|CORAM:||N. K. Billaiya (AM), S. S. Godara (JM)|
|SECTION(S):||143(3), S. 34 of the Evidence Act|
|CATCH WORDS:||Evidence Act, unaccounted income|
|COUNSEL:||S. N. Soparkar|
|DATE:||February 14, 2017 (Date of pronouncement)|
|DATE:||March 18, 2017 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|S. 143(3): Loose papers which do not have full details are "dumb documents" and have no evidentiary value. The fact that the assessee sold goods at a concession does not mean that that the difference between sale value and market value can be assessed as income. The onus is on the AO to make inquiries from the buyers and bring incriminating evidence on record to show that the assessee sold flats at a higher rate|
(i) We find that the assessee has given complete details of the purchasers along with their addresses and PAN numbers. The same are exhibited from pages 2 to 8 of the paper book. None of these purchasers were examined by the A.O. nor by the First Appellate Authority. Except for the loose sheet of paper, there is nothing on record to prove that the assessee has actually received sum on money.
(ii) At this stage, we would like to refer to the observations of the lower authorities to the effect that no one makes a loss in real estate business and that the market perceptions indicate that the prices of the immovable properties are always on the upward trend. It appears that both the lower authorities have been carried away with the “notorious practice” prevailing in real estate circles that in all property transactions, there is non-disclosure of the full consideration.
(iii) In Lalchand Bhasat Ambica Ram vs. CIT: (1959) 37 ITR 288, the Supreme Court disapproved the practice of making additions in the assessment on mere suspicion and surmises or by taking note of the “notorious practice” prevailing in trade circles. It was observed as under:
“Adverting to the various probabilities which weighed with the Income-tax Officer we may observe that the notoriety for smuggling food grains and other commodities to Bengal by country boats acquired by Sahibgunj and the notoriety achieved by Dhulian as a great receiving centre for such commodities were merely a background of suspicion and the appellant could not be tarred with the same brush as every arhatdar and grain merchant who might have been indulging in smuggling operations, without an iota of evidence in that behalf.”
(iv) Several decades back the Madras High Court in the case of Shri ramalinga Choodambikai Mills Ltd. vs. CIT: (1955) 28 ITR 952 held that in the absence of any evidence to show either that the sales were sham transactions or that the market price were in fact paid by the purchasers, the mere fact that goods were sold at a concessional rate would not entitle the Income tax Department to assess the difference between the market price and the price paid by the purchaser as profit of the assessee. In CIT vs. A. Raman & Co.: (1968) 67 ITR 11 the Supreme Court held that the law does not oblige a trader to make the maximum profit that he can out of his trading transactions. Income which actually accrues is taxable, but income which the assessee could have, but has not in fact earned, is not made taxable. These two judgments were approvingly noticed and applied by the Supreme Court in CIT vs. Calcutta discount Co. Ltd.: (1973) 91 ITR 8. These judgments apply to the present case in favour of the assessee.
(v) In our considered opinion, the assessing authority has no power to disturb the sale price shown except in three cases. The first is under Section 145 of the Act. Where the sale of properties is part of the business of the assessee, the Assessing Officer, if he is of the opinion that the accounts are not correct and complete, may proceed to reject the books of accounts and thereafter make a best judgment assessment of the income in the manner prescribed by Section 144. The second is the case where Section 50C of the Act is invoked on the basis of the prices fixed by the Stamp Valuation Authorities of the State Government. That section, it is pointed out, however, applies only in the computation of capital gains and cannot be availed by the Revenue where the profits of the business are to be computed.
(vi) The third is the case of section 92BA inserted by the Finance Act, 2012 w. e. f. 01.04.2013. This section gives power to the Assessing Officer to recalculate the profits shown by the assessee in cases of “specified domestic transactions”, where the aggregate of such transactions entered into in the relevant accounting year exceeds a sum of Rs. 5 crores.
(vii) Except in these three situations, the Act does not permit the enhancement of the profits of the business shown by the assessee.
(viii) Coming to the evidentiary value of the impounded loose sheet mentioned elsewhere, the Hon’ble Supreme Court in the case of Common Cause (A Registered Society) and Others vs. Union of India and Others in Writ Petition Civil Appeal No. 505 of 2015 has observed as under:-
16. With respect to the kind of materials which have been placed on record, this Court in V.C. Shukla’s case (supra) has dealt with the matter though at the stage of discharge when investigation had been completed but same is relevant for the purpose of decision of this case also. This Court has considered the entries in Jain Hawala diaries, note books and file containing loose sheets of papers not in the form of “Books of Accounts” and has held that such entries in loose papers/sheets are irrelevant and not admissible under Section 34 of the Evidence Act, and that only where the entries are in the books of accounts regularly kept, depending on the nature of occupation, that those are admissible
17. It has further been laid down in V.C. Shukla (Supra) as to the value of entries in the books of account, that such statement shall not alone be sufficient evidence to charge any person with liability, even if they are relevant and admissible, and that they are only corroborative evidence. It has been held even then independent evidence is necessary as to trustworthiness of those entries which is a requirement to fasten the liability.
(ix) The Hon’ble Supreme Court further observed:-
17. From a plain reading of the Section it is manifest that to make an entry relevant thereunder it must be shown that it has been made in a book, that book is a book of account and that book of account has been regularly kept in the course of business. From the above Section it is also manifest that even if the above requirements are fulfilled and the entry becomes admissible as/ relevant evidence, still, the statement made therein shall not alone be sufficient evidence to charge any person with liability. It is thus seen that while the first part of the section speaks of the relevancy of the entry as evidence, the second part speaks, in a negative way, of its evidentiary value for charging a person with a liability. It will, therefore, be necessary for us to first ascertain whether the entries in the documents, with which we are concerned, fulfill the requirements of the above section so as to be admissible in evidence and if this question is answered in the affirmative then only its probative value need be assessed.
(x) With respect to evidentiary value of regular account book, the Hon’ble Supreme Court in the case of V.C. Shukla 1998 (3) SCC 410 has laid down:-
“37. In Beni v. Bisan Dayal it was observed that entries in books of account are not by themselves sufficient to charge any person with liability, the reason being that a man cannot be allowed to make evidence for himself by what he chooses to write in his own books behind the back of the parties. There must be independent evidence of the transaction to which the entries relate and in absence of such evidence no relief can be given to the party who relies upon such entries to support his claim against another. In Hira Lal v. Ram Rakha the High Court, while negativing a contention that it having been proved that the books of account were regularly kept in the ordinary course of business and that, therefore, all entries therein should be considered to be relevant and to have been proved, said, that the rule as laid down in Section 34 of Tie Act that entries in the books of account regularly kept in the course of business are relevant whenever they refer to a matter in which the Court has to enquire was subject to the salient proviso that such entries shall not alone be sufficient evidence to charge any person with liability. It is not, therefore, enough merely to prove that the books have been regularly kept in the course of business and the entries therein are correct. It is further incumbent upon the person relying upon those entries to prove that they were in accordance with facts.”
(xi) It is apparent from the aforesaid discussion that the loose sheet of papers are wholly irrelevant as evidence being not admissible u/s. 34 so as to constitute evidence with respect to the transactions mentioned therein being of no evidentiary value.
(xii) Moreover, the Assessing Office did not make any inquiry from buyers of flat in respect of actual prices paid by them. He also did not make any other inquiry in order to corroborate his conclusion. There is no incriminating evidence to show that the assessee has sold the flats at a higher rate. 30. In our understanding of the facts, the impounded loose sheet can at the most be termed as “dumb document” which did not contain full details about the dates, and its contents were not corroborated by any material and could not relied upon and made the basis of addition.
(xii) In the case of CIT vs. Kulwant Rai 291 ITR 36 the ruling given in the case of Dhakeswari Cotton Mills Ltd. 26 ITR 775 by the Hon’ble Supreme Court has been relied upon wherein the Hon’ble Supreme Court has held “ even though Income Tax Authorities including the Assessing Officer has unfettered discretion and not strictly bound by the rules and pleadings as well as materials on record and is legitimately entitled to act on the material which may not be accepted as evidence, nevertheless such discretion does not entitle them to make a pure guess and base an assessment entirely upon it without reference to any material or evidence at all”.
(xiv) Considering the facts of the case in hand in totality and in the light of the judicial decisions referred to hereinabove, we do not find any merit in the impugned additions. We, therefore, set aside the findings of the ld. CIT(A) and direct the A.O. to delete the addition of Rs. 32.56 crores.