2025 (9) TMI 516 - AT - Income Tax

Addition under Section 153C based on 'Hazir Johri' software ledger deleted where ledger not exclusively of assessee

Dinesh Kumar Jain Versus Deputy Commissioner of Income Tax, Central Circle 7, Delhi

ITAT (Delhi) set aside additions under s.153C arising from data seized from the 'Hazir Johri' software, holding the seized ledger did not exclusively ... Assessment u/s 153C - search and seizure operation u/s 132 and digital data maintained in a software called ‘Hazir Johri’, was seized at the residential cum business premises - assessee has made some cash/bank transaction mentioned in ledger namely 'Thekedar' - appellant/assessee submitted that name of the assessee is appearing nowhere in the seized document. There is no link between alleged cash receipt mentioned in the seized document and the Assessee HELD THAT:- Document relied on by the department contains less than 50% of bank transactions related to assessee. Only on the basis of some pseudonym it is concluded that the transactions belong to the assessee. Other material relied on by the Assessing Officer is the statements of two people the copies of which were never provided to the assessee. Even the demand of the assessee for cross examination has also been arbitrarily rejected. Delhi Bench of the Tribunal in the case of Anoop Kumar Soni [2023 (12) TMI 391 - ITAT DELHI] adjudicated almost similar facts related to search on JBL, the Tribunal held that since the ledger found during the search 'AP' contains the entries of parties other than assessee, then said ledger cannot be said to be belonging to assessee and addition made on the basis of assumption was deleted. Thus, addition could not be made in the hands of assessee by placing any reliance on ‘Hazir Johri’ Solfware. Decided in favour of assessee. ISSUES PRESENTED AND CONSIDERED 1. Whether additions in the assessee's hands can be sustained solely on entries in a seized digital ledger ('Hazir Johri' software) found at the premises of a third party searched under Section 132, when the ledger contains mixed transactions and pseudonyms. 2. Whether the statutory presumption under Section 292C (relating to documents seized at the searched premises) applies to the assessee where the seized material was recovered from the searched third party and not from the assessee. 3. Whether statements recorded under Section 132(4) of the searched party can, without independent corroboration (bills, vouchers, invoices, stock records), support additions in the hands of an unrelated assessee. 4. Whether the procedure and principles of cross-examination and disclosure of materials (e.g., copies of witness statements relied upon by Revenue) affect the admissibility/weight of the evidence relied upon for making additions. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Reliance on entries in Hazir Johri software (mixed ledger/pseudonyms) to make additions in the assessee's hands Legal framework: Assessing Officer may make additions where income is undisclosed; Section 153C permits assessments when material is seized from a searched person and pertains to a third party. Evidence must establish that entries pertain to the assessee and that unaccounted transactions belong to the assessee. Precedent Treatment: Followed coordinate-bench decisions addressing the same seized Hazir Johri material (cases arising from the same search) which held that mixed ledgers containing entries of multiple parties cannot, without corroboration, be treated as belonging to a particular third party. Those decisions are treated as binding for the facts considered. Interpretation and reasoning: The ledger seized from the searched party's premises contained transactions of multiple entities, with entries recorded under various acronyms and pseudonyms. The Tribunal reasoned that a combined ledger recording diverse parties' transactions cannot be mechanically attributed to the assessee. Where entries are mixed and the ledger is not exclusively identifiable as the assessee's, the nexus between specific ledger entries and the assessee is missing. Absent documentary corroboration (bills, vouchers, sales/stock records) or direct linking material, ledger entries alone are insufficient to prove actual transactions of the assessee. Ratio vs. Obiter: Ratio - Mixed ledger entries in seized Hazir Johri software, without corroboration or clear attribution, cannot form the sole basis for additions against a third-party assessee. Obiter - Observations on the implausibility of inferring transaction ownership from acronyms/pseudonyms are explanatory but reinforce the ratio. Conclusion: Additions based solely on Hazir Johri ledger entries recording mixed-party transactions and pseudonyms are not sustainable in the assessee's hands. Issue 2 - Applicability of Section 292C presumption to third-party assessed on seized material Legal framework: Section 292C (presumption as to documents seized at searched premises) affords a statutory presumption in favour of the searched person in respect of documents found at its premises. Section 153C empowers assessment of persons other than the searched person where material seized relates to them. Precedent Treatment: Followed prior findings that the presumption under Section 292C applies to the searched party (from whose premises material was seized) and does not automatically extend to the third-party assessee; therefore, the evidentiary burden and the effect of presumption differ between searched and non-searched persons. Interpretation and reasoning: The presumption under Section 292C operates in favour of the searched entity (JBL) because the software was seized from its premises. That statutory presumption does not automatically create a presumption against the third-party assessee. Consequently, the Revenue must independently establish that entries in the seized material pertain to the assessee; reliance on the basic presumption applicable to the searched party is insufficient to impute liability to others. Ratio vs. Obiter: Ratio - Section 292C presumption applies to the searched person and cannot be invoked as conclusive proof against a third party; independent proof is required to attribute seized entries to the assessee. Conclusion: The statutory presumption in respect of seized documents cannot substitute for direct evidence tying ledger entries to the assessee; therefore, it does not validate additions against the assessee absent independent proof. Issue 3 - Reliance on statements recorded under Section 132(4) without corroboration Legal framework: Statements recorded under Section 132(4) are admissible and may be used as evidence, but additions based solely on such statements require corroboration, especially where statements originate from personnel of the searched party and touch on transactions alleged to belong to a third party. Precedent Treatment: Followed authorities in which additions based solely on the searched party's statements (without supporting documentary evidence linking transactions to the assessee) were held to be conjectural and deleted. Interpretation and reasoning: Statements of employees/directors of the searched party (e.g., recording that both 'pakka' and 'kaccha' transactions were recorded) do not identify specific transactions as belonging to the assessee nor supply documentary corroboration. Where the content of the seized ledger contains entries of multiple parties and the statement does not uniquely associate particular entries with the assessee, reliance on that statement results in conjecture. The Tribunal emphasised the need for corroborative evidence - bills, vouchers, invoices, stock registers, or other direct material - to establish that alleged cash sales pertain to the assessee. Ratio vs. Obiter: Ratio - Statements recorded under Section 132(4) of the searched party cannot alone support additions against a third-party assessee in the absence of corroborative evidence linking the entries to the assessee. Obiter - Comments on the insufficiency of untested declaratory statements without independent support. Conclusion: Additions based solely on statements of the searched party's personnel, without corroborative documentary evidence, are unsustainable and must be deleted. Issue 4 - Procedural fairness: nondisclosure of witness statements and refusal to permit cross-examination Legal framework: Principles of natural justice and statutory procedure require that material relied upon by the Revenue be disclosed to the assessee and that reasonable opportunities (e.g., cross-examination where relevant) be afforded to test evidence used to make additions. Precedent Treatment: The Tribunal treated failure to furnish copies of statements and denial of cross-examination as factors undermining the weight of the Revenue's case, consistent with prior decisions where nondisclosure impaired the reliability of evidence. Interpretation and reasoning: Where the Department relies on statements (e.g., of former employees) to attribute ledger entries to the assessee but does not provide copies of those statements or denies requests for cross-examination, the assessee is deprived of opportunity to test and rebut the evidentiary basis. This procedural lapse weakens the Department's case and supports deletion of additions when the substantive link between ledger entries and the assessee is already tenuous. Ratio vs. Obiter: Ratio - Non-disclosure of relevant witness statements and arbitrary refusal to allow cross-examination negatively affect the admissibility/weight of such statements in supporting additions. Obiter - Emphasis on fair trial rights in assessment proceedings. Conclusion: Procedural failures to disclose relied statements and to permit cross-examination further justify rejecting additions that are otherwise based on uncorroborated ledger entries and declaratory statements. Aggregate Conclusion On the combined legal and factual matrix - seized Hazir Johri ledger found at the searched party's premises containing mixed-party entries and pseudonyms; statutory presumption under Section 292C applying only to the searched party; reliance on Section 132(4) statements without independent corroboration; and procedural non-disclosure - the Tribunal concludes that additions in the assessee's hands cannot be sustained. The additions are based on conjecture and insufficient evidence; therefore, they are deleted.