JT. COMMISSIONER OF INCOME TAX (OSD), CENTRAL CIRCLE 4(1), MUMBAI, MUMBAI vs. HEMENDRA RAMJI VIRA, MUMBAI

The Revenue is aggrieved by the action of the learned CIT(A) in deleting the additions made by the Assessing Officer towards the alleged cash loan of ₹2,10,00,000/- stated to have been advanced by the assessee to the Wadhwa Group and the consequential addition of ₹27,57,000/- towards alleged cash interest received thereon. According to the Revenue, the learned CIT(A) erred in holding that the material relied upon by the Assessing Officer was insufficient to sustain the impugned additions and in disregarding the evidentiary value of the digital records recovered during the course of search in the case of Wadhwa Group, read together with the disclosures made by the said group before the Hon’ble Income Tax Settlement Commission.

The Revenue has raised the following grounds of appeal:-

Briefly stated, the facts relevant for adjudication are that a search and seizure action under section 132 of the Act was carried out in the case of Wadhwa Group of Companies, during which certain digital data maintained in a cloud-based

During the course of reassessment proceedings, the Assessing Officer confronted the assessee with the information received from the search conducted in the case of Wadhwa Group. The assessee, however, categorically denied having entered into any cash transaction whatsoever with the

The Assessing Officer, however, did not find merit in the explanation furnished by the assessee. According to him, the digital records recovered during the search, read together with the statements of the key persons of Wadhwa Group and the disclosures made before the Hon’ble Income Tax Settlement Commission, sufficiently established that the assessee had

Being aggrieved, the assessee carried the matter in appeal before the learned CIT(A), who, after examining the entire material available on record and the rival submissions, deleted both the additions. The learned CIT(A), inter alia, held that the additions had been founded exclusively upon material recovered from the possession of a third party and the disclosures subsequently made by such third party before the Settlement Commission, without there being any independent evidence establishing the assessee’s participation in the alleged cash transactions. The learned CIT(A) further found that neither the seized digital records nor the statements recorded during the search specifically identified or connected the assessee with the alleged

Before us, the learned Departmental Representative strongly relied upon the assessment order. It was submitted that the Assessing Officer had made the impugned additions on the basis of incriminating digital data recovered during the course of search in the case of Wadhwa Group, which, according to the Revenue, contained complete particulars of the unaccounted cash transactions undertaken by the said group. The learned DR submitted that the digital records were duly decoded by the key persons of Wadhwa Group, who, in the statements recorded during the search proceedings, admitted that the data maintained in the cloud server represented the record of unaccounted transactions of the group. It was further contended that while approaching the Hon’ble Income Tax Settlement Commission, Wadhwa Group not only admitted the cash loans received but also furnished the names, addresses and Permanent Account Numbers of the respective persons from whom such cash loans had

Per contra, the learned counsel appearing on behalf of the assessee supported the order passed by the learned CIT(A). It was submitted that the entire edifice of the reassessment rested upon digital records admittedly recovered from the premises of Wadhwa Group and upon the disclosure subsequently made by them before the Hon’ble Income Tax Settlement Commission. Neither any incriminating material belonging to the assessee had been found during the course of search nor had the Assessing Officer brought on record any independent evidence demonstrating the movement of cash from the assessee to Wadhwa Group. The learned counsel submitted that the assessee had consistently denied entering into any such cash transaction and that the Revenue had merely relied upon the unilateral disclosures made by another

We have carefully considered the rival submissions, perused the assessment order, the impugned appellate order and the entire material placed before us. The foundational question requiring adjudication is whether the additions made under sections 69 and 69A of the Act can be sustained solely on the strength of digital records recovered from the premises of a third party and the disclosures subsequently made by such third party before the Hon’ble Income Tax Settlement Commission, without there being any independent material establishing the assessee’s participation in the alleged cash transactions.

On a careful examination of the assessment order, it is evident that the Assessing Officer has proceeded primarily on the basis of two pieces of material, namely, the digital records recovered during the search conducted in the case of Wadhwa Group and the disclosure made by the said group before the Hon’ble Income Tax Settlement Commission admitting receipt of certain cash loans from different persons, including the present assessee. Except for these materials, no independent enquiry appears to have been conducted so as to establish the actual movement of cash from the assessee to Wadhwa Group. There is no reference to any seized material belonging to the assessee, no banking trail, no contemporaneous document evidencing withdrawal or availability of cash, no confirmation emanating from the assessee, nor any other independent circumstance demonstrating that the assessee had in fact advanced the alleged cash loan. Thus, the additions have ultimately been founded upon information generated from the records maintained by Wadhwa Group and the admissions made by them in proceedings before the Settlement Commission.

The learned CIT(A), while examining the correctness of the assessment order, has analysed the evidentiary worth of the material relied upon by the Assessing Officer from the correct

We also find that the issue arising in the present appeal is no longer res integra. An identical controversy, emanating from the very same search action conducted in the case of Wadhwa Group, came up for consideration before the coordinate Bench of this Tribunal in the case of DCIT vs. Dinesh Lakhmichand Rohira in ITA No.5463/Mum/2024 for Assessment Year 2015-16. In that case also, the additions were founded upon the very same category of digital records recovered from the cloud-based software maintained by Wadhwa Group and the disclosures made by the said group before the Hon’ble Income Tax Settlement Commission. After an elaborate consideration of the factual background as well as the legal position, the coordinate Bench categorically held that such material, at best, could constitute information warranting further investigation, but could not, in the absence of independent corroborative evidence, form the sole basis for making additions in the hands of a third party. The Tribunal observed that the statements and disclosures made by Wadhwa Group before the Settlement Commission were entirely within their own domain and the assessee had neither any participation in nor any control over such proceedings. Consequently, implicit reliance upon such

The factual matrix before us is substantially identical. Here also, the Revenue seeks to sustain the additions exclusively on the basis of digital records recovered from Wadhwa Group and the disclosure made by them before the Settlement Commission. Except for such material, no contemporaneous document belonging to the assessee, no independent financial trail, no evidence regarding availability or movement of cash, nor any other corroborative material has been brought on record to demonstrate that the assessee had actually advanced the alleged cash loan or had received the alleged interest in cash. The Assessing Officer has proceeded on the assumption that once the Wadhwa Group admitted the receipt of cash loans before the Settlement Commission and mentioned the name of the assessee, nothing further remained to be established. In our considered opinion, such an approach overlooks the well-settled distinction between information capable of initiating an enquiry and evidence capable of sustaining an addition. While the information available with the Assessing Officer may legitimately justify initiation of investigation, the addition itself must ultimately rest upon legally admissible and independently verifiable evidence establishing the assessee’s involvement in the alleged transaction. That essential

It is equally significant to note that the presumption arising from documents recovered during a search is primarily available against the person from whose possession or control such material is found. When the Revenue seeks to utilise such material against another assessee, the burden necessarily lies upon it to establish, through cogent and independent evidence, the nexus between the seized material and such assessee. Mere mention of the assessee’s name in the records maintained by another person or inclusion of such name in a disclosure made before the Settlement Commission cannot, by itself, dispense with the requirement of independent corroboration. Any contrary approach would permit additions to be sustained solely on the basis of unilateral assertions made by third parties, without the existence of any objective material establishing the actual transaction. Such a course is neither contemplated under the provisions of the Act nor consistent with the settled principles governing appreciation of evidence in income-tax proceedings.

The learned Departmental Representative has not been able to point out any distinguishing feature, either on facts or in law, which would persuade us to take a view different from

In view of the foregoing discussion, we are of the considered opinion that the learned CIT(A) has appreciated both the factual matrix and the legal position in their proper perspective. The deletion of the additions is founded upon sound reasoning and is fully supported by the decision of the coordinate Bench rendered on identical facts. We, therefore, find no infirmity, factual or legal, in the impugned appellate order warranting our interference. Accordingly, the order of the learned CIT(A) deleting the additions made under sections 69 and 69A of the Act is hereby affirmed.

In the result, the appeal filed by the Revenue is dismissed.