Case Law Details
ACIT Vs Prashant Prakash Nilawar (ITAT Mumbai)
Conclusion: Addition based on WhatsApp messages exchanged between the taxpayer and third parties, alleging undisclosed financial transactions was not justified as AO had simply relied on such material found from the premises of a third party and relied on third party statement to make addition without corroborating it with any kind of independent evidence and enquiry.
Held: In the instant case, premises of GNP Group were also covered during the search action on Rucha Group. During the said search action, certain evidences were found and seized from the mobile phone of one Shri Kaustubh Latke, which contained WhatsApp conversation between him and Shri Shailesh Patil. In this context, an image was retrieved wherein record of payment of Rs.3 crores by assessee to GNP Group was alleged to be found. Based on the contents of the image found in the mobile of Shri Kaustubh Latke and statement given by him, AO arrived at a conclusion that Rs.3 crores had been received by GNP Group from assessee was thus, required to prove the source of cash so paid and explain the nature of transaction with accounting of the same in his books of account. Assessee had strongly contended that he was unaware of who Shri Kaustubh Latke and Shri Shailesh Patil are, since they were not connected with him or Rucha Group. Assessee had requested for a copy of statement of Shri Kaustubh Latke, seized evidence and opportunity to cross examine him. AO noted that assessee had already been provided with the evidence and relevant portion of the statement and hence proceeded to complete the assessment by making the addition as unexplained expenditure u/s.69C. It was held that addition could not be made only on the basis of WhatsApp conversation between third parties without adducing corroborative evidence in support of such allegation. It was to be noted that CIT(A) after considering various judicial precedents to state that documents/material found from the premises of third party or a statement of third party could not be relied upon to make additions in the hands of the assessee, unless such material or statement was corroborated by independent evidence. Such material could be a good reason for starting an investigation, however, AO had simply relied on such material found from the premises of a third party and relied on third party statement to make addition without corroborating it with any kind of independent evidence and enquiry. Moreover, in respect of compliance of Section 65B of Indian Evidence Act which also applied on the issue in hand, there was no infirmity in the findings arrived at by CIT(A) in deleting the addition made by AO.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
These two cross appeals filed by Revenue and assessee are against the orders of Ld. CIT(A)-54, Mumbai, vide order no. ITBA/APL/S/250/2024-25/1067261020(1), dated 02.08.2024 passed against the assessment order passed by the Deputy Commissioner of Income-Tax, Central Circle- 6(1), Mumbai, u/s. 143(3) of the Income- tax Act (hereinafter referred to as the “Act”), dated 31.12.2022 for Assessment Year 2021-22.
2. Grounds taken by the Revenue in ITA 5689/Mum/2024 are reproduced as under:
i. “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of made u/s 69C of Rs. 14,00,000/- without appreciating the fact that the expenses incurred were not recorded in the books of accounts? The Ld. CIT(A) further did not appreciate that the assessee failed to co-relate with evidences that the expenses added u/s 69C pertain to the unaccounted income disclosed and had not submitted any details about the nature of expenses and had not submitted any evidences regarding the source of funds for the expenses?”
ii. “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of made u/s 69C of Rs.6, 18,73,000/-without appreciating the fact that corroborative evidence has been found from the camscanner app of the mobile of Shri Shailendra Rathi and Shri Shailendra Rathi was confronted of his statement wherein he has clearly mentioned that the relevant page wherein transaction pertaining of the assessee were found on page no. 8 wherein the amount of 6,18,73,000/- has been shown as the amount expended towards various parties?”
iii. “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of made u/s 6CA of Rs.3,00,00,000/-without appreciating the fact that Shri Kaushtubh Latke in his statement clearly accepted that the assessee had made cash payments to the tune of Rs.3,00,00,000/- to GNP Group in relation to consultancy charges in respect of sale of land in Pune?”
2.1 Grounds taken by assessee in ITA 5073/Mum/2024 are reproduced as under:
1) Notice issued u/s 143(2) is non-jurisdictional under the law (Para 3.1 on Page 2 of the CIT(A) Order)
On the facts of the case, in law and under the circumstances, the impugned assessment order dt. 31.12.2022 passed by the Learned AO u/s 143(3) of Income Tax Act as affirmed by the Ld. CIT(A) is bad in law and void for want of jurisdiction in as much as no notice was issued u/s 148 of the Act in the present case despite acknowledging the fact, the assessment was conducted pursuant to search u/s 132 of the Act.
2) Assessment made without following the procedure prescribed u/s 65B of the Indian Evidence Act. 1872
2.1) On the facts, circumstances of the case and in law, the learned CIT(A) has erred in reaching to an ultimate finding based entirely on loose sheets / documents making it substratum of his conclusion, without application of his mind contrary to the fact the learned AO is required to corroborate such loose documents with the independent evidence, without which, such loose papers are merely dumb material, inadmissible in law.
3) Addition of Rs. 70,00,000/- u/s 69A of the Act (Para 7 to 7.7 on Page 5 to 20 of CIT(A) Order)
On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition made by AO of Rs. 70,00,000/- u/s 69A of the Act based on image found from back up of mobile phone of third party Mг. Javed Shaikh without appreciating that the provisions of section 69A are not applicable to the present case and in any case the addition springs out a statement which was later on retracted.
In any case and without prejudice to the above, since the Ld. CIT(A) has accepted that a substantial expenditure was incurred out of the said alleged receipts of Rs.70,00,000/-, then in that case only the net income based on the reasonable profit rate could at all be taxed in the present case and to that extent the order of the Ld. CIT(A) as well as the Ld. AO is contrary to law.
4) Without prejudice to above, on the facts and circumstances of the case and in law, the appellant prays that If payment made as per the seized document is allowed and considered by CIT(A) as expenses and source of such expenses is considered as out of unaccounted “business receipts”, then net income is based on the reasonable profit rate is required to be estimated in present case.
5) Appellant prays that
1) Addition made u/s 69A / 69C based on various seized documents of third party and statement recorded u/s 132(4) on which relied upon by AO / CIT(A) is duly retracted, therefore, addition made u/s 69A/69C is to be deleted.
ii) The assessee craves your honour’s leave to add, alter or amend any ground of appeal at the time of hearing or before.
3. Brief facts of the case are that, assessee filed his return of income u/s. 139(4) on 30.03.2022, reporting total income at Rs. 5,75,61,820/-. A search and seizure action u/s.132 of the Act was conducted on 09.2021 which continued up to 30.09.2021 in the case of “Rucha Group”. Case of assessee was also covered under search and seizure action u/s.132. For the purpose of assessment, case of assessee was centralised to the office of Assistant Commissioner of Income-Tax, Central Circle – 6(1), Mumbai and was selected for compulsory scrutiny. Notices u/s. 143(2), dated 28.06.2022 was issued and duly served on the assessee through ITBA Portal. Subsequent to this, notices u/s. 142(1) were issued on several dates, commencing from 27.07.2022.
3.1 Assessee is engaged in the business of land aggregator for corporates and consultancy in the same field, as noted by the ld. Assessing Officer in para-4 of the impugned order. Assessee also derived income from house property, capital gain and from other sources. Impugned assessment was completed u/s. 143(3) by making an addition of 90,83,900/- u/s. 69A and Rs.9,67,10,536/- u/s. 69C, determining total assessed income at Rs.16,33,56,256/-.
4. In respect of addition of Rs.14 lakhs made u/s. 69C for which Revenue is in appeal vide ground no.1, corresponding ground is raised by assessee in his appeal vide ground no.3, whereby an addition of 70 lakhs is sustained by ld. CIT(A) towards unexplained money u/s. 69A. Both these additions arise out of one common seized material, thus, we take this for adjudication together. Ld. CIT(A) has given relief in respect of addition of Rs.14 lakhs made u/s. 69C, by observing that source of expenditure of this Rs.14 lakhs is out of Rs.70 lakhs and therefore, cannot be said to be unexplained.
4.1 Facts relating to this issue, wherein both Revenue and assessee are in appeal, is that during the course of search proceedings, a page containing certain alleged transactions was found and seized from data back-up of mobile I-phone of one Shri Javed This image is a tally ledger titled as “Eijaj Work”. In the said image, it reflects total debit entries of Rs.70 lakhs and total credit entries of Rs.14 lakhs. Details of the same are tabulated below:
4.2 Ld. Assessing Officer took note of statement of Shri Javed Shaikh recorded u/s.132(4), where in the answer to question no.43, it was stated that said journal was sent to him from Pune office and explained that these transactions are cash payments and receipts. Facts submitted by Shri Javed Shaikh were confronted to the assessee, in response to which assessee submitted that ‘Eijaj’ is an ex- employee of Rucha Group. Subsequently, Shri Javed Shaikh retracted from the statement. Ld. Assessing Officer rejected the contention of retraction vide his office communication dated 18.10.2022. Ld. CIT(A) confirmed the addition of Rs.70 lakhs based on this image found from the mobile of Shri Javed Shaikh and at the same time deleted the addition of Rs.14 lakhs relating to expenditure since both were also recorded on the same image.
4.3 Before us, thrust of Counsel of assessee is on the requirements to be complied in respect of section 65B(4) of the Indian Evidence Act, 1872 since the image or document relied upon by the ld. Assessing Officer is an electronic record which cannot be the basis for taking an adverse view unless a certificate as to its source and authenticity has been obtained as contemplated under the said section. In this respect, in the entire proceedings before the authorities below, there is no reference or mention of any certification u/s. 65B of the Indian Evidence Act and therefore reliance placed on the image being an electronic record found from the mobile of Shri Javed Shaikh is not tenable.
4.4 Ld. Counsel placed reliance on the decision of Hon’ble Supreme Court in the case of Anvar P.V. vs. P.K. Basheer [2014] 10 SCC 473, who observed that wherever a person is seeking to rely upon an electronic record, for the same produced in the evidence, a certificate u/s.65B of the Indian Evidence Act is mandatory. Paragraph 14 from this judgement reads as under:
“14. Any documentary evidence by way of an electronic record under the Evidence Act, in view of Sections 59 and 65-A, can be proved only in accordance with the procedure prescribed under Section 65-B. Section 65-B deals with the admissibility of the electronic record. The purpose of these provisions is to sanctify secondary evidence in electronic form, generated by a computer. It may be noted that the Section starts with a non obstante clause. Thus, notwithstanding anything contained in the Evidence Act, any information contained in an electronic record which is printed on a paper, stored, recorded or copied in optical or magnetic media produced by a computer shall be deemed to be a document only if the conditions mentioned under sub- Section (2) are satisfied, without further proof or production of the original. The very admissibility of such a document, i.e., electronic record which is called as computer out-put, depends on the satisfaction of the four conditions under Section 65-B(2). Following are the specified conditions under Section 65-B(2) of the Evidence Act:
i. The electronic record containing the information should have been produced by the computer during the period over which the same was regularly used to store or process information for the purpose of any activity regularly carried on over that period by the person having lawful control over the use of that computer;
ii. The information of the kind contained in electronic record or of the kind from which the information is derived was regularly fed into the computer in the ordinary course of the said activity;
iii. During the material part of the said period, the computer was operating properly and that even if it was not operating properly for some time, the break or breaks had not affected either the record or the accuracy of its contents; and
iv. The information contained in the record should be a reproduction or derivation from the information fed into the computer in the ordinary course of the said activity.”
4.5 Reliance is also placed on the decision of Hon’ble Supreme Court in the case of Arjun Pandirao Khotkar [2020] 7 SCC 1, which also has clearly held that section 65B(4) of the Indian Evidence Act is According to the Hon’ble Court, when documents from electronic records are produced by authorities and are sought to be used in evidence, in order to ensure the source and authenticity of the said documents, it is not only mandatory to obtain a certificate u/s.65B(4) of the Indian Evidence Act, but despite efforts if the person seeking such a certificate is unable to do so, he can apply to the court for its production and the Judge conducting the trial must require that such certificate be given.
4.6 Accordingly, ld. Counsel for the assessee emphasized that the addition made by the ld. Assessing Officer on the basis of image found on the mobile of Shri Javed Shaikh is un-sustainable when there is no evidence on record to show compliance u/s.65B of the Indian Evidence Act. He further asserted that statement of Shri Javed Shaikh was retracted which ld. Assessing Officer is stated to have rejected the same. Further, in the image found from the mobile what it states is “Eijaj Works” and contains only journal entries. There is no mention of name of the assessee or “Rucha Group” in the image. Since the image contains only the journal entries, therefore they cannot be construed as receipts or payments having cash movement. Ld. Counsel also submitted that even the statement given by the assessee was retracted though rejected by Assessing Officer. Ld. Counsel also submitted that no addition can be made relying on WhatsApp images found from the phone when the same is not corroborated by any other evidence during the course of search.
4.7 Per contra, ld. CIT (A) placed reliance on the orders of the authorities below.
5. We have heard both the parties and perused the material on record. Admittedly, from the perusal of the image found from the mobile of Shri Javed Shaikh as reproduced in the impugned assessment order, we note that there is nothing mentioned about the name of assessee. Further, it was found from person who was an employee of the assessee and had left the employment, as stated by the assessee in his statement. Furthermore, there is no corroborative material brought on record by the authorities below, to conclusively demonstrate that transactions are of the assessee for the purpose of making addition. Importantly, we also note that requirements of Section 65B of the Indian Evidence Act have not been complied with since the entire addition is based on image found from the mobile of Shri Javed Shaikh which is an electronic In this respect, we take note of the decisions of Hon’ble Supreme Court as stated above, which makes it mandatory to comply with the requirements in respect of electronic record, compliance of which has nowhere been mentioned in the entire proceedings.
5.1 In the given set of facts and circumstances, we delete the addition of Rs.70 lakhs made in the hands of the assessee as unexplained money u/s.69A of the Act. Further, we affirm the deletion of Rs.14 lakhs made by ld. CIT(A) in respect of addition made by ld. Assessing Officer u/s.69C by holding it as unexplained expenditure. Accordingly, ground taken by the Revenue is dismissed and that of the assessee is allowed.
6. Now, we take up ground 2 in the appeal by Revenue in respect of deletion of addition made u/s.69C amounting to Rs.6,18,73,000/- which is also based on documents, found and seized from mobile of one Shri Shailendra Rathi. Facts in this respect are that, during the course of search proceedings at the residence of Shri Shailendra Rathi, evidences containing hand written notes of cash amount received and disbursed from various activities were found as electronic images in the mobile of Shri Shailendra Rathi. From these electronic images, page no.8 is stated to be pertaining to assessee wherein Rs.6,18,73,000/- is stated to be amount expended towards various parties. From this evidence and statement recorded u/s. 132(4) of Shri Shailendra Rathi, ld. Assessing Officer noted that as on 15.11.2020, out of the total cash collected, expenses of Rs.6,18,73,000/- have been made for which explanations were called for from the assessee.
6.1 Assessee submitted that statements relied upon by the ld. Assessing Officer of Shri Shailendra Rathi as well as that of assessee have been retracted and therefore, they are no more good evidence. Ld. Assessing Officer, however, rejected the claim of the retraction of
6.2 Assessee explained that Shri Shailendra Rathi is an independent consultant and not an employee of the assessee. He does not work under the direct control and supervision of assessee and his association is limited to providing consultancy services on need basis to the assessee. Image found from the mobile of Shri Shailendra Rathi does not contain any reference to the name of assessee or Rucha Group. Ld. Assessing Officer not accepting the submissions of the assessee, proceeded to make the addition of the stated amount as unexplained expenditure u/s.69C. Before the ld. CIT(A), assessee reiterated its It was also asserted that ld. Assessing Officer did not make any efforts to identify the names of the parties to whom alleged sum was paid by the assessee and the purpose of such payment.
6.3 CIT(A), after considering the submissions made by the assessee observed that since ld. Assessing Officer has made addition on the basis of material found and seized from the third party and third party statement without any corroborative evidence which cannot be sustained. He deleted the addition made by the ld. Assessing Officer.
7. Before us, all the assertions have been Admittedly, it is a fact on record that the image/sheet is found from the mobile of Shri Shailendra Rathi during the course of search at his premises and not unearthed from the assessee. Assessee has denied having any knowledge of said image/sheet. The said image/sheet does not contain name of the assessee or Rucha Group. Shri Shailendra Rathi is an independent consultant and a third party in the context of assessee. Presumption u/s.132(4A) r.w.s. 292C are rebuttable presumption and such evidence is admissible against the person in whose possession such evidence was found. Therefore, assessee cannot be saddled with the responsibility to explain the image/sheet found from the mobile of a third person, more particularly in the present situation where the owner of the said document i.e., Shri Shailendra Rathi, himself could not clearly explain the contents therein as is evident from his statements recorded.
7.1 We have already dealt with the provisions of section 65B of the Indian Evidence Act in the above paragraphs, which squarely applies to the present piece of evidence relied upon by the Assessing Officer. On our observations and findings in this respect as stated above, the image/sheet found from the mobile of Shri Shailendra Rathi being an electronic record, used as evidence for the purpose of making addition in the hands of the assessee is without obtaining necessary certification in this regard and therefore, addition by ld. Assessing Officer is not tenable. Accordingly, considering the overall factual matrix and discussions made above, we do not find any infirmity in the findings arrived at by ld. CIT(A). Ground no.2 raised by the Revenue is thus, dismissed.
8. For Ground no. 3 raised by Revenue in respect of deletion of addition amounting to Rs.3 crores u/s.69A based on statement of one Shri Kaustubh Latke that payment is made by assessee to one group called as “GNP Group”, the stand of Revenue is that Shri Kaustubh Latke in his statement has accepted that assessee had made cash payment of this stated amount to GNP Group in relation to consultancy charges for sale of land in Pune. Therefore, the addition ought to be sustained.
8.1 Facts in this respect are that, premises of GNP Group were also covered during the search action on Rucha Group. During the said search action, certain evidences were found and seized from the mobile phone of one Shri Kaustubh Latke, which contains WhatsApp conversation between him and Shri Shailesh Patil. In this context, an image was retrieved wherein record of payment of Rs.3 crores by the assessee to GNP Group is alleged to be found. In this respect, the said entry is under the name “Nilawar”. Based on the contents of the image found in the mobile of Shri Kaustubh Latke and statement given by him, ld. Assessing Officer arrived at a conclusion that Rs.3 crores has been received by GNP Group from the Assessee was thus, required to prove the source of cash so paid and explain the nature of transaction with accounting of the same in his books of account.
8.2 Assessee has strongly contended that he is unaware of who Shri Kaustubh Latke and Shri Shailesh Patil are, since they are not connected with him or Rucha Group. There are no corroborative evidences found during the course of search to establish that reference to “Nilawar” is to assessee only. Assessee had requested for a copy of statement of Shri Kaustubh Latke, seized evidence and opportunity to cross examine him. In this respect, ld. Assessing Officer noted that assessee had already been provided with the evidence and relevant portion of the statement and hence proceeded to complete the assessment by making the addition as unexplained expenditure u/s.69C.
8.3 Ld. Assessing Officer did not make any independent enquiry, so as to ascertain the fact stated by Shri Kaustubh Latke in respect of sale of land at Pune in this respect. He did not identify details of land in Pune, i.e., its location, area, buyer, seller, consideration, etc., in relation to which assessee is alleged to be the recipient of consultancy services from Shri Kaustubh Latke. Ld. Assessing Officer has simply placed reliance on uncorroborated statement of Shri Kaustubh Latke and arrived at a conclusion that assessee had made payment of Rs.3 crores without adducing any evidence to that effect or conducting any enquiry. The seized document in the form of image found from the mobile of Shri Kaustubh Latke does not specify nature or purpose of the alleged transaction nor does have any signature or any other identification of the assessee.
8.4 It is trite law that addition cannot be made only on the basis of WhatsApp conversation between third parties without adducing corroborative evidence in support of such allegation. We also take note of detailed observations made by ld. CIT(A) after considering various judicial precedents to state that documents/material found from the premises of third party or a statement of third party cannot be relied upon to make additions in the hands of the assessee, unless such material or statement is corroborated by independent evidence, linking such material to the To our mind, such material can be a good reason for starting an investigation, however, ld. Assessing Officer has simply relied on such material found from the premises of a third party and relied on third party statement to make addition without corroborating it with any kind of independent evidence and enquiry.
8.5 Considering the fact pattern and the observations and findings of ld. CIT(A) as well as our discussion in respect of compliance of Section 65B of Indian Evidence Act which also applies on the issue in hand, we find no infirmity in the findings arrived at by the ld. CIT(A) in deleting the addition made by Assessing Officer. Accordingly, ground no.3 raised by the Revenue is dismissed.
9. Before parting, in addition to our discussion and conclusions arrived in the context of compliance requirements of section 65B of Indian Evidence Act, it is important to note that the impugned additions in the present appeals are based on electronic images/sheets found and seized from the mobile of the concerned persons/third parties in the course of their respective searches. In the present era of technology and digital communication, additions cannot be simply based on extracts of WhatsApp conversation between third parties without placing on record corroborative evidence to support the allegations. We make a useful reference to certain provisions contained in the Information Technology Act, 2000, wherein the term “electronic record” is defined in Section 2(t). According to this section, it means data, record or data generated, image or sound stored, received or sent in an electronic form or micro film or computer generated micro fiche. In this Act, section 11 deals with attribution of electronic records for the purpose of attributing the same to the originator of such electronic records. Section 11 is reproduced as under:
11. Attribution of electronic — An electronic record shall be attributed to the originator—
a. if it was sent by the originator himself;
b. by a person who had the authority to act on behalf of the originator in respect of that electronic record; or
c. by an information system programmed by or on behalf of the originator to operate automatically.
9.1 In the present case, before us, additions have been made on the basis of electronic images / sheets found and seized from the mobiles of concerned persons/third parties which are electronic records. Section 132(4A) w.s. 292C contains presumption as to evidence which is admissible against the person in whose possession or control such evidence is found and such a presumption is a rebuttable presumption. Section 11 of the Information Technology Act also attributes the electronic record to its originator when it was sent by the originator himself or any person authorised on his behalf or by a system programmed by or on behalf of the originator. Keeping the provisions of the Act and of Information Technology Act discussed herein, there cannot be any presumption or attribution on the assessee in respect of the electronic records (electronic images / sheets found and seized from the mobiles) based on which additions have been made in the hands of the assessee.
9.2 In the given context, Hon’ble Supreme Court in the case of Ambalal Sarabhai Enterprise KS Infraspace LLP Ltd, Civil Appeal No. 9346 of 2019 dealt on the aspect of WhatsApp chats and observed as under:
“The WhatsApp messages, which are virtual verbal communications, are matters of evidence with regard to their meaning and its contents to be proved during trial by evidence_ in_chief and cross-examination. The emails and WhatsApp messages will have to be read and understood cumulatively to decipher whether there was a concluded contract or not”.
9.3 Hon’ble Apex Court highlighted the importance of proving the contents of WhatsApp chat during trial by evidence and also cross examination. In the present case, A.O neither provided any evidence in support of the WhatsApp chats relied upon by him nor did he provide the opportunity to cross examine the third parties even after a specific request was made by the assessee.
9.4 Also, Coordinate Bench of ITAT, Chennai in the case of Mr. A. Johnkumar vs. DCIT in ITA No.3092/Chny/2019 dealt with issues relating to additions made based on WhatsApp messages and observed as under:
“First of all, WhatsApp messages cannot be considered as a conclusive evidence to draw an adverse inference against the assessee, unless those WhatsApp messages are supported by corroborative evidences to indicate that those messages and contents represents undisclosed income of the assessee.
……The AO neither bring on record from which person, the assessee has received cash and to whom the assessee has distributed cash. The AO neither made out a case of source for cash and destiny of cash distributed by the assessee. In other words, the AO has abruptly concluded in his own understanding of the messages, the assessee has received so much of cash and distributed so much of cash and which is nothing but cash for votes and hence, concluded that the assessee has incurred a sum of Rs.17 Crs. for distribution of cash to voters and which is nothing but unexplained expenditure taxable u/s.69C of the Act……….Further, the AO had relied upon the WhatsApp messages sent from assessee’s mobile phone to Mr. Somu and had given his own meaning to those messages. In the process, the AO neither tested the admissibility of WhatsApp messages as evidence u/s.69B of Evidence Act, nor examined Mr. Somu the recipient of messages sent by the assessee. The AO without carrying out necessary enquiries and also examining those persons, simply concluded that those messages are meant for distribution of cash and the assessee has spent such a huge amount for election expenses. In our considered view, the findings recorded by the AO is purely on suspicion and surmises manner without any evidences to justify his findings.
9.5 Keeping the context of material found and seized from third parties, we also refer to decision in the case of ACIT vs. Lata Mangeshkar [1974] 97 ITR 696 (Bom) wherein Hon’ble Court has extensively discussed the importance and meaning of primary In this case, Income-tax authorities came across a sort of a ledger maintained by a firm known as Vasu Films of Madras which was seized by them. Department relied on the entries in the ledger which allegedly reflected payments to Ms. Lata Mangeshkar in white and black and took the view that no receipts were shown by the assessee (i.e. Ms. Lata Mangeshkar) in the regular books of accounts. Statements of the managing partner of Vasu Films and firm’s Bombay manager were recorded in which they explained the entries stating that the letter “W” put against payment is “White” while the letter “B” were put against payment is “Black”. Income-tax officer made additions on the basis of entries as in the seized material alleging that these payments were outside the books of accounts and also relied upon the statements made by these two persons. The Appellate Assistant Commissioner confirmed the additions made by the Income- tax Officer.
9.5.1 Before the Tribunal, it was contended on behalf of the assessee that the entire evidence merely created suspicion and it did not take the place of proof. Tribunal after appreciating all the evidence came to a conclusion that evidence was not sufficient to prove that assessee had received money in “black” for which she did not pass a receipt in the regular books of accounts. In the statement recorded of managing partner, it was pointed out by the Tribunal that he had no personal knowledge of the actual payments made to the assessee and therefore his evidence could not carry the case of the Department any further. In the statement of firm’s Bombay manager, he accepted that he had made payments in “black” to the assessee. It was pointed out by the Tribunal that he used to receive amounts from Madras from which he used to make disbursements in Bombay but he maintained no account in respect of the same which made it difficult to rely on his evidence. Hence, Tribunal rejected the entries and disbelieved the statement of the two witnesses.
9.5.2 An appeal was filed before the High Court of Bombay. The High Court of Bombay after considering all the circumstances held that the Tribunal was justified in holding that the additions were wrongly made stating as below:
“Moreover, entries in books of account-whether in day-book or in the ledger-are merely corroborative evidence and in the absence of proper corroborative evidence the primary direct evidence would alone be required to be scrutinized and that evidence in this case consisted of the testimony of C. S. Kumar and the evidence of that witness was found to be thoroughly unreliable by the Tribunal. After all, the entries in the day-book or the ledger would be a corroborative piece of evidence and once the direct evidence of the person who is said to have made payments in “black” to the assessee is disbelieved, we do not think that any value could be attached to the entries in the ledger or to the entries in the day- book even if one had been produced. In the circumstances, we feel that the questions which are sought to be referred arise out of a finding of fact recorded by the Tribunal on pure appreciation of evidence.”
9.6 We also refer to the decision of Hon’ble Supreme Court in the case of CBI vs. V.C. Shukla & Ors. 1998 (3 SCC 410) (SC), where Section 34 of the Evidence Act, 1872 has been explained and held that entries in a file containing loose sheets of papers were not “book” and hence entries therein were not admissible under Section 34 of the Evidence Act. Further, it was also held in this case that entries in books of account shall not alone be sufficient evidence to charge any person with liability. Entries, even if relevant, were only corroborative evidence. Independent evidence as to trustworthiness of those entries was necessary to fasten the liability. In view of these facts, it was held by the Hon’ble Court that entries made in the Jain Hawala diaries are under Section 34, but truthfulness thereof was not proved by any independent evidence. Hon’ble Supreme Court further went on to state that even correct and authentic entries in books of account cannot, without independent evidence of their trustworthiness, fix a liability upon a person. The relevant extracts are as under.
18. “Book” ordinarily means a collection of sheets of paper or other material, blank, written, or printed, fastened or bound together so as to form a material whole. Loose sheets or scraps of paper cannot be termed as “book” for they can be easily detached and replaced in dealing with the word “book” appearing in Section 34 in Mukundram v. Dayaram a decision on which both sides have placed reliance, the Court observed:- “In its ordinary sense it signifies collection of sheets of paper bound together in a manner, which cannot be disturbed or altered except by tearing apart. The binding is of a kind which is not intended to the moveable in the sense of being undone and put together again. A collection of papers in a portfolio, or clip, or strung together on a piece of twine which is intended to be untied at will, would not, in ordinary English, be called a book…. I think the term ‘book’ in Section 34 aforesaid may properly be taken to signify, ordinarily, a collection of sheets of paper bound together with the intention that such binding shall be permanent and the papers used collectively in one volume. It is easier however to say what is not a book for the purposes of Section 34, and I have no hesitation in holding that unbound sheets of paper, in whatever quantity, though filled up with one continuous account, are not a book of account within the purview of Section 34.” We must observe that the aforesaid approach is in accord with good reasoning and we are in full agreement with it. Applying the above tests it must be held that the two spiral note books (MR 68/91 and MR 71/91) and the two spiral pads (MR 69/91 and MR 70/91) are “books” within the meaning of section 34, but not the loose sheets of papers contained in the two files (Mrs 72/91 and 73/91).’
9.7 Also, Hon’ble Supreme Court in case of Common Cause v. UOI [2017] 394 ITR 220 (SC), wherein searches were conducted on the Birla and Sahara Group of Companies and incriminating material in form of random sheets and loose papers, computer prints, hard disk, pen drives etc. were found, held that noting on loose sheet/diary does carry any evidentiary value under the provision of section 34 of the Evidence Act. Relevant extract reads as under.
“It is apparent from the aforesaid discussion that loose sheets of paper are wholly irrelevant as evidence being not admissible U/s 34 so as to constitute evidence with respect to the transactions mentioned therein being of no evidentiary value.
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In case of Sahara, in addition we have the adjudication by the Income-tax Settlement Commission. The order has been placed on record along with I.A. No.
4. The Settlement Commission has observed that the scrutiny of entries on loose papers, computer prints, hard disk, pen drives etc. have revealed that the transactions noted on documents were not genuine and have no evidentiary value and that details in these loose papers, computer print outs, hard disk and pen drive etc, do not comply with the requirement of the Indian Evidence Act and are not admissible evidence. It further observed that the department has no evidence to prove that entries in these loose papers and electronic data were kept regularly during the course of business of the concerned business house and the fact that these entries were fabricated, non-genuine was proved. It held as well that the PCIT/DR have not been able to show and substantiate, the nature and source of receipts as well as nature and reason of payments and have failed to prove evidentiary value of loose papers and electronic documents within the legal parameters. The Commission has also observed that Department has not been able to make out a clear case of taxing such income in the hands of the applicant firm on the basis of these documents. It is apparent that the Commission has recorded a finding that transactions noted in the documents were not genuine and thus has not attached any evidentiary value to the pen drive, hard disk, computer loose papers, computer printouts. Since it is not disputed that for entries relied on in these loose papers and electronic data were not regularly kept during course of business, such entries were discussed in the order dated 11-11-2016 passed in Sahara’s case by the Settlement Commission and the documents have not been relied upon by the Commission against assessee, and thus such documents have no evidentiary value against third parties. On the basis of the materials which have been placed on record, we are of the considered opinion that no case is made out to direct investigation against any of the persons named in the Birla’s documents or in the documents A-8,A-9 and A-10 etc. of Sahara ”
10. Accordingly, considering the above fact pattern and circumstances as well as judicial precedents discussed above, along with Section 65B of the Indian Evidence Act, 1972, grounds raised by Revenue in its appeal are dismissed, resulting in appeal of the Revenue being dismissed and grounds raised by the assessee in ground 2 and 3 are allowed. For Ground no.1, which is on legal jurisdictional issue, the same is kept open and not adjudicated upon since the case has been decided on the merits of the case allowing the claim of the assessee in respect of addition so made. In the result, appeal of the assessee is partly allowed.
Order is pronounced in the open court on 12 February, 2025
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