DCIT vs Dolly Sabharwal

“Findings: 5. Ground Nos. 1, 2 & 16: are general in nature and are therefore not adjudicated upon.

6.

Ground Nos. 3 to 13: The appellant had filed her return of income on 27.08.2018 declaring income of Rs. 4,23,640/. A search and seizure operation u/s 132 of the Act was conducted on Sh. Amarjit Singh Sethi & others on 23.03.2022. During the course of search, various incriminating material/documents were found and seized which indicates that the appellant entered into a financial transaction with Mr. Amarjit Singh Sethi and Shally Thapar. Accordingly, notice u/s 148 of the Act was issued on 31.08.2028. Accordingly, proceedings u/s 147 of the Act were initiated in the case of appellant and the assessment was completed at an assessed income of Rs. 1,52,62,100/-. The present appeal has been filed against this assessment order.

6.1

The present appeal has been filed by the appellant challenging the addition of Rs. 1,48,38,464/- made by the AO under section 69A of the Act in the reassessment order passed under section 147, which was initiated on the basis of some document found in the course of search of a third party, reflecting calculation of interest amounts on loan of Rs. 6,62,00,000/- advanced by the appellant to one, Mr. Shally Thapar.

6.2

The AO on the basis of said document has assumed that the interest calculations mentioned therein must have been exchanged between the appellant and the third party, primarily on the ground that the principal amount of loan stood actually transacted between the parties through the banking channel.

6.3

The aforesaid action of the AO has been challenged by the appellant though the present ground of appeal. It is the say of the appellant, that apart from the presumption drawn by the AO, there is no evidence against the appellant, even found from search of Mr. Amarjit Singh Sethi. The Searched party, i.e., Mr. Amarjit Singh Sethi, who is close friend of Mr. Shally Thapar, who borrowed loan from the appellant, also confirmed in statement recorded at the time its investigation proceedings, that interest calculations were only notional and arbitrary which were never transacted between the parties. The AO also conducted enquiries from the appellant as well as Mr. Shally Thapar who all have confirmed that, no transaction of the interest amount mentioned in the seized sheet, was executed between the parties.

6.4

In the aforesaid basic background of facts, the question that arises in the present appeal, is whether the addition of undisclosed income/money can be made on the basis of loose sheet found, that, too, from search premises of third party, without any corroborative evidence of actual transaction having taken place basis such sheet.

6.5

1 have considered that facts and circumstances of the case, and the arguments of both the AO and the appellant. In law, there is no presumption of accuracy or truthfulness of any loose sheet found in search premises of a third party. The statute only raises such presumption against the appellant in terms of section 132(4A) and 292C, which is applicable only in case of searched person and not the third person. Reliance in this regard is placed upon the decision Hon'ble Delhi High Court in the case of CIT, Delhi-IX vs. Anil Khandelwal {ITA no. 247 & 248/2012 decided on 21.04.2015 } wherein the addition u/s. 69 of the Act was made, on the basis of materials seized from another person, but not from the possession and control of the Assessee, by taking refuge of presumption as prescribed u/s 132(4A) and scction 292C of the Act , whereas the Assessee claimed to have never received any amount as depicted in the seized papers and the person from whose possession and control, the seized documents were found also denied to have never received or paid any cash to the Assessee or those connected with him. Therefore, the Hon’ble High Court held that amounts attributed to the Assessee in fact, had not been established and that in the given circumstances, the reference of section 132(4A) and 292C of the Act was not justified.

6.6

Once, the document found in the course of search of third party loses its veracity as to the accuracy of its content, the same can be relied upon only if other corroborative evidences are found in search or from further investigations. Unfortunately, in the present facts, there is no whisper of any other evidence, direct or circumstantial, which could suggest that the appellant had received interest from the borrower, i.e. Mr. Shally Thapar. In these circumstances, the amount of addition could only be considered as notional in nature made on the basis of assumption. It is a settled position in law, that no addition of notional income could be made under the Income-tax act to be brought to tax. Reference, in this regard, can be made to the celebrated decision of Supreme Court in the case of KP Varghese v ITO: 131 ITR 597. Thus, the present addition made by the AO could only be considered as notional in nature which cannot even be justified by applying deeming fiction contained in section 69A of the Act. Accordingly, the addition is deleted. Accordingly, these grounds of appeal are allowed.”

“4.

Brief facts of the case are that a search and seizure action was conducted on Shri Amarjti Singh Sethi and others on 23.03.2022 during which various incriminated documents were found and seized. These included documents indicating that the assessee, Shri Shally Thapar had entered into financial transactions with Shri Amrajit Singh Sethi and Smt. Dolly Sabharwal. Accordingly, the case of the assessee was centralized and a notice u/s 148 was issued on 28.02.2024, requiring him to file his return. In response, the assessee filed return declaring income of Rs. 18,13,092/- on 06.03.2024.

4.1

A sheet had been recovered from the car belonging to Shri Amarjit Singh Sethi during the course of search which contained computation of interest on loan amount of Rs. 6.62 Cr. for different years. During the course of search, Shri Amarjit Singh Sethi stated an oath that the computation related to loan of Rs. 6.62 Cr. given by Smt. Dolly Sabharwal, mother-in-law to his daughter to his friend Shri Shally Thapar and the interest amount mentioned in the sheet had been calculated as the same was to be taken from Shri Shally Thapar. However, no interest was actually paid by Shri Shally Thapar.

5.

In order to verify the facts, statement of Smt. Dolly Sabharwal was recorded by the Ld. AO u/s 131, who denied the receipt of interest from Shri Shally Thapar. Further, the assessee also denied having made any interest payment on the amount of Rs. 6.62 Cr. However, Ld. AO did not accept the submissions made by the assessee as well as Smt. Dolly Sabharwal and concluded that the interest as per the computation sheet had indeed been paid by the assessee in cash to Smt. Dolly Sabharwal and further noted that there was an entry at the end of the computation sheet showing 7 month interest on Rs. 12.5 Cr. as Rs. 1,31,25,000/-. He, therefore, proceeded to make an addition of Rs. 1,48,38,464/- u/s 69C of the Act on account of unexplained expenditure incurred for payment of interest in cash. Accordingly, assessment was completed u/s 147 r.w.s. 143(3) at an income of Rs. 1,64,42,230/-. Aggrieved, the assessee preferred an appeal before Ld. CIT(A).

6.

Vide order dated 18.06.2025, Ld. CIT(A) allowed the appeal of the assessee with the following observations:

“6.5

I have considered the facts and circumstances of the case, and the arguments of both the AO and the appellant. In law, there is no presumption of accuracy or truthfulness of any loose sheet found in search premises of a third party. The statute only raises such presumption against the appellant in terms of section 132(4A) and 292C, which is applicable only in case of searched person and not the third person. Reliance in this regard is placed upon the decision Hon'ble Delhi High Court in the case of CIT, Delhi-IX vs. Anil Khandelwal (ITA no. 247 & 248/2012 decided on 21.04.2015) wherein the addition u/s. 69 of the Act was made, on the basis of materials seized from another person, but not from the possession and control of the Assessee, by taking refuge of presumption as prescribed u/s 132(4A) and section 292C of the Act, whereas the Assessee claimed to have never received any amount as depicted in the seized papers and the person from whose possession and control, the seized documents were found also denied to have never received or paid any cash to the Assessee or those connected with him. Therefore, the Hon'ble High Court held that amounts attributed to the Assessce in fact, had not been established and that in the given circumstances, the reference of section 132(4A) and 292C of the Act was not justified.

6.6

Once, the document found in the course of search of third party loses its veracity as to the accuracy of its content, the same can be relied upon only if other corroborative evidences are found in search or from further investigations. Unfortunately, in the present facts, there is no whisper of any other evidence, direct or circumstantial, which could suggest that the appellant had paid interest to the lender, i.e. Mrs. Dolly Sabharwal. In these circumstances, the amount of addition could only be considered as notional in nature made on the basis of assumption. It is a settled position in law, that no addition of notional income could be made under the Income-tax act to be brought to tax. Reference, in this regard, can be made to the celebrated decision of Supreme Court in the case of KP Varghese v ITO: 131 ITR 597. Thus, the present addition made by the AO could only be considered as notional in nature which cannot even be justified by applying deeming fiction contained in section 69C of the Act. Accordingly, addition made by AO u/s 69C of the Act for AY 2017-18 is hereby deleted. ”

7.

Aggrieved with the order of the Ld. CIT(A), the Revenue is in appeal before the Tribunal.

8.

Ld. DR has argued that the sheet was discovered during the course of search and seizure from the car belonging to the assessee’s friend and it contained elaborate computation of interest with respect to the loan of Rs. 6.62 Cr which had been advanced by Smt. Dolly Sabharwal, a close relative of Shri Amarjit Singh Sethi. Accordingly, Ld. AO has rightly made the addition on account of interest paid in cash by the assessee as is evident from the computation sheet. He, therefore, argued that the order of Ld. AO deserves to be upheld.

8.1

On the other hand, Ld. AR has strongly relied upon the order of Ld. CIT(A) and pointed out that there is no evidence whatsoever that any interest was paid by the assessee on the impugned loan. It has been explained that the amount was transferred for the purpose of construction of a factory and the same was returned through banking channels as the proposed construction did not materialize. He has therefore argued that the Ld. CIT(A) has rightly deleted the addition made by the Ld. AO and the order of CIT(A) deserves to be upheld.

9.

We have heard the rival submissions and carefully considered the material placed on record. Admittedly, the document in question was recovered from Sh. Amarjeet Singh and not from the assessee. Both the parties viz the assessee and Smt. Dolly Sabharwal have denied having received/paid any interest on the loan. There is no other evidence, whatsoever, to show that any interest had been paid by the assessee.

Under these facts and circumstances, Ld. CIT(A) has rightly held that presumption u/s 132(4A) r.w.s. 292C cannot be raised against the assessee and deleted the addition. We, therefore, find no reason to interfere with the order of the Ld. CIT(A). Accordingly, appeal of the Revenue is dismissed.

10.

Since identical issues are involved in the remaining 3 appeals, the above decision will apply mutatis mutandis to these appeals also.”