INCOME TAX OFFICER WARD 2(2) KALYAN, KALYAN vs. KISHORE GIRDHARILAL THAKUR, THANE

IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No. 8238/MUM/2025 Assessment Year: 2016-17 Income Tax Officer, vs Kishore Girdharilal Thakur Ward 2(2), Kalyan 602, Himath Residency Section 17 Hill Area Kalyan Station Road UNR-3, Thane, Maharashtra 421002 (PAN: AAOPT7106Q) Appellant Respondent Present for: Assessee : Shri S.M. Makhija, Advocate Revenue : Smt. Sujatha Iyyanger, Sr. DR Date of Hearing : 16.06.2026 Date of Pronouncement : 01.09.2026 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal filed by Revenue is against the order of the Ld. CIT (A), National Faceless Appeal Centre (NFAC), Delhi, Order No. ITBA/NFAC/S/250/2025-26/1080449869(1) dated 08.09.2025 passed against the penalty order by Assessment Unit of the National Faceless Assessment Centre, u/s. 271D of the Income-tax Act, 1961 (‘the Act’) dated 15.09.2023 for Assessment Year 2016-17.

3.1. On the strength of the aforesaid material, show-cause notices dated 20.03.2023, 18.04.2023 and 02.05.2023 were issued calling upon assessee to explain as to why penalty under section 271D be not levied for contravention of section 269SS. Assessee submitted denying having entered into any such transaction and requested that the penalty proceedings be dropped, or in the alternative, be kept in abeyance till completion of the assessment proceedings. Not persuaded by assessee's explanation, ld. Assessing Officer levied penalty of Rs. 95,00,000/- under section 271D by holding that mere denial without corroborative evidence was a self-serving statement that GBK Group could not explain why it retained the said unsigned agreements in its digital data and that this together with GBK Group's "evasive" denial, constituted sufficient circumstantial evidence of assessee having received the alleged cash loans.

3.2. It is a matter of record and lies at the core of the present controversy that simultaneously with the initiation of the aforesaid penalty proceedings, ld. Assessing Officer had also reopened assessee's case for the year consideration by issuance of notice under section 148 dated 29.03.2023, treating the very same sum of Rs. 95,00,000/- as income alleged to have escaped assessment. The said reassessment proceedings culminated in the reassessment order dated 07.03.2024 passed under section 147 read with section 144B, whereby the sum of Rs. 95,00,000/- was added to the returned income of assessee as unexplained money under section 69A. Ld. Assessing Officer specifically recorded in para 3.7 of this order that assessee had "…cash transaction made out of books of account, amounting to Rs. 95,00,000/- is added back to taxable income of the assessee u/s 69A of the IT Act, being unexplained money.". He also initiated penalty proceedings under section 271(1)(c) by noting that “Since, 3

the assessee has concealed true particulars of his income, penalty proceedings under section 271(1)(c) of the Act for concealment of income of Rs. 95,00,000/- have been initiated separately.”

3.3. It was submitted before us by the ld. Counsel for the assessee and not disputed by the ld. Sr. DR that the addition of Rs. 95,00,000/- made under section 69A has since been deleted in the quantum appeal for the very same assessment year, the very sum having in the first instance been recharacterized by the Revenue itself as income of assessee and not as a loan simplicitor. Aggrieved, assessee went in appeal before the ld. CIT(A).

3.4. Ld. CIT(A) while rejecting assessee's challenge to the competence of the officer passing the penalty order, accepted the remaining contentions of assessee and deleted the penalty of Rs. 95,00,000/- holding in substance that the penalty order dated 15.09.2023 having been passed months prior to the assessment order dated 07.03.2024, no satisfaction regarding contravention of section 269SS could possibly have been, or was, recorded by ld. Assessing Officer in the course of assessment, as mandated by the ratio of the Hon'ble Supreme Court in CIT v. Jai Laxmi Rice Mills, 379 ITR 521 (SC), as applied by the Hon'ble Andhra Pradesh High Court in Grandhi Sri Venkata Amarendra v. JCIT, [2024] 167 taxmann.com 352 (AP); and that on merits, the entire edifice of the penalty rested on nineteen unsigned "draft agreements" recovered as soft copies from the computer of a third party, GBK Group, which third party had itself denied the transactions, rendering the documents mere "dumb documents" incapable of sustaining an adverse finding against assessee, more particularly, when the document is unsigned and unexecuted, which remained unsupported by any primary corroboration like confirmations, 4

bank trail, promissory notes/hundis or entries in the assessee's books of account. Aggrieved by the relief granted by the ld. CIT(A), Revenue is in appeal before the Tribunal.

4.1. It is no doubt well settled that penalty proceedings under section 271D are independent of the assessment proceedings in the sense that the levy of penalty is not contingent upon any addition having first been made in the assessment. However, such "independence" does not dispense with the statutory requirement embedded in the scheme of the Act that ld. Assessing Officer, during the course of assessment proceedings, being ordinarily the proceedings in which material relevant to a possible contravention of section 269SS first surfaces, must record his satisfaction that the provisions of section 269SS stand contravened, before referring the matter to the Joint/Additional Commissioner, who alone is vested with jurisdiction to levy penalty under section 271D. 5

4.2. Applying the above to the facts on record, we find that the impugned penalty order under section 271D is dated 15.09.2023 whereas the assessment order for the very same year, the proceeding in which alone the requisite satisfaction as to contravention of section 269SS could have been recorded, came to be passed only thereafter, on 07.03.2024. This chronology renders it a legal impossibility for ld. Assessing Officer to have recorded in the assessment order, a satisfaction that could have preceded and triggered a penalty order already passed nearly six months earlier. Even otherwise, the assessment order dated 07.03.2024 nowhere records any satisfaction regarding contravention of section 269SS; the only satisfaction recorded pertains to initiation of penalty under section 271(1)(c) for concealment of income assessed under section 69A which is an altogether distinct charge operating in a different field. In these circumstances, the mandatory pre-condition of recorded satisfaction remains unfulfilled and the penalty under section 271D is rendered unsustainable on this short ground alone.

and did not, culminate in a validly recorded satisfaction of contravention of section 269SS. A sum cannot, in the eye of law, simultaneously be undisclosed income of assessee and also a loan or deposit received by him from a third party; the two characterizations are, by their very nature, mutually exclusive.

5.1. For the above reasons, we find no infirmity in the finding arrived at by ld. CIT(A) on this aspect. Accordingly, ground nos. 1 and 2 raised by the Revenue are dismissed.

6.1. The entire edifice of the penalty rests on nineteen unsigned draft agreements recovered not from the possession of assessee but as soft copies from the seized digital data of a third party, viz. GBK Group. It is not in dispute that these agreements are unsigned and unexecuted qua assessee. It is further a matter of record, noted by the ld. CIT(A) and not controverted before us that GBK Group, from whose premises the said data was seized was itself confronted by the Investigation Wing/DDIT, Thane and categorically denied having advanced any loan to or entered into any such transaction with the assessee. 7

6.2. It is well settled that entries in loose papers, diaries or unsigned documents found in the possession of a third party do not by themselves, acquire probative value against a person other than the one from whose possession they are seized, absent independent corroboration. Hon'ble Supreme Court in CBI v. V.C. Shukla, [1998] taxmann.com 2155 (SC), while dealing with entries in loose sheets/diaries held that such material could, at best, be used against the person from whose possession it was seized and not against third parties.

6.3. Coordinate Bench of ITAT, Mumbai in the case of Straptex (India) (P) Ltd. 84 ITD 320, dealing with materially similar facts where the Department sought to rely upon a computer floppy recovered from a third party to allege cash borrowings by assessee held after analyzing the presumption under section 132(4A) that such presumption operates only against the person from whose possession the document is recovered, is rebuttable, and that such third-party material cannot be pressed into service against another assessee in the absence of corroboration and without an opportunity of cross-examination. On identical reasoning, penalty under section 271D was deleted in that case.

6.4. Reliance placed by the ld. Counsel for the assessee on the decision of Coordinate Bench of ITAT, Delhi in the case of Mayfair Resorts India Ltd. in ITA 2008/Del/2021, order dated 27.09.2023 is also apposite. It is also a case of an unsigned draft agreement to sell, recovered from the computer of a third party, sought to be relied upon by the Revenue to make 8

an addition in the hands of assessee. The Coordinate Bench held that no addition can be sustained merely on the basis of an unsigned draft agreement found in the possession of a third party without any other corroborative and cogent evidence; that the presumption under section 292C cannot be invoked against an assessee on the strength of documents found in the possession of a third party; and that the burden of proving receipt of cash by assessee remains, throughout, upon the Revenue.

6.5. We find parity between the ratio of the above decisions and the facts of the present case. In the present case also, there are unsigned third- party digital drafts; denial of the transaction by the third party, viz. GBK Group, from whose possession the data was seized; no executed instrument; and a complete absence of corroboration in the form of bank trails, promissory notes, hundis, confirmations from the alleged lenders, or entries in assessee's own books of account. The twenty-one cheques stated to have been issued by assessee by way of security were on verification by the Investigation Wing itself, found never to have been presented for payment or encashed at all. This factual matrix lends support to assessee's stand that no such transaction ever fructified. On this state of the record, the burden squarely rested upon the Revenue which it failed to discharge.

6.6. In view of the foregoing discussion, we hold that ld. CIT(A) has correctly appreciated the material on record and rightly concluded that the "evidence" relied upon by ld. Assessing Officer being wholly uncorroborated unsigned third-party documents, contradicted by the very 9

third party's own denial which was insufficient in law to sustain the levy of penalty under section 271D of the Act. Ground no. 3 raised by the Revenue is, accordingly, dismissed.

Order pronounced in the open court on 01st September, 2026. Sd/- Sd/- Amit Shukla Girish Agrawal Judicial Member Accountant Member Dated: 01st September, 2026 MP, Sr. PS Copy to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. Guard File 5. CIT BY ORDER, (Dy./Asstt.Registrar) ITAT, Mumbai