2026 (1) TMI 543 - AT - Income Tax

Undisclosed investment addition based only on third-party seized 'dumb document' under s. 69B/115BBE struck down

The dominant issue was whether an addition for undisclosed investment under s. 69B read with s. 115BBE could be sustained solely on the basis of a seized ... Undisclosed investment u/s 69B r.w. Section 115BBE - Reliance on seized documents - 'dumb' document - addition on document seized in the premises of third parties - HELD THAT:- By respectfully following the order of of Bhagwani Devi [2025 (11) TMI 622 - ITAT DEHRADUN] we find no reason to upheld the addition sustained by the Ld. CIT(A). Decided in favour of assessee. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether an addition for alleged undisclosed investment, made solely on the basis of seized third-party documents containing figures against the assessee's name, could be sustained when the documents did not record 'cash' payment and there was no corroborative material. (ii) Whether sustaining such an addition without granting the assessee an opportunity to cross-examine the third party from whose premises the documents were seized amounted to violation of principles of natural justice, vitiating the addition. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Sustainability of addition based only on third-party seized documents lacking corroboration Legal framework (as considered): The Court proceeded on the basis that the addition had been made as 'undisclosed investment' under section 69B read with section 115BBE, and examined whether the evidentiary basis relied upon by the revenue justified sustaining the addition. Interpretation and reasoning: The Court treated the seized papers as the sole foundation for the addition and noted that, on a plain reading, the document merely reflected two figures written against the assessee's name. The Court accepted the determinative reasoning applied in the earlier Tribunal decision on the same seized material, namely that the seized document did not contain any mention of 'cash' and that there was no corroborative statement recorded from the person from whose premises the document was seized. In the absence of such indicia and supporting evidence, the seized notings were held insufficient, by themselves, to sustain the inference of undisclosed investment. Conclusion: The addition could not be upheld where it rested only on such third-party seized notings, without mention of cash payment and without corroboration. Issue (ii): Denial of cross-examination and violation of natural justice Legal framework (as considered and applied): The Court applied the principle that when third-party material/statement is used as the basis for an adverse conclusion against an assessee, denial of an opportunity to cross-examine the concerned witness constitutes a serious breach of natural justice, rendering the adverse action unsustainable. Interpretation and reasoning: The Court noted that the documents were seized from a third party and that the assessee was not provided the opportunity to cross-examine that person, despite a specific grievance raised on this ground. The appellate view that cross-examination was not a compulsory requirement was rejected as erroneous, because the assessment had proceeded on third-party material used against the assessee. The Court adopted the reasoning that passing the assessment order without providing cross-examination, when such material formed the basis of the addition, was contrary to principles of natural justice and therefore could not support sustaining the addition. Conclusion: The denial of cross-examination in the circumstances vitiated the sustaining of the addition; the addition was accordingly deleted. Result: The appeal was allowed and the addition for alleged undisclosed investment (taxed under section 115BBE) was set aside.