SHRI RAKESH SABHARWAL,JALANDHAR vs. ASSISTANT COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-2, JALANDHAR

per the registered deed, done with the Sub-Registrar, Jalandhar, it is

clearly mentioned that the property was sold for Rs. 1,10,00,000/-. Thus the

Ld. AR contended that the jotting in the diary by no stretch of imagination

11 ITA Nos. 682 & 683/Asr/2019 Susheel & Rakesh Sabharwal v. ACIT can be treated as conclusive proof of 'on-money' transactions by the

assessee and hence presumption u/s 292C cannot be taken against the

assessee. Similarly, for the disallowance of cost of improvement and

restricting the same to the extent of Rs. 12,77,786/-, the AR submitted that

the AO has drawn a wrong conclusion without any logical reasoning for the

same. The AR argued that the expense cannot be restricted to an extent

incurred by some other persons, on the basis of presumptions, conjectures

& surmises only. In support, he filed a written brief note which reads as

under:

Brief Note: During the year under consideration assessee along with his brother Sh. Susheel Sabharwal sold property vide registered sale deed situated at 434-New Jawahar Nagar, Jalandhar for the total consideration of Rs.1,10,00,000/- on 09.08.2012 as under: Sr. No Particulars Share 1/2nd 1. Smt. Susheel Sabharwal 1/2nd 2. Sh. Rakesh Sabharwal (assessee) The aforesaid property was inherited by the assessee along with brother from his father wherein the share of assessee and his brother stood computed at Rs.55,00,000/- each. The assessee therein going as per the aforesaid facts and figures duly reflected the income with true and correct facts and income including the income under the head ‘Capital Gain’ income in his ‘Return of Income’ for the year under consideration. Addition by Ld. AO During the course search diary was found which contained some rough notings and thereafter during assessment proceedings Ld. Assessing Officer asked to explain diary notings found from the residence during the course of search and seizure which as per Ld. AO is regarding sale of property at 434, New Jawahar Nagar, Jalandhar to which assessee submitted that these relates to some petty expenses written under the head ‘434 Ex’ which clearly means ‘Expense’ during the year October 2009 which was incurred by the assessee during renovation of house no.434, New Jawahar Nagar and these do not pertains to the year under consideration and further submitted that the actual transaction relating to the said property have duly reflected in the ITR’s and consequent ‘Capital Gains’ arising there from, if any, had duly been offered for taxes.

12 ITA Nos. 682 & 683/Asr/2019 Susheel & Rakesh Sabharwal v. ACIT

Sir, Ld. AO ignoring the submission of the assessee made addition of Rs.74,57,194/- on account of Capital Gain on sale of property no.434 New Jawahar Nagar, Jalandhar.

Our submission: In this regard it is submitted as follows:- 1. Assessee sold the concerned property for the total consideration of Rs.1,10,00,000/- where assessee’s share being 1/2nd of the total share amounting to Rs.55,00,000/- which is clearly visible from the registered sale deed dated 09.08.2012. Thus assessee cannot be called upon to explain the rough calculations of diary when the registered sale deed clearly shows that the same was registered for Rs.1,10,00,000/-. 2. That from the jottings in the seized diary Ld. AO has inferred that that assessee received Rs.65,50,000/- (being his share) over and above the disclosed consideration but nothing has been brought on record to show that purchaser made any payment over and above the disclosed amount. Also nothing has been brought on record from the witnesses end that assessee received any on money. Addition is purely made on diary notings and no authenticated document/deed/agreement is brought on record to prove that assessee received on money. Moreover the Sale Deed is duly registered with Sub Registrar, Jalandhar-1 and Ld. AO duly accepted the Registered Sale Deed dated 09.08.2012 which clearly mentions that assessee along with other co-owner sold property for Rs.1,10,00,000/- and did not raise any doubt on the sale deed. Also Ld. AO wholly and solely relied on diary noting being reproduced on page 2 of assessment order. 3. That the present case is not the case where circle rate or the value as per stamp registration authorities of the impugned property is more than what has been disclosed. 4. That in the impugned diary notting there is name of Nitin Sabharwal also but he had nothing to do the property as the property belongs to Rakesh Sabharwal and Susheel Sabharwal and Ld. AO, on assumption and presumption basis, on page 3 of the Assessment Order states that Nitin Sabharwal may have been given gift of Rs.10,00,000/- by both Susheel Sabharwal and Rakesh Sabharwal and no evidence have been brought on record in this regard. 5. That it is pertinent to mention that Ld. AO in his initial questionnaire states that “Amount of Rs.2,41,000/- (SK, RK, & Nitin)” and in the subsequent questionnaire sates that “this amount is Rs.2,41,00,000/-.” Thus Ld. AO himself is not clear about the contents of the diary whereas ultimately made addition by relying on said diary noting. Both the questionnaires are enclosed herewith 6. That the figures relates to some expense incurred by the assessee during the period October 2009 (evident from the diary itself where date is OCTOBER 2009) which was incurred when the renovation for the same was going on. These alleged figures are written under the head ‘434 Ex’ which makes it pretty clear that they relates to expense and not to any transaction relating to ‘on money’ receipts. Further assessee incurred expense in the FY 2008-09 and FY 2009-10 and claimed the same as cost of improvement in his return of income. This fact further substantiates the claim of

13 ITA Nos. 682 & 683/Asr/2019 Susheel & Rakesh Sabharwal v. ACIT assessee as it these expense relates to previous years and not the impugned assessment year. 7. That these noting are written on the Diary page where the date is ’29 October 2009’ and these relates to expense incurred during the same period and point to be noted is that the sale was executed on 09.08.2012, then how it be presumed that the it relates to period of 2012. 8. That the addition made by Ld. AO is purely based on diary notings. Ld. AO on page 3 of Assessment Order states that “………. the description on the page [1/2 + 25 {CH} + 15 +45 +30 {CH}] clearly shows that the actual consideration was Rs.2,41,00,000/- ……………” The diary jottings have not been corroborated from any other findings. The jottings in the diary by no stretch of imagination can be treated as conclusive proof of on money transaction by the assessee. Hence, in the background, presumption u/s 292C of the Act cannot be taken against the assessee. 9. Ld. AO has made identical addition in the hands of Sh. Susheel Sabharwal wherein on page 3 point 1 of the Assessment Order states that “…..the assessee submitted that the expense written on relevant page of diary relates to period 2008-09 whereas lot of entries in this diary are of later periods also…………” , in this regard your attention is drawn to the relevant page where all the entries are of the period 2008-09 and none of the entries relates to the subsequent period. Ld. AO on assumption and presumption basis and on random basis is stating that it contains entries of the later period, but has not specifically stated that which entry is relating to the impugned assessment year. Even if the other pages of the diary contains some transactions of the later period then also this baseless conclusion cannot be drawn that the relevant page might also include transaction of the later period, more so when no dates of the later period are mentioned on the relevant page.

Reliance is further placed on the following decisions:

“Search and Seizure—Addition—Search took place in premises of Assessee pursuant to which certain documents were seize—AO based on document made addition of amount in return income of assessee—Document on basis of which addition was made was piece of paper and document was hand written paper purportedly containing details of house construction expenses—Since said document had been seized from residence of Assessee, CIT (A) drew presumption under Section 292C of the Act was that it belonged to assessee—Further, CIT(A) proceeded to hold that amount constituted unexplained income of Assessee since Assessee had not submitted any evidence like confirmation letter or any other document to show that expenditure related to any project of aforementioned company—CIT(A) upheld addition made by AO—ITAT noted

14 ITA Nos. 682 & 683/Asr/2019 Susheel & Rakesh Sabharwal v. ACIT that document "did not indicate if it pertained to assessee nor address location of property was mentioned therein nor such property had been located by AO during assessment proceedings—AO had also not brought on record any forensic evidence to prove handwriting of loose paper relied upon by him to make addition, which was exclusively made on basis of suspicion and guesswork—Held, addition to returned income of Assessee was made based on surmises and conjectures and that too on basis of single document without making any further enquiry—No attempt was made by AO to find out if in fact it constituted construction expenses of any project of aforementioned company of which Assessee was director—Order of ITAT suffered from no legal infirmity and did not give rise to any substantial question of law—Assessee’s appeal dismissed.”

Search and seizure—Block assessment—Undisclosed income—Before an addition of an undisclosed income can be made, the AO has to bring on record the material found as a result of search of show that there is an undisclosed income—AO treated Rs. 48 lakhs as assessee’s undisclosed income on the basis of seizure of a document which showed certain unexplained entries totalling ‘48’—Not justified—There is no material on record to show as to an what basis the AO has reached the conclusion that the figure ‘48’ is to be read as Rs. 48 lacs—Said document is a dumb document and leads to now here—Addition rightly deleted by the Tribunal—There is no error in the order of the Tribunal and it does not give rise to a question of law, much less a substantial question of law

Search and seizure—Block assessment—Computation of undisclosed income— Addition on the basis of uncorroborated chit of paper—AO has deciphered the figures on the paper by adding ‘00’, ‘000’ or ‘0000’ at his whim and caprice based on presumption and conjectures without bringing any corroborative material evidence in support for adding the zeros—Not justified—He has not examined the assessee or the author of the said paper—AO has not brought any material on record to show that the figures related to sale or purchase of property—He made no enquiry from the purchaser—Said paper does not fall within the definition ‘books of account’ or document—Paper seized had no evidentiary value and it does not prove that consideration was understated—Same cannot form the basis for assessing the undisclosed income

Addition on account of Cost of Improvement Sir, it is further submitted that Ld. AO has disallowed the cost of improvement expense claimed by the assessee and restricted the same to the extent of Rs.12,77,786/- being lower of the cost of improvement claimed by assessee or his brother in the FY 2008-09 and 2009-10 respectively. In this regard it is submitted as under:

15 ITA Nos. 682 & 683/Asr/2019 Susheel & Rakesh Sabharwal v. ACIT 1. That in this regard no incriminating material is found during search and the return was already processed u/s 143(1) of the Act on 23.06.2014 and the same is reflected/stated on page 1 of the Assessment Order and date of search is 08.09.2016. Thus, there was no incriminating material, much less, in respect of the impugned addition and hence impugned addition has been made in the absence of any incriminating material unearthed from the search, which is not permissible in law and is supported by the following judicial decision: -

COMMISSIONER OF INCOME TAX vs. KABUL CHAWLA HIGH COURT OF DELHI (2016) 380 ITR 0573 (Delhi)

Search and seizure—New scheme of assessment in search cases—Search was carried out u/s 132 on a leading real estate developer operating all over India and some of its group companies—Search was also carried out in the premises of the assessee— Pursuant to the search a notice u/s 153A(1) was issued to assessee and thereafter he filed returns—As on the date of the search, no assessment proceedings were pending for relevant AYs and for said AYs, assessments was already made u/s 143(1), assessee filed an application u/s 154 seeking rectification of the assessments on the ground that the accumulated profits of the companies paying the dividend were less than the amount of loan or advance given by them to the recipient companies—AO declined to rectify the assessments—CIT also held that addition need not be restricted only to the seized material—ITAT on appeal however deleted addition on grounds that the additions made for relevant AY’s u/s 2(22)(e) were not based on any incriminating material found during search operation and same was not sustainable in law—Issue was whether the additions made to the income of the assessee for the said AYs u/s 2(22)(e) was not sustainable because no incriminating material concerning such additions were found during the course of search and further no assessments for such years were pending on the date of search—Held, present appeals concerned AYs, 2002-03, 2005-06 and 2006- 07—On the date of the search the said assessments already stood completed—Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed—Question framed by the Court was answered in favour of the assessee and against the Revenue—Revenue’s appeal dismissed

Smt. Sanjana Mittal Vs. DCIT ITA No. 487/Asr/2018, wherein the jurisdictional bench of Hon’ble ITAT, Amritsar held as under: “…….no incriminating material has been found, no assessment proceedings were pending on the date of search proceedings, therefore, it was held by the bench that in a case, where no incriminating material is found during course of search proceedings and the assessment proceedings remain un-abated as on the said date, no addition cane be made validly in the hands of assessee….”

16 ITA Nos. 682 & 683/Asr/2019 Susheel & Rakesh Sabharwal v. ACIT 4. That assessee has provided the details of expenses incurred on the improvement of the property sold and the same are substantiated by the withdrawals made from the bank account. 5. That Ld. AO states that assessee has not provided the complete details of improvement on the property but he has not appreciated the fact that details of the major portion of the expenses have already been furnished. 6. Further this addition is not based on any incriminating material but on the basis of details furnished by the assessee as per his return of income. Thus no addition is warranted when it is not based on any incriminating material. Sir, since the addition made by the Ld. Assessing Officer is only on the basis of conjecture and surmises and that too on the basis of non convincing diary notings found during search without putting forward any corroborative evidence, so it is requested that addition made by the Ld. Assessing Officer and confirmed by Worthy CIT(A)-5, Ludhiana without any concrete evidence may kindly be deleted. 8. The Ld. Addl. CIT (DR) stands by the impugned orders. However, he

has not filed any documentary evidence or citation in rebuttal to the

contentions of the Ld. AR. The Ld. CIT (DR) contended that there were

loose rough paper of diary, containing expense entries, recovered

consequence of search operation in the case of the assessee, although, in

law there is no necessity of any incriminating material while initiating

proceedings u/s 153A of the Act as various High Courts held that the

addition can be made without any incriminating material qua the years

covered by Sec.153A.

record and the case laws cited at bar. Admittedly, in the present case there

was rough loose paper of diary containing scattered jotting of expenses,

seized from the premises of the appellant, during the course of search u/s

132(4) of the act. The AO being not satisfied with the submission of the

17 ITA Nos. 682 & 683/Asr/2019 Susheel & Rakesh Sabharwal v. ACIT assessee made an addition of Rs.74,57,194/- on account of Long-Term

Capital Gains on sale of property by restricting cost of improvement at Rs.

12 lacs. The Ld. CIT (A) has confirmed the said addition of Rs 74,57,194/-

and Rs 60,07,194/- in the hands Rakesh Sabharwal and Sushil Sabharwal

respectively besides cost of improvement of Rs. 12, 86,776/- in each hand

by observing and interpreting coding and decoding of rough jotting as ‘RK’

stands for Rakesh Sabharwal and ‘SK’ stands for Sushil Sabharwal and

doubted the real transaction as per registered deed as if in Indian style and

other figures of rough papers as “On money” transaction in international

style. However, no observation has been made as regards to the rough

jotted figure mentioned 10 against Mr. Nitin and 115 against each RK and

SK, making it to 240 and not 241 figure and thereafter interpreting same

figures by the lower authorities in their own way presuming as international

style to crores without bringing on record, the required corroborative

documentary evidences. Thus, neither the AO nor the CIT(A) could establish

the factual nexus of receipt of alleged disputed on money decoded by way of

bringing relevant corroborative documentary evidences to establish the

veracity of the receipt of “On money” if any and improvement cost qua the

loose papers viz -a- viz rough diary allegedly seized, during the search from

the assessee’s premises.

18 ITA Nos. 682 & 683/Asr/2019 Susheel & Rakesh Sabharwal v. ACIT 10. From the registered sale deed, it is evident that the subject property

situated at 434, New Jawahar Nagar, Jalandhar was sold for the total

consideration of Rs.1,10,00,000/- on 09.08.2012. It is admitted fact on

record that this property was inherited by the assessee along with brother.

Thus, the share of assessee and his brother @ 50% each, stood computed

at Rs.55,00,000/-. The Ld. AR contended that the assessee has duly

reflected the said income under the head ‘Capital Gain’ income in his

‘Return of Income’ for the year under consideration.

pertains to some petty expenses, under the head ‘434 Ex’ which stands for

‘Expense’ being incurred on renovation of house no.434, New Jawahar

Nagar, by the assessee during the month of October 2009 and these do not

pertain to the year under consideration. It is also seen that the actual

transaction relating to the said property have duly been reflected by the

appellant in the ITR’s along with consequent ‘Capital Gains’ arising there

from, being duly been offered for taxes.

total consideration of Rs.1,10,00,000/- where assessee’s share being 1/2nd

of this share, amounting to Rs.55,00,000/- as per the registered sale deed

dated 09.08.2012 and thus, assessee cannot be called upon to explain the

rough calculations of expenses on renovation made in diary when the

19 ITA Nos. 682 & 683/Asr/2019 Susheel & Rakesh Sabharwal v. ACIT registered sale deed clearly shows sale consideration that it was registered

for Rs.1,10,00,000/-. It is pertinent to mention here that nothing has been

brought on record, either by the AO or the Ld. CIT(A) to establish that

purchaser has made any payment over and above the disclosed amount by

way of corroborative documentary evidence either from the witnesses end or

purchaser end that assessee has received any on money. In our view, such

an addition being made purely on the basis of inferences drawn from diary

rough noting without any nexus or support of the authentic documentary

evidences such as registered deed/ or agreement to sale were being

brought on record to prove that assessee has received ‘On money’, cannot

be sustained. It is evident from the record that the Sale Deed registered with

Sub Registrar, Jalandhar-1 has been duly accepted by the AO, that

assessee along with other co-owner sold property for sale consideration of

Rs.1,10,00,000/- and that the authorities below had not raised any doubt on

the sale consideration, viz-a-viz the circle rate or the value as per stamp

registration authorities of the impugned property as what has been disclosed

in the sale deed, was as per circle rates as on date of registration of the

subject property.

name of Nitin Sabharwal who had had nothing to do with the property as the

property belongs to Rakesh Sabharwal and Susheel Sabharwal, but the AO,

20 ITA Nos. 682 & 683/Asr/2019 Susheel & Rakesh Sabharwal v. ACIT states on presumption that Nitin Sabharwal may have been given gift of

Rs.10,00,000/- by both Susheel Sabharwal and Rakesh Sabharwal without

establishing the facts with support of relevant documentary evidence on

record. Thus, without substantiating the content of the noting in the diary, the

value adopted by way of decoding by the authorities below based on

assumption, presumption and guess work is illegal and against the law.

Since, the diary jottings have not been corroborated from any relevant

material documentary evidence and hence, the jottings in the diary by no

stretch of imagination can be accepted as an evidence or conclusive proof of

‘on money’ transaction by the assessee for the purpose of presumption u/s

292C of the Act against the assessee.

the Hon’ble Apex Court observed that "File containing loose sheets of

papers are not 'book' and hence entries therein are not admissible under s.

34 of the Evidence Act, 1872."

Juneja”, (Supra), held as under: “Search and Seizure—Addition—Search took place in premises of Assessee pursuant to which certain documents were seize—AO based on document made addition of amount in return income of assessee—Document on basis of which addition was made was piece of paper and document was hand written paper purportedly containing details of house construction expenses—Since said document had been seized from residence of Assessee, CIT (A) drew presumption under Section 292C of the Act was that it belonged

21 ITA Nos. 682 & 683/Asr/2019 Susheel & Rakesh Sabharwal v. ACIT to assessee—Further, CIT(A) proceeded to hold that amount constituted unexplained income of Assessee since Assessee had not submitted any evidence like confirmation letter or any other document to show that expenditure related to any project of aforementioned company—CIT(A) upheld addition made by AO—ITAT noted that document "did not indicate if it pertained to assessee nor address location of property was mentioned therein nor such property had been located by AO during assessment proceedings—AO had also not brought on record any forensic evidence to prove handwriting of loose paper relied upon by him to make addition, which was exclusively made on basis of suspicion and guesswork—Held, addition to returned income of Assessee was made based on surmises and conjectures and that too on basis of single document without making any further enquiry—No attempt was made by AO to find out if in fact it constituted construction expenses of any project of aforementioned company of which Assessee was director—Order of ITAT suffered from no legal infirmity and did not give rise to any substantial question of law—Assessee’s appeal dismissed.”

(1999) 64 TTJ 0786 held as under-

“Search and seizure—Block assessment—Computation of undisclosed income—Addition on the basis of uncorroborated chit of paper—AO has deciphered the figures on the paper by adding ‘00’, ‘000’ or ‘0000’ at his whim and caprice based on presumption and conjectures without bringing any corroborative material evidence in support for adding the zeros—Not justified—He has not examined the assessee or the author of the said paper—AO has not brought any material on record to show that the figures related to sale or purchase of property—He made no enquiry from the purchaser—Said paper does not fall within the definition ‘books of account’ or document—Paper seized had no evidentiary value and it does not prove that consideration was understated—Same cannot form the basis for assessing the undisclosed income.”

22 ITA Nos. 682 & 683/Asr/2019 Susheel & Rakesh Sabharwal v. ACIT 17. In the present case, the addition was being made on the basis of

uncorroborated rough noting of paper/diary. The Ld. CIT(A) has deciphered

the figures on the paper by decoding in the form of Indian style and

international style at his whim and caprice based on presumption and

conjectures without bringing any corroborative material evidence in support

for such assumption of the decoded figures is not justified. Further, the AO

had made no enquiry from the purchaser on the said rough noting of the

paper of diary which does not fall within the definition of ‘books of account’

or document. Even if, a rough diary paper seized without being

corroborated with relevant documentary evidence to the effect of

understatement of the sale consideration had no evidentiary value and it

would not prove that consideration was understated, According, same

cannot form the basis for presumption u/s 292C of the act for the purpose

of assessing the undisclosed income of the appellant assessee. The Ld.

CIT (DR) has not filed any judgement in rebuttal to the contentions raised

by the Ld. Counsel for the assessee.

pronouncements, we hold that the impugned order passed by the Ld.

CIT(A) at his whim and caprice based on presumption and conjectures

which suffered from legal infirmity and perversity on facts of the case.

23 ITA Nos. 682 & 683/Asr/2019 Susheel & Rakesh Sabharwal v. ACIT Accordingly, the addition of Rs 74,57,194/- on account of on money receipt

for computation of long term capital gain is deleted.

cost of improvement expense claimed by the assessee.

incriminating materials found during the course of search related to cost of

improvement during the course of search and that as the return was

already processed u/s 143(1) of the Act on 23.06.2014 much before the

date of search i.e. 08.09.2016 and hence this is a case of unabated

assessment. The Ld. CIT(DR) merely stands by the impugned order

without any argument in rebuttal, to contradict the contention of the Ld. AR,

In our view, since, there was being no incriminating material, much less, in

respect of the impugned addition and hence impugned addition has been

made in the absence of any incriminating material unearthed from the

search, is not permissible in law.

jurisdictional bench ITAT, Amritsar vide order dated 23.12.2021 held that in

the absence of incriminating material, no addition can be made qua

unabated assessment for the year under consideration.

identical facts in the case of “Krishna Kumar Mittal Vs. DCIT (Supra), we

24 ITA Nos. 682 & 683/Asr/2019 Susheel & Rakesh Sabharwal v. ACIT hold that in the absence of incriminating material, disallowance of

Rs.12,77,786/- made on account of the cost of improvement expense is

deleted.

Assessment Year: 2013-14 are identical to the facts in I.T.A. No.

683/Asr/2019, in respect of the Assessment Year: 2013-14. Therefore, our

observation and finding given in I.T.A. No. 683/Asr/2019, in respect of the

Assessment Year: 2013-14 shall be applicable in mutatis mutandis to the

matter in I.T.A. No. 682/Asr/2019, in respect of the Assessment Year:

2013-14.

Order pronounced in the open court on 16.09.2022.

Sd/- Sd/- (Anikesh Banerjee) (Dr. M. L. Meena) Judicial Member Accountant Member *GP/Sr.PS* Copy of the order forwarded to: (1) The Appellant: (2) The Respondent: (3) The CIT(Appeals) (4) The CIT concerned (5) The Sr. DR, I.T.A.T. True Copy By Order