Section 153A additions need incriminating material; third-party loose sheets alone could not sustain the tax additions.

In completed and unabated assessments under section 153A, additions could not be sustained where no incriminating material was found in the search on the assessee and the basis was loose sheets and statements from a third-party search; the additions for assessment years 2014-15 to 2017-18 were deleted. A further addition under section 69 for assessment year 2018-19, based only on third-party loose sheets and an initial statement later retracted by affidavits, was also unsustainable because loose sheets alone were not reliable corroborative evidence and the assessee's banking explanation remained unshaken; that addition was deleted as well. The appeals succeeded on both the section 153A jurisdictional point and the merits of the cash-loan issue.

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Issues: (i) Whether additions made for assessment years 2014-15 to 2017-18 in proceedings under section 153A of the Income-tax Act, 1961 could be sustained in the absence of incriminating material found in the search conducted in the assessee's premises, when the additions were founded on material seized in a third-party search. (ii) Whether the addition of Rs. 1,50,00,000 under section 69 of the Income-tax Act, 1961 for assessment year 2018-19 could be sustained solely on loose sheets seized from the premises of a third party, in the face of the assessee's denial and subsequent retractions/affidavits.

Issue (i): Whether additions made for assessment years 2014-15 to 2017-18 in proceedings under section 153A of the Income-tax Act, 1961 could be sustained in the absence of incriminating material found in the search conducted in the assessee's premises, when the additions were founded on material seized in a third-party search.

Analysis: The assessments for these years had attained finality and were unabated. The additions were not based on any incriminating material found in the search on the assessee, but on loose sheets and statements collected in an independent search of another person. In completed assessments, section 153A permits interference only on the basis of incriminating material unearthed in the search relating to the assessee. Material from a third-party search, without resort to the proper route under section 153C, could not justify additions in section 153A proceedings.

Conclusion: The additions for assessment years 2014-15 to 2017-18 were unsustainable and were deleted in favour of the assessee.

Issue (ii): Whether the addition of Rs. 1,50,00,000 under section 69 of the Income-tax Act, 1961 for assessment year 2018-19 could be sustained solely on loose sheets seized from the premises of a third party, in the face of the assessee's denial and subsequent retractions/affidavits.

Analysis: The addition rested only on loose sheets seized from a third party's premises and on an initial statement that was later retracted by affidavits clarifying that the cash transactions did not pertain to the assessee. Loose sheets by themselves do not constitute reliable books of account or sufficient evidence to fasten tax liability unless supported by corroborative material. The assessee's explanation that the transactions were through banking channels remained unshaken by independent evidence.

Conclusion: The addition under section 69 for assessment year 2018-19 was deleted in favour of the assessee.

Final Conclusion: All the additions made in the five appeals were set aside, and the assessee succeeded on both the jurisdictional challenge under section 153A and the merits of the cash-loan addition.

Ratio Decidendi: In completed or unabated assessments under section 153A, additions can be made only on the basis of incriminating material found in the search relating to the assessee, and loose sheets from a third-party search cannot, corroboration, sustain an addition under section 69.

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