2025 (7) TMI 661 - AT - Income Tax

Loose sheets from third party premises need corroborative evidence beyond name correlation for section 69A additions

ITAT Chennai held that additions based on loose sheets seized from third party premises require corroborative evidence beyond mere name correlation. The ... Income-tax assessments u/s.153C/143(3) - admissibility of notings found in loose sheets seized from third party premises - onus to prove - Addition in the hands of the assessee based on material seized from the premises of third party 'Anbu' who was inter alia found be a financier in the cinema industry - Addition(s) on account of repayment of loans to Shri Anbu mentioned in the impugned material seized from the latter's premises, by way of unexplained monies u/s 69A - CIT(A) deleted addition HELD THAT:- Whenever a document is found from a person who is being searched, the normal presumption is that the said document belongs to that person and the contents is presumed to be true qua the said person. It is for the AO to rebut that presumption and come to a conclusion or satisfaction that the document pertains to somebody else. There must be some cogent material available with the AO before he/she arrives at the conclusion that the contents of such seized material relates to someone else, and surmise &conjecture cannot take the place of independent corroborative evidence. Reason being, in case the AO wants to take reliance for making addition on the basis of the documents found during the course of search at third party, then the presumption u/s 132(4A) will not be available against the third party. As in material seized notings, there is a name 'Dhanush' & 'Actor Dhanush' found to be appearing at various places. Since the name appearing in the entry correlates with the name of the assessee, these notings were assumed to be pertaining to the assessee. There is no mention of 'loan' or 'interest' or any terms of loan(s) etc. on these sheets. The only thing appearing in the name 'Dhanush' and amounts corresponding thereto. Prima facie therefore, the nature of these notings are not discernible from a plain reading of these loose sheets alone. Though these loose sheets and the notings therein may be presumed to be true qua Shri Anbu, but such presumption cannot be straightaway extended to the assessee, as explained above. In this regard, as to the admissibility of notings found in loose sheets seized from third party premises, it is relevant to take note of the following principles laid down in case of Common Cause (A Registered Society) v. UOI [2017 (1) TMI 1164 - SUPREME COURT] held that, the entries in loose-papers/sheets alone are not admissible as conclusive proof against a third person. Even if such loose sheets are treated as books of account kept in the ordinary course of business, then also entries therein shall not alone be sufficient evidence to charge a third person with liability.   The searched person could have written anyone's name on his own sweet will in his diary and therefore such noting on stand-alone alone basis along with the biased statement of the searched person cannot be used as a reliable evidence against the assessee. AO had made addition of several crores of cash loans availed by the assessee, simply on the basis of notings found in loose papers/book seized from the premises of a third party, i.e. Mr. Anbu in this case; despite the assessee's explicit and categorical denial that no cash loans whatsoever has been borrowed from Shri Anbu and also there being no statement of Shri Anbu specifically incriminating the assessee.In our considered opinion, on these given facts, the onus did lay on the Revenue to substantiate their case that, the notings found in the name of assessee at third party premises related to him, which he is found to have failed to do. Neither did the AO personally examine Shri Anbu qua these notings nor did he even attempt to make any independent enquiries on this issue. Instead, the AO is found to have simply assumed that, the notings ought to relate to the assessee. Also, the additional evidence brought on record by the Revenue did not assist their case. In our considered view, the Ld. CIT(A) had rightly held the impugned seized material to be unreliable and thereby deleted the addition impugned before us. Assessee appeal allowed. The core legal questions considered by the Tribunal in this matter include:1. Whether the Assessing Officer (AO) validly initiated proceedings under Section 153C of the Income Tax Act, 1961 ('the Act') based on the satisfaction note and incriminating material seized from a third party's premises.2. Whether the seized loose sheets found at the premises of the third party, containing entries against the name 'Dhanush', could be treated as reliable evidence to make additions under Section 69A of the Act in the hands of the assessee.3. The evidentiary value and admissibility of loose sheets or documents seized from third parties in income tax proceedings against a person whose name appears therein.4. The applicability and scope of the presumption under Sections 132(4A) and 292C of the Act with respect to documents found during search and seizure operations.5. Whether the AO discharged the onus of proving that the entries in the seized material pertained to the assessee and represented undisclosed income.6. The validity and jurisdictional scope of reopening assessments for multiple assessment years under Section 153C of the Act, especially regarding the reference date for limitation.7. The weight and admissibility of additional evidence filed by the Revenue, such as ledgers prepared post-search and statements given by the third party before the Interim Board of Settlement (IBS).Issue-wise Detailed Analysis1. Validity of Initiation of Proceedings under Section 153C of the ActThe legal framework mandates that for initiating proceedings under Section 153C, the AO must record a valid satisfaction note specifying the incriminating material found during search on a third party's premises that pertains to another person and has a bearing on that person's income. The AO recorded a common satisfaction note dated 30-08-2022 covering AYs 2014-15 to 2020-21, stating that the seized material 'belonged to' or 'pertained to' the assessee and had a bearing on his income.The Tribunal noted that the satisfaction note was vague and generalized, lacking specific details such as the exact incriminating documents, amounts, or transactions pertaining to the assessee. The AO's satisfaction was based on loose sheets seized from the premises of the third party and his associate, containing entries against the name 'Dhanush'. The Tribunal referred to authoritative decisions emphasizing that the satisfaction note must be clear, specific, and based on cogent material to confer jurisdiction under Section 153C. Mere broad and sweeping references without application of mind do not suffice.Further, the Tribunal considered the limitation period for reopening assessments under Section 153C. The Revenue contended that the date of search (05-02-2020) was the relevant reference date, allowing reopening for six preceding AYs including AYs 2015-16 and 2016-17. The assessee argued that the reference date should be the date of recording satisfaction (30-08-2022), which would exclude these AYs. The Tribunal, however, did not adjudicate this issue in detail, leaving it open as the merits were decided against the Revenue.2. Evidentiary Value of Loose Sheets Seized from Third Party PremisesThe seized materials consisted of loose sheets containing daily cash book entries maintained by Shri G.N. Anbuchezhian, a financier in the cinema industry. Several entries bore the name 'Dhanush' or 'Actor Dhanush' with corresponding amounts. The AO treated these entries as evidence of cash loans advanced to and repaid by the assessee, making additions under Section 69A as unexplained monies.The Tribunal examined the nature of these loose sheets and found that they were not books of account regularly maintained by the assessee but loose papers seized from a third party. The Tribunal extensively relied on Supreme Court precedents and various High Court and Tribunal decisions which held that:Entries in loose papers or diaries are not admissible as evidence under Section 34 of the Evidence Act unless they form part of regularly maintained books of account.Even if treated as books of account, entries therein are only corroborative and not conclusive evidence to fasten liability on a third party.Independent corroborative evidence is essential to link such entries to the person named and to prove that the transactions reflected therein actually took place.The presumption under Sections 132(4A) and 292C applies only against the person from whose premises the documents are seized and cannot be extended to third parties named in the documents.The Tribunal noted that the AO had not brought any independent or corroborative evidence linking the entries to the assessee. The statements of Shri Anbu did not specifically incriminate the assessee or admit loans to him. The AO did not confront Shri Anbu with the entries nor conduct independent investigations to verify the transactions. The assessee had denied any cash loan transactions and produced books of accounts and bank statements, which the AO did not disprove.The Tribunal also highlighted that the loose sheets lacked mention of terms like 'loan' or 'interest' and that the entries were mere notings of amounts against the name 'Dhanush' without further details. The Tribunal emphasized that such vague notings cannot be treated as conclusive proof of cash loans or repayments.3. Treatment of Additional Evidence (Ledgers and IBS Order)The Revenue produced additional evidence in the form of ledgers prepared by Shri Anbu post-search and submissions made before the Interim Board of Settlement (IBS), wherein Shri Anbu admitted undisclosed income from his financing business. The Revenue argued these corroborated the entries against the assessee.The Tribunal rejected this contention, observing that the ledgers were prepared later and appeared to be manufactured for settlement purposes. Discrepancies were found between the ledgers and the original loose sheets, including entries absent in the original material. The IBS order and statements did not specifically identify or incriminate the assessee. The Tribunal held that such after-the-fact documents could not be equated with seized material and lacked evidentiary value against the assessee.4. Onus of Proof and Reliance on PresumptionsThe Tribunal reaffirmed the settled legal principle that the onus lies on the Revenue to prove that the entries in seized documents pertain to the assessee and represent undisclosed income. The assessee cannot be compelled to prove a negative. The presumption under Section 132(4A) applies only against the person searched and cannot be extended to third parties named in the documents. The AO's failure to bring corroborative evidence or conduct independent inquiries to establish the link rendered the additions unsustainable.5. Jurisdictional and Procedural AspectsThe Tribunal found that the AO did not examine Shri Anbu or conduct adequate investigations to verify the entries or confront the assessee with the seized material. The assessment orders were based on assumptions and surmises rather than concrete evidence. The Tribunal emphasized that suspicion, however strong, cannot substitute for evidence in making additions.6. Treatment of Similar Entries Pertaining to Associated CompanyThe Revenue pointed to entries relating to M/s Wunderbar Films Pvt. Ltd., a company where the assessee was a director, which had availed loans from Shri Anbu through banking channels and were duly accounted. The Tribunal observed that the AO did not make any adverse findings against the company despite the entries appearing in the same loose sheets. This further undermined the AO's assumption that the entries against 'Dhanush' pertained to the assessee individually. The Tribunal held that mere business transactions through banking channels with the financier do not justify presuming cash loan transactions in the assessee's personal capacity without corroborative evidence.7. Reliance on Judicial PrecedentsThe Tribunal extensively referred to authoritative decisions including those of the Supreme Court and various High Courts and Tribunals, which establish the following principles:Entries in loose papers seized from third parties do not constitute admissible or conclusive evidence against a person whose name appears therein without corroborative material.Presumptions under Sections 132(4A) and 292C apply only against the person searched and not against third parties.The AO must conduct independent investigations, record statements, and bring corroborative evidence before making additions based on third-party seized material.Burden of proof lies on the Revenue to establish that the entries pertain to the assessee and represent undisclosed income.Adding income based on suspicion or surmise without evidence violates principles of natural justice and statutory requirements.ConclusionsThe Tribunal concluded that the AO failed to discharge the onus of proving that the entries in the seized loose sheets pertained to the assessee and represented undisclosed cash loan transactions. The statements of the third party financier did not incriminate the assessee. The loose sheets were not corroborated by any independent evidence such as promissory notes, bank entries, acknowledgments, or collateral documents. The AO acted on assumptions and surmises without confronting the third party or the assessee or conducting further investigation.The presumption under Sections 132(4A) and 292C could not be extended to the assessee as the documents were seized from a third party. The additional evidence produced post-search was found to be manufactured and unreliable. The Tribunal upheld the order of the Commissioner of Income Tax (Appeals) quashing the additions and held that the assessment orders were unsustainable.The legal grounds challenging the validity of the proceedings under Section 153C were left open as academic since the additions were deleted on merits. The Tribunal applied the decision in the lead AY 2015-16 mutatis mutandis to the other assessment years involved.Significant Holdings'Entries in loose papers/sheets are irrelevant and not admissible under Section 34 of the Evidence Act. It is only where the entries are in the books of account regularly kept, depending on the nature of occupation, that those are admissible.''Even if books of account are regularly kept in the ordinary course of business, the entries therein shall not alone be sufficient evidence to charge any person with liability. It is further incumbent upon the person relying upon those entries to prove that they were in accordance with facts.''The presumption under Section 132(4A) will not be available against a third party. It is for the Assessing Officer to rebut the presumption that a document found in possession of the searched person belongs to that person, before extending it to others.''The Assessing Officer is not entitled to make a pure guess and make an assessment without reference to any evidence or material at all. There must be something more than bare suspicion to support the assessment.''A narration made in a loose sheet by a third person with scant details cannot be used to fasten tax liability upon the person in the absence of corroborative evidence.''The burden is on the Revenue to prove that the income sought to be taxed is within the taxing provisions and there was in fact income. To throw the burden of showing that there is no understatement on the assessee would be to cast an almost impossible burden upon him to establish the negative.''The AO must carry out necessary investigations by correlating the impugned document with other documents seized, with regular books of account, with records kept by outside agencies, and by recording statements of concerned parties to fill gaps in confirming the inference arising from the documents.''The addition cannot be made merely on the basis of entries in loose sheets found in the premises of a third party without bringing on record independent evidence to corroborate such entries.''The assessee is not expected to prove a negative fact. The onus lies on the Revenue to bring corroborative material/evidence on record to show that the notings on these loose sheets did not belong to the searched person but the assessee.''Mere suspicion, however strong, cannot substitute for evidence in making additions.'