$ 4-10 * IN HIGH COURT OF DELHI AT NEW DELHI Decided on: 09th February, 2015 + ITA 66/2014 + ITA 67/2014 + ITA 68/2014 + ITA 69/2014 + ITA 75/2014 + ITA 76/2014 + ITA 77/2014 COMMISSIONER OF INCOME TAX-XIV ..... Appellant Through Ms. Suruchi Aggarwal, sr. standing counsel with Mr. Aamir Aziz, Adv. versus VIVEK AGGARWAL ..... Respondent Through Mr. Sanjeev Sabharwal, Sr. Adv. with Mr. Prakash Kumar and Ms. Megha Kamthan, Advs. CORAM: HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE R.K.GAUBA MR. JUSTICE S. RAVINDRA BHAT (OPEN COURT) % 1. revenue is aggrieved by common order dated 28.06.2013 of Income Tax Appellate Tribunal (hereinafter referred to as ITAT ) in several appeals filed by it in respect of block assessment year 2001-02 to 2007-08. It urges that there are two questions of law i.e. correctness of ITAT order to extent it rejected order of Assessing Officer (AO) adding income on account of document seized during search proceedings. Here revenue had contended that amounts liable to be added as they form undisclosed salary component of assessee s ITA No.66-69/2014 & 75-77/2014 Page 1 income. second question pertains to addition of 3.64 crores and 20 lakhs, alleged to be property related transactions again not reported by assessee. CIT(Appeals) and ITAT concurrently ruled with respect to second amount (i.e. 20 lakhs) that since transactions related to time period 1999-2000, addition was time-barred, besides overturning it on merits. 2. Briefly facts are that search and seizure proceedings were conducted on 28.2.2007 in assessee s premises. assessee was issued notice under Section 153A and filed return declaring income as follows : Assessment Year Amount 2002-03 Rs.13,97,169/- 2003-04 Rs.15,14,302/- 2004-05 Rs.7,24,374/- 2005-06 Rs.6,80,773/- 3. assessing officer framed assessment under Section 153A at 31,79,234/-, Rs.28,13,213/-, Rs.34,26,965/- and Rs.37,95,827/- for A.Ys 2002-03, 200304, 200405 and 2005 -06 respectively. 4. AO also determined salary on basis of document said to be letter/e-mail seized during course of search operations- Rs.28,50,000/-,Rs.27700,000/-, Rs.33,25,000/- and Rs.36,00,000/- in A.Ys 2002-03, 2003-04 5 2004-05, and 2005-06 respective1y as against assessee s salary declared in its turn of income at Rs. 11,03,867/-, Rs.16,47,733/-, Rs.8,29,400/- and Rs.5,39,683/- for aforesaid years respectively. ITA No.66-69/2014 & 75-77/2014 Page 2 5. AO also premising himself upon certain loose papers marked as Annexure A-10 party R-II added as follows : Assessment Year Amount 2002-03 Rs.17,46,133/- 2003-04 Rs.10,52, 267/- 2004-05 Rs.24,95, 600/- 2005-06 Rs.30,06,317/,- 6. AO rejected affidavit furnished as additional evidence and brought to tax these amounts. 7. assessee s appeal to CIT succeeded. CIT(Appeals) after elaborated discussion of relevant case law and factual analysis of materials was of opinion that alleged e-mail/letter could not be exclusively relied upon to add amounts which were sought to be brought to tax by AO. Appellate Commissioner was of opinion that in absence of any corroborative material to link such letter or its contents with assessee, inference that some additional income was earned by him by way of salary, was incorrectly drawn. With respect to sum of 41,32,800/- relating to property transactions, assessee s explanation that he entered into transactions which ultimately did not materialize was accepted. In addition to these, CIT(Appeals) also held that sum of 41,32,800/- could not be added since it pertained to transaction which was beyond block period i.e. since it fell in assessment year 1998-99-2000. revenue s appeals to ITAT failed. revenue argues that impugned order is erroneous because assessee did not offer any explanation much less credible or worthwhile explanation about contents of e-mail/draft letter seized. ITA No.66-69/2014 & 75-77/2014 Page 3 learned counsel urged that given statutory mandate under Section 132(4A), inference drawn by AO was justified and reasonable. assessee s explanation that income earned, had in fact been disclosed for later period, on account of C-1 India Pvt. Ltd. was not logical and acceptable. For earlier period he had consultancy agreement dated 30.04.2000 with M.E.O.L. and same was brought on record. It was urged that this explanation could not have been taken on record since assessee was under onus of proving that income had in fact been declared. learned counsel relied upon judgment reported as Urmila Gambhir V. CIT 325 ITR 171 (Delhi) to say that in past Courts have taken note of such seemingly innocuous documents which do not connect with assessee and yet upheld liability in income tax proceedings. So far as other amounts are concerned it is urged that ITAT and CIT(Appeals) fell into error in rejecting addition of 64,78,256/- and sum of 41,32,800/- on account of unexplained income relying on findings of AO in Annexure A10, Party R-11 and submitted that these loose papers were sufficient to indicate undisclosed investments. Counsel for respondent/assessee submitted that bare reading of documents seized shows that it had no connection with assessee or his family. It was submitted that prior to 30.6.2000 assessee was independent consultant who had entered into agreement for this purpose with private software consultancy and that agreement dated 30.4.2000 was on record. However, for later period i.e. after 1.7.2000, assessee became salaried employee of C-1 India Pvt. Ltd. 8. It was submitted by Mr. Sabharwal, learned senior counsel that ITA No.66-69/2014 & 75-77/2014 Page 4 assessment was finalized on basis of salary income at 11,40,600/- under Section 143(3) read with Section 152A. Consequently it was urged by counsel that it was unreasonable to add amounts for previous block period which were sought to be brought to tax slowly on basis of document which had no connection or bearing with assessee s declared income. learned counsel relied upon several decisions including Dhakeswari Cotton Mills Ltd. v. CIT (1954) 26 ITR 775 (SC), CIT vs. S.M. Aggarwal (2007) 293 ITR 43 (Del.) and CIT v/s Kulwant Rai (2002) 291 ITR 36 (Del). So far as 41,32,800/- is concerned learned counsel pointed out that assessee had furnished explanation by way of concerned parties affidavit which was not even considered and replied to by AO in assessment proceedings. This had compelled CIT to reject addition of 41,32,800/-. Being entirely factual and since amount added pertained to period prior to block period i.e. 1999-2000, AO s order was unsustainable. learned counsel urged that explanation with respect to sum of 3.64 crores too was rejected without any reasons. learned counsel relied upon findings of CIT(Appeals) and ITAT in this regard. Before discussing merits of valid contentions it would be useful to notice at outset what in fact was seized as Annexure A10 Party R-11 concededly was document which did not bear assessee s signature or contain his name. In fact even it would be construed as draft letter as to whom it was addressed to. letter/e-mail is extracted below : Dear Sir, I have been working in C1 India for more than four years. In four year, my salary has been as follows: ITA No.66-69/2014 & 75-77/2014 Page 5 July 00-June 01 30,00,000 at rate of 2,50,000 p.m. (50% paid by MEOL and 50% by C1 India) July 01- June 02 27,75,000 at rate of 2,50,000 p.m. from July 01 to Sep. 01 and 2,25,000 p.m. from October, 01 to June 02. July 02 June 03 26,50,50,000 at rate of 2,25,000 p.m from July 02 to April 03 and 2,00,000 p.m. for May and June 03. July 03-Jun.04 36,00,000 at rate of 200000 p.m and incentive of RS 12 lakhs. average of four years works out to 30,06,250/-. As you can see from above, my salary has not increased in four years. In contrast to this, everyone else in C1 has been getting increments every year e.g. Kapil joined in Jan-01 at Salary of 50K, It is now at 150K which is 300% in 3 years Anil joined in Dec. 02 at salary of 60K, It is now 116 which is 100% in 1.5 year Kalyan joined in Jul 02 at salary of 42K It is not at;141K which is 333% in 2 years. ITA No.66-69/2014 & 75-77/2014 Page 6 People like Kulbhushan, Rajesh Desingu, Samil Sinha, Amrjeet, Bharat have all grown bath inside C-1 India and then by joining better opportunities outside C1 India. industry average salary increase has been 25% p.a. every year. However; I have not grown at all in past, four years. I have also been told categorically that any further improvement in designation is not possible. I believe that I have worked extremely hard for company. I have fought in extreme rough climate where everyone had given up on company and you were prepared to-write off all your investments. I have made many sacrifices. I have also given up other lucrative offers to make this company success. Most of companies, which started alongwith us or even before us such as C1 ME, our own MEOL, Seesaini and even Commerce-one itself, have gone bankrupt. These companies had even much higher investments than us. I believe I have been able to make company stand on its own feet and on path to progress further, however, I believe that it is now high time that - company recognize my efforts and give me adequate compensation. I strongly believe that I can take this company to great heights, however, I believe that I can do so, only if I am highly motivated. With best regards, 9. ITAT which endorsed CIT(Appeals) s conclusions was of opinion that since letter was not addressed to anyone and both undated and unsigned, revenue was under duty to corroborate ITA No.66-69/2014 & 75-77/2014 Page 7 whatever inference it wished to draw from it. Furthermore, ITAT was of opinion that document could not be accepted at face value in terms of Section 2(22AA) of Income Tax Act which includes electromagnetic records as defined in Section 2(t) of Information Technology Act, 2000. ITAT reasoned as follows : There nothing on record to show that any effort was made by department to establish nexus of assessee with said print out by locating person who had seen it and who was recipient. Undisputedly print out is undated. No effort has also been made by Revenue to corroborate contents of said print out to arrive at definite conclusion that assessee was indeed drawing quantum o salary mentioned therein. As per provisions laid down u/s 132 (4A), adverse presumption can be drawn only when firstly document was found from possession of assessee and secondly, assessee was in control over said document. Ld. CIT (A) has deleted addition placing reliance on above cited decisions with conclusion that seized print out of e-mail was dumb document in absence of name of addressed and addressee and it was unsigned and undated. 10. In judgment reported as CIT Vs. Girish Chaudhary (2008) 296 ITR 619 (Delhi), Division Bench, which was called upon to decide correctness of addition made on basis of numeric entry in document which led to addition of Rs.48 lakhs, held as follows: 12. Apex Court in Central Bureau Investigation v. V.C. Shukla and Ors. has laid down that: ITA No.66-69/2014 & 75-77/2014 Page 8 File containing loose sheets of papers are not 'book' and hence entries therein are not admissible under Section 34 of Evidence Act, 1872. 13. Similarly, document Annexure A-37 recovered during course of search in present case is dumb document and lead us nowhere. Thus, Tribunal rightly deleted addition of Rs. 48 lacs made by Assessing Officer on account of undisclosed income on basis of seized material. 14. above being position, no fault can be found with view taken by Tribunal. Thus, order of Tribunal does not give rise to question of law, much less substantial question of law, to fall within limited purview of Section 260-A of Act, which is confined to entertaining only such appeals against order which involves substantial question of law. 15. Accordingly, present appeal filed by Revenue is, hereby, dismissed. 11. In CIT vs. S.M. Aggarwal (2007) 293 ITR 43 (Del.) cited by assessee, Court in similar situation held as follows : 11. In Mahavir Woolen Mills (supra) case, during course of search and seizure proceedings, certain slips were found, which, Assessing Officer concluded, contained details of payment beyond those which were made by cheques and drafts and were duly reflected in books of accounts. assessee's stand before Tribunal was that documents were 'dumb documents' which did not contain full details about dates of payment and its contents were not corroborated by any material and could not be relied upon and made basis of addition. Tribunal considered this aspect and observed that on comparison of seized documents and ledger accounts of parties, seized documents could not be regarded as 'dumb documents'. ITA No.66-69/2014 & 75-77/2014 Page 9 12. While dismissing appeal, Apex Court held: That Tribunal had come to certain factual conclusion about nature of papers seized. On question whether documents did or did not contain particulars, tribunal observed that they did contain certain materials which were sufficient to come to conclusion about cash payments having been made in addition to those made by cheques and drafts. conclusion was essentially factual. No substantial question of law arose from its order. 12. In CIT v/s Kulwant Rai (2007) 291 ITR 36 (Del) interestingly ruling of Supreme Court in Dhakeswari Cotton Mills Ltd. v. CIT (1954) 26 ITR 775 (SC) was relied upon. Supreme Court held that even though Income Tax Authorities including Assessing Officer has unfettered discretion and not strictly bound by rules and pleadings as well as materials on record and is legitimately entitled to act on material which may not be accepted as evidence, nevertheless such discretion does not entitle them to make pure guess and base assessment entirely upon it without reference to any material or evidence at all. 13. Given above state of law and this Court has no hesitation in so concluding, since document seized was both undated and unsigned and even taken at face value did not lead to further enquiry on behalf of AO, ITAT s view which endorsed findings of CIT(Appeals) were well-founded and do not call for interference. reliance placed upon Urmila Gambhir V. CIT 325 ITR 171 (Delhi) in this Court s opinion is inapt because in that case there was other corroborative material for income tax authorities to link description of transactions found in ITA No.66-69/2014 & 75-77/2014 Page 10 said innocuous document seized with respect to other material. However, such inference cannot be drawn in this case because there is no other material. On contrary AO s acceptance and finalization of assessment for 2007-08 on basis of salary income of assessee, undermines entire findings with respect to inferences drawn and additions made, indicated above. question of law urged, therefore, is not substantial and is answered against revenue. 14. So far as second amount 41,32,800/- is concerned there cannot be any doubt that above was sought to be made in respect of period 1999-2000. Clearly that was beyond block period and therefore time- barred. That apart CIT(Appeals) noted that after remand during pendency of appellate proceedings, affidavit relied upon by assessee in Brij Bhushan Gupta was not adversely commented upon. This being factual finding Court finds no reason to interfere with ITAT s order. 15. That leaves Court with addition initially made by AO for sum of Rs.3.64 crores. Here too addition was made only on basis of some loose papers and chit. This too would fall in same category of material which could not have been sole basis for addition without some surveillance of substantiation. Consequently, ITAT s reasoning cannot be faulted. 16. In ITA 77/2014, which relates to AY 2001-02, revenue also claims to be aggrieved, in addition, by deletion of benefit granted under Section 80HHE, in respect of sum of Rs.10,31,892/-. AO held that it was salaried income from C-1 India Pvt. Ltd. even though payment was made from MEOL. ITAT noticed that for this ITA No.66-69/2014 & 75-77/2014 Page 11 particular amount AO had relied upon very same document seized during search proceedings. CIT(Appeals) had rejected revenue s contention after noticing relevant materials which included Software Consultancy Agreement between assessee and MEOL, prior to employment contract with C-1 India Pvt. Ltd. In these circumstances since issue concerns pure finding of fact which had been rendered concurrently, Court is of opinion that no question of law arises. 17. In ITA 69/2014 revenue besides its grievance in respect of other matters discussed above, also aggrieved by addition of Rs.6,95,700/- on account of differential value added, where assessee as per its declaration had purchased property during relevant period at Rs.3,70,000/-. After search was conducted and during course of block assessment proceedings, AO had rejected transaction value and referred matter to AVO who in his report valued property at Rs.1065700/-. assessee successfully contended before CIT(Appeals) and later before ITAT that this could not have been basis for block assessment or for that matter reference under Section 142A given restricted nature of block assessment proceedings. On this aspect ITAT relied upon judgment of this Court in CIT Vs. Ravi Kant Jain (2001) 250 ITR 141 and subsequent ruling in CIT V. Naveen Gera 328 ITR 516. In those judgments it has been held that in absence of any incriminating evidence with respect to payment over and above reported amount, revenue is under burden of proving that in fact there was understatement or concealment of income. In present case too there was no material at all for revenue to conclude ITA No.66-69/2014 & 75-77/2014 Page 12 that transaction relating to properties was undervalued. 18. For above reasons we find no merit in appeals. They are consequently dismissed. S. RAVINDRA BHAT (JUDGE) R.K.GAUBA (JUDGE) FEBRUARY 09, 2015 vld ITA No.66-69/2014 & 75-77/2014 Page 13 Commissioner of Income-tax-XIV v. Vivek Aggarwal