ITAT New Delhi Quashes Assessment Order for Lack of Conclusive Evidence

Introduction

In the recent case of D.L. Heera Bhai Jewellery Arcade Pvt. Ltd. v. ACIT Central Circle-1, New Delhi[i], the Hon’ble Income Tax Appellate Tribunal, New Delhi (‘ITAT’), deleted the additions made in the income of D.L. Heera Bhai Jewellery Arcade Pvt. Ltd (‘Assessee’). The ITAT found that the assessing officer (‘AO’) failed to provide sufficient conclusive evidence to establish that the demonetized cash deposited was attributable as income to the Assessee.

Brief Facts

• The Assessee was engaged in the business of gold bullion and jewellery. Search and seizure operations under s. 132 of the Income-tax Act, 1961 (‘ITA’) were conducted at the residential premises of partners of M/s JMK Exports and on the residential premises of Mr. Mohit Goel, former director of M/s. Ringing Bells Pvt. Ltd. (‘RBPL’). A survey has also been conducted under s. 133A of the ITA at the business premises of M/s RBPL and associated entities such as M/s JMK Exports, M/s. Harrison Diamonds Pvt. Ltd., M/s JMK Jewels Pvt. Ltd. and

• During the search, the AO found certain incriminating materials including email and SMS conversations among parties. It was recorded in Mr. Mohit Goel’s statement that one of the directors of the Assessee had paid a commission of Rs. 1.52 crores to Mr. Mohit Goel for depositing cash amounting to Rs. 32,81,90,000 in the bank account of M/s RBPL post demonetization. Subsequently, the AO initiated proceeding under s. 153C of the ITA for the assessment years (‘AYs’) 2011-12 to 2016-17 and for AY 2017-18, the AO issued a notice under s. 143(2) of the ITA.

• The Assessee denied depositing any cash in the bank of M/s RBPL. However, the AO was not convinced by the Assessee’s denial and solely relied on Mr. Mohit Goel’s statement and CCTV footage obtained from Kotak Mahindra Bank, which purportedly showed close associates of the Assessee carrying bags full of cash. Consequently, these cash deposits and the commission were treated as the Assessee’s income under s. 69A of the ITA and were added back to the income of the Assessee.

• Aggrieved by the AO’s decision, the Assessee filed an appeal before the Ld. First Appellate Authority, which only partly adjusted the proposed additions to the income of the Assessee.

• Both the Assessee and the Revenue subsequently appealed before the ITAT.

Held

The ITAT passed the order in favour of the Assessee and observed as under:

• The AO had initiated proceedings under s. 153C of the ITA for a block of six AYs immediately preceding the search year. However, the AO failed to initiate the proceedings under s. 153C of the ITA for the impugned A.Y. 2017-18. Therefore, the ITAT quashed the impugned assessment order.

• The addition made by the AO was solely based on CCTV footage of Kotak Mahindra Bank, although the concerned cash was deposited in various other banks. The AO failed to make any enquiries with these banks to ascertain the source of cash deposits.

• There was no evidence to show that the bags contained the demonetized cash. Neither the persons carrying the bags nor the bank manager were examined by the AO. It was observed that the AO’s findings were based on presumptions and did not contain any conclusive evidence.

• The statement relied upon by the AO from Mr. Mohit Goel had no locus standi as he resigned from the directorship well before the demonization, had sold all his shares to M/s RBPL and was not involved in any of the company’s functions.

• Thus, it was observed that AO had failed to conduct a detailed enquiry and provide conclusive proof regarding the demonetized cash deposited. As a result, the ITAT deleted the entire additions made by the AO and quashed the assessment order passed under s. 143(3) r/w s. 153C of the ITA.

Our Analysis

The judgement sets a precedent for similar cases involving proceedings under s. 153C of the ITA. It highlights that the findings of the AO were based solely on presumptions and assumptions, without any cogent or conclusive evidence being presented.

The ITAT clarified that the AO cannot rely merely on statements recorded from a person no longer associated with the entities under investigation, as these have no credibility. This ruling emphasizes that additions to income cannot be justified based solely on presumption and suspicion; rather, they require solid evidence on record.

In crux, this decision serves as a crucial reminder for AOs to adhere to stringent standards of evidence and thorough investigation to maintain the integrity of assessment orders. This ensures that legal standards are consistently applied in future tax assessments, protecting the rights of taxpayers while enforcing tax laws.

End Note

[i] [2024] 161 taxmann.com 49 (Delhi – Trib.) (TM) [26.03.2024].

Authored by Purvi Garg, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.