TaxTMI 
TaxTMI 
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2025 (8) TMI 953
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....ecognize and consider that the Appellant has categorically and vehemently denied the cash payments entries in my sworn statement given at the time of my presence on 11-2-2020 in response to the Summon u/s 131 of the Income Tax Act, 1961 dated 7-2-2 020 issued by the DDIT/ADIT (Inv) 4(3), Chennai (3) The AO has erred in treating the said amount of Rs. 14,00,000/- as Unexplained Income without any basis and Proof of Evidence. (4) The AO has failed to appreciate that Mr. Badri Narayana Choudhary Kota's statement and the cash payment entries found in his pen drive as alleged to have been made to the Appellant, are not true and correct. The payments and the entries said to have been made to the Appellant, are illogical and do not have any merits and not supported by any evidence. Mere entries made against the Appellant's name does not warrant addition under the head "Unexplained Income" (5) The AO has failed to consider the Appellant's letter dated 25-9-202 1 addressed to the AO and filed on 27-9-2021 in his office, in response to the AO's Notice under Section 142(1) dated 23-9-2021, denying the alleged cash payments made to the Appellant. (B) Lacks jurisdiction ....
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....he particulars of income returned by the assessee for the relevant assessment years are detailed below for reference. Asst. Year Return of Income filed u/s.139(1) of the Act. 2015-16 28,19,760/- 2016-17 13,24,410/- 2017-18 32,19,950/- 2018-19 24,62,150/- 2019-20 4,39,170/- 4. A search and seizure operation u/s.132 of the Act, was conducted on 16.10.2019 in the case of M/s. Golden Shelters Pvt. Ltd. and the NKV Krishna Group. The premises of the assessee were also covered in the course of the said search. During the search, certain materials, including a pen drive was seized from the residence of Mr. Badri Narayan Kota were relied by the department. Mr. Kota is alleged to be an associate and close acquaintance of Mr. N.K.V. Krishna, a key person linked to the searched entities. The seized pen drive allegedly contained data referring to unaccounted cash transactions, including supposed payments made to various individuals. The particulars found in the seized pen drive are detailed below: Feb-18 To Krishnan Sir Income Tax 2500000 This is money given to Krishnan who is an auditor Jun-16 Krishnan Sir 32000000 This is money given to Krishnan who is an auditor Jun-16....
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.... the Act Unexplained income 2015-16 28,19,760 28,19,760 14,00,000 2016-17 13,24,410 13,24,410 3,45,00,000 2017-18 32,19,950 32,19,950 8,98,50,000 2018-19 24,62,150 24,62,150 5,00,00,000 2019-20 4,39,170 4,39,170 1,20,00,000 7. Aggrieved by the order of the AO, the assessee filed an appeal before the Ld.CIT(A), Chennai - 18. 8. Before the ld.CIT(A) the assessee reiterated that the addition was made without any corroborating evidence, documentary or otherwise, to establish the flow of funds to the assessee or to demonstrate any tangible link between the alleged entries and the assessee's accounts or assets. Therefore, the assessee stated that the total assessed income as against the returned income of resulting in an addition under the head of unexplained income which is given hereunder is not warranted and hence prayed for deleting the same. A.Y. Return of income filed in response to notice u/s.153C of the Act Assessed income 2015-16 28,19,760/- 42,19,760/- 2016-17 13,24,410/- 3,58,24,410/- 2017-18 32,19,950/- 5,24,62,150/- 2018-19 24,62,150/- 9,30,69,950/- 2019-20 4,39,170/- 1,24,39,170/- 9. However, the ld.CIT(A) on perusal of the document....
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....nly be contemporaneous and in writing, but must also be specifically relatable to each of the six assessment years proposed to be reopened. The ld.AR submitted that a consolidated or omnibus satisfaction note encompassing multiple years without individualized reference to incriminating material for each year, as in the instant case, fails to meet the jurisdictional mandate and renders the entire proceeding void ab initio. 14. The ld.AR submitted that the aforesaid proposition finds clear support in the Division Bench judgment of the Hon'ble Karnataka High Court in Sunil Kumar Sharma v. DCIT (W.A. No. 830 of 2022 and connected matters, dated 22.01.2024) 469 ITR 197(Kar) [Page 53 para 36 and page 91 para 53] [SLP dismissed by Hon'ble Supreme court dated 21.10.2024], where it was categorically held as follows: "...Further, satisfaction note is required to be recorded under Section 153C of the IT Act for each Assessment Year and in the impugned proceedings, a consolidated satisfaction note has been recorded for different Assessment Years, which also vitiates the entire assessment proceedings. In view of all these findings, it is said that the appeals do not have any substance for se....
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....ed that the assessment proceedings initiated pursuant to a common satisfaction note, unaccompanied by specific year-wise satisfaction, are without jurisdiction and are liable to be declared null and void ab initio. Further, in the present case, the satisfaction note is founded solely on loose documents allegedly seized from third-party premises, which are unverified and uncorroborated. The ld.AR submitted that such a satisfaction note is legally untenable, as it lacks the foundational elements required u/s.153C of the Act. The ld.AR therefore contends that satisfaction recorded on the basis of such loose sheets, which have no evidentiary value in the eyes of law, constitutes nothing more than a speculative assertion. It cannot, therefore, form the jurisdictional basis for the assumption of proceedings u/s.153C of the Act. The ld.AR submitted that the satisfaction note, being vitiated in law, renders the entire proceedings unsustainable and liable to be quashed. 19. The ld.AR further submits that in the absence of authorship, confirmation, or corroboration, no presumption can arise u/s.4 of the Evidence Act or under the Income-tax Act. The present case falls, at best, within the "m....
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....umption against a third party unless further evidence establishes a nexus. In the present case, the pen drive was found in the possession of Mr. Badri Narayana Choudhary (Kota) not from the assessee, hence presumption, if at all, is against Mr. Kota, not the assessee. Further the ld.AR argued that it is incumbent upon the revenue to prove conclusively that the contents pertain to and implicate the assessee with independent material. Even assuming for argument's sake that the presumption of ownership u/s. 292C of the Act were to apply, the ld.AR submitted that there is no automatic presumption that the contents of a digital document are true as to third-party entries, unless corroborated. This is especially so where the document is disputed by the assessee, the author or custodian of the document has not confirmed the specific entry in question and there is no independent evidence linking the assessee to the contents. In the above context, the ld.AR relied on the following decisions CIT v. S.M. Aggarwal [(2007) 293 ITR 43 (Del)]: "The entries in third party documents cannot be presumed to be true without corroborative evidence." CIT v. P.V. Kalyanasundaram [(2007) 294 ITR 49 (Mad....
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.... qualifies as a "dumb document" because: a) It was not seized from the assessee; b) It was not confirmed by the person from whose premises it was seized; c) It has no corroborating trail of cash receipt, deposit, asset creation, or expenditure. d) It has been denied by the assessee and not supported by any third-party confirmation. 29. This principle has been reinforced in Layer Exports Pvt. Ltd. v. ACIT [(2021) 129 taxmann.com 324 (ITAT Mumbai)] "Pen drive entries not supported by confirmation from the assessee or the person from whom it was seized are mere dumb documents and cannot justify additions." CIT v. S.M. Aggarwal [(2007) 293 ITR 43 (Del)] "Third-party documents which are not confirmed or corroborated cannot be used as the sole basis for addition." CIT v. P.V. Kalyanasundaram [(2007) 294 ITR 49 (Mad)] "Mere notings in seized documents, in the absence of confirmation, are insufficient to support addition." 30. In light of the above submissions the ld.AR submitted that : 1. The pen drive seized from Mr. Kota is a dumb document - inadmissible in the absence of corroboration; 2. The presumption u/s.292C of the Act is inapplicable to the assessee and stan....
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....spute in these proceedings. This limited professional engagement has no bearing on or nexus with the alleged cash movement reflected in the pen drive, and the Revenue's attempt to extrapolate this admission to attribute credibility to unrelated entries without any corresponding statement from the author is entirely misconceived. 34. The ld.AR contended that it clearly shows that the conclusion of AO and ld.CIT(A) is not based on testimony, but on speculation. 35. Further, the ld.AR submitted that it is a trite law that where a document is neither admitted by the assessee nor confirmed by its alleged author, and in the absence of any independent corroborative material, such document has no evidentiary value in the eyes of law. The Hon'ble Supreme Court has, in unequivocal terms, held that entries in loose papers or unverified records seized from third parties are devoid of probative value unless they are confirmed by the author and corroborated by independent evidence. Common Cause v. Union of India [(2017) 11 SCC 731] "Mere entries in third-party records, without independent corroboration or confirmation from the author, cannot be used to draw adverse inference. Such documents....
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....upreme Court held that where an assessee makes a statement, the entirety of the statement must be evaluated, and it is impermissible for the Department to accept one part while discarding the rest without independent verification. Applying this principle, the Revenue cannot accept the assessee's acknowledgment of professional engagement in the CETEX matter while simultaneously rejecting his unequivocal denial of receiving cash, without producing any further corroborative evidence. 39. The ld.AR contended that the ld. CIT(A) appears to have presumed that the existence of the entry in the pen drive, coupled with the assessee's professional involvement, suffices to establish that the cash payment mentioned therein actually took place. 40. This presumption is legally flawed. As held in CIT v. P.V. Kalyanasundaram [(2007) 294 ITR 49 (Mad)] and CIT v. S.M. Aggarwal [(2007) 293 ITR 43 (Del)], **documents, notings or entries in third-party records, including digital devices, cannot be the sole basis of addition unless they are: * authenticated, * attributed to the assessee, and * corroborated by independent evidence.** 41. In this case, the pen drive was neither seized from the a....
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....nity was provided. The ledger was neither signed nor confirmed by the assessee or by Mr. Patel as relating to the assessee. There was also no corroborative evidence, no money trail, no statement from the payer, and no material found from the assessee's premises. (page 2 para 3 and page 6 para 7 ) 45. The Tribunal found that the AO had relied entirely on an unverified third-party ledger, which lacked authenticity and evidentiary value. Consequently, the Tribunal held that the ledger was a "dumb document", and in the absence of any corroboration or cross-examination, the addition was unsustainable and had to be deleted. It was held that "Unverified digital entries seized from a third party, uncorroborated and denied by the assessee, are not sufficient to sustain additions under section 69." Thus, it could be inferred that the addition based on seized pen drive in the present case is equally unsustainable, and deserves to be deleted in full. 46. In the case of Anand Jaikumar Jain v. ACIT (ITAT Mumbai) a search was conducted on the Dalmia Group u/s.132 of the Act. During the search, documents and electronic data (including pen drive contents) allegedly showing cash transactions in....
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...."Uncorroborated notings or loose documents especially if they lack transactional clarity, dates, parties, and amounts cannot be treated as valid evidence for additions under the Act." (pages 22-40 and page 46 para 31 of the said order) 49. The decision in Chhajed(supra) squarely supports the assessee's position that the pen drive is a "dumb document", and no addition can be made without independent, credible corroboration. 50. In view of the foregoing submissions, the ld.AR prayed that the impugned addition, being based solely on an uncorroborated and unauthenticated digital entry found in a pen drive seized from a third party, and unsupported by any statement, admission, or independent evidence linking the same to the assessee, is wholly untenable both in law and on facts. 51. The assessee humbly submits that the made in the impugned case addition suffers from a complete lack of evidentiary foundation, is founded on speculative inference, and has been made in breach of the settled principles governing the admissibility and reliability of third-party material. The addition is, therefore, liable to be deleted in toto, and the appeal may kindly be allowed in full. Per contra, the....
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....tor Krishnan 53. We note that the sworn statement has been recorded during the search operations from Mr. Badri Narayana Choudhary, who is the alleged custodian of the seized pen drive. In his sworn statement dated 11.02.2020, Mr. Choudhary identified the assessee as someone who had rendered professional consultancy to the group and had facilitated certain share acquisitions in CETEX Petrochemicals Pvt. Ltd. 54. Further, we note that Satisfaction Notes u/s.153C of the Act was recorded and obtained the approval from the competent authorities by the AO and issued notice u/s.153C of the Act. 55. Subsequently, the case of the assessee was centralized to Central Circle 1(2), Chennai, and notice u/s.153C of the Act was issued on 12.02.2021 covering various assessment years which included A.Y.2015-16 to 2019-20. In response to notice issued u/s.153C of the Act, the assessee filed his return of income on 18.02.2021 admitting the following income: A.Y. Return of Income filed u/s.139(1) of the Act Return of income filed in response to notice u/s.153C of the Act 2015-16 28,19,760 28,19,760 2016-17 13,24,410 13,24,410 2017-18 32,19,950 32,19,950 2018-19 24,62,150 24,62,150 2....
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.... clearly identify the searched person u/s.132. d. Must describe the seized documents/assets and reference panchnama/annexures. e. Must contain a finding that the seized material belongs to / pertains to / relates to the other person (i.e., the assessee). f. Must establish that the seized material has a bearing on the other person's income. g. Should demonstrate application of mind, not use mechanical or vague language. h. Must specify the assessment years involved and record separate satisfaction for each year. i. If the AO of searched person and other person are different: -Note must mention transmission of material and satisfaction to AO of the other person. -If AO is common for both, must record in the note that he is acting in both capacities. 59. These conditions have been further crystalised by the catena of decisions of the various courts as detailed below; a) The satisfaction note should not be based on only loose sheets or uncorroborated material. (CBI v. V.C. Shukla [(1998) 3 SCC 410] and Common Cause v. Union of India [(2017) 11 SCC 731] judgments). b) The Division Bench judgment of the Hon'ble Karnataka High Court in Sunil Kumar Sharma v. DCIT (W.A.....
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.... u/s.153C of the Act and hence in our considered view the entire proceeding which is based on such satisfaction note recorded is legally unsustainable and void ab initio. 64. The next issue raised by the ld.AR is in respect of the addition of income made by the AO is based on loose sheets found in the house of a third party. The pen drive lack any identifying features such as the full name or address of the assessee, crucially, the statement of Mr. Badri Narayana Choudhary, who is the alleged custodian of the seized pen drive, does not confirm the transactions/notings are related to the assessee. The sworn statement dated 11.02.2020 of Mr. Choudhary merely identified the assessee as someone who had rendered professional consultancy to the group and had facilitated certain share acquisitions in CETEX Petrochemicals Pvt. Ltd. It does not establish that any cash was paid to the assessee, any amount was handed through the assessee for onward remittance as incriminating in nature. 65. According to the ld.AR in the absence of authorship, confirmation, or corroboration, no presumption can arise u/s.4 of the Evidence Act or under the Income-tax Act and he further stated that the present ....
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....nce establishes a nexus. In the present case, it is undisputed fact that the pen drive was found in the possession of Mr. Badri Narayana Choudhary (Kota) not from the assessee, hence presumption, if at all, is against Mr. Kota, not the assessee. Now, it is incumbent upon the revenue to prove conclusively that the contents pertain to and implicate the assessee with independent material. Further, we concur with the argument of the ld.AR, even assuming for argument's sake that the presumption of ownership u/s.292C of the Act were to apply, there is no automatic presumption that the contents of a digital document are true as to third-party entries, unless corroborated. This is especially so where the document is disputed by the assessee, the author or custodian of the document has not confirmed the specific entry in question and there is no independent evidence linking the assessee to the contents. In support of our above view, we take the help of the following decisions: CIT v. S.M. Aggarwal [(2007) 293 ITR 43 (Del)] "The entries in third party documents cannot be presumed to be true without corroborative evidence." CIT v. P.V. Kalyanasundaram [(2007) 294 ITR 49 (Mad)]: "Where....
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....ncrimination as set forth in Pepsi Foods (supra). 74. On perusal of the present facts, the pen drive qualifies as a "dumb document" for the following reasons: 1. It was not seized from the assessee; 2. It was not confirmed by the person from whose premises it was seized; 3. It has no corroborating trail of cash receipt, deposit, asset creation, or expenditure. 4. It has been denied by the assessee and not supported by any third-party confirmation. 75. We take the support of the decision wherein this principle has been reinforced in a) Layer Exports Pvt. Ltd. v. ACIT [(2021) 129 taxmann.com 324 (ITAT Mumbai)] "Pen drive entries not supported by confirmation from the assessee or the person from whom it was seized are mere dumb documents and cannot justify additions." b) CIT v. S.M. Aggarwal [(2007) 293 ITR 43 (Del)] "Third-party documents which are not confirmed or corroborated cannot be used as the sole basis for addition." c) CIT v. P.V. Kalyanasundaram [(2007) 294 ITR 49 (Mad)] "Mere notings in seized documents, in the absence of confirmation, are insufficient to support addition." 76. Therefore, considering the entire conspectus of the case discussed above, w....
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....emittance to the Department; * The assessee acted as an intermediary for cash payments towards tax dues. 80. We find that, on the contrary, the only reference made to the assessee in the said sworn statement is that he had been professionally engaged by the N.K.V.Krishna Group to facilitate the acquisition of shares in CETEX Petrochemicals Pvt. Ltd., a transaction that was duly disclosed and is not under dispute in these proceedings. According to the facts and circumstances of the case, we are of the view that, this limited professional engagement has no bearing on or nexus with the alleged cash movement reflected in the pen drive, and the Revenue's attempt to extrapolate this admission to attribute credibility to unrelated entries without any corresponding statement from the author is entirely misconceived and hence the conclusion of AO and ld.CIT(A) is not based on testimony, but on speculation. 81. It is a trite law that where a document is neither admitted by the assessee nor confirmed by its alleged author, and in the absence of any independent corroborative material, such document has no evidentiary value in the eyes of law. The Hon'ble Supreme Court has, in unequivocal t....
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....enue cannot be permitted to selectively rely on the assessee's statements to suit its case, by accepting parts that are convenient (such as the assessee's role in the CETEX facilitation) while simultaneously discarding the assessee's categorical denial of ever having received any unaccounted cash. The law recognizes that where a statement is made by a party, it must be considered in its entirety, and not in isolation. This principle, recognized as the "doctrine of whole truth", prevents selective appreciation of evidence. In Mehta Parikh & Co. v. CIT [(1956) 30 ITR 181 (SC)], the Hon'ble Supreme Court held that where an assessee makes a statement, the entirety of the statement must be evaluated, and it is impermissible for the Department to accept one part while discarding the rest without independent verification. Applying this principle, the Revenue cannot accept the assessee's acknowledgment of professional engagement in the CETEX matter and simultaneously rejecting his unequivocal denial of receiving cash, without producing any further corroborative evidence for the same. This presumption is legally flawed. As held in CIT v. P.V. Kalyanasundaram [(2007) 294 ITR 49 (Mad)] and CI....
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.... referred to the assessee, and made an addition of Rs.10 lakhs in his hands as unexplained income under Section 69A. The assessee denied any such transaction, and repeatedly sought cross-examination of Mr. Viral Patel, but no such opportunity was provided. The ledger was neither signed nor confirmed by the assessee or by Mr. Patel as relating to the assessee. There was also no corroborative evidence, no money trail, no statement from the payer, and no material found from the assessee's premises. (page 2 para 3 and page 6 para 7 ) 87. The Tribunal found that the AO had relied entirely on an unverified third-party ledger, which lacked authenticity and evidentiary value. Consequently, the Tribunal held that the ledger was a "dumb document", and in the absence of any corroboration or cross-examination, the addition was unsustainable and had to be deleted. It was held that, "Unverified digital entries seized from a third party, uncorroborated and denied by the assessee, are not sufficient to sustain additions under section 69." Thus, we could be inferred that the addition based on seized pen drive in the present case is equally unsustainable, and deserves to be deleted in full treat....