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Facts
A search at Shri S. Seetharaman's premises revealed an excel sheet with loan transactions, including a Rs. 1 crore entry related to the assessee. The AO reopened the assessment and added Rs. 1 crore as unexplained investment based on this excel sheet and Shri S. Seetharaman's statement.
Held
The Tribunal held that the CIT(A) rightly deleted the addition as the AO failed to provide corroborative evidence. The excel sheet was from a third party, and Shri S. Seetharaman's statement indicated the loan was arranged by the assessee's father, not advanced by the assessee.
Key Issues
Whether the addition of Rs. 1 crore as unexplained investment is sustainable based on third-party excel sheet entries and a statement without corroborative evidence.
Sections Cited
147, 148, 143(2), 142(1), 69, 132(4), 153C, 115BBE
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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI ABY T VARKEY, HON’BLE & SHRI S. R. RAGHUNATHA, HON’BLE
PER S. R. RAGHUNATHA, ACCOUNTANT MEMBER:
1. This appeal by the revenue is filed against the order of the Commissioner of Income Tax (Appeals), Chennai-19, for the assessment year 2017-18 vide order dated 28.08.2024.
The assessee raised the following grounds of appeal:
“1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law. 2. The order of the Ld. CIT(A) erred in holding that invoking the provisions of section 147 in the present case is not in accordance with the provisions of the Income Tax
:-2-: ITA. No: 2752/Chny/2024
Act 1961 as against the intention of the Legislature in providing the special provisions i.e 153C of the Act by relying on the case of Karthi Chidambaram Vs. PCIT [2021] (7) TMI 393 without appreciating the fact that in this case the person referred to in Section 153A is M/S Milan Textiles & the ‘Any other person’ referred to in Section 153C is Shri.S.Seetharaman, in whose residence, a pen drive containing the details of cash loans obtained from the assessee was sized. As the information was available at the residence of such ‘Any other person’, the person to whom such information relates cannot be construed as “any other person”. Therefore the only way to assess the information available in the residence of ‘any other person’ is through 147 proceedings against the assessee in this scenario.
3. The Ld. CIT(A) erred in deleting the addition without appreciating the fact that the case facts in the case of Karthi Chidmbaram Vs. PCIT [2021] (7) TMI 393 are distinct from the present case due to the information being available in the residence of such ‘Any other person’ as envisaged in section 153C against another assessee not being such ‘Any other person’ under section 153C.
4. The Ld. CIT(A) erred in deleting the addition without appreciating the fact that the case facts in the case of Karthi Chidmabaram Vs. PCIT [2021] (7) TMI 393, notices u/s. 147 & 153C were issued for the same i.e AY 2014-15 thereby drawing the question of legality of both notices therein but in the present case the CIT(A) erred in not noticing that only notice u/s 147 had been issued correctly as per the facts of the case.
5. The Ld. CIT(A) erred in deleting the addition of Rs. 1 crore of loan advanced u/s 69 as unexplained investment when the assessee himself in his sworn statement recorded u/s 132(4) during the course of search has acceded to the same and also disclosed the same is his application before the Settlement Commission in SA No.TN/CN/51/2019-20/60/IT & the same was discovered through seized material vide annexure ANN/VPPL/GARS/ED/S dated 29/11/2017, on the perverse ground that it is not corroborated.
6. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of learned CIT(Appeals) may be set aside and that of the Assessing Officer be restored.”
:-3-: ITA. No: 2752/Chny/2024
The brief facts of the case are that the assessee is an individual filed his return of income for the AY 2017-18 on 07.11.2017 declaring a total income of Rs.43,91,480/-. A search and seizure action u/s.132 of the Act was conducted in the case of M/s. Milan Textiles Enterprises Private Limited on 28.11.2017. In this connection, business premises of M/s.Viswas Promoters Private Limited and the residential premises of its director Shri S. Seetharaman were also covered.
During the course of search at the premises of Shri S.Seetharaman, a pen drive Scandisk Cruzer Blade 16GB – SDCZ50-016G D33724 BL1605225510W was seized. The said pen drive contains an excel sheet with noting of cash loans and repayments by Shri S.Seetharaman from various parties. The excel sheet contains the name of the assessee with receipt entry of Rs.1,00,00,000/- on 14.07.2016 and repayment entries in two equal installments on 13.09.2016 and 22.10.2016 respectively. A sworn statement was recorded from Shri S.Seetharaman on the contents of the excel sheet on 04.11.2020. In respect of an entry against the name of the assessee, Shri S.Seetharaman deposed that the assessee at his request had arranged for a loan of Rs.1,00,00,000/- through his
:-4-: ITA. No: 2752/Chny/2024 father and the same was repaid interest free in two installments. Shri S.Seetharaman further deposed that there is no evidence for the said loan since the same is a short-term funding arrangement. The case of Shri S.Seetharaman was settled by the Hon’ble Income Tax Settlement Commission by an order dated 14.12.2020 in Settlement Application No.TN/CN 51/2019-20/60/IT.
On the basis of excel sheet noting unearthed from the searched premises of Shri S.Seetharaman coupled with his sworn statement, the case of the assessee was reopened by issuance of notice u/s.148 of the Act on 30.03.2021. In response, the assessee filed his return of income on 26.04.2021 declaring the same amount of income as originally returned.
Subsequently, notice u/s.143(2) of the Act was issued on 13.01.2022 by the AO followed by notice u/s.142(1) of the Act on 14.02.2022.
During the course of assessment proceedings, the assessee was called upon to explain why the amount of loan advanced to Shri S. Seetharaman should not be added in his hands. In response, the assessee denied of having advanced
:-5-: ITA. No: 2752/Chny/2024 loan of Rs.1,00,00,000/- to Shri S.Seetharaman. However, the AO rejected the explanation of the assessee and treated the sum of Rs.1,00,00,000/- as unexplained investment u/s.69 of the Act in the hands of the assessee by passing an order u/s.147 of the Act dated 24.03.2022. The AO made an addition only on the basis of excel sheet entries and the sworn statement of Shri S.Seetharaman by holding as under:
“5. In response to the show cause notice, the assessee submitted that he had not advanced any loan to Shri. Seetharaman. However, from the excel sheet which contains the details of loans received by Shri. Seetharaman and from the sworn statement recorded from Shri. Seetharaman, it is seen that the assessee had advanced a sum of Rs.1,00,00,000/- on 14.07.2016 and Shri. Seetharaman repaid the sum in two installments i.e. in September 2016 and October 2016.”
Aggrieved by the order of the AO, the assessee carried the matter before the Ld. CIT(A). The Ld. CIT(A) allowed the appeal of the assessee on legal grounds as well as on merits of the case. The Ld. CIT(A) quashed the assessment proceedings observing that the notice ought to have been issued by the AO u/s.153C of the Act as against u/s.148 of the Act. According to Ld. CIT(A), the case cannot be reopened on the basis of material seized during the course of search. Thus, the Ld.CIT(A) held that the reopening of the assessment is bad in law. Upon merits, the Ld. CIT(A) deleted the addition made in the hands of the assessee observing that the AO failed to bring on record
:-6-: ITA. No: 2752/Chny/2024 any evidence to establish that the assessee had actually advanced loan to Shri S.Seetharaman. The Ld. CIT(A) further observed that there is no corroborative evidence on record for making an addition in the hands of the assessee. The Ld. CIT(A) noticed that the AO failed to bring ‘relevant records’ to establish that the assessee had actually advanced loans to Shri S.Seetharaman, though the AO has referred to ‘relevant records’ in the assessment order. Thus, the Ld. CIT(A) held that the excel entry stating the name of the assessee is uncorroborated. The Ld. CIT(A) further observed that Shri S.Seetharaman has never admitted that he had borrowed from the assessee, instead it was deposed that the loan was arranged by the assessee through his father. Thus, the Ld.
CIT(A) has viewed that the sworn statement of Shri S.Seetharaman is irrelevant in making an addition in the hands of the assessee. In view of these observations, the Ld.CIT(A) deleted the addition of Rs.1,00,00,000/- made towards unexplained investment in the hands of the assessee u/s.69 of the Act by passing an order dated 28.08.2024 by holding as under:
“6.21 As evident in the assessment order the AO has relied upon the narration contained in the excel sheet found and seized from a third party premise without bringing any cogent and corroborative evidence to substantiate that the :-7-: ITA. No: 2752/Chny/2024 appellant has actually advanced a sum of Rs. 1 Crore to Shri. Seetharaman. Therefore, the addition made on the basis of un-corroborative evidence cannot be sustainable. 6.22 Further the AO in the assessment order has relied upon the statement recorded u/s 132(4) of the act from Shri. Seetharaman in making the addition of Rs.1 Crore in the hands of the appellant. Upon examination of the statement of Shri. Seetharaman , it can be seen that he has concluded that" he arranged a loan of Rs 1Crore through his father', Shri. Seetharaman has never deposed that the appellant has actually advanced any loan to him. In view of this the reliance of the statement recorded from Shri. Seetharaman in making the addition in the hands of the appellant is not appropriate to the facts of the case. Further, when the AO has relied upon the statement of a third person in making the addition, he should have provided an opportunity of cross examination to the appellant. 6.23 In this regard the undersigned has placed reliance on the following judicial decisions viz.. (i) CIT V. S. Khader Khan Son (2008) 300 ITR 157 (Mad) The Hon'ble Madras High Court held that statements obtained during the search proceedings cannot be the sole basis for making additions. The Assessing Officer must substantiate the additions with tangible evidence. This decision was later upheld by the Hon'ble Apex Court. (ii) CIT v. K. Bhuvanendran (2016) 74 taxmann.com 35 (Mad) The Hon'ble High Court emphasized that for making any addition, the Assessing Officer should have Concrete evidence like documents or material found during the search. Mere statements without corroborative evidence are not sufficient. (iii) CIT v.s. P.Jeyapragasam (2014) 225 Taxman 207 (Mad) The Hon’ble High Court ruled that the Assessing Officer cannot make additions based on mere suspicion or uncorroborated statements. The additions must be backed by credible and concrete evidence found during the search.
ACIT v. Dr. K. Prakasam (2012) 23 ITR (Trib) 505 (Chennai)
:-8-: ITA. No: 2752/Chny/2024
The Hon'ble ITAT Chennai held that the AO must base any additions on credible evidence found during the search. Unsupported allegations or assumptions cannot justify the additions. 6.24 In view of the above detailed discussion and the various judicial decisions relied upon, the undersigned is of the considered view that the AO has proceeded make the addition on the basis of the statement of shri. Seetharaman without bringing on record any cogent and corroborative evidence to substantiate the advancement of loan by the appellant to Shri. Seetharaman. Thus the addition contemplated by the AO is not sustainable on merits. 6.25 In this back drop all the ground raised by the appellant upon the legality of re-opening assessment proceedings u/s 147 of the Act and the addition upon merits are hereby treated as allowed and the AO is directed to delete the addition of Rs. 1,00,00,000/- made as unexplained investment u/s 69 of the Act for the AY 2017-18.”
Aggrieved, the Revenue is in appeal before us.
The present appeal is heard only on merits since the Ld.AR has not pressed the legal grounds on the basis of which the Ld. CIT(A) has quashed the impugned assessment as bad in law. With the consent of both the parties, we have heard the arguments on merits.
The Ld. DR inviting our attention to Page 7 of the Paper Book furnished by the assessee submitted that the name of the assessee is clearly written in the seized excel sheet maintained by Shri S.Seetharaman with inward entry of Rs.1.00 Crore on 14.07.2016. The Ld.DR submitted that the said loan was carrying an interest rate of 15% and the details of interest
:-9-: ITA. No: 2752/Chny/2024 payable are also mentioned in the excel sheet. The Ld. DR further submitted that the said loan was repaid in two equal installments. The Ld. DR submitted that a sum of Rs.50,00,000/- was repaid on 13.09.2016 and another sum of Rs.50,00,000/- was repaid on 22.10.2016. The Ld. DR thus submitted that since the assessee’s name is noted in the excel sheet maintained by Shri S.Seetharaman, it is to be taken as the assessee has advanced loan of Rs.1,00,00,000/- to Shri S.Seetharaman. The Ld.DR, thus, submitted that since the assessee has failed to prove the source of lending, the AO has rightly made an addition u/s.69 of the Act.
The Ld. DR by referring to the order dated 14.12.2020 passed by the Hon’ble Income Tax Settlement Commission in the case of Shri S.Seetharaman in Settlement Application No.TN/CN 51/2019-20/60/IT submitted that Shri S.Seetharaman has given a list of loan entries before the Hon’ble ITSC in which assessee’s name against the sum of Rs.1,00,00,000/- was duly mentioned. The Ld. DR argued that since Shri S.Seetharaman has accepted before the Hon’ble ITSC regarding the receipt and repayment of loan from the assessee, the same has to be added in the hands of the assessee towards
:-10-: ITA. No: 2752/Chny/2024 unexplained investment u/s.69 of the Act. Further, the ld.DR stated that the ld.CIT(A) has considered the decision of Hon’ble Madras High Court in the case of CIT Vs.Khader Khan Son (supra) wrongly as search proceedings to the facts of the case, when the decision is held in relation to the Survey proceedings.
The Ld.DR thus submitted that the order passed by the Ld.CIT(A) is to be reversed and the addition made by the AO is to be upheld.
Per contra, the Ld. AR supported the order passed by the Ld. CIT(A) and submitted that the Ld. CIT(A) has passed a detailed order considering the assessment records and the same needs to be upheld.
The Ld. AR invited our attention to the sworn statement deposed by Shri S.Seetharaman. By referring to Page 6 of the Paper Book the Ld. AR submitted that Shri S.Seetharaman has stated that the assessee has arranged the loan through his father Shri P.Thangavelu. The Ld.AR submitted that Shri S.Seetharaman has never admitted that he had borrowed Rs.1,00,00,000/- from the assessee. Thus, the Ld. AR submitted that the statement of Shri S.Seetharaman cannot be relied upon for making an addition in the hands of the assessee.
:-11-: ITA. No: 2752/Chny/2024 The Ld. AR further submitted that no cross examination was provided to the assessee. The Ld. AR submitted that no enquiry was conducted with the father of the assessee. The Ld. AR argued that the AO failed to bring on record the actual lender, instead made an addition in the hands of the assessee on the basis of uncorroborated evidence.
The Ld. AR invited our attention to the observations of the Ld. CIT(A) relating to the addition on the basis of uncorroborated evidence and submitted that the AO failed to bring on record any evidence to prove that the assessee has actually advanced loan to Shri S.Seetharaman. The Ld.AR submitted that the Ld. CIT(A) has rightly noticed that the AO failed to bring ‘relevant records’ to prove that the assessee had actually advanced loan to Shri S.Seetharaman.
The Ld. AR concluded his arguments by submitting that the Ld. CIT(A) has rightly deleted the addition of Rs.1,00,00,000/- made by the AO towards unexplained investment u/s.69 of the Act. Accordingly, the Ld. AR prayed for upholding the order of the Ld. CIT(A) by dismissing the appeal of the Revenue.
:-12-: ITA. No: 2752/Chny/2024
We have heard the rival contentions, perused the materials available on record and gone through the orders of the authorities below including paper book filed by the assessee. The sole issue that arises for our consideration is the validity of addition of Rs.1,00,00,000/- made by the AO u/s.69 of the Act towards unexplained investment and deleted by the Ld. CIT(A). The AO made an addition in the hands of the assessee on the basis of excel sheet noting maintained by Shri S.Seetharaman. In his sworn statement, Shri S.Seetharaman has clearly stated that the assessee has arranged loan through his father. Thus, Shri S.Seetharaman has never deposed that the assessee has advanced loan of Rs.1.00 crore to him.
We have observed that the AO has never conducted any enquiry with the father of the assessee Shri P.Thangavelu, in spite of being named by Shri S.Seetharaman in his sworn statement. The AO has also not conducted an enquiry to ascertain the actual lender. The assessee cannot be expected to prove the negative. Further, it is not the case of the AO with credible evidence to demonstrate that the assessee has actually advanced loan to Shri S.Seetharaman. Thus, in our view the Ld. CIT(A) has rightly observed that the statement of Shri
:-13-: ITA. No: 2752/Chny/2024 S.Seetharaman is irrelevant in making an addition in the hands of the assessee.
The AO has made an addition on the basis of excel sheet found at the premises of third party. The assessee has denied advancing loan to Shri S.Seetharaman. The AO has not brought any other corroborative evidence on record to prove that the assessee has advanced cash loan to Shri S.Seetharaman. The excel sheet was neither authored by the assessee nor found from the premises of the assessee. The name of the assessee in the excel sheet found can trigger the enquiry and that itself is not sufficient to establish the ownership of investment as unexplained. The mere fact that there were certain entries found from the records of third party is not sufficient to make addition on the ground that assessee had made unexplained investments.
The Ld.DR has placed on record the order dated 14.12.2020 passed by the Hon’ble ITSC in the case of Shri S.Seetharaman. Upon perusal of the same, it is noted that the loans where balances were NIL were not verified. Thus, the loan of Rs.1,00,00,000/- noted against the name of the assessee was never verified by the Assessing Officer since the same was :-14-: ITA. No: 2752/Chny/2024 not outstanding. In the absence of verification, the mere listing of the name of the assessee in the order passed by the Hon’ble ITSC cannot be the basis to conclude that the assessee has advanced loan. It is further noted that the Ld. CIT(A) upon examination of the order passed by the Hon’ble ITSC has held that there is no evidence on record to prove the advancement of loan by the assessee to Shri S.Seetharaman.
The Ld. CIT(A) has rightly relied upon the decision of the coordinate bench of Tribunal in the case of DCIT v. Appu Direct Pvt Ltd (ITA Nos. 665 & 666 / CHNY / 2023 dated 24.01.2024) for the proposition that cash transactions recorded in excel sheets found during the course of search proceedings cannot be added in the absence of corroborative evidence. We find that the coordinate bench of Tribunal has held as under:
“10. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. We have also carefully considered reasons given by the AO to make additions towards alleged cash transactions as per seized excel sheets found in the possession of Shri. P.Karthikeyan, an employee of Christy group of companies. The three excel sheets based on which undisclosed income of the assessee has been worked out by the AO was found in the electronic devices seized from Shri. P. Karthikeyan, an employee of M/s. Christy Fried Gram Industry, during the course of search conducted in Christy group of cases. The seized material is therefore in the nature of materials seized in case of third party. Further, said material being a typed excel sheets in electronic form, the same is not in the handwriting of any partners or other employees of the :-15-: ITA. No: 2752/Chny/2024 assessee firm and the seized material does not contain any acknowledgement of the assessee with regard to the entries found therein, in respect of transactions allegedly made by the Christy group of concerns with assessee firm. Further, no other evidences including sale bills, cash receipts, unaccounted purchase bills etc, were found neither during the course of search of Christy group of concerns or during the course of search in the business premises of the assessee to corroborate the entries found in the excel sheets. Besides the same, it is noticed that no evidences of undisclosed asset, undisclosed expenditure including undisclosed investment etc were found in the course of search in the business premises of the appellant.
It is therefore evident that, no documentary or other evidences to corroborate the entries of cash receipts and payments in the excel sheets were found to support the findings of the AO that said transactions are unaccounted transactions and are outside the books of accounts of the assessee. We further noted that, the AO neither during the assessment proceedings has made any reference to statements recorded u/s. 132(4) of the Act during the course of search in Christy group of cases or in the case of the assessee with reference to excel sheets found during the course of search to verify the contents recorded therein. Neither the person from whom said documents was found was examined nor the appellant or its partners was confronted with those evidences to verify the contents therein. From the above, it is clear that the AO has made additions towards cash transactions u/s. 69A of the Act, without there being any corroborative evidence to strengthen the entries recorded in excel sheet found during the course of search on third party.
Therefore, we are of the considered view that no additions can be made u/s. 69A of the Act, on the basis of evidences found in the possession of third party, without examining contents of said documents from the person from whom said documents was found and also from the assessee and its partners. The evidences relied upon by the AO in the form of excel sheets does not constitute adequate evidence to draw adverse inference against the assessee, in the absence of any other corroborative evidence. This proposition has been laid down by the Hon’ble Delhi High Court in the case of CIT vs Sant Lal [2020] 118Taxman.com 432, where it has been clearly held that the assessee cannot be put to any liability on the action of a third person where the material was not found from the premises of the assessee nor was in the handwriting of the assessee, since, the third person may write the name of any person at his sweet will and the revenue did not make any effort to gather or corroborate evidence in this relation.”
:-16-: ITA. No: 2752/Chny/2024 Further, the ld.DR pointed out that the ld.CIT(A) has wrongly considered the decision of Hon’ble Madras High Court in the case of CIT Vs.Khader Khan Son (supra) wherein decision was made in respect of search proceedings. Since, the decision is held in relation to the Survey proceedings the case law is not applicable to the present case.
We also rely on the judgment of the Hon’ble Delhi High Court in the case of CIT v. Sant Lal [2020] 423 ITR 1 (Del), wherein the Hon’ble Court has held that the assessee cannot be fasten with the liability on the basis of third-party material in the absence of any cogent material. In the case of the assessee the AO neither conducted proper enquiry to identify the actual lender nor made an effort to gather or corroborate evidence to establish that the assessee has actually advanced cash loan to Shri S.Seetharaman. Respectfully following the same, we are of the considered view that the findings of the Ld. CIT(A) cannot be found faulted with and hence we do not find any reason to interfere with the findings of the Ld. CIT(A) on merits of the case.
:-17-: ITA. No: 2752/Chny/2024 22. Under the above facts and circumstances of the case, we are of the considered opinion that the Ld. CIT(A) has rightly deleted the addition of Rs.1,00,00,000/- made by the Assessing Officer towards unexplained investment in the hands of the assessee u/s.69 r.w.s 115BBE of the Act.
In the result, appeal filed by the Revenue is dismissed.
Order pronounced on 21st February, 2025 at Chennai.