra Kumar in ITA NO-5340 to
5342/De1/2012 also supports the case of the assessee
fully. The Co-ordinate Bench therein held that addition
on the basis of statement of the third party without any
corroborative evidence is not tenable."
4. Learned counsel for the Revenue submits that given the nature
of the materials seized from Shri S.K. Gupta, findings of the AO with
regard to the addition under Section 69 were warranted. He also
submitted that the recourse to presumption by the AO under Section
132 (4A) and Section 292C was in the circumstances valid and that
both the CIT (A) and ITAT fell into error in holding that such
inference could not have been drawn. It was submitted that the AO
correctly deduced that the assessee's replies were evasive and
unreliable given the determination that he was a friend of Shri S.K.
Gupta whose premises were in the first instance searched. It was
also submitted that the damaging material in the form of three pages
ITA247&248/2015 Page 4
of handwritten ledger extract clearly indicated the assessee's name
and of the group companies and the inference drawn was, therefore,
justified. Furthermore, given that Shri S.K. Gupta had admittedly
indulged in furnishing accommodation entries, the assessee's
explanation could not have been accepted.
5. This Court has considered the submissions and the record. It is
quite evident that what materially persuaded the AO to make the
addition were the extracts from documents - in the form of
handwritten ledger entries seized from Shri S.K. Gupta. These
mentioned Shri Khandelwal's name as against which certain amounts
were indicated. The other material was the statement of Shri S.K.
Gupta recorded on 13.12.2006. Shri S.K. Gupta was further examined
on 5.4.2011. The AO took recourse to the presumption permissible
under Section 132 (4A) on the basis of these two statements. It is a
matter of the record - duly noted by the CIT (A) as well as ITAT that
the three companies or business concerns whose monies were
supposed to have been reflected in the handwritten ledgers (Bondwell
Insurance Brokers, E-Synergy Infosystems Pvt. Ltd. and Paradigm
Advertising) were all concerns in which the assessee's family
members or relatives were alleged to have been interested. The CIT
(A) after considering these materials and elaborately discussing the
submissions, held as follows:-
"2.3 I have carefully considered the facts of the case, the
arguments of the appellant and the position of law. The
AO has made the impugned addition on the basis of
documents found and seized from Shri S. K Gupta, a
third party. His primary reasoning is that in these papers
ITA247&248/2015 Page 5
there are intelligible narrations signifying payments of
cash on various dates by appellant to various group
companies of Shri S.K.Gupta, who have issued
accommodation entries for investment in the companies
in which the appellant and his relatives are interested.
The appellant on the other hand has contended that no
presumption is available to the Assessing Officer u/s
132(4A)/292C of the IT Act with regard to the impugned
seized documents as they were neither found and seized
from the appellant nor do they belong to the appellant.
Further, the appellant has also contended that despite a
simultaneous search operation in the case of the
appellant, no evidence whatsoever has been found which
correlates with the impugned seized documents found
from the premises of Shri S. K. Gupta ,a third party. The
appellant has also taken the ground that Shri S. K. Gupta
himself had denied the authorship/ ownership of the
impugned documents during his statement on 13/12/2006
and reiterated the same even during his cross
examination by the appellant before the AO on
05/04/2012. The appellant has also taken the ground that
since Shri S. K. Gupta, during his cross examination by
the appellant before the AO, has categorically denied
having any transactions in cash with the appellant or his
family members, companies or entities owned by him or
them, the impugned addition made by the AO is based on
no evidence but on presumptions, conjectures and
surmises. I have perused copies of the statement of Shri
S. K. Gupta recorded during the search operation on
13/02/2006 as well as the Cross- examination statement
of Shri S. K. Gupta dated 05/04/2011 which was
forwarded by the AO without any comments vide his
remand report dated 02.11.2011 in respect of
A.Y.2007-08. It is seen from these statements that Shri .S.
K. Gupta has denied having authored the impugned
seized material and has also denied that they are part of
his books of accounts. He has also denied having made
any cash transactions with the appellant or his family
ITA247&248/2015 Page 6
members or entities owned by them and has also denied
having received any commission for the alleged
accommodation entries given to such entities belonging
to the appellant or his family members."
Thereafter the CIT (A) extracted the relevant parts of the statement of
Shri S.K. Gupta specifically with respect to the entries which were
attributed to the assessee. When asked about them, in response to
question nos.13 and 14, Shri S.K. Gupta stated that he did not know
"about these rough books and how they are lying in my office
premises". He further stated that "these books may be rough entries
of daily entries as shown to me in detail of our group companies and
enter transfer and deposits". In his cross examination on 5.4.2011, he
denied the authorship of Annexure A-5 which specifically stated that
he had not given or taken cash from the assessee and his office. He
also denied having received or paid any commission. He claimed to
know two or three other individuals bearing the name of the assessee,
i.e., Shri Anil Khandelwal who belongs to his native place.
Furthermore, he claimed that he never received or paid any cash to
the assessee or those connected with him. In the light of these, the
CIT (A) held as follows: -
"2.3.1 A perusal of the above extracts clearly indicates that in
the absence of any corroborative evidence found during the
search at the premises of the appellant, no adverse inference
can be drawn against the appellant merely on the basis of the
seized documents as found and seized from the premises of the
third party. As has been held in a number of judicial
pronouncements relied on by the appellant and extracted in
para 2.2.2 hereinabove, presumption u/s 134(4A)/292C is
available only in the case of the person from whose possession
ITA247&248/2015 Page 7
and control the documents are found and it is not available in
respect of a third party. Even in the case of such a person from
whose possession and control any incriminating document is
found, the presumption u/s 132(4A)/292C is a rebuttable one.
Since in the case of the appellant, no corroborative documents
or evidence has been found from the control or possession of
the appellant, I hold that the legal presumption as incorporated
u/s 132(4A)/292C will not be available to the Assessing Officer
in the appellant's case.
2.3.2. Further, the appellant has also denied the contents of the
impugned seized documents and the person from whom the
impugned documents were seized has also stated during
cross-examination that there has been no cash transactions
between him and the appellant or his family members or
entities in which they are interested. The AO has heavily
emphasized on the fact that Shri S.K.Gupta was an entry
provider and since the names of the companies in which the
appellant's family members or relatives were interested was
found mentioned in the document seized from Shri S.K.Gupta, it
is enough to conclude that the appellant must have paid cash to
Shri Gupta to receive accommodation entries from his group
companies. I am afraid, I cannot concur with such logic in the
absence any corroborative evidence to suggest that the entries
found in the seized documents were also reflected in the books
of the appellant or his concerns. It is well settled in law that the
loose papers, diaries and documents cannot possible be
construed as books of account regularly kept in the course of
business. Such evidence would, therefore, be outside the
purview of Section 34 of the Evidence Act, 1972. Therefore, the
revenue would not be justified in resting its case just on the
loose papers and documents found from third party if such
documents contained narrations of transactions with the
assessee as decided by the Hon'ble Supreme Court in the case
of Central Bureau of Investigation vs. V.C.Shukla (1988) 8 SSC
410 and Chuharmal vs. Commissioner of Income Tax (1988)
172 250/138 Taxman 190 (SC)."
ITA247&248/2015 Page 8
6. This Court further notices that the ITAT independently
examined the evidence which the CIT (A) had scrutinized. It also took
note of the paper book which had been furnished to the lower
authorities and was satisfied that the amounts attributed to the
assessee in fact had not been established and that in the given
circumstances, the reference to Section 132 (4A) and Section 292C
was not justified. Having regard to the factual nature of the dispute -
and having examined the findings of the lower authorities on this
account which we do not consider unreasonable, this Court holds that
no substantial question of law arises for consideration. The appeals
are devoid of merit and are consequently dismissed.
S. RAVINDRA BHAT
(JUDGE)
R.K. GAUBA
(JUDGE)
APRIL 21, 2015
/vikas/
ITA247&248/2015 Page 9
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