No section 69B addition solely based on data retrieved from Pen-drive

M/s. Asma Estates and Investments Private Limited Vs DCIT (ITAT Hyderabad)

Conclusion: No addition could be made under section 69B  because the two pieces of evidence relied on by Revenue Authorities viz., the data retrieved from the Pen-drive and the admission by the vendors of the property though might have a persuasive value but would  not have much substantive evidentiary value in order to make additions in the hands of the assessee.

Held: AO concluded that assessee company had paid on-money to the sellers of the property and added to the income of assessee invoking the provisions of section 69B. It was held that Revenue Authorities had not  produced  the  seller’s  assessment orders to verify the facts of  those cases  and by relying on the oral statements such addition was made in the hands  of the  sellers which was not appropriate. The final outcome of  those assessment Orders was also not brought to notice. When there were no other cogent corroborate  evidence, it was not understood as to how such addition could be made in the hands of the buyers as well as the sellers of the property. The two evidence relied by Revenue Authorities viz., the data retrieved from the Pen-drive and the admission by the vendors of the property though might have a persuasive value but would not have much substantive evidentiary value in order to make additions in the hands of assessee. Therefore, in the interest of justice, AO was directed to delete the addition made for Rs. 14,09,25,000/- in the hands of assessee towards on-money paid for the purchase of the residential property.

FULL TEXT OF THE ORDER OF ITAT HYDERABAD

The instant batch of three appeals pertain to twin assessees namely M/s. Asma Estates and Investments Private Limited and M/s. S.V. Multi Logitech Private Limited. The former assessee herein  has filed its  appeal  ITA No.782/Hyd/2020 against the CIT(A)-11, Hyderabad’s order dt.11-09-2020 in appeal No.10275/2019-20, the latter assessee’s appeals ITA Nos.784 & 785/Hyd/2020 arise against the very CIT(A)’s orders dt.04-09-2020 all in appeal Nos. 10280/2019-20 & 10286/2019-20, involving proceedings u/s.143(3) r.w.s.153C in former and u/s.143(3) r.w.s.153A in latter twin assessee’s; respectively.

Heard both the assessees as well as the department.

Case files perused.

2. It transpires at the outset that all these appeals involve delay in filing of 03 days (ITA No.782/H/20) and 06 days (ITA Nos.784 & 785/H/20); respectively, stated to be attributable to  the reason(s) beyond their control as per the respective condonation petition(s)/affidavit(s). No rebuttal has come from the departmental side. The impugned delay is  condoned  in  all the above said appeals

3. We notice at the outset that all the three instant appeals arise from the departmental search action dt.04-07-2017. The same led to initiation u/s.143(3) r.w.s.153C and 153A proceedings; as the case may be, finally culminating in Section 69B un-explained investment addition(s) in the nature of on-money payments involving varying sums of money, stated to be based on the alleged incriminating material found/seized during the course thereof.

4. Before we proceed further, these assessees as well as the department are ad idem during the course of hearing that this tribunal’s co-ordinate bench in ITA No.783/Hyd/2020 (involving yet another group concern M/s.Zainab Investments Private Limited Vs. DCIT pertaining to the very search action) stands reserved for final pronouncement on 04-03-2021. And that whatever decision is taken therein on the basis of the seized material would apply mutatis mutandis herein as well.

5. We have given our thoughtful consideration to both parties’ foregoing uniform stand. We next find that this tribunal’s co-ordinate bench’s order in the assessee’s group concern’s appeal (supra) has already decided the very un- explained investment addition issue in assessee’s favour and against the department as under:

“5. The brief facts of the case are that the assessee is a Private Limited company engaged in the business of investing in real estate and undertaking infrastructure projects etc. Shri Ajaz Farooqi is the Director of the assessee company who had predominant control over the company. The assessee company filed its original return of income on 19/11/2015 for the AY 2015-16 declaring total income of Rs. 2,83,810/- and the same was processed U/s. 143(1) of the Act on 30/06/2018. Thereafter, search and seizure operations U/s. 132 of the Act was conducted in the case of the assessee company and its related persons and concerns on 4/7/2017. Subsequently, the assessment U/s. 143(3) r.w.s 153A of the Act was completed vide order dated 28/12/2019 wherein the Ld. AO made several additions along with the addition mentioned in the grounds herein above.

6. Ground No.1: Addition of Rs. 95 lakhs towards unaccounted commission:

7. The Ld. AR at the outset submitted before us that the Ld. AO had made the addition of Rs. 95 lakhs U/s. 69C of the Act on the presumption that the assessee had paid commission in order to obtain accommodation entries of Rs. 18,60,00,000/-. The Ld. AR further submitted that the CIT (A) had deleted the addition made by the Ld. AO for Rs. 18,60,00,000/- towards the accommodation entries received by the assessee in page 74 to 80 of his order at para 7.2.3 by observing as under against which the Revenue is not in appeal:-

“ 7.2.3. On consideration of AO’s findings and basis thereof and the contentions of the appellant, the following position emerges:

i) The appellant has submitted documentary evidences to prove the identity, credit worthiness of the creditor and the genuineness of the There is no adverse finding on the documents produced by the appellant.

ii) The enquiries at the Delhi and the statement recorded of Mr. Bardia create suspicion as to the transactions of the appellant company with the The suspicion should lead to investigation to bring out the facts and material on record to disprove the contention of the appellant. No such enquiries were conducted by the AO to bring out facts/material on record. Suspicion, however strong, cannot substitute for evidence. The AO ought to have conducted further enquiries to take it to the logical conclusion.

iii) The appellant discharged, the initial ‘burden of proof by producing all the documentary evidences. The AO has not contradicted any of the evidences produced by the Unless some evidence is brought on record and appellant is confronted with such evidence, the burden does not  shift  back to the appellant.

iv) No evidences, were found during the Search which are ‘incriminating as to the transactions with various companies. The enquiries conducted were post search enquiries only. Otherwise, the transactions are duly recorded in the hands of recipient and the payer.

v) The statement recorded by DDIT(Inv), Hyderabad at Delhi of Mr Bardia is perused. The statement is reproduced for ready reference.

Ql. Please introduce yourself?

Ans: I am Abhay Chand Bardia, So/a. Sri Dharm Chand Bardia, Aged about 64 Yrs, Resident of 20-B, Kiran Kutir, Old gupta colony, Delhi-110 009. My mobile number is 9811024165 and [email protected]. I am furnishing herewith copy of my aadhar card no.3850 8843 1656 as identity proof.

Q2. Please state if you are aware of the penal consequences of giving a false statement on oath.

Ans: Yes, I am made aware of.

Q3. What is your occupation?

Ans: I am a director in the following companies/firms.

i) Terinl Enterprises

ii) Dwinger Agents P Ltd

iii) Rochhard Enterprises P Ltd

iv) Verbena Developers P

v) KD Stock broking p ltd

vi) Micron precision engineering p ltd.

Q4. What are the other companies operated from this address i.e 3/14A, Ist Floor, Double Storey, Vijaya Nagar.

Ans: The following companies are operated from this premises:

Q5. Are you related to  any of the  above companies?

Ans: yes, I am director in Tarini Enterprises Ltd and  in  all other companies I am acting as retainer/consultant.

Q6. Please furnish registered addresses of the following companies.

Ans: I am furnishing herewith the relevant letter heads of all the above companies containing the registered addresses.

Q.7. Where are the books of accounts of the above companies maintained?

Ans: The books of accounts of these companies are  maintained at the Corporate office i.e 20-B, Old  Gupta Colony, Delhi.

Q8. On verification it is found that the building at the above address is being demolished and no office was found functioning there. Please explain.

Ans: Yes, the premise is under renovation.  So  we  have shifted the relevant records temporarily to 3/14A, 1st Floor, Double Storey, Vijay nagar colony, Delhi. However, books of accounts  are not readily available at this office. Back up of  the accounts was taken up and kept with our auditor. I will furnish the books of accounts as and when required.

Q9. Who are the directors of the above companies?

Ans: They are all my relatives  and friends and will furnish list of all directors of the above companies by post.

Q.10 Have the above companies made any advances/investments in the following companies/individuals?

Ans: Yes, we have made the investments in the above companies/individual except Zara Investments P ltd as per the following details:

i) Investments in Zainab Investments P ltd

ii) Investments in SV Multi Logitech P ltd

iii) Investments in Shoaib Estates P Ltd

iv) Mrs. Laxmi Raman

I am furnishing herewith the confirmation letters, the copies of bank transactions and copies of balance sheets in relation to the above transactions for your verification.

Q.11 What are the sources of above investments?

Ans: The investments have been made out of the share capital/investments.

Q12. Please furnish the details of the share  holders  of  the  above companies with full address with PAN.

Ans: I will compile and forward the details of the share holders of the above companies by post by 10.10.2017.

Q.13 How do you know Sri. Ajaz Farooqi and Smt Laxmi Raman?

Ans: We met them through common friend Sri. V. P Anand.

Q.14 What is the purpose of the above mentioned investm- ents?

Ans: The above mentioned advances/investments were made to collaborate real estate projects with the above mentioned companies/individual.

Q.15 Please state whether the above mentioned investments are still receivable.

Ans: Yes, the above mentioned investments are still receivable by our

Q.16 Have you received any benefit out of the above investments ?

Ans: No, we have not yet received any benefits out of the above investments as this money has been invested for the collaboration/joint ventures of the projects.

Q.17 Please furnish the details of the proposed projects. Ans: The projects at various places which are still in

Q.18 It is seen that the amounts invested by you has been used by Sri. Ajaz Farooqi for making investments in mutual funds, fixed assets and acquisition of immovable properties in Hyderabad. As such the money is fully invested and is being enjoyed by Sri. Ajaz Farooqi and his family members. In these circumstances do you justify the genuineness of your investments.

Ans: We have made the investments under an understanding/contract with the above mentioned companies, therefore we are fully essured about the joint venture project.

Q.19 How were the above investments made in the above companies.

Ans: The above investments were made through banking channels, I am furnishing the information separately.

Q.20 Do you want to say anything

Ans: No.

It is seen from the above statement that Mr. Bardia has not admitted to any discrepancies as regards to the  investments made in appellant and their group companies.

He has not stated anything against the transactions. The statement is evasive, at the best, as to the details of business of  the creditor company I group. Mr. Bardia’s statement does not help the cause of AO in anyway.

vi) In view of the factual position as above, it is held that the appellant has discharged the onus cast on them to prove the credit and the action ix] s.68 cannot be applied to the The addition made is not warranted and the same is, accordingly, deleted.”

8. The AR further submitted before us that though the Ld. CIT (A) had deleted the addition with respect to Rs. 18,60,00,000/- however, omitted to adjudicate the ground raised with respect to the addition made towards the presumed commission paid for arranging accommodation entries for Rs. 18,60,00,000/- amounting to Rs.95 lakhs which is interrelated. The Ld. AR further argued stating that when the addition made for Rs. 18,60,00,000/- towards the accommodation entries itself is deleted then addition made for Rs. 95 lakhs on the presumption that the assessee would have paid commission for obtaining the aforesaid accommodation entries does not have any legs to stand. The Ld. AR therefore submitted that the addition made for Rs. 95 lakhs towards the payment of  commission for obtaining accommodation entries may be deleted. The Ld. DR could not controvert to the submission of the assessee.

9. After hearing both sides, we find merit in the submission of the Ld. AR. When the addition made for Rs. 18,60,00,000/- for obtaining accommodation entries itself is deleted then there cannot be any  scope for sustaining the addition made for Rs. 95 lakhs on the presumption that the assessee would have incurred commission expenditure for obtaining such accommodation entries. Therefore, we do not have any hesitation to delete the addition made by the Ld. AO on this issue which is omitted to be adjudicated by the Ld. CIT (A). Accordingly, addition made by the Ld. AO for Rs. 95 lakhs on the presumption that the assessee would have incurred commission expenditure for obtaining accommodation entries is hereby deleted.

10. Ground No.2: Addition made for Rs. 14,99,45,000/- invoking the provisions of section 69B of the :

11. During the course of search and seizure operations in the residential premises  of    J.K.  Datta,  General  Manager  of M/s. K.V.R. Rail Infra Projects Pvt Ltd., and in the premises of the Accounts Manager employed in the concerns of Shri Ajaz Farooqi certain incriminating materials were found and seized containing details of cash paid by the assessee company M/s. Zainab Investments Private Limited to Ms. Adala Bhanu Rekha and Ms. Adala Indira Priyadarshini towards purchase of residential property admeasuring 2855 sq yds at Road No. 36, Jubilee Hills, Hyderabad. As per these documents, total sale consideration of the property is Rs. 33,50,00,000/-  out  of  which  Rs.  19,40,75,000/-  was  mentioned  to have been paid through Demand Draft and the balance amount of Rs. 14,09,25,000/- was said to have paid by cash. It was further revealed that the purchase of the property was made by Registered Sale Deed wherein it was stated that the property was purchased for Rs. 19,40,75,000/- vide document No. 4212 and 4213/2013, dated 07/11/2014 of SRO, Banjara Hills. The printouts of the Data found in the Pen-drive seized in the residence of Shri J.K. Datta are extracted in the order of the Ld. AO at page no.54 to 59 wherein Shri J.K. Datta has handwritten that the Pen-drive belongs to him, and the data  pertains  to  M/s.  Zainab  Investments  House  Construction. Shri J.K. Datta had also confirmed the same in his statement which is extracted herein below from the assessment order for reference:-

“Q.No. 47. I am showing you’re the printout page no.1 of Annexure: A/JKD/Res/05 (taken from the HP Pen-drive No.1 seized under the annexure: A/JKD/Res/04 from the path PEN- D/INVESTMENT-HOUSE Constr.xls.) kindly confirm and explain the contents.

Ans: I confirm that the printout page no.1 of Annexure: A/JKD/Res/05 (taken from HP Pen-drive No.1  seized  under  the annexure: A/JKD/Res/04 from the path PEN-D/ZAINAB INVESTMENT-House Constr.xls. which is found in my house. The details available in the page re  cost of the  property  and  the payment details for the same. The page  contains  the  details of payments made towards the purchase of house property situated at Jubilee Hills Cooperative House Building Society Limited, Jubilee Hills, Hyderabad of Rs. 33,50,00,000. Rs. 19,40,75,000/- was paid through demand drafts to Smt. A. Bhanu Rekha (Rs. 9,60,30,000) and Smt. Adala Indira Priyadarshini (Rs. 9,80,45,000). The remaining component of Rs. 14,09,25,000/- was details of cash payment in two instalments (Rs. 12,00,00,000 and Rs. 2,09,25,000).

***

Q.No.50. I am showing he printouts (taken from the Pen- drive.1 from the path pen/D/Receipts.xls) seized vide page no.4 to 8 under the annexure A/JKD/Res/05. Kindly confirm an explain the contents?

Ans: Yes. I confirm that the print out was taken from the pen-drive found in my house. The details available in the page are receipts for cash payments towards the purchase of house property by Zainab Investments Pvt Ltd situated at Jubilee  Hills Cooperative House Building Society Limited, Jubilee Hills, Hyderabad-0020.

                                                                                        *Sri Dutta Reconfirmed the above in his statement recorded on 26/07/2017.

12. Further, on query with the sellers of the property Ms. Adala Bhanu Rekha and Ms. Adala Indira Priyadarshini confirmed the on- money transaction and admitted the same in the scrutiny assessment proceedings and paid tax.

13. For the aforestated reasons the ld. AO came to the conclusion that the assessee company has paid on-money of Rs. 14,09,35,000/- to the sellers of the property and added to the income of the assessee invoking the provisions of section 69B of the Act. On appeal, the Ld. CIT (A) confirmed the order of the AO by observing as follows:-

“8.2. I have considered the assessment order and submission of the appellant. The material evidencing cash payment to the extent of Rs. 14,09,00,000/- was found and seized during the course of Search from Mr. J.K. Dutta who is looking after the affairs of the group companies. M/s. Datta, from who possession, the material was seized clearly explained the contents of the seized documents unequivocally. The same was confronted to the appellant by way of show cause notice. Further, the seller of the property also accepted to offer cash receipts to tax and pay taxes on the above amounts received. The contents of the documents are collaborated by the statement of the person from whose possession the document is seized and the acceptance of seller of the property as to cash receipts. In view of the above factual position, the ratio laid down in the decisions relied on by the appellant are not applicable. The facts of the case as brought out by A.O. are different from the cases relied on by the appellant. In view of the above, the addition as made by the A.O. is confirmed. The grounds raised are rejected.””

14. The Ld. AR submitted before us that the  Pen-drive  relied  on  by the Revenue  is neither books of  account nor  a document, but it is only a digital device. The Ld. AR further argued by stating that any digital evidence should be corroborated with some physical evidence seized during the course of search, otherwise no conclusive conclusion can   be drawn and in the case of the assessee no such physical  evidence  was seized during the course of the search, or any  material  was found with the assessee subsequently. The ld. AR further submitted that the printout of the digital data did not bear the signature of the party and there were no signature of witness in order to prove the integrity of the data retrieved. The Ld. AR further argued by stating that no evidence was found in the premises of Shri Ajaz Farooqi, Director of the appellant company nor in the premises of appellant company with regard to the cash payment made to the sellers of the property. It was further argued that some data found in the Pen- drive of the employee of the assessee which was recovered from the employee’s house cannot have any bearing on the transaction made  by the assessee. Further, it was submitted that provisions of section 65B(4) of the Evidence Act was not followed hence, the contents retrieved from the pen-drive does not have  any  evidentiary  value. The Ld. AR further submitted that the Directors of the assessee company were not allowed to cross examine the vendors of the property. It was submitted that the Ld. Revenue Authorities had only relied on the documents found in the Pen-drive of the employee of the assessee and the statements recorded from the  sellers  of  the  property. Thus, there was no direct evidence, and all the  evidence were by way of oral testimony which cannot be used against the assessee. Further, it was argued that the noting’s and statements obtained from third parties cannot be treated as corroborative evidence as it is not a direct evidence of the transaction.  It  was further submitted that no evidence was  seized from the premises of the appellant or its Director Shir Ajaz Farooqi who has denied the authenticity of the noting’s retrieved from the Pen-drive seized in the premises of the employee of the assessee. The Ld. AR further argued that merely based on the seller’s statement that they have accepted on-money for the property sold to the  assessee  company,  the  assessee company cannot be held binding  for  such  transaction. Hence reliance placed on the statements of Ms. Adala Bhanu Rekha and Ms. Adala Indira Priyadarshini the sellers of the property which are in the nature of third-party evidence cannot be held against the assessee for making addition. It was further submitted  that the Ld. AO had not given any opportunity to the assessee for cross examining the sellers of the property viz., Ms. Adala Bhanu Rekha and  Ms.  Adala Indira Priyadarshini. The Ld. AR thereafter placed reliance in the decision rendered in the case of Anil Jaggi vs. ACIT, Mumbai reported in 89 Taxmann.com 266 (Mum. Trib.) and the decision of the Indore Bench of the Tribunal DCIT vs. Shri Mahesh Bansal in ITA No. 499/Ind/2018 vide order dated 12/6/2019 for  the  AY  2010-11.  It  was therefore pleaded that the addition made by the Ld. AO for Rs. 14,09,25,000/- which was further sustained by  the Ld. CIT (A) may be deleted. The ld. DR on the other hand argued in support of the order of the ld. Revenue Authorities and prayed for confirming the same.

15. We have heard the rival submissions and carefully perused the materials on record. Page No. 54 of the assessment order contains  the print-out extract of the data retrieved from the Pen-drive which is supposed to be seized from the premises of the assessee’s employee, being the summary of payment made for purchase of an area of 2855 sq ft. The same is signed by  the  employee  of  the  assessee  stating that the printout is taken from the Pen-drive “G:\PEN-D\ZAINAB INVESTMENT-HOUSE CONST.xls”. Other than that, nothing is penned in the print-out. Further as pointed out by the Ld. AR neither these documents are signed by the Ld.Revenue Officers or by any witness. Moreover since, the data is retrieved from a digital device certificate U/s. 65B(4) of  the Evidence Act is essential to prove the authenticity  of the data which is also lacking. Further, this data is maintained by the employee of the assessee which does not link to any document found with the assessee or in the premises of  the Directors or any other employees of the assessee company. Similarly,  the  printout from the Pen-drive stating the “property sale receipt” extracted in  page 55, 56, 57, 58 and 59 of the  assessment  order,  also  has  the same deficiency to treat it as evidence  against  the  Therefore, these documents appear to be dumb  documents  and cannot be made a basis for making addition in the hands of the assessee. Moreover, confessions were obtained from the employee of the assessee which were subsequently retracted by him.  It  is  pertinent to mention that the CBDT vide Instruction F.No.286/2/2003-IT (INV.II), dated 10/3/2003 has condemned the forced confession made during the search and survey operations. Further the Hon’ble High Court of Telangana and Andhra Pradesh in the case Gajjam Chinna  Yellappa vs. ITO vide order dated 6/11/2014 reported  in  [2015]  59  Taxmann.com  69  (Andhra  Pradesh and Telangana) has held that where assessment order passed on the basis of mere statement recorded during the course of survey which are retracted and where the Assessing Officer did not produce any other cogent material to support the statements or sale consideration of land, the assessment order is to be set aside. While deciding so the Hon’ble Court had placed reliance in the CBDT Circular dated 10/03/2003 referred herein above. Further,  the  Hon’ble High Court of Madras in the case CIT vs. S. Khader Khan Son vide order dated 4/7/2007 reported in [2008] 300 ITR 157 (Mad.), had held that the statement recorded U/s. 133A of the Act has  no  evidentiary  value  and any admission made during such statement cannot  be  made basis of addition. From the facts of the case before us, it is apparent that the Ld. Revenue Authorities while making the addition have heavily relied on the statement of the sellers and some dump- documents. The Ld. AO has observed in his order in para 21.4, Page 60 that when he confronted the sellers, they admitted for having received on-money for Rs. 14,09,25,000/- and had paid tax for the same in their scrutiny assessment proceedings. However, the Ld. Revenue Authorities have not  produced  the  seller’s  assessment orders before us to verify the facts of  those cases  and by relying on the oral statements such addition was made in the hands  of the  sellers which is not appropriate. The final outcome of  those assessment Orders is also not brought to our notice. It is obvious that addition cannot be made in the hands of the assessee on the basis of mere statements of the third parties viz., the sellers of the property from whom the assessee has purchased the property. In this circumstance when there are no other cogent corroborate  evidence, we fail to understand as to how such addition can be made in the hands of the buyers as well as the sellers of the property. Therefore,  we are not inclined to place much reliance on  the observations made by the Ld. AO. In the case of the assessee  the  purchase  of  the  property is concluded by a way of a  Registered  Sale  Deed  stating that the sale consideration is Rs. 19,40,75,000/- which were paid by Demand Draft. In a similar circumstance the Hon’ble Apex Court in the  case  K.P.  Varghese  vs.  ITO  [1981]  reported  in  131  ITR  597  had categorically held that no addition can be made on the plea of understatement of sale consideration unless it is established that physically money has been received over and above the declared consideration. Further, the Hon’ble High Court of Kerala in the case CIT vs. Smt. K.C. Agnes [2003] reported in 262 ITR 354 vide judgment dated 22/01/2003 had held that “when a document shows a fixed  price, there would be a presumption that it is the correct price agreed upon by the parties. It is true that on the basis of the agreement the sale deed is executed. But it is not necessary that the price stated  in  the agreement will be price shown in the sale deed”. Further, the Hon’ble Apex Court in the case CIT, Salem vs. P.V. Kalyanasundaram vide judgment dated 14/09/2007 reported in 294 ITR 49 it was held that “the fact as to the actual sale price of the  property,  the implication of the contrary statements made by the vendor or whether reliance could be placed on the loose sheets recovered in the course of the raid were all question of fact. Therefore, there was no infirmity in the order of the High Court for having dismissed the Revenue’s  appeal. Considering  the facts and circumstances of  the case before   us and the decisions cited herein above, we cannot conclusively agree on the finding of the Ld. Revenue Authorities that the  assessee has paid on-money of Rs. 14,09,25,00/- to the sellers of the property because the two evidence relied by the  Ld. Revenue Authorities viz., the data retrieved from the Pen-drive and the admission by the vendors of the property though may have a persuasive value but will not have much substantive evidentiary value in order to make additions in the hands of the assessee. Therefore, in the interest of justice, we hereby direct the Ld. AO to delete the addition made for Rs. 14,09,25,000/- in the hands of the assessee towards on-money paid for the purchase of the residential property”.

5.1. We adopt the foregoing discussion as well as reasoning contained therein; mutatis mutandis to delete all the impugned Section 69B identical un-explained investment(s)/additions involving varying sums in these three instant appeals. The corresponding grounds to this effect stand accepted therefore.

No other argument has been raised before us.

6. These twin assessees’ three appeals are allowed in above terms. A copy of this common order be placed in the respective case files.

Order pronounced in the open court on 15th July, 2021