DCIT Vs Prateek Chitkara (ITAT Delhi)
The Delhi Bench of the ITAT has upheld the CIT(A)’s detailed factual examination of diaries seized during a search and rejected the Revenue’s attempt to attribute every entry exclusively to the assessee. The Tribunal held that the seized material itself demonstrated that the cash committees were jointly organised by the assessee and another person. It accordingly upheld the equal apportionment of the amounts between the two organisers and sustained the drastic reduction of the addition for AY 2019-20 from ₹63.06 crore to ₹1.78 crore.
A survey operation was conducted at the business premises of M/s Dengen Products India LLP, in which the assessee, Mr. Prateek Chitkara, was a partner. During the survey, certain documents considered incriminating were found. The survey was consequently converted into a search and a warrant of authorisation was executed on 08-12-2018.
During the search, ten diaries marked as Annexures A-1 to A-10 were seized. These diaries contained entries indicating substantial receipts and payments in cash. Although the assessee was not present at the premises, one of his employees, Mr. Shiv, was present. In statements recorded u/s 132(4) and subsequently u/s 131(1A), the employee stated that the diaries contained details of receipts and payments relating to cash committees operated from the assessee’s premises at Karol Bagh.
Based upon the diaries and the statements, the AO concluded that the entire cash-committee activity belonged to the assessee. For AY 2019-20, an addition of ₹63,06,73,258 was made. A further addition of ₹1,34,48,318 was made for AY 2017-18. The additions were described as unexplained investment or unexplained receipts arising from the seized material.
Before the CIT(A), the central controversy was whether the assessee was the sole organiser of the cash committees, whether he jointly operated them with Mr. Harpreet Singh Talwar, or whether he was not involved in the activity at all.
The CIT(A) examined the ten seized diaries, the statements and the working pattern of the cash committees. In such committees, several participants contribute a fixed amount every month. The pooled amount is then allotted to the successful bidder. The organiser is ordinarily compensated by receiving the right to take the second or third monthly draw without suffering any deduction or competitive bidding. Therefore, the person availing the preferential second or third draw is a strong indicator of the identity of the organiser.
On examining the seized diaries, the CIT(A) found that the preferential draw was not invariably taken by the assessee. In different committees, the second or third draw was availed either by the assessee or by Mr. Harpreet Singh Talwar. This pattern constituted significant internal evidence that the assessee was not the sole organiser and that the activity was jointly carried on by both persons.
This conclusion was also supported by the AO’s own notice u/s 142(1), which had referred to the committees as being run by the assessee along with Mr. Talwar. Further, several persons identified from the diaries were recorded as being “care of Harpreet Singh Talwar.” An FIR produced by the assessee also linked certain disputed persons with Mr. Talwar.
The CIT(A) therefore concluded that the assessee and Mr. Talwar were co-organisers and equal partners in the cash-committee activity. Accordingly, any amount ultimately attributable to the organisers had to be apportioned equally between them.
The CIT(A) then examined the AO’s computation of ₹63.06 crore. The AO had attributed very large amounts to three allegedly unidentified persons—Mr. Sachiv Batra, Mr. Aman Arora & Mr. Raman Arora. However, after physically examining the diaries and reconciling the entries with the assessee’s tabulation, the CIT(A) found that the amounts of ₹14.50 lakh, ₹31.53 crore & ₹17.02 crore attributed by the AO to these persons did not emerge from the seized diaries.
The correct amount capable of being considered from the seized material was only ₹3,57,16,400, and not ₹63,06,73,258. In the case of Mr. Sachiv Batra, summons had been duly served, though he did not respond. More importantly, no amount was found recorded as having been received from him during AY 2019-20. Therefore, there was no factual basis for an addition relating to him.
As regards Mr. Aman Arora and Mr. Raman Arora, the CIT(A) found that the assessee had not produced adequate independent evidence of their identity, apart from the FIR. The summons issued to them had also remained unserved. Some addition was, therefore, considered justified in relation to the relevant entries.
However, since the committee activity was jointly organised by the assessee and Mr. Talwar, only one-half of ₹3,57,16,400 could be attributed to the assessee. The CIT(A) accordingly sustained ₹1,78,58,200 in the assessee’s hands and directed that the equal balance be assessed in the hands of Mr. Talwar. The AO happened to have jurisdiction over both organisers.
The Revenue challenged this relief before the ITAT. It contended that the assessee had failed to produce confirmations, financial statements or verifiable evidence establishing the identity and creditworthiness of the contributors and genuineness of the transactions. It further relied upon the statutory presumption u/s 292C, arguing that documents found at the searched premises were presumed to belong to the assessee unless the contrary was proved.
The ITAT rejected the Revenue’s arguments. It found that the CIT(A) had passed a detailed and well-reasoned order after examining the seized diaries themselves. The reduction in quantum was based on the finding that the massive amounts adopted by the AO were not reflected in the seized material. Similarly, equal apportionment between the two organisers flowed from the internal contents of the diaries and the pattern of preferential draws.
The Tribunal held that the CIT(A)’s findings did not warrant interference and upheld them in full. Since the factual position for AY 2017-18 was similar, the same conclusion was applied to that year. Both Revenue appeals were dismissed.
Author’s Comments
The ruling demonstrates that the presumption u/s 292C is powerful but not a licence to make additions disconnected from the contents of seized material. A seized diary may be presumed to belong to the searched person, but the quantum, ownership and legal consequences of its entries must still be determined through careful examination.
The CIT(A) did not grant relief merely on the assessee’s denial. He studied the operational pattern of the committees, identified who received the preferential organiser’s draw and reconciled the actual entries. That exercise revealed both an inflated computation and joint control of the activity.
The broader principle is simple: search material must be interpreted as a whole. The Revenue cannot rely upon a diary to make an addition while ignoring those very entries which show that another person jointly conducted the activity. Presumption may begin the inquiry, but it cannot replace fact-finding.
FULL TEXT OF THE ORDER OF ITAT DELHI
