No cash payment according to Section 69 Addition based only upon Seized Third-Party Ledger
Fact and issue of the case
This is an appeal by the assessee against order dated 22/05/2023 of learned CIT(A), Lucknow-3 for the assessment year 2013-14. The effective grounds raised by the assessee are as under:
In the facts and circumstances of the case and in law the Ld. CIT(A) has legally erred in confirming the action of the Ld. A.O. by sustaining the addition of Rs.17,00,000.00 in the income o f the appellant.
In the facts and circumstances of the case and in law the Ld. CIT(A) has erred in confirming the action of the Learned Assessing Officer while not setting aside assessment order as was not allowed to cross examine of Mr. Viral K. Patel (key person of the developer) who prepared the alleged systematically maintained ledger account.
In the facts and circumstances of the case and in law the Ld. CIT(A) has erred in confirming the action of the Ld. A.O. while not considering the objection of the appellant as to when the satisfaction note was recorded by the Assessing Officer.
In the facts and circumstances of the case and in law the Ld. CIT(A) has erred in confirming the action of the Ld. A.O. while not allowing the cross examination of the builder whose statement was recorded u/s 132 of the Income Tax Act, 1961.
In the facts and circumstances of the case and in law the Ld. CIT(A) has erred in confirming the action of the Ld. A.O. while not appreciating that there was no independent application o f mind by the Assessing Officer while recording satisfaction was recorded on borrowed satisfaction.”
As could be seen from the grounds raised, the assessee has challenged the addition of Rs.17,00,000/- u/s 69 of Income Tax Act, 1961. Additionally the assessee has also challenged the validity of the assessment order passed u/s 153C read with section 143(3) of the Act.
Briefly, the facts are that the assessee is a resident individual. As stated, the assessee, being a retired IPS Officer, was a salaried employee. Allegedly, a search & seizure operation u/s 132 of the Act was conducted on 06/03/2018 in the case of “SSS (Satyam, Sangini, Saligram) group of companies. During the search & seizure operation, the residential premises of one Shri Viral K. Patel, stated to be the key person of M/s Satyam Developers Limited and its Directors, was also searched and in course of search various incriminating documents and digital data were found and seized. On verification of digital data found in the computer of the said key person, it was noticed that it contained a ledger copy, wherein, in addition to cheque payment, date-wise cash payment received from the assessee towards purchase of a flat was found. It was noticed that the assessee has paid cash on different dates aggregating to Rs.48 lacs. Out of such cash payment, an amount of Rs.17 lacs was paid on 04/08/2012 falling in the previous year relevant to the assessment year under dispute. Based on such information, the Assessing Officer initiated proceeding u/s 153C of the Act in respect of the assessee. In course of assessment proceedings, the Assessing Officer confronted the seized document and called upon the assessee to explain as to why the cash payment made of Rs.17 lacs towards purchase of flat should not be treated as income of the assessee u/s 69 of the Act. In reply, though the assessee flatly denied of having made any cash payment over and above the cheque payments, however the Assessing Officer was not convinced. Ultimately, relying upon the seized material, the Assessing Officer concluded the assessment by adding back the amount of Rs.17 lacs to the income of the assessee. Though, the assessee contested the addition, both, on merits as well as on legal grounds of complete lack of recording of satisfaction in terms of section 153C of the Act, however, learned CIT(A) did not find merit in the submissions of the assessee and upheld the addition.
Before us, learned counsel appearing for the assessee submitted that except the so called ledger account seized from a third party, no other evidence was collected by the Assessing Officer to corroborate the entries in the ledger account. He submitted the bank accounts referred to in the seized document do not belong to the assessee and he submitted that though the assessee took a specific contention in this regard before the Department Authorities however, the contention was completely ignored. He submitted the assessee was not given an opportunity to cross examine the party from whom the incriminating materials were seized. Thus, he submitted, in absence of any clinching evidence, the addition on account of cash payments towards purchase of a flat could not have been made, more so, when the assessee had never accepted such cash payment. Without prejudice, the learned counsel submitted that the search & seizure operation in case of a third party took place on 06/03/2018. He submitted, there is no evidence on record that a satisfaction was recorded either by the Assessing Officer of the searched person or the Assessing Officer of the assessee as mandated u/s 153C of the Act. He submitted, despite the assessee taking a specific objection both before the Assessing Officer and learned first appellate authority regarding non recording of satisfaction u/s 153C of the Act, the Departmental Authorities have cleverly skirted the issue. Drawing my attention to the assessment order dated 29/12/2021 passed in the case of the assessee for assessment year 2014-15, the learned counsel submitted, the Assessing Officer has stated that satisfaction was recorded by him on 06/03/2018. He submitted, when the search & seizure operation itself took place on 06/03/2018, how the Assessing Officer could have recorded satisfaction on the very same day for initiating proceeding u/s 153C of the Act. Proceeding further, he drew my attention to satisfaction dated 19/02/2021 recorded u/s 153C of the Act by the Assessing Officer of the searched person. He submitted, as per the satisfaction recorded, the date of seizure of incriminating material was mentioned as 07/03/2018 and Panchnama was also drawn on 07/03/2018. Thus, he submitted, the satisfaction note itself suggests that the Assessing Officer of the assessee could not have recorded satisfaction u/s 153C of the Act on 06/03/2018, one day prior to the seizure of incriminating material. He submitted, these facts clearly establish that no satisfaction, as mandated by section 153C of the Act, was recorded by the Assessing Officer. He submitted that even assuming that the Assessing Officer has recorded satisfaction u/s 153C of the Act however, such recording of satisfaction is purely mechanical and without application of mind as he has merely copied the satisfaction recorded by the Assessing Officer of the searched person. Thus, he submitted in absence of a proper satisfaction recorded u/s 153C of the Act, the assessment order is invalid. In support of such contention, learned counsel relied upon the following decisions:
(i) Dinesh Kumar Goyal vs. UOI & Others 453 ITR 535 (Calcutta High Court)
(ii) Laxmi Narain Agency vs. Income Tax Officer & Others 450 ITR 650 (Orissa High Court)
(iii) Canyon Financial Services Ltd. vs. ITO  399 ITR 202 / 249 Taxman 493/155 DTR 73 (Delhi High Court)
(iv) Canyon Financial Services Ltd. vs. ITO 399 ITR 202 (Delhi High Court)
Learned Departmental Representative strongly relied upon the observations of the Assessing Officer and learned first appellate authority.
Observation of the court
I have considered rival submissions in the light of the decisions relied upon and perused the materials on record. At the outset, I proceed to address the grounds raised on merits of the addition made. Undisputedly, based on certain incriminating material found in course of a search & seizure operation in case of a third party, the Assessing Officer has made the disputed addition. It is evident, the incriminating material leading to the present addition is a ledger copy found in the desktop/laptop of one Shri Viral K. Patel, allegedly, the key person of M/s Satyam Developers Limited and its directors. Admittedly, the incriminating material was not seized from the assessee. On further perusal of the incriminating material i.e. the ledger copy, it is observed that it depicts certain payments in cheque and in cash. The cheque payments mentioned in the ledger copy are through Kotak Bank and AXIS Bank. It is observed, from the stage of assessment proceedings itself the assessee has flatly denied its involvement in the transactions recorded in the ledger copy seized from the third party. The assessee has specifically submitted that the bank accounts mentioned in the ledger copy do not belong to him or his wife. It is the specific case of the assessee from the very beginning that he had purchased the flat for a consideration of Rs.40 lacs and has paid it entirely through banking channel from his bank account held with State Bank of India and ICICI Bank and bank account standing in the name of his wife held with Bank of India.
It is very much evident in the face of such specific denial by the assessee not only before the Assessing Officer but before the first appellate authority, no further inquiry or investigation was made by them to rebut the contention of the assessee. No further corroborative evidence has been brought on record to establish that the entries in the ledger copy seized from a third party are genuine and correct. Surprisingly, no statement has been recorded from the third party from whom the incriminating material was seized with regard to the entries in the ledger copy. There is nothing on record to suggest that the third party from whom the ledger copy was seized admitted of having received the cash payment from the assessee. This is so because neither the Assessing Officer nor learned CIT(A) have referred to any such statement or admission by Shri Viral K. Patel with reference to the seized material. Even, assessee’s repeated request to cross examine Shri Viral K. Patal have been cold shouldered by the Department Authorities. Thus, as facts on record stand, except the ledger account stated to have been seized from the computer of Shri Viral K. Patel, no other corroborative material has been brought on record by the Departmental Authorities to establish that the entries appearing in the ledger copy are genuine and the assessee had actually made the cash payment. Merely because the payments made by cheque appearing in the ledger copy and actually made by the assessee tallied, it cannot lead to the conclusion that the assessee has also made the cash payments. More so, when from the very beginning the assessee has vehemently denied of having made the cash payments. Thus, in my considered opinion, in absence of any clinching evidence to show that the assessee had made the cash payments, the addition of so called cash payment of Rs.17 lacs could not have been made. Accordingly, the addition made, being wholly unsustainable, I direct the Assessing Officer to delete the same.
In view of my decision above, the legal grounds raised by the assessee challenging the validity of the assessment order due to lack of satisfaction have become academic, hence do not require adjudication.
In the result, the appeal of the assessee stands allowed.
(Order pronounced in the open court on 18/07/2023)
In the result, appeal of the assessee is allowed and ruled in favour of the assessee