DCIT, CENTRAL CIRCLE-8(1), MUMBAI, MUMBAI vs. PARTH AJIT PAWAR, MUMBAI

Briefly stated, the facts of the case are that a search and seizure action under Section 132 was conducted on 07/10/2021 in the case of the DB Realty Group, the Dynamics Group, and other related entities. Consequent to the said search, a survey under Section 133A was carried out in the case of Daund Sugar Pvt. Ltd., located at Alegaon, District Pune.

It was gathered that Shri Sagar Omprakash Shah was one of the key personnel involved in managing the affairs of Daund Sugar Pvt. Ltd., particularly overseeing the Mumbai operations. He was reportedly coordinating procurement across departments and worked in close liaison with the top management. During the course of the search, a grey- coloured diary belonging to Shri Sagar Shah was found and seized. The said diary contained several cash entries, which were treated as incriminating in nature.

These diary entries were confronted to Shri Sagar Shah during his statement recorded under Section 132(4) on 09/10/2021. Relevant extracts of his statement have been reproduced in the assessment order. From these, the Assessing Officer inferred that the cash entries reflected unaccounted money received by Shri Sagar Shah from the A summary of the diary entries is reproduced below: Transaction Financial Year Sr Nature of Relevant page No. Transaction Amount (in Rs.) no. of diary Receipts of Cash mentioned in the Diary 1 40,00,000 2021-22 4 Unaccounted cash 2 99,10,000 2021-22 15 Unaccounted cash 11,50,000 2021-22 16 3 Unaccounted cash 4 Unaccounted cash 4,50,000 2020-21 34 4,50,000 2021-22 34 5 Unaccounted cash 6 14,00,000 2021-22 36 Unaccounted cash

Total 1,69,10,100 2021-22 4,50,000 2020-21 Total In response to the show cause notice, the assessee categorically denied any association with Daund Sugar Pvt. Ltd. or with Shri Sagar Shah. It was contended that the statement of a third party, recorded without the assessee’s presence or opportunity of cross-examination, cannot form the sole basis for such a serious addition. Additionally, there was no corroborative evidence to establish any financial link between the assessee and the said diary entries.

The Assessing Officer, however, rejected these contentions. He observed that during the course of the search, it was discovered that the assessee was the de facto head of the Mumbai office of Daund Sugar Pvt. Ltd., located at 2nd Floor, Nirmal Building, Nariman Point, Mumbai. The office space contained the assessee’s personal belongings including books, artefacts, paintings, a motorbike, and also housed an NGO run by him. Moreover, the employee contact list retrieved from the premises reflected the assessee’s name designated as ―MD‖. Hence, the AO concluded that the assessee had close links with Daund Sugar Pvt. Ltd., and by extension, with Shri Sagar Shah.

He further noted that the diary, admittedly written in the handwriting of Shri Sagar Shah, contained entries of cash allegedly received from the assessee whose name was abbreviated as ―PP‖ therein. Thus, the AO concluded that the assessee failed to satisfactorily explain the nature and source of the cash totalling Rs.1,69,10,100, and proceeded to treat the same as unexplained money under Section 69A.

Consequently, an addition of Rs.1,69,10,100 was made to the assessee’s income under Section 69A.

In appellate proceedings before the learned CIT(A), the assessee reiterated that the diary had not been seized from his possession and that he had no financial dealings with Shri Sagar Shah. Importantly, it was argued that the said Parth Ajit Pawar statement of Shri Sagar Shah was recorded behind the assessee’s back, and no opportunity of cross-examination had been provided. Recognising the fundamental principle of natural justice, the CIT(A) directed the AO to provide an opportunity for cross-examination. Pursuant to this direction, a remand report dated 24/02/2025 was submitted, wherein a detailed cross-examination of Shri Sagar Shah was undertaken. The relevant portion of the cross-examination reads as follows: “Q.4 It has come to my notice that during the Income Tax search proceedings, entries of certain cash transactions were found with you. In response to the same, you have stated that the cash was handed over by me to you. Why did you give such a statement? Ans. At the onset I would like to state that I was under tremendous stress and pressure during the search. There were certain conditions and situations around me which created so much of pressure and along with this a lot of pressure was being exerted from outside and I was not able to think through rationally and just wanted to get over with the proceedings. There was no outside legal help or consultancy available at that point of time. So my answers were not thought out and not coherent. Q.5 Why did you state that PP means Parth Pawar? What is the basis of the same? Ans. As I mentioned above, my answers were not thought through and coherent. It was a random response and I just said whatever came to my mind during that dire situation. The diary which was found just had my scribblings and random notings. Q.6 Did you have any financial dealings with me ever? Ans. No. I have never had any financial dealing with Parth Pawar at any point of time. Q.7 Can you tell me if I have ever handed over any cash to you or gotten anyone else to give cash to you on my behalf or instructions?

Parth Ajit Pawar Ans. No. Parth Pawar has never handed over any cash to me nor has anyone ever given any cash to me on his behalf or on his instructions. Q.8 Have you ever made any cash payments on my behalf or on my instructions? Ans. As I have stated earlier, Parth Pawar and I have never had any financial dealings, he has never given me any cash and I have never made any cash payments on his behalf or on his instructions.” It is seen from the cross-examination statement that in the answer to question no. 6, Shri Sagar Shah has stated that he never had any financial dealing with Shri Parth Pawar at any point of time. In the answer to question no. 7, he further stated that Shri Parth Pawar has never handed any cash to him, nor has anyone ever given any cash to him on behalf of Parth Pawar’s instructions. It is further stated that as he was under tremendous stress and pressure during the search and hence was unable to think rationally and just wanted to get over the proceedings. Thus Shri Sagar Shah has denied having any financial transactions with the appellant and has also denied that the appellant has given any cash to him. Thereafter, the AO also re-examined Shri Sagar Shah and his statement was recorded. The relevant part of his statement is reproduced as under- “Q.9 It is seen on the statement recorded u/s 132(4) during the course of search proceedings, you have clearly stated that the diary found in your premises belongs to you. Please confirm the same. Ans. Yes, the diary which was found during the course of search proceedings belonged to me. Q.10 It is seen from the statement recorded u/s 132(4) during the course of search proceedings that you have clearly stated that the notings made in the diary is done by you. Please confirm the same. Ans. Yes, the notings in that diary are done by me. As I have stated earlier, these were in the nature of random scribblings and notings.

The CIT(A) observed that the cross-examination clearly established that there was no financial nexus between the assessee and Shri Sagar Shah. It was also noted that the diary was recovered from the possession of Shri Sagar Shah and authored by him. The identity of the initials ―PP‖ remained ambiguous and uncorroborated. Consequently, the CIT(A) concluded that the foundation of the addition stood vitiated and directed the deletion of Rs.1,69,10,100.

We have carefully heard the submissions of both parties and meticulously perused the material available on record, including the impugned assessment order and the detailed findings rendered by the learned CIT(A). The core basis for the addition of Rs.1,69,10,100/- under Section 69A by the Assessing Officer is the statement recorded under Section 132(4) of Shri Sagar Shah during the course of a search action. It is the case of the Revenue that a diary was found and seized from the residence of Shri Sagar Shah—an individual stated to be actively involved in the affairs of Daund Sugar Pvt. Ltd. which contained entries of cash transactions. In response to Questions 50 to 58 during his statement under oath, Shri Sagar Shah is said to have mentioned that the cash recorded in the diary was received from the assessee, Shri Parth Ajit Pawar. On the strength of this singular statement, the Assessing Officer inferred that the assessee had given cash totalling Rs.1,69,10,100/- and proceeded to invoke Section 69A to treat it as unexplained money.

The assessee, in his appeal before the learned CIT(A), raised a threefold challenge firstly, that the statement of Shri Sagar Shah was recorded behind his back and without affording any opportunity for cross-examination; secondly, that the diary entries were seized not from the assessee but from a third party, and therefore could not form the basis of an addition; and thirdly, that there was no corroborative material evidencing any cash transaction with the assessee. The learned CIT(A), appreciating the principles of natural justice, directed the Assessing Officer to provide the opportunity of cross-examination, and a remand report was accordingly submitted after re-examining Shri Sagar Shah.

The relevant portions of the cross-examination and re- examination have been reproduced earlier in this order. The substance of the statement, however, is worth reiterating:-

From a plain reading of these responses, it is evident that Shri Sagar Shah has categorically denied ever receiving any Parth Ajit Pawar cash from the assessee or acting on his instructions. Furthermore, he admitted that his earlier statement implicating the assessee was made under duress, during a time when he was allegedly under ―tremendous stress and pressure. He clarified that the notings in the diary were random scribblings and not intended to record any financial transactions.

It is also pertinent to note that the diary entries themselves do not name the assessee. The reference to ―PP‖ was initially attributed by Shri Sagar Shah to the assessee, but this attribution was subsequently retracted during cross- examination. He clarified that the earlier identification of ―PP‖ as Parth Pawar was not based on any rational consideration, but rather a result of the mental stress he was under at the time of the search. Thus, the sole thread upon which the entire case of the Revenue hangs the identity of ―PP‖ has unravelled upon cross-examination.

In law, it is well settled that entries in the diary of a third party, when uncorroborated and untested through cross- examination, cannot by themselves form the basis of an adverse inference against an assessee. The Hon’ble Bombay High Court in Ashok Commercial Enterprises v. ACIT [(2018) 459 ITR 100 (Bom)] has categorically laid down that unless there is cogent and corroborative material linking the assessee with the seized material, no addition can be sustained merely on the basis of statements or notings made by third parties.

Moreover, Section 69A of the Act can be invoked only where the assessee is found to be the owner of money, bullion, jewellery or other valuable articles, which are not recorded in the books of account and for which no satisfactory explanation is offered. In the present case, the following essential conditions of Section 69A are conspicuously absent:

Once the very foundation of the addition i.e., the statement of Shri Sagar Shah has been discredited and retracted; and in the absence of any corroborating evidence directly implicating the assessee, the edifice of the addition collapses. The learned CIT(A), in our considered opinion, has correctly appreciated the legal position and factual matrix in deleting the impugned addition.

Accordingly, we see no reason to interfere with the well- reasoned findings of the learned CIT(A). The grounds raised by the Revenue are, thus, dismissed.

In the result, the appeal of the Revenue is dismissed.