INCOME TAX ACT, 1961

Section 153A Section 69

Search and seizure - Assessment under section 153A - Computation of undisclosed income - Addition under section 69 only on basis of screen shot of journal entry taken from tally data in pen-drive and its copy

On the basis of data contained in the electronic media and the loose papers, AO inferred that assessee had made undisclosed investment in purchase of land and accordingly, he had made additions in all the three years on account of undisclosed investment in land invoking section 69 which had been the subject-matter of dispute before the CIT(A) who had granted relief to RA and his brother KA, both of whom were partners in the assessee firm. In course of verification made with regular books of account, it was found by AO that the seized material was not covered in the regular books of the assessee firm. In the query letter, the AO referred to a screenshot of a balance sheet as on 31-3-2010 drawn in the name of M/s. Aarti Colonizer Company ('ACC') wherein the closing stock was reflected at Rs. 15,53,99,615 which was taken from the tally data in pen-drive. Held: The journal entry dt. 4-9-2007 was only an accounting entry passed for introducing the land as capital contribution by the partners who purchased the lands and therefore, this cannot be considered as evidence of investment. A perusal of the journal entry dated 4-9-2007, which had been one of the basis for addition, shows that through this journal entry, the lands was purchased by the two persons named in the journal entry and was being introduced as their capital contribution in the partnership firm. Since these journal entries have been relied upon by the AO, it had remained undisputed that the lands were not purchased by the assessee but by the two persons as named in the journal entry. As rightly contended by the assessee, that all the lands, except one, described in the assessment order on page Nos. 2 and 3, were purchased prior to formation of the assessee-firm. There was yet another convincing reason that in all the three years under appeal, there were no sales effected by the assessee firm and the business of the assessee firm had not even started, which was also evidenced by the profit & loss account of the three years. When the source of income/revenue for the assessee was missing in the sense that the business had not even started during all the three years and since during search, nothing was found to establish that the assessee had any undisclosed income from any other source, the discretion vested in the AO should have been exercised in favour of the assessee and the addition should not have been made. AO had not made any enquiry, whatsoever, from different vendors of the lands and not even from the two persons named in the journal entry, who, as per the journal entry, introduced their lands as capital contribution in the partnership firm. For making addition under section 69, there had to be some material establishing actual investment and therefore, it was not justified to invoke the said section merely on the basis of inference.

Relied:CIT v. Smt. P.K. Noorjahan (1999) 237 ITR 570 (SC) : 1999 TaxPub(DT) 0080 (SC) and Smt. Rajabai B. Kadam L/H of Late S.B. Kadam v. Asstt. CIT (2002) 83 ITD 229 (Pune-Trib) : 2002 TaxPub(DT) 327 (Pune-Trib).