In a significant ruling, the Jaipur bench of the Income Tax Appellate Tribunal (ITAT) has held that the assessment under section 153A of the Income Tax Act, 1961 made solely based on the pen drive recovered from the employee of the assessee is invalid.
In consequent to a search, the Assessing Officer made an addition based on a Pen drive found from one of the employee of the group of Shri Kailash Chand Khandelwal in this pen drive the excel sheets were found wherein in addition to the regular interest paid and additional interest @ 2.4% both computed in the excel sheet and added as unexplained expenditure paid out of undisclosed income.
A bench of Dr. S. Seethalakshmi, (JM)& Shri Rathod Kamlesh Jayantbhai (AM) observed that the addition cannot be made without checking the veracity / reliability of the data recorded in the pen drive.
Overruling the submissions of the department, the bench observed that “the Revenue itself is not disputing that in respect of the LTCG no incriminating documents were found in the search proceedings and the finding of the ld. CIT(A) is not challenged before us in any of the grounds raised by the revenue.”
Analysing the provisions of section 153A of the Income Tax Act, the ITAT observed that “the requirement that the incriminating material to have the corelation to the particular addition sought to be made is a logic that will hold good not only for Section 153 C of the Act but in relation toSection 153A of the Act as well. Consequently, in our considered view we do not find any error having been committed by the ld. CIT(A) in accepting the plea of the Assessee that there is no incriminating document which was seized in the course of search relating to the addition sought to be made on account of the long term capital gain reflected in the return of income filed by the assessee. Therefore, the jurisdictional requirement of Section 153 A of the Act was not satisfied.”
“Based on that confirmation the ld. AR of the assessee demonstrated that the assessee and its group concerned have recorded and accounted the interest which is recorded in the Excel Sheet of the PEN Drive found. There are no further consideration flows in addition to what has been recorded in the books of accounts. The ld. AR of the assessee submitted that it is respective parties who were demanding, further interest @ 2.4% in addition to what has been recorded in the books. The additional interest which the assessee or its group concern never paid and there is no evidence of any such further sums paid and found as paid in the course of search,” the Tribunal observed.
Concluding the appeal, the Tribunal observed that “Since the issue is revolving about the PEN Drive found, the bench asked both the partieswhether any finding of any person recorded and/or the statement of the person under whose possession this PEN drive found is recorded or not? In response it has been confirmed that there is no finding about the veracity of this PEN drive in the orders of the lower authorities. Therefore, working recorded in this PEN drive is merely an information recorded by that person and whatever financial transaction related to that information is recorded in the books and are already explained before the lower authorities and there is not dispute on this aspect. The revenue has made this addition in the hands of the assessee as protective addition only based on working made in this PEN drive.”
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