No Addition to be made merely on basis of Dumb Documents: ITAT

The Income Tax Appellate Tribunal (ITAT), Hyderabad Bench ruled that no addition can be made merely on basis of dumb documents.

The assessees, Rontala Tirumala, Rontala Rajireddy, Kotagiri Bhooma and Sampath Suddala are the Directors of the Private Limited Chit Fund Company under the name of M/s. Sannihita Chit Funds Pvt. Ltd. There was a survey operation under section 133A of the act in the case of the company. During the course of the survey, certain material such as small notebooks were found and impounded.

The Assessing Officer therefore, proposed to add the said additional income by issuing a show-cause notice to all the assessees. The assessees explained that the small books/diaries which were found during the course of the survey did not belong to the Directors and that the statement given by Sri Rontala Raji Reddy during the survey proceedings were under duress and that they have complained to the CBI immediately thereafter and the CBI had impounded the books from the Department and hence the statement cannot be relied upon to make any additions. The Assessing Officer did not accept this contention and by taking into consideration the notings in the small diaries, and also the statement of Sri Raji Reddy, he made the addition of Rs.15.00 lakhs to the returned income of the assessees, i.e Sri Suddala Sampath, Sri Rontala Raji Reddy and Rontala Tirumala and Rs.16.00 lakhs in the case of Sri Kotagiri Bhooma Goud.

Mrs. V. Sreelatha Reddy, the counsel for the assessee the  submitted that during the course of survey, the statement of Shri Rontala Raji Reddy was recorded/obtained by coercion and under duress and the Income Tax Officers had demanded huge amounts from the assessees and therefore, assessees have made complaints to the CBI and the CBI had impounded all the documents from the Department. She submitted that the documents taken by the CBI contained two original cheques and cash books of M/s. Sannihita Chit Funds Pvt. Ltd which were not part of the impounded material by the Department. Thus, it can be seen that the Department had not acted in good faith while conducting the survey and while impounding the documents found during the survey. She also drew my attention to the copies of the diaries which are part of the paper book to demonstrate that these diaries are dumb

On the other hand Mr. A. Venkata Rao, the Counsel for the department, supported the orders of the authorities below and argued that the additions were on the basis of the entries in the books found at the time of survey which were corroborated and confirmed by the statement of the Managing Partner.

The Coram of Judicial Member P.Madhavi Devi said that it is a settled position that no addition can be made solely on the basis of a statement given during the course of search or survey.

The Tribunal found that though the assessees did not retract the statement of Sri Raji Reddy by filing any letter before the Revenue Authorities, but they have complained to the CBI and the CBI has impounded the material from the Department, which contained not only the small diaries but also some other documents, such as the original copies of the cheques allegedly issued by the directors under duress.

“I am inclined to accept the contention of the Counsel for the assessees that the documents on the basis of which, the additions are made by the Assessing Officer are nothing but dumb documents and the additions made on the basis of such documents cannot be sustained. In view of the same, the additions made by the Assessing Officer in the hands of all the assessees are deleted.,” the ITAT said while allowing the assesses’ appeals.

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