The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has deleted an addition of ₹70 lakh made under Section 69A of the Income Tax Act, 1961, holding that an Excel sheet recovered from the laptop of a third-party accountant could not, by itself, establish a sufficient nexus between the alleged cash transactions and the assessee.
The bench of Anubhav Sharma (Judicial Member) and Sanjay Awasthi (Accountant Member) found fault with the Assessing Officer (AO) for failing to trace the cheque transactions recorded in the same document to determine their actual beneficiary.
The case arose from a search and seizure operation conducted on March 2, 2022, in the Gaursons Group and Divyansh Group. The assessee’s residence at Indirapuram, Ghaziabad, was also covered during the search. During the search of the Divyansh Group, the laptop of Dilip Jha, an accountant of the group, was cloned and its contents were subsequently analysed.
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The analysis revealed an Excel file containing details of alleged amounts received from Rakesh Sharma through cash and banking channels. According to the document, the aggregate transactions amounted to ₹1.65 crore, of which ₹70 lakh represented cash receipts during the relevant assessment year. Relying on this material, the Revenue issued a notice under Section 148 of the Act on February 23, 2023, and subsequently completed the assessment by adding ₹70 lakh under Section 69A.
The disputed Excel sheet recorded three cash entries during the relevant period: ₹50 lakh on November 25, 2016, ₹10 lakh on November 27, 2016, and another ₹10 lakh on November 29, 2016. It also contained several subsequent cheque, RTGS and cash entries, taking the total recorded amount to ₹1.65 crore.
Before the Tribunal, the assessee argued that none of the transactions recorded in the Excel sheet belonged to him and that there was no evidence establishing that the alleged cash had actually been paid to him. The assessee further pointed out that the cheque transactions appearing in the Excel sheet did not correspond with his disclosed bank accounts.
A key contention was that the Revenue had not undertaken the necessary exercise of tracing the cheque payments. According to the assessee, identifying the ultimate recipient of those cheques could have established whether the transactions actually related to him or to somebody else. The assessee also argued that the Excel sheet did not identify the recipient of the funds or disclose the purpose behind the payments.
The assessee additionally contended that no opportunity had been provided to cross-examine Dilip Jha, from whose laptop the document was recovered. It was argued that the reliance placed by the CIT(A) on Section 292C was misplaced because the statutory presumption concerning seized material operated in relation to the person from whom the material was recovered and could not automatically be used against the assessee.
The Revenue, on the other hand, defended the addition by arguing that Dilip Jha was an accountant of the Divyansh Group and that the group had been founded by the assessee. Since the Excel sheet had been recovered from the accountant’s laptop, the Revenue contended that there was a sufficient connection between the assessee and the transactions recorded in it.
The Revenue also relied upon Section 292C, arguing that documents recovered during a search carried a statutory presumption and that the Excel sheet, having been recovered from the accountant associated with the group, established a nexus with the assessee.
After examining the rival submissions and the material placed on record, the ITAT rejected the Revenue’s approach. The Tribunal specifically noted that the Excel sheet did record transactions totalling ₹1.65 crore involving Rakesh Sharma, but observed that the exact relationship between the assessee and Rakesh Sharma had not been established.
According to the Tribunal, the cheque entries in the same Excel sheet could have provided an important money trail. If those cheque payments had been shown to have been received by the assessee, it might have been possible to draw a connection between the cheque and cash transactions. However, the AO had not undertaken this investigation.
The Tribunal observed that the cheque payments could have been traced to determine whether the assessee was actually the beneficiary. In the absence of such an enquiry, the Bench concluded that there was no established nexus between the assessee and the impugned payments.
A significant aspect of the ruling concerns the Revenue’s reliance on Section 292C of the Income Tax Act. The Tribunal held that the provision could not be invoked mechanically to place the burden on the assessee merely because the disputed document was found during a search involving a person connected with the group.
The ITAT noted that the recipient of the cheque payments could have been readily identified. Had the Revenue established that the assessee received those cheques, the cash payments might potentially have been considered part of the same composite transactions. But that crucial evidentiary link was missing.
The Tribunal therefore described the AO’s satisfaction as being based on incomplete enquiries, making the reliance on Section 292C legally unsustainable in the circumstances of the case.
In reaching its conclusion, the Tribunal referred to the Calcutta High Court’s decision in Ajanta Footcare (India) Pvt. Ltd., reported at 84 taxmann.com 109 (Calcutta) [2017]. The decision discussed the nature of presumptions under the Income Tax Act and relied upon the Supreme Court’s interpretation in P. R. Metrani v. CIT.
The Tribunal highlighted the distinction between different statutory presumptions, particularly the significance of the expression “may be presumed.” As reflected in the cited authorities, such language gives the adjudicating authority discretion to draw a presumption depending upon the circumstances rather than imposing an automatic and irrebuttable conclusion.
The Tribunal further noted the principle that where the primary fact necessary to establish the connection between a document and an assessee has itself not been proved, the Revenue cannot simply rely upon a presumption to fill that evidentiary gap. In the present matter, the authorities had found insufficient evidence linking the document to the assessee in the first place.
On the basis of its findings, the Tribunal held that the ₹70 lakh addition made in the hands of the assessee for AY 2017-18 deserved to be deleted.
The Bench’s decision turned principally on the absence of a demonstrated evidentiary link between the assessee and the transactions recorded in the third-party Excel sheet. The failure to trace the cheque payments was particularly significant because such tracing could have either supported or disproved the Revenue’s theory that the cash and cheque transactions belonged to the assessee.
The ITAT considered it unnecessary to adjudicate the remaining grounds challenging the assumption of jurisdiction by the AO and other issues raised in the appeal. The appeal was accordingly allowed.
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