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Facts
During a survey, the assessee's employee's computer had excel sheets with project-wise details of on-money receipts. The AO made additions based on these sheets and statements recorded during the survey. The CIT(A) upheld the additions.
Held
The Tribunal held that the statements recorded during the survey under Section 131(1A) were invalid as the conditions for their recording were not met. Furthermore, the excel sheets, being electronic records, were inadmissible as evidence due to non-compliance with Section 65B of the Indian Evidence Act.
Key Issues
Admissibility of electronic records and statements recorded under Section 131(1A) during a survey as evidence.
Sections Cited
250, 133A, 131(1A), 115BBE, 28, 65B, 234
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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI GEORGE GEORGE K & SHRI S.R. RAGHUNATHA
O R D E R
PER GEORGE GEORGE K, VICE PRESIDENT:
These appeals at the instance of the assessee are directed against five separate orders of CIT(A), Chennai-20, (all dated 30.09.2024) passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Years are 2013-14 to 2017-18.
There is a delay of 11 days in filing these appeals. The assessee has filed a petition for condonation of delay along with to 3152//CHNY/2024 affidavit stating therein the reasons for belated filing of these appeals. The reasons stated in the condonation application for belated filing of these appeals is that Managing Director of the assessee was stranded amidst heavy rains caused by Cyclone Fengal at Puducherry during the relevant period and hence, there was delay of 11 days.
On perusal of the aforesaid reasons in the condonation application, we are of the view that there is sufficient cause for belated filing of these appeals and no latches can be attributed to the assessee. Hence, we condone the delay in filing these appeals and proceed to dispose off the appeals on merits.
Common issues are raised in these appeals, hence, they were heard together and are being disposed off by this consolidated order. The solitary issue raised on merits is regarding addition on account of purported unaccounted cash collection.
Brief facts of the case are as follows:- The assessee is a company engaged in the business of real estate and property development. There was a survey u/s.133A of the Act conducted in the premises of the assessee company on 23.03.2017. During the course of survey, project-wise details undertaken by the assessee company in excel sheets were found in office desktop to 3152//CHNY/2024 computer of Shri V.Angamuthu, Assistant General Manager (Admin). The survey team took a printout and impounded the same vide annexure ANN/SM/FO/IMP totaling to 5 pages. The survey team had also recorded statement on oath u/s.131(1A) of the Act from Shri V.Angamuthu, (AGM) and also from Managing Director of the assessee company Shri Akshya Khanna. Another statement was recorded u/s.131(1A) of the Act under oath on 13.07.2017 from Shri Akshya Khanna, Managing Director of the assessee company. Based on the above statements recorded u/s.131(1A) of the Act, excel sheets that were impounded during the course of survey and based on letter of admission of receipt of on-money by the Managing Director, the AO completed the assessments for AY's 2013-14 to 2017-18 by making addition of on-money receipts as unaccounted income of the assessee company and taxed the same at the rates specified under section 115BBE of the Act. The details of under which section the assessments were completed, returned income and amount of additions made by the AO are detailed below:-
Particulars ASSESSMEN ASSESSMENT ASSESSMENT ASSESSMENT ASSESSMENT T YEAR YEAR YEAR YEAR YEAR 2013-14 2014-15 2015-16 2016-17 2017-18 Assessment 147 147 147 147 143(3) completed under section Returned 1,59,16,720 74,88,710 79,28,160 79,76,540 59,22,540 Income Amount of 2,10,00,000 2,65,00,000 50,00,000 2,00,00,000 3,40,00,000 addition made by the AO to 3152//CHNY/2024
Aggrieved by the additions made in assessments completed for AY’s 2013-14 to 2017-18, assessee preferred appeals before the First Appellate Authority. The CIT(A) vide impugned orders dated 30.09.2024 dismissed appeals of the assessee. The CIT(A) however treated on-money receipts as business income of the assessee company u/s.28 of the Income Tax Act and directed the AO to tax the same accordingly.
Aggrieved by the orders of First Appellate Authority, rejecting appeals of the assessee and confirming additions made by AO, assessee has preferred these appeals before the Tribunal. The assessee has filed two sets of paper book. In the first set of paper book, assessee had enclosed case laws to support various propositions canvassed before the Tribunal (which we shall consider in the course of this order). In the second paper book, the assessee had enclosed relevant extracts of survey manual stating that statement recorded u/s.133A has no evidentiary value, case laws supporting proposition that impounded material must be relied on as a whole etc. The grounds raised for assessment years are identical except for variance in figures. For AY’s 2015-16 & 2017-18 there are additional grounds with regard to duplication of additions to 3152//CHNY/2024 made by AO. The grounds raised
in memorandum of appeal for AY 2015-16 read as follows:- “1. For that the order of the Commissioner of Income Tax (Appeals) is contrary to law, facts and circumstances of the case and at any rate is opposed to the principles of equity, natural justice and fair play.
2. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the order of the Assessing Officer is without jurisdiction. Addition on account of purported unaccounted cash collection
3. For that the Commissioner of Income Tax (Appeals) erred in sustaining the addition of Rs.50,00,000/- on account of purported unaccounted cash collected from customers towards sale of flats.
4. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the addition of Rs. 50,00,000/- was made merely based on sworn statements which were recorded under tremendous stress and duress without any corroborative evidence.
5. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the statements made by the employees and contents of materials seized from the computer are unsupported data dump and not reflective of actual transaction which are fully accounted in the books of the appellant.
6. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the excel sheet on which reliance was placed by the Assessing Officer was recovered from the recycle bin and did not possess any evidentiary value.
7. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the survey team did not find any excess cash or assets or unaccounted expenditures expended by the appellant and that the Assessing Officer made the said addition on mere conjectures, surmises and suspicion.
8. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the addition cannot be made based on electronic data from employees computer when they are unsupported by to 3152//CHNY/2024 any documentary evidence and are not maintained as part of regular books of accounts of the appellant.
9. For that the Commissioner of Income Tax (Appeals) failed to appreciate that electronic record from computers do not comply with the provisions of section 65B of the Indian Evidence Act, 1872 and hence the same are not admissible as evidence in the eyes of law.
10. For that the Commissioner of Income Tax (Appeals) erred in not considering the confirmation letters and other documentary evidence furnished by the appellant.
11. For that the Commissioner of Income Tax (Appeals) erred in comparing the rate per square feet taking some sample transactions where sale of flats done fully through banking channels and sale of flats where alleged cash payment made through banking channels to arrive at a conclusion that rate per square feet in respect of flats where alleged cash transaction is involved is lesser without appreciating that rate per square feet is lesser in some cases even if the alleged cash payments are also included as part of sale consideration.
12. For that the Commissioner of Income Tax (Appeals) erred in resorting to such comparison without appreciating several factors like deferred payment terms with low initial payment, unsold flat at discounted rates, launch price rates, additional facilities as per specifications of customers etc. would have an impact on the sale price of the flats. Levy of interest u/s.234 13. The appellant objects to the levy of interest u/s.234 of the Income Tax Act. PRAYER For these grounds raised and such other grounds that may be raised, may be altered, amended or modified, with the leave of the Hon'ble Tribunal before or during the hearing of the appeal, it is most humbly prayed that the Hon'ble Tribunal may be pleased to: a) Quash the assessment order passed by the Assessing Officer and / or b) Delete the addition of Rs.50,00,000/- made by the Assessing Officer and /or to 3152//CHNY/2024 c) Pass such other orders as the Hon'ble Tribunal may deem fit. For Foundation One Infrastructures Pvt. Ltd.”
The assessee has also filed an application vide its letter dated 18.02.2025 for admission of additional ground, wherein it is stated that “the sworn statements recorded u/s.131(1A) of the Act are impermissible and not valid in the eyes of law”. The assessee has also filed a petition seeking permission of the Tribunal to consider grounds not raised before the lower authorities, but raised for the first time before ITAT. The said ground states that electronic record obtained from computer do not comply with the provisions of section 65B of the Indian Evidence Act, 1872 and same cannot be taken or admissible as an evidence in the eyes of law. The ground relating to violation of provisions of section 65B of the Indian Evidence Act, 1962 and validity / permissibility of statements recorded u/s.131(1A) of the Act, during the course of survey proceedings on the facts of instant case are purely legal issues, hence the same are taken on record.
The learned AR submitted that in a case of survey u/s.133A of the Act, statement can be recorded only u/s.133A(3) of the Act. Only in the event of satisfaction of conditions mentioned u/s.133A(6) of the Act, a statement can be recorded u/s.131(1A) of the Act. It was submitted by the learned AR that in the present to 3152//CHNY/2024 case, survey team has not brought anything on record that conditions mentioned u/s.133A(6) for recording sworn statement u/s.131(1A) of the Act. In this context, learned AR referred to relevant extract of survey manual, which is placed on record at page 81 of the 2nd paper book. Therefore, it was contended that sworn statements recorded u/s.131(1A) of the Act are impermissible and invalid in the eyes of law. The learned AR also relied on following case laws to buttress his above submissions: i) CIT Vs. S.Khader Khan & Sons reported in 300 ITR 157 ii) Hon’ble Delhi High Court judgement in Khem Chand Mukim Vs. PCIT (Inv)reported in 423 ITR 129 (Del)
The learned AR further contended that admittedly in the instant case, there has been no compliance as mandated as per provisions of section 65B of the Indian Evidence Act, 1872 for taking electronic records as a piece of evidence. It was submitted that there was no certificate as per terms of said section and in absence of same, loose excel sheets printed from the computer of AGM (Admin) does not have any evidentiary value. Further, learned AR submitted that impugned material must be relied upon as a whole. In this context, learned AR relied on following case laws:- i) CIT Vs. D.D.Gears Limited (2012) 25 taxmann.com 562 (Del) to 3152//CHNY/2024 ii) ACIT Vs.Rivervalley Flour Mills P.Ltd (2013) 147 taxmann.com 560(Patna) iii) ACIT Vs Omprakash & Co (2004) 2 SOT 1 (Mum Trib)
It is also submitted by the learned AR that AO has not proceeded against buyers who have alleged to have paid on-money, whereas, assessee has obtained confirmation from buyers stating that they have only paid amounts disclosed in the sale deed. On merits, the learned AR submitted that additions made for AY 2015- 16 is bad in law, because same amount has been added also in AY 2014-15. Similarly for AY 2017-18 a sum of Rs.2 crores has been added twice i.e., for AY 2016-17 as well as for 2017-18. Lastly, it was contended by the learned AR that CIT(A) has erred in not considering confirmation letters given by purchasers stating that only disclosed consideration was paid.
The learned DR submitted that even assuming sworn statement cannot be taken as a piece of evidence, the assessee voluntarily had furnished two letters disclosing receipt of on-money for various years and how the same should be brought to tax in respect of various AY's. Further, the learned DR strongly relied on findings of AO and CIT(A) and submitted that order of CIT(A) is correct and no interference is called for. to 3152//CHNY/2024
We have heard rival submissions and perused materials on record. In the instant case, the grounds raised
by the assessee company are against the addition made by the assessing officer on account of cash receipts as per the impounded material during course of survey proceedings on 23.03.2019. The contention of the assessee company is that the loose sheets in form of excel sheets printed from the computer of the employee have no evidentiary value and the additions based on the same without any corroborative evidence is not valid in the eyes of the law. We find that the revenue has not brought on record any other corroborative evidence to show that the assessee company had indeed received on-money from the sale of flats. In our considered view, mere reliance on loose sheets for making additions is not warranted in the facts and circumstances of the case. We also find that the survey team recorded three statements from the employees and Managing Director of the assessee company in the case under consideration under section 131[1A] of the Act which are not valid and which will not give jurisdiction to the assessing officer to make any additions based on the invalid statement recorded under section 131[1A) of the Act. As held by the Hon. Calcutta High Court in the case of Dr. Vijay Pahwa v DCIT reported in 250 ITR 354, it can be seen that unless the provisions of section 133A[6] of the Act were satisfied, to 3152//CHNY/2024 no statement could have been recorded invoking the powers of section 131 of the Income Tax Act. Much less, in the instant case, the statement recorded by the survey team is invalid since there was no reason to suspect that any income has been concealed or is likely to be concealed that was brought out by the revenue but for which a statement could be recorded u/s.131(1A) of the Act. This view was taken by the Hon. Delhi High Court in the case of Khem Chand Mukim v PDIT (Inv.) reported in 423 ITR 129 and also the decision of Khem Chand Mukim v PDIT (Inv.) reported in 123 taxmann.com 117. The Hon. Bombay High Court in the case of Jamnadas Madhavji & Co. v ITO Surmmon V ITO reported in 27. Taxman 157 held that an invalid summon issued u/s.131[1A) of Act would make the same non est and was liable to be quashed.
We find from the Survey Manual, 2019 that survey team should have recorded the statement under section 133A[3] [iii] of the Act which does not grant power to survey team to administer oath as in the case of search. Even if we consider that the subject statements are recorded under section 133[A][3][iii] of the Act, the same does not have any evidentiary value as held by the jurisdictional high court in the case of CIT vs. S. Khader Khan son reported in 300 ITR 157. The Hon. Apex Court dismissed the SLP filed by the revenue and the issue has reached finality. We find that recording of to 3152//CHNY/2024 statement under section 131[1A) of the Act in the case under consideration is incorrect and invalid as per law. Since the subject statements are invalid in law therefore the same could not have been used to make any addition in the case under consideration. Even considering the judgement of the Hon'ble Supreme Court in the case of Pooran Mal v Director of Inspection [1974] 93 ITR 505 (SC) where it was observed that material obtained from an illegal search can still be used against the person in whose custody it was found, it is to be noted that the Hon’ble Apex Court in the said decision concerned itself with material obtained from an illegal search and not a mere illegal statement recorded under the wrong provisions of the Income Tax Act as stated in the aforesaid paragraphs.
We also find that the assessing officer relied upon the impounded material in the form of excel sheets that were taken from the computer of the employee of the assessee company, and he made the additions based on the aforesaid material. We find merit in the contention of the AR is that the impounded material relied upon by the assessing officer ought to have been accompanied by a certificate in terms of section 65B[4] of the Indian Evidence Act, 1872 which is a precondition so as to render the same as admissible in evidence. In the instant case, the said certificate was not obtained in respect of such impounded material, i.e., excel sheets to 3152//CHNY/2024 that the Assessing Officer has relied upon to make additions and thus in view of the non-adherence to the provisions of section 658(4) of the Indian Evidence Act 1872, the said impounded material is inadmissible in the eyes of law. In this context, we rely on the judgement of Hon’ble Apex Court in the case of Arjun Panditrao Khotkar v Kailash Kushanrao Gorantyal & Ors reported in (2020) 7 SCC 1 and the order of Chennai Bench of ITAT in the case of Mr.A.Johnkumar v DCIT in (Order dated 13.05.2022). It is a fact that the AGM of the assessee company has signed the said loose sheets in excel form. It can however be seen that this hardly meets the requirements set out in section 65B[4] of the Indian Evidence Act, 1872. We further find that the Evidence Act would apply to income tax proceedings, but not the rules of evidence as held by the Hon. Apex Court in the case of Chuharmal v CIT reported in 172 ITR 250. Thus, non-compliance with the provisions of the section 65B[4] of the Indian Evidence Act, 1872 in the case under consideration invalidates the AO’s reliance on the print out of the excel sheets taken out of computer of the AGM of assessee company.
We further find that the assessing officer has relied upon the impounded material obtained during the course of survey and has taken into consideration only some portions of the impounded to 3152//CHNY/2024 material and has disregarded the rest of it, which is not permissible in law as held by the Hon. Delhi High Court in the case of CIT v D.D.Gears Ltd. reported in 25 taxmann.com 562. It is also a fact that the total consideration stated in the loose sheets does not match with the other data contained in the said sheet if the cash component is included in the total cost of the flat. Apart from the entries made under the CASH column of the loose sheets, the assessing officer has not brought out any other material or corroborative evidence to prove the receipt of on-money by the assessee company, which only goes to show that the impounded material contained a lot of inaccurate data which are not capable of being reconciled, making the same unreliable and thus could not have been relied upon for making the additions.
We also note that the entries in the excel sheets do not indicate when the alleged on-monies in respect of sale of flats was received by the assessee company. In fact, the assessing officer merely relies on the project-wise and year-wise details of on-money receipts that were provided by the assessee company to make additions across various assessment years. The said details were provided through two letters, one on 12.06.2017 and the other on 26.07.2017, contents of which have been reproduced in the assessment order. On a glimpse of the contents of the first letter, it to 3152//CHNY/2024 can be seen that the year of receipt is mentioned as relating to AYs 2014-15 to 2018-19 since the year of receipt is stated as the years 2013-14 to 2017-18. Coming to the second letter, it can be seen that the assessee company had agreed to offer income in AYs 2013- 14 to 2017-18. This clearly shows that the letters given in writing by the assessee company are contrary to each other, making them undependable and probably under stress, and thus cannot be used against the assessee company. Not merely that the said 2 letters contain irreconcilable differences, it also is stark that these letters were obtained in aftermath of proceedings u/s.131[1A] of the Act. We have already observed that statements recorded u/s.131[1A] of the Act are impermissible in the facts and circumstances of the case and at any rate carry no evidentiary value. Even for this reason, the said letters cannot be used as evidence to support any additions made by assessing officer. The assessing officer has proceeded to make the additions only on the basis of statements which were invalid and obtained without authority of law and on inaccurate loose sheets / dumb documents that were incapable of being relied upon for making any addition. Further CIT(A), in the impugned order has stated that the sale consideration per sq.ft with reference to the same project in the transaction where cash component is involved is lower compared to where there is no cash component involved to 3152//CHNY/2024 is entirely through banking channel.” This assumption of the CIT(A) may not be fully correct. The price difference in adjacent apartment may be due to multiple reasons. The vasthu compliant apartment will fetch higher price. The payment terms accorded to customers will also affect price per sq.ft etc.
It is undisputedly clear that the lower authorities had not collected any other evidence to prove that the impugned income was earned by the assessee company. The Ld. AO has even resorted to double additions which are evident and clearly show lack of application of mind on his part, which has been upheld by the Ld. CIT(A). Thus, in our considered view that there was no corroborative evidence to support the claim made by the Assessing Officer. We hold that mere statements or letters which are not corroborated by other independent and cogent evidence cannot be relied upon for making any additions. Therefore, on facts of the instant case, we delete the additions made for AY's 2013-14 to 2017-18.
In the result the appeals filed by the assessees are allowed. Order pronounced in the open court on 11th March, 2025.