Kailash Gahlot Vs DCIT (ITAT Delhi)
Delhi Tribunal upheld the addition of ₹42.98 lakh as unexplained expenditure u/s 69C, arising from a diary seized during search showing election-related expenses, but granted partial relief by holding that the 60% tax rate u/s 115BBE was inapplicable for AY 2015-16.
The diary seized from Gahlot’s office contained entries referring to “KG Sir,” his relatives, phone number & website, proving nexus to him. Tribunal held that the presumption u/s 292C applied and that the affidavit of the diary’s author, Rohit Sharma, lacked evidentiary value.
It also rejected Gahlot’s argument that approval u/s 153D was mechanical, holding it to be administrative & valid. Thus, while sustaining the addition, Tribunal directed tax to be computed as per pre-amendment 115BBE, allowing the appeal partly.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal of the assessee for Assessment Year (‘AY’) 2015-16 is directed against the order dated 30.09.2023 of the Commissioner of Income Tax (Appeals)-23, New Delhi [‘CIT(A)’].
2. The assessee has raised following grounds:
“1. The CIT(A) erred in law and on facts in confirming an addition of Rs. 42,98,086/- as unexplained expenditure u/s 69C of the Act by holding the diary of Mr. Rohit Sharma seized from the office of the assessee as belonging to the assessee by applying the presumption u/s 132(4) of the Act ignoring that the said presumption is a rebuttable presumption which got rebutted: (i) by the affidavit of Mr. Rohit Sharma placed on record where he owned the said diary and also explained the contents of the same therein; (ii) when the diary has been owned by a third party, the diary cannot be considered as belonging to the assessee as per the settled law; (iii) no amount mentioned therein was ever given by the appellant; and (iv) also ignoring the explanation of each entry given by him in the affidavit without examining him. Thus, the addition so made ignoring the said affidavit without bringing any adverse evidence on record should be deleted.
2. The CIT(A) erred in law and on facts in confirming the addition of Rs 42,98,086/- as unexplained expenditure u/s 69C of the Act being the amounts mentioned in a diary seized from his office premises as expenses incurred by the appellant during his election campaign ignoring: (i) that the said diary did not belong to the appellant; (ii) the appellant never incurred the said amount during his election campaign in his constituency as the Expenditure Observer appointed by the Election Commission never challenged the same; (iii) the genuineness of the contents of the replies or the credibility of the evidence placed by the Appellant before him; and (iv) the evidences placed on record to show that the said amounts spent by many party workers on their own volition without the knowledge of the appellant. Thus, the addition so made should be deleted.
3. Without prejudice to the above, the Assessing Officer erred in law and on facts in making an addition of Rs.42,98,086/- as unexplained expenditure u/s 69C of the Act without appreciating that there were many duplicate / triplicate entries in the said diary and all the amounts cannot be aggregated for the purpose of computing the amount spent. Thus, the addition so made should be deleted.
4. The impugned assessment order is bad in law and on facts as it is based on a mechanical approval u/s 153D of the Act given by the Addl. CIT without application of his mind as a supervisory authority on the subject in law and on facts and the material available on the record. Thus, the same must be quashed.
5. Without prejudice to the above grounds, the assessing officer erred in law and on facts in charging tax u/s 115BBE of the Act whereas the additional tax liability was applicable w.e.f. AY 2017-18 and such addition otherwise does not attract the said section, which must be reversed.
6. The appellant craves the leave to add, substitute, modify, delete or amend all or any ground of appeal either before or at the time of hearing.”
3. It is relevant to mention here that this appeal was dismissed vide order dated 02.07.2024 by the co-ordinate bench. Later, the assessee filed Miscellaneous Application No. 280/Del/2024, which was allowed and this appeal was recalled vide order dated 30.01.2025 as under: –
“8. From examination of record in light of aforesaid rival contentions, it is crystal clear that para no. 10 of impugned order mentions submissions regarding impugned orders being passed on mechanical approval under Section 153D of the Act without due application of mind. Para no. 11 of the order mentions that charging tax under Section 115BBC of the Act whereas the additional tax liability was applicable w.e.f. assessment year 2017-18 was not attracted. The above-said arguments inadvertently escaped adjudication. Ground of appeal no.3 regarding aggregate amount of Rs.42,98,086/- is being aggregated duplicate/ triplicate entries has not been adjudicated. The addition is based on entries in diaries by Rohit Sharma was rejected on the ground of absence of specific details and supporting documents and then accepting the same that contents against appellant. In absence of specific diaries which were contradictory. Accepting of contents of a third-party diary without independent corroboration was against law as laid down by the Hon’ble Supreme Court in Common Case [2017] 77 taxmann.com 245 (SC) and CBI Vs. V.C. Shukla [1998] 3 SCC 410 and thus apparent from record.
9. As per ratio of judgment in Shri Rashesh Manhar Bhansali vs. Addl. Commissioner of Income Tax, supra, it is well settled principles of law that non-consideration of detailed submissions would result in a mistake apparent from record in the order.
10. In view of above material facts and well settled principles of law, impugned order dated 02.07.2024 being unsustainable in law is set aside. The appeal is restored to its original number. The Registry is directed to fix the appeal for hearing on out of turn basis on 21.07.2025.”
4. The relevant facts giving rise to this recalled appeal are that the assessee along with Corporate International Financial Services Ltd. group of cases were searched under Section 132 of the Income Tax Act, 1961 (‘Act’) on 10.10.2018. The assessee had furnished its original Income Tax Return (‘ITR’) of the relevant year declaring income of Rs.1,66,73,890/- on 24.09.2015. As consequence of the search, notice under section 153A of the Act was issued to the assessee, who filed ITR declaring the same income as in the original ITR. The case was scrutinized and consequential assessment was completed at income of Rs.2,09,71,980/-, wherein an addition of unexplained expenditure of Rs.42,98,086/- was made. During the course of search under Section 132 of the Act, the office premises of assessee at Block-A, Prem Nursery, Najafgarh, New Delhi was also searched which resulted seizure of certain incriminating documents in the form of diary containing details of various expenditure, not found duly accounted for in regular books of accounts, relating to the Delhi Legislature Election (the assessee contested that election). The expenditure as per the seized diary, worked out to Rs.42,98,086/- whose source was not explained by the assessee during the course of the assessment proceedings, therefore, the Ld. Assessing officer (‘AO’) observing as under taxed the same under section 69C of the Act: –
“6.3.1 The written submission filed by AR of the assessee has been perused and found that the assessee has mainly contended that the diary was found from the office of the assessee and not found from the possession of the assessee. The said diary was written by Shri Rohit Sharma and the same belongs to him for this effect the AR of the assessee has also filed the affidavit of Shri Rohit Sharma. Further, as regards it is also contended that whatever written in diary is related to Shri Rohit Sharma. The contention of the assessee is not acceptable for the reason that a search and seizure action was carried out at the office premise situated at A-Block Prem Nursery, Najafgarh, New Delhi which is office of the assessee. During the course of search proceedings, a diary having details of expenses incurred during election period was seized and same was marked as Annexure A-2 from the premises owned and controlled by assessee. Therefore, in view of provisions of section 132(4A) and 292C of the Act, it can easily be presumed that this evidence belongs to the assessee only. On analysis of entries mentioned in diary, it clearly depicts that the expenses incurred and mentioned in the diary are related to election contested by the assessee wherein various items like flex board, Pamphlets/leaflets, Stickers, Hal wai for food, purchasing Rassi, calendar vendor, Caps (Topi) for AAP, Flags etc. are written which establishes that the expenses are incurred on election material by the assessee out of his undisclosed income. Further, the diary found from the office of assessee means that the assessee has control over the diary and the same must have been prepared by Shri Rohit Sharma under the supervision and on the direction of assessee. The dairy contains details of expenses made during the election held in New Delhi in FY 14-15 in which the assessee contested election and was candidate from AAP party. Further, in the reply and affidavit filed by the assessee, it is stated by the assessee that shri Rohit Sharma is volunteer of Aam Aadmi Party and he contributed in many activities of the said election for promoting AAP. Although as per law and on facts, it is proved that diary belongs to assessee and even if consider that diary is of Sh. Rohit Sharma but the same was definitely maintained on the direction of assessee and the expenses incurred on these election materials have been made out of his undisclosed income. Therefore, as per discussion held above and on the basis of seized/incriminating material and findings made during the course of search as well as during the course of assessment proceedings. Accordingly, an amount of Rs. 42,98,086/- is treated as unexplained and added to the total income of the assesses u/s 69C of the Act as unexplained expenditure for the year under consideration and taxed us 115JB of the IT Act, 1061.
(Addition: Rs. 42,98,086/-)”
5. Dissatisfied with the search assessment order, the assessee filed appeal before the Ld. CIT(A), but did not succeed. Hence, this appeal is before us.
