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Issues: (i) Whether the reassessment notice and consequential assessment were valid where the Revenue relied on material found in the search of a third party and not on material found in the assessee's search, and the statutory procedure for such third-party material was not followed; (ii) Whether the addition as unexplained money under section 69A on account of alleged on-money payment for purchase of commercial space could be sustained on the basis of third-party loose sheets, diary entries and statements without corroborative evidence; (iii) Whether the protective addition in the assessee's hands could survive when the substantive addition was made in the hands of the partnership firm that purchased the property.
Issue (i): Whether the reassessment notice and consequential assessment were valid where the Revenue relied on material found in the search of a third party and not on material found in the assessee's search, and the statutory procedure for such third-party material was not followed?
Analysis: The reassessment was founded on search material seized from another person, while the assessment order itself showed that the alleged escapement was derived from third-party loose sheets, diary and digital material. In such a situation, the deeming fiction for search cases cannot be applied mechanically on the footing that a search was conducted in the assessee's case. Where the material used belongs to or relates to another person, the prescribed statutory route requiring satisfaction and prior approval for third-party material must be followed. The recorded reasons did not demonstrate compliance with that route, nor did they show a proper nexus between material found in the assessee's search and the alleged escapement for the relevant year.
Conclusion: The reassessment notice and the consequential assessment were invalid and void ab initio, in favour of the assessee.
Issue (ii): Whether the addition as unexplained money under section 69A on account of alleged on-money payment for purchase of commercial space could be sustained on the basis of third-party loose sheets, diary entries and statements without corroborative evidence?
Analysis: Section 69A applies only where the assessee is found to be the owner of money, bullion, jewellery or other valuable article not recorded in the books and offers no satisfactory explanation. Here, no such money or valuable article was found in the assessee's possession. The addition rested on loose sheets and digital material recovered from a third party, together with statements of third-party employees that were subsequently retracted. The seized papers were neither found from the assessee's premises nor shown to be in his handwriting or bearing his signature, and there was no independent corroborative evidence such as receipts, bills, or other proof of actual cash movement. In these circumstances, third-party material without corroboration could not justify the addition, and the loose sheets could not be treated as books of account for invoking section 69A.
Conclusion: The addition under section 69A was unsustainable and was deleted, in favour of the assessee.
Issue (iii): Whether the protective addition in the assessee's hands could survive when the substantive addition was made in the hands of the partnership firm that purchased the property?
Analysis: The property was purchased by the partnership firm, and the alleged on-money, if any, was attributable to that firm's acquisition. Once the substantive addition was dealt with in the hands of the firm, the protective addition in the assessee's individual hands lacked foundation. The assessee was not the purchaser in his own right, and the Revenue did not establish any independent basis to tax the same alleged on-money in his hands on a protective footing.
Conclusion: The protective addition was correctly deleted, in favour of the assessee.
Final Conclusion: The assessee succeeded on the jurisdictional challenge and on the merits of the addition, while the Revenue's challenge to deletion of the protective addition failed.
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