2025 (1) TMI 1539 - AT - Income Tax

Revenue fails to prove unexplained investments under sections 69A and 69C based solely on third-party documents without independent corroboration

ACIT, Central Circle – 6 (1), Mumbai Versus Sharad Nagnath Rajbhoj,

ITAT Mumbai dismissed Revenue's appeal challenging deletions of additions under sections 69A and 69C. The assessee was implicated based on documents and ... Additions made u/s 69C - as alleged that the assessee paid an amount which is in excess of the amount stated in the statement - HELD THAT:- We find that apart from the aforesaid statements and documents as noted above, there is no further examination by the Revenue to link the assessee to the material/statements found/recorded during the search proceedings. In order to support its contention, the AO has also placed reliance upon the transfer order dated 07/08/2020 passed by the Government of Maharashtra, transferring the assessee from District Satara to District Nashik. However, we are of the considered view that the transfer order cannot by itself be said to fall within the category of “independent evidence”, which can be said to corroborate the documents found during the search as the said transfer order does not implicate the assessee. We are of the considered view that the documents found during the search proceedings, which were found at the premises of the third party and not the assessee, only raise suspicion against the assessee and, therefore, such a suspicion requires further corroboration by independent evidence, which may be in the form of an independent departmental enquiry, and the same is completely absent in the present case. Thus, it is evident that the sole basis for making the addition in the hands of the assessee were the statements recorded of the third party and documents found from the third party. Additions made u/s 69A - unexplained cash transaction made by the assessee - as on the basis of the chat between the assessee and Shri Shailendra Rathi found from the mobile the AO held that Shri Shailendra Rathi clearly stated that as per the instruction of the assessee, he had to deliver the amount of Rs.5 lakh to the assessee - HELD THAT:- It is evident from the record that during the assessment proceedings, the assessee sought a complete set of statements of Shri Shailendra Rathi to examine the same and also sought the opportunity to cross-examine Shri Shailendra Rathi. It is evident that the addition was made merely on the basis of the document found during the search on the third party and there was no attempt by the AO to link the same with the assessee by way of an independent evidence. Accordingly, we are of the considered view that the addition of Rs.5 lakh made under section 69A of the Act has rightly been deleted by the learned CIT(A). CIT(A) also took into consideration the decisions wherein it was held that the presumption u/s 132(4A) of the Act could only be taken in the case of the person from whose possession the document or material has been found and since, in the present case, the documents were found from the possession of the third party, such a presumption cannot be extended to the assessee. Appeal by the Revenue is dismissed. ISSUES PRESENTED and CONSIDEREDThe core issues considered in this judgment revolve around whether the Commissioner of Income Tax (Appeals) [CIT(A)] erred in deleting additions made by the Assessing Officer (AO) under sections 69C and 69A of the Income Tax Act, 1961. Specifically, the issues are:1. Whether the CIT(A) erred in deleting the addition of Rs. 1,25,00,000 under section 69C, made by the AO based on digital evidence and statements from third parties linking the assessee to cash payments for transfer and posting of PWD engineers.2. Whether the CIT(A) erred in deleting the addition of Rs. 5,00,000 under section 69A, based on WhatsApp chats found during the search, which allegedly indicated unexplained money transactions involving the assessee.ISSUE-WISE DETAILED ANALYSIS1. Addition under Section 69C of the ActRelevant Legal Framework and Precedents: Section 69C pertains to unexplained expenditure, where if an assessee is found to have incurred any expenditure and fails to explain the source, the amount may be deemed as income. The legal precedent emphasizes that additions cannot be made solely on third-party statements or documents unless corroborated by independent evidence.Court's Interpretation and Reasoning: The Tribunal noted that the AO's reliance on statements and documents from third parties was insufficient without independent corroboration linking the assessee to the alleged cash payments. The Tribunal emphasized that suspicion, however strong, cannot replace evidence.Key Evidence and Findings: The AO based the addition on statements from employees of Rucha Group and documents seized during searches. These documents allegedly showed payments for transfer postings, including the assessee's name. However, these were found at third-party premises, and the statements were retracted.Application of Law to Facts: The Tribunal found that the AO failed to provide independent evidence linking the seized documents and statements to the assessee. The transfer order cited by the AO was deemed inadequate as independent evidence.Treatment of Competing Arguments: The Tribunal considered the Revenue's argument that the documents corroborated each other but found that both sets of documents pertained to Rucha Group and did not independently link the assessee to the alleged payments.Conclusions: The Tribunal upheld the CIT(A)'s decision to delete the Rs. 1,25,00,000 addition, citing lack of independent evidence linking the assessee to the alleged unexplained expenditure.2. Addition under Section 69A of the ActRelevant Legal Framework and Precedents: Section 69A deals with unexplained money, where any money found in possession of the assessee and not accounted for may be deemed as income. Judicial precedents require corroborative evidence for additions based on third-party documents or statements.Court's Interpretation and Reasoning: The Tribunal noted that the AO's reliance on WhatsApp chats from a third-party's phone was insufficient without corroboration. The Tribunal highlighted that the presumption under section 132(4A) applies only to the person from whose possession documents are seized.Key Evidence and Findings: The AO relied on a WhatsApp chat found on a third-party's phone, which included an image of a Rs. 5 note, to make the addition. The assessee denied any such transaction, and the statement of the third party was retracted.Application of Law to Facts: The Tribunal found that the AO did not corroborate the WhatsApp chat with independent evidence linking it to the assessee. The Tribunal agreed with the CIT(A) that the addition was unsupported by evidence.Treatment of Competing Arguments: The Tribunal considered the Revenue's reliance on the third-party statement and WhatsApp chat but found them insufficient without corroborative evidence.Conclusions: The Tribunal upheld the CIT(A)'s decision to delete the Rs. 5,00,000 addition, emphasizing the need for independent evidence to substantiate the addition.SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning: The Tribunal reiterated, 'Suspicion, however strong, cannot take the place of evidence,' emphasizing the need for independent corroboration of third-party statements and documents.Core Principles Established: The judgment reinforces that additions under sections 69C and 69A cannot be based solely on third-party documents or statements without independent evidence linking the assessee to the alleged transactions.Final Determinations on Each Issue: The Tribunal upheld the CIT(A)'s decision to delete the additions under sections 69C and 69A, dismissing the Revenue's appeal due to lack of corroborative evidence.