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Facts
A search and seizure operation was conducted in the case of M/s. SRS Mining and others, during which documents and sworn statements were recorded. The assessee, Shri K.S. Palaniswamy, a former Collector, was implicated through entries in seized materials, allegedly pertaining to payments made by M/s. SRS Mining.
Held
The Tribunal held that the seized material, consisting of entries in a third party's notebook, constituted a 'dumb document' without corroborative evidence linking it to the assessee. The sworn statement of Shri K. Srinivasulu was also found to be unreliable due to retraction and lack of specific details.
Key Issues
Whether additions made by the Assessing Officer based on entries in a third party's seized documents, without independent corroborative evidence, are sustainable. Whether a retracted sworn statement from an associate of the searched party can be used as corroborative evidence against the assessee.
Sections Cited
139(1), 132, 142(1), 143(2), 132(4), 153C, 69A, 115BBE, 250
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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI GEORGE GEORGE KAND Ms. S. PADMAVATHY
Years: 2017-18 The Deputy Commissioner of K.S. Palanisamy, Income Tax, Vs. Kuppagounden Valasu, Central Circle - 2(4), Avalpoondurai, Erode 638 115. Chennai. [PAN: AJIPP-8193-Q] (अपीलाथ�/Appellant) (��यथ�/Respondent) अपीलाथ� क� ओर से/Appellant by : Ms. E. Pavuna Sundari, CIT ��यथ� क� ओर से/Respondent by : Shri Y. Sridhar, F.C.A. सुनवाई क� तारीख/Date of Hearing : 23.07.2025 घोषणा क� तारीख/Date of Pronouncement : 05.08.2025 आदेश /O R D E R
PER GEORGE GEORGE K, VICE PRESIDENT:
This appeal at the instance of the Revenue is directed against the order of the Commissioner of Income Tax (Appeals) - 19, Chennai dated 31.12.2024, passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2017-18.
The solitary issue raised in the appeal is with regard to deletion of addition made on account of alleged receipts from M/s. SRS Mining.
Brief facts of the case are as follows:
The assessee, Shri K.S. Palaniswamy was Collector in the State of Tamil Nadu. For AY 2017-18, the assessee filed his return of income under section 139(1) of the Act declaring total income at ₹.8,76,400/-. A search and seizure action under Section 132 of Act was conducted in the cases of M/s. SRS Mining, J. Sekar Reddy, K. Rethinam and S. Ramachandran, at No. 47, 49, VBC Solitaire, 3 Floor, Bazullah Road, T. Nagar, Chennai - 6000017 on 08.12.2016. During the course of search proceedings under section 132 of the Act in the case of Shri Sekar Reddy (M/s. SRS Mining) and others on 08.12.2016, certain documents with entries allegedly pertaining to the assessee were seized and sworn statements were recorded. Copies of the seized materials, extracts of satisfaction notes and sworn statement were provided to the assessee along with notice under section 142(1) of the Act dated 05.12.2022 along with questionnaire. In response to the notice under section 142(1) of the Act, the assessee submitted his reply on 15.12.2022 and filed his return of income on 12.12.2022 declaring total income of ₹.8,76,400/-. Notice under section 143(2) of the Act was issued and served to the assessee on 16.12.2022. The reply of the assessee has been reproduced at para 4 of the assessment order.
5. During the course of search, date-wise noting of the amounts paid to persons in public service were seized, sworn statements under section 132(4) of the Act were recorded from Shri K. Srinivasulu, who was maintaining the above documents and from the three partners of M/s. SRS Mining. During the course of search, certain incriminating materials as three small Oswal note books annexed vide ANN/KGAR/MPKSSR/B&D/S-1 to 3 & two long size books annexed vide ANN/MPK/NS/B&D/S-19 & 20 containing date-wise notings of the amounts paid to persons in public service were seized. The table containing list of illegal payments made on various dates to the public service has been extracted at page 9 of the assessment order, carrying an initial “Trichy Coll” signifies Trichy Collector and the assessee Shri K.S. Palaniswamy was the then Trichy Collector in the State of Tamil Nadu during the period in which alleged illegal payments made. During the course of assessment proceedings, the assessee had been granted opportunities to furnish reply to the queries raised and to offer his defense. The assessee, in his reply dated 15.12.2022, made following submissions:
1. 1. The assessee stated that he had no knowledge of the Firm, M/s SRS Mining, or persons associated with it. It was also stated that during his period as Collector at Trichy he had not allot any mining lease to the named persons. It was stated that an entry "Trichy Coll" could not indict him as it did not identify him by his name and could be a pseudonym or some person employed at the collectorate.
2. There should be incriminating material to initiate proceedings u/s 153C and that how an entry in a diary could be construed as incriminating material.
3. The purported documents did not have any evidentiary value and the fact that search officials had not examined the assessee meant that the proceedings had been initiated on the basis of conjectures.
4. The assessee relied upon the decision in the case of V C Shukla in CBI v. V C Shukla (1998) 3 SCC 410 wherein section 34 of Evidence Act was used to dismiss the entries in a diary to be inadmissible evidence in the absence of any independent and corroborative material.
The assessee also sought cross examination of Sh. Srinivasulu and the partners of the Firm, M/s SRS Mining. The Assessing Officer, however, rejected the objections of the assessee since there was no substantive reply and completed the assessment for AY 2017-18 under section 143(3) r.w.s. 153C of the Act dated 27.12.2022 by treating the alleged illegal payment of ₹.2,00,00,000/- as unexplained income under section 69A r.w.s. 115BBE of the Act and added to the total income of the assessee.
On appeal, the CIT(A) analysed the impugned addition extensively as could be evident from para 6.5.1 to 6.5.24 and by relying upon various orders of the Tribunal and deleted the addition of ₹.2,00,00,000/-. The CIT(A) concluded that the action of the Assessing Officer in making the addition without bringing corroborative evidence is not legally and factually sustainable.
The ld. DR Ms. E. Pavuna Sundari, CIT has submitted that the ld. CIT(A) erroneously deleted the additions made towards undisclosed income of ₹.2,00,00,000/- as unexplained money under section 69A of the Act, which was found in the materials seized from the premises of M/s. SRS Mining, Chennai on the ground that the Assessing Officer failed to produce corroborative evidences to link the assessee to the entries, without appreciating that the seized material contained the entries referred to assessee which was further corroborated by sworn statement of Shri Srinivasulu, close associate of Shri Sekar Reddy of M/s. SRS Mining, recorded under section 132(4) of the Act, author of the seized material. She vehemently argued that the sworn statement which was retracted by Shri Srinivasulu could not be relied upon without appreciating that the retraction was not based on any supporting evidence and without any alternate explanation to entries in the seized materials. She further argued that the observation of the ld. CIT(A) that the addition was made on the basis of dumb document is not correct, but the seized materials were in the form of entries mentioning the transactions maintained on regular basis. She further argued that the sworn statement recorded under section 132(4) of the Act has evidentiary value for the reason that Shri Srinivasulu is a close associate of Shri Sekar Reddy of M/s. SRS Mining and retraction of the sworn statement by Shri Srinivasulu was only an afterthought [retraction by Shri Srinivasulu vide his letters dated 21.03.2017 and 23.03.2017]. The ld. DR, thus, prayed that the order of the ld. CIT(A) should be set aside and restored that of the Assessing Officer.
The ld. AR Shri Y. Sridhar, F.C.A. has submitted that the assessee has no connection of whatsoever nature and never had any transactions with M/s. SRS Mining. It was stated that the Assessing Officer relied on certain entries/noting found in the loose sheets/note books seized from a thirty-party premises for the purpose of framing assessment. He argued that the entries in the loose sheets seized have no evidentiary value without there being any corroborative evidence. He argued that at best, those entries alleged to be found in note books without any corroborative evidence can utmost be treated as dumb document and cannot be relied upon. The ld. AR vehemently argued that the sworn statement recorded under section 132(4) of the Act from Shri K. Srinivasulu relied on by the Assessing Officer does not have the name of the assessee and hence the reliance placed by the Assessing Officer for making addition is completely erroneous and cannot be construed as incriminating seized material for the purpose of assuming jurisdiction under section 153C of the Act. The ld. AR has submitted the issue is squarely applicable to the facts and circumstances to the case of the assessee and brought on record the following case law: i. DCIT v. Shri Vivek Papisetty in &ors ii. DCIT v. Shri Karuppagounder Palaniswami in to 127/Chny/2023 & Ors iii. DCIT v. Shri O. Paneerselvam in ITA Nos.581 & 582/Chny/2023 & Ors iv. ACIT v. Nallaammal Deivasigamani Venkatachalam in ITA Nos. 1291 & 1292/Chny/2023 9. We have heard rival contents and perused the material on record. On perusal of the assessment order, we note that the Assessing Officer made the addition towards undisclosed income of the assessee represented by the payments allegedly made to the assessee by M/s. SRS Mining by relying upon the material seized from the premises of a third party, viz., M/s. SRS Mining during the course of search conducted in the case of the said third party. Thus, it is apparently clear that there was no search & seizure operation carried under section 132 of the Act in the premises of the assessee and the assessment was concluded under section 143(3) r.w.s. 153C of the Act dated 27.12.2022 by using material seized from the premises of a third party and such material was not found to be in the handwriting of the assessee. Such material seized in the case of a third party which is not in the hand writing of the assessee does not constitute adequate evidence to draw any adverse inference against the assessee, in the absence of any other corroborative evidence. For the above proposition, the CIT(A) has rightly relied on the judgement of the Hon'ble High Court of Delhi in the case of CIT Vs. Sant Lal [2020] 118 taxmann com 432 (Del), it was held therein that where a diary was seized in search of the premises of a third party allegedly containing entries of hundi transactions on behalf of various parties including the assessee, no addition could be made based on the said entries since the diary was neither found from premises of assessee nor was it in handwriting of assessee and revenue failed to produce any other cogent material to link the assessee to the diary. Further, we note that the Assessing Officer has not referred to any cogent material to corroborate that the entries made in the material seized from a third party which are purportedly the transactions made by the said third party with the assessee. The ld. CIT(A) has observed that there is absolutely no mention in the seized material regarding the nature of the said transactions of cash payments, the purpose of such payments and the precise identity of the recipient. An entry made in a diary or notebook by a third person with scant details cannot be used to fasten tax liability upon the person whose name does not appear at all or only the post held by the such person appears in the seized material, in the absence of any corroborative evidence to attribute the entries to such a person. Such seized material is liable to be treated as a dumb document, which does not have any evidentiary value in respect of the entries found therein, unless corroborative evidence is available which can provide necessary reliable basis for deciphering the nature and character of the said entries. We note that, with regard to the use of the entries in the seized material, the CIT(A) has observed that when a third party unilaterally makes entries in a diary/note book showing payments to a person to suit his convenience, the payments cannot be inferred to have been made to the said person, unless there is corroborative evidence to establish the actual making of payments to the said person in the form of acknowledgement in the seized material of having received the said payments by way of appending his signature/initial against the said payments. But, however, in the present case there is no reference to such corroborative evidence in the assessment order.
We note that the CIT(A) emphasized for the proposition that addition cannot be made merely on the basis of entries in loose sheets/note books found in the premises of a third party without bringing on record independent evidence to corroborate such entries has been reiterated in several decisions. Some of the decisions to this effect are MM Financiers (P) Ltd Vs. DCIT (2007) 107 TTJ (Chennai) 200, Regency Mahavir Properties Vs ACIT [2018] 169 ITD 35 (ITAT-Mumbai), ACIT Vs. Katrina Rosemary Turcotte [2017] 190 TTJ 681 (ITAT-Mumbai), DCIT Vs. Vipin Aggarwal [2017] 83 taxmann.com 6 (ITAT Chandigarh), S.P Goyal Vs DCIT [2002] 82 ITD 85 (ΤΜ) ΙΠΑΤ, Τ.S. Venkatesan Vs ACIT [2000] 74 ITD 298 (Cal) and Monga Metals (P) Ltd Vs ACIT [2000] 67 TTJ 247 (All). We also note that by relying upon the judgement of the Hon’ble Supreme Court in the case of Common Cause v. Union of India (supra), the CIT(A) has rightly observed that reliable and cogent evidence to corroborate the entries found in loose sheets and note books regarding the payments allegedly made to the assessee is not available on record in support of the entries in the seized material found in the third party premises of M/s. SRS Mining.
With regard to the sworn statement of Shri K. Srinivasulu recorded under section 132(4) of the Act on 10.12.2016, we are not inclined to accept it represents corroborative evidence in respect of the entries found in the seized material purportedly in the abbreviated name of the post held by the assessee since the said statement of Shri K. Srinivasulu does not serve as a corroborative evidence in respect of the entries in the seized material which allegedly have shown cash payments made to the assessee. The CIT(A) also observed that Shri Srinivasulu gave a general statement that the entries in the seized note books represent incidental expenses paid to various persons. When there are numerous pages and entries in the seized material, such a general statement does not inspire confidence for drawing any conclusions in respect of specific entries appearing therein allegedly with the abbreviated name of the post held by the assessee. There is no specific reference in the statement of Shri K. Srinivasulu that the entries in the seized note books appearing allegedly with the post held by the assessee representing payments made to the assessee only. There is nothing in the said statement even to remotely suggest that the entries appearing with the post held by the assessee actually represent payments made to the assessee, the details of facilitation services rendered by the assessee to M/s. SRS Mining for which the impugned payments were made and the identity of the person(s) who actually made the payments to the assessee. The statement of Shri K. Srinivasulu merely mentions that the entries were made in the seized note books by him on the instructions of the partners of M/s. SRS Mining. It is very clear from the same that he had no first-hand knowledge of the payments noted in the seized material and had merely noted whatever has been told to him by partners. In such an event, the statement of Shri K. Srinivasulu serves a very limited purpose of ascertaining the identity of the person who made the entries and nothing more. Since the entries were made by him on the instructions of the partners, it is the partners who were required to explain the exact identity of the recipients, the nature of payments, the purpose of payments and the identity of the person who made the payments. However, the material available on record does not suggest that the partners were examined on oath under section 132(4) of the Act with regard to the relevant entries in the seized material of cash payments allegedly made to the assessee. There is no reference to any such statement of the partners in the assessment orders. Thus, the statement of Shri K. Srinivasulu can barely be considered as corroborative evidence against the assessee with regard to the entries in the seized material.
We also note that in the case of M/s. SRS Mining v. Union of India (2022) 141 taxmann.com 272 (Mad), the Hon’ble High Court of Madras has observed that the statement of Shri K. Srinivasulu cannot be relied upon as he has turned hostile by giving specific retraction statement and that there is no need to accord permission to cross-examine him in view of the said reason. By reproducing relevant portion of the judgement of the Hon’ble High Court of Madras, the CIT(A) has rightly observed at para 6.5.14 of the impugned order that it needs to be held that the statement of Shri K.
Srinivasulu cannot be used against the assessee unless any other evidence to corroborate the same is brought on record by the Assessing Officer. Admittedly, the Assessing Officer failed to bring on record any other evidence to corroborate with regard to the alleged entries in the loose sheets/notebook.
Further, we note that in the impugned order, the CIT(A) has relied on the judgement of the Hon’ble Supreme Court in the cases of CBI Vs. VC Shukla & Others (1998) 3 SCC 410, Common Cause (A Registered Society) Vs. Union of India (2017) 77 taxmann.com 254 (SC) and Dhakeshwari Cotton Mills Ltd. V. CIT (1954) 26 ITR 775 (SC), for the purpose of validation of entries found in the material seized from a third party, corroborative evidence is essential to support such evidence found in third party premises. In order to properly appreciate the issue, it is useful to refer to the following extract from the decision of Hon'ble Apex Court in the case of Dakeswari Cotton Mills Ltd Vs. CIT (1954) 26 ITR 775 (SC): “As regards the second contention, we are in entire agreement with the learned Solicitor-General when he says that the Income-tax Officer is not fettered by technical rules of evidence and pleadings, and that he is entitled to act on material which may not be accepted as evidence, a court of law, but there the agreement ends; because it is equally clear that in making the assessment under sub-section (3) of Section 23 of the Act, the Income Tax Officer is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support the assessment under section 23(3). The rule of law on this subject has, in our opinion, been fairly and rightly stated by the Lahore High Court in the case of Seth Gurmukh Singh (supra)”.
Further, in the cases of CBI v. VC Shukla & Others and Common Cause (A Registered Society) v. UOI (supra), the Hon’ble Supreme Court has held that it is an established legal principle that every transaction even when recorded in the regular books need to be independently corroborated and proved when some liability is to be fastened in respect of such transactions. This decision was rendered with reference to section 34 of the Indian Evidence Act. Though the technical rules of Evidence Act are not strictly applicable to Income Tax proceedings, the legal principle laid down by the Hon'ble Supreme Court in these cases that independent corroborative evidence is required in respect of entries in regular books of account when a liability is sought to be fastened based on such entries would be broadly applicable to income tax proceedings also in cases where tax liability is sought to be fastened on an assessee based on entries found in the notebooks/loose sheets seized from a third party. When the tax liability was sought to be fastened on the assessee based on the said seized material from thirty party, before making addition in the assessment order for AY 2017-18, the Assessing Officer was duty bound to prove the correctness of the entries in the seized material with independent corroborative evidence and admittedly no such corroborative evidence has been brought on record and relied upon by the Assessing Officer in the assessment order.
In view of the above discussions, it is amply clear that the seized material is in the nature of a dumb document which does not contain complete and unambiguous information to arrive at any conclusion based solely on the said material that the assessee was in receipt of the payments found noted therein. There is no corroborative evidence to prove that the payments noted in the seized material have actually materialised and transfer of money has actually taken place between the concerned parties. Further, it is also significant to bring on record that neither the Authorized Officer nor the Assessing Officer had any occasion to cross verify the facts narrated in the seized material by way of recording statement from the assessee. Thus, it can very-well be stated that the Assessing Officer had completed the assessments in a mechanical manner without appreciation of facts. In view of these reasons, it is required to be considered that the Assessing Officer has not discharged the onus cast upon the revenue to prove that the assessee was actually in receipt of the payments reflected in the seized material with reliable and cogent independent evidences to corroborate the entries in the seized material.
Upon perusal of the various orders of this Tribunal relied on by the ld. AR, we note that the Coordinate Benches of this Tribunal has, after considering the facts and circumstances of the cases, appellate orders and assessment orders, dismissed the appeals filed by the Revenue, wherein, the Assessing Officer made additions on the basis of the seized material that was found and seized from M/s. SRS Mining during the search on 08.12.2016, in the absence of reliable and cogent independent evidences to corroborate the entries in the seized materials.
In the present case also, the Revenue has failed to bring on record any reliable and cogent independent evidences to corroborate the entries in the seized materials either before the CIT(A) during appellate proceedings or even before this Tribunal. Considering the case law placed on record and referred hereinabove, the entire facts and circumstances of the case, we find that the CIT(A) has rightly held that the action of the Assessing Officer in making the addition without bring corroborative evidence is not legally and factually sustainable and deleted the addition made in the assessment year under consideration, is justified. Accordingly, the grounds raised by the Revenue are dismissed.
In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the open court on 05th August, 2025 at Chennai.