Addition u/s 69B read with 115BBE deleted as loose sheets held dumb, uncorroborated on-money evidence

ITAT Chennai allowed the assessee's appeal and deleted the addition made u/s 69B r.w.s. 115BBE on account of alleged "on-money" for land purchase. It held that the loose sheets and notings, seized from a third party and not in the handwriting of the assessee or vendors, were "dumb documents" lacking evidentiary value. The entries did not identify payer, payee, or transaction nature, and no independent, credible corroborative evidence of actual cash flow was produced. ITAT affirmed the CIT(A)'s finding that the AO's addition was based on mere suspicion and an uncorroborated, retracted statement, and was therefore unsustainable in law.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the delay of one day in filing the appeal by the Revenue was liable to be condoned.

1.2 Whether the addition under section 69B read with section 115BBE on account of alleged "on-money" / unexplained investment in land could be sustained solely on the basis of loose sheets and note pads seized from a third party and statements recorded under section 132(4), subsequently retracted.

1.3 Whether loose sheets and private note books seized from a third party, not authored or signed by the assessee or the vendors, and unsupported by independent corroborative evidence, have sufficient evidentiary value to fasten tax liability on the assessee.

1.4 Whether failure of the Assessing Officer to undertake independent enquiry, including examination of vendors and reference to valuation machinery, vitiated the addition based on alleged on-money.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Condonation of delay of one day in filing the appeal

Interpretation and reasoning

2.1 The Tribunal noted a delay of one day in filing the Revenue's appeal. An affidavit was filed explaining that the delay was on account of scrutiny time-barring workload.

2.2 After considering the affidavit and hearing both parties, the Tribunal found that there was reasonable cause for not filing the appeal within the prescribed time.

Conclusion

2.3 In the interests of justice, the delay of one day was condoned and the Revenue's appeal was admitted.

Issue 2: Sustainability of addition under section 69B read with section 115BBE for alleged "on-money" based on seized loose sheets and statements of a third party

Legal framework (as discussed)

2.4 The assessment was framed under section 143(3) read with section 153C on the basis of documents seized during a search under section 132 in a third party's premises and statements recorded under section 132(4) and section 131(1). The AO invoked section 69B (unexplained investment) read with section 115BBE (rate of tax).

2.5 The assessee and CIT(A) relied on principles laid down inter alia in decisions including K.P. Varghese, P.V. Kalyanasundaram, Common Cause, CBI v. V.C. Shukla, Dhakeswari Cotton Mills and other High Court/Tribunal decisions on: (i) burden of proof on Revenue to establish understatement / on-money, (ii) weak evidentiary value of loose sheets/third-party diaries, (iii) need for corroborative evidence, and (iv) impermissibility of additions based on suspicion or mere private jottings.

Interpretation and reasoning

2.6 The alleged unexplained investment of Rs. 25,78,98,000/- was derived from loose sheets (ANN/KP/GS/LS/S, pages 23-26) and note pads (ANN/SJ/GS/B&D/S-2 & S-3) seized from the premises of a third party (a director of a searched company). The assessee's name, vendors' names, survey numbers, or property identifiers were not found on the loose sheets; no signatures or acknowledgment of either assessee or vendors appeared on them.

2.7 It was an admitted fact that: (i) the assessee purchased 13.85½ acres of land under a registered sale deed for Rs. 1,11,44,800/-, fully paid through banking channels; (ii) the seized loose sheets referred to 15 acres; and (iii) the loose sheets were said by the deponent to be in the handwriting of another person (a retired PWD engineer), who was never examined.

2.8 The Tribunal agreed with the CIT(A) that the impugned loose sheets and note pads are "dumb documents": they only contain dates, amounts, and brief notations ("Cash", "DD", abbreviations like "Guru", "Guru MTP Road", "Guru Cash (PWD)") without identifying payer, payee, property, or nature/purpose of transaction. Totals did not reconcile and the entries were incomplete.

2.9 A substantial portion (about 80%) of the alleged cash payments (entries 5 to 9 on page 23 aggregating Rs. 21.50 crores) were shown as dates after the date of registration of the property. The Tribunal concurred with CIT(A) that, on preponderance of probability, it is highly improbable in real estate transactions that such huge cash amounts would be paid long after registration, particularly when title had already transferred, rendering the entries unreliable for the assessee's transaction.

2.10 The Tribunal emphasized the discrepancy that the loose sheets mentioned 15 acres while the assessee's transaction was only for 13.85½ acres, casting further doubt on the linkage of the documents to the assessee's purchase.

2.11 The AO treated statements of the third party recorded u/s 132(4) on 11.03.2021 and 12.03.2021 as conclusive, wherein he linked the entries to the assessee's Tirupur land and admitted on-money payments. However:

  (a) The same third party stated in his 11.03.2021 statement that the handwriting in the loose sheets belonged to another person (retired PWD engineer), whose statement was never recorded.

  (b) In the subsequent statement u/s 131 on 19.07.2021, he categorically clarified that the entries in the notebooks were merely notings for his reference as a broker, that transactions did not pass through him, and that he neither received nor paid any cash; high-value entries were noted only for commission follow-up, not as cash movements.

  (c) He formally retracted the statements recorded u/s 132(4) by letter dated 01.11.2021 (filed on 09.11.2021), alleging irregularities during search, and the AO did not bring any material to discredit or independently investigate the retraction.

2.12 The assessee's own statement u/s 131 dated 29.07.2021 consistently denied payment of any on-money, denied knowledge of the seized loose sheets/notebooks, and denied any role of the said third party in the land purchase. The AO did not confront this denial with any independent evidence, nor did he examine the vendors of the property.

2.13 The Tribunal held that once the assessee denied the transaction and the alleged intermediary retracted his earlier incriminating statement, the burden shifted squarely on the AO to bring cogent corroborative evidence (such as banking trail, confirmations, statements of vendors, or other independent material) demonstrating actual payment of amounts over and above the registered consideration. No such evidence was produced.

2.14 The Tribunal noted that the presumption under sections 132(4A) and 292C, to the extent discussed at appellate stage, operates vis-à-vis the person from whose possession the documents are found and cannot, without more, be used against "any other person" for purposes of section 153C when the documents are neither authored by nor seized from such other person and contain no clear nexus to him.

2.15 The AO's reliance on general market value data from real estate websites to suggest a far higher fair market value (around Rs. 72.39 crores) was held to be conjectural in the absence of:

  (a) any reference to the departmental valuation cell,

  (b) any action or objection by the registering authority regarding undervaluation, and

  (c) any independent valuation or supporting evidence specific to the property.

2.16 Relying on judicial precedents, the Tribunal reiterated that:

  * Loose sheets/diaries seized from third-party premises, not forming part of regular books and not in the handwriting of the assessee, are inherently weak evidence and, absent corroboration, cannot support additions (Common Cause; CBI v. V.C. Shukla; Sant Lal; Sunil Kumar Sharma and several Tribunal decisions).

  * There must be "something more than bare suspicion" to make an addition; pure guesswork or reliance on unexplained jottings is impermissible (Dhakeswari Cotton Mills).

  * The burden to establish understatement of consideration/on-money remains on the Revenue (K.P. Varghese; P.V. Kalyanasundaram). Casting on the assessee the burden to prove the negative, i.e., that he did not pay any amount beyond recorded consideration, is legally untenable.

  * A retracted statement, without corroborative material and without proof that the retraction is motivated, cannot be treated as sole substantive evidence.

2.17 The Tribunal also relied on the jurisdictional High Court decision in P.V. Kalyanasundaram, where an addition based solely on the seller's statement admitting higher consideration was rejected because the AO failed to conduct independent enquiry or reference to the Valuation Officer. The facts were considered analogous, as here also the AO had not independently established higher consideration or actual cash movement.

Conclusions

2.18 The seized loose sheets and note pads, being unsigned, incomplete, not authored by the assessee or vendors, seized from a third party and unsupported by any independent evidence of money flow, were held to be "dumb documents" with no probative value against the assessee.

2.19 The statements of the third party recorded u/s 132(4), having been specifically retracted and uncorroborated, could not form the sole basis of addition, particularly in the absence of any enquiry with the alleged author of the loose sheets, with the vendors, or any proof of actual transfer of cash.

2.20 The AO failed to discharge the burden of proving that the assessee had paid any on-money over and above the registered sale consideration; the addition under section 69B read with section 115BBE was based on suspicion, surmises, and conjectures rather than on legally admissible and corroborated evidence.

2.21 The Tribunal affirmed the CIT(A)'s finding that the addition of Rs. 25,78,98,000/- as unexplained investment was unsustainable in law and on facts and therefore liable to be deleted.

Issue 3: Evidentiary value of third-party loose sheets / note books and requirement of corroboration and independent enquiry

Interpretation and reasoning

2.22 The Tribunal endorsed CIT(A)'s reasoning that:

  (a) The loose sheets and note books were seized from a third party and were neither written nor signed by the assessee or vendors.

  (b) The alleged author of the key loose sheets was admittedly another person (retired PWD engineer), who was never examined; hence authorship and authenticity remained unverified.

  (c) The AO ignored exculpatory statements of the third party under section 131 and of the assessee, and relied selectively on incriminating portions without completing the chain of evidence.

2.23 Drawing from multiple judicial precedents (including Sant Lal, Satyapal Wassan, Riveria Properties and other Tribunal decisions cited), the Tribunal reiterated that when a document is incomplete, lacks necessary details of year, ownership, nature, code for deciphering figures, or nexus to the assessee, it is incumbent on the AO to:

  * correlate it with other seized materials, regular books, bank/third-party records, and

  * record statements of concerned parties to fill gaps and validate inferences.

2.24 No such investigative steps were taken: there was no examination of vendors, no tracing of source or destination of alleged cash, no reference to the valuation cell, and no corroborative bank or documentary trail.

2.25 The Tribunal emphasized that, though strict rules of the Evidence Act do not apply, principles against making pure guesses and the requirement of "something more than bare suspicion" still govern income-tax assessments.

Conclusions

2.26 Loose sheets/diaries found at a third-party premises, not shown to be maintained in the regular course of business and not linked to the assessee by independent evidence, cannot be treated as substantive material to support additions.

2.27 Absent corroborative evidence and independent enquiry, such documents remain ineffective and unreliable; they must be treated as "dumb documents" and cannot validly found additions under section 69B.

2.28 Consequently, the Tribunal upheld the CIT(A)'s deletion of the addition and dismissed the Revenue's appeal in toto.

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