Appeal against deletion of Rs 6.03 crore addition under s.69 fails; coerced agreement deemed unproved

ITAT Surat dismissed the Revenue's appeal against deletion of addition under s.69 for alleged unexplained investment of Rs. 6,03,50,000/-. The AO had made the addition solely on the basis of a notarized agreement recovered from mobile backup during survey, without any corroborative evidence such as bank transactions or statements from alleged recipients. The assessee had earlier complained to governmental authorities, indicating coercion in signing the agreement. CIT(A) held that the agreement was a mere "dump document," not acted upon, and that the alleged investment was unproved and not reflected in balance sheets. ITAT upheld CIT(A)'s findings and refused to interfere.

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1. ISSUES PRESENTED AND CONSIDERED

(1) Whether addition as "unexplained investment" under section 69 could be sustained solely on the basis of a notarized agreement found in mobile backup during survey, alleging investment of Rs. 6,31,50,000/-, when the assessee admitted only Rs. 28,00,000/- and such admitted amount stood recorded in the books.

(2) Whether the appellate authority erred in deleting the addition without invoking section 250(4) to conduct or direct further enquiry regarding the contents of the agreement, payments allegedly made through banking channels, and statements of the other parties to the agreement.

(3) Whether the principles of "human probability" and preponderance of probabilities warranted sustaining the addition despite absence of corroborative evidence of actual flow of funds.

(4) Whether the matter should be remanded to the Assessing Officer for a fresh examination of the notarized agreement and related transactions.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (1): Sustainability of addition under section 69 based solely on notarized agreement

Interpretation and reasoning

(a) The addition of Rs. 6,31,50,000/- was made exclusively on the strength of a notarized agreement dated 21.12.2019 found in the mobile phone backup during survey, which recorded alleged investments by the assessee in F.Y. 2016-17.

(b) The assessee consistently admitted only investment of Rs. 28,00,000/- (Rs. 26,50,000/- to one party and Rs. 1,50,000/- to another), which was duly reflected in the books of account and in the balance sheet as on 31.03.2017.

(c) The balance sum of Rs. 6,03,50,000/- was disputed by the assessee, who asserted that no such further investment was made and that he had been coerced into signing the agreement; complaints and affidavits to police, PMO, and Home Ministry were filed before the date of survey, narrating these facts.

(d) The agreement itself recited that the disputed portion of Rs. 6,03,50,000/- was paid through banking channels. The Court held that, in such circumstances, it was incumbent upon the survey and assessment authorities to verify bank accounts of both the assessee and the recipients to establish actual flow of funds and corroborate the alleged investments.

(e) No enquiry was conducted to trace any banking transactions corresponding to the disputed investments; no bank statements were examined, and no statements were recorded from the alleged recipients of money or other parties to the agreement. They were not even summoned.

(f) The fact that the assessee had lodged complaints to independent authorities prior to survey was treated as corroborative of his stand that the agreement was obtained under coercion and that its contents, to the extent of the disputed investment, were not genuine, in the absence of anything brought on record to the contrary.

(g) The Court characterized the agreement, insofar as it purported to record unproved "paper amounts" without corroborative transactions or supporting evidence, as a "dumb document" which, by itself, could not form the sole basis for an addition under section 69.

Conclusions

(h) The alleged unexplained investment of Rs. 6,03,50,000/- was not proved by any corroborative material such as banking records or statements of recipients, and could not be taxed merely on the basis of the notarized agreement.

(i) The admitted investment of Rs. 28,00,000/- stood explained and recorded in the books; hence no addition under section 69 could be made even in respect of that amount.

(j) The entire addition of Rs. 6,31,50,000/- under section 69 was rightly deleted, as the agreement alone, uncorroborated by independent evidence of actual flow of funds, did not justify the addition.

Issue (2): Alleged failure of the appellate authority to exercise powers under section 250(4)

Legal framework (as discussed)

(a) Section 250(4) empowers the first appellate authority to make further enquiries as deemed fit or to direct the Assessing Officer to make such enquiry and report the result before deciding the appeal.

Interpretation and reasoning

(b) The grievance that the appellate authority ought to have invoked section 250(4) was premised on the need for deeper factual investigation into the agreement and transactions.

(c) The Court noted that the entire agreement had already been reproduced in the assessment order, and the Assessing Officer had fully relied on and analyzed it while making the addition.

(d) The deficiency identified by the appellate authority was not lack of opportunity to investigate but the complete absence of corroborative enquiry by the Assessing Officer into the bank transactions and the parties to the agreement, despite having full knowledge of the alleged banking routes described therein.

(e) In the appeal, the assessee produced complaints, affidavits, and consistent statements, which were evaluated. In the face of the Revenue's failure to corroborate the disputed investments, the appellate authority was justified in deciding on the material already on record and holding that the addition was not proved.

Conclusions

(f) The appellate authority committed no legal error in not invoking section 250(4); its powers under that provision are enabling, not mandatory in every case.

(g) Since the Revenue had already had a full opportunity at assessment stage and had failed to corroborate the alleged investments, the deletion of the addition without further enquiry under section 250(4) was upheld.

Issue (3): Application of "human probability" and preponderance of probabilities

Interpretation and reasoning

(a) The Revenue contended that, applying the "Human Probability Test" and the principle of preponderance of probabilities, the large investment recited in the agreement should be accepted as having been made by the assessee.

(b) The Court held that the doctrine of human probabilities cannot substitute the basic requirement of some cogent corroborative evidence, particularly where the agreement itself refers to specific banking channels and the alleged transactions are capable of objective verification.

(c) In this case, the probabilities relied upon by the Revenue were unaccompanied by any supporting material: there was no evidence of actual fund transfers, no bank records, and no testimony of recipients confirming receipt of the disputed sums.

(d) On the contrary, contemporaneous complaints by the assessee to multiple independent authorities, prior to the survey and discovery of the document, supported the assessee's version of coercion and absence of actual investment beyond the recorded Rs. 28,00,000/-.

Conclusions

(e) The principle of human probability could not, in the absence of corroborative material, justify an adverse inference of unexplained investment of Rs. 6,03,50,000/-.

(f) The appellate authority's deletion of the addition was not contrary to the test of preponderance of probabilities; rather, on the material available, the probabilities favoured the assessee's explanation.

Issue (4): Request for remand to Assessing Officer for fresh examination

Interpretation and reasoning

(a) The Revenue sought, in the alternative, remand of the case to the Assessing Officer for fresh examination of the agreement and related transactions.

(b) The Court emphasized that the entire agreement had already been considered in detail by the Assessing Officer, who reproduced it in the assessment order and made the impugned addition solely on that basis.

(c) The failure to conduct basic corroborative enquiries (bank verifications, examination of other parties, etc.) at the original assessment stage could not be cured by giving the Assessing Officer a "second inning" merely because the initial investigation was deficient.

(d) The appellate authority had already evaluated all material placed on record, including the agreement, books of account, and complaints; its conclusions were found to be correct and complete on the existing record.

Conclusions

(e) There was no justification for remanding the matter to the Assessing Officer for a fresh round of enquiry on the same agreement.

(f) The deletion of the addition by the appellate authority was affirmed, the agreement being treated as a non-executable "dumb document" devoid of corroboration, and the Revenue's appeal was dismissed in entirety.

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