Assessment under Section 153C upheld with Rs. 1,30,50,000 addition as unexplained money under Section 69A confirmed

ITAT Delhi dismissed the appeal upholding assessment u/s 153C. The tribunal found the AO's satisfaction note valid as seized documents from co-owner's premises related to assessee's FY 2017-18 transactions. Addition of Rs. 1,30,50,000 as unexplained money u/s 69A was confirmed based on seized documents showing cash receipt for property purchase. Presumption u/s 132(4A) and 292C applied since assessee was co-owner of the property. Assessee's contentions regarding dumb documents, lack of corroborative evidence, and deal cancellation were rejected. Cross-examination request denied as no valid grounds provided.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this appeal include:

• Whether the order passed by the Commissioner of Income Tax (Appeals) sustaining the assessment order under section 153C of the Income Tax Act is valid in law and fact, particularly regarding jurisdiction, limitation, and compliance with CBDT guidelines and Supreme Court precedents.
• Whether the satisfaction recorded by the Assessing Officer under section 153C was legally valid, especially considering the use of a single/combined satisfaction note for multiple assessment years.
• Whether the approval obtained under section 153D was lawful and based on proper application of mind.
• Whether the addition of Rs. 32,62,500/- as unexplained cash money under section 69A was justified, given the nature of the seized documents and the evidence on record.
• Whether the presumption under sections 132(4A) and 292C of the Income Tax Act, which applies to searched persons, can be invoked against the assessee, who was not the searched person but a co-owner of the property involved.
• Whether the seized documents, described as undated, unsigned loose sheets found during search of a third party, can form the basis of addition without corroborative evidence.
• Whether the assessee was provided adequate opportunity to cross-examine witnesses or persons whose statements were relied upon in the assessment proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

Validity of the Assessment Order under Section 153C and Jurisdictional Issues

Legal Framework and Precedents: Section 153C empowers the Assessing Officer to assess income of a person other than the searched person if incriminating material is found during search. The satisfaction note under section 153C must be recorded before initiating assessment proceedings. The question of whether a single/combined satisfaction note for multiple assessment years suffices was addressed by the Hon'ble Delhi High Court in Indian National Congress vs DCIT, which held that a composite satisfaction note is valid if it embodies details of incriminating material relevant to all assessment years forming part of the block.

Court's Interpretation and Reasoning: The Tribunal examined the satisfaction note dated 13.05.2021, which detailed the incriminating material pertaining to the relevant assessment year 2018-19 and related financial year 2017-18. The Tribunal relied on the Delhi High Court's ruling to hold that the single satisfaction note was legally valid and sufficient to initiate assessment under section 153C. The Tribunal found no merit in the contention that separate satisfaction notes were mandatory for each assessment year.

Application of Law to Facts: The seized document pertained to financial transactions relevant to AY 2018-19. The Assessing Officer had recorded satisfaction accordingly. Hence, the assessment order dated 31.12.2022 was held valid and within jurisdiction.

Treatment of Competing Arguments: The assessee argued that the satisfaction was illegal due to lack of year-wise details and that the approval under section 153D was without application of mind. The Tribunal dismissed these contentions due to absence of any substantive argument or evidence supporting illegality.

Conclusion: The Tribunal upheld the validity of the assessment order under section 153C and dismissed the related grounds.

Applicability of Presumption under Sections 132(4A) and 292C to the Assessee

Legal Framework and Precedents: Sections 132(4A) and 292C create a presumption that books of account or documents found during search belong to the searched person and that their contents are true, shifting the onus on the person to disprove the entries. However, the presumption traditionally applies only to the searched person.

Court's Interpretation and Reasoning: The Tribunal noted that the assessee was a 25% co-owner of the property involved, alongside the searched person who held 50% ownership. Since the seized documents related to a transaction involving all co-owners, the Tribunal held that the assessee cannot be treated as a third party for this transaction. Therefore, the presumption under sections 132(4A) and 292C was applicable against the assessee.

Application of Law to Facts: The documents were seized from the premises of the co-owner who was searched, and the transaction concerned the jointly owned property. The Tribunal found the presumption rightly invoked against the assessee.

Treatment of Competing Arguments: The assessee contended that the presumption applies only to the searched person and not to others, relying on case law. The Tribunal distinguished those cases on facts, holding them inapplicable as the assessee was a co-owner and thus effectively a party to the transaction.

Conclusion: The presumption under sections 132(4A) and 292C was correctly applied against the assessee.

Reliability and Evidentiary Value of the Seized Documents

Legal Framework and Precedents: It is settled law that loose sheets or documents found during search of a third party cannot form the sole basis of addition without corroborative evidence. The assessee relied on judgments emphasizing the need for corroboration and the inadmissibility of "dumb documents."

Court's Interpretation and Reasoning: The Tribunal examined the seized document, described as an undated and unsigned receipt recording receipt of Rs. 1,48,50,000/- including Rs. 1,30,50,000/- in cash and Rs. 18,00,000/- through banking channels. The document detailed the property and the three co-owners involved. The Tribunal found that the banking transactions recorded in the document matched perfectly with the bank statements obtained independently from HDFC Bank, thus corroborating the document's authenticity.

The Tribunal further observed that the entries of cash and banking receipts were recorded sequentially and systematically, indicating real-time recording of transactions rather than hypothetical or fabricated entries. The Tribunal rejected the assessee's characterization of the document as a dumb document.

Application of Law to Facts: The corroboration by bank statements and the presence of the document at the premises of the searched co-owner, coupled with the assessee's failure to explain or reconcile the entries, led the Tribunal to uphold the document's evidentiary value.

Treatment of Competing Arguments: The assessee argued that the document was undated, unsigned, and denied by all parties involved. The Tribunal held that denial of cash receipt by the parties did not negate the document's validity, especially given the corroboration of banking transactions and the presumption under sections 132(4A) and 292C.

Conclusion: The seized document was held to be a valid and reliable piece of evidence supporting the addition.

Addition under Section 69A on Account of Unexplained Cash Receipts

Legal Framework and Precedents: Section 69A permits addition of unexplained money found in the possession of the assessee if not satisfactorily explained. The burden lies on the assessee to explain the source or nature of such money.

Court's Interpretation and Reasoning: The Tribunal noted that the assessee accepted receipt of Rs. 18 lakhs through banking channels but denied receipt of Rs. 1,30,50,000/- in cash. The Tribunal found this denial to be an attempt to evade tax on the cash portion. The assessee failed to explain the cash receipt or demonstrate its return to the payer, unlike the RTGS amount which was returned when the deal did not materialize.

Application of Law to Facts: The Tribunal applied the presumption under sections 132(4A) and 292C, the corroborative bank evidence, and the failure of the assessee to discharge the onus to explain the cash receipt. The addition of Rs. 32,62,500/- (25% share of cash receipt attributable to the assessee) was thus upheld as unexplained money under section 69A.

Treatment of Competing Arguments: The assessee challenged the addition on grounds of lack of corroboration and denial by parties. The Tribunal rejected these contentions, emphasizing the overall evidentiary matrix and legal presumptions.

Conclusion: The addition under section 69A was confirmed.

Opportunity for Cross-Examination

Legal Framework and Precedents: The assessee contended that no opportunity was granted to cross-examine persons whose statements supported the assessment. However, it is established that cross-examination is not mandatory where statements are collateral or corroborative and the primary evidence is the seized document.

Court's Interpretation and Reasoning: The Tribunal held that the statements recorded under section 132(4) were corroborative and not the primary basis of addition. The primary evidence was the seized document. Therefore, no mandatory requirement existed to grant cross-examination of concerned persons.

Application of Law to Facts: The assessee did not specify any grounds or reasons necessitating cross-examination. The Tribunal found no prejudice in denying cross-examination in these circumstances.

Conclusion: The plea for cross-examination was rejected.

Approval under Section 153D

No submissions were made challenging the approval under section 153D, and the ground was dismissed accordingly.

3. SIGNIFICANT HOLDINGS

"For the purposes of invoking Section 153C of the Act it is incumbent upon the AO to be satisfied that the material gathered in the course of the search and pertaining to the non-searched person would have a bearing on the determination of the total income of such other person either for six AYs' or for the relevant AY or AYs'. Since the provision itself requires and enables the AO to undertake an assessment for a block period of ten years, it would clearly not be incumbent upon it to draw separate or independent satisfaction notes for each AY. A composite Satisfaction Note would suffice the requirements of Section 153C of the Act provided it embody details of the material gathered in the course of the search and pertaining to the AYs forming part of the block as a whole."

"Either the accounting entries recorded in seized document are correct or not correct but it cannot be partially correct. The appellant cannot selectively choose the entries in the account to be correct or incorrect. If the banking transactions are found to be correct then the rest of the cash entries are also to be considered as correct only."

"In views of provisions of Section 132(4A) and 292C of Income Tax Act, it is clear that there is a presumption that any books of account or documents found from premises of the appellant or any other person during search belong to the search person and that the contents of such books of account and other documents are true. The onus is upon the appellant to explain the entries in the books of account or documents seized during search and reconcile them with his books of account. Despite being given adequate opportunity, the appellant has not furnished any explanation regarding entries on the above seized papers and thereby failed to reconcile them with his books of account by merely stating them to be dumb documents."

"The parties have accepted what suits them and denied the contents of the seized documents, which does not suit them. But the documents have been found and seized from the premises of Shri Gurvinder Singh Duggal, who along with the assessee is the co-owner of the said property and it has not been explained by the assessee as to why the said seized documents were available at the premises of Shri Gurvinder Singh Duggal, when the assessee was having 25% co-ownership in the said property at the time of search in the case of Shri Gurvinder Singh Duggal. In view of these facts, it is held that the contents of seized document showing receipt of a sum of Rs. 1,30,50,000/- in cash is true and correct."

"Where the statement supports and corroborates the seized material and is not the primary evidence on the basis of which addition has been made, then there is no mandatory requirement to grant cross-examination of the relevant person/s. The primary evidence in this case is the seized document found during the search of Sh. Gurvinder Singh Duggal, Therefore, the Assessing Officer was not under obligation to grant cross-examination of concerned person/s."

Final determinations:

• The combined satisfaction note under section 153C was valid and sufficient to initiate assessment for AY 2018-19.
• The presumption under sections 132(4A) and 292C applied to the assessee as a co-owner and party to the transaction, despite not being the searched person.
• The seized document was reliable and corroborated by bank records; hence, it was not a dumb document.
• The addition of Rs. 32,62,500/- as unexplained cash under section 69A was justified and confirmed.
• No mandatory requirement existed to grant cross-examination of persons whose statements were collateral to the seized documents.
• The assessment order under section 153C dated 31.12.2022 was valid and sustainable.

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