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Judgment
PER MANISH AGARWAL, AM :
The captioned cross-appeals are filed by the assessee and the Revenue against the order dated 24.03.2025 by Ld. Commissioner of Income Tax (A), Delhi-23 [“Ld. CIT(A)”] passed u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of assessment order dated 23.12.2019 passed u/s 143(3) r.w.s. 153A of the Act pertaining to Assessment Year 2018-19.
Since both cross-appeals filed by the assessee and the Revenue have common issues therefore, both the cross-appeals are decided by a common order for the sake of convenience.
Brief facts of the case are that the assessee is an individual and a search action u/s 132 was carried out on ETPPL Group. The residence of the assessee was also covered under the search and in terms of the order passed u/s 127 dated 31.08.2018, the case was centralized with ACIT, Central, Circle-4, Delhi. The assessee filed his return of income on 27.08.2018, declaring total income at INR 15,98,320/-. Based on the documents found and seized as a result of search from the possession of assessee, the AO has made various additions and accordingly, total income of the assessee by making total additions at INR 1,68,16,869/-.
Against the said order, the assessee filed an appeal before the Ld. CIT(A) who vide impugned order dated 24.03.2025, has partly allowed the appeal of the assessee.
Aggrieved by the order of Ld. CIT(A), both the assessee and Revenue are in appeal before the Tribunal by raising various Grounds of appeal mentioned in the appeal memo.
Ground of appeal No.1 raised by the Revenue is with respect to the deletion of addition of INR 69,23,500/- made by the AO based on the loose papers found and seized during the course of search and deleted by Ld.CIT(A).
Heard the contentions of both the parties at length and perused the material available on record. The AO has made the addition on the basis of the loose papers titled as “Annexure A-1” found from the possession of the assessee containing certain scribbling which the AO has held as unexplained investment made by the assessee in the Committee jointly managed and controlled with Shri Sahil & Shri Vicky. It was the claim of assessee that said sheets are nothing but dumb documents as they contained certain scribbling having no value. As per the assessee, these scribblings were noted at the time of settling the disputes between Shri Sahil and Shri Vicky where the assessee had acted as mediator. On the other hand, Revenue’s contention is that it is the contribution made by the assessee in the Committee out of the unexplained source of the assessee which was managed and controlled of all the three individuals including the assessee. Ld.CIT(A) while deleting the additions, has held that these documents are dumb documents by placing reliance on the judgment of Hon’ble Delhi High Court in the case of CIT, Central-II, Delhi vs. D. K. Gupta reported in [2018] 174 taxmann.com 476 (Del. HC) and of the Co-ordinate Delhi Bench of the Tribunal in the case of Ashwani Kumar vs ITO reported in [1991] 39 ITD 183. The relevant observations of Ld.CIT(A) as contained in para 12 to 12.9 are reproduced as under:-
12.I have carefully considered the facts of the case, basis of addition made by the AO and arguments made by the appellant in its written submissions and applicable law in this regard and held as under:
12.1The AO has made the impugned addition of Rs.69,23,500/- on the basis of the above seized documents by treating the noting made on the seized pages as undisclosed investment of the appellant in the local committee however in the assessment order he does not bring out any cogent material or concrete reasons to base his presumption and for disregarding the submission of the appellant made during post search that the noting on the alleged seized pages pertains to the Mr. Vicky and Sahil made for settling a dispute between them and does not pertain to the appellant.
12.2On the other hand the appellant in its written submission has reiterated its submission made during the post search proceedings and argued that the seized documents are in the nature of dumb document containing rough noting and jottings which do not contain any date, mode of payment i.e cash or cheque. It has also been argued by the appellant in its written submission that there is no corroborative material on record to show that the impugned transactions pertains to assessee. The appellant also submitted that the AO had not made out any enquiry with Mr. Vicky and Sahil to find out the truth during the whole assessment proceedings for which the AO was duly having the contact details of Mr. Vicky and Sahil. One more argument of the appellant was that even the basis for computing the amount of the basis of alleged seized document was not given in the assessment order.
12.3Considering these and from the perusal of the seized document it appears to be correct that on the seized document nowhere the name of the appellant is appearing and the name of the third party namely Mr. Vicky and Sahil has been written and thereafter sum notings have been made under their name which do not contain any date, mode of payment etc.
12.4It is a predominant judicial view 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 document had materialised into transaction giving rise to income of the assessee which had not been disclosed in regular books of accounts by the assessee.
12.5The Hon'ble Supreme Court in the case of K.P. Varghese v. ITO [1981] 7 Taxman 13/131 ITR 597 held that the fictional receipt cannot be deemed to be a receipt in the absence of any cogent material to support the factum of actual receipt.
12.6The Hon'ble Delhi ITAT in the case of Shri Neeraj Goel Vs. ACIT in ITA No. 5951/Del/2017 has held that addition on account 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.
12.7The Hon'ble High Court of Delhi in case of CIT v. D.K. Gupta [2008] 174 Taxman 476 upheld the order of the tribunal wherein it was held that Ad-Hoc/Dumb Documents without any corroborative evidence/finding that the alleged documents have materialized into transactions cannot be deemed to be the income of the assessee. The relevant part of the judgement is reproduced herein under:-
"The tribunal returned a finding of fact that there is no corroborative or direct evidence to presume that the notings/jottings had materialised into transactions giving rise to income not disclosed in the regular books of account.
4.Consequently, the tribunal upheld the findings of the Commissioner of Income-tax (Appeals) and agreed with the view taken by the latter that the assessee was liable to tax only on those receipts which had been proved to be income in the hands of the recipient. As a result thereof, the Tribunal found no reason to interfere with the findings recorded by the Commissioner of Income-tax (Appeals) on the ground that the same were based on valid and cogent materials placed on record and also produced before the Assessing Officer during the course of assessment proceedings. The Tribunal also noted that all the evidences, materials, explanations were furnished before the Assessing Officer and it is on the basis of such material that the Commissioner of Income-tax (Appeals) had arrived at the conclusion that no addition was warranted on the basis of the seized diaries.
5.We have examined the impugned order in detail and have also heard the counsel for the parties and we find that the issues sought to be raised before us are purely issues of fact. The Tribunal, being the final fact-finding authority, has returned a certain set of facts. We find no perversity in such findings and, consequently, no question of law, what to speak of a substantial question of law, arises for our consideration. The appeal is dismissed."
12.8On similar lines, the Hon'ble Delhi ITAT in case of Ashwini Kumar v. ITO [1991] 39 ITD 183 held that in the case of dumb document, revenue should collect necessary evidence to prove that the figures represent incomes earned by the assessee.
12.9In such a situation, I am satisfied that no addition can be made on the basis of alleged seized documents by making presumption that alleged seized documents pertains to the undisclosed investment of the appellant in local committee. The AO has failed to adduce any corroborative material or evidence on record to support its contention before treating the notings on seized document as undisclosed investment of the appellant and therefore respectfully following the predominant judicial view, the addition made by the AO is deleted and this ground of appeal of the appellant is allowed.
Before us, the Revenue has failed to controvert the findings of Ld. CIT(A) who has examined the documents found and seized and made the basis for making the addition in the hands of the assessee. The ld. CIT(A) concluded that since no corroborative material was brought on record to hold that these entries are related to some transaction carried out by the assessee nor any independent inquiry was made by the AO from other two persons namely Shri Sahil & Shri Vicky to bring out true nature of entries noted in the said paper document, no addition could be made. It is further observed that in the said paper only some figure with some narration was stated however, the same does not reflect any transaction of investment nor of nay expenditure nor of any income thus could at best be held as the dumb document.
The Hon'ble Supreme Court in the case of CBI Vs. V.C. Shukia & Others has quoted certain judgements of the High Courts which have bearing on the issue as under:
"36.In Yesuvadiyan Vs. Subba Naicker, AIR 1919 Madras 132 one of the Ld. Judges constituting the Bench had this to say: "S. 34, Evidence Act, lays down that the entries in books of account, regularly kept in the course of business are relevant, but such a statement will not alone be sufficient to charge any person with liability. That merely means that the plaintiff cannot obtain a decree by merely proving the existence of certain entries in his books of account even though those books are shown to be kept in the regular course of business. He will have to show further by some independent evidence that the entries represent real and honest transactions and that the moneys were paid in accordance with those entries. The legislature however does not require any particular form or kind of evidence in addition to entries in books of account, and I take it that any relevant facts which can be treated as evidence within the meaning of the Evidence Act would be sufficient corroboration of the evidence furnished by entries in books of account if true."
While concurring with the above observations the other Ld. Judge stated as under:
"If no other evidence besides the accounts were given, however strongly those accounts may be supported by the probabilities, and however strong may be the evidence as to the honesty of those who kept them, such consideration could not alone with reference to S. 34, Evidence Act, be the basis of the decree."
Thus, Hon'ble Apex Court in above judgment has observed that even if certain transactions are found to be recorded in books of accounts, same have to be corroborated with independent documentary evidence before any liability could be fastened upon assessee, whereas in the instant case, loose paper found has no authenticity as the same is mere a rough noting without any date and any details mentioned on the same is nothing more than a dumb document having no legal validity and no any addition based on this paper could be made.
The Co-ordinate Jabalpur bench of ITAT on taxability of transaction from the document found and seized during the course of search in the case of ACIT Vs. Satyapal Wassan reported in 295 ITR (AT) 352 has made following observations:
"Let us now examine how all these transactions are necessary for the purposes of levying tax on the basis of a seized document. Section 4 relates to charge of Income-tax. It reads as under:
Section 4(1) Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions (including provisions for the levy of additional income-tax) of, this Act in respect of the total income of the previous year of every person:
Provided that where by virtue of any provision of this act income tax is to be charged in respect of the income of a period other than the previous year, income-tax shall be charged accordingly.
(2)In respect of income chargeable under Sub-section (1), income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act.
From a reading of above section, we find following components which enter into the concept of taxation. The first is the taxable event which attracts the levy, the second is the person on whom the levy is imposed and who is obliged to pay the tax. The third is the assessment year in which charge of income-tax is levied. The fourth is the total income of the previous year and the fifth is the rate or rates at which tax is to be imposed. The rates are prescribed in the annual Finance Act. Therefore, this component has no value in determining total income on the basis of seized document. Our view in this regard is supported by the decision of Hon'ble Supreme Court in Govind Saran Ganga Saran v. CST wherein it was held that for the purpose of charging to tax, there should be four components to be satisfied. For the sake of convenience, we refer to the relevant head notes from that decision:
"A charge can be levied on the basis of document only when the document is a speaking one. The document should speak either out of itself or in the company of other material found on investigation and/or in the search. The document should be clear and unambiguous in respect of all the four components of the charge of tax. If it is not so, the document is only a dumb document. No charge can be levied on the basis of a dumb document.
A document found during the course of a search must be a speaking one and without any second interpretation, must reflect all the details about the transaction of the assessee in the relevant assessment year. Any gap in the various components for the charge of tax must be filled up by the Assessing Officer through investigations and correlations with other material found either during the course of search or on investigations.
The document was bereft of necessary details about the year of transaction, ownership, nature of transaction, necessary code for deciphering the figures. The Assessing Officer presumed that the transaction belonged to the financial year. 1988-89 relevant to the assessment year 1989-90, that the figures mentioned in the document were advances made by the assessee, that the transactions belonged to the assessee, and that the transactions were in a code of lakhs and that the unit was the rupee. The Assessing Officer did not carry out any enquiry either during the course of search or during the course of assessment proceedings to find out the nature of transactions and the period which those transactions were carried out; he had simply presumed that the figures were advances without there being any material on report such presumption. The Assessing Officer had drawn inferences, made presumptions, relied on surmises and thus made unsustainable additions.
Now on the document though seized from the premises of appellant there is no date or even narration like 'Rs.' before the scribbling so evident. There is no correlation with these scribbling with any transactions, disclosed or undisclosed, with other seized material or regular books. Nor there is any statement or inquiry to reinforce the taxability based on this document.
We are also of the view that this document does not contain any details about the year and nature of transaction and even did not carry any signatures. The AO had merely presumed that the assessee made undisclosed investment in cash. The AO has not carried out any inquiry during the course of assessment proceedings to find out the nature of transactions and the period in which these transactions were carried out. No summons were issued to the other two persons whose names were stated by the assessee to find out whether any real transaction was carried out and he had simply presumed that the figures were unaccounted investment made by the assessee for the year under consideration, without there being any material on record to support such presumption. Therefore, we are of the considered view that the entries contained in the said paper are merely rough scribbling. Such document was undated and noting did not bear any signature and the name appearing therein are not of assessee. The Assessing Officer had drawn inferences, made presumption, relied on surmises and thus made unsustainable additions. Therefore, in our view the ld. CIT(A) had also after appreciating the facts had rightly concluded that the said document has no relatability with any investment in the name of assessee therefore, the addition made by the AO cannot be based on scribbling on the impugned document thus, rightly considered the said document as ‘dumb document’. No new facts or circumstances have been brought before us in order controvert the findings recorded by the ld. CIT(A). We have no reason to interfere into well reasons and judicious finding so recorded by the ld. CIT(A), therefore, we uphold the same and Ground of appeal No.1 raised by the Revenue is dismissed.
Ground of appeal No.2 of the Revenue and Ground of appeal Nos. 1 to 8 raised by the assessee are with respect to the confirmation of addition of INR 30,77,600/- as against addition of INR 65,61,000/- made by the AO based on the documents titled as “Annexure A-3” found during the course of search and placed at pages 74 & 75 of the Paper Book.
Heard the contentions of both the parties at length and perused the material available on record. It was the claim of the assessee that these documents relate to the transactions carried out by him on behalf of the companies engaged in the business of ticketing of which the assessee is one of the Director. However, no evidence whatsoever was produced before the AO nor before Ld.CIT(A) to support the contentions raised. Even before us, no document / evidence was filed. It is further observed that before Ld.CIT(A), assessee has made alternate claim of peak credit addition since there were receipts and payments on regular basis from one Shri Karan of which the assessee has failed to explain the sources. On careful consideration of the facts, we find that Ld.CIT(A) has accepted the alternate argument of the assessee of peak credit addition as the documents were found from the possession of the assessee and the assessee himself has accepted the transactions noted therein, as related to him. Regarding the source of the said funds as out of the cash of the companies, could not be accepted in absence of any corroborative material placed by the assessee before the authorities below. Once the loose papers contained the systemic entries of receipts and payments, it is a settled law that only peak credit should be taken as the unexplained investment based on such entries. We further observed that assessee himself has filed the peak credit balance of INR 16,41,400/- as on 23.06.2017 before the ld. CIT(A) whereas as per para 16.7, the Ld. CIT(A) recompute the peak balance at INR 30,77,600 as on 10.07.2017. Before us, the assessee has failed to point out any error in the peak credit working done by the ld. CIT(A). Ld. CIT(A) in para 16 to 16.6 of order, has discussed this issue in detail which is as under:-
FINDINGS.
I have carefully considered the facts of the case, basis of addition made by the AO and arguments made by the appellant in its written submissions and applicable law in this regard and held as under:
16.1The AO has made the impugned addition of Rs.65,61,600/- on the basis of the document( two page) seized document reproduced above which are in the nature of receipts and payment account for the period FY 2017-18 containing certain date wise transactions under the heading receipts and payments/paid in the name of one Mr. Karan and another from Karan's book. For making the impugned addition the AO stated in the assessment order that these two pages have been confronted to the appellant during the course of post search proceedings and the appellant in its reply has admitted that he carried out the transactions with Mr. Karan for the purpose of his business and during the year had given amount aggregating to Rs.65,61,000/- to Mr. Karan and received back amount aggregating to Rs.52,14,600/- and therefore on the basis of this submission made by the appellant the AO had considered the total payment of Rs.65,61,000/-(19,59,000+45,02,000+1,20,000) made to Mr. Karan as per the seized document, the undisclosed income of the appellant.
16.2Now as far as appellant is concerned the appellant neither during the course of assessment proceedings nor in the present written submissions made before me had denied the existence of transactions appearing on the alleged seized two pages, however contested in its written submission that in his reply furnished during post search he had never admitted that the amount of transactions undertaken with Mr. Karan were made out of his undisclosed income infect he had submitted that these amounts have been paid out of the cash collected by him from his ticket booking business carried out in the name of his two companies, which have been duly disclosed by him at the time of filing their TIRS and secondly he had made a without prejudice submission that even the undisclosed income exists the AO cannot consider the total aggregate payment made to Mr. Karan as undisclosed income of the appellant as at no point of time the amount of Rs. 65,61,000/- was outstanding in the name of the Mr. Karan as per the seized documents and therefore it was argued that in such a situation only peak cash can be considered as the undisclosed income of the appellant. The Appellant in his written submission has also demonstrated the peak balance outstanding on the basis of the alleged seized two pages by tabulating all the transactions appearing on the alleged seized pages.
16.3Keeping in view of the above cited facts, it is held that the transactions appearing on the alleged seized pages pertains to the appellant and Mr. Karan. Having said that these transaction pertain to the appellant, the question now which is to be decided is whether the entire transactions appearing on the seized pages is the undisclosed income of the appellant and if the answer to the first question is no than upto what extent and whether the appellant is eligible for any benefit of peak balance theory as sought by the appellant in its written submission.
16.4The appellant in his written submission made before me has submitted that the alleged cash paid by him to Mr. Karan was out of the cash collected from customers by his two companies which are in the ticketing business but nowhere in his written submission he has demonstrated this fact by submitting any documentary evidence, cash book etc. to show that how much cash was collected, what were the cash balances at the time of giving, returned back of the amount to or from Mr. Karan and how the said cash have been reflecting in the return of income of these companies and therefore this plea of the appellant that these documents does not contain any undisclosed income or the appellant cannot be accepted and therefore rejected.
16.5Now come to another issue of the appellant wherein he has submitted that only peak balance should be taxed as the undisclosed income in the hands of the appellant. This argument of the appellant is based on well-established peak balance theory and therefore can be considered on the basis of its merit.
16.6The assessee in his written submission filed before me, on the basis of the alleged two page of seized documents has demonstrated the date wise amount paid to Mr. Karan, amount received back from Mr. Karan and balance outstanding and thereafter a peak balance of Rs.16,41,400/- has been ascertained on dated 23.06.2017. It is the submission of the appellant that since the alleged seized documents reflecting both the transactions of payments to Mr. Karan and thereafter the amount returned back by him to the assessee, only maximum balance which was paid to Mr. Karan and outstanding at a point of time should only be considered as the undisclosed income of the appellant and therefore requested to restrict the addition of Rs.65,61,000/- to the extent of Rs.16,41,400/- which is the peak balance as per the seized documents.
As observed above, the assessee himself alternatively contended that peak credit could at the most be added and further failed to point out any error in the working done by Ld. CIT(A) in para 16.7 at page 17 to 20 of the order. Therefore, we find no error in the order of Ld. CIT(A) which is hereby uphold. Accordingly, Grounds of appeal Nos. 2 to 2.3 raised by the Revenue and Grounds of appeal Nos. 1 to 8 raised by the assessee are dismissed.
Ground of appeal No.3 raised by the Revenue is with respect to the deletion of addition of INR 16,38,000/- made on account of cash found during the course of search.
Heard the contentions of both the parties at length and perused the material available on record. It is observed that though Ld.CIT(A) has not accepted the contention of assessee on account of source of cash as out of the past savings however, it is accepted the alternate argument of the assessee that the benefit of telescoping and set off should be allowed out of the income determined on the basis of seized documents. While confirming the peak credit balance, it is observed the said peak credit balance was of 10.07.2017 and search was carried out in the case of assessee on 10.08.2017 therefore, the availability of the cash of INR 16,38,000/- out of such peak credit balance cannot be ignored nor could be doubted as the application of the same elsewhere was not found as a result of search. Accordingly, we find no error in the order of Ld. CIT(A) in allowing the benefit of telescoping of the cash found out of the addition so sustained on account of peak credit balance in the hands of the assessee. Therefore, Ground of appeal No.3 raised by the Revenue is dismissed.
In the final result, appeal of the assessee in ITA No.5785/Del/2025 and appeal of the Revenue in ITA No.4246/Del/2025, both for Assessment Year 2018-19, are dismissed.