2025 (6) TMI 1460 - AT - Income Tax

Addition of cash payment - addition based on printed material containing an excel sheet found in the premise of the third party during the course of survey/search - HELD THAT - This Tribunal in the case of Global Star Realtors Private Limited 2025 (5) TMI 1940 - ITAT BANGALORE being the vendor has given a finding that there was no element of cash received from the assessee requiring any addition. Once the ITAT in the case cited above has concluded that the document based on which the addition was made by the Revenue is dumb document. There cannot be any addition in the hands of the assessee based on the same set of documents. The facts of the case in hand are identical to the facts of the case discussed above therefore hereby hold that there is no infirmity in the order of the ld. CIT(A) requiring any inference. Accordingly we uphold the finding of the ld. CIT(A) and direct the AO to delete the addition made by him. Decided against revenue.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in these appeals are:

(a) Whether the addition of Rs. 2,52,00,000/- made by the Assessing Officer (AO) on account of alleged unaccounted cash payments to a third party company, based on loose sheets and documents seized during a search, is sustainable in law.

(b) Whether the loose sheets and documents found at the premises of a third party, which were not recorded in the assessee's books of accounts, can be treated as credible and admissible evidence to make additions under Section 69C of the Income Tax Act.

(c) Whether the AO was justified in making additions without corroborative or circumstantial evidence linking the seized loose sheets to the assessee.

(d) Whether the Revenue is entitled to have the matter remanded back to the AO for cross-examination of witnesses and re-adjudication on the basis of statements recorded under Sections 132(4) and 133A of the Act.

(e) The applicability of various precedents, including decisions of the Hon'ble Supreme Court and ITAT, on the evidentiary value of loose papers and documents not maintained as regular books of accounts.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) & (b): Admissibility and Evidentiary Value of Loose Sheets and Seized Documents

Relevant legal framework and precedents: The Tribunal extensively referred to the ratio laid down by the Hon'ble Supreme Court in Common Cause (A Registered Society) vs. Union of India, which clarified that entries in loose papers or sheets are not "books of accounts" and do not have evidentiary value under Section 34 of the Indian Evidence Act. The Court emphasized that only entries in regularly maintained books of accounts are admissible evidence. The judgment rejected the plea for investigation based solely on such loose documents and cautioned against ordering investigations without prima facie reliable and legally cognizable material.

Other decisions relied upon include Principal CIT, Central III vs. Krutika Land (P) Ltd., which held that additions based on seized documents not in the name of the assessee and unsupported by actual cash flow are not sustainable under Section 69C. Additional ITAT decisions such as CIT vs. P.V. Kalyansundaram and Deputy CIT vs. Bhumala Uma Rani reinforce the principle that uncorroborated loose documents cannot form the basis for additions.

Court's interpretation and reasoning: The Tribunal noted that the AO's addition was based solely on loose sheets found at a third party's premises and statements recorded under Sections 132(4) and 133A, without any corroborative evidence linking the documents to the assessee. The AO failed to establish ownership or connection of the seized documents to the assessee, nor did he prove any inflow or outflow of cash corresponding to the alleged payments.

The Tribunal highlighted the CIT(A)'s reasoning that the AO had not conducted any enquiry to corroborate the seized material and made a presumption without sound footing. The Tribunal agreed that such loose sheets, not maintained as books of accounts and found at a third party's premises, cannot be the basis for making additions.

Key evidence and findings: The primary evidence was the excel sheets and loose papers seized during a survey at the premises of the third party company, Global Star Realtors Private Limited. The AO treated these as indicative of unaccounted cash payments by the assessee. However, the Tribunal noted that the ITAT in the vendor's own case had already held that there was no element of cash received from the assessee requiring any addition. Further, the Revenue did not dispute this finding.

Application of law to facts: Applying the principles from the Supreme Court and ITAT precedents, the Tribunal found that the seized documents lacked evidentiary value and were inadmissible to make additions under Section 69C. The absence of corroborative material or direct evidence linking the documents to the assessee was fatal to the Revenue's case.

Treatment of competing arguments: The Revenue argued that statements recorded under Sections 132(4) and 133A and the seized loose sheets warranted additions and that the assessee should be given an opportunity for cross-examination. The assessee contended that the issue was settled by the ITAT in the vendor's case and that the loose sheets had no evidentiary value. The Tribunal found the assessee's submissions persuasive and noted that the Revenue did not dispute the binding nature of the ITAT's earlier decision.

Conclusions: The Tribunal concluded that additions based on uncorroborated loose sheets found at a third party's premises are not sustainable. The evidentiary value of such documents is nil, and the AO's addition under Section 69C was rightly deleted by the CIT(A).

Issue (c): Justification of AO's Addition Without Corroborative Evidence

Relevant legal framework and precedents: The principles from the Common Cause case and V.C. Shukla's case emphasize that entries in loose papers are irrelevant and inadmissible unless supported by other credible evidence. The AO must establish a clear link between the documents and the assessee's transactions.

Court's interpretation and reasoning: The Tribunal found that the AO failed to conduct any enquiry to corroborate the seized material and made an addition based on mere presumption. There was no evidence of ownership of the loose sheets by the assessee or any inflow/outflow of cash corroborating the alleged payments.

Key evidence and findings: No direct evidence or corroborative circumstances were found to connect the loose sheets to the assessee. The statements recorded were not tested by cross-examination, and the Revenue did not produce any further material to establish the addition.

Application of law to facts: The AO's addition was contrary to settled legal principles requiring corroboration and credible evidence. The Tribunal upheld the CIT(A)'s deletion of the addition for lack of sound footing.

Treatment of competing arguments: The Revenue's contention for remand to enable cross-examination was rejected, given the binding precedent and absence of any new evidence.

Conclusions: The AO's addition without corroborative evidence was unsustainable and rightly deleted.

Issue (d): Whether the Matter Should Be Remanded for Cross-Examination and Fresh Adjudication

Relevant legal framework and precedents: Cross-examination is a procedural step to test the veracity of statements and evidence. However, if the evidence itself is inadmissible or lacks credibility, remand may not be warranted.

Court's interpretation and reasoning: The Tribunal noted that the Revenue sought remand to enable cross-examination on the loose sheets and statements. However, since the ITAT in the vendor's case had already held the documents to be inadmissible and the Revenue did not dispute this, remand would serve no purpose.

Key evidence and findings: The Tribunal relied on the binding ITAT decision in the vendor's case, which conclusively rejected the evidentiary value of the documents.

Application of law to facts: Given the binding precedent and absence of new evidence, the Tribunal declined to remit the matter for fresh adjudication.

Treatment of competing arguments: The Revenue's plea for remand was considered but rejected as unnecessary and contrary to judicial economy.

Conclusions: No remand was ordered; the deletion of the addition was upheld.

Issue (e): Applicability of Precedents and Binding Nature of ITAT's Earlier Decision

Relevant legal framework and precedents: The principle of judicial discipline mandates that a Tribunal or Court respect its own prior decisions unless overruled by a higher authority. The ITAT's earlier decision in the vendor's case, involving identical facts and documents, is binding.

Court's interpretation and reasoning: The Tribunal observed that the ITAT had already decided in the vendor's case that the documents did not establish any cash receipt from the assessee, and additions based on such documents were deleted.

Key evidence and findings: Copies of the appellate orders in the vendor's case and related cases were produced and examined.

Application of law to facts: The Tribunal followed the binding precedent and applied it to the present appeals.

Treatment of competing arguments: The Revenue did not dispute the binding nature of the earlier ITAT decision.

Conclusions: The Tribunal upheld the deletion of additions in line with the binding precedent.

3. SIGNIFICANT HOLDINGS

"Loose paper-sheets are 'irrelevant, inadmissible' evidence; entries in loose papers/sheets are not 'books of accounts' and have no evidentiary value under Section 34 of the Indian Evidence Act."

"The AO could not make any headway in establishing that the loose sheets found in the premises of the third party belonged to the appellant. Therefore, the transactions mentioned in the said loose sheets could not be established to be made by the appellant."

"In the absence of corroborative or circumstantial evidence relating to the ownership of the loose sheets and the expenditure incurred therein, the presumption made by the AO in making the addition cannot be held to be on sound footing."

"The addition made by the AO under Section 69C of the Act amounting to Rs. 2,52,00,000/- is hereby deleted."

"The evidence that had surfaced was not credible and cogent. The entries in loose sheets of papers are not in the form of 'Books of Accounts' and are inadmissible."

"Once the ITAT in the case of Global Star Realtors Private Limited has concluded that the document based on which the addition was made by the Revenue is a dumb document, there cannot be any addition in the hands of the assessee based on the same set of documents."

"The addition made in these assessment years towards earning of alleged unaccounted cash payments on alleged basis is deleted."

"The appeal filed by the revenue is hereby dismissed."