ITAT rules additions under section 69A cannot be sustained based on unverified excel sheets from third-party premises

The ITAT Chennai held that additions under section 69A based on excel sheets found during search of third-party premises cannot be sustained without corroborative evidence. The AO failed to link cash transactions in seized documents to the assessee or establish their authenticity. The tribunal emphasized that entries in loose sheets from third-party premises require independent verification and cannot invoke presumptions under sections 132(4A)/292C. The AO's practice of appending two zeros to cash entries while treating bank entries at face value was deemed incorrect and inconsistent, as it would create discrepancies in the excel sheet totals. The appeal succeeded on lack of substantive evidence.

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ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether the additions made by the Assessing Officer (AO) towards undisclosed cash transactions based on excel sheets found in the possession of a third party are sustainable under Section 69A of the Income-tax Act, 1961.
• Whether the excel sheets found in the possession of a third party have evidentiary value to substantiate the alleged cash transactions.
• Whether the presumption under Sections 132(4A) and 292C of the Act applies to documents found in the possession of a third party.
• Whether the AO's action of appending two zeros to the cash transaction values recorded in the excel sheets is justified.
• Whether the method adopted by the CIT(A) in computing undisclosed income by netting off cash receipts against cash payments is appropriate.

ISSUE-WISE DETAILED ANALYSIS

1. Evidentiary Value of Excel Sheets

The excel sheets found in the possession of a third party were the primary basis for the AO's additions under Section 69A. The relevant legal framework includes Section 132(4A) and 292C, which provide presumptions regarding documents found during searches. However, these presumptions apply only when documents are found in the possession of the assessee, not a third party. The Court noted that the excel sheets lacked corroborative evidence, such as cash receipts or unaccounted purchase bills, to substantiate the alleged cash transactions. Furthermore, the documents were not in the handwriting of the assessee or its partners, and no other evidence was found during the search to support the entries in the excel sheets.

2. Presumption under Sections 132(4A) and 292C

The Court emphasized that the presumption under Sections 132(4A) and 292C does not apply to documents found in the possession of a third party. The Court referenced several precedents, including the Hon'ble Gujarat High Court's decision in PCIT vs. Gaurangbhai Promodchandra Upadhyay, which held that no presumption could be drawn against the assessee for documents not found in their possession. The Court concluded that without corroborative evidence, the excel sheets could not be used to draw adverse inferences against the assessee.

3. Appending Two Zeros to Cash Transactions

The AO appended two zeros to the cash transaction values based on a statement from an employee of the Christy group. However, the Court found that this action lacked a valid basis, as the statement related to a separate unaccounted cash book and not the excel sheets in question. The Court noted that the bank transactions in the excel sheets matched the books of accounts without appending zeros, indicating that cash transactions should be treated similarly.

4. Method of Computing Undisclosed Income

The CIT(A) computed undisclosed income by netting off cash receipts against cash payments, arguing that aggregating both would exaggerate the income. The Court found this method reasonable, as it accounted for the possibility that cash payments were made from cash receipts. The Court upheld this approach, noting that it was consistent with the absence of corroborative evidence for the alleged cash transactions.

SIGNIFICANT HOLDINGS

The Court held that the additions made by the AO under Section 69A based on excel sheets found in the possession of a third party were unsustainable due to a lack of corroborative evidence. The Court emphasized that:

• "The evidences relied upon by the AO in the form of excel sheets does not constitute adequate evidence to draw adverse inference against the assessee, in the absence of any other corroborative evidence."
• The presumption under Sections 132(4A) and 292C does not apply to documents found with a third party.
• The AO's action of appending two zeros to cash transaction values was unjustified.
• The method adopted by the CIT(A) in computing undisclosed income by netting off cash receipts against cash payments was reasonable and acceptable.

The Court dismissed the appeals filed by the revenue for the assessment years 2017-18 and 2018-19, upholding the CIT(A)'s decision to delete the additions made by the AO. The cross objections filed by the assessee were dismissed as infructuous.

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