2025 (12) TMI 666 - AT - Income Tax

Additions u/ss 68 and 69A deleted; third-party seized diary treated as dumb document without corroboration

ITAT allowed the assessee's appeals and upheld the CIT(A)'s deletion of additions made under ss. 68 and 69A. It held that the seized day-cash-book/diary ... Additions u/s 68 and 69A - decoding of dates and amounts and the correlation of seized vouchers with bank entries - AO held that in view of the seized systematic cash book, the explanation of the assessee was unacceptable - CIT(A) deleted addition - HELD THAT:- Unilateral decoding or interpretation of figures by the AO, without verification from the author of the document or corroboration through independent evidence, cannot be treated as proof of any cash movement or hidden transaction. The decisions also emphasise that additions cannot rest on conjectures or presumptions drawn from unverified notings, and that the Assessing Officer must undertake proper enquiry with the alleged counter- parties to establish the existence and nature of the transaction. The authorities relied upon by the CIT(A) reiterate that unless the seized entries are corroborated by real-world transactions reflected in bank statements, audited books, confirmations or other primary evidence, they have no probative value. Judicial discipline mandates that where seized material neither contains the name of the assessee nor matches the assessee’s books and is not supported by statements or inquiries, additions based solely on such third-party loose papers cannot be sustained. CIT(A) has correctly concluded that the seized day-cash-book/diary of Venus Group, found from the premises of a third party, is a “dumb document” having no evidentiary value in absence of corroboration. AO has neither examined the writer of the diary nor any connected person from Venus Group, nor established a one-to- one nexus between the entries in the diary and the recorded cheque transactions of the assessee. The judicial authorities cited above uniformly hold that such loose sheets cannot by themselves justify additions under sections 68 or 69A unless supported by concrete evidence. CIT(A) was justified in deleting the additions for all years. Decided in favour of assessee. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether additions under section 68 on account of alleged unexplained cash credits could be sustained solely on the basis of decoded entries in a third-party seized diary, in the absence of any corroboration and in the face of fully recorded cheque-based transactions in the assessee's audited books. 1.2 Whether additions under section 69A on account of alleged unexplained money could be sustained on the same third-party seized diary, where no name or identifier of the assessee appeared, there was no evidence of corresponding cash movement in the assessee's accounts, and the decoded figures did not reconcile with the assessee's books. 1.3 Whether the appellate authority was justified in treating the seized diary of the searched group as a 'dumb document' vis-à-vis the assessee and in deleting the additions under sections 68 and 69A for all assessment years. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 2: Sustainability of additions under sections 68 and 69A based solely on third-party seized diary entries (a) Legal framework (as discussed) 2.1 The Court proceeded on the statutory scheme of sections 68 and 69A of the Income Tax Act, 1961 relating to unexplained cash credits and unexplained money, and on the evidentiary principles governing reliance on seized material and loose papers/diaries. 2.2 The Court referred to judicial precedents (including decisions of the Supreme Court and High Courts) laying down that: (i) Loose papers, diaries and other third-party documents not forming part of regular books of account are not 'books of account' for evidentiary purposes and have no independent probative value without corroboration. (ii) Even entries in books of account regularly maintained in the ordinary course of business do not by themselves constitute sufficient evidence to fasten tax liability without independent corroborative material proving the reality of the transaction and its nexus with the assessee. (iii) The statutory presumption under section 132(4A) in respect of seized material does not extend to documents found from third parties when used against another assessee. (iv) Uncorroborated loose sheets or notings, lacking essential particulars and not matched with real-world transactions, are 'dumb documents' and cannot form the sole basis for additions under sections 68 and 69A. 2.3 The authorities cited and relied on for these propositions included, inter alia, decisions in: - Nishant Construction Pvt. Ltd. vs. ACIT - Prarthana Constructions Pvt. Ltd. - Common Cause vs. Union of India ('Sahara Diaries') - Hitesh B. Patel (b) Interpretation and reasoning Nature of seized material and its linkage to the assessee 2.4 The seized diary/cash book and vouchers were found during a search on the Venus Group at the Terrace of Crystal Arcade/Crystal Plaza, and were owned by a person of that group; no seizure was from the assessee's premises. 2.5 The Court noted that: (i) The seized diary did not bear the assessee's name anywhere, nor any specific identifier or ledger reference linking any entry to the assessee. (ii) No entry was in the handwriting of, or signed by, any person connected with the assessee. (iii) The diary and vouchers were admitted and owned as belonging to the Venus Group; hence, they constituted third-party documents vis-à-vis the assessee. 2.6 The Assessing Officer's entire case rested on the assumption that the name 'Kalpesh' appearing in the decoded diary entries referred to a director of the assessee. The Court observed that: (i) No confirmation from the writer of the diary, no handwriting examination, and no statement from any person of the Venus Group was produced to establish that 'Kalpesh' meant the assessee's director. (ii) In several entries the word 'Ganesh' was written with 'Kalpesh', further weakening the inference that the reference was to the assessee's director. (iii) No witness from the Venus Group admitted that any diary entry of cash payment or receipt pertained to the assessee. 2.7 The Court therefore held that the linkage between the seized diary and the assessee was purely presumptive and not supported by any direct or corroborative evidence. Comparison with assessee's books and bank statements - A.Y. 2011-12 2.8 For A.Y. 2011-12, the assessee's audited books showed: (i) In the ledger of Sunderdeep Builders, an opening debit balance of Rs. 11.05 crore, further advance of Rs. 0.90 crore, total receivable of Rs. 11.95 crore, and full receipt through cheques during the year, resulting in a nil closing balance. (ii) In the ledger of Venus Infrastructure & Developers Ltd., an opening debit balance of Rs. 8.90 crore, further advances of Rs. 8.10 crore, receipt of Rs. 5 crore by cheque, and closing debit balance of Rs. 12 crore. 2.9 The Assessing Officer, relying on decoded diary entries, treated: (i) Alleged cash receipts of Rs. 4 crore (three entries in the name 'Kalpesh') as unexplained cash credits under section 68, and (ii) Alleged cash payments of Rs. 5.80 crore as unexplained money under section 69A. 2.10 The Court, drawing from the CIT(A)'s findings and reproduced tabulations, noted that: (i) The decoded cash receipts of Rs. 4 crore did not tally in amount, timing, or aggregate with the cheque receipts of Rs. 11.95 crore from Sunderdeep Builders as per the assessee's books. (ii) The decoded cash payments of Rs. 5.80 crore did not reconcile with the advances of Rs. 8.10 crore made by the assessee to Venus Infrastructure & Developers Ltd., nor did they align with any pattern of recorded banking transactions. (iii) There was no corresponding cash withdrawal or cash deposit in the assessee's bank accounts or cash book matching the alleged cash transactions. 2.11 It was also emphasised that the assessee's books had not been found defective; all transactions with Sunderdeep Builders and Venus Infrastructure & Developers Ltd. were duly recorded in audited accounts and accepted as such by the Assessing Officer, except for the alleged parallel cash movement presumed from the diary. 2.12 The Court held that the Assessing Officer had selectively correlated a few cheque dates with decoded diary dates, ignoring: (i) The substantial opening debit balances, (ii) The complete loan cycle and year-wise movement of funds through banking channels, and (iii) The closing positions in the accounts. 2.13 When viewed in entirety, the assessee was consistently a creditor to the Venus Group concerns, which contradicted the hypothesis of the assessee providing or receiving unaccounted cash in the manner alleged. A.Y. 2012-13 and A.Y. 2014-15 2.14 For A.Y. 2012-13, the Assessing Officer alleged cash receipts of Rs. 7.50 crore based on decoded diary entries and treated cheque receipts of an equivalent amount from Sunderdeep Builders as accommodation entries. However, the CIT(A), whose findings were accepted by the Court, recorded that: (i) The assessee's books fully reflected cheque receipts of Rs. 7.50 crore and the underlying ledger balances. (ii) No cash outflow or inflow of Rs. 7.50 crore was reflected in the assessee's books or bank statements. (iii) The alleged cash nexus was merely presumed from diary notings and not established by any independent evidence or bank-trail. 2.15 For A.Y. 2014-15, the Assessing Officer relied on a decoded diary entry of Rs. 1 crore cash allegedly paid on a date proximate to a cheque receipt of Rs. 1 crore from Sunderdeep Builders. The Court noted the following findings of the CIT(A): (i) There was no name or identifier in the diary entry linking the alleged cash payment to the assessee. (ii) No corroborative evidence from any person of the Venus Group was obtained. (iii) The decoded figure did not meaningfully match the ledger and bank transactions when the full account was considered. (iv) The assessee's ledger reconciliation with Sunderdeep Builders and Venus Infrastructure & Developers Ltd. matched the bank transactions and disclosed no unexplained cash component. 2.16 Across all years, the Court accepted that the Assessing Officer's analysis was 'one-sided' and 'selective,' as it: (i) Cherry-picked a few decoded entries allegedly relating to 'Kalpesh' while ignoring numerous other entries, (ii) Ignored the opening debit balances, the continuous running accounts, and the closing balances, and (iii) Proceeded on conjectures that every proximate cheque transaction corresponded to an unrecorded cash movement. Characterisation of the seized diary as a 'dumb document' 2.17 On the cumulative factual and legal position, the Court agreed with the CIT(A) that, as far as the assessee was concerned, the seized diary of the Venus Group was a 'dumb document' because: (i) It was a third-party document not part of the assessee's regular books. (ii) It did not contain the assessee's name or any specific reference to its accounts. (iii) The figures could not be reconciled with the assessee's bank statements or audited accounts, either entry-wise or in aggregate. (iv) No independent corroboration (statement of author, handwriting expert opinion, admission by Venus Group, or matching cash trail) was produced. (v) The decoding and interpretation of the entries were unilateral exercises by the Assessing Officer. 2.18 Relying on the cited precedents, the Court held that such a diary, in the absence of corroboration and nexus, could not be treated as conclusive or even sufficient evidence to justify additions under sections 68 or 69A. (c) Conclusions on Issues 1 & 2 2.19 For A.Y. 2011-12, the Court upheld the deletion of: (i) The addition of Rs. 4,00,00,000/- made under section 68 as alleged unexplained cash credits, and (ii) The addition of Rs. 5,80,00,000/- made under section 69A as alleged unexplained money, on the grounds that the additions were based solely on third-party diary entries lacking nexus, corroboration, or reconciliation with the assessee's books and bank records. 2.20 For A.Y. 2012-13, the Court upheld the deletion of the addition of Rs. 7,50,00,000/- made under section 68 as alleged unexplained cash credits, for the same reasons of absence of evidentiary linkage, non-existence of corresponding cash movement in the assessee's accounts, and the selective and presumptive approach of the Assessing Officer. 2.21 For A.Y. 2014-15, the Court upheld the deletion of: (i) The addition of Rs. 1,00,00,000/- made under section 68, and (ii) The addition of Rs. 2,00,00,000/- made under section 69A, again on the basis that there was no cogent evidence of any unexplained cash credits or unexplained money and that the decoded diary entries could not, in law or on facts, sustain such additions. Issue 3: Justification of the appellate authority's treatment of the diary as 'dumb document' and deletion of additions (a) Interpretation and reasoning 2.22 The Court endorsed the CIT(A)'s approach in: (i) Treating the seized diary/cash book of the Venus Group as a third-party document vis-à-vis the assessee with no inherent evidentiary value against the assessee in the absence of corroboration. (ii) Holding that the decoding of dates and amounts, and the inference that 'Kalpesh' was the assessee's director, were mere assumptions not backed by statements or objective evidence. (iii) Recognising that when the assessee's books were examined in full (including opening debit balances, advances, repayments, and closing balances), the assessee's position as creditor to the Venus Group was clear and inconsistent with the theory of unrecorded cash dealings. (iv) Characterising the diary as a 'dumb document' in the light of binding judicial precedents, since it neither contained adequate particulars nor was supported by any external proof connecting it to the assessee. 2.23 The Court further observed that the Revenue had not produced any material to contradict or displace the detailed factual findings of the CIT(A), nor had any infirmity in the CIT(A)'s appreciation of evidence or application of law been demonstrated. (b) Conclusions on Issue 3 2.24 The Court held that the CIT(A) had correctly applied the law and properly appreciated the evidence in treating the seized diary as a 'dumb document' with no probative value against the assessee and in deleting the additions made under sections 68 and 69A for all three assessment years. 2.25 Consequently, all appeals filed by the Revenue were dismissed on merits, and the deletions of the impugned additions by the CIT(A) were affirmed in full.