PRASHANT PRAKASH NILAWAR,PUNE vs. DCIT CC 6(1)-MUMBAI, MUMBAI

2.1. Grounds taken by assessee in ITA 5073/Mum/2024 are reproduced as under: 1) Notice issued u/s 143(2) is non-jurisdictional under the law (Para 3.1 on Page 2 of the CIT(A) Order)

On the facts of the case, in law and under the circumstances, the impugned assessment order dt. 31.12.2022 passed by the Learned AO u/s 143(3) of Income Tax Act as affirmed by the Ld. CIT(A) is bad in law and void for want of jurisdiction in as much as no notice was issued u/s 148 of the Act in the present case despite acknowledging the fact, the assessment was conducted pursuant to search u/s 132 of the Act.

2) Assessment made without following the procedure prescribed u/s 65B of the Indian Evidence Act. 1872

2.1) On the facts, circumstances of the case and in law, the learned CIT(A) has erred in reaching to an ultimate finding based entirely on loose sheets / documents making it substratum of his conclusion, without application of his mind contrary to the fact the learned AO is required to corroborate such loose documents with the independent evidence, without which, such loose papers are merely dumb material, inadmissible in law.

3) Addition of Rs. 70,00,000/- u/s 69A of the Act (Para 7 to 7.7 on Page 5 to 20 of CIT(A) Order)

On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition made by AO of Rs. 70,00,000/- u/s 69A of the Act based on image found from back up of mobile phone of third party Mг. Javed Shaikh without appreciating that the provisions of section 69A are not applicable to the present case and in any case the addition springs out a statement which was later on retracted.

In any case and without prejudice to the above, since the Ld. CIT(A) has accepted that a substantial expenditure was incurred out of the said alleged receipts of Rs.70,00,000/-, then in that case only the net income based on the reasonable profit rate could at all be taxed in the present case and to that extent the order of the Ld. CIT(A) as well as the Ld. AO is contrary to law.

4) Without prejudice to above, on the facts and circumstances of the case and in law, the appellant prays that If payment made as per the seized document is allowed and considered by CIT(A) as expenses and source of such expenses is considered as out of unaccounted "business receipts", then net income is based on the reasonable profit rate is required to be estimated in present case.

5) Appellant prays that 1) Addition made u/s 69A / 69C based on various seized documents of third party and statement recorded u/s 132(4) on which relied upon by AO / CIT(A) is duly retracted, therefore, addition made u/s 69A/69C is to be deleted. ii) The assessee craves your honour's leave to add, alter or amend any ground of appeal at the time of hearing or before.

3.1. Assessee is engaged in the business of land aggregator for corporates and consultancy in the same field, as noted by the ld. Assessing Officer in para-4 of the impugned order. Assessee also derived income from house property, capital gain and from other sources. Impugned assessment was completed u/s. 143(3) by making an addition of Rs.90,83,900/- u/s. 69A and Rs.9,67,10,536/- u/s. 69C, determining total assessed income at Rs.16,33,56,256/-.

4. In respect of addition of Rs.14 lakhs made u/s. 69C for which Revenue is in appeal vide ground no.1, corresponding ground is raised by assessee in his appeal vide ground no.3, whereby an addition of Rs.70 lakhs is sustained by ld. CIT(A) towards unexplained money u/s. 69A. Both these additions arise out of one common seized material, thus, we take this for adjudication together. Ld. CIT(A) has given relief in respect of addition of Rs.14 lakhs made u/s. 69C, by observing that source of expenditure of this Rs.14 lakhs is out of Rs.70 lakhs and therefore, cannot be said to be unexplained.

4.1. Facts relating to this issue, wherein both Revenue and assessee are in appeal, is that during the course of search proceedings, a page containing certain alleged transactions was found and seized from data back-up of mobile I-phone of one Shri Javed Shaikh. This image is a tally ledger titled as “Eijaj Work”. In the said image, it reflects total debit entries of Rs.70 lakhs and total credit entries of Rs.14 lakhs. Details of the same are tabulated below:

4.2. Ld. Assessing Officer took note of statement of Shri Javed Shaikh recorded u/s.132(4), where in the answer to question no.43, it was stated that said journal was sent to him from Pune office and explained that these transactions are cash payments and receipts. Facts submitted by Shri Javed Shaikh were confronted to the assessee, in response to which assessee submitted that ‘Eijaj’ is an ex- employee of Rucha Group. Subsequently, Shri Javed Shaikh retracted from the statement. Ld. Assessing Officer rejected the contention of retraction vide his office communication dated 18.10.2022. Ld. CIT(A) confirmed the addition of Rs.70 lakhs based on this image found from the mobile of Shri Javed Shaikh and at the same time deleted the addition of Rs.14 lakhs relating to expenditure since both were also recorded on the same image.

4.3. Before us, thrust of ld. Counsel of assessee is on the requirements to be complied in respect of section 65B(4) of the Indian Evidence Act, 1872 since the image or document relied upon by the ld. Assessing Officer is an electronic record which cannot be the basis for taking an adverse view unless a certificate as to its source and authenticity has been obtained as contemplated under the said section. In this respect, in the entire proceedings before the authorities below, there is no reference or mention of any certification u/s. 65B of the Indian Evidence Act and therefore reliance placed on the image being an electronic record found from the mobile of Shri Javed Shaikh is not tenable.

4.4. Ld. Counsel placed reliance on the decision of Hon'ble Supreme Court in the case of Anvar P.V. vs. P.K. Basheer [2014] 10 SCC 473, who observed that wherever a person is seeking to rely upon an electronic record, for the same produced in the evidence, a certificate u/s.65B of the Indian Evidence Act is mandatory. Paragraph 14 from this judgement reads as under: "14. Any documentary evidence by way of an electronic record under the Evidence Act, in view of Sections 59 and 65-A, can be proved only in accordance with the procedure prescribed under Section 65-B. Section 65-B deals with the admissibility of the electronic record. The purpose of these provisions is to sanctify secondary evidence in electronic form, generated by a computer. It may be noted that the Section starts with a non obstante clause. Thus, notwithstanding anything contained in the Evidence Act, any information contained in an electronic record which is printed on a paper, stored, recorded or copied in optical or magnetic media produced by a computer shall be deemed to be a document only if the conditions mentioned under sub- Section (2) are satisfied, without further proof or production of the original. The very admissibility of such a document, i.e., electronic record which is called as computer out-put, depends on the satisfaction of the four conditions under Section 65-B(2). Following are the specified conditions under Section 65-B(2) of the Evidence Act:

(i) The electronic record containing the information should have been produced by the computer during the period over which the same was regularly used to store or process information for the purpose of any activity regularly carried on over that period by the person having lawful control over the use of that computer;

(ii) The information of the kind contained in electronic record or of the kind from which the information is derived was regularly fed into the computer in the ordinary course of the said activity;

(iii) During the material part of the said period, the computer was operating properly and that even if it was not operating properly for some time, the break or breaks had not affected either the record or the accuracy of its contents; and (iv) The information contained in the record should be a reproduction or derivation from the information fed into the computer in the ordinary course of the said activity."

4.5. Reliance is also placed on the decision of Hon'ble Supreme Court in the case of Arjun Pandirao Khotkar [2020] 7 SCC 1, which also has clearly held that section 65B(4) of the Indian Evidence Act is mandatory. According to the Hon'ble Court, when documents from electronic records are produced by authorities and are sought to be used in evidence, in order to ensure the source and authenticity of the said documents, it is not only mandatory to obtain a certificate u/s.65B(4) of the Indian Evidence Act, but despite efforts if the person seeking such a certificate is unable to do so, he can apply to the court for its production and the Judge conducting the trial must require that such certificate be given.

4.6. Accordingly, ld. Counsel for the assessee emphasized that the addition made by the ld. Assessing Officer on the basis of image found on the mobile of Shri Javed Shaikh is un-sustainable when there is no evidence on record to show compliance u/s.65B of the Indian Evidence Act. He further asserted that statement of Shri Javed Shaikh was retracted which ld. Assessing Officer is stated to have rejected the same. Further, in the image found from the mobile what it states is “Eijaj Works” and contains only journal entries. There is no mention of name of the assessee or “Rucha Group” in the image. Since the image contains only the journal entries, therefore they cannot be construed as receipts or payments having cash movement. Ld. Counsel also submitted that even the statement given by the assessee was retracted though rejected by ld. Assessing Officer. Ld. Counsel also submitted that no addition can be made relying on WhatsApp images found from the phone when the same is not corroborated by any other evidence during the course of search.

4.7. Per contra, ld. CIT (A) placed reliance on the orders of the authorities below.

5.1. In the given set of facts and circumstances, we delete the addition of Rs.70 lakhs made in the hands of the assessee as unexplained money u/s.69A of the Act. Further, we affirm the deletion of Rs.14 lakhs made by ld. CIT(A) in respect of addition made by ld. Assessing Officer u/s.69C by holding it as unexplained expenditure. Accordingly, ground taken by the Revenue is dismissed and that of the assessee is allowed.

6.1. Assessee submitted that statements relied upon by the ld. Assessing Officer of Shri Shailendra Rathi as well as that of assessee have been retracted and therefore, they are no more good evidence. Ld. Assessing Officer, however, rejected the claim of the retraction of statements.

6.2. Assessee explained that Shri Shailendra Rathi is an independent consultant and not an employee of the assessee. He does not work under the direct control and supervision of assessee and his association is limited to providing consultancy services on need basis to the assessee. Image found from the mobile of Shri Shailendra Rathi does not contain any reference to the name of assessee or Rucha Group. Ld. Assessing Officer not accepting the submissions of the assessee, proceeded to make the addition of the stated amount as unexplained expenditure u/s.69C. Before the ld. CIT(A), assessee reiterated its submissions. It was also asserted that ld. Assessing Officer did not make any efforts to identify the names of the parties to whom alleged sum was paid by the assessee and the purpose of such payment.

6.3. Ld. CIT(A), after considering the submissions made by the assessee observed that since ld. Assessing Officer has made addition on the basis of material found and seized from the third party and third party statement without any corroborative evidence which cannot be sustained. He deleted the addition made by the ld. Assessing Officer.

7.1. We have already dealt with the provisions of section 65B of the Indian Evidence Act in the above paragraphs, which squarely applies to the present piece of evidence relied upon by the ld. Assessing Officer. On our observations and findings in this respect as stated above, the image/sheet found from the mobile of Shri Shailendra Rathi being an electronic record, used as evidence for the purpose of making addition in the hands of the assessee is without obtaining necessary certification in this regard and therefore, addition by ld. Assessing Officer is not tenable. Accordingly, considering the overall factual matrix and discussions made above, we do not find any infirmity in the findings arrived at by ld. CIT(A). Ground no.2 raised by the Revenue is thus, dismissed.

8.1. Facts in this respect are that, premises of GNP Group were also covered during the search action on Rucha Group. During the said search action, certain evidences were found and seized from the mobile phone of one Shri Kaustubh Latke, which contains WhatsApp conversation between him and Shri Shailesh Patil. In this context, an image was retrieved wherein record of payment of Rs.3 crores by the assessee to GNP Group is alleged to be found. In this respect, the said entry is under the name “Nilawar”. Based on the contents of the image found in the mobile of Shri Kaustubh Latke and statement given by him, ld. Assessing Officer arrived at a conclusion that Rs.3 crores has been received by GNP Group from the assessee. Assessee was thus, required to prove the source of cash so paid and explain the nature of transaction with accounting of the same in his books of account.

8.2. Assessee has strongly contended that he is unaware of who Shri Kaustubh Latke and Shri Shailesh Patil are, since they are not connected with him or Rucha Group. There are no corroborative evidences found during the course of search to establish that reference to “Nilawar” is to assessee only. Assessee had requested for a copy of statement of Shri Kaustubh Latke, seized evidence and opportunity to cross examine him. In this respect, ld. Assessing Officer noted that assessee had already been provided with the evidence and relevant portion of the statement and hence proceeded to complete the assessment by making the addition as unexplained expenditure u/s.69C.

8.3. Ld. Assessing Officer did not make any independent enquiry, so as to ascertain the fact stated by Shri Kaustubh Latke in respect of sale of land at Pune in this respect. He did not identify details of land in Pune, i.e., its location, area, buyer, seller, consideration, etc., in relation to which assessee is alleged to be the recipient of consultancy services from Shri Kaustubh Latke. Ld. Assessing Officer has simply placed reliance on uncorroborated statement of Shri Kaustubh Latke and arrived at a conclusion that assessee had made payment of Rs.3 crores without adducing any evidence to that effect or conducting any enquiry. The seized document in the form of image found from the mobile of Shri Kaustubh Latke does not specify nature or purpose of the alleged transaction nor does have any signature or any other identification of the assessee.

8.4. It is trite law that addition cannot be made only on the basis of WhatsApp conversation between third parties without adducing corroborative evidence in support of such allegation. We also take note of detailed observations made by ld. CIT(A) after considering various judicial precedents to state that documents/material found from the premises of third party or a statement of third party cannot be relied upon to make additions in the hands of the assessee, unless such material or statement is corroborated by independent evidence, linking such material to the assessee. To our mind, such material can be a good reason for starting an investigation, however, ld. Assessing Officer has simply relied on such material found from the premises of a third party and relied on third party statement to make addition without corroborating it with any kind of independent evidence and enquiry.

8.5. Considering the fact pattern and the observations and findings of ld. CIT(A) as well as our discussion in respect of compliance of Section 65B of Indian Evidence Act which also applies on the issue in hand, we find no infirmity in the findings arrived at by the ld. CIT(A) in deleting the addition made by ld. Assessing Officer. Accordingly, ground no.3 raised by the Revenue is dismissed.

9.1. In the present case, before us, additions have been made on the basis of electronic images / sheets found and seized from the mobiles of concerned persons/third parties which are electronic records. Section 132(4A) r.w.s. 292C contains presumption as to evidence which is admissible against the person in whose possession or control such evidence is found and such a presumption is a rebuttable presumption. Section 11 of the Information Technology Act also attributes the electronic record to its originator when it was sent by the originator himself or any person authorised on his behalf or by a system programmed by or on behalf of the originator. Keeping the provisions of the Act and of Information Technology Act discussed herein, there cannot be any presumption or attribution on the assessee in respect of the electronic records (electronic images / sheets found and seized from the mobiles) based on which additions have been made in the hands of the assessee.

9.2. In the given context, Hon'ble Supreme Court in the case of Ambalal Sarabhai Enterprise vs. KS Infraspace LLP Ltd, Civil Appeal No. 9346 of 2019 dealt on the aspect of WhatsApp chats and observed as under:

"The WhatsApp messages, which are virtual verbal communications, are matters of evidence with regard to their meaning and its contents to be proved during trial by evidence_ in_chief and cross-examination. The emails and WhatsApp messages will have to be read and understood cumulatively to decipher whether there was a concluded contract or not".

9.3. Hon'ble Apex Court highlighted the importance of proving the contents of WhatsApp chat during trial by evidence and also cross examination. In the present case, ld. A.O neither provided any evidence in support of the WhatsApp chats relied upon by him nor did he provide the opportunity to cross examine the third parties even after a specific request was made by the assessee.

9.4. Also, Coordinate Bench of ITAT, Chennai in the case of Mr. A. Johnkumar vs. DCIT in dealt with issues relating to additions made based on WhatsApp messages and observed as under: “First of all, WhatsApp messages cannot be considered as a conclusive evidence to draw an adverse inference against the assessee, unless those WhatsApp messages are supported by corroborative evidences to indicate that those messages and contents represents undisclosed income of the assessee. ……The AO neither bring on record from which person, the assessee has received cash and to whom the assessee has distributed cash. The AO neither made out a case of source for cash and destiny of cash distributed by the assessee. In other words, the AO has abruptly concluded in his own understanding of the messages, the assessee has received so much of cash and distributed so much of cash and which is nothing but cash for votes and hence, concluded that the assessee has incurred a sum of Rs.17 Crs. for distribution of cash to voters and which is nothing but unexplained expenditure taxable u/s.69C of the Act……….Further, the AO had relied upon the WhatsApp messages sent from assessee's mobile phone to Mr. Somu and had given his own meaning to those messages. In the process, the AO neither tested the admissibility of WhatsApp messages as evidence u/s.69B of Evidence Act, nor examined Mr. Somu the recipient of messages sent by the assessee. The AO without carrying out necessary enquiries and also examining those persons, simply concluded that those messages are meant for distribution of cash and the assessee has spent such a huge amount for election expenses. In our considered view, the findings recorded by the AO is purely on suspicion and surmises manner without any evidences to justify his findings.

9.5. Keeping the context of material found and seized from third parties, we also refer to decision in the case of ACIT vs. Lata Mangeshkar [1974] 97 ITR 696 (Bom) wherein Hon'ble Court has extensively discussed the importance and meaning of primary evidence. In this case, Income-tax authorities came across a sort of a ledger maintained by a firm known as Vasu Films of Madras which was seized by them. Department relied on the entries in the ledger which allegedly reflected payments to Ms. Lata Mangeshkar in white and black and took the view that no receipts were shown by the assessee (i.e. Ms. Lata Mangeshkar) in the regular books of accounts. Statements of the managing partner of Vasu Films and firm's Bombay manager were recorded in which they explained the entries stating that the letter "W" put against payment is "White" while the letter "B" were put against payment is "Black". Income-tax officer made additions on the basis of entries as in the seized material alleging that these payments were outside the books of accounts and also relied upon the statements made by these two persons. The Appellate Assistant Commissioner confirmed the additions made by the Income- tax Officer.

9.5.1. Before the Tribunal, it was contended on behalf of the assessee that the entire evidence merely created suspicion and it did not take the place of proof. Tribunal after appreciating all the evidence came to a conclusion that evidence was not sufficient to prove that assessee had received money in "black" for which she did not pass a receipt in the regular books of accounts. In the statement recorded of managing partner, it was pointed out by the Tribunal that he had no personal knowledge of the actual payments made to the assessee and therefore his evidence could not carry the case of the Department any further. In the statement of firm's Bombay manager, he accepted that he had made payments in "black" to the assessee. It was pointed out by the Tribunal that he used to receive amounts from Madras from which he used to make disbursements in Bombay but he maintained no account in respect of the same which made it difficult to rely on his evidence. Hence, Tribunal rejected the entries and disbelieved the statement of the two witnesses.

9.5.2. An appeal was filed before the High Court of Bombay. The High Court of Bombay after considering all the circumstances held that the Tribunal was justified in holding that the additions were wrongly made stating as below: "Moreover, entries in books of account-whether in day-book or in the ledger-are merely corroborative evidence and in the absence of proper corroborative evidence the primary direct evidence would alone be required to be scrutinized and that evidence in this case consisted of the testimony of C. S. Kumar and the evidence of that witness was found to be thoroughly unreliable by the Tribunal. After all, the entries in the day-book or the ledger would be a corroborative piece of evidence and once the direct evidence of the person who is said to have made payments in "black" to the assessee is disbelieved, we do not think that any value could be attached to the entries in the ledger or to the entries in the day- book even if one had been produced. In the circumstances, we feel that the questions which are sought to be referred arise out of a finding of fact recorded by the Tribunal on pure appreciation of evidence."

9.6. We also refer to the decision of Hon'ble Supreme Court in the case of CBI vs. V.C. Shukla & Ors. 1998 (3 SCC 410) (SC), where Section 34 of the Evidence Act, 1872 has been explained and held that entries in a file containing loose sheets of papers were not "book" and hence entries therein were not admissible under Section 34 of the Evidence Act. Further, it was also held in this case that entries in books of account shall not alone be sufficient evidence to charge any person with liability. Entries, even if relevant, were only corroborative evidence. Independent evidence as to trustworthiness of those entries was necessary to fasten the liability. In view of these facts, it was held by the Hon'ble Court that entries made in the Jain Hawala diaries are under Section 34, but truthfulness thereof was not proved by any independent evidence. Hon'ble Supreme Court further went on to state that even correct and authentic entries in books of account cannot, without independent evidence of their trustworthiness, fix a liability upon a person. The relevant extracts are as under.

9.7. Also, Hon'ble Supreme Court in case of Common Cause v. UOI [2017] 394 ITR 220 (SC), wherein searches were conducted on the Birla and Sahara Group of Companies and incriminating material in form of random sheets and loose papers, computer prints, hard disk, pen drives etc. were found, held that noting on loose sheet/diary does carry any evidentiary value under the provision of section 34 of the Evidence Act. Relevant extract reads as under.

“It is apparent from the aforesaid discussion that loose sheets of paper are wholly irrelevant as evidence being not admissible U/s 34 so as to constitute evidence with respect to the transactions mentioned therein being of no evidentiary value. ……………. In case of Sahara, in addition we have the adjudication by the Income-tax Settlement Commission. The order has been placed on record along with I.A. No.

Order is pronounced in the open court on 12 February, 2025