TaxTMI 
TaxTMI 
2026 (1) TMI 982
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.... has raised the following Grounds of Appeal for assessment year 2013-14: "1. The learned CIT(A) has erred in not holding that the notice issued u/s. 148 of the Act is bad in law, illegal and void-ab-initio. The learned CIT (A) has further erred in not holding that procedure as per law was not followed while issuing the notice u/s. 148 of the Act. 2. The learned CIT (A) has erred in not holding that the assessment order passed by AO u/s. 147 of the Act is bad in law, illegal and null and void. 3. The learned CIT(A) has erred in confirming the additions made by AO in the Appellant's case and rejecting the submissions that the noting in the seized diaries do not pertain to/belong to the Appellant. 4. The learned CIT(A) has erred in confirming the addition of Rs. 98,24,766/- made by the AO u/s. 69Con account of Unexplained expenditure based on entries in the ledger "Mukeshbhai Ratanjyot" in the diaries seized from the premises of Shri Prakash Sanghvi. The learned CIT (A) has erred in confirming the action of the AO in invoking s. 115BBE in respect of the said addition. 5. The learned CIT(A) has erred in not holding that the assessment or....
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....14, notices under sections 143(2) and 142(1) along with a detailed questionnaire were issued. The assessee filed replies, contending that the seized diaries did not belong to him, that the name "Mukesh" was a common name, and that the entries were dumb documents without evidentiary value. The Assessing Officer, however, observed that the diaries were admittedly maintained by Shri Prakash M. Sanghvi on a regular basis and that several entries therein were found to be corroborated with disclosed transactions of the assessee and other related parties. A detailed show-cause notice was issued confronting the assessee with the diary entries, the running nature of the account, the working of negative peak balances and the interest entries recorded therein. 7. After considering the material on record, the Assessing Officer concluded that the transactions recorded in the ledger "Mukesh Ratnajyot / Mukeshbhai RJ" constituted a running financial account between the assessee and Shri Prakash M. Sanghvi involving loans and repayments, partly through cash and partly through cheques. Since the assessee failed to satisfactorily explain the source of the cash outflows recorded in the diaries, th....
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....ntenance is inconsistent with casual or third-party writing and establishes that Shri Mukesh Vaghela was treated by Shri Prakash Sanghvi as a known and identifiable counter-party within the Ratnamani Group's financial framework. The third and most decisive documentary evidence is independent corroboration of diary entries with disclosed transactions of the assessee himself. During assessment, the Assessing Officer verified entries recorded in Annexure A-11 and Annexure A-12 relating to purchase of shares in entities such as Real Value, J.P. Infra Pvt. Ltd., Comsonbia and Real Services Pvt. Ltd. These diary entries were matched with documents and explanations filed by the assessee. It was found that the names of companies, dates of investment, number of shares, rate per share and total consideration exactly matched the assessee's disclosed investments. This direct documentary matching conclusively established that the diary entries were real transactions pertaining to Shri Mukesh Vaghela, thereby linking him directly with the financial records maintained by Shri Prakash Sanghvi of the Ratnamani Group. The fourth documentary link arises from bank statement corroboration in the cases ....
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.... (2) the admission of Shri Prakash M. Sanghvi under section 132(4), (3) exact matching of diary entries with the assessee's disclosed investments, (4) corroboration of other diary entries with bank statements of Ratnamani Group entities, (5) the assessee's directorship in a Ratnamani Group company, and (6) the absence of any rebutting documentary material from the assessee. 9. On the cumulative strength of these documents, the Assessing Officer concluded that there existed a clear, real and demonstrable financial connection between Shri Mukesh Vaghela, Shri Prakash M. Sanghvi and the Ratnamani Group, going far beyond mere suspicion or third-party allegations. 10. For Assessment Year 2014-15, a similar process followed. The Assessing Officer issued notice under section 148 based on the same seized material. During reassessment proceedings, the assessee reiterated his earlier contentions. The Assessing Officer again treated the ledger "Mukesh Ratnajyot / Mukeshbhai RJ" as pertaining to the assessee, computed the incremental negative peak for the year at Rs.1,14,52,110/- and added the same under section 69C. Interest accrued as per the....
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....contended that the Assessing Officer adopted an inconsistent approach by taxing debits and credits separately, leading to double taxation. With regard to interest additions, the assessee contended that the interest entries were merely notional entries passed by Shri Prakash M. Sanghvi for internal family accounting purposes, that no interest was ever paid or received, and that such hypothetical income could not be taxed in view of the settled principle that only real income is chargeable to tax. The assessee also challenged the application of section 115BBE and initiation of penalty proceedings as consequential and premature. 15. On the issue of additions under section 69C of the Act, the CIT(A) undertook a detailed examination of the seized material, assessment records and the surrounding circumstances. The CIT(A) held that the Assessing Officer was justified in treating the ledger "Mukesh Ratnajyot / Mukeshbhai RJ" as pertaining to the assessee, noting that Shri Prakash M. Sanghvi had admitted maintaining the diaries, that the assessee was closely connected with the Ratnamani Group, and that several entries in the diaries were found to be corroborated with disclosed investment....
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...., the application of section 115BBE was mandatory and justified. The grounds challenging levy of interest under sections 234A, 234B and 234C were held to be consequential, and the grounds relating to initiation of penalty proceedings were held to be premature. 19. Accordingly, the CIT(Appeals) partly allowed the appeals for Assessment Years 2013-14 to 2021-22. The additions on account of unexplained expenditure under section 69C based on incremental peak were confirmed for most years, enhancement was made for A.Y. 2018-19, full relief was granted for A.Y. 2021- 22 by deleting additions under sections 69A and 69C, and the additions on account of notional interest under section 56 were deleted for all years by following the detailed appellate order in the case of Shri Prakash M. Sanghvi and applying the principle of real income. 20. The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee. 21. Before us, the ld. counsel for the assessee submitted that that he shall not be pressing Grounds relating to initiation of 147 proceedings and accordingly, the same are dismissed as "Not Pressed". Accordingly. Ground Numbers 1, ....
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....ddition could not be sustained merely on the basis of a name appearing in a third-party document. A substantial part of the arguments of the ld. Counsel also revolved around the treatment of the very same ledger in the case of Shri Prakash M. Sanghvi. It was submitted that the Assessing Officer, in the assessment of Shri Prakash M. Sanghvi, had himself treated the ledger "Mukeshbhai RJ" or "Mukeshbhai Ratnajyot" as a land trading or "Jamin trading" ledger belonging to Shri Prakash M. Sanghvi. The ld. counsel pointed out that in the assessment order of Shri Prakash M. Sanghvi for Assessment Year 2013-14, particularly at page 43 thereof, the credits appearing in the ledger "Mukesh Raytnajyot" were considered by the Assessing Officer as receipts from land trading activities carried out by Shri Prakash M. Sanghvi on his own account. On that basis, the Assessing Officer applied a profit rate of 35 per cent on the credits appearing in the said ledger and brought the resulting profit to tax in the hands of Shri Prakash M. Sanghvi. It was further submitted that the Assessing Officer had adopted a similar approach in respect of several other ledgers found during the search, treating them as....
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.... in the case of Shri Prakash M. Sanghvi had attained finality inasmuch as the Hon'ble Tribunal had already adjudicated upon the nature of the ledger and confirmed its character as land trading receipts of Shri Prakash M. Sanghvi. In view of this finality, it was argued that the impugned additions in the hands of the assessee were unsustainable in law and liable to be deleted. It was reiterated that in the case of other persons whose names appeared under the head "Jamin trading", the Assessing Officer had consistently taxed the profit in the hands of Shri Prakash M. Sanghvi and had not made additions in the hands of those persons. Therefore, adopting a different approach only in the case of the present assessee was arbitrary and discriminatory. Without prejudice to the above submissions, the ld. counsel submitted that if the Tribunal was of the view that the matter required further examination, the issue may be restored to the file of the Assessing Officer with appropriate directions to adopt a consistent stand in line with the treatment accorded to the ledger "Mukeshbhai RJ" or "Mukeshbhai Ratnajyot" in the case of Shri Prakash M. Sanghvi and other similarly placed persons, and not....
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....rther pointed out that the learned CIT(A) in the case of Shri Prakash Sanghvi had deleted the protective addition of Rs.3,02,32,416, including the receipt of Rs.48,30,000 from Shri Mukesh Mohanlal Vaghela, on the ground that there was no ambiguity as to in whose hands the addition should be made, since substantive additions had already been made in the cases of the respective family members. This, according to the Ld. DR, clearly established that the addition no longer survived in the hands of Shri Prakash Sanghvi and, therefore, the contention of the assessee that the income had already been taxed in the hands of Shri Prakash Sanghvi was factually incorrect. Elaborating further, the Ld. DR submitted that the ledger in question, namely "Mukesh Ratnajyot" or "Mukeshbhai RJ", was indeed the same ledger on which the sale consideration and receipts were examined in the case of Shri Prakash Sanghvi. However, the tax treatment in the two cases was different because the nature of income and expenditure was different in each case. In the case of Shri Prakash Sanghvi, the receipts recorded in the ledger were examined as part of his land trading or land-related financial activities and profi....
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....c. 30. The Ld. DR then addressed the reliance placed by the assessee on the appellate orders in the case of Shri Prakash Sanghvi. It was submitted that although the learned CIT(A) had deleted the protective addition made in the hands of Shri Prakash Sanghvi under section 69, the Hon'ble Income Tax Appellate Tribunal had dismissed the appeals filed by the Revenue on this issue, thereby affirming that the protective addition was rightly deleted only because substantive additions had already been made in the hands of the concerned family members, including the assessee. The Ld. DR emphasized that this sequence of events clearly demonstrated that the income was intended to be taxed in the hands of the assessee and not in the hands of Shri Prakash Sanghvi. 31. Accordingly, the Ld. DR submitted that the plea of the assessee that the disputed additions could not be made again because they were already assessed in the case of Shri Prakash Sanghvi was wholly untenable. On the contrary, once the protective addition in the case of Shri Prakash Sanghvi stood deleted, the substantive additions made in the hands of the assessee under section 69C for unexplained expenditure and under sectio....
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....well as in appellate proceedings. 36. Within these diaries, a distinct and separately identifiable running ledger titled "Mukesh Ratnajyot" or "Mukeshbhai RJ" was found. This ledger is not a casual jotting or a stray noting. It is a systematically maintained account extending over several financial years, containing opening balances, multiple debit and credit entries, computation of interest on outstanding balances, and closing balances carried forward year after year. The very nature of this ledger, its continuity and internal consistency, clearly establishes that Shri Prakash M. Sanghvi was dealing with a known and specific counter-party, and not with some unidentified or hypothetical person. The plea of the assessee that "Mukesh" is a common name does not carry any weight when viewed in the context of a detailed, running and interest-bearing account maintained over a long period. 37. The Assessing Officer has further demonstrated that the entries in the seized diaries are not dumb documents. During assessment proceedings, several entries recorded in the very same diaries, particularly those relating to investments in shares of certain companies, were independently verified....
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.... from the perspective of his land-related activities and, in certain years, profit was estimated thereon. However, it is crucial to note that wherever substantive additions were made in the hands of the concerned family members, including the assessee, the corresponding protective additions in the hands of Shri Prakash M. Sanghvi were deleted by the CIT(Appeals). This clearly shows that the CIT(Appeals) consciously held that the real incidence of taxation lay in the hands of the persons who had made the unexplained payments, and not in the hands of Shri Prakash M. Sanghvi. 41. The learned CIT(Appeals), while adjudicating the assessee's appeals, has specifically relied upon these findings and has correctly held that there is no double taxation. The receipt and the corresponding outflow represent two sides of the same transaction, and the same transaction can give rise to tax consequences in the hands of different persons, depending upon their respective roles. In the present case, the assessee's role, as clearly emerging from the seized diaries, is that of a financier who made repeated payments to Shri Prakash M. Sanghvi over several years. The systematic calculation of interest ....
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....vely in the hands of the respective persons. This position becomes more clear from the fact that, in the case of Shri Prakash M. Sanghvi, a protective addition under section 69 of the Act was made in respect of receipts from family members and associates, including receipts from the assessee, Shri Mukesh Mohanlal Vaghela. Simultaneously, substantive additions were made in the hands of the assessee under section 69C of the Act in respect of the very same amounts, treating them as unexplained expenditure incurred by him. This approach, which is well recognised in tax jurisprudence, was adopted precisely to ensure that the income does not escape taxation, while at the same time safeguarding against uncertainty as to the correct person in whose hands the income should ultimately be assessed. The learned Commissioner of Income-tax (Appeals), while adjudicating the appeal of Shri Prakash M. Sanghvi, examined this aspect threadbare. The CIT(Appeals) recorded a categorical finding that there was, in fact, no ambiguity regarding the person in whose hands the income was liable to be assessed, since substantive additions had already been made in the cases of the respective family members and ....
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....s, and the source of such payments remained unexplained. The deletion of protective additions in the hands of Shri Prakash M. Sanghvi only strengthens the conclusion that the substantive additions in the hands of the assessee were intended to, and rightly did, survive. The argument of the assessee that the Revenue has taken inconsistent stands is, therefore, factually incorrect and legally untenable. The approach adopted by the Assessing Officer and affirmed by the learned CIT(Appeals) reflects a coherent and consistent application of law, whereby the unexplained source of payments is taxed in the hands of the person incurring the expenditure, and not merely shifted to the recipient. This approach finds support in settled principles that taxation has to follow the real nature of transactions and the real incidence of income or expenditure. 45. Neither the appellate order of the CIT(A) nor the order of the Tribunal in the case of Shri Prakash M. Sanghvi contains any finding that the payments recorded in the ledger "Mukesh Ratnajyot / Mukeshbhai RJ" did not emanate from the assessee or that the source of such payments stood explained in his hands. The Tribunal's findings in that c....
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.... placed on such precedents is rejected. 49. Viewed thus, the appellate findings in the case of Shri Prakash M. Sanghvi, far from creating any doubt, lend strong and direct support to the conclusion that the ledger "Mukesh Ratnajyot / Mukeshbhai RJ" represents real financial dealings of the assessee, that the assessee acted as a financier, and that the unexplained payments recorded therein are rightly taxable in his hands under section 69C of the Act. 50. Insofar as the application of section 115BBE is concerned, it is a statutory consequence once additions under section 69C are sustained, and the learned CIT(Appeals) has rightly upheld the same. The levy of interest under sections 234A, 234B and 234C is consequential, and the initiation of penalty proceedings is premature at this stage. 51. Having regard to the totality of facts, the cumulative documentary evidence, the admissions recorded during search, the corroboration with disclosed transactions of the assessee, and the detailed and reasoned findings recorded by the Assessing Officer and affirmed by the learned Commissioner of Income-tax (Appeals), we are of the considered view that the ledger "Mukesh Ratnajyot / Mukes....
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.... entries could not be brought to tax and accordingly deleted the addition made by the Assessing Officer for Assessment Year 2020-21. 56. The Department is in appeal before us against the order passed by the CIT(Appeals) allowing relief to the assessee. The learned Departmental Representative submitted that the facts clearly establish that the interest entries recorded in the seized diaries are not notional or hypothetical. According to the learned DR, the seized material demonstrates a consistent pattern of advancing funds and charging interest thereon, with balances being carried forward from year to year, which clearly shows accrual and actual receipt of interest outside the regular books. It was contended that the CIT(Appeals) erred in mechanically applying the reasoning adopted in the case of Shri Prakash M. Sanghvi without appreciating the factual distinction that, in the assessee's case, the interest entries form part of a running financial arrangement and represent real income earned by the assessee. 57. We have heard the rival contentions and perused the material on record. We find that the Assessing Officer has examined the seized diaries in detail and has brought on....