Loading judgment…
Facts
The appeals were filed by the Revenue against the orders of the CIT(A) that allowed the assessee's appeals. The assessment order had made an addition of Rs. 6,00,00,000/- for AY 2021-22 and a penalty of Rs. 1,50,00,000/- was levied for AY 2019-20 for alleged violation of Section 269SS of the Income Tax Act.
Held
The Tribunal held that the addition and penalty were based solely on third-party statements and loose sheets without corroborative evidence linking the assessee. The CIT(A) had rightly appreciated the facts and followed settled legal position that additions and penalties cannot be sustained without proper corroboration.
Key Issues
Whether the addition and penalty are sustainable on the basis of third-party statements and loose sheets without corroborative evidence.
Sections Cited
143(1), 143(2), 143(3), 131, 69A, 69, 115BBE, 269SS, 132(4), 132(4A), 292C, 145, 142(1), 271D
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: HON’BLE SHRI MANU KUMAR GIRI
PER MANU KUMAR GIRI (Judicial Member):
The captioned appeals filed by the assessee are directed against different orders of the Ld. Commissioner of Income Tax (Appeals), CIT(A), Chennai-19 [‘CIT(A)’ in short] dated 21.08.2024 (In quantum proceedings) for AY 2021-22 and dated 21.08.2024 (In penalty proceedings u/s.271D) for the AY (2019- 20).
and 2660/Chny/2024 (AY 2021-22 & 2019-20) DCIT Vs Natarajan :- 2 -: 2. The assessee/assessee is the Managing Director of Shri Dhanlakshmi Spintex Pvt. Ltd. and is also engaged in the business of commission agency involving the purchase and sale of yarn and wind power. For the Assessment Year 2021-22, the assessee filed the return of income on 18.12.2021, declaring a total income of Rs.58,98,850/-, and duly paid the tax thereon. The return was processed u/s. 143(1) of the Income-tax Act, accepting the returned income. Subsequently, the case was selected for scrutiny and a notice u/s. 143(2) dated 08.12.2022 was issued. In response, the assessee submitted a detailed reply vide letter dated 15.12.2022, which was duly acknowledged by the Assessing Officer on 16.12.2022. Thereafter, the assessee was surprised to receive an assessment order u/s. 143(3) dated 30.12.2022, alleging that a summons u/s. 131 had been issued to verify certain transactions allegedly found during a search conducted in the case of Shri Ganesh Saravanakumar, and that the assessee had failed to respond to the same.
2.1 The assessment order further records that a show cause notice had been issued calling upon the assessee to explain the source of alleged cash payments of Rs.6 crores stated to be “on- money” and why the same should not be taxed as unexplained and 2660/Chny/2024 (AY 2021-22 & 2019-20) DCIT Vs Natarajan :- 3 -: money u/s.69A. On the premise that the assessee did not respond to the show cause notice, an order dated 30.12.2022 was passed making an addition of Rs.6,00,00,000/- as unexplained investment u/s.69 r.w.s 115BBE.
Aggrieved by the said assessment order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals). The ld.CIT(A), after considering the facts and submissions, allowed the appeal vide order dated 21.08.2024. Aggrieved by this relief, the Revenue has filed the present appeal before the Hon’ble Tribunal.
The ld.DR contended that the Ld.CIT(A) has erred in deleting the addition of Rs.6,00,00,000/- made u/s.269SS of the Income Tax Act, 1961, without proper appreciation of the facts unearthed during the course of search and the settled legal position. The findings recorded by the Assessing Officer were based on cogent incriminating material and sworn statements, which could not have been brushed aside without valid rebuttal. He further contended that during the course of search proceedings, several loose sheets, books, documents and electronic devices were found and seized. Among them, two note pads bearing identification numbers ANN/SJ/GS/B&D/S-2 and ANN/SJ/GS/B&D/S-3 were seized from the premises of Shri Ganesan Saravanakumar. He submitted that the Ld.CIT(A) failed to appreciate that Shri and 2660/Chny/2024 (AY 2021-22 & 2019-20) DCIT Vs Natarajan :- 4 -: Ganesan Saravanakumar, in his sworn statement recorded u/s. 132(4), categorically admitted entries dated 10.12.2020, 19.10.2020 and 26.06.2020. He also submitted that the ld.CIT(A) completely ignored section 132(4A) read with section 292C.
The ld.AR submitted that the present appeal filed by the Revenue is devoid of merit, both on facts and in law. The ld.CIT(A) has passed a reasoned and well-considered order after examining the entire material on record. The Revenue has failed to demonstrate any perversity or infirmity in the findings of the ld.CIT(A). The ld.AR for the assessee submitted that the entire case of the appellant (Revenue) is founded solely on loose sheets and documents seized from the premises of Shri Ganesh Saravanakumar and on the statement recorded from him. He further submitted that the assessee filed the return of income for AY 2021-22 declaring a total income of Rs.58,98,850/- which was processed and accepted u/s.143(1). Even during scrutiny proceedings, no defect was found in the books of account maintained by the respondent. There is no rejection of books u/s.145, nor any adverse finding on regular business income. No material whatsoever was seized from the premises of the assessee. The reliance placed by the Revenue on Questions 4 and 5 of the sworn statement of the searched person recorded u/s. 132(4) pertains to an annexure dated 11.03.2021, which has not even been produced before the Tribunal. In any event, the answer to Question 4 clarifies that the loose sheets numbered 1 to 22 relate to registered sale deeds of land measuring 13.85½ acres at and 2660/Chny/2024 (AY 2021-22 & 2019-20) DCIT Vs Natarajan :- 5 -: Rackiyapalayam village, purchased by Shri V.P. Jayapradeep, who is merely the cousin brother of the assessee. The answer to Question 5 explains that loose sheets numbered 23 to 26, titled “T Land”, relate to land purchased at Tirupur by Shri V.P. Jayapradeep, and that the cash entries recorded therein represent cash payments over and above the registered value of Rs.1,11,44,800/-, aggregating to Rs.25 crores. The only inference that can be drawn from these answers is that the alleged cash payments, if any, relate exclusively to the land purchases made by Shri V.P. Jayapradeep and not the assessee. It is incomprehensible how these statements or documents have any nexus whatsoever with the assessee. There is no statement, admission, or corroborative evidence to show that the assessee either paid or received any cash from Shri Ganesh Saravanakumar or from any other person.
5.1 The assessee has categorically stated that he has not purchased any land either from Shri Ganesh Saravanakumar, Shri V.P. Jayapradeep, or any other person. This fact was clearly explained in the assessee’s reply dated 15.12.2022 furnished in response to the notice u/s. 142(1).
5.2 With regard to the alleged non-appearance pursuant to summons u/s. 131, the assessee has clearly explained that he did visit the office of the DGIT (Investigation), however, since the concerned officer was not available, he returned back. Mere non- appearance, without more, cannot be construed as evidence of payment of on-money. He further submitted that non-compliance and 2660/Chny/2024 (AY 2021-22 & 2019-20) DCIT Vs Natarajan :- 6 -: with summons u/s. 131 by itself cannot justify an addition, unless supported by independent enquiry and corroborative evidence. He pleaded that the AO failed to conduct any such independent investigation and merely relied upon third-party statements and presumptions. The assessment order was thus passed purely on assumptions, presumptions, and conjectures, without establishing any direct link between the assessee and the alleged cash transactions. The CIT(A) rightly appreciated these facts and set aside the addition. The assessee has placed reliance on various judgments cited in the order of the ld.CIT(A), all of which support the settled position that additions cannot be sustained solely on third-party statements or loose sheets without corroboration.
We have heard the rival submissions and perused the orders of the authorities below and case laws cited. In view of the foregoing discussion and on careful consideration of the material available on record, we find no infirmity in the well-reasoned order of the Ld.CIT(A). The addition of Rs.6,00,00,000/- has been made by the Assessing Officer solely on the basis of loose sheets and a statement recorded from a third party, namely Shri Ganesh Saravanakumar, without any corroborative evidence whatsoever linking the assessee/assessee to the alleged cash transactions. Admittedly, no incriminating material was found or seized from the premises of the assessee, nor is there any admission or material on record to establish that the assessee had either paid or received any “on-money”. The statement relied upon by the Assessing Officer, even otherwise, clearly attributes the alleged transactions to land purchases made by a different person, viz., and 2660/Chny/2024 (AY 2021-22 & 2019-20) DCIT Vs Natarajan :- 7 -: Shri V.P. Jayapradeep, and not the assessee. Mere non- appearance in response to summons u/s. 131, without any independent enquiry or supporting evidence, cannot justify the impugned addition u/s. 69 read with section 115BBE of the Act.
Hence, we are of the considered opinion that the Ld. CIT(A) has rightly appreciated the facts, examined the evidentiary value of the material relied upon by the Assessing Officer, and followed the settled legal position that additions cannot be sustained merely on the basis of third-party statements or uncorroborated loose papers. We, therefore, see no reason to interfere with the findings of the Ld.CIT(A). Accordingly, the order of the Ld.CIT(A) is upheld and the appeal filed by the Revenue is dismissed.
Brief facts of the case are that the assessee is engaged in business activities including purchase and sale of yarn, sizing job works, and sale of wind power. During the course of search and related proceedings conducted by the Income Tax Department, certain promissory notes, property documents relating to Smt. Leelavathi, and other documents were found in possession of a third party, namely Shri K. Kalyanasundaram. A sworn statement of the said person was recorded by the department. Based primarily on the possession of the said documents and the sworn statement, the department formed a view that the appellant had accepted cash loans amounting to Rs.1,50,00,000/- in violation of and 2660/Chny/2024 (AY 2021-22 & 2019-20) DCIT Vs Natarajan :- 8 -: the provisions of Section 269SS of the Income Tax Act, 1961. It was alleged that the property documents were kept as security for the alleged cash loans.
The assessee denied having received any cash loans and contended that the evidence relied upon by the department was collected from third-party premises and that no opportunity of cross-examination of Shri K. Kalyanasundaram was provided. It was further contended that mere possession of promissory notes and property documents, without independent corroborative evidence, does not establish actual receipt of cash loans.
Penalty proceedings u/s.271D of the Act were initiated, and the Ld. Additional Commissioner of Income Tax passed an order levying penalty of Rs.1,50,00,000/-. While passing the penalty order, the authority rejected the assessee’s explanations and held that no business compulsion or economic exigency was demonstrated for accepting cash loans.
During appellate proceedings, the assessee pointed out that an FIR had been lodged in respect of fraud committed by its former employee Vinodkumar, in collusion with employees of Tamil Nadu Mercantile Bank Limited, involving an aggregate amount of Rs.6.20 crores, and that the FIR did not specifically mention receipt of Rs.50 lakhs by the assessee.
The Ld.AR for the assessee further submitted that the department had not discharged the burden of proving actual receipt of cash loans, as no independent or corroborative evidence and 2660/Chny/2024 (AY 2021-22 & 2019-20) DCIT Vs Natarajan :- 9 -: was brought on record. The reliance placed solely on documents and sworn statements was disputed. Upon consideration of the material on record and judicial precedents, the ld.CIT(A) held that the evidence relied upon by the department was insufficient to establish violation of Section 269SS. Consequently, the penalty of Rs.1,50,00,000/- levied u/s. 271D was held to be unsustainable and was directed to be deleted. Accordingly, the appeal was allowed by the ld.CIT(A).
Now revenue is in appeal before this Tribunal. The revenue supported the order of the AO whereas ld.AR relied upon the order of the ld.CIT(A).
We have heard rival submissions and perused the record and case laws cited. At the very beginning, it is noted that the material relied upon by the department was collected from premises belonging to a third party. Further, the statements recorded during the course of such collection were relied upon without granting the assessee any opportunity to cross-examine the concerned person. As a result, the evidentiary value of such material is seriously impaired and cannot be treated as credible proof to establish that the assessee had, in fact, received any cash loan. Unless the alleged transaction is conclusively established beyond reasonable doubt, the existence of such a transaction can only be regarded as illusory. Consequently, any penalty founded on such speculative assumptions cannot survive on merits, particularly when the penalty provisions are penal in character and require strict proof.
and 2660/Chny/2024 (AY 2021-22 & 2019-20) DCIT Vs Natarajan :- 10 -:
It is undisputed that Section 269SS of the Income Tax Act, 1961 prohibits acceptance of loans or deposits of Rs.20,000 or more otherwise than through an account-payee cheque or banking channel. However, for invoking penalty provisions u/s.271D, the department must satisfy the burden of proving, through reliable and corroborative evidence, that the assessee has actually violated the said statutory provision. Several judicial precedents has taken a view as under:
In CIT v. Noida Toll Bridge Co. Ltd., it was emphasized that any statement or document relied upon by the department for the purpose of imposing penalty must be supported by corroborative evidence. This decision reinforces the contention that the Range Head ought to have produced additional material beyond the statements and documents obtained during the search proceedings.
In ITO v. K.P. Varghese, the Hon’ble Supreme Court held that the onus of proof lies on the department to demonstrate that the statutory conditions necessary for levy of penalty are satisfied. This ruling supports the argument that the department failed to discharge its burden of proving that the appellant had actually received cash loans.
Similarly, in CIT v. Standard Brands Ltd., it was held that mere possession of documents or statements, without independent corroboration, is insufficient to justify the imposition of penalty. This judgment directly supports the appellant’s contention that exclusive reliance on promissory notes and sworn statements, without further supporting evidence, is inadequate.
In CIT v. Bhupen Champak Lal Dalal, the Hon’ble Bombay High Court held that in the absence of independent corroborative evidence, penalty u/s. 271D cannot be sustained. This ruling lends support to the and 2660/Chny/2024 (AY 2021-22 & 2019-20) DCIT Vs Natarajan :- 11 -: appellant’s claim that the department failed to substantiate the alleged cash loan transactions with independent proof.
Further, in Diwan Enterprises v. CIT, the Hon’ble Delhi High Court categorically observed that for imposition of penalty, there must be clear evidence establishing that the assessee had actually contravened the statutory provisions. In the absence of such evidence, the penalty would be rendered unsustainable. This authority supports the appellant’s position that the penalty deserves to be deleted due to lack of evidentiary support.
In CIT v. Hissaria Bros., the Hon’ble Rajasthan High Court held that where the assessee offers a plausible explanation and the department fails to rebut the same with sufficient evidence, the penalty cannot be upheld. This judgment directly supports the appellant’s explanation regarding the possession of promissory notes and the department’s failure to provide concrete evidence to the contrary.
Likewise, in DCIT v. Sunil M. Kasliwal, the Hon’ble Madras High Court held that if the assessee provides a reasonable explanation for the documents found and the department fails to disprove such explanation with adequate evidence, penalty u/s. 271D should not be imposed. This decision strengthens the appellant’s contention that the explanation offered for the promissory notes ought to have been accepted.
Hence, in the light of the above factual matrix, we refrain from interfering in the impugned order passed by the ld.CIT(A) therefore upheld the deletion of penalty u/s.271D of the Act.
In the result, appeals filed by the revenue are dismissed.
Order pronounced on 23rd day of January, 2026 at Chennai.