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Facts
A search and seizure operation was conducted, leading to the seizure of loose papers (Annexure B-16) containing calculations of loans advanced and interest earned. The Assessing Officer (AO) made an addition of Rs. 24,21,318/- based on these documents, treating it as unexplained income under Section 69A of the Income Tax Act, 1961. The Commissioner of Income Tax (Appeals) upheld this addition.
Held
The Tribunal held that the loose sheets of paper seized during the search are 'dumb documents' and lack evidentiary value as they are not part of regularly maintained books of account. The revenue failed to establish the nexus between these documents and any actual transactions or to prove the assessee's ownership of the alleged money, bullion, or valuable articles.
Key Issues
Whether the addition made by the Assessing Officer and sustained by the CIT(A) based on loose sheets of paper (dumb documents) as unexplained income under Section 69A is justified in the absence of any corroborative evidence or proof of ownership.
Sections Cited
69A, 132, 147, 143(2), 142(1), 139, 69C, 115BBE, 68, 69D, 153C, 127
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Income Tax Appellate Tribunal, NAGPUR BENCH, NAGPUR
Before: SHRI V. DURGA RAO, HON’BLE & SHRI K.M. ROY, HON’BLE ACCOUNTANT, MEMBER
PER K.M. ROY, ACCOUNTANT MEMBER Assessee has filed the appeal challenging impugned order passed by the Learned Commissioner of Income Tax (Appeals) – 3, Nagpur [hereinafter in short “Ld.CIT(A)”] vide Order No. CIT(A)-3/10291/2012-13 dated 29.03.2022 for A.Y.2013-14
Assessee has raised following grounds in its appeal: - “1. Whether the Ld. CIT is justified in law and fact for upholding an addition and disallowances premised on the diaries/loos papers/ dumb document.
Whether the Ld. CIT is justified in law and fact for upholding an. additions and disallowances where no incriminating evidence was found during the search proceeding at the premise of the assessee.
Whether the Ld. CIT is justified in law and fact for upholding an additions to the tune of Rs. 24,21,318/- as unexplained income under Sec 69A 4. Whether the Ld. CIT is justified in law and fact for upholding as addition based on extrapolating the figures written/scribbled in diary/loose papers/dumb documents by adding certain "O".
Whether the Ld. CIT is justified for upholding an additions made without doing any independent enquiry or bringing any corroborative evidence on the record.
Whether Ld. A CIT is justified in passing an order in breach of principle of natural justice.
The appellant craves leave to add, alter, modify and withdraw any grounds before or during the course of appellate proceedings.”
Brief facts of the case are, Search and seizure action under section 132 of 3. Income Tax Act, 1961 (in short “Act”) was conducted 25.06.2019 in the case of Shri Atul Manoharrao Yamsanwar & Others group. Search action under section 132 was taken in the case of Shri Atul Yamsanwar and Shri Umesh Thakre close associates of the assessee. Material was seized from the residences of the above persons vide Annexure B-16 and B-6. Based on the above seized material, the case was reopened under section 147 of the Act. As requested by the assessee inspection and relevant copies of documents were provided to the assessee. The assessee had filed his original return of income under section 139 of the Act for the year under consideration on 31.10.2013 declaring total income at Rs.2,01,26,970/-. Notice under section 148 of the Act was issued on 23.03.2020. In response to this notice, the assessee filed return under section 148 on 30.11.2020 declaring total income at Rs. 2,01,26,970/-. Notice under section 143(2) of the Act was issued and served upon the Assessee on 29.01.2021: Notice under section 142(1) of the Act was issued along with detailed questionnaire on 15.02.2021 requiring assessee to furnish the information and document in support of their reply. In response, Assessee furnished his reply and furnished the documents as called for. During the search proceedings at the residential premises of Shri Atul Yamsanwar, Document No. B-16 (Pages 1-36) was found and seized. Assessing Officer noticed details of receipts of interest on loan advanced by the assessee and these transactions are not recorded in the books of accounts the assessee. The copy of Page -16 of the seized document is reproduced at page No. 3 of the assessment order. Further, Assessing Officer issued show cause notice to explain the transactions noted on above page: In response to the notice, the assessee submitted reply and contended that these calculation of mere hypothetical calculations without any relation to actual dealing. Not convinced with the submissions of the Assessee, Assessing Officer proceeded to frame the assessment under section 143(3) r.w.s 147 of the Act dated 24.08.2021 by making the following additions:- a. Unexplained Income u/s. 69A of the Act : Rs.24,21318/- b. Unexplained Money u/s. 69A of the Act : Rs.35,00,000/- c. Unexplained Expenditure u/s. 69C of the Act: Rs.15,82,400/-
Being aggrieved, Assessee carried the matter before the Ld.CIT(A) and filed his submissions. After considering the submissions of the Assessee, Ld.CIT(A) deleted the addition of Rs.35,00,000/- made under section 69A of the Act and Rs.15,82,400/- made under section 69C of the Act. With regard to the addition of Rs. 24,21,318/- made under section 69A of the Act as unexplained income, Assessee submitted before the Ld.CIT(A) as under: - “23. It is humbly stated that the assessee is engaged in the business of real estate and hiring and firing of employee is an internal trait of the business. Further, the assessee is also partners into various businesses. Therefore, regular interviews and hiring was part and parcel of the business.
The assessee used to take regular interviews for various post and the page No. 16 depicts one of the pages of such written interview taken of prospective employee and where the above jotting denotes loans advanced and interest calculation on the same.
It is pertinent to mention here that the page No. 16 of Annexure do not mention any name. It does not show whether the amount written is given or taken. To whom.it is given or taken is also not known. The presumption of the Ld. AO that the jotting on page No. 16 represents receipts of interest on loan advanced by the assessee is based on no cogent evidence or documentary evidence. Therefore, any presumption drawn from page No. 16 is perverse, wrong, incorrect and non-est.
The Ld. AO has not carried out any independent enquiry to add any credence to his claim that the jotting represents receipts of interest on loan advanced by the assessee. No corroborative evidence has been brought forward by the La. AO. There is no shred of evidence on record to prove the allegation of the La. AO.
It is pertinent to mention that the page contains words like "Recvd. Cash". It is not stated by the Ld. AO that by whom this cash has been received. There is no signature, name or inference. Further, it is also not known that the remaining jottings on the page No. 16 even represent any transaction as there is no receipt in either cash or bank.
The page No. 16 is a dumb document and it does not represent any logical nexus with bank or any other corroborative evidences. The piece of paper at best is a dumb document and only represents an interview taken by the assessee and nothing more than that. Therefore, any addition premised on a piece of paper san any corroboration or meaningful sense cannot be sustained and is liable to be deleted and accordingly, it is humbly requested to delete the addition.
The page No. 16 is a dumb document as per D.A. Patel v. Dy. CIT [1999 (3) TMI-639 ITAT Mumbail, THE ASST. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-21, • MUMBAI VERSUS M/S. LAYER EXPORTS PVT. LTD. [2016 (10) TMI 1024 - ITAT MUMBAI PRINCIPAL COMMISSIONER OF INCOME TAX, CENTRAL-2 VERSUS UMESH ISHRANI [2019 (4) TMI 1947 - BOMBAY HIGH COURT] (Reference of all this case laws are given in Ground 1) 30. Addition u/s 69A can only be made when the assessee found to be in possession of money, bullion, jewelry, etc. not recorded in the books of accounts of the assessee. [DCIT Vs M/s. Karthik Construction Co. (ITAT Mumbai)] 31. For invoking provisions of section 69A assessee should be the owner of any money, bullion, jewellery or any other valuable articles. In this case of assessee he was not found to be the owner of any money, bullion, jewellery or any other valuable articles. In such a situation invoking of provisions of section 69A was not justified. [ITO Vs Shri Parvez Mohammed HussainGhaswala (ITAT Mumbai)] 32. Therefore, in the present case the addition which is not premised on any cash, bullion, jewellery or other valuable item a but is purely based on some vague notings on a dumb document cannot be a source for making additions under Sec 69A of the Income Tax Act, 1961.”
However, Ld.CIT(A) sustained the addition of Rs.24,21,318/- by holding as 5. below: - “5.1 Ground no. 3 is that the AO was not justified in making the addition of Rs 24,21,318/ on account of the unexplained income earned by the appellant. This addition is discussed by the AO at para 3 at page 2 & 3 of the assessment order.
The facts of the case are that during the search operation conducted at the residence of the appellant on 25.06.2019, certain loose papers were found and seized as Annexure B-16. The pages 1 to 36 of this annexure contain detailed calculation of the amounts of loans given in cash and interest earned thereon in appellant's own handwriting. During the search operation the appellant accepted that the handwriting on these pages is his own. The period of interest is also mentioned in these pages. The appellant was confronted with these pages and in his sworn statement recorded during the search proceedings, he accepted that these pages belonged to him and contained interest calculation. However, he stated these are rough calculations and declined to give details pertaining to these transactions. During the assessment proceedings, the appellant has argued that the assessee being in the business of real estate, construction, etc, wanted to hire accountants, cashiers etc. and the candidates who appeared for these jobs were given hypothetical/ actual transaction details and asked to calculate interest, repayment schedule. It was argued that the hand-written calculations on the pages seized as document B-16 page 1 to 36 contained such calculations. The AO rejected the explanation given by the appellant's AR and made an addition of Rs. 24,21,318/- as undisclosed income of the appellant based on the interest calculation on these pages pertaining to the A.Y. 2013-14. During the appellate proceedings, the appellant's AR has reiterated his contention that the impugned statement represented rough calculation shown by the cardidates for the post of accountant, cashier, etc: I have carefully considered the submission of the AR of the appellant, and I found no merit in the same. It is difficult to believe that rough calculations done by the candidates appearing for the post of accountant, cashier, etc. will be kept carefully by the appellant in his residential premises. It is also difficult to accept his contention since the appellant has failed to give confirmation in this regard from any employee or candidate. It is also noted that as per appellant's AR these calculations are sometimes based on actual transaction details. The calculations are in appellant's own handwriting and contain date-wise account of the loans given and the interest earned on the same. The impugned documents were found from the appellant's residence during the search operation. Therefore, as per the provisions of section 132(4A) and 292C of the Act, the contents of the impugned pages are presumed to be true and correct. Therefore, it is evident that these calculations are true and correct. The AR's contention is rejected and an addition of Rs. 24,21,318/- made by the AO on account of undisclosed interest income is hereby upheld.”
Being aggrieved by the order of the Ld.CIT(A), Assessee preferred appeal before us by raising above grounds of appeal which is primarily directed towards addition of Rs.24,21,318/- under section 69A of the Act.
Before us, Learned Authorized Representative (in short “Ld.AR”) reiterated 7. his submissions before Ld.CIT(A). He has also presented a gist of his averments by way of a written submissions: - “GROUND NO. 3 : Whether the Ld. AO is justified in law and fact in making additions to the tune of Rs. 24,21,318/- as unexplained income under Sec 69A.
As per clause 16 in the Statement Of Object and Reason of The Finance Bill, 1964 produced as below: "Clause 16 seeks to introduce a new section 69Ain the Income-tax Act providing that if an assessee is not able to explain satisfactorily the source of any money, bullion, jewellery or valuable article found to be owned by him in any financial year, the money and the value of such jewellery, etc. may be deemed to be his income for such financial year."
It also submitted that the assessment under Sec 69A as unexplained money is incorrect. Sec 69A provides for "unexplained money". The verbatim Sec 69A is reproduced below for your kind perusal as follows:- "Where in any year the taxpayer is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the taxpayer offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, than the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the taxpayer for such year."
Sec 69A categorically provides that where a taxpayer is found to be "the owner of any money, bullion, jewellery or other valuable article". In simple terms there shall be some tangible item present in form of money i.e. hard cash, bullion, jewellery or other valuable article. Therefore onus is on revenue department to prove the fact that assessee is the owner of the any money, bullion, jewellery or other valuable article found.
It is held in the case (2020] 117 taxmann.com 986 (Gauhati - Trib.) IN THE ITAT GAUHATI BENCH 'E' Abdul Hamid Vs Income-tax Office that onus is on revenue department to prove the fact that assessee is the owner of the any money, bullion, jewellery or other valuable article found. Para 14 of the said case is produces as - "Before us, the limited question is that whether business receipts/business turnover is taxable under section 115BBE of the Act? As per the intention of legislature, the burden to apply section 115BBE and section 68 to section 69D of the Act rest on revenue shoulder. That burden cannot be discharged on the basis of assumption and presumption made by the assessing officer. Having gone through the section 115BBE, as noted above, we are of the view that business activity related income may not ordinarily get placed u/s 68 to section 69D of the Act"
It is submitted that, department is failed to discharge its onus. Hence, AO has applied the provision of 69A in the mechanical manner.
There should be specific finding of Ld. AO that assessee is the owner of any money, jewellery, other valuable article for invoking section 69A.. Such finding is missing in assessment order.
It is to be noted that here that addition was made on the basis of lose sheet which has no evidential value and not on the basis of any money, bullion jewellery and other valuable article.
It is held in Commissioner of Income-Tax Versus Ravi Kumar, ITR No. 35 of 1997 Dt. 16.07.2007 that possession of loose paper does not mean person is owner money, bullion jewellery and other valuable article. Ownership of any assets is important while invoking the Section 69A. Para 8 of the case is produced as below:- "In the present case, the assessee was found to be in possession of loose slips and not of any valuable articles or things. Neither the possession nor the ownership of any jewellery mentioned in the slips could prove. In view thereof, the provisions of section 69A of the Act had rightly not been applied by the Tribunal to the facts of the case in hand. Accordingly, question No. 1 is answered against the Revenue and in favour of the assessee."
The assessee was covered under search and seizure procedure under Sec 132 of the Income Tax Act, 1961. A search operation was carried on the Yamsanwar group in which various assesseeS were covered like Umesh Thakre, Vishwas Chaknalwar, Abhay Talokar etc.
That during the search and seizure action carried out at the residence of the assessee a document B/16 was found containing pages 1 to 36. The Ld. AO has made an addition of Rs. 24,21,318/- based on the page No. 16 of the Document No. B/16, the said demand was raised without considering the deposition of assessee in his statement, the assessee have disclosed all the factual details in his statement about document B/16. The statements of the assessee is reproduced below:
"Yes the handwriting written on page no. 24 is mine but I don't agree that all the pages are related to each other mentioned in above question. All these pages are of rough calculation and just to give proposals to various buyers of the companies. It is not at all related to the transactions done with Mr. Gadge even I don't remember on which date these loose papers are created. I deny the cash transaction done in above matter." "You shown me loose paper which have no title, no date and signature of any one and also not written by me. It is unilateral having no debit and credit entries. I deny that I have not taken any cash. Even the date on said loose paper is not mentioned. In my opinion this is rough document having no meaning in any transaction. We have policy to maintain books of accounts where we maintain all transaction."
The Ld. AO alleged in page No. 2, para 3, of the assessment order dated 24.08.2021 that these pages contain the details of receipts of interest on loan advanced by the assessee. Further, the Ld. AO has alleged that these transactions are not recorded in the books of accounts and accordingly has made an addition as unexplained income u/s 69A of the Income Tax Act, 1961. A copy of page no. 16 is provided below for your kind reference as follows:-
It is humbly stated that the assessee is engaged in the business of real estate and hiring and firing of employee is an internal trait of the business. Further, the assessee is also partners into various businesses. Therefore, regular interviews and hiring was part and parcel of the business.
The assessee used to take regular interviews for various post and the page No. 16 depicts one of the pages of such written interview taken of prospecctive employee and where the above jotting denotes loans advanced and interest calculation on the same. 14. It is pertinent to mention here that the page No. 16 of Annexure do not mention any name. It does not show whether the amount written is given or taken. To whom it is given or taken is also not known. The presumption of the Ld. AO that the jotting on page No. 16 represents receipts of interest on loan advanced by the assessee is based on no cogent evidence or documentary evidence. Therefore, any presumption drawn from page No. 16 is perverse, wrong, incorrect and non-est.
The Ld. AO has not carried out any independent enquiry to add any credence to his claim that the jotting represents receipts of interest on loan advanced by the assessee. No corroborative evidence has been brought forward by the Ld. AO. There is no shred of evidence on record to prove the allegation of the Ld. AO.
It is pertinent to mention that the page contains words like "Recvd.Cash". It is not stated by the Ld. AO that by whom this cash has been received. There is no signature, name or inference. Further, it is also not known that the remaining jottings on the page No. 16 even represent any transaction as there is no receipt in either cash or bank. 17. The page No. 16 is a dumb document and it does not represent any logical nexus with bank or any other corroborative evidences. The piece of paper at best is a dumb document and only represents an interview taken by the assessee and nothing more than that. Therefore, any addition premised on a piece of paper san any corroboration or meaningful sense cannot be sustained and is liable to be deleted and accordingly, it is humbly requested to delete the addition. 18. The page No. 16 is a dumb document as per D.A. Patel v. Dy. CIT [1999 (3) TMI-639 ITAT Mumbai], THE ASST. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-21, MUMBAI VERSUS M/S. LAYER EXPORTS PVT. LTD. [2016 (10) TMI 1024 - ITAT MUMBAI] PRINCIPAL COMMISSIONER OF INCOME TAX, CENTRAL-2 VERSUS UMESH ISHRANI [2019 (4) TMI 1947 - BOMBAY HIGH COURT] (Reference of all this case laws are given in Ground 1) 19. Addition u/s 69A can only be made when the assessee found to be in possession of money, bullion, jewellery, etc. not recorded in the books of accounts of the assessee. [DCIT Vs M/s. Karthik Construction Co. (ITAT Mumbai)] 20. For invoking provisions of section 69A assessee should be the owner of any money, bullion, jewellery or any other valuable articles. In this case of assessee he was not found to be the owner of any money, bullion, jewellery or any other valuable articles. In such a situation invoking of provisions of section 69A was not justified. [ ITO Vs Shri Parvez Mohammed Hussain Ghaswala (ITAT Mumbai)] Therefore, in the present case the addition which is not premised on any cash, bullion, jewellery or other valuable item but is purely based on some vague notings on a dumb document cannot be additions under Sec 69A of the Income Tax Act, 1961.”
On the other hand, Learned CIT(DR) (in short “Ld.DR”) submitted that concurrent findings of the lower authorities need not be disturbed and that the addition be sustained.
The sole point for consideration is whether the addition is sustainable on 9. account of loose sheets which is the “document No. B-16 (page 1-36) found and seized from the Assessee. Since A.Y. 2013-14 was also a block of six year, the Assessing Officer resorted to reopening under section 147 of the Act. Since the Assessee has not challenged the ground of reopening in his ground of appeal we refrain from expressing any opinion on the validity of such reopening.
It is no doubt that the document seized is only a bunch of loose sheets. In 10. this connection cardinal point is to be noticed is whether loose sheets had any evidentiary value. In this connection we refer to the judgment of Hon’ble Karnataka High Court in the case of DCIT v. Sunil Kumar Sharma [2024] 159 taxmann.com 179 (Karnataka), the Lordship have very clearly elucidated the matter which is reproduced below: - “21. Both the Appellant-Revenue and Respondent-Assessee entered appearance and submitted their arguments extensively. On hearing the learned counsel for both the parties, this Court finds it relevant to examine the following questions that arises for consideration in these writ appeals, which are as under: 1) Whether 'Loose Sheets' and 'Diary' have any evidentiary value? 2) Whether Centralization is in violation of Section 127 of the Income Tax Act, 1961, is valid?
3) Whether the Notice under Section 153C of the Income Tax Act, 1961 is valid herein? As regards Question No.1: Upon reading the material provided and the order of the learned Single Judge delivered on 12.08.2022, it is evident that the income that has escaped assessment and notices under Section 153C of the Income Tax Act, 1961, were solely issued based on loose sheets and documents which are termed as 'diaries' found during the search. The applicability of Section 69A of the Act arises only when the principles laid down under Section 68 of the Act are satisfied. Section 68 states that there must be books of accounts or any books with credit entry. The said Act reads thus: "Section 68: Where any sum is found credited in the books of an assessee maintained for any previous years and the assessee offers no explanations about nature and source thereof or the explanation offered by him is not, in the opinion of the assessing officer, satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year." The language of the Law is vague and subjective, thus making us rely on an Apex court decision in the case of CBI vs. V.C. Shukla ((1998) 3 SCC 410), wherein the relevant portion reads thus: "Collection of sheet fastened or bound together so as to form material whole. Loose sheets or scraps of paper cannot be termed as books." In this regard, it is relevant to extract Section 69A of the Act, which reads thus: "69A. Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Income-tax Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year.".
The lack of corroborative evidence to show how the loose sheets found at the house of Sri K Rajandran are connected to the Respondents herein, or their occupation, is evident from the panchanama provided by the Assessing officer.
The entire allegation is made out on the basis of loose sheets of documents, which does not come under the ambit and scope of 'books of entry' or as 'evidence' under the Indian Evidence Act.
In view of the aforementioned aspects, we have carefully examined the law declared by the Hon'ble Apex Court with regard to acceptance of diaries/loose sheets by the respondent-Revenue. In the case of CBI Vs. VC SHUKLA (MANU/SC/0168/1998), at paragraphs 16 to 18 of the judgment, it is observed thus: "16. To appreciate the contentions raised before us by the learned counsel for the parties it will be necessary at this stage to refer to the material provisions of the Act. Section 3 declares that a fact a relevant to another when it is connected with the other in any of the ways referred to in the provisions of the Act relating to the relevancy of facts; and those provisions are to be found in Section 6 to 55 appearing in Chapter II. Section 5, with which Chapter II opens, expressly provides that evidence may be given in any suit or proceeding of the existence or non-existence of every fact in issue and the facts declared relevant in the aforesaid section, and of no others. Section 34 of the Act reads as under:- "34. Entries in books of account when relevant - Entries in book of account, regularly kept in the course of business, are relevant whenever they refer to a matter into which the court has to inquire but such statements shall not alone be sufficient evidence to charge any person with liability."
From a plain reading of the Section it is manifest that to make an entry relevant thereunder it must be shown that it has been made in a book, that book is a book of account and that book of account has been regularly kept in the course of business. From the above Section it is also manifest that even if the above requirements are fulfilled and the entry becomes admissible as relevant evidence, still, the statement made therein shall not alone be sufficient evidence, still, the statement made therein shall not along be sufficient evidence to charge any person with liability. It is thus seen that while the first part of the section speaks of the relevancy of the entry as evidence, the second part speaks, in a negative way, of its evidentiary value for charging a person with a liability. It will, therefore, be necessary for us to first ascertain whether the entries in the documents, with which we are concerned, fulfil the requirements of the above section so as to be admissible in evidence and if this question is answered in the affirmative then only its probative value need be assessed. 18. "Book" ordinarily means a collection of sheets of paper or other material, blank, written, or printed, fastened or bound together so as to form a material whole. Loose sheets or scraps of paper cannot be termed as 'book' for they can be easily detached and replaced. In dealing with the work 'book' appearing in Section 34 in Mukundram vs. Dayaram [AIR 1914 Nagpur 44], a decision on which both sides have placed reliance, the Court observed:- " In its ordinary sense it signifies a collection of sheets of paper bound together in a manner which cannot be disturbed or altered except by tearing apart. The binding is of a kind which is not intended to the moveable in the sense of being undone and put together again. A collection of papers in a portfolio, or clip, or strung together on a piece of twine which is intended to be untied at will, would not, in ordinary English, be called a book...I think the term "book" in S. 34 aforesaid may properly' be taken to signify, ordinarily, a collection of sheets of paper bound together with the intention that such binding shall be permanent and the papers used collectively in one volume. It is easier however to say what is not a book for the purposes of S. 34, and I have no hesitation in holding that unbound sheets of paper in whatever quantity, though filled up with one continuous account, are not a book of account within the purview of S.34."
The aforesaid approach is in accordance with good reasoning and we are in full agreement with it. Applying the above tests, it must be held that the two spiral note books (MR 68/91 and 71/91) and the two spiral pads (MR 69/91 and MR 70/91) are "books" within the meaning of Section 34, but not the loose sheets of papers contained in the two files (MR 72/91 and MR 73/91)."
The Hon'ble Supreme Court in the case of COMMON CAUSE AND OTHERS v. UNION OF INDIA, reported in (2017) 11 SCC 731, at paragraphs 278 to 282 of the judgment, has observed thus: "278. With respect to the kind of materials which have been placed on record, this Court in V.C. Shukla case has dealt with the matter though at the stage of discharge when investigation had been completed by same is relevant for the purpose of decision of this case also. This court has considered the entries in Jain Hawala Diaries, note books and file containing loose sheets of papers not in the form of "books of accounts" and has held that such entries in loose papers/sheets are irrelevant and not admissible under Section 34 of the Evidence Act, and that only where the entries are made in the books of accounts regularly kept, depending on the nature of occupation, that those are admissible.
It has further been laid down in V.C. Shukla case as to value of entries in the books of account, that such statements shall not alone be sufficient evidence to charge any person with liability, even if they are relevant and admissible, and that they are only corroborative evidence. It has been held that even then independent evidence is necessary as to trustworthiness of those entries which is a requirement to fasten the liability.
This court has further laid down in V.C. Shukla that meaning of account book would be spiral note book/pad but not loose sheets. The following extract being relevant is quoted herein below: (SCC pp.423- 27, paras 14 and 20) "14. In setting aside the order of the trial court, the High Court accepted the contention of the respondents that the documents were not admissible in evidence under Section 34 with the following words: "70. ....an account presupposes the existence of two persons such as a seller and a purchaser, creditor and debtor. Admittedly, the alleged diaries in the present case are not records of the entries arising out of a contract. They do not contain the debts and credits. They can at the most be described as a memorandum kept by a person for his own benefit which will enable him to look into the same whenever the need arised to do for his future purpose. Admittedly the said diaries were not being maintained on day-to day basis in he course of business. There is no mention of the dates on which the alleged payment were made. In fact the entries there in are on monthly basis. Even the names of the persons whom the alleged payments were made do not find a mention in full. they have been shown in abreviated form. Only certain 'letters' have been written against their names which are within the knowledge of only the scribe of the said diaries as to what they stand for and whom they refer to."
Mr. Sibal, the learned counsel for the Jains, did not dispute that the spiral note books and the small pads are 'books' within the meaning of Section 34. He, however, strongly disputed the admissibility of those books in evidence under the aforesaid section on the ground that they were neither books of account nor they were regularly kept in the course of business. he submitted that at best it could be said that those books were memoranda kept by a person for his own benefit. According to Mr. Sibal, in business parlance 'account' means a formal statement of money transactions between parties arising out of contractual or fiduciary relationship. Since the books in question did not reflect any such relationship and, on the contrary, only contained entries of monies received from one set of persons and payment thereof to another set of persons it could not be said, by any stretch of imagination that they were books of account, argued Mr. Sibal. He next contended that even if it was assumed for argument's sake that the above books were books of account relating to a business still they would not be admissible under Section 34 as they were not regularly kept. It was urged by him that the words 'regularly kept' mean that the entries in the books were contemporaneously made at the time the transactions took place but a cursory glance of the books would show that the entries were made therein long after the purported transactions took place. In support of his contentions he also relied upon the dictionary meanings of the words 'account' and 'regularly kept'.
With respect to evidentiary value of regular account book, this Court has laid down in V.C. Shukla, thus: (SCC p.433, para 37) "37. In Beni Vs. Bisan Dayal [ A. I. R 1925 Nagpur 445] it was observed tat entries in book s of account are not by themselves sufficient to charge any person with liability, the reason being that a man cannot be allowed to make evidence for himself by what he chooses to write in his own books behind the back of the parties. There must be independent evidence of the transaction to which the entries relate an din absence of such evidence no relief can be given to the party who relies upon such entries to support his claim against another. In Hira Lal Vs. Ram Rakha [ A. I. R. 1953 Pepsu 113] the High Court, while negativing a contention that it having been proved that the books of account were regularly kept in the ordinary course of business and that, therefore, all entries therein should be considered to be relevant and to have been prove, said that the rule as laid down in Section 34 of the Act that entries in the books of account regularly kept in the course of business re relevant whenever they refer to a matter in which the court has to enquire was subject to the salient proviso that such entries shall not alone be sufficient evidence to charge any person with liability. It is not, therefore, enough merely to prove that the books have been regularly kept in the course of business and the entries therein are correct. It is further incumbent upon the person relying upon those entries to prove that the were in accordance with facts.
It is apparent from the aforesaid discussion that loose sheets of papers are wholly irrelevant as evidence being not admissible under Section 34 so as to constitute evidence with respect to the transactions mentioned therein being of no evidentiary value. The entire prosecution based upon such entries which led to the investigation was quashed by this Court."
It is established in law by the Hon'ble Apex Court that a sheet of paper containing typed entries and in loose form, not shown to form part of the books of accounts regularly maintained by the assessee or his business entities, do not constitute material evidence. Following the law declared by the Hon'ble Apex Court, we are of the view that the action taken by the respondent / Revenue against the Assessee based on the material contained in the diaries/loose sheets, are contrary to the law declared by the Hon'ble Apex Court. In that view of the matter, impugned notices issued under Section 153C of the Act, based on the loose sheets/diaries are contrary to law, which require to be set aside in these writ appeals, as the same are void and illegal.”
In the instant case, Assessing Officer has made the addition without bringing 11. any corroborative evidence. He has not done any enquiry about the persons to whom the loans was given. It is very excruciating to notice that even no addition is made on account of loans advanced, only the interest element is sought to be taxed. The diametric opposite stand adopted by the Assessing Officer further raises doubt about the sustainability of the addition so confirmed by the Ld.CIT(A).
Further, ITAT, Hyderabad Bench in the case of Nagarjuna Construction Co. 12. Ltd. v. CIT [2012] 23 taxmann.com 239 held as under: - “…… basis for addition is only note book/ loose slips. These note books/loose slips are unsigned documents. The Assessing Officer has not established nexus between the note book loose slips with accrual actual/receipt of interest. The note book/loose slips seized found during the course of search is a dumb document having no evidentiary value, no addition can be made in the absence of corroborative material: If there is circumstantial evidence in the form of promissory notes, loan agreement and bank entries, the addition is to be made on that basis to the extent of material available. The assessee is not expected to explain the loose papers found as there is no evidence other than note book/loose slips regarding accrual of interest. It is held no addition can be made on the basis of dumb documents/ note book/ loose slips in the absence of any other material to show that the assessee has carried on money lending business. Nothing on the note book/ diary/loose sheets are required to be supported/ corroborated by other evidence and are also include the statement of a person who admittedly is a party to the noting and statement from all the persons whose names there on the note book/ loose slips and their statements to be recorded and then such statement undoubtedly should be confronted to the assessee and he has to be allowed to cross examine the parties. In the instant case, undoubtedly no statement from the parties whose names found in the note book/loose slips has been brought to the notice and as such entire addition in the hands of the assessee on the basis of uncorroborated writings in the loose papers found during the course of search is not possible.”
Further, ITAT, Mumbai Bench in the case of ITO v. Kranti Impex Pvt., Ltd., 13. in dated 28.02.2018 held as follows: - “since the impugned seized papers are undated, have no acceptable narration and do not bear the signature of the assessee or any other party, they are in the nature of dumb documents having no evidentiary value and cannot be taken as a sole basis for determination of undisclosed income of the assessee. When dumb documents like the present loose sheets of papers are recovered and the Revenue wants to make use of it, the onus rests on the Revenue to collect cogent evidence to corroborate the noting therein. The Revenue has failed to corroborate the noting by bringing some cogent material on record to prove conclusively that the noting in the seized papers reveal the unaccounted on-money receipts of the assessee. Further, no circumstantial evidence in the form of any unaccounted cash, jewellery or investments outside the books of account was found in course of search in the case of assessee. Thus, the impugned addition was made by the AO on grossly inadequate material or rather no material at all and as such, deserves to be deleted. Hence, we are of the view that an assessment carried out in pursuance of search, no addition can be made simply on the basis of uncorroborated noting in loose papers found during search because the addition on account of alleged on-money receipts made simply on the basis of uncorroborated noting and scribbling on loose. sheets of papers made by some unidentified person and having no evidentiary value, is unsustainable and bad-in-law.”
In the case on hand, it is patently manifest that Assessing Officer has no 14. other material other than the loose document to perpetrate the addition. Assessee right from the very inception of the proceedings has vehemently denied the contents of the documents to be related to interest against loans and have rightly explained the nature and contents of the impugned document. Assessing Officer has brushed aside the explanations summarily without any speaking observations and has gone to make the addition, such stand of the Assessing Officer cannot be supported by any legal means. The Ld.CIT(A) surprisingly has deleted two other additions which are also based on certain documents and loose sheets but for reasons best known has gone to confirm the addition without Rhyme or Reason. In the light of various judicial pronouncements which are binding upon us, we have no hesitation to set-aside the order of the Ld.CIT(A) wherein the Ld.CIT(A) has confirmed the addition of Rs.24,21,318/-. There is no merit in the addition and the Assessee is entitled to the full relief. The other grounds are general in nature and do not require any specific adjudication. Accordingly the appeal of the Assessee is allowed as above.
In the result, appeal of the Assessee is allowed. 15.
Order pronounced in the open Court on 09/06/2025
Sd/- Sd/- V. DURGA RAO K.M. ROY JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 09/06/2025 Giridhar, Sr. PS (On Tour)