2017 (3) TMI 1973 - AT - Income Tax

Loose sheet notings and third-party diary evidence cannot sustain income additions without independent corroboration, deletion ordered.

Loose sheet notings and third-party diary entries cannot alone establish undisclosed income; additions based solely on such documents require independent ... Addition on the basis of third party statement - assessee has received on money - reliability on loose sheets as evidence - assessee has received an amount in cash over and above the sale price and therefore, the same has to be considered undisclosed income in the hands of the assessee - assessee submitted that the notings made by the purchaser in a paper is not a basis to make an addition in the hands of the assessee, unless there is a corroborative evidence to show that the assessee is actually received the amount - CIT(A) deleted addition HELD THAT:- There is no evidence that the assessee has received an amount of ₹ 2.85 crores from Sri V. Sampath. During the course of survey, no material was found to show that the assessee has received ₹ 2.85 crores from Sri V. Sampath. AO has also not made any independent enquiry in respect of on money payment. Simply based on the notings of the diary and the statements recorded during the course of search in the case of Sri V. Sampath, though he referred nothing relating to the assessee, came to a conclusion that the assessee has received ₹ 2.85 crores on money over and above the registered consideration of ₹ 2.75 crores. We find that the AO had not brought any corroborative evidence and also not made any independent enquiry and only based on loose sheet notings, he came to a conclusion that assessee has received on money. In our opinion, the conclusion reached by the Assessing Officer was not supported by any evidence and basis and no circumstantial evidence, but it is only a mere surmises. Therefore, we are of the view that the addition made in the hands of the assessee cannot be sustained and deserves to be deleted. The Coordinate Bench of this Tribunal has also considered the evidentiary value of the loose sheet found in the course of search in the case P. Koteswara Rao [2016 (8) TMI 1137 - ITAT VISAKHAPATNAM] and held that addition cannot be made based on the loose sheets found in the premises of the third party, unless there is a supportive evidence to show that on money is made. Decided against revenue. Issues: (i) Whether an addition for alleged on-money over and above the registered sale consideration can be sustained against the seller on the basis of loose-sheet/diary entries and statements of a third party found during search, without corroborative evidence or independent enquiry.Analysis: The issue examines the evidentiary sufficiency of loose or handwritten entries recovered from a third party and admissions/statements recorded under section 132(4) as a basis to treat alleged extra payments as the seller's undisclosed income. Legal framework applied includes the requirement that revenue discharge the burden of proving actual payment and establish a nexus between the seized material and the assessee, the necessity of corroborative or circumstantial evidence where seized material is not found in the assessee's premises, and the principle that conclusions cannot rest on conjecture, suspicion or untested third-party statements. Authorities require an independent enquiry into the value/under-valuation of property and other corroborative material before treating third-party notings as evidence of on-money received by the seller.Conclusion: The addition based solely on loose-sheet/diary notings and third-party statements, in the absence of corroborative evidence or independent enquiry establishing payment to the seller, is not sustainable; the addition is to be deleted and the Revenue appeal dismissed (decision in favour of the assessee).