TaxTMI 
TaxTMI 
TaxTMI 
2025 (7) TMI 661
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....e permeating in all these appeals/Cross-Objections are concerning to addition(s) made by the AO in the hands of the assessee based on material seized from the premises of third party i.e., Shri G.N. Anbuchezhian [in short 'Anbu'], who was inter alia found be a financier in the cinema industry. 3. Before adverting to the grounds raised by the Revenue, we first consider it fit to cull out the basic facts of the case in respect of the AYs before us. Search u/s 132 of the Income Tax Act, 1961 (herein after referred to as "the Act") was conducted against Shri Anbu on 05-02-2020. The AO is found to have recorded a satisfaction note dated 30-08-2022 stating that, he was satisfied as per the Annexure attached to the note that, incriminating material found was 'belonging to' the assessee and had a bearing on his total income. The relevant portion is reproduced hereunder :- 7. Satisfaction of the Assessing Officer of the person referred in Section 15A that the seized material referred in SI No. 5 with the person referred to in S.No.4 I am satisfied that the incriminating material seized as per Annexures above belong to Shri K.R. Dhanush and have a bearing on the det....
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.... the AO, attracted penal consequence u/s.271D/271E of the Act and that the source of repayment also required verification. Though the specific assessment year to which the relevant entries pertained to, quantum of entries pertaining to the assessee, value of alleged cash loan transactions etc., were not specified in the satisfaction note, the AO is found to have recorded a common satisfaction note for AYs 2014-15 to 2020-21 that, the aforesaid seized material had a bearing on assessee's total income for all these AYs. According to the AO of the assessee (who was the same as the AO of searched person), ordinarily having regard to the date of search i.e. 25-02-2020, he was within his jurisdiction to issue notices u/s. 153C of the Act in respect of six assessment years preceding the assessment year of search i.e. the year in which the original search took place (AY 2020-21). The AO accordingly issued notices u/s. 153C of the Act reopening six preceding assessment years preceding the searched assessment year and those AY's were AYs 2014-15 to 2019-20 and the AO also reopened the AY 2020-21 u/s.153C(2) of the Act. Post the issue of notice u/s 153C of the Act, the AO is noted to ....
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....st search enquiries, the statement of Shri Anbu was again recorded u/s.131 of the Act dated 21-12-2020 in which specific questions were posed regarding the material seized from the premises of Shri Aravindhan, and his answers are noted to be as follows: - "Q No. 11 It means the documents which are kept in safe custody of Shri Aravindan is so important for you. Please state what is the content of those documents. Ans: The film distribution agreements, documents relating to loan given to various parties are kept in the safe custody of Shri Aravindhan. Q No. 12 Please elaborate about the loan details as mentioned by you. Whenever I give loan to parties, I get the signatures from those parties in stamp paper and letterheads mentioning the amount of loan given on that date along the outstanding loan on that date. I receive film distribution rights as collateral from few parties. Q No. 13 As you stated above the documents relating of loan given were kept in the safe custody of Shri Aravindan. On analysis of the loan details advanced by you, most of the loan transactions were not reflected in any of the bank accounts maintained by you. It shows you advanced the loan mainly in ca....
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....ces. ii) Moreover, his name has appeared along with the names of people belonging to the Tamilnadu Cinema Industry of the same period, which strengthens the argument about the person being referred to in the seized material. Hence, it is unmistakably concluded that the information is related to the assessee only. (iii) From the nature of entries in the seized materials and the explanation furnished by the author of the seized materials it is clear that the assessee has availed cash loan from Shri. G. N. Anbuchezhian and repayment of loan to the tune of Rs. 5,08,55,000/- in cash has been made during F.Y.2014-15 relevant to A.Y.2015-16. (iv) From the incriminating material seized from G. N. Anbuchezhian, it can be observed that the receipts have been recorded on the right-hand side and the expenditures have been recorded on the left-hand side of the notebook. It can also be observed therein that the total debit, credit balance and cash in hand has been arrived at the end of the each page. This strengthens the authenticity and legitimacy of the data contained in seized daily cash book of the financier, G.N.Anbuchezhian. Hence, it is evident that the impugned seized material i.e.....
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....onderance of probabilities, the assessee is understood to have entered into cash loan transactions with Shri Anbu and thus made addition of Rs. 5,08,55,000/- by way of unexplained monies u/s 69A of the Act towards repayment of these cash loans in AY 2015-16. 11. Aggrieved by the order of the AO, the assessee preferred appeal before the Ld.CIT(A) who is noted to have held that the notice(s) were issued u/s.153C of the Act without a valid satisfaction note and without any incriminating material as mandated in provisions of Section 153C and thus held that, the AO lacked jurisdiction to validly initiate proceedings u/s 153C of the Act, and accordingly quashed the assessment order(s). On merits also, the Ld. CIT(A) held the addition to be unsustainable by observing as under: - "6.4.9 The undersigned has carefully examined the issue under consideration. A search u/s 132 of the act was carried out in the case Shri G. N. Anbuchezhian and others on 05.02.2020. During the course of search, certain loose sheets maintained by Shri G. N. Anbuchezhian (who happens to be the author of the narrations made therein), the various transactions entered with various persons / parties, one among them ....
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....s whether the AO is right in making the addition on the basis of the noting / narration found in the loose sheet which was seized from a third party premise. It is found appropriate to highlight that the benefit of presumption u/s 292C of the Act is only with reference to the person searched and it cannot be extended to any other person other than the person searched like that of the Appellant. Therefore, the contents of the loose sheets may possess value based on presumption u/s 292C of the Act, in the case of the searched person and by no stretch of imagination, does the same can be applied to facts and case of the Appellant. 6.4.13 It is a well-established legal principle that a loose sheet found and seized from a third-party premises, without any corroborating evidence or material on record, and without a finding that such document has translated into actual transactions resulting in undisclosed income for the appellant, cannot be relied upon for the purpose of assessments made pursuant to a Search and Seizure action. 6.4.14 It is appropriate to bring on record the observations of Apex court in the case of K.P. Varghese 131 ITR 597 where in it has been held that "It is a we....
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....rification" Para 3.1 of the assessment order. As evident in the assessment order, no such verification has been carried out. 6.4.18 It may be appreciated that the said loose sheet relied upon by the AO was neither seized from the premises of the Appellant nor was the same found to be in the handwriting of the Appellant. Such material seized in the case of a third party which is not in the hand writing of the Appellant does not constitute adequate evidence to draw any adverse inference against the Appellant, in the absence of any other corroborative evidence. This proposition has been laid down by the Hon'ble Delhi High Court in the case of CIT Vs Sant Lal [2020] 118 taxmann com 432 (Del), wherein itwas held therein that where a diary was seized in search of the premises of a third party allegedly containing entries of hundi transactions on behalf of various parties including the assessee, no addition could be made based on the said entries since the diary was neither found from premises of assessee nor was it in handwriting of assessee and revenue failed to produce any other cogent material to link the assessee to the diary. The ratio of the said decision is squarely applicab....
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....ng the statements of concerned parties so as to fill up the gaps in confirming the inference arising from the documents for a proper charge of tax. Such correlation is necessary unless the document is capable of speaking giving full details so as to enable any intelligent person to find out the nature of transaction, the year of transaction, the ownership of the transaction and quantum thereof. Even in that situation, it is necessary to give opportunity to the assessee to offer his explanation and investigation be carried out to strengthen the direct inference arising from this document." 6.4.21 The proposition that addition cannot be made merely on the basis of entries in loose sheets found in the premises of a third party without bringing on record independent evidence to corroborate such entries has been reiterated in several decisions. Some of the decisions to this effect are MM Financiers (P) Ltd Vs. DCIT (2007) 107 TTJ (Chennai) 200, Regency Mahavir Properties Vs ACIT [2018] 169 ITD 35 (ITAT-Mumbai), ACIT Vs. Katrina Rosemary Turcotte [2017] 190 TTJ 681 (ITAT-Mumbai), DCIT Vs. Vipin Aggarwal [2017] 83 taxmann.com 6 (ITAT Chandigarh), S.P Goyal Vs DCIT [2002] 82 ITD 85 (TM) ....
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....xmann.com 254 (SC) and Dhakeshwari Cotton Mills Lids. CIT (1954) 26 ITR 775 (SC) corroborative evidence is essential to support the evidence found in third party premise. In order to properly appreciate the issue, it is useful to refer to the following extract from the decision of Hon'ble Apex Court in the case of Dakeswari Cotton Mills Ltd Vs. CIT (1954) 26 ITR 775 (SC): "As regards the second contention, we are in entire agreement with the learned Solicitor-General when he says that the Income-tax Officer is not fettered by technical rules of evidence and pleadings, and that he is entitled to act on material which may not be accepted as evidence, a court of law, but there the agreement ends; because it is equally clear that in making the assessment under sub-section (3) of Section 23 of the Act, the Income Tax Officer is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support the assessment under section 23(3). The rule of law on this subject has, in our opinion, been fairly and rightly stated by the Lahore High Court in the case of Seth Gurmukh Singh (supr....
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.... AO for both the 'Searched Person' and the 'Other Person' was the same. 14. Agitating on merits, the Ld. CIT, DR submitted that, the impugned seized material were not just loose sheets or vague dumb documents but clear books of accounts showing the cash loan transactions of the searched person, Shri Anbu with various parties, and the assessee, Dhanush, being one of them. According to her therefore, the findings rendered by the Ld. CIT(A) holding these notings to be unreliable, was untenable. He further took us through the statements of Shri Anbu, which was found placed at Pages 13 to 102 of Paper book, to show that, he had admitted that the seized materials reflected the cash transactions of his business which are not offered for tax and hence, if seen in his perspective, it does suggest that, he had advanced cash loans to the assessee. The Ld. CIT, DR filed before us additional evidence in form of the ledgers, later on prepared and furnished by Shri Anbu, in his reply to Rule 9 report, in his matters before the ITSC, copies of which were placed at Pages 213 to 304 of Paper Book-I, to show that these ledgers contained name of the assessee which evidenced the assess....
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....ered by the Hon'ble Delhi High Court in the case of PCIT v. Ojjus Medicare (P) Ltd. (465 ITR 101) and this Tribunal in the case of M/s KSJ Infrastructure Pvt Ltd Vs DCIT (ITA Nos. 797 & 798/Chny/2024) in support of his contention. The Ld. AR further submitted that, there was no mention of any income in form of 'asset' in the satisfaction note which had escaped assessment in AYs 2015-16 to 2016-17 and, thus he argued that, the impugned action of reopening the assessment for AYs 2015-16 & 2016-17 u/s 153C of the Act was based on wrong assumption of jurisdictional fact and hence, the consequent impugned order, was bad in law for want of jurisdiction. 17. On merits, supporting the order of Ld. CIT(A), the Ld. AR, Shri Arjun Raj contended that, the veracity of the entries found in the loose sheets were never tested by the AO independently before concluding the assessment proceedings and the additions were solely based on the scribblings found in the loose sheets which did not have any evidentiary value. He pointed out that, the fact that the AO himself had acknowledged that the addition was based on hypothesis of preponderance of probabilities derived from the third party m....
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.... Tribunal being the last fact finding authority ought to admit the same as it has a decisive bearing on the impugned issue. She further pointed out that, M/s. Wunderbar Films P Ltd in which the assessee was a shareholder and Director had availed loans from the entities belonging to Shri Anbu through banking channel which was also found noted in his name 'Dhanush' in the said loose sheets and thus, according to her, this supported the AO's case that, all other entries also pertained to the assessee. According to the Ld. CIT, DR, if the assessee wanted to contend that, then the entries in seized material did not pertain to him but the company, then the onus lies on the assessee to demonstrate that both the cash and bank entries have been offered in the hands of the company. Upon conclusion of the hearing, both the parties furnished written submissions summarizing their arguments, which have been taken on record. 20. Having heard both the parties and after going through their written submissions and the material placed before us, we are inclined to first take up the merits of the impugned issue. In sum and substance, the AO on the basis of the notings found in the name of....
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....alone. Though these loose sheets and the notings therein may be presumed to be true qua Shri Anbu, but such presumption cannot be straightaway extended to the assessee, as explained above. In this regard, as to the admissibility of notings found in loose sheets seized from third party premises, it is relevant to take note of the following principles laid down by the Hon'ble Supreme Court in case of Common Cause (A Registered Society) v. UOI (394 ITR 220) wherein it was laid down as under :- (i) Entries in loose papers/sheets are irrelevant and not admissible under Section 34 of the Evidence Act. It is only where the entries are in the books of account regularly kept, depending on the nature of occupation, that those are admissible; (ii) As to the value of entries in the books of account, such statement shall not alone be sufficient evidence to charge any person with liability, even if they are relevant and admissible, and that they are only corroborative evidence. Even then independent evidence is necessary as to trustworthiness of those entries which is a requirement to fasten the liability; (iii) The meaning of account book would be spiral note book/pad but not loose sh....
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....ary seized from the premises of third party. The said noting's allegedly contained entries of hundi transactions on behalf of parties including assessee whose names were re-written in abbreviated/code words. The Hon'ble Delhi High Court relying on its earlier decision in the case of CIT v. Mahabir Prasad Gupta (ITA No. 814 of 2015) is noted to have held that no addition can be made in the hands of anassessee on the basis of any diary seized during the course of search proceedings of a third party, since such diary was neither found at the assessee's premise and that the department had failed to provide any cogent material or gather any corroborative evidence to substantiate that it pertained to the assessee. The Court observed that the searched person could have written anyone's name on his own sweet will in his diary and therefore such noting on stand-alone alone basis along with the biased statement of the searched person cannot be used as a reliable evidence against the assessee. 23. Before us the Ld. CIT, DR argued that, the above entries found in loose sheets actually constituted books of accounts of the searched person and the entries stood corroborated again....
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....ed in providing loans to people in cinema industry. The Ld. AR has rightly explained that, such linkage was based solely on assumptions and surmise, and in absence of any independent linking evidence, it was unsafe to assume these entries to be sacrosanct against the assessee. The Ld. AR submitted that, there could be several persons by the name of 'Dhanush' or for that matter, 'Dhanush' may be used as a codename by the financier for someone else or any producer with whom the assessee may have worked with. He submitted that, the assessee is a well-known artist/actor and therefore it could also plausibly be a case that, certain persons or producers had availed loans in his name(s). Likewise, certain unscrupulous people may have claimed to be person(s) close to the assessee and acting on his behalf, surreptitiously obtained loans from Shri Anbu. The Ld. AR played out several possible scenarios which could have led to noting(s) under the name 'Dhanush', given the name and reputation of the assessee and that may be the reason that Shri Anbu has used the term "Dhanush F.M.S.& Dhanush Movie" in various entries. According to him therefore, unless there was any dire....
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.... notings on stand-alone basis were unsafe to be relied upon for making any addition(s) in his hands, in absence of any tangible corroborative material. 26. The Ld. CIT, DR however to lend support the case of the Revenue, brought on record the relevant submissions which were filed by Shri Anbu before the Settlement Commission/Interim Board of Settlement (IBS) and his IBS order, by way of additional evidence at the time of hearing. Though we have taken cognizance of the assessee's objections to the admission of such additional evidence at this stage, however this Tribunal being the last fact finding authority, we considered it fit to examine the same, for the completeness of the matters. Having perused these material, which have been placed at Pages 214 to 304 of Paper Book-I; we find that they are also of no assistance to the Revenue. The ledgers submitted by the Revenue are found to have been prepared/ manufactured later on by Shri Anbu simply for the quietus of his assessment and in compliance with his offer of undisclosed income made before the Income-tax authorities. It appears that Shri Anbu has simply reproduced the scribblings/notings found on the loose sheets by way of ....
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....to a third person and therefore set aside the notices issued u/s 153C of the Act, holding it to be void. The relevant findings are as follows: "22. The entire allegation is made out on the basis of loose sheets of documents, which does not come under the ambit and scope of 'books of entry' or as 'evidence' under the Indian Evidence Act. 23. In view of the aforementioned aspects, we have carefully examined the law declared by the Hon'ble Apex Court with regard to acceptance of diaries/loose sheets by the respondent-Revenue. In the case of V.C. Shukla (supra), at paragraphs 16 to 18 of the judgment, it is observed thus: 24. The aforesaid approach is in accordance with good reasoning and we are in full agreement with it. Applying the above tests, it must be held that the two spiral note books (MR 68/91 and 71/91) and the two spiral pads (MR 69/91 and MR 70/91) are "books" within the meaning of Section 34, but not the loose sheets of papers contained in the two files (MR 72/91 and MR 73/91). 25. The Hon'ble Supreme Court in the case of Common Cause (supra) at paragraphs 278 to 282 of the judgment, has observed thus: 26. It is established in law by the ....
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.... papers were collected. On the basis of loose papers additions were made in the hands of the individual partners and on protective basis on the hand of the firm. While deleting such addition in case of the present assessee the Tribunal noted that the documents nowhere show that any payments were made by same persons, no enquiry or verification was made with the seller of the shops or the developer. Tribunal therefore concluded that entries of the loose papers were not corroborated with any other evidence on record. 3. It can thus be seen that the entire issue is based on appreciation of evidence on record. The Tribunal noted that the loose papers entries were not clear and not corroborated by any independent evidence. No question of law therefore arises. Income Tax Appeal is dismissed." 29. Useful reference may be made to the decision of the coordinate Bench of this Tribunal at Panaji in the case of Abhay Kumar Bharamgouda Patil v. ACIT (96 taxmann.com 377). In this case, a survey was conducted upon a finance broker from whose possession a diary was found containing certain notings interalia including the name of the assessee. The surveyed person had also incriminated the assess....
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....d corroborated. We also notice that Shri S.K.Terdale could not bring any other material on record to substantiate his statements. We have also noticed that the assessee has denied the transactions recorded against his name in the diary and also did not accept the statements given by Shri S.K. Terdale. We have also noticed that Shri S.K. Terdale could not substantiate his statements by bringing any other credible or corroborative evidences. In the absence of any material to substantiate the statements given by Shri S.K. Terdale, in our view, the same cannot be used against the assessee. As rightly pointed out by Id A.R, in our view, the assessee is being asked to prove a negative fact, which is not permissible under the law. ...... 24. Now we shall examine the impugned transactions under the test of human conduct and human probabilities. As noticed earlier, the aggregate, amount recorded against the name of the assessee was Rs. 8,85 lakhs in a period of three years though various installments, In case of money transactions of high magnitude, a prudent person would always insist for some kind of acknowledgment for the payments made, i.e., when the assessee makes payment to Shri S....
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....p the transactions, meaning thereby, the society/bank can be said to have proved its stand with regard to those two persons. We have noticed that the assessee has denied/disowned the transactions and has also not accepted the statements given by Shri S.K.Terdale, In this kind of situation, it is the responsibility of the Society/S.K. Terdale to show that the assessee was wrong and the society was right. We have noticed earlier that the society/S.K. Tardele could not substantiate the statements given by him and also could not prove that the assessee was wrong. Hence, in our view, the society/bank or Shri S.K.Tardale could not be said to have substantiated or proved its stand in respect of the assessee. As observed earlier, it may not be fair to compel the assessee to prove a negative fact. The Id D.R, during the course of his argument, also submitted that the unexplained deposits have been assessed in the hands of society/bank as unexplained cash credits u/s 68 of the Act, meaning thereby, the society/bank has also failed to discharge the initial onus of proof placed upon its shoulders u/s 68 of the Act. Applying the same analogy, it can also be said that the society/bank has failed....
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....of account of the Society. Before income tax authorities, the society could have furnished only its regular books of accounts and it could not have relied upon the diary. Even though Shri S.K. Terdale has explained the entries recorded in the diary, he could not bring any material to substantiate his statements. The Chairman of the Society or any other higher authorities does not have any knowledge about the entries made in the diary. The assessee has not accepted the statements of Shri S.K. Terdale. The Id D.R mentioned about the failure of the assessee to avail cross-examination. We agree with the contentions of the Id A.R that there was no requirement to make any cross examination, since the assessee was not required to prove any negative fact. Hence, for the detailed reasons, discussed in the preceding paragraphs, we are of the view that none of the evidences support the case of the Assessing Officer." 30. We also rely on the decision of this Tribunal at Pune in the case of Pradeep AmrutlalRunwal v. TRO (47 taxmann.com 293) wherein also the AO had made addition(s) on the basis of notings found in the name of the assessee, in the course of search conducted on 'D' Group.....
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....ad actually received the said amount, no addition could be made merely on the basis of noting in loose papers found during the search proceedings in the case of Dhariwal Group against the name of the assessee. 5.4 The presumption u/s 132(4A) is available only in respect of the person from whom the paper is seized. It could not be applied against a third party and hence, no addition could be made on the basis of the evidence found with third party. The presumption u/s. 132(4A) could be used only against the person from whose premises the documents are found and not against the person whose name appears in the seized papers. 5.5 In this case, the addition has been made on the basis of the documents found with Dhariwal Group and thus, the presumption u/s. 132(4A) could not be used against the assessee since no incriminating documents were found with it. In the case of Addl. CIT v. Miss Lata Mangeshkar [1974] 97 ITR 696 (Bom), the addition was made in the hands of the assessee on the basis of the entries in the books of third persons. Hon'ble Bombay High Court held that such addition could not be made only on the basis of the notings in the books of third persons. The facts of ....
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....on the provision of section 114 of the Indian Evidence Act. 5.8 It was further submitted on behalf of assessee that the Assessing Officer was not justified in making the addition by relying on the provisions of section 80 of the Indian Evidence Act which states that there is a presumption that the documents produced before the court as record of evidence are genuine. In this regard, the stand of the assessee is that in the case of assessee, document produced was merely in the form of a rough noting wherein certain amounts were written against the name 'Pradeep Runwal'. As discussed earlier, there may be many people of that name in Pune and in the absence of any other corroborative evidence to that effect. In such a situation, it cannot be inferred that it belongs to the assessee. ...... 5.14 We find that in ACIT v. Thakkar Developers Ltd. [IT Appeal No. 581 (PN) of 2008, dated 26-7-2010, ITAT in paras 3 and 4 held as under :- ...... 6. Similar view has been taken by ITAT, Pune in ACIT v. Amit D Irshid [IT Appeal No.988 (PN) of 2011, dated 22-4-2013] that presumption u/s. 134(4A) is available only against the person from whose possession the document is found and n....
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.... precarious, in absence of any corroborative evidence, and so it is rejected. In our considered view therefore, the AO ought to have probed and investigated further, confronted Shri Anbu with the entries, obtained some independent corroboration, and thereafter should have also allowed an opportunity to the assessee to cross-examine, before making the impugned addition. However, no such effort/exercise is found to have been made by the AO. Rather, he is found to have simply acted on surmise and assumptions, which cannot be countenanced. 32. Moreover, it has been brought to our notice that, the entries found in the loose sheets under different acronyms of 'Dhanush' inter alia comprised of loans availed through banking channel by M/s. Wunderbar Films P. Ltd. For this reason, the assessment(s) of M/s.Wunderbar Films P. Ltd., was also reopened and completed by the same AO u/s 153C of the Act, in which we find that, no adverse view was taken in the light of entries of cash transactions(s) with Shri Anbu forming part of the same loose-sheets/cash book. As noted earlier, M/s. Wunderbar Films P. Ltd. was the person involved in production and distribution of movies and that the asse....
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....ote books/loose slips are unsigned documents. The Assessing Officer has not established nexus between the note book loose slips with accrual actual/receipt of interest. The note book/loose slips seized found during the course of search is a dumb document having no evidentiary value, no addition can be made in the absence of corroborative material. If there is circumstantial evidence in the form of promissory notes, loan agreement and bank entries, the addition is to be made on that basis to the extent of material available. The assessee is not expected to explain the loose papers found as there is no evidence other than note book/loose slips regarding accrual of interest. It is held no addition can be made on the basis of dumb documents/note book/loose slips in the absence of any other material to show that the assessee has carried on money lending business. Nothing on the note book/diary/loose sheets are required to be supported/corroborated by other evidence and are also include the statement of a person who admittedly is a party to the noting and statement from all the persons whose names there on the note book/loose slips and their statements to be recorded and then such statem....