2024 (5) TMI 438 - AT - Income Tax

Addition made towards undisclosed cash transaction from undisclosed sources - seized excel sheets from third party relied upon - entries pertaining to the assessee firm in the excel sheets found in the electronic devices seized during the course of search in the case of third party - HELD THAT - As no documentary or other evidences to corroborate the entries of cash receipts and payments in the excel sheets were found to support the findings of the AO that said transactions are unaccounted transactions and are outside the books of accounts of the assessee. We further noted that, the AO neither during the assessment proceedings has made any reference to statements recorded u/s. 132(4) of the Act during the course of search in Christy group of cases or in the case of the assessee with reference to excel sheets found during the course of search to verify the contents recorded therein. Neither the person from whom said documents was found was examined nor the appellant or its partners was confronted with those evidences to verify the contents therein. AO has made additions towards cash transactions u/s. 69A of the Act, without there being any corroborative evidence to strengthen the entries recorded in excel sheet found during the course of search on third party. Therefore, we are of the considered view that no additions can be made u/s. 69A of the Act, on the basis of evidences found in the possession of third party, without examining contents of said documents from the person from whom said documents was found and also from the assessee and its partners. The evidences relied upon by the AO in the form of excel sheets does not constitute adequate evidence to draw adverse inference against the assessee, in the absence of any other corroborative evidence. As decided in case of CIT vs Sant Lal 2020 (3) TMI 692 - DELHI HIGH COURT where it has been clearly held that the assessee cannot be put to any liability on the action of a third person where the material was not found from the premises of the assessee nor was in the handwriting of the assessee, since, the third person may write the name of any person at his sweet will and the revenue did not make any effort to gather or corroborate evidence in this relation. As per AO Since, bank entries in seized excel sheets are matched with books of accounts, cash transactions recorded in excel sheets should be considered as belongs to the assessee - In our considered view, the contention of the department that merely because the notings of bank transactions in the excel sheet have matched with the bank statements it does not mean that the notings of cash transactions are also genuine. The reason is that though bank statements serves as corroborative evidence for proving transfer entries, but there are no corroborative evidence like sale bills, cash receipts and invoices etc in the cash entries in excel sheets. Notings by way of cash transactions are highly suspicious in nature because they are susceptible for embezzlement and also prone to create prejudice to the concerned parties. Therefore, in our considered view, the reasons given by the AO to make additions u/s. 69A of the Act on the basis of entries in excel sheets without any corroborative evidence is incorrect. No efforts were made by the department to establish the nexus of the assessee with the undated and unsigned printout found during the search and to corroborate the contents of the said printout to arrive at a definite conclusion that the assessee derives such alleged income. The Hon ble High Court of Bombay in the case of PCIT vs Umesh Israni 2019 (4) TMI 1947 - BOMBAY HIGH COURT held that, the entries of the loose papers which were seized were not corroborated with any other evidence on record and no enquiry or verification was made and thus, no additions can be made u/s. 69A of the Act. Assessee is in the practice of replacing the invoices not checked by any Government authorities in the accounted Tally - In our considered view the ground taken by the revenue is devoid of merits, because the AO neither considered so called Tally1 and Tally 2, nor made any additions based on said evidences in the assessment order in respect of additions made u/s. 69A of the Act. Therefore, in our considered view the ground of appeal taken by the revenue fails. Appending two zeros to value recorded in alleged excel sheets, the AO has added two zeros to values recorded to excel sheets for assessment year 2018-19 2019-20 only - it is not appropriate to arrive at a conclusion that the amounts noted in the excel sheets have to be understood by adding two zeros at the end without having further evidence apart from the statement of Shri. Harihara Krishnan. We further noted that, the AO himself has not added two zeros to the amounts found noted in two excel sheets namely Appu revised formar.xls sub sheet cash received paid relevant to assessment year 2017-18 and Annex-3-Appu-CFL.xls sub sheet running account relevant to assessment year 2018-19. Further, the ld. CIT(A) has recorded categorical findings that in the remand report the AO did not furnish any explanation regarding selective treatment only to the figures found in one excel sheet out of three excel sheets. In the rejoinder, the appellant explained that the relevant excel sheets contains an entries of payment made to appellant in cash as well as through bank. The appellant pointed out that when the payment through bank shows therein are compared with the corresponding entries found in the relevant bank account statement, it can be seen that the same are matching without the need of adding two zeros. When the bank entries is matching with the books of accounts of the assessee without appending two zeros, the question of appending two zeros to cash entries alone is totally incorrect. If the payments through cash alone are considered by adding two zeros and the payment through bank are considered in the manner in which they appear in the excel sheets, the totals of the payments column and the receipts column will be grossly different from the total mentioned in the excel sheet. It is therefore clearly evident that, all the amounts mentioned in the excel sheets, regardless of whether they are cash transactions or bank transactions are the actual amounts without suppression of two zeros at the end. We are of the considered view that the AO is erred in appending two zeros to the cash transactions appearing in the seized excel sheets and same is untenable. Undisclosed cash transactions - We find that when there are undisclosed cash receipts and cash payments in the seized material, it is not appropriate to aggregate said receipts as well as payments for the purpose of determining the undisclosed income. Since, the cash payments are made out of cash receipts to the extent of the available cash receipts, aggregating the cash receipts as well as cash payments for determining the undisclosed income results in exaggerated amount of such income. As further noted that, when the AO is not able to identify the nature of cash receipts or payments then the best is to net off the cash receipts against the cash payments to arrive at undisclosed income. Therefore, in our considered view, findings of the facts recorded by the ld. CIT(A) with regard to the manner of computing undisclosed income appears to be reasonable and acceptable. Thus we are of the considered view that additions made by the AO u/s. 69A of the Act towards alleged cash transactions recorded in excel sheets found during the course of search proceedings of Christy Group in the premises of employee of third party, without there being any corroborative evidence is unsustainable in law. The ld. CIT(A), after considering relevant facts has rightly deleted additions made by the AO. Thus, we are inclined to uphold the findings of the ld. CIT(A) and dismiss appeal filed by the revenue

Summary

Issues Involved:
1. Deletion of addition towards undisclosed cash transactions from undisclosed sources.
2. Evidentiary value of seized materials from a third party.
3. Presumption under Section 132(4A) and Section 292C of the Income Tax Act.
4. Methodology of calculating undisclosed income.

Summary:

Issue 1: Deletion of Addition Towards Undisclosed Cash Transactions from Undisclosed Sources
The revenue challenged the deletion of an addition of Rs. 8,03,12,500/- made towards undisclosed cash transactions based on entries in excel sheets found in electronic devices seized during a search of the Christy group of companies. The Assessing Officer (AO) had made these additions under Section 69A of the Income-tax Act, 1961, as unexplained money. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted these additions, stating that the excel sheets found in the possession of a third party did not have any evidentiary value without corroborative evidence.

Issue 2: Evidentiary Value of Seized Materials from a Third Party
The CIT(A) held that the excel sheets found in the possession of a third party did not have evidentiary value since they were not found in the premises of the assessee and lacked corroborative evidence like cash receipts, unaccounted purchase bills, or sale bills. The CIT(A) noted that no other evidence was found during the search in the premises of the assessee to corroborate the entries in the excel sheets.

Issue 3: Presumption Under Section 132(4A) and Section 292C of the Income Tax Act
The CIT(A) observed that the presumption under Section 132(4A) and Section 292C of the Act, which applies to documents found in the possession of the assessee, does not apply to documents found in the possession of a third party. The Tribunal upheld this view, stating that the AO made additions without corroborative evidence to support the entries in the excel sheets.

Issue 4: Methodology of Calculating Undisclosed Income
The Tribunal found that the AO's method of appending two zeros to the value recorded in the excel sheets was incorrect and lacked a valid basis. The CIT(A) had also noted that the AO did not provide any explanation for selectively treating figures in one excel sheet differently from others. The Tribunal agreed with the CIT(A) that the method of computing undisclosed income by netting off cash receipts against cash payments was reasonable.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the additions made under Section 69A of the Act, stating that the additions were unsustainable in law without corroborative evidence. The Tribunal dismissed the appeals filed by the revenue for the assessment years 2016-17, 2017-18, and 2018-19 and also dismissed the cross objections filed by the assessee as infructuous.