Case Law Details
Mitul Jagdishchandra Shah Vs ITO (ITAT Pune)
Pune ITAT Deletes ₹50 Lakh Penalty U/s 271D; Third-Party Statement Alone Cannot Prove Cash Loan
In a significant ruling, the Pune ITAT deleted a penalty of ₹50 lakh levied under section 271D for alleged violation of section 269SS, holding that the Revenue cannot impose penalty merely on the basis of a third-party statement and loose papers without any independent corroborative evidence proving receipt of a cash loan.
The assessee was alleged to have received a cash loan of ₹50 lakh from another person based on information gathered during a search conducted on a third party. Throughout the assessment and penalty proceedings, the assessee consistently denied having received any such cash loan and repeatedly sought copies of the incriminating material, the relevant statement relied upon by the Department, and an opportunity to cross-examine the person whose statement formed the sole basis of the allegation. These requests were not acceded to.
The Tribunal observed that the Assessing Officer had accepted the returned income and initiated penalty proceedings solely on the basis of the lender’s statement. No documentary evidence, corroborative material, banking trail, or other evidence was brought on record to establish that the assessee had in fact received any cash loan. Further, no opportunity for cross-examination was provided, despite specific requests by the assessee.
Relying on the Supreme Court decision in Common Cause v. Union of India, the Tribunal reiterated that loose sheets and random entries have no evidentiary value unless supported by independent and reliable evidence. It held that allegations based on third-party material cannot be sustained where the assessee has neither admitted the transaction nor been confronted with admissible evidence establishing the receipt of cash.
The Tribunal concluded that the penalty proceedings were founded on surmises and conjectures, and that the Revenue had failed to prove any violation of section 269SS. Accordingly, the penalty of ₹50 lakh under section 271D was deleted and the assessee’s appeal was allowed.
FULL TEXT OF THE ORDER OF ITAT PUNE
The captioned appeal at the instance of assessee pertaining to the Assessment Year 2022-23 is directed against the order dated 01.01.2026 of National Faceless Appeal Centre, Delhi passed u/s.250 of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) arising out of the Assessment Order dated 19.03.2024 passed u/s.143(3) r.w.s.144B of the Act.
2. The sole grievance of the assessee is that ld.CIT(A) erred in confirming the action of the Assessing Officer levying penalty u/s.271D of the Act.
3. Brief facts of the case are that the assessee is an individual and filed the return of income for A.Y. 2022-23 on 28.12.2022 declaring total income of Rs.4,33,620/- and agricultural income of Rs.90,551/-. Case selected for scrutiny through CASS for the reason “Verification report uploaded through VRU”. As per the credible information, search u/s.132 of the Act was carried out by Investigation Wing, Surat on 13.12.2021 at the business premises of M/s.Sumangal Safe Deposit Vault LLP. As per the record, it has been observed that the assessee is alleged to have received cash loan of Rs.50.00 lakhs from Mr. Mahendrakumar C. Mehta. During the course of the assessment proceedings, assessee denied to have taken any cash loan from Mr. Mahendrakumar C. Mehta and further asked to provide copies of incriminating papers, copy of statement of Mr. Mahendrakumar C. Mehta recorded, relevant portion of the assessment order reflecting as to how the alleged transaction was considered in the assessment of Mr. Mahendrakumar C. Mehta and an opportunity for cross examination. However, ld. Assessing Officer accepted the returned income but solely based on the statement of Mr. Mahendrakumar C. Mehta invoked the provisions of section 269SS and initiated the penalty proceedings u/s.271D of the Act. In the penalty proceedings, assessee denied to have taken any cash loan from Mr. Mahendrakumar C. Mehta, however, ld. Assessing officer only took cognizance of statement of Mr. Mahendrakumar C. Mehta and levied alleged penalty u/s.271D of the Act on the assessee at Rs.50,00,000/-.
4. Aggrieved assessee preferred appeal before ld.CIT(A). However, ld.CIT(A) did not give any relief to the assessee confirming the penalty levied by the Assessing Officer.
5. Aggrieved assessee is now in appeal before this Tribunal.
6. Ld. Counsel for the assessee vehemently argued referring to the written submissions filed before both the lower authorities as well as before this Tribunal stating that assessee has never accepted to have taken any cash loan from Mr. Mahendrakumar C. Mehta. Ld. Assessing Officer has levied the penalty based on the statement given by Manohar Singh Mehta but neither provided the statement of Mr. Mahendrakumar C. Mehta nor provided any opportunity of cross examination. He submitted that the alleged transaction of cash loan by the assessse from Mr. Mahendrakumar C. Mehta is unilateral action against the assessee without establishing the evidence that the assessee was infact involved in the alleged cash loan also. The statement of Mr. Mahendrakumar C. Mehta cannot be considered as evidence as it is a third party statement and that ld. Assessing Officer has merely acted on presumption and guess work because the documents on the basis of which statement of Mr. Mahendrakumar C. Mehta were in the form of loose papers containing random entries and were inconsistent and mutually contradictory. Reliance placed on the following decisions :
1. Kishanchand Chellaram vs. CIT [125 ITR 0713 (SC)]
2. CIT vs. P.V. Kalyanasundaram [294 ITR 0049 (SC)]
3. Ushakant N. Patel vs. CIT [282 ITR 553 (Guj HC)]
4. CIT vs. Vatika Landbase Pvt. Ltd. [383 ITR 320 (Del)]
5. ACIT vs. Miss Lata Mangeskar [97 ITR 696 (Bom)]
6. Sheth Akshay Pushpavadan vs. DCIT [130 TTJ 42 (UO) (Ahd. Trib)]
7. DCIT vs. Shri Gaurangbhai P. Upadhyay [ITA No. 208 to 216/SRT/2017]
8. ACIT vs. M/s. Prakash Asphaltings & Toll Highways (India) Ltd. [ITA Nos. 793 to 799/Ind/2019 and ITA No. 800 to 805/Ind/2019]
9. ITO vs. Muez Hest India Ltd. [ITA No 6889/Mum/2016)]
7. On the other hand, ld. Departmental Representative supported the order of ld.CIT(A).
8. We have the rival contentions and perused the record placed before us. The only issue for our consideration is about the levy of penalty u/s.271D of the Act on the assessee for taking alleged cash loan from Mr. Mahendrakumar C. Mehta. We note that the impugned penalty has been levied by the Assessing Officer on the basis of statement of Mr. Mahendrakumar C. Mehta which was recorded during the course of search at the business premises of M/s. Sumangal Safe Deposit Vault LLP u/s.132 of the Act on 03.12.2021. Even though assessee has repeatedly asked the Assessing Officer to provide copy of incriminating material, copy of statement of Mr. Mahendrakumar C. Mehta related to the assessee, as well as relevant portion of the assessment order reflecting as to how the transaction of Rs.50,00,000/- was considered in the assessment of Mr. Mahendrakumar C. Mehta still ld. Assessing Officer neither provided any opportunity or cross examination to the assessee nor given any reply as to how the alleged cash loan was considered in the assessment of Mr. Mahendrakumar C. Mehta .
9. We find force in the contention of ld. Counsel for the assessee that if the alleged sum of Rs.50,00,000/- is not added in the hands of Mr. Mahendrakumar C. Mehta, such cash available with Mr. Mahendrakumar C. Mehta is neither explained nor copy of assessment order has been filed, then how can the assessee be alleged to have taken the alleged cash loan. We also note that assessee has not been provided with any opportunity of cross examination and that assessee has never accepted to have taken cash loan from Mr. Mahendrakumar C. Mehta . It is a clear case where the ld. Assessing Officer has only taken the basis of statement of Mr. Mahendrakumar C. Mehta but there being no other incriminating material or any corroborative evidence which could prove that the assessee has taken unsecured loan and that specific transaction has been unearthed which could show that the assessee is having regular transactions with Mr. Mahendrakumar C. Mehta.
10. Hon’ble Apex Court in the case of Common Cause (A Registered Society) v. Union of India, [2017] 77 com245 (SC) has held that “loose sheets of papers are wholly irrelevant as evidence being not admissible under section 34 so as to constitute evidence with respect to the transactions mentioned therein being of evidentiary value”. Hon’ble Apex Court further held that “there has to be some relevant and admissible evidence and some cogent reason, which is prima facie reliable and that too, supported by some other circumstances pointing out that the particular third person against whom the allegations have been levelled was in fact involved in the matter or he has done some act during that period which may have corelations with the random entries“. Further, there is no allegation on the assessee for escapement of income or undisclosed transaction based on the third party statement then in absence of providing opportunity to the assessee to cross examine such third person, proceedings carried out have been held to be illegal in plethora of judgments.
11. Under these given facts and circumstances where the assessee has denied to have taken any cash loan from Mr. Mahendrakumar C. Mehta, no evidence has been put forth by the Revenue to prove that the assessee has entered into any such transaction and in absence of having any transaction with Mr. Mahendrakumar C. Mehta, no cogent evidence to prove that the assessee has accepted to have received cash loan from Mr. Mahendrakumar C. Mehta and there being no evidence of providing any opportunity of cross examination to the assessee, we are inclined to hold that the allegation of Assessing Officer is merely based on surmises and conjectures and that ld. Assessing Officer grossly erred in invoking section 269SS of the Act.
12. We find support from the decision of Coordinate Bench, Surat in the case of DCIT Vs. Shri Gaurangbhai P. Upadhyay – ITA 208 to 216/SRT/2017 order dated 12.07.2019 wherein also penalty levied u/s.271D of the Act on identical set of facts has been deleted observing as follows:
“8. We have heard the rival submissions and perused the material available on record. We have also gone through the assessment order and penalty order in the assessment years under consideration. It is observed that the addition of interest payment u/s.69C was made on account of documents seized from third party which were reflected some cash loans transactions i.e. receipts and payments. However, these documents were not found from the possession of the assessee. Therefore, presumption u/s.132 (4A) as well as u/s.292C is not available in the case of the assessee. Further, the statement on which the Assessing Officer has based his findings has not been found to be acceptable due to changing stand of the parties concern which are also third party. Further, the transactions were not found to be true as these were not deciphered by the persons from whose possession these were recovered. Therefore, the charge of the Assessing Officer that loans were rightly taken and repaid in cash has not been established. The ld.CIT(A) has given this clear-cut findings in quantum appeal in the case of assessee against which the appeal is also dismissed at the level of ITAT. Hence, ld.CIT(A)’s order has attained finality in the quantum proceedings. Therefore, just because the assessee has business relations with a persons (not even the person from whom the documents were recovered) nor it is proved that unsubstantiated entry found recorded in the similar name is true and belongs to the assessee. We are therefore inclined to agree with the findings recorded by the ld.CIT(A) in penalty proceedings that no corroborative or substantive evidence has been brought on record to suggest that the assessee has taken any loan in cash or repaid any loan in cash and done the transactions reflected in the seized material recovered from third party. Therefore, considering the totality of the facts, we find no reason to deviate from findings recorded by the ld.CIT(A). Accordingly the appeal of the Revenue in respect of penalty u/s.271D and 271E is dismissed. Consequently, all the grounds of appeal of the Revenue as reproduced above are dismissed.”
13. In the light of the above judicial precedents and factual matrix of the case, we hereby delete the impugned penalty levied u/s.271D of the Act. Finding of ld.CIT(A) is reversed and the grounds of appeal raised by the assessee are allowed.
14. In result, appeal of the assessee is allowed.
Order pronounced on this 19th day of June, 2026.
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