DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, HUBBALLI, HUBBALLI vs. SHRI GOPAL KRISHNANATSA KATIGAR, HUBBALLI

The materials found from the premises of Shri Giridhar Ladhha were confronted to the assessee and his wife, Smt. Anita Katiger while .

On the other hand, the seized materials were also confronted to the Manager accounts and finance of Mishra Gorup namely Shri Giridhar Ladhha to which he admitted that loan through banking channel as well as through cash were availed from the assessee throughout the period and the total outstanding loan from the assessee and his wife as on 02nd January 2019 is of Rs. 3,18,50,000/- which include outstanding cash loan of Rs. 1,73,54,464/- only. Shri Gridhar Ladha based on seized materials marked on page 264 stated that an amount of Rs. 70 Lakh in cash was paid back to the assessee as on 12th January 2019.

Based on the above, the AO during the assessment proceedings under section 153C of the Act noticed that the materials found from the Manager Account and Finance of Mishra Group were well maintained documents containing the list of parties including assessee from whom loan through banking channel as through cash was received as well as interest payment thereon. The assessee has not questioned the authenticity of the seized materials found but only shown ignorance .

The assessee in response to the show cause notice contended that no material in relation to cash transaction with Mishra Group was found in the search. The assessee also contended that Shri Giridhar Laddha was not connected to the business operations of Dharwad Mishra Group and, therefore, had no involvement in any financial transactions related to the group. The assessee claimed that any financial records or transactions appearing in the documents maintained by Shri Giridhar Laddha’s were unrelated to their business and did not warrant any tax implications for them. The assertion was that Shri Laddha had no role in managing or handling the financial affairs of the business, thereby dismissing any allegations of undisclosed transactions linked to him.

The assessee further requested permission to cross-examine Shri Giridhar Laddha, who was identified as the Manager, Accounts & Finance in the Mishra Group. This request was based on seized materials and statements that admitted cash investments made by the assessee in the Mishra Group. The assessee was shown this evidence during the Search proceedings and later sought an opportunity to question Shri Laddha regarding his role and the financial transactions attributed to him.

However, the AO rejected the assessee’s claims as incorrect and misleading, establishing that Shri Giridhar Laddha was, in fact, deeply involved in the financial affairs of the Mishra Group. Evidence indicated that Shri Laddha had been working as a Manager, Accounts & Finance for over 30 years, handling the business operations on behalf of Shri Sanjay Mishra. Documentary evidence, including books of accounts, parallel records, and financial documents, was found and seized from both his residence and office, confirming his active role in the group’s financial management. Statements from investors and raw material suppliers further corroborated that they had regular financial dealings with Shri Giridhar Laddha. Additionally, in a sworn statement recorded under Section 132(4) on 18.01.2019, Shri Sanjay Ganesh Mishra himself confirmed that Shri Giridhar Laddha was responsible for collecting funds from franchisees, loan repayments, procurement of machinery, and managing all financial matters related to the firm. Based on these findings, the AO concluded that Shri Laddha was actively managing the finances of the Mishra Group, contradicting the assessee’s claim of his non-involvement.

The AO rejected the assessee’s request for cross-examination, for the reason that the assessee was given ample opportunity during the search proceedings to cross-examine Shri Laddha but did not request it at that time.

The AO further held that statements recorded under section 132(4) of the Act during search proceedings are considered valid admissions under Section 17 of the Indian Evidence Act, 1872. The AO relied on judicial precedents of Hon’ble Supreme Court in the case of Avadh Kishore Das v. Ram Gopal (1979), Kishori Lal v. Mt. Chaltibai (1959), and Basant Singh v. Janki Singh (1967) to emphasize that admissions are effective proof of facts unless proven otherwise by the assessee. The AO also determined that the admissions made by Shri Sanjay Ganesh Mishra and Shri Giridhar Laddha were corroborated by documentary evidence seized during search proceedings under Section 132 of the Act. These documents, including printed reports, handwritten records, and tally backups, were maintained by the Accounts Manager of Mishra Group and contained clear details of investments made by the assessee through both banking channels and cash transactions.

Furthermore, the AO observed that undisclosed incomes, as identified were not included in the assessee’s total income computation for the Assessment Year 2014-15. Thereby, the AO determined that the cash investment of ₹9,59,00,000/- was unexplained under Section 69 of the Act and unaccounted interest income of ₹1,63,16,719/- in cash, generated from the unexplained cash investments. This amount was treated as ‘income from other sources’ and added to the total income of the assessee.

The aggrieved assessee preferred an appeal before the learned CIT(A).

The assessee before the learned CIT(A) strongly contested the addition of ₹9,59,00,000/- under Section 69 read with section 115BBE and addition of interest income of ₹1,63,16,719/-, arguing that the AO had no valid basis for the addition. The primary contention was that the AO relied on documents seized from the residence of Shri Giridhar Laddha, rather than from the assessee’s own premises. Since no incriminating material was found at the assessee’s premises, the presumption under Section 132(4A) should not apply to the assessee, as the documents did not belong to him.

The assessee further argued that in the scheme of the Income Tax Act, the burden of explaining seized money or documents lies with the person in whose possession they are found. Since the documents were not in the assessee’s possession, the onus was on Shri Giridhar Laddha and Shri Sanjay Mishra to explain the nature of the transactions. The assessee emphasized that entries in the books of Mishra Group and Laddha do not automatically implicate him, as they do not contain his signature, handwriting, or authentication. The AO’s presumption that “GK” in the records refers to the assessee (Gopal Katigar) was baseless and illogical.

Additionally, the assessee denied making any cash investments in Mishra Group, stating that all his investments were routed through banking channels. He highlighted that no evidence of cash transactions was found during the search at his own premises, reinforcing his claim that he had no role in the alleged cash dealings. The assessee also contended that a prudent person making such a large cash investment would secure legal documentation such as promissory notes or guarantees, which were completely absent in this case.

Lastly, the assessee pointed out that Shri Giridhar Laddha later retracted his statements made under Section 132(4), stating that he blindly signed the documents without reading them. This, according to the assessee, further weakened the AO’s case, as statements that were later retracted could not be relied upon for making substantial additions. Hence, the assessee before the learned CIT(A) challenged the AO’s reliance on third-party documents, denied any involvement in cash investments, and emphasized the lack of direct evidence linking him to .

The learned CIT(A) after considering the facts in totality concluded that the addition of ₹9,59,00,000 was unjustified and had to be deleted. The key finding of the learned CIT(A) are summarized in below paragraphs.

The learned CIT(A) found that the AO made the addition based on documents seized from the premises of Shri Giridhar Laddha, who was the Accounts & Finance Manager of the Mishra Group. However, no such documents were found at the assessee’s premises, nor was there any direct evidence linking the assessee to the alleged cash investment. The learned CIT(A) was of that view that as per the provisions of Section 132(4A) of the Act, the burden of explaining the seized material lies with the person from whose custody it is recovered. Since the documents were recovered from Shri Giridhar Laddha's premises, the responsibility of explaining those entries rested on him or on Shri Sanjay Ganesh Mishra who confirmed his statement and not on the assessee. The AO incorrectly applied the presumption under Section 132(4A) to the assessee without proving that the seized documents belonged to him.

The learned CIT(A) further found that the entire case of the AO rested on the assumption that the initials "GK" in the seized documents referred to the assessee (Gopal Krishnanatsa Katigar). However, the seized documents did not bear the assessee’s signature, handwriting, or authentication. The AO did not establish how the initials "GK" directly linked to the assessee, apart from relying on the statement of Shri .

The AO relied heavily on the statement of Shri Giridhar Laddha, who had initially stated that the entries in the seized documents related to the cash investment made by the assessee. However, the ld. CIT(A) noted that Shri Giridhar Laddha later retracted his statements through a written letter dated 25.07.2019. In his retraction, Shri Laddha stated that he had blindly signed the statements without reading them and for him, "cash" does not always mean physical cash and his earlier statements were not given voluntarily or after proper verification.

The ld. CIT(A) also found that the AO ignored this retraction and continued to rely on Laddha’s initial statement, even though retracted statements carry no evidentiary value unless supported by independent evidence. Since, there was no corroborative material to support Laddha’s original claim, the AO’s reliance on his statement to make an addition was unsustainable.

The assessee had requested an opportunity to cross-examine Shri Giridhar Laddha during the course of assessment proceedings. However, the AO denied this request, citing reasons such as the COVID-19 situation and time limitations for completing the assessment. The ld. CIT(A) strongly criticized this action, stating that cross-examination is a fundamental right under the principles of natural justice. Since, the AO .

The ld. CIT(A) further observed that a search was conducted at the assessee’s premises on 17.01.2019, but no evidence of any cash investment was found. This was a crucial point because if the assessee had actually made a cash investment of ₹9,59,00,000, some physical or documentary evidence should have been found at his premises. The absence of such evidence strongly indicates that the AO’s assumption was incorrect. The AO ignored this fact and still proceeded with the addition based on third-party documents, which was unjustified.

Based on the above findings, the CIT(A) concluded that the AO’s addition of ₹9,59,00,000/- under Section 69 r.w.s. 115BBE was completely unjustified and therefore, the addition of ₹ 9,59,00,000/- under Section 69 r.w.s. 115BBE was deleted in full.

Since the addition on account of investment itself was deleted the learned CIT(A) accordingly deleted the addition of interest income computed on such alleged investment for Rs. 1,63,16,719/- only.

Being aggrieved by the order of the learned CIT(A), the Revenue is in appeal before us.

The learned DR before us filed a paper book running from pages 1 to 191 and contended that search materials marked as annexure- A/GL/01 contained detailed and systematic information regarding loan transaction through bank and cash by the Mishra Group with different parties’ including the present assessee. Based on seized materials, the manager account and finance of Mishra Group identified and confirmed loan transaction through bank as well as through cash from various parties including the assessee. The other parties namely Shri Satishchandra S. Shetty, Shri Shridhar S Shetty, Shri Mahesh Kumar C Bhnadari, Shri Mahad Mahadev Ganpathsa Habib and Sri RajendraKumar S Lunker whose name appearing the in seized materials i.e. annexure A/GL/01 accepted cash investment in the Mishra group in the form of loan and offered the same to tax before the settlement commission. As per the ld. DR, the fact about the admission by the 3rd parties for having provided the cash loan to the Mishra group which was offered by them as income before the settlement commission was not considered by the AO and accordingly the ld. DR requested to set aside the issue to the file of the AO for fresh adjudication as per the provisions of law.

On the other hand, the learned AR before us filed the details running from pages 1 to 163 and reiterated the contentions made during the assessment proceedings and before the learned CIT(A). As per the learned AR there was no documents found during the search proceedings at the premises of the third-party except the statement recorded of the third-party. In the absence of any incriminating .

We have heard the rival contentions of both the parties and carefully considered the facts of the case, the documentary evidence, the statements recorded, the decisions of the AO and the learned CIT(A), and accordingly we proceed to record our findings on the issues raised in the present appeal.

In the result, the appeal of the Revenue is dismissed. to 1143/Bang/2024 for A.Y. 2015-16 to 2019-20

At the outset, we note that the issues raised by the Revenue in the captioned appeals for the AY 2015-16 to 2019-20 are identical to the issue raised by the Revenue in for the assessment year 2014-15. Therefore, the findings given in shall also be applicable for the assessment years 2015- 16 to 2019-20. The appeal of the Revenue for the A.Y. 2014-15 has been decided by us vide paragraph No. 31-32 of this order against the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2014-15 shall also be applied for the assessment years 2015-16 to 2019-20. Hence, the grounds of appeals filed by the Revenue for A.Ys. 2015-16 to 2019-20 are hereby dismissed.

In the result, the appeals filed by the Revenue for A.Ys. 2015-16 to 2019-20 are hereby dismissed.

In the combined result, all the appeals filed by the Revenue for A.Ys. 2014-15 to 2019-20 are hereby dismissed.