Uncorroborated Third-Party Statement and “Dumb” Excel Sheet Cannot Override Assessee’s Denial and Purchase Bills

Uncorroborated Third-Party Statement and “Dumb” Excel Sheet Cannot Override Assessee’s Denial and Purchase Bills

ISSUE

Whether an addition under Section 69A (Unexplained Money) for alleged cash paid over and above the invoice value of jewellery can be sustained solely on the basis of a statement and an Excel sheet recovered from a third-party seller (Jeweller), especially when the assessee has categorically denied such payments and produced valid purchase bills.

FACTS

• The Search: A search was conducted on a third party, “FI” (Jeweller). An employee of FI stated that customers paid cash in addition to cheque amounts. An Excel file was recovered supporting this.

• The Allegation: Based on this, the Assessing Officer (AO) alleged the assessee’s wife paid Rs. 28.80 Lakhs in cash (in addition to Rs. 19.20 Lakhs by cheque) for jewellery.

• The Defense: In her statement under Section 132(4), the assessee’s wife denied cash payments and produced purchase bills matching the cheque amounts. No incriminating material was found at the assessee’s premises.

DECISION

• Sole Reliance on Third Party: The addition was based entirely on the “solitary statement” of a third-party employee and their internal records.

• No Corroboration: No independent material was brought on record to establish the cash payment by the assessee.

• Evidentiary Value: A third-party statement cannot override the assessee’s sworn denial and documentary evidence (bills) unless corroborated by specific evidence found with the assessee.

• Verdict: The addition was deleted as it was based on conjecture and surmises. [In Favour of Assessee]

II. SECTION 70 ALLOWS ASSESSEE TO CHOOSE SET-OFF SEQUENCE TO MINIMIZE TAX

ISSUE

Whether an assessee can choose the sequence of setting off Short-Term Capital Loss (STCL) against different streams of Short-Term Capital Gains (STCG)—specifically, prioritizing set-off against Non-STT gains (taxable at 30%) over STT-paid gains (taxable at 15%)—or if the AO can mandate a different order.

FACTS

• Income Streams: The assessee had (a) STCG (Non-STT) taxable at 30%, and (b) STCG (STT-paid) taxable at 15%.

• The Strategy: The assessee set off the current year STCL first against the 30% tax gains, then against the 15% gains.

• AO’s Action: The AO re-sequenced it to set off losses against the 15% gains first, leaving the 30% gains fully taxable, resulting in higher liability.

DECISION

• No Statutory Hierarchy: Section 70 does not prescribe any mandatory hierarchy for setting off losses within the same head.

• Beneficial Construction: The phrase “similar computation” refers to the mechanism, not the tax rate. The assessee is legally entitled to arrange affairs to minimize tax liability.

• Verdict: The assessee’s method was upheld. [In Favour of Assessee]

III. 80G APPROVAL: CURED DEFECT (DISSOLUTION CLAUSE) MUST BE CONSIDERED

ISSUE

Whether the Commissioner (Exemption) can reject an application for final Section 80G approval due to the absence of a “Dissolution Clause” in the trust deed, when the trustees had already passed a resolution curing this defect which was accepted for a subsequent assessment year.

DECISION

• Consistency: Since the CIT(E) had accepted the resolution (regarding utilization of assets upon dissolution) for granting approval for AY 2025-26, ignoring it for the current application was unjustified.

• Verdict: Matter remanded to CIT(E) to consider the resolution and grant approval. [Matter Remanded / In Favour of Assessee]

IV. CONDONATION OF DELAY DENIED: ‘FRESH ADVICE’ IS NOT GENUINE HARDSHIP

ISSUE

Whether delay in filing a revised return (to correct a classification error based on “fresh advice”) can be condoned under Section 119(2)(b) for a high-profile assessee (Trust President) who claimed COVID restrictions as an excuse.

DECISION

• Standard of Care: As a President of a Trust running a hospital, the assessee is presumed to have knowledge/resources.

• Contradiction: The original return was filed on time during the same “COVID period,” negating the hardship plea.

• Reasoning: A 9-month delay merely to “realize a mistake” upon fresh advice does not constitute “genuine hardship” beyond the assessee’s control.

• Verdict: Condonation rejected. [In Favour of Revenue]

V. ORDER AGAINST DECEASED: REMANDED TO IMPLEAD HEIRS

ISSUE

Validity of an assessment order passed in the name of a deceased assessee when the notice (Section 148) was issued while he was alive, but he died during proceedings and the AO was informed.

DECISION

• Defect: Passing an order against a dead person is a fundamental defect.

• Remedy: Since the notice was valid (issued when alive), the proceedings don’t abate entirely (unlike cases where notice itself is to a dead person).

• Verdict: Order set aside and remanded to the AO to formally implead legal heirs and pass a fresh order. [Matter Remanded]

KEY TAKEAWAYS

1. “Dumb Documents”: Internal records (like Excel sheets) of a third party are insufficient to tax you without corroborating evidence (like a matching diary entries or cash trail).

2. Tax Planning in Set-Off: Always offset losses against the highest tax rate income first. The law (Section 70) allows this “cherry-picking.”

3. Legal Heirs’ Duty: If an assessee dies during proceedings, immediately file the Death Certificate and a letter listing all legal heirs. This shifts the burden to the AO. If they ignore it and pass an order against the deceased, you get a remand/quash.