2025 (10) TMI 211 - AT - Income Tax

Additions under s.69A dismissed for lack of proof; digital files and diaries unreliable; ad hoc commission rejected

ITAT (Ahmedabad) dismissed the Revenue's appeal and upheld the CIT(A)'s deletions. The Tribunal held the AO failed to discharge the initial onus under ... Addition u/s.69A - unexplained money - incriminating documents found & seized during search - unsecured loan - Interest on unsecured loan/advances - CIT(A) deleted addition - HELD THAT:- Assessing Officer, in our opinion, failed to discharge the initial onus cast under Section 69A of the Act, which mandates that the Revenue must first establish that the assessee is the actual owner of the alleged unexplained money. In the absence of any credible or corroborative evidence establishing ownership, the burden of proof could not have been legitimately shifted to the assessee. Therefore, we are of the view that the addition is based only on guesswork and unsupported assumptions. We, therefore, find no reason to interfere with the order of the Ld. CIT(A) in this regard. Addition u/s 69A on the basis of digital data/docs - documents and digital data seized from third parties, specifically an Excel file titled “General new” and handwritten diaries found with AGL Group personne - assessee contended that the Excel file was neither shared during assessment nor contained his name, and that the bank transactions referenced therein did not relate to him - CIT(A) deleted addition - HELD THAT:- It is settled law that a document has to be read as a whole and not in bits and pieces. No complete money trail is established by bringing cogent, reliable evidence on record much less any money trail establishing that the assessee has indeed given such money and in return has received such interest. The observation of A.O. that the same is clearly matching with screenshot produced, but the fact on record goes to disprove this finding as at least two entries of Rs 50 lakhs each stated to have been dated 01.10.2021 are not at all appearing on this date in the relied document seized from Mr.Mehta. The conclusion drawn as to that there was corroborative evidence is factually wrong and disprove. In this background, it is difficult to comprehend and understand to whom i.e, which existing legal person, an amount of Rs. 2 crore as alleged was paid by the assessee as noted in the relied page from the diary of Kanubhai Mistry, the cash handler of AGL Group and which such person has paid the alleged interest of Rs. 16,50,000/- to the assessee. Thus, on overall appreciation of the fact of the case as discussed above, we are inclined to agree with the decision of the Ld. CIT(A). Addition on ad hoc basis - CIT(A) allowed claim - HELD THAT:- The assessee has claimed that the addition is made on ad hoc basis and in facts of circumstances of case where he has unambiguously stated that he charges commission @Rs. 50/- per lac there was no case for revenue to assume to 0.5% of total amount, i.e., @ Rs. 500/- per lac (0.5% of Rs. 1,00,000). CIT(A) noted that no material or evidence has been brought on record by the Assessing officer which prove that the assessee has charged commission @Rs.500/- per lac as against agreed amount @ Rs. 50/- per lac. The addition made by Assessing Officer merely on surmises and presumptions is not tenable. Therefore, we decline to interfere with the order of the Ld. CIT(A). Appeal of the Revenue is dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether addition under Section 69A can be sustained based solely on digital materials and loose documents seized from third parties absent direct or corroborative evidence linking the alleged unexplained money to the assessee. 2. Whether interest income attributable to alleged unsecured advances can be taxed where the foundational ownership of the advances is not established. 3. Whether documents/digital data found in possession of third parties attract presumptions under Sections 132(4A) and 292C against the assessee when such materials were not found in the assessee's possession and lack signatures, dates or corroboration. 4. Whether an ad-hoc addition to commission income is sustainable when declared commission (with supporting details) differs from the ad-hoc rate assumed by the Assessing Officer and no material supports the higher rate. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Sustenance of Section 69A addition based on third-party seized WhatsApp message and loose sheet (unsecured loan Rs. 1,47,31,479) Legal framework: Section 69A treats unexplained money as income of the assessee if the assessee is the owner of such sums; Revenue bears the initial onus to establish ownership before shifting burden to assessee. Precedent Treatment: No specific precedents are cited in the judgment; the Court applies settled principles regarding burden and requirement of direct/corroborative evidence to establish ownership for Section 69A additions. Interpretation and reasoning: The Tribunal examined the nature and provenance of the relied materials - a WhatsApp message titled 'ASTRON INT A' and a loose sheet - and emphasized that neither document was seized from the assessee's possession. The Assessing Officer produced no direct or corroborative evidence (no statements from alleged custodians linking transactions to the assessee, no documentary trail in the assessee's records). The Tribunal flagged that identical transaction amounts had been taxed in the hands of a corporate entity, raising the issue of impermissible double taxation. Absent credible ownership evidence, the Tribunal held that the AO's conclusion rested on assumption and guesswork rather than proof required under Section 69A. Ratio vs. Obiter: Ratio - Revenue must first establish ownership of alleged unexplained money by admissible, corroborative evidence before invoking Section 69A; mere similarity of names or documents seized from third parties is insufficient. Obiter - observations about the impermissibility of double taxation and critique of AO's investigative approach are consequential but support the main ratio. Conclusion: Addition of Rs. 1,47,31,479 under Section 69A was not sustainable and was rightly deleted by the CIT(A); Tribunal declines to interfere. Issue 2 - Taxation of interest on alleged unsecured advances (Rs. 4,79,773) Legal framework: Interest is taxable only if the underlying advance is attributable to the assessee; where the principal is not established as unexplained money in the assessee's hands, interest cannot be separately brought to tax. Precedent Treatment: The judgment applies the same evidentiary threshold as for Section 69A principal additions; no separate authority is invoked. Interpretation and reasoning: Because the AO failed to establish ownership of the alleged unsecured advance (see Issue 1), the corollary interest addition lacked foundation. The Tribunal held that once the principal addition is unsustainable for want of proof, the interest addition cannot stand. The AO also failed to produce statements or documents linking the interest receipts to the assessee. Ratio vs. Obiter: Ratio - Interest income claimed to arise from alleged unexplained advances cannot be taxed where the principal ownership is not established by the Revenue. Obiter - emphasis that assessment must avoid double taxation where same amounts are taxed in another person's hands. Conclusion: Addition of Rs. 4,79,773 as interest was rightly deleted; Tribunal confirms CIT(A)'s order. Issue 3 - Addition under Section 69A based on digital data/documents seized from third parties (Rs. 2,16,50,000) Legal framework: Seizure-based presumptions (Sections 132(4A), 292C) apply to documents found in the possession of the assessee; proof must show connection between seized material and assessee and a coherent money trail to support Section 69A addition. Precedent Treatment: The Tribunal reiterates settled law that documents must be read as a whole and that selective reliance on portions of seized material is improper; no precedent is overruled or newly formulated. Interpretation and reasoning: The AO relied on an Excel file ('General new') and handwritten diaries seized from third parties. The Tribunal found multiple infirmities: (a) the Excel file did not contain the assessee's name; (b) entries relied upon were inconsistent (dates/amounts did not match screenshots or were absent); (c) statements initially relied upon were retracted and cross-examination was denied; (d) the AO selectively used portions of the document while ignoring other entries and aggregate sums appearing against other persons; and (e) there was no complete money trail linking alleged payments and interest to the assessee. The Tribunal observed that the presumption under seizure provisions could not be invoked as the materials were not found in the assessee's possession and lacked signatures/dates/corroboration. On overall appreciation, the AO failed to discharge the initial onus of establishing ownership. Ratio vs. Obiter: Ratio - Documents/digital data seized from third parties cannot attract statutory presumptions against an assessee unless they are found in the assessee's possession or are otherwise directly corroborative; selective or partial use of seized material is impermissible. Obiter - comments on the necessity of a complete money trail and proper use of digital evidence reinforce the ratio. Conclusion: Addition of Rs. 2,16,50,000 under Section 69A was unsustainable; Tribunal upholds deletion by CIT(A). Issue 4 - Ad-hoc addition to commission income (Rs. 4,33,738) Legal framework: Income must be assessed on evidence of actual receipts and agreed rates; ad-hoc additions are not permissible where the assessee has declared income and provided supporting transactional details unless Revenue produces evidence to rebut declared figures. Precedent Treatment: The Tribunal applies established principles that ad-hoc assessments based on surmise are impermissible; no contrary authority is followed. Interpretation and reasoning: The assessee declared commission income (angadia business) and furnished details of senders/receivers. The AO made an ad-hoc addition by assuming a higher commission rate (0.5% instead of declared Rs.50 per lac). The Tribunal noted absence of any material to show that the agreed rate was different or that the assessee had charged the higher rate. Double taxation concern was also noted because declared income was already assessed. The AO's addition was held to be based on mere surmise and not on evidentiary foundation. Ratio vs. Obiter: Ratio - Revenue cannot make ad-hoc additions to declared business income in the absence of material contradicting the declared rate/receipts; mere assumption of a higher rate is insufficient. Obiter - articulation that declared angadia income taxed as business income cannot be treated otherwise without proof. Conclusion: Ad-hoc addition of Rs. 4,33,738 is unsustainable and correctly deleted by the CIT(A); Tribunal affirms deletion. Overall Conclusion The Tribunal held that the Assessing Officer failed to discharge the initial onus required for additions under Section 69A and related interest; reliance on third-party seized digital data and loose documents without direct or corroborative evidence, selective use of documents, and ad-hoc assumptions do not justify additions. Consequently, all impugned additions were correctly deleted and the Revenue's appeal was dismissed.