Additions Cannot Be Made To Assessee's Income On Basis Of Document Declared By The CESTAT As 'Dumb Document': Ahmedabad ITAT

The Bench, consisting of members Madhumita Roy (Judicial Member) and Waseem Ahmed (Accountant Member), held that though the proceedings under the Income Tax Act and Service Tax are distinct and independent to each other, but the factual aspects would always remain the same in either of the proceedings.

A search operation was carried out by the Directorate General of Central Excise Intelligence (DGCEI) with respect to Corner Point Infrastructure Pvt Ltd (CPIPL).

In the course of the search operation, an excel sheet was recovered from the laptop of the employee of CPIPL containing details of receipt of payment in the name of different persons against different flats. The name of the Assessee Rajesh Sajjanraj Bafna was also appearing in the excel sheet wherein the component of cash was recorded. The Assessing Officer (AO) proposed to make additions in the hands of the Assessee for making unexplained investment under Section 69B of the Income Tax Act, and a show-cause notice was issued to the Assessee. The Assessee in response to the notice had submitted that it had not purchased any property from CPIPL and thus there was no question of making any unexplained investment.

The AO rejected the contention of the Assessee by observing that cash payment was made by the Assessee outside the books of accounts without recording the same. The AO thus made additions to the Assessee's income. The Assessee filed an appeal before the CIT(A) against the order of the AO. The CIT(A) upheld the order of the AO and dismissed the appeal of the Assessee. The Assessee filed an appeal before the ITAT against the order of the CIT(A).

The Assessee Rajesh Sajjanraj Bafna submitted before the ITAT that additions were made by the authorities on the sole basis of the excel sheet recovered from the premises of the CPIPL. The Assessee contended that certain additions were made by the service tax department after the DGCEI had opined that the transactions recorded in the excel sheet represented the amount recovered from the customer on which service tax had not been paid by CPIPL. The Assessee added that the CESTAT had deleted the additions made by the service tax department by treating the transactions found in the excel sheet in cash as dumbed documents. Therefore, the Assessee averred that there cannot be any addition for unexplained investment in the hands of the Assessee on the basis of such excel sheet.

The revenue department contended that the document found during the search operations conducted by DGCEI is not a dumb document as it contains the banking transactions as well.

The ITAT noted that additions were made in the hands of the Assessee on account of unexplained investments made in the project developed by CPIPL. The ITAT observed that the basis of the allegation by the revenue department was that an excel sheet was recovered from the laptop of a key employee of the CPIPL in the course of the search conducted by DGCEI, in which the name of the Assessee was also appearing.

The ITAT observed that the CESTAT in the proceedings of service tax had held that the excel sheet was a dumb document with respect to cash transactions recorded therein and had deleted the demand of service tax with respect to the cash transactions recorded therein.

The ITAT ruled that when the basis on which the additions were made by the authorities has been done away in the service tax proceedings, the same basis cannot be used against the Assessee for making additions under the income tax proceedings.

The ITAT added that the revenue department had not been able to establish, based on any cogent material, that the Assessee directly or indirectly made investments in the project developed by the CPIPL.

The ITAT ruled that the revenue department was empowered under various sections of the Income Tax Act for conducting necessary verification but none of the authorities exercised such power to establish the trail that the Assessee either directly or indirectly booked the given flat.

The ITAT noted that the revenue department had not brought any evidence contrary to the finding of the CESTAT to demonstrate that the entries recorded in the excel sheet were actual transactions.

The ITAT added that the search operations under the Income Tax Act were carried out at the premises of the Assessee but no documents were recovered from the premises suggesting that the Assessee had purchased any flats in the project of CPIPL or that he had made payment in cash to CPIPL. Thus, the ITAT held that in the absence of any documentary evidence found during the course of search, no adverse inference could be drawn against the Assessee.

The ITAT ruled that though the proceedings under the Income Tax Act and Service Tax are distinct and independent to each other, but the factual aspects would always remain the same in either of the proceedings. The ITAT noted that the cash entry recorded in the excel sheet was treated by both the service tax authority and the authority under the Income Tax Act as unaccounted cash received by the CPIPL against booking of flats. The ITAT added that based on this fact, the income tax proceedings were triggered in the hands of the Assessee. However, the CESTAT, in an appeal filed before it with respect to service tax proceedings, had held that the excel sheet was a dumb document having no evidentiary value with respect to the cash transactions recorded therein. The ITAT ruled that this finding of the CESTAT was based on facts and not on legal principles and thus it would remain the same in any proceeding under any other Act. Thus, the ITAT held that once the basis of the additions made to Assessee's taxable income has gone away, then all other consequential proceedings will have no legs to stand.

Thus, the ITAT ruled that no additions to Assessee's taxable income could be made. The ITAT set aside the finding of the CIT(A) and directed the AO to delete the additions made by him.

The ITAT thus allowed the appeal of the Assessee.

Case Title: Rajesh Sajjanraj Bafna versus D.C.I.T.

Dated: 30.03.2022 (ITAT Ahmedabad)

Representative for the Appellant/Assessee: Hardik Vora

Representative for the Respondent: Vijaykumar Jaiswal, CIT. D.R

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