Facts of the Case

A survey under Section 133A of the Income Tax Act, 1961 was conducted on the assessee company along with other group entities. During the survey proceedings, loose papers and digital data were impounded, indicating transactions allegedly related to accommodation entries.

The Assessing Officer observed that certain cash payments were made to Shri Naresh Jain, suggesting that the assessee company was engaged in providing accommodation entries through shell companies.

Based on the seized material and statements recorded during the proceedings, the Assessing Officer concluded that the assessee was earning commission income from such entry operations and accordingly made an addition of commission income calculated at 2% of the gross turnover.

In a separate proceeding for another assessment year, the Assessing Officer also made an addition under Section 68 during assessment framed under Section 153C.

 

Issues Involved

  1. Whether addition of alleged commission income could be sustained based on loose papers seized during survey proceedings.
  2. Whether such loose papers could be treated as valid evidence or merely “dumb documents.”
  3. Whether the presumption under Section 292C applies to documents seized during search or survey.
  4. Whether an assessment under Section 153C can survive when no incriminating material relating to the addition is found during search. 

Petitioner’s Arguments (Assessee)

  • The impugned addition was based merely on rough sheets or loose papers, which constituted dumb documents without corroborative evidence.
  • The statement recorded during survey had been retracted, and reliance upon it violated principles of natural justice.
  • The Assessing Officer wrongly treated the company’s entire turnover as accommodation entries without rejecting the books of accounts under Section 145(3).
  • The department had accepted the corresponding purchases as genuine, therefore treating the sales as non-genuine was inconsistent.
  • The alleged commission addition at 2% of turnover was arbitrary and ad-hoc.
  • For AY 2013-14, the addition made under Section 68 in proceedings under Section 153C was not based on any seized material.

 

Respondent’s Arguments (Revenue)

  • The seized documents clearly indicated the involvement of the assessee in accommodation entry transactions.
  • The loose papers contained date-wise and party-wise transaction details, which matched with subsequent entries and therefore could not be treated as dumb documents.
  • Statements recorded during the survey and the seized material together established the modus operandi of the assessee.
  • The documents seized during search or survey carry a statutory presumption of correctness under Section 292C, and the assessee failed to rebut that presumption.

 

Court Order / Findings

1. Addition based on seized documents upheld

The Tribunal held that documents seized during search or survey carry a statutory presumption of correctness under Section 292C of the Income Tax Act.

The seized loose papers contained transaction details and therefore could not be treated as mere rough or dumb documents. Since the assessee failed to rebut the presumption attached to the seized material, the Tribunal upheld the addition made by the Assessing Officer in respect of commission income.

Accordingly, the appeal relating to AY 2009-10 was dismissed.

2. Section 153C assessment quashed

For AY 2013-14, the Tribunal examined the validity of assessment under Section 153C.

The Tribunal relied on the Supreme Court decision in PCIT v. Abhisar Buildwell (P) Ltd. (2023) 150 taxmann.com 267 (SC) and observed that no addition can be made in an unabated assessment year unless it is based on incriminating material found during search.

Since the addition under Section 68 was based only on the bank statement and not on any seized incriminating material, the Tribunal quashed the assessment framed under Section 153C.

Thus, the appeal relating to AY 2013-14 was allowed.

 

Important Clarification

  1. Loose papers seized during search or survey may carry evidentiary value when they contain specific transaction details and therefore cannot automatically be treated as “dumb documents.”
  2. In Section 153C proceedings, additions cannot be made in unabated assessment years without incriminating material, as laid down by the Supreme Court in PCIT v. Abhisar Buildwell (P) Ltd..

 

Sections Involved

  • Section 68 – Unexplained cash credits
  • Section 133A – Survey proceedings
  • Section 143(3) – Scrutiny assessment
  • Section 145(3) – Rejection of books of accounts
  • Section 153A – Assessment in case of search
  • Section 153C – Assessment of income of other person
  • Section 254 – Orders of ITAT
  • Section 292C – Presumption as to assets, books of account and documents

Link to download the order - 
https://itat.gov.in/public/files/upload/1736509764-QZdy4u-1-TO.pdf

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