TaxTMI 
TaxTMI 
2025 (7) TMI 661
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.... this consolidated order. 2. The main issue 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 belo....
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.... had repaid these cash loans along with interest. These entries so found, according to 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....
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....ls are included in seized material ID marked ANN/KM/GNA-YOG/B&D/S1 to S40. Later on, in post 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 lo....
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....ble for the following reasons: i) The denial of any transactions with Shri. G. N. Anbuchezhian is vague and not backed by any logic or evidences. 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 ....
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....ruption Act." 10. The AO accordingly held that, due to the nature of entries and its explanation as given by Shri Anbu before ITSC [interim settlement commission] and based on the hypothesis of preponderance 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 ....
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....ow cause notice issued has completely denied the alleged cash transactions and has produced before the AO, books of accounts, bank statements etc and the AO has not made any findings upon it. In this scenario the question to be answered is 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 reli....
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....led as loan so as to repay the same along with interest. In the absence of any such details, considering the repayment alone can only be a presumption. Further, the AO has observed in the assessment order that "source of repayment of cash loan along with interest needed verification" 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 ....
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....t in their memory. It is the duty of the AO to carry out necessary investigations by correlating the impugned document with other documents seized, with regular books of account, with record kept by outside agencies, such as banks or financial institutions or debtors/creditors and finally, by recording 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 a....
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.... circumstances, based on paper jottings as conclusive evidence on money cannot be brought to tax as income from undisclosed sources." 6.4.23 As per the decisions of the Hon'ble Apex Court in the cases of CBI Vs. VC Shukla & Others (1998) 3 SCC 410, Common Cause (A Registered Society) Vs. Union of India (2017) 77 taxmann.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 ....
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.... the preceding six assessment years viz., AYs 2014-15 to AY 2020-21, by taking the reference date of search to be 05-02-2020, in light of the amendment brought in Section 153C by Finance Act, 2017. The Ld. CIT, DR referred to CBDT Circular No. 24/2015 dated 30.12.2015 to support the validity of single common satisfaction note recorded by the AO, as the 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 l....
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....search, for the purposes of Section 153C, ought to be the date of handing over of the seized documents or recording of satisfaction note i.e. 30-08-2022 and not the original date of search i.e., 05-02-2020; for the purposes of Section 153C of the Act, even after considering the amendment made by the Finance Act, 2017. The Ld. AR relied upon the decision rendered 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 ....
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....inder submitted that, AYs 2015-16 to 2016-17 were within the period of six assessment years and that the reference date was to be taken as original date of search i.e. 05-02-2020. In this regard, she relied on the decision of CIT v. Jasjit Singh [2023] SCC Online SC 1265. In so far as admissibility of the additional evidences is concerned, she contended that, this 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 th....
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....hese notings were assumed to be pertaining to the assessee. There is no mention of 'loan' or 'interest' or any terms of loan(s) etc. on these sheets. The only thing appearing in the name 'Dhanush' and amounts corresponding thereto. Prima facie therefore, the nature of these notings are not discernible from a plain reading of these loose sheets 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 stat....
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.... no fault of the latter. Hence, these notings are required to be substantiated with some independent evidence or material which would show that they relate to or pertain to the assessee. In support of the foregoing proposition, we gainfully refer to the decision of the Hon'ble Delhi High Court in the case of CIT v. Sant Lal (423 ITR 1). In this case, the Department relied upon the notings of hundi in the diary 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 w....
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....t all times had unequivocally denied having any cash loan transactions with Shri Anbu. Further, as noted above, even Shri Anbu had not incriminated the assessee in any manner. The Revenue is found to have been drawing a linkage between these entries and the assessee, solely based on the first name of the assessee appearing in the material seized from the premises of Shri Anbu and the fact that, Shri Anbu was involved 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....
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.... artist deriving professional income from acting in monies and that he had not produced any movies in his individual capacity and therefore there could not have been any occasion for him to personally avail loans from Shri Anbu. Having taken note of these facts, and the overall circumstances as discussed above, in our considered view, the assessee had indeed made out a plausible case and demonstrated that these loose 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 P....
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.... Court in the case of DCIT vs. Sunil Kumar Sharma (159 taxmann.com 179) which was also seized with the question that as to whether 'loose sheets' under the Indian Evidence Act, 1872 can be relied upon to make addition in the hands of an assessee, in absence of any independent corroboration. The Hon'ble Karnataka High Court held that the 'loose sheets' does not constitute material evidence in relation 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. A....
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.... documents, amounts of cash paid by all the partners are noted and assessments made in the case of the said partner Shri LaxmichandRohira relating to his share of cash payment has become final, and therefore, that evidence is also relevant for assessment of other partners, including the assessee?" 2. The Respondent-Assessee is an individual. He was the partner of the firm. The Income Tax Department had carried out search and seizure operation during which certain loose 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 ind....
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....tions in which the money were brought. Thus it is seen that Shri S.K. Terdale has received money through some persons and they have stated that the money has been sent by the assessee. Accordingly he has recorded the same against the name of the assessee. If Shri S.K. Terdale could identify the persons who have brought money and if those persons happen to be the employees or any other related persons of the assessee, then it may be possible to state that the statements given by Shri S.K. Terdale stood 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, w....
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....prove that the transactions are true?. As noticed earlier, the Chairman of the society/bank has expressed his ignorance about the diary and he has stated that the diary has been maintained by Shri S.K. Tardale. Hence Shri S.K. Tardale was questioned with regard to the diary and he has simply stated that the money was received from the persons named in the diary, but could not furnish any other corroborative material to support his statement. Shri S.K. Tardale, however, could produce two persons and they have also owned up 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 i....
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....n a single evidence, where the assessee could be said to have received money in black for which she did not pass a receipt. Accordingly the Tribunal deleted the addition made by the AO. The Hon'ble Bombay High Court has upheld the view taken by the Tribunal. In our view, this decision supports the case of the assessee also. The entries recorded in the diary were different from the entries found recorded in the regular books of account of the Society, i.e., the names of depositors noted in diary were not found in the regular books 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 requireme....
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....e has no business dealings of his with Dhariwal Group. The Assessing Officer has not brought on record any evidence to suggest that Dhariwal Group has admitted that the amounts were paid to the assessee. Hence, simply because the name of the assessee is noted on the seized papers does not mean that the addition could be made in the hands of the assessee. Since no evidence was found relating to the existence of any transaction between the assessee and Dhariwal Group and in the absence of any corroborative evidence to suggest that the assessee had 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.....
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.... Dhariwal Group. Further, apart from the noting on paper with the name 'Pradeep Runwal, there is no corroborative evidence in this regard against the assessee. In such circumstances, where the assessee has not entered into any transaction with the Dhariwal Group, one certainly could not expect the assessee to be in possession of any evidence to suggest that it has not entered into any such transaction except for his books of account which have already been verified by the concerned Assessing Officer. Hence, the Assessing Officer was not justified in placing reliance 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 ma....
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.... of the assessee. A suspicion however strong it may be, has to be supported by corroborative evidence. As we have observed earlier, Shri Anbu had clearly stated that he would obtain certain signatures or acknowledgments or confirmation on letterheads or collaterals from persons whom he would advance cash loans. The Revenue has not brought on record any such evidence which was found in the name of assessee or M/s. Wunderbar Films P. Ltd. Hence, the linkage which Ld. DR wants us to presume merely because M/s. Wunderbar Films P. Ltd./assessee had availed loan through banking channel from Shri Anbu, is found to 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 ....
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....tead, the AO is found to have simply assumed that, the notings ought to relate to the assessee. Also, the additional evidence brought on record by the Revenue did not assist their case. In our considered view, the Ld. CIT(A) had rightly held the impugned seized material to be unreliable and thereby deleted the addition impugned before us. Our view finds support from the decision of this Tribunal at Hyderabad in in case of Nagarjuna Construction Co. Ltd. v. Dy. CIT (52 SOT 178)wherein in similar factual context, it was held as under :- ".............The basis for addition is only note book/loose slips. These note 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 l....