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Facts
A search and seizure operation was conducted, leading to a notice under Section 153C. The AO made an addition of Rs. 24,50,000/- as unexplained expenditure based on an image from a mobile phone, alleging cash payment for a function. The assessee claimed the payment was for his own marriage and a cheque was issued, with no cash payment.
Held
The Tribunal held that the AO's action to initiate proceedings under Section 153C was not proper as it was based on an electronic record (image from a pen drive) for which the mandatory certificate under Section 65B of the Evidence Act, 1872 was not produced. Therefore, the electronic data could not be relied upon.
Key Issues
Whether the addition made by the AO under Section 153C based on an electronic record without a Section 65B certificate is valid. Whether the proceedings were initiated without proper basis and adherence to principles of natural justice.
Sections Cited
250, 153C, 143(2), 142(1), 69C, 115BBE, 132, 127, 129
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Income Tax Appellate Tribunal, DELHI BENCH “B”: NEW DELHI
Before: SHRI S RIFAUR RAHMAN & SHRI VIMAL KUMAR
O R D E R
PER VIMAL KUMAR, JUDICIAL MEMBER:
The appeal filed by assessee is against order dated 14.08.2023 of Learned Commissioner of Income-Tax (Appeals)-29, New Delhi (hereinafter referred as “the Ld. CIT(A)”) under Section 250 of the Income Tax Act, 1961 ( hereinafter referred as “the Act”) arising out of assessment order dated 24.03.2022 of the Learned Assessing Officer/Deputy Commissioner of Income Tax, Central Circle, 28, Delhi (hereinafter referred as “Ld. AO") under Sections 153C of the Act for assessment year 2017-18.
Brief facts of case are that search and seizure operation under Section 132 of the Act was carried out at Seven Seas Hospitality Pvt. Ltd. (SSHPL) Group of Cases on 03.05.2018. Documents/incriminating material related to the person other than the searched person were found. Notice under Section 153C of the Act dated 05.02.2021 was issued and served upon the assessee by the Central Circle-30, Delhi. In pursuance of order under Section 127 of the Act dated 02.02.2022 passed by the Ld. PCIT, Central-3, New Delhi, the jurisdiction over the case assigned to the Ld. AO. Due to change of jurisdiction, notice under Section 129 of the Act dated 09.02.2022 was issued to assessee requesting for compliance of notice under Section 153C of the Act dated 02.02.2022. Assessee filed ITR declaring income of Rs.4,35,300/-. Notice under Section 143(2) of the Act dated 17.03.2022 was issued to Assessee. From the analysis of the same, it is gathered that in the image there is estimate of function organized by Vikas Jain on 16.03.20217 and the same was centralized to M/s. Seven Seas Hospitality Pvt. Ltd. During search action, cheque as well as cash was received as advance by M/s. Seven Seas Hospitality Pvt. Ltd. The document clearly shows that for the function of the assessee, M/s Seven Seas Hospitality Pvt. Ltd. (SSHPL) had made a contract of Rs.30,57,500/- out of which Rs.6,07,500/- was paid by cheque and the rest amount of Rs. 24,50,000/- was paid as cash. When the cheque amounting to Rs.6,07,500/- as mentioned in the document was accepted then the transaction of cash part of Rs.24,50,000/- also stands verified. M/s Seven Seas Hospitality Pvt. Ltd. (SSHPL) used to receive cash from the 2 customers and same would not have been accounted for in the books of account, In this case, a function was scheduled to be held on 16.03.2017 in M/s Seven Seas Hospitality Pvt. Ltd. (SSHPL) for a total package of Rs.30,57,500/- (Rs.29,50,000/-+ Rs.1,07,500/- (taxes)). This fact is clearly mentioned in the incriminating document found in the possession of searched person. According to the same, the assessee had to pay total amount of Rs.30,57,500/-including taxes for the scheduled function to be held on 16.03.2017 out of which an amount of Rs.6,07,500/- was paid through cheque from the Bank Account of the assessee. In response to the specific query (cash payment made to SSHPL) raised vide notice u/s 142(1) of the Act dated 16.03.2022, assessee vide its letter dated 17.03.2022 has stated that "there is no function held by the assessee on 16.03.2017 as alleged. However a function was held on 04.03.2017 on the function of marriage of assessee himself. It is submitted that assessee, Vikas Jain got married on 04.03.2017 with Ms Suchna Jain D/o Santosh Kumar Bhansali and Suman Bhansali and a marriage function was held on 04.03.2017. For the same function held on 04.03.2017, an invoice bearing no. 5987 at Book No. 120 dated 16.03.2017 of Rs. 6,07,500/- was raised by Seven Seas Hospitality Private Limited and the same has been paid by cheque no. 0302405 through Corporation Bank, Preet Vihar Branch Vikas Marg, New Delhi, debited in his bank account no 17.03.2017 in full and no payment in Cash has been made by Assessee to M/s Seven Seas Hospitality Private Limited at any time. The entire amount of Rs. 607,500/- has been declared in his tax return by the 3 assessee in the Income Tax Return of A.Y. 2017-18 duly filed at Ward 55(1), New Delhi and paid an Income Tax of Rs. 15,000/-. However, no details were filed regarding the cash payment of Rs. 24,50,000/- paid by the assessee in cash to SSHPL. However, payment of Rs. 6,07,500/- was made by the assessee to M/s Seven Seas Hospitality Pvt. Ltd.(SSHPL) in cheque. The corresponding entries in this regard are duly reflecting in the bank account of both i.e. assessee and M/s Seven Seas Hospitality Pvt. Ltd. (SSHPL). Therefore, attention is invited to section 69C of the I.T. Act, 1961 which is reproduced as under:
“69C. Unexplained expenditure, etc. Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year.” 2.1 The assessee has not filed any plausible explanation of the expenditure incurred for the function. Since, assessee has failed to provide the source of funds paid in cash to M/s Seven Seas Hospitality Pvt. Ltd. Therefore, an amount of Rs.24,50,000/- remained an unexplained expenditure incurred by the assessee and accordingly, the same was added as the income of the assessee for the relevant assessment year.
On completion of proceedings, Ld. AO vide order dated 24.03.2022 made an addition of Rs.24,50,000/-.
Against order dated 24.03.2022 of Ld. AO, appellant/assessee filed appeal before Ld. CIT(A) which was dismissed vide order dated 14.08.2023.
Being aggrieved with the action of Learned Lower Authorities, the appellant/assessee preferred present appeal before us and raised following grounds of appeal:
1. That the Ld. Commissioner of Income Tax-Appeals ("CIT (A)") was not justified in law and on facts in confirming the action of the Ld. Assessing Officer ("AO") initiating the assessment proceedings vide impugned notice dated 05.02.2021 issued under section 153C of the Act and thereafter assessing the income of the appellant under that section without any basis and justification 2. That the Ld. Commissioner of Income Tax-Appeals ("CIT (A)") was not justified in law and on facts in confirming the action of the Ld. Assessing Officer ("AO") in invoking the provisions of section 153C without recording an objective satisfaction post receiving the books of account/other material belonging/pertaining to the appellant from the Ld. AO of the searched person and thus failing to satisfy the fundamental condition for initiating of proceeding under that section that whether the seized document had any bearing on the determination of the income of the Appellant.
3. That the Ld. Commissioner of Income Tax-Appeals ("CIT (A)") was not justified in law and on facts in confirming the action of the Ld. Assessing Officer ("AO") in initiating and concluding the proceedings under section 153C of the Act de-hors any incriminating documents found during the course of search and thus making the addition purely on the basis of material available post search with the AO.
4. That the Ld. Commissioner of Income Tax-Appeals ("CIT (A)") was not justified in law and on facts in confirming the action of the Ld. Assessing Officer ("AO") in Making an addition of Rs. 24,50,000 in the hands of the appellant without providing a copy of the seized documents, relied upon by him for forming a belief that the said documents had a bearing on the determination of the income of the appellant.
5. That the Ld. Commissioner of Income Tax-Appeals ("CIT (A)") was not justified in law and on facts in confirming the action of the Ld. Assessing Officer ("AO") in making an addition of Rs. 24,50,000 in the hands of the appellant without affording an opportunity to cross examine the searched person from whom the said material was recovered/seized and/or the statement was taken as requested by the appellant during the course of the first appeal proceedings and has thus violated the principle of natural justice.
That the Ld. Commissioner of Income Tax-Appeals ("CIT (A)") was not justified in law and on facts in confirming the action of the Ld. Assessing Officer ("AO") in wrongly invoking the provisions of section 115BBE and thus applying a higher rate of 60% in place of normal tax rate of 30%.
That the Ld. Commissioner of Income Tax-Appeals ("CIT (A)") was not justified in law and on facts in not affording a proper opportunity to the appellant of being heard in the matter as requested during the course of the appeal which is in violation of the principle of natural justice.
That the Ld. Commissioner of Income Tax-Appeals ("CIT (A)") was not justified in law and on facts in confirming the action of the Ld. Assessing Officer ("AO") in not affording a proper opportunity to the appellant of being heard in the matter as requested during the course of the assessment proceedings and has thus violated the principle of natural justice. 9. The appellant craves leave to add, amend, alter, modify and delete any grounds of appeal
6. Learned Authorized Representative for the appellant/assessee submitted that search and seizure action under Section 132 was carried on 03.05.2018 on Seven Seas Hospitality Pvt. Ltd. and an image was retrieved from the mobile phone of one of the searched persons, which according to the Ld. AO has a bearing on the income of the assessee. The image had some casually scribbled details of some other person's name and estimate. On the basis of this image, the Ld. AO of the searched person, and the Ld. AO of the assessee being the same, have recorded the satisfaction alleging that the appellant had made a cash payment of Rs.24,50,000. Satisfaction note at page nos. 6 & 7 of paper books of the searched person and the other party were identical, prepared in a casual and mechanical manner without providing any proper reasoning that how the contents of the image are related to the assessee. Image is on page nos.9 and 35 of the paper books. Remand Report at page no. 36 of paper books was prepared by the Ld. AO during the appellate proceedings was not supported by certificate under Section 65B of Evidence Act. In remand report, it is mentioned that function was organized on 16.03.2017, in fact it was on 04.03.2017. Without any corroborating evidence, dumb documents have been realized. Income Tax Appellate Tribunal, New Delhi in titled as “Anil Kumar Gupta Vs. ACIT” decided on 10.01.2025 was in favour of assessee.
7. Learned Authorized Representative for the Department of Revenue relied on the orders of Ld. AO and Ld. CIT(A).
8. From examination of record in light of aforesaid rival contentions, it is crystal clear that Ld. AO recorded satisfaction note in case of assessee at page nos. 6 and 7 of the paper books on basis of image found from I-Phone of searched person dated 03.05.2018. The image had estimate of function organized by the assessee, at page nos. 9 and 35 of the paper books. Ld. AO vide order dated 24.03.2022 made the addition, which was upheld by Ld. CIT(A) vide order dated 14.08.2023.
8.1 A Co-ordinate Bench in in the case titled as “Anil Kumar Gupta Vs. ACIT” decided on 10.01.2025 in para 11and 12 has held as under:
“11. Considered the rival submissions and material placed on record. We observed from the record submitted before us that there is certain confusion on the date of marriage which was recorded by the Assessing Officer in the satisfaction note i.e. 30.06.2017 whereas actual marriage was conducted on 19.06.2017 which was established by the ld. AR by bringing on record the marriage certificate and relevant invitation card. Be that as may be, the assessee is not denying that assessee has made a payment of Rs.12,15,000/- whereas the note found during the search indicated that there is an estimate of Rs.46,15,000/- which includes Service Tax of Rs.2,15,000/- and the same sheet contains the details of cheque payment of Rs.12,15,000/- and balance by settlement of cash payment. From the sheet found during the search which was reproduced in assessment order, it shows that initial estimated expenses were Rs.46,15,000/- and the same was finalized at Rs.32,15,000/- and the break-up of settlement was clearly written for Rs.32,15,000/-. As per the above sheet, it shows that settlement of Rs.12,15,000/- by cheque and balance of Rs.20,00,000/- by cash. However, we noticed that in the satisfaction note, the Assessing Officer has proceeded to make the addition of Rs.32,15,000/- considering the total estimated cost of Rs.44,15,000/-. We observed that the satisfaction recorded by the Assessing Officer has got two flaws – one is date of marriage and the second is the finalized amount of marriage function hall. The initial estimate provided by Seven Seas Hospitality Pvt. Ltd. was Rs.44,15,000/- and the actual settlement was made at Rs.32,15,000/-. There is no reason for the Assessing Officer to record the satisfaction for Rs.44,15,000. The whole assessment was framed only on the abovesaid flawed recording of satisfaction. Further we observed that the emerging fact on record is that the basis of assumption of jurisdiction is the date/marriage taken from the electronic source. The reliance of such a material requires mandatory compliance in terms of section 65B of the Evidence Act, 1872. Whether the abovesaid evidence is admissible as evidence or not is the issue under consideration. On enquiry with the ld. DR of the Revenue, it was submitted that there is no certificate available on assessment record. These are basic requirement while recording the satisfaction note that the Assessing Officer should have obtained a certificate verifying the veracity and reliability of the record. In absence of such compliance, action of the Assessing Officer to initiate action u/s 153C is not proper. We observed that ld. CIT (A) also not commented on this crucial aspect. In the case of ACIT vs. Anand Jaikumar Jain in to 3823/Mum/2019 dated 22.04.2022, it was held as under :- “24. Further, it is brought to our notice by the Ld AR that the Hon'ble Supreme Court in the case of Arjun Panditrao Khotkar v. Kailash Khushanrao Gorantyal And Ors (Civil Appeal Nos 2082520826 of 2017) dated 14.07.2020 has analyzed the provisions of 65B of The Indian Evidence Act, 1872 with regard to admissibility of electronic evidence. The Hon'ble Supreme Court held that certificate under Section 65B (4) of The Indian Evidence Act, 1872 is a condition precedent to the admissibility of evidence by way of electronic record as S. 65B (4) of The Indian Evidence Act, 1872 is a mandatory. In view of the same, it was submitted that the pen drive (an electronic record), being relied upon by the department, is not admissible as evidence as certificate u/s 65B (4) has not been produced. It was submitted, the data retrieved from the pen-drive have been relied upon without any such certificate. This action of the AO is completely improper, more particularly so when Dalmia Group have disputed the contents of the pen-drive. Further reliance is placed upon the decision of Mumbai Bench of the Tribunal in the case of Simtools P. Ltd. v. DOT in dated 09.02.2022 wherein following the above referred decision of the Supreme Court, it was held that the 13 electronic data cannot be relied upon in the absence of requisite certificate.”
Based on the above discussion, it is fact on record that there is no certificate under section 65B of the Evidence Act, 1872 which is mandatory to proceed in any proceedings. Accordingly, the relevant ground raised
by the assessee is allowed in favour of the assessee and the appeal filed by the assessee is allowed.”
9. In view of above material facts by following the judicial precedents, the impugned orders being unsustainable are set aside. The grounds of appeal nos. 1 and 2 are allowed. The remaining grounds of appeal nos. 3 to 9 are left open.