2025 (10) TMI 1109 - AT - Income Tax

Appeal allowed, additions under section 69A deleted where diary linked to company and ownership of alleged cash not established

ITAT DELHI - AT allowed the appeal and deleted additions under section 69A. The tribunal found the diary relied upon was recovered from the company's ... Addition u/s 69A - Addition as unaccounted income - Document found during the search at the premises of the company - Reliance merely on the basis of jotting made in the diary allegedly belonging to third person - HELD THAT:- As per the diary, assessee was given Rs. 450 lakhs during the period and Rs. 150 lakhs by cheque and Rs. 300 lakhs by cash. Out of the cheque payment in three transactions, one transaction of Rs. 50 lakhs was matching with books of account maintained by the assessee. Other payments were not matching. It is also fact on record that the information was found at the premises of the company and not at the place of residence of the assessee and no cash was found at the premises of the assessee nor at the premises of the company. The addition was made in the hands of the assessee on the basis of noting in the diary. Lower authorities have proceeded to make addition u/s 69A of the Act. On the issue of addition made u/s 69A of the Act for the information found from their party place, in the similar facts on record, we observe that coordinate Bench in [2023 (11) TMI 1297 - ITAT DELHI] as held to attract the provisions of section 69A sine qua non is “ownership” of money etc. which has not been recorded in the books of account. AO has made only presumption that the said cash was ‘available with the assessee’ without bringing on record any material in support thereof. We are of the view that no cash was found at the possession of the assessee and the ownership of the same was presumed to be the assessee by the lower authorities. Therefore, without proving the possession and ownership of the same, the addition u/s 69A of the Act cannot be invoked as per the facts available on record. Diary was found with the employee of the company and at the premises of the company. The payments were received by the assessee from the company, in fact one cheque payment was matching with the diary found during the search, other payments were not matching neither recorded in the books of the assessee nor in the books of the company. Therefore, from the notings of the diary, all these transactions are relating to the company. If at all, any addition has to be proposed, it should be in the hands of the company not in the hands of the assessee. Document found during the search at the premises of the company and no cash was found in possession of the assessee nor the ownership of the cash was established with the assessee, therefore, addition cannot be made u/s 69A of the Act - Assessee appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether additions under section 69A (unexplained money) can be sustained where alleged entries arise from a seized diary found at a third-party's premises and no cash or assets were found in the assessee's possession or premises. 2. Whether a non-speaking seized document ('dumb document') comprising rough jottings, without independent corroborative material, can by itself establish ownership/possession of unaccounted money so as to attract section 69A. 3. Whether entries in a seized diary that appear to relate to company transactions can be the basis for additions against an individual assessee (director), rather than against the company, where the diary was recovered from the company's premises and the entries are not matched in the assessee's books. 4. Whether alleged cash receipts evidenced by a seized notings can be treated as income under section 69A where an alternate explanation (loan/charitable expenditure) has been offered and where relevant books of account or documentary evidence are absent. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Applicability of section 69A where no cash is found in the assessee's possession Legal framework: Section 69A treats money, bullion, jewellery or other valuable articles as deemed income where the assessee is 'found to be the owner' of such unaccounted items and the same are not recorded in books of account (if any) and explanation is not satisfactory. Precedent treatment: Coordinate decisions (referred to by the Tribunal) hold that invasion of section 69A requires that the unaccounted money be found in the possession of or be shown to be owned by the assessee; mere presumption or inference from third-party seized material is insufficient to satisfy the prerequisites of the provision. Interpretation and reasoning: The Tribunal emphasized the sine qua non of 'ownership' or possession of money for invoking section 69A. Where no cash or valuables were recovered from the assessee's premises and ownership was not otherwise established by independent evidence, invoking section 69A rested on presumption alone. The seized diary was located at the company premises and belonged to a third person; it did not show cash physically belonging to the assessee. The Tribunal followed coordinate authority that rejected additions made by presuming availability/ownership without supporting material. Ratio vs. Obiter: Ratio - section 69A cannot be applied without evidence of the assessee's possession/ownership of the alleged unaccounted money; presumption from third-party seized notes without corroboration is insufficient. Obiter - explanatory remarks regarding the phrase 'ownership' (reference to Black's Law Dictionary) are illustrative but not determinative. Conclusion: Additions under section 69A could not be sustained to the extent they rested solely on diary notings recovered from third-party premises without proof of possession/ownership by the assessee; the Tribunal allowed the assessee's appeal on this basis. Issue 2 - Evidentiary value of 'dumb documents' (non-speaking seized jotting) and requirement of corroborative material Legal framework: Evidence law and tax jurisprudence require that a non-speaking seized document (loose jottings, rough notes) be treated with caution; tax charge cannot rest on such material unless it is 'speaking' by itself or becomes speaking when read with corroborative evidence discovered during search or post-search investigation. Precedent treatment: The Tribunal relied on multiple precedents which hold that rough, undated, unsigned, and unsigned-by-the-assessee scribbles are 'dumb documents' and cannot, without corroboration, form the sole basis for assessing undisclosed income; such documents have been held inadmissible as standalone proof in prior decisions. Interpretation and reasoning: The Tribunal examined the diary entries and the record of correspondence and found that most jottings lacked intelligible narration (no dates, no units stated as lacs/crores, no signatures), and were not corroborated by matching bank/book entries. Only one cheque entry coincided with the assessee's bank record and that transaction itself was explained as a loan. The Tribunal held that extrapolating from one matched item to validate all other rough entries was impermissible; absent independent corroboration the seized jottings could not be elevated to substantive evidence of undisclosed income. Ratio vs. Obiter: Ratio - non-speaking seized documents cannot be the exclusive basis for additions; corroborative material is necessary to convert such documents into admissible evidence of undisclosed income. Obiter - discussion of various appellate authorities and the characterization of seized pages as 'dumb documents' contextualizes but does not add new law beyond the ratio. Conclusion: The diary entries being non-speaking and uncorroborated, could not sustain additions except where independent evidence (matching cheque entry) existed; even the single matched transaction was satisfactorily explained as a loan, undermining its use to validate the rest of the jottings. Issue 3 - Proper party for assessment where seized entries indicate company transactions Legal framework: Tax additions must be directed to the person shown by evidence to have received/unaccounted for the money; documents recovered from a company's premises and relating to company disbursements ordinarily bear on the company's tax liability unless independent evidence establishes that the individual assessee owned or possessed the amounts. Precedent treatment: Prior rulings (cited by the Tribunal) support the proposition that where seized material pertains to company affairs and no evidence establishes personal receipt or possession by an individual, additions should be made in the hands of the company rather than against an individual. Interpretation and reasoning: The Tribunal noted the diary was seized at the corporate office and the diary owner attributed the entries to company payments; most transactions in the diary did not match the assessee's bank or books. Given the absence of evidence that the alleged cash belonged to the individual, the Tribunal concluded that any liability arising from those entries, if at all, would more properly lie with the company. Consequently, sustaining additions in the individual's hands was not justified. Ratio vs. Obiter: Ratio - where seized material originates from company premises and relates to company transactions, and no proof demonstrates individual ownership/possession, the individual cannot be held liable under section 69A on that material alone. Obiter - remarks about coordinating concurrent findings in the company's assessment are contextual. Conclusion: The Tribunal held that the impugned entries primarily related to the company; absent proof of individual ownership/possession, additions against the individual were unsustainable and were therefore deleted. Issue 4 - Effect of alternate explanation (loan/charitable purpose) and absence of books of account Legal framework: Section 69A applies when the assessee is the owner of unaccounted money not recorded in books, and explanation is unsatisfactory. If the assessee offers a plausible explanation supported by evidence (e.g., loan transaction, charitable disbursement), the presumption of unexplained money can be rebutted. The existence of books of account may be material where section 69A refers to 'books of account, if any'. Precedent treatment: Authorities have taken the view that where an alternate explanation is offered and documentary evidence supports it, additions under section 69A should not be made; some courts have observed that the phrase 'if any' in relation to books of account may limit application in certain contexts. Interpretation and reasoning: The Tribunal found that a substantial matched transaction was shown on record to be a loan with ledger evidence, and that the assessee (and the company/diary owner) offered explanations (charitable expenditure/loan) for the jottings. The absence of books or corroborative documents to establish that the diary figures represented undisclosed income meant that the explanations could not be rejected merely on conjecture. The Tribunal accepted that where books are not maintained or where alternative documentary explanation exists, invoking section 69A is improper without further material. Ratio vs. Obiter: Ratio - plausible alternative explanations supported by evidence rebut the presumption of undisclosed income and preclude additions under section 69A absent contrary corroboration. Obiter - commentary on the breadth of 'if any' in section 69A and reference to higher court dicta was noted but not treated as novel law. Conclusion: The Tribunal accepted the alternative explanations and the lack of corroboration, further weakening the basis for additions; accordingly, the majority of the addition was deleted and the appeals allowed.