2025 (3) TMI 448 - AT - Income Tax

Assessment u/s 153C - cash transactions were not recorded in the regular books of accounts which were alleged by the Ld. AO to be unaccounted - AO observed that a statement of Director and former employee of JBL was recorded u/s 132(4) wherein she confirmed that both pakka and kaccha transactions undertaken by JBL were documented in the Hazir Johri software. HELD THAT - Admittedly the entries reflected in the said software pertains to other unrelated parties with the assessee. Admittedly the said ledger is a combined ledger account of various transactions pertaining to other unrelated parties with the assessee and contains few transactions pertaining to the assessee. However there is no concrete material brought on record by the lower authorities to implead assessee with all those transactions. Even for the transactions where assessee s name was mentioned the revenue was not able to bring any corroborative evidence to prove the nature of such transaction. Hence it could be safely concluded that the assessee had given a plausible explanation about the contents of the said software. Furthermore as rightly pointed out by the Ld.AR there is no corroboration of those entries with the bills / vouchers sales stock registers etc showing the cash sales to prove that the alleged cash sales belong to the assessee. Hence those entries cannot be relied upon for making an addition in the hands of the assessee. We also find in the case of Anoop Kumar Soni vs. DCIT 2023 (12) TMI 391 - ITAT DELHI wherein while adjudicating almost similar facts related to search on JBL the Tribunal held that since the ledger found during the search AP contains the entries of parties other than assessee then said ledger cannot be said to be belonging to assessee and addition made on the basis of assumption was deleted. Similar view was taken by this Tribunal in the case of Surender Kumar Jain 2024 (3) TMI 426 - ITAT DELHI arising out of search in the JBL wherein it was held that entries in the Hajir Johri ledger supposedly involving M/s. S.K. Impex do not prove actual transactions without corroborative evidence such as bills or invoices. Thus we hold that no addition could be made in the hands of the assessee by placing any reliance on Hazir Johri Software - Decided in favour of assessee.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in the judgment include:

Whether the initiation of proceedings under Section 153C of the Income Tax Act, 1961, without providing the satisfaction note recorded by the regular Assessing Officer, is valid.
Whether the seized ledger account named "Pankaj kb" from the Hazir Johri software can be attributed to the assessee and used to make additions to the assessee's income.
Whether the presumption under Section 292C of the Income Tax Act applies to the assessee concerning the seized material from a third party.
Whether the assessee was denied the right to cross-examine individuals whose statements were used against him.
Whether the additions made under Section 69A based on the seized ledger account were justified without corroborative evidence.

2. ISSUE-WISE DETAILED ANALYSIS

Validity of Proceedings under Section 153C:

Legal Framework and Precedents: Section 153C deals with assessments concerning persons other than the one searched, requiring a satisfaction note by the Assessing Officer.
Court's Interpretation and Reasoning: The Tribunal noted that the satisfaction note was not provided to the assessee, questioning the validity of the proceedings.
Key Evidence and Findings: The absence of a satisfaction note was a significant point raised by the assessee.
Application of Law to Facts: The Tribunal found that the lack of a satisfaction note rendered the initiation of proceedings questionable.
Treatment of Competing Arguments: The Tribunal considered the assessee's argument about the absence of a satisfaction note and the Revenue's failure to address this adequately.
Conclusions: The Tribunal implied that the proceedings might not be valid due to procedural lapses.

Attribution of Seized Ledger Account:

Legal Framework and Precedents: Section 69A involves unexplained money, requiring evidence linking the assessee to the transactions.
Court's Interpretation and Reasoning: The Tribunal found that the ledger "Pankaj kb" was not maintained by the assessee, and there was no corroborative evidence linking the assessee to the unaccounted transactions.
Key Evidence and Findings: The ledger contained entries for multiple parties, and no specific evidence linked these to the assessee.
Application of Law to Facts: The Tribunal determined that the ledger was a "dumb document" without corroborative evidence.
Treatment of Competing Arguments: The Tribunal considered the assessee's denial of the ledger and the Revenue's reliance on it without additional evidence.
Conclusions: The Tribunal held that the ledger could not be used to make additions to the assessee's income.

Presumption under Section 292C:

Legal Framework and Precedents: Section 292C presumes the correctness of seized documents unless proven otherwise.
Court's Interpretation and Reasoning: The Tribunal noted that the presumption applies to the person from whom the documents were seized, not the assessee.
Key Evidence and Findings: The documents were seized from JBL, not the assessee.
Application of Law to Facts: The Tribunal found that the presumption could not be applied to the assessee.
Treatment of Competing Arguments: The Tribunal sided with the assessee's argument that the presumption was inapplicable.
Conclusions: The presumption under Section 292C did not apply to the assessee.

Right to Cross-Examine:

Legal Framework and Precedents: The right to cross-examine is a fundamental principle of natural justice.
Court's Interpretation and Reasoning: The Tribunal noted the assessee's requests for cross-examination were denied, impacting the fairness of the proceedings.
Key Evidence and Findings: The statements of JBL employees were used without allowing cross-examination.
Application of Law to Facts: The Tribunal found this denial affected the assessment's validity.
Treatment of Competing Arguments: The Tribunal acknowledged the lack of opportunity for the assessee to cross-examine.
Conclusions: The denial of cross-examination rights was a procedural flaw.

Additions under Section 69A:

Legal Framework and Precedents: Additions under Section 69A require unexplained money to be linked to the assessee.
Court's Interpretation and Reasoning: The Tribunal found no corroborative evidence for the cash transactions attributed to the assessee.
Key Evidence and Findings: The ledger entries lacked supporting evidence such as invoices or stock records.
Application of Law to Facts: The Tribunal held that the additions were based on assumptions without evidence.
Treatment of Competing Arguments: The Tribunal favored the assessee's argument against the unsupported additions.
Conclusions: The additions under Section 69A were unjustified and deleted.

3. SIGNIFICANT HOLDINGS

Verbatim Quotes of Crucial Legal Reasoning: "The presumption under section 292C of the Act would apply to JBL and not to the assessee."
Core Principles Established: The Tribunal emphasized the need for corroborative evidence when relying on third-party documents and the importance of procedural fairness, including the right to cross-examine.
Final Determinations on Each Issue: The Tribunal allowed the assessee's appeals, finding the proceedings under Section 153C invalid, the ledger "Pankaj kb" unreliable for additions, and the denial of cross-examination rights unjust. Consequently, the additions under Section 69A were deleted for both assessment years.

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