TaxTMI 
TaxTMI 
2026 (7) TMI 1692
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....e substantially common and interconnected, all these appeals and Cross Objections were heard together and are being disposed of by way of this consolidated order. For the sake of convenience and because Assessment Year 2016-17 substantially encompasses the issues recurring in the remaining years, the facts are being discussed with reference to Assessment Year 2016-17 as the lead year and our findings shall apply mutatis mutandis to the remaining assessment years except to the extent of variation in figures or issues peculiar to any particular year. 2. The present litigation emanates from a search and seizure action conducted in the case of the assessee company and connected persons on 23.12.2023. Consequent to the search, assessments came to be framed for various years wherein the Assessing Officer made several additions principally on account of alleged non genuine consultancy expenditure, alleged profit embedded in unaccounted cash sales, unexplained expenditure under section 69C towards cash salary payments, unexplained expenditure in relation to land transactions, alleged liaisoning expenditure and unexplained money under section 69A. The learned CIT(A), after an elaborate e....
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....0,19,370 3.1. From the aforesaid chart, it would be seen that the principal controversies arising in these appeals relate to disallowance of consultancy charges under section 37(1), alleged profit from unaccounted cash sales, unexplained expenditure under section 69C on account of cash salary payments, unexplained expenditure in relation to land transactions, alleged liaisoning expenditure and unexplained money under section 69A. Since the factual foundation and evidences relating to each issue are distinct, we propose to deal with them issue-wise. We shall first take up the issue relating to disallowance of consultancy charges under section 37(1) of the Act, which arises in Assessment Years 2016-17 to 2023-24 and constitutes one of the principal grounds raised by the Revenue. 4. The controversy relating to consultancy expenditure forms an important limb of the larger case sought to be built up by the Assessing Officer in the aftermath of the search proceedings. The case of the Assessing Officer is not merely that certain expenditure claimed by the assessee lacked supporting evidence, but that the consultancy expenditure debited in the books of account was, in reality, a vehi....
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....enditure, nor is there any project-wise, vendor-wise or year-wise determination of the alleged non genuine component. Nevertheless, the entire consultancy expenditure came to be disallowed. 7. The Assessing Officer further observed that the consultants engaged by the assessee allegedly acted as conduits through whom payments were routed and that cash was subsequently withdrawn and utilised for liaisoning purposes. However, the assessment order does not identify any particular consultant who admitted to such an arrangement. Nor does it bring on record any evidence demonstrating actual withdrawal of cash and its onward utilisation for the alleged purposes. No trail of money has been identified. No recipient of such alleged cash payments has been identified. No evidence showing return of money to the assessee or payment to any Government official or intermediary has been brought on record. The conclusion, therefore, rests essentially upon inferences sought to be drawn from the statements recorded during search proceedings and certain digital communications. 8. It is in the aforesaid background that the Assessing Officer proceeded to rely heavily upon the statements of Shri Anil ....
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....d retraction affidavit filed by Shri Anil Kumar explaining the circumstances in which the statement was recorded and clarifying that consultancy payments represented genuine business expenditure supported by documentary evidence. 11. A very significant aspect which emerges from the record is that notwithstanding the central reliance placed upon the statement of Shri Anil Kumar, the Assessing Officer did not bring on record any corroborative material supporting the inference drawn by him. The learned CIT(A) has recorded a categorical finding that the statement was not based upon any incriminating material found during the course of search. It has also been noted that all digital devices and data available with Shri Anil Kumar were seized and examined by the Department during the search proceedings, yet no material was found demonstrating that consultancy payments represented fictitious expenditure or that cash payments were made in lieu thereof. Equally important is the fact that after the retraction affidavit was filed, no attempt was made by the Assessing Officer to independently verify the correctness or otherwise of the retraction. The retraction was simply rejected without a....
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....such communications lacked evidentiary value and could not be treated as proof of actual cash payments. 15. The learned CIT(A) examined the WhatsApp communications in detail and found considerable merit in the submissions of the assessee. One of the chats relied upon by the Assessing Officer pertained to the Bahraich project in Uttar Pradesh. The assessee demonstrated that consultancy expenditure relating to the said project had been incurred in Financial Years 2015-16 and 2016-17, whereas the WhatsApp communication relied upon by the Assessing Officer was of February 2023. Thus, there existed a complete disconnect between the period of consultancy expenditure and the communication relied upon by the Department. The learned CIT(A) therefore found that the WhatsApp communication had no nexus whatsoever with the consultancy expenditure disallowed by the Assessing Officer. Likewise, another communication relating to the GETCO project in Gujarat was examined. The assessee demonstrated that no consultancy expenditure relating to that project formed part of the disallowance under consideration. Thus, even if the communication was assumed to be genuine, it had no connection with the ex....
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....rrespond with the actual consultancy expenditure claimed by the assessee. He further observed that except these loose papers, no other material had been found either from the premises of the assessee company or from the premises of its promoters demonstrating that cash payments were made for liaisoning activities. The statement of Shri Inder Jaisinghani also stood contradicted by the actual project-wise consultancy expenditure furnished by the assessee. Thus, the loose papers and the statement based thereon were found to be unsupported by any independent evidence. 20. Having dealt with the material relied upon by the Assessing Officer, it would now be appropriate to notice the broader factual explanation furnished by the assessee in support of its claim of consultancy expenditure. The assessee submitted that it undertakes large Engineering, Procurement and Construction projects spread across various States of India, predominantly for Government departments, public sector undertakings and institutions owned or controlled by Central and State Governments. Such projects involve an elaborate and time-consuming tendering process requiring extensive documentation, technical qualificat....
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....disallowance rested solely upon statements recorded during search proceedings and not upon any independent investigation. 24. The assessee also emphasised that despite an extensive search operation, involving examination of digital devices, books of account, physical records and statements of various persons, no incriminating material was found showing that consultancy payments were fictitious. No cash trail was discovered. No unaccounted asset was found. No evidence showing actual payment of cash for liaisoning activities was unearthed. According to the assessee, the absence of such evidence assumes considerable significance because if consultancy expenditure of the magnitude alleged by the Assessing Officer was indeed being used as a conduit for cash payments, some corroborative material would inevitably have surfaced during the search proceedings. 25. The learned CIT(A), after examining the entire material on record, proceeded to analyse each component of the Assessing Officer's case separately. In relation to the statement of Shri Anil Kumar, he found that the statement stood retracted and was unsupported by any incriminating material found during the course of search. He....
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.... Before us, the learned CIT-DR relied heavily upon the assessment order and submitted that the search proceedings conducted in the case of Polycab India Ltd. had unearthed a modus operandi whereby the assessee claimed liaisoning expenses incurred for facilitating its projects across the country as consultancy charges in its books of account. It was contended that the consultancy payments were found to be non-genuine and this fact stood conclusively established from the statements recorded under section 132(4) of the Act from Shri Anil Kumar as well as the promoters of the company, who had admitted the true nature of such payments during the course of search. The learned DR further submitted that the subsequent retraction affidavits filed by Shri Inder Jaisinghani, Shri Ajay Jaisinghani and Shri Anil Kumar were merely an afterthought and lacked evidentiary value. It was argued that the Assessing Officer had duly examined the contents of the retraction affidavits and rejected the same through detailed communications dated 22.01.2025. In these circumstances, the disallowance of consultancy payments were justified. 30. We have carefully considered the rival submissions, perused the ....
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....d into with consultants, invoices raised by them, ledger accounts, project-wise details, details of services rendered, proof of payment through banking channels and evidence regarding deduction of tax at source. The payments were routed through normal banking channels. Tax was deducted wherever applicable. The consultants were identifiable parties. Significantly, the Assessing Officer has not recorded any finding that the agreements were fabricated, that the invoices were bogus, that the consultants were non-existent, that the payments had returned to the assessee or that the recipients had denied rendering services. In fact, no discrepancy whatsoever has been pointed out in the documentary evidences furnished by the assessee. Once such primary evidences are placed on record, disallowance of expenditure cannot be sustained merely on the basis of suspicion or inference unless supported by positive material demonstrating falsity of the claim. 33. We further find considerable merit in the contention of the assessee that despite making serious allegations regarding non genuineness of consultancy expenditure, the Assessing Officer did not conduct any independent enquiry from a single....
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....one would reasonably expect some corroborative evidence to emerge from the extensive search proceedings. The complete absence of such material substantially weakens the foundation of the addition. 36. The reliance placed by the Assessing Officer on WhatsApp communications also does not carry the matter any further. The learned CIT(A), after examining the contents of the chats and their context, has recorded a factual finding that the communications relied upon by the Assessing Officer had no nexus with the consultancy expenditure disallowed in the assessment years under consideration. The Bahraich communication related to a period entirely different from the period in which consultancy expenditure for that project had been incurred. Similarly, the communication relating to the GETCO project pertained to a project which did not form part of the consultancy expenditure disallowed by the Assessing Officer. These findings have not been controverted by the Revenue through any material placed before us. In such circumstances, isolated WhatsApp messages, devoid of context, unsupported by corroborative evidence and lacking nexus with the expenditure under consideration, cannot be elevat....
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....search proceedings. These circumstances, when viewed cumulatively, leave little room for sustaining the disallowance. 40. We are therefore of the considered view that the learned CIT(A) was fully justified in holding that the disallowance could not be sustained merely on the basis of retracted statements, isolated WhatsApp communications and uncorroborated loose papers. The findings recorded by the learned CIT(A) are based upon a proper appreciation of facts and evidence and do not suffer from any infirmity warranting our interference. Accordingly, the order of the learned CIT(A) deleting the disallowance of consultancy expenditure is upheld and the grounds raised by the Revenue on this issue are dismissed. 41. We shall now take up the next and one of the major issues arising in all the assessment years, namely the addition made by the Assessing Officer on account of alleged profit embedded in unaccounted cash sales stated to have been made by the assessee to the Sunrise Group, also referred to in the assessment order and the submissions as the SP Group. This issue arises in Assessment Years 2015-16 to 2023-24. The addition has been made by the Assessing Officer by bringing t....
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....represented an organised system maintained by the SP Group for recording unaccounted transactions. 44. The Assessing Officer further analysed the data contained in the parallel Tally accounts and observed that the entries were classified into cash sales, accommodation entries and cash loans. According to him, this structured classification itself showed that the parallel system was being regularly used for recording actual business transactions outside the regular books. The assessment order also refers to certain WhatsApp chats and loose papers allegedly matching with entries in the parallel Tally data. The Assessing Officer observed that the use of coded language, including expressions such as "Ram Ram", the details of goods dispatched without invoices, adjustment of quantities between accounted and unaccounted transactions and matching of kachcha bills, lorry receipts and loose sheets with Tally entries established a complete trail of unaccounted transactions carried out by the SP Group. 45. After analysing the material found in the case of the SP Group, the Assessing Officer proceeded to connect the said data with the assessee company. In this regard, reliance was placed ....
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....ire allegation was founded upon third party material found from the premises of the SP Group and statements of persons belonging to that group, which themselves stood retracted and were contradicted by subsequent clarification letters and affidavits. It was submitted that no material was found from the premises of the assessee to show that the assessee had made any unaccounted cash sales to the SP Group. The assessee pointed out that the Tally data found from the SP Group admittedly belonged to and was maintained by the SP Group. The ledgers relied upon by the Assessing Officer were not maintained in the name of the assessee, nor did they contain the name of the assessee or any of its promoters as beneficiary of the alleged cash receipts. The ledgers were in coded names such as "Shankarbhai", "Shankarbhai 1", "Shankarbhai 2" and "CKP", and the entire connection with the assessee was sought to be established only through statements of third parties. 49. The assessee further submitted before the learned CIT(A) that after the search, the SP Group had issued a detailed clarification letter dated 17.04.2024, which was also submitted before the Investigation Wing, categorically denyin....
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....e name of the assessee or any of its promoters as beneficiary. The Assessing Officer did not bring on record any document found either from the premises of the SP Group or from the premises of the assessee which could show that unaccounted money was paid to or received by the assessee. The learned CIT(A) thus held that merely because certain persons of the SP Group initially stated that the coded ledgers related to the assessee, the same could not be legally applied against the assessee in the absence of independent corroborative evidence, particularly when such statements were subsequently retracted and contradicted by the SP Group itself. 52. The learned CIT(A) also examined the search action conducted in the case of the assessee and recorded important factual findings. He noted that during the search conducted at the premises of the assessee, no documentary evidence was found which could establish cash sales by the assessee to the SP Group or receipt of unaccounted money from the SP Group. No undisclosed asset was found in the hands of the assessee relatable to the alleged cash sales. No discrepancy in stock was found during the search. The learned CIT(A) further observed tha....
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....sputed. 55. The learned CIT(A) thereafter dealt specifically with the Assessing Officer's reliance on the ledger account of "Rashmi Amin" and the alleged cash payments of Rs. 432.27 crores and Rs. 547.88 crores. In respect of the allegation that Rs. 432.27 crores was paid through Shri Rashmikant Amin on behalf of the assessee, the learned CIT(A) examined the ledger account reproduced by the Assessing Officer and found that the ledger nowhere contained the name of the assessee as the beneficiary. It also showed payments to various unrelated parties such as Jayant Electricals, Bhakti Light House, Pappu Kandle and others. The Assessing Officer failed to establish how these payments were related to the assessee. Similarly, in respect of the alleged balance amount of Rs. 547.88 crores stated to have been paid by the SP Group to various persons towards expenditure of the assessee company, the learned CIT(A) held that this finding too was based only on the statement of Shri Mohanlal Pahuja and no corroborative evidence had been brought on record. The Tally data itself did not mention that such payments represented expenditure incurred on behalf of the assessee. On the contrary, the Tal....
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....davits. It was submitted that there is not a single document found from the premises of the assessee showing that it made unaccounted sales to the SP Group. No stock discrepancy was found. No unaccounted manufacturing was found. No evidence of unaccounted purchases was found. No cash trail was found. No undisclosed asset was found. No material was brought on record to show that cash was received by the assessee. The learned Counsel submitted that the SP Group itself had clarified that the alleged cash payments were made to Shri Ashok Bagla through Shri Rashmikant Amin and that the balance represented purchases from open market. In spite of this clarification, the Assessing Officer did not examine Shri Ashok Bagla or Shri Rashmikant Amin in a manner which could establish any nexus with the assessee. Further, the learned Counsel for the assessee pointed out that the assessment order passed in case of another distributor, copy of which was placed before us, the Assessing officer has relied upon the same ledger „Shankarbhai' which is recorded in the tally data „KA', alleging that certain transactions recorded in the said ledger belong to the said assesse. Thus, learned coun....
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.... it is precisely at this stage that the Revenue's case encounters a serious evidentiary gap. The existence of unaccounted transactions in the hands of the SP Group may be one thing; attribution of those transactions to the assessee company is an entirely different matter. The issue before us is not whether the SP Group maintained parallel books of account but whether the Revenue has successfully established a direct nexus between such records and the assessee company. 60. The principal attempt made by the Assessing Officer to establish such nexus is through the coded ledger accounts appearing in the Tally data under names such as "Shankarbhai", "Shankarbhai 1", "Shankarbhai 2" and "CKP". According to the Revenue, these coded names represented transactions of the assessee company and the explanation furnished by certain persons of the SP Group during search proceedings established that the entries related to Polycab products. However, when one examines the evidentiary foundation of this conclusion, it becomes apparent that none of these ledger accounts are maintained in the name of the assessee company. They do not contain the name of Polycab India Limited. They do not bear the P....
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....nt Amin to Shri Ashok Bagla and that the balance transactions represented purchases made from open market sources. Once such a specific explanation emerged from the very persons whose statements constituted the foundation of the assessment order, it became incumbent upon the Revenue to investigate the alternative explanation and establish through objective material that the original version alone represented the truth. However, the record does not indicate any meaningful enquiry capable of disproving the explanation furnished by the SP Group. No independent evidence has been brought on record to establish that the alleged cash payments actually reached the assessee company. Shri Ashok Bagla has not been shown to have been investigated in a manner which demolishes the explanation furnished by the SP Group, post such clarification. Thus, what remains on record are two competing versions emanating from the same source, one relied upon by the Revenue and the other ignored by it, without any independent material conclusively establishing which of the two versions represents the correct factual position. 62. The allegation relating to Shri Rashmikant Amin and the alleged cash payments....
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....despite extensive search proceedings and detailed scrutiny of the affairs of the assessee, no such discrepancy has been brought on record. Equally significant is the absence of any material demonstrating dispatch of goods by the assessee without invoices. No transport document originating from the assessee, no gate pass, no loading record, no dispatch register, no delivery instruction and no internal correspondence evidencing clandestine removal of goods has been brought on record. In a manufacturing concern of the scale of the assessee, allegations of unaccounted sales of nearly Rs. 980 crores cannot ordinarily survive in complete isolation from the manufacturing, stock and dispatch records. The absence of such evidence therefore assumes decisive importance. 64. The search conducted in the case of the assessee itself further reinforces this conclusion. It is not a case where the Revenue seeks to implicate the assessee solely on the basis of material found from a third party. Simultaneous search operations were conducted in the case of the assessee. Digital devices were seized. Books of account and records were examined. Statements were recorded. Yet no parallel books were found....
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....ed assets. Statements, however relevant, cannot exist in a vacuum. Their evidentiary value depends upon the degree of corroboration available on record. In the present case, such corroboration is conspicuously absent. 66. We are conscious of the settled legal position that third party material can constitute a relevant piece of evidence and may legitimately form the starting point of an investigation. However, before such material can be used against another assessee, a clear and demonstrable nexus must be established between the material and the assessee sought to be implicated. In the present case, the Revenue's case proceeds from parallel Tally data maintained by the SP Group to coded ledger accounts, from coded ledger accounts to statements of third parties, from such statements to an inference that the assessee was the supplier of goods and from that inference to a profit addition in the hands of the assessee. What is conspicuously missing is the crucial connecting evidence demonstrating that the goods actually emanated from the assessee and that the corresponding consideration actually reached the assessee. Even if the entire Tally data of the SP Group is accepted as genui....
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....made on account of alleged profit from unaccounted cash sales to the SP Group is upheld and the grounds raised by the Revenue on this issue stand dismissed. 69. We shall now take up the next issue relating to the addition made under section 69C of the Act on account of alleged cash salary payments. This issue arises in Assessment Years 2015-16 to 2023-24 and stems from the allegation of the Assessing Officer that the assessee company was paying salary in cash over and above the salary recorded in the regular books of account and disbursed through banking channels. The entire addition originates from the statements recorded during the course of search proceedings from two individuals, namely Smt. Nisha Singh and Shri Ramesh Kundnani. According to the Assessing Officer, Smt. Nisha Singh stated that she was receiving Rs. 30,000 per month in cash, whereas Shri Ramesh Kundnani stated that he was receiving Rs. 1,00,000 per month in cash in addition to his regular salary. On the basis of these statements, the Assessing Officer computed alleged cash salary payments aggregating to Rs. 1,30,000 per month, equivalent to Rs. 15,60,000 annually, and treated the same as unexplained expenditur....
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....that the company was maintaining an unrecorded cash salary mechanism merely on the basis of statements of two individuals, without any supporting material whatsoever, was wholly unsustainable. 72. Insofar as Smt. Nisha Singh was concerned, a detailed explanation was furnished before the Assessing Officer and reiterated before the learned CIT(A). It was explained that she had subsequently filed a retraction affidavit clarifying that the amount of Rs. 30,000 per month referred to in her statement did not represent cash salary received by her from the assessee company. According to her affidavit, the said amount related to the remuneration of her brother, Shri Vishal Singh, who was working on a part-time basis under a personal arrangement with Shri Inder Jaisinghani from 01.07.2023 and the amount was merely routed through her and deposited in her bank account. It was specifically pointed out that the cash deposited in her account, which the Assessing Officer treated as corroboration of his allegation, was entirely consistent with the explanation furnished in the affidavit. The assessee contended that once such a specific explanation had been furnished, the Assessing Officer was dut....
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.... present case. The factum of expenditure itself remained unproved because there was no evidence beyond the retracted statements, and consequently the question of source did not arise. The learned CIT(A) therefore concluded that the addition under section 69C could not be sustained and directed the Assessing Officer to delete the same. 76. Before us, the learned CIT-DR strongly relied upon the assessment order and submitted that the statements of Smt. Nisha Singh and Shri Ramesh Kundnani constituted direct evidence of receipt of cash salary and that the learned CIT(A) erred in discarding such evidence merely because the statements were subsequently retracted. It was further submitted that the deposit of cash by Smt. Nisha Singh in her bank account lent support to the Revenue's case and that the Assessing Officer had rightly rejected the retractions as an afterthought. 77. Per contra, the learned Counsel for the assessee reiterated that the entire addition was built on retracted statements unsupported by any corroborative evidence. It was submitted that despite extensive search proceedings, the Revenue had failed to discover any parallel payroll system, any cash salary records ....
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....e of Shri Vishal Singh. It could have examined Shri Inder Jaisinghani. It could have brought material demonstrating that the amount actually emanated from the assessee company. None of these steps were taken. Instead, the explanation was rejected without investigation. In our considered view, rejection of a specific factual explanation without any enquiry cannot elevate the original statement into conclusive evidence against the assessee. 80. The case of Shri Ramesh Kundnani stands on an even weaker footing. Apart from his original statement, there is no material whatsoever supporting the allegation that he received cash salary from the assessee company. His statement also stands retracted. No document was found from his possession. No payroll record was found from the assessee. No cash payment voucher was recovered. No evidence of cash withdrawal corresponding to the alleged payment was brought on record. No independent witness or contemporaneous record corroborates the allegation. Thus, the Revenue seeks to convert a retracted statement into a recurring factual finding extending over multiple years without any supporting evidence. Such an approach, in our considered opinion, i....
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....rely on an assumption but on a series of assumptions extending over nearly a decade. Such extrapolation, in the absence of supporting evidence, cannot be sustained. 84. We are further of the view that where a search has been conducted and the allegation concerns recurring cash expenditure spread over several years, the absence of corresponding incriminating material assumes heightened significance. In the present case, searches were conducted, records were examined and statements were recorded. Yet the Revenue has not been able to produce any evidence demonstrating actual cash expenditure by the assessee company. This complete absence of corroborative material substantially undermines the Revenue's case and lends considerable support to the findings recorded by the learned CIT(A). 85. On an overall consideration of the facts and circumstances of the case, we find that the Revenue has attempted to build an addition under section 69C exclusively on the basis of two retracted statements, unsupported by any documentary or circumstantial evidence. The explanation furnished by Smt. Nisha Singh has not been disproved. The statement of Shri Ramesh Kundnani remains uncorroborated. No ....
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....deration in land transactions was discharged in cash. On this basis, instead of identifying any particular cash payment, the Assessing Officer applied 20 percent on the recorded value of land purchases and made the impugned additions under section 69C. 88. Before the learned CIT(A), the assessee strongly contested the addition and submitted that the entire case of the Assessing Officer was founded upon an uncorroborated and subsequently retracted statement of Shri Rakesh Talati. It was submitted that the statement did not identify any specific land parcel, survey number, seller, date of alleged cash payment, exact amount of cash payment or the person who allegedly received such cash. It was further submitted that no document was found during search evidencing payment of on-money. No cash trail was found. No seller had admitted receipt of cash. No employee had been found in possession of any cash delivery record. No books, loose papers, diary, electronic record, acknowledgement, receipt or noting was found either from the assessee or from any alleged recipient. Shri Rakesh Talati subsequently filed a retraction affidavit explaining that the statement recorded during search did no....
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.... at Valsad, whereas the addition made by the Assessing Officer was in respect of land purchases at Halol. No addition had been made by the Assessing Officer in respect of Valsad land. Thus, the electronic communication relied upon by the Revenue had no nexus with the land transactions forming subject matter of the addition. 92. The learned CIT(A), after examining the statement of Shri Rakesh Talati, the retraction affidavit, the registered land documents, stamp duty valuation, WhatsApp chats and submissions of the assessee, recorded a categorical finding that the addition was based on a general statement unsupported by any corroborative evidence. He found that the statement did not identify any specific transaction or seller and did not contain any actual particulars of cash payment. He further noted that the assessee had demonstrated that the registered values were equal to or higher than the stamp duty valuation and this factual position had not been controverted by the Assessing Officer. The learned CIT(A) also observed that no independent enquiry had been conducted with the sellers and no material had been brought on record to show that any cash consideration had been paid o....
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....e of land rests on a very narrow foundation, namely the statement of Shri Rakesh Talati and certain WhatsApp communications. If the statement of Shri Rakesh Talati is examined closely, it is evident that the statement is general in nature and lacks all essential particulars which are necessary for treating it as evidence of actual expenditure. The statement does not identify the specific land parcel in respect of which cash was allegedly paid. It does not identify the survey number. It does not identify the seller who allegedly received cash. It does not mention the exact amount paid in cash. It does not mention the date of payment. It does not identify the source from which the cash was generated. It does not identify the person who physically delivered the cash to the seller in relation to any particular transaction. Such a statement, at the highest, may give rise to suspicion and may justify further enquiry, but it cannot by itself constitute proof of actual expenditure incurred by the assessee. 97. The evidentiary weakness becomes more pronounced because the statement of Shri Rakesh Talati was subsequently retracted. It is true that a retraction by itself does not automatica....
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....y, the allegation must be supported by direct and cogent evidence. That is completely absent here. 100. The WhatsApp chats relied upon by the Assessing Officer also do not advance the Revenue's case. The learned CIT(A) has examined these chats and found that they do not contain any reference to actual payment of cash in relation to Halol land transactions. They do not record any completed payment. They do not contain any admission by the assessee or acknowledgement by any seller. They do not identify any amount paid in cash. They do not establish movement of money. More importantly, the chats pertain to a proposed land transaction at Valsad, whereas the additions have been made in respect of land purchased at Halol. No addition has been made in respect of Valsad. Therefore, even if the chats are accepted at their highest, they are evidentiary neutral for the purpose of the Halol land additions. A communication relating to one proposed transaction cannot be used to estimate cash payment in entirely different registered transactions without any connecting material. 101. The search perspective also supports the assessee's case. The allegation concerns payment of cash considerati....
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....actual matrix. He has not deleted the addition merely because the statement of Shri Rakesh Talati was retracted. He has examined whether the original statement was supported by any corroborative material, whether the registered documents were below stamp valuation, whether the land sellers were examined, whether cash movement was established, whether the WhatsApp chats had any nexus with Halol transactions and whether the estimate adopted by the Assessing Officer had any factual basis. On all these aspects, the Revenue's case was found wanting. These findings are borne out from the record and have not been displaced before us by any cogent material. 105. On cumulative consideration of the facts, we find that the addition is founded on a general and retracted statement, unrelated WhatsApp chats, absence of seller confirmation, absence of cash trail, absence of seized material, absence of any evidence of actual payment and an arbitrary estimation of 20 percent of registered value. Such an addition cannot be sustained under section 69C. We, therefore, uphold the order of the learned CIT(A) deleting the additions of Rs. 78,82,182 for Assessment Year 2016-17 Rs. 87,97,229 for Assessm....
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....t was nothing but rough jottings made by an employee for his own understanding and had no evidentiary value against the assessee company. It was specifically pointed out that the sheet did not contain the name of the assessee company; it did not contain the word "cash"; it did not indicate whether the figures mentioned therein represented receipts or payments; it did not contain dates of the alleged transactions; it did not identify the nature of the alleged expenses; it did not contain any narration linking the figures with the business of the assessee; it did not bear any signature, acknowledgment, approval, authorisation or endorsement of any director, promoter or authorised person of the assessee company; and it was not linked with any entry in the regular books, bank accounts, digital records or seized material of the assessee. It was thus submitted that an ambiguous and unauthenticated loose paper found from the residence of an employee could not be treated as evidence of unexplained money belonging to the assessee. 109. The assessee further submitted that the loose sheet itself suffered from serious internal infirmities. The figures mentioned therein were not accurate. On....
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....t no other evidence had been found during search to substantiate the loose sheet. No person allegedly connected with the notings was independently examined. No supporting document was found from the assessee. No cash was found. No material was brought on record to show that any amount mentioned in the loose sheet represented money owned by the assessee company. 112. The learned CIT(A) also examined the loose sheet on its own terms and found that it did not inspire confidence. He noted that the paper did not contain any mention of the word "cash". It did not clarify whether the figures represented receipts or payments. The amounts mentioned therein were also incorrectly recorded, as was evident from the clarification of Shri Ramesh Kundnani himself that the amount of Rs. 75,00,000 written against Vijay and Mukesh was actually Rs. 7,50,000. There was also mismatch in the totals. These errors were not merely clerical irregularities; they went to the root of the reliability of the document. The learned CIT(A), therefore, held that such a loose paper, containing ambiguous and incorrect notings and unsupported by any corroborative evidence, could not be treated as a valid basis for ad....
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....or are owned by the assessee; and that the same are not recorded in the books of account. In the present case, none of these requirements is satisfied. 116. The character of the loose sheet itself is wholly uncertain. It does not contain the name of the assessee company. It does not contain any narration explaining the nature of the entries. It does not mention that the amounts represent cash. It does not clarify whether the amounts are receipts or payments. It does not identify the nature of expenses or receipts. It does not bear any signature, approval, authorisation or acknowledgment from any person competent to bind the assessee company. It does not refer to any voucher, bill, ledger, cash book, bank account or project. Thus, on a bare reading, the document does not establish any transaction, much less an unexplained money belonging to the assessee. It is, at best, a rough and unauthenticated paper found from an employee, incapable of being treated as conclusive evidence without corroboration. 117. The reliability of the paper is further eroded by the admitted mistakes in the figures and the mismatch in totals. The amount written against Vijay and Mukesh was shown as Rs. ....
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....nceived on these facts. Section 69A contemplates a situation where the assessee is found to be the owner of money, bullion, jewellery or other valuable article which is not recorded in the books of account and the explanation offered by the assessee regarding the nature and source thereof is not satisfactory. In the present case, no money was found. No cash was found. No asset was found. No material establishes that the amount mentioned in the loose sheet represented money owned by the assessee. Ownership is not established by mere existence of rough notings in a paper found from the residence of an employee. Therefore, the foundational condition for invoking section 69A is absent. 121. The presumption under section 292C also does not carry the Revenue's case any further. The document was not found from the possession or control of the assessee company but from the residence of Shri Ramesh Kundnani. Even otherwise, the presumption under section 292C is rebuttable. It may permit an initial inference regarding the person from whose possession the document is found, but it cannot mechanically fasten ownership of money upon the assessee company without corroborative evidence. An amb....
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....tained either on facts or in law. We, therefore, uphold the order of the learned CIT(A) deleting the addition of Rs. 50,93,729 made under section 69A for Assessment Year 2023-24. The ground raised by the Revenue on this issue is dismissed. 125. We shall now take up the next issue relating to the addition of Rs. 7,38,300 made under section 69C of the Act for Assessment Year 2023-24 on account of alleged cash expenditure incurred towards liaisoning activities and distribution of gifts during the Diwali period. The addition has been made by the Assessing Officer on the basis of a loose sheet found from the residence of Shri Ramesh Kundnani during the course of search proceedings and the statement initially recorded from him. According to the Assessing Officer, the said loose sheet contained details of expenditure allegedly incurred in cash at Daman during the financial year 2022-23 for liaisoning activities, distribution of gifts and other miscellaneous purposes. Relying upon the statement of Shri Ramesh Kundnani, wherein he is stated to have explained that such expenditure was incurred on the directions of the Chairman and Managing Director for smooth functioning of day-to-day ope....
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....f the alleged gifts was identified. No person receiving any alleged liaisoning payment was examined. No supplier of gifts was identified. No evidence was found showing purchase of gifts outside the books. No cash withdrawal corresponding to the alleged expenditure was brought on record. No employee was examined to corroborate the allegation. The assessee thus contended that the addition was made entirely on assumptions and presumptions. 129. The assessee also submitted that the very nature of the alleged expenditure remained uncertain. The loose sheet did not establish whether the figures represented actual expenditure, estimated expenditure, proposed expenditure or merely rough workings maintained by an employee. There was no date-wise break-up. The loose sheet contained multiple over-writings and alternations in quantities and amounts and even considering such overwritten figures, the total made on the loose sheet do not match. There was no evidence that any expenditure was actually incurred. The assessee therefore submitted that the document lacked both authenticity and evidentiary value and could not be used as the sole basis for invoking section 69C. 130. The learned CIT....
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....see. In the present case, no such foundational fact had been established. The learned Counsel accordingly supported the order of the learned CIT(A). 134. We have carefully considered the rival submissions, perused the assessment order, the impugned appellate order, the seized material relied upon by the Assessing Officer, the statement of Shri Ramesh Kundnani, the subsequent retraction and the entire factual record placed before us. At the outset, it would be appropriate to observe that the addition under section 69C has been made on the allegation that the assessee incurred expenditure in cash for liaisoning activities and distribution of gifts during the Diwali period at Daman and that such expenditure remained outside the regular books of account. The entire case of the Revenue rests upon a loose sheet found from the residence of Shri Ramesh Kundnani and the explanation initially furnished by him during the course of search proceedings. There is no other primary evidence relied upon by the Assessing Officer. Therefore, the first question which arises for consideration is whether the seized document, read either independently or together with the statement of Shri Ramesh Kundn....
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....nditure had been incurred, the recipients of such payments could have been identified and examined. If gifts had actually been purchased outside the books, the supplier or vendor could have been traced. If cash had been utilised, the source and movement of such cash could have been investigated. None of these elementary investigative steps have been undertaken. No recipient has been identified. No recipient has confirmed receipt of gifts. No recipient has admitted receipt of liaisoning payments. No supplier has been identified. No evidence of purchase of gifts outside the books has been brought on record. Thus, the very factual substratum necessary to sustain the addition is absent. 138. Equally significant is the fact that the statement of Shri Ramesh Kundnani, which constitutes the principal basis of the addition, does not exist in isolation from subsequent events. The statement was subsequently retracted. Once a statement is retracted, the Revenue is required to establish the correctness of the original version through independent corroborative material. The learned CIT(A) has correctly observed that no such corroboration exists on record. The Revenue has not brought any mate....
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....ing adopted by the learned CIT(A) is firmly rooted in the factual record. The learned CIT(A) has not deleted the addition merely because the statement stood retracted. Rather, he has examined whether the statement was supported by independent material and whether the seized document itself established actual expenditure. Upon such examination, he found that the document was merely a loose sheet containing rough notings and that the Revenue had failed to establish actual expenditure through any corroborative evidence. These findings are factual findings arising directly from the record and the Revenue has not been able to demonstrate before us that such findings are either erroneous or contrary to the evidence available on record. 142. We are also unable to ignore the fact that the entire addition ultimately rests on inference and presumption rather than proof. The Revenue asks us to presume that the figures appearing in the loose sheet represent actual expenditure. It then asks us to presume that such expenditure was incurred by the assessee company. It further asks us to presume that the expenditure was incurred in cash and remained outside the books of account. However, none o....
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....nd, therefore, is being dealt with separately, though some of the broad principles relating to third-party material, retracted statements, absence of corroboration and absence of incriminating material found from the assessee's premises would equally apply. The Assessing Officer has discussed this issue in the assessment order by referring to the search action conducted in the case of Nathani Group, one of the distributors of the assessee, and more particularly M/s Nathani Cables and Electricals. According to the Assessing Officer, during the search conducted in the case of Nathani Group, certain statements and WhatsApp communications were found which indicated that purchases of Polycab products were made by Nathani Group outside the regular channel and outside the books. 147. The Assessing Officer, while making the addition, placed reliance primarily upon the statement of Shri Vinay Nathani, partner/promoter of M/s Nathani Cables and Electricals. According to the Assessing Officer, Shri Vinay Nathani accepted that Nathani Group was indulging in cash transactions and that certain purchases of Polycab products were not routed through the regular online portal known as P-Connect. ....
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....ods moved outside the books of account of the assessee. 150. The Assessing Officer ultimately concluded that the Nathani Group had made cash purchases from the assessee outside the regular system and, consequently, the assessee had effected corresponding unaccounted sales. The allegation is therefore built upon the search material found from Nathani Group, statements of persons connected with Nathani Group, statement of an employee of the assessee and WhatsApp chats showing placement of certain orders through modes other than P-Connect. The addition is not based on any cash found from the assessee, nor on any parallel sales register found from the assessee, nor on any stock discrepancy found from the assessee's premises, nor on any seized document from the assessee showing dispatch of goods without invoices to Nathani Group. 151. The learned CIT(A), while dealing with this issue in his consolidated appellate order, examined the foundation of the Assessing Officer's allegation separately from the SP Group issue. He noted that the allegation regarding unaccounted sales to Nathani Group was primarily based on the statement of Shri Vinay Nathani, partner/promoter of M/s Nathani C....
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.... a specific clarification, cannot constitute conclusive evidence against the assessee unless supported by independent and corroborative material. 154. Insofar as the WhatsApp chats and the allegation regarding non-routing of orders through P-Connect were concerned, the learned CIT(A) accepted the explanation of the assessee that P-Connect was a standardised order placement system but not the only mode through which orders could be received from distributors. The assessee had explained that in the ordinary course of business, orders were also received through emails, WhatsApp messages, sales representatives and other commercial communication channels, and once such orders were received, they were entered into the Oracle ERP system and thereafter duly recorded in the books of account. The learned CIT(A) observed that merely because certain orders were not placed through P-Connect, it could not be inferred that the corresponding sales were unaccounted, especially when there was no evidence to show suppression of quantities or non-recording of such transactions in the books. 155. The learned CIT(A) further noticed that the assessee had demonstrated that quantities referred to in ....
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....tiple modes and that such orders were recorded in Oracle ERP before dispatch, and since the Revenue had not established suppression of quantities, stock discrepancy, unaccounted manufacturing, cash receipt or unaccounted dispatch, the learned CIT(A) held that the addition could not survive merely on the allegation that some orders were not routed through P-Connect. 159. Before us, the learned Counsel for the assessee reiterated that the entire addition in relation to Nathani Group is based on material found from a third party and not from the assessee. It was submitted that Nathani Group may have been found to be indulging in cash sales or cash transactions in its own case, but there is no direct evidence to establish that such transactions represented unaccounted sales by the assessee. The assessee pointed out that no incriminating material was found from its premises despite a prolonged search action. There was no unaccounted stock, no undisclosed asset, no parallel books, no seized document and no evidence showing cash receipt from Nathani Group. It was submitted that the entire case has been built on the original statement of Shri Vinay Nathani, which stood contradicted by h....
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....uld the order be processed, invoiced and dispatched. The assessee submitted that no sale could be effected outside the ERP framework and no dispatch could take place without the same being recorded in the system. 163. The assessee further explained that in cases of bulk orders, where distributors sought prices lower than monthly pricing policy or required special pricing, Special Price Approval requests were made through various modes and were evaluated by the sales team in accordance with internal guidelines or approved by higher management. Thus, mere receipt of order through WhatsApp or direct communication with an employee could not, by itself, mean that the corresponding sale was outside the books. The assessee emphasised that all such orders were eventually recorded in the ERP system and duly reflected in the books of account. 164. The assessee also demonstrated that orders from various reputed customers, including large and well-known entities, were received through non-portal modes and yet such sales were never treated by the Department as unaccounted. Relevant instances of such sales were placed in the paper book. Thus, selectively treating orders of Nathani Group as....
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....ecific factual submission on the Nathani Group issue beyond reiterating the assessment order. It was submitted that the Revenue had not pointed out any infirmity in the findings of the learned CIT(A), nor had it rebutted the central findings that no material was found from the assessee's premises, that Nathani Group had given clarification and retraction, that the WhatsApp quantities were recorded in books and that the statement of Shri Vaijinath Kulkarni did not establish any cash receipt by the assessee. 169. The learned Counsel thus submitted that the entire addition is based on uncorroborated and retracted third-party statements, misinterpretation of WhatsApp chats, incorrect assumption regarding P-Connect, and complete absence of independent verification. It was submitted that the addition deserves to be deleted on the same broad principles which apply to the SP Group issue, but even more so because, in the Nathani issue, the specific quantities mentioned in the WhatsApp chats were shown to be accounted and supported by invoices. 170. The learned Counsel accordingly prayed that the order of the learned CIT(A) deleting the addition made on account of alleged unaccounted s....
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....mission basis and not to purchases from the assessee. Further, retraction affidavits filed by Shri Vinay Nathani and Shri Sandeep Nathani categorically denied cash transactions with the assessee and attributed the unaccounted purchases to transactions through Shri Ashok Bagla. Once such a specific alternative explanation came on record, the Assessing Officer could not have simply ignored it. He was required to test the correctness of the original statement and the subsequent clarification by conducting further enquiry. No such enquiry has been shown to have been carried out. 174. The failure to investigate the alternative explanation is not a minor procedural lapse. It goes to the root of the evidentiary value of the original statement. If Nathani Group itself stated that its unaccounted transactions were through third parties and not through the assessee, and if it further stated that transactions with the assessee were duly recorded, then the Revenue was required to bring some independent material demonstrating that such clarification was false. It could have examined Shri Ashok Bagla, post such clarification. It could have verified the alleged third-party purchases. It could ....
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....l order placement was not an aberrant or clandestine mode but part of ordinary commercial practice. If the Department accepts non-portal orders as genuine in the case of other customers, it cannot selectively treat similar communications with Nathani Group as evidence of unaccounted sales without any additional material showing suppression. 178. The WhatsApp chats relied upon by the Assessing Officer also do not carry the Revenue's case any further. Electronic communications may be relevant, but their evidentiary value depends upon context and corroboration. Here, the assessee has shown that quantities referred to in the WhatsApp chats with Shri Malay Parekh were duly accounted in the books and supported by invoices placed in the paper book. The Assessing Officer has not doubted those invoices. He has not shown that the quantities in the chats exceeded the invoiced quantities. He has not shown that any goods mentioned in the chats were dispatched outside the books. Thus, far from establishing suppression, the reconciliation of chats with invoices supports the assessee's explanation that the communications represented accounted transactions. 179. The statement of Shri Vaijinat....
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....f the addition and the maker of the statement subsequently clarifies that the transactions did not relate to the assessee, the Revenue must bring corroborative material to prove that the original statement was true and the retraction was false. In the present case, the Revenue has not brought such material. The learned CIT(A), therefore, correctly held that the statement alone could not sustain the addition. 183. The principle applicable to third-party material also squarely applies here. Material found from Nathani Group may be relevant in the assessment of Nathani Group. It may justify enquiry. It may even raise suspicion. However, before it can be used to make addition in the hands of the assessee, the Revenue must establish a live nexus between the third-party material and the assessee's actual transactions. Such nexus cannot be presumed merely because Nathani Group was a distributor of the assessee. It must be proved through invoices not recorded, goods dispatched without billing, cash received by the assessee, stock discrepancies or other direct evidence. None exists here. 184. It is also relevant that the Assessing Officer has not brought to tax the entire alleged unac....
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....ot been demonstrated. On the contrary, the assessee has placed material to show that the relevant quantities were duly invoiced and recorded. 188. We further hold that the statement of Shri Vinay Nathani and the statement of Shri Vaijinath Kulkarni, in the absence of corroborative evidence and in the face of subsequent clarification and retraction, cannot constitute the sole basis for addition in the hands of the assessee. At best, the material found from Nathani Group may indicate unaccounted dealings of Nathani Group or dealings with third parties. It does not establish unaccounted sales by the assessee. 189. Since the foundational fact of unaccounted sales itself has not been established, the consequential estimation of profit at 14.75 percent also cannot survive. The addition is thus based on suspicion and inference rather than cogent evidence. Suspicion, however strong, cannot replace proof, particularly in a search assessment where the Revenue had the opportunity to examine the assessee's stock, production, dispatch, ERP and financial records. 190. Accordingly, we uphold the order of the learned CIT(A) deleting the addition made on account of alleged profit from unac....