TaxTMI 
TaxTMI 
2026 (5) TMI 174
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....essee on sole ground of non-admissible seized material evidence used by the Assessing Officer during the assessment proceedings u/s. 153C, consequent to search action conducted in the case of M/s. Polisetty Somasundaram group. 3. The Ld. CIT(A) erred in giving a finding that the pen drive seized from the business premises of M/s Polisetty Somasundaram group and marked as Annexure A/PSS/CORP/19 was an inadmissible digital evidence as held by Hon'ble ITAT in the case of M/s Polisetty Somasundaram and hence the same can't be considered as a valid digital evidence in the case of the assessee. The Ld. CIT(A) ought to have appreciated the fact that the said decision of Hon'ble ITAT was not accepted by the Department and further appeal to High Court was filed and the same is pending adjudication as on date. The Ld.CIT(A) ought to have appreciated the fact that the finding of Hon'ble ITAT either had not attained any finality or accepted by the Department as on date and thus, relying on the said decision of Hon'ble ITAT would be adverse in the interest of Revenue. 4. The Ld.CIT(A) erred in allowing relief to the assessee by considering the decision of H....
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....f evidence with regard to their meaning and its contents to be proved during trial by evidence -in- chief and cross examination. The emails and WhatsApp messages will have to be read and understood cumulatively to decipher whether there was a concluded contract or not". In this case, there is a virtual verbal communication and the same is matter of evidence, as in case of evidence derived from pen drive, and by completion of transaction, a concluded contract and electronic evidences derived from pen drive subsumes the same with conviction. 9. The Ld.CIT(A) has erred in not considering the evidence that was found and seized in the form of Pendrive and print outs of excel sheets as the same has evidentiary value as per the provisions of sec 65A and sec 65B of Indian Evidence Act 1872. 10. The Ld.CIT(A) has erred in not considering the sworn statement of the key person of the searched group i.e. Sri Polisetty Shyam Sundar of Polisetty Soma Sundaram group recorded u/s. 132(4) on 08.06.2020, wherein he had confirmed receipt of cash on various dates from the assessees and he also confirmed that all these cash transactions were outside regular books of accounts. Accordin....
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....essee that certificate obtained u/s. 65B of Indian Evidence Act is not as per law. The Ld.CIT(A) ignored the fact that in the assessment order it was clearly mentioned that several incriminating material alongwith the pendrive was found during the search. Ld.CIT(A) failed to appreciate the fact that pendrive is an independent primary evidence storage devise. Ld.CIT(A) ignored that fact that extracts of said pendrive were confronted during recording of the statement in the search operation and the assessee never raised objection about the contents of the pendrive. 16. Any other ground that may be urged at the time of hearing." 2. The assessee, on the other hand, has challenged the impugned order of the CIT(A) on the following grounds: "1. The Learned CIT(Appeals) erred in both law and fact. 2. On the facts and circumstances of the case, the Learned Commissioner of Income Tax (Appeals) is not justified in confirming the addition made of Rs. 55,00,000/- on account of acceptance of cash loan from M/s. Polisetty Somasundaram. 3. On the facts and circumstances of the case the Learned CIT(A) ought to have appreciated that the receipts were found and ....
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....cts borne on record, we have no hesitation in admitting the same. Our aforesaid view is supported by the judgment of the Hon'ble Supreme Court in CIT vs. National Thermal Power Company Limited (1998) 229 ITR 383 (SC). 5. Shri. MV Prasad, CA, the Ld. Authorized Representative (for short, "Ld. AR") for the assessee, at the threshold of hearing of the appeal submitted that the same involves a delay of 37 days. Elaborating on the reason leading to the delay in filing the appeal, the Ld. AR has drawn our attention to the application filed by the assessee-appellant, wherein he has sought for the condonation of the delay of 37 days in filing the present appeal. The Ld. AR submitted that the delay in filing the appeal had crept in due to the non-availability of the Digital Signature Certificate (DSC) in time, and also due to the fact that the assessee did not notice the communication of the order of the CIT(A) in his email account for some time. The Ld. AR submitted that as the delay involved in the appeal is not inordinate and is backed by justifiable reason, the same, in all fairness and interest of justice be condoned. 6. Per Contra, the Ld. Departmental Representative (for short,....
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....a huge quantum of taxes. As per the seized documents, it transpired that the assessee was also one of the close aides of the partners of M/s Polisetty Somasundaram. As per an incriminating document, i.e., a cash voucher found and seized during the course of the search proceedings, viz., annexure A/PSS/CORP/09 - Page No. 129, the assessee was paid an amount of Rs. 55 lacs on 12/11/2016. For the sake of clarity, we deem it apposite to cull out the seized document, as under: The AO, based on the aforesaid material, initiated proceedings under Section 153C of the Act in the case of the assessee. 9. During the course of the assessment proceedings, the AO confronted the assessee with the contents of the seized material, viz. (i). Annexure A/PSS/CORP/19 (contents of the pen drive); and (ii). Annexure A/PSS/CORP/09 - Page No. 129. In reply, the assessee denied having entered into any cash transactions with M/s Polisetty Somasundaram. The assessee, vide his letter dated 21/03/2022, stated that he had taken a loan of Rs. 3 crore for a period of 10 years from M/s Polisetty Somasundaram (through banking channels during the F.Y. 2013-14), but the said loan, at the insistence of the lender....
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....the cash book, viz. Annexure-A/PSS/CORP/18, vouchers, and statement of Sri Polisetty Shyam Sundar (supra) recorded both during search proceedings and in the course of the assessment proceedings, observed that it was conclusively established that the assessee had repaid the loan amount in cash. Thereafter, the AO, in the absence of any explanation of the assessee regarding the source of the cash payments of Rs 1,55,00,000/- to M/s Polisetty Somasundaram, held the same as having been sourced out of the unexplained income of the assessee. Further, the AO observed that the assessee had, during the subject year, received an amount of Rs. 55,00,000/- in cash from M/s Polisetty Somasundaram, as evidenced by the voucher dated 12/11/2016. The AO, observing that Sri P. Shyam Sundar, the Managing Partner of M/s Polisetty Somasundaram, in his statement recorded during assessment proceedings, had stated that the subject amount of Rs. 55 lac pertained to the repayment of a cash loan taken by the assessee, thus made an addition of the said amount to the income of the assessee on a protective basis. Accordingly, the AO, based on his aforesaid deliberations, after making the aforementioned addition....
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....nsidered for the assessment purpose. The ITAT had concluded that only the pendrive seized vide annexure A/PSS/CORP/18 is invalid digital evidence as per law. According to the Hon'ble ITAT, the conditions specified in the section 65B(2) and 65B(4) of the Indian Evidence Act was not followed in the case of Shri Polisetty Somasundaram." 13. However, the CIT(A) observed that the AO, while framing the assessment, had also relied upon certain other evidence. The CIT(A) observed that certain incriminating vouchers containing unaccounted transactions were unearthed during the course of the search proceedings. As per one of the voucher seized in the course of the search proceedings, viz., annexure A/PSS/CORP/09, Page 129, the CIT(A) observed that the same referred to a cash payment made by the assessee to Shri Polisetty Somasundaram. Accordingly, the CIT(A), based on his aforesaid observation, upheld the addition of Rs. 55 lacs made by the AO. 14. Both the assessee and the revenue aggrieved with the CIT(A) order has carried the matter in appeal before us. 15. We have heard the Ld. Authorized Representatives of both parties perused the orders of the authorities below and the materia....
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....ovisions is the date of initiation of the search, and not the date of issuance of notice under Section 153C of the Act. The Ld. CIT-DR submitted that the "deeming fiction" under Section 153C is only for the purpose of bringing "other persons" within the ambit of assessment and does not alter the original jurisdictional fact of search. The Ld. CIT- DR further submitted that Section 153C(3) contains a sunset clause providing that the section shall not apply where a search is initiated under Section 132 on or after 01/04/2021. It was submitted that, since the present search was initiated on 28/01/2020, the amended law introduced by the Finance Act, 2021, is not applicable. The Ld. DR submitted that if the interpretation suggested by the assessee is accepted, then the income of the assessee that had escaped assessment would neither be assessable under Section 153C nor under Section 147of the Act, which could never have been the intention of the legislature. 19. We have given thoughtful consideration to the contentions advanced by the Ld. Authorized Representatives of both parties. The core issue, based on which the validity of the jurisdiction assumed by the AO for issuing notice un....
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....notice issued under Section 153C of the Act dated 06/12/2021 is only a procedural step flowing from the original search proceedings. In our view, the Revenue's contention is also supported by the principle that if the assessee's interpretation is accepted, it would lead to an anomalous situation where income escaping assessment would fall outside both Section 147 and Section 153C of the Act, which could not have been the intention of the legislature. We find that it is a settled principle laid down by the Hon'ble Supreme Court that an interpretation of a statutory provision which leads to absurdity must be avoided. Also, an interpretation that renders a statutory provision unworkable or defeats its very purpose cannot be accepted. Our aforesaid view is supported by the judgment of the Hon'ble Supreme Court in CIT v. Hindustan Bulk Carriers (2002) 259 ITR 449 (SC), wherein it is held that a construction which leads to manifest absurdity must be avoided and the statute must be interpreted in a manner that gives effect to legislative intent. Applying the aforesaid principle, the interpretation suggested by the Ld. AR, that the date of issuance of notice under Section 153C of the Act s....
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....me; therefore, reliance placed upon the same will not carry the case of the assessee any further. Accordingly, the additional grounds of appeal raised by the assessee challenging the validity of the jurisdiction assumed by the AO for issuing notice under Section 153C of the Act, dated 06/12/2021, are rejected. 22. Coming to the merits of the case, we find that the assessee is an individual engaged in business. Search and seizure proceedings under Section 132 of the Act were conducted in the case of M/s. Polisetty Somasundaram group on 28/01/2020. During the course of the search proceedings, a pen drive marked as Annexure A/PSS/CORP/19 was seized, and printouts derived therefrom were marked as Annexure A/PSS/CORP/18. Apart from that, one voucher was seized during the course of search proceedings from the premises of M/s Polisetty Somasundaram, viz. A/PSS/CORP/09, Page no. 129, which revealed a cash payment of Rs. 55,00,000/- made to Sri K. Rosaiah (assessee). As observed by us hereinabove, the AO had, based on the aforesaid material, initiated proceedings in the case of the assessee under Section 153C of the Act. Although the assessee denied the transactions and contended that th....
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....basis of such electronic data, holding that, in the absence of a valid Section 65B certificate, the printouts of the seized pen drive data had no evidentiary value and could not be relied upon to sustain the additions. For the sake of clarity, the observations of the Tribunal in the case of M/s Polisetty Somasundaram Vs. DCIT (supra), are culled out as under: "39. We have heard both the parties and perused the material available on record and the orders of the Ld. Revenue Authorities on this issue as well as the submissions made by the Ld. AR and the Ld. CIT-DR. The CBDT has issued an Investigation Manual for the purpose of collecting Digital Evidence in the cases of search and seizure. In para 2.6.3 of the said Manual, the CBDT has advised that the procedure has to be in consonance with the provisions of section 65B of the Indian Evidence Act. For reference sake, we extract below the relevant para 2.6.3 of the Manual: "2.6.3 Under Indian Evidence Act there are several references to documents and records and entries in books of account and their recognition as evidence. By way of the THE SECOND SCHEDULE to the Information Technology Act Amendments to the Indian Ev....
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.... in clause (a) of sub-section (2) was regularly performed by computers, whether- (a) by a combination of computers operating over that period; or (b) by different computers operating in succession over that period; or (c) by different combinations of computers operating in succession over that period; or (d) in any other manner involving the successive operation over that period, in whatever order, of one or more computers and one or more combinations of computers, all the computers used for that purpose during that period shall be treated for the purposes of this section as constituting a single computer; and references in this section to a computer shall be construed accordingly. (4) In any proceedings where it is desired to give a statement in evidence by virtue of this section, a certificate doing any of the following things, that is to say, - (a) identifying the electronic record containing the statement and describing the manner in which it was produced; (b) giving such particulars of any device involved in the production of that electronic record as may be appropriate for the purpose of showing that the electroni....
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....ent, i.e., electronic record which is called as computer output, depends on the satisfaction of the four conditions under section 65B(2). Following are the specified conditions under section 65B(2) of the Evidence Act: (i) The electronic record containing the information should have been produced by the computer during the period over which the same was regularly used to store or process information for the purpose of any activity regularly carried on over that period by the person having lawful control over the use of that computer; (ii) The information of the kind contained in electronic record or of the kind from which the information is derived was regularly fed into the computer in the ordinary course of the said activity; (iii) During the material part of the said period, the computer was operating properly and that even if it was not operating properly for some time, the break or breaks had not affected either the record or the accuracy of its contents; and (iv) The information contained in the record should be a reproduction or derivation from the information fed into the computer in the ordinary course of the said activity. 15. ....
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....by the Hon'ble Apex 41 Court, the Hon'ble Madras High Court delivered its judgment in the case of Vetrivel Mineral vs. ACIT (supra) vide para 24 of its order which is extracted herein above. Therefore, in our opinion there is no need to repeat the finding of the Hon'ble Supreme Court in the case of Anvar P.V. vs. P.K. Basheer and Others again for reference. 44. Now coming to the decision of the Hon'ble Supreme Court in the case of Arjun Pandit Rao Khotkar vs. Kailash Kushan Rao Gorantyal And Ors reported in [2020] 7 SCC 1 (SC) the Hon'ble Apex Court has observed as under: "30. Coming back to Section 65B of the Indian Evidence Act, sub-section (1) needs to be analysed. The sub- section begins with a non-obstante clause, and then goes on to mention information contained in an electronic record produced by a computer, which is, by a deeming fiction, then made a "document". This deeming fiction only takes effect if the further conditions mentioned in the Section are satisfied in relation to both the information and the computer in question; and if such conditions are met, the "document" shall then be admissible in any proceedings. The words "...without further proof o....
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....f the Evidence Act,...". With this minor clarification, the law stated in paragraph 24 of Anvar P.V. (supra) does not need to be revisited. 45. On careful perusal of the case laws cited above, we are of the considered view that the Revenue Authorities should mandatorily and scrupulously follow the conditions laid down under section 65B(2) and (4) of the Indian Evidence Act to render any documents to be valid in the eyes of law. In the instant case, the investigation agency obtained a Certificate about the details of the pen drive and the person in whose custody it was seized. Except these details nothing was there in the Certificate and also the said Certificate was not completely filled up by the Ld. Revenue Authorities. Further, from the Certificate obtained under Indian Evidence Act which is placed in Page-11 of Paper Book-2, we find force in the arguments of the Ld. AR that it is not as per the conditions laid down u/s. 65B of the Indian Evidence Act. For the sake of reference, the Certificate is reproduced here in below: 46. After considering the decisions of the Hon'ble Supreme Court in the case of Anvar P.V vs. P.K. Basheer and Others (supra); Arjun Pandit ....
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....ectronic data, they cannot survive in view of the binding finding of the Tribunal in the case of the searched group entity, viz. M/s. Polisetty Somasundaram. 27. We, thus, are of the view that the principle that emerges is that electronic data which has been held to be inadmissible in law due to defective Section 65B certification cannot, by itself, form the sole basis of addition. Accordingly, we hold that the addition made by the AO of Rs. 1.55 crore (supra) based solely on the pen drive/Excel sheet printouts is not sustainable in law in light of the binding decision of the coordinate bench in the case of M/s. Polisetty Somasundaram group holding that such electronic evidence is inadmissible for want of a valid Section 65B certification. 28. Coming to the addition of Rs. 55 lacs (supra) made by the AO, which thereafter had been upheld by the CIT(A), we find that it is the Ld. AR's contention that the impugned addition is based on certain vouchers found at the premises of a third party, which do not bear the signature of the assessee and are not supported by any corroborative evidence. The Ld. AR had further submitted that no opportunity for cross-examination of the concerne....
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....s. The Hon'ble High Court relied on its earlier decision in the case of CIT v. Mahabir Prasad Gupta, ITA NO. 814/2015, dated 20.10.2015, and held that no addition can be made in the hands of an assessee on the basis of any diary seized during the course of search proceedings conducted on a third party, since such diary was neither found at the assessee's premise and that the department had failed to provide any cogent material or gather any corroborative evidence to substantiate that it pertained to the assessee. The Court observed that the searched person could have written anyone's name on his own sweet will in his diary, and therefore, such noting on a stand-alone basis, along with the biased statement of the searched person, cannot be used as reliable evidence against the assessee. Also, support is drawn from the judgment of the Hon'ble Supreme Court in the case of Common Cause (A Registered Society) v. UOI (2017) 394 ITR 220 (SC), wherein it was observed that the entries in books of account are not by themselves sufficient to charge any person with liability, the reason being that a man cannot be allowed to make evidence for himself by what he chooses to write in h....
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....erein recorded, the AO, without corroborative material, could not have drawn adverse inferences and made the impugned addition in the hands of the assessee; and (ii). that now, when the AO had admitted in the assessment order that the contents of the seized voucher, viz. A/PSS/CORP/09, Page no. 129 referred to an amount of Rs. 55 lacs received by the assessee, viz. Sri K. Rosaiah from M/s Polisetty Somasundaram on 12/11/2016; he could not thereafter have made an addition regarding the impugned transaction, observing that, as per the said seized document, the assessee had, from his unaccounted income, made a cash payment of Rs. 55 lacs (supra) to M/s Polisetty Somasundaram on 12/11/2016. We thus are of firm conviction that there was no justification for the AO, both on law as well as on facts, to make the addition of Rs. 55 lacs (supra) in the hands of the assessee. Accordingly, we set aside the order of the CIT(A), who had sustained the impugned addition, and direct the AO to vacate the same. 33. In the result, the appeal filed by the assessee is partly allowed, and the appeal of the revenue is dismissed. Order pronounced in the open court on 30th April, 2026. ============....