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Facts
The Revenue filed appeals challenging two orders for AY 2018-19 and 2019-20, where the CIT(A) deleted additions made by the AO on account of unexplained expenditure. The additions were based on loose papers found during a search related to Shri Atul Yamsanwar, which suggested that the assessee paid cash for shares at a higher rate than reflected in the books. The AO made an addition of Rs. 1,46,91,237/- for AY 2018-19 and Rs. 4,89,01,140/- for AY 2019-20 under section 69C of the Income Tax Act.
Held
The Tribunal held that the Assessing Officer's addition was based on loose sheets and conjectures without corroborating evidence. The CIT(A) had correctly deleted the addition because the seized documents were found to be 'dumb notings' and not attributable to the assessee. The Revenue failed to provide evidence to disprove the assessee's submissions and the findings of the CIT(A).
Key Issues
Whether the addition made by the AO on account of unexplained expenditure based on loose sheets is sustainable without corroborative evidence, and whether the CIT(A) was justified in deleting such additions.
Sections Cited
69C, 132, 153, 69A, 68, 127, 153C, 11UA
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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
Date of conclusion of hearing : 18.03.2025 Date of pronouncement of order : 03.04.2025 O R D E R
PER K.M. ROY, ACCOUNTANT MEMBER
The Revenue has filed these appeals challenging two impugned orders for the A.Y.2018-19 & 2019-20, passed by the learned Commissioner of Income Tax (Appeals) – 3, Nagpur [hereinafter in short “Learned CIT(A)”] vide respective Order No & Date of order as stated below: - ITA No. & A.Y. Order No. Dated (A.Y. 2018-19) CIT(A)-3, Nagpur/10688/2017-18 16.02.2023 (A.Y. 2019-20) CIT(A)-3, Nagpur/10439/2018-19 16.02.2023
Since the grounds raised by the revenue for both these appeals are identical in nature, these appeals are being clubbed and a consolidated order being passed. We now take up the appeal in A.Y.2018-19 as a lead appeal.
Revenue has raised following grounds of appeal in its appeal: -
1. The ld. CIT(A) erred in deleting the addition of Rs.1,46,91,237/- made by on account of unexplained expenditure u/s 69C of I. T. Act, which has correctly been added by Assessing officer in the income of the assessee considering the facts and circumstances of the case.
2. The ld. CIT(A) erred in allowing assessee's appeal without considering the fact that the document No. B- 14 (page 1-31), based on which the addition was made is self hand written by Shri Atul Yamsanwar and found in his residential premises during the search action.
3. The ld. CIT(A) erred in deleting the addition of Rs.1,46,91,237/- made by Assessing Officer on the ground of unexplained expenditure u/s.69C of I.T. Act, without considering the fact that same amount of addition of Rs.1,46,91,237/- has been taxed in the hand of Shri Atul Yamsawar as undisclosed income, for the A.Y. 2018-19, and the ld. CIT(A) has found it as true and correct and further upheld the addition.
4. Any other question of law and fact to be raised at the time of appeal.”
Brief facts of the case are, a search and seizure action under section 132 of the Income Tax Act, 1961 (in short “Act”) was conducted on 25.06.2019 at the residential premises of Shri Atul Yamsanwar. During the course of search proceedings under section 132 of the Act “Document No. B-14 (Pages 1-31)” were seized from the residential premises of Shri Atul Yamsanwar which were related to Assessee. Accordingly, the case of the Assessee was selected for assessment under section 153 of the Act. During the course of assessment proceedings, Assessing Officer being not convinced with the reply furnished by the Assessee, concluded the assessment by observing that “10,38,250 shares were sold by Shri Atul Yamsanwar @Rs. 15 per share in cash and @Rs.13 per share by cheque. However, the purchaser Shri Deepak Ghadge has shown the rate of share in his books as Rs.13.85. This clearly indicates that difference in rate @Rs.14.15 per share has been received by Shri Atul Yamsanwar on sale of 10,38,250 shares during the assessment year concerned which amounts to Rs.1,46,91,237/- is an unaccounted income for A.Yr. 2018-19 in the hand of Shri Atul Yamsanwar and unexplained expenditure in the hand of Shri Deepak Ghadge u/s 69C of the Act”. Assessing Officer thus made an addition of Rs.1,46,91,237/- as unexplained expenditure under section 69C of the Act.
Aggrieved by the order of the Assessing Officer, Assessee preferred an appeal before the Ld.CIT(A) and filed his submissions. After considering the submissions of the Assessee, Ld.CIT(A) allowed the appeal of the Assessee.
Being aggrieved by the order of the Ld.CIT(A), Revenue is in appeal before us by raising the above grounds.
In the course of hearing, Ld. CIT (DR) (in short “Ld.DR”) has relied on the findings in the assessment order and submitted that loose documents clearly prove exchange of cash.
On the other hand, Learned Authorized Representative (in short “Ld.AR”) relied upon his written submissions and Appellate Order and prayed that the same should not be disturbed. The gist of written submissions is reproduced below: -
“A) A.O. has concluded at pages 22 to 24 that assessee has paid cash to Shri Atul Yamsanwar for purchase of shares at Rs. 14.15 per share for 10,38,250 share in Asstt. Year 2018-19 and for 34,55,911 shares in Asstt. Year 2019-20. A.O. has thus concluded that total shares purchased by assessee from Shri Atul Yamsanwar is 44,94, 161/-. B) In Asstt. Year 2018-19 assessee has not purchased any shares from Shri Atul Yamsanwar and in Asstt. Year 2019-20 has purchased 14,38,250 shares only. Factual submission is as per legal evidence on record. Action of A.O. in making addition for purchase of 44,94,161 shares is contrary to legal evidence on record and is factually incorrect. C) A.O. has made the addition by referring to various loose papers which are scanned and pasted in the assessment order. Perusal of seized document scanned and pasted does not indicate name of assessee. It does not indicate that assessee has paid cash during Asstt. Year 2018-19 and 2019-20 for which addition has been made at the hands of assessee. No date and amount for which addition is made is found noted in the seized document. Seized documents are not found from assessee and same are dumb documents requiring no consideration at the hands of assessee for determination of assessable income. D) Purchase of share of M/s Orange City Housing Finance Ltd. are properly recorded in books of account and entire payment has been made through proper banking channel. Purchase of shares in various years are reported in annual return filed by corporate entity M/s Orange City Housing Finance Ltd. Financial statements of assessee was submitted before A.O. indicating investment made in shares of aforesaid company (P- 1 to 119) [Vol. - I]. Transaction of purchase of share is verifiable with reference to financial statement available on record. Assessment for Asstt. Year 2017-18 and 2020-21 is completed on the same date. Financial statements has not invited any adverse observation. Purchase of shares in Asstt. Year 2017-18 at Rs.12.66 per share and in Asstt. Year 2020-21at Rs. 13.85 per share from Shri Atul Yamsanwar is accepted at purchase value (P - 120 to 123) [Vol. - I]. Purchase value of shares is as per provisions of Rule 11UA.
E) CIT(A) at para 4.1 to 4.3 has recorded factual findings as regard to purchase of shares indicating the evidence on record. No factual mistake can be found in such findings which are based on the basis of legal evidence on record. F) In the case of assessee purchase of shares in various years within the price range of Rs. 12.66 to Rs. 13.85 per share and are tabulated at page 14 of order of CIT(A). A.O. has accepted purchase of shares by assessee at same value from various persons other than Shri Atul Yamsanwar and allotted by corporate entity as recorded in books of account. On above undisputed factual position there could be no justification to hold that assessee has paid sum of Rs.14.15 per share in cash to Shri Atul Yamsanwar for making addition u/s 69C of I.T. Act 1961. G) It is undisputed fact on record that Shri Atul Yamsanwar has denied to have received any consideration in cash from assessee in his statement recorded at the time of search. He has explained seized document to be in the nature of dumb notings having rough calculation and not related to the transaction done with assessee. The statement of Shri Atul Yamsanwar and his assessment record corroborates the explanation and submission made by assessee. Addition made by A.O. ignoring the above undisputed factual position is unjustified and CIT(A) has correctly deleted the addition made. H) In Asstt. Year 2018-19 there is no purchase of shares and in Asstt. Year 2019-20 14,38,250/- shares have been purchased. In Asstt. Year 2020- 21 shares purchased from Shri Atul Yamsanwar at Rs. 13.85 per share are accepted without inviting any adverse observation. On above factual position conclusion of A.O. that during Asstt. Year 2018-19 and 2019-20 assessee has paid consideration at Rs.14.15 per share in cash is having no justification/rationale. I) In satisfaction note (P- 6 & 7) to issue notice u/s 153C A.O. has computed the sale of shares at Rs.15/- per share to compute cash payment at Rs.11,93,987/-. In assessment order A.O. has computed the sale price at Rs.28/- pe share for no valid justification and is unjustified. J) Loose papers on the basis of which addition is made is found from third party and not from the assessee. Loose paper does not have handwriting of assessee. It has been reasonably explained by the person from whom such documents were found and seized. Thus addition made in the case of assessee is unjustified. K) Loose documents are in the nature of dumb notings calling for no adverse consideration at the hands of assessee.”
Ld.CIT(A) had granted full relief by holding as below: -
“4.1 The appellant has raised 9 grounds of appeal
, out of which ground no. 1 and 9 are general in nature and therefore need no adjudication. The A.O. has made addition at Rs.1,46,91,237/- u/s 69C of I.T. Act 1961 as unexplained expenditure. The A.O. has concluded that appellant has paid cash to Shri Atulyamasanwar for purchase of 10,38,250 shares at Rs. 14.15 per share which amounts to Rs. 1,46,91,237/-. In the assessment order it has been concluded appellant has purchased shares at Rs.28/- per share and cash portion paid on purchase of share was Rs.14.15 per share. It is concluded that it is unexplained expenditure in the hands of appellant u/s 69C of I.T. Act 1961. The aforesaid conclusion is made considering the notings of loose papers found from the premises of Shri Atul Yamsanwar on whom search u/s 132(1) of I.T. Act 1961 was conducted on 25/06/2019. 4.2. The appellant explained each and every loose paper scanned and pasted in the assessment order at page
21. The appellant has furnished financial statements, ledger account of purchase of shares and annual return of company M/s Orange City Housing Finance Ltd. to demonstrate shares purchased by appellant during the period from 01/04/2016 to 31/03/2020. As per the balance sheet for the year ending on 31.03.2017 total investment in shares is shown at Rs. 3,06,94,245/-. Ledger account of purchase of shares directly from company indicates that investment made in shares is Rs. 1,75,96,008/- for purchase of 1389890 shares @ Rs.12.66 per share. Ledger account of purchase of shares from Shri Atul Yamsanwar indicates that total investment made in shares is Rs. 1,30,98,237/-: Number of shares purchased by appellant from Shri Atul Yamsanwar are 1033281 shares at the cost of Rs.12.66 per share and Rs. 16,900/- is stamp duty expenses incurred in order to make aggregate investment of shares purchased from Shri Atul Yamsanwar at Rs. 1,30,98,237/-. The aggregate of aforesaid two sums computes to Rs. 3,06,94,245/- as shown in balance sheet. Number of shares in aggregate purchased are 2423171 shares which are tallied with shares held in the name of appellant as observed in annual return. Investment in shares in value and number of shares is accepted in assessment framed u/s 143(3) r.w.s. 153C of Income Tax Act 1961 As per the balance sheet for the year ending on 31/03/2018 there is no addition to investment in purchase of shares. As per financial statements, advance was given to Shri Atul Yamsanwar at Rs. 1,86,97,250/- as per Schedule G Loan and Advances. As per the balance sheet for the year ending on 31.03.2019 the investment in share of M/s Orange City Housing Finance Ltd. is shown at Rs. 10,66,16,354/-. Ledger account of purchase of shares shows opening investment at Rs.3,06,94.245/ and closing investment is shown at Rs.10,66,16,354/-. Shares from various persons have been acquired at the price per share @ Rs.13.85. Total number of shares acquired during the year are 54,68,800 which includes 1438250 shares purchased from Shri Atul Yamsanwar. The appellant has purchased 4030550 number of shares from persons other than Shri Atul Yamsanwar. The aggregate number of shares as at the close of accounting year is 7891971 in number (2423171 + 5468800). In the annual return at page 10 share holding of appellant is shown at 7891971 shares in number and same matches with shares shown in financial records. During the financial year ending on 31.03.2020, M/s Orange City Housing Finance Ltd. has made Investment of Rs. 11,82,94,906/- in shares. As per Ledger account of shares of company, it indicates that 843217 shares have been acquired from Shri Atul Yamsanwar at the cost of Rs.13.85 per share. The aggregate share held by the appellant in the company as on 31/03/2020 are 8735188 (opening 78,91,971 + 8,43,217) which were tallied with the financial record. Such type of investment was accepted in the assessment orders passed for the A.Ys. 2017-18 and 2020-21. 4.3. In the case of appellant investment in purchase of shares of M/s.Orange City Housing Finance Ltd. is recorded in regular books of account and purchase price paid by the appellant in various years is at the fair market value in terms of provisions of Rule 11UA of Income Tax Rules 1962. A.O. has accepted the purchase price in A.Y. 2017-18 and A.Y. 2020- 21 As per legal evidence on record appellant has purchased share of M/sOrange City Housing Finance Ltd. from Shri Atul Yamsanwar in various assessment years as under: i. A.Y. 2017-18 : 10,33,281 Shares ii. A.Y. 2018-19 : NIL iii. A.Y. 2019-20 : 14,38,250 Shares iv) A.Y. 2020-21 : 8,43,217 Shares It is observed that during the A.Y. 2018-19, the appellant has not purchased any share being 10,38,250 in number as concluded by A.O. in the assessment order. In the absence of any purchase of shares much less 10,38,250 shares of such company there is no case for the A.O. to hold that any amount is paid in cash to Shri Atul Yamsanwar. It is worthwhile to note that the A.O. has accepted purchase price of shares of appellant from Shri Atul Yamsanwar in A.Y. 2017-18 at Rs. 12.66 per share and in A.Y.2020-21 at Rs. 13.85 per share. Investment of purchase price at similar rate cannot be disputed for in between years. Hence addition made in the case of appellant is incorrect.”
Ld.AR further relied upon the following documents to prove his contentions : -
i. Audited Financial Statement as on 31/03/2017 in the case of assessee. ii. Ledger Account of Shares of OCHFL (Primary Allotment) for the period from 01/04/2016 to 31/03/2017. iii. Ledger Account of Shares of OCHFL (Pur From Atul Sir) for the period from 01/04/2016 to 31/03/2017. iv. Form No. MGT-7 (Annual Return) for Financial Year 2016-17 v. Audited Financial Statement as on 31/03/2018 in the case of assessee. vi. Ledger Account of Advance for Shares - Atul Yamsanwar for the period from 01/04/2017 to 31/03/2018 vii. Form No. MGT-7 (Annual Return) for Financial Year 2017-18. viii. Audited Financial Statement as on 31/03/2019 in the case of assessee. ix. Ledger A/c of Share of Orange City Housing Finance Ltd. for the period from 01/04/2018 to 31/03/2019. x. Ledger Account of Advance for Shares - of OCHFL - Atul Yamsanwar Sir for the period from 01/04/2018 to 31/03/2019 xi. Form No. MGT-7 (Annual Return) for Financial Year 2018-19. xii. Audited Financial Statement as on 31/03/2020 in the case of assessee xiii. Ledger A/c of Share of Orange City Housing Finance Ltd. for the period from 01/04/2019 to 31/03/2020 xiv. Ledger A/c of Advance for Shares of OCHFL - Atul Yamsanwar Sir for the period from 01/04/2019 to 31/03/2020 xv. Form No. MGT-7 (Annual Return) for Financial Year 2019-20 xvi. Assessment order u/s 143(3) in the case of assessee vide order dated 13/07/2021 for Asstt. Year 2017-18 xvii. Assessment order u/s 143(3) in the case of assessee vide order dated 13/07/2021 for Asstt. Year 2020-21.
Ld.AR also relied on the following Judgments in support of his submissions: - i. CIT vs. P.V. Kalyanasundram (2207) 294 ITR 0049 (SC)
ii. Addl. CIT vs. Prasant Ahluwalia (2005) 92 TTJ 0464 (Cuttack) in the case of M/s. Riveria Properties Pvt. Ltd. vide order dated 27/10/2017 in the case of Nishant Construction Pvt. Ltd. vide order dated 14/02/2017 v. Common Cause (A Registered Society) vs. Union of India (2017) 77 taxmann.com 245 (SC) vi. PCIT vs. Umesh Ishrani (2019) 108 taxmann.com 437 (Bom.) vii. Sunil Kumar Sharma vs. DCIT (2023) 146 taxmann.com 553 (Kar) viii. DCIT vs. Sunil Kumar Sharma (2024) 159 taxmann.com 179 (Kar) ix. CIT(A) vs. Sunil Kumar Sharma (2024) 165 taxmann.com 846 (SC)
We have carefully analyzed the facts of the case and have extended dispassionate analysis on the above issue. There is sufficient force in the submission of the Ld.AR and he has also demonstrated from the material on record that the addition is not sustainable. Ld.DR has failed to bring any evidence on record to dislodge the cogent findings of the Ld.CIT(A). As a result there is no scope for interference on our end with the conclusions of the Ld.CIT(A) and take a divergent view thereof.
The Hon’ble Karnataka High Court in the case of DCIT v. Sunil Kumar Sharma (supra) held as follows: -
“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? Whether Centralization is in violation of Section 127 of the 2) Income Tax Act, 1961, is valid? Whether the Notice under Section 153C of the Income Tax 3) 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.”
Assessing Officer has merely made the addition on the basis of scribbling in some loose sheets without making any meaningful enquiry at his end. He has merely assumed that there has been certain transaction in cash without any corroboration that the shares were undervalued, particularly in view of the fact that he could not produce any defect in the valuation certificate produced by the Assessee to establish the Fair Market Value. Assessing Officer has clearly erred in holding the Fair Market Value will be higher than the value calculated under Rule 11UA of I.T. Rules because copyright, intellectual capital, internally generated goodwill, brand awareness and expected future profits play an important role. This is a generic statement and a naive approach adopted by the Assessing Officer because he has failed to point out as to how this particular intangible assets are applicable in the case of Orange City Housing Finance Ltd. It is also beyond comprehension as to when he has accepted the purchase consideration for the A.Y. 2017-18 and A.Y. 2020-21 and why for A.Y.2018-19 and 2019-20 he has disregarded the same without any distinctive factors. This is a clear pointer of the fact the assessment has been carried out on the mere surmises and conjecture and the addition has been made dehors any incriminating material. The plethora of judgments overwhelmingly establish the cardinal principle that loose sheets cannot be admissible under section 34 of the Indian Evidence Act without corroborating with other evidences. In view of the conspectus above facts and circumstances and in light of the judicial precedents, there is no merit in the Revenue’s appeal and accordingly, same is dismissed. It is worthwhile to note that addition made in the hands of person searched, is not of relevance because such addition even if confirmed at level of Ld.CIT(A) cannot be said to sacrosanct and final. At this juncture, it will be pertinent to refer to the operating portion of the judgment of the Ld.CIT(A) in the case of Atul M. Yamsanwar, wherein Ld.CIT(A) has sustained the addition as under: -
“I have carefully considered the submissions of the AR of the appellant and have found no merit in the same. It is difficult to comprehend how the details noted by appellant himself in his handwriting should be considered as rough notings. The fact of the matter is that the calculation of transfer of shares is corroborated by the fact that such transaction has actually taken place. The calculation of the transaction appears at many pages seized during the search operation from the appellant's residence. The calculations are in appellant's own handwriting. On basis of seized papers corresponding corroboration can be established from pages 4-6 & pages 14-23, Page 1 & 4 of B-16 regarding total no. of shares sold and amount received in cash. The consideration received by the appellant against the sale of shares from Shri Deepak Ghadge has been received in parts from time to time as is evident from the impugned pages. It is possible that a few arithmetic mistakes are appearing in the seized papers, but the same is immaterial and insignificant. These seem to be calculation errors on part of appellant himself which does not have any impact on the fact that cash was indeed received by the appellant. During the appellate proceedings, the AR has tried to show that the AO has made mistake in terms of number of impugned shares transferred and the financial years in which these were transferred but has not filed satisfactory supporting documentary evidence.”
Ultimately, he has directed that the addition should be made under section 69A of the Act and not as unexplained money. We are not in agreement with the conclusions such drawn by Ld.CIT(A) because when there is a mismatch in the number of shares transferred there cannot be any obvious corroboration with the so called sales consideration. Having once admitted that there are certain arithmetic mistakes in the seized papers and then considering the same to be immaterial and insignificant is self-destructive because the foundation of document is shaken. When the number of shares transferred as per seized documents do not have any bearing with the shareholders Register, share transfer firms, compliance certificate of the Company Secretary addition out of such illusionary transfer is bound to crumble. We make it clear that these observations are no way to be considered to have any bearing upon the adjudication of the case of the searched person in view of the fact that certain legal grounds have also been raised before us in that case.
In the result, appeal of the Revenue is dismissed.
(A.Y. 2019-20) 17. Revenue has raised following grounds in its appeal: -
1. The Id. CIT(A) erred in deleting the addition of Rs.4,89,01,140/- made by on account of unexplained expenditure u/s.69C of I. T. Act, which has correctly been added by Assessing officer in the income of the assessee considering the facts and circumstances of the case.
2. The Id. CIT(A) erred in allowing assessee's appeal without considering the fact that the document No. B-14(page 1-31), based on which the addition was made is self hand written by Shri Atul Yamsanwar and found in his residential premises during the search action.
3. The Id. CIT(A) erred in deleting the addition of Rs.4,89,01,140/- made by Assessing Officer on the ground of unexplained expenditure u/s. 69C of I.T. Act, without considering the fact that same amount of addition of Rs. 4,89,01,140/- has been taxed in the hand of Shri Atul Yamsawar as undisclosed income, for the A.Y. 2019-20, and the Id. CIT(A) has found it as true and correct and further upheld the addition.
4. Any other question of law and fact to be raised at the time of appeal.”
Since the grounds raised are materially similar to the lead case, therefore the decision taken in the in (A.Y. 2018-19) shall apply mutatis mutandis for the A.Y. 2019-20 also. Accordingly, appeal filed by the Revenue is dismissed.
To sum-up, both the appeals filed by the Revenue are dismissed.
Order pronounced in the open Court on 3rd March, 2025.