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Facts
A search operation was conducted on a third party, M/s KLP Projects Pvt.Ltd., during which loose sheets were found indicating 'on-money' of Rs.10.72 crore related to a property sale by the assessee, VPR Mining Infrastructure Pvt.Ltd., to Shri T.Uday Kumar. Based on Shri T.Uday Kumar's statement and the loose sheets, the AO initiated proceedings under Section 153C and added Rs.11 crores as undisclosed 'on-money' received by the assessee. The Ld. CIT(A) subsequently deleted this addition, leading to the Revenue's appeal.
Held
The Income Tax Appellate Tribunal upheld the order of the Ld. CIT(A), concluding that the loose sheets and the third party's statement were not sufficient incriminating material to sustain the addition under Section 153C. The Tribunal found no direct nexus or corroborative evidence to establish that the alleged 'on-money' was actually received by the assessee and noted defects in the AO's satisfaction recording for initiating Section 153C proceedings. Therefore, the assessment made under Section 153C was annulled.
Key Issues
1. Whether the satisfaction recorded by the Assessing Officer for initiating proceedings under Section 153C was defective and invalid. 2. Whether an addition based on loose sheets found during a third-party search and a third-party statement, without independent corroborative evidence, could be sustained against the assessee under Section 153C.
Sections Cited
153C, 132, 153A, 143(3), 132(4), 132(4A), 147, 148, 69C, 158BD
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Hyderabad ‘B’ Bench, Hyderabad
Before: Shri Vijay Pal Rao & Shri Madhusudan Sawdia
PER VIJAY PAL RAO, VICE PRESIDENT:
This appeal filed by the Revenue is directed against the order dated 28.01.2025 of the Commissioner of Income Tax (Appeals) [“Ld.CIT(A)”] for the A.Y.2014-15.
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The Revenue has raised the following grounds of appeal :
3. The solitary issue arises in this appeal of the Revenue is that whether in the facts and circumstances of the case the Ld.CIT(A) has erred in deleting the addition made by the AO while framing the assessment u/s 153C of the Income Tax Act, 1961 (“the Act”). The Ld.DR has submitted that there was a search and seizure operation u/s 132 of the Act conducted on 06.10.2015 and consequently, the AO issued notice u/s 153A of the Act. In response to which, the assessee filed return of income and accordingly, the assessment was completed u/s 143(3) r.w.s.153A of the Act at a total income of Rs.25,31,60,897/-. Subsequently, information was received by the AO that a search and seizure operation was carried out on 09.11.2017 in the case of M/s KLP Projects Pvt.Ltd., during which, some loose sheet /Hyd/2025 VPR Mining Infrastructure Pvt.Ltd. pages including sale deed executed by the assessee in favour of one Shri T.Uday Kumar dated 24.02.2014 was found and seized from the office premises of M/s Landmark Housing Projects Chennai Private Limited, a subsidiary of M/s KLP Projects Pvt.Ltd. The sale deed was not considered as incriminating material as it was available with AO at the time of assessment framed u/s 153A. As per the said seized document, a list of names against which a total amount of Rs.10,72,00,000/- was found. The loose sheet was confronted with Shri T.Uday Kumar in his statement u/s 132(4) dated 15.12.2017 and it was admitted that he arranged the funds of Rs.10,72,00,000/- for the purchase of the property. The AO accordingly initiated the proceedings u/s 153C of the Act by issuing notice dated 22.03.2021. In response to the notice, the assessee filed its return of income on 29.10.2021, declaring income at Rs.23,67,22,200/- . The Ld.DR has submitted that the loose sheet found and seized in the search and seizure operation in the case of M/s KLP Projects Pvt.Ltd. clearly revealed that Shri T.Uday Kumar has paid cash of Rs.11 crores to the assessee, apart from the sale consideration of Rs.8 crores shown in the sale deed. The AO has recorded satisfaction for initiation of proceedings u/s 153C and consequently made addition of Rs.11 crores as on-money sale consideration received by the assessee. The transaction of payment of Rs.11 crore in cash by Shri T.Uday Kumar is evident from the seized material found during the said search, on the basis of which, the AO initiated the proceedings u/s 153C and it /Hyd/2025 VPR Mining Infrastructure Pvt.Ltd. is also corroborated by the fact that the assessee sold the property at T.Nagar, Chennai to Shri T.Uday Kumar vide sale deed dated 24.02.2014 at a declared consideration of Rs.8 crores. Thus, the Ld.DR has submitted that once the transactions of cash receipt against the sale of property is established from the seized material, then the deletion of the said addition by the Ld.CIT(A) is not justified. He has referred to the CBDT Instruction No.1/2023 as well as the following judgements : (a) Pr.CIT-Central 3 Vs. Abhisar Buildwell P.Ltd. in Civil Appeal No.4484 OF 2018 (b) ITO Vs. Vikram Sujitkumar Bhatia in Civil Appeal No.916 of 2022 (c) Dayawanti Vs. CIT in Civil Appeal No.10266 of 2017 4. The Ld.DR has thus submitted that the Hon’ble Supreme Court has dismissed the SLP filed against the decision of Hon’ble Delhi High Court in the case of Dayawanti Vs. CIT while passing the judgement in the case of PCIT Vs. Abhisar Buildwell Pvt.Ltd. He has referred to para 16 and 16.1 of the judgement of Hon’ble Supreme Court and submitted that all the appeals filed by Dayawanti through legal heirs were dismissed by the Hon’ble Supreme Court. Therefore, the judgement of the Hon’ble Delhi High Court in the case of Dayawanti Vs. CIT has been upheld by the Hon’ble Supreme Court. Thus, the Ld.DR has submitted that in view of the judgement of Hon’ble Supreme Court in the case of Abhisar Buildwell Pvt.Ltd. and CBDT Instruction No.1/2023, the AO may be permitted to initiate proceedings u/s 147/148 of the /Hyd/2025 VPR Mining Infrastructure Pvt.Ltd.
Act, in case, the proceedings u/s 153C are not found to be valid. He has relied upon the order of the AO.
On the other hand, the learned counsel for the assessee has submitted that the addition has been made by the AO on the basis of loose sheet found in search and seizure operation of a third party, containing list of names against which the amounts were mentioned to be received by Shri T.Uday Kumar. The AO has relied upon the said loose sheet as well as statement of Shri T.Uday Kumar, while making the additions, which is not sustainable in law, as the said loose sheet seized during the search and seizure operations of M/s KLP Projects Pvt.Ltd. and from the premises of M/s Landmark Housing Projects Chennai Private Limited does not reveal the fact that the assessee has received any on-money, in respect of the sale of property to Shri T.Uday Kumar. The assessee has denied having received any amount over and above the consideration shown in the sale deed and therefore, the addition made by the AO on the basis of a document not containing any transaction with the assessee or the name of the assessee as well as the statement of a third party is not sustainable. He has referred to the order of the Ld.CIT(A) and submitted that the Ld.CIT(A) has considered this issue of sustainability of the addition made by the AO in the absence of any corroborative evidence found and brought on record by the AO. He has further submitted that presumption u/s 132(4A) can be drawn against a person in whose case search is made and from whose possession, the loose sheets were found in the course of /Hyd/2025 VPR Mining Infrastructure Pvt.Ltd.
search. Once, that loose sheet does not pertain to the assessee or relates to the assessee, the same cannot be a basis of addition in the proceedings u/s 153C of the Act, when the assessment was not pending and was already completed u/s 153A of the Act. The loose sheet found during the course of the search at the third person neither indicating any transaction relating to the assessee nor containing any name or signature of the assessee will not constitute a valid evidence against the assessee. Even otherwise, in the absence of any independent corroborative evidence, the AO cannot draw a presumption against the assessee. In support of his contention, he has relied upon the judgment of Hon’ble Delhi High Court in he case of CIT Vs.Sant Lal [2020] 118 taxmann.com 432 (Del) and submitted that the Hon’ble High Court has held that “addition cannot be made merely on the basis of entries in the loose sheets found in the premises of a third party without bringing on record independent evidence to corroborate such entries”. He has then relied upon the judgement of Hon’ble Bombay High Court in the case of PCIT Vs. Umesh Ishrani [2019] 108 taxmann.com 437 (Bombay) and submitted that the addition cannot be made on the basis of loose paper entries without corroboration of independent evidence. The AO has made addition only on the basis of suspicion, which cannot take place of evidence and therefore, the addition cannot be made merely on the basis of a statement of a third party. He has relied upon the judgement of Hon’ble Bombay High Court in the case of CIT Vs. Lavanya Land Private Limited [2017] 83 taxmann.com 161 /Hyd/2025 VPR Mining Infrastructure Pvt.Ltd.
(Bombay) and submitted that it is held that even on merits the AO failed to prove with evidence that the amount over and above what was recorded in the books has changed hands between the parties, i.e. the buyer and the seller. Thus, the Ld.AR has submitted that when there is no mention of the name of the assessee or any transaction with the assessee in the said loose sheets, then the same cannot be a basis of addition. The loose sheet contains the names of the persons from whom the alleged amount was received by Shri T.Uday Kumar and therefore, there is no mention of any transaction of property, which was sold by the assessee to Shri T.Uday Kumar. The loose sheet itself does not speak the nature of transaction and therefore, the same cannot be used against the assessee for making the addition on account of on-money received for sale of property. Thus, the AO cannot fasten the tax liability on the assessee on the basis of inadmissible paper. He has relied upon the impugned order of the Ld.CIT(A).
We have considered the rival submissions as well as the material on record. The AO has reproduced the alleged seized document in the assessment order as under :
T.Nagar Property Date Particulars Amount (Rs.) 18.09.13 Varsha 10,00,000 15.10.13 Orient Graft Trading 3,47,00,000 /Hyd/2025 VPR Mining Infrastructure Pvt.Ltd.
04.12.13 Varsha 40,00,000 11.12.13 Varsha 40,00,000 19.12.13 G.J.Exim Pvt. Ltd. 25,00,000 20.12.13 Varsha 40,00,000 26.12.13 G.J.Exim Pvt.Ltd. 15,00,000 27.12.13 Varsha 20,00,000 30.12.13 G.J.Exim Pvt.Ltd. 2,00,00,000 02.01.14 Varsha 40,00,000 07.01.14 Paramar Shelters Ifra Pvt.Ltd. 85,00,000 07.01.14 Varsha 40,00,000 10.01.14 Paramar Developers & 1,00,00,000 Properties Pvt.Ltd. 13.01.14 Varsha 40,00,000 18.01.14 Varsha 30,00,000 Total 10,72,00,000 7. Thus the details recorded in the loose sheet are only the names, date and amount, which does not reveal the nature of transaction as to whether these amounts were due, paid or received by or against these persons whose names are written in the said sheet. In the statement recorded u/s 132(4), Shri T.Uday Kumar has stated in reply to question No.9 that loose sheets pertain to T.Nagar property, which was mortgaged to M/s Sanklecha Infra Projects Pvt.Ltd. and a loan agreement was /Hyd/2025 VPR Mining Infrastructure Pvt.Ltd. executed by depositing the title of the deed and a General Power of Attorney in the name of Director Shri Bhawarlal Jain. He has explained the source of investment for purchase of the property at Rs.8 crores as corporate loan from M/s IIFL and the balance of Rs.11 crores was generated through contacts as given in the loose sheet. Thus, only in the statement u/s 132(4), nature of transactions as found in the loose sheet were explained, being the funds arranged by Shri T.Uday Kumar from these persons. The loose sheet itself does not contain any transaction relating to the assessee. Even the statement of Shri T.Uday Kumar does not establish any connection of the transactions recorded in the loose sheets with the assessee, except raising the funds from these persons for investment in the property. He has nowhere stated that the cash was paid to the assessee. There were so many transactions pertaining to the property in question as mortgaged to M/s Sanklecha Infra Projects Pvt.Ltd. Further, the transaction of sale of property by the assessee was not with M/s KLP Projects Pvt.Ltd. or M/s Landmark Housing Projects Chennai Private Limited, but, it was the transaction of sale to an individual. Therefore, the document found in the search and seizure operation of a party having no business connection or otherwise any transaction with the assessee cannot be related to the assessee. The document on standalone undisputedly does not reveal anything connecting to the assessee, except an indirect reference made by Shri T.Uday Kumar in his statement. Therefore, the addition made by the AO only on the basis of loose /Hyd/2025 VPR Mining Infrastructure Pvt.Ltd. sheet and statement of the third party, having no direct connection with the assessee regarding the transactions recorded in the loose sheet is not sustainable in the absence of corroborative evidence. Hon’ble Bombay High Court in the case of CIT Vs. Lavanya Land (P) Ltd. (supra) has held as under :
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Thus, it is held that the entire decision is based on the seized documents and no material has been referred, which would conclusively show that huge amount revealed from seized documents are transferred from one side to another. In the case on hand also, the AO has not brought any material on record to show that the alleged amount of Rs.11 crores has actually been paid to the assessee. Therefore, the addition is made by the AO only on the guess work and suspicion of on-money received by the assessee, but without any direct or indirect evidence to establish this fact.
We further note that even otherwise, the statement of a third party and loose paper, which is the basis of the addition made by the AO cannot be used against the assessee, without giving an opportunity of cross examination of a person, whose statement has been relied upon by the AO. Even otherwise, this seized document containing the list of persons having not relating to assessee cannot be held as incriminating document revealing undisclosed income of the assessee. We find that the Ld.CIT(A) has considered this issue and given his finding in para 6 to 6.2.16 as under :
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/Hyd/2025 VPR Mining Infrastructure Pvt.Ltd.
T.Nagar Property Date Particulars Amount (Rs.) 18.09.13 Varsha 10,00,000 15.10.13 Orient Graft Trading 3,47,00,000 04.12.13 Varsha 40,00,000 11.12.13 Varsha 40,00,000 19.12.13 G.J.Exim Pvt. Ltd. 25,00,000 20.12.13 Varsha 40,00,000 26.12.13 G.J.Exim Pvt.Ltd. 15,00,000 27.12.13 Varsha 20,00,000 30.12.13 G.J.Exim Pvt.Ltd. 2,00,00,000 02.01.14 Varsha 40,00,000 07.01.14 Paramar Shelters Ifra Pvt.Ltd. 85,00,000 07.01.14 Varsha 40,00,000 10.01.14 Paramar Developers & Properties Pvt.Ltd. 1,00,00,000 13.01.14 Varsha 40,00,000 18.01.14 Varsha 30,00,000 Total 10,72,00,000 /Hyd/2025 VPR Mining Infrastructure Pvt.Ltd.
/Hyd/2025 VPR Mining Infrastructure Pvt.Ltd. /Hyd/2025 VPR Mining Infrastructure Pvt.Ltd. /Hyd/2025 VPR Mining Infrastructure Pvt.Ltd. /Hyd/2025 VPR Mining Infrastructure Pvt.Ltd. /Hyd/2025 VPR Mining Infrastructure Pvt.Ltd.
T.Nagar Property Date Particulars Amount (Rs.) 18.09.13 Varsha 10,00,000 15.10.13 Orient Graft Trading 3,47,00,000 04.12.13 Varsha 40,00,000 11.12.13 Varsha 40,00,000 19.12.13 G.J.Exim Pvt. Ltd. 25,00,000 20.12.13 Varsha 40,00,000 26.12.13 G.J.Exim Pvt.Ltd. 15,00,000 27.12.13 Varsha 20,00,000 30.12.13 G.J.Exim Pvt.Ltd. 2,00,00,000 02.01.14 Varsha 40,00,000 07.01.14 Paramar Shelters Ifra Pvt.Ltd. 85,00,000 07.01.14 Varsha 40,00,000 10.01.14 Paramar Developers & Properties Pvt.Ltd. 1,00,00,000 13.01.14 Varsha 40,00,000 18.01.14 Varsha 30,00,000 Total 10,72,00,000 /Hyd/2025 VPR Mining Infrastructure Pvt.Ltd.
/Hyd/2025 VPR Mining Infrastructure Pvt.Ltd. /Hyd/2025 VPR Mining Infrastructure Pvt.Ltd. /Hyd/2025 VPR Mining Infrastructure Pvt.Ltd. /Hyd/2025 VPR Mining Infrastructure Pvt.Ltd.
The Ld.CIT(A) has analysed the facts and the seized material relied upon by the AO and also relied upon various judgements of Hon’ble High Courts. Thus, in view of the facts and circumstances as discussed above, we do not find any error or illegality in the impugned order of the Ld.CIT(A) and the same is upheld.
In the result, appeal filed by the Revenue is dismissed.
Order pronounced in the Open Court on 30th July, 2025.