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Facts
A search action under Section 132 of the Income Tax Act, 1961, led to the discovery of incriminating materials related to cash payments by PWD Engineers for influencing transfers. An addition of Rs. 2 crore was made to the assessee's income under Section 69C as unexplained expenditure.
Held
The CIT(A) deleted the addition, holding that documents or statements from third parties cannot be relied upon without independent corroboration linking them to the assessee. The Tribunal agreed with the CIT(A)'s decision.
Key Issues
Whether an addition can be made based solely on third-party documents/statements without independent evidence linking them to the assessee, especially when found from a third party's premises?
Sections Cited
132, 148, 132(4), 69C, 69A, 132(4A)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI NARENDRA KUMAR BILLAIYA
Appellant /Assessee by : Shri Rashmikant Modi / Ketki Rajshirke, AR Revenue / Respondent by : Shri Dr. Kishor Dhule, CIT-DR Date of Hearing : 04.03.2025 Date of Pronouncement : 11.03.2025 O R D E R PER: NARENDRA KUMAR BILLAIYA, AM: This appeal by the Revenue is preferred against the order of the Commissioner of Income Tax (Appeals)-54, Mumbai [for short 'the CIT(A)] dated 07.08.2024 pertaining to AY 2021-22. The grievance of the Revenue read as under:
“Ground 1. "Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition made by the AO of Rs. 2,00,00,000/- u/s 69C of the Act by ignoring the fact that the detailed modus operandi of the transactions related to transfer and posting of PWD engineers had been explained by Shri Shailendra Rameshchandra Rathi (one of key employee) working in office of Rucha sub-group and also digital evidences found from his iPhone, were corroborated with order for transfer and posting passed by the Govt. of Maharashtra, PWD Department?" Ground 2. "Whether on the facts of the case and in law, the Ld. CIT(A) erred in holding that the addition cannot be made by placing reliance on a statement of third party and on material found from the third party in the hands of the assessee in absence of any evidence linking such material to the assessee even though it is clearly seen from the search proceedings that the evidences found from iPhone of Shri Shailendra Rathi and he had explained the contents of the said documents during the search proceedings and these documents were further corroborated with order for transfer and posting passed by the Govt. of Maharashtra, PWD Department?" Ground 3. "Whether on the facts of the case and in law, the Ld. CIT(A) has erred in relying on such cases in which the facts are different from the present case.”
Briefly stated the facts of the case are that a search action under section 132 of the Income Tax Act, 1961 (the Act) was conducted in the cases of Rucha Group run by Shri Prashant Nilawar, GNP Group run by Shri Girish Pawar and Jairaj Group run by Shri Jairaj Shah. During the course of search incriminating relating to cash given by the Engineers of PWD Department for influencing their transfer was found.
The case of the assessee was reopened by issuing a notice under section 148 of the Act on 14.03.2023. The assessee was confronted with the statements of Shri Shailendra Rathi recorded during the course of search. Shri Ravi Wadepalle an employee of Rucha Group in his statement under section 132(4) of the Act stated that some of the documents belonging to Rucha Group were kept at the premises of Shri Avish Atal the incriminating materials contained details of payment made by the PWD Engineers. One of the entry related to the assessee, it was alleged that the assessee has paid Rs. 2 crore for transfer and posting on the strength of this the AO came to the conclusion that the assessee could not explain the source of the funds from which the cash was paid and therefore Rs. 2 crore was treated as unexplained under section 69C of the Act.
The assessee agitated the addition before the CIT(A) and strongly contended that complete details, information, material and statements of 3rd party on the basis of which allegation upon which not been provided nor any opportunity to cross-examine the persons whose statement have been relied upon by the AO to form an allegation against the assessee. It was also contended that the impugned material was found from the premises of 3rd party.
After considering the facts and the submissions and drawing support from various judicial decisions, the CIT(A) came to the conclusion that documents/ material found from the premises of a 3rd party or a statement of 3rd party cannot be relied upon to make addition in the hands of the assessee unless such material or statement is corroborated by independent evidence linking such material to the assessee. In the absence of any independent evidence linking the assessee with the material found from a 3rd party or a 3rd party statement, the CIT(A) deleted the impugned addition of Rs. 2 crore.
Before us the ld. DR strongly relied upon the findings of the AO.
Per contra, the counsel for the assessee brought to our attention to the decisions of the Co-ordinate Bench in 5663/Mum/2024 and 5666/Mum/2024 and pointed out on identical set of facts. The Co-ordinate Bench has deleted the similar addition.
We have carefully perused the order of the authorities below and have considered the decisions of the Co-ordinate Bench brought to our notice. We find force in the contention of the counsel, the Co-ordinate Bench on identical set of facts in the case of Sharad Nagnath Rajbhoj and Atul Bhikaram Chavan and Ajay Kumar Baburao Bhosale all being PWD Engineers has deleted the impugned additions based upon identical submissions and identical seized material. The relevant findings in read as under: “16. From the perusal of the record, it is evident that the addition of Rs.5 lakh was made merely on the basis of the document found during the search on the third party and there was no attempt by the AO to link the same with the assessee by way of an independent evidence. Accordingly, in light of the decisions relied upon by the learned CIT(A) in the impugned order, we are of the considered view that the addition of Rs.5 lakh made under section 69A of the Act has rightly been deleted by the learned CIT(A). Before concluding, it is pertinent to note that the learned CIT(A) also took into consideration the decisions wherein it was held that the presumption under section 132(4A) of the Act could only be taken in the case of the person from whose possession the document or material has been found and since, in the present case, the documents were found from the possession of the third party, such a presumption cannot be extended to the assessee.”
Finding parity of facts respectfully following the decisions of the Co- ordinate Bench, we decline to interfere with the findings of the CIT(A).
In the result, appeal of the Revenue is dismissed.