DEPUTY COMMISSIONER OF INCOME TAX, CHENNAI vs. SHRI JAYA PRADEEP, CHENNAI

The present appeal filed by the Revenue is directed against the order dated 16.01.2025 passed by the Learned Commissioner of Income Tax (Appeals)-19, Chennai [hereinafter referred to as the “Ld.CIT(A)”], arising from the assessment order dated 28.03.2022 framed u/s.143(3) r.w.s 153C of the Income-tax Act, 1961 (“the Act”) by the Deputy Commissioner of Income Tax, Central Circle–2(4), Chennai [hereinafter referred to as “the AO”], for the Assessment Year 2020-21.

The facts, as emanating from the record, are that the assessee is an individual engaged in the business of real estate development and property letting, and has also derived income from salary during the year under consideration. For the A.Y.2020-21, the assessee filed his return of income u/s.139(1) of the Act on 04.12.2020, declaring a total income of Rs.1,08,29,030/-.

A search and seizure operation u/s.132 of the Act was conducted in the case of the Kallal Group on 11.03.2021. In the course of the said action, the office premises of M/s.Sarnith Enterprises Private Limited were also subjected to search, resulting in the seizure of certain books of account, loose sheets and documents. The statement of Shri Ganesan Saravanakumar, Director of the said company, was recorded with reference to the seized materials.

Among the documents seized were loose sheets, books and documents marked as ANN/KP/GS/LS/S and ANN/SJ/GS/B&D/S. The AO while framing the assessment, reproduced the relevant portions of these seized documents in the assessment order, which were tabulated by the AO in the assessment order as under: -

Upon receipt of the aforesaid information from the AO having jurisdiction over the searched person, the AO of the assessee recorded satisfaction as contemplated u/s.153C of the Act and issued notice under the said provision on 28.01.2022. In response thereto, the assessee filed his return of income on 07.03.2022, declaring the same income as originally returned. The AO thereafter issued notice u/s.143(2) of the Act on 26.03.2022, followed by notice u/s.142(1) of the Act calling for details.

In his statement recorded u/s.132(4) of the Act on 11.03.2021, Shri Ganesan Saravanakumar deposed that pages 01 to 22 represented the registered sale deed pertaining to land measuring 13.85½ acres (Document No. 17330/2019) situated in Survey Nos. 201/1B, 210/1, 201/1, 212/4A, 212/5A, 212/5B, 212/2, 201/1A2 and 201/1A2 of Rackiyapalam Village, Tirupur, purchased by the assessee from the aforesaid vendors.

With respect to pages 23 to 26, he further stated that the handwriting on the loose sheets was that of one Shri G.Gnanasekhar, a retired PWD Executive Engineer who assisted them in registration related matters. He stated that the entries recorded under the caption “cash” represented cash payments made over and above the registered sale consideration of Rs.1,11,44,800/-. As per his deposition, the aggregate of such cash entries on page 23 amounted to Rs.25,78,98,000/-, out of which Rs.72,00,000/- was not ultimately paid, leaving

The AO further noted that in the statement recorded u/s.132(4) of the Act on 12.03.2021, Shri Ganesan Saravanakumar admitted that he was engaged in real estate activities, scrap trading, financing and brokerage, and that certain notings found in ANN/SJ/GS/B&D/S-1 to S-4 reflected cash receipts and payments relating, inter alia, to on-money transactions pertaining to the land purchased by the assessee at Rackiyapalam Village.

Relying upon (i) the seized materials ANN/KP/GS/LS/S and ANN/SJ/GS/B&D/S-1 to S-4, and (ii) the statements of Shri Ganesan Saravanakumar recorded on 11.03.2021 and 12.03.2021 u/s.132(4) of the Act, the AO concluded that the assessee had paid unaccounted “on-money” to the sellers, viz., Shri M.V.Gnanaguru and Smt.M.V.Lavanya Gnanaguru, for the purchase of land. The assessee was accordingly issued a show-cause notice as to why the alleged on-money payment of Rs.25,78,98,000/- should not be treated as unexplained investment u/s.69B r.w.s 115BBE of the Act.

The assessee objected to the proposed addition of the AO, submitting that the seized documents do not bear any mark, signature, or acknowledgement evidencing the movement of funds between the assessee and the sellers. It was therefore contended that the said documents do not pertain to the assessee. The assessee further drew the attention of the AO to the retracted statement of Shri Ganesan Saravanakumar and submitted that no addition can be sustained on the basis of a statement that has been subsequently retracted. The assessee also sought the opportunity to cross- examine the concerned parties. In light of these submissions, the assessee contended that no “on-money” payment was made in connection with the purchase of the land and, accordingly, strongly objected to the proposal of the AO to make an addition of Rs.25,78,98,000/- u/s.69B r.w.s 115BBE of the Act.

The AO, however, rejected the explanation tendered by the assessee and proceeded to make an addition of Rs.25,78,98,000/- u/s.69B r.w.s 115BBE of the Act, holding that the assessee was the purchaser of the impugned land and, therefore, the information contained in the seized documents pertained to him and was material for determining his total income. The AO further noted that two statements of Shri Ganesan Saravanakumar were recorded u/s.132(4) of the Act, wherein he had, in both statements, admitted the receipt and payment of on money in relation to the transaction. Thus, according to the AO, the Revenue was in possession of multiple evidence indicating the payment of on- money by the assessee to the vendors.

The AO disregarded the retraction statement subsequently made by Shri Ganesan Saravanakumar, holding that the addition was founded on seized documentary material and was not based solely on the statements. The AO opined that the retraction dated 01.11.2021 was influenced by the involvement of other parties including the assessee, who, according to the AO, had a political background, and that political pressure and coercion could have prompted the retraction. The AO further observed that the retraction was furnished after an inordinate delay of seven months without any satisfactory explanation, whereas any denial or retraction of a statement recorded u/s.132(4) of the Act ought to be made within a reasonable time. He therefore concluded that the retraction was merely an afterthought and devoid of evidentiary value. The AO also denied the opportunity of cross-examination on the ground that the deponent had already retracted his earlier statement.

The AO recorded that Shri Ganesan Saravanakumar had accepted the receipt of on-money and had explained the nexus of the seized documents with the land transaction in question. He had, in his statements recorded on 11.03.2021 and 12.03.2021 u/s.132(4) of the Act, clearly admitted the on-money component in respect of the Tirupur land purchased by Shri Jaya Pradeep. The :-7-: ITA. No.:960Chny/2025 AO held that the noting and entries in the notebook maintained by Shri G.Saravanakumar had been duly explained by him on oath in the presence of witnesses during the course of search, and therefore, possessed credible evidentiary value. The quantification of on-money, according to the AO, was a reasonable inference drawn from the seized material owing to its close nexus with the property transaction and did not rest on mere presumption or conjecture. The AO stated that no presumption u/s.132(4A) of the Act had been invoked against the assessee and that the notebook had never been alleged to belong to the assessee; rather, it was unequivocally owned and explained by Shri G.Saravanakumar.

The AO further noted that the books and documents seized under ID marks ANN/SJ/GS/B&D/S-2 and S-3 contained details of cash receipts from various persons and cash payments to various persons, and were maintained by Shri G.Saravanakumar. The pages referred to by the AO contained entries of payments described as “Guru”, “Guru MTP Road” and “Guru Cash (PWD)” on various dates, which, according to the AO, matched precisely with the loose entries found along with corresponding dates.

The AO observed that the documents produced by the assessee pertained only to the official payments recorded in the registered sale deed amounting to Rs.1,11,44,800/- and did not reflect the full and actual sale consideration. The AO relied upon the noting in pages 23 to 26 of the seized material marked ANN/KP/GS/LS/S, recovered from the premises of Shri G.Saravanakumar, who was engaged in real estate brokerage and was stated to be well-acquainted with the assessee. In his sworn statement, Shri G.Saravanakumar had stated that he was a real estate broker, that he frequently conversed with other brokers and landowners regarding negotiations, and that he habitually recorded the details of deals, sale prices, and purchase prices in his notebook. He further stated that he recorded month- wise receipts and payments for reference and to compute his commission. He

The AO concluded that Shri G.Saravanakumar is known to the assessee for several years and was involved not only in the purchase transaction but also in subsequent activities relating to layout approval and development of the property. Hence, the AO held that the noting in the notebook were genuine and contemporaneous records relating to the assessee's land transaction and could not be treated as imaginary or fabricated. The seized notebook, maintained by a real estate broker in the ordinary course of his profession, was considered by the AO to contain authentic details relating to the assessee's property transaction.

Finally, the AO referred to the prevailing market value of land in the area, which according to publicly available information, ranged from Rs.1,000 to Rs.1,200 per sq. ft. Accordingly, for 13.85 acres (equivalent to 6,03,306 sq. ft.), the value was computed at Rs.72,39,67,200/-. On this basis, the AO concluded that substantial on-money had been paid by the assessee for acquiring the land. Consequently, an addition of Rs.25,78,98,000/- was made in the hands of the assessee towards unaccounted investment found to be not recorded in his books of account, u/s.69B r.w.s 115BBE of the Act.

Furthermore, the AO has disallowed the temple donation amounting to Rs.7,00,000/- u/s.37 of the Act while framing the assessment. As this issue has not been raised in the present appeal, we refrain from adjudicating upon the same. Consequently, the impugned assessment was completed by the AO u/s.143(3) r.w.s 153C of the Act on 28.03.2022, determining the total income of the assessee at Rs. 26,69,19,030/-.

Aggrieved by the assessment order passed by the Ld.CIT(A), assessee carried the matter in appeal before the Ld.CIT(A).

During the appellate proceedings before the Ld.CIT(A), the assessee submitted that the sworn statement of Shri G.Saravanakumar recorded u/s.132(4) of the Act has no evidentiary or persuasive value, inasmuch as the said statement stands retracted and the Revenue has not rebutted such retraction by any cogent or legally sustainable means. It was further contended that the assessment has been framed solely on the basis of certain loose sheets, which neither bear the handwriting of the assessee nor contain any acknowledgment in the form of signature, endorsement, or any identifiable mark attributable to the assessee.

It was contended that the said loose sheets were admittedly found and seized from the premises of Shri G.Saravanakumar and, therefore, the statutory presumption contemplated u/s.132(4A) r.w.s 292C of the Act operates only in relation to the person from whose possession the documents were found. The assessee submitted that such presumption cannot be extended to “any other person” for the purpose of proceedings u/s.153C of the Act. Accordingly, it was urged that the presumption does not operate against the assessee.

The assessee further submitted that the impugned documents are non- speaking in nature and are not supported by any corroborative material on record to demonstrate that the said entries relate to any real transaction giving rise to income assessable in the hands of the assessee, which remained undisclosed in the regular books of account. It was submitted that such documents, which do not, by themselves, indicate any nexus with undisclosed income or investment, are treated in search jurisprudence as “dumb documents”, and no addition can be made thereon in the absence of supporting evidence. The assessee emphasized that none of the seized documents were authored by him, nor do they bear his signature, and no logical or reasonable

It was further submitted that the AO has not brought on record any corroborative evidence to establish that the actual consideration for the property transaction was higher than the registered value. The AO has merely placed reliance on data available on certain real estate websites to suggest that the fair market value was higher than the declared consideration. It was contended that, had the market value been of such magnitude, the guideline value fixed by the Stamps and Registration Department would necessarily have reflected the same. Since the assessee has duly recorded the guideline value in his books of account and there is no evidence of any further payment over and above the registered value, no addition can be sustained merely on the basis of suspicion or conjecture. It was also submitted by the assessee that the AO has not examined the sellers of the property.

The assessee further contended that the AO has neither established nor made any attempt to establish any actual movement of funds, allegedly paid as “on-money”, either directly or indirectly, by the assessee, Shri V.P.Jayapradeep, to the sellers, namely Shri Gnanaguru and Smt.Lavanya Gnanaguru. It was also argued that the addition has been made without granting an opportunity of cross-examination of the concerned parties. Attention was further drawn to the fact that the alleged noting with respect to purported on-money payments are stated to exist even after the date of registration of the property, which is an abnormal circumstance, rendering the documents unreliable and irrelevant to the assessee.

It was further submitted before the Ld.CIT(A) that in response to the summons issued by the Revenue on 29.07.2021, the assessee categorically denied having paid any on-money and also denied the involvement of Shri

Upon consideration of the submissions advanced by the assessee, the Ld.CIT(A) deleted the addition of Rs.25,78,98,000/- made by the AO u/s.69B r.w.s 115BBE of the Act. The Ld.CIT(A) observed that the AO, in the assessment order, failed to consider the statement recorded u/s.132(4) of the Act from Shri G.Saravanakumar on 11.03.2021, wherein it was categorically stated that “the handwriting found in the seized loose sheets belongs to Shri G.Gnanasekhar, who is a retired PWD Executive Engineer and assists us in land registration work.” The Ld.CIT(A) noted that the seized loose sheet was not authored by Shri G.Saravanakumar, from whose premises the same was recovered. No effort was made by either the Authorised Officer or the AO to conduct any cross- verification with the alleged author of the document.

The Ld.CIT(A) further recorded that the AO omitted to bring on record the statement recorded u/s.131(1) of the Act during the post-search proceedings on 19.07.2021 from Shri G.Saravanakumar, wherein he clarified that the entries in the loose sheets did not represent cash receipts and that the land transaction was not routed through him. The Ld.CIT(A) observed that no findings were made by the AO on such statement, and no enquiry was undertaken to substantiate the narrations contained in the loose sheets. It was also noted that Shri G.Saravanakumar had retracted the statement recorded u/s.132(4) of the Act on 11.03.2021 and 12.03.2021, vide letter dated 01.11.2021 filed on 09.11.2021, alleging various irregularities during the search proceedings.

The Ld.CIT(A) further observed that no statement was recorded from the sellers of the property in relation to the alleged transaction. It was held that the AO has placed exclusive reliance on the loose sheet seized during the search,

The Ld.CIT(A) also noted that the AO failed to refer the matter to the Valuation Cell for determination of the fair market value of the property. In the absence of such exercise, the valuation adopted at Rs.28,38,00,000/- is merely conjectural. In view of the aforesaid findings, the Ld.CIT(A) deleted the addition of Rs.25,78,98,000/- made u/s.69B r.w.s 115BBE of the Act vide the impugned order dated 16.01.2025. The relevant observations of the Ld.CIT(A) are as under: -

Aggrieved by the deletion of addition of Rs.25,78,98,000/- made by the AO u/s.69B r.w.s 115BBE of the Act, the Revenue is in appeal before us.

The Ld.DR, Ms.E.Pavuna Sundari, CIT, appearing on behalf of the Revenue, vehemently supported the assessment order. The Ld.DR submitted that the payment of on-money by the assessee stands duly established on the basis of the loose sheets found and seized from the premises of Shri G.Saravanakumar, which are further corroborated by his sworn statement recorded u/s.132(4) of the Act. The Ld.DR thus contended that the AO had rightly made an addition of Rs.25,78,98,000/-, being the amount allegedly paid

Per contra, the Ld.AR, Shri R.Venkata Raman, Chartered Accountant, appearing on behalf of the assessee, supported the order passed by the Ld.CIT(A) and submitted that there is no perversity or infirmity in the said order warranting interference by this Tribunal. The Ld.AR submitted that the loose sheets were seized from the premises of one Shri G.Saravanakumar, who was neither the author of the impugned documents nor was he acting as a broker or intermediary in the land transaction between the assessee and the vendors of the property. In such circumstances, the statements made by Shri G.Saravanakumar cannot be accorded any evidentiary value for the purpose of alleging that the assessee had paid any on money over and above the stated consideration.

It was further contended that, even otherwise, the said statements stand vitiated in view of the subsequent retraction made by Shri G.Saravanakumar, thereby rendering the earlier deposition unreliable and devoid of evidentiary relevance. The Ld.AR submitted that the Revenue has failed to identify or record the statement of the actual author of the loose sheets and has consequently failed to conduct any meaningful enquiry in that regard. According to the Ld.AR, in the absence of such enquiry and without establishing the authorship and evidentiary nexus of the documents with the assessee, the conclusion drawn by the AO in making the impugned addition is wholly unsustainable and without any legal basis.

The Ld.AR further contended that the addition has been made solely on the basis of loose sheets recovered from a third party and on the strength of the retracted sworn statement of Shri G.Saravanakumar, in the absence of any corroborative material linking the assessee with the alleged payment of on money. It was asserted that such uncorroborated and unverified documents cannot form the sole basis of addition, particularly when the assessee has categorically denied having made any such payment and when no supporting evidence has been brought on record by the Revenue.

The Ld.AR placed substantial reliance on the detailed findings recorded by the Ld.CIT(A) in paragraphs 6.3.5 to 6.3.25 of the impugned order and submitted that the conclusions arrived at by the Ld.CIT(A) are based on proper appreciation of facts and settled legal principles and therefore cannot be regarded as perverse. Accordingly, the Ld. AR submitted that the Ld.CIT(A) has rightly deleted the addition made by the AO and prayed that the appeal filed by the Revenue be dismissed by upholding the order of the Ld.CIT(A).

We have heard the rival contentions and perused the material available on record. The issue for consideration arises out of a search and seizure action carried out u/s.132 of the Act on 11.03.2021 in the case of various entities forming part of the “Kallal Group”. In the course of the said search, the business premises of M/s.Sarnith Enterprises India Private Limited, located at No.17/173, Karpagam Complex, NSR Road, Saibaba Colony, Coimbatore, were also covered. It is an admitted position that Shri G.Saravanakumar is one of the Directors of the said company.

During the said search, the Department found and seized certain loose sheets and two note pads from the above business premises, which have been relied upon by the AO in framing the impugned assessment and in making the disputed addition. The description of the seized material, along with the respective annexure references, is tabulated hereunder for ready reference:

It is an undisputed fact on record that the assessee had purchased 13.85½ acres of land situated at Rackiyapalayam Village, Tirupur District, from the vendors namely Shri M.V.Gnanaguru and Smt.Lavanya Gnanaguru, under a registered sale deed dated 29.11.2019, for a sale consideration of Rs.1,11,44,800/-. The consideration as per the instrument was duly paid by the assessee to the vendors by way of banking channels.

A sworn statement u/s.132(4) of the Act was recorded from Shri G.Saravanakumar on 11.03.2021 with specific reference to the loose sheets marked as ANN/KP/GS/LS/S. In reply to the queries posed, he identified the handwriting found on the loose sheets as that of one Shri G. Gnanasekhar, who, according to him, assisted in land registration matters. He further stated that the noting appearing under the title “T LAND” pertained to the land purchased by the assessee at Tirupur, and that the entries described under the heading “cash” represented payments made over and above the registered sale consideration. He further stated that the total amount of cash so paid worked out to Rs.25,78,98,000/-, although he claimed that a sum of Rs.72,00,000/- reflected therein was not paid, and therefore, the net cash payment amounted to Rs.25 crores. The relevant portion of the deposition is reproduced hereunder for ease of refence:

On the next date, i.e., 12.03.2021, another statement of Shri G.Saravanakumar u/s.132(4) of the Act was recorded with reference to the entries found in the seized note pads marked ANN/SJ/GS/B&D/S-2 and ANN/SJ/GS/B&D/S-3. In response to pointed questions, he stated that the cash entries mentioned therein, purportedly received from various persons in October and November 2020, represented the on-money payments received for acquiring the lands at Tirupur, and that the said receipts were part of the cash payments already admitted by him on 11.03.2021. The relevant portion of the sworn statement is reproduced hereunder for ease of reference:

We note that, subsequently, on 19.07.2021, a statement u/s.131(1) of the Act was recorded from Shri G.Saravanakumar, wherein he retracted the earlier depositions made u/s.132(4) of the Act. In this statement, he stated that the entries were merely noting of transactions between the parties to the land deal, and that the money did not pass through him. He stated that the amounts noted were communicated to him over telephone only for his follow-up, and that the noting were made to keep track of his brokerage entitlement. He accordingly denied that the said noting represented any actual cash receiving or cash disbursement by him. The relevant portion of the statement is reproduced hereunder for ease of reference:

Further, the assessee’s statement u/s.131 of the Act was recorded on 29.07.2021. The assessee categorically denied any knowledge of the seized documents and specifically denied making any payment towards “on-money” beyond the sale consideration recorded in the registered sale deed. The assessee asserted that the entire sale consideration was discharged through banking channels by way of demand drafts. The assessee also denied that Shri G.Saravanakumar acted on his behalf in the purchase of the land and stated that the entries found in the seized documents were unrelated to him. The relevant portion of the said statement is reproduced hereunder for ease of reference:

The AO, after analysing the seized material and relying primarily on the statements recorded u/s.132(4) of the Act, proceeded to issue notice u/s.153C of the Act to the assessee. In the assessment proceedings, the AO noted that the entries in the annexures ANN/KP/GS/LS/S and ANN/SJ/GS/B&D/S-2 & S-3 corroborated each other and indicated cash transactions for the purchase of the land. According to the AO, Shri G.Saravanakumar acted as a personal assistant to the assessee and recorded receipts and payments in connection with the impugned transaction. The AO held that the retraction made by Shri G.Saravanakumar at a later stage was an afterthought and that the initial disclosures made u/s.132(4) of the Act were fully voluntary and credible. The AO further held that the notings in the seized documents clearly established that the assessee had invested a sum of Rs.25,78,98,000/- in cash in addition to the disclosed sale consideration of Rs.1,11,44,800/-, thereby making the total investment in the property substantially higher. The AO thus treated the said sum of Rs.25,78,98,000/- as unexplained investment u/s.69B of the Act and applied the rate of tax as per section 115BBE of the Act.

Upon a careful and comprehensive examination of the seized material, being pages 23 to 26 of loose sheets contained in ANN/KP/GS/LS/S, we note that none of the impugned pages bear the signature or authentication of either the assessee or the vendors. The pages do not contain the name of the assessee or the vendors, nor do they mention any identifiable particulars connecting the noting to the parties to the impugned transaction. It is not the case of the Revenue that the handwriting appearing on the seized loose sheets belongs either to the assessee or to any of the vendors. The seized pages do not contain any particulars identifying the immovable property alleged to have been transacted, such as address, survey numbers, details of vendor and vendee, nor do they specify the nature of the entries whether they represent receipts or payments. The mode of transaction, payer, payee, and the purpose

We observe that the AO has placed reliance upon the noting at Page 23 of ANN/KP/GS/LS/S to infer alleged payment of on-money by the assessee. The relevant entries are reproduced below along with our observations: -

From the above tabulation, it is evident that the cheque amounts appearing under Serial No.3 are not relatable to the transaction of purchase between the assessee and the vendors. Further, the entries under Serial Nos.5 to 9, aggregating to Rs.21,50,00,000/-, pertain to alleged cash payments

Coming to the evidentiary value of the loose sheets, we note that Shri G.Saravanakumar, in his sworn statement recorded on 11.03.2021, has clearly admitted in response to Question No. 5 that the loose sheets at pages 23 to 26 in ANN/KP/GS/LS/S were authored by one Shri G.Gnanasekhar. Despite this admission, neither the authorized officer at the time of search nor the AO has conducted any enquiry or verification with the said author. In the absence of such enquiry, the allegations sought to be drawn from the loose sheets, which are admittedly prepared by a third party unconnected with the assessee’s transaction, lack any evidentiary foundation. No adverse inference can, therefore, lawfully be drawn against the assessee.

We further observe from the seized note pads in ANN/SJ/GS/B&D/S-2 & 3, that the impugned sheets do not bear any signature or acknowledgment of the assessee or the vendors. On perusal of the said note pad and sworn statement of Shri G.Saravankumar, the entries are not authored by either the assessee or the vendors. The nature of the entries whether representing receipts or payments is not ascertainable. The entries do not indicate payment of any on-money by the assessee. The page-wise totals do not reconcile with the individual noting, demonstrating incompleteness. Thus, the seized note pads are incomplete, uncorroborated, and constitute “dumb documents”

In our considered view, the seized documents relied upon by the AO do not contain any complete or cogent information which may legitimately form the basis of drawing an inference regarding alleged on-money payments made by the assessee. The entries merely indicate dates, purported amounts, and abbreviated names without disclosing the identity of the payer, payee, nature of transaction, or purpose thereof. In the absence of such primary and essential details, it is not legally permissible to infer that the entries relate to the assessee or represent income in the hands of the assessee.

It is a well-settled proposition of law that entries appearing in private notings or diaries maintained by third parties, without supporting evidence or linkage to the assessee, constitute “dumb documents” and cannot be relied upon to fasten tax liability. Unless there is independent, credible, and corroborative evidence linking such entries to the assessee, the same are devoid of evidentiary value. In the present case, neither the assessee nor the vendors have acknowledged any such payment. No corroborative evidence has been brought on record to demonstrate actual flow of money. The assessment order does not refer to any independent material supporting the alleged payments.

We draw gainful support from the judgment of the Hon’ble Supreme Court in the case of Common Cause (A Registered Society) v. Union of India [2017] 394 ITR 220 (SC), wherein the Hon’ble Apex Court has categorically held that :-33-: ITA. No.:960Chny/2025 loose papers, diaries, pen drives, computer printouts and similar material recovered during the course of search and seizure, which are not maintained in the regular course of business, have no evidentiary value in the absence of any corroborative material. In the aforesaid decision, the Hon’ble Supreme Court has, inter alia, observed as under:

A plain reading of the foregoing clearly establishes the legal principle that it is always possible for any unscrupulous person to unilaterally record entries against any person in loose sheets, diaries, pen drives, computer excel sheets or similar material, without any underlying transaction. Such material, not being

A similar view has been expressed by the Hon’ble Karnataka High Court in the case of Sunil Kumar Sharma v. DCIT [2022] 448 ITR 485 (Karnataka), which pertains to an income-tax matter. In the said decision, the Hon’ble High Court, placing reliance upon the judgment of the Hon’ble Supreme Court in Common Cause (A Registered Society) v. Union of India (supra), held that loose sheets of paper or diaries found during the course of search, which are not established to form part of the books of account regularly maintained by the assessee, do not constitute material evidence and, therefore, cannot be relied upon or used against the assessee. The relevant extract of the judgment is reproduced hereinbelow:

We find that the Ld.CIT(A) by pacing reliance on the judgment of the Hon’ble Delhi High Court in CIT Vs Sant Lal [2020] 118 taxmann com 432 (Del) has rightly held that the impugned loose sheets relied upon by the AO was neither seized from the premises of the assessee nor was the same found to be in the handwriting of the assessee. Such material seized in the case of a :-35-: ITA. No.:960Chny/2025 third party which is not in the hand writing of the assessee does not constitute adequate evidence to draw any adverse inference against the assessee.

In light of the above facts and judicial precedents we concur with the findings of the Ld.CIT(A) that a narration made in a loose sheet by a third person with scant details cannot be used to fasten tax liability upon the person whose name does not appear at all. In the absence of any corroborative evidence to attribute the entries to such a person. Such seized material is liable to be treated as a dumb document, which does not have any evidentiary value in respect of the entries found therein, unless corroborative evidence is available which can provide necessary reliable basis for deciphering the nature and character of the said entries.

Further, we also find that the Ld.CIT(A) has rightly relied upon the decision of this Tribunal in the case of ACIT Vs Satyapal Wassan [TS-5104- ITAT-2007(Jabalpur)-O] (2008) 5 DTR 0202, wherein the Tribunal stressed the importance of gathering corroborative evidence in support of the contents of a document, particularly when the document is bereft of necessary details and is not complete in all respects, by stating as under:

We further draw support from the coordinate bench decision of this Tribunal in the case of Riveria Properties Private Limited Vs ITO in wherein it was held that the AO is required to bring further evidence on record to show that the money was actually exchanged between the parties in a case where there is no other evidence on record to prove that on-money was paid except the loose sheet found in the premise of a third party and admission made by the third party. The relevant part of the said decision is reproduced as under:

We further concur with the findings of the Ld. CIT(A) that the Hon’ble Supreme Court in the case of K.P.Varghese v. ITO (1981) 131 ITR 597 has clearly laid down the principle that the onus of establishing that the necessary conditions of taxability are fulfilled rests upon the Revenue. The Hon’ble Apex Court has further observed that to cast the burden upon the assessee to prove a negative fact namely, that no consideration beyond the declared value has been received is to impose an almost impossible obligation. The Hon’ble Court has held that it is incumbent upon the Revenue to adduce cogent evidence to :-37-: ITA. No.:960Chny/2025 corroborate the contents of any seized material before alleging that the assessee was in receipt of undisclosed consideration.

In the facts of the present case, we find that the AO has failed to discharge such burden. No independent enquiry or corroborative evidence has been brought on record to substantiate that the assessee indeed paid any on-money as purportedly reflected in the impugned seized documents.

We also agree with the Ld.CIT(A) that though the strict provisions of the Indian Evidence Act do not apply to income-tax proceedings, the settled legal position is that the AO cannot make a pure guess or an addition without any supporting material. The addition must be based on reliable and corroborative evidence, particularly when the material relied upon has been recovered from a third party. In the present case, the seized loose sheets and notepads were recovered from a third-party premises and are admittedly not in the handwriting of the assessee or any of the vendors. In the absence of any supporting evidence to demonstrate that the alleged payments actually materialised, such loose papers can only be considered “dumb documents”, incapable of being used as the sole basis for addition. Hence, the conclusion drawn by the AO solely on the basis of the said uncorroborated documents is untenable.

We also find support from various decisions of this Tribunal on identical facts, wherein it has been held that additions cannot be made solely on the basis of loose sheets found from third-party premises. The relevant decisions of the jurisdictional Bench are as under:

In view of the foregoing factual matrix, and respectfully following the ratio laid down in the judicial precedents cited supra, we are of the considered view that, in the absence of any substantive, corroborative, or otherwise reliable evidentiary material brought on record by the AO, the seized loose sheets and note pads relied upon by the AO constitute mere ‘dumb documents’. Such documents, being devoid of evidentiary value and lacking any demonstrable nexus with the alleged transactions, are inherently incapable of forming a legally sustainable basis for making an addition on account of the purported on-money payment. Accordingly, the addition of Rs.25,78,98,000/- made by the AO towards unexplained investment u/s.69B r.w.s 115BBE of the Act solely on the basis of the impugned documents is untenable in law and cannot be sustained. We, therefore, find no infirmity in the order passed by the Ld.CIT(A), who has rightly deleted the addition. The order of the Ld.CIT(A) is, therefore, hereby affirmed.

We further note that there is no evidence, direct or circumstantial, to substantiate the assertion of the AO that Shri G.Saravanakumar acted as a broker, intermediary or facilitator in relation to the impugned land transaction between the assessee and the vendors. The allegation is based solely on a statement recorded during the course of investigation without any contemporaneous supporting material such as correspondence, brokerage agreement, financial records, or confirmations from any of the parties involved. It is pertinent to observe that the said individual has subsequently filed a detailed retraction letter clearly stating that the entries in his diary do not represent any receipt of cash pertaining to the assessee’s land purchase and further clarifying that he had no role in negotiating, arranging, or executing the transfer of consideration. This direct contradiction completely erodes the evidentiary value of the earlier statement and undermines the credibility sought to be attached to it by the AO.

It is a settled legal proposition, as upheld in various judicial pronouncements, that a statement recorded during the course of investigation, especially when retracted at the earliest opportunity and not supported by any corroborative evidence, cannot form the sole basis for making an addition in the hands of the assessee. The Hon’ble Supreme Court and various High Courts have repeatedly held that a retracted statement must be corroborated by independent and cogent material to have any evidentiary value. In the absence of such corroboration, the statement is entirely unreliable and cannot be elevated to the status of substantive evidence.

Further, the principle that suspicion, however strong, cannot take the place of proof, has been consistently upheld by judicial forums. The addition made in the present case appears to rest solely on unverified assumptions and presumptions rather than on verifiable facts or documentary proof. No documentary trail, bank transaction, or confirmation has been presented to establish that any unaccounted consideration passed through the hands of Shri Ganesan Saravanakumar on behalf of the assessee. Likewise, no efforts have been made by the AO to independently examine the vendors or other third parties to corroborate the alleged role of the said individual in the transaction.

We also note that the Revenue has not undertaken any inquiry to establish that the retraction is an afterthought or motivated. In the absence of any finding that the retraction lacks credibility or was made under coercion or pressure, the benefit of doubt must necessarily accrue to the assessee. Moreover, without any independent verification of the facts stated in the retraction letter, the reliance placed on the earlier untested statement is misplaced. It is incumbent upon the AO to establish, through positive evidence, that the original statement represented the true factual position.

In view of the above, the addition made on the strength of an uncorroborated and subsequently retracted statement is unsustainable in law. The Ld.CIT(A) after a detailed examination of the factual matrix and applicable legal principles, has rightly concluded that the addition is devoid of merit and liable to be deleted. We concur with the findings of the Ld.CIT(A) and find no justifiable reason to interfere with the well-reasoned order passed by the Ld.CIT(A).

At this stage, we deem it appropriate to refer to the judgment of the Hon’ble Madras High Court in CIT v. P.V. Kalyanasundaram (282 ITR 259). In the said case, a search operation was conducted on the assessee, during which it was noticed that the assessee had purchased certain land which was registered for a consideration of Rs.4.10 lakhs. The Assessing Officer recorded the statement of the seller, wherein the seller admitted that the actual consideration received was Rs.34.35 lakhs, as against the registered value of Rs.4.10 lakhs. Although the seller initially retracted his statement, he subsequently filed an affidavit affirming that the total consideration was Rs.34.85 lakhs, out of which Rs.4.10 lakhs was received by demand draft and the balance in cash. The seller also revised his return of income and offered the entire amount of Rs.34.85 lakhs to tax. Relying solely upon the statement of the seller, the Assessing Officer treated the difference of Rs.30.75 lakhs as undisclosed income of the assessee-purchaser and made the corresponding addition. On appeal, the CIT(A) deleted the addition. The Tribunal upheld the order of the CIT(A) by observing that the seller had given conflicting statements at different stages, and his subsequent admission of the higher consideration along with payment of tax thereon was an apparent attempt to protect himself from further action by the Department. The Tribunal further held that, apart from the statement of the seller, the Assessing Officer had not conducted any independent inquiry, nor discharged the burden of establishing that the assessee had in fact paid consideration of Rs.34.85 lakhs. It was observed that no material was brought on record to indicate that the assessee had :-41-: ITA. No.:960Chny/2025 understated the purchase consideration. In the appeal filed by the Revenue, the Hon’ble High Court concurred with the findings of the Tribunal, observing as under: - “5. We heard counsel. The seller had initially given conflicting statement about the sale consideration he received. When confronted by the Revenue on 11-12-1998, the seller admitted that he had deposited Rs. 4.10 lakhs received through draft in the bank and the rest amount was held by him in cash. The Revenue authorities could well have seized the cash invoking section 132 of the Act, but for obvious reasons this was not done. Had the cash been seized from the seller, the matter would have been concluded in favour of the Revenue. In a subsequent submission, the seller claimed on 20-11-2000 that he had paid Rs. 15 lakhs out of the sale proceeds to settle old family debts, Rs. 4.80 lakhs for construction of house in Pullkasi Village and the balance was advanced to parties for keeping Rs. 2 lakhs and Rs. 3 lakhs in the house for family expenses and educational expenses of his daughter, respectively. It was also noted that the revised return was filed by the seller wherein he had shown approximately Rs. 2.5 lakhs being available with him in cash. Even after giving the retraction and admitting that he had sold the property for a sale consideration of Rs. 4.10 lakhs, the seller filed his income-tax return on 28-1-2000, wherein he did not admit the cash on money consideration for the sale transaction. Subsequently he revised the income-tax return wherein he admitted the sale consideration and showing Rs. 4.80 lakhs out of the above as utilised for construction of residential house property and consequently claiming exemption under section 54, the seller filed the computation of income paying Rs. 1,83,576 as tax, which was quite evident from the conflicting statements given by the seller and the conflicting income-tax returns filed by him that his action of admitting sale consideration and paying tax was nothing but an obvious effort to save from further harassment from the Revenue and escape from the exigibility of tax on undisclosed income of the cash consideration under section 158BD of the Act, which in magnitude would far exceed the tax paid by him. The burden of proving actual consideration in such transaction was that of the Revenue. The Tribunal had given factual finding and held as follows : "We find that it is the uniform view of the courts and also held by the Apex Court as reported in K.P. Varghese v. ITO [1981] 131 ITR 597 the burden of proving actual consideration in such transaction is that of the Reve-nue. Considering the entire gamut of the case, we find that the Revenue has failed to discharge its duties and as held by the learned Commissioner of Income-tax (Appeals) instead made up a case on surmises and conjectures which cannot be allowed. Under the circumstances, we do not find any infirmity in the order of the learned Commissioner of Income-tax (Appeals) and we uphold the appellate order in this regard."

We also found that the Assessing Officer did not conduct any independent enquiry relating to the value of the property purchased. He merely relied on the statement given by the seller. If he would have taken independent enquiry by referring the matter with the Valuation Officer, the controversy could have been avoided. Failing to refer the matter was a fatal one.

The above findings of the Hon’ble High Court as well as the lower appellate authorities are noted to have been affirmed by the Hon’ble Supreme Court in their order reported in 294 ITR 49. In our considered view, the ratio laid down in the aforesaid judicial precedent is squarely applicable to the facts of the present case. The factual matrix in the assessee’s case is akin to that in the decided matter. In the present case, it is an undisputed fact that the AO has not carried out any independent valuation exercise except relying on unverified public domain data to ascertain the actual value of the property transacted. Further, we note that the seized materials, on a standalone basis, do not establish that the noting therein pertain to the assessee, nor do they prove that any payments were made by him. In the absence of cogent material linking the said document to the assessee or substantiating the alleged payment of on- money, the reliance placed by the AO on such noting is misplaced. Accordingly, we are of the considered opinion that the aforesaid judgment of the Hon’ble jurisdictional High Court fully supports the findings recorded by the Ld.CIT(A). Therefore, we find no infirmity in the order of the Ld.CIT(A), and thus uphold the same.

In view of the foregoing discussion, and having regard to the totality of facts and circumstances of the case, we find no infirmity in the well-reasoned order passed by the Ld.CIT(A). The Ld.CIT(A) has, after due appreciation of the material placed on record and in accordance with the applicable legal principles, rightly deleted the addition of Rs.25,78,98,000/- made by the AO u/s.69B r.w.s 115BBE of the Act, on account of alleged unexplained investment. We do not find any justification to depart from the findings recorded by the Ld.CIT(A), which remain uncontroverted by the Revenue with cogent evidence. Accordingly, the grounds of appeal raised by the Revenue are dismissed.

In the result, the appeal filed by the Revenue is dismissed.