Addition Deleted: Unsigned Draft Agreement found on Third Party’s Hard Disk has no Evidentiary Value

ORDER

M. Balaganesh, Accountant Member.- The appeal in ITA No.1769/Del/2024 for AY 2009-10, arises out of the order of the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as „ld. NFAC, in short] in Appeal No. ITBA/NFAC/S/250/2023-24/1061128269(1) dated 19.02.2024 against the order of assessment passed u/s 147 of the Income-tax Act, 1961 (hereinafter referred to as „the Act’) dated 26.12.2016 by the Assessing Officer, ITO, Ward-18(2), New Delhi (hereinafter referred to as „ld. AO⁷).

2. The assessee has raised the following grounds of appeal:-

“1. That, on the facts and the circumstances of the case and in law and material available on record, the action of the Ld. CIT(Appeal) is arbitrary, without application of mind and gross violation of the principle of natural justice and on the basis of borrowed satisfaction.

2. That in view of facts and in circumstance of the case and in law, the Ld. CIT (Appeal) is grossly erred and is not dealing with the material and evidence placed on the record.

3. That, on the facts and circumstance of the case and in law, the Ld CIT(Appeal) erred in confirming the addition of Rs. 1,01,00,000/- under section 69 of IT Act, 1961 for unexplained investment.

4. The action of the Ld. CIT (Appeal) for not considering the actual sale deed (purchase deed for the appellant) dated 25-06-2010 is wrong and bad in law.

5. The assessee reserves the right to add, to amend or to alter the ground of appeal at any time during.”

3. The assessee has raised the following additional grounds of appeal:-]

4. Out of the aforesaid additional grounds, we find that Additional Ground No. (a) is purely legal in nature and goes to the root of the matter. The facts relevant for its adjudication are already on record. Hence, the same is hereby admitted and taken up for adjudication. The other two additional grounds are already part of the original grounds raised by the assessee.

5. We have heard the rival submissions and perused the material available on record. The assessee company filed its return of income for AY 2009-10 on 27.09.2009 declaring loss of Rs. 26,800/-, which was duly processed u/s 143(1) of the Act on 31.03.2011. The case of the assessee was sought to be reopened vide issuance of notice u/s 148 of the Act dated 30.03.2016 after recording the reasons for reopening the assessment. The ld AO in the reasons recorded observed that information was received vide letter dated 21.03.2016 from the ld ACIT, Central Circle-26, New Delhi that during the course of search action dated 11.09.2013 in AKN Group of cases, a hard disk was found at the residential premises of Shri Naresh Gupta, who is a deed writer and an advocate by profession. The said letter also informed about the page No. 80 of the appraisal report received from Investigation Wing that during the FY 2008-09, the assessee company has paid cash amounting to Rs. 1 crore to Shri Birkhe, Shri Mahabir Singh, Ms. Neetu Kokas, Ms. Reema Tokas, Shri Ram Krishan, Shri Ajay Singh, Shri Rankit Tokas and Shri Rohit Tokas on account of purchase of a property as per deed found in the hard disk. The ld AO observed that this cash payment of Rs. 1 crore as appearing in the details supplied by the ld ACIT, Central Circle-26, New Delhi has not been disclosed in the books of account and in the return of income for the year under consideration of the assessee. Hence, he has reason to believe that income to the extent of Rs. 1 crore had escaped assessment for which the assessment was sought to be reopened. The assessee filed objections to the reasons recorded vide letter dated 24.10.2016 stating that there is no nexus between the information received and the formation of belief by the ld AO and that reopening has been made in a mechanical manner. The assessee during the course of reassessment proceedings vide letter dated 20.06.2016 requested the ld AO to provide the copy of the appraisal report and the copy of the deed found in the hard disk and all other documents on which reliance has been placed by him while recording the reasons which enabled him to form a belief that income of the assessee had escaped assessment. In response to the same, the ld AO provided a draft agreement to sell found in the hard disk from Shri Naresh Gupta’s search vide letter dated 17.10.2016. The assessee submitted that the same is not a deed as stated by the ld AO in the reasons recorded and the same did not contain anybody’s signature and the same was undated. Further, the relevant extract of the appraisal report which was sought by the assessee had not been provided by the ld AO. The assessee submitted that entire reopening was made without application of mind by placing reliance on the dumb documents which is unsigned and undated. The assessee also submitted that the reopening has been made based on borrowed satisfaction as some information has been received by some other officer of the income tax department which had been borrowed by the ld AO in the instant case for proceeding against assessee herein. The objections of the assessee were disposed of by a speaking order by the ld AO vide letter dated 03.11.2016 by placing heavy reliance on the reply given by Shri Naresh Gupta (a deed writer) who in response to Question No. 12 while recording the statement on oath on 08.11.2013 stated certain facts which reads as under:-

“Q.12 I am showing you the print outs taken from Hard Disk seized from your office R-36, G.K. Part-I, New Delhi, in which contain various agreement to sell and sale deeds. In view of the facts and circumstances:

(a) Why theses documents should not be treated as belonging to you u/s 132(4A) of the I.T. Act 1961.

(b) Why those would not be treated as true ?

Ans. The printouts of the documents shown to me taken from the hard disk from my office is pertaining to my various clients, it doesn’t pertain to me in any manner whatsoever. These documents are drafted under the instruction of my various clients in discharge of my professional duty/obligation. Any other information / actual details of money transaction is not my knowledge. Any other details pertaining to the same is protected under the privileged the Indian evidence Act.”

6. It was also submitted by the assessee that the draft agreement to sell found in the hard disk was for 29 bighas and 3 biswas but in fact the assessee company had actually purchased only 1 bigha 19 biswas in its favour and 5 bighas in the director’s name. The details of payments made for purchase of land by the assessee as well as by the Directors were furnished which are tabulated herein:-

It is important to mention that an amount of Rs, 24,50,000/- was further paid to the vendors by cheques over and above sale deed amount in consideration for the tubewell and constructed area in their respective land as the vendor had backed out, the details of which are given below

7. The assessee also furnished the actual sale deed before the ld AO which was duly registered. It was also pointed out that the actual sale deed was executed in AY 2011-12 which assessment was completed u/s 143(3) of the Act. The assessee also vide letter dated 07.11.2016 furnished the copies of the bank statement for the period from 01.04.2008 to 31.03.2011 before the ld AO. On 16.11.2016, the assessee company requested the ld AO to provide the copies of statement of Shri Naresh Gupta which has been relied upon and provide an opportunity of cross examination of Shri Naresh Gupta. In response thereto, copy of the statements of Shri Naresh Gupta recorded on 03.10.2013, 08.10.2013 and 08.11.2013 were duly furnished to the assessee. On perusal of the statements, the assessee submitted that the statements did not contain the name of the assessee company even remotely. Accordingly, the reply given by Shri Naresh Gupta for Question No. 12 in his statement which has been heavily relied upon by the ld AO that these documents are provided under the instruction of various clients of Shri Naresh Gupta cannot be used against the assessee company and that cannot be the basis for formation of belief in the mind of the ld AO that income of the assessee had escaped assessment. The ld AO however did not heed to the aforesaid objections of the assessee and proceeded to bring to tax the alleged cash payment of Rs. 1,01,00,000/- as unexplained investment made by the assessee u/s 69 of the Act, which was upheld by ld NFAC in appeal.

8. On perusal of the actual registered sale deed dated 25.06.2010 between vendor of the assessee and between vendor of the assessee’s director, we find none of the clauses that are mentioned in the draft agreement to sell found in the hard disk of Shri Naresh Gupta (deed writer) tally with clauses in the actual registered sale deed. Further, the draft agreement to sell found in hard disk was undated and unsigned on which fact there is absolutely no dispute. Hence, the said document cannot be construed as a document having any evidentiary value in the eyes of law. Hence, accordingly, the same has to be construed as a mere dumb document. In any case, the said document was seized only during the course of search of Shri Naresh Gupta during the course of search conducted at AKN Group of cases. Admittedly this document was not seized/ impounded from the premises of the assessee at all. Hence, the presumption in terms of Section 292C of the Act would lie on Shri Naresh Gupta and the same cannot be extended to the assessee herein. The revenue in the instant case had shifted the onus to explain the said draft agreement to sell seized from the hard disk of Shri Naresh Gupta, to assessee by simply believing the statement of Shri Naresh Gupta that the document found in the hard disk are pertaining to his clients and had proceeded to reopen the case of the assessee u/s 147 of the Act, forgetting the fact that the said draft agreement found in the hard disk was neither signed nor dated and not carrying any evidentiary value. The assessee always pleaded that it had not paid any on-money or cash on account of purchase of property. It pleaded that all the payments made to the venders have been duly reflected in its books and made through properly explainable sources. Even the extent of land mentioned in the draft agreement to sell did not match with the actual extent of land purchased by the assessee. Similar issue came up for adjudication by this Tribunal in the case of Bharat Singh v. ACIT [IT Appeal No 2001 (Delhi) of 2017, dated 25-10-2019] wherein in respect of the very same hard disk, the very same draft agreement to sell which was undated and unsigned seized from the premises of Shri Naresh Gupta was subject matter of detailed deliberation. In this case, the Tribunal held that no addition can be made in hands of the 3^rd party merely on the basis of unsigned draft agreement to sell and such an unsigned document cannot be made basis of presumption that cash transaction had been carried out between the parties. Similar ratio was laid down by this Tribunal in ACIT v. Mayfair Resorts India Ltd in ACIT v. Mayfair Resorts India Ltd [ITA No. 2008(Delhi) of 2021, 17-8-2023].

9. We hold that the reopening of assessment to be valid even though the said document containing draft agreement to sell found from the hard disk from Shri Naresh Gupta which was unsigned and undated was sought to be used as a primary information by the ld AO for reopening the assessment, certain cheque transactions reflected thereon did match with the actual transactions carried out by the assessee. Hence, the prima facie plea of placing reliance on such draft agreement to sell by the ld AO cannot be questioned. What is required at the time of reopening is prima facie belief that some income of the assessee had escaped assessment and sufficiency of reasons need not be gone into as long as prima facie belief is available. Hence, we hold that the ld AO had validly assumed jurisdiction of reopening the case. Accordingly, the Additional Ground A raised by the assessee is dismissed.

10. However, on merits, the assessee would be duly entitled for the benefit as the document relied upon by the ld AO for framing an addition of Rs. 1,01,00,000/- as alleged payment of cash for purchase of property, was unsigned and undated. There is absolutely no evidence that the said payment of Rs. 1,01,00,000/- was made during the year under consideration warranting any addition in the hands of the assessee. The assessee also had furnished the complete details of all the payments made to the vendors on account of purchase of property. No examination whatsoever was carried out by the ld AO with the vendors to bring on record the fact as to any cash payment has been made by the assessee to the vendors. Further, the statement of Shri Naresh Gupta did not contain the name of the assessee. Further Shri Naresh gupta was sought for cross examination by the assessee which was not provided by the ld AO. Hence, the addition made by the ld AO suffers from various factual and legal deficiencies and not having any support of laws.

11. In view of the aforesaid observations and respectfully following the judicial precedent relied upon herein above, we have no hesitation in deleting the addition made in the sum of Rs. 1,01,00,000/- in the hands of the assessee. Accordingly, the original grounds raised by the assessee are allowed.

12. In the result, the appeal of the assessee is partly allowed.