ASST. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 3, DELHI vs. VED PRAKASH CHANANA, DELHI

Brief facts of the case are, assessee filed its return of income on 31.08.2018 declaring total income of Rs.39,98,590/- which was processed under section 143(1) of the Income-tax Act, 1961 (for short ‘the Act’). A search and seizure proceedings u/s 132 of the Act was conducted in the case of Super Cassettes Industries Pvt. Ltd. (SCIPL) on 28.11.2018. The assessee’s case was also covered in operation u/s 132 of the Act. The case of the assessee was centralized at PCIT (Central), Delhi-1 vide order u/s 127(1) of the Act. Accordingly, notices u/s 153A was issued and duly served on the assessee. Subsequently, notices u/s 143(2) and 142(1) were issued to the assessee through ITBA Portal. In compliance, ld. AR of the assessee submitted the relevant information as called for.

During search proceedings, a diary containing some rough notings were seized as Annexure A-10 was seized from the premises and corporate office belongs to SCIPL. During search on 29.11.2018 related to payments made by Ms. Sudesh Dua to the assessee. The relevant seized Annexure A-10 was reproduced by the AO at page 3 of the assessment 4644 & 4993/DEL/2024 order and as per the information, the AO observed from the seized paper that wherever ‘Chec’ is written, it was considered as a cheque and wherever ‘C’ is written it was considered as cash payment. Accordingly, it was observed that Rs.150 lakhs was paid by cheque on three occasions i.e. 01.05.2017, 24.05.2018 and 21.07.2018 and cash payments to the extent of Rs.300 lakhs. On enquiry, Ms. Dua initially explained that it is nothing but some purchase of ghee for the purpose of donation. However, on verification of the information, it was found that one of the cheque payment of Rs.50 lakhs was matching with the payment made to the assessee. Therefore, the abovesaid seized documents treated as genuine and the cash payment paid to the assessee during two assessment years i.e. 2018-19 and 2019-20 were assessed to tax of Rs.150 lakhs each under section 69A of the Act.

Aggrieved with the above order, assessee preferred an appeal before the ld. CIT (A)-23, New Delhi and filed detailed submissions and grounds of appeal :- “1. The relevant facts briefly stated are as under: - (i) A search action u/s 132 of the Income Tax Act was conducted on the appellant on 29.11.2018. Based upon the search action, assessment orders were passed u/s 153A of the Income-tax Act for A.Y. 2018-19 and u/s 143(3) for A.Y. 2019-20. (ii) That for A.Y. 2018-19 the Return of Income was filed on 31.08.2018 declaring total income of Rs. 39,98,590/- which was processed u/s 143(1) of the Income Tax Act on 09.02.2019 at returned income. Copy of computation is enclosed at Page No. 01 to 01 of the P/B.

In the assessment order the AO has held as under: - "12. The assessee was asked to explain and file the documentary evidence in respect of above fact. However while perusing the detailed submissions in respect of the rough jottings as reproduced above, it has been noticed that there are no documentary evidence regarding the above rough notings was provided by the assessee in support of his claim. Further, the assessee was given ample opportunity to explain the contents of the rough jottings by issuing summons and notices by the assessee was avoiding the notices as well as not producing any satisfactory evidence in support of his claim. Hence, no plausible explanation and valid documentary evidences regarding the transactions as mentioned in the rough jotting annexed as page No. 12 of Annex A- 10 have been provided by the assessee during the assessment proceedings. Accordingly, on the basis of above observations the above cash payments were made to Sh. Ved Prakash Chanana amounting to Rs.150 lakhs during FY 2017-2018 and Rs. 150 lakhs during FY 2018-2019 are treated to be unaccounted income in the hands of assessee which is not recorded in the books of assessee and accordingly additions of Rs.1,50,00,000/- is made to the taxable income of assessee in AY 2018-2019 u/s 69A of IT Act is to be computed u/s 115BBE of the IT Act.

It is further submitted that the rough jottings made in a diary cannot be considered as evidence u/s 34 of the Indian Evidence Act. Such documents are to be treated as "dumb documents". It is pertinent to mention that a charge of tax can be levied based on such a document only if such document is a speaking one in itself or becomes a speaking one if read in conjunction to some other corroborative evidence found during the course of search or post search investigation.

To elucidate, if it is to be assumed on the basis of jottings on page 12 of Anx-10 that payment in cash aggregating Rs. 150 lacs was made to Sh. Ved Chanana, then there is a need for some corroborative evidence in support of the alleged jottings. It may be noted that a simultaneous search action also took place on the residential premises of Sh. Ved Chanana on 28.11.2018 who is a director of M/s Super Cassettes Industries Pvt. Ltd. (SCIPL). The search action on the premises of Sh. Ved Chanana did not reveal any incidence of him receiving any cash from Smt. Sudesh Dua or SCIPL. Neither any cash was found at his premises nor any corresponding record of him having received such cash amount was found. Thus, it cannot be said that the jottings referred above represent cash payment to Sh. Ved Chanana. Further, the jottings on Page 12 do not reflect in any manner, that the figures mentioned are in lacs. Against the name "Mir" figure of 32/50 and 40 are mentioned which does not suggest that these amounts are in lacs. There is no evidence of 4644 & 4993/DEL/2024 having paid any amount of Rs. 40 lacs to "Mir", as incorrectly alleged in the SCN. This can be appreciated from the below reproduced snapshot of page 12. ……………. Continuing further as regards contents of Page 15, against the jotting "Bombay Furniture" (at the right hand bottom) certain figures viz. 35.98, 40, 50,22 are mentioned, total of which comes to 147.98. On this solitary jotting it cannot be presumed that Rs. 147.98 lacs has been paid in cash for acquiring furniture for Bombay Office. There is no mention or indication that the figures mentioned are in "lacs". Further there is no mention of any cash payment. Also, the search action did not reveal any undisclosed furniture items in Bombay Office of SCIPL. As regards amount of Rs. 65 lacs mentioned in the SCN, it is submitted that even the SCN admits the fact that certain figures are loosely mentioned on Page 15 in "Kgs" & "Pkts. Apart from the same there is no intelligible description mentioned on the seized page. Even no date mentioned is against these numbers in Kgs and Pkts. Therefore, it is fallacious to presume that these amounts are in "lacs", have been paid in cash outside books of accounts and pertain to A.Y. 2018-19. A snapshot of Page 15 is reproduced below …………….

Therefore, the well settled legal position is that a non-speaking document without any corroborative material, evidence on record and finding that such document has materialized into transactions giving rise to income of the assessee which had not been disclosed in regular books of account by such assessee, has to disregarded for the purposes of assessments to be framed pursuant to search and seizure action. From the search and seizure perspective, such non speaking seized documents are referred to as "Dumb Documents".

Having said so, the predominant judicial view is that no arbitrary addition to the income can be made by the Assessing Officer based on the dumb documents, loose papers containing scribbling, rough/vague notings in the absence of any corroborative material, evidence on record and finding that such dumb documents had materialized into transactions giving rise to income of the assessee which had not been disclosed in regular books of account by the assessee.

In ITO v. W.D. Estate (P.) Ltd. [1993] 46 TTJ (Bom.) 143, the Assessing Officer made addition on the basis of a file, a table diary belonging to a disgruntled employee found during search at his premises. This showed sales and sale amounts allegedly received as "on" money by the assessee. However, there was absolutely no evidence to show that the assessee in fact received "on" money payments. The assessee contended that such additions were based on hearsay evidence.

Recently the Delhi ITAT in case of Shri Neeraj Goel Vs. ACIT in TTA No.5951/Del./2017 vide order dated 21/03/2018 held that addition on account 4644 & 4993/DEL/2024 of alleged interest income is not sustainable in the eyes of law, because the document does not mention the name of the assessee, does not bear the signature of the assessee, not in the handwriting of the assessee, documents has imply jottings of certain figures and does not indicate whether it is an investment or deposit or loan, hence, the said seized document is dumb/bald and even otherwise, the same was never found either in the possession or control of the assessee.

The Mumbai ITAT in case of ACIT V Layer Exports P. Ltd. [2017] 184 TTJ 469 (MUM) held that additions are to be made on basis of tangible evidence and not solely on basis of estimations and extrapolation theory. Additions could not be sustained merely on the basis of rough notings made on a few loose sheets of papers unless the AO brought on record some independent and corroborative materials to prove irrefutably that the notings revealed either unaccounted income or unaccounted investment or unaccounted expenditure of the assessee. Additions could not be made simply on the basis of rough scribblings made by some unidentified person on a few loose sheets of paper. Since the seized papers were undated, had no acceptable narration and did not bear the signature of the assessee or any other party, they were in the nature of dumb documents having no evidentiary value and could not be taken as the sole basis for determination of undisclosed income of the assessee, thus, no addition can be made by AO on grossly inadequate material or rather no material at all and as such deserved to be deleted.

Relying on the judgment of the apex court in case of Common Cause v. UOI(supra), the Hon'ble Bench of ITAT, Ahmedabad in case of Nishant Construction Pvt. Ltd. V ACIT in held that in the absence of any corroborative evidence , loose sheet can at the most be termed as "dumb document" which did not contain full details about the dates, and its contents were not corroborated by any material and could not relied upon and made the basis of addition. Reliance can be also placed on the judgment of the Panaji Bench of ITAT in case of Abhay Kumar Bharamgouda Patil V ACIT [2018] 96 taxmann.com 377 (Panaji - Trib.) wherein the judgement of the apex court was relied upon.

Therefore the well settled legal position is that a non speaking document referred to as a "Dumb Document" without any corroborative material, evidence on record and finding that such document has materialized into transactions giving rise to income of the assessee which had not been disclosed in regular books of account by such assessee, has to disregarded for the purposes of assessments to be framed u/s 153A and 153C of the Act.

In view of the above discussion the contentions of the assessee are summarised as under (A) An explanation on merits was submitted during the post search proceedings describing the contents of the seized material. (B) The jottings made on the seized pages are in the nature of dumb documents and in the absence of any further evidence or corroborating 4644 & 4993/DEL/2024 material found during search or post search investigation, no addition is warranted keeping in view the settled legal position."

The A.O. did not find the aforesaid reply of the company as being acceptable and made the additions on substantive basis in the hands of company and on protective basis in the hands of appellant. The findings and observations made in the assessment order rejecting the reply of the assessee are summarised as under :- 8.1 The assessee was given ample opportunity to explain the contents of rough jottings but the assessee avoided the notice and failed to furnish satisfactory evidence in support of the claim made. 8.2 Notices issued to appellant remain non-complied and the reply received from Smt Sudesh Dua were not supported by any evidence such as invoices etc. Further, it was submitted by Smt Sudesh Dua that the same may be considered in SCIPL case instead of her personal case.

It is the submission of assessee that rough jottings written by Mrs. Sudesh Dua at Page No. 12 were for charitable purposes to feed poor persons and religious sages stationed in Haridwar during auspicious occasions, as Haridwar is one of the prominent destinations of religious gatherings and celebrations. These instructions were given to Sh. Ved Prakash Chanana to make necessary arrangements and to procure Pure ghee to make Pure ghee halwa.

It may be highlighted that on Page 12 at once place the term mentioned is "[lc" dated 26.10.2017 which has been interpreted by the AO as 1 crore or 100 lacs whereas as per the AO the numbers mentioned on the Page 12 are in lacs, therefore the AO has contradicted its own stand by treating this amount as 1 crore instead of 1 lac.

Further the base for treating the rough jottings mentioned on the top of Page 12 of Annexure A 10 was corroborating bank statement of the appellant where it was alleged that certain transactions were matched with the bank statement of the appellant. A comparative table of entries as alleged to be matched with bank statement of Ved Chanana is as under:

The AO in the order has alleged that certain entries are reconciled with 4644 & 4993/DEL/2024 corresponding credit entries in bank account of Sh. Ved Prakash Chanana which corroborates that the other entries made in cash are also true and actually has been made. In this regard it is the prime submission of appellant that if the amounts denoted by "Chee" are cheque payments than all the transactions must be matched with the bank statement of Shri Ved Chanana. However, the same are not matching and therefore the allegation of AO does not have any basis of existence. In this regard copy of Dank Statement of Sh. Ved Prakash Chanana is being attached at Page No. 173 of P/B Vol 1. Matching of one amount out of many rough jottings on Page 12 of Annexure A10 is nothing but a coincidence and the same should not be considered as a base for making addition in the assessment order. As explained above only one date and amount are matching which can be only a coincidence. Even the nature payment of the amount which is matching is loan and not expenditure. When the nature of one matching amount is loan given by Mr. Bhushan Dua to Sh. Ved Chanana then the argument of the AO that the cash payment is unexplained expenditure will not hold. The whole argument of the AO is based upon matching the cheque payment and considering the other corresponding amounts as cash payments in the nature of unexplained expenditure. When the nature of one matching cheque payment is loan and not salary paid to Sh. Ved Prakash Chanana then why would the company pay cash of similar amount against the alleged cheque payment.

Further, it is submitted that the rough jottings made in a diary cannot be considered as evidence u/s 34 of the Indian Evidence Act. Such documents are to be treated as "dumb documents". It is pertinent to mention that a charge of tax can be levied based on such a document only if such document is a speaking one in itself or becomes a speaking one if read in conjunction to some other corroborative evidence found during the course of search or post search investigation.

In ITO v. W.D. Estate (P.) Ltd. [1993] 46 TTJ (Bom.) 143, the Assessing Officer made addition on the basis of a file, a table diary belonging to a disgruntled employee found during search at his premises. This showed sales and sale amounts allegedly received as "on" money by the assessee. However, there was absolutely no evidence to show that the assessee in fact received "on"money payments. The assessee contended that such additions were based on hearsay evidence.

The Mumbai TTAT in case of ACIT V Layer Exports P. Ltd. [2017] 184 TTJ 469 (MUM) held that additions are to be made on basis of tangible evidence and not solely on basis of estimations and extrapolation theory. Additions could not be sustained merely on the basis of rough notings made on a few loose sheets of papers unless the AO brought on record some independent and corroborative materials to prove irrefutably that the notings revealed either unaccounted income or unaccounted investment or unaccounted expenditure of the assessee. Additions could not be made simply on the basis of rough scribblings made by some unidentified person on a few loose sheets of paper. Since the seized papers were undated, had no acceptable narration and did not bear the signature of the assessee or any other party, they were in the nature of dumb documents having no evidentiary value and could not be taken as the sole basis for determination of undisclosed income of the assessee, thus, no addition can be made by AO on grossly inadequate material or rather no material at all and as such deserved to be deleted.

Relying on the judgment of the apex court in case of Common Cause v. UOI(supra), the Hon'ble Bench of ITAT, Ahmedabad in case of Nishant Construction Pvt. Ltd. V ACIT in held that in the absence of any corroborative evidence , loose sheet can at the most be termed as "dumb document" which did not contain full details about the dates, and its contents were not corroborated by any material and could not relied upon and made the basis of addition. Reliance can be also placed on the judgment of the Panaji Bench of ITAT in case of Abhay Kumar Bharamgouda Patil V ACIT [2018] 96 taxmann.com 377 (Panaji - Trib.) wherein the judgement of the apex court was relied upon.

It is submitted that the AO erred in invoking a wrong section and confirmed the addition under a wrong section. The AO confirmed the addition under section 69A of the IT Act. Section 69A of the act is a deeming provision which titles as “Unexplained money". For the sake of convenience section 69A of the act is reproduced below :- “Unexplained money, etc. [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.]”

It is submitted that the assessee was in no possession or ownership of the said cash that was mentioned in the seized material. /4s contended above the seized material is mere dumb document and does not convey any meaning.

Reliance is placed on the case of CIT v. Hersh Washesher Chadha ITA 676/2023 copy of the order is enclosed herewith at page 182 to 193 in which Hon'ble High Court of Delhi has held that in order to confirm an addition under section 69A of the Act, books of accounts are incumbent. It would not be possible to invoke this provision if books of accounts are not there. Relevant portion of the order is reproduced herewith : - "7. Admittedly, in the present case, the respondent/assessee is non-resident Indian and his source of income in India being from interest on bank accounts and interest on income tax refund, he is not obliged to maintain any books of account in India. It appears to us prima facie that the expression "if any" specifically used in section 69A of the Act amplies that where books of account are not maintained, it would not be possible to invoke this provision. But as mentioned above, learned counsel for appellant/revenue requested to keep this question open to be agitated in some better case. We accede to this request"

It is submitted that the assessee is a salaried person and in the case of salaried persons it is not necessary to maintain books of accounts. It is submitted that the AO erred in considering the fact that the assessee is a salaried person and the provisions of 69A do not apply to areas where maintainability of books of accounts is a necessity.

It is humbly requested that the submissions of the assessee may be considered and the addition may be deleted.”

After considering the detailed submissions of the assessee, ld. CIT (A) analyzed the factual matrix on record and sustained only Rs.51 lakhs out of Rs.150 lakhs for AY 2018-19 by observing as under :- “20. The issue involved is mirror image of the addition made in the case of M/s SCIPL for the A.Y 2018-19. In the case of SCIPL, it has been held that an amount of Rs.51,00,000/- in cash was paid by SCIPL to the appellant. It was also held that such amount of cash is not reflected in the accounts of the SCIPL. 21. The appellant has not been able to furnish any evidence to show that the amount of Rs.51,00,000/- received in cash was shown by him in his account or return of income. 22. The Assessing Officer has taken the amount received in cash at Rs.1,50,00,000/-. However, on analysis of the impugned document, it is seen that the amount was only Rs.51,00,000/-. The issue has been dealt in detail in the case of SCIPL and the same has been reproduced in the forgoing paragraphs. 23. From the facts, it is evident that the appellant was owner of unaccounted cash of Rs.51,00,000/- which was not disclosed by him. Therefore, it is held that the Assessing Officer was justified in invoking the provision of section 69A of the Act. 24. In view of the above discussion, the addition u/s 69A to the tune of Rs.51,00,000/- is sustained and addition of Rs.99,00,000/- is deleted.”

Moreover, ld. AR submitted that according to Black’s Law Dictionary, the word “ownership” has been defined as “the complete dominion, title, or proprietary right in a thing or claim”, meaning it represents the legal right to own, possess and use something, including to convey it too other. Since, there was no cash found and the ld. AO made a mere presumption that the cash was available to the assessee to either use it or convey it too others. Furthermore, the ld. AO relied on seized material found at third person’s premises showcases that no other material fact by the ld. AO was presented and the addition was confirmed on mere presumption.

Ld. AR further submitted that addition made u/s 69A for both the year(s) under consideration is bad in law. He placed reliance on M/s Rucha Consultancy LLP v DCIT ITA 4996/Mum/2024 wherein the relevant facts are as follows :-  Search and seizure operation u/s 132 of the Act was conducted assessee and group concerns on 23.09.2021.  During search operation certain incriminating documents were found and seized and statements were recorded which were later retracted.

Ld. AR in conclusion submitted that since no cash was found from the premises of the assessee invoking provisions of section 69A stands bad in law, hence it is requested based on above contentions by the assessee the appeal of the assessee may be allowed.

Respectfully following the above decision, we are of the view that no cash was found at the possession of the assessee and the ownership of the same was presumed to be the assessee by the lower authorities. Therefore, without proving the possession and ownership of the same, the addition u/s 69A of the Act cannot be invoked as per the facts available on record.

Therefore, the assessee’s appeal for AY 2018-19, we have considered the submissions of the assessee and held that the document found during the search at the premises of the company and no cash was found in possession of the assessee nor the ownership of the cash was established with the assessee, therefore, addition cannot be made u/s 69A of the Act. Accordingly, we allow the grounds raised