Section 153C assessments quashed where additions were based only on third-party ‘Hazir Johri’ software data
Background of the dispute
The Delhi Bench of the Income Tax Appellate Tribunal, in Brijesh Kumar Verma Vs DCIT, decided two connected appeals concerning Assessment Years (AY) 2016-17 and 2017-18. The controversy arose from proceedings initiated under Section 153C following a search on Jindal Bullion Ltd. (JBL) Group on 05.01.2017.
During the search, the Department seized digital data from a software titled “Hazir Johri” from the residential-cum-business premises of Sh. Kusharg Jindal, promoter and director of JBL. On the basis of this data, the Assessing Officer (AO) alleged that the assessee, an individual, had engaged in undisclosed cash dealings with JBL which were not reflected in his regular books of account.
For AY 2016-17, the assessee had already filed a regular return under Section 139(1) on 27.11.2016, declaring income of Rs. 5,18,620/-. In response to a notice under Section 153C, he again filed a return on 19.03.2021 declaring the same income.
The AO, however, proceeded to treat certain entries recorded in the “Hazir Johri” software in the ledger identified as “Brajesh (pappu)” as unaccounted cash dealings of the assessee. On this basis, the AO:
- Applied the peak credit theory and determined alleged unexplained investment at Rs. 70,27,262/-, and
- Further estimated profit at 2% on these transactions, amounting to Rs. 5,45,686/-,
both taxed as unexplained money under Section 69A.
The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the additions by a common order dated 30.12.2022. The assessee carried the matter in appeal to the ITAT Delhi for both assessment years.
Grounds raised by the assessee
In challenging the Section 153C assessments and the resultant additions, the assessee raised several legal and factual objections, of which the following were central:
Improper initiation of
Section 153Cproceedings- No seized material “pertaining to” or “belonging to” the assessee was found during the JBL search.
- The assumption of jurisdiction under
Section 153Cwas mechanical and without a valid satisfaction note.
Limitation and jurisdictional defects
- Proceedings under
Section 153Cwere initiated in March 2021, long after completion of assessments of the searched person (JBL) in December 2019, thereby alleged to be time-barred. - The AO lacked jurisdiction to initiate
Section 153Cin the assessee’s case.
- Proceedings under
Defective reliance on third-party digital data
- The Hazir Johri ledger was seized from JBL’s premises, not from the assessee, so presumption under
Section 292Ccould not be invoked against him. - The entries in the digital ledger were unsupported by any corroborating documents such as bills, vouchers, stock registers or confirmations.
- The Hazir Johri ledger was seized from JBL’s premises, not from the assessee, so presumption under
Violation of principles of natural justice
- The AO relied on the statement of Ms. Parul Ahluwalia, director and ex-employee of JBL, recorded under
Section 132(4), without granting the assessee an opportunity to cross-examine her. - Seized documents and materials referred to in the assessment order were not fully confronted to the assessee despite his written request.
- The AO relied on the statement of Ms. Parul Ahluwalia, director and ex-employee of JBL, recorded under
Improper computation and application of peak credit theory
- Even assuming some connection, the calculation of peak credit of Rs. 70,27,262/- was alleged to be arbitrary, excessive and incorrect.
- Estimation of 2% profit on alleged cash transactions had no independent evidentiary basis.
The assessee also challenged levy of tax at special rates under Section 115BBE and interest under Sections 234A and 234B, but these issues ultimately became academic given the Tribunal’s findings on the main legal grounds.
During the hearing, the assessee did not press some procedural grounds relating to Document Identification Number (DIN) and CBDT Circular No. 19/2019, which were accordingly dismissed as not pressed.