2025 (9) TMI 633 - AT - Income Tax

Deletion of additions under section 69A upheld where seized documents and counterparty ledgers proved loan-broker transactions; revenue appeal dismissed

DCIT, Central Circle 2, Ludhiana Versus Sanjeev Kumar Mittal, Rajasthan

ITAT, Chandigarh upheld the CIT(A)'s deletion of additions under s.69A for unexplained money, finding the seized documents, read as a whole, supported the ... Addition u/s 69A - unexplained money - Assessee admitted these transactions as noted in the seized incriminating material - CIT(A) deleted addition - HELD THAT:- CIT(A) analyzed the transactions after verifying all the transactions and concluded logically that the interpretation of the seized documents, seems plausible the explanation of the Assessee that the Assessee is arranging funds for other parties and may be charging commission. When these facts were confronted to CIT DR, she could not controvert the above fact situation but she argued that the seized document has to be considered as it is. We noted that we agree with the argument of the ld. CIT DR and this document has to be read a whole. In case this document is read as a whole, the cheque transaction and RTGS transaction of account of these two parties clearly reflect that these are explained transactions vis-a-vis these two parties who were examined by CIT(A) u/s 133(6) of the Act. Even the ledger account submitted by these two parties before CIT(A) clearly reveals that these transactions are in the nature of loan transactions and present Assessee acted as loan broker. Hence, we find no infirmity in the order of the CIT(A) and accordingly, this issue of Revenue’s appeals is dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether amounts recorded as cash receipts in a seized document can be treated as unexplained money assessable u/s 69A where the assessee explains the entries as loan-facilitation transactions and claims commission income. 2. Whether the Assessing Officer's acceptance of the assessee's explanation for cheque/RTGS transactions but simultaneous rejection of the same explanatory character for cash transactions in the same seized document is permissible without independent corroboration. 3. Whether a revenue addition under s.69A can be sustained where third-party confirmations and ledger copies obtained u/s 133(6) corroborate that the transactions were loans arranged through banking channels and the assessee acted as broker. 4. Whether the appellate authority's estimate of commission income (assessing undisclosed commission at a percentage of total funds) is a permissible exercise of power where the assessee has not declared commission income. ISSUE-WISE DETAILED ANALYSIS Issue 1: Treatment of cash entries in seized document as unexplained money u/s 69A Legal framework: Section 69A deals with unexplained money where the assessee is unable to account for money found as being in his possession or recorded in accounts. Seized documents obtained during search must be interpreted to determine ownership/nature of entries before invoking s.69A. Precedent treatment: No specific precedents are cited in the judgment; the Court applies principles of evidentiary corroboration and consistent document interpretation. Interpretation and reasoning: The seized document titled 'BTD 2011' contained mixed transactions-cheque/RTGS entries and cash entries. The AO accepted the assessee's explanation for cheque/RTGS (treating them as loan arrangements where the assessee acted as broker) but treated cash entries in the same document as the assessee's unexplained cash receipts. The Tribunal holds that the seized document must be read as a whole and not interpreted inconsistently for different portions. Where the same document shows similar transactional counterparts and the banking transactions are corroborated by third-party ledger confirmations, the AO had the onus to demonstrate that cash entries were of a different character; absent such independent proof, invoking s.69A on those entries was unsustainable. Ratio vs. Obiter: Ratio - A seized document containing both bank and cash entries must be interpreted consistently; where third-party confirmations support the character of transactions as loan arrangements, cash entries in the same document cannot be held as unexplained money without specific contrary proof from the AO. Obiter - Observations on the AO's duty to apply uniform logic across entries and the imprudence of interpreting one seized document in two divergent ways. Conclusions: The addition u/s 69A based on cash entries in the seized document was not sustainable in the absence of independent evidence distinguishing those cash entries from the corroborated banking transactions; deletion of the large s.69A addition was affirmed. Issue 2: Legitimacy of treating transactions as commission receipts where commission was not declared Legal framework: Income from commission is taxable and, if not declared, may be estimated by the tax authority; however, estimates must be reasonable and based on material. Precedent treatment: The appellate authority's power to estimate undisclosed income is recognized where declaration is absent; judgment follows this general principle without citing case law. Interpretation and reasoning: The assessee explained that he arranged finance for third parties and earned commission (1-2%). The appellate authority conducted enquiries u/s 133(6) with major counterparties (Apex Fibre, Rama Traders), obtained ledger copies and confirmations corroborating the banking transactions and their nexus with the seized document, and noted that the seized document itself calculated interest at a rate consistent with loan arrangements. Given that the assessee did not declare commission income, the CIT(A) reasonably estimated commission at 3% of total funds noted in the ledger/seized document and brought that estimate to tax as income from other sources; penalty proceedings were initiated u/s 271AAB. Ratio vs. Obiter: Ratio - Where transactions are established to be loan-arrangement/brokerage in nature and commission income is undeclared, the appellate authority may make a reasoned estimate of commission income based on total funds and the surrounding documentary evidence. Obiter - The specific selection of 3% (as opposed to the 1-2% claimed) is an exercise of estimate within discretion and not critically analyzed against evidentiary benchmarks beyond reasonableness. Conclusions: The CIT(A)'s estimation of commission income at 3% of total funds was a permissible and reasonable exercise given corroborative third-party material and absence of declared commission; addition limited to the estimated commission was sustained. Issue 3: Role and weight of u/s 133(6) third-party confirmations in disputing AO's conclusion Legal framework: Section 133(6) empowers the assessing authority to call for information from third parties; responses can corroborate or negate the character of transactions recorded in seized documents. Precedent treatment: Judgment treats s.133(6) enquiries and their replies as significant evidentiary material for appellate consideration; no divergence from established evidentiary norms is suggested. Interpretation and reasoning: The CIT(A) summoned ledger copies and confirmations from the principal named parties in the seized document. Those parties confirmed that the entries corresponded to their books and evidenced loan/financial transactions with the amounts matching the seized entries. The CIT(A) shared the enquiry results with the AO and invited comments; the AO did not respond. The Tribunal emphasized that the AO bore the onus of showing why the corroborative confirmations did not support the assessee's explanation, and in absence of such contrary material or AO's rebuttal, the confirmations materially undercut the AO's finding of unexplained money. Ratio vs. Obiter: Ratio - Third-party confirmations obtained u/s 133(6) that align with entries in a seized document materially support the explanatory character of those entries and weaken an AO's unilateral classification of such entries as unexplained money unless the AO adduces decisive contrary evidence. Obiter - The suggestion that the AO should have actively rebutted the confirmations when given opportunity is procedural guidance. Conclusions: The confirmations under s.133(6) were decisive corroboration of the assessee's explanation; absence of AO's rebuttal rendered the AO's classification of cash entries as unexplained unsustainable. Issue 4: Consistency across assessment years and appellate affirmance Legal framework: Consistent approach to identical facts across assessment years is a recognized principle; appellate findings in one year can and should be applied to materially identical facts in another year. Precedent treatment: The Tribunal applied the same reasoning to both relevant assessment years because the seized document entries and factual matrix were identical. Interpretation and reasoning: The transactions and documentary evidence for the subsequent assessment year were found to be identical; the AO made the same s.69A addition and the CIT(A) applied the same 3% commission estimate. The Tribunal, applying a consistent view, affirmed the CIT(A)'s order for the subsequent year as well. Ratio vs. Obiter: Ratio - Where facts and documentary matrix are identical, a consistent appellate outcome across years is required. Obiter - None material beyond consistency principle. Conclusions: The appellate treatment for the lead year was correctly extended to the subsequent year; both appeals by Revenue were dismissed and the CIT(A)'s orders affirmed.