TaxTMI 
TaxTMI 
2025 (8) TMI 953
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....bitrary and without any basis. (2) The AO has failed to recognize 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 23-9-2....
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....come derived from his professional activities in audit and consultancy on a regular basis, and his returns have been duly processed by the Department. The 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-1....
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....y based on alleged entries in the seized documents and statements of third parties by passing a separate order for all the following assessment years u/s.153C of the Act dated 29.09.2021. 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 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 pray....
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....the note that he is acting in both capacities. j. Should not be based on loose sheets or uncorroborated material (as per VC Shukla and Common Cause judgments). k. Must comply with judgments in: a) Calcutta Knitwears (SC) b) Pepsi Foods (Del HC) c) Super Malls (SC) d) Sunil Kumar Sharma (Kar HC) e) Ganpati Fincap (Del HC) 13. It is a settled proposition in law that the satisfaction of the Assessing Officer, as required u/s.153C(1) of the Act, must not only 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(Ka....
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....of the seized pen drive, does not support the Revenue's case. In his sworn statement dated 11.02.2020, 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 to the Department to consider the same as incriminating in nature. 18. In view of the foregoing, the ld.AR submitted 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 ey....
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....buttable presumption regarding the ownership and truthfulness of books, documents, or valuables found in the possession or control of a person during a search or survey. The text of the provision makes it abundantly clear that: "...where any books of account, other documents... are found in the possession or control of any person in the course of a search under Section 132... it may be presumed that such documents belong to such person and the contents thereof are true." 23. Section 292C of the Act apply to the person from whom the material is seized. It creates no presumption 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 con....
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....d is incriminating in nature, relevant to the assessment year. In the present case, the pen drive was seized from Mr. Badri Narayana Choudhary, but not from the assessee. Further the pen drive contained vague references like "Krishnan Sir - IT", but no full name, PAN, address, or direct reference to the assessee. The author of the pen drive has not confirmed that the entry pertains to the assessee and the assessee has categorically denied receiving any cash or being connected to such a transaction. Thus, it could be inferred that the pen drive fails the test of belonging, relevance, and incrimination as set forth in Pepsi Foods. 28. The pen drive in this case 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 supporte....
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.... 11.02.2020, 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. Nowhere in his statement does Mr. Choudhary claim that: • Any cash was paid to the assessee; • Any amount was handed through the assessee for onward remittance to the Department; • The assessee acted as an intermediary for cash payments towards tax dues. 33. On the contrary, the only reference made to the assessee in the said 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. 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....
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....irely unrelated entries in a third party digital record, namely a pen drive allegedly detailing cash payments, that forms the subject of the present addition. 38. The ld.AR further submits that the Revenue 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 ld.AR submits that 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 while simultaneously r....
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....ee, Shri Mahendra Lalka, is an individual assessed to tax at Lucknow. The case arose from a search and seizure operation conducted under Section 132 of the Income-tax Act in the case of M/s.Rishi Ganga Builders and Developers Pvt. Ltd. and its associated concerns, not on the assessee himself. During the search, a ledger was recovered from the computer of one Mr. Viral K.Patel, who was associated with the searched party. The ledger allegedly contained cash payment entries to various persons, including an entry in the name "Mahendra Bhai". Based solely on that ledger entry, the Assessing Officer presumed that "Mahendra Bhai" 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 ) 45. The Tribunal found that the....
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....corroborative evidence. The ITAT's reasoning in Anand Jaikumar Jain provides strong judicial support to contend that the pen drive is a dumb document, and no addition can be sustained merely on the basis of such electronic records. Thus, the addition made on the basis of seized pen drive in the hands of the assessee is unjustified in law and on facts and must be deleted in full. 48. Manoj Madanlal Chhajed v. ACIT - (ITAT Pune, IT(SS)A Nos. 91 to 98/PUN/2022 & ITA No. 725/PUN/2022) Based on the diary notings and a statement recorded u/s.132(4) (which was later retracted), the AO made large additions u/s.68 (unexplained cash credit), 69, and 69C (unexplained investments and expenses). The ITAT held that the diary did not constitute speaking or corroborated evidence and that mere statements, especially when retracted, cannot form the basis of additions without supporting material. This case reinforces the principle that "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 C....
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....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 Krishnan Sir 4000000 This is money given to Krishnan who is an auditor Oct-16 Bharathi-Omr - Krishnan Sir 17400000 This is money given to Krishnan who is an auditor Oct-16 Krishnan Sir Income Tribunal - Prajit 10000000 This is money given to Krishnan who is an auditor Mar-17 Krishnan Sir- Income Tax 5000000 Mar-17 Krishnan Sir- Income Tax 15000000 This is money given to Krishnan who is an auditor Nov-15 Krishnan Sir 4000000 This is money given to Krishnan who is an auditor Dec-15 Krishnan Sir 5500000 This is cash given to auditor Krishnan Apr-17 Krishnan Sir- Income Tax 15000000 This is cash given to auditor 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....
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.... 5,00,00,000 2019-20 4,39,170 4,39,170 1,20,00,000 On appeal filed by the assessee the ld.CIT(A) confirms the order of the AO. 57. The first issue raised by the assessee is validity of the satisfaction recorded by the AO for reopening the assessment of the assessee based on the incriminating material found during the search. We find the extract of the satisfaction notes for invoking the jurisdiction has been reproduced in page No.20 of the First appellate authorities' order. On perusal of the satisfaction note recorded we find that the AO has recorded the same without specifying the incriminating materials, undisclosed income corresponding to each of the assessment years separately. It is only mentioned all the assessment year from 2014-15 to 2019-20 along with total amount of undisclosed income. 58. The recording of satisfaction is not a mere formality. The satisfaction recorded by the AO should be as per the jurisdictional requirement as detailed below; a. It must be in writing, dated, and signed by the Assessing Officer. b. Must be recorded before issuing notice u/s.153C. c. Should clearly identify the searched person u/s.132. ....
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....iction and must be recorded distinctly for each year. A failure to do so, strikes at the root of the assessment. Moreover, the Hon'ble Delhi High Court in Pepsi Foods Pvt. Ltd. v. ACIT [(2014) 367 ITR 112 (Del)] and the Hon'ble Supreme Court in Calcutta Knitwears [(2014) 362 ITR 373 (SC)] have emphasized that the AO must demonstrate a live and direct nexus between the seized material and the relevant assessment year in respect of the "other person," which cannot be presumed in the absence of year-specific satisfaction. 62. In the present case, we find that a consolidated or omnibus satisfaction note encompassing multiple years without individualized reference to incriminating material for each year, fails to meet the jurisdictional mandate. Further, we also find that the satisfaction note recorded is for common and undifferentiated across assessment years. There is no indication of any year-wise evaluation of material, nor is there any year-specific linkage between the seized documents and the income allegedly escaping assessment for each of the six years. 63. Therefore, we cannot consider such a blanket satisfaction which is contrary to statutory requirements and judicial in....
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....ed with any other evidence or statement to prove that the undisclosed income was related to the assessee. This view of ours is fortified by the courts by holding consistently that the presumptions must be exercised cautiously and only in the presence of corroborative evidence in the following decision: 1. CIT v. Daulat Ram Rawatmull [(1973) 87 ITR 349 (SC)], wherein the Hon'ble Supreme Court held that: "A presumption cannot be raised in the air - it must rest on foundational facts. Suspicion, however strong, cannot replace evidence." 68. Further, section 292C of the Act creates a rebuttable presumption regarding the ownership and truthfulness of books, documents, or valuables found in the possession or control of a person during a search or survey. The extract of the provision is given below: "...where any books of account, other documents... are found in the possession or control of any person in the course of a search under Section 132... it may be presumed that such documents belong to such person and the contents thereof are true." Section 292C of the Act apply to the person from whom the material is seized. 69. On reading of the provision, i....
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....it. 72. We take the support of the decision in the case of Pepsi Foods Pvt. Ltd. v. ACIT [(2014) 367 ITR 112 (Del)], the Hon'ble Delhi High Court laid down the following principles relevant to Section 292C and third-party material: 1. Satisfaction u/s.153C of the Act must be specific and based on material that "belongs to" or "relates to" the other person - a vague or general reference is not sufficient. 2. Documents recovered from a third party cannot be mechanically used against another assessee unless there is independent evidence to show a clear link. The Revenue must establish that the document belongs to the assessee, pertains to the assessee, and is incriminating in nature, relevant to the assessment year. 73. In the current facts of the case the pen drive was seized from Mr. Badri Narayana Choudhary, but not from the assessee. Further we find that the pen drive contained vague references like "Krishnan Sir - IT", but no full name, PAN, address, or direct reference to the assessee. The author of the pen drive has not confirmed that the entry pertains to the assessee and the assessee has categorically denied receiving any cash or being connected to suc....
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....m a third party, namely Mr. Badri Narayana Choudhary Kota. Both the AO and the first appellate authority appear to have presumed that the said entry, which contains a vague reference to "Krishnan Sir" and "Income Tax," refers to the assessee and that the cash was received or routed by him for the purpose of paying taxes on behalf of the N.K.V. Krishna group. 78. As we have already stated in our earlier observations, the pen drive was not found in the assessee's possession and the assessee's name is neither explicitly mentioned or there is no acknowledgment or confirmation of receipt of any cash. Further we find that there is no explanation from the alleged author that any such entry refers to or implicates the assessee and hence this inference is wholly unsubstantiated. 79. On perusal of the contents of the pen drive, it lacks any identifying features such as the full name or address of the assessee. We note that the revenue has completely relied on the statement of Mr. Badri Narayana Choudhary, who is the alleged custodian of the seized pen drive. However, we observed that the sworn statement dated 11.02.2020, Mr. Choudhary merely identified the assessee as someone who had r....
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.... above principles to the present case, the Revenue's reliance on the digital entry in the pen drive, bereft of authorship attribution or supporting material is entirely misplaced. In our considered view no effort has been made by the Department to secure confirmation from Mr. Choudhary that the entry pertains to the assessee. The department has not brought on record any statement under oath, cross-examination, or any supporting evidence to bring the said amount to taxation as undisclosed income. Hence, the action of the ld.CIT(A) cannot be countenanced in proceeding on a fundamentally flawed premise in treating the assessee's acknowledgment of professional involvement in a CETEX- related transaction as lending blanket credibility to the entire contents of a pen drive seized from a third party. We note that the assessee has candidly acknowledged that he was professionally engaged by the N.K.V.Krishna group to facilitate a transaction involving the acquisition of shares in CETEX Petrochemicals Pvt. Ltd. Therefore, the above statement was very specific, limited in scope, and pertains only to a distinct transaction in which the assessee acted in his professional capacity. However, the ....
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....licable since the document was not seized from the assessee. Therefore, the same reasoning applies in the instant case of the assessee and the presumption u/s.292C of the Act cannot operate against the assessee. (Page 25 para 18 in B.S. Yediyurappa v. ACIT) 85. In the present case, Mr. Kota has not stated that the entry pertains to the assessee. However, the assessee has categorically denied receipt of any such amount or being connected to the entries. The Tribunal in Yediyurappa's case(supra) held that documents not forming part of the regular books, uncorroborated and unauthenticated, are merely "dumb documents". The pen drive in the present case is of the same nature unverified, unconfirmed, and unsupported by any evidence of payment, receipt, or accounting. 86. The ratio of Mahendra Lalka v. DCIT, Lucknow Tribunal in ITA No.172/Lkw/2023 dated 18.07.2023 applies with full force to the present case. It supports the proposition that: The assessee, Shri Mahendra Lalka, is an individual assessed to tax at Lucknow. The case arose from a search and seizure operation conducted under Section 132 of the Income-tax Act in the case of M/s. Rishi Ganga Builders and Developers....
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....hat he had no connection with the entries in the seized material. The seized documents were undated, unsigned, unauthenticated, and were not found in the assessee's possession. The ld.CIT(A) and ITAT found that: a) The pen drive entries were not corroborated. b) The documents were seized from a third party. c) No direct or circumstantial evidence was brought on record to link the transactions to the assessee. d) The Dalmia's themselves did not confirm any cash transaction with the assessee and disowned the pen drive contents before the Settlement Commission. The ITAT upheld the ld.CIT(A)'s decision and deleted the addition in its entirety. (page 12 para 14 to page 15 para 15, page 20 para 20, page 21 para 22- Anand Jaikumar Jain's case) 89. The addition in the present case is also based solely on an uncorroborated pen drive entry, seized from a third party similar to the decision of the Anand Jaikumar Jain v. ACIT (Supra), which is: a) Denied by the assessee, b) Unconfirmed by the custodian, and c) Lacking any corroborative evidence. The Tribunal's reasoning in Anand Jaikumar Jain (supra) case provides stro....