Onus to Rebut Presumption U/S 292C Discharged if Assessee Provides Evidence Shifting Ownership of Seized Documents: ITAT

ITAT Deletes ₹7.75 Cr Addition, Rules Assessee Rebutted Presumption by Furnishing Third-Party Affidavit for Seized Document

New Delhi: The Income Tax Appellate Tribunal (ITAT), Delhi Bench, has delivered a significant ruling on the interpretation of presumptions under Section 292C of the Income Tax Act, 1961. In a multi-appeal case involving M/s Majestic Properties Pvt. Ltd. and the tax department, the tribunal, comprising Vice President Mahavir Singh and Accountant Member M. Balaganesh, held that an assessee successfully rebuts the presumption of ownership of a seized document by providing credible evidence, such as a third-party affidavit, which the department fails to investigate.

The tribunal partly allowed appeals from both the assessee and the revenue for multiple assessment years, settling several contentious issues arising from a search and seizure operation.

Case Overview

The core of the dispute stemmed from a search and seizure operation conducted on Majestic Properties Pvt. Ltd. in February 2009. The Assessing Officer (AO) made several large-scale additions to the company's income for the assessment year 2008-09, which were contested before the Commissioner of Income-tax (Appeals) [CIT(A)] and subsequently the ITAT. The appeals also involved the company's director, Mr. Rajat Gupta .

Key Disputes and Tribunal's Rulings

1. Addition of ₹7.75 Crore Based on Seized Slip Pad

Revenue's Argument: During the search, a slip pad containing transactions amounting to ₹7.75 crore was seized. The AO, invoking the presumption under Section 292C, attributed the transactions to the assessee and added the entire sum to its income. The AO rejected the assessee's claim that the slip pad belonged to a third party, Mr. Saudagar Shah , who used their office space.

Assessee's Argument: Majestic Properties contended from the outset that the slip pad belonged to Mr. Shah , a dealer in paintings. They substantiated this claim by filing an affidavit from Mr. Shah , who owned up to the document and its contents. They also provided Mr. Shah 's income tax returns. The assessee argued that the department had ample opportunity (18 months) to examine Mr. Shah before he passed away in December 2010 but failed to do so.

ITAT's Decision: The tribunal sided with the assessee, upholding the CIT(A)'s deletion of the addition. The bench observed that the presumption under Section 292C is rebuttable.

"The burden u/s 132(4A) read with Section 292C of the Act had been duly shifted by the assessee to the income tax department right from the time of search, which fact also stood corroborated by an affidavit," the tribunal noted.

The ITAT criticized the department's inaction, stating that the affidavit was never put to the test of verification or cross-examination. It held that the assessee had discharged its onus, and the AO could not make the addition without contrary evidence. Consequently, the protective addition in the hands of director Mr. Rajat Gupta was also deleted.

2. Treatment of Sinking Fund and IBMS Collections

• Revenue's Argument: The AO treated ₹35.93 lakh collected from customers as 'Sinking Fund' and 'IBMS' as income, arguing it was a charge collected from customers.
• Assessee's Argument: The assessee had shown this amount as a liability, terming it a security deposit to meet future contingencies.
• ITAT's Decision: The tribunal reversed the CIT(A)'s relief and sided with the revenue. It ruled that unless the assessee provides details of refund or adjustment, such receipts in the normal course of business partake the character of income in the year of receipt. This ground was allowed in the revenue's favour.

3. Allegations of Suppressed and Unaccounted Sales

The AO had made additions of ₹1.20 crore for alleged suppressed sales at Meerut Mall based on an estimated average rate and ₹5.13 crore as unaccounted sales based on a former employee's letter mentioning projected sales figures. The ITAT dismissed both additions, upholding the CIT(A)'s findings. The tribunal held that the AO's estimation for suppressed sales was based on a flawed "one size fits all" logic and that the addition based on the employee's letter was based on "conjecture and surmises" without any corroborating evidence or even recording the employee's statement.

4. Disallowance for Late PF/ESI Payment

The ITAT upheld the disallowance of ₹53,042 on account of the late deposit of employees' contribution to PF & ESI, citing the binding Supreme Court judgment in Checkmate Services Pvt. Ltd. vs. CIT .

Final Outcome

The tribunal's common order resulted in the appeals filed by the revenue being partly allowed, the assessee's appeals being partly allowed/allowed, and the revenue's appeal against Rajat Gupta being dismissed. The judgment reinforces the principle that while the law provides for presumptions against the assessee in search cases, these are not absolute and can be successfully rebutted with credible evidence, shifting the onus back to the department to disprove the assessee's claims.