Facts of the Case

Binary Network Solutions Pvt. Ltd. filed appeals before the Income Tax Appellate Tribunal (ITAT), Delhi Bench, challenging orders passed by the Commissioner of Income Tax (Appeals) for Assessment Years 2009-10 and 2013-14.

A survey under Section 133A was conducted at the premises of the assessee along with related entities. During the survey, loose papers and digital data were impounded, which allegedly reflected cash transactions and accommodation entry operations linked to entities controlled by certain Jain group members.

The Assessing Officer concluded that the assessee was involved in providing accommodation entries, whereby funds were routed through bank transactions and returned in cash. Based on seized documents and statements recorded during survey proceedings, the Assessing Officer estimated commission income at 2% of the turnover and made an addition of ₹60,96,027.

The assessee contested the addition before the CIT(A), but the addition was upheld. Subsequently, the matter reached the ITAT.

For Assessment Year 2013-14, the Assessing Officer also passed an order under Section 153C read with Sections 153A and 143(3), making an addition of ₹88,00,000 under Section 68.

Issues Involved

  1. Whether additions could be sustained based on loose papers seized during survey.
  2. Whether such loose papers qualify as “dumb documents” without evidentiary value.
  3. Whether the presumption under Section 292C applies to documents seized during search or survey.
  4. Whether assessment under Section 153C is valid in absence of incriminating material belonging to the assessee. 

Petitioner’s Arguments (Assessee)

  • The addition was based solely on rough sheets and scribblings, which should be treated as dumb documents lacking evidentiary value.
  • No corroborative evidence was produced by the department to substantiate the contents of the seized documents.
  • The assessee had retracted statements recorded during survey, and therefore reliance on such statements was legally invalid.
  • The Assessing Officer failed to provide copies of incriminating material and statements relied upon during assessment.
  • The books of accounts could not be produced due to a theft incident, supported by a First Information Report.
  • Sales were treated as non-genuine despite the department accepting corresponding purchases.
  • The addition of commission income at 2% of turnover was arbitrary and ad-hoc.
  • In similar circumstances involving a sister concern, the addition had already been deleted.
  • With respect to Assessment Year 2013-14, the assessment under Section 153C was invalid because the addition was not based on any seized material belonging to the assessee.

Respondent’s Arguments (Revenue)

  • The seized documents were recovered during survey and contained date-wise and party-wise entries, which clearly indicated unaccounted transactions.
  • Statements recorded during survey proceedings explained the modus operandi of accommodation entry transactions involving shell companies.
  • The assessee failed to produce books of account during reassessment proceedings.
  • The documents could not be treated as dumb documents since the entries were consistent and correlated across dates.
  • Therefore, the Assessing Officer correctly treated the assessee as involved in accommodation entry operations and rightly estimated commission income. 

Court Findings / ITAT Decision

The ITAT examined the rival submissions and the evidences on record.

Addition based on seized documents

The Tribunal held that the addition was justified. It observed that the seized document identified as Annexure A-12 indicated transactions involving cheque payments and cash movement.

The Tribunal emphasized that documents seized during search or survey carry a statutory presumption of correctness under Section 292C. Therefore, the burden was on the assessee to rebut this presumption.

Since the assessee failed to produce sufficient evidence to disprove the contents of the seized material, the Tribunal held that the lower authorities were justified in making the addition.

Accordingly, the Tribunal confirmed the addition of commission income and dismissed the appeal for Assessment Year 2009-10.

Validity of Section 153C assessment

For Assessment Year 2013-14, the Tribunal considered the legal issue relating to the validity of assessment under Section 153C.

The Tribunal relied on the judgment of the Supreme Court in PCIT vs Abhisar Buildwell Pvt. Ltd. (2023) 150 taxmann.com 267 (SC), which held that in cases of completed assessments, additions can be made under search provisions only if they are based on incriminating material seized during the search.

In the present case, the addition of ₹88,00,000 under Section 68 was made based on bank statements, which were not part of the seized material.

The Tribunal further noted that the satisfaction of the Assessing Officer for initiating Section 153C proceedings was recorded on 22.03.2018, which made the assessment year an unabated assessment year. 

Important Clarification by the Tribunal

  1. Loose documents seized during search or survey carry a statutory presumption under Section 292C, and the burden lies on the assessee to rebut the presumption.
  2. Additions under Section 153C cannot be made in completed assessments without incriminating material, in line with the Supreme Court ruling in PCIT vs Abhisar Buildwell Pvt. Ltd.

Link to download the order -  https://itat.gov.in/public/files/upload/1736509855-BH423n-1-TO.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.